<PAGE> 1
================================================================================
============================================================
HOTCHKIS AND
WILEY FUNDS
============================================================
Equity Fund For Insurance Companies
ANNUAL REPORT
------------------------------------------------------------------------
June 30, 1997
800 West 6th Street, Fifth Floor
Los Angeles, CA 90017
(213) 362-8888
Investment Advisor: HOTCHKIS AND WILEY
================================================================================
<PAGE> 2
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
------------------------------------------------------------------------
DEAR SHAREHOLDER:
The Equity Fund for Insurance Companies' total return for the fiscal year ended
June 30, 1997 was 28.2%. As the markets continue to reach new highs, it becomes
harder and harder to find the underlying fundamental support for current price
levels. This is particularly true for a narrow group of stocks that have
benefited the most from the current bull market. Over the last three and a half
years, the 50 largest capitalization stocks have consistently outperformed the
balance of stocks in the S&P 500. This outperformance has resulted in a
concentrated market in which the largest capitalization names sell at extreme
values relative to the broader market. In fact, the leadership in the market in
1996 was so narrow that a small group of five stocks -- Intel, Microsoft, IBM,
Coca-Cola, and General Electric -- actually accounted for more than one fourth
of the S&P 500's total return. This concentration of performance has persisted
into 1997.
Over the long-term, stocks will ultimately reflect intrinsic value. It is true
that sometimes it takes a change of psychology for this value to be realized,
but it inevitably takes place. With this in mind, we have positioned our
portfolio in those areas of the market where valuation opportunities still
exist. We continue to overweight the financials, basic materials, consumer
durables, and utility sectors of the market. Although our exposure to financials
remains above market, we have selectively been reducing this position as some of
these stocks have reached fair value.
Our disciplined style of value investing emphasizes buying financially strong
companies selling at a low price to earnings multiple, with above market
dividend yield. Since the firm's inception in 1980, this approach has tended to
keep pace with up markets and add significant outperformance during down
quarters. We think the portfolio, as currently constructed, represents strong
relative and absolute value with a projected price to earnings ratio of 13.4x
compared to 18.7x for the S&P 500 Index and a dividend yield of 3.1% compared to
the S&P 500 Index of 1.7%. We continue to manage the portfolio by adherence to
our investment disciplines which emphasize these lower risk characteristics. We
believe it is biased toward outperformance and expect that it will perform very
well when investors once again focus on rational valuation in the market place.
Gail Bardin
Managing Director, Hotchkis and Wiley
Portfolio Manager
<PAGE> 3
EQUITY FUND FOR INSURANCE COMPANIES
JANUARY 19, 1993 - JUNE 30, 1997
<TABLE>
1359-CUM SP-CUM
<S> <C> <C>
1Q93 10180.0000 10443.0000
2Q93 10472.1660 10484.7720
3Q93 10785.2838 10757.3761
4Q93 11072.1723 11004.7957
1Q94 10345.8378 10586.6135
2Q94 10622.0717 10628.9599
3Q94 11266.8314 11151.9048
4Q94 10844.3252 11151.9048
1Q95 11874.5361 12233.6395
2Q95 12812.6245 13395.8353
3Q95 13968.3232 14466.1625
4Q95 14570.3580 15325.4526
1Q96 15526.1734 16168.3525
2Q96 15754.4082 16895.9283
3Q96 16137.2403 17419.7021
4Q96 17349.1471 18893.4089
1Q96 17749.9124 19388.4162
2Q97 20199.4003 22781.3891
</TABLE>
<TABLE>
<S> <C>
Ended
6/30/97
- --------------------------------------------------
One Year 28.2%
- --------------------------------------------------
Three Years 23.9%
- --------------------------------------------------
Since Inception 17.2%
(1/29/93)
- --------------------------------------------------
</TABLE>
Standard & Poor's 500 Index (S&P 500) is a capital-weighted index, representing
the aggregate market value of the common equity of 500 stocks primarily traded
on the New York Stock Exchange.
