HOTCHKIS & WILEY FUNDS, 485BPOS, 1998-08-28

HOTCHKIS & WILEY FUNDS
485BPOS, 1998-08-28

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<PAGE> 1
As filed with the Securities and Registration No. 2-96219

Exchange Commission on August 28, 1998. 811-4182

===========================================================================
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

-----------------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]

Pre-Effective Amendment No. [ ]

Post-Effective Amendment No. 26 [x]

and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY

ACT OF 1940 [ ]

Amendment No. 28 [x]

(Check appropriate box or boxes)

------------------------
HOTCHKIS AND WILEY FUNDS

(Exact name of registrant as specified in charter)

800 West 6th Street, Fifth Floor
Los Angeles, California 90017
(Address of Principal Executive Offices) (Zip Code)

Registrant's Telephone Number, including Area Code (213) 362-8900
Gracie Fermelia
800 West 6th Street, Fifth Floor
Los Angeles, California 90017
(Name and address of Agent for Service)
with a copy to:
Paul H. Dykstra, Esq.
Gardner, Carton & Douglas
321 North Clark Street
Chicago, IL 60610-4795

Approximate date of proposed public offering: As soon as practicable
after the effective date of the registration statement.

It is proposed that this filing will become effective (check
appropriate box)

[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.

================================================================================

Title of Securities Being Registered..............Shares of Beneficial Interest,
no par value

<PAGE> 2
HOTCHKIS AND WILEY FUNDS
CROSS-REFERENCE SHEET
(REQUIRED BY RULE 495)

<TABLE>
<CAPTION>
Location in the Prospectus of the Equity
Income Fund, Mid-Cap Fund, Small Cap Fund,
International Fund, Global Equity Fund,
Balanced Income Fund, Low Duration
N-1A Fund, Short-Term Investment Fund Location in the Prospectus of the
Item No. and Total Return Bond Fund Equity Fund for Insurance Companies
-------- ------------------------------------------- -----------------------------------
Part A:
<S> <C> <C> <C>
Item 1. Cover Page Cover Page Cover Page
Item 2. Synopsis Fee Table Fee Table
Item 3. Condensed Financial Financial Highlights Financial Highlights
Information
Item 4. General Description of Cover Page; General Information; Investment Cover Page; General
Registrant Objectives and Policies; Securities and Information; Investment Objective and
Techniques Used by the Funds; Investment Policies; Principal Investment
Risks; Principal Investment Restrictions Restrictions
Item 5. Management of the Fund Organization and Management; General Organization and Management; General
Information Information
Item 5A. Management's Discussion Performance Information Performance Information
of Fund Performance
Item 6. Capital Stock and Other General Information; Dividends and Tax General Information; Dividends and Tax
Securities Status; Organization and Management Status; Organization and Management
Item 7. Purchase of Securities How to Purchase Shares How to Purchase Shares
Being Offered
Item 8. Redemption or How to Redeem Shares How to Redeem Shares
Repurchase
Item 9. Pending Legal Not Applicable Not Applicable
Proceedings
</TABLE>

<TABLE>
<CAPTION>
Part B: Location in the Statement of Additional Information
---------------------------------------------------
<S> <C> <C>
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History General Information about the Trust
Item 13. Investment Objectives and Investment Objective and Policies
Policies
Item 14. Management of the Registrant Management
Item 15. Control Persons and Principal General Information about the Trust
Holders of Securities
Item 16. Investment Advisory and Other Management
Securities
Item 17. Brokerage Allocation and Other Management
Practices
Item 18. Capital Stock and Other General Information about the Trust
Securities
Item 19. Purchase, Redemption and Net Asset Value
Pricing of Securities Being
Offered
Item 20. Tax Status Dividends and Tax Status
Item 21. Underwriters Not Applicable
Item 22. Calculation of Performance Data Performance Information
Item 23. Financial Statements Financial Statements
</TABLE>

Part C:
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Post-Effective
Amendment to the Registration Statement.
<PAGE> 3

PROSPECTUS

LOGO

HOTCHKIS AND WILEY FUNDS (THE "TRUST") IS AN OPEN-END, MANAGEMENT INVESTMENT
COMPANY HAVING TEN SEPARATE DIVERSIFIED PORTFOLIOS (THE "FUNDS"), EACH OF WHICH
IS A SEPARATE MUTUAL FUND.

EQUITY INCOME FUND
Seeks to provide current income and long-term growth
of income, accompanied by growth of capital. The Fund invests primarily in
domestic equity securities.

MID-CAP FUND
Seeks to provide current income and long-term growth
of income, accompanied by growth of capital. The Fund invests primarily in
stocks of domestic companies with market capitalizations between $750 million
and $5 billion.

SMALL CAP FUND
Seeks capital appreciation. The Fund invests primarily in stocks of domestic
companies with market capitalizations of $1 billion or less.

INTERNATIONAL FUND
Seeks to provide current income and long-term growth
of income, accompanied by growth of capital. The Fund invests in international
equity securities.

GLOBAL EQUITY FUND
Seeks to provide current income and long-term growth
of income, accompanied by growth of capital. The Fund invests in domestic and
international equity securities.

BALANCED FUND

Seeks to preserve capital while producing a high total return. It is expected
that the Fund's assets will be allocated among equity securities, fixed-income
securities and money market obligations.

TOTAL RETURN BOND FUND
Seeks to maximize long-term total return. The Fund invests in a diversified
portfolio of fixed-income securities of varying maturities with a portfolio
duration of two to eight years.

LOW DURATION FUND
Seeks to maximize total return, consistent with preservation of capital. The
Fund invests in a diversified portfolio of fixed-income securities of varying
maturities with a portfolio duration of one to three years.

SHORT-TERM
INVESTMENT FUND
Seeks to maximize total return, consistent with preservation of capital. The
Fund invests in a diversified portfolio of fixed-income securities of varying
maturities with a portfolio duration which will generally not exceed one year.

EQUITY FUND FOR
INSURANCE COMPANIES
Offered through a separate prospectus.

- --------------------------------------------------------------------------------

This Prospectus provides you with the basic information you should know before
investing in any of the Funds. You should read it and keep it for future
reference. A Statement of Additional Information dated August 28, 1998,
containing additional information about the Trust and each Fund has been filed
with the Securities and Exchange Commission and is incorporated by reference in
its entirety into this Prospectus. You may obtain a copy of the Statement of
Additional Information without charge by calling the Trust at 800-236-4479 or
writing the Trust at 800 West Sixth Street, Fifth Floor, Los Angeles, California
90017. The Statement of Additional Information, reports and other information
about the Funds can be reviewed and copied (for a fee) at the Securities and
Exchange Commission's Public Reference Room in Washington, D.C., and are
available at the Securities and Exchange Commission's Internet site at
http://www.sec.gov.

SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, NOR ARE THEY FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. INVESTMENT
IN A FUND'S SHARES INVOLVES RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

There can be no assurance that the investment objective of any Fund will be
achieved.

HOTCHKIS AND WILEY FUNDS
800 West 6th Street, Fifth Floor, Los Angeles, California 90017
800-236-4479
Investment Advisor: Hotchkis and Wiley

AUGUST 28, 1998

<PAGE> 4

TABLE OF CONTENTS
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
FEE TABLE.............................................. 3
FINANCIAL HIGHLIGHTS................................... 4
INVESTMENT OBJECTIVES AND POLICIES..................... 13
SECURITIES AND TECHNIQUES USED BY THE FUNDS............ 21
INVESTMENT RISKS....................................... 27
PRINCIPAL INVESTMENT RESTRICTIONS...................... 29
ORGANIZATION AND MANAGEMENT............................ 30
HOW TO PURCHASE SHARES................................. 32
HOW TO REDEEM SHARES................................... 34
HOW TO EXCHANGE SHARES................................. 36
DIVIDENDS AND TAX STATUS............................... 37
NET ASSET VALUE........................................ 38
PERFORMANCE INFORMATION................................ 38
GENERAL INFORMATION.................................... 38
APPENDIX -- DESCRIPTION OF RATINGS..................... 41
</TABLE>

[LOGO]

IMPORTANT TELEPHONE NUMBER
-------------------------------------------------------

CLIENT SERVICES AND SHAREHOLDER INQUIRIES 800-236-4479
<PAGE> 5

FEE TABLE
- --------------------------------------------------------------------------------

The following information is provided in order to assist you in understanding
the various costs and expenses that, as an investor in the Funds, you will bear
directly or indirectly:

SHAREHOLDER TRANSACTION EXPENSES
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases..................... None
Maximum Deferred Sales Load................................. None
Maximum Sales Load Imposed on Reinvested Dividends.......... None
Redemption and Exchange Fees................................ None
</TABLE>

Investment dealers and other firms may independently charge additional fees for
shareholder transactions or for advisory services. Please see their materials
for details.

<TABLE>
<CAPTION>
ANNUAL FUND Equity Mid- Small Inter- Global Total Low Short-Term
OPERATING EXPENSES Income Cap Cap national Equity Balanced Return Duration Investment
(as a percentage of average net assets) Fund Fund Fund Fund Fund Fund Bond Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees.......... .75% .75% .75% .75% .75% .75% .55% .46% .40%
Other expenses after expense
reimbursement............ .12% .25% .19% .14% .25% .18% .10% .12% .08%
--- ---- ---- ---- ---- ---- --- --- ---
Total Fund operating expenses
after expense reimbursement... .87% 1.00% .94% .89% 1.00% .93% .65% .58% .48%
=== ==== ==== ==== ==== ==== === === ===
</TABLE>

Although not required to do so, Hotchkis and Wiley (the "Advisor") has agreed to
limit the annual operating expenses of the EQUITY INCOME FUND, MID-CAP FUND,
SMALL CAP FUND, INTERNATIONAL FUND, GLOBAL EQUITY FUND and BALANCED FUND to 1%
of each Fund's average net assets. Additionally, the Advisor has agreed to limit
the annual expenses of the TOTAL RETURN BOND FUND to .65%, the LOW DURATION FUND
to .58% and the SHORT-TERM INVESTMENT FUND to .48% of each Fund's average net
assets. If the Advisor had not limited the Funds' expenses, other expenses of
the MID-CAP FUND, GLOBAL EQUITY FUND, TOTAL RETURN BOND FUND, LOW DURATION FUND
and SHORT-TERM INVESTMENT FUND would have been 1.97%, 2.13%, .47%, .19% and
.52%, respectively, and the total operating expenses of the MID-CAP FUND, GLOBAL
EQUITY FUND, TOTAL RETURN BOND FUND, LOW DURATION FUND and SHORT-TERM INVESTMENT
FUND would have been 2.72%, 2.88%, 1.02%, .65% and .92%, respectively, for the
year ended June 30, 1998.

<TABLE>
<CAPTION>
EXAMPLE
You would pay the following expenses
on a $1,000 investment, assuming:
(1) 5% annual return, and Equity Mid- Small Inter- Global Total Low Short-Term
(2) redemption at the Income Cap Cap national Equity Balanced Return Duration Investment
end of each time period: Fund Fund Fund Fund Fund Fund Bond Fund Fund Fund
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One Year........................ $ 9 $ 10 $ 10 $ 9 $ 10 $ 9 $ 7 $ 6 $ 5
Three Years..................... $ 28 $ 32 $ 30 $ 28 $ 32 $ 30 $21 $19 $15
Five Years...................... $ 48 $ 55 $ 52 $ 49 $ 55 $ 51 $36 $32 $27
Ten Years....................... $107 $122 $115 $110 $122 $114 $81 $73 $60
</TABLE>

The Example should not be considered a representation of past or future
expenses; actual Fund expenses may be greater or less than those shown. The
assumption in the Example of a 5% annual return is required by regulations of
the Securities and Exchange Commission applicable to all mutual funds. The
assumed 5% annual return is not a prediction of, and does not represent, the
projected or actual performance of any Fund.

3
<PAGE> 6

FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
- --------------------------------------------------------------------------------

The financial highlights relating to the EQUITY
INCOME FUND, MID-CAP FUND, SMALL CAP FUND,
INTERNATIONAL FUND, GLOBAL EQUITY FUND, BALANCED
FUND, TOTAL RETURN BOND FUND, LOW DURATION
FUND and SHORT-TERM INVESTMENT FUND for each of the
periods ended June 30, 1998 have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose unqualified report
covering each of the most recent five years is incorporated by reference herein
and is included in the Statement of Additional Information, which is available
from the Trust. This information should be read in conjunction with the
financial statements and accompanying notes, which appear in the Statement of
Additional Information. Further performance information is contained in the
Funds' annual report to shareholders, which may be obtained without cost.

<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------------------------------------------
EQUITY INCOME FUND 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................ $21.25 $18.91 $17.24 $15.07 $15.50 $14.51 $12.53 $12.59 $13.43 $11.60
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income......... 0.46 0.49 0.45(1) 0.49 0.46 0.44 0.40 0.48 0.59 0.57
Net realized and unrealized
gain (loss) on
investments................. 4.02 4.15 2.89 2.48 0.10 1.21 1.99 0.24 (0.62) 1.90
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................. 4.48 4.64 3.34 2.97 0.56 1.65 2.39 0.72 (0.03) 2.47
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment
income)..................... (0.46) (0.48) (0.57) (0.44) (0.46) (0.43) (0.41) (0.48) (0.60) (0.58)
Distributions (from realized
gains)...................... (3.25) (1.82) (1.10) (0.36) (0.53) (0.23) -- (0.30) (0.21) (0.06)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions........... (3.71) (2.30) (1.67) (0.80) (0.99) (0.66) (0.41) (0.78) (0.81) (0.64)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year...... $22.02 $21.25 $18.91 $17.24 $15.07 $15.50 $14.51 $12.53 $12.59 $13.43
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN...................... 22.60% 26.15% 20.04% 20.49% 3.40% 11.67% 19.28% 6.92% -0.44% 21.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)...................... $175.3 $185.9 $182.5 $127.1 $87.2 $86.7 $71.6 $63.0 $64.9 $47.2
Ratio of expenses to average net
assets:
Before expense reimbursement.... 0.87% 0.88% 0.98% 1.02% 1.05% 1.02% 1.02% 1.07% 1.05% 1.27%
After expense reimbursement..... 0.87% 0.88% 0.98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to
average net assets:
Before expense
reimbursement............... 1.99% 2.49% 2.56% 3.11% 2.85% 2.97% 2.93% 4.16% 4.37% 4.42%
After expense reimbursement... 1.99% 2.49% 2.56% 3.14% 2.90% 2.99% 2.95% 4.23% 4.42% 4.68%
Portfolio turnover rate........... 23% 44% 24% 50% 36% 25% 32% 39% 39% 9%
</TABLE>

(1) Net investment income per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.

4
<PAGE> 7

<TABLE>
<CAPTION>
January 2,
1997*
Year Ended through
June 30, June 30,
MID-CAP FUND 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $11.65 $10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.13 0.07
Net realized and unrealized gain on investments......... 1.60 1.64
------ -------
Total from investment operations........................ 1.73 1.71
------ -------
LESS DISTRIBUTIONS:
Dividends (from net investment income).................. (0.14) (0.06)
Distributions (from realized gains)..................... (0.32) --
------ -------
Total distributions..................................... (0.46) (0.06)
------ -------
Net Asset Value, End of Period.............................. $12.92 $11.65
====== =======
TOTAL RETURN................................................ 15.00% 17.15%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................ $7.5 $2.0
Ratio of expenses to average net assets:
Before expense reimbursement.............................. 2.72% 8.26%+
After expense reimbursement............................... 1.00% 1.00%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement.............................. (0.52)% (5.39)%+
After expense reimbursement............................... 1.20% 1.87%+
Portfolio turnover rate..................................... 71% 23%++
</TABLE>

* Commencement of operations.
+ Annualized.

++ Not annualized.

5
<PAGE> 8

<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------------------------------------------------
SMALL CAP FUND 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year............................. $23.83 $21.33 $21.53 $19.53 $19.88 $18.10 $17.30 $20.39 $17.88 $18.05
------ ------- ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income (loss)... (0.06)(1) 0.03 0.05(1) (0.06) (0.01) 0.27 0.09 0.13 0.03 0.17
Net realized and unrealized
gain (loss) on investments... 5.13 5.62 2.80 2.84 0.78 3.18 3.09 0.10 3.51 (0.32)
------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations................... 5.07 5.65 2.85 2.78 0.77 3.45 3.18 0.23 3.54 (0.15)
------ ------- ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment
income)...................... (0.05) (0.09) -- -- (0.20) (0.04) (0.13) (0.09) (0.18) (0.02)
Distributions (from realized
gains)....................... (2.37) (3.06) (3.05) (0.78) (0.92) (1.63) (2.25) (3.23) (0.85) --
------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............ (2.42) (3.15) (3.05) (0.78) (1.12) (1.67) (2.38) (3.32) (1.03) (0.02)
------ ------- ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year....... $26.48 $23.83 $21.33 $21.53 $19.53 $19.88 $18.10 $17.30 $20.39 $17.88
====== ======= ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN....................... 22.24% 29.74% 14.24% 14.79% 3.77% 19.80% 19.04% 5.60% 20.49% -0.82%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(millions)....................... $94.9 $27.5 $16.5 $20.5 $13.1 $10.8 $8.8 $7.2 $7.7 $7.9
Ratio of expenses to average net
assets:
Before expense reimbursement..... 0.94% 1.30% 1.21% 1.49% 1.65% 1.40% 1.45% 1.60% 1.60% 1.82%
After expense reimbursement...... 0.94% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... (0.23)% (0.20)% 0.03% (0.82)% (0.71)% 1.03% (0.06)% 0.11% (0.42)% 0.16%
After expense reimbursement...... (0.23)% 0.10% 0.24% (0.34)% (0.06)% 1.42% 0.40% 0.71% 0.18% 0.98%
Portfolio turnover rate............ 85% 88% 119% 81% 44% 20% 26% 32% 37% 38%
</TABLE>

(1)Net investment income per share represents net investment income divided by
the average shares outstanding throughout the year.

6
<PAGE> 9

<TABLE>
<CAPTION>
October 1,
1990*
Year Ended June 30, through
-------------------------------------------------------------------- June 30,
INTERNATIONAL FUND 1998 1997 1996 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period........................... $ 24.17 $ 20.44 $17.70 $16.79 $14.63 $13.97 $12.56 $12.50
-------- ------- ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income.......... 0.59 0.59(1) 0.56(1) 0.28 0.26 0.23 0.22 0.42
Net realized and unrealized
gain (loss) on investments... 1.23 3.78 2.51 1.52 2.19 0.74 3.09 (0.21)
-------- ------- ------ ------ ------ ------ ------ ------
Total from investment
operations................... 1.82 4.37 3.07 1.80 2.45 0.97 3.31 0.21
-------- ------- ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment
income)...................... (0.66) (0.48) (0.14) (0.44) (0.14) -- (0.61) (0.15)
Distributions (from
realized gains).............. -- (0.16) (0.19) (0.45) (0.15) (0.31) (1.29) --
-------- ------- ------ ------ ------ ------ ------ ------
Total distributions............ (0.66) (0.64) (0.33) (0.89) (0.29) (0.31) (1.90) (0.15)
-------- ------- ------ ------ ------ ------ ------ ------
Net Asset Value, End of Period..... $ 25.33 $ 24.17 $20.44 $17.70 $16.79 $14.63 $13.97 $12.56
======== ======= ====== ====== ====== ====== ====== ======
TOTAL RETURN....................... 7.77% 21.59% 18.61% 11.08% 16.71% 7.36% 27.48% 2.22%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(millions)....................... $1,476.8 $888.5 $331.0 $51.5 $26.0 $6.6 $4.0 $1.3
Ratio of expenses to average net
assets:
Before expense reimbursement..... 0.89% 1.07% 1.11% 1.39% 1.61% 2.44% 4.19% 5.50%+
After expense reimbursement...... 0.89% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%+
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement..... 2.32% 2.59% 2.67% 2.45% 2.01% 1.14% 0.42% (0.53)%+
After expense reimbursement...... 2.32% 2.66% 2.78% 2.83% 2.62% 2.58% 3.61% 3.96%+
Portfolio turnover rate............ 20% 18% 12% 24% 23% 24% 88% 224%++
</TABLE>

* Commencement of operations.
+ Annualized.

++ Not annualized.

(1) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the year.

7
<PAGE> 10

<TABLE>
<CAPTION>
January 2,
1997*
Year Ended through
June 30, June 30,
GLOBAL EQUITY FUND 1998 1997
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $11.09 $10.00
------ -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.28 0.14
Net realized and unrealized gain on investments......... 0.51 1.09
------ -------
Total from investment operations........................ 0.79 1.23
------ -------
LESS DISTRIBUTIONS:
Dividends (from net investment income).................. (0.32) (0.14)
Distributions (from realized gains)..................... (0.18) --
------ -------
Total distributions..................................... (0.50) (0.14)
------ -------
Net Asset Value, End of Period.............................. $11.38 $11.09
====== =======
TOTAL RETURN................................................ 7.61% 12.32%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................ $7.3 $3.7
Ratio of expenses to average net assets:
Before expense reimbursement.............................. 2.88% 4.43%+
After expense reimbursement............................... 1.00% 1.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement.............................. 0.00% 0.07%+
After expense reimbursement............................... 1.88% 3.50%+
Portfolio turnover rate..................................... 54% 18%++
</TABLE>

* Commencement of operations.
+ Annualized.

++ Not annualized.

8
<PAGE> 11

<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------
BALANCED FUND 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Year.............................. $19.38 $18.27 $16.74 $15.71 $16.69 $16.35 $15.23 $15.13 $15.95 $14.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income........... 0.89 0.90(1) 0.94 0.89 0.89 0.77 0.79 0.82 0.88 0.87
Net realized and unrealized gain
(loss) on investments......... 1.58 1.86 1.53 1.53 (0.27) 0.82 1.45 0.49 0.09 1.57
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total from investment
operations.................... 2.47 2.76 2.47 2.42 0.62 1.59 2.24 1.31 0.97 2.44
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment
income)....................... (0.90) (0.99) (0.92) (0.80) (0.94) (0.74) (0.76) (0.81) (0.93) (0.89)
Distributions (from realized
gains)........................ (1.11) (0.66) (0.02) (0.57) (0.66) (0.51) (0.36) (0.40) (0.86) --
Return of capital............... -- -- -- (0.02) -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............. (2.01) (1.65) (0.94) (1.39) (1.60) (1.25) (1.12) (1.21) (1.79) (0.89)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net Asset Value, End of Year........ $19.84 $19.38 $18.27 $16.74 $15.71 $16.69 $16.35 $15.23 $15.13 $15.95
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
TOTAL RETURN........................ 13.29% 15.75% 15.04% 16.40% 3.60% 10.10% 15.10% 9.35% 6.20% 17.48%
RATIOS/SUPPLEMENTAL DATA:
Net Assets, end of year
(millions)........................ $104.6 $ 90.2 $70.6 $32.1 $36.0 $30.3 $16.7 $11.6 $9.6 $7.9
Ratio of expenses to average net
assets:
Before expense reimbursement...... 0.93% 0.98% 1.06% 1.19% 1.20% 1.15% 1.27% 1.44% 1.66% 1.92%
After expense reimbursement....... 0.93% 0.98% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to
average net assets:
Before expense reimbursement...... 4.49% 4.77% 5.20% 5.44% 5.04% 4.62% 4.64% 5.14% 4.93% 4.85%
After expense reimbursement....... 4.49% 4.77% 5.26% 5.63% 5.24% 4.77% 4.90% 5.58% 5.59% 5.77%
Portfolio turnover rate............. 121% 117% 92% 51% 97% 155% 36% 75% 78% 97%
</TABLE>

(1) Net investment income per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.

9
<PAGE> 12

<TABLE>
<CAPTION>
December
6,
1994*
Year Ended June 30, through
------------------------ June 30,
TOTAL RETURN BOND FUND 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period........................ $13.04 $12.78 $12.94 $12.00
------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................................... 0.89 0.99 0.84(1) 0.46
Net realized and unrealized gain on investments......... 0.50 0.30 0.06 0.94
------ ------ ------ ------
Total from investment operations........................ 1.39 1.29 0.90 1.40
------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment income).................. (0.97) (0.92) (0.93) (0.46)
Distributions (from realized gains)..................... -- (0.11) (0.13) --
------ ------ ------ ------
Total distributions..................................... (0.97) (1.03) (1.06) (0.46)
------ ------ ------ ------
Net Asset Value, End of Period.............................. $13.46 $13.04 $12.78 $12.94
====== ====== ====== ======
TOTAL RETURN................................................ 11.04% 10.48% 7.05% 11.88%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................ $45.2 $14.3 $43.4 $15.3
Ratio of expenses to average net assets:
Before expense reimbursement.............................. 1.02% 0.95% 0.98% 2.93%+
After expense reimbursement............................... 0.65% 0.65% 0.68% 0.80%+
Ratio of net investment income to average net assets:
Before expense reimbursement.............................. 6.28% 6.78% 6.86% 4.92%+
After expense reimbursement............................... 6.65% 7.08% 7.16% 7.05%+
Portfolio turnover rate..................................... 195% 173% 51% 68%++
</TABLE>

* Commencement of operations.
+ Annualized.

++ Not annualized.

(1) Net investment income per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.

10
<PAGE> 13

<TABLE>
<CAPTION>
May 18,
1993*
Year Ended June 30, through
------------------------------------------------------------------- June 30,
LOW DURATION FUND 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $10.23 $10.12 $10.15 $ 9.93 $10.00 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.66 0.66 0.68 0.75 0.77 0.05
Net realized and unrealized gain on
investments............................ 0.05 0.10 0.06 0.23 0.11 0.00
------ ------ ------ ------ ------ ------
Total from investment operations......... 0.71 0.76 0.74 0.98 0.88 0.05
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment income)... (0.68) (0.64) (0.72) (0.75) (0.77) (0.05)
Dividends (from realized gains).......... (0.06) (0.01) (0.05) (0.01) (0.18) --
------ ------ ------ ------ ------ ------
Total distributions...................... (0.74) (0.65) (0.77) (0.76) (0.95) (0.05)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............... $10.20 $10.23 $10.12 $10.15 $ 9.93 $10.00
====== ====== ====== ====== ====== ======
TOTAL RETURN................................. 7.19% 7.79% 7.47% 10.23% 9.02% 4.36%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)......... $253.2 $171.2 $189.2 $123.3 $36.5 $7.6
Ratio of expenses to average net assets:
Before expense reimbursement............... 0.65% 0.66% 0.60% 0.75% 1.10% 4.94%+
After expense reimbursement................ 0.58% 0.58% 0.58% 0.58% 0.58% 0.58%+
Ratio of net investment income to average net
assets:
Before expense reimbursement............... 6.39% 6.26% 7.07% 7.43% 6.82% 1.93%+
After expense reimbursement................ 6.46% 6.34% 7.09% 7.61% 7.34% 6.28%+
Portfolio turnover rate...................... 119% 202% 50% 71% 254% 34%++
</TABLE>

* Commencement of operations.
+ Annualized.

++ Not annualized.

11
<PAGE> 14

<TABLE>
<CAPTION>
May 18,
1993*
Year Ended June 30, through
------------------------------------------------------------------- June 30,
SHORT-TERM INVESTMENT FUND 1998 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period......... $10.15 $10.17 $10.12 $10.21 $10.00 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................... 0.63 0.58 0.66 0.66 0.53 0.03
Net realized and unrealized gain (loss)
on investments......................... 0.00 (0.01) 0.05 (0.09) 0.21 --
------ ------ ------ ------ ------ ------
Total from investment operations......... 0.63 0.57 0.71 0.57 0.74 0.03
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment income)... (0.65) (0.59) (0.66) (0.66) (0.53) (0.03)
Return of capital........................ -- -- (0.00) -- -- --
------ ------ ------ ------ ------ ------
Total distributions...................... (0.65) (0.59) (0.66) (0.66) (0.53) (0.03)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period............... $10.13 $10.15 $10.17 $10.12 $10.21 $10.00
====== ====== ====== ====== ====== ======
TOTAL RETURN................................. 6.37% 5.77% 7.23% 5.78% 7.47% 2.30%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)......... $28.0 $21.7 $18.7 $19.8 $10.5 $.003
Ratio of expenses to average net assets:
Before expense reimbursement............... 0.92% 0.96% 0.88% 1.26% 2.06% 57.02%+
After expense reimbursement................ 0.48% 0.48% 0.48% 0.48% 0.48% 0.48%+
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement............... 5.92% 5.34% 6.15% 5.74% 4.16% (56.99)%+
After expense reimbursement................ 6.36% 5.82% 6.55% 6.52% 5.74% 2.32%+
Portfolio turnover rate...................... 121% 154% 60% 81% 135% 0%++
</TABLE>

* Commencement of operations.
+ Annualized.

++ Not annualized

12
<PAGE> 15

INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------

GENERAL

The following descriptions are designed to help you choose the Fund that best
fits your investment objective. Each Fund's net asset value per share will
fluctuate. Investors should consider a Fund as a supplement to an overall
investment program and should invest only if they are willing to undertake the
risks involved. Each Fund's investment objective is a fundamental policy, which
cannot be changed without the approval of a majority of the Fund's outstanding
voting securities, as defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). There can be no assurance that any objective will be met. For
a discussion of certain risks associated with investment in the Funds, including
their use of derivatives, see "Investment Risks" on page 27.

HOTCHKIS AND WILEY, a division of Merrill Lynch Asset Management, L.P. (the
"Advisor"), acts as investment advisor to each Fund.

THE EQUITY INCOME FUND

The investment objective of the EQUITY INCOME FUND is to provide current income
and long-term growth of income, accompanied by growth of capital.

The EQUITY INCOME FUND will attempt to achieve its objective by investing in
equity securities. In selecting investments for the Fund, the Advisor focuses on
securities that it believes to have superior values. In arriving at this
determination, the Advisor will generally seek securities of companies that have
such characteristics as earnings yield at least 3% greater than the yield on
long-term U.S. Government bonds, dividend yield which exceeds the composite
yield on the securities comprising the Standard & Poor's Index of 500 Common
Stocks ("S&P 500"), and overall financial strength.

Under normal market conditions, the EQUITY INCOME FUND will invest at least 80%
of its total assets in income-producing equity securities issued by companies
with a record of earnings and dividends. The remainder of its portfolio may be
invested in securities of companies which pay no dividends or interest but have
potential for growth unrecognized by the market or changes in business or
management that indicate possible growth.

The equity securities that the Fund may purchase consist of common stocks or
securities having characteristics of common stocks, such as convertible
preferred stocks, convertible debt securities or warrants. Any such convertible
securities will be securities of an issuer having an outstanding issue of debt
securities rated investment grade by a nationally recognized statistical rating
organization or, if unrated, be of comparable quality in the opinion of the
Advisor, provided, however, that the Fund may invest up to 5% of its net assets
in convertible securities of issuers having an outstanding issue of debt
securities rated at least B by Moody's Investors Service ("Moody's") or Standard
& Poor's Ratings Group ("S&P") or, if unrated, of comparable quality in the
opinion of the Advisor. For a description of "investment grade," see "The
BALANCED FUND." See the Appendix for a further description of ratings.

Securities rated Baa are considered by Moody's to have speculative
characteristics. For Baa/BBB rated securities, changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade securities.
Securities rated below BBB or Baa are judged to be predominantly speculative
with respect to their capacity to pay interest and repay principal in accordance
with the terms of their obligations and are commonly known as "junk bonds." See
"Investment Risks -- Risks of Investing in Fixed-Income Securities" on page 28.
Investors should carefully consider the relative risks associated with
investments in securities which carry lower ratings and in comparable unrated
securities.

Subsequent to its purchase by the Fund, a security may be assigned a lower
rating or cease to be rated. Such an event would not require the sale of the
security, but the Advisor will consider such an event in determining whether the
Fund should continue to hold the security in its portfolio.

13
<PAGE> 16

For liquidity purposes and pending investment of cash receipts, the Fund may
invest in short-term (i.e., maturing or payable in one year or less from date of
purchase) investment grade debt securities of the U.S. Government, its agencies
and instrumentalities, bank certificates of deposit, bankers' acceptances, high
quality commercial paper, demand notes and repurchase agreements.

When adverse market or economic conditions indicate to the Advisor that a
temporary defensive strategy is appropriate, the Fund may invest all or part of
its assets in short-term investment grade debt obligations.

The EQUITY INCOME FUND can invest on a "global" basis, although it is not
required to. See "Securities and Techniques Used by the Funds -- Foreign
Securities" on page 23.

THE MID-CAP FUND

The investment objective of the MID-CAP FUND is to provide current income and
long-term growth of income, accompanied by growth of capital. The MID-CAP FUND
will attempt to achieve its objective by investing, under normal market
conditions, at least 65% of its total assets in equity securities of mid-size
U.S. companies that, in the opinion of the Advisor, are undervalued. A "mid-size
company" is one which has a market capitalization of $750 million to $5 billion
at the time of investment.

In selecting investments for the Fund, the Advisor focuses on securities that it
believes have superior value. In arriving at this determination, the Advisor
will generally seek securities of companies that have such characteristics as
earnings yield at least 3% greater than the yield on long-term U.S. Government
bonds, dividend yield which exceeds the composite yield on the securities
comprising the Russell Mid-Cap Index, and overall financial strength. In
addition, the Advisor will seek equity securities of companies that are
undervalued as determined by a low price-to-earnings ratio relative to their
expected growth rate.

There are risks associated with the MID-CAP FUND'S investment in the securities
of smaller issuers. See "Investment Risks -- Risks of Investing in Small and
Mid-Size Companies" on page 27.

Under normal market conditions, the MID-CAP FUND will invest at least 50% of its
total assets in income-producing equity securities issued by companies with a
record of earnings and dividends. The remainder of its portfolio may be invested
in securities of companies which pay no dividends or interest but have potential
for growth unrecognized by the market or changes in business or management that
indicate possible growth.

For liquidity purposes and pending investment of cash receipts, the Fund may
invest in short-term investment grade debt securities of the U.S. Government,
its agencies and instrumentalities, bank certificates of deposit, bankers'
acceptances, high quality commercial paper, demand notes and repurchase
agreements.

