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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: 811-7062
PACIFIC GLOBAL FUND INC. D/B/A PACIFIC ADVISORS FUND INC.
(Exact name of registrant as specified in charter)
101 NORTH BRAND BLVD., SUITE 1950 GLENDALE, CALIFORNIA 91203
(Address of principal executive offices)
GEORGE A. HENNING 101 NORTH BRAND BLVD., SUITE 1950 GLENDALE, CA 91203
(Name and address of agent for service)
Registrant's telephone number, including area code: 818-242-6693
Date of fiscal year end: DECEMBER 31
Date of reporting period: JUNE 30, 2005
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Item 1. Report to Shareholders
Filed herewith.
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[LOGO]
PACIFIC
ADVISORS
- -
FUND INC.
[GRAPHIC]
SEMI-ANNUAL REPORT
JUNE 30, 2005
GOVERNMENT SECURITIES FUND
INCOME AND EQUITY FUND
BALANCED FUND
GROWTH FUND
MULTI-CAP VALUE FUND
SMALL CAP FUND
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PACIFIC ADVISORS
table of contents
<Table>
MESSAGE FROM THE CHAIRMAN 1
GOVERNMENT SECURITIES FUND 3
INCOME AND EQUITY FUND 7
BALANCED FUND 12
GROWTH FUND 17
MULTI-CAP VALUE FUND 22
SMALL CAP FUND 26
SCHEDULE OF INVESTMENTS 30
STATEMENT OF ASSETS AND LIABILITIES 52
STATEMENT OF OPERATIONS 54
STATEMENT OF CHANGES IN NET ASSETS 56
NOTES TO FINANCIAL STATEMENTS 60
FINANCIAL HIGHLIGHTS 65
</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.
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[GRAPHIC]
MESSAGE
from the chairman
August 22, 2005
Dear Shareholders:
Mixed messages on the state of the economy brought much confusion into the
market during the first half of the year. Despite evidence that the underlying
economy was on a firm footing, investors faced a heightening sense of
uncertainty. The U.S. economy, which has grown at a healthy pace over the past
couple of years, showed signs of moderation. As a result, investors from Wall
Street to Main Street worried that a recession might be imminent. Compounding
this fear, the Federal Reserve continued its cycle of interest rate increases to
keep inflation at bay and temper market speculation Even weather played a role
in evaluating the state of the economy as hurricanes in the Southeast, record
rainfalls in the West, and heavy snows in the East created business disruptions
further dampened earnings in a quarter that is historically weak.
MARKET REVIEW
<Table>
<Caption>
JUNE 30, 2005 CLOSE YTD RETURN
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Dow Jones 10,274.97 - 4.71%
S&P 500 1,191.33 - 1.70%
NASDAQ 2,056.96 - 5.45%
Russell 2000 (small cap) 639.66 - 1.25%
<Caption>
06/30/05 12/31/04
- -------------------------------------------------------------------------------
10-Year T-Note Yield 3.94% 4.24%
</Table>
Market conditions remained challenging in the second quarter. Volatility
increased significantly on speculation of an economic "soft patch." Surprisingly
strong economic and corporate earnings reports, however, helped end the quarter
on a positive and promising note. This good news provided the stimulus for
further market growth as we entered the third quarter.
ECONOMIC OUTLOOK
The U.S. economy continued to hum along in the first half of the year.
Economic growth remained at a robust 3.8% rate through the first quarter. Growth
moderated in the second quarter, but still reached a solid 3.5% annual rate.
Additional economic data continue to support a favorable economic outlook:
broad inflation remains muted despite rising energy prices; interest rates
remain relatively low; and consumers continue to spend freely. Future growth
should continue to reflect a vibrant, albeit uneven, economic expansion.
MARKET PERSPECTIVE
The equity markets remained trading range bound. Overall volatility rose as
the market selectively emphasized the short-term impact of some economic data.
The market also anticipated disappointing first quarter earnings announcements
due to the harsh winter weather, rising short-term interest rates, and
escalating oil prices. By late April, these fears led the equity market to the
lower end of its trading band.
First and second quarter earnings ultimately exceeded expectations. Healthy
corporate profit growth and strong economic data helped boost investor
confidence. While year-to-date performance remained disappointing, the market
showed signs of a rebound as the second quarter closed. Through June 30th, the
Dow Jones Industrials Average was down - 4.71%, the S&P 500 Index lost - 1.70%
and the Nasdaq Composite fell - 5.45%. We believe that the equity markets will
continue to fluctuate within a trading range. This will cause the market to be
volatile and place a premium on good stock selection
The interest rate CONUNDRUM persisted as the disconnect between short and
long-term rates continued to grow during the second quarter. The benchmark
10-year T-Bond fell from 4.50% to 3.94% even as the Fed raised short-term rates
another 0.50% to 3.25%. Long-term rates remained low as demand continued to
outstrip the supply of high-quality bonds. Foreign governments with a large
trade surplus bought U.S. Government bonds to help stimulate economic growth to
maintain the demand for imports. Institutional investors were also heavy buyers
of long-term bonds to manage future retirement income needs from the graying
baby boomer population. Additionally, U.S. corporations had significant cash
reserves limiting their need to issue corporate bonds.
Lower interest rates enabled real estate values to appreciate rapidly as
buyers took advantage of historically low rates. When long-term interest rates
do rise, we anticipate a softening demand in real estate that will vary from
region to region. As profits in real estate become more difficult to achieve,
equity and fixed income markets may become more attractive investments.
1
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[GRAPHIC]
The risk of losing principal on long-term bonds continued to grow as
short-term rates increased. This expectation of higher long-term rates further
emphasized the importance of implementing a DEFENSIVE fixed income investment
strategy. Our fixed income investment strategy in this phase of the economic
cycle remains focused on protecting principal by investing mostly in
shorter-term bonds. When long-term interest rates eventually rise, we anticipate
buying longer-term bonds to lock in higher yields.
Energy costs were also a major story during 2005. Energy prices have been
rising as world demand has escalated. Counties such as China and India have
experienced tremendous economic growth creating greater demand for energy in
their business and consumer markets. We anticipate that global demand will
continue to grow keeping pressure on energy costs for the foreseeable future.
Despite the economic impact of higher energy prices, we believe the low
inflation economy can continue to grow albeit at a more modest pace. It is
important to keep in mind that higher energy costs will make alternative energy
sources more attractive and, over the longer term, lessen the reliance on oil
and gas as a primary fuel source.
INVESTMENT REVIEW - THE HIGHS AND LOWS
Prudent investment management during this period of heightened market
volatility required patience and discipline. Seasoned investment experience was
crucial to distilling market "noise" and making sound long-term investment
decisions. We continued to maintain more defensive investment strategies to
manage risk while taking advantage of select buying opportunities when the
market hit the lower end of its trading range in April.
Fixed income portfolios remained defensively positioned. The risk of losing
principal outweighed the potential for gain from owning long-term bonds. In
general, high-quality fixed income securities remained in limited supply which
forced price up and yields down. When possible, we added positions in higher
yielding, high-quality corporate bonds and preferred stocks. We also added
positions in intermediate-term government agency notes for additional income and
capital appreciation potential.
LOOKING AHEAD
The U.S. economy is healthy. Near-term inflationary pressures are expected
to remain modest. GDP growth should continue for the foreseeable future although
we do expect the pace of the economic expansion will moderate to between 3.0%
and 3.5% by year-end. Likewise, we anticipate corporate earnings and profit
growth will remain solid while slowing to a more moderate and sustainable pace.
The market will likely remain trading range bound in response to moderating
economic and profit growth. Once the Fed concludes its current series of
interest rate increases, we anticipate that the equity markets will move up to
new trading bands. In this volatile environment, careful stock selection and a
disciplined investment strategy will remain key to managing risk and achieving
long-term investment goals. We wish to express our appreciation for the trust
and privilege you continue to place with us in managing your investments.
Sincerely,
/s/ George A. Henning
George A. Henning
2
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PACIFIC ADVISORS
Government Securities Fund
INVESTS PRIMARILY IN FIXED-INCOME SECURITIES GUARANTEED BY THE U.S. GOVERNMENT
OR ITS INSTRUMENTALITIES. THE FUND MAY ALSO INVEST IN OTHER INCOME-PRODUCING
INSTRUMENTS, INCLUDING DIVIDEND-PAYING COMMON STOCKS, FOR INCOME AND CAPITAL
APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
FOR THE SIX MONTHS ENDED JUNE 30, 2005, THE FUND HAD A TOTAL RETURN OF 1.16% FOR
CLASS A SHARES, AND 0.86% FOR CLASS C SHARES. THE FUND'S BENCHMARK, THE LEHMAN
INTERMEDIATE TREASURY BOND INDEX(1), RETURNED 1.62% DURING THE SAME PERIOD.
Q WHAT WAS THE TREND IN LONG-TERM INTEREST RATES DURING THE FIRST SIX MONTHS?
A Yields on intermediate and longer-term government securities remained
relatively low. Insatiable demand for U.S. government securities allowed the
U.S. government to continue financing longer-term debt without raising rates.
U.S. government securities are generally considered one of the safest and
therefore most desirable investments in the world. Much of the demand comes from
foreign governments and investors which purchase nearly 60% of newly issued
treasury notes. Growing trade surpluses in developing countries such as China
and India left these countries with extra dollars to invest. In turn, their
demand for U.S. government securities increased. Additionally, volatility and
limited performance in the corporate bonds and equity markets made U.S.
government securities even more attractive to investors.
Q WHAT CHALLENGES DID THIS TREND CREATE?
A The Federal Reserve has raised short-term interest rates by 2.5% over the
past year. Typically, this would produce a similar rise in long-term interest
rates. Instead, the growing demand for U.S. government securities kept long-term
interest rates in a relatively tight trading channel. The benchmark 10-year
T-Bond fluctuated between 3.89% and 4.64% during the first six months of the
year.
This volatility increased the interest rate risk on longer term bonds.
While longer-term bonds offered slightly higher yields, they also carried a
greater risk for capital depreciation. For example, an interest rate increase as
small as 0.50% can result in a 10% drop in a long-term bond's value.
Q DID YOU MAKE ANY SIGNIFICANT CHANGES TO THE PORTFOLIO IN 2005?
A In this higher risk environment, we remained focused on protecting capital.
We made only minor changes to the Fund's portfolio over the past six months. We
managed interest rate risk by maintaining a relatively short average maturity
between 5 and 7 years. Investments remained concentrated in government agency
bonds, such as Fannie Mae (Federal National Mortgage Association) and Freddie
Mac (Federal Home Loan Mortgage Corporation). Agency paper offered slightly
better yields than treasury notes without a corresponding increase in risk. We
maintained a smaller portion of the portfolio in equities as stock market
volatility continued to afford few attractive and appropriate investments.
Q WHAT SETS THE FUND APART FROM ITS PEERS?
A We focus on PROTECTING PRINCIPAL and seeking TOTAL RETURN. Our investment
strategy focuses on preserving capital, providing income, and seeking capital
appreciation in a risk appropriate manner. Our TOTAL RETURN emphasis avoids the
focus on YIELD which, during periods of rising interest rates, risks losing
principal and eroding earning power.
We ACTIVELY MANAGE our bond investments to preserve capital. Most
government securities funds evenly distribute their investments across a range
of maturities. This passive strategy limits the fund's ability to manage
interest rate risk. By contrast, we identify an optimal maturity range based on
current market and economic conditions. We concentrate the Fund's holdings in
securities within this range which offer the greatest yield at the most
appropriate level of risk for a conservative investor. We may also invest up to
20% of the portfolio in high-quality, income producing blue chip stocks to
provide the opportunity for additional income and growth and protect against the
effects of inflation.
Q DO YOU EXPECT TO SEE A DRAMATIC RISE IN LONG-TERM RATES BEFORE THE END OF
THE YEAR?
A A dramatic rise in long-term rates will
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(1) The Lehman Intermediate Treasury Bond Index is an unmanaged index of
intermediate term government bonds since 12/31/80.
3
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mostly likely come about ONLY if we see a significant increase in inflation or a
marked decrease in the demand for U.S. government securities by foreign
investors. Based on current data, we don't expect either of these changes to
occur in the immediate future. However, rising energy prices and inflationary
concerns will likely produce a modest rise in long-term rates during the coming
months. Early next year, the U.S. government will begin selling 30 year Treasury
bonds. It is difficult to project the impact that the longer term bonds will
have on interest rates. However, we do expect demand to be strong as pension
plans and other long term investors use these bonds to match their future asset
and liability requirements.
As we mentioned earlier, the potential of even a modest rise in rates can
significantly increase the risk of a price decline in long-term bonds. Interest
rate changes typically occur in a short period of time. A sustained rise in
rates is often only apparent in hindsight. By the time a sustained rise is
confirmed, long-term bond holders have often missed the opportunity to limit
their losses.
Q DO YOU ANTICIPATE MAKING ANY SIGNIFICANT CHANGES TO THE PORTFOLIO?
A Near-term, we expect to make few changes to the maturity mix and
composition between government and agency bonds holdings. We will maintain a
shorter average maturity in light of increasing interest rate risk. Investments
will remain concentrated in government agency securities which should continue
to provide relatively more attractive yields.
Improved equity market performance would prompt us to modestly increase
equities holdings. We expect more opportunities in the last half of the year to
add to the Fund's total return through investment in high-quality, dividend
paying common stocks. Protecting principal and managing through this period of
growing interest rate risk will remain our primary focus during the second half
of the year.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance quoted represents past performance. Current performance may be
higher or lower than the performance data quoted. Returns do not take into
account the maximum 4.75% sales charge on Class A shares and would be lower if
the sales charge were included. Returns represent the change in value over the
stated period assuming reinvestment of dividends and capital gains at net asset
value. 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 performance current to the most
recent month-end call (800) 989-6693.
4
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[CHART]
PORTFOLIO HOLDINGS AS OF 06/30/05 (Based on Total Investments)
<Table>
1. U.S. GOVERNMENT AGENCIES 86.76%
2. PREFERRED STOCK 6.26%
3. EQUITIES 5.56%
4. CASH AND CASH EQUIVALENTS 1.42%
</Table>
5
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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 January 1, 2005 through June 30,
2005.
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
01/01/05 06/30/05 01/01/05 - 06/30/05(3)
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CLASS A SHARES
Actual $ 1,000 $ 1,011.60 $ 9.23
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 9.29
CLASS C SHARES
Actual $ 1,000 $ 1,008.60 $ 12.95
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 13.05
</Table>
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(3) Expenses are equal to the Fund's annualized expense ratio of 1.85% for
Class A shares and 2.60% for Class C shares, multiplied by the average account
value over the period, multiplied by 181/365 days to reflect the one-half year
period.
6
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PACIFIC ADVISORS
Income and Equity Fund
INVESTS PRIMARILY IN INVESTMENT-GRADE, FIXED-INCOME SECURITIES. THE FUND MAY
ALSO INVEST IN STOCKS FOR LONG-TERM CAPITAL APPRECIATION.
INTERVIEW WITH PORTFOLIO MANAGERS
THOMAS H. HANSON
STEPHEN K. BACHE, CFA
FOR THE SIX MONTHS ENDED JUNE 30, 2005, THE FUND RETURNED - 0.23% FOR CLASS A
SHARES, AND - 0.54% FOR CLASS C SHARES. THE FUND'S BENCHMARKS, THE S&P 500(1)
AND THE LEHMAN INTERMEDIATE CORPORATE BOND INDEX(2), RETURNED, 1.50% AND -
0.81%, RESPECTIVELY.
Q WHAT IS THE FUND'S PRIMARY INVESTMENT OBJECTIVE?
A The Income and Equity Fund is designed to meet the investment needs of a
more conservative investor who is risk averse. This type of investor comes in
all shapes and sizes, but is often a retiree who has limited income and cannot
tolerate significant investment losses. Capital preservation and safety are
paramount to this Fund which is why we seek to effectively manage risk and
volatility.
Having said that, another inherent risk is the erosion of capital through
inflation and taxes. This Fund provides a hedge against inflation and taxes by
selecting a core holding of high quality equities and bonds that seek to
preserve the principal investment while providing the opportunity for capital
appreciation.
Q WHAT ARE THE MOST COMMON MISCONCEPTIONS ABOUT THE EQUITY AND BOND MARKETS?
A An investor buying a bond is essentially making a loan to that company or
government entity. Government and corporate bonds are usually fairly
straight-forward in that they are issued with pre-determined rates of return on
each "loan" as well as a maturity date (the date upon which the principal or
"loan amount" is paid back).
A common misconception in owning bonds is that they are always stable,
passive investments that do not require monitoring or managing. In fact, bonds
change in value each day due to changes in interest rates. Close monitoring of
interest rates is required to manage the proper selection of bonds to provide
income while reducing price volatility. The truth is that successful bond
investing DOES require on-going management.
Unlike a bond, a stock holder buys an ownership portion, OR SHARE, of a
company. Each shareholder has a right to a portion of the earnings distributed
by the company as dividends and a right to share in the assets of the company.
Since the value of those earnings and the value of the company are not
guaranteed, there is more risk in owning stock.
A common misconception is that all stocks carry significant risk and price
volatility. Many stocks have a long history of steady dividend payments and
relative price stability. Additionally, recent changes in federal tax laws have
increased the importance of dividend payments to shareholders. As a result,
investors can benefit from owning companies which pay attractive dividend rates
and have lower price volatility. Owning stocks can boost income without adding
significant risk to the shareholder.
Q HOW IS RISK MANAGED IN THE FUND?
A Investors often overlook the effects of inflation. In essence, inflation is
the guarantee that your buying power will erode over time. In order to mitigate
this guaranteed risk, the Fund focuses on achieving better-than-average returns
while maintaining safety.
For example, when investors place their money into no-risk or low-risk
investments, such as savings accounts, CDs, or money market funds, they receive
a predictable, steady yield. But, the trade-off for that safety is the reality
that their income will never outpace inflation and taxes.
The Income and Equity Fund seeks to provide reliable returns that are
similar to that of a savings account or money market, but it doesn't stop there.
It also takes the next step and seeks capital appreciation, when appropriate, to
help ward off the effects of inflation.
- ----------
(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. Index returns
assume the 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.
7
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To accomplish this, we first look at the overall market trends to evaluate
market volatility and economic momentum. During periods of market volatility, we
reduce our exposure to bonds and equities. We focus on stocks which pay
dividends or which have low price volatility. We concentrate on higher quality
bonds and, in periods of rising interest rates, shorter maturity bonds.
