<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7062
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: DECEMBER 31, 2004
<Page>
Item 1. Report to Shareholders (filed herewith).
<Page>
[GRAPHIC]
PACIFIC
ADVISORS
FUND INC
ANNUAL REPORT
DECEMBER 31, 2004
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
MULTI-CAP VALUE FUND
SMALL CAP FUND
<Page>
PACIFIC ADVISORS
TABLE OF CONTENTS
<Table>
MESSAGE FROM THE CHAIRMAN 1
GOVERNMENT SECURITIES FUND 3
INCOME AND EQUITY FUND 7
BALANCED FUND 11
GROWTH FUND 15
MULTI-CAP VALUE FUND 19
SMALL CAP FUND 23
SCHEDULE OF INVESTMENTS 28
STATEMENT OF ASSETS AND LIABILITIES 48
STATEMENT OF OPERATIONS 50
STATEMENT OF CHANGES IN NET ASSETS 52
NOTES TO FINANCIAL STATEMENTS 56
FINANCIAL HIGHLIGHTS 62
</Table>
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.
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.
<Page>
MESSAGE
FROM THE CHAIRMAN
Fellow Shareholders,
Continued U.S economic recovery set high expectations for a strong equity
market in 2004. For most of the year, however, equity performance remained
lackluster as geopolitical events and a heated U.S. Presidential election kept
investors on the sidelines. A rally late in the fourth quarter enabled the
equity markets to end the year on a positive note. Many individual companies
posted strong results for the year, while most major indices achieved only
single-digit increases.
The Federal Reserve raised short-term interest rates throughout 2004 in
response to good economic growth. These rate increases, however, had little
impact on long-term interest rates above ten years. This disconnect presented a
major challenge to fixed-income investors.
Both the equity and fixed-income markets remained in a trading range during
2004. In this trading range environment, good stock selection was the key to
achieving performance in the equity markets. For fixed-income investors, the
rising interest rate environment called for a defensive investment strategy
designed to protect principal.
2004 MARKET REVIEW
<Table>
<Caption>
DECEMBER 31, 2004 CLOSE YTD RETURN
- ----------------------------------------------------
Dow Jones 10,783.01 3.15%
S&P 500 1,211.92 8.99%
NASDAQ 2,175.44 8.59%
Russell 2000 651.57 17.00%
<Caption>
12/31/04 12/31/03
- ----------------------------------------------------
10-Year T-Bond Yield 4.22% 4.27%
</Table>
THE FOCUS ON GOOD STOCK SELECTION AT PACIFIC ADVISORS FUNDS MADE OUR
SMALL CAP AND GROWTH FUNDS TOP PERFORMERS IN 2004.
The PACIFIC ADVISORS SMALL CAP FUND (A) RANKED AS THE #1 SMALL CAP FUND out
of 1,490 funds based on a one-year return of 36.61% as of December 31, 2004
according to Morningstar. The Fund ranked 100 out of 1,081 funds based on its
five-year return; and 303 out of 487 based on its ten-year return. The
Morningstar small cap category includes all funds in the small cap growth,
value, and blend categories.
The PACIFIC ADVISORS GROWTH FUND (A) RANKED IN THE TOP 5% OF ALL LARGE CAP
GROWTH FUNDS as of December 31, 2004 according to Morningstar. The Fund ranked
58 out of 1,380 large cap growth funds based on a one-year return of 15.13%; and
452 out of 1,032 funds based on its five-year return.
Further information regarding the performance of all of our Funds is
provided in the interviews with our portfolio managers in this Annual Report.
ECONOMIC OUTLOOK
The economy grew a moderate 4.4% in 2004, up from 3% in 2003. From housing
to manufacturing, most segments of the economy delivered strong performances in
2004. Unemployment remained low by historical standards and productivity
continued to increase bolstering corporate profit margins.
Economic growth was fueled primarily by strong consumer spending. Consumer
confidence and spending remained resilient despite lingering concerns about job
growth and escalating oil prices. Capital spending by businesses increased and
should continue to rise with many companies holding large cash reserves to fund
future spending or make strategic acquisitions.
Inflation remained under control in 2004. Prices rose only a modest 2.2%
despite the high cost of energy. While we've seen emerging price pressures at
the wholesale level, inflation does not appear to be an imminent threat to
economic growth.
Economic expansion should continue in 2005 albeit at a slower, more
sustainable pace of 3.0% to 3.5%. We believe modest growth will prove more
beneficial to the U.S. economy in the long-run. A more moderate growth rate will
help control inflationary pressures and prolong economic expansion. Conversely,
a sharp rise in inflation would lead to more aggressive interest rate increases
by the Fed which could set the stage for a recession.
MARKET PERSPECTIVE
The market rally in late 2004 brought a strong finish to an otherwise
challenging year. While corporate earnings remained strong, external events
heightened volatility and stunted market performance. Concerns surrounding the
turnover of power in Iraq, the U.S. Presidential election, depreciation of the
U.S. dollar, and rising oil prices weighed on the market throughout the year.
1
<Page>
Small cap stocks continued to lead the market in 2004. Large cap growth
stocks also gained momentum and ended the year with a strong finish. Investment
returns for many large cap value stocks, however, remained relatively flat even
after the year-end rally. Large cap value stocks remain undervalued and continue
to display good growth potential setting the stage for better performance in
2005.
We expect market volatility will persist in 2005. While the economic and
earnings forecasts remain positive, the following factors will likely keep the
equity markets in a trading range:
- continued uncertainty in Iraq;
- the fluctuating value of the U.S. Dollar;
- the uncertain impact of rising interest rates;
- higher oil/energy prices; and
- expanding U.S. budget and trade deficits.
If the economy and corporate earnings grow as expected, market trading
ranges should shift higher over the course of the year. While broader equity
market performance may be positive for 2005, individual stocks will continue to
provide the best opportunities for growth.
The Fed raised short-term interest rates five times over the course of 2004
bringing the fed funds rate from 1% to 2 1/4%. Throughout the year, the Fed
remained bullish on the economy and said it would continue raising rates at a
"measured" pace to control inflation and prolong economic growth. Despite a
steady rise in short-term rates, long-term rates held steady creating a
challenging environment for fixed income investors.
A rise in short-term rates, coupled with long-term concerns about the value
of the dollar; the cost of the war in Iraq; and growing trade and budget
deficits, were expected to drive long-term rates higher in 2004. Despite these
concerns, U.S. fixed-income securities remained more attractive than alternative
foreign investments causing longer rates to remain relatively flat.
Consequently, fixed-income securities with attractive yields and reasonable
levels of risk were in short supply.
For the last several years, the Fed has kept interest rates at an unusually
low level to promote economic growth. We expect the Fed will continue raising
rates until the fed funds rate reaches a historical norm between 3 1/2% and 4%.
Continued action by the Fed should drive long-term rates higher in 2005. As a
result, the fixed income markets will likely remain volatile. Rising rates will
increase the market risk for long-term bonds limiting performance to
intermediate and shorter-term bonds. We believe that long-term interest rates
will eventually rise to 5 1/2% or 6%. Even with this increase, rates should
remain low enough to enable economic growth to continue and provide a good
investment environment.
LOOKING AHEAD
We anticipate that the equity and fixed income markets will remain trading
range bound in 2005. A trader's market can be frustrating. Investors are often
tempted to chase investment returns by shifting strategies or staying on the
sidelines. The key to long-term success is a disciplined and patient investment
strategy that can weather short-term market challenges. In 2005, we will
continue to implement adaptive and defensive strategies that seek to manage risk
while generating total return.
We thank you for the privilege of managing your investments.
Sincerely,
/s/ George A. Henning
George A. Henning
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower 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 were
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 take into account individual
taxes which may reduce actual returns when shares are sold. 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. Small
cap stocks typically have fewer financial resources and may carry higher risks
and experience greater volatility than large cap stocks. For information on
current performance call (800) 989-6693.
2
<Page>
PACIFIC ADVISORS
GOVERNMENT SECURITIES FUND
INVESTS PRIMARILY IN FIXED-INCOME SECURITIES GUARANTEED BY THE U.S. GOVERNMENT
OR ITS INSTRUMENTALITIES. THE FUND MAY ALSO INVEST IN OTHER INCOME PRODUCING
INSTRUMENTS, INCLUDING DIVIDEND-PAYING COMMON STOCKS, FOR INCOME AND CAPITAL
APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
FOR THE YEAR ENDED DECEMBER 31, 2004, THE FUND HAD A TOTAL RETURN OF 0.26% FOR
CLASS A SHARES, AND - 0.50% FOR CLASS C SHARES. THE FUND'S BENCHMARK, THE LEHMAN
INTERMEDIATE TREASURY BOND INDEX(1), RETURNED - 2.33% DURING THE SAME PERIOD.
Q WHAT WERE THE GREATEST CHALLENGES FOR BOND INVESTORS IN 2004?
A Overwhelming evidence supported the outlook for a rise in interest rates
during 2004. In late 2003, the Federal Reserve began raising short-term interest
rates and signaled its intention to continue raising rates in the coming year.
The expectation of higher short-term rates and continued economic growth
suggested a rise in long-term rates would follow.
It is impossible to time interest rate movements. Investors who bet on or
against such movements significantly increase their investment risk. Bonds, even
U.S. government bonds, are not risk-free investments. U.S. government securities
are backed by the full faith and credit of the U.S. government and therefore
carry almost no credit risk. They are, however, still susceptible to interest
rate risk. In a rising interest rate environment, longer-term bonds carry
greater investment risk. Long-term bond holders not only risk missing the
opportunity to acquire higher yielding investments, they also risk losing
principal.
While long-term rates did not rise as quickly as expected, the potential
for higher rates continued to increase throughout 2004. The greatest challenge
for conservative bond investors in 2004 was to protect principal and manage
increased risk and volatility in the bond market.
Q WHY DIDN'T LONG-TERM RATES RISE AS ANTICIPATED?
A While a number of factors put upward pressure on long-term rates, we did
not see an appreciable rise in long-term rates during 2004. These factors
included long-term economic concerns related to the threat of inflation, the
declining value of the dollar, and the rapidly expanding U.S. trade and budget
deficits. In addition, rising short-term rates suggested long-term rates would
need to rise to help longer-term bonds remain competitive with shorter-term
investments.
Throughout 2004, the U.S. government was able to finance its long-term debt
without paying higher interest rates. Foreign investors, most notably China and
Japan, reinvested profits from their trade surpluses in U.S. treasuries. In
addition, demand for longer-term bonds remained strong because U.S. government
bonds remained more attractive compared to alternative fixed-income investments.
Despite longer-term concerns, prospects for future U.S. economic growth remained
more favorable than for other major economies. Likewise, even at their lower
levels, U.S. interest rates remained higher than those offered by foreign
government bond investments. These factors, combined with the relative safety
and stability of U.S. government securities, prevented a sustained rise in
long-term rates during 2004.
Q HOW DID YOU EXECUTE THE FUND'S INVESTMENT STRATEGY LAST YEAR?
A The Government Securities Fund is designed to provide a stable investment
for the most conservative investor. Accordingly, the Fund's primary objective is
to protect principal. Capturing income and achieving capital appreciation must
be accomplished in a risk appropriate manner.
Elevated interest rate risk called for a more defensive strategy in 2004.
History shows increases in long-term rates generally take place quickly and with
little warning. This gives investors little time to make the necessary
adjustments to their portfolios. Investors incorrectly positioned for
- ----------
(1) The Lehman Intermediate Treasury Bond Index is an unmanaged index of
intermediate term government bonds since 12/31/80.
3
<Page>
a rise in rates often have a difficult time recovering from portfolio losses.
The Fund makes investment decisions based on the long-term outlook for interest
rates to manage these risks.
Given the high expectation for a rise in long-term rates, the Fund started
the year with most of its holdings in shorter-term government securities.
Recognizing that rates would not rise as quickly as anticipated, the Fund
adapted its strategy and rotated into more intermediate-term bonds to capture
additional yield. The Fund also invested a larger portion of its portfolio in
government agency securities which offered more attractive yields. This resulted
in additional income and capital appreciation for the Fund without substantially
increasing risk. This adaptive and defensive strategy enabled the Fund to
protect principal and provide a more stable investment in the midst of
heightened market volatility.
Q HOW DID YOU UTILIZE EQUITIES IN THE FUND'S PORTFOLIO?
A The Fund may invest up to 20% of its portfolio in equity securities. This
gives the Fund the opportunity to add to total return by capturing additional
income and capital appreciation potential. In line with the Fund's conservative
approach, these holdings are limited to high-quality common and preferred
stocks. In 2004, the Fund concentrated its equity holdings in preferred stocks
to take advantage of attractive yields. We also continued to maintain small
positions in high-quality common stocks with above average dividend growth.
Q WHAT CHANGES DO YOU ANTICIPATE IN THE BOND MARKET DURING 2005?
A We expect 2005 will produce the long anticipated rise in long-term rates.
The Fed will continue raising short-term rates to manage inflationary pressures
and help sustain economic growth. The spread between short and long-term rates
is unusually narrow. Long-term rates will likely be forced to rise to keep
longer-term investments competitive with shorter-term bonds. We would expect to
see intermediate -term rates, based on the 10-year Treasury bond, to rise
somewhere between 1% and 1 1/4% by year-end.
This outlook portends continued volatility and interest rate risk,
especially for longer-term bonds. In light of these risks, the Fund will
maintain a defensive strategy. We will remain in shorter to intermediate-term
government securities to manage risk. At the same time, the Fund will emphasize
government agency securities for added income.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
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 were
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 take into account individual
taxes which may reduce actual returns when shares are sold. 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. For
information on current performance call (800) 989-6693.
4
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 12/31/04 (Based on Total Investments)
<Table>
1. U.S GOVERNMENT AGENCIES 74.87%
2. U.S TREASURY BILLS 10.10%
3. PREFERRED STOCK 6.10%
4. CASH AND CASH EQUIVALENTS 5.43%
5. EQUITIES 3.50%
</Table>
CHANGE IN VALUE OF $10,000 INVESTMENT
This chart shows the growth of a $10,000 investment made in Class A shares of
Pacific Advisors Government Securities Fund from January 1, 1995 through
December 31, 2004 compared to the growth of the Lehman Intermediate Treasury
Bond Index(2).
[CHART]
<Table>
<Caption>
GOVERNMENT SECURITIES FUND LEHMAN INTERMEDIATE T-BOND INDEX
12/31/94 $ 9,548 $ 10,604
12/31/95 $ 11,606 $ 12,140
12/31/96 $ 11,241 $ 12,622
12/31/97 $ 12,558 $ 13,590
12/31/98 $ 14,796 $ 14,764
12/31/99 $ 14,065 $ 14,829
12/31/2000 $ 16,656 $ 16,339
12/31/2001 $ 16,574 $ 17,643
12/31/2002 $ 17,035 $ 19,282
12/31/2003 $ 16,660 $ 19,708
12/31/2004 $ 16,704 $ 20,167
</Table>
AVERAGE ANNUAL COMPOUNDED RETURN (CLASS A SHARES)
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
One Year -4.47%
Five Year 2.49%
Ten Year 5.23%
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
performance data quoted. Fund returns include the maximum 4.75% sales charge on
Class A shares. 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 take into account
individual taxes which may reduce actual returns when shares are sold. 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. For information on current performance call (800) 989-6693.
- ----------
(2) The Lehman Intermediate Treasury Bond Index is an unmanaged index of
intermediate term government bonds since 12/31/80.
5
<Page>
EXPENSE EXAMPLES
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution (12b-1) fees; and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2004 through December 31,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during the period.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 4.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within sixty days of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which in not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 4.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within sixty days of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
07/01/04 12/31/04 07/01/04 - 12/31/04(3)
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,014.40 $ 9.16
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 9.21
CLASS C SHARES
Actual $ 1,000 $ 1,010.60 $ 12.99
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 13.08
</Table>
- ----------
(3) Expenses are equal to the Fund's annualized expense ratio of 1.81% for
Class A shares and 2.57% for Class C shares, multiplied by the average account
value over the period, multiplied by 184/366 days to reflect the one-half year
period.
6
<Page>
PACIFIC ADVISORS
INCOME AND EQUITY FUND
INVESTS PRIMARILY IN INVESTMENT-GRADE FIXED-INCOME SECURITIES. THE FUND MAY ALSO
INVEST IN STOCKS FOR LONG-TERM CAPITAL APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGERS
THOMAS H. HANSON
STEPHEN K. BACHE, CFA
FOR THE YEAR ENDED DECEMBER 31, 2004, THE FUND HAD A TOTAL RETURN OF 3.51% FOR
CLASS A SHARES, AND 2.74% FOR CLASS C SHARES. THE FUND'S BENCHMARKS, THE LEHMAN
INTERMEDIATE CORPORATE BOND INDEX(1) AND THE S&P 500 INDEX(2), RETURNED 4.29%
AND 8.99%, RESPECTIVELY, DURING THE SAME PERIOD.
Q WHAT WAS THE TREND IN INTEREST RATES DURING 2004?
A 2004 resulted in an unexpected disconnect between short and long-term
interest rates. The Federal Reserve began raising short-term rates at the end of
2003. The Fed said it expected to continue raising rates at a "measured" pace to
control inflation and sustain economic growth. The prospect of rising short-term
rates and continued economic growth in 2004 set the expectation for a
corresponding rise in long-term rates.
As expected, the economy continued to expand in 2004 while the Fed
continued raising rates. Over the course of the year, the Fed raised the fed
funds rate from 1% to 2 1/4%. Contrary to expectations, however, we did not see
a similar rise in long-term rates. Long-term rates, based on the 10-year
Treasury bond, fluctuated within a trading range but ultimately ended the year
where they began.
Long-term rates move based on the level of risk investors must incur for
committing to a longer-term investment. When the long-term outlook is less
optimistic or less certain, rates rise to make longer-term investments more
desirable and to compensate investors for increased risk. While the economy
continued to expand last year, issues ranging from the growing budget deficit to
the value of the dollar raised concerns about the sustained strength of the
economy. Nevertheless, demand for long-term bonds remained strong particularly
among foreign investors. U.S. bonds continued to offer better yields and greater
safety compared to alternative investments. Issuers did not need to offer higher
yields to sustain demand.
Q WHAT WERE THE INVESTMENT RISKS IN THIS ENVIRONMENT?
A Many investors assume that all bonds are more conservative, lower risk
investments when compared to stocks. Bonds, like any other type of investment,
carry varying degrees of risk. Risk varies depending on a number of factors
including the financial strength of the issuer, the duration of the bond, and
the direction of interest rate movements.