The MID-CAP FUND can invest on a "global" basis; it may invest in foreign
securities if thereafter not more than 20% of its total assets would be invested
in the securities of foreign issuers, although there is no requirement that the
Fund invest in any foreign securities. See "Securities and Techniques Used by
the Funds -- Foreign Securities" on page 23.

THE SMALL CAP FUND

The investment objective of the SMALL CAP FUND is capital appreciation. The
SMALL CAP FUND will attempt to achieve its objective by investing, under normal
circumstances, in the common stock of issuers which, in the opinion of the
Fund's Advisor, are undervalued as determined by a low price-to-earnings ratio
relative to their expected growth rate.

14
<PAGE> 17

It has been the Advisor's experience that investment opportunities are
frequently found in the securities of companies that are "undervalued" because
they are part of an industry that is out of favor with investors generally. Even
in such industries, however, individual companies may have high rates of growth
of earnings and be financially sound. At the same time, the price of their
common stock may be depressed because investors associate the companies with
their industries. The Advisor will attempt to identify such companies and invest
in their securities when, in the Advisor's judgment, opportunities for capital
appreciation exist.

Under normal circumstances, the SMALL CAP FUND invests at least 65% of its total
assets in the stock of small domestic companies. In general, the Advisor will
seek to fully invest its assets in the stock of small companies. A "small
company" is one which has market capitalization of $1 billion or less at the
time of investment.

In selecting investments for the Fund, the Advisor focuses on securities that it
believes to have superior value. In arriving at this determination, the Advisor
will generally seek securities of companies that have such characteristics as
earnings yield at least 3% greater than the yield on long-term bonds and overall
financial strength. In addition, the Advisor will seek equity securities of
companies that are undervalued as determined by a price-to-earnings ratio
relative to their expected growth rate. To the extent that the SMALL CAP FUND
does invest in small issuers, there is the risk that such securities will be
less marketable or may be subject to greater fluctuations in price than
securities of larger issuers. See "Investment Risks -- Risks of Investing in
Small and Mid-Size Companies" on page 27.

Common stock of companies described above includes rights or warrants for their
purchase and securities convertible into common stocks. See "The EQUITY INCOME
FUND" for a description of the ratings applicable to the convertible securities
to be invested in by the SMALL CAP FUND.

The SMALL CAP FUND can invest on a "global" basis; as a fundamental policy it
may invest in foreign securities if thereafter not more than 20% of its total
assets would be invested in the securities of foreign issuers, although there is
no requirement that the Fund invest in any foreign securities. See "Securities
and Techniques Used by the Funds -- Foreign Securities" on page 23.

THE INTERNATIONAL FUND

The investment objective of the INTERNATIONAL FUND is to provide current income
and long-term growth of income, accompanied by growth of capital. The
INTERNATIONAL FUND will attempt to achieve its objective by investing at least
65% of its total assets in equity securities in at least three non-U.S. markets.
Ordinarily, the Fund will invest in equity securities issued by companies
located in some or all of the developed foreign equity markets. These markets
generally include 15 markets in Europe as well as Australia, New Zealand, Japan,
Hong Kong, Singapore, Malaysia, Canada and South Korea. There are risks
associated with investment in foreign securities, as described under "Investment
Risks -- Risks of Investing in Emerging Market and Other Foreign Securities" on
page 27.

In selecting investments for the Fund, the Advisor will focus on securities that
it believes have superior values. The Advisor will generally seek equity
securities of companies in each country that have such characteristics as
dividend yield greater than the local market average; earnings yield at least
three percentage points greater than the country's 10-year government bond yield
(or low price-to-earnings ratios relative to the local market), and financial
strength.

Under normal market conditions, the INTERNATIONAL FUND will invest at least 80%
of its total assets in income-producing equity securities issued by companies
with a

15
<PAGE> 18

record of earnings and dividends. The remainder of its portfolio may be invested
in securities of companies which pay no dividends or interest, but have
potential for growth unrecognized by the market or changes in business or
management that indicate possible growth. The Fund will not invest in foreign
fixed-income securities with a maturity in excess of one year.

THE INTERNATIONAL FUND may purchase foreign currency options or enter into
forward foreign currency exchange contracts for the purpose of hedging against
the effect that currency fluctuations will have on the value of Fund assets or
liabilities. See "Securities and Techniques Used by the Funds -- Other
Derivative Instruments" on page 26.

THE GLOBAL EQUITY FUND

The investment objective of the GLOBAL EQUITY FUND is to provide current income
and long-term growth of income, accompanied by growth of capital. The GLOBAL
EQUITY FUND will attempt to achieve its objective by investing in equity
securities in at least three different countries, which may include the U.S.,
but no country, other than the U.S., may represent more than 30% of its assets.

Ordinarily, the Fund will invest in equity securities issued by companies
located in the U.S. and developed foreign equity markets. These markets
generally include 15 markets in Europe as well as Australia, New Zealand, Japan,
Hong Kong, Singapore, Malaysia, Canada and South Korea. There are risks
associated with investment in foreign securities, as described under "Investment
Risks -- Risks of Investing in Emerging Market and Other Foreign Securities" on
page 27.

Under normal market conditions, the GLOBAL EQUITY FUND will invest at least 80%
of its total assets in income-producing equity securities issued by companies
with a record of earnings and dividends. The remainder of its portfolio may be
invested in securities of companies which pay no dividends or interest, but have
potential for growth unrecognized by the market or changes in business or
management that indicate possible growth. The Fund will not invest in foreign
fixed-income securities with a maturity in excess of one year.

The Advisor intends that the Fund normally be fully invested, if sufficient
value can be found in global markets. Investments will be made based primarily
on the evaluation of each company, rather than characteristics of the country or
market in which the company is located.

16
<PAGE> 19

The GLOBAL EQUITY FUND may purchase foreign currency options or enter into
forward foreign currency exchange contracts for the purpose of hedging against
the effect that currency fluctuations will have on the value of Fund assets or
liabilities. See "Securities and Techniques Used by the Funds -- Other
Derivative Instruments" on page 26.

THE BALANCED FUND

The investment objective of the BALANCED FUND is to preserve capital while
producing a high total return. The BALANCED FUND will attempt to achieve this
high total return through a combination of income and capital growth. The
BALANCED FUND will attempt to achieve preservation of capital through the
investment policies discussed below and through careful selection and
supervision of the securities purchased. While not an objective of the Fund, the
Advisor's current goal is a return at least 4% greater than the rate of
inflation as measured by the Consumer Price Index.

While it is not a fundamental policy, it is expected that the BALANCED FUND'S
assets will be allocated among equity securities, fixed-income securities, and
money market obligations. The amount of the BALANCED FUND'S assets invested in
each category of securities is derived from a proprietary model employed by the
Advisor as to what relative portions of the Fund's assets in each category will
contribute to the achievement of the Fund's objective; however, it is expected
that investments in equity securities will comprise at least 20% of the Fund's
total assets and fixed-income senior securities will comprise at least 25% of
the Fund's total assets, except due to changes in the market value of securities
held. In the event that, due to such market value changes, the percentage of the
Fund's assets in either such category comprises less than the requisite
percentage of the Fund's total assets, the Fund may, but is not required to,
purchase additional securities of that category. From inception to the date of
this Prospectus, the Fund's allocation to equity securities has ranged from 27%
to 59%, and to fixed-income securities has ranged from 41% to 73%.

The BALANCED FUND attempts to achieve growth of capital through its investment
in equity securities. In selecting equity securities, the Advisor will generally
seek securities of companies that have such characteristics as earnings yield at
least 3% greater than the yield on long-term bonds, dividend yield which exceeds
the composite yield on the securities comprising the S&P 500, and overall
financial strength.

The BALANCED FUND attempts to earn current income and at the same time reduce
the fluctuation in the net asset value of the Fund's shares by investing a
portion of its assets in fixed-income securities. The fixed-income securities
that the BALANCED FUND may purchase must be investment grade and will consist
of: (1) debt securities maturing in more than one year from the date of purchase
that are issued by the U.S. Government, its agencies or instrumentalities ("U.S.
Government securities"); (2) debt securities (such as bonds and debentures) of
other domestic or foreign issuers, maturing in more than one year from the date
of purchase; (3) preferred stocks of domestic or foreign issuers having an
outstanding issue of investment grade debt securities; (4) mortgage- and other
asset-backed securities, including collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Invest-

17
<PAGE> 20

ment Conduits ("REMICs"); (5) variable and floating rate debt securities
(including inverse floaters); (6) debt securities that are convertible into or
exchangeable for equity securities; (7) structured debentures, bonds and notes;
(8) repurchase agreements, reverse repurchase agreements and dollar rolls; and
(9) municipal obligations. See "Securities and Techniques Used by the Funds" on
page 21.

"Investment grade" means the debt securities have been rated at least: (1) Baa
by Moody's or BBB by S&P, Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps Credit Rating Co. ("Duff & Phelps") for long-term obligations; (2) A-2 by
S&P, Prime-2 by Moody's, F2 by Fitch or D-2 by Duff & Phelps for short-term
obligations; or (3) of comparable quality as determined by the Advisor in the
case of unrated securities. All ratings are determined at the time of
investment. See the Appendix for a description of ratings.

After its purchase by the Fund, a security may be assigned a lower rating or
cease to be rated. This would not require the sale of the issue, but the Advisor
will consider such an event in determining whether the Fund should continue to
hold the security. While not required, it is expected that the average credit
quality of the Fund's debt securities will be AA/Aa or higher.

The BALANCED FUND also attempts to earn current income and reduce the
fluctuation in the net asset value of its shares by investing a portion of its
assets in money market obligations. The money market obligations that the
BALANCED FUND may purchase consist of short-term dollar-denominated debt
obligations which are: (1) U.S. Government securities or municipal obligations;
(2) issued by domestic banks; or (3) issued by domestic corporations, if such
corporate debt obligations are of investment grade as described above. Money
market obligations also include investment grade debt securities that are
subject to repurchase agreements.

Because the BALANCED FUND intends to allocate its assets among equities,
fixed-income securities and money market obligations, it may not be able to
achieve, at times, a total return as high as that of a portfolio with complete
freedom to invest its assets in any one type of security. Likewise, because at
least 25% of the BALANCED FUND'S portfolio will normally consist of debt
obligations, the Fund may not achieve the degree of capital appreciation that a
portfolio investing solely in equity securities might achieve. Although the
BALANCED FUND intends to invest in fixed-income securities to reduce the price
volatility of the Fund's shares, intermediate and long-term debt securities do
fluctuate in value more than money market obligations.

The BALANCED FUND can invest on a "global" basis; as a fundamental policy it may
invest in foreign securities if thereafter not more than 20% of its total assets
would be invested in the securities of foreign issuers, although there is no
requirement that the Fund invest in any foreign securities. See "Securities and
Techniques Used by the Funds -- Foreign Securities" on page 23.

THE FIXED-INCOME FUNDS:

THE TOTAL RETURN BOND FUND

The investment objective of the TOTAL RETURN BOND FUND is to maximize long-term
total return. The Fund invests in a diversified portfolio of fixed-income
securities of varying maturities with a portfolio duration of two to eight
years. Portfolio holdings will be concentrated in

18
<PAGE> 21

areas of the bond market (based on quality, sector, coupon or maturity) which
the Advisor believes to be relatively undervalued. The Advisor views bonds to be
any interest-bearing security that obligates the issuer to pay the bondholder
specified sums of money on specified dates and generally requires the issuer to
repay the principal amount of the loan at maturity.

THE LOW DURATION FUND

The investment objective of the LOW DURATION FUND is to maximize total return,
consistent with preservation of capital. The Fund invests in a diversified
portfolio of fixed-income securities of varying maturities with a portfolio
duration of one to three years. The total rate of return for this Fund is
expected to exhibit less volatility than that of a longer duration fixed-income
fund such as the TOTAL RETURN BOND FUND.

THE SHORT-TERM INVESTMENT FUND

The investment objective of the SHORT-TERM INVESTMENT FUND is to maximize total
return, consistent with preservation of capital. The Fund invests in a
diversified portfolio of fixed-income securities of varying maturities,
including long-term securities. The Fund seeks to maintain a portfolio duration
which will generally not exceed one year. The Fund also seeks to maintain a
dollar-weighted average portfolio maturity which will generally not exceed three
years, as determined using the effective maturity of the portfolio securities.
The Fund is not a money market fund and its share price will fluctuate. The Fund
is designed for investors who are willing to accept some fluctuation in
principal in order to pursue a higher level of income than is generally
available from money market funds. Because its share price may decline from time
to time, the Fund is not an appropriate investment for those whose primary
objective is absolute principal stability.

INVESTMENT POLICIES OF THE
FIXED-INCOME FUNDS

The TOTAL RETURN BOND FUND, the LOW DURATION FUND and the SHORT-TERM INVESTMENT
FUND (the "FIXED-INCOME FUNDS") will attempt to achieve their objectives by
investing in the following types of securities which may be issued by domestic
or foreign entities: (1) U.S. Government securities; (2) corporate debt
securities, including bonds, notes and debentures; (3) corporate commercial
paper; (4) mortgage- and other asset-backed securities, including CMOs and
REMICs; (5) variable and floating rate debt securities (including inverse
floaters); (6) structured debentures, bonds and notes; (7) bank certificates of
deposit; (8) fixed time deposits and bankers' acceptances; (9) repurchase
agreements, reverse repurchase agreements and dollar rolls; (10) preferred stock
of issuers whose assets consist of mortgage-backed securities of U.S. Government
agencies; (11) debt securities that are convertible into or exchangeable for
equity securities ("convertible securities"); (12) obligations of foreign
governments or their subdivisions, agencies and instrumentalities; (13)
obligations of international agencies (such as the Agency for International
Development) or supranational entities; and (14) municipal obligations. There is
no limitation on the percentage of a Fund's assets that may be committed to any
of these types of securities, except as to foreign securities and to the extent
that a security may be deemed to be illiquid. See "Securities and Techniques
Used by the Funds" on page 21.

Under normal circumstances, the TOTAL RETURN BOND FUND will invest at least 70%
of its net assets in debt instruments rated at least investment grade, i.e., (1)
Baa by Moody's or BBB by S&P, Fitch or Duff & Phelps for long-term debt
obligations; (2) A-2 by S&P, Prime-2 by Moody's, F2 by Fitch or D-2 by Duff &
Phelps for short-term debt obligations; or (3) of comparable quality as
determined by the Advisor in the case of unrated securities. Up to 15% of the
TOTAL RETURN BOND FUND'S net assets may be invested in securities rated below
investment grade but rated B or higher by one of the nationally recognized
rating agencies or, if unrated, of comparable quality in the opinion of the
Advisor.

Under normal circumstances, the LOW DURATION FUND and the SHORT-TERM INVESTMENT
FUND will invest at least 70% of their net assets in securities rated at least:
(1) A by Moody's, S&P, Fitch or Duff & Phelps for long-term debt obligations;
(2) A-2 by S&P, Prime-2 by Moody's, F2 by Fitch or D-2 by Duff & Phelps for
short-term debt obliga-

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<PAGE> 22

tions; or (3) of comparable quality as determined by the Advisor in the case of
unrated securities. Up to 10% of the LOW DURATION FUND'S and the SHORT-TERM
INVESTMENT FUND'S net assets may be invested in securities rated below
investment grade but rated B or higher by one of the nationally recognized
rating agencies or, if unrated, of comparable quality in the opinion of the
Advisor. The remainder of the LOW DURATION FUND'S and the SHORT-TERM INVESTMENT
FUND'S investments will be rated Baa or BBB by at least one of these rating
agencies or, if unrated, of comparable quality in the opinion of the Advisor.

After its purchase by one of the Funds, a security may be assigned a lower
rating or cease to be rated. This would not require the sale of the issue, but
the Advisor will consider such an event in determining whether the Fund should
continue to hold the security in the portfolio.

Each of the FIXED-INCOME FUNDS may invest up to 15% of its net assets in
emerging market foreign securities, which are generally considered to be of a
credit quality below investment grade.

Each of the FIXED-INCOME FUNDS may invest up to 25% of its total assets in
securities of foreign issuers that are denominated in U.S. dollars. Investment
by these Funds in securities of foreign issuers that are not denominated in U.S.
dollars will be limited to a maximum of 15% of each FIXED-INCOME FUND'S total
assets. See "Securities and Techniques Used by the Funds -- Foreign Securities"
on page 23.

The FIXED-INCOME FUNDS each invest in a diversified portfolio of fixed-income
securities of varying maturities. The effective maturity is the weighted average
period over which a security's principal is expected to be paid. Stated maturity
is the date when the issuer is scheduled to make the final payment of principal.
Effective maturity differs from stated maturity in that it estimates the
anticipated effect of expected principal prepayments and call provisions.

The effective maturity of a debt security will be the stated maturity, except:
(1) in the case of a security with a call provision, the maturity date will be
considered the call date if there is a high probability, in the opinion of the
Advisor, that the security will be called; (2) in the case of securities with
unconditional put provisions entitling the security holder to receive the
security's approximate amortized cost, the maturity will be considered to be the
next put date; (3) in the case of mortgage-backed or other amortizing
securities, the maturity will be considered to be the average life remaining
(the length of time it is expected to take to retire half of the remaining
principal through amortizing payments) based on prepayment assumptions that the
Advisor believes appropriate; and (4) in the case of a variable or floating rate
investment grade security which, in the Advisor's opinion, will have a market
value approximating amortized cost on the next interest rate reset date, the
maturity will be considered to be the next reset date. However, no FIXED-INCOME
FUND will invest more than 5% of its net assets at the time of purchase in
floating or variable rate instruments of any one issuer, nor invest more than
20% of its net assets at the time of purchase in floating or variable rate
instruments of issuers within the same industry.

The FIXED-INCOME FUNDS each invest in a diversified portfolio of fixed-income
securities with a different portfolio "duration." Duration is a commonly used
measure of the potential volatility of the price of a debt security, or the
aggregate market value of a portfolio of debt securities, prior to maturity.
Duration measures the magnitude of the change in price of a debt security
relative to a given change in the market interest rate. Duration incorporates a
bond's yield, coupon interest payments, final maturity, call and put features
and prepayment exposure into one measure.

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<PAGE> 23

For any fixed-income security with interest payments occurring prior to the
payment of principal, duration is ordinarily less than maturity. In general, all
other things being equal, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security. A Fund's computation of duration is based
on estimated rather than known factors. Thus, there can be no assurance that a
particular portfolio duration will at all times be achieved by a Fund.

Duration is used in the management of the Funds as a tool to measure interest
rate risk. For example, a Fund with a 2-year duration would be expected to
change in value 2% for every 1% move in interest rates. Assuming an expected
average duration of 2 years for the LOW DURATION FUND, a 1% decline in interest
rates would cause the Fund to gain 2% in price; likewise, a 1% rise in interest
rates would produce a decline of 2% in the Fund's price. Assuming an expected
average duration of .75 years for the SHORT-TERM INVESTMENT FUND, a 1% decline
in interest rates would cause the Fund to gain .75% in price; likewise, a 1%
rise in interest rates would produce a decline of .75% in the Fund's price.
Assuming an expected average duration of 4.5 years for the TOTAL RETURN BOND
FUND, a 1% decline in interest rates would cause the Fund to gain 4.5% in price;
likewise, a 1% rise in interest rates would produce a decline of 4.5% in the
Fund's price. Other factors such as changes in credit quality, prepayments, the
shape of the yield curve and liquidity affect the net asset value of the Funds
and may be correlated with changes in interest rates. These factors can
exacerbate swings in the Fund's share prices during periods of volatile interest
rate changes.

For a more detailed discussion of duration, see "Investment Objectives and
Policies -- Duration" in the Statement of Additional Information.

SECURITIES AND TECHNIQUES USED BY THE FUNDS
- --------------------------------------------------------------------------------

The following provides a summary of the securities and techniques used by the
Funds. The Statement of Additional Information contains more detailed
information about these investments and the risks associated with them.

U.S. GOVERNMENT SECURITIES
Each Fund may invest in U.S. Government securities. U.S. Government securities
include direct obligations issued by the United States Treasury, such as
Treasury bills, certificates of indebtedness, notes, bonds and component parts
of notes or bonds (including the principal of such obligations or the interest
payments scheduled to be paid on such obligations). U.S. Government agencies and
instrumentalities that issue or guarantee securities include, but are not
limited to, the Federal National Mortgage Association ("FNMA"), Government
National Mortgage Association ("GNMA"), Federal Home Loan Banks, Federal
Financing Bank, and Student Loan Marketing Association.

All Treasury securities are backed by the full faith and credit of the United
States. Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some, such
as the Federal Home Loan Banks, are backed by the right of the agency or
instrumentality to borrow from the Treasury. Others, such as securities issued
by FNMA, are supported only by the credit of the instrumentality and not by the
Treasury. If the securities are not backed by the full faith and credit of the
United States, the owner of the securities must look principally to the agency
issuing the obligation for repayment and may not be able to assert a claim
against the United States in the event that the agency or instrumentality does
not meet its commitment.

Among the U.S. Government securities that may be purchased by the Funds are
certain "mortgage-backed securities" of GNMA, the Federal Home Loan Mortgage
Corporation ("FHLMC") and FNMA. See the discussion of "Mortgage-Related
Securities" on page 25.

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<PAGE> 24

MUNICIPAL OBLIGATIONS

The BALANCED and FIXED-INCOME FUNDS may invest in municipal obligations issued
by or on behalf of the governments of states, territories or possessions of the
United States, the District of Columbia and their agencies and
instrumentalities.

Municipal obligations may be backed by the full taxing power of a municipality
("general obligations"), backed by the revenues from a specific project or the
credit of a private organization ("revenue obligations") or issued by or on
behalf of public authorities to provide funding for various privately operated
industrial and commercial facilities ("private activity bonds"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. Others are not backed
by escrowed securities, insurance, letters of credit or other credit
enhancements.

The BALANCED and FIXED-INCOME FUNDS' investments in municipal obligations may
include fixed, variable or floating rate general obligations, revenue
obligations and other obligations, including municipal lease obligations;
resource recovery obligations; certificates of participation; inverse floaters;
instruments with demand features, tender option bonds and standby commitments;
private activity obligations; zero coupon and asset-backed obligations; variable
rate auction and residual interest obligations; tax, revenue or bond
anticipation notes; tax-exempt commercial paper; and purchase obligations that
are subject to restrictions on resale. See the Statement of Additional
Information for a further discussion of these obligations.

The BALANCED and FIXED-INCOME FUNDS may invest a portion of the value of their
assets in municipal obligations which are related in such a way that an
economic, business or political development or change affecting one such
security would also affect the other securities. Examples of these include
securities the interest on which is paid from revenues of similar types of
projects, or securities whose issuers are located in the same state. As a
result, the BALANCED and FIXED-INCOME FUNDS may be subject to greater risk
compared to funds that do not follow this practice.

CORPORATE AND OTHER OBLIGATIONS
Each Fund may invest in corporate debt securities, variable and floating rate
debt securities and corporate commercial paper in the rating categories
described above. Floating rate securities normally have a rate of interest which
is set as a specific percentage of a designated base rate, such as the rate on
Treasury bonds or bills or the prime rate at a major commercial bank. The
interest rate on floating rate securities changes periodically when there is a
change in the designated base rate. Variable rate securities provide for a
specified periodic adjustment in the interest rate based on prevailing market
rates.

The BALANCED and FIXED-INCOME FUNDS may invest in structured debentures and
structured notes, which are hybrid instruments with characteristics of both
bonds and swap agreements. Like a bond, these securities make regular coupon
payments and generally have fixed principal amounts. However, the coupon
payments are typically tied to a swap agreement which can be affected by changes
in a variety of factors such as exchange rates, the shape of the yield curve and
foreign interest rates. Because of these factors, structured debentures and
structured notes can display price behavior that is more volatile than and often
not correlated to other fixed-income securities.

The BALANCED and FIXED-INCOME FUNDS may also invest in inverse floaters and
tiered index bonds. An inverse floater is a type of derivative that bears a
floating or variable interest rate that moves in the opposite direction to the
interest rate on another security or index level. Changes in the interest rate
of the other security or index inversely affect the residual interest rate paid
on the inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed-rate bond. Tiered index bonds
are also a type of derivative instrument. The interest rate on a tiered index
bond is tied to a specified index or market rate. So long as this index or
market rate is below a predetermined "strike" rate, the interest rate on the
tiered index bond remains fixed. If, however, the specified index or market rate
rises above the "strike" rate, the interest rate on the

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<PAGE> 25

tiered index bond will decrease. In general, the interest rates on tiered index
bonds and inverse floaters move in the opposite direction of prevailing interest
rates. The market for inverse floaters and tiered index bonds is relatively new.
These corporate debt obligations may have characteristics similar to those of
mortgage-related securities, but corporate debt obligations, unlike mortgage-
related securities, are not subject to prepayment risk other than through
contractual call provisions which generally impose a penalty for prepayment.

ASSET-BACKED SECURITIES

The BALANCED and FIXED-INCOME FUNDS may invest in securities whose principal and
interest payouts are backed by, or supported by, any of various types of assets.
These assets most typically include receivables related to the purchase of
automobiles, credit card loans, and home equity loans. These securities
generally take the form of a structured type of security, including
pass-through, pay-through, and stripped interest payout structures.

FOREIGN SECURITIES
Each Fund may invest in foreign securities. Foreign economies may differ from
the U.S. economy; individual foreign companies may differ from domestic
companies in the same industry; and foreign currencies may be stronger or weaker
than the U.S. dollar. The Advisor believes that the ability to invest abroad
will enable the Funds to take advantage of these differences when they are
favorable.

Fixed-income securities that may be purchased by the INTERNATIONAL, GLOBAL
EQUITY, BALANCED and FIXED-INCOME FUNDS include debt obligations issued or
guaranteed by foreign governments, their subdivisions, agencies or
instrumentalities, or by supranational entities that have been constituted by
the governments of several countries to promote economic development, such as
The World Bank and The Asian Development Bank. Foreign investment in certain
foreign government debt is restricted or controlled to varying degrees.

The FIXED-INCOME FUNDS may invest in fixed-income securities of issuers located
in emerging foreign markets. Such markets generally include every country in the
world other than the U.S., Canada, Japan, Australia, Malaysia, New Zealand, Hong
Kong, Singapore, South Korea and most Western European countries. From time to
time, emerging markets have offered the opportunity for higher returns but
involve a higher level of risk. Accordingly, the Advisor believes that the
FIXED-INCOME FUNDS' limited ability to invest in emerging markets throughout the
world may enable the Funds to obtain a wider range of attractive investment
opportunities. Emerging market securities include securities issued or
guaranteed by governments, their agencies, instrumentalities or central banks
("sovereign debt"); securities of issuers organized and operated to restructure
the investment characteristics of sovereign debt; securities of banks and other
business entities; and securities denominated in or indexed to currencies of
emerging markets. These securities include "Brady Bonds," which afford emerging
market countries a means to restructure their outstanding commercial bank debt.
Foreign governmental issuers of debt or the governmental authorities that
control repayment of the debt may be unable or unwilling to repay principal or
pay interest when due and all or a portion of the interest payments and/or
principal repayment with respect to Brady Bonds may be uncollateralized.

Emerging market securities are generally considered to be of a credit quality
below investment grade, even though they often are not rated by any nationally
recognized rating agency. The Advisor seeks to reduce the risk associated with
emerging market securities by limiting the amount of such securities held by the
Funds, by the depth of its own credit analysis, and evaluation of political,
economic, currency and other factors that may be pertinent.

There are risks in investing in emerging market and other foreign securities.
See "Investment Risks -- Risks of Investing in Emerging Market and Other Foreign
Securities" on page 27.

REPURCHASE AGREEMENTS
Each Fund may enter into repurchase agreements involving U.S. Government
securities with commercial banks or broker-dealers, whereby the seller of a
security agrees to repurchase the security on an agreed-upon date in the future.
While each Fund intends to be fully "collateralized" as to such agreements, and
the collateral will be

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<PAGE> 26

marked-to-market daily, if the person obligated to repurchase from the Fund
defaults, there may be possible delays and expenses in liquidating the
securities subject to the repurchase agreement, a decline in their value and
loss of interest.

REVERSE REPURCHASE AGREEMENTS

The BALANCED and FIXED-INCOME FUNDS may enter into reverse repurchase
agreements, whereby a Fund sells securities concurrently with entering into an
agreement to repurchase those securities at a later date at a fixed price.
During the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on those securities. Reverse repurchase
agreements are speculative techniques involving leverage and are considered
borrowings by the Fund for purposes of the limit applicable to borrowings.

DOLLAR ROLLS

The BALANCED and FIXED-INCOME FUNDS may use dollar rolls as part of their
investment strategy. In a dollar roll, a Fund sells securities for delivery in
the current month and simultaneously contracts to repurchase substantially
similar securities (same type and coupon) on a specified future date from the
same party. During the roll period, the Fund forgoes principal and interest paid
on the securities. The Fund is compensated by the difference between the current
sales price and the forward price for the future purchase (often referred to as
the "drop") as well as by the interest earned on the cash proceeds of the
initial sale. A "covered roll" is a specific type of dollar roll for which there
is an offsetting cash position or cash equivalent security position that matures
on or before the forward settlement date of the dollar roll transaction.

The BALANCED and FIXED-INCOME FUNDS will establish a segregated account with the
custodian in which they will maintain cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily, equal
in value to their obligations with respect to dollar rolls. Dollar rolls involve
the risk that the market value of the securities retained by the Fund may
decline below the price of the securities the Fund has sold but is obligated to
repurchase under the agreement. If the buyer of the securities under a dollar
roll files for bankruptcy or becomes insolvent, the Fund's use of the proceeds
of the agreement may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. Dollar rolls are speculative techniques involving
leverage and are considered borrowings by the Funds, subject to their
limitations on borrowings.

BORROWING

As a fundamental policy, the EQUITY INCOME, MID-CAP, BALANCED, SMALL CAP,
INTERNATIONAL and GLOBAL EQUITY FUNDS may borrow money, but only from banks for
temporary or emergency purposes in amounts not exceeding 10% of each Fund's
total assets. The FIXED-INCOME FUNDS may borrow for temporary, emergency or
investment purposes. This borrowing may be unsecured. The 1940 Act requires a
Fund to maintain continuous asset coverage (that is, total assets including
borrowings, less liabilities exclusive of borrowings) of 300% of the amount
borrowed. Borrowing subjects a Fund to interest costs which may or may not be
recovered by appreciation of the securities purchased, and can exaggerate the
effect on net asset value of any increase or decrease in the market value of a
Fund's portfolio. This is the speculative factor known as leverage.

LOANS OF PORTFOLIO SECURITIES
For the purpose of achieving income, the FIXED-INCOME FUNDS may lend their
portfolio securities, provided: (1) the loan is secured continuously by
collateral consisting of short-term, high quality debt securities, including
U.S. Government securities, negotiable certificates of deposit, bankers'
acceptances or letters of credit, maintained on a daily marked-to-market basis
in an amount at least equal to the current market value of the securities
loaned; (2) the Fund may at any time call the loan and obtain the return of the
securities loaned; (3) the Fund will receive any interest or dividends paid on
the loaned securities; and (4) the aggregate market value of securities loaned
will not at any time exceed one-third of the total assets of the Fund.

WHEN-ISSUED SECURITIES

The BALANCED, INTERNATIONAL, GLOBAL EQUITY and FIXED-INCOME FUNDS may purchase
securities on a when-issued or delayed-delivery basis, generally in connection
with an

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<PAGE> 27

underwriting or other offering. When-issued and delayed-delivery transactions
occur when securities are bought with payment for and delivery of the securities
scheduled to take place at a future time, beyond normal settlement dates,
generally from 15 to 45 days after the transaction. The price that the Fund is
obligated to pay on the settlement date may be different from the market value
on that date. While securities may be sold prior to the settlement date, the
Funds intend to purchase such securities with the purpose of actually acquiring
them, unless a sale would be desirable for investment reasons. At the time the
Fund makes a commitment to purchase a security on a when-issued basis, it will
record the transaction and reflect the value of the security each day in
determining the Fund's net asset value. The Fund will also establish a
segregated account with its custodian in which it will hold cash, U.S.
Government securities, equity securities or other liquid, unencumbered assets,
marked-to-market daily, equal in value to its obligations for when-issued
securities.

SHORT SALES AGAINST-THE-BOX

Each Fund may make short sales of securities (i.e., sales of securities the Fund
does not own) or maintain a short position only if: (1) at all times when the
short position is open, the Fund owns an equal amount of such securities or
securities convertible into or exchangeable for, without payment of any further
consideration, securities of the same issue as, and equal in amount to, the
securities sold short (a short sale "against-the-box"); and (2) not more than
25% of the Fund's net assets (taken at current value) is held as collateral for
such sales at any one time.

REAL ESTATE INVESTMENT TRUSTS

Each Fund may invest in securities of real estate investment trusts or REITs.
Unlike corporations, REITs do not have to pay income taxes if they meet certain
Internal Revenue Code requirements. REITs offer investors greater liquidity and
diversification than direct ownership of properties, as well as greater income
potential than an investment in common stocks. Like any investment in real
estate, though, a REIT's performance depends on several factors, such as its
ability to find tenants for its properties, to renew leases and to finance
property purchases and renovations.

MORTGAGE-RELATED SECURITIES

The BALANCED and FIXED-INCOME FUNDS may invest in mortgage-related securities,
including mortgage pass-through securities and collateralized mortgage
obligations. Mortgage pass-through securities are securities representing
interests in pools of mortgages in which payments of both interest and principal
on the securities are generally made monthly, in effect "passing through"
monthly payments made by the individual borrowers on the residential mortgage
loans which underlie the securities (net of fees paid to the issuer or guarantor
of the securities). For a discussion of certain risks associated with investment
in mortgage-related securities, including their volatility, see "Investment
Risks -- Risks of Investing in Fixed-Income Securities" on page 28.

Payment of principal and interest on some mortgage-related securities (but not
the market value of the securities themselves) may be guaranteed by the full
faith and credit of the U.S. Government (in the case of securities guaranteed by
GNMA) or by agencies or instrumentalities of the U.S. Government (in the case of
securities guaranteed by FNMA or the FHLMC, which are supported only by the
discretionary authority of the U.S. Government to purchase the agency's
obligations). Mortgage pass-through securities created by non-governmental
issuers (such as commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other secondary market
issuers) may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of credit, which
may be issued by governmental entities, private insurers or the mortgage
poolers.