Throughout all market conditions, we carefully select high-quality government
bonds, investment grade U.S. corporate bonds and dividend-paying blue-chip
stocks.
Q HOW DID THE FUND MEET THE MAJOR RISKS IN THE FIRST HALF OF THE YEAR?
A For bonds, interest rates were the ongoing challenge. For equities, market
volatility created many hurdles. In keeping with the goal of this Fund,
protection of capital and risk management remained the top priority. The
portfolio mix was adjusted to increase the fixed income holdings to
approximately 70 percent of the portfolio. We maintained a solid mix of
high-quality corporate bonds, Government and Government Agency bonds, and
preferred stocks. To minimize the risk of price depreciation, the average
maturity of the bond portfolio was kept at approximately five to seven years.
Equities comprised about 23 percent of the Fund. While the top 10 equity
holdings remained the same through this period, the overall equity holdings were
constantly re-evaluated, added to, and pruned for maximum performance. The
equity market didn't offer superior opportunities to add new names which would
fit into the investment philosophy of the Fund.
Q WHY DID YOU INVEST A GREATER PORTION OF THE FUND IN GOVERNMENT AGENCIES?
A. Compared with the U.S. Treasuries and corporate bonds, U.S. Government
Agencies have offered a valuable alternative. The current economic environment
has allowed corporate America to refinance its existing debt. Consequently, many
corporations have had little need to issue new bonds. The majority of corporate
America is sitting on large cash reserves which they have used to fund most of
their major corporate expenditures. These factors have led to a limited supply
of higher yielding corporate bonds. And, an increase in cash reserves has
created an environment of improved shareholder value through higher dividend
payments, increased mergers & acquisition activity, and stock repurchases.
Interest rates and inflation have remained low for a longer period than
normal. There are several reasons for this: a lingering effect of the post Y2K
spending slowdown; the recession following 9/11; the impact on businesses of the
Sarbanes-Oxley reforms as well as an overall conservative approach to debt. Many
corporations, having accumulated cash, have been reluctant to expand their
businesses through debt financing. Instead, many have been buying back stock or
making acquisitions with offers of cash and/or stock.
U.S. Government Treasury Notes and Bonds have been in high demand from
virtually every developed country. This demand has led to a limited supply and
kept interest rates low. As a consequence, U.S. Government Treasuries have not
offered a competitive return over other Government or corporate debt issues.
This left a new opening for U.S. Government Agencies, such as investments in
Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home
Loan Mortgage Corporation) which pay higher interest rates than U.S. Treasuries
for similar maturity dates. These investments have benefited the Fund by
providing better yields without significantly increasing risk.
Q DO YOU EXPECT SIGNIFICANT CHANGES IN THE BOND AND EQUITY MARKETS IN THE
COMING MONTHS?
A. We see the foundation for solid, although uneven, economic and market
growth. Inflation should remain moderate. These factors are expected to provide
a lift for both markets.
For bonds, a modest rise in long-term rates will provide better yields;
although we expect they will still be somewhat limited. As interest rates peak,
the economic climate should provide opportunities for capital appreciation
For equities, a much-needed catalyst for sustained upward momentum is
necessary before the market can break through its restricted, yet volatile
trading range. Perhaps several more months, or even years, will need to play out
before the conditions allow the market to once again find a solid footing with
continued, sustainable momentum.
8
<Page>
Q HOW WILL YOU MANAGE THE FUND'S INVESTMENTS IN THE LAST HALF OF THE YEAR?
A. As always, we will remain sensitive to managing risk. This has been, and
will continue to be, the cornerstone of the Fund's investment policy. For the
fixed income portion of the portfolio, we will continue use shorter-term
maturities until the Fed signals it is ready to end its increases to interest
rates. Consequently, we will await better yield opportunities on long bonds
before extending the Fund's average maturity.
We expect the equity market to show improved performance, although
volatility will likely persist. Judiciously, we may increase the equity
allocation up towards 25 to 30 percent of the portfolio to take advantage of
positive economic conditions. This increase in equities will help position the
Fund for improved total return opportunities while keeping risk to a minimum.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance quoted represents past performance. Current performance may be
higher or lower than the performance data quoted. Returns do not take into
account the maximum 4.75% sales charge on Class A shares and would be lower if
the sales charge were included. Returns represent the change in value over the
stated period assuming reinvestment of dividends and capital gains at net asset
value. 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 performance current to the most
recent month-end call (800) 989-6693.
9
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 06/30/05 (Based on Total Investments)
<Table>
1. CORPORATE BONDS 53.50%
EQUITIES 22.48%
2. Financials 7.79%
3. Other Equities 14.69%
4. U.S. GOVERNMENT AGENCIES 15.94%
5. PREFERRED STOCK 4.51%
6. CONVERTIBLE CORPORATE BONDS 2.03%
7. CASH AND CASH EQUIVALENTS 1.54%
</Table>
10
<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 January 1, 2005 through June 30,
2005.
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
01/01/05 06/30/05 01/01/05 - 06/30/05(4)
- ---------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 997.70 $ 9.66
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 9.79
CLASS C SHARES
Actual $ 1,000 $ 994.60 $ 13.35
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 13.56
</Table>
- ----------
(4) Expenses are equal to the Fund's annualized expense ratio of 1.95% for
Class A shares and 2.70% for Class C shares, multiplied by the average account
value over the period, multiplied by 181/365 days to reflect the one-half year
period.
11
<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 SIX MONTHS ENDED JUNE 30, 2005, THE FUND RETURNED 1.27% FOR CLASS A
SHARES, AND 0.93% FOR CLASS C SHARES. THE FUND'S BENCHMARKS, THE S&P 500(1) AND
THE LEHMAN INTERMEDIATE CORPORATE BOND INDEX(2), RETURNED, 1.50% AND - 0.81%,
RESPECTIVELY.
Q WHAT WERE THE PRIMARY MARKET CHALLENGES IN THE FIRST HALF OF THE YEAR?
A There was heightened ambiguity in two specific areas - interest rates and
inflation. These factors created a nervous stock market environment, despite
solid data showing that economic growth was occurring at a measured pace.
"Three steps and a stumble" was the mantra for the period. Just as the
market started to gain momentum, it would be tripped by an interest rate
increase. Shareholder anxiety ran high and translated into sluggish, almost
anemic trading activity.
Even as most the economic indicators pointed to continued growth, investors
appeared to have gone on strike. The market couldn't sustain a rally.
Specifically for stocks, the challenge was a tightly restricted, more volatile,
"trading range" market which yielded limited results. In response, investors
redoubled their efforts in search for higher returns. They kicked up their
tolerance for risk and began chasing riskier investments such as real estate and
hedge funds.
For bonds, there was a curious detachment between short and long-term
interest rates. Long-term rates essentially stood still while short-term rates
increased. This relationship surprised even Federal Reserve Chairman Alan
Greenspan who referred to this disconnect as the "great conundrum."
Additionally, the supply of bonds was unable to keep up with demand. U.S.
Government bonds are arguably the most desired investment anywhere on the globe.
Throughout the first half of the year, China, and other Asian and European
countries had two powerful assets: strong currency values and excess American
dollars from their trade surpluses. They reinvested large amounts of their
surplus cash back into the United States through their purchase of U.S.
Government Bonds. The high demand for these bonds helped to keep long-term
interest rates low despite increases in short-term rates by the Federal Reserve.
Q IT HAS BEEN SAID THAT MANAGING A BALANCED FUND IS LIKE MANAGING TWO
SEPARATE FUNDS. DO YOU AGREE?
A Yes. This Fund is a demonstration of the strength of diversification. In
order to effectively manage risk while seeking an above average return, it's
critical to employ separate and distinct investment strategies for each
portfolio within the overall Fund.
I've managed the Balanced Fund since 1994, and I'm always wearing two hats:
one for bonds; the other for equities. The bond and equity markets can be polar
opposites, which make them excellent counterbalances for one another.
Stock and bond performance are both linked to interest rates, but that's
where the similarities end. Higher interest rates translate into greater bond
yields. The opposite is true in stocks, which typically decline, but in an
unpredictable, chaotic fashion. Our strategy positions the bond holdings to
provide a predictable, stable revenue stream and to lower overall portfolio
volatility. Equities are used to generate capital appreciation and provide a
hedge against inflation and taxes.
These counterbalanced portfolios create a "steady as she goes" result. The
Fund is not designed to ride the waves, but rather to be a safe, solid
cornerstone to any investment plan. Its objective is to adapt to changing
economic events in a manner which will provide steady growth with limited
volatility.
- ----------
(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. Index returns
assume the 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.
12
<Page>
Q HOW DID YOU ACHIEVE A SOLID TOTAL RETURN IN SUCH A VOLATILE MARKET?
A Diversification and a proper asset allocation mix were central to the
Fund's solid returns. We continually monitor the asset allocation mix between
equities and bonds. When new economic information suggests a shift in the
current trend of the market, the Fund is adjusted. Recognizing the economy would
continue to grow, the equity portion of the Fund was increased modestly. This
continued to position the Fund for greater growth potential while protecting the
core assets with lower risk bond holdings.
Before moving into more equities, we sought data from several sources to
provide confirmation that economic growth would remain strong. To protect
capital and maintain lower volatility, equity investments were focused on
high-quality companies in a variety of businesses with proven track records. I
avoided overweighting any specific market sector to limit risk.
On the bond side, I continued to increase the short-term holdings. As
mentioned earlier, short-term interest rates rose, but long-term interest rates
did not. While long term bonds did produce marginally higher yields, the risk to
capital far outweighed the potential rewards. When interest rates are going up,
I stay short to protect principal. When interest rates near a peak in the cycle,
I invest in longer term bonds to lock in higher yields. That way, as the cycle
changes and interest rates decline, the Fund can benefit from both higher yields
and appreciation of the bonds.
Q WHERE DID YOU UNCOVER EQUITY OPPORTUNITIES IN THE FIRST HALF OF 2005?
A I didn't reinvent the wheel but stayed with the solid performers and added
to their positions, where appropriate. As always, the primary strategy is to:
buy quality companies at deep discount.
Case in point: Banco Latino is a solid, high-quality financial institution
that does business in Central and South America. In the first half of the year,
the Argentine Government announced that it would default on its bonds, and then
renegotiate with its bond holders to buy them back at a small percentage of
their original value. The market began to sell the stocks of South and Central
American companies on the assumption that they would have significant losses in
their bond portfolios.
Rather than simply avoiding this potential investment opportunity, I
examined Banco Latino's holdings in Argentine Government bonds. I determined
that, while it would have a negative impact, the equity markets had overreacted
and that this would be an attractive investment for the Fund. I bought shares at
an incredibly deep discount; almost 90 percent discount, and continued to pick
up additional shares as its price began to rise.
The stock has since bounced back to its original levels and has issued a
round of dividends. This holding has performed well and continues to provide
growth potential for the Fund. Let me wrap up by saying it's not always a good
idea to buy when troubles arise, and that's not what I do. I carefully weigh the
issues and pay particular attention to litigation risks because they are often
very difficult to determine over the long term. I don't automatically stay with
the crowd, or go against it. Instead, I allow careful, methodical research to
point me to the best decision for the Fund.
Q WHERE DO YOU SEE OPPORTUNITIES FOR THE BALANCED FUND IN THE REMAINDER OF
THE YEAR?
A I see optimism in the market, which should enable the equity markets to
move higher. As long-term interest rates eventually increase, we would
anticipate a dampening of the real estate market, which should bring investors
back into the stock market. The economic arrows are pointing toward slow,
moderate growth. I'll continue to look at sectors that I expect will enjoy a
more favorable climate in the future, such as pharmaceuticals.
When there is evidence that the current action of the Federal Reserve to
raise interest rates is nearing completion, then we will look to expand the
fixed income position in order to take advantage of the higher rates on
longer-term bonds. Until long-term interest rates move higher, the Fund will
maintain its position in shorter term bonds.
With continued economic expansion likely, the Fund will maintain a greater
weighting in equities. One area of interest is the technology sector where I am
researching high quality holdings that can be competitive in growth areas such
as
13
<Page>
internet search engines or communications. Most likely, the Fund will also see
some paring back in its retail holdings. This sector has benefited from lower
interest rates but will probably see some earnings pull-back as interest rates
on consumer credit starts to rise. I am and also looking for opportunities in
other businesses such as telecommunications and electronics.
We anticipate that the Fed will most likely complete its cycle of interest
rate increases during this year or early next year. While energy costs will
remain higher, overall inflation should be nominal. While it is difficult to
predict, I do believe that two things will happen: longer-term bond yields will
go up. This will cause the real estate market to cool off. Reasonably modest
economic growth in conjunction with historically low inflation and low interest
rates should provide the catalyst for continued growth in the Fund.
As always, my objective is to position the Fund to reap the benefits of
longer-term, economic, market, and company-specific trends on the horizon. I am
optimistic that the slower growing economy will continue to provide good
investment opportunities while managing the risk and volatility of the Fund.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance quoted represents past performance. Current performance may be
higher or lower than the performance data quoted. Returns do not take into
account the maximum 5.75% sales charge on Class A shares and would be lower if
the sales charge were included. Returns represent the change in value over the
stated period assuming reinvestment of dividends and capital gains at net asset
value. 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 performance current to the most
recent month-end call (800) 989-6693.
14
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 06/30/05 (Based on Total Investments)
<Table>
EQUITIES 61.04%
1. Energy 10.33%
2. Financials 9.61%
3. Industrials 9.53%
4. Health Care 9.41%
5. Consumer Discretionary 6.10%
6. Information Technology 5.28%
7. Materials 4.81%
8. Other Equities 5.97%
9. CORPORATE BONDS 34.67%
10. CASH AND CASH EQUIVALENTS 3.74%
11. U.S. GOVERNMENT AGENCIES 0.56%
</Table>
15
<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 January 1, 2005 through June 30,
2005.
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
01/01/05 06/30/05 01/01/05 - 06/30/05(4)
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 1,012.70 $ 12.63
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 12.70
CLASS C SHARES
Actual $ 1,000 $ 1,009.30 $ 16.34
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 16.47
</Table>
- ----------
(4) Expenses are equal to the Fund's annualized expense ratio of 2.53% for
Class A shares and 3.28% for Class C shares, multiplied by the average account
value over the period, multiplied by 181/365 days to reflect the one-half year
period.
16
<Page>
PACIFIC ADVISORS
Growth Fund
INVESTS PRIMARILY IN COMPANIES THAT ARE A PART OF THE S&P 500 INDEX(1) OR THE
NASDAQ 100 INDEX(2).
INTERVIEW WITH PORTFOLIO MANAGER
THOMAS H. HANSON
FOR THE SIX MONTHS ENDED JUNE 30, 2005, THE FUND RETURNED - 2.07% FOR CLASS A
SHARES, AND - 2.44% FOR CLASS C SHARES. THE FUND'S BENCHMARKS, THE S&P 500 AND
THE RUSSELL 1000(3), CHANGED - 0.81% AND 0.11%, RESPECTIVELY, DURING THE SAME
PERIOD.
Q HOW WOULD YOU CHARACTERIZE THE MARKET DURING THE FIRST HALF OF 2005?
A The market remained event-driven and erratic in the first six months of
2005. The 2004 year-end rally stretched into the first ten days of January and
then quickly dissipated. The market retreated in response to increases in
short-term interest rates by the Federal Reserve, mixed earnings signals from
corporate America, and a resurgence of hostilities in the Middle East. In May,
market performance began to improve. Positive first quarter earnings reports,
strong economic growth, and tame inflation lifted investor sentiment. Overall,
however, the market remained in a "trading range" staying within a relatively
narrow channel of highs and lows.
Q HOW DID YOU MANAGE THE FUND PORTFOLIO IN THIS MARKET?
A The Fund's long-term strategy continued to guide our investment decisions
in the first half of the year. We remained focused on investing in stocks within
the leading sectors and industries of the market that offered
"growth-at-a-reasonable-price." The most significant change to the portfolio was
an increase in cash holdings. We more than doubled the Fund's cash position in
response to increased market volatility and risk. This defensive tactic helped
protect gains and put the Fund in position to take advantage of new investment
opportunities once market volatility subsides.
Q WHAT SECTORS AND INDUSTRIES DID YOU TARGET?
A In the past six months, there was little change in the sectors and
industries that led the market. We added few new positions to the portfolio and
took advantage of opportunities to increase existing positions. In general, we
continued to concentrate investments in two types of sectors and industries. We
maintained greater exposure to companies benefiting from global economic growth.
This included industrial firms such as GENERAL ELECTRIC and HONEYWELL; basic
commodity producers such as LOUISIANA PACIFIC and GEORGIA PACIFIC; and oil
related companies such as EXXONMOBIL, APACHE CORPORATION, and BURLINGTON
RESOURCES. As a counterbalance to manage risk, we also held larger positions in
more defensive industries and sectors. We continued to focus primarily on the
healthcare sector with investments in ST. JUDE MEDICAL, JOHNSON & JOHNSON,
CAREMARK RX, and ZIMMER HOLDINGS.
We complemented these holdings with positions in the leading stocks of
other select sectors and industries. For example, APPLEBEES, the nation's
largest restaurant chain; HOME DEPOT, the nation's second largest retailer;
bellwether technology firms such as MICROSOFT and ORACLE; and regional
telecommunications leaders such as CITIZENS COMMUNICATIONS. This kept the Fund
diversified and took advantage of growth opportunities in other areas of the
market.
Q WHAT ARE THE PREVAILING MYTHS OR MISCONCEPTIONS IN THE MARKET TODAY?
A The most prevalent misconception may be that the economy isn't growing
fast enough. In fact, the economy continues to expand at a healthy, if not
robust, pace. The GDP grew at an annual rate of 3.8% in the first quarter and
3.4% in the second
- ----------
(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. Index returns
assume the 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, market capitalization weighted
measure of the 100 largest non-financial domestic and international common
stocks listed on The Nasdaq Stock Market. Index returns assume the reinvestment
of dividends, but, unlike the Fund's returns, 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. Index
returns assume the reinvestment of dividends, but, unlike the Fund's returns, do
not reflect the effects of capital gains, management fees, or expenses.
17
<Page>
quarter. This rate exceeds the benchmark for positive growth of 2.5% to 3.0% as
well as the historical average GDP growth rate of 2.5%(4).