Past performance is not predictive of future performance. The representative
market index is unmanaged. The annual returns reflect the reinvestment of all
dividends and distributions, as well as the agreement of Hotchkis and Wiley,
the Fund's advisor, to pay the Fund's fees and expenses other than the advisory
fee.
<PAGE> 4
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1997
<TABLE>
<CAPTION>
COMMON STOCKS--97.0% SHARES VALUE
- -------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE--2.6%
Northrop Grumman Corporation........................... 5,600 $ 491,750
Rockwell International Corporation..................... 6,000 354,000
-----------
845,750
-----------
APPAREL & TEXTILES--0.3%
Russell Corporation.................................... 3,800 112,575
-----------
AUTO-RELATED--1.3%
Dana Corporation....................................... 11,000 418,000
-----------
AUTOS & TRUCKS--4.7%
Ford Motor Company..................................... 24,500 924,875
General Motors Corporation............................. 11,300 629,269
-----------
1,554,144
-----------
BANKS--6.6%
First Chicago NBD Corporation.......................... 10,000 605,000
Fleet Financial Group, Inc............................. 5,800 366,850
KeyCorp................................................ 6,100 340,837
NationsBank Corporation................................ 6,400 412,800
Signet Banking Corporation............................. 12,700 457,200
-----------
2,182,687
-----------
BEVERAGES--0.9%
Anheuser-Busch Companies, Inc.......................... 7,000 293,562
-----------
BUILDING & FOREST PRODUCTS--2.8%
Georgia Pacific Corporation............................ 3,700 315,887
Weyerhaeuser Company................................... 11,700 608,400
-----------
924,287
-----------
BUILDING MATERIALS--0.3%
Hanson PLC ADR......................................... 3,875 96,875
-----------
CHEMICALS--4.7%
The Dow Chemical Company............................... 5,600 487,900
duPont (E.I.) de Nemours & Company..................... 6,000 377,250
Eastman Chemical Company............................... 8,100 514,350
Millennium Chemicals, Inc.............................. 2,214 50,368
Olin Corporation....................................... 3,000 117,188
-----------
1,547,056
-----------
</TABLE>
See Notes to Financial Statements.
1
<PAGE> 5
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
CONGLOMERATES--1.2%
Tenneco, Inc........................................... 8,800 $ 397,650
-----------
CONSUMER PRODUCTS--0.5%
Tupperware Corporation................................. 4,500 164,250
-----------
DRUGS--1.1%
American Home Products Corporation..................... 4,800 367,200
-----------
ENGINEERING & CONSTRUCTION--0.9%
Harsco Corporation..................................... 7,400 299,700
-----------
FINANCIAL SERVICES--4.7%
Beneficial Corporation................................. 7,300 518,756
Household International, Inc. ......................... 6,100 716,369
Transamerica Corporation............................... 3,300 308,756
-----------
1,543,881
-----------
HOUSEHOLD FURNISHINGS & APPLIANCES--1.8%
Whirlpool Corporation.................................. 11,100 605,644
-----------
INSURANCE--5.2%
American General Corporation........................... 6,088 290,702
Aon Corporation........................................ 6,900 357,075
Lincoln National Corporation........................... 5,200 334,750
Safeco Corporation..................................... 7,000 326,813
St. Paul Companies, Inc................................ 4,700 358,375
TIG Holdings, Inc...................................... 1,500 46,875
-----------
1,714,590
-----------
LEISURE/TOYS--1.3%
Fortune Brands, Inc.................................... 11,000 410,437
-----------
MACHINERY--3.3%
Deere & Company........................................ 8,600 471,925
New Holland N.V........................................ 23,000 629,625
-----------
1,101,550
-----------
MEDICAL PRODUCTS & SUPPLIES--1.1%
Baxter International, Inc.............................. 7,200 376,200
-----------
</TABLE>
See Notes to Financial Statements.