CMOs, including CMOs that have elected to be treated as REMICs, are hybrid
instruments with characteristics of both bonds and mortgage pass-through
securities. Similar to a bond, interest and prepaid principal on a CMO are paid,
in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of securities guaranteed by
GNMA, FHLMC or FNMA or of mortgage pass-through securities

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<PAGE> 28

created by non-governmental issuers. CMOs are structured into multiple classes,
with each class bearing a different stated maturity. Monthly payments of
principal, including prepayments, are first returned to investors holding the
shortest maturity class. Investors holding the longer maturity classes receive
principal only after the first class has been retired.

Other mortgage-related securities include those that directly or indirectly
represent a participation in or are secured by and payable from mortgage loans
on real property, such as CMO residuals, stripped mortgage-backed securities,
variable rate securities (including inverse floaters), or tiered index bonds and
may be structured in classes with rights to receive varying proportions of
principal and interest. Stripped mortgage-backed securities are derivative,
multi-class mortgage securities. The BALANCED and FIXED-INCOME FUNDS may invest
in stripped mortgage-backed securities issued by the U.S. Government, its
agencies and instrumentalities. Stripped mortgage-backed securities are usually
structured with two classes that receive different proportions of the interest
and principal distributions on a pool of mortgage assets. In certain cases, one
class will receive all of the interest (the interest-only or "IO" class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yields to maturity on IOs and POs are sensitive to the rate of
principal repayments (including prepayments) on the related underlying mortgage
assets, and principal payments may have a material effect on yield to maturity.
If the underlying mortgage assets experience greater than anticipated
prepayments of principal, a Fund may not fully recoup its initial investment in
IOs. Conversely, if the underlying mortgage assets experience less than expected
prepayments of principal, the yield on POs could be materially adversely
affected. Such securities will be considered liquid only if so determined in
accordance with guidelines established by the Trustees. The BALANCED and
FIXED-INCOME FUNDS also may invest in stripped mortgage-backed securities that
are privately issued. These securities will be considered illiquid for purposes
of each Fund's limit on illiquid securities.

CMOs and other mortgage-related securities that are issued or guaranteed by the
U.S. Government or by any of its agencies or instrumentalities will be
considered U.S. Government securities for purposes of applying a Fund's
diversification tests. Generally, the entity that has the ultimate
responsibility for the payment of interest and principal on a security is deemed
to be the issuer of an obligation.

OTHER DERIVATIVE INSTRUMENTS

In addition to the asset-backed securities and mortgage-related securities
(including tiered index bonds and inverse floaters) which may be purchased only
by the BALANCED and FIXED-INCOME FUNDS, all Funds may utilize certain other
financial instruments whose performance is derived from the performance of an
underlying asset ("derivatives"). The Funds may purchase and write call and put
options on securities, securities indexes and on foreign currencies, and enter
into futures contracts and use options on futures contracts. The Funds also may
enter into swap agreements with other institutional investors with respect to
foreign currencies, interest rates, and securities indexes. The Funds may use
these techniques to hedge against changes in interest rates, foreign currency
exchange rates or securities prices, for liquidity or as part of their overall
investment strategies. Each Fund will maintain segregated accounts consisting of
cash, U.S. Government securities, equity securities or other liquid,
unencumbered assets, marked-to-market daily (or, as permitted by applicable
regulation, enter into certain offsetting positions), to cover its obligations
under options, futures contracts and swap agreements to avoid leveraging of the
Fund. See "Investment Risks -- Risks of Using Certain Derivatives" on page 29.

The Funds may buy or sell interest rate futures contracts, options on interest
rate futures contracts and options on debt securities for the purpose of hedging
against changes in the value of securities which a Fund owns or anticipates
purchasing due to anticipated changes in interest rates. The Funds also may
engage in currency exchange transactions by means of buying or selling foreign
currency on a spot basis, entering into forward foreign currency exchange
contracts, and buying and selling foreign currency options, futures and options
on futures. Foreign currency exchange transactions may be entered into for the
purpose of hedging against foreign currency exchange

26
<PAGE> 29

risk arising from the Funds' investment or anticipated investment in securities
denominated in foreign currencies. A Fund will not enter into futures contracts
or options thereon for non-hedging purposes if, immediately thereafter, the
aggregate initial margin deposits on the Fund's futures positions and premiums
paid for options thereon would exceed 5% of the liquidation value of the Fund's
total assets. There is no other percentage limitation on a Fund's use of
options, futures and options thereon, except for the limitation on foreign
currency option contracts described below.

Also, the Funds may enter into interest rate, index and currency exchange rate
swap agreements for the purpose of attempting to obtain a particular desired
return at a lower cost to a Fund than if the Fund had invested directly in an
instrument that yielded that desired return. In a standard swap agreement, two
parties agree to exchange the returns (or differentials in rates of return)
earned or realized on a particular predetermined investment or investments. Swap
agreements are subject to the Funds' overall limit that no more than 15% of net
assets may be invested in illiquid securities, and a Fund will not enter into a
swap agreement with any single party if the net amount owed or to be received
under existing contracts with that party would exceed 5% of the Fund's assets.

The Funds may purchase foreign currency options or enter into forward foreign
currency exchange contracts for the purpose of hedging against the effect that
currency fluctuations will have on the value of Fund liabilities, such as known
or expected redemptions or the payment of any declared dividends. During the
coming year, no Fund will enter into foreign currency option contracts if the
premiums on such options exceed 5% of the Fund's total assets. See "Investment
Objectives and Policies -- Derivative Instruments" in the Statement of
Additional Information.

INVESTMENT RISKS
- --------------------------------------------------------------------------------

The investment practices described above involve certain risks. The net asset
value of any of the Funds may increase or decrease for many reasons. These
include changes in the market prices of portfolio securities. This means an
investor's shares may be worth more or less at redemption than at the time of
purchase. The following provides a summary of the more significant risks
associated with investing in the Funds. The Statement of Additional Information
contains more detailed information about these investments and the risks that
are associated with them.

RISKS OF INVESTING IN SMALL AND MID-SIZE COMPANIES

The MID-CAP and SMALL CAP FUNDS invest a significant proportion of their assets
in the securities of small and medium-size companies. Investment in small and
medium-size companies involve greater risk than is customarily associated with
more established companies. These companies often have sales and earnings growth
rates which exceed those of large companies. Such growth rates may in turn be
reflected in more rapid share price appreciation. However, smaller companies
often have limited operating histories, product lines, markets, or financial
resources, and they may be dependent upon one-person management. These companies
may be subject to intense competition from larger entities, and the securities
of such companies may have limited marketability and may be subject to more
abrupt or erratic movements in price than securities of larger companies or the
market averages in general. Therefore, the net asset values of the MID-CAP and
SMALL CAP FUNDS' shares may fluctuate more widely than the popular market
averages.

RISKS OF INVESTING IN EMERGING MARKET AND OTHER FOREIGN SECURITIES
Investments in emerging market and other foreign securities involve certain risk
considerations not typically associated with investing in securities of U.S.
issuers, including: (1) currency devaluations and other currency exchange rate
fluctuations; (2) political uncertainty and instability; (3) more substantial
government involvement in the economy; (4) higher rates of inflation; (5) less
government supervision and regulation of the securities

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<PAGE> 30

markets and participants in those markets; (6) controls on foreign investment
and limitations on repatriation of invested capital and on a Fund's ability to
exchange local currencies for U.S. dollars; (7) greater price volatility; (8)
substantially less liquidity and significantly smaller capitalization of
securities markets; (9) absence of uniform accounting and auditing standards;
(10) generally higher commission expenses; (11) delay in settlement of
securities transactions; and (12) greater difficulty in enforcing shareholder
rights and remedies.

RISKS OF INVESTING IN
FIXED-INCOME SECURITIES
The Funds which invest in fixed-income securities are subject primarily to
interest rate and credit risk. Interest rate risk is the potential for a decline
in bond prices due to rising interest rates. In general, bond prices vary
inversely with interest rates. The change in bond price depends on several
factors, including the bond's maturity date. In general, bonds with longer
maturities are more sensitive to changes in interest rates than bonds with
shorter maturities. Credit risk is the possibility that a bond issuer will fail
to make timely payments of interest or principal to a Fund.

Each of the FIXED-INCOME FUNDS may invest in longer-term fixed-income
securities. Under normal circumstances, the SHORT-TERM INVESTMENT FUND will
invest in long-term fixed-income securities only if the securities amortize,
have call provisions or otherwise have characteristics which cause the effective
maturity and duration of the securities to be significantly less than typical
long-term securities. If interest rates rise while the Fund holds these
securities, the effective maturity and duration of such securities may increase
substantially, which could require the Fund to sell the securities at losses in
order to maintain its targeted duration and dollar-weighted average effective
maturity.

The BALANCED and FIXED-INCOME FUNDS may invest in mortgage- and asset-backed
securities. The yield characteristics of mortgage- and asset-backed securities
differ from traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if a Fund
purchases such a security at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Alternatively, if a Fund purchases these securities at a discount, faster than
expected prepayments will increase yield to maturity, while slower than expected
prepayments will reduce yield to maturity. Although the extent of prepayments on
a pool of mortgage loans depends on various economic and other factors, as a
general rule, prepayments on fixed-rate mortgage loans will increase during a
period of falling interest rates and decrease during a period of rising interest
rates. Asset-backed securities, although less likely to experience the same
prepayment rates as mortgage-backed securities, may respond to certain of the
same factors influencing prepayments, while at other times different factors
will predominate. Mortgage- and asset-backed securities may decrease in value as
a result of increases in interest rates and may benefit less than other
fixed-income securities from declining interest rates because of the risk of
prepayment.

The BALANCED and FIXED-INCOME FUNDS may invest in stripped mortgage- or
asset-backed securities, which receive differing proportions of the interest and
principal payments from the underlying assets. The market value of such
securities generally is more sensitive to changes in prepayment and interest
rates than is the case with traditional mortgage- and asset-backed securities,
and in some cases the market value may be extremely volatile. With respect to
certain stripped securities, such as interest only ("IO") and principal only
("PO") classes, a rate of prepayment that is faster or slower than anticipated
may result in a Fund failing to recover all or a portion of its investment, even
though the securities are rated investment grade. Certain of the stripped
mortgage- and asset-backed securities held by the Funds are considered to be
illiquid under guidelines established by the Trustees.

The FIXED-INCOME FUNDS and, to a limited extent, the EQUITY INCOME and SMALL CAP
FUNDS may invest a portion of their assets in non-investment grade debt
securities, commonly referred to as "junk bonds." Low-rated and comparable
unrated securities, while generally offering

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<PAGE> 31

higher yields than investment grade securities with similar maturities, involve
greater risks, including the possibility of default or bankruptcy. They are
regarded as speculative with respect to the issuer's capacity to pay interest
and to repay principal. The market values of certain of these securities tend to
be more sensitive to individual corporate development and changes in economic
conditions than higher quality bonds. In addition, low-rated and comparable
unrated securities tend to be less marketable than higher-quality debt
securities because the market for them is not as broad or active. The lack of a
liquid secondary market may have an adverse effect on market price and a Fund's
ability to sell particular securities.

RISKS OF USING CERTAIN DERIVATIVES
Participation in the options or futures markets involves investment risks and
transaction costs to which a Fund would not be subject absent the use of these
strategies. If the Advisor's predictions of movements in the direction of the
securities and interest rate markets are inaccurate, the adverse consequences to
a Fund may leave the Fund in a worse position than if such strategies were not
used. Risks inherent in the use of options, futures contracts and options on
futures contracts include: (1) dependence on the Advisor's ability to predict
correctly movements in the direction of interest rates and securities prices;
(2) imperfect correlation between the price of options and futures contracts and
options thereon and movements in the prices of the securities being hedged; (3)
the fact that skills needed to use these strategies are different from those
needed to select portfolio securities; (4) the absence of a liquid secondary
market for any particular instrument at any time; (5) the possible need to defer
closing out certain hedged positions to avoid adverse tax consequences; and (6)
the possible inability of a Fund to purchase or sell a portfolio security at a
time that otherwise would be favorable for it to do so, or the possible need for
the Fund to sell the security at a disadvantageous time, due to the requirement
that the Fund maintain "cover" or segregate securities in connection with
hedging transactions. The loss from investing in futures transactions is
potentially unlimited. There also is no assurance that a liquid secondary market
will exist for futures contracts and options thereon in which a Fund may invest.
See "Investment Objectives and Policies -- Derivative Instruments" in the
Statement of Additional Information.

PRINCIPAL INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------

Each Fund is subject to certain investment restrictions which are fundamental
policies. Fundamental policies are those that cannot be changed without the
approval of a majority (as defined in the 1940 Act) of that Fund's outstanding
voting securities. Each Fund's investment objective is a fundamental policy.
Among its restrictions, a Fund may not (1) with respect to 75% of its total
assets, invest more than 5% of its total assets (determined at the time of
investment) in securities of any one issuer (other than U.S. Government
securities); (2) with respect to 75% of its total assets, purchase more than 10%
of the outstanding voting securities of any one issuer; or (3) invest more than
25% of its total assets (determined at the time of investment) in one or more
issuers having principal business activities in a single industry. Additional
information about each Fund's investment restrictions is contained in the
Statement of Additional Information. It is the position of the Securities and
Exchange Commission that open-end investment companies such as the Funds should
not make certain investments if thereafter more than 15% of the value of their
net assets would be invested in illiquid securities. As a matter of operating
policy (though not a fundamental policy), the Funds limit such investments to no
more than 15% of the value of their net assets. The investments in this 15%
limit include: (1) those which are restricted, i.e., those which cannot freely
be sold for legal or contractual reasons; (2) fixed time deposits subject to
withdrawal penalties (other than overnight deposits); and (3) repurchase
agreements having a maturity of more than seven days. The 15% limitation does
not include obligations which are payable at principal amount plus accrued
interest within seven days after purchase.

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<PAGE> 32

ORGANIZATION AND MANAGEMENT
- --------------------------------------------------------------------------------

ORGANIZATION AND VOTING RIGHTS

The Trust was organized on August 22, 1984 as a Massachusetts business trust. It
is a diversified, open-end, management investment company currently consisting
of ten separate series. The Trust's Board of Trustees decides on matters of
general policy and reviews the activities of the Advisor, and the Trust's
officers conduct and supervise the daily business operations of the Trust. Each
Fund is a series of shares, each having separate assets and liabilities, of the
Trust. The Board of Trustees may, at its own discretion, create additional
series of shares and classes within series.

Generally, the Funds will not hold an annual meeting of shareholders unless
required by the 1940 Act. Shareholders have one vote per share owned. Matters
submitted to shareholders must be approved by a majority of the outstanding
securities of each Fund, unless it is clear that the interests of each Fund in
the matter are identical or the matter does not affect a Fund. At the request of
the holders of at least 10% of the shares, the Trust will hold a meeting to vote
on the removal of a Trustee, which can occur by a vote of a majority of the
outstanding shares. Ten shareholders holding the lesser of $25,000 worth or one
percent of a Fund's shares may advise the Trustees in writing that they wish to
communicate with other shareholders for the purpose of requesting a meeting to
remove a Trustee. The Trustees will then, if requested by the applicants, mail
at the applicants' expense the applicants' communications to all other
shareholders.

THE INVESTMENT ADVISOR

HOTCHKIS AND WILEY, located at 800 West 6th Street, Los Angeles, California
90017, acts as investment advisor to the Funds and generally administers the
affairs of the Trust. The Advisor is a division of Merrill Lynch Asset
Management, L.P. Subject to the direction and control of the Board of Trustees,
the Advisor supervises and arranges the purchase and sale of securities held in
the portfolios of the Funds.

For the services of the Advisor to the Funds other than the FIXED-INCOME FUNDS,
the Advisor is paid a fee, computed daily and payable monthly, at an annual rate
of 0.75% of each Fund's average daily net assets.

The Advisor is paid a fee, computed daily and payable monthly, at an annual rate
of 0.55% of the TOTAL RETURN BOND FUND'S average daily net assets.

The Advisor is paid a fee, computed daily and payable monthly, at an annual rate
of 0.46% of the LOW DURATION FUND'S average daily net assets.

The Advisor is paid a fee, computed daily and payable monthly, at an annual rate
of 0.40% of the SHORT-TERM INVESTMENT FUND'S average daily net assets under
$100,000,000, 0.35% of the Fund's average daily net assets from $100,000,000
through $249,999,999, 0.30% of the Fund's average daily net assets from
$250,000,000 through $499,999,999, and 0.25% of the Fund's average daily net
assets over $500,000,000.

In addition to the fee payable to the Advisor, each Fund is responsible for its
operating expenses including: (1) interest and taxes; (2) brokerage commissions;
(3) insurance premiums; (4) compensation and expenses of the Trust's Trustees
other than those affiliated with the Advisor; (5) legal and audit expenses; (6)
fees and expenses of the Fund's custodian and any subcustodian, shareholder
servicing or transfer agent and accounting services agent; (7) expenses incident
to the issuance of its shares, including issuance on the payment of, or
reinvestment of, dividends; (8) fees and expenses incident to the registration
under federal or state securities laws of the Trust or its shares; (9) expenses
of preparing, printing and mailing reports and notices and proxy material to
shareholders of the Trust; (10) all other expenses incident to holding meetings
of the Trust's shareholders; (11) dues or assessments of or contributions to the
Investment Company Institute or any successor; and (12) such non-recurring
expenses as may arise, including litigation affecting the Trust and the legal
obligations which the Trust may have to indemnify its officers and Trustees with
respect thereto.

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<PAGE> 33

Although not required to do so, the Advisor has agreed to reimburse each Fund to
the extent necessary so that the regular annual operating expenses of a Fund
(other than the FIXED-INCOME FUNDS) will not exceed 1% of the Fund's average
daily net assets. The Advisor has agreed to limit the regular annual operating
expenses of the TOTAL RETURN BOND FUND to 0.65%, the LOW DURATION FUND to 0.58%
and the SHORT-TERM INVESTMENT FUND to 0.48% of each Fund's average daily net
assets. The Advisor will give shareholders at least 30 days' notice of any
decision to change this reimbursement policy.

The Advisor also manages individual investment advisory accounts. The Advisor
credits the fees charged to individual advisory accounts by the amount of the
investment advisory fee and expenses charged to that portion of the client's
assets that are invested in any Fund.

The Advisor is allowed to allocate brokerage based on sales of shares of funds
managed by the Advisor but has not done so yet.

SUBADVISORS

The Advisor has entered into subadvisory agreements with Mercury Asset
Management International and Merrill Lynch Asset Management U.K. Limited,
affiliated investment advisors that are indirect subsidiaries of Merrill Lynch &
Co., Inc. The subadvisory arrangements are for investment research,
recommendations and other investment related services to be provided to the
INTERNATIONAL and GLOBAL EQUITY FUNDS at rates of compensation as may be agreed
by the parties. There is no increase in the aggregate fees paid by these Funds
for such services.

THE ADMINISTRATOR
Firstar Trust Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202,
serves as administrator to the Trust pursuant to a Fund Administration Servicing
Agreement.

PORTFOLIO MANAGERS
The portfolio managers have responsibility for the day-to-day management of the
Funds' portfolios.

EQUITY INCOME FUND
The current portfolio managers of the Equity Income Fund are Gail Bardin and
Sheldon Lieberman. Ms. Bardin is a managing director of the Advisor. She began
co-managing the Fund in April 1994. Ms. Bardin has been a portfolio manager of
the Advisor since 1988. Mr. Lieberman joined the Advisor in 1994 and began co-
managing the Fund in August 1997. Prior to joining the Advisor, Mr. Lieberman
was the Chief Investment Officer for the Los Angeles County Employees Retirement
Association.

MID - CAP FUND
The current portfolio managers of the MID-CAP FUND are Michael Baxter and Jim
Miles. They have served as portfolio managers of the Fund since its inception in
January 1997. Mr. Baxter is a managing director and has been a portfolio manager
of the Advisor since 1990. Mr. Miles is a portfolio manager and joined the
Advisor in May 1995. Prior to joining the Advisor, Mr. Miles was with BT
Securities Corporation (an affiliate of Bankers Trust New York Corporation) as
vice president in the BT Securities Finance Group from 1988 to 1995.

SMALL CAP FUND
The current portfolio managers of the SMALL CAP FUND are Jim Miles and David
Green. Mr. Miles began co-managing the Fund in May 1995 when he joined the
Advisor. Mr. Miles' background is described under "MID-CAP FUND" above. Mr.
Green joined the Advisor in 1997. Prior to joining the Advisor, Mr. Green was
associated with Goldman Sachs Asset Management, where he had worked as an
investment analyst from November 1995. Prior to that, he was an investment
manager and analyst with Prudential Investment Advisors.

INTERNATIONAL FUND
The current portfolio managers of the INTERNATIONAL FUND are Sarah Ketterer,
Harry Hartford and David Chambers. Ms. Ketterer is a managing director of the
Advisor and has served as portfolio manager of the Fund since its inception in
October 1990. Prior to joining the Advisor, Ms. Ketterer was with Bankers Trust
Company as an Associate from 1987 to 1990 and a Financial Analyst with Dean
Witter Reynolds from 1983 to 1985. Mr. Hartford has served as a portfolio
manager of the Fund since May 1994. Prior to joining the Advisor, Mr. Hartford
was with the Investment Bank of Ireland as a Senior Manager, International and
Global Equities, from

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<PAGE> 34

1985 to 1994. Mr. Chambers has served as a portfolio manager of the Fund since
October 1996. He has been associated with Mercury Asset Management International
in London since July 1998. Prior to joining the Advisor, Mr. Chambers was with
Baring Asset Management, Inc. as Senior Vice President, Global Equities from
1992 to 1995 and Baring Brothers, London, England as Assistant Director,
Corporate Finance from 1990 to 1991.

GLOBAL EQUITY FUND
The current portfolio managers of the GLOBAL EQUITY FUND are Sarah Ketterer and
Patricia McKenna. They have served as portfolio managers of the Fund since its
inception in January 1997. Ms. Ketterer's background is described under
"INTERNATIONAL FUND" above. Prior to joining the Advisor in July 1995, Ms.
McKenna was with Trust Company of the West as an Equity Research Analyst from
1992 to 1995 and Fieldstone Private Capital Group where she was responsible for
structuring private placements and tax leases from 1990 to 1992.

BALANCED FUND

The current portfolio managers of the BALANCED FUND are Roger DeBard and Michael
Sanchez. Mr. DeBard has responsibility for the day-to-day management of the
equity portion of the Fund's portfolio. Mr. DeBard is a managing director of the
Advisor and has served as portfolio manager of the Fund since its inception in
August 1985. Mr. DeBard and Mr. Sanchez have responsibility for the day-to-day
management of the fixed-income portion of the Fund's portfolio. Mr. Sanchez has
served as a portfolio manager of the Fund since joining the Advisor in August
1996. Prior to joining the Advisor, Mr. Sanchez was with Provident Investment
Counsel as a Senior Vice President and portfolio manager from 1991 to 1995 and
with ARCO Investment Management Company as Director of Fixed Income Investments
from 1988 to 1991.

FIXED-INCOME FUNDS

The current portfolio managers of the FIXED-INCOME FUNDS are Roger DeBard,
Michael Sanchez and John Queen. Mr. DeBard and Mr. Sanchez have served as
portfolio managers for the Funds since August 1996 and their backgrounds are
described under "BALANCED FUND". Mr. Queen joined the Advisor in 1997. Prior to
joining the Advisor, Mr. Queen was associated with the Capital Group as a member
of an analyst team responsible for $8 billion in fixed-income assets.

HOW TO PURCHASE SHARES
- --------------------------------------------------------------------------------

The minimum initial investment in each Fund is $10,000. There is no minimum
subsequent investment. The Trust reserves the right to waive its minimum
investment requirements.

INVESTING BY WIRE
Investors may invest in any Fund by wiring the amount to be invested to HOTCHKIS
AND WILEY FUNDS in care of Firstar Trust Company ("Transfer Agent"), at the
following address:

Firstar Bank
ABA #0750-00022
For credit to Firstar Trust Company
Account #112-952-137
For further credit to HOTCHKIS AND WILEY FUNDS
[Name of Fund]
Account # [Shareholder account number]

Prior to wiring any funds, the shareholder should call 800-236-4479 to notify
the Trust of the wire to insure proper credit when the wire is received. If the
wire represents an initial investment, the investor should mail an application
form to the Transfer Agent by regular mail to:

Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701

or by express, registered or certified mail to:

Firstar Trust Company
615 East Michigan Avenue, 3rd Floor
Milwaukee, Wisconsin 53202

Funds wired to the applicable Fund account and received by the Transfer Agent
before the close of the New York Stock Exchange (currently 4:00 p.m., Eastern
Time) are considered received on that day.

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<PAGE> 35

INVESTING BY MAIL
Investors may also purchase shares by sending a check or money order payable to
HOTCHKIS AND WILEY FUNDS, together with the application form to the address
above.

Checks should be drawn on a U.S. bank and must be payable in U.S. dollars.
Shares of a Fund will be purchased for the account of the investor at the net
asset value next determined after receipt of the investor's check or money
order. The Trust will not accept cash, drafts or third party checks. If a check
is not honored by the investor's bank, the investor will be liable for any loss
sustained by the Fund, as well as a service charge imposed by the Transfer Agent
in the amount of $20. Forms for additional contributions by check or change of
address are provided on account statements, or by calling 800-236-4479.

AUTOMATIC INVESTMENT PLAN (AIP)

The Trust offers an AIP whereby a shareholder may purchase shares on a regular
scheduled basis ($50 minimum per transaction up to four times per month.) Under
the AIP, the shareholder's designated bank account is debited a preauthorized
amount and applied to purchase shares. The financial institution must be a
member of the ACH network. There is no charge for this service. A $20 fee will
be charged by the transfer agent if there are unavailable or insufficient funds
in the account at the time of the scheduled transaction. The program will
automatically terminate upon redemption of all shares in an account.

ADDITIONAL INFORMATION ABOUT INVESTMENT PURCHASES
The Trust may also accept orders from certain qualified institutions, with
payment made to the Fund at a later time. The Advisor is responsible for
insuring that such payment is made on a timely basis. A broker-dealer which
effects such a purchase for an investor may charge the investor a reasonable
service fee, no part of which will be paid to the Fund or the Advisor.

The Advisor may make payments out of its own resources to dealers and other
persons who distribute shares of the Funds.

The Trust does not consider the U.S. Postal Service or other independent
delivery services to be its agents. Therefore, deposits in the mail or with such
services does not constitute receipt by the Transfer Agent.

The Funds will price purchase orders for Fund shares at the net asset value next
determined after the transaction request is received in good order by the
Transfer Agent or an authorized financial institution or its sub-delegate.

The Trust reserves the right to suspend the offering of shares for a period of
time, and it reserves the right to reject any specific purchase order.

Shareholder inquiries should be directed to the Trust at 800-236-4479.

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<PAGE> 36

HOW TO REDEEM SHARES
- --------------------------------------------------------------------------------

REDEEMING BY MAIL

A shareholder wishing to redeem shares may do so at any time by delivering
written instructions by regular mail to the Transfer Agent at:

Firstar Trust Company

P.O. Box 701

Milwaukee, Wisconsin 53201-0701

or by express, registered or certified mail to:

Firstar Trust Company

615 East Michigan Avenue, 3rd Floor

Milwaukee, Wisconsin 53202.

The redemption request should identify the Fund, the account name, the account
number, the number of shares or dollar amount to be redeemed and be signed by
all registered owners exactly as the account is registered. The redemption
request will not be accepted unless it contains all required documents in proper
form, as described below. If the request is in proper form, the shares will be
redeemed at the net asset value next determined after receipt of the request by
the Transfer Agent. Investors who have an Individual Retirement Account ("IRA")
must indicate on their redemption requests whether or not federal income tax
should be withheld. Redemption requests failing to make an election will be
subject to withholding at a rate of 10%.

REDEEMING BY TELEPHONE
You may redeem shares (minimum of $1,000 per transaction) by telephone and have
the proceeds wired to the bank account or mailed to the address as stated on the
Transfer Agent's records. In order to redeem by telephone, you must select the
appropriate box on the account application and shares must be held in
non-certificate form. In order to arrange for telephone redemptions after an
account has been opened or to change the bank account or address designated to
receive redemption proceeds, a written request must be sent to the Trust. The
request must be signed by each shareholder of the account, with the signatures
guaranteed as described below. Once this feature has been requested, shares may
be redeemed by calling Investor Services at 800-236-4479 and giving the account
name, account number, and amount of redemption. Joint accounts require only one
of the shareholders to telephone. A signature guarantee is required for any
redemption where the account address has been changed within the prior 15 days.

If an investor redeems shares by telephone and requests wire payment, payment of
the redemption proceeds will normally be made in federal funds on the next
business day provided that the redemption order is received by the Transfer
Agent before 3:00 p.m. (Central time).

PROPER FORM

If any shares being redeemed are represented by share certificates, the
certificates must be returned. The certificates must either be properly endorsed
or accompanied by a stock power signed by the registered owners, with signatures
guaranteed. If the proceeds of any redemption: (1) exceed $50,000; (2) are paid
to a person other than the record owner; (3) are sent to an address or bank
account other than as shown on the Transfer Agent's records, or to an address
that has been changed within the prior 15 days; or (4) are paid to a
corporation, a partnership, trust or fiduciary, the signatures on the redemption
request and on the certificates, if any, must be guaranteed. You may obtain a
signature guarantee from: (1) a bank which is a member of the FDIC; (2) a trust
company; (3) a member firm of a national securities exchange; or (4) another
eligible guarantor institution. Guarantees must be signed by an authorized
signatory of the guarantor institution and be accompanied by the words
"Signature Guaranteed." The Transfer Agent will not accept signature guarantees
from notaries public. Additional documents may be required from corporations or
other organizations, fiduciaries or anyone other than the shareholder of record.
Any questions concerning documents needed should be directed to 800-236-4479.

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<PAGE> 37

PAYMENTS
After the Transfer Agent has received the redemption request and all proper
documents, payment for shares tendered will generally be made within three
business days. Payment may be delayed under circumstances specified in the 1940
Act. Payment will be sent only to shareholders at the address of record. In
addition, if the shares being redeemed were purchased by check, the Trust
reserves the right to delay up to 12 days payment of the redemption proceeds
until it is satisfied that the check has been honored by the investor's bank.

The Funds will price redemption orders for Fund shares at the net asset value
next determined after the transaction request is received in good order by the
Transfer Agent or an authorized financial institution or its sub-delegate.

If the redemption proceeds are to be mailed or wired to the shareholder's bank
account, the bank must be a commercial bank located within the United States.

ADDITIONAL INFORMATION ABOUT REDEMPTIONS
The redemption privilege may be modified or terminated at any time on thirty
days' notice to shareholders. In an effort to prevent unauthorized or fraudulent
redemption requests by telephone, the Trust and the Transfer Agent employ
reasonable procedures specified by the Funds to confirm that such instructions
are genuine. Among the procedures used to determine authenticity, investors
electing to redeem or exchange by telephone will be required to provide their
account number. All such telephone transactions will be tape recorded and
confirmed in writing to the shareholder. The Trust may implement other
procedures from time to time. If reasonable procedures are not implemented, the
Trust and/or the Transfer Agent may be liable for any loss due to unauthorized
or fraudulent transactions. IN ALL OTHER CASES, THE SHAREHOLDER IS LIABLE FOR
ANY LOSS FOR UNAUTHORIZED TRANSACTIONS.

In periods of severe market or economic conditions, the telephone redemption of
shares may be difficult to implement and shareholders should redeem shares by
writing to the Transfer Agent at the address listed above. If for any other
reason a shareholder is unable to redeem by telephone, shareholders should
redeem shares by writing to the Transfer Agent at the address shown on page 36.

REDEMPTION IN KIND
If the Board of Trustees determines that it would be detrimental to the best
interests of the remaining shareholders of any Fund to make payment wholly in
cash, the Fund may pay the redemption price in part by a distribution in kind of
readily marketable securities from the portfolio of that Fund, in lieu of cash.
The Trust has elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which each Fund is obligated to redeem shares solely in cash up to the lesser
of $250,000 or one percent of the net asset value of the Fund during any 90 day
period for any one shareholder. Should redemptions by any shareholder exceed
such limitation the Fund will have the option of redeeming the excess in cash or
in kind. If shares are redeemed in kind, the redeeming shareholder would incur
brokerage costs in converting the assets into cash.

REDEMPTION OF SMALL ACCOUNTS
The Board of Trustees may redeem all of the shares of any shareholder whose
account has declined to a net asset value of less than $1,000, as a result of a
transfer or redemption, at the net asset value determined as of the close of
business on the business day preceding the sending of the proceeds of such
redemption. The Trust would give shareholders whose shares were being redeemed
60 days' prior written warning in which to purchase sufficient shares to avoid
such redemption.

REPURCHASES
The Trust may accept orders for the repurchase of its shares from certain
qualified institutions. Such an institution may charge the shareholder a fee for
its services. The Trust may also waive or modify its requirements as to proper
form for such institutions.

WITHHOLDING
The Funds may be required to withhold federal income tax, at a rate of 31%, from
proceeds of redemptions, if the shareholder is subject to backup withholding.
Failure to provide a certified tax identification number at the time an account
is opened will cause tax to be withheld.

35
<PAGE> 38

HOW TO EXCHANGE SHARES
- --------------------------------------------------------------------------------

Shareholders are permitted to exchange their shares in a Fund for shares of
other Funds in the Trust, provided that such shares may legally be sold in the
state of the investor's residence. Shares subject to an exchange must have a
current value of at least $1,000.

BY MAIL

A shareholder wishing to exchange shares may do so at any time by delivering
written instructions by regular mail to the Transfer Agent at:

Firstar Trust Company

P.O. Box 701

Milwaukee, Wisconsin 53201-0701

or by express, registered or certified mail to:

Firstar Trust Company

615 East Michigan Avenue, 3rd Floor

Milwaukee, Wisconsin 53202.

The exchange request should identify the account name, account number and the
number of shares to be exchanged. The exchange request should be signed by all
registered owners exactly as the account is registered.