Economic growth always becomes more moderate as the economy transitions
from a recovery to an expansionary phase. It is important to remain focused on
the long-term outlook and not to become impatient with a more uneven pace of
economic growth. The economy and individual companies can typically sustain
moderate growth much longer than unbridled growth. This creates an attractive
long-term outlook for the economy, and, by extension, for growth stocks.
The other common myth is that the market is irrational. Every market
movement is a response to a stimulus. These stimuli, or concerns, however, may
be considered irrational or unfounded. What may be construed as irrational
behavior can be better characterized as impulsive reactions to news or "market
noise."
Q HOW DO YOU RISE ABOVE THE "MARKET NOISE" TO MAKE WISE INVESTMENT DECISIONS?
A Today's 24-hour news cycle creates an excessive amount of "market noise."
There is "cyclical noise," such as the quarterly flurry of corporate earnings
announcements, and "topical noise," such as economic, geopolitical, or
company-specific events. Discipline and experience allows us to discriminate
between noise and news. A good rule of thumb is to think of each headline as a
single crumb, not the whole cake. The danger comes when a single bit of
information is not considered in its full context.
Initially, the market tends to react to events before weighing their real
long-term implications. This can result in a sudden and significant decline for
a stock, an industry, or the overall market. Such dips are not necessarily an
indication to sell a particular position. If the market has overreacted to a
certain bit of news, an attractive buying opportunity may be the result.
Q GROWTH FUNDS AREN'T TYPICALLY KNOWN FOR THEIR FOCUS ON RISK MANAGEMENT. WHY
IS RISK MANAGEMENT IMPORTANT TO THIS FUND?
A Investors often equate a growth fund with a speeding race car. Most growth
funds focus primarily on producing the highest possible rate of return. They
typically employ aggressive investment strategies to achieve this goal. This
results in a higher degree of risk which may only be appropriate and acceptable
only for highly aggressive investors.
Our Fund seeks to provide more moderate and conservative investors with a
suitable growth investment. We believe investors can take advantage of the
opportunities in the growth area of the market without being overly aggressive.
We manage risk by avoiding highly speculative sectors and stocks in search of
companies that offer "growth-at-a-reasonable price." We also use cash as a
defensive tool. The flexibility to invest a significant portion of the Fund in
cash allows us to manage risk during periods of greater volatility in the
market.
Q WHAT CAN WE EXPECT FROM THE MARKET AND THE FUND IN THE NEXT SIX MONTHS?
A We expect the market will remain in a "trading range" for the foreseeable
future. This will continue to create a challenging, and at times frustrating,
market environment. It can also produce valuable opportunities for disciplined
and experienced investors. It is important for investors to temper unrealistic
expectations for dramatic and immediate returns and seek investments that offer
solid long-term growth potential.
We believe the economy and corporate earnings will continue to grow at a
moderate pace. Nevertheless, the market will likely remain in a slump until the
Fed signals an end to its interest rate increases. We expect the short-term
interest rate increases to end sometime in the fall which should produce a
sustainable market rally.
We believe the Fund is well positioned to capitalize on the changes in the
market during the last half of the year. When we confirm a sustained upward
trend in the market, we will reduce the Fund's cash position and take advantage
of new investment opportunities. We expect these opportunities will continue to
come primarily from the basic materials, industrial, oil, and healthcare
sectors.
(4) Bureau of Economic Analysis, 2005 final and preliminary estimates,
respectively. University of Washington, Economic Department, UNCERTAIN TREND OF
U.S. GDP, 1998, average GDP growth from 1973 to 1997.
18
<Page>
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance quoted represents past performance. Current performance may be
higher or lower than the performance data quoted. Returns do not take into
account the maximum 5.75% sales charge on Class A shares and would be lower if
the sales charge were included. Returns represent the change in value over the
stated period assuming reinvestment of dividends and capital gains at net asset
value. 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 performance current to the most
recent month-end call (800) 989-6693.
19
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 06/30/05 (Based on Total Investments)
<Table>
EQUITIES 72.49%
1. Health Care 22.89%
2. Energy 16.71%
3. Materials 12.38%
4. Industrials 7.07%
5. Information Technology 5.89%
6. Other Equities 7.55%
7. CASH AND CASH EQUIVALENTS 27.51%
</Table>
20
<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 January 1, 2005 through June 30,
2005.
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
01/01/05 06/30/05 01/01/05 - 06/30/05(5)
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 979.30 $ 13.01
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 13.30
CLASS C SHARES
Actual $ 1,000 $ 975.60 $ 16.65
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 17.07
</Table>
- ----------
(5) Expenses are equal to the Fund's annualized expense ratio of 2.65% for
Class A shares and 3.40% for Class C shares, multiplied by the average account
value over the period, multiplied by 181/365 days to reflect the one-half year
period.
21
<Page>
PACIFIC ADVISORS
Multi-Cap Value Fund
INVESTS IN A DIVERSIFIED PORTFOLIO OF LARGE TO SMALL CAPITALIZATION COMPANIES
USING AN ACTIVELY MANAGED, VALUE-BASED INVESTMENT APPROACH.
INTERVIEW WITH PORTFOLIO MANAGER
SHELLY J. MEYERS
FOR THE SIX MONTHS ENDED JUNE 30, 2005, THE FUND RETURNED - 2.12% FOR CLASS A
SHARES, AND - 2.43% FOR CLASS C SHARES. THE FUND'S BENCHMARK, THE S&P 500(1)
RETURNED - 0.81% DURING THE SAME PERIOD.
Q WHY DID THE FUND UNDER-PERFORM THE MARKET IN THE FIRST HALF OF 2005?
A Overall market performance lagged in the first six months of the year in
response to economic, earnings, and geopolitical uncertainties. A number of the
companies in the Fund's portfolio were affected by increased volatility in the
overall market. Market volatility had the greatest impact on small cap stocks in
particular.
We painstakingly research a company - sometimes for years - before making
an investment. When we invest, we select companies that will add long-term value
to the Fund over a period of 2 to 3 years. In the first half of the year, we
extensively reviewed the holdings in the portfolio and confirmed their
underlying values.
One example is ENDO PHARMACEUTICALS, a pain management company with strong
leadership and excellent long-term growth. Earlier in the year, Endo encountered
a patent dispute over a highly anticipated product. Research confirmed the
company's long-term outlook remained highly favorable even if it lost the patent
dispute. As its price declined, we took the opportunity to add to the Fund's
position. Endo ultimately won the patent dispute and the stock recovered adding
value to the Fund.
Q HOW DO YOU UNCOVER VALUE INVESTMENT OPPORTUNITIES?
A We use a "bottoms-up" approach to value investing. Stock selection begins
by looking at individual companies as opposed to broad industries or sectors. We
search for companies with unique "stories." A "story" may be an innovative
business model, a niche product, or presence in an industry with long-term
growth potential and little or no competition.
Initial interest leads to a more extensive evaluation of a company's value
and long-term growth potential. Finally, we look for positive catalysts that we
believe will lead to greater market recognition for the company's stock.
Catalysts may include a change in management, improving financials, or broader
changes in the overall economy.
It is impossible to predict exactly when the market will reward the value
in any given company. Market recognition is not always instantaneous, and in
some cases, may take several quarters to materialize. In keeping with the Fund's
long-term investment approach, we seek companies that we believe will add
long-term value over a period of 2 to 3 years.
Q IF A STOCK DECLINES, HOW DO YOU DETERMINE WHETHER TO SELL OR HOLD THE
POSITION?
A In today's market, a stock can experience a significant decline in price
at the first hint of negative news - whether real or perceived. A good portfolio
manager must be an individual, not part of the crowd. Investment decisions must
be guided by a disciplined, long-term strategy and not knee jerk reactions to
market noise.
Every long-term investment will experience periodic setbacks. Temporary
declines may be the result of company-specific events or broader market
conditions. When a stock declines, many questions are asked: Is the decline the
result of company-specific problems? Is the company facing a temporary or
long-term setback? Has the company's fundamental value changed? How quickly can
the company and the stock recover?
When companies are properly selected, they are worth holding through
temporary setbacks. If our analysis confirms that a company's value and
long-term prospects remain intact, we will hold the Fund's position. In some
cases, we may take advantage of other's panic and add to the Fund's position at
a discount.
- ----------
(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. Index returns
assume the reinvestment of dividends, but, unlike the Fund's returns, do not
reflect the effects of management fees or expenses.
22
<Page>
Q WHAT ECONOMIC FACTORS ARE HAVING THE GREATEST IMPACT ON THE MARKET?
A Interest rates and oil prices. Rising interest rates generally discourage
spending resulting in slower economic growth. Higher energy costs can also
create a drag on economic growth by reducing discretionary spending and
stimulating inflation.
So far, the economy has been able to absorb higher energy costs and
interest rates with little impact on economic growth. The market, however,
remains concerned that a continued rise in interest rates or oil prices will
weaken the economy and corporate profit growth in the near future. While the
market will remain sensitive to a number of other factors, interest rates and
oil prices will likely continue to have the greatest impact on market
performance for the foreseeable future.
Q HOW HAVE THESE FACTORS INFLUENCED PORTFOLIO MANAGEMENT?
A Individual company analysis ultimately guides our investment decisions.
Nevertheless, we do take broader economic conditions into consideration to
manage risk and build long-term growth potential. We have limited the Fund's
exposure to stocks most vulnerable to rising interest rates such as retail
companies. Conversely, we also added to positions in companies that typically
benefit from rising rates or are less sensitive to economic fluctuations. These
include financial companies such as GOLDMAN SACHS, WASHINGTON MUTUAL, and
CITIGROUP; and healthcare holdings such as PFIZER, BOSTON SCIENTIFIC, and AMGEN.
Global demand for oil is growing faster than current supplies creating a
rise in energy prices. Fueled by global economic growth, particularly in
emerging economies such as India and China, the demand for oil will only
continue to rise. Tapping new reserves and developing alternative fuel sources
to increase supplies will take years to develop. Rising energy prices, however,
have created value investment opportunities in oil and oil related companies. We
have increased the Fund's exposure to this area of the market by adding to
positions such as MARATHON OIL, CHEVRONTEXACO, and ROYAL DUTCH PETROLEUM.
Q WHAT ADVICE WOULD YOU OFFER TO INVESTORS FRUSTRATED BY THE MARKET?
A DON'T SWEAT THE DETAILS, FOCUS ON THE BIG PICTURE. Despite the day-to-day
volatility, the overall outlook for the market and the economy remains positive.
Tame inflation, low interest rates, and robust spending have set the stage for
the economy and corporate profits to continue growing at a healthy rate.
TAKE A LONG-TERM APPROACH. There is no easy money, particularly in a
"trading range" market. While the long-term market outlook remains favorable,
the market will likely remain in a trading range for the foreseeable future.
Maintaining a long-term investment strategy is the best way to manage risk and
achieve your investment objectives.
Navigating market volatility requires greater skill and discipline.
Experienced portfolio managers, however, can identify solid value investments
and use market volatility to acquire positions at attractive prices. We believe
we have built a portfolio of solid value investments that will add long-term
value to the Fund. We will continue to monitor these investments and make
adjustments as necessary to keep the Fund on track to achieve long-term growth.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance quoted represents past performance. Current performance may be
higher or lower than the performance data quoted. Returns do not take into
account the maximum 5.75% sales charge on Class A shares and would be lower if
the sales charge were included. Returns represent the change in value over the
stated period assuming reinvestment of dividends and capital gains at net asset
value. 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 performance current to the most
recent month-end call (800) 989-6693.
23
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 06/30/05 (Based on Total Investments)
<Table>
EQUITIES 98.21%
1. Health Care 18.35%
2. Energy 17.61%
3. Information Technology 16.57%
4. Financials 15.29%
5. Consumer Discretionary 11.45%
6. Industrials 10.28%
7. Materials 6.03%
8. Telecommunications Services 2.63%
9. CASH AND CASH EQUIVALENTS 1.79%
</Table>
24
<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 January 1, 2005 through June 30,
2005.
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
01/01/05 06/30/05 01/01/05 - 06/30/05(3)
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 978.80 $ 13.69
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 14.01
CLASS C SHARES
Actual $ 1,000 $ 975.70 $ 17.34
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 17.77
</Table>
- ----------
(3) Expenses are equal to the Fund's annualized expense ratio of 2.79% for
Class A shares and 3.54% for Class C shares, multiplied by the average account
value over the period, multiplied by 181/365 days to reflect the one-half year
period.
25
<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 SIX MONTHS ENDED JUNE 30, 2005, THE FUND RETURNED - 9.27% FOR CLASS A
SHARES, AND - 9.64% FOR CLASS C SHARES. THE FUND'S BENCHMARK, THE RUSSELL 2000
STOCK INDEX(1) DECLINED - 1.25% DURING THE SAME PERIOD.
Q WHAT CHALLENGES DID THE MARKET PRESENT IN THE FIRST HALF OF THE YEAR?
A Growth typically becomes more uneven as the economy transitions from
recovery to expansion. Investors have been uncomfortable with a more
unpredictable rate of economic growth. As a result, the market has responded
negatively to any news which appears to threaten economic momentum.
Market performance lagged through April. Unseasonably bad winter weather
across the nation cast a shadow over first quarter earnings expectations. In
addition, rising energy prices and short-term interest rates raised concerns
about the strength of consumer and business spending. May and June eventually
brought data which confirmed the underlying strength in the economy. By the end
of June, an upward trend in the market began to gain traction.
Despite a positive ending, the market remained in a tight "trading range"
throughout the first half of the year. Volatility increased as the market
reacted - and sometimes overreacted - to economic, geopolitical, and
company-specific news. Higher volatility increased investment risk. Successfully
navigating these rough waters required patience, discipline, and seasoned
expertise. Market conditions were frustrating in the first half of the year, but
they also created valuable investment opportunities.
Q HOW DID THE FUND RESPOND TO MARKET VOLATILITY?
A In this environment, the market reacts first and evaluates later. Negative
news often results in an immediate decline for individual stocks, broader
industries, or the overall market. We take a long-term approach as opposed to
jumping in and out of investments in reaction to the news of the day. It is
important to stay on top of the news. But, it is even more important to step
back and determine how events shape the long-term outlook for the economy; the
market; and, most importantly, the individual company.
Following the market correction in the first quarter, we took a hard look
at the Fund's portfolio. Each position was evaluated based on the long-term
objectives of the Fund and the long-term prospects for each individual company.
Positions in companies with the least growth potential and the longest
anticipated recovery were pruned or sold. We took advantage of market volatility
to add several new holdings and increase existing positions in companies with
the strongest growth and most timely recovery prospects.
Q HOW DID YOU DETERMINE WHICH POSITIONS TO SELL?
A We looked at three factors in evaluating the positions to trim or sell.
VALUE - We invest in companies with the potential to add long-term value to
the Fund. We reexamined the value of the underlying companies in the portfolio.
If market reaction reflected a decline in the fundamental value of a company, we
pruned or sold the Fund's position.
RECOVERY POTENTIAL - In many cases, we believed the stock's decline
reflected an overreaction by the market. Typically, it takes time for the market
to correct these excesses. In recognizing that it would take longer for some
positions to recover, we consequently sold these to concentrate holdings in
companies with the quickest recovery prospects.
OPPORTUNITY COST - No company achieves long-term growth without
encountering a few setbacks along the way. The decision on whether to ride out a
period of weaker performance is made, in part, by the existence of alternative
investment opportunities. We evaluated whether potential investments offered
better growth potential than our current holdings.
- ----------
(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. Index returns assume the
reinvestment of dividends, but, unlike the Fund's returns, do not reflect
management fees or expenses.
26
<Page>
Q WHAT NEW INVESTMENTS DID YOU MAKE DURING THE PERIOD?
A The market correction gave us an opportunity to invest in several promising
companies at attractive prices. For example:
ENCORE WIRE CORP., the second largest manufacturer of copper wire in U.S.
As a low cost producer, Encore is less susceptible to foreign competition. The
company's share price is impacted by the price of copper as well as market
demand. The company's earnings dropped temporarily as copper prices declined and
as they made a strategic decision to cut prices to maintain and grow market
share. These events caused the stock price to fall dramatically to a point at
which the Company represented a good value opportunity. In addition, the market
did not factor in a new product line which will add significant growth
opportunities.
KIRBY CORPORATION, a large barge operator which specializes in shipping
petrochemicals through the Mississippi River System. We had been considering
Kirby as a potential investment for the past several years. A meeting with
management earlier in the year confirmed our assessment of the company's value
and long-term growth potential. The market correction in the first quarter gave
us an opportunity to invest in Kirby at a discounted price.
GRAFTECH INTERNATIONAL, a manufacturer of carbon and graphite specialty
products for a wide variety of businesses. Graftech operates in a growing
industry with little competition. The growth prospects for the company and
industry led us to conclude Graftech could add long-term value to the Fund. Once
again, market volatility provided the opportunity to acquire a position in this
company at a bargain price.
Q HOW DOES SELECTING SMALL CAP STOCKS DIFFER FROM SELECTING LARGER CAP
STOCKS?
A Small cap stocks are covered by fewer analysts than large caps. Research
information is limited and thorough investment analysis typically requires more
extensive hands-on research by the portfolio manager. In many cases, this
includes visiting a company and meeting with its management.
A strong management team is important for a company of any size. It is one
of the most important elements in assessing the long-term potential for a small
company. The strength of the company's management will determine its ability to
manage through short-term setbacks and achieve long-term growth
My experience in senior management at major corporations, which included
responsibility for the start up of new businesses, turn-around situations and
mergers and acquisitions, provides a valuable base of information in evaluating
the business plans of companies and their ability to execute those plans. Taking
the time to become acquainted with companies is also critical in understanding
how they operate within their industry. Thus, when companies experience
setbacks, my business experience proves invaluable in assessing the situation
and making investment decisions.
Q HOW LONG WILL THIS TRADING RANGE MARKET LAST?
A We believe the market will remain in a trading range for the foreseeable
future. The big economic picture remains quite positive. Current data suggest
the economy and corporate profits will continue to grow at a moderate rate.
Moderate growth helps sustain an economic expansion for a longer period of time.
As we've seen this year, it can also create a more challenging market
environment.
We anticipate modest performance for the overall market. The market will
likely remain volatile as it responds to uneven economic data and assesses
potential threats to the economy. Patience and discipline will remain paramount
to achieving long-term investment objectives. We will continue to implement a
disciplined investment strategy aimed at achieving long-term growth.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.