2
<PAGE> 6
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
METALS & MINING--3.3%
Aluminum Company of America............................ 8,300 $ 625,612
Reynolds Metals Company................................ 6,600 470,250
-----------
1,095,862
-----------
NATURAL GAS--1.4%
Eastern Enterprises.................................... 13,600 471,750
-----------
OIL--DOMESTIC--5.2%
Atlantic Richfield Company............................. 4,400 310,200
Occidental Petroleum Corporation....................... 24,000 601,500
Sun Company, Inc....................................... 1,410 43,710
USX-Marathon Group, Inc................................ 13,900 401,363
Ultramar Diamond Shamrock Corporation.................. 11,000 358,875
-----------
1,715,648
-----------
OIL--INTERNATIONAL--1.9%
British Petroleum PLC ADR.............................. 4,250 318,219
Chevron Corporation.................................... 4,000 295,750
-----------
613,969
-----------
PAPER--3.2%
International Paper Company............................ 11,600 563,325
Union Camp Corporation................................. 4,200 210,000
Westvaco Corporation................................... 9,000 282,937
-----------
1,056,262
-----------
PHOTOGRAPHY & OPTICAL--1.4%
Eastman Kodak Company.................................. 6,000 460,500
-----------
POLLUTION CONTROL--1.6%
Browning-Ferris Industries, Inc........................ 16,200 538,650
-----------
RAILROADS--1.1%
Norfolk Southern Corporation........................... 3,600 362,700
-----------
RETAIL--5.1%
Intimate Brands, Inc................................... 9,700 203,700
J.C. Penney Company, Inc............................... 9,300 485,344
May Department Stores Company.......................... 11,800 557,550
Sears, Roebuck & Company............................... 7,800 419,250
-----------
1,665,844
-----------
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 7
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
SAVINGS & LOANS--5.5%
Fannie Mae............................................. 8,000 $ 349,000
Great Western Financial Corporation.................... 12,700 682,625
H.F. Ahmanson & Company................................ 18,000 774,000
-----------
1,805,625
-----------
SPECIALIZED SERVICES--0.8%
Ogden Corporation...................................... 11,500 250,125
-----------
STEEL--1.8%
USX-U.S. Steel Group, Inc.............................. 17,000 596,063
-----------
TELECOMMUNICATIONS--0.9%
Harris Corporation..................................... 3,500 294,000
-----------
TOBACCO--3.1%
Gallaher Group PLC ADR(+).............................. 8,400 154,875
Philip Morris Companies, Inc........................... 19,800 878,625
-----------
1,033,500
-----------
TRUCKING--0.8%
Ryder System, Inc...................................... 8,000 264,000
-----------
UTILITY--ELECTRIC--7.0%
CMS Energy Corporation................................. 12,000 423,000
Central & South West Corporation....................... 7,000 148,750
DTE Energy Company..................................... 4,000 110,500
Edison International................................... 6,000 149,250
Energy Group PLC ADR................................... 3,875 164,203
Illinova Corporation................................... 23,000 506,000
New York State Electric & Gas Corporation.............. 5,300 110,638
PECO Energy Company.................................... 11,300 237,300
PacifiCorp............................................. 7,600 167,200
Public Service Enterprises Group, Inc.................. 11,000 275,000
-----------
2,291,841
-----------
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 8
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1997
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
UTILITY--TELEPHONE--7.6%
AT & T Corporation..................................... 23,500 $ 823,969
Alltel Corporation..................................... 13,600 454,750
NYNEX Corporation...................................... 7,800 449,475
SBC Communications, Inc................................ 8,045 497,784
US West Communications Group........................... 7,000 263,813
-----------
2,489,791
-----------
Total common stocks (cost $23,013,027)................. 31,962,168
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
VARIABLE RATE DEMAND NOTES#--3.3% AMOUNT
- --------------------------------------------------------------------------------------
<S> <C> <C>
Lilly (Eli) & Co., 5.0949%............................. $ 50,269 50,269
General Mills, Inc., 5.245%............................ 169,049 169,049
Pitney Bowes, Inc., 5.2551%............................ 344,713 344,713
Warner-Lambert Co., 5.226%............................. 542,157 542,157
-----------
Total variable rate demand notes (cost $1,106,188)..... 1,106,188
-----------
Total investments--100.3% (cost $24,119,215)................ 33,068,356
Liabilities in excess of other assets--(0.3)%............... (109,504)
-----------
TOTAL NET ASSETS--100.0%............................... $32,958,852
===========
</TABLE>
- ---------------
# Variable rate demand notes are considered short-term
obligations and are payable on demand. Interest rates change
periodically on specified dates. The rates listed are as of
June 30, 1997.