BY TELEPHONE
Shareholders are permitted to exchange their shares in a Fund for shares of
other Funds in the Trust by telephone provided that the shareholder has selected
the appropriate box on the Account Application, and shares are held in
non-certificate form. Telephone exchange requests should be directed to Investor
Services at 800-236-4479. In order to arrange for telephone exchange after an
account has been opened, a written request must be sent to the Transfer Agent at
its address listed above. The request must be signed by each shareholder of the
account, with the signatures guaranteed as described above. In order to request
an exchange by telephone, an investor must give the account name, account number
and the amount or number of shares to be exchanged.

ADDITIONAL INFORMATION ABOUT INVESTMENT EXCHANGES

For purposes of processing exchanges, the value of the shares redeemed and the
value of shares acquired are the net asset values of such shares next determined
after the transaction request is received in good order by the Transfer Agent or
an authorized financial institution or its sub-delegate. An exchange of shares
is treated for federal income tax purposes as a redemption (sale) of shares
given in exchange by the shareholder and an exchanging shareholder may,
therefore, realize a taxable gain or loss in connection with the exchange.

The Funds reserve the right to reject any exchange request and the exchange
privilege may be modified or terminated at any time on 30 days' notice to
shareholders. In periods of severe market or economic conditions, the telephone
exchange of shares may be difficult to implement and shareholders should redeem
shares by writing to the Transfer Agent at the address listed above.

In an effort to prevent unauthorized or fraudulent exchange requests by
telephone, the Trust and the Transfer Agent employ reasonable procedures
specified by the Funds to confirm that such instructions are genuine. Among the
procedures used to determine authenticity, investors electing to exchange by
telephone will be required to provide their account number. All such telephone
transactions will be tape recorded and confirmed in writing to the shareholder.
The Trust may implement other procedures from time to time. If reasonable
procedures are not implemented, the Trust and/or the Transfer Agent may be
liable for any loss due to unauthorized or fraudulent transactions. IN ALL OTHER
CASES, THE SHAREHOLDER IS LIABLE FOR ANY LOSS FOR UNAUTHORIZED TRANSACTIONS.

36
<PAGE> 39

DIVIDENDS AND TAX STATUS
- --------------------------------------------------------------------------------

The SMALL CAP FUND expects to declare and pay income dividends annually; the
EQUITY INCOME and BALANCED FUNDS expect to declare and pay income dividends
quarterly; the MID-CAP, INTERNATIONAL and GLOBAL EQUITY FUNDS expect to declare
and pay income dividends semi-annually; and the FIXED-INCOME FUNDS expect to
declare and pay income dividends monthly.

Distributions from net realized short-term gains, if any, and distributions from
any net capital gains (i.e., the excess of net long-term capital gains over net
short-term capital losses) realized through October 31st of each year and not
previously paid out will be paid out after that date; each Fund may also pay
supplemental distributions after the end of the Trust's fiscal year. Dividends
and distributions are paid in full and fractional shares of each Fund based on
the net asset value per share at the close of business on the record date,
unless the shareholder requests, in writing to the Trust, payment in cash. The
Trust will notify each shareholder after the close of its fiscal year of both
the dollar amount and the tax status of that year's distributions.

If an investor elects to receive distributions by check and the US Postal
Service is unable to deliver the check, or if such check remains uncashed for
six months, the Fund(s) reserves the right to reinvest the check at the then
current net asset value per share and to reinvest all subsequent distributions
in shares of the Fund(s) until we are notified with different instructions.

Each Fund has qualified as a regulated investment company during the last
taxable year, and each intends to do so in the future. Each Fund is taxed as a
separate entity under Subchapter M and qualifies on a separate basis. If so
qualified, each Fund will not be subject to federal income taxes on its net
investment income and capital gains, if any, realized during any fiscal year
which it distributes to its shareholders provided that at least 90% of its net
investment income earned in the fiscal year is distributed.

All dividends from net investment income together with distributions of net
short-term gains (collectively, "income dividends"), will be taxable as ordinary
income to the shareholders even though paid in additional shares. Any net
capital gains ("capital gains distributions") distributed to shareholders are
taxable as long-term capital gains to the shareholders regardless of the length
of time a shareholder has owned his shares.

The Code provides for a dividends-received deduction (the "deduction") by
corporations. Special provisions are contained in the Code as to the eligibility
of dividends for the deduction. The basic test under the Code for determining
the extent to which the dividends paid by each Fund are eligible for the
deduction is the extent to which the Fund's income is derived from qualifying
dividends received from domestic corporations. See "Dividends and Tax Status" in
the Statement of Additional Information for additional information about the
deduction.

Dividends and interest received by a Fund may be subject to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the U.S. may reduce or eliminate these foreign taxes, and foreign
countries generally do not impose taxes on capital gains on investments by
foreign investors. If more than 50% of the value of the INTERNATIONAL and GLOBAL
EQUITY FUNDS' total assets at the close of their taxable year consists of
securities of foreign corporations, the Funds may elect to enable shareholders
of the Funds to receive the benefit of the foreign tax credit with respect to
any foreign income taxes paid by the Funds.

Any gain or loss realized upon a sale or redemption of Fund shares by a
shareholder who is not a dealer in securities generally will be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. Any such loss, however,
on shares that are held for six months or less will be treated as long-term
capital loss to the extent of any capital gain distributions received by the
shareholder.

The Funds may be required to impose backup withholding at a rate of 31% from
income dividends and capital gains distributions and upon payment of redemption
proceeds if provisions of the law relating to the furnishing and certification
of taxpayer identification numbers and reporting of dividends are not complied
with by a shareholder.

37
<PAGE> 40

NET ASSET VALUE
- --------------------------------------------------------------------------------

The net asset value per share of each Fund is determined on each day that the
New York Stock Exchange is open for trading, as of the close of regular trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time). The net
asset value per share is the value of the Fund's assets, less its liabilities,
divided by the number of shares of the Fund outstanding. The value of a Fund's
portfolio securities is determined on the basis of the market value of such
securities or, if market quotations are not readily available, at fair value
under guidelines established by the Trustees. Short-term investments maturing in
less than 60 days are valued at amortized cost. See "Net Asset Value" in the
Statement of Additional Information for further information.

PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------

From time to time the Funds may quote average annual total return ("standardized
return") in advertisements or promotional materials. Advertisements and
promotional materials reflecting standardized return ("performance
advertisements") will show percentage rates reflecting the average annual change
in the value of an assumed initial investment in a Fund at the end of one, five
and ten year periods. If such periods have not yet elapsed, data will be given
as of the end of a shorter period corresponding to the duration of the Fund.
Standardized return assumes the reinvestment of all dividends and capital gain
distributions.

The FIXED-INCOME FUNDS also may refer in advertising and promotional materials
to yield. The Funds' yield shows the rate of income that a Fund earns on its
investments, expressed as a percentage of the net asset value of Fund shares. A
Fund calculates yield by determining the interest income it earned from its
portfolio investments for a specified thirty-day period (net of expenses),
dividing such income by the average number of Fund shares outstanding, and
expressing the result as an annualized percentage based on the net asset value
at the end of that thirty-day period. Yield accounting methods differ from the
methods used for other accounting purposes; accordingly, a Fund's yield may not
equal the dividend income actually paid to investors or the income reported in
the Fund's financial statements.

In addition to standardized return, performance adver-tisements also may include
other total return performance data ("non-standardized return").
Non-standardized return may be quoted for the same or different periods as those
for which standardized return is quoted and may consist of aggregate or average
annual percentage rate of return, actual year by year rates or any combination
thereof. Further performance information is contained in the Funds' annual
reports to shareholders, which may be obtained without cost.

All data included in performance advertisements will reflect past performance
and is not indicative of future results. The investment return and principal
value of an investment in a Fund will fluctuate, and an investor's proceeds upon
redeeming Fund shares may be more or less than the original cost of the shares.

GENERAL INFORMATION
- --------------------------------------------------------------------------------

The Declaration of Trust contains an express disclaimer of shareholder liability
for the Trust's acts or obligations and requires that notice of such disclaimer
be given in each agreement, obligation or instrument entered into or executed by
the Trust or its Trustees. The Declaration of Trust provides for indemnification
and reimbursement of expenses

38
<PAGE> 41

out of the Trust's property for any shareholder held personally liable for its
obligations. While Massachusetts law permits a shareholder of a trust such as
this to be held personally liable as a partner under certain circumstances, the
risk of a shareholder incurring financial loss on account of shareholder
liability is highly unlikely and is limited to the relatively remote
circumstances in which the Trust would be unable to meet its obligations.

Common expenses incurred by the Trust are allocated among the Funds based upon:
(1) relative net assets; (2) as incurred on a specific identification basis; or
(3) evenly among the Funds, depending on the nature of the expenditure.

Except for (1) changes which do not adversely affect the rights of Trust
shareholders; (2) a change in the name of the Trust, or a series or class
thereof; (3) authorization of a new series or class; (4) changes to supply any
omission or correct any ambiguous or defective provision; or (5) changes
required by any federal or state or similar regulatory authority or required by
the Code to eliminate or reduce any federal, state or local taxes which may be
payable by a Fund or its shareholders, no amendment may be made to the
Declaration of Trust without the affirmative vote of the holders of at least 67%
of the Trust's outstanding shares at a meeting at which more than 50% of its
outstanding shares are present in person or represented by proxy. The holders of
shares have no preemptive or conversion rights. Shares when issued are fully
paid and non-assessable, except as set forth above.

The Trust's custodian is Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202 and its subcustodian for foreign securities is The
Chase Manhattan Bank, N.A., Four Chase MetroTech Center, Brooklyn, New York
11245.

As of July 31, 1998, Merrill Lynch Retirement Plans owned 35.14% of the MID-CAP
FUND and may be deemed to be a controlling person of that Fund. As of July 31,
1998, John F. Hotchkis owned 32.67% of the GLOBAL EQUITY FUND and may be deemed
to be a controlling person of that Fund. As of July 31, 1998, Mac & Co. owned
27.48% of the BALANCED FUND and may be deemed to be a controlling person of that
Fund.

EUROPEAN ECONOMIC AND MONETARY UNION ("EMU")

Certain European countries have agreed to enter into EMU in an effort to, among
other things, reduce barriers between countries, increase competition among
companies, reduce government subsidies in certain industries, and reduce or
eliminate currency fluctuations among these countries. Among other things, EMU
establishes a single common European currency (the "euro") that will be
introduced on January 1, 1999 and is expected to replace the existing national
currencies of all EMU participants by July 1, 2002. Upon introduction of the
euro, certain securities (beginning with government and corporate bonds) will be
redenominated in the euro, and, thereafter, will be listed, traded, declare
dividends, and make other payments only in euros. Although EMU is generally
expected to have a beneficial effect, it could negatively affect the
INTERNATIONAL and GLOBAL EQUITY FUNDS in a number of situations, including as
follows:

- - If the euro, or EMU as a whole, does not take effect as planned, the Funds'
investments could be adversely affected. For example, sharp currency
fluctuations, exchange rate volatility, and other disruptions of the markets
could occur.

- - Withdrawal from EMU by a participating country could also have a negative
effect on the Funds' investments, for example if securities redenominated in
euros are transferred back into that country's national currency.

- - Computer, accounting, and trading systems must be capable of recognizing the
euro as a distinct currency. Like other investment companies and business
organizations, the Funds could be adversely affected if the systems used by
the Advisor, the Funds' other service providers, or entities with which the
Funds or their service providers do business do not properly address this
issue prior to euro conversion over the first weekend of 1999 (January 1
through January 3). These issues may negatively affect the operations of the
companies the Funds invest in as well.

39
<PAGE> 42

YEAR 2000

Many computer systems were designed using only two digits to designate years.
These systems may not be able to distinguish the Year 2000 from the Year 1900
(commonly known as the "Year 2000 Problem"). Like other investment companies and
financial and business organizations, the Funds could be adversely affected if
the computer systems used by the Advisor or other service providers for the
Funds do not properly address this problem prior to January 1, 2000. The Advisor
is making efforts to resolve any potential Year 2000 issues. Currently, the
Advisor does not anticipate that the transition to the 21st century will have
any material impact on its ability to continue to service the Funds at current
levels. In addition, the Advisor is seeking assurances from the Funds' other
service providers that they are taking all necessary steps to ensure that their
computer systems will accurately reflect the Year 2000, and the Advisor will
continue to monitor the situation. At this time, however, no assurance can be
given that the Funds' other service providers have anticipated every step
necessary to avoid any adverse effect on the Funds attributable to the Year 2000
Problem.

40
<PAGE> 43

APPENDIX -- DESCRIPTION OF RATINGS
- --------------------------------------------------------------------------------

MOODY'S INVESTORS SERVICE
- ----------------------------------------------------------
BOND RATINGS:

"AAA" -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

"AA" -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

Moody's applies numerical modifiers "1", "2" and "3" in each generic rating
classification from Aa through B. The modifier "1" indicates that the obligation
ranks in the higher end of its generic rating category; the modifier "2"
indicates a mid-range ranking; and the modifier "3" indicates a ranking in the
lower end of that generic rating category.

"A" -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.

"BAA" -- Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.

"BA" -- Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.

"B" -- Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.

- ----------------------------------------------------------
SHORT-TERM DEBT RATINGS:

Moody's short-term debt ratings are opinions of the ability of issuers to repay
punctually senior debt obligations. These obligations have an original maturity
not exceeding one year, unless explicitly noted.

"PRIME-1" -- Issuers rated "Prime-1" (or supporting institutions) have a
superior ability for repayment of senior short-term debt obligations.

"PRIME-2" -- Issuers rated "Prime-2" (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations.

- ----------------------------------------------------------

MUNICIPAL BOND RATINGS:

Moody's ratings for state and municipal short-term obligations are designated
Moody's Investment Grade or "MIG" with variable rate demand obligations being
designated as "VMIG." A VMIG rating may also be assigned to commercial paper
programs which are characterized as having variable short-term maturities, but
having neither a variable rate nor demand feature. Factors used in determining
ratings include liquidity of the borrower and short-term cyclical elements.

41
<PAGE> 44

STANDARD & POOR'S
RATINGS GROUP
- ----------------------------------------------------------
BOND RATINGS:

"AAA" -- Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.

"AA" -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest-rated obligations only in small degree.

"A" -- Debt rated A has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.

"BBB" -- Debt rated BBB exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal.

Debt rated BB and B is regarded as having significant speculative
characteristics with respect to capacity to pay interest and repay principal.
While such debt will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposures to adverse
conditions.

- ----------------------------------------------------------
COMMERCIAL PAPER RATINGS:

An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt considered short-term in the relevant market.

"A-1" -- This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) designation.

"A-2" -- Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.

- ----------------------------------------------------------

MUNICIPAL BOND RATINGS:

S&P uses SP-1, SP-2 and SP-3 to rate short-term municipal obligations. A rating
of SP-1 denotes a strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt service is given a (+)
designation.

FITCH INVESTORS SERVICE, INC.
- ----------------------------------------------------------
BOND RATINGS:

The following summarizes the ratings used by Fitch for corporate bonds:

"AAA" -- Bonds denote the lowest expectation of credit risk. They are considered
to have an exceptionally strong capacity for timely payment of financial
commitments. This capacity is highly unlikely to be adversely affected by
reasonably foreseeable events.

"AA" -- Bonds denote a very low expectation of credit risk. They indicate a very
strong capacity for timely payment of financial commitments. This capacity is
not significantly vulnerable to forseeable events.

"A" -- Bonds denote a low expectation of credit risk. The capacity for timely
payment of financial commitments is considered strong. This capacity may,
nevertheless, be more vulnerable to changes in circumstances and in economic
conditions than is the case for higher ratings.

"BBB" -- Bonds indicate that there is currently a low expectation of credit
risk. The capacity for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment-grade
category.

"BB" -- Bonds indicate that there is a possibility of credit risk developing,
particularly as the result of adverse economic change over time; however,
business or financial alternatives may be available to allow financial
commitments to be met. Securities rated in this category are not investment
grade.

42
<PAGE> 45

"B" -- Bonds indicate that significant credit risk is present, but a limited
margin of safety remains. Financial commitments are currently being met;
however, capacity for continued payment is contingent upon a sustained,
favorable business and economic environment.

PLUS (+) MINUS (-) -- Plus and minus signs may be appended to a rating to denote
the relative status of a credit within the rating category. Plus and minus
signs, however, are not used in the "AAA" category.

- ----------------------------------------------------------
SHORT-TERM DEBT RATINGS:

"F1" -- Indicates the strongest capacity for timely payment of financial
commitments; may have an added "+" to denote any exceptionally strong credit
feature.

"F2" -- A satisfactory capacity for timely payment of financial commitments, but
the margin of safety is not as great as in the case of the higher ratings.

DUFF & PHELPS
CREDIT RATING CO.
- ----------------------------------------------------------
BOND RATINGS:

The following summarizes the ratings used by Duff & Phelps for long-term debt:

"AAA" -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

"AA+," "AA," "AA-" -- High credit quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.

"A+," "A," "A-" -- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic stress.

"BBB+," "BBB," "BBB-" -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.

"BB+," "BB," "BB-" -- Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection factors
fluctuate according to industry conditions or company fortunes. Overall quality
may move up or down frequently within this category.

"B+," "B," "B-" -- Below investment grade and possessing risk that obligations
will not be met when due. Financial protection factors will fluctuate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or into
a higher or lower rating grade.

- ----------------------------------------------------------
SHORT-TERM DEBT RATINGS:

"D-1+" -- Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding and safety is just below risk-free U.S. Treasury short-term
obligations.

"D-1" -- Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.

"D-1-" -- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.

"D-2" -- Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.

43
<PAGE> 46

LOGO

800 WEST SIXTH STREET
FIFTH FLOOR
LOS ANGELES, CALIFORNIA 90017

800-236-4479

INVESTMENT ADVISOR
HOTCHKIS AND WILEY
800 WEST SIXTH STREET
FIFTH FLOOR
LOS ANGELES, CALIFORNIA 90017

LEGAL COUNSEL
GARDNER, CARTON & DOUGLAS
321 NORTH CLARK STREET
CHICAGO, ILLINOIS 60610

INDEPENDENT ACCOUNTANTS

PRICEWATERHOUSECOOPERS LLP

100 EAST WISCONSIN AVENUE
MILWAUKEE, WISCONSIN 53202

DISTRIBUTOR

PRINCETON FUNDS DISTRIBUTOR, INC.

800 SCUDDERS MILL ROAD

PLAINSBORO, NEW JERSEY 08536

ADMINISTRATOR
CUSTODIAN AND TRANSFER AGENT
FIRSTAR TRUST COMPANY
615 EAST MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS

WHEN DECIDING WHETHER TO INVEST. NO ONE IS AUTHORIZED TO PROVIDE YOU

WITH INFORMATION THAT IS DIFFERENT. THE FUNDS ARE NOT OFFERED OR SOLD

IN ANY JURISDICTION WHERE OFFERS OR SALES WOULD BE UNLAWFUL.

PROSPECTUS

AUGUST 28, 1998

HOTCHKIS AND WILEY FUNDS LOGO

LOGO

EQUITY INCOME FUND
-------------------------------------------------------
MID-CAP FUND
-------------------------------------------------------

SMALL CAP FUND
-------------------------------------------------------
INTERNATIONAL FUND
-------------------------------------------------------
GLOBAL EQUITY FUND
-------------------------------------------------------

BALANCED FUND

-------------------------------------------------------
TOTAL RETURN BOND FUND
-------------------------------------------------------
LOW DURATION FUND
-------------------------------------------------------
SHORT-TERM INVESTMENT FUND
-------------------------------------------------------

HOTCHKIS AND WILEY: INVESTMENT ADVISOR
<PAGE> 47

HOTCHKIS AND
WILEY FUNDS

EQUITY FUND FOR INSURANCE COMPANIES

------------------------

PROSPECTUS
------------------------

AUGUST 28, 1998

800 WEST 6TH STREET, FIFTH FLOOR
LOS ANGELES, CA 90017
(213) 362-8888

INVESTMENT ADVISOR: HOTCHKIS AND WILEY
<PAGE> 48

HOTCHKIS AND WILEY FUNDS

EQUITY FUND FOR INSURANCE COMPANIES

Hotchkis and Wiley Funds (the "Trust") is an open-end, management
investment company having ten separate diversified portfolios (the "Funds"),
each of which is a separate mutual fund having its own objective, assets,
liabilities and net asset value. This Prospectus describes the Equity Series for
Insurance Companies (the "Equity Fund for Insurance Companies" or the "Fund"),
the investment objective of which is to provide current income and long-term
growth of income, accompanied by growth of capital. There is no assurance that
the investment objective of the Fund will be achieved. The minimum initial
investment in the Fund is $1 million; there is no subsequent minimum investment
requirement.

This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information dated August 28, 1998,
containing additional information about the Trust and each Fund, has been filed
with the Securities and Exchange Commission and is incorporated by reference in
its entirety into this Prospectus. You may obtain a copy of the Statement of
Additional Information without charge by calling the Trust at (213) 362-8888 or
writing the Trust at 800 West Sixth Street, Fifth Floor, Los Angeles, CA 90017.
The Statement of Additional Information, reports and other information about the
Fund can be reviewed and copied (for a fee) at the Securities and Exchange
Commission's Public Reference Room in Washington, DC, and are available at the
Securities and Exchange Commission's Internet site at http://www.sec.gov.

THE DATE OF THIS PROSPECTUS IS AUGUST 28, 1998.

<PAGE> 49

TABLE OF CONTENTS

<TABLE>
<S> <C>
Fee Table................................................... 2
Financial Highlights........................................ 3
Investment Objective and Policies........................... 3
Principal Investment Restrictions........................... 5
Organization and Management................................. 6
How to Purchase Shares...................................... 7
How to Redeem Shares........................................ 7
Dividends and Tax Status.................................... 8
Performance Information..................................... 8
General Information......................................... 8
</TABLE>

FEE TABLE

Hotchkis and Wiley Funds impose no sales load, exchange fee or redemption
fee on the purchase or redemption of shares of the Fund.

<TABLE>
<CAPTION>
EQUITY FUND
ANNUAL FUND OPERATING EXPENSES FOR INSURANCE
(AS A PERCENTAGE OF AVERAGE NET ASSETS) COMPANIES
--------------------------------------- -------------
<S> <C>
Management fee.............................................. 0.52%
Other expenses.............................................. -0-%*
----
Total Fund operating expenses..................... 0.52%
====
</TABLE>

- ---------------
* The Advisor pays all of the Fund's operating expenses other than the
management fee; see "Organization and Management."

<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment in the Fund, assuming
(1) 5% annual return and (2) redemption
at the end of each time period........... $5 $17 $29 $65
</TABLE>

The purpose of the table above is to assist the investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
or indirectly. For a more complete description of the various costs and
expenses, see "Organization and Management." THE EXAMPLE SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY
BE GREATER OR LESS THAN THOSE SHOWN. The assumption in the example of a 5%
annual return is required by regulations of the Securities and Exchange
Commission applicable to all mutual funds. The assumed 5% annual return is not a
prediction of, and does not represent, the projected or actual performance of
the Fund.

2
<PAGE> 50

FINANCIAL HIGHLIGHTS

(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)

The following financial highlights have been audited by
PricewaterhouseCoopers LLP, independent accountants, whose unqualified report
thereon is incorporated by reference herein and is included in the Statement of
Additional Information, which is available from the Fund. This information
should be read in conjunction with the financial statements and accompanying
notes which appear in the Statement of Additional Information. Further
performance information is contained in the Fund's annual report to
shareholders, which may be obtained without cost.

<TABLE>
<CAPTION>
JANUARY 29,
1993*
YEAR ENDED JUNE 30, THROUGH
------------------------------------------ JUNE 30,
1998 1997 1996 1995 1994 1993
------ ------ ------ ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period... $16.32 $13.51 $11.53 $ 9.89 $10.31 $10.00
------ ------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income................ 0.41 0.39 0.34 0.41 0.40 0.16
Net realized and unrealized gain
(loss) on investments............. 3.31 3.30 2.26 1.59 (0.24) 0.30
------ ------ ------ ------ ------ ------
Total from investment
operations................. 3.72 3.69 2.60 2.00 0.16 0.46
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends (from net investment
income)........................... (0.41) (0.40) (0.40) (0.34) (0.38) (0.15)
Distributions (from realized
gains)............................ (1.08) (0.48) (0.22) (0.02) (0.20) (0.00)
------ ------ ------ ------ ------ ------
Total distributions.......... (1.49) (0.88) (0.62) (0.36) (0.58) (0.15)
------ ------ ------ ------ ------ ------
Net Asset Value, End of Period......... $18.55 $16.32 $13.51 $11.53 $ 9.89 $10.31
====== ====== ====== ====== ====== ======
TOTAL RETURN........................... 23.69% 28.20% 22.93% 20.62% 1.38% 11.45%+
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)... $ 40.7 $ 33.0 $ 24.6 $ 17.4 $ 10.5 $7.1
Ratio of expenses to average net
assets:
Before expense reimbursement......... 0.73% 0.75% 0.76% 1.05% 1.20% 1.45%+
After expense reimbursement.......... 0.52% 0.53% 0.54% 0.58% 0.60% 0.60%+
Ratio of net investment income to
average net assets:
Before expense reimbursement......... 2.06% 2.50% 2.78% 3.58% 3.32% 2.81%+
After expense reimbursement.......... 2.27% 2.72% 3.00% 4.03% 3.91% 3.66%+
Portfolio turnover rate................ 21% 22% 21% 29% 26% 2%++
</TABLE>

- ---------------
* Commencement of operations.

+ Annualized.

++ Not annualized.

INVESTMENT OBJECTIVE AND POLICIES

The investment objective of the Fund is to provide current income and
long-term growth of income, accompanied by growth of capital. There is no
assurance that the Fund will achieve its objective. Hotchkis and Wiley, a
division of Merrill Lynch Asset Management, L.P. (the "Advisor"), acts as
investment advisor to the Fund.

The Fund will attempt to achieve its objective by investing in equity
securities. The equity securities that the Fund may purchase consist of common
stocks or securities having characteristics of common stocks, such as
convertible preferred stocks, convertible debt securities or warrants. In
selecting investments for the Fund, the Advisor focuses on securities that it
believes to have superior values. In arriving at this determination, the Advisor
will generally seek securities of companies that have such characteristics as
earnings yield at least 3%

3
<PAGE> 51

greater than the yield on long-term bonds, dividend yield which exceeds the
composite yield on the securities comprising the Standard & Poor's Index of 500
Common Stocks ("S&P 500"), and overall financial strength.

Under normal market conditions, the Fund will invest at least 80% of its
total assets in income-producing equity securities issued by companies with a
record of earnings and dividends. The remainder of its portfolio may be invested
in securities of companies which pay no dividends or interest but have
unrecognized potential for growth or changes in business or management that
indicate possible growth.

The equity securities that the Fund may purchase consist of common stocks
or securities having characteristics of common stocks, such as convertible
preferred stocks, convertible debt securities or warrants. Any such convertible
securities will be securities of an issuer having an outstanding issue of debt
securities rated investment grade by a nationally recognized statistical rating
organization or, if unrated, of comparable quality in the opinion of the
Advisor, provided, however, that the Fund may invest up to 5% of its net assets
in convertible securities of issuers having an outstanding issue of debt
securities rated at least B by Moody's Investors Service ("Moody's") or Standard
& Poor's Ratings Group ("S&P") or, if unrated, of comparable quality in the
opinion of the Advisor.

"Investment grade" means debt securities that have been rated at least: (1)
Baa by Moody's or BBB by S&P, Fitch Investors Service, Inc. ("Fitch") or Duff &
Phelps Credit Rating Co. ("Duff & Phelps") for long-term obligations; (2)A-2 by
S&P, Prime-2 by Moody's, F2 by Fitch or D-2 by Duff & Phelps for short-term
obligations; or (3) of comparable quality as determined by the Advisor in the
case of unrated securities. All ratings are determined at the time of
investment.

Securities rated Baa are considered by Moody's to have speculative
characteristics. For Baa/BBB rated securities, changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade securities.
Securities rated below BBB or Baa are judged to be predominantly speculative
with respect to their capacity to pay interest and repay principal in accordance
with the terms of their obligations and are commonly known as "junk bonds."
Investors should carefully consider the relative risks associated with
investments in securities which carry lower ratings and in comparable unrated
securities.

For liquidity purposes and pending investment of cash receipts, the Fund
may invest in short-term investment grade debt securities of the U.S.
Government, its agencies and instrumentalities, bank certificates of deposit,
bankers' acceptances, high quality commercial paper, demand notes and repurchase
agreements.

Because the Fund invests in equity-type securities such as common and
preferred stock, the Fund is subject to market risk, for example, the
possibility that common stock prices will decline over short or even extended
periods. The stock markets tend to be cyclical, with periods when stock prices
generally rise and periods when prices generally decline.

GENERAL

FOREIGN SECURITIES. The Fund can invest in foreign securities, although it
is not required to. Foreign economies may differ from the U.S. economy;
individual foreign companies may differ from domestic companies in the same
industry; and foreign currencies may be stronger or weaker than the U.S. dollar.
The Advisor believes that the ability to invest abroad will enable the Fund to
take advantage of these differences when they are favorable.

There are risks in investing in foreign securities. An investment may be
affected by changes in currency rates and in exchange control regulations, and
the Fund may incur transaction charges in exchanging currencies. Foreign
companies are frequently not subject to the accounting and financial reporting
standards applicable to domestic companies, and there may be less information
available about foreign issuers. Foreign
4
<PAGE> 52

stock markets have substantially less volume than the New York Stock Exchange,
and securities of foreign issuers are generally less liquid and more volatile
than those of comparable domestic issuers. There is frequently less government
regulation of exchanges, broker-dealers and issuers than in the United States.
In addition, investments in foreign countries are subject to the possibility of
expropriation or confiscatory taxation, political or social instability or
diplomatic developments that could adversely affect the value of those
investments.

REPURCHASE AGREEMENTS. The Fund may enter into repurchase agreements
involving U.S. Government securities with commercial banks or broker-dealers,
whereby the seller of a security agrees to repurchase the security on an agreed
upon date in the future. While the Fund intends to be fully "collateralized" as
to such agreements, and the collateral will be marked-to-market daily, if the
person obligated to repurchase from the Fund defaults, there may be possible
delays and expenses in liquidating the securities subject to the repurchase
agreement, a decline in their value and loss of interest. See the Statement of
Additional Information for further details about repurchase agreements.

REAL ESTATE INVESTMENT TRUSTS. The Fund may invest in securities of real
estate investment trusts or REITs. Unlike corporations, REITs do not have to pay
income taxes if they meet certain Internal Revenue Code requirements. REITs
offer investors greater liquidity and diversification than direct ownership of
properties, as well as greater income potential than an investment in common
stocks. Like any investment in real estate, though, a REIT's performance depends
on several factors, such as its ability to find tenants for its properties, to
renew leases and to finance property purchases and renovations.

BORROWING. As a fundamental policy, the Fund may borrow money, but only
from banks for temporary or emergency purposes in amounts not exceeding 10% of
the Fund's total assets. See the Statement of Additional Information for
details.

PRINCIPAL INVESTMENT RESTRICTIONS

The Fund is subject to certain investment restrictions which are
fundamental policies that cannot be changed without the approval of a majority
of the Fund's outstanding voting securities (as defined in the Investment
Company Act of 1940, referred to as the "1940 Act"). The Fund's investment
objective is such a fundamental policy. Among its restrictions, the Fund may not
(1) with respect to 75% of its total assets, invest more than 5% of its total
assets in securities of any one issuer (other than U.S. Government securities);
(2) with respect to 75% of its total assets, purchase more than 10% of the
outstanding voting securities of any one issuer; or (3) invest more than 25% of
its total assets (determined at the time of investment) in one or more issuers
having their principal business activities in a single industry. Additional
information about the Fund's investment restrictions is contained in the
Statement of Additional Information.

As discussed in the Statement of Additional Information, the Fund may, as a
fundamental policy and within limits, engage in short sales but only those which
are "against-the-box." Such short sales are a method of locking in unrealized
capital gains without current recognition of such gains.

It is the position of the Securities and Exchange Commission (and an
operating although not a fundamental policy of the Fund) that open-end
investment companies such as the Fund should not make certain investments if
thereafter more than 15% of the value of their net assets would be so invested.
The investments included in this 15% limit include (1) those which are
restricted, i.e., those which cannot freely be sold for legal or contractual
reasons (which the Fund does not expect to own); (2) fixed time deposits subject
to withdrawal penalties (other than overnight deposits); and (3) repurchase
agreements having a maturity of more than seven days. The 15% limitation does
not include obligations which are payable at principal amount plus accrued
interest within seven days after purchase.

It is an operating policy, although not a fundamental policy, of the Fund
that no more than 55% of the value of the total assets of the Fund can be
invested in cash and cash items (including receivables), U.S.

5
<PAGE> 53

Government securities and securities of other regulated investment companies, as
required by Section 817(h)(2)(B) of the Internal Revenue Code of 1986, as
amended.

ORGANIZATION AND MANAGEMENT

ORGANIZATION AND VOTING RIGHTS

The Trust was organized on August 22, 1984 as a Massachusetts business
trust. It is a diversified, open-end, management investment company currently
consisting of ten separate series. The Trust's name was changed to Hotchkis and
Wiley Funds effective October 7, 1994. The Trust's Board of Trustees decides on
matters of general policy and reviews the activities of the Advisor. The Trust's
officers conduct and supervise the daily business operations of the Trust. The
Fund is one of ten series of shares, each having separate assets and
liabilities, of the Trust. The Board of Trustees may, at its own discretion,
create additional series of shares.

Generally, the Fund will not hold an annual meeting of shareholders unless
required by the 1940 Act. Shareholders have one vote per share owned. Matters
submitted to shareholders must be approved by a majority of the outstanding
securities of the Fund. At the request of the holders of at least 10% of the
shares, the Trust will hold a meeting to vote on the removal of a Trustee, which
can occur by a vote of more than two-thirds of the outstanding shares.

INVESTMENT ADVISOR

Hotchkis and Wiley, located at 800 West 6th Street, Fifth Floor, Los
Angeles, California 90017, acts as investment advisor to the Fund and generally
administers the affairs of the Trust. The Advisor is a division of Merrill Lynch
Asset Management, L.P. Subject to the direction and control of the Board of
Trustees, the Advisor supervises and arranges the purchase and sale of
securities held in the portfolio of the Fund.