Longer-term bonds carry more risk in a rising interest rate environment. As
rates rise, long-term bond holders miss the opportunity to purchase higher
yielding investments. Since bond prices decline as rates rise, these investors
will also see the principal value of their investment decline.
Interest rate movements are impossible to predict. Bond investors who bet
on the timing of interest rate movements take on increased investment risk. The
Income & Equity Fund is designed to meet an investment need for the conservative
investor. This calls for the Fund to take a more cautious investment approach
that actively manages risk. In 2004, the Fund based its investment strategy on a
long-term outlook that continued to point to an imminent rise in long-term
rates. The Fund's goal was to capture attractive yields without incurring
significant risk. Given the interest rate environment last year, higher
yielding, high-quality investments were scarce.
Q HOW DID THE FUND MANAGE FOR TOTAL RETURN IN 2004?
A The Fund's primary objective in any market is to protect principal and
preserve earning power. We seek to achieve total return through a combination of
income and capital appreciation. The Fund's equity component, which comprises up
to 25% of the portfolio, provides added diversification to help manage risk and
add to total return. The Fund's disciplined yet adaptive investment strategy
proved effective in 2004. The
- ----------
(1) The Lehman Intermediate Corporate Bond Index is an unmanaged index of
intermediate term U.S. corporate bonds since 01/01/73.
(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.
7
<Page>
Fund achieved a modest return while successfully managing the elevated risk and
volatility in the bond and equity markets.
Given the expectation for, and increasing likelihood of, a rise in interest
rates during 2004, we sought high-quality, shorter-term bonds. At the beginning
of the year, the Fund maintained an average maturity of 4-6 years. When it
became clear rates would not rise as quickly as anticipated, we extended this
maturity to 5-7 years. This allowed the Fund to take advantage of more
attractive yields without significantly increasing risk. During 2004, we also
invested a greater portion of the portfolio in preferred stocks which offered
higher yields than many corporate bonds.
To capitalize on strength in the equity market, the Fund held 15% to 24% of
its portfolio in high-quality common stocks. Equity investments focused on
larger cap companies with above average dividend growth. We also sought greater
representation in the stronger performing areas of the market. This included
energy and basic materials with holdings such as BRITISH PETROLEUM, BURLINGTON
RESOURCES, ALCOA, and PHELPS DODGE.
Q WHAT IS THE "YIELD CURVE" AND WHY IS IT AN IMPORTANT TOOL FOR MANAGING
BONDS?
A The "yield curve" is an illustration of the relationship between short and
long-term interest rates over a range of maturities. Short-term rates are
typically lower than long-term rates producing an upward sloping curve as the
time to maturity increases. The steeper the slope of the curve, the greater the
difference or "spread" between short and long-term rates. The shape of the curve
shows the risk/reward relationship for bonds at various maturities. The yield
curve helps bond investors identify the maturity at which potential risk
outweighs potential reward.
The Fund seeks to provide a more stable fixed income investment for the
conservative investor. Therefore, we look to manage to the "sweet spot" on the
yield curve where we can obtain the highest yield at the lowest possible
maturity. In 2004, the spread between short and long-term rates narrowed as
short-term rates rose while long-term rates held steady. This resulted in fewer
opportunities to acquire higher yielding bonds without incurring significantly
greater risk. The Fund managed to the "sweet spot" by focusing on bonds with
maturities of 4-7 years.
Q WHAT IS YOUR OUTLOOK FOR THE CORPORATE BOND AND EQUITY MARKETS?
A We expect a continuation of the trends we saw in 2004 for both the
corporate bond and equity markets. The economy appears poised for continued
growth and the Fed remains committed to raising the fed funds rate to a
historical norm between 3% and 3 1/2%. A continued increase in the fed funds
rate will lead to a rise in long-term rates to keep longer-term bonds
competitive with shorter-term investments. With the continued prospect of rising
rates, we expect the bond market will remain volatile.
Equities should continue to outperform bonds in 2005. We expect the equity
market will remain in a trading range characterized by greater volatility and
uneven growth. Nevertheless, individual stocks will continue to provide
attractive investment opportunities particularly in the energy, capital goods,
and basic materials sectors.
Given these conditions, the Fund will continue to employ the defensive
investment strategy used effectively in 2004. To manage risk, we will continue
to focus on short to intermediate-term bonds. We expect to maintain the Fund's
higher equity position as we seek to capitalize on opportunities for additional
income and capital appreciation.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
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 were
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 take into account individual
taxes which may reduce actual returns when shares are sold. 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. For
information on current performance call (800) 989-6693.
8
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 12/31/04 (Based on Total Investments)
<Table>
1. CORPORATE BONDS 59.96%
EQUITIES 23.58%
2. Financials 8.51%
3. Materials 3.42%
4. Industrials 2.90%
5. Health Care 2.30%
6. Other Equities 6.45%
7. PREFERRED STOCK 7.83%
8. CASH AND CASH EQUIVALENTS 4.79%
9. U.S. GOVERNMENT AGENCIES 3.84%
</Table>
CHANGE IN VALUE OF $10,000 INVESTMENT
This chart shows the growth of a $10,000 investment made in Class A shares of
Pacific Advisors Income and Equity Fund from January 1, 1995 through December
31, 2004 compared to the growth of the S&P 500 Index, Lehman Intermediate
Treasury Bond Index, and the Lehman Intermediate Corporate Bond Index(3).
The Lehman Intermediate Corporate Bond Index has been added as a benchmark for
the Fund because it is a more accurate measure of the bonds in which the Fund
seeks to invest. In future years, the Lehman Intermediate Corporate Bond Index
will replace the Lehman Intermediate Treasury Bond Index as a benchmark for the
Fund.
[CHART]
<Table>
<Caption>
LEHMAN INTERMEDIATE LEHMAN INTERMEDIATE
INCOME AND EQUITY FUND S&P 500 INDEX TREASURY BOND INDEX CORPORATE BOND INDEX
12/31/94 $ 9,740 $ 10,541 $ 10,604 $ 10,817
12/31/95 $ 10,921 $ 14,137 $ 12,140 $ 12,873
12/31/96 $ 11,116 $ 17,348 $ 12,622 $ 13,384
12/31/97 $ 12,184 $ 22,728 $ 13,590 $ 14,503
12/31/98 $ 13,659 $ 28,789 $ 14,764 $ 15,705
12/31/99 $ 13,685 $ 34,412 $ 14,829 $ 15,730
12/31/2000 $ 14,510 $ 30,922 $ 16,339 $ 17,188
12/31/2001 $ 14,892 $ 26,890 $ 17,643 $ 18,838
12/31/2002 $ 14,755 $ 20,606 $ 19,282 $ 20,692
12/31/2003 $ 15,733 $ 26,042 $ 19,708 $ 22,238
12/31/2004 $ 16,285 $ 28,383 $ 20,167 $ 23,192
</Table>
AVERAGE ANNUAL COMPOUNDED RETURN (CLASS A SHARES)
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
One Year -1.45%
Five Year 2.53%
Ten Year 4.76%
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
performance data quoted. Fund returns include the maximum 4.75% sales charge on
Class A shares. 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 take into account
individual taxes which may reduce actual returns when shares are sold. 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. For information on current performance call (800) 989-6693.
- ----------
(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. The Lehman Intermediate Treasury
Bond Index is an unmanaged index of intermediate term government bonds since
12/31/80. The Lehman Intermediate Corporate Bond Index is an unmanaged index of
intermediate term U.S. corporate bonds since 01/01/73.
9
<Page>
EXPENSE EXAMPLES
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution (12b-1) fees; and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2004 through December 31,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during the period.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 4.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within sixty days of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which in not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 4.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within sixty days of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
07/01/04 12/31/04 07/01/04 - 12/31/04(4)
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,031.70 $ 9.91
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 9.88
CLASS C SHARES
Actual $ 1,000 $ 1,026.70 $ 13.70
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 13.69
</Table>
- ----------
(4) Expenses are equal to the Fund's annualized expense ratio of 1.94% for
Class A shares and 2.69% for Class C shares, multiplied by the average account
value over the period, multiplied by 184/366 days to reflect the one-half year
period.
10
<Page>
PACIFIC ADVISORS
BALANCED FUND
INVESTS PRIMARILY IN LARGE AND MEDIUM CAP COMMON STOCKS WITH AT LEAST 25% OF THE
ASSETS INVESTED IN FIXED-INCOME SECURITIES.
INTERVIEW WITH PORTFOLIO MANAGER
STEPHEN K. BACHE, CFA
FOR THE YEAR ENDED DECEMBER 31, 2004, THE FUND RETURNED 5.50% FOR CLASS A
SHARES, AND 4.62% FOR CLASS C SHARES. DURING THE SAME PERIOD, THE FUND'S
BENCHMARKS, THE S&P 500 INDEX(1) AND THE LEHMAN INTERMEDIATE CORPORATE BOND
INDEX(2), RETURNED 8.99% AND 4.29%, RESPECTIVELY.
Q WHAT ROLE DID EQUITIES PLAY IN THE FUND'S PORTFOLIO DURING 2004?
A Coming off a spectacular year in 2003, equity market performance cooled in
2004. While the economy and corporate earnings continued to grow at a
respectable pace, other factors kept the market in a narrow trading range. The
market remained volatile and event driven in response to uncertainty in the U.S.
Presidential election, the threat of additional terrorist attacks, and the war
in Iraq. Concerns about the long-term economic impact of rising interest rates,
the growing U.S. budget and trade deficits, and the declining value of the
dollar put additional pressure on the market.
Managing risk and capitalizing on opportunities in this type of market
required patience and discipline. Investors had to separate real economic
fundamentals from market "noise." The Fund's investment decisions continued to
be guided by its long-term investment strategy not short-term events.
Even with these challenges, the equity market offered better investment
opportunities than the corporate bond market in 2004. The Fund continued to
maintain a greater percentage of its portfolio in equities to capitalize on this
strength. To manage risk and volatility, we sought investments in strong, stable
growing companies. In particular, we added to holdings in stronger performing
areas of the market such as energy and consumer cyclicals. Positions in these
areas included BRITISH PETROLEUM, DEVON ENERGY, GENERAL ELECTRIC, TYCO
INTERNATIONAL, and INTERPUBLIC GROUP. Market volatility also presented
opportunities for the Fund to acquire undervalued companies at attractive
prices, including MYLAN LABS and SANDISK.
Q HOW DID YOU MANAGE THE CHALLENGES IN THE CORPORATE BOND MARKET?
A The disconnect between short and long-term interest rates made the
corporate bond market particularly challenging last year. The Federal Reserve
began raising short-term interest rates at the end of 2003. The Fed continued
raising rates throughout 2004 bringing the fed funds rate from 1% to 2 1/4%.
A corresponding rise in long-term rates did not materialize as anticipated.
Despite longer-term concerns, the outlook for U.S. economic growth remained more
favorable than most of its foreign counterparts. Even at their low levels, U.S.
interest rates remained higher than those in many foreign markets. Demand for
U.S. government and corporate bonds remained strong producing little need for
creditors to raise rates. The uncertainty surrounding the pace and timing of
increases in short and long-term rates increased volatility in the bond market.
This environment made it more difficult to find high-quality bonds with
attractive yields.
While long-term rates did not rise as quickly as expected, the prospect for
rising rates remained intact. To minimize interest rate risk, the Fund reduced
its bond exposure and concentrated holdings in shorter-term fixed income
securities. We sought to capture higher yielding investment grade bonds whenever
possible. This was achieved by adding holdings in the stronger performing
utility and auto financing sectors. Undervalued companies with improving credit
ratings, such as NORTHWESTERN CORPORATION, also offered opportunities to capture
more attractive yields.
Q WILL THE CORPORATE BOND MARKET IMPROVE IN 2005?
A The Fed remains committed to continuing to raise short-term rates at a
"measured" pace. We expect it will look to raise the fed funds rate to a more
historical norm between 2 1/2% and 3 1/2%.
- ----------
(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 Lehman Intermediate Corporate Bond Index is an unmanaged index of
intermediate term U.S. corporate bonds since 01/01/73.
11
<Page>
Barring any major economic surprises, a continued rise in short-term rates will
force long-term rates to move higher. Given the prospect for rising rates, we
expect the bond market will remain volatile. In a rising rate environment,
longer-term bonds will continue to carry greater investment risk.
We anticipate maintaining the bond strategy we implemented in 2004.
Corporate bonds will continue to comprise a smaller portion of the Fund's
portfolio. The Fund will continue to concentrate its fixed-income holdings in
shorter-term investments. We will continue to seek attractive yields without
significantly increasing risk. As rates rise, the bond market should begin to
offer more opportunities to acquire higher yielding, high-quality bonds.
Q WHAT IS YOUR OUTLOOK FOR THE EQUITY MARKET?
A Equity market performance should remain favorable in 2005. We expect stocks
will advance against a backdrop of an expanding economy, good corporate earnings
growth, and respectable job growth. Investors, however, should not expect
spectacular returns or a dramatic improvement in market conditions any time
soon. Longer-term concerns in the form of growing trade and budget deficits, the
war in Iraq, and the fluctuating value of the dollar will restrain market
growth. Given these uncertainties, we expect the equity market will remain in a
trading range characterized by heightened volatility and uneven growth.
Individual stocks will lead market performance. Investment success will
depend upon identifying companies with solid revenue and earnings growth and
strong long-term growth prospects. The Fund will continue to invest a greater
percentage of its portfolio in high-quality equities. We will continue to
emphasize holdings in more cyclical sectors including industrials,
pharmaceuticals, entertainment, and especially energy.
We believe the equity market will continue to offer stronger performance
relative to the corporate bond market in 2005. We will continue to employ a
disciplined strategy that seeks to capitalize on equity market strength in a
risk appropriate manner.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
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 were
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 take into account individual
taxes which may reduce actual returns when shares are sold. 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. For
information on current performance call (800) 989-6693.
12
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 12/31/04 (Based on Total Investments)
<Table>
EQUITIES 58.75%
1. Industrials 9.54%
2. Health Care 9.50%
3. Telecommunications & Technology 8.93%
4. Financials 8.79%
5. Energy 7.14%
6. Consumer Discretionary 6.77%
7. Other Equities 8.08%
8. CORPORATE BONDS 34.44%
9. U.S. GOVERNMENT AGENCIES 5.53%
10. CASH AND CASH EQUIVALENTS 1.28%
</Table>
CHANGE IN VALUE OF $10,000 INVESTMENT
This chart shows the growth of a $10,000 investment made in Class A shares of
Pacific Advisors Balanced Fund from January 1, 1995 through December 31, 2004
compared to the growth of the S&P 500 Index, the Lehman Intermediate Treasury
Bond Index, and the Lehman Intermediate Corporate Bond Index(3).
The Lehman Intermediate Corporate Bond Index has been added as a benchmark for
the Fund because it is a more accurate measure of the bonds in which the Fund
seeks to invest. In future years, the Lehman Intermediate Corporate Bond Index
will replace the Lehman Intermediate Treasury Bond Index as a benchmark for the
Fund.
[CHART]
<Table>
<Caption>
LEHMAN INTERMEDIATE LEHMAN INTERMEDIATE
BALANCED FUND S&P 500 INDEX CORPORATE BOND INDEX TREASURY BOND INDEX
12/31/94 $ 9,196 $ 10,541 $ 10,604 $ 10,817
12/31/95 $ 9,997 $ 14,137 $ 12,140 $ 12,873
12/31/96 $ 11,588 $ 17,348 $ 12,622 $ 13,384
12/31/97 $ 13,355 $ 22,728 $ 13,590 $ 14,503
12/31/98 $ 14,391 $ 28,789 $ 14,764 $ 15,705
12/31/99 $ 16,206 $ 34,412 $ 14,829 $ 15,730
12/31/2000 $ 17,825 $ 30,922 $ 16,339 $ 17,188
12/31/2001 $ 16,978 $ 26,890 $ 17,643 $ 18,838
12/31/2002 $ 16,120 $ 20,606 $ 19,282 $ 20,692
12/31/2003 $ 19,124 $ 26,042 $ 19,708 $ 22,238
12/31/2004 $ 20,176 $ 28,383 $ 20,167 $ 23,192
</Table>
AVERAGE ANNUAL COMPOUNDED RETURN (CLASS A SHARES)
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
One Year -0.58%
Five Year 3.26%
Ten Year 7.55%
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
performance data quoted. Fund returns include the maximum 5.75% sales charge on
Class A shares. 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 take into account
individual taxes which may reduce actual returns when shares are sold. 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. For information on current performance call (800) 989-6693.
- ----------
(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. The Lehman Intermediate Treasury
Bond Index is an unmanaged index of intermediate term government bonds since
12/31/80. The Lehman Intermediate Corporate Bond Index is an unmanaged index of
intermediate term U.S. corporate bonds since 01/01/73.
13
<Page>
EXPENSE EXAMPLES
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution (12b-1) fees; and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2004 through December 31,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during the period.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which in not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
07/01/04 12/31/04 07/01/04 - 12/31/04(4)
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,062.30 $ 13.84
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 13.59
CLASS C SHARES
Actual $ 1,000 $ 1,057.80 $ 17.79
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 17.51
</Table>
- ----------
(4) Expenses are equal to the Fund's annualized expense ratio of 2.67% for
Class A shares and 3.44% for Class C shares, multiplied by the average account
value over the period, multiplied by 184/366 days to reflect the one-half year
period.
14
<Page>
PACIFIC ADVISORS
GROWTH FUND
INVESTS PRIMARILY IN COMPANIES THAT ARE A PART OF THE S&P 500 COMPOSITE INDEX(1)
OR THE NASDAQ 100 INDEX(2).
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
FOR THE YEAR ENDED DECEMBER 31, 2004, THE FUND RETURNED 15.13% FOR CLASS A
SHARES, AND 14.06% FOR CLASS C SHARES. THE FUND'S BENCHMARKS, THE S&P 500 AND
THE RUSSELL 10003, ROSE 8.99% AND 9.49%, RESPECTIVELY, DURING THE SAME PERIOD.
PACIFIC ADVISORS GROWTH FUND (A) RANKED IN THE TOP 5% OF ALL LARGE CAP GROWTH
FUNDS OUT OF 1,380 FUNDS BASED ON ITS ONE-YEAR RETURN OF 15.13% AS OF DECEMBER
31ST ACCORDING TO MORNINGSTAR. THE FUND RANKED 452 OUT OF 1,032 FUNDS BASED ON
ITS FIVE-YEAR RETURN.
Q WHAT CHALLENGES DID GROWTH INVESTORS FACE IN 2004?
A The equity market of 2004 can be best described as a "sideways" market.
