<PAGE> 1
HOTCHKIS AND WILEY VARIABLE TRUST
725 SOUTH FIGUEROA STREET
SUITE 4000
LOS ANGELES, CALIFORNIA 90017-5400
800-236-4479
INVESTMENT ADVISOR
HOTCHKIS AND WILEY
725 SOUTH FIGUEROA STREET
SUITE 4000
LOS ANGELES, CALIFORNIA 90017-5400
LEGAL COUNSEL
GARDNER, CARTON & DOUGLAS
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610
INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
100 EAST WISCONSIN AVENUE
MILWAUKEE, WI 53202
DISTRIBUTOR
PRINCETON FUNDS DISTRIBUTOR, INC.
800 SCUDDERS MILL ROAD
PLAINSBORO, NEW JERSEY 08536
ADMINISTRATOR
AND TRANSFER AGENT
FIRSTAR MUTUAL FUND SERVICES, LLC
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
CUSTODIAN
FIRSTAR BANK MILWAUKEE, N.A.
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
SEMI-ANNUAL
REPORT
JUNE 30, 1999
LOGO
[ HOTCHKIS AND WILEY VARIABLE TRUST LOGO]
INTERNATIONAL VIP PORTFOLIO
-------------------------------------------------------
Seeks to provide current income and long-term growth of income, accompanied by
growth of capital. The Fund invests in international equity securities.
HOTCHKIS AND WILEY: INVESTMENT ADVISOR
<PAGE> 2
[HOTCHKIS AND WILEY FUNDS LOGO]
DEAR SHAREHOLDERS:
The International VIP Portfolio's return of 12.2% outpaced the MSCI EAFE Index
(+4.1%) for the six month period ended June 30, 1999. In January, European
markets continued to exhibit the same trends that dominated performance last
year. Initially, the euphoria surrounding the successful launch of the Euro
created an ebullience that once again made the mega cap growth-oriented stocks
the dominant drivers of performance. By late February, however, relative calm
returned to the world's financial markets. Investors started to focus more on
the underlying valuation of securities and less on the larger allocation themes.
Outperformance in certain European countries, particularly the U.K., France,
Italy and Sweden, propelled the Portfolio. Corporate activity has been very
strong this year in Europe. Strategic and trade buyers have sought to capitalize
on the opportunities afforded by the deep discount that the stock markets have
accorded the more cyclical companies. As an example, Hillsdown Holdings in the
U.K. was the target of an American led buy-out at a 70% share price premium. Our
research identified this stock as extremely under-valued with a 5.9% dividend
yield and a strong balance sheet. In Japan, the Portfolio was significantly
underweight vs. the Index with a 9% average weight vs. 23% for the Index. This
proved to be a drag on performance in the first half as the Japanese market
gained 20.8% in U.S. dollar terms. However, stock selection in Japan helped
mitigate the impact on the Portfolio. In Japan, where we are emphasizing export-
oriented companies with modest exposure to the anemic Japanese economy, we saw
our position in the Japanese entertainment company, Nintendo, pay off
handsomely. Nintendo has just announced another major product introduction based
on next generation video game platform technology.
We anticipate that above-consensus global gross domestic product growth rates
will benefit the Portfolio, which is geared to companies in the economically
sensitive cyclical sectors. In Europe and the U.K., where we expect to see the
economic recovery gather pace, we continue to emphasize financials, industrials
and materials. As equities become increasingly popular in Europe, we expect a
rising tide of equity issuances from European companies over the next 12 months.