For its services, the Advisor is paid 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 average daily net assets in excess of $10
million. The Advisor pays all of the regular annual operating expenses relating
to the Fund, including: (1) interest and taxes; (2) brokerage commissions; (3)
insurance premiums; (4) compensation and expenses of the Trustees other than
those affiliated with the Advisor; (5) legal and audit expenses; (6) fees and
expenses of the Fund's custodian, shareholder servicing or transfer agent and
accounting services agent; (7) expenses incident to the issuance of its shares,
including issuance on the payment of, or reinvestment of, dividends; (8) fees
and expenses incident to the registration under Federal or state securities laws
of the Trust or its shares; (9) expenses of preparing, printing and mailing
reports and notices and proxy material to shareholders; (10) all other expenses
incident to holding meetings of shareholders; (11) dues or assessments of or
contributions to the Investment Company Institute or any successor; and (12)
such non-recurring expenses as may arise, including litigation affecting the
Trust and the legal obligations which the Trust may have to indemnify its
officers and Trustees with respect thereto.

The Advisor is allowed to allocate brokerage based on sales of shares of
the funds managed by the Advisor. No such allocation has been made to date.

PORTFOLIO MANAGERS

The current portfolio managers of the Fund are Gail Bardin and Sheldon
Lieberman. Ms. Bardin and Mr. Lieberman have responsibility for the day-to-day
management of the Fund's portfolio. Ms. Bardin is a managing director of the
Advisor. She began co-managing the Fund in April 1994. Ms. Bardin has been a
portfolio manager of the Advisor since 1988. Mr. Lieberman joined the Advisor in
1994 and began co-managing the Fund in August 1997. Prior to joining the
Advisor, Mr. Lieberman was the Chief Investment Officer for the Los Angeles
County Employees Retirement Association. Ms. Bardin and Mr. Lieberman also serve
as portfolio managers of the Equity Income Fund, another series of the Trust
that is managed by the Advisor.

6
<PAGE> 54

HOW TO PURCHASE SHARES

Shares of the Fund are offered only to insurance companies. The minimum
initial investment in the Fund is $1,000,000. There is no minimum subsequent
investment. The Trust reserves the right to reject any order.

Investors may invest in the Fund by wiring the amount to be invested to
Hotchkis and Wiley Funds in care of the custodian bank, at the following
address:

Firstar Bank
ABA #0750-00022
For credit to Firstar Trust Company
Account #112-952-137
For further credit to Hotchkis and Wiley Funds
Equity Fund for Insurance Companies
Account # [Shareholder account number]

The wire should indicate that the investment is being made in the Equity
Fund for Insurance Companies. Shares of the Fund will be purchased for the
account of the investor at the net asset value next determined after receipt of
the investor's wire. Shareholder inquiries should be directed to the Fund.

NET ASSET VALUE

The net asset value per share of the Fund is determined on each day that
the New York Stock Exchange is open for trading, as of the close of regular
trading on that Exchange (currently 4:00 p. m., Eastern time), provided that the
net asset value may not be calculated on a day on which no order to purchase or
redeem shares of the Fund is received. The net asset value per share is the
value of the Fund's assets, less its liabilities, divided by the number of
shares of the Fund outstanding. The value of portfolio securities is determined
on the basis of the market value of such securities. Short-term investments
maturing in less than 60 days are valued at amortized cost. See the Statement of
Additional Information for further information.

HOW TO REDEEM SHARES

A shareholder wishing to redeem shares may do so at any time by writing or
delivering instructions to the Trust at 800 West 6th Street, Fifth Floor, Los
Angeles, California 90017. The redemption request should identify the Fund,
specify the number of shares to be redeemed and be signed by a duly authorized
officer of the insurance company. If the request is in proper form, the shares
specified will be redeemed at the net asset value next determined after receipt
of the request. In addition to written instructions, if any shares being
redeemed are represented by share certificates, the certificates must be
surrendered. The certificates must either be endorsed or accompanied by a stock
power signed by a duly authorized officer of the insurance company. Any
questions concerning documents needed should be directed to (213) 362-8888.

PAYMENTS. Payment for shares tendered will be made within seven days after
receipt by the Trust of instructions and certificates, if any. However, payment
may be delayed under unusual circumstances, as specified in the 1940 Act or as
determined by the Securities and Exchange Commission. Payment will be sent only
to shareholders at the address of record.

REDEMPTION IN KIND. If the Board of Trustees determines that it would be
detrimental to the best interests of the remaining shareholders of the Fund to
make payment wholly in cash, the Fund may pay the redemption price in part by a
distribution in kind of readily marketable securities from the portfolio of the
Fund, in lieu of cash. The Trust has elected to be governed by Rule 18f-1 under
the 1940 Act pursuant to which the Fund is obligated to redeem shares solely in
cash up to the lesser of $250,000 or one percent of the net asset value of the
Fund during any 90 day period for any one shareholder. Should redemptions by any
shareholder exceed such limitation the Fund will have the option of redeeming
the excess in cash or in kind. If shares are redeemed in kind, the redeeming
shareholder would incur brokerage costs in converting the assets into cash.

7
<PAGE> 55

DIVIDENDS AND TAX STATUS

The Fund expects to declare and pay income dividends quarterly.
Distributions from net short-term gains, if any, and distributions from any
excess of net long-term capital gains over net short-term capital losses
realized through October 31st of each year and not previously paid out will be
paid out after that date; the Fund may also pay supplemental distributions after
the end of the Trust's fiscal year. Dividends and distributions are paid in full
and fractional shares of the Fund based on the net asset value per share at the
close of business on the record date, unless the shareholder requests, in
writing to the Trust, payment in cash. The Trust will notify each shareholder
after the close of its fiscal year of both the dollar amount and the tax status
of that year's distributions.

The Fund qualified as a "regulated investment company" under Subchapter M
of the Internal Revenue Code (the "Code") during its last fiscal year and
intends to continue to do so in the future. The Fund is taxed as a separate
entity under Subchapter M and will qualify on a separate basis. If so qualified,
the Fund will not be subject to federal income taxes on its net investment
income and capital gains, if any, realized during any fiscal year which it
distributes to its shareholders provided that at least 90% of its net investment
income earned in the fiscal year is distributed.

The Code provides for a dividends-received deduction (the "deduction") by
corporations. Special provisions are contained in the Code as to the eligibility
of dividends for the deduction. The basic test under the Code for determining
the extent to which the dividends paid by the Fund are eligible for the
deduction is the extent to which the Fund's income is derived from qualifying
dividends received from domestic corporations. See "Dividends and Tax Status" in
the Statement of Additional Information for additional information about the
deduction.

PERFORMANCE INFORMATION

From time to time the Fund may quote average annual total return
("standardized return") in advertisements or promotional materials.
Advertisements and promotional materials reflecting standardized return
("performance advertisements") will show percentage rates reflecting the average
annual change in the value of an assumed initial investment in the Fund at the
end of one, five and ten year periods. If such periods have not yet elapsed,
data will be given as of the end of a shorter period corresponding to the
duration of the Fund. Standardized return assumes the reinvestment of all
dividends and capital gain distributions.

In addition to standardized return, performance advertisements also may
include other total return performance data ("non-standardized return").
Non-standardized return may be quoted for the same or different periods as those
for which standardized return is quoted and may consist of aggregate or average
annual percentage rate of return, actual year by year rates or any combination
thereof. Further performance information is contained in the Fund's annual
report to shareholders, which may be obtained without charge.

All data included in performance advertisements will reflect past
performance and is not indicative of future results. The investment return and
principal value of an investment in the Fund will fluctuate, and an investor's
proceeds upon redeeming Fund shares may be more or less than the original cost
of the shares.

GENERAL INFORMATION

The Declaration of Trust contains an express disclaimer of shareholder
liability for its acts or obligations and requires that notice of such
disclaimer be given in each agreement, obligation or instrument entered into or
executed by the Trust or its Trustees. The Declaration of Trust provides for
indemnification and reimbursement of expenses out of the Trust's property for
any shareholder held personally liable for its obligations. While Massachusetts
law permits a shareholder of a trust such as this to be held personally liable
as a partner under certain circumstances, the risk of a shareholder incurring
financial loss on account of shareholder liability is highly unlikely and is
limited to the relatively remote circumstances in which the Trust would be
unable to meet its obligations.

8
<PAGE> 56

Common expenses incurred by the Trust are allocated among the Funds based
upon (1) relative net assets; (2) as incurred on a specific identification
basis; or (3) evenly among the Funds, depending on the nature of the
expenditure.

Except for (1) changes which do not adversely affect the rights of Trust
shareholders, (2) a change in the name of the Trust, or a series or class
thereof, (3) authorization of a new series or class, (4) changes to supply any
omission or correct any ambiguous or defective provision, or (5) changes
required by any federal or state or similar regulatory authority or required by
the Code to eliminate or reduce any federal, state or local taxes which may be
payable by a Fund or its shareholders, no amendment may be made to the
Declaration of Trust without the affirmative vote of the holders of at least 67%
of the Trust's outstanding shares at a meeting at which more than 50% of its
outstanding shares are present in person or represented by proxy. The holders of
shares have no preemptive or conversion rights. Shares when issued are fully
paid and non-assessable, except as set forth above.

As of July 31, 1998, The Prudential Insurance Company of America owned of
record and beneficially 100% of the outstanding shares of the Fund and may be
deemed a controlling person of the Fund.

YEAR 2000

Many computer systems were designed using only two digits to designate
years. These systems may not be able to distinguish the Year 2000 from the Year
1900 (commonly known as the "Year 2000 Problem"). Like other investment
companies and financial and business organizations, the Fund could be adversely
affected if the computer systems used by the Advisor or other service providers
for the Fund do not properly address this problem prior to January 1, 2000. The
Advisor is making efforts to resolve any potential Year 2000 issues. Currently,
the Advisor does not anticipate that the transition to the 21st century will
have any material impact on its ability to continue to service the Fund at
current levels. In addition, the Advisor is seeking assurances from the Fund's
other service providers that they are taking all necessary steps to ensure that
their computer systems will accurately reflect the Year 2000, and the Advisor
will continue to monitor the situation. At this time, however, no assurance can
be given that the Fund's other service providers have anticipated every step
necessary to avoid any adverse effect on the Fund attributable to the Year 2000
Problem.

9
<PAGE> 57

HOTCHKIS AND WILEY FUNDS
STATEMENT OF ADDITIONAL INFORMATION

DATED AUGUST 28, 1998

This Statement of Additional Information is not a prospectus, and it should
be read in conjunction with the prospectus dated August 28, 1998 of the Equity
Income Series (the "Equity Income Fund"), the Mid-Cap Series (the "Mid-Cap
Fund"), the Small Cap Series (the "Small Cap Fund"), the International Series
(the "International Fund"), the Global Equity Series (the "Global Equity Fund"),
the Balanced Series (the "Balanced Fund"), the Total Return Bond Series (the
"Total Return Bond Fund"), the Low Duration Series (the "Low Duration Fund") and
the Short-Term Investment Series (the "Short-Term Investment Fund"), and the
prospectus of the Equity Fund for Insurance Companies Series (the "Equity Fund
for Insurance Companies") of Hotchkis and Wiley Funds dated August 28, 1998.
Copies of the prospectuses may be obtained at no charge from the Trust, 800 West
6th Street, Fifth Floor, Los Angeles, CA 90017. In this Statement of Additional
Information, the Equity Income Fund, the Mid-Cap Fund, the Small Cap Fund, the
International Fund, the Global Equity Fund, the Balanced Fund, the Total Return
Bond Fund, the Low Duration Fund, the Short-Term Investment Fund and the Equity
Fund for Insurance Companies may be referred to collectively as "the Funds" or
individually as "a Fund." The Total Return Bond Fund, the Low Duration Fund and
the Short-Term Investment Fund also may be referred to as the "Fixed-Income
Funds." Hotchkis and Wiley (the "Advisor") is the investment advisor to the
Funds.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Investment Objectives and Policies.......................... B-2
Investment Restrictions................................... B-2
Repurchase Agreements..................................... B-3
U.S. Government Securities................................ B-3
Municipal Obligations..................................... B-4
Corporate Debt Securities................................. B-5
Convertible Securities.................................... B-5
Mortgage-Related Securities............................... B-6
Asset-Backed Securities................................... B-9
Risk Factors Relating to Investing in Mortgage-Related and
Asset-Backed Securities................................ B-9
Duration.................................................. B-10
Derivative Instruments.................................... B-10
Foreign Securities........................................ B-14
Foreign Currency Options and Related Risks................ B-15
Forward Foreign Currency Exchange Contracts............... B-16
EMU Conversion............................................ B-18
Risk Factors Relating to Investing in High Yield
Securities............................................. B-19
Illiquid Securities....................................... B-19
Management.................................................. B-21
The Advisor............................................... B-23
Portfolio Transactions and Brokerage...................... B-24
Net Asset Value............................................. B-26
Issuance of Fund Shares for Securities...................... B-27
Dividends and Tax Status.................................... B-27
Performance Information..................................... B-28
General Information About the Trust......................... B-29
Financial Statements........................................ 1
</TABLE>

B-1
<PAGE> 58

INVESTMENT OBJECTIVES AND POLICIES

The investment objective of the Equity Income Fund and the Equity Fund for
Insurance Companies is to provide current income and long-term growth of income,
accompanied by growth of capital.

The investment objective of the Mid-Cap Fund is to provide current income
and long-term growth of income, accompanied by growth of capital.

The investment objective of the Small Cap Fund is capital appreciation.

The investment objective of the International Fund and the Global Equity
Fund is to provide current income and long-term growth of income, accompanied by
growth of capital.

The investment objective of the Balanced Fund is to preserve capital while
producing a high total return.

The investment objective of the Total Return Bond Fund is to maximize
long-term total return.

The investment objective of the Low Duration Fund and the Short-Term
Investment Fund is to maximize total return, consistent with preservation of
capital.

The portfolio and strategies with respect to the composition of each Fund
are described in the Funds' prospectuses.

INVESTMENT RESTRICTIONS

Each Fund has adopted the following restrictions (in addition to those
indicated in the prospectuses) as fundamental policies, which may not be changed
without the favorable vote of the holders of a "majority" of that Fund's
outstanding voting securities, as defined in the Investment Company Act of 1940
(the "1940 Act"). Under the 1940 Act, the vote of the holders of a "majority" of
a Fund's outstanding voting securities means the vote of the holders of the
lesser of (i) 67% of the shares of the Fund represented at a meeting at which
the holders of more than 50% of its outstanding shares are represented or (ii)
more than 50% of the outstanding shares.

Except as noted, none of the Funds may:

1. Purchase any security, other than obligations of the U.S. Government,
its agencies, or instrumentalities ("U.S. Government securities"), if
as a result: (i) with respect to 75% of its total assets, more than 5%
of the Fund's total assets (determined at the time of investment) would
then be invested in securities of a single issuer; or (ii) more than
25% of the Fund's total assets (determined at the time of investment)
would be invested in one or more issuers having their principal
business activities in a single industry.

2. Purchase securities on margin (but any Fund may obtain such short-term
credits as may be necessary for the clearance of transactions),
provided that the deposit or payment by a Fund of initial or
maintenance margin in connection with futures or options is not
considered the purchase of a security on margin.

3. Make short sales of securities or maintain a short position, unless at
all times when a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
as, and equal in amount to, the securities sold short (short sale
against-the-box), and unless not more than 25% of the Fund's net assets
(taken at current value) is held as collateral for such sales at any
one time.

4. Issue senior securities, borrow money or pledge its assets except that
any Fund may borrow from a bank for temporary or emergency purposes in
amounts not exceeding 10% (taken at the lower of cost or current value)
of its total assets (not including the amount borrowed) and pledge its
assets to secure such borrowings; none of the Funds (except the
Fixed-Income Funds) will purchase any additional portfolio securities
while such borrowings are outstanding. (The Fixed-Income Funds may
borrow from banks or enter into reverse repurchase agreements and
pledge assets in connection therewith, but only if immediately after
each borrowing there is asset coverage of 300%.)
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5. Purchase any security (other than U.S. Government securities) if as a
result, with respect to 75% of the Fund's total assets, the Fund would
then hold more than 10% of the outstanding voting securities of an
issuer.

6. Buy or sell commodities or commodity contracts or real estate or
interests in real estate, although it may purchase and sell securities
which are secured by real estate and securities of companies which
invest or deal in real estate. (For the purposes of this restriction,
forward foreign currency exchange contracts are not deemed to be
commodities or commodity contracts. This restriction does not apply to
the Fixed-Income Funds.)

7. Act as underwriter except to the extent that, in connection with the
disposition of portfolio securities, it may be deemed to be an
underwriter under certain federal securities laws.

8. Make investments for the purpose of exercising control or management.

9. Participate on a joint or joint and several basis in any trading
account in securities.

10. Make loans, except through repurchase agreements. (This restriction
does not apply to the Fixed-Income Funds, which may lend portfolio
securities having an aggregate market value of up to one-third of the
total assets of the Fund.)

11. Purchase or sell foreign currencies. (This restriction does not apply
to the International Fund, the Global Equity Fund or the Fixed-Income
Funds.)

REPURCHASE AGREEMENTS

The Small Cap Fund may purchase debt securities maturing in more than one
year from the date of purchase only if they are purchased subject to repurchase
agreements. The Equity Income, Mid-Cap, International, Global Equity, Balanced,
and Fixed-Income Funds, as well as the Equity Fund for Insurance Companies, have
no such restriction on maturities of portfolio securities. A repurchase
agreement is an agreement where the seller agrees to repurchase a security from
a Fund at a mutually agreed-upon time and price. The period of maturity is
usually quite short, possibly overnight or a few days, although it may extend
over a number of months. The resale price is more than the purchase price,
reflecting an agreed-upon rate of return effective for the period of time a
Fund's money is invested in the repurchase agreement. A Fund's repurchase
agreements will at all times be fully collateralized in an amount at least equal
to the resale price. The instruments held as collateral are valued daily, and if
the value of instruments declines, a Fund will require additional collateral. In
the event of a default, insolvency or bankruptcy by a seller, the Fund will
promptly seek to liquidate the collateral. In such circumstances, the Fund could
experience a delay or be prevented from disposing of the collateral. To the
extent that the proceeds from any sale of such collateral upon a default in the
obligation to repurchase are less than the repurchase price, the Fund will
suffer a loss.

U.S. GOVERNMENT SECURITIES

U.S. Government agencies or instrumentalities which issue or guarantee
securities include, but are not limited to, the Federal National Mortgage
Association, Government National Mortgage Association, Federal Home Loan Banks,
Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks,
Federal Land Banks, Tennessee Valley Authority, Inter-American Development Bank,
Asian Development Bank, Student Loan Marketing Association and the International
Bank for Reconstruction and Development.

Except for U.S. Treasury securities, obligations of U.S. Government
agencies and instrumentalities may or may not be supported by the full faith and
credit of the United States. Some are backed by the right of the issuer to
borrow from the Treasury; others by discretionary authority of the U.S.
Government to purchase the agencies' obligations; while still others, such as
the Student Loan Marketing Association, are supported only by the credit of the
instrumentality. In the case of securities not backed by the full faith and
credit of the United States, the investor must look principally to the agency or
instrumentality issuing or guaranteeing the obligation for ultimate repayment,
and may not be able to assert a claim against the United States itself in the
event the agency or instrumentality does not meet its commitment. Each Fund will
invest in securities of such

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instrumentality only when the Advisor is satisfied that the credit risk with
respect to any instrumentality is acceptable.

The Funds may invest in component parts of U.S. Treasury notes or bonds,
namely, either the corpus (principal) of such Treasury obligations or one of the
interest payments scheduled to be paid on such obligations. These obligations
may take the form of (1) Treasury obligations from which the interest coupons
have been stripped; (2) the interest coupons that are stripped; (3) book-entries
at a Federal Reserve member bank representing ownership of Treasury obligation
components; or (4) receipts evidencing the component parts (corpus or coupons)
of Treasury obligations that have not actually been stripped. Such receipts
evidence ownership of component parts of Treasury obligations (corpus or
coupons) purchased by a third party (typically an investment banking firm) and
held on behalf of the third party in physical or book-entry form by a major
commercial bank or trust company pursuant to a custody agreement with the third
party. These custodial receipts are known by various names, including "Treasury
Receipts," "Treasury Investment Growth Receipts" ("TIGRs") and "Certificates of
Accrual on Treasury Securities" ("CATS"), and are not issued by the U.S.
Treasury; therefore they are not U.S. Government securities, although the
underlying bonds represented by these receipts are debt obligations of the U.S.
Treasury.

MUNICIPAL OBLIGATIONS

The Balanced and Fixed-Income Funds may invest in municipal obligations.
The two principal classifications of municipal bonds, notes and commercial paper
are "general obligation" and "revenue" bonds, notes or commercial paper. General
obligation bonds, notes or commercial paper are secured by the issuer's pledge
of its faith, credit and taxing power for the payment of principal and interest.
Issuers of general obligation bonds, notes or commercial paper include states,
counties, cities, towns and other governmental units. Revenue bonds, notes and
commercial paper are payable from the revenues derived from a particular
facility or class of facilities or, in some cases, from specific revenue
sources. Revenue bonds, notes or commercial paper are issued for a wide variety
of purposes, including the financing of electric, gas, water and sewer systems
and other public utilities; industrial development and pollution control
facilities; single and multifamily housing units; public buildings and
facilities; air and marine ports; transportation facilities such as toll roads,
bridges and tunnels; and health and educational facilities such as hospitals and
dormitories. They rely primarily on user fees to pay debt service, although the
principal revenue source is often supplemented by additional security features
which are intended to enhance the creditworthiness of the issuer's obligations.
In some cases, particularly revenue bonds issued to finance housing and public
buildings, a direct or implied "moral obligation" of a governmental unit may be
pledged to the payment of debt service. In other cases, a special tax or other
charge may augment user fees.

Included within the revenue bonds category are participations in municipal
lease obligations or installment purchase contracts of municipalities
(collectively, "lease obligations"). State and local governments issue lease
obligations to acquire equipment leases and facilities. Lease obligations may
have risks not normally associated with general obligation or other revenue
bonds. Leases and installment purchase or conditional sale contracts (which may
provide for title to the leased asset to pass eventually to the issuer) have
developed as a means for governmental issuers to acquire property and equipment
without the necessity of complying with the constitutional and statutory
requirements generally applicable for the issuance of debt. Certain lease
obligations contain "non-appropriation" clauses that provide that the
governmental issuer has no obligation to make future payments under the lease or
contract unless money is appropriated for such purpose by the appropriate
legislative body on an annual or other periodic basis. Consequently, continued
lease payments on those lease obligations containing "non-appropriation" clauses
are dependent on future legislative actions. If such legislative actions do not
occur, the holders of the lease obligations may experience difficulty in
exercising their rights, including disposition of the property.

Private activity obligations are issued to finance, among other things,
privately operated housing facilities, pollution control facilities, convention
or trade show facilities, mass transit, airport, port or parking facilities and
certain facilities for water supply, gas, electricity, sewage or solid waste
disposal. Private activity obligations are also issued to privately held or
publicly owned corporations in the financing of commercial or industrial
facilities. The principal and interest on these obligations may be payable from
the general revenues

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of the users of such facilities. Shareholders, depending on their individual tax
status, may be subject to the federal alternative minimum tax on the portion of
a distribution attributable to these obligations. Interest on private activity
obligations will be considered exempt from federal income taxes; however,
shareholders should consult their own tax advisors to determine whether they may
be subject to the federal alternative minimum tax.

Resource recovery obligations are a type of municipal revenue obligation
issued to build facilities such as solid waste incinerators or waste-to-energy
plants. Usually, a private corporation will be involved and the revenue cash
flow will be supported by fees or units paid by municipalities for the use of
the facilities. The viability of a resource recovery project, environmental
protections regulations and project operator tax incentives may affect the value
and credit quality of these obligations.

Tax, revenue or bond anticipation notes are issued by municipalities in
expectation of future tax or other revenues which are payable from these
specific taxes or revenues. Bond anticipation notes usually provide interim
financing in advance of an issue of bonds or notes, the proceeds of which are
used to repay the anticipation notes. Tax-exempt commercial paper is issued by
municipalities to help finance short-term capital or operating needs in
anticipation of future tax or other revenue.

A variable rate obligation is one whose terms provide for the adjustment of
its interest rate on set dates and which, upon such adjustment, can reasonably
be expected to have a market value that approximates its par value. A floating
rate obligation has terms which provide for the adjustment of its interest rate
whenever a specified interest rate changes and which, at any time, can
reasonably be expected to have a market value that approximates its par value.
Variable or floating rate obligations may be secured by bank letters of credit.

Variable rate auction and residual interest obligations are created when an
issuer or dealer separates the principal portion of a long-term, fixed-rate
municipal bond into two long-term, variable-rate instruments. The interest rate
on one portion reflects short-term interest rates, while the interest rate on
the other portion is typically higher than the rate available on the original
fixed-rate bond.

Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the municipal bond and municipal note
markets, the size of a particular offering, the maturity of the obligation and
the rating of the issue. The achievement of the Balanced and Fixed-Income Funds'
investment objectives is dependent in part on the continuing ability of the
issuers of municipal securities in which the Balanced and Fixed-Income Funds
invest to meet their obligations for the payment of principal and interest when
due. Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency and other laws affecting the rights and
remedies of creditors, such as the Bankruptcy Reform Act of 1978, as amended.
Therefore, the possibility exists that, as a result of litigation or other
conditions, the ability of any issuer to pay, when due, the principal of and
interest on its municipal securities may be materially affected.

CORPORATE DEBT SECURITIES

A Fund's investments in U.S. dollar or foreign currency-denominated
corporate debt securities of domestic or foreign issuers are limited to
corporate debt securities (corporate bonds, debentures, notes and other similar
corporate debt instruments) which meet the minimum ratings criteria set forth
for the Fund, or, if unrated, are in the Advisor's opinion comparable in quality
to corporate debt securities in which the Fund may invest. The rate of return or
return of principal on some debt obligations may be linked or indexed to the
level of exchange rates between the U.S. dollar and a foreign currency or
currencies.

CONVERTIBLE SECURITIES

The Funds may invest in convertible securities of domestic or foreign
issuers, which meet the ratings criteria set forth in the Prospectus. A
convertible security is a fixed-income security (a bond or preferred stock)
which may be converted at a stated price within a specified period of time into
a certain quantity of common stock or other equity securities of the same or a
different issuer. Convertible securities rank senior to common stock in a
corporation's capital structure but are usually subordinated to similar
non-convertible securities. While providing a fixed-income stream (generally
higher in yield than the income derivable from

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common stock but lower than that afforded by a similar non-convertible
security), a convertible security also affords an investor the opportunity,
through its conversion feature, to participate in the capital appreciation
attendant upon a market price advance in the convertible security's underlying
common stock.

In general, the market value of a convertible security is at least the
higher of its "investment value" (i.e., its value as a fixed-income security) or
its "conversion value" (i.e., its value upon conversion into its underlying
stock). As a fixed-income security, a convertible security tends to increase in
market value when interest rates decline and tends to decrease in value when
interest rates rise. However, the price of a convertible security is also
influenced by the market value of the security's underlying common stock. The
price of a convertible security tends to increase as the market value of the
underlying stock rises, whereas it tends to decrease as the market value of the
underlying stock declines. While no securities investment is without some risk,
investments in convertible securities generally entail less risk than
investments in the common stock of the same issuer.

MORTGAGE-RELATED SECURITIES

The Fixed-Income Funds and the Balanced Fund may invest in residential or
commercial mortgage-related securities, including mortgage pass-through
securities, collateralized mortgage obligations ("CMOs"), adjustable rate
mortgage securities, CMO residuals, stripped mortgage-related securities,
floating and inverse floating rate securities and tiered index bonds.

Mortgage Pass-Through Securities. Mortgage pass-through securities
represent interests in pools of mortgages in which payments of both principal
and interest on the securities are generally made monthly, in effect "passing
through" monthly payments made by borrowers on the residential or commercial
mortgage loans which underlie the securities (net of any fees paid to the issuer
or guarantor of the securities). Mortgage pass-through securities differ from
other forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Early repayment of principal on mortgage pass-through securities (arising
from prepayments of principal due to the sale of underlying property,
refinancing, or foreclosure, net of fees and costs which may be incurred) may
expose a Fund to a lower rate of return upon reinvestment of principal. Also, if
a security subject to repayment has been purchased at a premium, in the event of
prepayment, the value of the premium would be lost.

There are currently three types of mortgage pass-through securities: (1)
those issued by the U.S. Government or one of its agencies or instrumentalities,
such as the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"); (2) those issued by private issuers that represent an
interest in or are collateralized by pass-through securities issued or
guaranteed by the U.S. Government or one of its agencies or instrumentalities;
and (3) those issued by private issuers that represent an interest in or are
collateralized by whole mortgage loans or pass-through securities without a
government guarantee but usually having some form of private credit enhancement.

GNMA is a wholly-owned United States Government corporation within the
Department of Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government, the timely
payment of principal and interest on securities issued by the institutions
approved by GNMA (such as savings and loan institutions, commercial banks and
mortgage banks), and backed by pools of FHA-insured or VA-guaranteed mortgages.

Obligations of FNMA and FHLMC are not backed by the full faith and credit
of the United States Government. In the case of obligations not backed by the
full faith and credit of the United States Government, the Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment. FNMA and FHLMC may borrow from the U.S. Treasury to meet its
obligations, but the U.S. Treasury is under no obligation to lend to FNMA or
FHLMC.

Private mortgage pass-through securities are structured similarly to GNMA,
FNMA, and FHLMC mortgage pass-through securities and are issued by originators
of and investors in mortgage loans, including depository institutions, mortgage
banks, investment banks and special purpose subsidiaries of the foregoing.

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Pools created by private mortgage pass-through issuers generally offer a
higher rate of interest than government and government-related pools because
there are no direct or indirect government or agency guarantees of payments in
the private pools. However, timely payment of interest and principal of these
pools may be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of credit. The
insurance and guarantees are issued by governmental entities, private insurers
and the mortgage poolers. The insurance and guarantees and the credit worthiness
of the issuers thereof will be considered in determining whether a
mortgage-related security meets the Funds' investment quality standards. There
can be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements. Private
mortgage pass-through securities may be bought without insurance or guarantees
if, through an examination of the loan experience and practices of the
originator/servicers and poolers, the Advisor determines that the securities
meet the Funds' quality standards.

Collateralized Mortgage Obligations. CMOs are debt obligations
collateralized by residential or commercial mortgage loans or residential or
commercial mortgage pass-through securities. Interest and prepaid principal are
generally paid monthly. CMOs may be collateralized by whole mortgage loans or
private mortgage pass-through securities but are more typically collateralized
by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA. The issuer of a series of CMOs may elect to be treated as a Real Estate
Mortgage Investment Conduit ("REMIC"). All future references to CMOs also
include REMICs.

CMOs are structured into multiple classes, each bearing a different stated
maturity. Actual maturity and average life will depend upon the prepayment
experience of the collateral which is ordinarily unrelated to the stated
maturity date. CMOs often provide for a modified form of call protection through
a de facto breakdown of the underlying pool of mortgages according to how
quickly the loans are repaid. Monthly payment of principal received from the
pool of underlying mortgages, including prepayments, is first returned to
investors holding the shortest maturity class. Investors holding the longer
maturity classes usually receive principal only after the first class has been
retired. An investor may be partially protected against a sooner than desired
return of principal because of the sequential payments.

Certain issuers of CMOs are not considered investment companies pursuant to
a rule adopted by the Securities and Exchange Commission ("SEC"), and the Funds
may invest in the securities of such issuers without the limitations imposed by
the 1940 Act on investments by the Fund in other investment companies. In
addition, in reliance on an earlier SEC interpretation, the Fund's investments
in certain other qualifying CMOs, which cannot or do not rely on the rule, are
also not subject to the limitation of the 1940 Act on acquiring interests in
other investment companies. In order to be able to rely on the SEC's
interpretation, these CMOs must be unmanaged, fixed asset issuers, that: (1)
invest primarily in mortgage-backed securities; (2) do not issue redeemable
securities; (3) operate under general exemptive orders exempting them from all
provisions of the 1940 Act; and (4) are not registered or regulated under the
1940 Act as investment companies. To the extent that the Funds select CMOs that
cannot rely on the rule or do not meet the above requirements, the Funds may not
invest more than 10% of their assets in all such entities and may not acquire
more than 3% of the voting securities of any single such entity.

The Fixed-Income Funds and the Balanced Fund may also invest in, among
other things, parallel pay CMOs, Planned Amortization Class CMOs ("PAC bonds"),
sequential pay CMOs, and floating rate CMOs. Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. PAC
bonds generally require payments of a specified amount of principal on each
payment date. Sequential pay CMOs generally pay principal to only one class
while paying interest to several classes. Floating rate CMOs are securities
whose coupon rate fluctuates according to some formula related to an existing
market index or rate. Typical indices would include the eleventh district
cost-of-funds index ("COFI"), the London Interbank Offered Rate ("LIBOR"),
one-year Treasury yields, and ten-year Treasury yields.

Adjustable Rate Mortgage Securities. Adjustable rate mortgage securities
("ARMs") are pass-through securities collateralized by mortgages with adjustable
rather than fixed rates. ARMs eligible for inclusion in a mortgage pool
generally provide for a fixed initial mortgage interest rate for either the
first three, six, twelve,

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thirteen, thirty-six, or sixty scheduled monthly payments. Thereafter, the
interest rates are subject to periodic adjustment based on changes to a
designated benchmark index.

The ARMs contain maximum and minimum rates beyond which the mortgage
interest rate may not vary over the lifetime of the security. In addition,
certain ARMs provide for additional limitations on the maximum amount by which
the mortgage interest rate may adjust for any single adjustment period. In the
event that market rates of interest rise more rapidly to levels above that of
the ARM's maximum rate, the ARM's coupon may represent a below market rate of
interest. In these circumstances, the market value of the ARM security will
likely have fallen.

Certain ARMs contain limitations on changes in the required monthly
payment. In the event that a monthly payment is not sufficient to pay the
interest accruing on an ARM, any such excess interest is added to the principal
balance of the mortgage loan, which is repaid through future monthly payments.
If the monthly payment for such an instrument exceeds the sum of the interest
accrued at the applicable mortgage interest rate and the principal payment
required at such point to amortize the outstanding principal balance over the
remaining term of the loan, the excess is then utilized to reduce the
outstanding principal balance of the ARM.