While the major market indices ultimately achieved positive performance for the
year, growth was uneven. The market remained volatile throughout the year as
investors reacted quickly, and not always reasonably, to the latest political
and economic news.
Despite solid economic growth, investors remained concerned about uneven
reports on job growth, consumer confidence, and spending. Rising interest rates,
growing U.S. trade and budget deficits, and the declining value of the dollar
added to concerns about the long-term health of the economy. Political
uncertainty surrounding the U.S. Presidential election and the war in Iraq put
additional strain on the market.
Persistent uncertainty restrained growth momentum for the overall market as
well as individual sectors and stocks. Capitalizing on performance opportunities
in this volatile, slower growth environment required patience and fine-tuned
stock selection. Investors were challenged to identify individual opportunities
for growth while managing risk and minimizing portfolio volatility.
Q HOW DID THE FUND ACHIEVE STRONG PERFORMANCE AMID THESE CHALLENGES?
A Despite lackluster performance in the overall market, select individual
stocks provided opportunity for growth. By employing an adaptive and disciplined
investment strategy, the Fund not only achieved its investment objective, but
outperformed its benchmarks and ranked in the top 5% of its peer group.
The Fund seeks to achieve total return by investing in companies offering
growth at a reasonable price. Historically, the Fund's portfolio has been
concentrated in large cap stocks. The Fund began in 1999 at the height of a bull
market. During this period in the market, large cap stocks led market
performance and offered the most attractive opportunities for growth.
By 2004, changing market dynamics called for the Fund to take a more
multi-cap approach. Mid and small cap companies demonstrated greater growth
momentum than most large cap stocks. Staying within the Fund's investment
parameters, we added more mid and small cap companies to the portfolio such as
MARATHON OIL, APACHE, LOUISIANA PACIFIC, GEORGIA PACIFIC, MITCHAM INDUSTRIES,
and FREEPORT MCMORAN.
The challenge for all investors in a "sideways" market is to manage
volatility instead of reacting to it. The Fund remained patient and based its
investment decisions on its long-term strategy rather than short-term events.
The Fund held to its strategy to select and hold positions with long-term growth
potential in the strongest performing areas of the market. By maintaining these
positions in spite of fluctuations caused by shorter-term market retreats, the
Fund achieved its object to build long-term growth.
- ----------
(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) 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.
15
<Page>
Q HOW DID THE FUND POSITION ITS PORTFOLIO LAST YEAR?
A The investment strategy calls for the Fund to seek growth in the strongest
performing stocks and market sectors. In 2004, the Fund emphasized holdings in
the energy, basic materials, and capital goods sectors. Energy stocks led the
market bolstered by a long-term trend for increasing demand and rising prices.
The Fund invested in this sector with large, mid and small cap holdings such as
EXXONMOBIL, MARATHON OIL, and MITCHAM INDUSTRIES.
Companies providing basic materials and capital goods also had strong
performance. They benefited from burgeoning industrial demand in developing
countries such as China and India. Fund holdings included large cap capital
goods manufacturers GENERAL ELECTRIC, ITT INDUSTRIES, and TYCO INTERNATIONAL.
Holdings in the basic materials sectors included mid cap paper producers
LOUISIANA PACIFIC and GEORGIA PACIFIC, as well as small cap copper supplier
FREEPORT MCMORAN.
The Fund also added a number of positions from the health care sector
during 2004. As a result of government investigations and concerns about product
development, health care stocks lagged in performance last year. Despite these
short-term challenges, the health care industry offers strong long-term growth
potential. We believe this sector will be a market leader in 2005 and took
advantage of opportunities to acquire some of these high growth companies at
reasonable prices. Holdings in the health care sector ranged from large cap
names, such as JOHNSON & JOHNSON, to mid and small cap companies such as QUEST
DIAGNOSTICS, MCKESSON Corporation and AMERICA SERVICE GROUP.
For the most part, sector leadership remained consistent throughout the
year. As a result, we made relatively few changes to the Fund's portfolio. We
continued to concentrate the Fund's holdings in these areas throughout the year
making minor adjustments to individual positions as necessary.
Q WHAT WILL THE CHALLENGES AND OPPORTUNITIES BE IN THE EQUITY MARKET GOING
FORWARD?
A Economic data and historical precedence suggest the market will remain in a
"sideways" pattern for some time - possibly the next 3 to 5 years. We expect the
market will remain in a relatively narrow trading range repeating a pattern of
rallying, retreating, and rallying again to old or slightly new highs. An
extended trading range market is not unexpected in light of the spectacular
gains achieved in the recent bull market.
The stimulus provided by historically low interest rates, strong spending,
and increasing productivity should allow the economy to continue to grow at a
modest but steady pace. Nevertheless, continued concerns about the U.S. budget
and trade deficits; the valuation of the dollar; and geopolitical uncertainties
will prevent breakthrough performance in the overall market. We expect the
market will remain volatile as investors continue to respond to the latest news
by reacting first and evaluating later.
Long-term growth prospects for many individual companies, however, remain
strong. We expect select companies will continue to demonstrate growth momentum
and offer attractive investment opportunities. As in 2004, stock selection will
remain key to achieving long-term performance.
Investment success will continue to require that investors look beyond
short-term distractions and remain committed to a disciplined, long-term
investment strategy. We will continue to monitor short-term events for changes
in the long-term outlook for the market and the economy. We expect to continue
taking a multi-cap approach with an emphasis on holdings in the energy, basic
materials, capital goods and healthcare sectors. We will remain patient and
continue to employ disciplined investment management.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
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 were
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 take into account individual
taxes which may reduce actual returns when shares are sold. 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. For
information on current performance call (800) 989-6693.
16
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 12/31/04 (Based on Total Investments)
<Table>
EQUITIES 87.36%
1. HEALTH CARE 34.81%
2. Materials 12.43%
3. Energy 11.79%
4. Industrials 11.17%
5. Information Technology 7.36%
6. Consumer Discretionary 4.82%
7. Other Equities 4.98%
8. CASH AND CASH EQUIVALENTS 12.64%
</Table>
CHANGE IN VALUE OF $10,000 INVESTMENT
This chart shows the growth of a $10,000 investment made in Class A shares of
Pacific Advisors Growth Fund from May 1, 1999 through December 31, 2004 compared
to the growth of the S&P 500 Index, the Nasdaq 100 Index, and the Russell 1000
Index(5).
The Russell 1000 Index has been added as a benchmark for the Fund because it is
a more accurate measure of the stocks the Fund seeks to invest in than the
Nasdaq 100 Index which is heavily concentrated in the technology sector. In
future years, the Russell 1000 Index will replace the Nasdaq 100 Index as a
benchmark for the Fund.
[CHART]
<Table>
<Caption>
GROWTH FUND S&P 500 INDEX NASDAQ 100 INDEX RUSSELL 1000 INDEX
12/31/98 $ 9,425 $ 10,000 $ 10,000 $ 10,000
12/31/99 $ 11,875 $ 11,953 $ 20,109 $ 12,091
12/31/2000 $ 10,002 $ 10,741 $ 12,701 $ 11,149
12/31/2001 $ 7,163 $ 9,340 $ 8,554 $ 9,761
12/31/2002 $ 5,576 $ 7,158 $ 5,339 $ 7,648
12/31/2003 $ 7,265 $ 9,046 $ 7,962 $ 9,934
12/31/2004 $ 8,364 $ 9,859 $ 8,793 $ 10,876
</Table>
AVERAGE ANNUAL COMPOUNDED RETURN (CLASS A SHARES)
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
One Year 8.44%
Five Year -7.86%
Since Inception -4.40%
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
performance data quoted. Fund returns include the maximum 5.75% sales charge on
Class A shares. 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 take into account
individual taxes which may reduce actual returns when shares are sold. 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. For information on current performance call (800) 989-6693.
- ----------
(4) 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. 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. 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.
17
<Page>
EXPENSE EXAMPLES
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution (12b-1) fees; and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2004 through December 31,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during the period.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with three exceptions. The fee does not apply to redemptions made
under an automatic withdrawal program or periodic asset reallocation plan;
redemptions to pay for expenses related to terminal illness, extended hospital
or nursing home care, or other serious medical conditions; and redemptions of
shares acquired through dividend reinvestments; and (3) a $10 service fee on
each exchange after the first five exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which in not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with three exceptions. The fee does not apply to redemptions made
under an automatic withdrawal program or periodic asset reallocation plan;
redemptions to pay for expenses related to terminal illness, extended hospital
or nursing home care, or other serious medical conditions; and redemptions of
shares acquired through dividend reinvestments; and (3) a $10 service fee on
each exchange after the first five exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
07/01/04 12/31/04 07/01/04 - 12/31/04(5)
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,091.60 $ 14.88
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 14.41
CLASS C SHARES
Actual $ 1,000 $ 1,086.50 $ 18.57
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 18.02
</Table>
- ----------
(5) Expenses are equal to the Fund's annualized expense ratio of 2.83% for
Class A shares and 3.54% for Class C shares, multiplied by the average account
value over the period, multiplied by 184/366 days to reflect the one-half year
period.
18
<Page>
PACIFIC ADVISORS
MULTI-CAP VALUE FUND
INVESTS IN A DIVERSIFIED PORTFOLIO OF LARGE TO SMALL CAPITALIZATION COMPANIES
USING AN ACTIVELY MANAGED, VALUE-BASED INVESTMENT APPROACH.
INTERVIEW WITH PORTFOLIO MANAGER
SHELLY J. MEYERS
FOR THE YEAR ENDED DECEMBER 31, 2004, CLASS A SHARES RETURNED 5.84% AND CLASS C
SHARES RETURNED 5.02%. DURING THE SAME PERIOD, THE FUND'S BENCHMARK, THE S&P
500(1), RETURNED 8.99%.
Q WHAT CAN INVESTORS LEARN FROM THE EQUITY MARKET OF 2004?
A 2004 was a turbulent but positive year for the equity market. The market
spent the year in a "trading range" - repeating a pattern of rallying,
retreating, and rallying to new highs - as investors grappled with political and
economic uncertainties. The market was event-driven creating a volatile and
unpredictable investment environment throughout the year. The year ended on a
positive note with a "relief rally." Investors finally felt confident enough to
put more capital to work following the conclusion of the U.S. Presidential
election and reports of stronger job growth.
This market environment underscores the importance of maintaining a
disciplined, long-term investment strategy. Investors attempting to time the
market significantly increased their investment risk only to end up chasing
returns and missing out on valuable, long-term investment opportunities. By
maintaining a long-term outlook and holding to its investment parameters, the
Fund effectively managed risk and volatility while working to achieve long-term
growth.
2004 also reinforced the benefits of value investing. Despite slower and
uneven growth for the overall market, select individual stocks continued to
provide attractive investment opportunities. Given the uncertain environment,
the market gave greater recognition to and rewarded companies with strong
underlying value. In addition, market volatility provided excellent
opportunities for the Fund to add to existing positions and acquire new holdings
at attractive prices.
Q HOW DO YOU MAINTAIN A LONG-TERM INVESTMENT STRATEGY IN THE MIDST OF
SHORT-TERM CHALLENGES?
A The market will always present short-term distractions. When investors
allow these challenges to dictate their investment decisions, they jeopardize
their opportunity for long-term investment success. Following a disciplined
investment strategy allows investors to minimize the effects of market
fluctuations and capitalize on solid investment opportunities.
The Fund seeks to achieve long-term capital appreciation through investment
in undervalued companies. It may take as long as 3 to 5 years for an investment
to reach its full potential. In most cases, a stock does not appreciate in a
straight upward path. There will undoubtedly be periods of decline in a stock's
price due to market conditions or company specific events.
The Fund's investment decisions are guided by select criteria rather than
short-term events. We invest in undervalued companies that possess high
intrinsic value as demonstrated by a solid business plan and strong
fundamentals. In addition, we must recognize internal or external factors which
we believe will serve as catalysts for a company to gain greater market
recognition. We believe these criteria allow us to select sound value
investments positioned for long-term growth.
When a company encounters a short-term setback, we re-evaluate its
suitability based on our investment criteria. If a company's long-term prospects
remain intact, we can remain patient and confident that its value will be
rewarded when short-term challenges subside. In some cases, short-term setbacks
may present an opportunity to add to a position. If we believe the company's
long-term value is compromised by current challenges, we will sell the position.
- ----------
(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.
19
<Page>
Q WHAT CHANGES DID YOU MAKE TO THE FUND'S PORTFOLIO LAST YEAR?
A In 2004, we maintained positions in many of the Fund's long-term holdings
which continued to demonstrate strong underlying value. These positions included
CHEVRONTEXACO, GOLDMAN SACHS, TARGET, and SEROLOGICALS. Market conditions also
presented a number of opportunities to purchase new positions at attractive
prices.
For example, we added a position in JETBLUE AIRWAYS to the Fund's
portfolio. JETBLUE possesses strong fundamentals supported by a unique business
plan and a disciplined strategy for growth. Despite its strong fundamental
value, the stock price was beaten up in response to the short-term impact of the
heavy hurricane season and ongoing problems unique to other airlines. We
believed this presented an opportunity to acquire a position in a valuable
company at a discounted price.
GRAFTECH INTERNATIONAL was another new addition to the portfolio. GRAFTECH
supplies industrial products to a wide range of industries. Its diverse customer
base and representation in a number of high growth industries bode well for the
company's future growth. After reviewing its improving fundamentals and
long-term growth prospects, we concluded that the market was undervaluing this
company.
Where possible, the Fund sought to add to its holdings in the stronger
performing areas of the market. This included WILLIAMS COMPANIES, APACHE
CORPORATION, and MARATHON OIL in the energy sector; financial companies such as
WASHINGTON MUTUAL and CITIGROUP; and CALLAWAY GOLF and ACTIVISION in the
entertainment industry. The pharmaceutical sector also offered a number of
attractive investments. Pharmaceutical stocks were hurt last year by product
setbacks and government investigations. Yet, we believed many of these companies
were undervalued based on long-term growth and profit projections. We added to
our position in this field through holdings in SCHERING-PLOUGH, PFIZER, and
AMGEN.
As appropriate, we also trimmed or sold positions. Several holdings, such
as VIVENDI and QUALCOMM, were sold at a profit when we believed the companies
became fully valued. The Fund also profited from the sale of one of its
long-term holdings, SOLA International, following news of its acquisition by a
competitor. In a few cases, such as BRISTOL-MYERS SQUIBB and WATSON
PHARMACEUTICALS, we sold positions because the long-term fundamentals no longer
met our investment criteria.
Q WHAT FACTORS WILL HAVE THE GREATEST INFLUENCE ON SHORT AND LONG-TERM MARKET
PERFORMANCE?
A We expect the market will remain event-driven and trading range bound in
2005. In fact, the market will likely continue its "sideways" movement for the
next several years. It is not unusual for the market to endure a sustained
period of slower, uneven growth following a strong bull market. While we
anticipate positive performance for the major indices next year, select
individual stocks will continue to provide the best investment opportunities.
The forecast calls for a continuation of moderate economic and corporate
earnings growth. Uncertainties in a number of other areas, however, will likely
create a volatile market environment. In the near-term, the market will respond
to the potential or perceived impact of rising interest rates; higher oil
prices; and fluctuations in the value of the dollar. The market will also pay
close attention to longer-term influences such as the growing U.S. trade and
budget deficits and the war in Iraq.
The Fund will remain focused on achieving long-term growth through
investment in undervalued companies. We will continue to monitor short-term
developments and assess their long-term impact on the companies in the Fund's
portfolio. Market conditions should continue to offer opportunities to add to
existing holdings and acquire new positions at attractive prices.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance data quoted represent past performance. Current performance may be
higher or lower than the 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 were 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 take
into account individual taxes which may reduce actual returns when shares are
sold. 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. For information on current performance call (800)
989-6693.
20
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 12/31/04 (Based on Total Investments)
<Table>
EQUITIES 97.27%
1. Energy 17.75%
2. Health Care 17.40%
3. Financials 16.32%
4. Consumer Discretionary 15.64%
5. Information Technology 11.24%
6. Industrials 10.61%
7. Telecommunications Services 8.31%
8. CASH AND CASH EQUIVALENTS 2.73%
</Table>
CHANGE IN VALUE OF $10,000 INVESTMENT
This chart shows the growth of a $10,000 investment made in Class A shares of
Pacific Advisors Multi-Cap Value Fund from April 1, 2002 through December 31,
2004 compared to the growth of the S&P 500 Index(2).
[CHART]
<Table>
<Caption>
MULTI-CAP VALUE FUND S&P 500 INDEX
12/31/2001 $ 9,425 $ 10,000
12/31/2002 $ 7,493 $ 7,663
12/31/2003 $ 10,801 $ 9,684
12/31/2004 $ 11,432 $ 10,555
</Table>
AVERAGE ANNUAL COMPOUNDED RETURN (CLASS A SHARES)
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
One Year -0.25%
Since Inception 4.98%
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
performance data quoted. Fund returns include the maximum 5.75% sales charge on
Class A shares. 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 take into account
individual taxes which may reduce actual returns when shares are sold. 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. 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.
21
<Page>
EXPENSE EXAMPLES
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution (12b-1) fees; and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2004 through December 31,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during the period.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which in not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with four exceptions. The fee does not apply to redemptions made under
an automatic withdrawal program or periodic asset reallocation plan; redemptions
to pay for expenses related to terminal illness, extended hospital or nursing
home care, or other serious medical conditions; redemptions of shares acquired
through dividend reinvestments; and redemptions of shares purchased before July
1, 2004; and (3) a $10 service fee on each exchange after the first five
exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
07/01/04 12/31/04 07/01/04 - 12/31/04(3)
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,063.00 $ 13.64
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 13.39
CLASS C SHARES
Actual $ 1,000 $ 1,058.60 $ 17.59
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 17.31
</Table>
- ----------
(3) Expenses are equal to the Fund's annualized expense ratio of 2.63% for
Class A shares and 3.40% for Class C shares, multiplied by the average account
value over the period, multiplied by 184/366 days to reflect the one-half year
period.
22
<Page>
PACIFIC ADVISORS
SMALL CAP FUND
INVESTS PRIMARILY IN SMALL COMPANY STOCKS 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 YEAR ENDED DECEMBER 31, 2004, THE FUND RETURNED 36.60% FOR CLASS A
SHARES, AND 35.62% FOR CLASS C SHARES. THE FUND'S BENCHMARK, THE RUSSELL 2000
STOCK INDEX(1), RETURNED 17.00% FOR THE SAME PERIOD.