As these transactions compete for investors' attention, the initial offering
prices should remain attractive. For example, the Portfolio recently added
shares in the newly issued Swiss building and construction products company
Geberit, offered at a significant valuation discount to the stock of comparable
companies. The renewed emphasis on capital efficiency and a growing regard for
the shareholder is becoming increasingly evident in the Asian and European
markets - factors that play strongly to the capital-intensive nature of the
companies held in the Portfolio. The Portfolio continues to boast a healthy
dividend yield premium over the benchmark: as of June 30, 1999, the Portfolio
had a 44% yield premium to the MSCI EAFE Index.*
TOTAL RETURNS FOR PERIODS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
International MSCI
VIP Portfolio EAFE
- --------------------------------------------------
<S> <C> <C>
Six Months 12.18% 4.11%
One Year 7.48 7.92
Since Inception
(6/10/98)+ 6.86 n/a
</TABLE>
+ Average annual total return. Past performance is no guarantee of future
performance.
<PAGE> 3
As always, we appreciate the trust you place in us. We thank you for your
continued support and look forward to reporting to you again in six months.
Sincerely,
/s/ NANCY D. CELICK
Nancy D. Celick
President
HOTCHKIS AND WILEY VARIABLE TRUST
The above reflects opinions of portfolio managers as of June 30, 1999. They are
subject to change and any forecasts made cannot be guaranteed. The Portfolio
might not continue to hold any securities mentioned and has no obligation to
disclose purchases or sales in these securities.
Total returns and average annual total returns are net of all charges and fees
and assume reinvestment of capital gains distributions and shareholder dividends
at net asset value. Insurance related fees and expenses are not reflected in
these returns and, if they were, returns would be lower. Please see the
prospectus for details. The investment advisor pays annual operating expenses in
excess of 1.35% of average net assets. Were it not to pay such expenses, net
returns would be lower. Investment return and principal will vary so that
shares, when redeemed, may be worth more or less than their original cost.
Investment by the Portfolio in foreign securities involves special risks
including fluctuating foreign exchange rates, foreign government regulations,
differing degrees of liquidity, and the possibility of substantial volatility
due to adverse political, economic or other developments. Past performance is no
guarantee of future performance.
The MSCI EAFE Index includes foreign stock prices of Europe, Australia and the
Far East exchanges. The Index does not reflect the payment of transaction costs,
fees and expenses associated with an investment in the Portfolio. The Portfolio
is not identical in composition to the Index; the securities, weightings among
securities, countries, and weightings among countries in the Portfolio differ
from those in the Index. It is not possible to invest directly in an index.
* Refers to yield of securities held by the Portfolio. Not reflective of yield
distributed to Portfolio shareholders.
<PAGE> 4
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SCHEDULE OF INVESTMENTS.................................. 1
STATEMENT OF ASSETS AND LIABILITIES...................... 4
STATEMENT OF OPERATIONS.................................. 5
STATEMENT OF CHANGES IN NET ASSETS....................... 6
NOTES TO FINANCIAL STATEMENTS............................ 7
FINANCIAL HIGHLIGHTS..................................... 10
</TABLE>
[HOTCHKIS AND WILEY VARIABLE TRUST LOGO]
<PAGE> 5
SCHEDULE OF INVESTMENTS -- JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
INTERNATIONAL VIP PORTFOLIO
<TABLE>
<CAPTION>
COMMON STOCKS -- 97.2% Shares Value
- ------------------------------------------------------------
<S> <C> <C>
AUSTRALIA -- 5.9%
- ------------------------------------------------------------
AIRLINES -- 1.9%
............................................................
Qantas Airways Limited 1,057,575 $ 3,493,050
- ------------------------------------------------------------
BANKS -- 1.5%
............................................................
Australia and New Zealand Banking
Group, Ltd. 377,135 2,773,095
- ------------------------------------------------------------
BUILDING MATERIALS -- 1.4%
............................................................
Pioneer International, Ltd. 1,049,782 2,675,179
- ------------------------------------------------------------
INSURANCE -- 1.1%
............................................................
QBE Insurance Group, Ltd. 545,241 2,075,149
............................................. -----------
11,016,473
Total Australia
- ------------------------------------------------------------
AUSTRIA -- 0.7%
- ------------------------------------------------------------
STEEL -- 0.7%
............................................................