Performance quoted represents past performance. Current performance may be
higher or lower than the performance data quoted. Returns do not take into
account the maximum 5.75% sales charge on Class A shares and would be lower if
the sales charge were included. Returns represent the change in value over the
stated period assuming reinvestment of dividends and capital gains at net asset
value. 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 performance current to the most recent
month-end call (800) 989-6693.
27
<Page>
[CHART]
PORTFOLIO HOLDINGS AS OF 06/30/05 (Based on Total Investments)
<Table>
EQUITIES 100.00%
1. Industrials 39.94%
2. Energy 18.83%
3. Consumer Discretionary 11.91%
4. Financials 9.40%
5. Information Technology 7.81%
6. Materials 6.01%
7. Other Equities 6.10%
</Table>
28
<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 January 1, 2005 through June 30,
2005.
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
01/01/05 06/30/05 01/01/05 - 06/30/05(3)
- --------------------------------------------------------------------------------------------------------
CLASS A SHARES
Actual $ 1,000 $ 907.30 $ 13.53
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 14.36
CLASS C SHARES
Actual $ 1,000 $ 903.60 $ 17.04
Hypothetical (5% return before expenses) $ 1,000 $ 1,024.79 $ 18.12
</Table>
- ----------
(3) Expenses are equal to the Fund's annualized expense ratio of 2.86% for
Class A shares and 3.61% for Class C shares, multiplied by the average account
value over the period, multiplied by 181/365 days to reflect the one-half year
period.
29
<Page>
PACIFIC ADVISORS GOVERNMENT SECURITIES FUND
STATEMENT OF INVESTMENTS
as of June 30, 2005 (Unaudited)
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK
INFORMATION TECHNOLOGY
SYSTEMS: SOFTWARE
5,000.000 MICROSOFT 124,200.00 1.52
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
15,000.000 CITIZENS COMMUNICATIONS CO. 201,600.00 2.47
UTILITIES
ELECTRIC UTILITIES
2,000.000 PPL CORPORATION 118,760.00 1.45
TOTAL COMMON STOCK (Cost: $428,389.80) 444,560.00 5.44
US GOVT SECURITIES
US GOVERNMENT AGENCY
600,000.000 FED HOME LN MTG CORP 5.00% 12/23/11 602,863.20 7.38
250,000.000 FED HOME LN MTG CORP 5.00% 12/29/11 250,704.00 3.07
25,000.000 FED HOME LN MTG CORP 5.00% 01/17/12 25,014.67 0.31
100,000.000 FED HOME LN MTG CORP 5.25% 04/25/12 100,465.70 1.23
200,000.000 FED HOME LN MTG CORP 5.05% 04/27/12 201,325.20 2.46
150,000.000 FED HOME LN MTG CORP 5.15% 02/20/13 150,302.40 1.84
50,000.000 FED HOME LN MTG CORP 5.20% 05/09/13 50,082.70 0.61
135,000.000 FED HOME LN MTG CORP 5.125% 05/13/13 135,235.17 1.65
250,000.000 FED HOME LN MTG CORP 5.00% 05/29/13 250,312.50 3.06
100,000.000 FED HOME LN MTG CORP 5.45% 08/09/13 100,187.00 1.23
100,000.000 FED HOME LN MTG CORP 5.33% 09/03/13 100,282.50 1.23
50,000.000 FED HOME LN MTG CORP 5.25% 02/18/14 50,008.95 0.61
225,000.000 FED HOME LN MTG CORP 5.125% 03/10/14 225,458.33 2.76
100,000.000 FED HOME LN MTG CORP 5.625% 08/12/14 100,224.10 1.23
250,000.000 FED HOME LN MTG CORP 5.50% 09/22/14 250,052.25 3.06
218,000.000 FED HOME LN MTG CORP 5.25% 12/01/14 217,593.65 2.66
50,000.000 FED HOME LN MTG CORP 5.50% 12/30/14 50,010.75 0.61
65,000.000 FED HOME LN MTG CORP 5.35% 01/27/15 65,506.35 0.80
45,000.000 FED HOME LN MTG CORP 5.35% 02/05/15 45,061.96 0.55
50,000.000 FED HOME LN MTG CORP 5.50% 01/28/16 50,010.25 0.61
50,000.000 FED HOME LOAN BANK 4.55% 06/30/08 50,000.00 0.61
70,000.000 FED HOME LOAN BANK 4.30% 05/05/09 69,971.79 0.86
37,500.000 FED HOME LOAN BANK 4.55% 05/26/09 37,504.58 0.46
50,000.000 FED HOME LOAN BANK 4.32% 08/27/09 49,981.90 0.61
100,000.000 FED HOME LOAN BANK 5.17% 04/21/10 100,412.50 1.23
50,000.000 FED HOME LOAN BANK 5.375% 07/01/11 50,000.00 0.61
215,000.000 FED HOME LOAN BANK 5.35% 05/09/12 215,371.52 2.64
180,000.000 FED HOME LOAN BANK 5.09% 10/22/12 180,029.34 2.20
100,000.000 FED HOME LOAN BANK 5.00% 12/03/12 100,167.90 1.23
44,912.281 FED HOME LOAN BANK 5.24% 12/17/12 44,920.51 0.55
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
30
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
US GOVT SECURITIES CONTINUED
536,363.640 FED HOME LOAN BANK 5.35% 12/24/12 536,468.78 6.56
100,000.000 FED HOME LOAN BANK 5.30% 12/03/13 100,015.70 1.22
100,000.000 FEDERAL NATL MTG ASSOC. 5.00% 03/30/10 100,913.30 1.23
100,000.000 FEDERAL NATL MTG ASSOC. 5.00% 10/20/11 100,326.50 1.23
30,000.000 FEDERAL NATL MTG ASSOC. 5.625% 02/28/12 30,744.54 0.38
50,000.000 FEDERAL NATL MTG ASSOC. 5.00% 03/23/12 50,120.80 0.61
75,000.000 FEDERAL NATL MTG ASSOC. 5.50% 07/18/12 75,073.95 0.92
48,000.000 FEDERAL NATL MTG ASSOC. 4.00% 08/23/12 48,023.52 0.59
200,000.000 FEDERAL NATL MTG ASSOC. 5.00% 08/24/12 200,272.20 2.45
300,000.000 FEDERAL NATL MTG ASSOC. 5.25% 12/26/12 302,085.60 3.70
50,000.000 FEDERAL NATL MTG ASSOC. 5.25% 01/28/13 50,059.00 0.61
75,000.000 FEDERAL NATL MTG ASSOC. 5.00% 02/27/13 74,982.30 0.92
50,000.000 FEDERAL NATL MTG ASSOC. 5.125% 02/27/13 50,093.45 0.61
100,000.000 FEDERAL NATL MTG ASSOC. 5.50% 10/15/13 100,052.00 1.22
300,000.000 FEDERAL NATL MTG ASSOC. 5.25% 01/21/14 300,100.20 3.67
100,000.000 FEDERAL NATL MTG ASSOC. 5.25% 02/13/14 99,709.20 1.22
150,000.000 FEDERAL NATL MTG ASSOC. 5.50% 06/09/15 150,146.70 1.84
112,000.000 FEDERAL NATL MTG ASSOC. 5.75% 11/07/17 112,732.14 1.38
535,000.000 FEDERAL NATL MTG ASSOC. 5.25% 01/28/13 535,631.30 6.55
TOTAL US GOVT SECURITIES (Cost: $6,927,695.27) 6,936,612.85 84.87
PREFERRED STOCK
FINANCIALS
CONSUMER FINANCE
2,000.000 HSBC FINANCE CORP. 6.36% PFD 50,000.00 0.61
DIVERSIFIED BANKS
5,000.000 ROYAL BK OF SCOTLAND 6.35% PFD N 126,850.00 1.55
LIFE/HEALTH INSUR
5,000.000 METLIFE INC. 6.50% PFD 125,900.00 1.54
REGIONAL BANKS
7,600.000 FIRST BANCORP PUERTO RICO 7.40% PFD C 197,600.00 2.42
TOTAL PREFERRED STOCK (Cost: $501,017.00) 500,350.00 6.12
SHORT TERM INVESTMENTS
MONEY MARKET
113,800.65 UMB MONEY MARKET FIDUCIARY 113,800.65 1.39
TOTAL SHORT TERM INVESTMENTS (Cost: $113,800.65) 113,800.65 1.39
TOTAL INVESTMENTS (COST: $7,970,902.72) 7,995,323.50 97.82
OTHER ASSETS LESS LIABILITIES 177,916.77 2.18
TOTAL NET ASSETS 8,173,240.27 100.00
</Table>
* Non-income producing.
** The principal amount is stated in U.S. dollars unless otherwise indicated.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
31
<Page>
PACIFIC ADVISORS INCOME AND EQUITY FUND
STATEMENT OF INVESTMENTS
as of June 30, 2005 (Unaudited)
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK
CONSUMER DISCRETIONARY
DISTRIBUTORS
2,000.000 GENUINE PARTS CO 82,180.00 0.69
HOME IMPROVEMENT
1,000.000 HOME DEPOT, INC. 38,900.00 0.33
ENERGY
INTEGRATED OIL & GAS
1,000.000 BRITISH PETROLEUM 62,380.00 0.52
1,000.000 MARATHON OIL CORP 53,370.00 0.45
OIL&GAS REF/MKT/TRAN
1,000.000 EL PASO ENERGY CORPORATION 11,520.00 0.10
OIL & GAS EXPLR/PROD
1,000.000 BURLINGTON RESOURCES INC. 55,240.00 0.46
FINANCIALS
DIVERSIFIED BANKS
2,000.000 BANK OF AMERICA 91,220.00 0.77
2,000.000 WACHOVIA CORP 99,200.00 0.83
MULTI LINE INSURANCE
1,000.000 AMERICAN INT'L GROUP INC. 58,100.00 0.49
PROPERTY & CAS INSUR
500.000 CHUBB CORP. 42,805.00 0.36
REAL ESTATE INV TRST
11,500.000 HOSPITALITY PROPERTIES 506,805.00 4.26
REGIONAL BANKS
1,000.000 WILMINGTON TRUST CO 36,010.00 0.30
THRIFTS&MTG FINANCE
2,000.000 WASHINGTON MUTUAL 81,380.00 0.68
HEALTH CARE
PHARMACEUTICALS
3,000.000 JOHNSON & JOHNSON 195,000.00 1.64
2,500.000 PFIZER INC. 68,950.00 0.58
INDUSTRIALS
AEROSPACE & DEFENSE
2,000.000 HONEYWELL INTERNATIONAL INC. 73,260.00 0.62
INDUSTRIAL CONGLOMER
5,000.000 GENERAL ELECTRIC 173,250.00 1.46
2,000.000 TYCO INTERNATIONAL LTD. 58,400.00 0.49
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
32
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
INFORMATION TECHNOLOGY
SYSTEMS: SOFTWARE
5,000.000 MICROSOFT 124,200.00 1.04
MATERIALS
ALUMINUM
1,000.000 ALCOA INC. 26,130.00 0.22
DIVERSIFIED CHEMICAL
1,000.000 E.I. DUPONT DE NEMOURS & CO. 43,010.00 0.36
DIVERSIFD METAL/MNG
1,000.000 FREEPORT MCMORAN 37,440.00 0.31
1,000.000 PHELPS DODGE CORP. 92,500.00 0.78
GOLD
1,000.000 ANGLOGOLD LTD 35,730.00 0.30
SPECIALTY CHEMICALS
2,000.000 INTL. FLAVORS AND FRAGRANCES 72,440.00 0.61
PAPER PRODUCTS
1,000.000 INTERNATIONAL PAPER 30,210.00 0.25
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
15,000.000 CITIZENS COMMUNICATIONS CO. 201,600.00 1.70
1,000.000 SBC COMMUNICATIONS 23,750.00 0.20
UTILITIES
MULTI UTILITIES/POWR
1,000.000 DOMINION RESOURCES 73,390.00 0.62
1,000.000 DUKE ENERGY CORP. 29,730.00 0.25
1,000.000 PUBLIC SERVICE ENTERPRISE GROUP INC 60,820.00 0.51
TOTAL COMMON STOCK (Cost: $2,523,689.00) 2,638,920.00 22.18
CORPORATE BONDS
CONSUMER DISCRETIONARY
BROADCAST & CABLE TV
519,000.000 LIBERTY MEDIA CORP 7.75% 07/15/09 551,572.96 4.64
GENL MERCHANDISE STR
435,000.000 DAYTON HUDSON CO. 8.60% 01/15/12 536,888.75 4.52
HOTELS, RESORTS
160,000.000 MARRIOTT CORP 9.375% 06/15/07 171,063.52 1.44
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
33
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
CORPORATE BONDS CONTINUED
CONSUMER STAPLES
BREWERS
188,000.000 ANHEUSER-BUSCH 7.25% 09/15/15 195,670.02 1.64
165,000.000 ANHEUSER-BUSCH 7.125% 07/01/17 178,002.50 1.50
HYPERMKTS/SUPER CTRS
50,000.000 WAL-MART STORES 8.00% 09/15/06 52,194.55 0.44
PACKAGED FOODS/MEATS
323,000.000 GERBER PRODUCTS 9.00% 10/15/06 339,749.49 2.86
ENERGY
INTEGRATED OIL & GAS
361,000.000 OCCIDENTAL PETROLEUM 10.125% 09/15/09 436,029.88 3.67
170,000.000 TEXACO CAPITAL 8.625% 06/30/10 204,268.26 1.72
FINANCIALS
CONSUMER FINANCE
150,000.000 GENL MOTORS ACCEPT CORP 6.125% 09/15/06 150,107.40 1.26
DIVERSIFIED FINANCL
371,000.000 GENERAL ELECTRIC CAP 8.125% 05/15/12 447,871.94 3.77
50,000.000 GENERAL ELECTRIC CAP 8.875% 05/15/09 57,898.90 0.49
LIFE/HEALTH INSUR
85,000.000 TRANSAMERICA CORP. 9.375% 03/01/08 95,263.07 0.80
MULTI LINE INSURANCE
100,000.000 AMERICAN GENERAL FIN 5.875% 12/15/05 100,908.20 0.85
SPECIALIZED FINANCE
118,000.000 ASSOCIATES CORP NA 7.35% 05/15/06 121,342.11 1.02
INDUSTRIALS
CONSTRUCTION & MACH
331,000.000 DEERE & COMPANY 8.95% 06/15/19 384,356.87 3.23
RAILROADS & TRUCKING
135,000.000 NORFOLK SOUTHERN CORP. 7.40% 09/15/06 140,357.20 1.18
MATERIALS
DIVERSIFIED CHEMICAL
25,000.000 DOW CHEMICAL CO. 5.60% 11/15/09 25,516.65 0.21
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
85,000.000 BELLSOUTH CAP 6.04% 11/15/26 92,417.53 0.78
445,110.790 BELLSOUTH TELECOMMUNICATION 6.30% 12/15/15 475,906.24 4.00
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
34
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
CORPORATE BONDS CONTINUED
35,000.000 SBC COMMUNICATIONS 6.59% 09/29/08 37,181.69 0.31
135,000.000 SBC COMMUNICATIONS 7.39% 05/24/10 150,141.33 1.26
50,000.000 WISCONSIN BELL 6.35% 12/01/26 54,910.85 0.46
UTILITIES
ELECTRIC UTILITIES
255,000.000 COMMMONWEALTH EDISON 8.00% 05/15/08 280,693.29 2.36
GAS UTILITIES
150,000.000 PIEDMONT NATURAL GAS 7.80% 09/29/10 172,704.15 1.45
MULTI UTILITIES/POWR
125,000.000 NORTHWESTERN CORP 7.10% 08/01/05 125,236.88 1.05
75,000.000 PENN POWER & LT 6.55% 03/01/06 76,270.66 0.64
15,000.000 POTOMAC ELEC. POWER 6.50% 09/15/05 15,078.19 0.13
94,000.000 POTOMAC ELEC. POWER 5.875% 10/15/08 98,126.22 0.83
375,000.000 PUB SVC ELEC & GAS 6.75% 03/01/06 381,831.38 3.21
128,000.000 PUB SVC ELEC & GAS 6.25% 01/01/07 131,955.58 1.11
TOTAL CORPORATE BOND (Cost: $6,338,553.67) 6,281,516.26 52.83
CONVERTIBLE CORPORATE BONDS
FINANCIALS
DIVERSIFIED BANKS
25,000.000 ABN AMRO BANK NV CNV 11.50% 10/14/05 23,150.00 0.20
64,000.000 ABN AMRO BANK NV CNV 9.25% 12/09/05 56,256.00 0.47
9,000.000 SG STRUCTURED CNV 8.00% 11/23/05 8,964.00 0.08
24,000.000 SG STRUCTURED CNV 10.00% 12/22/05 24,196.80 0.20
125,000.000 BARCLAYS BANK PLC CNV 7.00% 06/22/06 125,000.00 1.05
TOTAL CONVERTIBLE CORPORATE BONDS (Cost: $244,765.60) 237,566.80 2.00
US GOVT SECURITIES
US GOVERNMENT AGENCY
100,000.000 FED HOME LN MTG CORP 4.125% 09/01/09 99,547.00 0.84
200,000.000 FED HOME LN MTG CORP 5.00% 12/23/11 200,954.40 1.69
50,000.000 FED HOME LN MTG CORP 5.00% 09/10/12 50,007.55 0.42
150,000.000 FED HOME LN MTG CORP 5.125% 08/06/13 150,211.80 1.26
33,000.000 FED HOME LN MTG CORP 5.125% 03/10/14 33,067.22 0.28
250,000.000 FED HOME LN MTG CORP 5.50% 09/22/14 250,052.25 2.10
300,000.000 FED HOME LOAN BANK 4.46% 10/28/09 300,167.70 2.53
40,000.000 FED HOME LOAN BANK 4.32% 08/27/09 39,985.52 0.34
230,000.000 FED HOME LOAN BANK 5.05% 02/14/13 230,384.79 1.94
41,000.000 FEDERAL NATL MTG ASSOC. 5.00% 10/05/10 41,006.77 0.35
100,000.000 FEDERAL NATL MTG ASSOC. 5.01% 11/10/10 100,137.30 0.84
100,000.000 FEDERAL NATL MTG ASSOC. 5.00% 10/20/11 100,326.50 0.84
100,000.000 FEDERAL NATL MTG ASSOC. 5.00% 01/27/12 100,033.10 0.84
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
35
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
US GOVT SECURITIES CONTINUED
100,000.000 FEDERAL NATL MTG ASSOC. 5.00% 03/23/12 100,241.60 0.84
75,000.000 FEDERAL NATL MTG ASSOC. 5.00% 03/11/13 75,105.00 0.63
TOTAL US GOVT SECURITIES (Cost: $1,867,899.22) 1,871,228.50 15.74
PREFERRED STOCK
FINANCIALS
CONSUMER FINANCE
2,000.000 HSBC FINANCE CORP. 6.36% PFD 50,000.00 0.42
REGIONAL BANKS
10,000.000 FIRST BANCORP PUERTO RICO 7.40% PFD C 260,000.00 2.19
LIFE/HEALTH INSUR
3,000.000 METLIFE INC. 6.50% PFD 75,540.00 0.63
3,500.000 PHOENIX COMPANIES INC. 7.45% 01/15/32 PFD 90,125.00 0.76
REAL ESTATE INV TRST
3,700.000 PRICE LEGACY CORP. 6.82% PFD A 54,575.00 0.46
TOTAL PREFERRED STOCK (Cost: $537,988.00) 530,240.00 4.46
SHORT TERM INVESTMENTS
MONEY MARKET
236,748.30 UMB MONEY MARKET FIDUCIARY 180,491.84 1.52
TOTAL SHORT TERM INVESTMENTS (Cost: $180,491.84) 180,491.84 1.52
TOTAL INVESTMENTS (COST: $11,693,387.33) 11,739,963.40 98.73
OTHER ASSETS LESS LIABILITIES 150,670.97 1.27
TOTAL NET ASSETS 11,890,634.37 100.00
</Table>
* Non-income producing.