PACIFIC ADVISORS SMALL CAP FUND (A) RANKED AS THE #1 SMALL CAP FUND OUT OF 1,490
FUNDS BASED ON ITS ONE-YEAR RETURN OF 36.61% AS OF DECEMBER 31ST ACCORDING TO
MORNINGSTAR. THE FUND RANKED 100 OUT OF 1,081 FUNDS BASED ON ITS FIVE-YEAR
RETURN; AND 303 OUT OF 487 FUNDS BASED ON ITS TEN-YEAR RETURN. THE MORNINGSTAR
SMALL CAP CATEGORY INCLUDES ALL FUNDS IN THE SMALL CAP VALUE, GROWTH, AND BLEND
CATEGORIES.
Q HOW DID THE FUND ACHIEVE ITS SUPERIOR PERFORMANCE?
A The Fund's performance in 2004 was the product of careful stock selection
guided by a disciplined investment strategy. We use three key criteria to select
solid companies that we believe will add long-term value to the Fund. First, we
must see evidence of good growth potential for both the company and its
industry. Second, the company must possess a strategic plan and the financial
strength to achieve growth. Most importantly, the company must be led by a
management team capable of meeting the company's long-term objectives.
We seek to position the Fund for long-term growth by focusing on companies
that will perform well in the current economic environment. Over the last
several years, we focused on building a portfolio of companies that would
perform well in a slower growing economy. This long-term, disciplined approach -
not short-term bets or trading gimmicks - made the Fund the top performer in its
class during 2004.
Q WHAT CHANGES DID YOU MAKE TO THE PORTFOLIO LAST YEAR?
A We made few changes to the Fund's portfolio in 2004. Over the last several
years, we constructed the Fund's portfolio based on the long-term outlook for
slower economic growth. In 2004, we continued to focus on companies benefiting
from a slower economy or those that were less sensitive to economic conditions.
In particular, we focused on energy companies. Based on growing demand and
a long-term trend for higher prices, we expected strong performance from this
sector. Holdings in this sector included CHESAPEAKE ENERGY, MITCHAM INDUSTRIES,
and MISSION RESOURCES. We also emphasized representation in the transportation
sector through companies such as SCS TRANSPORTATION and RAILAMERICA.
Transportation companies tend to thrive in an expanding economy. In addition, we
believed they would benefit from new industry regulations which limited
competition and increased pricing power.
We also sought companies whose products and services are typically in high
demand regardless of the economic environment. These investments included
ELKCORP which manufactures replacement roofing shingles; AMERICA SERVICE GROUP
which provides healthcare services to correctional facilities; and EZCORP which
operates a chain of pawn shops. Many of the Fund's holdings are leaders in their
respective industries including INTERVOICE, a leader in voice recognition
technology, and AVIALL, a major parts distributor for military, commercial, and
private aircraft. This distinction gives these companies competitive advantages
such as greater leverage and financial resources to grow their businesses. As a
result, these companies also tend to be more resistant to economic pressures.
In 2004, we took advantage of market retreats to add to many of our
existing positions at lower prices. Our strategy also led us to acquire a few
select new holdings such as DARLING INTERNATIONAL, CONNS, and DAVE & BUSTER'S.
When warranted by increased valuations, we also took profits and trimmed several
positions to maintain a balanced and diversified portfolio.
- ----------
(1) 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.
23
<Page>
Q HOW CAN THE FUND BUILD ON ITS SUCCESS IN 2005?
A The Fund's success is based on a long-term investment strategy. We select
companies that offer attractive opportunities for long-term growth. Even with
their strong performance over the last several years, the companies in the
Fund's portfolio project continued growth. We believe market conditions will
provide the Fund with ample opportunities to acquire additional long-term
holdings.
Our detailed research and thorough knowledge of each company in the Fund's
portfolio gives us the foundation to make strategic investment decisions. At
certain times, a stock may suffer setbacks as a result of short-term market
conditions or company specific events. We evaluate these events based on their
long-term impact to the company's business. If the company continues to meet our
investment criteria, we can confidently maintain the Fund's position. In some
cases, we may even take the opportunity to add to the Fund's holdings. We will
continue to make investment decisions based on a disciplined strategy that
enables the Fund to achieve long-term growth.
Q WHAT UNIQUE OPPORTUNITIES DO SMALL CAP STOCKS OFFER?
A Well managed, smaller companies tend to be more nimble making it easier for
them to adapt to changes within their industry or the economy. In addition,
small cap companies are often leaders in niche industries which offer attractive
growth opportunities. Smaller companies, however, have less capital which means
mistakes can be much more costly. Consequently, management plays a key role in
the growth and success of a smaller company.
Small cap investing requires more personal research than investing in other
market segments. It is important to understand the unique characteristics of
each company as well as its industry. Qualities which make one company
successful may be a liability to another. It is also critically important to
know a company's management and be able to trust in their ability to overcome
challenges and achieve long-term growth. Thorough research and a disciplined
approach enable the Fund to take advantage of valuable investment opportunities
in this area of the market while managing risk.
Q WHAT IS THE OUTLOOK FOR SMALL CAP STOCKS IN 2005?
A The long-term outlook continues to call for slower but steady economic
growth. Increased capital spending by businesses, modest job growth, improving
productivity, and relatively low interest rates should continue to support the
economy in 2005. The market, however, will also focus on a number of factors
which could impact future growth. These include the war in Iraq, the value of
the dollar, and growing U.S. trade and budget deficits.
We expect the market will remain in a trading range for the foreseeable
future. The market will likely remain volatile as investors continue to react to
the latest economic news. We anticipate overall market performance will remain
lackluster but individual companies will continue to provide excellent
opportunities for growth.
While we are attentive to the outlook for the market, we focus on the
long-term prospects for the companies in the Fund's portfolio. These companies
continue to possess good fundamentals and demonstrate excellent prospects for
strong earnings and revenue growth. Market conditions should provide
opportunities for the Fund to add to these positions and acquire new long-term
investments.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
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 were
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 take into account individual
taxes which may reduce actual returns when shares are sold. 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. Small
cap stocks typically have fewer financial resources and may carry higher risks
and experience greater volatility than large cap stocks. For information on
current performance call (800) 989-6693.
24
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 12/31/04 (Based on Total Investments)
<Table>
EQUITIES 100%
1. Industrials 33.68%
2. Consumer Discretionary 17.64%
3. Energy 13.58%
4. Information Technology 11.01%
5. Financials 10.68%
6. Health Care 7.14%
7. Other Equities 6.27%
</Table>
CHANGE IN VALUE OF $10,000 INVESTMENT
This chart shows the growth of a $10,000 investment made in Class A shares of
Pacific Advisors Small Cap Fund from January 1, 1995 through December 31, 2004
compared to the growth of the Russell 2000 Index(2).
[CHART]
<Table>
<Caption>
SMALL CAP FUND RUSSELL 2000 INDEX
12/31/94 $ 11,875 $ 11,328
12/31/95 $ 12,771 $ 14,297
12/31/96 $ 18,352 $ 16,407
12/31/97 $ 19,628 $ 19,774
12/31/98 $ 16,379 $ 19,092
12/31/99 $ 13,800 $ 22,837
12/31/2000 $ 15,570 $ 21,878
12/31/2001 $ 18,720 $ 22,103
12/31/2002 $ 12,692 $ 17,334
12/31/2003 $ 23,253 $ 25,198
12/31/2004 $ 31,764 $ 29,481
</Table>
AVERAGE ANNUAL COMPOUNDED RETURN (CLASS A SHARES)
FOR THE YEAR ENDED DECEMBER 31, 2004
<Table>
One Year 28.72%
Five Year 16.76%
Ten Year 10.65%
</Table>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. Performance data quoted
represent past performance. Current performance may be higher or lower than the
performance data quoted. Fund returns include the maximum 5.75% sales charge on
Class A shares. 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 take into account
individual taxes which may reduce actual returns when shares are sold. 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. Small cap stocks typically have fewer financial resources and may carry
higher risks and experience greater volatility than large cap stocks. For
information on current performance call (800) 989-6693.
- ----------
(2) The Russell 2000 Stock Index is an unmanaged, market-weighted measure of
stock market performance. It contains stocks of the 2,000 smallest publicly
traded companies of the Russell 3000 Index. The Russell 2000 Stock Index does
not take capital gains into consideration, and, unlike the Fund, does not
reflect the effects of management fees or expenses.
25
<Page>
EXPENSE EXAMPLES
As a shareholder of the Fund you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments, reinvested
dividends, or other distributions; redemption fees; and exchange fees; and (2)
ongoing costs, including management fees; distribution (12b-1) fees; and other
Fund expenses. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with the
ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period from July 1, 2004 through December 31,
2004.
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During the Period"
to estimate the expenses you paid on your account during the period.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with three exceptions. The fee does not apply to redemptions made
under an automatic withdrawal program or periodic asset reallocation plan;
redemptions to pay for expenses related to terminal illness, extended hospital
or nursing home care, or other serious medical conditions; and redemptions of
shares acquired through dividend reinvestments; and (3) a $10 service fee on
each exchange after the first five exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which in not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
The following transaction costs are not included in the expenses shown in the
table and, if applicable, would increase the expenses that you paid over the
period: (1) a front-end sales charge (load) of 5.75% on Class A shares; (2) a 2%
redemption fee if you sell or exchange shares of the Fund within six months of
purchase, with three exceptions. The fee does not apply to redemptions made
under an automatic withdrawal program or periodic asset reallocation plan;
redemptions to pay for expenses related to terminal illness, extended hospital
or nursing home care, or other serious medical conditions; and redemptions of
shares acquired through dividend reinvestments; and (3) a $10 service fee on
each exchange after the first five exchanges in each calendar year.
The following ongoing costs are not included in the expenses shown in the table
and, if applicable, would increase the expenses that you paid over the period:
(1) a $12 low balance fee on accounts with balances of less than $250 as of
September 30th of each calendar year and no investment activity (excluding
reinvestment of dividends and/or capital gains) during the prior calendar year
or the first nine months of the current calendar year. This fee does not apply
to IRAs, qualified plan accounts, or Coverdell Education Savings Accounts; (2) a
$15 annual custodial fee on IRAs, SEPs, SIMPLE IRAs, and Coverdell Education
Savings Accounts; and (3) a $20 annual custodial fee on 403(b) accounts.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs, such as sales
charges (loads), redemption fees, or exchange fees. Therefore, the second line
of the table is useful in comparing ongoing costs only, and will not help you
determine the relative total costs of owning different funds. In addition, if
these transactional costs were included, your costs would have been higher.
<Table>
<Caption>
BEGINNING ENDING EXPENSES PAID
ACCOUNT VALUE ACCOUNT VALUE DURING PERIOD
07/01/04 12/31/04 07/01/04 - 12/31/04(3)
- ---------------------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,150.30 $ 17.95
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 16.90
CLASS C SHARES
Actual $ 1,000 $ 1,145.60 $ 22.11
Hypothetical (5% return before expenses) $ 1,000 $ 1,025.14 $ 20.87
</Table>
- ----------
(3) Expenses are equal to the Fund's annualized expense ratio of 3.32% for
Class A shares and 4.10% for Class C shares, multiplied by the average account
value over the period, multiplied by 184/366 days to reflect the one-half year
period.
26
<Page>
[GRAPHIC]
PACIFIC ADVISORS FUND INC.
FINANCIAL STATEMENTS
27
<Page>
PACIFIC ADVISORS GOVERNMENT SECURITIES FUND
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 84.86%
US Treasury Bills
US Treasury Bill 01/06/05 $ 1,000,000 $ 999,882
------------
US Government Agencies
Federal Farm Credit Bank 4.40% 12/10/09 25,000 25,003
Federal Home Loan Bank 3.00% 09/16/09 100,000 100,018
Federal Home Loan Bank 3.51% 11/07/07 350,000 349,420
Federal Home Loan Bank 4.00% 03/17/14 100,000 99,060
Federal Home Loan Bank 4.10% 12/30/08 25,000 24,896
Federal Home Loan Bank 4.30% 05/05/09 70,000 70,003
Federal Home Loan Bank 4.55% 06/30/08 50,000 50,431
Federal Home Loan Bank 4.55% 05/26/09 37,500 37,502
Federal Home Loan Bank 4.75% 05/26/09 40,000 40,311
Federal Home Loan Bank 5.00% 12/03/12 100,000 100,468
Federal Home Loan Bank 5.09% 10/22/12 180,000 180,010
Federal Home Loan Bank 5.35% 12/24/12 536,364 536,399
Federal Home Loan Mortgage Corporation 4.50% 11/12/09 100,000 100,506
Federal Home Loan Mortgage Corporation 4.85% 12/01/09 500,000 504,034
Federal Home Loan Mortgage Corporation 4.85% 09/23/11 250,000 251,844
Federal Home Loan Mortgage Corporation 5.00% 12/23/11 500,000 505,496
Federal Home Loan Mortgage Corporation 5.00% 12/29/11 250,000 251,568
Federal Home Loan Mortgage Corporation 5.00% 04/22/13 500,000 501,464
Federal Home Loan Mortgage Corporation 5.125% 02/20/13 100,000 100,267
Federal Home Loan Mortgage Corporation 5.125% 03/10/14 200,000 200,472
Federal Home Loan Mortgage Corporation 5.25% 07/30/13 170,000 170,227
Federal Home Loan Mortgage Corporation 5.25% 12/01/14 200,000 201,645
Federal Home Loan Mortgage Corporation 5.375% 12/15/14 200,000 201,311
Federal Home Loan Mortgage Corporation 5.45% 08/09/13 100,000 101,260
Federal National Mortgage Association 2.50% 01/24/08 100,000 99,988
Federal National Mortgage Association 4.00% 05/20/08 500,000 500,858
Federal National Mortgage Association 4.00% 02/25/09 500,000 500,449
Federal National Mortgage Association 4.00% 08/23/12 48,000 48,167
Federal National Mortgage Association 4.52% 03/03/10 770,000 771,562
Federal National Mortgage Association 5.00% 04/15/13 500,000 501,809
Federal National Mortgage Association 5.00% 12/22/14 250,000 248,843
Federal National Mortgage Association 5.25% 01/28/13 35,000 35,051
------------
7,410,342
TOTAL US GOVERNMENT SECURITIES
(Cost: $8,387,239) 8,410,224
============
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
28
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- -------------------------------------------------------------------------------------------------
COMMON STOCK - 3.50%
Energy
PPL Corporation 4,000 $ 213,120
Software & Computer Processing Equipment
Microsoft 5,000 133,550
------------
TOTAL COMMON STOCK
(Cost: $308,940) 346,670
============
PREFERRED STOCK - 6.09%
Banks - Regional
First Bancorp Puerto Rico Preferred C 7.40% 15,000 394,200
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 13,102 209,632
------------
TOTAL PREFERRED STOCK
(Cost: $607,447) 603,832
============
TOTAL INVESTMENT SECURITIES - 94.45%
(Cost: $9,303,626) $ 9,360,726
============
SHORT-TERM INVESTMENTS - 5.42%
United Missouri Bank Money Market Fiduciary Account 537,609
OTHER ASSETS LESS LIABILITIES - 0.13% 12,925
============
TOTAL NET ASSETS - 100% $ 9,911,260
=================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
29
<Page>
PACIFIC ADVISORS INCOME AND EQUITY FUND
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------------------------
CORPORATE BONDS - 59.17%
Beverages
Anheuser Busch 7.125% 07/01/17 $ 165,000 $ 181,146
Anheuser Busch 7.25% 09/15/15 188,000 198,934
------------
380,080
Cosmetic/Personal Care
Scott Paper Company 10.00% 03/15/05 60,000 60,779
Chemicals
Dow Chemical 5.60% 11/15/09 25,000 25,683
Financial Services - Diversified
General Electric Capital Floating Rate Note 01/01/49 75,000 74,311
General Electric Capital 8.65% 05/15/09 40,000 46,807
General Electric Capital 8.875% 05/15/09 50,000 59,278
------------
180,396
Food
Gerber Products 9.00% 10/15/06 323,000 350,312
Food Retailers
Safeway, Inc. 9.875% 03/15/07 370,000 413,332
Gas
Piedmont Natural Gas Company 7.80% 09/29/10 250,000 294,684
Heavy Machinery
Deere & Company 8.95% 06/15/19 231,000 272,407
Insurance - Full Line
American General Financial 5.875% 12/15/05 100,000 102,468
Transamerica Corporation 9.375% 03/01/08 85,000 98,377
------------
200,845
Lodging
Marriott Corporation 9.375% 06/15/07 160,000 175,541
Media
Liberty Media Corporation 7.75% 07/15/09 519,000 575,806
Oil - Integrated Majors
Texaco Capital 8.625% 06/30/10 170,000 206,980
Oil - Secondary
Occidental Petroleum 10.125% 09/15/09 275,000 339,451
Retailers - Broadline
Dayton Hudson 8.60% 01/15/02 435,000 541,927
Wal-Mart Stores 8.00% 09/15/06 50,000 53,746
------------
595,672
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Telephone Systems
Bellsouth Capital Funding Corporation 6.04% 11/15/26 $ 85,000 $ 89,192
Bellsouth Telecommunications 6.30% 12/15/15 459,917 499,902
SBC Communications 6.59% 09/29/08 35,000 37,732
SBC Communications 7.35% 05/24/10 275,000 312,899
SBC Communications 7.39% 05/24/10 155,000 174,445
Wisconsin Bell 6.35% 12/01/26 50,000 52,656
---------------
1,166,826
Transportation
Norfolk Southern Corporation 7.40% 09/15/06 135,000 143,777
Utilities - Electric
Commonwealth Edison 8.00% 05/15/08 255,000 289,192
Northwestern Corporation 7.10% 08/01/05 125,000 127,270
Pennsylvania Power & Light 6.55% 03/01/06 75,000 77,629
Potomac Electric Power 5.875% 10/15/08 94,000 99,619
Potomac Electric Power 6.50% 09/15/05 115,000 117,801
Public Service Electric & Gas 6.25% 01/01/07 128,000 134,469