Boehler -- Uddeholm AG 27,030 1,337,840
............................................. -----------
1,337,840
Total Austria
- ------------------------------------------------------------
CANADA -- 3.9%
- ------------------------------------------------------------
BANKS -- 1.9%
............................................................
Canadian Imperial Bank of
Commerce 147,520 3,498,380
- ------------------------------------------------------------
DIVERSIFIED INDUSTRIALS -- 1.0%
............................................................
Imasco, Ltd. 71,130 1,907,885
- ------------------------------------------------------------
METALS & MINERALS -- 1.0%
............................................................
Noranda, Inc. 135,910 1,781,403
- ------------------------------------------------------------
OIL EXPLORATION &
PRODUCTION -- 0.0%
............................................................
Canadian Hunter Exploration Ltd.# 1 7
............................................. -----------
7,187,675
Total Canada
- ------------------------------------------------------------
FINLAND -- 1.4%
- ------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 1.4%
............................................................
UPM-Kymmene OYJ 92,610 2,655,278
............................................. -----------
2,655,278
Total Finland
- ------------------------------------------------------------
FRANCE -- 11.3%
- ------------------------------------------------------------
AEROSPACE -- DEFENSE -- 1.2%
............................................................
Thomson CSF 62,841 2,184,140
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Shares Value
<S> <C> <C>
BANKS -- 2.7%
............................................................
Banque Nationale de Paris 25,271 $ 2,105,917
............................................................
Societe Generale 16,020 2,823,657
............................................. -----------
4,929,574
- ------------------------------------------------------------
BEVERAGES -- 1.5%
............................................................
Pernod Ricard SA 41,400 2,775,371
- ------------------------------------------------------------
BUILDING MATERIALS -- 1.2%
............................................................
Lafarge SA 24,390 2,319,264
- ------------------------------------------------------------
CONSUMER DURABLES -- MISCELLANEOUS -- 1.2%
............................................................
Societe BIC SA 42,379 2,235,650
- ------------------------------------------------------------
OIL -- INTERNATIONAL -- 3.5%
............................................................
Elf Aquitaine SA 21,295 3,125,287
............................................................
Total SA 26,388 3,404,640
............................................. -----------
6,529,927
............................................. -----------
20,973,926
Total France
- ------------------------------------------------------------
GERMANY -- 8.2%
- ------------------------------------------------------------
BANKS -- 0.9%
............................................................
Commerzbank AG 53,105 1,612,977
- ------------------------------------------------------------
BUILDING MATERIALS -- 0.8%
............................................................
Dyckerhoff AG 4,819 1,456,237
- ------------------------------------------------------------
CHEMICALS -- 2.5%
............................................................
Hoechst AG 71,237 3,225,355
............................................................
SGL Carbon AG # 18,213 1,408,803
............................................. -----------
4,634,158
- ------------------------------------------------------------
CONSUMER DURABLES -- MISCELLANEOUS -- 2.2%
............................................................
Buderus AG 5,565 2,232,658
............................................................
Vossloh AG 81,810 1,856,250
............................................. -----------
4,088,908
- ------------------------------------------------------------
DIVERSIFIED INDUSTRIALS -- 1.8%
............................................................
VEBA AG 58,270 3,425,526
............................................. -----------
15,217,806
Total Germany
- ------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements
1
<PAGE> 6
SCHEDULE OF INVESTMENTS -- JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
INTERNATIONAL VIP PORTFOLIO
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
HONG KONG -- 3.2%
- ------------------------------------------------------------
REAL ESTATE DEVELOPMENT -- 2.7%
............................................................
Hang Lung Development Company 1,937,000 $ 2,415,352
............................................................
New World Development Co., Ltd. 864,000 2,589,027
............................................. -----------
5,004,379
- ------------------------------------------------------------
UTILITY -- ELECTRIC -- 0.5%
............................................................