** The principal amount is stated in U.S. dollars unless otherwise indicated.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
36
<Page>
PACIFIC ADVISORS BALANCED FUND
STATEMENT OF INVESTMENTS
as of June 30, 2005 (Unaudited)
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK
CONSUMER DISCRETIONARY
ADVERTISING
40,000.000 INTERPUBLIC GROUP* 487,200.00 1.33
BROADCAST & CABLE TV
7,200.000 LIBERTY GLOBAL* 336,024.00 0.92
MOVIES/ENTERTAINMENT
10,000.000 DISNEY 251,800.00 0.69
18,000.000 TIME WARNER* 300,780.00 0.82
7,500.000 VIACOM INC 240,150.00 0.66
SPECIALTY STORES
10,000.000 HOT TOPIC INC* 191,200.00 0.52
10,000.000 MICHAELS STORES INC 413,700.00 1.13
CONSUMER STAPLES
SOFT DRINKS
9,000.000 CADBURY SCHWEPPES 344,970.00 0.94
12,000.000 COCA-COLA 501,000.00 1.37
ENERGY
INTEGRATED OIL & GAS
12,000.000 BRITISH PETROLEUM 748,560.00 2.05
6,000.000 CONOCOPHILLIPS 344,940.00 0.94
OIL & GAS EQUIP/SERV
6,000.000 COOPER CAMERON* 372,300.00 1.02
OIL & GAS EXPLR/PROD
20,000.000 DEVON ENERGY CORP. 1,013,600.00 2.77
15,000.000 SUNCOR ENERGY INC 709,800.00 1.94
OIL&GAS REF/MKT/TRAN
30,000.000 WILLIAMS COMPANIES INC. 570,000.00 1.56
FINANCIALS
DIVERSIFIED BANKS
35,000.000 BANCO LATINAMERICANO DE EXPORTACIONES 628,250.00 1.72
INSURANCE BROKERS
6,000.000 MARSH & MCLENNAN 166,200.00 0.46
LIFE/HEALTH INSUR
7,500.000 METLIFE, INC. 337,050.00 0.92
MULTI LINE INSURANCE
5.000 BERKSHIRE HATHAWAY INC - CL A* 417,500.00 1.14
</Table>
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37
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
PROPERTY & CAS INSUR
4,000.000 CHUBB CORP. 342,440.00 0.94
REAL ESTATE INV TRST
13,946.000 CATELLUS 457,428.80 1.25
SPECIALIZED FINANCE
10,000.000 MOODYS CORPORATION 449,600.00 1.23
THRIFTS&MTG FINANCE
6,000.000 FED HOME LN MTG ASSOC. 391,380.00 1.07
7,500.000 WASHINGTON MUTUAL 305,175.00 0.83
HEALTH CARE
BIOTECHNOLOGY
16,000.000 CAMBREX CORP 304,800.00 0.83
HEALTH CARE EQUIP
12,000.000 PERKIN ELMER 226,800.00 0.62
HEALTH CARE SERVICES
20,000.000 INVERNESS MEDICAL INNOVATIONS INC* 546,000.00 1.49
PHARMACEUTICALS
15,000.000 BRISTOL-MYERS SQUIBB CO 374,700.00 1.02
5,000.000 JOHNSON & JOHNSON 325,000.00 0.89
15,000.000 MYLAN LABORATIORIES INC 288,600.00 0.79
25,000.000 PFIZER INC. 689,500.00 1.89
10,000.000 PHARMACEUTICAL RESOURCES INC.* 318,100.00 0.87
8,000.000 WYETH 356,000.00 0.97
INDUSTRIALS
AEROSPACE & DEFENSE
7,500.000 BOEING COMPANY 495,000.00 1.35
15,000.000 CUBIC CORP 266,100.00 0.73
COMMERCIAL PRINTING
5,000.000 R H DONNELLEY CORP* 309,900.00 0.85
DIVERSIFIED COML SRV
15,000.000 GATX CORPORATION 517,500.00 1.41
8,000.000 H & R BLOCK 466,800.00 1.28
INDUSTRIAL CONGLOMER
15,000.000 GENERAL ELECTRIC 519,750.00 1.42
15,000.000 TYCO INTERNATIONAL LTD. 438,000.00 1.20
INDUSTRIAL MACHINERY
10,000.000 SPX CORP. 459,800.00 1.26
</Table>
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38
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE
10,000.000 REYNOLDS & REYNOLDS 270,300.00 0.74
COMMUNICATIONS EQUIP
60,316.000 LUCENT TECHNOLOGIES* 175,519.56 0.48
30,000.000 NOKIA CORP - ADR A 499,200.00 1.36
COMPUTER STORAGE/PER
15,000.000 SANDISK CORP.* 355,950.00 0.97
DATA PROCESSING SRV
6,000.000 AUTOMATIC DATA PROCESSING 251,820.00 0.69
SYSTEMS: SOFTWARE
15,000.000 MICROSOFT 372,600.00 1.02
MATERIALS
DIVERSIFD METAL/MNG
4,000.000 RIO TINTO PLC 487,680.00 1.33
FOREST PRODUCTS
10,683.000 RAYONIER INC. 566,519.49 1.55
SPECIALTY CHEMICALS
10,000.000 CABOT MICRO ELECTRONICS INC.* 289,900.00 0.79
25,000.000 GRAFTECH INTL. LTD* 107,500.00 0.30
STEEL
8,000.000 RELIANCE STEEL 296,560.00 0.81
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
30,000.000 LIBERTY MEDIA GROUP CLASS A* 305,700.00 0.84
UTILITIES
ELECTRIC UTILITIES
10,000.000 ALLETE INC. 499,000.00 1.36
MULTI UTILITIES/POWR
17,500.000 DUKE ENERGY CORP. 520,275.00 1.42
TOTAL COMMON STOCK (Cost: $15,908,501.16) 22,221,921.85 60.75
</Table>
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39
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
CORPORATE BONDS
CONSUMER DISCRETIONARY
AUTO PARTS & EQUIP
100,000.000 BORG WARNER 8.00% 10/01/19 121,657.00 0.33
130,000.000 DANA CORP. 6.50% 03/01/09 127,578.10 0.35
HOME FURNISHINGS
110,000.000 WHIRLPOOL CORP 9.10% 02/01/08 121,421.85 0.33
CONSUMER STAPLES
BREWERS
620,000.000 ANHEUSER-BUSCH 7.25% 09/15/15 645,294.76 1.76
DISTILLERS & VINTNER
310,000.000 SEAGRAMS & SONS 7.00% 04/15/08 321,049.95 0.88
FOOD : RETAIL
197,000.000 SAFEWAY INC 9.30% 02/01/07 209,967.92 0.57
200,000.000 SAFEWAY INC. 7.00% 09/15/07 210,177.60 0.58
PACKAGED FOODS/MEATS
794,000.000 GERBER PRODUCTS 9.00% 10/15/06 835,173.66 2.28
ENERGY
INTEGRATED OIL & GAS
501,000.000 ATLANTIC RICHFIELD 9.125% 03/01/11 619,793.11 1.69
541,000.000 ENRON OIL & GAS 6.00% 12/15/08 565,016.07 1.54
604,000.000 OCCIDENTAL PETROLEUM 10.125% 09/15/09 729,534.76 1.99
199,000.000 PHILLIPS PETE 7.125% 03/15/28 216,064.85 0.59
OIL & GAS EXPLR/PROD
124,000.000 DEVON ENERGY CORP. 10.125% 11/15/09 150,110.31 0.41
OIL&GAS REF/MKT/TRAN
325,000.000 KINDER MORGAN 6.50% 09/01/13 346,433.75 0.95
FINANCIALS
CONSUMER FINANCE
250,000.000 GENL MOTORS ACCEPT CORP 5.00% 08/15/05 249,823.50 0.68
500,000.000 GENL MOTORS ACCEPT CORP 6.75% 01/15/06 503,945.00 1.38
611,000.000 GENL MOTORS ACCEPT CORP 8.75% 07/15/05 611,447.25 1.67
DIVERSIFIED FINANCL
269,000.000 GENERAL ELECTRIC CAP 8.125% 05/15/12 324,737.34 0.89
LIFE/HEALTH INSUR
435,000.000 OLD REPUBLIC INTL 7.00% 06/15/07 456,088.80 1.25
325,000.000 TRANSAMERICA CORP. 9.375% 03/01/08 364,241.15 1.00
</Table>
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40
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
CORPORATE BONDS CONTINUED
SPECIALIZED FINANCE
155,000.000 BENEFICIAL CORP. 8.40% 05/15/08 171,679.55 0.47
HEALTH CARE
HEALTH CARE EQUIP
380,000.000 MALLINCKRODT 6.50% 11/15/07 396,777.00 1.08
HEALTH CARE SUPPLIES
368,000.000 BAUSCH & LOMB 7.125% 08/01/28 413,365.94 1.13
MANAGED HEALTH CARE
100,000.000 CIGNA CORP. 7.40% 05/15/07 105,482.30 0.29
INDUSTRIALS
CONSTRUCTION & MACH
336,000.000 DEERE & COMPANY 8.95% 06/15/19 390,162.86 1.07
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
255,000.000 AT&T CORP 8.35% 01/15/25 263,287.50 0.72
505,042.500 BELLSOUTH TELECOMMUN 6.30% 12/15/15 539,984.38 1.48
305,000.000 GTE HAWAIIAN TEL 7.00% 02/01/06 308,050.00 0.84
400,000.000 GTE SOUTH INC. 6.00% 02/15/08 413,217.20 1.13
100,000.000 GTE SOUTH INC. 6.125% 06/15/07 103,145.30 0.28
135,000.000 NEW ENGLAND TEL&TEL 6.875% 10/01/23 137,886.70 0.38
UTILITIES
MULTI UTILITIES/POWR
200,000.000 FLORIDA PWR & LT 6.00% 06/01/08 210,190.20 0.57
476,000.000 NIAGARA MOHAWK POWER 9.75% 11/01/05 484,829.32 1.33
250,000.000 NORTHWESTERN CORP 7.00% 08/15/23 255,000.00 0.70
325,000.000 NORTHWESTERN CORP 7.10% 08/01/05 325,615.88 0.89
150,000.000 POTOMAC ELEC. POWER 6.25% 10/15/07 156,544.20 0.43
155,000.000 POTOMAC ELEC. POWER 5.875% 10/15/08 161,803.88 0.44
49,280.879 RELIANT ENER MID ATL 9.237% 07/02/17 55,440.99 0.15
TOTAL CORPORATE BOND (Cost: $12,585,536.04) 12,622,019.93 34.50
US GOVT SECURITIES
US GOVERNMENT AGENCY
200,000.000 FED HOME LOAN BANK 4.46% 10/28/09 200,111.80 0.55
TOTAL US GOVT SECURITIES (Cost: $200,000.00) 200,111.80 0.55
</Table>
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41
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
SHORT TERM INVESTMENTS
MONEY MARKET
1,361,541.34 UMB MONEY MARKET FIDUCIARY 1,361,541.34 3.72
TOTAL SHORT TERM INVESTMENTS (Cost: $1,361,541.34) 1,361,541.34 3.72
TOTAL INVESTMENTS (COST: $30,055,578.54) 36,405,594.92 99.52
OTHER ASSETS LESS LIABILITIES 177,359.72 0.48
TOTAL NET ASSETS 36,582,954.64 100.00
</Table>
* Non-income producing.
** The principal amount is stated in U.S. dollars unless otherwise indicated.
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42
<Page>
PACIFIC ADVISORS GROWTH FUND
STATEMENT OF INVESTMENTS
as of June 30, 2005 (Unaudited)
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK
CONSUMER DISCRETIONARY
HOME IMPROVEMENT
500.000 HOME DEPOT, INC. 19,450.00 0.78
RESTAURANTS
1,125.000 APPLEBEE'S INTL 29,801.25 1.20
SPECIALTY STORES
1,000.000 LINENS ' N THINGS INC.* 23,660.00 0.95
ENERGY
INTEGRATED OIL & GAS
1,000.000 EXXON MOBIL CORP. 57,470.00 2.31
1,000.000 MARATHON OIL CORP 53,370.00 2.15
OIL & GAS EQUIP/SERV
1,000.000 CARBO CERAMICS INC. 78,960.00 3.18
5,000.000 MITCHAM INDUSTRIES INC.* 42,750.00 1.72
1,000.000 BAKER HUGHES INC. 51,160.00 2.06
OIL & GAS EXPLR/PROD
1,000.000 APACHE CORPORATION 64,600.00 2.60
1,000.000 BURLINGTON RESOURCES INC. 55,240.00 2.22
1,000.000 XTO ENERGY INC. 33,990.00 1.37
FINANCIALS
DIVERSIFIED BANKS
161.000 HSBC HOLDING PLC 12,823.65 0.52
THRIFTS&MTG FINANCE
2,000.000 SOVEREIGN BANCORP INC 44,680.00 1.80
HEALTH CARE
BIOTECHNOLOGY
500.000 CAMBREX CORP 9,525.00 0.38
HEALTH CARE EQUIP
500.000 BECTON DICKINSON 26,235.00 1.06
2,000.000 ST. JUDE MEDICAL INC* 87,220.00 3.51
1,000.000 ZIMMER HOLDINGS INC.* 76,170.00 3.07
HEALTH CARE SERVICES
1,935.000 CAREMARK RX INC.* 86,146.20 3.47
600.000 QUEST DIAGNOSTICS, INC. 31,962.00 1.29
MANAGED HEALTH CARE
3,000.000 AMERICA SVC GROUP* 47,550.00 1.92
1,000.000 WELLPOINT* 69,640.00 2.80
</Table>
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43
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
PHARMACEUTICALS
1,200.000 JOHNSON & JOHNSON 78,000.00 3.14
3,100.000 NATURE'S SUNSHINE 54,064.00 2.18
1,200.000 PFIZER INC. 33,096.00 1.33
INDUSTRIALS
BUILDING PRODUCTS
2,000.000 ELKCORP 57,100.00 2.30
INDUSTRIAL CONGLOMER
2,000.000 GENERAL ELECTRIC 69,300.00 2.79
1,000.000 TYCO INTERNATIONAL LTD. 29,200.00 1.18
INDUSTRIAL MACHINERY
300.000 ITT INDUSTRIES 29,289.00 1.18
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE
2,000.000 INTERVOICE INC* 17,260.00 0.69
COMMUNICATIONS EQUIP
1,000.000 ANDREW CORP.* 12,760.00 0.51
1,000.000 QUALCOMM INC. 33,010.00 1.33
COMPUTER HARDWARE
200.000 INTERNATIONAL BUSINE MACHINES CORP. 14,840.00 0.60
SYSTEMS: SOFTWARE
2,000.000 MICROSOFT 49,680.00 2.00
2,000.000 ORACLE CORPORATION* 26,400.00 1.06
MATERIALS
DIVERSIFD METAL/MNG
500.000 FREEPORT MCMORAN 18,720.00 0.75
500.000 PHELPS DODGE CORP. 46,250.00 1.86
FOREST PRODUCTS
3,000.000 LOUISIANA PACIFIC CORP. 73,740.00 2.97
GOLD
1,000.000 ANGLOGOLD LTD 35,730.00 1.44
PAPER PRODUCTS
1,000.000 GEORGIA PACIFIC CORP 31,800.00 1.28
SPECIALTY CHEMICALS
2,000.000 LYONDELL CHEMICAL CO 52,840.00 2.13
STEEL
2,000.000 COMMERCIAL METALS CO 47,640.00 1.92
500.000 US STEEL 17,185.00 0.69
</Table>
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44
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
5,000.000 CITIZENS COMMUNICATIONS CO. 67,200.00 2.71
TOTAL COMMON STOCK (Cost: $1,647,684.61) 1,897,507.10 76.40
SHORT TERM INVESTMENTS
MONEY MARKET
707,100.80 UMB MONEY MARKET FIDUCIARY 720,206.29 29.00
TOTAL SHORT TERM INVESTMENTS (Cost: $720,206.29) 720,206.29 29.00
TOTAL INVESTMENTS (COST: $2,367,890.90) 2,617,713.39 105.40
OTHER ASSETS LESS LIABILITIES (134,171.96) (5.40)
TOTAL NET ASSETS 2,483,541.43 100.00
</Table>
* Non-income producing.