Public Service Electric & Gas 6.75% 03/01/06 375,000 390,072
Public Service Oklahoma 6.50% 06/01/05 95,000 96,331
---------------
1,332,383
TOTAL CORPORATE BONDS
(Cost: $6,724,038) 6,714,955
===============
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK - 23.26%
Aluminum
Alcoa, Inc. 1,000 31,420
Automobile Parts
Genuine Parts Company 2,000 88,120
Banks - Money Center
Bank of America 2,000 93,980
Wachovia Corporation 2,000 105,200
---------------
199,180
Banks - Regional
Washington Mutual 2,000 84,560
Wilmington Trust Company 1,000 36,150
---------------
120,710
Chemicals
Du Pont 1,000 49,050
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Chemicals - Specialty
International Flavors and Fragrances 2,000 $ 85,680
Diversified Companies
General Electric 5,000 182,500
Electric
Dominion Resources 1,000 67,740
Duke Energy Corporation 1,000 25,330
---------------
93,070
Gas - Integrated Majors
Burlington Resources 1,000 43,500
Industrial Diversified
Honeywell International, Inc. 2,000 70,820
Tyco International Ltd. 2,000 71,480
---------------
142,300
Insurance - Property
American International Group, Inc. 1,000 65,670
Chubb Corporation 500 38,450
---------------
104,120
Medical Equipment, Devices & Supplies
Johnson & Johnson 3,000 190,260
Mining - Diversified
Anglogold Ltd. 1,000 36,350
Freeport McMoran 1,000 38,230
---------------
74,580
Non-Ferrous Metals
Phelps Dodge Corporation 1,000 98,920
Oil - Integrated Majors
British Petroleum 1,000 58,400
Marathon Oil Corporation 1,000 37,610
---------------
96,010
Paper Products
International Paper 1,000 42,000
Pharmaceuticals
Pfizer, Inc. 2,500 67,225
Pipelines
El Paso Energy Corporation 1,000 10,400
Real Estate Investment Trusts
Hospitality Properties 11,500 529,000
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Retailers - Specialty
Home Depot 1,000 $ 42,740
Software & Computer Processing Equipment
Microsoft 5,000 133,550
Telephone Systems
Citizens Communications 10,000 137,900
SBC Communications 1,000 25,770
---------------
163,670
Utilities
Public Service Electric & Gas 1,000 51,770
TOTAL COMMON STOCK
(Cost: $2,454,914) 2,639,775
===============
PREFERRED STOCK - 7.73%
Banks - Regional
First Bancorp Puerto Rico Preferred C 7.40% 10,000 262,800
Financial Services
GMAC Preferred A 7.375% 10,000 251,100
Insurance - Full Line
ING Capital Funding Trust II 2,500 64,300
Insurance - Life
Phoenix Companies, Inc. 7.45% 01/15/32 3,500 89,460
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 6.82% 3,700 59,200
Price Legacy Corporation Preferred A 8.75% 9,358 149,728
---------------
208,928
TOTAL PREFERRED STOCK
(Cost: $874,704) 876,588
===============
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
US GOVERNMENT SECURITIES - 3.79%
US Government Agencies
Federal Home Loan Bank 5.05% 02/14/13 $ 230,000 230,508
Federal Home Loan Mortgage Corporation 3.25% 09/21/09 100,000 100,003
Federal Home Loan Mortgage Corporation 4.125% 09/01/09 100,000 99,712
---------------
430,223
TOTAL US GOVERNMENT SECURITIES
(Cost: $430,044) 430,223
===============
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
VALUE
- ---------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT SECURITIES - 93.95%
(Cost: $10,483,700) $ 10,661,541
===============
SHORT-TERM INVESTMENTS - 4.72%
United Missouri Bank Money Market Fiduciary Account 536,101
OTHER ASSETS LESS LIABILITIES - 1.33% 151,283
===============
TOTAL NET ASSETS - 100% $ 11,348,925
===============================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
34
<Page>
PACIFIC ADVISORS BALANCED FUND
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK - 58.85%
Advertising
Interpublic Group* 40,000 $ 536,000
Aerospace & Defense
Boeing Company 7,500 388,275
Banks - Money Center
Banco Latinamericano De Exportaciones 35,000 697,900
Banks - Regional
Washington Mutual 7,500 317,100
Chemicals - Specialty
Cabot Micro Electronics, Inc.* 10,000 400,500
Cambrex Corporation 16,000 433,600
---------------
834,100
Commercial Services
Automatic Data Processing 6,000 266,100
Communications
Lucent Technologies* 60,000 225,600
Nokia Corporation ADR 30,000 470,100
---------------
695,700
Computers & Related Equipment
Sandisk Corporation* 15,000 374,550
Diversified Companies
General Electric 15,000 547,500
SPX Corporation 10,000 400,600
Tyco International Ltd. 15,000 536,100
---------------
1,484,200
Energy
Suncor Energy, Inc. 15,000 531,000
Entertainment
AT&T - Liberty Media Group Class A* 30,000 329,400
Disney 10,000 278,000
Liberty Media International, Inc.* 7,200 332,856
Viacom, Inc. 7,500 272,925
---------------
1,213,181
Financial Services
H&R Block 8,000 392,000
Financial Services - Specialty
Federal Home Loan Mortgage Association 6,000 442,200
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Food
Cadbury Schweppes 9,000 $ 339,300
Industrial
Graftech International* 20,500 193,930
Cubic Corporation 12,000 302,040
---------------
495,970
Insurance - Full Line
Berkshire Hathaway, Inc. - Class A* 5 439,500
Marsh & McLennan 6,000 197,400
---------------
636,900
Insurance - Life
MetLife, Inc. 7,500 303,825
Insurance - Property
Chubb Corporation 4,000 307,600
Oil - Drilling
Devon Energy Corporation 15,000 583,800
Oil - Integrated Majors
British Petroleum 10,000 584,000
Oilfield Equipment Services
Cooper Cameron* 6,000 322,860
Media
Time Warner* 18,000 349,920
Medical Equipment, Devices & Supplies
Inverness Medical Innovations, Inc.* 20,000 502,000
Johnson & Johnson 5,000 317,100
Perkin Elmer 12,000 269,880
---------------
1,088,980
Metal Processing
Reliance Steel 8,000 311,680
Mining - Diversified
Rio Tinto PLC 4,000 476,840
Pharmaceuticals
Bristol-Myers Squibb Company 15,000 384,300
Mylan Labs 15,000 265,200
Pfizer, Inc. 15,000 403,350
Par Pharmaceuticals* 10,000 413,800
Wyeth 8,000 340,720
---------------
1,807,370
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Pipelines
Williams Companies, Inc. 30,000 $ 488,700
Publishing
Moody's Corporation 5,000 434,250
R H Donnelley Corporation* 5,000 295,250
---------------
729,500
Real Estate Investment Trusts
Catellus Development Corporation 13,946 426,748
Rayonier, Inc. 10,683 522,505
---------------
949,253
Retailers - Specialty
Hot Topic, Inc.* 10,000 171,900
Michaels Stores, Inc. 10,000 299,700
---------------
471,600
Software & Computer Processing Equipment
Microsoft 15,000 400,650
Reynolds & Reynolds 10,000 265,100
---------------
665,750
Transportation
GATX CORPORATION 15,000 443,400
Utilities - Electric
Allete, Inc. 10,000 367,500
Duke Energy Corporation 17,500 443,275
First Energy Corporation 9,000 355,590
---------------
1,166,365
TOTAL COMMON STOCK
(Cost: $14,664,488) 20,695,919
===============
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
CORPORATE BONDS - 34.35%
Aluminum
Reynolds Metals 9.20% 04/24/06 $ 200,000 214,423
Banks - Money Center
Bank of America Corporation 6.00% 03/15/06 55,000 56,534
Beverages
Anheuser Busch 7.25% 09/15/15 620,000 656,061
Seagrams & Sons 7.00% 04/15/08 310,000 326,400
---------------
982,461
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
37
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Financial Services
Beneficial Corporation 8.40% 05/15/08 $ 155,000 $ 175,108
General Electric Capital 8.125% 05/15/12 269,000 325,035
General Electric Capital 8.30% 09/20/09 20,000 23,369
General Motors Acceptance Corporation 8.75% 07/15/05 605,000 621,446
---------------
1,144,958
Food
Gerber Products 9.00% 10/15/06 759,000 823,178
Food Retailers
Safeway, Inc. 7.00% 09/15/07 100,000 107,882
Safeway, Inc. 9.30% 02/01/07 473,000 520,529
Safeway, Inc. 9.875% 03/15/07 648,000 723,890
---------------
1,352,301
Heavy Machinery
Deere & Company 8.95% 06/15/19 270,000 318,398
Home Furnishings
Whirlpool Corporation 9.10% 02/01/08 250,000 284,002
Industrial
Tyco International Group 6.375% 06/15/05 369,000 374,384
Insurance - Full Line
Cigna Corporation 7.40% 05/15/07 100,000 107,432
Old Republic International 7.00% 06/15/07 225,000 241,459
Transamerica Corporation 9.375% 03/01/08 390,000 451,377
---------------
800,268
Medical Equipment
Mallinckrodt 6.50% 11/15/07 380,000 405,980
Oil - Integrated Majors
Atlantic Richfield 9.125% 03/01/11 501,000 628,484
Oil - Secondary
Enron Oil & Gas 6.50% 12/01/07 145,000 154,815
Enron Oil & Gas 6.70% 11/15/06 97,000 102,136
Occidental Petroleum 10.125% 09/15/09 294,000 362,904
---------------
619,855
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
38
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------------------------------------------
CORPORATE BONDS CONTINUED
Telephone Systems
AT&T Corporation 8.35% 01/15/25 $ 420,000 $ 433,125
Bellsouth Telecommunications 6.30% 12/15/15 521,843 567,211
GTE Hawaiian Telecommunications 7.00% 02/01/06 545,000 561,716
GTE South, Inc. 6.00% 02/15/08 400,000 421,644
GTE South, Inc. 6.125% 06/15/07 100,000 104,837
New England Telephone & Telecommunications 6.875% 10/01/23 135,000 137,332
---------------
2,225,865
Utilities - Electric
Florida Power & Light 6.00% 06/01/08 200,000 213,416
Niagara Mohawk Power 9.75% 11/01/05 510,000 538,040
Northwestern Corporation 7.00% 08/15/23 250,000 256,250
Northwestern Corporation 7.10% 08/01/05 325,000 330,903
Potomac Electric Power 5.875% 10/15/08 100,000 105,978
Potomac Electric Power 6.25% 10/15/07 200,000 212,918
Potomac Electric Power 6.50% 03/15/08 125,000 134,753
Reliant Energy Mid Atlantic 9.237% 07/02/17 49,281 56,673
---------------
1,848,931
TOTAL CORPORATE BONDS
(Cost: $11,990,458) 12,080,022
===============
US GOVERNMENT SECURITIES - 4.26%
US Treasury Bill
US Treasury Bill 01/20/05 1,500,000 1,498,689
TOTAL US GOVERNMENT SECURITIES
(Cost: $1,498,640) 1,498,689
===============
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
PREFERRED STOCK - 1.02%
Real Estate Investment Trusts
Price Legacy Corporation Preferred A 8.75% 22,459 359,344
TOTAL PREFERRED STOCK
(Cost: $336,666) 359,344
===============
TOTAL INVESTMENT SECURITIES - 98.48%
(Cost: $28,490,252) $ 34,633,974
===============
SHORT-TERM INVESTMENTS - 1.28%
United Missouri Bank Money Market Fiduciary Account 449,649
OTHER ASSETS LESS LIABILITIES - 0.24% 83,182
===============
TOTAL NET ASSETS - 100% $ 35,166,805
===============================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
39
<Page>
PACIFIC ADVISORS GROWTH FUND
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK - 86.04%
Banks - Money Center
HSBC Holding PLC 160 $ 13,623
Banks - Regional
Sovereign Bancorp, Inc. 1,000 22,550
Biotechnology
Cambrex Corporation 500 13,550
Building Materials
ElkCorp 1,000 34,220
Communications Technology
Andrew Corporation* 1,000 13,630
Qualcomm, Inc. 1,000 42,400
---------------
56,030
Computers & Related Equipment
International Business Machines 200 19,716
Diversified Companies
General Electric 1,500 54,750
ITT Industries 300 25,335
80,085
Forest Products
Louisiana Pacific Corporation 2,000 53,480
Health Care Provider
America Service Group* 2,251 60,259
Wellpoint* 500 57,500
---------------
117,759
Home Furnishings
Furniture Brands International, Inc. 500 12,525
Industrial - Diversified
Tyco International Ltd. 1,000 35,740
Insurance - Specialty
Caremark Rx, Inc.* 1,935 76,297
Medical & Biotechnology
Johnson & Johnson 800 50,736
McKesson Corporation HBOC, Inc. 500 15,730
Quest Diagnostics, Inc. 300 28,665
---------------
95,131
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
40
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Medical Equipment, Devices & Supplies
Becton, Dickinson and Company 500 $ 28,400
St. Jude Medical, Inc.* 2,000 83,860
Zimmer Holdings, Inc.* 500 40,060
---------------
152,320
Mining - Diversified
Anglogold Ltd. 1,000 36,350
Freeport McMoran 500 19,115
---------------
55,465
Non-Ferrous Metals
Phelps Dodge Corporation 500 49,460
Oil Field Equipment
Mitcham Industries* 5,000 33,500
Oil - Integrated Majors
Apache Corporation 1,000 50,570
ExxonMobil Corporation 400 20,504
Marathon Oil Corporation 1,000 37,610
---------------
108,684
Oil - Secondary
Burlington Resources 1,000 43,500
Paper Products
Georgia Pacific Corporation 1,000 37,480
Pharmaceuticals
Nature's Sunshine 3,000 61,080
Pfizer, Inc. 1,200 32,268
---------------
93,348
Restaurants
AppleBee's International 1,125 29,756
Retailers - Specialty
Home Depot 500 21,370
Linens 'n Things, Inc.* 1,000 24,800
---------------
46,170
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
41
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Software & Computer Processing Equipment
Intervoice, Inc.* 2,000 $ 26,700
Microsoft 2,000 53,420
Oracle Corporation* 800 10,976
Siebel Systems, Inc.* 500 5,250
---------------
96,346
TOTAL COMMON STOCK
(Cost: $1,122,813) 1,376,735
===============
TOTAL INVESTMENT SECURITIES - 86.04%
(Cost: $1,122,813) $ 1,376,735
===============
SHORT-TERM INVESTMENTS - 12.45%
United Missouri Bank Money Market Fiduciary Account 199,255
OTHER ASSETS LESS LIABILITIES - 1.51% 24,141
===============
TOTAL NET ASSETS - 100% $ 1,600,131
===============================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
42
<Page>
PACIFIC ADVISORS MULTI-CAP VALUE FUND
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK - 97.25%
Airlines
JetBlue Airways Corporation* 9,000 $ 208,980
Banks - Money Center
Citigroup, Inc. 5,000 240,900
JP Morgan 5,000 195,050
---------------
435,950
Banks - Regional
Washington Mutual 6,000 253,680
Communications
Comcast Corporation* 5,955 198,182
Lucent Technologies* 65,000 244,400
---------------
442,582
Computers & Related Equipment
Cisco Systems, Inc.* 12,000 231,600
International Business Machines 3,000 295,740
---------------
527,340
Electrical Components & Equipment
Arrow Electronics, Inc.* 8,000 194,400
Entertainment
Activision, Inc.* 15,000 302,700
Golfing Equipment
Callaway Golf Company 20,000 270,000
Industrial
Graftech International* 25,000 236,500
Industrial & Commercial Services
Metrologic Instruments* 12,000 255,000
Insurance - Full Line
American International Group 4,000 262,680
Lincoln National Corporation 3,500 163,380
---------------
426,060
Investment Companies
Goldman Sachs Group, Inc. 2,500 260,100
Medical & Biotechnology
Amgen* 4,200 269,430
Endo Pharmaceuticals* 10,000 210,200
Serlogicals Corporation* 11,500 254,380
---------------
734,010
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
43
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Medical Equipment & Supplies
Closure Medical* 11,000 $ 214,500
Oil - Exploration & Production
Apache Corporation 3,500 176,995
Oil - Integrated Majors
Chevron Texaco Corporation 4,000 210,040
Marathon Oil Corporation 6,000 225,660
Royal Dutch Petroleum Company 3,000 172,140
---------------
607,840
Oilfield Equipment Services
Mitcham Industries* 35,000 234,500
Schlumberger 2,500 167,375
---------------
401,875
Pharmaceuticals
Pfizer, Inc. 10,000 268,900
Schering-Plough Corporation 12,000 250,560
---------------
519,460
Pipelines
Williams Companies, Inc. 19,000 309,510
Retailers - Specialty
Home Depot, Inc. 6,000 256,440
Pier 1 Imports, Inc. 13,000 256,100
Target Corporation 4,500 233,685
---------------
746,225
Semiconductor & Related
Intel Corporation 10,000 233,900
Software & Computer Processing Equipment
Microsoft 7,000 186,970
Telephone Systems
SBC Communications 10,000 257,701
TOTAL COMMON STOCK
(Cost: $7,131,992) 8,202,278
===============
TOTAL INVESTMENT SECURITIES - 97.25%
(Cost: $7,131,992) $ 8,202,278
===============
SHORT-TERM INVESTMENTS - 2.72%
United Missouri Bank Money Market Fiduciary Account 299,866
OTHER ASSETS LESS LIABILITIES - 0.03% 2,320
===============
TOTAL NET ASSETS - 100% $ 8,434,464
===============================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
44
<Page>
PACIFIC ADVISORS SMALL CAP FUND
SCHEDULE OF INVESTMENTS
December 31, 2004
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK - 103.14%
Aerospace & Defense
Aviall, Inc.* 25,000 $ 574,250
Apparel
Ashworth, Inc.* 42,000 457,380
Auto - Retail
Sonic Automotive, Inc. 20,000 496,000
Auto Parts
Keystone Automotive Industries, Inc.* 24,000 558,000
Titan International, Inc. 64,100 967,910
---------------
1,525,910
Banks - Regional
East West Bancorp, Inc. 12,000 503,520
Nara Bank National Association 22,000 467,940
---------------
971,460
Building Materials
ElkCorp 22,000 752,840
Commercial Services
Carlisle Holdings Ltd. 40,000 289,600
Darling International, Inc.* 113,000 492,680
Team, Inc.* 30,000 466,500
Tetra Tech, Inc.* 20,000 334,800
---------------
1,583,580
Consumer Services
Service Corporation International* 40,000 298,000
Containers/Packaging
Mobile Mini, Inc.* 20,000 660,800
Electrical
Bell Microproducts* 32,000 307,840
Environmental Services
American Ecology Corporation 50,000 600,000
Food
Monterey Pasta Company* 25,000 84,500
Footwear
Genesco, Inc.* 8,000 249,120
Gas - Integrated
Denbury Resources, Inc.* 24,000 658,800
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
45
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Healthcare Provider
America Service Group* 36,000 $ 963,720
United American Health Care* 95,000 599,355
---------------
1,563,075
Insurance - Full Line
Gainsco, Inc.* 20,000 29,800
Metal Processing
Commercial Metals Corporation 17,000 859,520
Office Equipment
Danka Business Systems* 78,000 246,480
Oil - Drilling
Harvest Natural Resources* 30,000 518,100
Mission Resources Corporation* 80,000 467,200
---------------
985,300
Oil - Integrated Majors
Chesapeake Energy Corporation 25,000 412,500
Remington Oil & Gas Corporation* 10,000 272,500
---------------
685,000
Oilfield Equipment & Services
Mitcham Industries, Inc.* 96,000 643,200
Railroads
RailAmerica, Inc.* 70,000 913,500
Restaurants
Dave & Busters, Inc.* 22,000 444,400
Retailers - Specialty
Conns, Inc.* 40,000 672,800
EZCorp, Inc.* 45,000 693,450
First Cash Financial Services, Inc.* 24,000 641,040
---------------
2,007,290
Semiconductor & Related
Camtek Ltd.* 64,060 286,989
Software & Processing
Carreker Corporation* 24,855 213,753
Intervoice, Inc.* 85,410 1,140,223
Tyler Technologies* 55,000 459,800
---------------
1,813,776
Telephone Systems
Talk America Holdings, Inc.* 40,000 264,800
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
46
<Page>
<Table>
<Caption>
NUMBER OF
SHARES VALUE
- ---------------------------------------------------------------------------------------------------------------
COMMON STOCK CONTINUED
Transportation
Frozen Food Express Industries, Inc.* 45,000 $ 580,500
SCS Transportation* 30,000 701,100
US Xpress Enterprises* 22,000 644,600
---------------
1,926,200
TOTAL COMMON STOCK
(Cost: $12,703,815) 21,889,810
===============
TOTAL INVESTMENT SECURITIES - 103.14%
(Cost: $12,703,815) $ 21,889,810
===============
OTHER ASSETS LESS LIABILITIES - (3.14%) (665,564)
===============
TOTAL NET ASSETS - 100% $ 21,224,246
===============================================================================================================
</Table>
* Non-income producing
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
47
<Page>
PACIFIC ADVISORS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