Shandong International Power
Development Company Limited # 4,000,000 902,190
............................................. -----------
5,906,569
Total Hong Kong
- ------------------------------------------------------------
IRELAND -- 2.7%
- ------------------------------------------------------------
FOOD PRODUCERS -- 1.3%
............................................................
Greencore Group PLC 774,030 2,394,895
- ------------------------------------------------------------
PAPER -- 1.4%
............................................................
Jefferson Smurfit Group PLC 1,087,642 2,551,965
............................................. -----------
4,946,860
Total Ireland
- ------------------------------------------------------------
ITALY -- 2.9%
- ------------------------------------------------------------
OIL EXPLORATION & PRODUCTION -- 1.2%
............................................................
ENI SPA 361,900 2,161,098
- ------------------------------------------------------------
TELECOMMUNICATIONS -- 1.7%
............................................................
Telecom Italia SPA 277,500 2,884,901
............................................................
Telecom Italia SPA -- RNC 61,412 333,155
............................................. -----------
3,218,056
............................................. -----------
5,379,154
Total Italy
- ------------------------------------------------------------
JAPAN -- 8.9%
- ------------------------------------------------------------
ELECTRONIC COMPONENTS -- 3.6%
............................................................
Nintendo Co., Ltd. 47,500 6,675,278
- ------------------------------------------------------------
FINANCIAL SERVICES -- 2.0%
............................................................
Promise Company, Ltd. 64,800 3,827,829
- ------------------------------------------------------------
LEISURE/TOYS -- 1.8%
............................................................
NAMCO, Ltd. 122,200 3,281,149
- ------------------------------------------------------------
STEEL -- 1.5%
............................................................
Yodogawa Steel Works, Ltd. 666,000 2,751,159
............................................. -----------
16,535,415
Total Japan
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Shares Value
<S> <C> <C>
NETHERLANDS -- 7.3%
- ------------------------------------------------------------
BANKS -- 1.0%
............................................................
ABN AMRO Holding N.V. 81,290 $ 1,760,613
- ------------------------------------------------------------
CHEMICALS -- 1.2%
............................................................
Akzo Nobel N.V. 54,580 2,296,683
- ------------------------------------------------------------
ELECTRONICS -- 1.7%
............................................................
Koninklijke (Royal) Philips
Electronics N.V. 31,937 3,150,539
- ------------------------------------------------------------
INSURANCE -- MULTI-LINE -- 2.4%
............................................................
Fortis (NL) N.V. 43,120 1,331,935
............................................................
ING Groep N.V. 57,750 3,126,934
............................................. -----------
4,458,869
- ------------------------------------------------------------
TELECOMMUNICATIONS -- 1.0%
............................................................
Koninklijke KPN N.V. 41,065 1,927,040
............................................. -----------
13,593,744
Total Netherlands
- ------------------------------------------------------------
NORWAY -- 1.1%
- ------------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 1.1%
............................................................
Kvaerner ASA -- Class A # 101,486 2,088,375
............................................. -----------
2,088,375
Total Norway
- ------------------------------------------------------------
SINGAPORE -- 1.7%
- ------------------------------------------------------------
COMPUTERS -- 1.7%
............................................................
Creative Technology, Ltd. 237,582 3,192,508
............................................. -----------
3,192,508
Total Singapore
- ------------------------------------------------------------
SPAIN -- 3.4%
- ------------------------------------------------------------
BANKS -- 1.4%
............................................................
Banco Santander Central Hispano,
S.A. 250,420 2,608,542
- ------------------------------------------------------------
TELECOMMUNICATIONS -- 2.0%
............................................................
Telefonica de Espana S.A. 78,444 3,779,010
............................................. -----------
6,387,552
Total Spain
- ------------------------------------------------------------
SWEDEN -- 2.3%
- ------------------------------------------------------------
BANKS -- 0.8%
............................................................