CMO Residuals. CMO residuals are derivative mortgage securities issued by
agencies or instrumentalities of the U.S. Government or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
homebuilders, mortgage banks, commercial banks, investment banks, and special
purpose entities of the foregoing.

The cash flow generated by the mortgage assets underlying a series of CMOs
is applied first to make required payments of principal and interest on the CMOs
and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
part, the yield to maturity on the CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-related securities. See
"Stripped Mortgage-Related Securities" below. In addition, if a series of a CMO
includes a class that bears interest at an adjustable rate, the yield to
maturity on the related CMO residual will also be extremely sensitive to changes
in the level of the index upon which interest rate adjustments are based. As
described below with respect to stripped mortgage-related securities, in certain
circumstances a Fund may fail to recoup fully its initial investment in a CMO
residual.

CMO residuals are generally purchased and sold by institutional investors
through several investment banking firms acting as brokers or dealers. The CMO
residual market has recently developed and CMO residuals currently may not have
the liquidity of other more established securities trading in other markets.
Transactions in CMO residuals are generally completed only after careful review
of the characteristics of the securities in question. In addition, CMO residuals
may or, pursuant to an exemption therefrom, may not have been registered under
the Securities Act. CMO residuals, whether or not registered under such Act, may
be subject to certain restrictions on transferability, and may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities.

Stripped Mortgage-Related Securities. Stripped mortgage-related securities
("SMBS") are derivative multi-class mortgage securities. SMBS may be issued by
agencies or instrumentalities of the U.S. Government, or by private originators
of, or investors in, mortgage loans, including savings and loan associations,
mortgage banks, commercial banks, investment banks, and special purpose entities
of the foregoing.

SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the

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interest (the IO class), while the other class will receive all of the principal
(the PO class). The yield to maturity on an IO class is extremely sensitive to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on a Fund's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, a Fund may fail to fully recoup its initial investment in these
securities even if the security is in one of the highest rating categories.

Although SMBs are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently introduced. As a result, established trading markets have not
yet been fully developed and accordingly, these securities may be deemed
"illiquid" and subject to a Fund's limitations on investment in illiquid
securities. See "Securities and Techniques Used by the Funds-Mortgage-Related
Securities" in the Prospectus.

Inverse Floaters. An inverse floater is a debt instrument with a floating
or variable interest rate that moves in the opposite direction to the interest
rate on another security or index level. Changes in the interest rate on the
other security or index inversely affect the residual interest rate paid on the
inverse floater, with the result that the inverse floater's price will be
considerably more volatile than that of a fixed rate bond. Inverse floaters may
experience gains when interest rates fall and may suffer losses in periods of
rising interest rates. The market for inverse floaters is relatively new.

Tiered Index Bonds. Tiered index bonds are relatively new forms of
mortgage-related securities. The interest rate on a tiered index bond is tied to
a specified index or market rate. So long as this index or market rate is below
a predetermined "strike" rate, the interest rate on the tiered index bond
remains fixed. If, however, the specified index or market rate rises above the
"strike" rate, the interest rate of the tiered index bond will decrease. Thus,
under these circumstances, the interest rate on a tiered index bond, like an
inverse floater, will move in the opposite direction of prevailing interest
rates, with the result that the price of the tiered index bond may be
considerably more volatile than that of a fixed-rate bond.

ASSET-BACKED SECURITIES

The Fixed-Income Funds and the Balanced Fund may invest in various types of
asset-backed securities. Through the use of trusts and special purpose
corporations, various types of assets, primarily automobile and credit card
receivables and home equity loans, are being securitized in pass-through
structures similar to the mortgage pass-through or in a pay-through structure
similar to the CMO structure. Investments in these and other types of
asset-backed securities must be consistent with the investment objectives and
policies of the Funds.

RISK FACTORS RELATING TO INVESTING IN MORTGAGE-RELATED AND ASSET-BACKED
SECURITIES

The yield characteristics of mortgage-related and asset-backed securities
differ from traditional debt securities. Among the major differences are that
interest and principal payments are made more frequently, usually monthly, and
that principal may be prepaid at any time because the underlying mortgage loans
or other assets generally may be prepaid at any time. As a result, if the Funds
purchase such a security at a premium, a prepayment rate that is faster than
expected will reduce yield to maturity, while a prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity.
Alternatively, if the Funds purchase these securities at a discount, faster than
expected prepayments will increase, while slower than expected prepayments will
reduce, yield to maturity. The Funds may invest a portion of their assets in
derivative mortgage-related securities which are highly sensitive to changes in
prepayment and interest rates. The Advisor will seek to manage these risks (and
potential benefits) by diversifying its investments in such securities and
through hedging techniques.

During periods of declining interest rates, prepayment of mortgages
underlying mortgage-related securities can be expected to accelerate.
Accordingly, a Fund's ability to maintain positions in high-yielding
mortgage-related securities will be affected by reductions in the principal
amount of such securities resulting from such prepayments, and its ability to
reinvest the returns of principal at comparable yields is subject to generally
prevailing interest rates at that time. Conversely, slower than expected
prepayments may effectively
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change a security that was considered short or intermediate-term at the time of
purchase into a long-term security. Long-term securities tend to fluctuate more
in response to interest rate changes, leading to increased net asset value
volatility. Prepayments may also result in the realization of capital losses
with respect to higher yielding securities that had been bought at a premium or
the loss of opportunity to realize capital gains in the future from possible
future appreciation.

Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the complete benefit of a security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on these securities.

DURATION

In selecting securities for the Fixed-Income Funds and the Balanced Fund,
the Advisor makes use of the concept of duration for fixed-income securities.
Duration is a measure of the expected life of a fixed-income security. Duration
incorporates a bond's yield, coupon interest payments, final maturity and call
features into one measure. Most debt obligations provide interest ("coupon")
payments in addition to a final ("par") payment at maturity. Some obligations
also have call provisions. Depending on the relative magnitude of these
payments, the market values of debt obligations may respond differently to
changes in the level and structure of interest rates.

Duration is a measure of the expected life of a fixed-income security on a
present value basis. Duration takes the length of the time intervals between the
present time and the time that the interest and principal payments are scheduled
or, in the case of a callable bond, expected to be received, and weights them by
the present values of the cash to be received at each future point in time. For
any fixed-income security with interest payments occurring prior to the payment
of principal, duration is always less than maturity. In general, all other
things being the same, the lower the stated or coupon rate of interest of a
fixed-income security, the longer the duration of the security; conversely, the
higher the stated or coupon rate of interest of a fixed-income security, the
shorter the duration of the security.

Futures, options and options on futures have durations which, in general,
are closely related to the duration of the securities which underlie them.
Holding long futures or call option positions (backed by a segregated account of
cash and cash equivalents) will lengthen a Fund's duration by approximately the
same amount that holding an equivalent amount of the underlying securities
would.

Short futures or put options positions have durations roughly equal to the
negative duration of the securities that underlie those positions, and have the
effect of reducing portfolio duration by approximately the same amount that
selling an equivalent amount of the underlying securities would.

There are some situations where even the standard duration calculation does
not properly reflect the interest rate exposure of a security. For example,
floating and variable rate securities often have final maturities of ten or more
years; however, their interest rate exposure corresponds to the frequency of the
coupon reset. Another example where the interest rate exposure is not properly
captured by duration is the case of mortgage pass-through securities. The stated
final maturity of such securities is generally 30 years, but current prepayment
rates are more critical in determining the securities' interest rate exposure.
In these and other similar situations, the Advisor will use more sophisticated
analytical techniques that incorporate the economic life of a security into the
determination of its interest rate exposure.

DERIVATIVE INSTRUMENTS

As indicated in the Prospectus, to the extent consistent with their
investment objectives and policies, the Funds may purchase and write call and
put options on securities, securities indexes and on foreign currencies and
enter into futures contracts and use options on futures contracts. The Funds
also may enter into swap

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agreements with respect to foreign currencies, interest rates and securities
indexes. The Funds may use these techniques to hedge against changes in interest
rates, foreign currency exchange rates, or securities prices or as part of their
overall investment strategies. The International and the Fixed-Income Funds may
also purchase and sell options relating to foreign currencies for the purpose of
increasing exposure to a foreign currency or to shift exposure to foreign
currency fluctuations from one country to another. Each Fund will maintain
segregated accounts consisting of cash, U.S. Government securities, equity
securities or other liquid, unencumbered assets, marked-to-market daily (or, as
permitted by applicable regulation, enter into certain offsetting positions), to
cover its obligations under options and futures contracts to avoid leveraging of
the Fund.

Options on Securities and on Securities Indexes. A Fund may purchase put
options on securities to protect holdings in an underlying or related security
against a substantial decline in market value. A Fund may purchase call options
on securities to protect against substantial increases in prices of securities
the Fund intends to purchase pending its ability to invest in such securities in
an orderly manner. A Fund may sell put or call options it has previously
purchased, which could result in a net gain or loss depending on whether the
amount realized on the sale is more or less than the premium and other
transaction costs paid on the put or call option which is sold. A Fund may write
a call or put option only if the option is "covered" by the Fund holding a
position in the underlying securities or by other means which would permit
immediate satisfaction of the Fund's obligation as writer of the option. Prior
to exercise or expiration, an option may be closed out by an offsetting purchase
or sale of an option of the same series.

The purchase and writing of options involve certain risks. During the
option period, the covered call writer has, in return for the premium on the
option, given up the opportunity to profit from a price increase in the
underlying securities above the exercise price, but, as long as its obligation
as a writer continues, has retained the risk of loss should the price of the
underlying securities decline. The writer of an option has no control over the
time when it may be required to fulfill its obligation as a writer of the
option. Once an option writer has received an exercise notice, it cannot effect
a closing purchase transaction in order to terminate its obligation under the
option and must deliver the underlying securities at the exercise price. If a
put or call option purchased by the Fund is not sold when it has remaining
value, and if the market price of the underlying security, in the case of a put,
remains equal to or greater than the exercise price or, in the case of a call,
remains less than or equal to the exercise price, the Fund will lose its entire
investment in the option. Also, where a put or call option on a particular
security is purchased to hedge against price movements in a related security,
the price of the put or call option may move more or less than the price of the
related security. There can be no assurance that a liquid market will exist when
a Fund seeks to close out an option position. Furthermore, if trading
restrictions or suspensions are imposed on the options markets, a Fund may be
unable to close out a position.

There are several risks associated with transactions in options on
securities and on indexes. For example, there are significant differences
between the securities and options markets that could result in an imperfect
correlation between these markets, causing a given transaction not to achieve
its objectives. A decision as to whether when and how to use options involves
the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events.

There can be no assurance that a liquid market will exist when a Fund seeks
to close out an option position. If a Fund were unable to close out an option
that it had purchased on a security, it would have to exercise the option in
order to realize any profit or the option may expire worthless. If a Fund were
unable to close out a covered call option that it had written on a security, it
would not be able to sell the underlying security unless the option expired
without exercise. As the writer of a covered call option, a Fund forgoes, during
the option's life, the opportunity to profit from increases in the market value
of the security covering the call option above the sum of the premium and the
exercise price of the call.

If trading were suspended in an option purchased by a Fund, the Fund would
not be able to close out the option. If restrictions on exercise were imposed,
the Fund might be unable to exercise an option it had purchased. Except to the
extent that a call option on an index written by the Fund is covered by an
option on the same index purchased by the Fund, movements in the index may
result in a loss to the Fund; however,

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such losses may be mitigated by changes in the value of the Fund's securities
during the period the option was outstanding.

Futures Contracts and Options on Futures Contracts. A Fund may use interest
rate, foreign currency or index futures contracts, as specified for that Fund in
the Prospectus. An interest rate, foreign currency or index futures contract
provides for the future sale by one party and purchase by another party of a
specified quantity of a financial instrument, foreign currency or the cash value
of an index at a specified price and time. A futures contract on an index is an
agreement pursuant to which two parties agree to take or make delivery of an
amount of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written. Although the value of an index might be a
function of the value of certain specified securities, no physical delivery of
these securities is made. A public market exists in futures contracts covering
several indexes as well as a number of financial instruments and foreign
currencies, including: the S & P 500; the S & P 100; the NYSE composite; U.S.
Treasury bonds; U.S. Treasury notes; GNMA Certificates; three-month U.S.
Treasury bills; 90-day commercial paper; bank certificates of deposit; the
Australian dollar; the Canadian dollar; the British pound; the German mark; the
Japanese yen; the French franc; the Swiss franc; the Mexican peso; and certain
multinational currencies, such as the European Currency Unit ("ECU"). It is
expected that other futures contracts will be developed and traded in the
future.

A Fund may purchase and write call and put options on futures. Options on
futures possess many of the same characteristics as options on securities and
indexes (discussed above). An option on a futures contract gives the holder the
right, in return for the premium paid, to assume a long position (call) or short
position (put) in a futures contract at a specified exercise price at any time
during the period of the option. Upon exercise of a call option, the holder
acquires a long position in the futures contract and the writer is assigned the
opposite short position. In the case of a put option, the opposite is true.

Each Fund will use futures contracts and options on futures contracts in
accordance with the rules of the Commodity Futures Trading Commission ("CFTC").
For example, a Fund might use futures contracts to hedge against anticipated
changes in interest rates that might adversely affect either the value of the
Fund's securities or the price of the securities which the Fund intends to
purchase. A Fund's hedging activities may include sales of futures contracts as
an offset against the effect of expected increases in interest rates, and
purchases of futures contracts as an offset against the effect of expected
declines in interest rates. Although other techniques could be used to reduce
that Fund's exposure to interest rate fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost by using futures
contracts and options on futures contracts.

A Fund will only enter into futures contracts and options on futures
contracts which are standardized and traded on a U.S. or foreign exchange, board
of trade, or similar entity, or quoted on an automated quotation system.

When a purchase or sale of a futures contract is made by a Fund, the Fund
is required to deposit with its custodian (or broker, if legally permitted) a
specified amount of cash or U.S. Government securities ("initial margin"). The
margin required for a futures contract is set by the exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. Each Fund
expects to earn interest income on its initial margin deposits. A futures
contract held by a Fund is valued daily at the official settlement price of the
exchange on which it is traded. Each day the Fund pays or receives cash, called
"variation margin", equal to the daily change in value of the futures contract.
This process is known as "marking to market". Variation margin does not
represent a borrowing or loan by a Fund but is instead a settlement between the
Fund and the broker of the amount one would owe the other if the futures
contract expired. In computing daily net asset value, each Fund will mark to
market its open futures positions.

A Fund is also required to deposit and maintain margin with respect to put
and call options on futures contracts written by it. Such margin deposits will
vary depending on the nature of the underlying futures

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contract (and the related initial margin requirements), the current market value
of the option, and other futures positions held by the Fund.

Although some futures contracts call for making or taking delivery of the
underlying securities, generally these obligations are closed out prior to
delivery by offsetting purchases or sales of matching futures contracts (same
exchange, underlying security or index and delivery month). If an offsetting
purchase price is less than the original sale price, the Fund realizes a capital
gain, or if it is more, the Fund realizes a capital loss. Conversely, if an
offsetting sale price is more than the original purchase price, the Fund
realizes a capital gain, or if it is less, the Fund realizes a capital loss. The
transaction costs must also be included in these calculations.

Limitations on Use of Futures and Options Thereon. When purchasing a
futures contract, a Fund will maintain with its custodian (and mark-to-market on
a daily basis) cash, U.S. Government securities, equity securities or other
liquid, unencumbered assets that, when added to the amounts deposited with a
futures commission merchant as margin, are equal to the market value of the
futures contract. Alternatively, the Fund may "cover" its position by purchasing
a put option on the same futures contract with a strike price as high or higher
than the price of the contract held by the Fund.

When selling a futures contract, a Fund will maintain with its custodian
(and mark-to-market on a daily basis) liquid assets that, when added to the
amount deposited with a futures commission merchant as margin, are equal to the
market value of the instruments underlying the contract. Alternatively, the Fund
may "cover" its position by owning the instruments underlying the contract (or,
in the case of an index futures contract, a portfolio with a volatility
substantially similar to that of the index on which the futures contract is
based), or by holding a call option permitting the Fund to purchase the same
futures contract at a price no higher than the price of the contract written by
the Fund (or at a higher price if the difference is maintained in liquid assets
with the Trust's custodian).

When selling a call option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets that, when
added to the amounts deposited with a futures commission merchant as margin,
equal the total market value of the futures contract underlying the call option.
Alternatively, the Fund may cover its position by entering into a long position
in the same futures contract at a price no higher than the strike price of the
call option, by owning the instruments underlying the futures contract, or by
holding a separate call option permitting the Fund to purchase the same futures
contract at a price not higher than the strike price of the call option sold by
the Fund.

When selling a put option on a futures contract, a Fund will maintain with
its custodian (and mark-to-market on a daily basis) cash, U.S. Government
securities, equity securities or other liquid, unencumbered assets that equal
the purchase price of the futures contract, less any margin on deposit.
Alternatively, the Fund may cover the position either by entering into a short
position in the same futures contract, or by owning a separate put option
permitting it to sell the same futures contract so long as the strike price of
the purchased put option is the same or higher than the strike price of the put
option sold by the Fund.

In order to comply with current applicable regulations of the CFTC pursuant
to which the Trust avoids being deemed a "commodity pool operator," the Funds
are limited in their futures trading activities to positions which constitute
"bona fide hedging" positions within the meaning and intent of applicable CFTC
rules, or to non-hedging positions for which the aggregate initial margin and
premiums will not exceed 5% of the liquidation value of the Fund's assets.

The requirements for qualification as a regulated investment company also
may limit the extent to which a Fund may enter into futures contracts, options
thereon or forward contracts. See "Dividends and Tax Status."

Risks Associated with Futures and Options on Futures Contracts. There are
several risks associated with the use of futures contracts and options on
futures contracts as hedging techniques. A purchase or sale of a futures
contract may result in losses in excess of the amount invested in the futures
contract. There can be no guarantee that there will be a correlation between
price movements in the hedging vehicle and in the Fund securities being hedged.
In addition, there are significant differences between the securities and
futures
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markets that could result in an imperfect correlation between the markets,
causing a given hedge not to achieve its objectives. The degree of imperfection
of correlation depends on circumstances such as variation in speculative market
demand for futures and options on futures, including technical influences in
futures trading and options on futures, and differences between the financial
instruments being hedged and the instruments underlying the standard contracts
available for trading in such respects as interest rate levels, maturities, and
creditworthiness of issuers. A decision as to whether, when and how to hedge
involves the exercise of skill and judgment, and even a well-conceived hedge may
be unsuccessful to some degree because of market behavior or unexpected interest
rate trends.

Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.

There can be no assurance that a liquid market will exist at a time when a
Fund seeks to close out a futures contract or an option on futures position, and
that Fund would remain obligated to meet margin requirements until the position
is closed. In addition, many of the contracts discussed above are relatively new
instruments without a significant trading history. As a result, there can be no
assurance that an active secondary market will develop or continue to exist.

Additional Risks of Options on Securities, Futures Contracts, Options on
Futures Contracts, and Forward Currency Exchange Contracts and Options
Thereon. Options on securities, futures contracts, options on futures contracts,
currencies and options on currencies may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by: (1) other complex foreign political, legal and economic
factors; (2) lesser availability than in the United States of data on which to
make trading decisions; (3) delays in the Funds' ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States; and (4) lesser trading volume.

FOREIGN SECURITIES

The Funds may invest in American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or other securities convertible into securities of
issuers based in foreign countries. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted. ADRs are receipts, usually issued by a U.S. bank or trust company,
evidencing ownership of the underlying securities; EDRs are European receipts
evidencing a similar arrangement. Generally, ADRs are issued in registered form,
denominated in U.S. dollars, and are designed for use in the U.S. securities
markets; EDRs are issued in bearer form, denominated in other currencies, and
are designed for use in European securities markets.

The Fixed-Income Funds may also invest in fixed-income securities of
issuers located in emerging foreign markets. Emerging markets generally include
every country in the world other than the United States, Canada, Japan,
Australia, Malaysia, New Zealand, Hong Kong, South Korea, Singapore and most
Western European countries. In determining what countries constitute emerging
markets, the Advisor will consider, among other things, data, analysis and
classification of countries published or disseminated by the International Bank
for Reconstruction and Development (commonly known as the World Bank) and the
International Finance Corporation. Currently, investing in many emerging markets
may not be desirable or feasible, because of the lack of adequate custody
arrangements for a Fund's assets, overly burdensome repatriation and similar
restrictions, the lack of organized and liquid securities markets, unacceptable
political risks or other

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reasons. As opportunities to invest in securities in emerging markets develop,
the Funds expect to expand and further broaden the group of emerging markets in
which they invest.

From time to time, emerging markets have offered the opportunity for higher
returns in exchange for a higher level of risk. Accordingly, the Advisor
believes that each Fixed-Income Fund's ability to invest in emerging markets
throughout the world may enable the achievement of results superior to those
produced by funds, with similar objectives to those of these Funds, that invest
solely in securities in developed markets. There is no assurance that any
Fixed-Income Funds will achieve these results.

The Fixed-Income Funds may invest in the following types of emerging market
fixed-income securities: (1) fixed-income securities issued or guaranteed by
governments, their agencies, instrumentalities or political subdivisions, or by
government owned, controlled or sponsored entities, including central banks
(collectively, "Sovereign Debt"), including Brady Bonds (described below); (2)
interests in issuers organized and operated for the purpose of restructuring the
investment characteristics of Sovereign Debt; (3) fixed-income securities issued
by banks and other business entities; and (4) fixed-income securities
denominated in or indexed to the currencies of emerging markets. Fixed-income
securities held by the Funds may take the form of bonds, notes, bills,
debentures, bank debt obligations, short-term paper, loan participations,
assignments and interests issued by entities organized and operated for the
purpose of restructuring the investment characteristics of any of the foregoing.
There is no requirement with respect to the maturity of fixed-income securities
in which the Funds may invest.

The Fixed-Income Funds may invest in Brady Bonds and other Sovereign Debt
of countries that have restructured or are in the process of restructuring
Sovereign Debt pursuant to the Brady Plan. "Brady Bonds" are debt securities
issued under the framework of the Brady Plan, an initiative announced by former
U.S. Treasury Secretary Nicholas F. Brady in 1989 as a mechanism for debtor
nations to restructure their outstanding external commercial bank indebtedness.
In restructuring its external debt under the Brady Plan framework, a debtor
nation negotiates with its existing bank lenders as well as multilateral
institutions such as the International Bank for Reconstruction and Development
(the "World Bank") and the International Monetary Fund ("IMF"). The Brady Plan
framework, as it has developed, contemplates the exchange of commercial bank
debt for newly issued Brady Bonds. Brady Bonds may also be issued in respect of
new money being advanced by existing lenders in connection with the debt
restructuring. The World Bank and/or the IMF support the restructuring by
providing funds pursuant to loan agreements or other arrangements which enable
the debtor nation to collateralize the new Brady Bonds or to repurchase
outstanding bank debt at a discount.

Emerging market fixed-income securities generally are considered to be of a
credit quality below investment grade, even though they often are not rated by
any nationally recognized statistical rating organizations. Investment in
emerging market fixed-income securities will be allocated among various
countries based upon the Advisor's analysis of credit risk and its consideration
of a number of factors, including: (1) prospects for relative economic growth
among the different countries in which the Fixed-Income Funds may invest; (2)
expected levels of inflation; (3) government policies influencing business
conditions; (4) the outlook for currency relationships; and (5) the range of the
individual investment opportunities available to international investors. The
Advisor's emerging market sovereign credit analysis includes an evaluation of
the issuing country's total debt levels, currency reserve levels, net
exports/imports, overall economic growth, level of inflation, currency
fluctuation, political and social climate and payment history. Particular
fixed-income securities will be selected based upon credit risk analysis of
potential issuers, the characteristics of the security and interest rate
sensitivity of the various debt issues available with respect to a particular
issuer, analysis of the anticipated volatility and liquidity of the particular
debt instruments, and the tax implications to the Fund. The emerging market
fixed-income securities in which the Fixed-Income Funds may invest are not
subject to any minimum credit quality standards.

FOREIGN CURRENCY OPTIONS AND RELATED RISKS

The Funds may take positions in options on foreign currencies to hedge
against the risk of foreign exchange rate fluctuations on foreign securities the
Funds hold in their portfolios or intend to purchase. For

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example, if a Fund were to enter into a contract to purchase securities
denominated in a foreign currency, it could effectively fix the maximum U.S.
dollar cost of the securities by purchasing call options on that foreign
currency. Similarly, if a Fund held securities denominated in a foreign currency
and anticipated a decline in the value of that currency against the U.S. dollar,
it could hedge against such a decline by purchasing a put option on the currency
involved. The markets in foreign currency options are relatively new, and a
Fund's ability to establish and close out positions in such options is subject
to the maintenance of a liquid secondary market. There can be no assurance that
a liquid secondary market will exist for a particular option at any specific
time. In addition, options on foreign currencies are affected by all of those
factors that influence foreign exchange rates and investments generally.

The quantities of currencies underlying option contracts represent odd lots
in a market dominated by transactions between banks, and as a result extra
transaction costs may be incurred upon exercise of an option.

There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations be firm or revised on a
timely basis. Quotation information is generally representative of very large
transactions in the interbank market and may not reflect smaller transactions
where rates may be less favorable. Option markets may be closed while
round-the-clock interbank currency markets are open, and this can create price
and rate discrepancies.

Risks of Options Trading. The Funds may effectively terminate their rights
or obligations under options by entering into closing transactions. Closing
transactions permit a Fund to realize profits or limit losses on its options
positions prior to the exercise or expiration of the option. The value of a
foreign currency option depends on the value of the underlying currency relative
to the U.S. dollar. Other factors affecting the value of an option are the time
remaining until expiration, the relationship of the exercise price to market
price, the historical price volatility of the underlying currency and general
market conditions. As a result, changes in the value of an option position may
have no relationship to the investment merit of a foreign security. Whether a
profit or loss is realized on a closing transaction depends on the price
movement of the underlying currency and the market value of the option.

Options normally have expiration dates of up to nine months. The exercise
price may be below, equal to or above the current market value of the underlying
currency. Options that expire unexercised have no value, and a Fund will realize
a loss of any premium paid and any transaction costs. Closing transactions may
be effected only by negotiating directly with the other party to the option
contract, unless a secondary market for the options develops. Although the Funds
intend to enter into foreign currency options only with dealers which agree to
enter into, and which are expected to be capable of entering into, closing
transactions with the Funds, there can be no assurance that a Fund will be able
to liquidate an option at a favorable price at any time prior to expiration. In
the event of insolvency of the counter-party, a Fund may be unable to liquidate
a foreign currency option. Accordingly, it may not be possible to effect closing
transactions with respect to certain options, with the result that a Fund would
have to exercise those options that it had purchased in order to realize any
profit.

FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS

The Funds may use forward contracts to protect against uncertainty in the
level of future exchange rates. The Funds will not speculate with forward
contracts or foreign currency exchange rates.

A Fund may enter into forward contracts with respect to specific
transactions. For example, when a Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, or when a Fund
anticipates the receipt in a foreign currency of dividend or interest payments
on a security that it holds, the Fund may desire to "lock in" the U.S. dollar
price of the security or the U.S. dollar equivalent of the payment, by entering
into a forward contract for the purchase or sale, for a fixed amount of U.S.
dollars or foreign currency, of the amount of foreign currency involved in the
underlying transaction. A Fund will thereby be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
currency exchange rates during the period between the date on which the security
is purchased or sold, or on which the payment is declared, and the date on which
such payments are made or received.

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A Fund also may use forward contracts in connection with portfolio
positions to lock in the U.S. dollar value of those positions, to increase the
Fund's exposure to foreign currencies that the Advisor believes may rise in
value relative to the U.S. dollar or to shift the Fund's exposure to foreign
currency fluctuations from one country to another. For example, when the Advisor
believes that the currency of a particular foreign country may suffer a
substantial decline relative to the U.S. dollar or another currency, it may
enter into a forward contract to sell the amount of the former foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency. This investment practice generally is
referred to as "cross-hedging" when another foreign currency is used.

The precise matching of the forward contract amounts and the value of the
securities involved will not generally be possible because the future value of
such securities in foreign currencies will change as a consequence of market
movements in the value of those securities between the date the forward contract
is entered into and the date it matures. Accordingly, it may be necessary for a
Fund to purchase additional foreign currency on the spot (i.e., cash) market
(and bear the expense of such purchase) if the market value of the security is
less than the amount of foreign currency the Fund is obligated to deliver and if
a decision is made to sell the security and make delivery of the foreign
currency. Conversely, it may be necessary to sell on the spot market some of the
foreign currency received upon the sale of the portfolio security if its market
value exceeds the amount of foreign currency the Fund is obligated to deliver.
The projection of short-term currency market movements is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. Forward contracts involve the risk that anticipated currency
movements will not be accurately predicted, causing the Fund to sustain losses
on these contracts and transaction costs. A Fund may enter into forward
contracts or maintain a net exposure to such contracts only if (1) the
consummation of the contracts would not obligate the Fund to deliver an amount
of foreign currency in excess of the value of the Fund's portfolio securities or
other assets denominated in that currency, or (2) the Fund maintains in a
segregated account cash, U.S. Government securities, equity securities or other
liquid, unencumbered assets, marked-to-market daily, in an amount not less than
the value of the Fund's total assets committed to the consummation of the
contracts. Under normal circumstances, consideration of the prospect for
currency parities will be incorporated into the longer term investment decisions
made with regard to overall diversification strategies. However, the Advisor
believes it is important to have the flexibility to enter into such forward
contracts when it determines that the best interests of the Fund will be served.

At or before the maturity date of a forward contract that requires a Fund
to sell a currency, the Fund may either sell a portfolio security and use the
sale proceeds to make delivery of the currency or retain the security and offset
its contractual obligation to deliver the currency by purchasing a second
contract pursuant to which the Fund will obtain, on the same maturity date, the
same amount of the currency that it is obligated to deliver. Similarly, a Fund
may close out a forward contract requiring it to purchase a specified currency
by entering into a second contract entitling it to sell the same amount of the
same currency on the maturity date of the first contract. The Fund would realize
a gain or loss as a result of entering into such an offsetting forward contract
under either circumstance to the extent the exchange rate between the currencies
involved moved between the execution dates of the first and second contracts.

The cost to the Fund of engaging in forward contracts varies with factors
such as the currencies involved, the length of the contract period and the
market conditions then prevailing. Because forward contracts are usually entered
into on a principal basis, no fees or commissions are involved. The use of
forward contracts does not eliminate fluctuations in the prices of the
underlying securities the Fund owns or intends to acquire, but it does fix a
rate of exchange in advance. In addition, although forward contracts limit the
risk of loss due to a decline in the value of the hedged currencies, at the same
time they limit any potential gain that might result should the value of the
currencies increase.

Although the Funds value their assets daily in terms of U.S. dollars, they
do not intend to convert holdings of foreign currencies into U.S. dollars on a
daily basis. The Funds may convert foreign currency from time to time, and
investors should be aware of the costs of currency conversion. Although foreign
exchange dealers do not charge a fee for conversion, they do realize a profit
based on the difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign currency to a

B-17
<PAGE> 74

Fund at one rate, while offering a lesser rate of exchange should the Fund
desire to resell that currency to the dealer.

Swap Agreements. The Funds may enter into interest rate, index and currency
exchange rate swap agreements for purposes of attempting to obtain a particular
desired return at a lower cost to the Fund than if the Fund had invested
directly in an instrument that yielded the desired return. Swap agreements are
two party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In a standard "swap"
transaction, two parties agree to exchange the returns (or differentials in
rates of return) earned or realized on particular predetermined investments or
instruments. The gross returns to be exchanged or "swapped" between the parties
are calculated with respect to a "notional amount," i.e., the return on or
increase in value of a particular dollar amount invested at a particular
interest rate, in a particular foreign currency, or in a "basket" of securities
representing a particular index. The "notional amount" of the swap agreement is
only a fictive basis on which to calculate the obligations which the parties to
a swap agreement have agreed to exchange. A Fund's obligations (or rights) under
a swap agreement will generally be equal only to the net amount to be paid or
received under the agreement based on the relative values of the positions held
by each party to the agreement (the "net amount"). A Fund's obligations under a
swap agreement will be accrued daily (offset against any amounts owing to the
Fund) and any accrued but unpaid net amounts owed to a swap counter-party will
be covered by the maintenance of a segregated account consisting of cash, U.S.
Government securities, equity securities or other liquid, unencumbered assets
marked-to-market daily, to avoid any potential leveraging of the Fund's
portfolio. A Fund will not enter into a swap agreement with any single party if
the net amount owed or to be received under existing contracts with that party
would exceed 5% of the Fund's assets.

Whether a Fund's use of swap agreements will be successful in furthering
its investment objective of total return will depend on the Advisor's ability to
correctly predict whether certain types of investments are likely to produce
greater returns than other investments. Because they are two party contracts and
because they may have terms of greater than seven days, swap agreements may be
considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount
expected to be received under a swap agreement in the event of the default or
bankruptcy of a swap agreement counter-party. The Advisor will cause a Fund to
enter into swap agreements only with counter-parties that would be eligible for
consideration as repurchase agreement counter-parties. Restrictions imposed by
the Internal Revenue Code may limit the Funds' ability to use swap agreements.
The swaps market is a relatively new market and is largely unregulated. It is
possible that developments in the swaps market, including potential government
regulation, could adversely affect a Fund's ability to terminate existing swap
agreements or to realize amounts to be received under such agreements.

EMU CONVERSION

For a number of years, certain European countries have been seeking
economic unification that would, among other things, reduce barriers between
countries, increase competition among companies, reduce government subsidies in
certain industries, and reduce or eliminate currency fluctuations among these
European countries. The Treaty of European Union (the "Maastricht Treaty") seeks
to set out a framework for the European Economic and Monetary Union ("EMU")
among the countries that comprise the European Union ("EU"). Among other things,
EMU establishes a single common European currency (the "euro") that will be
introduced on January 1, 1999 and is expected to replace the existing national
currencies of all EMU participants by July 1, 2002. EMU is scheduled to take
effect for the initial EMU participants as of January 1, 1999, and will be
implemented over the weekend of January 1, 1999 through January 3, 1999
("conversion weekend"). Upon implementation of EMU, certain securities issued in
participating EU countries (beginning with government and corporate bonds) will
be redenominated in the euro, and, thereafter, will be listed, traded, declare
dividends and make other payments only in euros.