** The principal amount is stated in U.S. dollars unless otherwise indicated.
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45
<Page>
PACIFIC ADVISORS MULTI-CAP VALUE FUND
STATEMENT OF INVESTMENTS
as of June 30, 2005 (Unaudited)
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK
CONSUMER DISCRETIONARY
GENL MERCHANDISE STR
4,500.000 TARGET CORP 244,845.00 2.73
HOME IMPROVEMENT
6,000.000 HOME DEPOT, INC. 233,400.00 2.60
LEISURE PRODUCTS
20,000.000 CALLAWAY GOLF COMPANY 308,600.00 3.44
MOVIES/ENTERTAINMENT
15,000.000 ACTIVISION INC.* 247,800.00 2.76
ENERGY
INTEGRATED OIL & GAS
6,000.000 CHEVRONTEXACO CORP 335,520.00 3.74
6,000.000 MARATHON OIL CORP 320,220.00 3.57
3,000.000 ROYAL DUTCH PETROLEUM COMPANY 194,700.00 2.17
9,000.000 WILLIAMS COMPANIES INC. 171,000.00 1.91
OIL & GAS EQUIP/SERV
40,000.000 MITCHAM INDUSTRIES INC.* 342,000.00 3.81
OIL & GAS EXPLR/PROD
3,500.000 APACHE CORPORATION 226,100.00 2.52
FINANCIALS
DIVERSIFIED FINANCL
5,000.000 CITIGROUP INC 231,150.00 2.58
5,000.000 J.P. MORGAN 176,600.00 1.97
FINANCIAL SERVICES
7,000.000 MBNA CORP. 183,120.00 2.04
INVESTMENT BANK/BRKG
2,500.000 GOLDMAN SACHS GROUP INC 255,050.00 2.84
MULTI LINE INSURANCE
5,000.000 AMERICAN INT'L GROUP INC. 290,500.00 3.24
THRIFTS&MTG FINANCE
6,000.000 WASHINGTON MUTUAL 244,140.00 2.72
HEALTH CARE
BIOTECHNOLOGY
4,200.000 AMGEN INC.* 253,932.00 2.83
6,500.000 BIOGEN IDEC* 223,925.00 2.50
HEALTH CARE EQUIP
9,000.000 BOSTON SCIENTIFIC CO* 243,000.00 2.71
</Table>
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46
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
HEALTH CARE SUPPLIES
8,000.000 SERLOGICALS CORP.* 170,000.00 1.90
PHARMACEUTICALS
10,000.000 ENDO PHARMACEUTICALS* 262,800.00 2.93
10,000.000 PFIZER INC. 275,800.00 3.08
12,000.000 SCHERING-PLOUGH CORP 228,720.00 2.55
INDUSTRIALS
AEROSPACE & DEFENSE
5,000.000 HONEYWELL INTERNATIONAL INC. 183,150.00 2.04
AIR FREIGHT/SHIPPING
13,000.000 MARITRANS INC. 351,650.00 3.92
BUILDING PRODUCTS
5,000.000 ELKCORP 142,750.00 1.59
ELECTRICAL COMPON/EQ
20,000.000 METROLOGIC INSTRUMTS* 250,800.00 2.80
INFORMATION TECHNOLOGY
COMPUTER STORAGE/PER
15,000.000 EMC CORPORATION* 205,650.00 2.29
COMMUNICATIONS EQUIP
15,000.000 CISCO SYSTEMS INC.* 286,650.00 3.20
100,000.000 LUCENT TECHNOLOGIES* 291,000.00 3.25
COMPUTER HARDWARE
3,750.000 INTERNATIONAL BUSINE MACHINES CORP. 278,250.00 3.10
SEMICONDUCTORS
10,000.000 INTEL CORPORATION 260,600.00 2.91
SYSTEMS: SOFTWARE
7,000.000 MICROSOFT 173,880.00 1.94
MATERIALS
SPECIALTY CHEMICALS
70,000.000 GRAFTECH INTL. LTD* 301,000.00 3.36
STEEL
7,100.000 US STEEL 244,027.00 2.72
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
10,000.000 SBC COMMUNICATIONS 237,500.00 2.65
TOTAL COMMON STOCK (Cost: $8,121,487.73) 8,869,829.00 98.91
</Table>
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47
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
SHORT TERM INVESTMENTS
MONEY MARKET
123,307.87 UMB MONEY MARKET FIDUCIARY 161,531.63 1.80
TOTAL SHORT TERM INVESTMENTS (Cost: $161,531.63) 161,531.63 1.80
TOTAL INVESTMENTS (COST: $8,283,019.36) 9,031,360.63 100.71
OTHER ASSETS LESS LIABILITIES (63,468.69) (0.71)
TOTAL NET ASSETS 8,967,891.94 100.00
</Table>
* Non-income producing.
** The principal amount is stated in U.S. dollars unless otherwise indicated.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
48
<Page>
PACIFIC ADVISORS SMALL CAP FUND
STATEMENT OF INVESTMENTS
as of June 30, 2005 (Unaudited)
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK
CONSUMER DISCRETIONARY
APPAREL - RETAIL
44,000.000 ASHWORTH, INC.* 396,440.00 2.28
AUTO PARTS & EQUIP
22,000.000 KEYSTONE AUTOMOTIVE INDUSTRIES, INC.* 544,060.00 3.12
RESTAURANTS
22,000.000 DAVE AND BUSTER'S INC* 405,680.00 2.33
SPECIALTY STORES
34,000.000 CONNS INC.* 831,980.00 4.78
ENERGY
INTEGRATED OIL & GAS
15,000.000 KIRBY CORP* 676,500.00 3.88
OIL & GAS EQUIP/SERV
96,000.000 MITCHAM INDUSTRIES INC.* 820,800.00 4.71
OIL & GAS EXPLR/PROD
28,000.000 CHESAPEAKE ENERGY CORP. 638,400.00 3.67
24,000.000 DENBURY RES. INC.* 954,480.00 5.48
10,000.000 REMINGTON OIL & GAS CORP.* 357,000.00 2.05
FINANCIALS
REGIONAL BANKS
12,000.000 EAST WEST BANCORP, INC. 403,080.00 2.31
22,000.000 NARA BANK NATIONAL ASSOC. 322,960.00 1.85
SPECIALIZED FINANCE
45,000.000 EZCORP INC.* 482,400.00 2.77
24,000.000 FIRST CASH FINANCIAL SERVICES, INC.* 512,880.00 2.95
HEALTH CARE
MANAGED HEALTH CARE
33,000.000 AMERICA SVC GROUP* 523,050.00 3.00
115,000.000 UNITED AMERICAN HEALTH CARE* 253,000.00 1.45
INDUSTRIALS
AEROSPACE & DEFENSE
22,000.000 AVIALL INC.* 694,980.00 3.99
BUILDING PRODUCTS
26,000.000 ELKCORP 742,300.00 4.26
CONSTRUCTION & MACH
36,000.000 TITAN INTERNATIONAL INC. 503,280.00 2.89
</Table>
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49
<Page>
<Table>
<Caption>
QUANTITY OR % OF
PRINCIPAL DESCRIPTION CURRENT $ VALUE** NET ASSETS
COMMON STOCK CONTINUED
DIVERSIFIED COML SRV
130,000.000 DARLING INTERNATIONAL INC.* 487,500.00 2.80
19,000.000 MOBILE MINI INC.* 655,120.00 3.76
24,600.000 TEAM INC* 528,900.00 3.04
ELECTRICAL COMPON/EQ
16,000.000 BELL MICROPRODUCTS INC.* 150,400.00 0.86
22,000.000 ENCORE WIRE CORP* 254,980.00 1.46
ENVIROMENTAL SERVICE
48,000.000 AMERICAN ECOLOGY CORPORATION 859,200.00 4.93
32,000.000 TETRA TECH INC* 432,960.00 2.49
RAILROADS & TRUCKING
33,000.000 FROZEN FOOD EXPRESSS INDUSTRIES INC.* 373,560.00 2.15
62,000.000 RAILAMERICA INC.* 737,800.00 4.24
30,000.000 SCS TRANSPORTATION* 534,000.00 3.07
30,000.000 US XPRESS ENTERPRISE* 357,300.00 2.05
INFORMATION TECHNOLOGY
APPLICATION SOFTWARE
85,110.000 INTERVOICE INC* 734,499.30 4.22
SEMICONDUCTOR EQUIP
60,000.000 CAMTEK LIMITED* 166,200.00 0.96
SYSTEMS: SOFTWARE
70,000.000 TYLER TECHNOLOGIES* 529,200.00 3.04
MATERIALS
STEEL
30,000.000 COMMERCIAL METALS CO 714,600.00 4.10
90,000.000 GRAFTECH INTL. LTD* 387,000.00 2.22
TELECOMMUNICATION SERVICES
INTG TELECOMM SRVCS
34,000.000 TALK AMERICA HOLDING INC.* 340,340.00 1.96
TOTAL COMMON STOCK (Cost: $12,022,767.93) 18,306,829.30 105.12
TOTAL INVESTMENTS (COST: $12,022,767.93) 18,306,829.30 105.12
OTHER ASSETS LESS LIABILITIES (891,167.46) (5.12)
TOTAL NET ASSETS 17,415,661.84 100.00
</Table>
* Non-income producing.
** The principle amount is stated in U.S. dollars unless otherwise indicated.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
50
<Page>
(This page has been left blank intentionally.)
51
<Page>
PACIFIC ADVISORS FUND INC.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
June 30, 2005
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
-------------- --------------
ASSETS
Investment securities
At cost $ 7,857,102 $ 11,512,895
============== ==============
At market value $ 7,881,523 $ 11,559,471
Short-term investments, at cost, which is equal
to market 113,801 180,492
Accrued income receivable 74,057 143,187
Receivable for investments sold 88,806 -
Receivable for capital shares sold 37,529 37,500
Other assets - -
-------------- --------------
Total assets 8,195,716 11,920,650
-------------- --------------
LIABILITIES
Bank overdraft - -
Payable for investments purchased - -
Payable for fund shares redeemed 6,000 -
Accounts payable (Note 2.D) 11,167 22,489
Accounts payable to related parties (Note 3) 5,309 6,510
Payable to Investment Manager (Note 3) - 1,017
-------------- --------------
Total liabilities 22,476 30,016
-------------- --------------
NET ASSETS $ 8,173,240 $ 11,890,634
============== ==============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 9,120,660 11,829,958
Accumulated undistributed net investment income 11,763 24,315
Accumulated undistributed net realized gain
(losses) on security transactions (983,604) (10,215)
Net unrealized appreciation of investments 24,421 46,576
-------------- --------------
Net assets at June 30, 2005 $ 8,173,240 $ 11,890,634
============== ==============
CLASS A:
Net assets $ 2,299,364 $ 3,559,381
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 242,525 344,127
Net asset value and redemption price per share $ 9.48 $ 10.34
============== ==============
Maximum offering price per share $ 9.95 $ 10.86
Sales load 4.75% 4.75%
CLASS C:
Net assets $ 5,873,876 $ 8,331,253
============== ==============
Shares authorized 50,000,000 50,000,000
Shares outstanding 636,025 841,311
Net asset value and redemption price per share $ 9.24 $ 9.90
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
52
<Page>
<Table>
<Caption>
MULTI-CAP SMALL
BALANCED GROWTH VALUE CAP
FUND FUND FUND FUND
-------------- -------------- -------------- --------------
ASSETS
Investment securities
At cost $ 28,694,038 $ 1,647,684 $ 8,121,488 $ 12,022,768
============== ============== ============== ==============
At market value $ 35,044,054 $ 1,897,507 $ 8,869,829 $ 18,306,829
Short-term investments, at cost, which is equal
to market equal 1,361,541 720,206 161,532 -
Accrued income receivable 273,585 1,898 1,697 11,305
Receivable for investments sold 26,008 - 188,227 210,407
Receivable for capital shares sold - - 15,329 200
Other assets - - - -
-------------- -------------- -------------- --------------
Total assets 36,705,188 2,619,611 9,236,614 18,528,741
-------------- -------------- -------------- --------------
LIABILITIES
Bank overdraft - - - 1,078,695
Payable for investments purchased - 128,680 247,050 -
Payable for fund shares redeemed 1,000 - - 23,925
Accounts payable (Note 2.D) 84,127 6,039 8,951 (7,540)
Accounts payable to related parties (Note 3) 14,731 1,351 5,472 7,395
Payable to Investment Manager (Note 3) 22,375 - 7,249 10,604
-------------- -------------- -------------- --------------
Total liabilities 122,233 136,070 268,722 1,113,079
-------------- -------------- -------------- --------------
NET ASSETS $ 36,582,955 $ 2,483,541 $ 8,967,892 $ 17,415,662
============== ============== ============== ==============
SUMMARY OF SHAREHOLDERS' EQUITY
Paid in capital 30,057,301 2,952,693 8,013,587 10,322,833
Accumulated undistributed net investment income 177,154 - - -
Accumulated undistributed net realized gain
(losses) on security transactions (1,516) (718,975) 205,964 808,768
Net unrealized appreciation of investments 6,350,016 249,823 748,341 6,284,061
-------------- -------------- -------------- --------------
Net assets at June 30, 2005 $ 36,582,955 $ 2,483,541 $ 8,967,892 $ 17,415,662
============== ============== ============== ==============
CLASS A:
Net assets $ 6,040,402 $ 1,390,374 $ 2,544,556 $ 13,570,249
============== ============== ============== ==============
Shares authorized 50,000,000 50,000,000 50,000,000 50,000,000
Shares outstanding 359,961 172,668 220,855 587,254
Net asset value and redemption price per share $ 16.78 $ 8.05 $ 11.52 $ 23.11
============== ============== ============== ==============
Maximum offering price per share $ 17.80 $ 8.54 $ 12.22 $ 24.52
Sales load 5.75% 5.75% 5.75% 5.75%
CLASS C:
Net assets $ 30,542,553 $ 1,093,167 $ 6,423,336 $ 3,845,413
============== ============== ============== ==============
Shares authorized 50,000,000 50,000,000 50,000,000 50,000,000
Shares outstanding 1,875,740 143,900 570,340 181,586
Net asset value and redemption price per share $ 16.28 $ 7.60 $ 11.26 $ 21.18
============== ============== ============== ==============
</Table>
53
<Page>
STATEMENT OF OPERATIONS (UNAUDITED)
For the period ended June 30, 2005
<Table>
<Caption>
INCOME
GOVERNMENT AND
SECURITIES EQUITY
FUND FUND
-------------- --------------
INVESTMENT INCOME
Dividends $ 31,393 $ 67,067
Interest 188,867 180,733
-------------- --------------
Total Income 220,260 247,800
-------------- --------------
EXPENSES
Investment Management Fees 28,907 43,544
Transfer Agent Fees 19,389 20,738
Fund Accounting Fees 22,156 30,950
Legal Fees 7,200 9,412
Audit Fees 6,582 8,593
Registration Fees 2,135 2,613
Printing 3,247 4,238
Custody Fees 4,652 3,879
Director Fees/Meetings 801 1,045
Distribution Fees (Note 3) 35,524 44,419
Other Expenses 4,775 6,182
-------------- --------------
Total Expenses, Before Fees Waived 135,368 175,613
Less Fees Waived (Note 3) 28,907 32,501
-------------- --------------
Net Expenses 106,461 143,112
-------------- --------------
NET INVESTMENT INCOME (LOSS) 113,799 104,688
============== ==============
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (9,895) (19,188)
Net unrealized appreciation (depreciation) of
investments (32,679) (131,265)
-------------- --------------
(42,574) (150,453)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 71,225 $ (45,765)
============== ==============
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
54
<Page>
<Table>
<Caption>
MULTI-CAP SMALL
BALANCED GROWTH VALUE CAP
FUND FUND FUND FUND
-------------- -------------- -------------- --------------
INVESTMENT INCOME
Dividends $ 279,068 $ 10,454 $ 56,173 $ 24,600
Interest 416,981 3,414 1,094 -
-------------- -------------- -------------- --------------
Total Income 696,049 13,868 57,267 24,600
-------------- -------------- -------------- --------------
EXPENSES
Investment Management Fees 131,312 7,703 42,093 74,318
Transfer Agent Fees 48,865 19,042 19,798 44,712
Fund Accounting Fees 89,440 9,067 21,664 48,356
Legal Fees 32,016 2,054 7,205 19,818
Audit Fees 25,912 1,520 5,349 14,666
Registration Fees 18,209 1,748 1,936 14,666
Printing 23,444 1,414 2,297 19,917
Custody Fees 5,128 3,368 3,665 9,017
Director Fees/Meetings 3,152 420 989 1,784
Distribution Fees (Note 3) 153,168 5,614 33,288 39,070
Other Expenses 20,996 1,045 4,392 11,290
-------------- -------------- -------------- --------------
Total Expenses, Before Fees Waived 551,642 52,995 142,676 297,614
Less Fees Waived (Note 3) - 22,703 2,524 -
-------------- -------------- -------------- --------------
Net Expenses 551,642 30,292 140,152 297,614
-------------- -------------- -------------- --------------
NET INVESTMENT INCOME (LOSS) 144,407 (16,424) (82,885) (273,014)
============== ============== ============== ==============
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (5,222) (22,945) 205,964 803,476
Net unrealized appreciation (depreciation) of
investments 206,294 (4,099) (321,945) (2,901,934)
-------------- -------------- -------------- --------------
201,072 (27,044) (115,981) (2,098,458)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $ 345,479 $ (43,468) $ (198,866) $ (2,371,472)
============== ============== ============== ==============
</Table>
55
<Page>
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 113,799 $ 150,054
Net realized gain (loss) on investments (9,895) (117,998)
Change in net unrealized appreciation (depreciation)
of investments (32,679) (80,124)
----------------------------------
Increase (decrease) in net assets resulting from
operations 71,225 (48,068)
----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (34,335) (52,891)
Net capital gains - -
Class C:
Net investment income (71,925) (96,281)
Net capital gains - -
----------------------------------
Decrease in net assets resulting from distributions (106,260) (149,172)
----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 482,295 515,159
Proceeds from shares purchased by reinvestment of
dividends 94,542 131,825
Cost of shares repurchased (2,279,822) (4,986,174)
----------------------------------
Increase (decrease) in net assets derived from
capital share transactions (1,702,985) (4,339,190)
----------------------------------
INCREASE (DECREASE) IN NET ASSETS (1,738,020) (4,536,430)
NET ASSETS
Beginning of period 9,911,260 14,447,690
----------------------------------
End of period $ 8,173,240 $ 9,911,260
==================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
56
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND BALANCED FUND
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004 JUNE 30, 2005 DECEMBER 31, 2004
---------------------------------- ----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ 104,688 $ 157,825 $ 144,407 $ 107,607
Net realized gain (loss) on investments (19,188) 70,211 (5,222) 95,014
Change in net unrealized appreciation (depreciation)
of investments (131,265) 53,886 206,294 1,424,341
---------------------------------- ----------------------------------
Increase (decrease) in net assets resulting from
operations (45,765) 281,922 345,479 1,626,962
---------------------------------- ----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income (33,041) (62,235) - (45,542)
Net capital gains - (7,186) - (18,237)
Class C:
Net investment income (54,747) (94,485) - (41,450)
Net capital gains - (16,833) - (94,455)
---------------------------------- ----------------------------------
Decrease in net assets resulting from distributions (87,788) (180,739) - (199,684)
---------------------------------- ----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 1,593,898 4,868,286 2,556,564 7,567,838
Proceeds from shares purchased by reinvestment of
dividends 85,034 171,382 - 193,647
Cost of shares repurchased (1,003,670) (1,043,357) (1,485,893) (2,114,128)
---------------------------------- ----------------------------------
Increase (decrease) in net assets derived from
capital share transactions 675,262 3,996,311 1,070,671 5,647,357
---------------------------------- ----------------------------------
INCREASE (DECREASE) IN NET ASSETS 541,709 4,097,494 1,416,150 7,074,635
NET ASSETS
Beginning of period 11,348,925 7,251,431 35,166,805 28,092,170
---------------------------------- ----------------------------------
End of period $ 11,890,634 $ 11,348,925 $ 36,582,955 $ 35,166,805
================================== ==================================
</Table>
57
<Page>
<Table>
<Caption>
GROWTH FUND
----------------------------------
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (16,424) $ (19,379)
Net realized gain (loss) on investments (22,945) 9,120
Change in net unrealized appreciation (depreciation)
of investments (4,099) 175,858
----------------------------------
Increase (decrease) in net assets resulting from
operations (43,468) 165,599
----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - -
Net capital gains - -
Class C:
Net investment income - -
Net capital gains - -
----------------------------------
Decrease in net assets resulting from distributions - -
----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 961,437 653,598
Proceeds from shares purchased by reinvestment of
dividends - -
Cost of shares repurchased (34,559) (138,992)
----------------------------------
Increase (decrease) in net assets derived from
capital share transactions 926,878 514,606
----------------------------------
INCREASE (DECREASE) IN NET ASSETS 883,410 680,205
NET ASSETS
Beginning of period 1,600,131 919,926
----------------------------------
End of period $ 2,483,541 $ 1,600,131
==================================
</Table>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
58
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND SMALL CAP FUND
---------------------------------- ----------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004 JUNE 30, 2005 DECEMBER 31, 2004
---------------------------------- ----------------------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (82,885) $ (114,979) $ (273,014) $ (470,994)
Net realized gain (loss) on investments 205,964 262,491 803,476 218,158
Change in net unrealized appreciation (depreciation)
of investments (321,945) 278,823 (2,901,934) 5,125,898
---------------------------------- ----------------------------------
Increase (decrease) in net assets resulting from
operations (198,866) 426,335 (2,371,472) 4,873,062
---------------------------------- ----------------------------------
FROM DISTRIBUTIONS TO SHAREHOLDERS
Class A:
Net investment income - - - -
Net capital gains - (68,529) - (115,121)
Class C:
Net investment income - - - -
Net capital gains - (184,774) - (27,534)
---------------------------------- ----------------------------------
Decrease in net assets resulting from distributions - (253,303) - (142,655)
---------------------------------- ----------------------------------
FROM CAPITAL SHARE TRANSACTIONS (NOTE 5)
Proceeds from shares sold 1,041,844 3,538,186 3,610,818 9,008,601
Proceeds from shares purchased by reinvestment of
dividends - 250,204 - 110,040
Cost of shares repurchased (309,550) (244,201) (5,047,930) (2,860,457)
---------------------------------- ----------------------------------
Increase (decrease) in net assets derived from
capital share transactions 732,294 3,544,189 (1,437,112) 6,258,184
---------------------------------- ----------------------------------
INCREASE (DECREASE) IN NET ASSETS 533,428 3,717,221 (3,808,584) 10,988,591
NET ASSETS
Beginning of period 8,434,464 4,717,243 21,224,246 10,235,655
---------------------------------- ----------------------------------
End of period $ 8,967,892 $ 8,434,464 $ 17,415,662 $ 21,224,246
================================== ==================================
</Table>
59
<Page>
PACIFIC ADVISORS FUND INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2005
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 agreements 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. 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. Expense are accrued daily based on estimates. Most of the
Registration Fees for the Funds were prepaid in the first half year, which may
result in negative account payable balances on interim statements.