Skandinaviska Enskilda Banken AG 130,089 1,514,798
............................................. -----------
</TABLE>
See Notes to the Financial Statements
2
<PAGE> 7
SCHEDULE OF INVESTMENTS -- JUNE 30, 1999
(UNAUDITED)
- --------------------------------------------------------------------------------
INTERNATIONAL VIP PORTFOLIO
<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
ELECTRICAL EQUIPMENT -- 1.5%
............................................................
Electrolux AB -- Class B 131,490 $ 2,752,908
............................................. -----------
4,267,706
Total Sweden
- ------------------------------------------------------------
SWITZERLAND -- 6.0%
- ------------------------------------------------------------
BUILDING MATERIALS -- 1.3%
............................................................
Geberit International AG # 10,982 2,504,258
- ------------------------------------------------------------
MACHINERY & EQUIPMENT -- 2.7%
............................................................
Saurer AG "registered" # 5,063 2,738,957
............................................................
Sulzer AG "registered" # 3,738 2,272,231
............................................. -----------
5,011,188
- ------------------------------------------------------------
MEDICAL PRODUCTS &
SUPPLIES -- 2.0%
............................................................
Novartis AG "registered" 2,532 3,697,183
............................................. -----------
11,212,629
Total Switzerland
- ------------------------------------------------------------
UNITED KINGDOM -- 26.3%
- ------------------------------------------------------------
APPAREL & TEXTILES -- 1.7%
............................................................
Coats Viyella PLC 3,962,250 3,185,289
- ------------------------------------------------------------
BANKS -- 3.6%
............................................................
Lloyds TSB Group PLC 227,423 3,082,973
............................................................
National Westminster Bank PLC 166,610 3,532,321
............................................. -----------
6,615,294
- ------------------------------------------------------------
BUILDING MATERIALS -- 1.5%
............................................................
Hanson PLC 321,040 2,851,608
- ------------------------------------------------------------
CHEMICALS -- 1.5%
............................................................
BOC Group PLC 139,917 2,734,822
- ------------------------------------------------------------
CONSUMER DURABLES -- MISCELLANEOUS -- 1.3%
............................................................
Reckitt & Colman PLC 235,799 2,458,717
- ------------------------------------------------------------
DIVERSIFIED -- 1.7%
............................................................
Cookson Group PLC 907,900 3,062,588
- ------------------------------------------------------------
DIVERSIFIED INDUSTRIALS -- 3.6%
............................................................
Tomkins PLC 887,880 3,848,786
............................................................
Williams PLC 417,118 2,754,925
............................................. -----------
6,603,711
- ------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Shares Value
<S> <C> <C>
ENGINEERING &
CONSTRUCTION -- 2.9%
............................................................
Invensys PLC 566,901 $ 2,683,040
............................................................
TI Group PLC 414,020 2,773,621
............................................. -----------
5,456,661
- ------------------------------------------------------------
FOOD & BEVERAGES -- 1.8%
............................................................
Allied Domecq PLC 351,700 3,392,818
- ------------------------------------------------------------
INSURANCE -- 2.5%
............................................................
Allied Zurich AG PLC 228,155 2,868,121
............................................................
CGU PLC 128,100 1,850,625
............................................. -----------
4,718,746
- ------------------------------------------------------------
PRINTING & PUBLISHING -- 1.4%
............................................................
United News & Media PLC 271,008 2,605,846
- ------------------------------------------------------------
RETAIL -- FOOD CHAINS -- 1.4%
............................................................
Tesco PLC 1,037,270 2,669,204
- ------------------------------------------------------------
TOBACCO -- 0.9%
............................................................
B.A.T. Industries PLC 171,445 1,612,026
- ------------------------------------------------------------
WATER -- TREATMENT -- 0.5%
............................................................
Thames Water PLC 51,610 818,406
............................................. -----------
48,785,736
Total United Kingdom
............................................. -----------
Total common stocks 180,685,246
(cost $168,501,459)
- ------------------------------------------------------------
VARIABLE RATE DEMAND Principal
NOTES* -- 0.4% Amount
- ------------------------------------------------------------
Chase Manhattan Bank, 3.3593%
(cost $689,336) $ 689,336 689,336
............................................. -----------
Total investments -- 97.6% 181,374,582
(cost $169,190,795)
............................................................