No assurance can be given that EMU will take effect, that the changes
planned for the EU can be successfully implemented, or that these changes will
result in the economic and monetary unity and stability intended. There is a
possibility that EMU will not be implemented, will be implemented but not
completed, or will be completed but then partially or completely unwound.
Because any participating country may opt out of EMU within the first three
years, it is also possible that a significant participant could choose to
abandon

B-18
<PAGE> 75

EMU, which could diminish its credibility and influence. Any of these
occurrences could have adverse effects on the markets of both participating and
non-participating countries, including sharp appreciation or depreciation of
participants' national currencies and a significant increase in exchange rate
volatility, a resurgence in economic protectionism, an undermining of confidence
in the European markets, an undermining of European economic stability, the
collapse or slowdown of the drive toward European economic unity, and/or
reversion of the attempts to lower government debt and inflation rates that were
introduced in anticipation of EMU. Also, withdrawal from EMU at any time after
the conversion weekend by an initial participant could cause disruption of the
financial markets as securities redenominated in euros are transferred back into
that country's national currency, particularly if the withdrawing country is a
major economic power. Such developments could have an adverse impact on the
Funds' investments in Europe generally or in specific countries participating in
EMU. Gains or losses from euro conversion may be taxable to International and
Global Equity Fund shareholders under foreign or, in certain limited
circumstances, U.S. tax laws.

In addition, computer, accounting, and trading systems must be capable of
recognizing the euro as a distinct currency immediately after the conversion
weekend. Like other investment companies and business organizations, the
International and Global Equity Funds could be adversely affected if the
computer, accounting, and trading systems used by the Advisor, the Funds'
service providers, or other entities with which the Funds or their service
providers do business do not properly address this issue prior to January 4,
1999.

RISK FACTORS RELATING TO INVESTING IN HIGH YIELD SECURITIES

Lower-rated or unrated (i.e., high yield) securities are more likely to
react to developments affecting market risk (such as interest rate sensitivity,
market perception of creditworthiness of the issuer and general market
liquidity) and credit risk (such as the issuer's inability to meet its
obligations) than are more highly rated securities, which react primarily to
movements in the general level of interest rates. The Advisor considers both
credit risk and market risk in making investment decisions for the Funds.
Investors should carefully consider the relative risk of investing in high yield
securities and understand that such securities are not generally meant for
short-term trading.

The amount of high yield securities outstanding proliferated in the 1980's
in conjunction with the increase in merger and acquisition and leveraged buyout
activity. Under adverse economic conditions, there is a risk that highly
leveraged issuers may be unable to service their debt obligations upon maturity.
In addition, the secondary market for high yield securities, which is
concentrated in relatively few market makers, may not be as liquid as the
secondary market for more highly rated securities. Under adverse market or
economic conditions, the secondary market for high yield securities could
contract further, independent of any specific adverse changes in the condition
of a particular issuer. As a result, the Advisor could find it more difficult to
sell these securities or may be able to sell the securities only at prices lower
than if such securities were widely traded. Prices realized upon the sale of
such lower-rated or unrated securities, under these circumstances, may be less
than the prices used in calculating the Funds' net asset value.

Lower-rated or unrated debt obligations also present risks based on payment
expectations. If an issuer calls the obligation for redemption, the Fund may
have to replace the security with a lower yielding security, resulting in a
decreased return for investors. If a Fund experiences unexpected net
redemptions, it may be forced to sell its higher-rated securities, resulting in
a decline in the overall credit quality of the Fund's portfolio and increasing
the exposure of the Fund to the risks of high yield securities.

ILLIQUID SECURITIES

A Fund may not hold more than 15% of its net assets in illiquid securities.
Illiquid securities include repurchase agreements which have a maturity of
longer than seven days, and securities that are illiquid by virtue of the
absence of a readily available market (either within or outside of the Unites
States) or legal or contractual restrictions of resale. Historically, illiquid
securities have included securities subject to contractual or legal restrictions
on resale because they have not been registered under the Securities Act,
securities which are otherwise not readily marketable and repurchase agreements
having a maturity of longer than seven days. Securities which have not been
registered under the Securities Act are referred to as private placements or

B-19
<PAGE> 76

restricted securities and are purchased directly from the issuer or in the
secondary market. Mutual funds do not typically hold a significant amount of
these restricted or other illiquid securities because of the potential for
delays on resale and uncertainly in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemption within seven days. The absence of a trading market can make it
difficult to ascertain a market value for illiquid investments. Also market
quotations are less readily available. The judgment of the Advisor may at times
play a greater role in valuing these securities than in the case of unrestricted
securities. A mutual fund might also have to register such restricted securities
in order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.

In recent years, however, a large institutional market has developed for
certain securities that are not registered under the Securities Act including
repurchase agreements, commercial paper, foreign securities, municipal
securities, convertible securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor a demand for
repayment. The fact that there are contractual or legal restrictions on resale
to the general public or to certain institutions may not be indicative of the
liquidity of such investments.

Rule 144A under the Securities Act allows for a broader institutional
trading market for securities otherwise subject to restriction on resale to the
general public. Rule 144A established a "safe harbor" from the registration
requirements of the Securities Act for resales of certain securities to
qualified institutional buyers. The investment adviser anticipates that the
market for certain restricted securities such as institutional commercial paper
and foreign securities will expand further as a result of this regulation and
the development of automated systems for the trading, clearance and settlement
of unregistered securities of domestic and foreign issuers, such as the PORTAL
System sponsored by the National Association of Securities Dealers, Inc.

Restricted securities eligible for resale pursuant to Rule 144A under the
Securities Act and commercial paper for which there is a readily available
market will not be deemed to be illiquid. The Advisor will monitor the liquidity
of such restricted securities subject to the supervision of the Trustees. In
reaching liquidity decisions, the Advisor will consider, inter alia, the
following factors: (1) the frequency of trades and quotes for the security; (2)
the number of dealers wishing to purchase or sell the security and the number of
other potential purchasers; (3) dealer undertakings to make a market in the
security; and (4) the nature of the security and the nature of the marketplace
trades (e.g., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of the transfer). In addition, in order for
commercial paper that is issued in reliance on Section 4(2) of the Securities
Act to be considered liquid, (1) it must be rated in one of the two highest
rating categories by at least two nationally recognized statistical rating
organizations ("NRSRO"), or if only one NRSRO rates the securities, by that
NRSRO, or, if unrated, be of comparable quality in the view of the Advisor; and
(2) it must not be "traded flat" (i.e., without accrued interest) or in default
as to principal or interest. Investing in Rule 144A securities could have the
effect of increasing the level of Fund illiquidity to the extent that qualified
institutional buyers become, for a time, uninterested in purchasing these
securities. Repurchase agreements subject to demand are deemed to have a
maturity equal to the notice period.

B-20
<PAGE> 77

MANAGEMENT

The Trustees and officers of the Trust are:

<TABLE>
<CAPTION>
POSITION
NAME, ADDRESS & AGE WITH TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
------------------- ------------------ --------------------------------------------
<S> <C> <C>
Robert L. Burch III (64).................. Trustee Managing Partner, A.W. Jones Co.
885 Third Avenue (investments); Chairman, Jonathan Mfg. Corp.
New York, NY 10022 (slide manufacturing).
John A. G. Gavin (67)..................... Trustee Chairman, Gamma Services Corp. (venture
2100 Century Park West capital) (since 1968); Principal, Gavin,
Los Angeles, CA 90067 Dailey & Partners (consulting) (since 1993);
U.S. Ambassador to Mexico (1981-1986);
Director, Atlantic Richfield Co., Dresser
Industries, Inc., Pinkertons, International
Wire Corp. and Kap Resources.
Joe Grills (63)........................... Trustee Member of the Committee of Investment of
P.O. Box 98 Employee Benefit Assets of the Financial
Rapidan, VA 22733 Executives Institute ("CIEBA") (since 1986);
Member of CIEBA's Executive Committee since
1988 and its Chairman (1991-1992); Assistant
Treasurer of International Business Machines
Incorporated ("IBM") and Chief Investment
Officer of the IBM Retirement Funds
(1986-1993); Member of the Investment
Advisory Committees: State of New York
Common Retirement Fund, Howard Hughes
Medical Institute and Virginia Retirement
System; Director and Vice Chairman of the
Board of Duke Management Company; Director
of KIMCO Realty Corp. and LaSalle Street
Fund; Trustee or Director of a number of
investment companies for which Merrill Lynch
Asset Management is the advisor.
John F. Hotchkis* (67).................... Trustee Chairman and Portfolio Manager of the
800 West 6th Street Advisor.
Los Angeles, CA 90017
Robert B. Hutchinson (78)................. Trustee Former Chairman (1987-88) and Director
2525 Montevista Place West (1976-88), Prudential Bank (savings bank);
Seattle, WA 98198 Former director and Senior Vice President,
Finance and Secretary, Simpson Investment
Co. (holding company for a wood products
company, pulp and paper company and a PVC
products company); Former director,
Enterprises International, Inc. (industrial
strapping material manufacturer); Former
member of the Advisory Committee of
Washington State Investment Board.
</TABLE>

B-21
<PAGE> 78

<TABLE>
<CAPTION>
POSITION
NAME, ADDRESS & AGE WITH TRUST PRINCIPAL OCCUPATIONS DURING PAST FIVE YEARS
------------------- ------------------ --------------------------------------------
<S> <C> <C>
Michael L. Quinn* (52).................... Trustee Chief Executive Officer of the Advisor
Merrill Lynch Capital (since November 1996); Head of Merrill Lynch
Management Group Capital Management Group (since 1995);
800 Scudders Mill Road co-head of the Equity Division of Merrill
Plainsboro, NJ 08536 Lynch, Pierce, Fenner & Smith Inc. (1991-
1995); Trustee, Valley Hospital and the
University of Denver. University of Denver
Merle T. Welshans (80).................... Trustee Adjunct Professor of Finance, Washington
14360 Ladue Road University; Chairperson of Investment
Chesterfield, MO 63017 Committee of the Missouri United Methodist
Foundation; Retired, Financial Vice
President, Union Electric Company of
Missouri.
Richard R. West (60)...................... Trustee Dean Emeritus of New York University's
Box 604 Leonard R. Stern School of Business (since
Genoa, NV 89411 1993); formerly Dean (1984-1993) and
Professor of Finance (1984-1995), New York
University's Leonard R. Stern School of
Business; Director, Vornado Realty Trust,
Inc., Alexander's Inc., and Bowne & Co.,
Inc.; Trustee or Director of a number of
investment companies for which Merrill Lynch
Asset Management is the advisor.
Nancy D. Celick (47)...................... President and Chief Administrative Officer and Director of
800 West 6th Street Principal the Advisor; Chief Financial Officer of the
Los Angeles, CA 90017 Executive Officer Advisor (1993-1998); Chief Financial Officer
of Kennedy-Wilson, Inc. (auction marketing
services) (1992-1993); Chief Financial of
Officer of First National Corporation (bank
holding company) (1984-1992).
Roger DeBard, PhD (56).................... Executive Vice Managing Director of the Advisor (since
800 West 6th Street President 1995); Partner of the Advisor (1994-1995);
Los Angeles, CA 90017 Principal of the Advisor (1992-1994);
Portfolio Manager of the Advisor (1985-
1992).
Mark D. Cone (30)......................... Vice President Vice President of the Advisor; Retail
800 West 6th Street Account Manager, Neuberger & Berman
Los Angeles, CA 90017 (1991-1994).
Gracie Fermelia (36)...................... Secretary, Vice President of the Advisor; Senior
800 West 6th Street Treasurer, and Manager, Price Waterhouse (1985-1994).
Los Angeles, CA 90017 Principal
Financial and
Accounting Officer
</TABLE>

- ---------------
* "Interested" Trustee, as defined in the 1940 Act, due to the relationship
indicated with the Advisor.

The Trust does not pay salaries to any of its officers or fees to any of
its Trustees affiliated with the Advisor. The following table sets forth the
aggregate compensation paid to the Trustees during the Trust's fiscal year ended
June 30, 1998 and the aggregate compensation paid to the Trustees for service on
the Trust's

B-22
<PAGE> 79

Board and that of any other fund for which the Advisor serves as investment
advisor or has an investment advisor that is an affiliated person of the Advisor
("Fund Complex") for the year ended December 31, 1997.

<TABLE>
<CAPTION>
TOTAL 1997
COMPENSATION
FROM TRUST
AND FUND
AGGREGATE COMPLEX
COMPENSATION PAID
NAME AND POSITION FROM TRUST TO TRUSTEES*
----------------- ------------ ------------
<S> <C> <C>
Robert L. Burch III................................ $ 9,000 $ 10,500
Trustee
John A. G. Gavin................................... $10,500 $ 9,000
Trustee
Joe Grills......................................... $12,000 $171,500
Trustee
John F. Hotchkis................................... $ -0- $ -0-
Trustee
Robert B. Hutchinson............................... $ 9,000 $ 9,000
Trustee
Michael L. Quinn................................... $ -0- $ -0-
Trustee
Merle T. Welshans.................................. $12,000 $ 12,000
Trustee
Richard R. West.................................... $12,000 $299,000
Trustee
</TABLE>

- ---------------

* The compensation from the Fund Complex includes service on the boards of
investment companies advised by Merrill Lynch Asset Management, LP and its
advisory affiliates (Mr. Grills serves 22 registered investment companies
representing 55 portfolios and Mr. West serves 54 registered investment
companies representing 79 portfolios).

For information as to ownership of shares by officers and Trustees of the
Trust, see below under "General Information About the Trust."

THE ADVISOR

The Advisor provides the Funds with management and investment advisory
services. Hotchkis and Wiley is a division of Merrill Lynch Asset Management,
L.P., located at 800 West 6th Street, Fifth Floor, Los Angeles, California
90017.

Each Fund, except for the Equity Fund for Insurance Companies and the
Fixed-Income Funds, pays the Advisor for the services performed a fee at the
annual rate of 0.75% of the Fund's average daily net assets. The Equity Fund for
Insurance Companies pays the Advisor a fee at the annual rate of 0.60% on the
first $10,000,000 of its average daily net assets and 0.50% of average daily net
assets in excess of $10,000,000. The Total Return Bond Fund pays the Advisor a
fee at the annual rate of 0.55% of its average daily net assets, although prior
to October 31, 1995, the Total Return Bond Fund paid the Advisor a fee at the
annual rate of 0.70% of its average daily net assets. The Low Duration Fund pays
the Advisor a fee at the annual rate of 0.46% of its average daily net assets.
Prior to October 31, 1995, the Low Duration Fund paid the Advisor at the same
annual rate as the Short-Term Investment Fund. The Short-Term Investment Fund
pays a fee at the annual rate of 0.40% of the Fund's average daily net assets
under $100,000,000, 0.35% of the Fund's average daily net assets from
$100,000,000 through $249,999,999, 0.30% of the Fund's average daily net assets
from $250,000,000 through $499,999,999, and 0.25% of the Fund's average daily
net assets over $500,000,000.

In addition, the Advisor has voluntarily agreed to limit the regular annual
operating expenses of the Equity Income Fund, Mid-Cap Fund, Small Cap Fund,
International Fund, Global Equity Fund, and Balanced Fund to 1.00% of each
Fund's average net assets. Additionally, the Advisor has agreed to limit the
regular annual operating expenses of the Total Return Bond Fund to 0.65%, the
Low Duration Fund to 0.58%,

B-23
<PAGE> 80

and the Short-Term Investment Fund to 0.48% of the Fund's average net assets.
There is no such limitation on the annual expenses of the Equity Fund for
Insurance Companies.

As a result of its agreement to limit Fund expenses, for the year ended
June 30, 1998, the Advisor waived a portion of its fee with respect to the
Mid-Cap Fund, Global Equity Fund, Total Return Bond Fund, Low Duration Fund, and
Short-Term Investment Fund in the amounts of $92,525, $111,644, $86,499,
$144,309, and $105,600, respectively. For the year ended June 30, 1998, the
Equity Income Fund, Small Cap Fund, International Fund, Balanced Fund, Total
Return Bond Fund, and Low Duration Fund paid $1,424,185, $491,489, $8,732,479,
$761,196, $39,539, and $773,803, respectively, to the Advisor. The Mid-Cap Fund,
Global Equity Fund, and Short-Term Investment Fund paid no advisory fees and
were reimbursed $52,325, $67,175, and $11,030, respectively, by the Advisor for
the year ended June 30, 1998.

As a result of its agreement to limit Fund expenses, the Advisor waived a
portion of its fee for the year ended June 30, 1997, with respect to the Small
Cap Fund, International Fund, Total Return Bond Fund, Low Duration Fund and
Short-Term Investment Fund in the amounts of $54,357, $391,595, $83,124,
$134,885, and $88,511, respectively, and for the period from commencement of
operations on January 2, 1997 through June 30, 1997, with respect to the Mid-Cap
Fund and Global Equity Fund in the amounts of $48,881 and $45,349, respectively.
For the year ended June 30, 1997, the Equity Income Fund, Small Cap Fund,
Balanced Fund, International Fund, Total Return Bond Fund, Low Duration Fund
paid $1,411,861, $82,914, $562,261, $3,694,456, $70,395 and $662,940,
respectively, to the Advisor. For the year ended June 30, 1997, the Short-Term
Investment Fund paid no advisory fee and was reimbursed $15,943 and for the
period from January 2, 1997 through June 30, 1997, the Mid-Cap Fund and Global
Equity Fund paid no advisory fees and were reimbursed $43,832 and $35,429,
respectively, by the Advisor.

As a result of its agreement to limit Fund expenses, for the year ended
June 30, 1996, the Advisor waived a portion of its fee with respect to the Small
Cap Fund, Balanced Fund, International Fund, Total Return Bond Fund, Low
Duration Fund and Short-Term Investment Fund in the amounts of $44,825, $31,555,
$169,480, $84,461, $29,763 and $69,867, respectively. For the year ended June
30, 1996, the Equity Fund, Small Cap Fund, Balanced Fund, International Fund,
Total Return Bond Fund, Low Duration Fund and Short-Term Investment Fund paid
$1,238,052, $114,521, $345,917, $939,065, $80,247, $676,352, and $1,164,
respectively, to the Advisor.

For the fiscal years ended June 30, 1998, 1997 and 1996, the Equity Fund
for Insurance Companies paid $196,908, $147,584, and $67,516, respectively, to
the Advisor. The Advisor pays all of the regular annual operating expenses,
except for the advisory fees, of the Equity Fund for Insurance Companies.

Each of the ten Investment Advisory Agreements provides that the Advisor
shall not be liable to the Trust for any error of judgment by the Advisor or for
any loss sustained by any of the Funds except in the case of a breach of
fiduciary duty with respect to the receipt of compensation for services (in
which case any award of damages will be limited as provided in the 1940 Act) or
of willful misfeasance, bad faith, gross negligence or reckless disregard of
duty.

PORTFOLIO TRANSACTIONS AND BROKERAGE

The Investment Advisory Agreements state that in connection with its duties
to arrange for the purchase and the sale of securities held in the portfolio of
each Fund by placing purchase and sale orders for that Fund, the Advisor shall
select such broker-dealers ("brokers") as shall, in the Advisor's judgment,
implement the policy of the Trust to achieve "best execution", i.e., prompt and
efficient execution at the most favorable securities price. In making such
selection, the Advisor is authorized in the Agreements to consider the
reliability, integrity and financial condition of the broker. The Advisor is
also authorized by the Agreements to consider whether the broker provides
brokerage and/or research services to the Fund and/or other accounts of the
Advisor. The Agreements state that the commissions paid to brokers may be higher
than another broker would have charged if a good faith determination is made by
the Advisor that the commission is reasonable in relation to the services
provided, viewed in terms of either that particular transaction or the Advisor's
overall responsibilities as to the accounts as to which it exercises investment
discretion and that the Advisor shall use its judgment in determining that the
amount of commissions paid are reasonable in relation to the value of
B-24
<PAGE> 81

brokerage and research services provided and need not place or attempt to place
a specific dollar value on such services or on the portion of commission rates
reflecting such services. The Agreements provide that to demonstrate that such
determinations were in good faith, and to show the overall reasonableness of
commissions paid, the Advisor shall be prepared to show that commissions paid
(1) were for purposes contemplated by the Agreements; (2) were for products or
services which provide lawful and appropriate assistance to the Advisor's
decision-making process; and (3) were within a reasonable range as compared to
the rates charged by brokers to other institutional investors as such rates may
become known from available information. The Advisor is also authorized to
consider sales of shares of each Fund and/or of any other investment companies
for which the Advisor acts as a factor in the selection of brokers to execute
brokerage and principal transactions, subject to the requirements of "best
execution", as defined above, although the Advisor is not currently doing so.

The research services discussed above may be in written form or through
direct contact with individuals and may include information as to particular
companies and securities as well as market, economic or institutional areas and
information assisting the Trust in the valuation of the Funds' investments. The
research which the Advisor receives for the Funds' brokerage commissions,
whether or not useful to a Fund, may be useful to the Advisor in managing the
accounts of the Advisor's other advisory clients. Similarly, the research
received for the commissions of such accounts may be useful to any Fund.

In the over-the-counter market, securities are generally traded on a "net"
basis with dealers acting as principal for their own accounts without a stated
commission although the price of the security usually includes a profit to the
dealer. Money market instruments usually trade on a "net" basis as well. On
occasion, certain money market instruments may be purchased by the Funds
directly from an issuer in which case no commissions or discounts are paid. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount.

The International Fund and the Global Equity Fund anticipate that their
brokerage transactions involving securities of companies headquartered in
countries other than the U.S. will be conducted primarily on the principal
exchanges of such countries. Transactions on foreign exchanges are usually
subject to fixed commissions which are generally higher than negotiated
commissions on U.S. transactions, although the Trust will endeavor to achieve
the best net results in effecting its portfolio transactions. There is generally
less government supervision and regulation of exchanges and brokers in foreign
countries than in the U.S.

The increase in portfolio turnover from fiscal 1996 to fiscal 1997 for the
Fixed-Income Funds was attributable to increases in portfolio transactions to
satisfy the Funds' liquidity needs.

During the three most recent fiscal years of the Trust, the following
brokerage commissions were paid by the Funds:

<TABLE>
<CAPTION>
FUND ENDED 6/30/98 ENDED 6/30/97 ENDED 6/30/96
---- ------------- ------------- -------------
<S> <C> <C> <C>
Equity Income..................................... $ 110,157 $ 230,762** $152,950
Mid-Cap........................................... $ 11,847 $ 1,984* --
Small Cap......................................... $ 195,891** $ 31,024 $ 45,342
International..................................... $2,249,821** $1,506,506** $905,601
Global Equity..................................... $ 22,157 $ 11,449* --
Balanced.......................................... $ 23,692 $ 25,414 $ 28,215
Low Duration...................................... $ -0- $ -0- $ -0-
Total Return Bond................................. $ -0- $ -0- $ -0-
Short-Term Investment............................. $ -0- $ -0- $ -0-
Equity Fund for Insurance Companies............... $ 16,115 $ 14,527 $ 24,542
</TABLE>

- ---------------
* Period from commencement of operations on January 2, 1997 through June 30,
1997.

** The increase in commissions paid by the Funds is due to significant increases
in those Funds' assets, resulting in an increase in investment purchases from
the previous year.

B-25
<PAGE> 82

Commissions paid to affiliated broker-dealers for the fiscal year ended
June 30, 1998 by the Equity Income, Global Equity and International Funds were
$12,468, $414 and $302,055, respectively.

NET ASSET VALUE

As indicated in each Prospectus, the net asset value per share of each
Fund's shares will be determined on each day that the New York Stock Exchange is
open for trading. That Exchange annually announces the days on which it will not
be open for trading; the most recent announcement indicates that it will not be
open on the following days: New Year's Day, Martin Luther King, Jr. Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. However, that Exchange may close on days not
included in that announcement. Also, no Fund is required to compute its net
asset value on any day on which no order to purchase or redeem its shares is
received.

Securities are valued by an independent pricing agent to the extent
possible. In determining the net asset value of each Fund's shares, equity
securities that are listed on a securities exchange (whether domestic or
foreign) or quoted by The Nasdaq Stock Market ("NSM") are valued at the last
sale price on that day as of the close of regular trading on the New York Stock
Exchange (which is currently 4:00 p.m., New York time), or, in the absence of
recorded sales, at the average of readily available closing bid and asked prices
on such exchange or on NSM. Unlisted equity securities that are not included in
NSM are valued at the average of the quoted bid and asked prices in the
over-the-counter market.

Fixed-income securities which are traded on a national securities exchange
will be valued at the last sale price or, if there was no sale on such day, at
the average of readily available closing bid and asked prices on such exchange.
However, securities with a demand feature exercisable within one to seven days
are valued at par. Prices for fixed-income securities may be based on quotations
received from one or more market-makers in the securities, or on evaluations
from pricing services. Fixed-income securities for which quotations or prices
are not readily available are valued at their fair value as determined by the
Advisor under guidelines established by the Board of Trustees, with reference to
fixed-income securities whose prices are more readily obtainable or to an
appropriate matrix utilizing similar factors. As a broader market does not
exist, the proceeds received upon the disposal of such securities may differ
from their recorded value. 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 value as of the 61st day prior to maturity, if
their original term to maturity exceeded 60 days.

Options, futures contracts and options thereon which are traded on
exchanges are valued at their last sale or settlement price as of the close of
the exchanges or, if no sales are reported, at the average of the quoted bid and
asked prices as of the close of the exchange.

Trading in securities listed on foreign securities exchanges or
over-the-counter markets is normally completed before the close of regular
trading on the New York Stock Exchange. In addition, foreign securities trading
may not take place on all business days in New York and may occur on days on
which the New York Stock Exchange is not open. In addition, foreign currency
exchange rates are generally determined prior to the close of trading on the New
York Stock Exchange. Events affecting the values of foreign securities and
currencies will not be reflected in the determination of net asset value unless
the Board of Trustees determines that the particular event would materially
affect net asset value, in which case an adjustment will be made. 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 exchange transactions conducted on a spot basis are valued at the spot
rate prevailing in the foreign exchange market.

Securities and other assets for which market quotations are not readily
available are valued at their fair value as determined by the Advisor under
guidelines established by and under the general supervision and responsibility
of the Board of Trustees.

B-26
<PAGE> 83

ISSUANCE OF FUND SHARES FOR SECURITIES

Investors may purchase Fund shares for consideration consisting of
securities rather than cash when, in the judgment of the Advisor, the
securities: (a) meet the investment objective and policies of the Fund, (b) are
liquid and not subject to restrictions on resale, and (c) have a value that is
readily ascertainable via listing on or trading in a recognized United States or
international exchange or market.

DIVIDENDS AND TAX STATUS

Each Fund has qualified as a regulated investment company. Qualification as
a regulated investment company requires, among other things, that (1) at least
90% of each Fund's annual gross income, without offset for losses from the sale
or other disposition of securities, be derived from payments with respect to
securities loans, interest, dividends and gains from the sale or other
disposition of securities, foreign currencies or options (including forward
contracts) thereon; and (2) each Fund diversify its holdings so that, at the end
of each quarter of the taxable year, (i) at least 50% of the market value of the
Fund's assets is represented by cash, U.S. Government securities and other
securities limited in respect of any one issuer to an amount not greater than 5%
of the Fund's assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its assets is invested in the
securities of any one issuer (other than U.S. Government securities). In
addition, in order not to be subject to federal taxation, each Fund must
distribute to its shareholders at least 90% of its net investment income, other
than net capital gains, earned in each year.

A Fund is required to pay an excise tax to the extent it does not
distribute to its shareholders during such calendar year at least 98% of its
ordinary income for that calendar year, 98% of its capital gains over capital
losses for the one-year period ending October 31 in such calendar year, and all
undistributed ordinary income and capital gains for the preceding respective
one-year period. The Funds intend to meet these distribution requirements to
avoid excise tax liability. The Funds also intend to continue distributing to
shareholders all of the excess of net long-term capital gain over net short-term
capital loss on sales of securities. If the net asset value of shares of a Fund
should, by reason of a distribution of realized capital gains, be reduced below
a shareholder's cost, such distribution would to that extent be a return of
capital to that shareholder even though taxable to the shareholder, and a sale
of shares by a shareholder at net asset value at that time would establish a
capital loss for federal tax purposes.

In determining the extent to which a Fund's dividends may be eligible for
the 70% dividends received deduction by corporate shareholders, interest income,
capital gain net income, gain or loss from Section 1256 contracts, dividend
income from foreign corporations and income from other sources will not
constitute qualified dividends. Corporate shareholders should consult their tax
advisors regarding other requirements applicable to the dividends received
deduction.

Special rules apply to the treatment of certain forward foreign currency
exchange contracts (Section 1256 contracts). At the end of each year, such
investments held by a Fund must be "marked to market" for federal income tax
purposes; that is, treated as having been sold at market value. Except to the
extent that such gains or losses are treated as "Section 988" gains or losses,
as described below, sixty percent of any gain or loss recognized on these
"deemed sales" and on actual dispositions may be treated as long-term capital
gain or loss, and the remainder will be treated as short-term capital gain or
loss.

Under the Internal Revenue Code, gains or losses attributable to
fluctuations in exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Fund actually collects such
receivables or pays such liabilities are treated as ordinary income or loss.
Similarly, gains or losses on forward foreign currency exchange contracts or
dispositions of debt securities denominated in a foreign currency attributable
to fluctuations in the value of the foreign currency between the date of
acquisition of the security and the date of disposition are also treated as
ordinary gain or loss. These gains, referred to as "Section 988" gains or
losses, increase or decrease the amount of a Fund's investment company taxable
income available to be distributed to its shareholders as ordinary income,
rather than increasing or decreasing the Fund's net capital gain. If Section 988
losses exceed other investment company taxable income during a taxable year, the
Fund would

B-27
<PAGE> 84

not be able to make any ordinary dividend distributions, or distributions made
before the losses were realized would be recharacterized as a return of capital
to shareholders, rather than as an ordinary dividend, reducing the basis of each
shareholder's shares.

Any loss realized on a sale, redemption or exchange of shares of a Fund by
a shareholder will be disallowed to the extent the shares are replaced within a
61-day period (beginning 30 days before the disposition of shares). Shares
received in connection with the payment of a dividend by a Fund constitute a
replacement of shares.

PERFORMANCE INFORMATION

Total Return. Average annual total return quotations used in the Funds'
advertising and promotional materials are calculated according to the following
formula:

P(1 + T)(n) = ERV

where P equals a hypothetical initial payment of $1000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1000 payment made at the
beginning of the period.

Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication. Average annual
total return, or "T" in the above formula, is computed by finding the average
annual compounded rates of return over the period that would equate the initial
amount invested to the ending redeemable value. Average annual total return
assumes the reinvestment of all dividends and distributions.

Average annual total returns for the periods ended June 30, 1998 are as
follows:

<TABLE>
<CAPTION>
ONE FIVE TEN SINCE
YEAR YEARS YEARS INCEPTION
----- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Equity Income Fund................... 22.6% 18.3% 14.9% 13.1% (Since 6/24/87)
Mid Cap Fund......................... 15.0% -- -- 22.0% (Since 1/2/97)
Small Cap Fund....................... 22.2% 16.6% 14.5% 14.5% (Since 9/20/85)
Global Equity Fund................... 7.6% -- -- 13.5% (Since 1/2/97)
International Fund................... 7.8% 15.1% -- 14.3% (Since 12/1/90)
Balanced Fund........................ 13.3% 12.7% 12.2% 12.4% (Since 8/13/85)
Total Return Bond Fund............... 11.0% -- -- 11.4% (Since 12/6/94)
Low Duration Fund.................... 7.2% 8.3% -- 8.2% (Since 5/18/93)
Short-Term Investment Fund........... 6.4% 6.5% -- 6.4% (Since 5/18/93)
Equity Fund for Insurance
Companies.......................... 23.7% 19.0% -- 18.4% (Since 1/29/93)
</TABLE>

Yield. Annualized yield quotations used in a Fund's advertising and
promotional materials are calculated by dividing the Fund's interest income for
a specified thirty-day period, net of expenses, by the average number of shares
outstanding during the period, and expressing the result as an annualized
percentage (assuming semi-annual compounding) of the net asset value per share
at the end of the period. Yield quotations are calculated according to the
following formula:

YIELD = 2 [(a - b + 1)(6) - 1]
-----
cd

where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends; and "d" equals the maximum offering price per share on the
last day of the period.

Except as noted below, in determining net investment income earned during
the period ("a" in the above formula), a Fund calculates interest earned on each
debt obligation held by it during the period by

B-28
<PAGE> 85

(1) computing the obligation's yield to maturity, based on the market value of
the obligation (including actual accrued interest) on the last business day of
the period or, if the obligation was purchased during the period, the purchase
price plus accrued interest; (2) dividing the yield to maturity by 360 and
multiplying the resulting quotient by the market value of the obligation
(including actual accrued interest). Once interest earned is calculated in this
fashion for each debt obligation held by the Fund, net investment income is then
determined by totaling all such interest earned.

For purposes of these calculations, the maturity of an obligation with one
or more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.

The 30-day yields for the Total Return Bond Fund, Low Duration Fund, and
Short-Term Investment Fund for the period ended June 30, 1998 were 6.4%, 6.3%,
and 6.0%, respectively.

Other information. Each Fund's performance data quoted in advertising and
other promotional materials represents past performance and is not intended to
predict or indicate future results. The return and principal value of an
investment in a Fund will fluctuate, and an investor's redemption proceeds may
be more or less than the original investment amount. In advertising and
promotional materials a Fund may compare its performance with data published by
Lipper Analytical Services, Inc. ("Lipper") or CDA Investment Technologies, Inc.
("CDA"). The Fund also may refer in such materials to mutual fund performance
rankings and other data, such as comparative asset, expense and fee levels,
published by Lipper or CDA. Advertising and promotional materials also may refer
to discussions of the Fund and comparative mutual fund data and ratings reported
in independent periodicals including, but not limited to, The Wall Street
Journal, Money Magazine, Forbes, Business Week, Financial World and Barron's.

