<PAGE> 1
______________________
HOTCHKIS AND
WILEY FUNDS
______________________
Equity Fund For Insurance Companies
ANNUAL REPORT
___________________
June 30, 1996
800 West 6th Street, Fifth Floor
Los Angeles, CA 90017
(213) 362-8900
Investment Advisor: HOTCHKIS AND WILEY
<PAGE> 2
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
Dear Shareholders:
The Equity Income Fund's total return for the fiscal year ended June 30, 1996
was 22.9%. The second quarter of 1996 was a difficult environment for value
investors, dampening the strong returns achieved in the previous three quarters.
There has been an increasing amount of volatility and dispersion of returns
between various sectors of the equity market. The market's recent performance
has come primarily from technology and consumer products. We have continued to
retain a healthy investment position in basic industry, including chemicals,
paper and steel. These areas underperformed in the Spring, as climbing interest
rates threatened continued expansion in the economy. Now the economy is sending
mixed signals. It seems to be teetering in a delicate balance between growth
that is too strong or not strong enough. Perhaps this is what a continuing "soft
landing" feels like -- a lot of bumps along the way.
In this uncertain, volatile environment, we continue to believe high dividend
yielding, low P/E stocks of financially strong companies will provide superior
returns with less risk. The Fund remains attractive relative to the market as a
whole, with a projected price/earnings ratio of 12.1x compared to 16.5x for the
S&P 500 Stock Index, and a dividend yield of 3.4% compared to the S&P 500 Stock
Index of 2.2%. We will continue to manage the portfolio by adherence to our
investment disciplines which emphasize these lower risk characteristics.
<TABLE>
<S> <C>
George Wiley Gail Bardin
Managing Director, Hotchkis and Wiley Managing Director, Hotchkis and Wiley
Portfolio Manager Portfolio Manager
</TABLE>
<PAGE> 3
EQUITY FUND FOR INSURANCE COMPANIES
JANUARY 29, 1993 - JUNE 30, 1996
[CHART]
Ended
6/30/96
--------------------------------------------
One Year 22.9%
--------------------------------------------
Three Years 14.6%
--------------------------------------------
Since Inception 14.2%
(1/29/93)
--------------------------------------------
Past performance is not predictive of future performance. The representative
market indices are unmanaged. The annual returns reflect the voluntary
agreement of Hotchkis and Wiley, the Funds' advisor, to assume fees and
expenses in excess of certain limits.
<PAGE> 4
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1996
<TABLE>
<CAPTION>
COMMON STOCKS--95.8% SHARES VALUE
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
AEROSPACE--4.3%
Lockheed Martin Corporation...................................... 1,800 $ 151,200
Northrop Grumman Corporation..................................... 3,000 204,375
Rockwell International Corporation............................... 5,100 291,975
United Technologies Corporation.................................. 3,600 414,000
-----------
1,061,550
-----------
AUTO-RELATED--1.4%
Dana Corporation................................................. 11,000 341,000
-----------
AUTOS & TRUCKS--5.2%
Ford Motor Company............................................... 23,300 754,338
General Motors Corporation....................................... 10,200 534,225
-----------
1,288,563
-----------
BANKS--8.3%
BankAmerica Corporation.......................................... 3,600 272,700
The Chase Manhattan Corporation.................................. 4,784 337,870
Comerica, Inc.................................................... 8,100 361,463
First Chicago NBD Corporation.................................... 9,700 379,513
First of America Bank Corporation................................ 4,700 210,325
KeyCorp.......................................................... 5,800 224,750
NationsBank Corporation.......................................... 3,200 264,400
-----------
2,051,021
-----------
BEVERAGES--1.6%
Anheuser-Busch Companies, Inc.................................... 5,200 390,000
-----------
BUILDING & FOREST PRODUCTS--1.8%
Weyerhaeuser Company............................................. 10,600 450,500
-----------
CHEMICALS--2.0%
Dow Chemical Company............................................. 3,400 258,400
Dupont (E.I.) De Nemours & Company............................... 3,000 237,375
-----------
495,775
-----------
COAL & GAS--1.8%
Eastern Enterprises.............................................. 13,000 432,250