NOTE 3. INVESTMENT MANAGEMENT, DISTRIBUTOR AND OTHER RELATED PARTY TRANSACTIONS
The Company and the Funds have entered into investment management
agreements ("Management Agreements") with Pacific Global Investment Management
Company, Inc. ("Investment Manager").
The Management Agreements provide for investment management fees, payable
monthly, and calculated at the maximum annual rate of 0.65% of average net
assets for the Government Securities Fund, 0.75% of average net assets for the
Income and Equity, Balanced, Growth and Small Cap Funds and 1.00% of average net
assets for the Multi-Cap Value Fund. The Investment Manager has entered into a
sub-advisory agreement ("Sub-Advisory Agreement") with Bache Capital Management
("Advisor") for the Balanced Fund. It has also entered into a co-management
agreement ("Co-management Agreement") with Bache Capital Management ("Advisor")
for the Income and Equity Fund.
The Investment Manager is solely responsible for the payment of these fees
to the Advisors.
In accordance with Expense Limitation agreements with the Company, the
Investment Manager (and with respect to the Income and Equity Fund, also, the
Co-Manager) will waive its 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%
</Table>
For the Multi-Cap Value Fund only, the expense limitation agreement was
terminated on February 15, 2005.
For the Growth Fund only, if net expenses exceed the above thresh- olds
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.
60
<Page>
Pursuant to the Expense Limitation Agreements, Providing for the voluntary
waiver of fees and the assumption of expenses by the Investment Manager and
Transfer Agency, and, with respected to the Income and Equity Fund, the
Co-Manager, the following amounts were waived for the period ended June 30,
2005.
<Table>
<Caption>
MANAGEMENT TRANSFER AGENT
FEES FEES
WAIVED WAIVED
Government Securities Fund $ 28,907 $ -
Income and Equity Fund 32,501 -
Growth Fund 7,703 15,000
Multi-Cap Value Fund 2,524 -
</Table>
The Investment Manager terminated all of its rights under the expense
limitation agreement with respect to potential recoupment from the Funds from
management fees previously waived and expenses previously reimbursed. In the
future the Investment manager will not have any rights to recover fees they may
waive or expenses they may reimburse, with respect to any of the Funds.
For the period ended June 30, 2005, Pacific Global Fund Distributors, Inc.
("PGFD"), the principal underwriter for the Company, received commissions on
sales of capital stock, after deducting amounts allowed to authorized
distributors as commissions. The amounts are as follows:
<Table>
<Caption>
UNDERWRITING
FEES COMMISSIONS
RETAINED PAID
Government Securities Fund $ 63 $ 340
Income and Equity Fund 187 905
Balanced Fund 1,084 5,432
Growth Fund 1,050 5,273
Multi-Cap Value fund 1,554 7,824
Small Cap Fund 6,141 32,149
</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 the A and C share accounts. PGIS is a wholly owned subsidiary of the
Investment Manager.
Accounts payable to related parties consists of management fees payable to
the Investment Manager and fund accounting and transfer agent fees payable to
PGIS.
The Company has adopted a plan of distribution, whereby the Funds may pay a
service fee to qualified recipients in an amount up to 0.25% and 1.00% per annum
of each Fund's daily net assets for A shares and C shares, respectively. For the
period ended June 30, 2005, total service fees were:
<Table>
<Caption>
CLASS A CLASS C
Government Securities Fund $ 2,983 $ 32,541
Income and Equity Fund 4,547 39,872
Balanced Fund 7,305 145,863
Growth Fund 1,552 4,062
Multi-Cap Value Fund 2,935 30,353
Small Cap Fund 20,007 19,063
</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 period ended and as of June
30, 2005.
<Table>
<Caption>
PERIOD ENDED
JUNE 30, 2005 AS OF JUNE 30, 2005
GROSS GROSS NET UNREALIZED
COST OF PROCEEDS UNREALIZED UNREALIZED APPRECIATION
PURCHASES FROM SALES APPRECIATION DEPRECIATION (DEPRECIATION)
Government Securities Fund $ 6,315,946 $ 5,343,996 $ 39,831 $ 15,410 $ 24,421
Income and Equity Fund 3,059,798 1,394,290 230,104 183,528 46,576
Balanced Fund 4,911,876 3,237,147 6,583,436 233,420 6,350,016
Growth Fund 581,749 33,911 326,094 76,271 249,823
Multi-Cap Value Fund 2,493,111 1,709,578 1,069,030 320,689 748,341
Small Cap Fund 2,785,927 4,270,450 6,638,320 354,259 6,284,061
</Table>
61
<Page>
NOTE 5. 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 June 30,
2005, are included as a reduction to the shares repurchased in the table below.
The amount of the reduction is as follows:
<Table>
<Caption>
Growth Fund Class A $ 34
Multi-Cap Value Fund Class A 40
Small Cap Fund Class A 6,859
Balanced Fund Class C $ 519
Income and Equity Fund Class C 215
Multi-Cap Value Fund Class C 80
</Table>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
GOVERNMENT SECURITIES FUND
Class A
Shares Sold 6,633 $ 62,900 9,692 $ 92,986
Reinvestment of Distributions 2,498 23,573 3,863 36,863
-------------------------------- --------------------------------
9,131 86,473 13,555 129,849
Shares Repurchased (28,130) (267,536) (64,505) (618,244)
-------------------------------- --------------------------------
Net Decrease (18,999) $ (181,063) (50,950) $ (488,395)
================================ ================================
Class C
Shares Sold 45,388 $ 419,395 45,269 $ 422,173
Reinvestment of Distributions 7,717 70,969 10,222 94,962
-------------------------------- --------------------------------
53,105 490,364 55,491 517,135
Shares Repurchased (217,578) (2,012,286) (465,886) (4,367,930)
-------------------------------- --------------------------------
Net Decrease (164,473) $ (1,521,922) (410,395) $ (3,850,795)
================================ ================================
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
INCOME AND EQUITY FUND
Class A
Shares Sold 56,361 $ 584,733 218,049 $ 2,278,445
Reinvestment of Distributions 3,053 31,398 6,044 62,936
-------------------------------- --------------------------------
59,414 616,131 224,093 2,341,381
Shares Repurchased (60,687) (629,258) (56,402) (586,655)
-------------------------------- --------------------------------
Net Increase (Decrease) (1,273) $ (13,127) 167,691 $ 1,754,726
================================ ================================
Class C
Shares Sold 101,669 $ 1,009,165 260,189 $ 2,589,841
Reinvestment of Distributions 5,441 53,636 10,853 108,446
-------------------------------- --------------------------------
107,110 1,062,801 271,042 2,698,287
Shares Repurchased (37,890) (374,412) (45,884) (456,702)
-------------------------------- --------------------------------
Net Increase 69,220 $ 688,389 225,158 $ 2,241,585
================================ ================================
</Table>
62
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
BALANCED FUND
Class A
Shares Sold 29,643 $ 489,368 87,697 $ 1,393,685
Reinvestment of Distributions - - 3,571 59,108
-------------------------------- --------------------------------
29,643 489,368 91,268 1,452,793
Shares Repurchased (23,604) (388,020) (35,754) (568,882)
-------------------------------- --------------------------------
Net Increase 6,039 $ 101,348 55,514 $ 883,911
================================ ================================
Class C
Shares Sold 128,051 $ 2,067,196 400,028 $ 6,174,154
Reinvestment of Distributions - - 8,346 134,538
-------------------------------- --------------------------------
128,051 2,067,196 408,374 6,308,692
Shares Repurchased (68,625) (1,097,873) (99,833) (1,545,246)
-------------------------------- --------------------------------
Net Increase 59,426 $ 969,323 308,541 $ 4,763,446
================================ ================================
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
GROWTH FUND
Class A
Shares Sold 32,950 $ 265,125 63,114 $ 481,133
Reinvestment of Distributions - - - -
-------------------------------- --------------------------------
32,950 265,125 63,114 481,133
Shares Repurchased (697) (5,543) (16,365) (121,527)
-------------------------------- --------------------------------
Net Increase 32,253 $ 259,582 46,749 $ 359,606
================================ ================================
Class C
Shares Sold 90,597 $ 696,312 22,880 $ 172,465
Reinvestment of Distributions - - - -
-------------------------------- --------------------------------
90,597 696,312 22,880 172,465
Shares Repurchased (3,881) (29,016) (2,430) (17,465)
-------------------------------- --------------------------------
Net Increase 86,716 $ 667,296 20,450 $ 155,000
================================ ================================
</Table>
63
<Page>
<Table>
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
MULTI-CAP VALUE FUND
Class A
Shares Sold 30,979 $ 352,249 96,925 $ 1,113,082
Reinvestment of Distributions - - 5,615 66,475
-------------------------------- --------------------------------
30,979 352,249 102,540 1,179,557
Shares Repurchased (6,683) (73,306) (8,958) (102,650)
-------------------------------- --------------------------------
Net Increase 24,296 $ 278,943 93,582 $ 1,076,907
================================ ================================
Class C
Shares Sold 61,617 $ 689,595 214,418 $ 2,425,104
Reinvestment of Distributions - - 15,822 183,729
-------------------------------- --------------------------------
61,617 689,595 230,240 2,608,833
Shares Repurchased (21,538) (236,244) (12,322) (141,551)
-------------------------------- --------------------------------
Net Increase 40,079 $ 453,351 217,918 $ 2,467,282
================================ ================================
<Caption>
PERIOD ENDED YEAR ENDED
JUNE 30, 2005 DECEMBER 31, 2004
-------------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------------------------- --------------------------------
SMALL CAP FUND
Class A
Shares Sold 127,450 $ 3,104,868 321,745 $ 6,934,841
Reinvestment of Distributions - - 3,336 84,426
-------------------------------- --------------------------------
127,450 3,104,868 325,081 7,019,267
Shares Repurchased (222,293) (4,946,335) (120,496) (2,560,641)
-------------------------------- --------------------------------
Net Increase (Derease) (94,843) $ (1,841,467) 204,585 $ 4,458,626
================================ ================================
Class C
Shares Sold 22,574 $ 505,950 105,393 $ 2,073,760
Reinvestment of Distributions - - 1,099 25,614
-------------------------------- --------------------------------
22,574 505,950 106,492 2,099,374
Shares Repurchased (5,141) (101,595) (15,518) (299,816)
-------------------------------- --------------------------------
Net Increase 17,433 $ 404,355 90,974 $ 1,799,558
================================ ================================
</Table>
64
<Page>
PACIFIC ADVISORS FUND INC.