(+) Non-income producing security.
ADR -- American Depository Receipts.
See Notes to Financial Statements.
5
<PAGE> 9
HOTCHKIS
AND WILEY FUNDS Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $24,119,215)............... $33,068,356
Dividends and interest receivable...................... 80,290
Prepaid expenses....................................... 1,480
-----------
Total assets...................................... 33,150,126
-----------
LIABILITIES:
Payable to Advisor..................................... 7,109
Payable for investments purchased...................... 164,863
Accrued expenses and other liabilities................. 19,302
-----------
Total liabilities................................. 191,274
-----------
Net assets........................................ $32,958,852
===========
NET ASSETS CONSIST OF:
Paid in capital........................................ $22,276,738
Undistributed net investment income.................... 5,592
Undistributed net realized gains on investments........ 1,727,381
Net unrealized appreciation on investments............. 8,949,141
-----------
Net assets........................................ $32,958,852
===========
CALCULATION OF NET ASSET VALUE PER SHARE:
Shares outstanding (unlimited shares of no par value
authorized)........................................... 2,019,384
Net asset value per share (offering and redemption
price)................................................ $ 16.32
===========
</TABLE>
See Notes to Financial Statements.
6
<PAGE> 10
HOTCHKIS
AND WILEY FUNDS Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year ended June 30, 1997
<TABLE>
<S> <C>
INVESTMENT INCOME
Income *
Dividends.............................................. $ 866,945
Interest............................................... 41,704
----------
Total income...................................... 908,649
----------
Expenses
Advisory fee........................................... 147,584
Legal and auditing fees................................ 8,649
Custodian fees and expenses............................ 11,833
Accounting fee......................................... 16,236
Administration fee..................................... 5,005
Trustees' fees and expenses............................ 13,280
Reports to shareholders................................ 1,432
Registration fees...................................... 2,283
Other expenses......................................... 2,890
----------
Total expenses.................................... 209,192
Less, expense reimbursement............................ (61,608)
----------
Net expenses...................................... 147,584
----------
Net investment income..................................... 761,065
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on securities transactions........... 2,210,721
Net change in unrealized appreciation of securities.... 4,166,465
----------
Net gain on investments........................... 6,377,186
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $7,138,251
==========
- ---------------
* Net of Foreign Taxes withheld............................. $ 5,767
==========
</TABLE>
See Notes to 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, 1997 JUNE 30, 1996
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 761,065 $ 645,050
Net realized gain on securities transactions........... 2,210,721 809,778
Net change in unrealized appreciation of securities.... 4,166,465 2,827,246
----------- -----------
Net increase in net assets resulting from
operations...................................... 7,138,251 4,282,074
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................................. (766,577) (688,368)
Net realized gain on securities transactions........... (922,992) (378,446)
----------- -----------
Total dividends and distributions................. (1,689,569) (1,066,814)
----------- -----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold.......................... 1,201,572 3,000,002
Shares issued in connection with payment of dividends
and distributions.................................... 1,689,569 1,066,814
Cost of shares redeemed................................ (30,000) (22,500)
----------- -----------
Net increase in net assets from Fund share
transactions.................................... 2,861,141 4,044,316
----------- -----------
Total Increase in Net Assets................................ 8,309,823 7,259,576
NET ASSETS:
Beginning of year...................................... 24,649,029 17,389,453
----------- -----------
End of year*........................................... $32,958,852 $24,649,029
=========== ===========
*Including undistributed net investment income of:.......... $ 5,592 $ 11,105
=========== ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold............................................ 81,632 234,558
Shares issued in connection with payment of
dividends............................................ 116,057 83,286
Shares redeemed........................................ (2,141) (2,403)
----------- -----------
Net increase...................................... 195,548 315,441
=========== ===========
</TABLE>
See Notes to Financial Statements.