-----------
</TABLE>
1
<PAGE> 5
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
DIVERSIFIED--4.9%
Hanson PLC, ADR.................................................. 22,000 $ 313,500
Ogden Corporation................................................ 11,500 208,438
Olin Corporation................................................. 2,700 240,975
Tenneco, Inc..................................................... 8,500 434,563
-----------
1,197,476
-----------
DRUGS--3.1%
American Home Products Corporation............................... 4,800 288,600
Baxter International, Inc........................................ 7,200 340,200
Merck & Company, Inc............................................. 2,000 129,250
-----------
758,050
-----------
ENGINEERING & CONSTRUCTION--1.0%
Harsco Corporation............................................... 3,700 248,825
-----------
FINANCIAL SERVICES--7.5%
Beneficial Corporation........................................... 4,800 269,400
Great Western Financial Corporation.............................. 15,300 365,287
H.F. Ahmanson & Company.......................................... 18,000 486,000
Household International, Inc..................................... 6,100 463,600
Transamerica Corporation......................................... 3,300 267,300
-----------
1,851,587
-----------
HOUSEHOLD FURNISHINGS & APPLIANCES--0.2%
Whirlpool Corporation............................................ 1,000 49,625
-----------
INSURANCE--5.3%
Aetna Life & Casualty Company.................................... 4,400 314,600
Aon Corporation.................................................. 7,000 355,250
Lincoln National Corporation..................................... 5,200 240,500
SAFECO Corporation............................................... 6,000 212,250
USLIFE Corporation............................................... 5,500 180,812
-----------
1,303,412
-----------
MACHINERY--1.6%
Deere & Company.................................................. 9,900 396,000
-----------
</TABLE>
2
<PAGE> 6
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
METALS & MINING--3.3%
Aluminum Company of America...................................... 8,600 $ 493,425
Reynolds Metals Company.......................................... 6,200 323,175
-----------
816,600
-----------
OIL--DOMESTIC--4.2%
Ashland, Inc..................................................... 7,200 285,300
Atlantic Richfield Company....................................... 2,200 260,700
Sun Company, Inc................................................. 6,710 203,816
USX-Marathon Group, Inc.......................................... 13,900 279,737
-----------
1,029,553
-----------
OIL--INTERNATIONAL--1.0%
Chevron Corporation.............................................. 4,000 236,000
-----------
PAPER--4.5%
Georgia Pacific Corporation...................................... 3,500 248,500
International Paper Company...................................... 11,000 405,625
Union Camp Corporation........................................... 4,000 195,000
Westvaco Corporation............................................. 9,000 268,875
-----------
1,118,000
-----------
PHOTOGRAPHY & OPTICAL--1.9%
Eastman Kodak Company............................................ 6,000 466,500
-----------
POLLUTION CONTROL--1.2%
Browning-Ferris Industries, Inc.................................. 10,500 304,500
-----------
PROFESSIONAL SERVICES--0.7%
PHH Corporation.................................................. 3,200 182,400
-----------
RAILROADS--2.3%
Conrail, Inc..................................................... 4,000 265,500
Norfolk Southern Corporation..................................... 3,600 305,100
-----------
570,600
-----------
</TABLE>
3
<PAGE> 7
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
RETAIL--GENERAL--7.2%
J.C. Penney Company, Inc......................................... 9,800 $ 514,500
Kmart Corporation................................................ 16,200 200,475
May Department Stores Company.................................... 11,800 516,250
Sears, Roebuck & Company......................................... 7,400 359,825
Woolworth Corporation(+)......................................... 8,300 186,750
-----------
1,777,800
-----------
SAVINGS & LOANS--1.1%
Federal National Mortgage Association............................ 8,000 268,000
-----------
STEEL--1.4%
USX-U.S. Steel Group, Inc........................................ 12,000 340,500
-----------
TELECOMMUNICATIONS--0.9%