4,578,136
Other assets in excess of liabilities -- 2.4%
............................................. -----------
$185,952,718
Total net assets -- 100.0%
- ------------------------------------------------------------
</TABLE>
# Non-income producing security.
* Variable rate demand notes are considered short-term obligations and are
payable on demand. Interest rates change periodically on specified dates. The
rate listed is as of June 30, 1999.
See Notes to the Financial Statements
3
<PAGE> 8
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1999
INTERNATIONAL VIP PORTFOLIO (Unaudited)
- ---------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments, at value*.................................... $181,374,582
Cash...................................................... 1,020,092
Dividends and interest receivable......................... 882,136
Receivable for securities sold............................ 2,853,518
Organizational expenses, net of accumulated
amortization............................................ 14,917
Prepaid expenses.......................................... 26,818
------------
Total assets.......................................... 186,172,063
------------
LIABILITIES:
Payable to Advisor........................................ 115,258
Accrued expenses and other liabilities.................... 104,087
------------
Total liabilities..................................... 219,345
------------
Net assets............................................ $185,952,718
============
NET ASSETS CONSIST OF:
Paid in capital........................................... $174,666,519
Undistributed net investment income....................... 2,134,433
Undistributed net realized loss on securities and foreign
currency transactions................................... (3,016,884)
Net unrealized appreciation of securities and foreign
currency................................................ 12,168,650
------------
Net assets............................................ $185,952,718
============
CALCULATION OF NET ASSET VALUE PER SHARE:
Shares outstanding (unlimited shares of no par value
authorized)............................................. 17,416,923
Net asset value per share (offering and redemption
price).................................................. $ 10.68
============
*Cost of Investments........................................ $169,190,795
============
</TABLE>
See Notes to the Financial Statements
4
<PAGE> 9
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
INTERNATIONAL VIP PORTFOLIO (Unaudited)
- ------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME
Income*
Dividends............................................... $ 2,937,212
Interest................................................ 188,971
-----------
Total income........................................ 3,126,183
-----------
Expenses
Advisory fee............................................ 784,512
Legal and auditing fees................................. 30,128
Custodian fees and expenses............................. 81,267
Accounting and transfer agent fees and expenses......... 41,172
Administration fee...................................... 59,643
Trustees' fees and expenses............................. 29,051
Reports to shareholders................................. 22,562
Registration fees....................................... 1,910
Amortization of organizational expenses................. 2,000
Other expenses.......................................... 2,500
-----------
Total expenses...................................... 1,054,745
-----------
Net investment income..................................... 2,071,438
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on securities and foreign currency
transactions........................................... 629,460
Net change in unrealized appreciation of securities and
foreign currency....................................... 14,394,674
-----------
Net gain on investments................................... 15,024,134
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $17,095,572
===========
*Net of Foreign Taxes Withheld.............................. $ 321,601
===========
</TABLE>
See Notes to the Financial Statements
5
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 10, 1998**
June 30, 1999 through
INTERNATIONAL VIP PORTFOLIO (Unaudited) December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income................................... $ 2,071,438 $ 1,479,772
Net realized gain (loss) on securities and foreign
currency transactions.................................. 629,460 (3,884,261)
Net change in unrealized appreciation (depreciation) of
securities and foreign currency........................ 14,394,674 (2,226,023)
------------- ------------
Net increase (decrease) in net assets resulting from
operations.......................................... 17,095,572 (4,630,512)
------------- ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................... -- (1,179,786)
------------- ------------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold........................... 13,117,216 299,085,362
Shares issued in connection with payment of dividends
and distributions...................................... -- 1,179,786
Cost of shares redeemed................................. (133,395,028) (5,319,892)
------------- ------------
Net increase (decrease) in net assets from Fund
share transactions.................................. (120,277,812) 294,945,256
------------- ------------
Total increase (decrease) in net assets..................... (103,182,240) 289,134,958
NET ASSETS:
Beginning of period..................................... 289,134,958 --
------------- ------------
End of period*.......................................... $ 185,952,718 $289,134,958
============= ============
*Including undistributed net investment income of: $ 2,134,433 $ 62,996
============= ============
CHANGES IN SHARES OUTSTANDING:
Shares sold............................................. 1,317,097 30,816,414
Shares issued in connection with payment of dividends
and distributions...................................... -- 125,916
Shares redeemed......................................... (14,279,952) (562,552)