8
<PAGE> 12
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1997
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. The sole shareholder of the Fund is The Prudential Insurance
Company of America. The Fund seeks to provide current income and
long-term growth of income, accompanied by growth of capital. 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, the Total
Return Bond Fund, the Mid-Cap Fund, and the Global Equity 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 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.
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
9
<PAGE> 13
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1997
distribute net investment company taxable income and net capital
gains to its 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.
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. 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 daily net assets, and 0.50% of the
average daily 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, 1997, the
Advisor paid $61,608 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, 1997 were $7,807,927 and $5,839,074, respectively.
At June 30, 1997 (for financial reporting and federal income tax
purposes), net unrealized appreciation aggregated $8,949,141, of
which $9,289,204 related to appreciated securities and $340,063
related to depreciated securities. At June 30, 1997, the cost of
investments for book and federal income tax purposes was $24,119,215.
10
<PAGE> 14
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
JANUARY 29, 1993+
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995 JUNE 30, 1994 JUNE 30, 1993
------------- ------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period...... $13.51 $11.53 $ 9.89 $10.31 $10.00
------ ------ ------ ------ -------
Income from Investment Operations:
Net investment income................. 0.39 0.34 0.41 0.40 0.16
Net realized and unrealized gain
(loss) on investments............... 3.30 2.26 1.59 (0.24) 0.30
------ ------ ------ ------ -------
Total from investment operations...... 3.69 2.60 2.00 0.16 0.46
------ ------ ------ ------ -------
Less Distributions:
Dividends (from net investment
income)............................. (0.40) (0.40) (0.34) (0.38) (0.15)
Distributions (from realized gains)... (0.48) (0.22) (0.02) (0.20) (0.00)
------ ------ ------ ------ -------
Total distributions................... (0.88) (0.62) (0.36) (0.58) (0.15)
------ ------ ------ ------ -------
Net Asset Value, End of Period............ $16.32 $13.51 $11.53 $ 9.89 $10.31
====== ====== ====== ====== =======
Total Return.............................. 28.20% 22.93% 20.62% 1.38% 11.45%#
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)...... $33.0 $24.6 $17.4 $10.5 $7.1
Ratio of expenses to average net assets:
Before expense reimbursement.......... 0.75% 0.76% 1.05% 1.20% 1.45%#
After expense reimbursement........... 0.53% 0.54% 0.58% 0.60% 0.60%#
Ratio of net investment income to average
net assets:
Before expense reimbursement.......... 2.50% 2.78% 3.58% 3.32% 2.81%#
After expense reimbursement........... 2.72% 3.00% 4.03% 3.91% 3.66%#
Portfolio turnover........................ 22% 21% 29% 26% 2%
Average commission rate per share......... $0.0458 N/A N/A N/A N/A
</TABLE>
- ---------------
+ Commencement of operations.
# Annualized.
See Notes to Financial Statements.
11
<PAGE> 15
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 ten separately managed portfolios of Hotchkis and Wiley
Funds, the "Fund") at June 30, 1997, 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 four years in the
period then ended and for the period 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, 1997 by correspondence with the custodian
and the application of alternative procedures, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Milwaukee, WI
August 8, 1997
12