Harris Corporation............................................... 3,500 213,500
-----------
TOBACCO--4.3%
American Brands, Inc............................................. 9,200 417,450
Philip Morris Companies, Inc..................................... 6,300 655,200
-----------
1,072,650
-----------
TRUCKING--0.9%
Ryder System, Inc................................................ 8,000 225,000
-----------
UTILITY--ELECTRIC--6.6%
CMS Energy Corporation........................................... 12,000 370,500
DTE Energy Company............................................... 4,000 123,500
Edison International............................................. 6,000 105,750
Entergy Corporation.............................................. 4,000 113,500
Illinova Corporation............................................. 6,500 186,875
New York State Electric & Gas Corporation........................ 5,300 129,187
Peco Energy Company.............................................. 11,300 293,800
Public Service Enterprises Group, Inc............................ 11,000 301,125
-----------
1,624,237
-----------
UTILITY--GAS PIPELINE--0.9%
British Gas PLC, ADR............................................. 2,089 223,262
-----------
</TABLE>
4
<PAGE> 8
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1996
<TABLE>
<CAPTION>
SHARES VALUE
------ -----------
<S> <C> <C>
UTILITY--TELEPHONE--3.4%
NYNEX Corporation................................................ 4,900 $ 232,750
Pacific Telesis Group............................................ 11,000 371,250
US West, Inc..................................................... 7,000 223,125
-----------
827,125
-----------
Total common stocks (cost $18,829,185)........................... 23,611,861
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SHORT-TERM INVESTMENTS--4.2% AMOUNT
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES#--4.2%
Pitney Bowes, Inc., 5.1441%.................................... $484,847 484,847
Southwestern Bell, Inc., 5.1239%............................... 500,000 500,000
Warner Lambert, Inc., 5.115%................................... 50,000 50,000
-----------
Total variable rate demand notes (cost $1,034,847)............. 1,034,847
-----------
Total investments--100.0% (cost $19,864,032)........................ 24,646,708
Liabilities in excess of other assets--0.0%......................... 2,321
-----------
TOTAL NET ASSETS--100.0%....................................... $24,649,029
==========
</TABLE>
- ---------------
<TABLE>
<C> <S>
# Variable rate demand notes are considered short-term obligations and are payable on
demand. Interest rate changes periodically on specified dates. The rate listed is as of
June 30, 1996.
(+) Non-income producing security.
ADR --American Depository Receipts
</TABLE>
5
<PAGE> 9
HOTCHKIS
AND WILEY FUNDS Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $19,864,032)................................... $24,646,708
Cash....................................................................... 13,678
Dividends and interest receivable.......................................... 56,495
Receivable for investments sold............................................ 64,494
Receivable from Advisor.................................................... 11,458
Other receivables.......................................................... 185
-----------
Total assets.......................................................... 24,793,018
-----------
LIABILITIES:
Payable for investments purchased.......................................... 121,219
Accrued expenses and other liabilities..................................... 22,770
-----------
Total liabilities.......................................................... 143,989
-----------
Net assets............................................................ $24,649,029
===========
NET ASSETS CONSIST OF:
Paid in capital............................................................ $19,415,596
Undistributed net investment income........................................ 11,105
Undistributed net realized gains on investments............................ 439,652
Net unrealized appreciation on investments................................. 4,782,676
-----------
Net assets............................................................ $24,649,029
===========
CALCULATION OF NET ASSET VALUE PER SHARE:
Shares outstanding (unlimited shares of no par value authorized)........... 1,823,836
Net asset value per share (offering and redemption price).................. $ 13.51
===========
</TABLE>
See Notes to the Financial Statements.