------------- ------------
Net increase (decrease)............................. (12,962,855) 30,379,778
============= ============
** Commencement of operations.
</TABLE>
See Notes to the Financial Statements
6
<PAGE> 11
NOTES TO THE FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
JUNE 30, 1999 (UNAUDITED)
NOTE 1.
ACCOUNTING POLICIES. The International VIP Portfolio (the "Fund") is a series of
Hotchkis and Wiley Variable Trust (the "Trust"), an open-end, management
investment company organized as a Massachusetts business trust on February 4,
1997 and registered under the Investment Company Act of 1940. The Fund commenced
operations on June 10, 1998. The Fund seeks to provide current income and
long-term growth of income, accompanied by growth of capital. Shares of the Fund
are not offered to the general public but may only be purchased by the separate
accounts of participating insurance companies for the purpose of funding
variable annuity contracts and/or variable life insurance contracts. In addition
to the Fund, the Trust offers the Equity Income VIP Portfolio, the Low Duration
VIP Portfolio and the Total Return Bond VIP Portfolio (collectively, the
"Funds"). The assets of each series are invested in separate, independently
managed portfolios. The following is a summary of significant accounting
policies followed by the Fund in the preparation of the financial statements.
ORGANIZATIONAL EXPENSES: Expenses incurred by the Trust in connection with the
organization, registration and the initial public offering of shares are being
deferred and amortized over the period of benefit, but not to exceed sixty
months from the Trust's commencement of operations. The proceeds of any
redemption of the initial shares by the original shareholder will be reduced by
a pro-rata portion of any then unamortized organization expenses in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of such redemption.
SECURITY VALUATION: Portfolio securities that are listed on a securities
exchange (whether domestic or foreign) or The Nasdaq Stock Market ("NSM") are
valued at the last sale price as of 4:00 p.m., Eastern time, or, in the absence
of recorded sales, at the average of readily available closing bid and asked
prices on such exchange or NSM. Unlisted securities that are not included in NSM
are valued at the average of the quoted bid and asked price in the over-the-
counter market. Securities for which market quotations are not otherwise
available are valued at fair value as determined in good faith by Hotchkis and
Wiley (the "Advisor") under procedures established by the Board of Trustees.
Short-term investments which mature in less than 60 days are valued at amortized
cost (unless the Board of Trustees determines that this method does not
represent fair value), if their original maturity was 60 days or less, or by
amortizing the values as of the 61st day prior to maturity, if their original
term to maturity exceeded 60 days. Investments quoted in foreign currency are
valued daily in U.S. dollars on the basis of the foreign currency exchange rate
prevailing at the time of valuation.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency transactions are translated into U.S. dollars
on the following basis: (i) market value of investment securities, assets and
liabilities at the daily rates of exchange, and (ii) purchases and sales of
investment securities, dividend and interest income and certain expenses at the
rates of exchange prevailing on the respective dates of such transactions. The
Fund does not isolate and treat as ordinary income that portion of the results
of operations arising as a result of changes in the exchange rate from the
fluctuations arising from changes in the market prices of securities held during
the period. However, for federal income tax purposes, the Fund does isolate and
treat as ordinary income the effect of changes in foreign exchange rates arising
from actual foreign currency transactions and the effect of changes in foreign
exchange rates arising from trade date and settlement date differences.