FINANCIAL HIGHLIGHTS (UNAUDITED)
(For a share outstanding throughout the period)
<Table>
<Caption>
GOVERNMENT SECURITIES FUND
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.51 $ 9.68 $ 10.20 $ 10.15 $ 10.88
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment income 0.17 0.23 0.35 0.31 0.31
Net realized and unrealized gains
(losses) on securities (0.06) (0.20) (0.57) (0.04) (0.37)
------------------ ---------- ---------- ---------- ----------
Total from investment operations 0.11 0.03 (0.22) 0.27 (0.06)
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.14) (0.20) (0.30) (0.21) (0.29)
From net capital gains - - - (0.01) (0.38)
------------------ ---------- ---------- ---------- ----------
Total distributions (0.14) (0.20) (0.30) (0.22) (0.67)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.48 $ 9.51 $ 9.68 $ 10.20 $ 10.15
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 1.16%(b) 0.26% (2.20)% 2.78% (0.49)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,299 $ 2,488 $ 3,025 $ 4,125 $ 6,487
Ratio of net investment income to average
net assets
With expense reductions 3.11%(c) 1.89% 2.88% 2.57% 3.01%
Without expense reductions 2.46%(c) 1.23% 2.33% 1.42% 2.22%
Ratio of expenses to average net assets
With expense reductions 1.85%(c) 1.81% 1.65% 1.65% 1.65%
Without expense reductions 2.50%(c) 2.46% 2.20% 2.80% 2.43%
Fund portfolio turnover rate 127.72%(c) 402.70% 206.55% 212.10% 75.81%
<Caption>
CLASS C
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.27 $ 9.43 $ 9.95 $ 9.96 $ 10.74
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment income 0.10 0.09 0.21 0.23 0.25
Net realized and unrealized gains
(losses) on securities (0.02) (0.14) (0.50) (0.04) (0.38)
------------------ ---------- ---------- ---------- ----------
Total from investment operations 0.08 (0.05) (0.29) 0.19 (0.13)
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.11) (0.11) (0.23) (0.19) (0.27)
From net capital gains - - - (0.01) (0.38)
------------------ ---------- ---------- ---------- ----------
Total distributions (0.11) (0.11) (0.23) (0.20) (0.65)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.24 $ 9.27 $ 9.43 $ 9.95 $ 9.96
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 0.86%(b) (0.50)% (2.98)% 1.98% (1.21)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 5,874 $ 7,424 $ 11,423 $ 10,858 $ 4,172
Ratio of net investment income to average
net assets
With expense reductions 2.36%(c) 1.10% 2.23% 1.90% 2.25%
Without expense reductions 1.71%(c) 0.45% 1.67% 0.81% 1.28%
Ratio of expenses to average net assets
With expense reductions 2.60%(c) 2.57% 2.39% 2.40% 2.40%
Without expense reductions 3.25%(c) 3.22% 2.95% 3.49% 3.37%
Fund portfolio turnover rate 127.72%(c) 402.70% 206.55% 212.10% 75.81%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
65
<Page>
<Table>
<Caption>
INCOME AND EQUITY FUND
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.46 $ 10.33 $ 9.91 $ 10.31 $ 10.43
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment Income 0.12 0.07 0.33 0.39 0.42
Net realized and unrealized gains
(losses) on securities (0.15) 0.29 0.31 (0.49) (0.14)
------------------ ---------- ---------- ---------- ----------
Total from investment operations (0.03) 0.36 0.64 (0.10) 0.28
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.09) (0.21) (0.20) (0.30) (0.40)
From net capital gains - (0.02) - - -
From return of capital - - (0.02) - -
------------------ ---------- ---------- ---------- ----------
Total distributions (0.09) (0.23) (0.22) (0.30) (0.40)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 10.34 $ 10.46 $ 10.33 $ 9.91 $ 10.31
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (0.23)%(b) 3.51% 6.63% (0.92)% 2.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,559 $ 3,611 $ 1,835 $ 2,117 $ 2,708
Ratio of net investment income to average
net assets
With expense reductions 2.31%(c) 2.18% 2.92% 3.43% 4.28%
Without expense reductions 1.75%(c) 1.49% 1.84% 1.75% 2.66%
Ratio of expenses to average net assets
With expense reductions 1.95%(c) 1.94% 1.85% 1.85% 1.85%
Without expense reductions 2.51%(c) 2.63% 2.94% 3.53% 3.47%
Fund portfolio turnover rate 26.44%(c) 40.48% 71.02% 91.50% 43.38%
<Caption>
CLASS C
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.02 $ 9.90 $ 9.60 $ 10.03 $ 10.26
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment Income 0.08 0.16 0.24 0.34 0.42
Net realized and unrealized gains
(losses) on securities (0.13) 0.11 0.32 (0.51) (0.22)
------------------ ---------- ---------- ---------- ----------
Total from investment operations (0.05) 0.27 0.56 (0.17) 0.20
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income (0.07) (0.13) (0.22) (0.26) (0.43)
From net capital gains - (0.02) - - -
From return of capital - - (0.02) - -
------------------ ---------- ---------- ---------- ----------
Total distributions (0.07) (0.15) (0.24) (0.26) (0.43)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 9.90 $ 10.02 $ 9.90 $ 9.60 $ 10.03
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (0.54)%(b) 2.74% 5.88% (1.60)% 1.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 8,331 $ 7,738 $ 5,416 $ 3,284 $ 1,365
Ratio of net investment income to average
net assets
With expense reductions 1.57%(c) 1.38% 2.10% 2.95% 3.58%
Without expense reductions 1.01%(c) 0.70% 1.03% 1.15% 1.65%
Ratio of expenses to average net assets
With expense reductions 2.70%(c) 2.69% 2.60% 2.60% 2.60%
Without expense reductions 3.26%(c) 3.37% 3.67% 4.39% 4.54%
Fund portfolio turnover rate 26.44%(c) 40.48% 71.02% 91.50% 43.38%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
66
<Page>
<Table>
<Caption>
BALANCED FUND
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 16.57 $ 15.88 $ 13.69 $ 14.42 $ 15.22
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment income 0.11 0.12 0.21 0.06 0.10
Net realized and unrealized gains
(losses) on securities 0.10 0.75 2.34 (0.79) (0.81)
------------------ ---------- ---------- ---------- ----------
Total from investment operations 0.21 0.87 2.55 (0.73) (0.71)
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income - (0.13) (0.16) - (0.09)
From net capital gains - (0.05) (0.18) - -
From return of capital - - (0.02) - -
------------------ ---------- ---------- ---------- ----------
Total distributions - (0.18) (0.36) - (0.09)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.78 $ 16.57 $ 15.88 $ 13.69 $ 14.42
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 1.27%(b) 5.50% 18.63% (5.05)% (4.69)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 6,040 $ 5,863 $ 4,739 $ 3,977 $ 5,013
Ratio of net investment income to average
net assets
With expense reductions 1.45%(c) 0.98% 1.44% 0.30% 0.55%
Without expense reductions 1.45%(c) 0.98% 1.44% 0.30% 0.55%
Ratio of expenses to average net assets
With expense reductions 2.53%(c) 2.67% 2.86% 3.47% 3.22%
Without expense reductions 2.53%(c) 2.67% 2.86% 3.47% 3.22%
Fund portfolio turnover rate 20.48%(c) 39.60% 58.73% 57.74% 42.20%
<Caption>
CLASS C
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 16.13 $ 15.49 $ 13.40 $ 14.18 $ 14.99
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment income 0.06 0.04 0.09 0.01 0.01
Net realized and unrealized gains
(losses) on securities 0.09 0.68 2.26 (0.79) (0.80)
------------------ ---------- ---------- ---------- ----------
Total from investment operations 0.15 0.72 2.35 (0.78) (0.79)
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income - (0.03) (0.06) - (0.02)
From net capital gains - (0.05) (0.18) - -
From return of capital - - (0.02) - -
------------------ ---------- ---------- ---------- ----------
Total distributions - (0.08) (0.26) - (0.02)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 16.28 $ 16.13 $ 15.49 $ 13.40 $ 14.18
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) 0.93%(b) 4.62% 17.58% (5.49)% (5.25)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 30,543 $ 29,304 $ 23,353 $ 14,035 $ 7,404
Ratio of net investment income to average
net assets
With expense reductions 0.70%(c) 0.21% 0.67% (0.16)% (0.08)%
Without expense reductions 0.70%(c) 0.21% 0.67% (0.16)% (0.08)%
Ratio of expenses to average net assets
With expense reductions 3.28%(c) 3.44% 3.66% 4.15% 3.99%
Without expense reductions 3.28%(c) 3.44% 3.66% 4.15% 3.99%
Fund portfolio turnover rate 20.48%(c) 39.60% 58.73% 57.74% 42.20%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
67
<Page>
<Table>
<Caption>
GROWTH FUND
---------------------------------------------------------------------------------
CLASS A
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.22 $ 7.14 $ 5.48 $ 7.04 $ 9.83
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment income (expense) 0.01 0.02 (0.07) (0.12) (0.11)
Net realized and unrealized gains
(losses) on securities (0.18) 1.06 1.73 (1.44) (2.68)
------------------ ---------- ---------- ---------- ----------
Total from investment operations (0.17) 1.08 1.66 (1.56) (2.79)
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income - - - - -
From net capital gains - - - - -
------------------ ---------- ---------- ---------- ----------
Total distributions - - - - -
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.05 $ 8.22 $ 7.14 $ 5.48 $ 7.04
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (2.07)%(b) 15.13% 30.29% (22.16)% (28.38)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,390 $ 1,155 $ 669 $ 464 $ 588
Ratio of net investment income to average
net assets
With expense reductions (1.32)%(c) (1.51)% (1.69)% (1.97)% (1.26)%
Without expense reductions (3.49)%(c) (4.98)% (7.44)% (8.25)% (5.44)%
Ratio of expenses to average net assets
With expense reductions 2.65%(c) 2.83% 2.48% 2.50% 2.44%
Without expense reductions 4.82%(c) 6.30% 8.23% 8.77% 6.62%
Fund portfolio turnover rate 4.32%(c) 12.96% 34.58% 78.06% 57.61%
<Caption>
CLASS C
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 7.79 $ 6.83 $ 5.33 $ 6.89 $ 9.70
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment income (expense) 0.36 0.22 (0.16) (0.44) (0.22)
Net realized and unrealized gains
(losses) on securities (0.55) 0.74 1.66 (1.12) (2.59)
------------------ ---------- ---------- ---------- ----------
Total from investment operations (0.19) 0.96 1.50 (1.56) (2.81)
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income - - - - -
From net capital gains - - - - -
------------------ ---------- ---------- ---------- ----------
Total distributions - - - - -
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.60 $ 7.79 $ 6.83 $ 5.33 $ 6.89
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (2.44)%(b) 14.06% 28.14% (22.64)% (28.97)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 1,093 $ 445 $ 251 $ 190 $ 439
Ratio of net investment income to average
net assets
With expense reductions (2.02)%(c) (2.27)% (2.47)% (2.75)% (2.04)%
Without expense reductions (4.28)%(c) 5.61% (8.18)% (8.67)% (5.59)%
Ratio of expenses to average net assets
With expense reductions 3.40%(c) 3.54% 3.25% 3.25% 3.23%
Without expense reductions 5.65%(c) 6.88% 8.96% 9.17% 6.77%
Fund portfolio turnover rate 4.32%(c) 12.96% 34.58% 78.06% 57.61%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
68
<Page>
<Table>
<Caption>
MULTI-CAP VALUE FUND
------------------------------------------------------------------------
CLASS A
------------------------------------------------------------------------
FOR THE YEAR ENDED
FOR THE SIX MONTHS DECEMBER 31, APRIL 1, 2002(c)
ENDED ----------------------- TO
JUNE 30,2005 2004 2003 DECEMBER 31, 2002
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.77 $ 11.46 $ 7.95 $ 10.00
------------------ --------- --------- ------------------
Income from investing operations
Net investment expense (0.06) (0.03) (0.09) (0.07)
Net realized and unrealized gains
(losses) on securities (0.19) 0.70 3.60 (1.98)
------------------ --------- --------- ------------------
Total from investment operations (0.25) 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 $ 11.52 $ 11.77 $ 11.46 $ 7.95
================== ========= ========= ==================
TOTAL INVESTMENT RETURN (a) (2.12)%(b) 5.84% 44.15% (20.50)%(b)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 2,545 $ 2,313 $ 1,180 $ 503
Ratio of net investment income to average
net assets
With expense reductions (1.43)%(d) (1.15)% (1.67)% (1.44)%(d)
Without expense reductions (1.49)%(d) (1.15)% (3.14)% (5.65)%(d)
Ratio of expenses to average net assets
With expense reductions 2.79%(d) 2.63% 2.49% 2.49%(d)
Without expense reductions 2.85%(d) 3.07% 3.96% 6.69%(d)
Fund portfolio turnover rate 40.92%(d) 49.30% 20.16% 8.23%(d)
<Caption>
CLASS C
------------------------------------------------------------------------
FOR THE YEAR ENDED
FOR THE SIX MONTHS DECEMBER 31, APRIL 1, 2002(c)
ENDED ----------------------- TO
JUNE 30,2005 2004 2003 DECEMBER 31, 2002
------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.54 $ 11.33 $ 7.91 $ 10.00
------------------ --------- --------- ------------------
Income from investing operations
Net investment income (expense) (0.10) (0.10) 0.32 (0.52)
Net realized and unrealized gains
(losses) on securities (0.18) 0.67 3.10 (1.57)
------------------ --------- --------- ------------------
Total from investment operations (0.28) 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 $ 11.26 $ 11.54 $ 11.33 $ 7.91
================== ========= ========= ==================
TOTAL INVESTMENT RETURN (a) (2.43)%(b) 5.02% 43.24% (20.90)%(b)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 6,423 $ 6,122 $ 3,537 $ 1,247
Ratio of net investment income to average
net assets
With expense reductions (2.18)%(d) (1.94)% (2.41)%(d) (2.20)%(d)
Without expense reductions (2.24)%(d) (2.37)% (3.90)%(d) (6.08)%(d)
Ratio of expenses to average net assets
With expense reductions 3.54%(d) 3.40% 3.24%(d) 3.23%(d)
Without expense reductions 3.60%(d) 3.83% 4.74%(d) 7.11%(d)
Fund portfolio turnover rate 40.92%(d) 49.30% 20.16% 8.23%(d)
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not annualized
(c) Commencement of operations
(d) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
69
<Page>
<Table>
<Caption>
SMALL CAP FUND
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 25.47 $ 18.77 $ 10.32 $ 15.23 $ 13.42
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment expense (0.93) 0.73 (0.37) (0.85) (0.42)
Net realized and unrealized gains
(losses) on securities (1.43) 6.14 8.95 (4.05) 3.11
------------------ ---------- ---------- ---------- ----------
Total from investment operations (2.36) 6.87 8.58 (4.90) 2.69
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income - - - - -
From net capital gains - (0.17) (0.13) (0.01) (0.88)
------------------ ---------- ---------- ---------- ----------
Total distributions - (0.17) (0.13) (0.01) (0.88)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 23.11 $ 25.47 $ 18.77 $ 10.32 $ 15.23
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (9.27)%(b) 36.60% 83.21% (32.20)% 20.23%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 13,570 $ 17,376 $ 8,961 $ 4,763 $ 7,715
Ratio of net investment income to average
net assets
With expense reductions (2.61)%(c) (3.08)% (4.06)% (4.01)% (3.44)%
Without expense reductions (2.61)%(c) (3.08)% (4.06)% (4.01)% (3.44)%
Ratio of expenses to average net assets
With expense reductions 2.86%(c) 3.32% 4.44% 4.52% 3.74%
Without expense reductions 2.86%(c) 3.32% 4.44% 4.52% 3.74%
Fund portfolio turnover rate 26.76%(c) 7.23% 39.95% 23.39% 43.89%
<Caption>
CLASS C
---------------------------------------------------------------------------------
FOR THE SIX MONTHS FOR THE YEAR ENDED DECEMBER 31,
ENDED -------------------------------------------------------
JUNE 30,2005 2004 2003 2002 2001
---------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 23.44 $ 17.41 $ 9.65 $ 14.47 $ 13.04
------------------ ---------- ---------- ---------- ----------
Income from investing operations
Net investment expense (0.20) 0.66 0.04 (0.88) (0.08)
Net realized and unrealized gains
(losses) on securities (2.06) 5.54 7.85 (3.93) 2.39
------------------ ---------- ---------- ---------- ----------
Total from investment operations (2.26) 6.20 7.89 (4.81) 2.31
------------------ ---------- ---------- ---------- ----------
Less distributions
From net investment income - - - - -
From net capital gains - (0.17) (0.13) (0.01) (0.88)
------------------ ---------- ---------- ---------- ----------
Total distributions - (0.17) (0.13) (0.01) (0.88)
------------------ ---------- ---------- ---------- ----------
Net asset value, end of period $ 21.18 $ 23.44 $ 17.41 $ 9.65 $ 14.47
================== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN (a) (9.64)%(b) 35.62% 81.83% (33.27)% 17.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's) $ 3,845 $ 3,848 $ 1,274 $ 543 $ 886
Ratio of net investment income to average
net assets
With expense reductions (3.35)%(c) (3.85)% (4.88)% (5.47)% (5.48)%
Without expense reductions (3.35)%(c) (3.85)% (4.88)% (5.47)% (5.48)%
Ratio of expenses to average net assets
With expense reductions 3.61%(c) 4.10% 5.26% 5.97% 5.78%
Without expense reductions 3.61%(c) 4.10% 5.26% 5.97% 5.78%
Fund portfolio turnover rate 26.76%(c) 7.23% 39.95% 23.39% 43.89%
</Table>
(a) The Fund's maximum sales charge is not included in the total return
computation
(b) Not annualized
(c) Annualized
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
70
<Page>
PACIFIC ADVISORS FUND INC.
DIRECTORS AND OFFICERS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(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 Mutual Funds
Havertown, PA 19083 1970 - 2003: President
Fringe Benefits, Inc/
Financial Foresight, Ltd.,
d/b/a The Brinker
Organization (Financial
Services Companies)
Victoria Breen (54) 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>
71
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(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
101 N. Brand Blvd. and Secretary Vice President and Mutual Funds
Suite 1950 Director, Pacific Global
Glendale, CA 91203 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
101 N. Brand Blvd. Secretary Pacific Global Investment Mutual Funds
Suite 1950 Management Company
Glendale, CA 91203
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>
72
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(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 (58) President and Since 1992 1991 - Present: Chairman, 6 Pacific Advisors None
101 N. Brand Blvd. Chairman President, and Director, Mutual Funds
Suite 1950 Pacific Global Investment
Glendale, CA 91203 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 President, Since 2001 2004 - Present: Chief 6 Pacific Advisors None
101 N. Brand Blvd. Chief Compliance Officer, Mutual Funds
Suite 1950 Compliance Pacific Advisors Fund Inc.
Glendale, CA 91203 Officer and and Pacific Global
Treasurer Investment Management
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>
73
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
POSITION(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: Consultant 6 Pacific Advisors None
5924 Colodny Mutual Funds
Agoura, CA 91301 2002 - 2003: 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 (80) Director Since 1995 1992 - Present: Director, 6 Pacific Advisors None
1506 S. Bentley Avenue Medical Treatment Mutual Funds
PH #5 Effectiveness Program
Los Angeles, CA 90025 (MEDTEP), Center on Asian
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, Ph.D (58) Director Since 1992 1991 - Present: 6 Pacific Advisors None
325 East Huntington Dr. Superintendent, Monrovia Mutual Funds
Monrovia, CA 91016 Unified School District
</Table>
Each director is elected to serve until the next annual shareholders meeting and
until his or her successor is elected or appointed. The Company does not hold
regular annual shareholders meetings to elect Directors. Vacancies on the Board
can be filled by the action of a majority of the Directors, provided that at
least two-thirds of the Directors have been elected by the shareholders. Certain
Directors are considered "interested persons" of the Company as defined in the
1940 Act. All directors oversee all six Funds of the Company.
74
<Page>
PACIFIC ADVISORS FUND INC.
notes
75
<Page>
PACIFIC ADVISORS FUND INC.
notes
76
<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
101 NORTH BRAND BLVD., SUITE 1950
GLENDALE, CALIFORNIA 91203
INCOME AND EQUITY FUND CO-MANAGER AND BALANCED FUND ADVISER
BACHE CAPITAL MANAGEMENT, INC.
101 NORTH BRAND BLVD., SUITE 1950
GLENDALE, CALIFORNIA 91203
TRANSFER AGENT AND ADMINISTRATOR
PACIFIC GLOBAL INVESTOR SERVICES, INC.
101 NORTH BRAND BLVD., SUITE 1950
GLENDALE, CALIFORNIA 91203
DISTRIBUTOR
PACIFIC GLOBAL FUND DISTRIBUTORS, INC.
101 NORTH BRAND BLVD., SUITE 1950
GLENDALE, CALIFORNIA 91203
(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>
[LOGO]
PACIFIC GLOBAL FUND DISTRIBUTORS, INC. PRSRT STD
101 NORTH BRAND BLVD., SUITE 1950 U. S. POSTAGE
GLENDALE, CALIFORNIA 91203 PAID
CHICAGO, IL
PERMIT NO. 5750
pg101.898
<Page>
Item 2. Code of Ethics
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services
Not applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants
Not applicable as Registrant is not a listed issuer as defined in Rule
10A-3 under the Securities Exchange Act of 1934.
Item 6. Schedule of Investments
Schedule of Investments is included as part of the report to
shareholders filed under Item 1 of this form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Managers of Closed-End Management
Investment Company and Affiliated Purchasers.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders
No material changes have been made.
Item 11. 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 were no changes in Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940) that occurred during the second fiscal quarter of
the period covered by this report that have materially affected, or
are reasonably likely to materially affect, Registrant's internal
control over financial reporting.
Item 12. Exhibits
(a)(1) Not applicable.
(a)(2) Certifications required by Item 12(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: September 7, 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: September 7, 2005
By: /s/ Barbara A. Kelley
-----------------------
Barbara A. Kelley
Chief Financial Officer
Date: September 7, 2005