6
<PAGE> 10
HOTCHKIS
AND WILEY FUNDS Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year ended June 30, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends *................................................................. $ 723,958
Interest.................................................................... 36,865
---------
Total income........................................................... 760,823
---------
EXPENSES:
Advisory fee................................................................ 115,773
Legal and auditing fees..................................................... 14,865
Custodian fees and expenses................................................. 7,291
Transfer agent fees and expenses............................................ 12,332
Administration fee.......................................................... 2,424
Trustees' fees and expenses................................................. 6,275
Reports to shareholders..................................................... 100
Registration fees........................................................... 3,867
Other expenses.............................................................. 1,103
---------
Total expenses......................................................... 164,030
Less: expense reimbursement................................................. (48,257)
---------
Net expenses........................................................... 115,773
---------
NET INVESTMENT INCOME............................................................ 645,050
---------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on investments............................................ 809,778
Net change in unrealized appreciation on investments........................ 2,827,246
---------
Net gain on investments................................................ 3,637,024
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS....................................... $4,282,074
=========
- ---------------
* Net of Foreign Taxes withheld.................................................. $ 3,449
=========
</TABLE>
See Notes to the Financial Statements
7
<PAGE> 11
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................... $ 645,050 $ 515,636
Net realized gain on securities transactions............. 809,778 53,938
Net change in unrealized appreciation of securities...... 2,827,246 2,320,505
----------- -----------
Net increase in net assets resulting from
operations........................................ 4,282,074 2,890,079
----------- -----------
NET EQUALIZATION CREDITS...................................... 0 48,905
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................................... (688,368) (458,833)
Net realized gain on securities transactions............. (378,446) (37,220)
----------- -----------
Total dividends and distributions................... (1,066,814) (496,053)
----------- -----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold............................ 3,000,002 3,960,772
Shares issued in connection with payment of dividends.... 1,066,814 496,053
Cost of shares redeemed.................................. (22,500) (59,677)
----------- -----------
Net increase in net assets from Fund share
transactions...................................... 4,044,316 4,397,148
----------- -----------
Total Increase in Net Assets.................................. 7,259,576 6,840,079
NET ASSETS:
Beginning of year........................................ 17,389,453 10,549,374
----------- -----------
End of year*............................................. $ 24,649,029 $ 17,389,453
=========== ===========
*Including undistributed net investment income of:............ $ 11,105 $ 54,604
=========== ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold.............................................. 234,558 400,117
Shares issued in connection with payment of dividends.... 83,286 46,972
Shares redeemed.......................................... (2,403) (5,704)
----------- -----------
Net increase........................................ 315,441 441,385
=========== ===========
</TABLE>
See Notes to the Financial Statements.
8
<PAGE> 12
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1996
NOTE 1. ACCOUNTING POLICIES. The Equity Fund for Insurance Companies (the
"Fund") is a series of Hotchkis and Wiley Funds (the "Trust"), an
open-end, management investment company organized as a Massachusetts
business trust on August 22, 1984 and registered under the Investment
Company Act of 1940. The Fund commenced operations on January 29,
1993. In addition to the Fund, the Trust also offers the Balanced
Income Fund, the Small Cap Fund, the Equity Income Fund, the
International Fund, the Low Duration Fund, the Short-Term Investment
Fund, and the Total Return Bond Fund. 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.
SECURITY VALUATION: Portfolio securities that are listed on a
securities exchange (whether domestic or foreign) or the NASDAQ
National Market System ("System") 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 such System. Unlisted securities that are not
included in such System 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 readily available are valued at fair value
as determined in good faith by Hotchkis and Wiley (the "Advisor")
under procedures established by and under the general supervision and
responsibility of 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.
REPURCHASE AGREEMENTS: The Fund may enter into repurchase
agreements with banks or broker-dealers that meet credit guidelines
established by the Board of Trustees. In connection with transactions
in repurchase agreements, it is the Fund's policy that the custodian
take possession of the underlying collateral securities, the value of
which exceeds the principal amount of the repurchase transaction,
including accrued interest. If the seller defaults, and the value of
the collateral declines, realization of the collateral by the Fund
may be delayed or limited.
FEDERAL INCOME TAXES: It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to regulated
investment companies and intends to distribute net investment company
taxable income and net capital gains to its shareholders. Therefore,
no federal income tax provision is required.
9
<PAGE> 13
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1996
EQUALIZATION: Effective July 1, 1995, the Fund discontinued the
practice of equalization. The Fund followed the accounting practice
known as equalization, by which a portion of the proceeds from sales
and costs of redemptions of capital shares, equivalent on a per share
basis to the amount of undistributed net investment income on the
date of the transaction, is credited or charged to undistributed net
investment income. As a result, undistributed net investment income
per share was unaffected by sales or redemptions of the Fund's
shares.
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.
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.
OTHER: Security and shareholder transactions are recorded no
later than the first business day after the 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. The Advisor receives a fee, computed
daily and payable monthly, at an annual rate of 0.60% of the first
$10 million of the Fund's average net assets, and 0.50% of average
net assets in excess of $10 million.
The Advisor provides continuous supervision of the investment
portfolio and pays all of the operating expenses relating to the Fund
other than the Advisory fee. For the year ended June 30, 1996, the
Advisor paid $48,257 of operating expenses on behalf of the Fund.
NOTE 3. PURCHASES AND SALES OF SECURITIES. Purchases and sales of investment
securities, other than short-term investments, for the year ended
June 30, 1996 were $7,265,980 and $4,250,059, respectively.