7
<PAGE> 12
FORWARD CURRENCY EXCHANGE CONTRACTS: The Fund utilizes forward currency exchange
contracts for the purpose of hedging foreign currency risk. Under these
contracts, they are obligated to exchange currencies at specific future dates.
Risks arise from the possible inability of counter-parties to meet the terms of
their contracts and from movements in currency values.
FEDERAL INCOME TAXES: It is the Fund's intent to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and the Fund
intends to distribute investment company net taxable income and net capital
gains to shareholders. Therefore, no federal income tax provision is required.
EXPENSE ALLOCATION: Common expenses incurred by the Trust are allocated among
the Funds based upon (i) relative average net assets, (ii) as incurred on a
specific identification basis, or (iii) evenly among the Funds, depending on the
nature of the expenditure.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income are declared
and paid annually. Distributions of net realized capital gains, if any, will be
declared and paid at least annually.
OTHER: Security and shareholder transactions are recorded on trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Dividend income and dividends and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recognized
on the accrual basis. Generally accepted accounting principles require that
permanent financial reporting and tax differences relating to shareholder
distributions be reclassified to paid in capital.
NOTE 2.
INVESTMENT ADVISORY AGREEMENT. The Fund has an investment advisory agreement
with the Advisor, with whom certain officers and Trustees of the Trust are
affiliated. The Advisor is a division of Merrill Lynch Asset Management, L.P.,
an indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. The Advisor
receives a fee, computed daily and payable monthly, at the annual rate of 0.75%
as applied to the Fund's daily net assets. The Advisor has agreed to pay all
operating expenses in excess of 1.35% as applied to the Fund's daily net assets.
As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board
of Trustees of the Trust has adopted procedures which allow the Fund, under
certain conditions described in the Rule, to acquire newly-issued securities
from a member of an underwriting group in which an affiliated underwriter
participates.
NOTE 3.
SECURITIES TRANSACTIONS. Purchases and sales of investment securities, other
than short-term investments, for the six months ended June 30, 1999 were
$38,943,723 and $144,647,500, respectively.
As of June 30, 1999, unrealized appreciation (depreciation) for federal income
tax purposes was as follows:
<TABLE>
<CAPTION>
Appreciated Depreciated
Fund Net Appreciation Securities Securities
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International VIP Portfolio................................. $10,965,132 $24,198,761 $(13,233,629)
</TABLE>
8
<PAGE> 13
At June 30, 1999, the cost of investments for federal income tax purposes was
$170,409,450. Any differences between book and tax are due primarily to wash
sale losses.
At June 30, 1999, the Fund had accumulated net realized capital loss carryovers
of $3,178,827, expiring in 2006. To the extent that the Fund realizes future net
capital gains, those gains will be offset by any unused capital loss carryover.
9
<PAGE> 14
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended June 10, 1998*
June 30, 1999 through
INTERNATIONAL VIP PORTFOLIO (Unaudited) December 31, 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $ 9.52 $ 10.00
Income from Investment Operations:
Net investment income................................... 0.12 0.04
Net realized and unrealized gain (loss) on
investments............................................ 1.04 (0.48)
------------ ------------
Total from investment operations........................ 1.16 (0.44)
------------ ------------
Less Distributions:
Dividends (from net investment income).................. -- (0.04)
------------ ------------
Net Asset Value, End of Period.............................. $ 10.68 $ 9.52
============ ============
Total Return(1)............................................. 12.18% (4.38)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period................................... $185,952,718 $289,134,958
Ratio of expenses to average net assets(2).................. 1.01% 1.05%
Ratio of net investment income to average net assets(2)..... 1.98% 1.09%
Portfolio turnover rate(1).................................. 19% 24%
</TABLE>
* Commencement of operations.
(1) Not annualized.
(2) Annualized.
See Notes to the Financial Statements
10