------------ -------------
ASSETS
Investment Securities
At cost $ 9,303,626 $ 10,483,700
============ =============
At market value $ 9,360,726 $ 10,661,541
Short-term investments, at cost,
which is equal to market 537,609 536,101
Accrued income receivable 61,942 149,253
Receivable for capital shares sold 157 50,800
Other assets - -
------------ -------------
Total assets 9,960,434 11,397,695
------------ -------------
LIABILITIES
Bank Overdraft - -
Payable for investments purchased - -
Payable for fund shares redeemed 5,300 808
Accounts payable 37,875 34,851
Accounts payable to related
parties (Note 3) 5,999 6,360
Payable to Investment Manager
(Note 3) - 6,751
------------ -------------
Total liabilities 49,174 48,770
------------ -------------
NET ASSETS $ 9,911,260 $ 11,348,925
============ =============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 10,823,645 11,154,696
Accumulated undistributed net
investment income 4,224 7,415
Accumulated undistributed net
realized gain (losses) on
security transactions (973,709) 8,973
Net unrealized appreciation of
investments 57,100 177,841
------------ -------------
Net assets at December 31, 2004 $ 9,911,260 $ 11,348,925
============ =============
CLASS A:
Net assets $ 2,487,566 $ 3,611,257
============ =============
Shares authorized 50,000,000 50,000,000
Shares outstanding 261,523 345,400
Net asset value and redemption
price per share $ 9.51 $ 10.46
============ =============
Maximum offering price per share $ 9.98 $ 10.98
Sales load 4.75% 4.75%
CLASS C:
Net assets $ 7,423,694 $ 7,737,668
============ =============
Shares authorized 50,000,000 50,000,000
Shares outstanding 800,498 772,091
Net asset value and redemption
price per share $ 9.27 $ 10.02
============ =============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
48
<Page>
<Table>
<Caption>
MULTI-CAP SMALL
BALANCED GROWTH VALUE CAP
FUND FUND FUND FUND
------------- ------------ ------------- -------------
ASSETS
Investment Securities
At cost $ 28,490,252 $ 1,122,813 $ 7,131,992 $ 12,703,815
============= ============ ============= =============
At market value $ 34,633,974 $ 1,376,735 $ 8,202,278 $ 21,889,810
Short-term investments, at cost,
which is equal to market 449,649 199,255 229,866 -
Accrued income receivable 262,711 999 547 4,675
Receivable for capital shares sold 6,812 28,047 41,763 35,491
Other assets - - 51 968
------------- ------------ ------------- -------------
Total assets 35,353,146 1,605,036 8,474,505 21,930,944
------------- ------------ ------------- -------------
LIABILITIES
Bank Overdraft - - - 518,489
Payable for investments purchased - - - 69,937
Payable for fund shares redeemed 29,670 - 5,000 55,055
Accounts payable 119,914 3,593 27,237 39,880
Accounts payable to related
parties (Note 3) 14,608 1,312 5,329 10,465
Payable to Investment Manager
(Note 3) 22,149 - 2,475 12,872
------------- ------------ ------------- -------------
Total liabilities 186,341 4,905 40,041 706,698
------------- ------------ ------------- -------------
NET ASSETS $ 35,166,805 $ 1,600,131 $ 8,434,464 $ 21,224,246
============= ============ ============= =============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 28,986,630 2,042,049 7,364,178 12,032,959
Accumulated undistributed net
investment income 32,747 190 - -
Accumulated undistributed net
realized gain (losses) on
security transactions 3,706 (696,030) - 5,292
Net unrealized appreciation of
investments 6,143,722 253,922 1,070,286 9,185,995
------------- ------------ ------------- -------------
Net assets at December 31, 2004 $ 35,166,805 $ 1,600,131 $ 8,434,464 $ 21,224,246
============= ============ ============= =============
CLASS A:
Net assets $ 5,862,895 $ 1,154,774 $ 2,312,663 $ 17,375,980
============= ============ ============= =============
Shares authorized 50,000,000 50,000,000 50,000,000 50,000,000
Shares outstanding 353,922 140,415 196,559 682,097
Net asset value and redemption
price per share $ 16.57 $ 8.22 $ 11.77 $ 25.47
============= ============ ============= =============
Maximum offering price per share $ 17.58 $ 8.72 $ 12.49 $ 27.02
Sales load 5.75% 5.75% 5.75% 5.75%
CLASS C:
Net assets $ 29,303,910 $ 445,357 $ 6,121,801 $ 3,848,266
============= ============ ============= =============
Shares authorized 50,000,000 50,000,000 50,000,000 50,000,000
Shares outstanding 1,816,314 57,184 530,260 164,153
Net asset value and redemption
price per share $ 16.13 $ 7.79 $ 11.54 $ 23.44
============= ============ ============= =============
</Table>
49
<Page>
STATEMENT OF OPERATIONS
For the year ended December 31, 2004
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
------------ -------------
INVESTMENT INCOME
Dividends $ 129,548 $ 156,720
Interest 299,618 243,299
Misc Income - 80
------------ -------------
Total Income 429,166 400,099
------------ -------------
EXPENSES
Investment Management Fees 75,966 73,405
Transfer Agent Fees 38,722 39,908
Fund Accounting Fees 58,669 48,670
Legal Fees 28,239 22,368
Audit Fees 19,952 16,640
Registration Fees 4,759 5,080
Printing 7,281 8,276
Custody Fees 10,995 8,411
Director Fees/Meetings 2,310 1,863
Distribution Fees (Note 3) 99,097 76,648
Other Expenses 9,088 7,659
------------ -------------
Total Expenses, before
reimbursements 355,078 308,928
Less fees waived and expenses
reimbursed (Note 3) 75,966 66,654
------------ -------------
Net Expenses 279,112 242,274
------------ -------------
NET INVESTMENT INCOME (LOSS) 150,054 157,825
============ =============
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on
investments (117,998) 70,211
Change in net unrealized
appreciation (depreciation)
of investments (80,124) 53,886
------------ -------------
(198,122) 124,097
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (48,068) $ 281,922
============ =============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
50
<Page>
<Table>
<Caption>
MULTI-CAP SMALL
BALANCED GROWTH VALUE CAP
FUND FUND FUND FUND
------------ ------------- ------------- ------------
INVESTMENT INCOME
Dividends $ 432,882 $ 14,456 $ 96,233 $ 36,071
Interest 726,694 498 1,313 135
Misc Income - - - -
------------ ------------- ------------- ------------
Total Income 1,159,576 14,954 97,546 36,206
------------ ------------- ------------- ------------
EXPENSES
Investment Management Fees 238,018 8,569 66,438 110,328
Transfer Agent Fees 96,879 31,456 37,221 94,165
Fund Accounting Fees 163,920 16,139 33,363 75,096
Legal Fees 86,866 1,969 15,700 40,487
Audit Fees 54,979 1,822 11,621 24,776
Registration Fees 36,722 227 3,921 31,450
Printing 51,309 1,165 5,909 42,609
Custody Fees 12,353 6,476 7,600 19,245
Director Fees/Meetings 6,960 156 1,278 3,033
Distribution Fees (Note 3) 277,606 4,859 52,927 53,554
Other Expenses 26,357 807 5,289 12,457
------------ ------------- ------------- ------------
Total Expenses, before
reimbursements 1,051,969 73,645 241,267 507,200
Less fees waived and expenses
reimbursed (Note 3) - 39,312 28,742 -
------------ ------------- ------------- ------------
Net Expenses 1,051,969 34,333 212,525 507,200
------------ ------------- ------------- ------------
NET INVESTMENT INCOME (LOSS) 107,607 (19,379) (114,979) (470,994)
============ ============= ============= ============
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on
investments 95,014 9,120 262,491 218,158
Change in net unrealized
appreciation (depreciation)
of investments 1,424,341 175,858 278,823 5,125,898
------------ ------------- ------------- ------------
1,519,355 184,978 541,314 5,344,056
------------ ------------- ------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,626,962 $ 165,599 $ 426,335 $ 4,873,062
============ ============= ============= ============
</Table>
51
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 150,054 $ 387,356
Net realized gain (loss) on investments (117,998) (855,704)
Change in net unrealized appreciation (depreciation) of investments (80,124) (63,143)
---------------------------------------
Increase (decrease) in net assets resulting from operations (48,068) (531,491)
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (52,891) (100,356)
Net capital gains - -
Return of capital - -
Class C:
Net investment income (96,281) (298,286)
Net capital gains - -
Return of capital - -
---------------------------------------
Decrease in net assets resulting from distributions (149,172) (398,642)
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 515,159 4,113,910
Proceeds from shares purchased by reinvestment of dividends 131,825 366,393
Cost of shares repurchased (4,986,174) (4,085,472)
---------------------------------------
Increase (decrease) in net assets derived from capital share transactions (4,339,190) 394,831
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS (4,536,430) (535,302)
NET ASSETS
Beginning of period 14,447,690 14,982,992
---------------------------------------
End of period $ 9,911,260 $ 14,447,690
=======================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 157,825 $ 137,423
Net realized gain (loss) on investments 70,211 114,704
Change in net unrealized appreciation (depreciation) of investments 53,886 108,554
---------------------------------------
Increase (decrease) in net assets resulting from operations 281,922 360,681
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (62,235) (40,362)
Net capital gains (7,186) -
Return of capital - (3,763)
Class C:
Net investment income (94,485) (93,343)
Net capital gains (16,833) -
Return of capital - (11,135)
---------------------------------------
Decrease in net assets resulting from distributions (180,739) (148,603)
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 4,868,286 2,266,334
Proceeds from shares purchased by reinvestment of dividends 171,382 138,180
Cost of shares repurchased (1,043,357) (765,792)
---------------------------------------
Increase (decrease) in net assets derived from capital share transactions 3,996,311 1,638,722
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 4,097,494 1,850,800
NET ASSETS
Beginning of period 7,251,431 5,400,631
---------------------------------------
End of period $ 11,348,925 $ 7,251,431
=======================================
<Caption>
BALANCED FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 107,607 $ 178,633
Net realized gain (loss) on investments 95,014 380,296
Change in net unrealized appreciation (depreciation) of investments 1,424,341 3,197,438
---------------------------------------
Increase (decrease) in net assets resulting from operations 1,626,962 3,756,367
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (45,542) (44,228)
Net capital gains (18,237) (54,180)
Return of capital - (6,500)
Class C:
Net investment income (41,450) (83,461)
Net capital gains (94,455) (270,498)
Return of capital - (32,452)
---------------------------------------
Decrease in net assets resulting from distributions (199,684) (491,319)
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 7,567,838 8,182,699
Proceeds from shares purchased by reinvestment of dividends 193,647 474,828
Cost of shares repurchased (2,114,128) (1,842,436)
---------------------------------------
Increase (decrease) in net assets derived from capital share transactions 5,647,357 6,815,091
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 7,074,635 10,080,139
NET ASSETS
Beginning of period 28,092,170 18,012,031
---------------------------------------
End of period $ 35,166,805 $ 28,092,170
=======================================
</Table>
53
<Page>
<Table>
<Caption>
GROWTH FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (19,379) $ (14,272)
Net realized gain (loss) on investments 9,120 12,511
Change in net unrealized appreciation (depreciation) of investments 175,858 205,022
---------------------------------------
Increase (decrease) in net assets resulting from operations 165,599 203,261
---------------------------------------
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 6)
Proceeds from shares sold 653,598 171,264
Proceeds from shares purchased by reinvestment of dividends - -
Cost of shares repurchased (138,992) (108,518)
---------------------------------------
Increase (decrease) in net assets derived from capital share transactions 514,606 62,746
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 680,205 266,007
NET ASSETS
Beginning of period 919,926 653,919
---------------------------------------
End of period $ 1,600,131 $ 919,926
=======================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
54
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (114,979) $ (56,455)
Net realized gain (loss) on investments 262,491 104,871
Change in net unrealized appreciation (depreciation) of investments 278,823 929,030
---------------------------------------
Increase (decrease) in net assets resulting from operations 426,335 977,446
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains (68,529) -
Class C:
Net investment income - -
Net capital gains (184,774) -
---------------------------------------
Decrease in net assets resulting from distributions (253,303) -
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 3,538,186 2,206,742
Proceeds from shares purchased by reinvestment of dividends 250,204 -
Cost of shares repurchased (244,201) (216,637)
---------------------------------------
Increase (decrease) in net assets derived from capital share transactions 3,544,189 1,990,105
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 3,717,221 2,967,551
NET ASSETS
Beginning of period 4,717,243 1,749,692
---------------------------------------
End of period $ 8,434,464 $ 4,717,243
=======================================
<Caption>
SMALL CAP FUND
---------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (470,994) $ (275,223)
Net realized gain (loss) on investments 218,158 218,847
Change in net unrealized appreciation (depreciation) of investments 5,125,898 4,336,572
---------------------------------------
Increase (decrease) in net assets resulting from operations 4,873,062 4,280,196
---------------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains (115,121) (63,642)
Class C:
Net investment income - -
Net capital gains (27,534) (9,702)
---------------------------------------
Decrease in net assets resulting from distributions (142,655) (73,344)
---------------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 6)
Proceeds from shares sold 9,008,601 1,940,306
Proceeds from shares purchased by reinvestment of dividends 110,040 58,553
Cost of shares repurchased (2,860,457) (1,276,670)
---------------------------------------
Increase (decrease) in net assets derived from capital share transactions 6,258,184 722,189
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS 10,988,591 4,929,041
NET ASSETS
Beginning of period 10,235,655 5,306,614
---------------------------------------
End of period $ 21,224,246 $ 10,235,655
=======================================
</Table>
55
<Page>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
NOTE 1. ORGANIZATION
Pacific Advisors Fund Inc. (the "Company") is an open-end diversified
investment management company registered under the Investment Company Act of
1940, as amended. The Company currently offers six Funds: Government Securities
Fund, Income and Equity Fund, Balanced Fund, Growth Fund, Multi-Cap Value Fund
and Small Cap Fund. Each Fund is a separate investment portfolio of the Company
with a distinct investment objective, investment program, policies and
restrictions. The Government Securities Fund seeks to provide high current
income, preservation of capital, and rising future income, consistent with
prudent investment risk. The Income and Equity Fund seeks to provide current
income and, secondarily, long-term capital appreciation. The Balanced Fund seeks
to achieve long-term capital appreciation and income consistent with reduced
market risk. The Growth Fund seeks to achieve long-term capital appreciation
through investment in medium to large capitalization companies. The Multi-Cap
Value Fund seeks long-term capital appreciation by investing in a diversified
portfolio of large to small capitalization companies. The Small Cap Fund seeks
to provide capital appreciation through investment in small capitalization
companies.
Effective April 1, 1998, the Funds offer Class A and Class C shares, each
of which has equal rights as to assets and voting privileges except that Class A
and Class C each has exclusive voting rights with respect to its distribution
plan. Investment income, realized and unrealized capital gains and losses, and
the common expenses of each Fund are allocated on a pro rata basis to each class
based on the relative net assets of each class to the total net assets of the
Fund. Each Class of shares differs in its respective service and distribution
expenses and may differ in its transfer agent, registration, and certain other
class-specific fees and expenses.
The Fund enters into contracts that contain a variety of indemnifications.
The Fund's maximum exposure under these arrangements is unknown. However, the
Fund has not had prior claims or losses pursuant to these contracts and expects
the risk of loss to be remote.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
A. SECURITY VALUATION. Securities listed on a national securities exchange
and certain over-the-counter ("OTC") issues traded on the NASDAQ national market
system are valued at the last quoted sale price at the close of the New York
Stock Exchange. OTC issues not quoted on the NASDAQ system and other equity
securities for which no sale price is available, are valued at the last bid
price as obtained from published sources (including Quotron), where available,
and otherwise from brokers who are market makers for such securities. Debt
securities with a maturity of less than 60 days are valued on an amortized cost
basis. Premium or discount on debt securities are amortized.
B. SECURITY TRANSACTIONS AND INVESTMENT INCOME. Security transactions are
accounted for on the trade date. The cost of investments sold is determined by
use of the specific identification method for both financial reporting and
Federal Income tax purposes. Dividends are recorded on the ex-dividend date.
Interest income is recorded on an accrual basis.
C. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS. The Government Securities
Fund and Income and Equity Fund declare and distribute dividends of their net
investment income, if any, quarterly. The Balanced Fund, Growth Fund, Multi-Cap
Value Fund and Small Cap Fund declare and distribute dividends of their net
investment income, if any, annually. The Board of Directors will determine the
amount and timing of such payments. Income dividends and capital gains
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments of income and gain on various investment
securities held by the Funds, timing differences and differing characterization
of distributions made by the Fund.