10
<PAGE> 14
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1996
At June 30, 1996 (for financial reporting and federal income tax
purposes), net unrealized appreciation aggregated $4,782,676, of
which $5,168,773 related to appreciated securities and $(386,097)
related to depreciated securities.
NOTE 4. SUBSEQUENT EVENT. In June 1996, the Advisor, a limited partnership,
entered into a Purchase Agreement with Merrill Lynch & Co., Inc., a
Delaware corporation ("ML"), pursuant to which ML will acquire the
partnership interests in the Advisor. The purchase is subject to a
number of contingencies, including approval by the Funds' Board of
Trustees (which has occurred) and shareholders of a new investment
advisory agreement relating to the Fund. If the transaction occurs,
it is anticipated that the Fund will be operated in the same manner
as it is currently.
11
<PAGE> 15
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 29, 1993+
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $ 11.53 $ 9.89 $ 10.31 $10.00
------------- ------------- ------------- -------
Income from Investment Operations:
Net investment income............. 0.34 0.41 0.40 0.16
Net realized and unrealized gain
(loss) on investments........... 2.26 1.59 (0.24) 0.30
------------- ------------- ------------- -------
Total from investment
operations...................... 2.60 2.00 0.16 0.46
------------- ------------- ------------- -------
Less Distributions:
Dividends (from net investment
income)......................... (0.40) (0.34) (0.38) (0.15)
Distributions (from capital
gains).......................... (0.22) (0.02) (0.20) (0.00)
------------- ------------- ------------- -------
Total Distributions............... (0.62) (0.36) (0.58) (0.15)
------------- ------------- ------------- -------
Net Asset Value, End of Period......... $ 13.51 $ 11.53 $ 9.89 $10.31
========== ========== ========== ==============
RATIOS/SUPPLEMENTAL DATA:
Total Return........................... 22.93% 20.62% 1.38% 11.45%#
Net assets, end of period (millions)... $24.6 $17.4 $10.5 $7.1
Ratio of expenses to average net
assets:
Before expense reimbursement...... 0.76% 1.05% 1.20% 1.45%#
After expense reimbursement....... 0.54% 0.58% 0.60% 0.60%#
Ratio of net investment income to
average net assets:
Before expense reimbursement...... 2.78% 3.58% 3.32% 2.81%#
After expense reimbursement....... 3.00% 4.03% 3.91% 3.66%#
Portfolio turnover..................... 21% 29% 26% 2%
</TABLE>
- ---------------
+ Commencement of operations.
# Annualized.
See Notes to Financial Statements.
12
<PAGE> 16
EQUITY FUND FOR INSURANCE COMPANIES
JANUARY 29, 1993 -- JUNE 30, 1996
Past performance is not predictive of future performance. The representative
market indices are unmanaged. The annual returns reflect the voluntary agreement
of Hotchkis and Wiley, the Funds' advisor, to assume fees and expenses in excess
of certain limits.
<PAGE> 17
HOTCHKIS
AND WILEY FUNDS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders of the Equity Fund for Insurance
Companies:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Equity Fund for Insurance
Companies (one of the eight separately managed portfolios of Hotchkis and Wiley
Funds, the "Fund") at June 30, 1996, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended and for the period from January 29, 1993 (commencement of
operations) through June 30, 1993, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at June 30, 1996 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE LLP
- ------------------------
PRICE WATERHOUSE LLP
Milwaukee, WI
August 16, 1996
<PAGE> 18
<TABLE>
<CAPTION>
==================================================================================================================
<S> <C> <C> <C>
INVESTMENT ADVISOR LEGAL COUNSEL INDEPENDENT ACCOUNTANTS CUSTODIAN AND TRANSFER AGENT
Hotchkis and Wiley Gardner, Carton & Douglas Price Waterhouse LLP Firstar Trust Company
800 West 6th Street 321 North Clark Street 100 East Wisconsin Avenue 615 East Michigan Street
Fifth Floor Chicago, IL 60610 Milwaukee, WI 53202 Milwaukee, WI 53202
Los Angeles, CA 90017
</TABLE>
This report is intended for the information of shareholders of Hotchkis and
Wiley Funds and should not be used as sales literature unless preceded or
accompanied by a current prospectus.