D. FEDERAL INCOME TAX. The Funds intend to comply with the requirements
Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to distribute substantially all of their taxable income to their
shareholders. Therefore, no federal income tax provision is required.
At December 31, 2004, components of distributable earnings/(deficit) on a
tax basis were as follows:
<Table>
<Caption>
GOVERNMENT INCOME AND MULTI-CAP
SECURITIES EQUITY BALANCED GROWTH VALUE SMALL CAP
FUND FUND FUND FUND FUND FUND
Undistributed ordinary income $ 4,224 $ 1,105 $ - $ - $ - $ -
Undistributed long-term gains - 12,997 32,299 - - 5,573
Capital loss carryforward* (950,783) - - (696,030) - -
Post October Loss (21,051) (3,707) (11,415) - - -
Net unrealized appreciation
on investments 55,225 183,834 6,159,291 254,112 1,070,286 9,185,714
----------- ----------- ----------- ----------- ----------- -----------
Distributable earnings/(deficit) (912,385) 194,229 6,180,175 (441,918) 1,070,286 9,191,287
</Table>
The difference between book basis and tax-basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales and return of capital distributions from REITs.
56
<Page>
* At December 31, 2004, the following had accumulated net realized losses
on investment transactions that represent capital loss carryforwards for federal
income tax purposes, which expire as follows:
<Table>
<Caption>
CAPITAL LOSSES EXPIRING IN:
--------------------------------------------------------------
2009 2010 2011 2012 TOTAL
Government Securities Fund $ - $ - $ 855,711 $ 95,072 $ 950,783
Growth Fund 604,296 91,734 - - 696,030
</Table>
E. USE OF ESTIMATES. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts in
the financial statements and footnotes. Actual results could differ from those
estimates.
F. RECLASSIFICATION OF CAPITAL ACCOUNTS. Distributions of net investment
income and realized gains are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are due to differing treatments for items such as wash sales,
net operating losses, capital loss carryforwards, excise tax paid and net
realized gain or loss on foreign currency transactions. To the extent that these
differences are permanent in nature, reclassifications are made among the net
asset accounts on the Statement of Assets and Liabilities.
For the Year ended December 31, 2004, reclassifications among the
components of net assets are as follows:
<Table>
<Caption>
ACCUMULATED UNDISTRIBUTED ACCUMULATED
NET INVESTMENT INCOME PAID IN CAPITAL CAPITAL GAIN
Income and Equity Fund $ (10,548) $ - $ 10,548
Balanced Fund (32,033) - 32,033
Growth Fund 19,569 (19,569) -
Multi-Cap Value Fund 114,979 (114,979) -
Small Cap Fund 470,994 (401,037) (69,957)
</Table>
NOTE 3. INVESTMENT MANAGEMENT, DISTRIBUTOR AND OTHER RELATED PARTY TRANSACTIONS
The Company and the Funds have entered into investment management
agreements ("Management Agreements") with Pacific Global Investment Management
Company, Inc. ("Investment Manager").
The Management Agreements provide for investment management fees, payable
monthly, and calculated at the maximum annual rate of 0.65% of average net
assets for the Government Securities Fund, 0.75% of average net assets for the
Income and Equity, Balanced, Growth and Small Cap Funds and 1.00% of average net
assets for the Multi-Cap Value Fund. The Investment Manager has entered into a
sub-advisory agreement ("Sub-Advisory Agreement") with Bache Capital Management
("Advisor") for the Balanced Fund. It has also entered into a co-management
agreement ("Co-management Agreement") with Bache Capital Management 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, and with respect to the Income and Equity Fund only, the
Co-Manager, will waive their respective management fees to the extent that the
actual operating expenses of the following Funds exceed the following
thresholds:
<Table>
<Caption>
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>
For the Growth Fund only, if net expenses exceed the above thresholds after
waiver of the entire management fee, the Transfer Agent will waive its transfer
agency fee to the extent necessary to reduce Class expenses to the above
thresholds. These agreements may be terminated by either party upon 90-days
prior written notice.
Pursuant to the Expense Limitation Agreements, providing for the voluntary
waiver of fees and the assumption of expenses by the Investment Manager and
Transfer Agent, and, with respect to the Income and Equity Fund, the Co-Manager,
the following amounts were waived or reimbursed for the year ended December 31,
2004.
<Table>
<Caption>
MANAGEMENT TRANSFER AGENT
FEES FEES
WAIVED WAIVED
Government Securities Fund $ 75,966 $ -
Income and Equity Fund 66,654 -
Growth Fund 8,568 30,743
Multi-Cap Value Fund 28,742 -
</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 year ended December 31, 2004, Pacific Global Fund Distributors,
Inc. ("PGFD"), the principal underwriter for
57
<Page>
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 $ 246 $ 1,358
Income and Equity Fund 1,666 8,091
Balanced Fund 4,604 21,894
Growth Fund 2,172 10,254
Multi-Cap Value fund 3,804 17,779
Small Cap Fund 11,608 58,020
</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 consist 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
year ended December 31, 2004, total service fees were:
<Table>
<Caption>
CLASS A CLASS C
Government Securities Fund $ 7,132 $ 91,965
Income and Equity Fund 7,075 69,573
Balanced Fund 12,446 265,160
Growth Fund 2,079 2,780
Multi-Cap Value Fund 4,081 48,846
Small Cap Fund 30,517 23,037
</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 on tax basis by each Fund for the year ended and as of December
31, 2004.
<Table>
<Caption>
YEAR ENDED AS OF DECEMBER 31, 2004
DECEMBER 31, 2004
GROSS GROSS NET UNREALIZED
COST OF PROCEEDS TAX COST OF UNREALIZED UNREALIZED APPRECIATION
PURCHASES FROM SALES SECURITIES APPRECIATION DEPRECIATION (DEPRECIATION)
Government Securities Fund $ 30,563,124 $ 30,463,051 $ 9,305,501 $ 67,454 $ 12,229 $ 55,225
Income and Equity Fund 8,200,320 3,410,235 10,477,707 356,592 172,758 183,834
Balanced Fund 17,698,115 11,144,604 28,474,683 6,408,244 248,953 6,159,291
Growth Fund 466,490 135,879 1,122,623 339,347 85,235 254,112
Multi-Cap Value Fund 6,535,136 3,112,613 7,131,992 1,119,056 48,770 1,070,286
Small Cap Fund 7,595,325 1,094,141 12,704,096 9,494,841 309,127 9,185,714
</Table>
NOTE 5. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during 2004 and 2003 was as
follows:
<Table>
<Caption>
GOVERNMENT INCOME & MULTI-CAP
SECURITIES EQUITY BALANCED VALUE SMALL CAP
FUND FUND FUND FUND FUND
Year ended December 31, 2004 Distributions paid from:
Ordinary Income $ 149,172 $ 156,720 $ 86,992 $ - $ -
Long-Term Capital Gain - 24,019 112,692 253,303 142,655
---------- ---------- ---------- ---------- ----------
Total Distributions $ 149,172 $ 180,739 $ 199,684 $ 253,303 $ 142,655
Year ended December 31, 2003 Distributions paid from:
Ordinary Income $ 397,277 $ 133,705 $ 414,665 $ - $ -
Long-Term Capital Gain 1,365 - 37,702 - 73,344
Return of Capital - 14,898 38,952 - -
---------- ---------- ---------- ---------- ----------
Total Distributions $ 398,642 $ 148,603 $ 491,319 $ - $ 73,344
</Table>
58
<Page>
NOTE 6. CAPITAL SHARE TRANSACTIONS
Effective July 1, 2004, a 2% redemption fee is assessed on shares of the
Government Securities Fund or the Income and Equity Fund sold or exchanged
within sixty days of purchase or shares of the Balanced Fund, Growth Fund,
Multi-Cap Value Fund or the Small Cap Fund sold or exchanged within six months
of purchase. The redemption fee does not apply to shares of the Government
Securities Fund, Income and Equity Fund, Balanced Fund or Multi-Cap Value Fund
purchased before July 1, 2004. The redemption fees collected through December
31, 2004, are included as a reduction to the shares repurchased in the table
below. The amount of the reduction is as follows:
<Table>
Balanced Fund (Class C) $ 78
Growth Fund (Class A) 724
Multi-Cap Value Fund (Class C) 51
Small Cap Fund (Class A) $ 12,887
Small Cap Fund (Class C) 911
</Table>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
GOVERNMENT SECURITIES FUND
Class A
Shares Sold 9,692 $ 92,986 11,268 $ 116,219
Reinvestment of Distributions 3,863 36,863 7,106 70,704
---------------------------- ----------------------------
13,555 129,849 18,374 186,923
Shares Repurchased (64,505) (618,244) (110,329) (1,105,771)
---------------------------- ----------------------------
Net Decrease (50,950) $ (488,395) (91,955) $ (918,848)
============================ ============================
Class C
Shares Sold 45,269 $ 422,173 403,006 $ 3,997,691
Reinvestment of Distributions 10,222 94,962 30,489 295,689
---------------------------- ----------------------------
55,491 517,135 433,495 4,293,380
Shares Repurchased (465,886) $ (4,367,930) (314,266) $ (2,979,701)
---------------------------- ----------------------------
Net Increase (Decrease) (410,395) (3,850,795) 119,229 1,313,679
============================ ============================
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
INCOME AND EQUITY FUND
Class A
Shares Sold 218,049 $ 2,278,445 13,196 $ 133,330
Reinvestment of Distributions 6,044 62,936 3,629 36,033
---------------------------- ----------------------------
224,093 2,341,381 16,825 169,363
Shares Repurchased (56,402) (586,655) (52,707) (528,613)
---------------------------- ----------------------------
Net Increase (Decrease) 167,691 $ 1,754,726 (35,882) $ (359,250)
============================ ============================
Class C
Shares Sold 260,189 $ 2,589,841 218,819 $ 2,133,004
Reinvestment of Distributions 10,853 108,446 10,541 102,147
---------------------------- ----------------------------
271,042 2,698,287 229,360 2,235,151
Shares Repurchased (45,884) (456,702) (24,427) (237,179)
---------------------------- ----------------------------
Net Increase 225,158 $ 2,241,585 204,933 $ 1,997,972
============================ ============================
</Table>
59
<Page>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
BALANCED FUND
Class A
Shares Sold 87,697 $ 1,393,685 56,665 $ 833,411
Reinvestment of Distributions 3,571 59,108 5,945 93,877
---------------------------- ----------------------------
91,268 1,452,793 62,610 927,288
Shares Repurchased (35,754) (568,882) (54,670) (795,169)
---------------------------- ----------------------------
Net Increase 55,514 $ 883,911 7,940 $ 132,119
============================ ============================
Class C
Shares Sold 400,028 $ 6,174,154 509,081 $ 7,349,288
Reinvestment of Distributions 8,346 134,538 24,737 380,951
---------------------------- ----------------------------
408,374 6,308,692 533,818 7,730,239
Shares Repurchased (99,833) (1,545,246) (73,497) (1,047,267)
---------------------------- ----------------------------
Net Increase 308,541 $ 4,763,446 460,321 $ 6,682,972
============================ ============================
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
GROWTH FUND
Class A
Shares Sold 63,114 $ 481,133 21,675 $ 136,077
Reinvestment of Distributions - - - -
---------------------------- ----------------------------
63,114 481,133 21,675 136,077
Shares Repurchased (16,365) (121,527) (12,617) (82,009)
---------------------------- ----------------------------
Net Increase 46,749 $ 359,606 9,058 $ 54,068
============================ ============================
Class C
Shares Sold 22,880 $ 172,465 5,680 $ 35,187
Reinvestment of Distributions - - - -
---------------------------- ----------------------------
22,880 172,465 5,680 35,187
Shares Repurchased (2,430) (17,465) (4,567) (26,509)
---------------------------- ----------------------------
Net Increase 20,450 $ 155,000 1,113 $ 8,678
============================ ============================
</Table>
60
<Page>
<Table>
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
MULTI-CAP VALUE FUND
Class A
Shares Sold 96,925 $ 1,113,082 56,817 $ 567,721
Reinvestment of Distributions 5,615 66,475 - -
---------------------------- ----------------------------
102,540 1,179,557 56,817 567,721
Shares Repurchased (8,958) (102,650) (17,022) (162,229)
---------------------------- ----------------------------
Net Increase 93,582 $ 1,076,907 39,795 $ 405,492
============================ ============================
Class C
Shares Sold 214,418 $ 2,425,104 160,357 $ 1,639,021
Reinvestment of Distributions 15,822 183,729 - -
---------------------------- ----------------------------
230,240 2,608,833 160,357 1,639,021
Shares Repurchased (12,322) (141,551) (5,757) (54,408)
---------------------------- ----------------------------
Net Increase 217,918 $ 2,467,282 154,600 $ 1,584,613
============================ ============================
<Caption>
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------------------------- ----------------------------
SMALL CAP FUND
Class A
Shares Sold 321,745 $ 6,934,841 94,743 $ 1,483,067
Reinvestment of Distributions 3,336 84,426 2,703 49,619
---------------------------- ----------------------------
325,081 7,019,267 97,446 1,532,686
Shares Repurchased (120,496) (2,560,641) (81,663) (1,091,377)
---------------------------- ----------------------------
Net Increase 204,585 $ 4,458,626 15,783 $ 441,309
============================ ============================
Class C
Shares Sold 105,393 $ 2,073,760 30,274 $ 457,239
Reinvestment of Distributions 1,099 25,614 524 8,934
---------------------------- ----------------------------
106,492 2,099,374 30,798 466,173
Shares Repurchased (15,518) (299,816) (13,899) (187,910)
---------------------------- ----------------------------
Net Increase 90,974 $ 1,799,558 16,899 $ 278,263
============================ ============================
</Table>
61
<Page>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
--------------------------------------------------------------
CLASS A
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.23 0.35 0.31 0.31 0.35
Net realized and unrealized gains (losses) on securities (0.20) (0.57) (0.04) (0.37) 1.41
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.03 (0.22) 0.27 (0.06) 1.76
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.20) (0.30) (0.21) (0.29) (0.34)
From net capital gains - - (0.01) (0.38) (0.28)
---------- ---------- ---------- ---------- ----------
Total distributions (0.20) (0.30) (0.22) (0.67) (0.62)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.51 $ 9.68 $ 10.20 $ 10.15 $ 10.88
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 0.26% (2.20)% 2.78% (0.49)% 18.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,488 $ 3,025 $ 4,125 $ 6,487 $ 6,071
Ratio of net investment income to average net assets
With expense reductions 1.89% 2.88% 2.57% 3.01% 3.46%
Without expense reductions 1.23% 2.33% 1.42% 2.22% 2.08%
Ratio of expenses to average net assets
With expense reductions 1.81% 1.65% 1.65% 1.65% 1.65%
Without expense reductions 2.46% 2.20% 2.80% 2.43% 3.03%
Fund portfolio turnover rate 402.70% 206.55% 212.10% 75.81% 22.21%
<Caption>
CLASS C
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.09 0.21 0.23 0.25 0.29
Net realized and unrealized gains (losses) on securities (0.14) (0.50) (0.04) (0.38) 1.38
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.05) (0.29) 0.19 (0.13) 1.67
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.11) (0.23) (0.19) (0.27) (0.28)
From net capital gains - - (0.01) (0.38) (0.28)
---------- ---------- ---------- ---------- ----------
Total distributions (0.11) (0.23) (0.20) (0.65) (0.56)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.27 $ 9.43 $ 9.95 $ 9.96 $ 10.74
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (0.50)% (2.98)% 1.98% (1.21)% 17.57%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 7,424 $ 11,423 $ 10,858 $ 4,172 $ 2,682
Ratio of net investment income to average net assets
With expense reductions 1.10% 2.23% 1.90% 2.25% 2.79%
Without expense reductions 0.45% 1.67% 0.81% 1.28% 1.23%
Ratio of expenses to average net assets
With expense reductions 2.57% 2.39% 2.40% 2.40% 2.36%
Without expense reductions 3.22% 2.95% 3.49% 3.37% 3.92%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
62
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
--------------------------------------------------------------
CLASS A
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.07 0.33 0.39 0.42 0.52
Net realized and unrealized gains (losses) on securities 0.29 0.31 (0.49) (0.14) 0.07
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.36 0.64 (0.10) 0.28 0.59
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.21) (0.20) (0.30) (0.40) (0.55)
From net capital gains (0.02) - - - -
From return of capital - (0.02) - - -
---------- ---------- ---------- ---------- ----------
Total distributions (0.23) (0.22) (0.30) (0.40) (0.55)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.46 $ 10.33 $ 9.91 $ 10.31 $ 10.43
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 3.51% 6.63% (0.92)% 2.63% 6.03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,611 $ 1,835 $ 2,117 $ 2,708 $ 2,217
Ratio of net investment income to average net assets
With expense reductions 2.18% 2.92% 3.43% 4.28% 4.67%
Without expense reductions 1.49% 1.84% 1.75% 2.66% 2.76%
Ratio of expenses to average net assets
With expense reductions 1.94% 1.85% 1.85% 1.85% 1.83%
Without expense reductions 2.63% 2.94% 3.53% 3.47% 3.75%
Fund portfolio turnover rate 40.48% 71.02% 91.50% 43.38% 21.83%
<Caption>
CLASS C
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.16 0.24 0.34 0.42 0.35
Net realized and unrealized gains (losses) on securities 0.11 0.32 (0.51) (0.22) 0.10
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.27 0.56 (0.17) 0.20 0.45
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.13) (0.22) (0.26) (0.43) (0.34)
From net capital gains (0.02) - - - -
From return of capital - (0.02) - - -
---------- ---------- ---------- ---------- ----------
Total distributions (0.15) (0.24) (0.26) (0.43) (0.34)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.02 $ 9.90 $ 9.60 $ 10.03 $ 10.26
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 2.74% 5.88% (1.60)% 1.81% 4.32%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 7,738 $ 5,416 $ 3,284 $ 1,365 $ 815
Ratio of net investment income to average net assets
With expense reductions 1.38% 2.10% 2.95% 3.58% 3.90%
Without expense reductions 0.70% 1.03% 1.15% 1.65% 1.88%
Ratio of expenses to average net assets
With expense reductions 2.69% 2.60% 2.60% 2.60% 2.55%
Without expense reductions 3.37% 3.67% 4.39% 4.54% 4.57%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
63
<Page>
<Table>
<Caption>
BALANCED FUND
--------------------------------------------------------------
CLASS A
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.12 0.21 0.06 0.10 0.21
Net realized and unrealized gains (losses) on securities 0.75 2.34 (0.79) (0.81) 1.19
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.87 2.55 (0.73) (0.71) 1.40
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.13) (0.16) - (0.09) (0.15)
From net capital gains (0.05) (0.18) - - (0.07)
From return of capital - (0.02) - - -
---------- ---------- ---------- ---------- ----------
Total distributions (0.18) (0.36) - (0.09) (0.22)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.57 $ 15.88 $ 13.69 $ 14.42 $ 15.22
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 5.50% 18.63% (5.05)% (4.69)% 9.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 5,863 $ 4,739 $ 3,977 $ 5,013 $ 5,942
Ratio of net investment income to average net assets
With expense reductions 0.98% 1.44% 0.30% 0.55% 1.15%
Without expense reductions 0.98% 1.44% 0.30% 0.55% 0.74%
Ratio of expenses to average net assets
With expense reductions 2.67% 2.86% 3.47% 3.22% 2.88%
Without expense reductions 2.67% 2.86% 3.47% 3.22% 3.28%
Fund portfolio turnover rate 39.60% 58.73% 57.74% 42.20% 43.30%
<Caption>
CLASS C
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.04 0.09 0.01 0.01 0.07
Net realized and unrealized gains (losses) on securities 0.68 2.26 (0.79) (0.80) 1.17
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.72 2.35 (0.78) (0.79) 1.24
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.03) (0.06) - (0.02) (0.09)
From net capital gains (0.05) (0.18) - - (0.07)
From return of capital - (0.02) - - -
---------- ---------- ---------- ---------- ----------
Total distributions (0.08) (0.26) - (0.02) (0.16)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.13 $ 15.49 $ 13.40 $ 14.18 $ 14.99
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 4.62% 17.58% (5.49)% (5.25)% 8.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 29,304 $ 23,353 $ 14,035 $ 7,404 $ 4,559
Ratio of net investment income to average net assets
With expense reductions 0.21% 0.67% (0.16)% (0.08)% 0.39%
Without expense reductions 0.21% 0.67% (0.16)% (0.08)% (0.01)%
Ratio of expenses to average net assets
With expense reductions 3.44% 3.66% 4.15% 3.99% 3.63%
Without expense reductions 3.44% 3.66% 4.15% 3.99% 4.03%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
64
<Page>
<Table>
<Caption>
GROWTH FUND
--------------------------------------------------------------
CLASS A
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 income (expense) 0.02 (0.07) (0.12) (0.11) (0.01)
Net realized and unrealized gains (losses) on securities 1.06 1.73 (1.44) (2.68) (1.83)
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.08 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 $ 8.22 $ 7.14 $ 5.48 $ 7.04 $ 9.83
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 15.13% 30.29% (22.16)% (28.38)% (15.77)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,155 $ 669 $ 464 $ 588 $ 825
Ratio of net investment income to average net assets
With expense reductions (1.51)% (1.69)% (1.97)% (1.26)% (0.24)%
Without expense reductions (4.98)% (7.44)% (8.25)% (5.44)% (3.98)%
Ratio of expenses to average net assets
With expense reductions 2.83% 2.48% 2.50% 2.44% 2.50%
Without expense reductions 6.30% 8.23% 8.77% 6.62% 6.23%
Fund portfolio turnover rate 12.96% 34.58% 78.06% 57.61% 16.00%
<Caption>
CLASS C
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 income (expense) 0.22 (0.16) (0.44) (0.22) (0.06)
Net realized and unrealized gains (losses) on securities 0.74 1.66 (1.12) (2.59) (1.85)
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.96 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 $ 7.79 $ 6.83 $ 5.33 $ 6.89 $ 9.70
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 14.06% 28.14% (22.64)% (28.97)% (16.45)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 445 $ 251 $ 190 $ 439 $ 728
Ratio of net investment income to average net assets
With expense reductions (2.27)% (2.47)% (2.75)% (2.04)% (0.97)%
Without expense reductions 5.61% (8.18)% (8.67)% (5.59)% (4.04)%
Ratio of expenses to average net assets
With expense reductions 3.54% 3.25% 3.25% 3.23% 3.25%
Without expense reductions 6.88% 8.96% 9.17% 6.77% 6.32%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
65
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
---------------------------------------------------------
CLASS A
---------------------------------------------------------
FOR THE YEAR ENDED APRIL 1, 2002(C)
DECEMBER 31, TO
--------------------------------
2004 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 (0.03) (0.09) (0.07)
Net realized and unrealized gains (losses) on securities 0.70 3.60 (1.98)
---------- ---------- --------------------
Total from investment operations 0.67 3.51 (2.05)
---------- ---------- --------------------
Less distributions
From net investment income - - -
From net capital gains (0.36) - -
---------- ---------- --------------------
Total distributions (0.36) - -
---------- ---------- --------------------
Net asset value, end of period $ 11.77 $ 11.46 $ 7.95
========== ========== ====================
TOTAL INVESTMENT RETURN (b) 5.84% 44.15% (20.50)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,313 $ 1,180 $ 503
Ratio of net investment income to average net assets
With expense reductions (1.15)% (1.67)% (1.44)%(d)
Without expense reductions (1.15)% (3.14)% (5.65)%(d)
Ratio of expenses to average net assets
With expense reductions 2.63% 2.49% 2.49%(d)
Without expense reductions 3.07% 3.96% 6.69%(d)
Fund portfolio turnover rate 49.30% 20.16% 8.23%(d)
<Caption>
CLASS C
---------------------------------------------------------
FOR THE YEAR ENDED APRIL 1, 2002(C)
DECEMBER 31, TO
--------------------------------
2004 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 income (expense) (0.10) 0.32 (0.52)
Net realized and unrealized gains (losses) on securities 0.67 3.10 (1.57)
---------- ---------- --------------------
Total from investment operations 0.57 3.42 (2.09)
---------- ---------- --------------------
Less distributions
From net investment income - - -
From net capital gains (0.36) - -
---------- ---------- --------------------
Total distributions (0.36) - -
---------- ---------- --------------------
Net asset value, end of period $ 11.54 $ 11.33 $ 7.91
========== ========== ====================
TOTAL INVESTMENT RETURN (b) 5.02% 43.24% (20.90)%(a)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 6,122 $ 3,537 $ 1,247
Ratio of net investment income to average net assets
With expense reductions (1.94)% (2.41)% (2.20)%(d)
Without expense reductions (2.37)% (3.90)% (6.08)%(d)
Ratio of expenses to average net assets
With expense reductions 3.40% 3.24% 3.23%(d)
Without expense reductions 3.83% 4.74% 7.11%(d)
</Table>
(a) Not annualized
(b) The Fund's maximum sales charge is not included in the total return
computation.
(c) Commencement of operations
(d) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
66
<Page>
<Table>
<Caption>
SMALL CAP FUND
--------------------------------------------------------------
CLASS A
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
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 0.73 (0.37) (0.85) (0.42) (0.79)
Net realized and unrealized gains (losses) on securities 6.14 8.95 (4.05) 3.11 2.32
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.87 8.58 (4.90) 2.69 1.53
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income - - - - -
From net capital gains (0.17) (0.13) (0.01) (0.88) (0.09)
---------- ---------- ---------- ---------- ----------
Total distributions (0.17) (0.13) (0.01) (0.88) (0.09)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 25.47 $ 18.77 $ 10.32 $ 15.23 $ 13.42
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 36.60% 83.21% (32.20)% 20.2 12.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 17,376 $ 8,961 $ 4,763 $ 7,715 $ 6,541
Ratio of net investment income to average net assets
With expense reductions (3.08)% (4.06)% (4.01)% (3.44)% (3.20)%
Without expense reductions (3.08)% (4.06)% (4.01)% (3.44)% (3.20)%
Ratio of expenses to average net assets
With expense reductions 3.32% 4.44% 4.52% 3.74% 3.58%
Without expense reductions 3.32% 4.44% 4.52% 3.74% 3.58%
Fund portfolio turnover rate 7.23% 39.95% 23.39% 43.89% 44.82%
<Caption>
CLASS C
--------------------------------------------------------------
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2004 2002 2001 2000 1999
--------------------------------------------------------------
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 0.66 0.04 (0.88) (0.08) (0.78)
Net realized and unrealized gains (losses) on securities 5.54 7.85 (3.93) 2.39 1.98
---------- ---------- ---------- ---------- ----------
Total from investment operations 6.20 7.89 (4.81) 2.31 1.20
---------- ---------- ---------- ---------- ----------
Less distributions
From net investment income - - - - -
From net capital gains (0.17) (0.13) (0.01) (0.88) (0.09)
---------- ---------- ---------- ---------- ----------
Total distributions (0.17) (0.13) (0.01) (0.88) (0.09)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.44 $ 17.41 $ 9.65 $ 14.47 $ 13.04
========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 35.62% 81.83% (33.27)% 17.9 10.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,848 $ 1,274 $ 543 $ 886 $ 454
Ratio of net investment income to average net assets
With expense reductions (3.85)% (4.88)% (5.47)% (5.48)% (5.52)%
Without expense reductions (3.85)% (4.88)% (5.47)% (5.48)% (5.52)%
Ratio of expenses to average net assets
With expense reductions 4.10% 5.26% 5.97% 5.78% 5.90%
Without expense reductions 4.10% 5.26% 5.97% 5.78% 5.90%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
67
<Page>
PACIFIC ADVISORS FUND INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Pacific Advisors Fund Inc.
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of Pacific Advisors Fund Inc.
(comprising, respectively, the Government Securities Fund, Income and Equity
Fund, Balanced Fund, Growth Fund, Multi-Cap Value Fund and Small Cap Fund) (the
"Funds"), as of December 31, 2004, and the related statements of operations for
the year then ended, the statements of changes in net assets for each of the two
fiscal years in the period then ended, and the financial highlights for each of
the five fiscal years in the period then ended. These financial statements and
financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material misstatement.
An audit includes consideration of internal control over financial reporting as
a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Funds' internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. Our procedures included confirmation of
securities owned as of December 31, 2004, by correspondence with the custodian
and brokers. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective funds constituting Pacific Advisors Fund Inc. at December
31, 2004, the results of their operations for the fiscal year then ended, the
changes in their net assets for each of the two fiscal years in the period then
ended, and their financial highlights for each of the five fiscal years in the
period then ended, in conformity with U.S. generally accepted accounting
principles.
/s/ Ernst & Young LLP
Los Angeles, California
January 21, 2005
68
<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 (71) Director Since 1992 2003 - Present: Retired 6 Pacific Advisors None
1 North Ormond Avenue 1970 - 2003: President
Havertown, PA 19083 Mutual Funds
Fringe Benefits,Inc/
Financial Foresight,
Ltd., d/b/a The Brinker
Organization (Financial
Services Companies)
Victoria Breen (53) Director Since 1992 1992 - Present: Assistant 6 Pacific Advisors None
603 West Ojai Avenue and Assistant Secretary and Director, Mutual Funds
Ojai, CA 93023 Secretary Pacific Global
Investment Management
Company, Pacific Global
Investor
Services, Inc.
1994 - Present: Agent,
Transamerica Life
Companies and Registered
Principal, Transamerica
Financial Advisors, Inc.
1986 - Present:
President,
Derby & Derby Inc.
(Financial Services
Company)
</Table>
69
<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
- -----------------------------------------------------------------------------------------------------------------------------
Thomas H. Hanson (55) 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.;
Director, Pacific Global
Investor Services, Inc.
2001 -Present: Vice
President, Pacific Global
Investor Services, Inc.
1997 - 2001:
Vice President and
Director, Pacific Global
Investment Fund Ltd.
1992 -2001: President,
Pacific Global Investor
Services, Inc.
1993 - Present: Owner,
Director, Chairman,
President and CEO of
TriVest Capital
Management, Inc.
Catherine L. Henning (27) 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
Fund Distributors, Inc.
and Pacific Global
Investor Services, Inc.
1999 - Present: Marketing
Coordinator, Pacific Global
Investment Management
Company
</Table>
70
<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
- -----------------------------------------------------------------------------------------------------------------------------
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 (51) Vice Since 2001 2004 -Present: Chief 6 Pacific Advisors None
206 North Jackson Street President, Compliance Officer, Mutual Funds
Suite 301 Chief Pacific Advisors Fund Inc.
Glendale, CA 91206 Compliance and Pacific Global
Officer and Investment Management
Treasurer Company
2001 - Present: Executive
Vice President, Treasurer,
Pacific Global Investment
Management Company;
Treasurer and Director,
Pacific Global Fund
Distributors, Inc.;
President and Treasurer,
Pacific Global Investor
Services, Inc.
1999 - Present: Director,
Pacific Global Investment
Management Company
</Table>
71
<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 (61) Director Since 1992 2004 - Present: 6 Pacific Advisors None
5924 Colodny Consultant 2002 - 2003: Mutual Funds
Agoura, CA 91301 Executive Vice President,
Sammy Studios, Inc.
(Entertainment Company)
2001 - 2002: Vice
President and Executive
Producer, Electronic
Arts; President,
International Media
Group, Inc.
(Entertainment Company)
2000 - 2001: Senior Vice
President, Infogrames
(Entertainment Company)
Takashi Makinodan, Ph.D Director Since 1995 1992 - Present: Director, 6 Pacific Advisors None
(80) Medical Treatment Mutual Funds
1506 S. Bentley Avenue Effectiveness Program
PH #5 (MEDTEP), Center on Asian
Los Angeles, CA 90025 and Pacific Islanders
1991 - Present: Associate
Director of Research,
Geriatric Research
Education Clinic Center,
VA Medical Center
Gerald E. Miller (75) Director Since 1992 1992 - Present: Retired 6 Pacific Advisors None
5262 Bridgetown Place Mutual Funds
Westlake Village, CA 91362
Louise K. Taylor, Director Since 1992 1991 - Present: 6 Pacific Advisors None
Ph.D (58) Superintendent, Monrovia Mutual Funds
325 East Huntington Dr. Unified School District
Monrovia, CA 91016
</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 theCompany.
72
<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
INCOME AND EQUITY FUND CO-MANAGER AND 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
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULE
The Fund files its complete schedule of portfolio holdings with the SEC
for the first and third quarters of each fiscal year on Form N-Q. The
Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may be reviewed and copied at
the SEC's Public Reference Room in Washington, DC. Information about
the operation of the Public Reference Room may be obtained by calling
the SEC at (800) SEC-0330.
The Fund's complete schedule of portfolio holdings for each fiscal
quarter is posted on the Fund's Web site at www.pacificadvisorsfund.com
and is available without charge, upon request by calling (800)
989-6693. Documents will be sent within 3 business days of receipt of
your request.
AVAILABILITY OF PROXY VOTING POLICIES AND PROCEDURES AND PROXY VOTING
RECORD
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities and
information regarding how the Fund voted proxies relating to portfolio
securities during the most recent 12-month period ended June 30 is
available without charge, upon request by calling (800) 989-6693.
Documents will be sent within 3 business days of receipt of your
request. This information is also available on the SEC's Web site at
http://www.sec.gov.
<Page>
[GRAPHIC] PACIFIC GLOBAL FUND DISTRIBUTORS, INC. PRSRT STD
206 NORTH JACKSON STREET, SUITE 301 U. S. POSTAGE
GLENDALE, CALIFORNIA 91206 PAIDS
GLENDALE, CA
PERMIT NO. 1090
pg101.898
<Page>
Item 2. Code of Ethics
Registrant has adopted a Code of Ethics pursuant to Section 406 of the
Sarbanes-Oxley Act of 2002 that applies to Registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller. A copy has been attached as Exhibit 10a(1)(i).
Item 3. Audit Committee Financial Expert
Registrant's Audit Committee has three members. While these members
are "financially literate," the Board has determined that none of the
members of the Audit Committee meet the technical definition of "audit
committee financial expert." Registrant has determined that an audit
committee financial expert is not necessary at this time because (i)
the Audit Committee members are financially literate; (ii) they have
served on Registrant's Audit Committee for several years; (iii) the
accounting methodologies applicable to registered investment companies
and the types of investment activities in which the Funds engage are
well established; and (iv) Registrant's financial statements do not
involve the types of complex accounting issues that other types of
public companies may have.
Item 4. Principal Accountant Fees and Services
(a)-(d)
Ernst & Young LLP ("E&Y") billed the Company aggregate fees for professional
services rendered for the fiscal years ending December 31, 2004, and December
31, 2003, as follows:
<Table>
<Caption>
AUDIT FEES AUDIT RELATED FEES TAX FEES ALL OTHER FEES
- --------------------------------------------------------------------------------
2004 $ 106,500 $ 0 $ 8,000 $ 10,000
2003 $ 100,350 $ 0 $ 7,440 $ 0
</Table>
(e)(1)
The Audit Committee is authorized to pre-approve non-audit services provided by
the Corporation's auditors, if they find it appropriate in light of their
fiduciary duties and in the exercise of their good faith business judgment and
compatible with the auditors' independence. The Chairman of the Audit Committee
is authorized to approve audit and non-audit services for newly established
funds of the Corporation on the same terms as the full Audit Committee
previously had approved for the then existing funds, and to approve non-audit
services which are permissible under applicable law, provided the estimated fee
is not more than $5,000 based on a good faith estimate provided by the auditor.
The Chairman shall report any such pre-approval to the Audit Committee at its
next following meeting.
(e)(2)
None.
<Page>
(f)
0%
(g)
None.
(h)
Not applicable.
Item 5. Not applicable.
Item 6. (Reserved)
Item 7. (Reserved)
Item 8. Not applicable.
Item 9. Controls and Procedures.
(a) Based upon their evaluation of Registrant's disclosure controls
and procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940) as conducted within 90 days of the filing date of
this Form N-CSR, 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 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 Registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of the most recent evaluation as
indicated, including no significant deficiencies or material
weaknesses that required corrective action.
Item 10. Exhibits
(a)(1) Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley
Act of 2002.
(a)(2) Certifications required by Item 10(a) of Form N-CSR and Section
302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
(b) Certification required by Section 906 of the Sarbanes-Oxley Act of
2002 (filed herewith).
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, 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: /s/ GEORGE A. HENNING
-----------------------------------
George A. Henning
Chairman, Pacific Advisors Fund Inc.
Date: March 4, 2005
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 Registrant and in the capacities and on the dates
indicated.
By: /s/ GEORGE A. HENNING
-----------------------------------
George A. Henning
Chief Executive Officer
Date: March 4, 2005
By: /s/ BARBARA A. KELLEY
-----------------------------------
Barbara A. Kelley
Chief Financial Officer
Date: March 4, 2005