GENERAL INFORMATION ABOUT THE TRUST

The Trustees changed the name of the Trust to Hotchkis and Wiley Funds
effective October 7, 1994. The Declaration of Trust permits the Trustees to
issue an unlimited number of full and fractional shares of beneficial interest
and to divide or combine the shares into a greater or lesser number of shares
without thereby changing the proportionate beneficial interest in each Fund.
Each share represents an interest in a Fund proportionately equal to the
interest of each other share. Upon the Trust's liquidation, all shareholders
would share pro rata in the net assets of the Fund in question available for
distribution to shareholders. If they deem it advisable and in the best interest
of shareholders, the Board of Trustees may create classes of shares. The Board
of Trustees has created ten series of shares, and may create additional series
in the future, which have separate assets and liabilities; each of such series
has or will have a designation including the word "Series." Income and operating
expenses not specifically attributable to a particular Fund are allocated fairly
among the Funds by the Trustees, generally on the basis of the relative net
assets of each Fund.

The Declaration of Trust provides that the Trustees will not be liable for
errors of judgment or mistakes of fact or law, but nothing in the Declaration of
Trust protects a Trustee against any liability to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his or
her office. The Declaration of Trust also provides that the Trust shall, upon
request, assume the defense of any claim made against any shareholder for any
act or obligation of the Trust and satisfy any judgment thereon.

Ten shareholders holding the lesser of $25,000 worth or one percent of a
Fund's shares may advise the Trustees in writing that they wish to communicate
with other shareholders for the purpose of requesting a meeting to remove a
Trustee. The Trustees will then, if requested by the applicants, mail at the
applicants' expense the applicants' communication to all other shareholders.

The Trust or any Fund may be terminated if approved by the vote of a
majority of the Trustees or by the approval of the holders of a majority of the
Trust's outstanding shares, as defined in the 1940 Act. If not so terminated,
the Trust will continue indefinitely.

B-29
<PAGE> 86

Rule 18f-2 under the 1940 Act provides that as to any investment company
which has two or more series outstanding and as to any matter required to be
submitted to shareholder vote, such matter is not deemed to have been
effectively acted upon unless approved by the holders of a "majority" (as
defined in the Rule) of the voting securities of each series affected by the
matter. Such separate voting requirements do not apply to the election of
Trustees or the ratification of the selection of accountants. The Rule contains
special provisions for cases in which an advisory contract is approved by one or
more, but not all, series. A change in investment policy may go into effect as
to one or more series whose holders so approve the change even though the
required vote is not obtained as to the holders of other affected series.

The Trust's custodian, Firstar Trust Company, 615 East Michigan Street,
Milwaukee, Wisconsin 53202, is responsible for holding the Funds' assets and
acts as the Trust's accounting services agent. The Chase Manhattan Bank, N.A.,
through its global custody network, provides custodial services for assets of
the Trust held outside the U.S. The Trust's independent accountants,
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Milwaukee, Wisconsin
53202, examine the Trust's financial statements and assist in the preparation of
certain reports to the Securities and Exchange Commission.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, the following shareholders owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Equity Income Fund:

McDonalds Charities Investment Program, P.O. Box 9242, Boston, MA
02209-9242 -- 12.38%

Northern States Power Company, P.O. Box 64482, St. Paul, MN
55164-0482 -- 9.25%

Sun Health, P.O. Box 9800, Calabasas, CA 91372-0800 -- 5.79%

Bernsen Foundation, 15 W. 6th Street, Suite 1308, Tulsa, OK
74119-5407 -- 5.38%

Lykes, 648 Grassmere Park, Nashville, TN 37211-3658 -- 5.29%

As of July 31, 1998, the following shareholder owned of record, but not
beneficially, more than five percent of the outstanding shares of the Equity
Income Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 14.37%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
less than 1.00% of the Equity Income Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, Merrill Lynch Retirement Plans, 265 Davidson Avenue,
Floor 4, Somerset, NJ 08873-4120, owned of record, and to the knowledge of the
Trust, beneficially 35.14% of the Mid-Cap Fund's outstanding shares and may be
deemed a controlling person of that Fund.

As of July 31, 1998, the following persons owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Mid-Cap Fund:

Elizabeth Janeway Foundation, P.O. Box 60078, Los Angeles, CA
90060-0078 -- 8.43%

John F. Hotchkis, 800 West 6th Street, Floor 5, Los Angeles, CA
90017-2704 -- 7.55%

B-30
<PAGE> 87

As of July 31, 1998, the following shareholder owned of record, but not
beneficially, more than five percent of the outstanding shares of the Mid-Cap
Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 6.62%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
7.77% of the Mid-Cap Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, the following shareholder owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Small Cap Fund:

Merrill Lynch Retirement Plans, 265 Davidson Avenue, Floor 4, Somerset, NJ
08873-4120 -- 16.36%

As of July 31, 1998, the following shareholder owned of record, but not
beneficially, more than five percent of the outstanding shares of the Small Cap
Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 35.71%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
3.59% of the Small Cap Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, the following shareholder owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the International Fund:

Merrill Lynch Retirement Plans, 4800 Dear Lake Drive, E Floor 3,
Jacksonville, FL 32246-6484 -- 8.72%

As of July 31, 1998, the following shareholders owned of record, but not
beneficially, more than five percent of the outstanding shares of the
International Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 32.32%

Smith Barney Inc., 333 W 34th Street, Floor 7, New York, NY
10001-2402 -- 11.39%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
10.52% of the International Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, John F. Hotchkis, 800 West 6th Street, Floor 5, Los
Angeles, CA 90017-2704, owned of record, and to the knowledge of the Trust,
beneficially 32.67% of the Global Equity Fund outstanding shares and may be
deemed a controlling person of that Fund.

As of July 31, 1998, the following shareholders owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Global Equity Fund:

Merrill Lynch Retirement Plans, 265 Davidson Avenue, Floor 4, Somerset, NJ
08873-4120 -- 25.89%

Hotchkis and Wiley, a division of Merrill Lynch Asset Management, L.P., 800
West Sixth Street, Fifth Floor, Los Angeles, CA 90017 -- 8.28%

B-31
<PAGE> 88

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
36.12% of the Global Equity Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, Mac & Co., 1 Cabot Road, Medford, MA 02155-5141, owned
of record, and to the knowledge of the Trust, beneficially 27.48% of the
Balanced Fund's outstanding shares and may be deemed to be a controlling person
of that Fund.

As of July 31, 1998, the following shareholder owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Balanced Fund:

Gibson Greetings, P.O. Box 94870, Cleveland, OH 44101 -- 5.73%

As of July 31, 1998, the following shareholder owned of record, but not
beneficially, more than five percent of the outstanding shares of the Balanced
Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 39.66%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
less than 1.00% of the Balanced Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, the following shareholders owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Total Return Bond Fund:

Golden Books Retirement Plan, 10101 Science Drive, Sturtevant, WI
53177-1757 -- 16.44%

YMCA of Metropolitan Los Angeles, P.O. Box 1066, Wall Street Station, New
York, NY 10286 -- 13.05%

Merrill Lynch Retirement Plans, 265 Davidson Avenue, Floor 4, Somerset, NJ
08873-4120 -- 7.11%

As of July 31, 1998, the following shareholder owned of record, but not
beneficially, more than five percent of the outstanding shares of the Total
Return Bond Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 32.55%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
4.62% of the Total Return Bond Fund's outstanding shares.

- --------------------------------------------------------------------------------

B-32
<PAGE> 89

PRINCIPAL HOLDERS:

As of July 31, 1998, the following shareholder owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Low Duration Fund:

Clayton Foundation, One Riverway, Suite 1440, Houston, TX 77056 -- 5.04%

As of July 31, 1998, the following shareholder owned of record, but not
beneficially, more than five percent of the outstanding shares of the Low
Duration Fund:

Charles Schwab & Co. Inc., 101 Montgomery Street, San Francisco, CA
94104-4122 -- 43.66%

MANAGEMENT:

As of July 31, 1998, the Trust's officers and Trustees as a group owned
2.84% of the Low Duration Fund's outstanding shares.

- --------------------------------------------------------------------------------

PRINCIPAL HOLDERS:

As of July 31, 1998, the following shareholders owned of record, and to the
knowledge of the Trust, beneficially more than five percent of the outstanding
shares of the Short-Term Investment Fund:

United Airlines Group Investment Trust, P.O. Box 92956, Chicago, IL
60675-295-6 -- 21.89%

Hotchkis and Wiley, 800 West Sixth Street, Floor 5, Los Angeles, CA
90017-2704 -- 10.80%

Mercantile Stores Company Pension Plan, 111 Wall Street, Floor 1, New York,
NY 10043-1000 -- 6.60%

KOOP Enterprises LP, 1052 Ski Park Court, Rio Linda, CA 95673-5003 -- 6.36%

B-33
<PAGE> 90

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
EQUITY INCOME FUND

<TABLE>
<CAPTION>
COMMON STOCKS -- 99.2% Shares Value
- ----------------------------------------------------------
<S> <C> <C>
AEROSPACE -- 4.0%
..........................................................
Lockheed Martin Corporation 12,000 $ 1,270,500
..........................................................
Northrop Grumman Corporation 40,729 4,200,178
..........................................................
Rockwell International
Corporation 32,721 1,572,653
..................... ..................... -----------
7,043,331
- ----------------------------------------------------------
APPAREL & TEXTILES -- 0.8%
..........................................................
Russell Corporation 46,000 1,388,625
- ----------------------------------------------------------
AUTO PARTS -- 1.7%
..........................................................
Dana Corporation 50,000 2,675,000
..........................................................
Meritor Automotive, Inc. 10,874 260,976
..................... ..................... -----------
2,935,976
- ----------------------------------------------------------
AUTOS & TRUCKS -- 6.9%
..........................................................
Ford Motor Company 106,000 6,254,000
..........................................................
General Motors Corporation 88,000 5,879,500
..................... ..................... -----------
12,133,500
- ----------------------------------------------------------
BANKS -- 6.6%
..........................................................
Banc One Corporation 16,000 893,000
..........................................................
First Chicago NBD Corporation 44,468 3,940,977
..........................................................
First Union Corporation 31,000 1,805,750
..........................................................
Fleet Financial Group, Inc. 31,000 2,588,500
..........................................................
KeyCorp 68,000 2,422,500
..................... ..................... -----------
11,650,727
- ----------------------------------------------------------
BEVERAGES -- 0.4%
..........................................................
Anheuser-Busch Companies, Inc. 16,500 778,594
- ----------------------------------------------------------
BUILDING & FOREST PRODUCTS -- 2.4%
..........................................................
Georgia-Pacific (Timber Group) 50,710 1,169,499
..........................................................
Weyerhaeuser Company 64,000 2,956,000
..................... ..................... -----------
4,125,499
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------
Shares Value
<S> <C> <C>
CHEMICALS -- 2.8%
..........................................................
The Dow Chemical Company 32,700 $ 3,161,681
..........................................................
Eastman Chemical Company 28,000 1,743,000
..................... ..................... -----------
4,904,681
- ----------------------------------------------------------
CONGLOMERATES -- 1.8%
..........................................................
Tenneco, Inc. 83,000 3,159,188
- ----------------------------------------------------------
CONSUMER PRODUCTS -- 1.0%
..........................................................
Tupperware Corporation 64,000 1,800,000
- ----------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 1.1%
..........................................................
Harsco Corporation 40,195 1,841,433
- ----------------------------------------------------------
FINANCIAL SERVICES -- 4.3%
..........................................................
Associates First Capital
Corporation - Class A 29,000 2,229,375
..........................................................
Beneficial Corporation 17,000 2,604,188
..........................................................
Household International, Inc. 19,500 970,125
..........................................................
Transamerica Corporation 15,500 1,784,437
..................... ..................... -----------
7,588,125
- ----------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES -- 2.4%
..........................................................
Whirlpool Corporation 62,000 4,262,500
- ----------------------------------------------------------
INSURANCE -- 6.2%
..........................................................
American General Corporation 44,000 3,132,250
..........................................................
Lincoln National Corporation 23,000 2,101,625
..........................................................
Safeco Corporation 57,900 2,627,212
..........................................................
St. Paul Companies, Inc. 42,000 1,766,625
..........................................................
TIG Holdings, Inc. 56,133 1,291,059
..................... ..................... -----------
10,918,771
- ----------------------------------------------------------
LEISURE/TOYS -- 1.1%
..........................................................
Fortune Brands, Inc. 48,200 1,852,687
- ----------------------------------------------------------
MACHINERY -- 1.6%
..........................................................
New Holland N.V. 143,300 2,812,263
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

1
<PAGE> 91
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
EQUITY INCOME FUND

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
METALS & MINING -- 3.3%
..........................................................
Aluminum Company of America 38,000 $ 2,505,625
..........................................................
Phelps Dodge Corporation 14,300 817,781
..........................................................
Reynolds Metals Company 44,000 2,461,250
..................... ..................... -----------
5,784,656
- ----------------------------------------------------------
NATURAL GAS -- 1.0%
..........................................................
Eastern Enterprises 39,000 1,672,125
- ----------------------------------------------------------
OIL -- DOMESTIC -- 8.4%
..........................................................
Atlantic Richfield Company 38,457 3,004,453
..........................................................
Occidental Petroleum Corporation 157,000 4,239,000
..........................................................
Phillips Petroleum Company 84,500 4,071,844
..........................................................
USX-Marathon Group, Inc. 52,000 1,784,250
..........................................................
Ultramar Diamond Shamrock
Corporation 50,000 1,578,125
..................... ..................... -----------
14,677,672
- ----------------------------------------------------------
PAPER -- 2.7%
..........................................................
Georgia-Pacific Group 20,493 1,207,806
..........................................................
International Paper Company 47,500 2,042,500
..........................................................
Union Camp Corporation 29,000 1,439,125
..................... ..................... -----------
4,689,431
- ----------------------------------------------------------
PHOTOGRAPHY & OPTICAL -- 1.6%
..........................................................
Eastman Kodak Company 38,800 2,834,825
- ----------------------------------------------------------
POLLUTION CONTROL -- 2.7%
..........................................................
Browning-Ferris Industries, Inc. 47,000 1,633,250
..........................................................
Waste Management, Inc. 87,000 3,045,000
..................... ..................... -----------
4,678,250
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- ----------------------------------------------------------
Shares Value
<S> <C> <C>
RAILROADS -- 1.9%
..........................................................
CSX Corporation 15,000 $ 682,500
..........................................................
Norfolk Southern Corporation 86,000 2,563,875
..................... ..................... -----------
3,246,375
- ----------------------------------------------------------
RETAIL -- 4.6%
..........................................................
Intimate Brands, Inc. 46,500 1,281,656
..........................................................
J.C. Penney Company, Inc. 35,000 2,530,937
..........................................................
May Department Stores Company 32,500 2,128,750
..........................................................
Sears, Roebuck & Company 34,400 2,100,550
..................... ..................... -----------
8,041,893
- ----------------------------------------------------------
SAVINGS & LOANS -- 4.2%
..........................................................
Fannie Mae 55,000 3,341,250
..........................................................
H.F. Ahmanson & Company 56,200 3,990,200
..................... ..................... -----------
7,331,450
- ----------------------------------------------------------
STEEL -- 2.3%
..........................................................
Allegheny Teledyne, Inc. 56,000 1,281,000
..........................................................
USX-U.S. Steel Group, Inc. 85,000 2,805,000
..................... ..................... -----------
4,086,000
- ----------------------------------------------------------
TOBACCO -- 3.9%
..........................................................
Philip Morris Companies, Inc. 151,825 5,978,109
..........................................................
UST, Inc. 30,000 810,000
..................... ..................... -----------
6,788,109
- ----------------------------------------------------------
TRUCKING -- 0.8%
..........................................................
Ryder System, Inc. 43,000 1,357,188
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

2
<PAGE> 92
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
EQUITY INCOME FUND

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
UTILITY -- ELECTRIC -- 11.1%
..........................................................
CMS Energy Corporation 72,000 $ 3,168,000
..........................................................
Central & South West Corporation 75,000 2,015,625
..........................................................
DTE Energy Company 48,000 1,938,000
..........................................................
Entergy Corporation 33,800 971,750
..........................................................
GPU, Inc. 25,000 945,313
..........................................................
Illinova Corporation 120,000 3,600,000
..........................................................
PacifiCorp 48,121 1,088,738
..........................................................
PECO Energy Company 19,168 559,466
..........................................................
PP&L Resources, Inc. 60,000 1,361,250
..........................................................
Public Service Enterprises Group,
Inc. 59,000 2,031,813
..........................................................
SCANA Corporation 62,000 1,848,375
..................... ..................... -----------
19,528,330
- ----------------------------------------------------------
UTILITY -- TELEPHONE -- 5.6%
..........................................................
AT&T Corporation 74,700 4,267,238
..........................................................
ALLTEL Corporation 68,000 3,162,000
..........................................................
Bell Atlantic Corporation 54,000 2,463,750
..................... ..................... -----------
9,892,988
- ----------------------------------------------------------
Total common stocks
(cost $129,676,443) 173,805,192
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
VARIABLE RATE Principal
DEMAND NOTES * -- 0.4% Amount Value
- ------------------------------------------------------------
<S> <C> <C>
General Mills, Inc., 5.2651% $230,978 $ 230,978
............................................................
Pitney Bowes, Inc., 5.2651% 596,679 596,679
..................... ...................... -----------
Total variable rate demand notes 827,657
(cost $827,657)
- ------------------------------------------------------------
Total investments -- 99.6%
(cost $130,504,100) 174,632,849
............................................................
Other assets in excess of
liabilities -- 0.4% 621,736
..................... ...................... -----------
Total net assets -- 100.0% $175,254,585
- ------------------------------------------------------------
</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, 1998.

See Notes to Financial Statements

3
<PAGE> 93

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
MID-CAP FUND

<TABLE>
<CAPTION>
COMMON STOCKS -- 93.7% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
AEROSPACE -- 1.9%
...........................................................
Northrop Grumman Corporation 1,400 $ 144,375
- -----------------------------------------------------------
APPAREL & TEXTILES -- 3.9%
...........................................................
Coats Viyella PLC ADR 24,600 91,118
...........................................................
Russell Corporation 6,700 202,256
...................... ...................... ----------
293,374
- -----------------------------------------------------------
AUTO PARTS -- 6.1%
...........................................................
Dana Corporation 1,800 96,300
...........................................................
Echlin, Inc. 1,800 88,312
...........................................................
ITT Industries, Inc. 3,500 130,812
...........................................................
Lear Corporation # 2,800 143,675
...................... ...................... ----------
459,099
- -----------------------------------------------------------
BANKS -- 7.2%
...........................................................
Compass Bancshares, Inc. 1,150 51,894
...........................................................
Colonial BancGroup, Inc. 2,000 64,500
...........................................................
First Midwest Bancorp, Inc. 2,000 87,937
...........................................................
Union Planters Corporation 1,600 94,100
...........................................................
UnionBanCal Corporation 2,500 241,250
...................... ...................... ----------
539,681
- -----------------------------------------------------------
BEVERAGES -- 1.7%
...........................................................
Pernod Ricard SA ADR 7,200 124,743
- -----------------------------------------------------------
CHEMICALS -- 3.9%
...........................................................
DSM N.V. ADR 3,500 89,813
...........................................................
Eastman Chemical Company 2,000 124,500
...........................................................
Lyondell Petrochemical Company 2,500 76,094
...................... ...................... ----------
290,407
- -----------------------------------------------------------
COMMUNICATION EQUIPMENT MANUFACTURERS -- 0.6%
...........................................................
Princeton Video Image, Inc. # 10,200 47,175
- -----------------------------------------------------------
COMMUNICATIONS & MEDIA -- 1.4%
...........................................................
Groupe AB SA ADR # 18,300 102,937
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
COMPUTERS -- 2.2%
...........................................................
Komag, Inc. # 5,600 $ 29,925
...........................................................
Quantum Corporation # 6,500 134,875
...................... ...................... ----------
164,800
- -----------------------------------------------------------
COMPUTER SOFTWARE & SERVICES -- 2.2%
...........................................................
Vanstar Corporation # 11,400 166,013
- -----------------------------------------------------------
CONSUMER NON-DURABLES -- MISCELLANEOUS -- 0.2%
...........................................................
The Dial Corporation 600 15,562
- -----------------------------------------------------------
CONSUMER PRODUCTS -- 1.9%
...........................................................
Tupperware Corporation 5,200 146,250
- -----------------------------------------------------------
CONTAINERS -- 2.7%
...........................................................
Crown Cork & Seal Company, Inc. 4,300 204,250
- -----------------------------------------------------------
ELECTRIC PRODUCTS -- 1.7%
...........................................................
UCAR International, Inc. # 4,500 131,344
- -----------------------------------------------------------
ELECTRONICS -- 2.8%
...........................................................
Avnet, Inc. 2,000 109,375
...........................................................
Silicon Valley Group, Inc. # 6,400 102,800
...................... ...................... ----------
212,175
- -----------------------------------------------------------
FOODS -- 1.2%
...........................................................
Dean Foods Company 1,700 93,394
- -----------------------------------------------------------
HEALTHCARE -- DRUGS -- 1.1%
...........................................................
Bergen Brunswig Corporation - Class
A 1,800 83,475
- -----------------------------------------------------------
HOSPITAL/HEALTHCARE MANAGEMENT -- 1.3%
...........................................................
Foundation Health Systems, Inc. -
Class A # 3,700 97,587
- -----------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES -- 2.3%
...........................................................
Whirlpool Corporation 2,500 171,875
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

4
<PAGE> 94
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
MID-CAP FUND

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
INSURANCE -- 3.6%
...........................................................
Harleysville Group, Inc. 3,400 $ 70,550
...........................................................
IPC Holdings Limited 3,000 90,938
...........................................................
Ohio Casualty Corporation 1,200 53,100
...........................................................
St. Paul Companies, Inc. 1,400 58,888
...................... ...................... ----------
273,476
- -----------------------------------------------------------
MACHINERY -- 3.2%
...........................................................
EVI Weatherford, Inc. # 3,230 119,914
...........................................................
New Holland N.V. 6,100 119,713
...................... ...................... ----------
239,627
- -----------------------------------------------------------
METALS & MINING -- 1.5%
...........................................................
Reynolds Metals Company 2,000 111,875
- -----------------------------------------------------------
MISCELLANEOUS -- 3.3%
...........................................................
American Coin Merchandising, Inc. # 9,800 193,550
...........................................................
Zapata Corporation 5,300 52,338
...................... ...................... ----------
245,888
- -----------------------------------------------------------
NATURAL GAS -- 1.0%
...........................................................
Equitable Resources, Inc. 1,400 42,700
...........................................................
MCN Energy Group, Inc. 1,300 32,337
...................... ...................... ----------
75,037
- -----------------------------------------------------------
OIL -- DOMESTIC -- 4.7%
...........................................................
Murphy Oil Corporation 2,600 131,787
...........................................................
Phillips Petroleum Company 2,000 96,375
...........................................................
Valero Energy Corporation 3,800 126,350
...................... ...................... ----------
354,512
- -----------------------------------------------------------
OIL & GAS DRILLING -- 3.4%
...........................................................
Diamond Offshore Drilling, Inc. 1,500 60,000
...........................................................
Nuevo Energy Corporation # 3,000 96,375
...........................................................
Pioneer Natural Resources Company 4,300 102,663
...................... ...................... ----------
259,038
- -----------------------------------------------------------
OIL & GAS SERVICES -- 2.4%
...........................................................
Tidewater, Inc. 5,500 181,500
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
OIL WELL SERVICES -- 0.2%
...........................................................
Bayard Drilling Technologies, Inc.
# 1,000 $ 8,125
...........................................................
TransCoastal Marine Services, Inc.
# 1,800 10,856
...................... ...................... ----------
18,981
- -----------------------------------------------------------
PAPER -- 2.7%
...........................................................
Chesapeake Corporation 2,800 109,025
...........................................................
Consolidated Papers, Inc. 3,400 92,650
...................... ...................... ----------
201,675
- -----------------------------------------------------------
POLLUTION CONTROL -- 1.0%
...........................................................
Waste Management International PLC
# 7,100 77,213
- -----------------------------------------------------------
PROFESSIONAL SERVICES -- 0.9%
...........................................................
Olsten Corporation 6,200 69,362
- -----------------------------------------------------------
PUBLISHING -- 0.1%
...........................................................
Playboy Enterprises, Inc. - Class A
# 500 8,187
- -----------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS -- 1.0%
...........................................................
Redwood Trust, Inc. 4,400 77,275
- -----------------------------------------------------------
RETAIL -- 1.1%
...........................................................
Family Dollar Stores, Inc. 4,300 79,550
- -----------------------------------------------------------
RETAIL -- SPECIALTY -- 0.8%
...........................................................
AutoZone, Inc. # 2,000 63,875
- -----------------------------------------------------------
SAVINGS & LOANS -- 2.2%
...........................................................
Charter One Financial, Inc. 2,500 84,219
...........................................................
Washington Federal, Inc. 3,003 82,958
...................... ...................... ----------
167,177
- -----------------------------------------------------------
STEEL -- 3.3%
...........................................................
AK Steel Holding Corporation 7,200 128,700
...........................................................
USX-U.S. Steel Group, Inc. 3,600 118,800
...................... ...................... ----------
247,500
- -----------------------------------------------------------
TOBACCO -- 3.9%
...........................................................
RJR Nabisco Holdings Corp. 9,000 213,750
...........................................................
Universal Corporation/VA 2,200 82,225
...................... ...................... ----------
295,975
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

5
<PAGE> 95
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
MID-CAP FUND

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
TRANSPORTATION -- AIR -- 0.7%
...........................................................
ASA Holdings, Inc. 1,000 $ 49,625
- -----------------------------------------------------------
TRUCKING -- 0.8%
...........................................................
Ryder System, Inc. 1,800 56,813
- -----------------------------------------------------------
UTILITY -- ELECTRIC -- 5.6%
...........................................................
GPU, Inc. 4,000 151,250
...........................................................
Montana Power Company 1,600 55,600
...........................................................
PacifiCorp 4,900 110,863
...........................................................
PP&L Resources, Inc. 4,700 106,631
...................... ...................... ----------
424,344
- -----------------------------------------------------------
Total common stocks
(cost $7,428,386) 7,067,021
- -----------------------------------------------------------
VARIABLE RATE
DEMAND NOTES* Principal
- -- 6.8% Amount
- -----------------------------------------------------------
General Mills, Inc., 5.2651% $200,000 200,000
...........................................................
Pitney Bowes, Inc., 5.2651% 200,000 200,000
...........................................................
Warner-Lambert Co., 5.2660% 111,047 111,047
............................................. ----------
Total variable rate demand notes 511,047
(cost $511,047)
- -----------------------------------------------------------
Total investments -- 100.5%
(cost $7,939,433) 7,578,068
...........................................................
Liabilities in excess of other
assets -- (0.5)% (38,888)
...................... ...................... ----------
Total net assets -- 100.0% $ 7,539,180
- -----------------------------------------------------------
</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, 1998.

ADR -- American Depository Receipts.

# -- Non-income producing security.

See Notes to Financial Statements

6
<PAGE> 96

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
SMALL CAP FUND

<TABLE>
<CAPTION>
COMMON STOCKS-- 96.1% Shares Value
- ------------------------------------------------------------
<S> <C> <C>
AEROSPACE -- 3.8%
............................................................
AVTEAM, Inc. # 337,700 $ 3,630,275
- ------------------------------------------------------------
AUTO PARTS -- 3.5%
............................................................
Stoneridge, Inc. # 157,600 2,876,200
............................................................
Titan International, Inc. 26,500 450,500
...................... ...................... ----------
3,326,700
- ------------------------------------------------------------
APPLIANCE & HOUSEHOLD FURNITURE -- 2.2%
............................................................
Hussman International, Inc. 110,800 2,056,725
- ------------------------------------------------------------
BANK & BANK HOLDING COMPANIES -- 2.0%
............................................................
Banknorth Group, Inc. 9,200 340,400
............................................................
First Midwest Bancorp Inc. 19,700 866,184
............................................................
Hubco, Inc. 18,000 644,625
...................... ...................... ----------
1,851,209
- ------------------------------------------------------------
CHEMICALS -- 3.2%
............................................................
The Carbide/Graphite Group, Inc.
# 110,600 3,076,063
- ------------------------------------------------------------
COMMERCIAL SERVICES -- 2.3%
............................................................
FirstService Corporation # 173,100 2,207,025
- ------------------------------------------------------------
COMMUNICATION EQUIPMENT/MANUFACTURERS -- 0.4%
............................................................
Princeton Video Image, Inc.# 73,800 341,325
- ------------------------------------------------------------
COMMUNICATIONS & MEDIA -- 2.0%
............................................................
Groupe AB SA ADR # 338,900 1,906,312
- ------------------------------------------------------------
COMPUTERS -- 1.6%
............................................................
Hutchinson Technology, Inc. # 19,500 531,375
............................................................
MICROS Systems, Inc. # 29,300 969,647
...................... ...................... ----------
1,501,022
- ------------------------------------------------------------
COMPUTER SYSTEMS -- 4.0%
............................................................
Radisys Corporation # 174,600 3,753,900
- ------------------------------------------------------------
ELECTRONICS -- 2.1%
............................................................
Hadco Corporation # 41,900 976,794
............................................................
Silicon Valley Group, Inc. # 60,900 978,206
...................... ...................... ----------
1,955,000
- ------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
ENTERTAINMENT -- 2.1%
............................................................
Alliance Communications
Corporation Class B # 116,000 $ 2,001,000
- ------------------------------------------------------------
FINANCE -- MISCELLANEOUS -- 3.2%
............................................................
Executive Risk, Inc. 41,700 3,075,375
- ------------------------------------------------------------
FOOD, BEVERAGE & TOBACCO -- 3.4%
............................................................
J & J Snack Foods Corporation # 154,300 3,221,012
- ------------------------------------------------------------
HEALTHCARE -- MISCELLANEOUS -- 5.0%
............................................................
HealthPlan Services Corporation 273,400 4,784,500
- ------------------------------------------------------------
INSURANCE -- 10.4%
............................................................
ESG Re Limited 284,200 6,145,825
............................................................
FPIC Insurance Group, Inc. # 36,100 1,213,862
............................................................
Stirling Cooke Brown Holdings
Limited 88,900 2,500,313
...................... ...................... ----------
9,860,000
- ------------------------------------------------------------
MACHINERY -- 4.8%
............................................................
Denison International PLC ADR # 183,000 3,614,250
............................................................
Hawk Corporation Class A # 56,100 988,763
...................... ...................... ----------
4,603,013
- ------------------------------------------------------------
METALS & MINING -- 0.3%
............................................................
Northwest Pipe Company # 12,900 303,150
- ------------------------------------------------------------
MISCELLANEOUS -- 12.5%
............................................................
American Coin Merchandising,
Inc. # 347,000 6,853,250
............................................................
Mac-Gray Corporation # 17,400 221,850
............................................................
Ralcorp Holdings, Inc. # 155,000 2,925,625
............................................................
Zapata Corporation 190,300 1,879,212
...................... ...................... ----------
11,879,937
- ------------------------------------------------------------
OIL EXPLORATION & PRODUCTION -- 2.2%
............................................................
Abraxas Petroleum Corporation # 83,100 758,288
............................................................
Trico Marine Services, Inc. # 100,100 1,370,119
...................... ...................... ----------
2,128,407
- ------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

7
<PAGE> 97
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
SMALL CAP FUND

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
OIL & GAS DRILLING -- 2.2%
............................................................
Coho Energy, Inc. # 134,000 $ 904,500
............................................................
Nuevo Energy Company # 36,000 1,156,500
...................... ...................... ----------
2,061,000
- ------------------------------------------------------------
PUBLISHING -- 3.9%
............................................................
Playboy Enterprises, Inc. Class
A # 35,500 581,313
............................................................
Playboy Enterprises, Inc. # 177,900 3,157,725
...................... ...................... ----------
3,739,038
- ------------------------------------------------------------
RETAIL -- FOOD CHAINS -- 3.7%
............................................................
Dominick's Supermarkets, Inc. # 79,700 3,551,631
- ------------------------------------------------------------
RETAIL -- JEWELRY -- 4.7%
............................................................
Finlay Enterprises, Inc. # 30,000 723,750
............................................................
Friedman's, Inc. # 223,600 3,703,375
...................... ...................... ----------
4,427,125
- ------------------------------------------------------------
SAVINGS & LOANS -- 1.2%
............................................................
Coastal Bancorp, Inc. 48,750 1,194,375
- ------------------------------------------------------------
SECURITY SERVICES -- 0.9%
............................................................
Wackenhut Corporation - Class B 39,000 838,500
- ------------------------------------------------------------
SOFTWARE -- 3.9%
............................................................
Vanstar Corporation # 251,600 3,663,925
- ------------------------------------------------------------
STEEL FABRICATOR -- 0.8%
............................................................
Citation Corporation # 24,010 480,200
............................................................
WHX Corporation # 19,400 249,775
...................... ...................... ----------
729,975
- ------------------------------------------------------------
TRANSPORTATION -- AIR FREIGHT -- 2.4%
............................................................
AirNet Systems, Inc. # 140,000 $ 2,257,500
- ------------------------------------------------------------
TRANSPORTATION -- AIRLINES -- 0.7%
............................................................
Aviall, Inc. # 48,000 657,000
- ------------------------------------------------------------
TRUCKING -- 0.7%
............................................................
Allied Holdings, Inc. # 31,200 657,150
- ------------------------------------------------------------
Total common stocks
(cost $90,573,759) 91,239,169
- ------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
CONVERTIBLE CORPORATE BONDS Principal
- -- 1.7% Amount Value
- ------------------------------------------------------------
<S> <C> <C>
Hutchinson Technology, (Acquired
3/13/98, cost $1,380,000),
6.0%, 3/15/2005 r $1,380,000 $ 1,593,900
- ------------------------------------------------------------
Total investments -- 97.8%
(cost $91,953,759) 92,833,069
............................................................
Other assets in excess of
liabilities -- 2.2% 2,080,207
...................... ...................... ----------
$94,913,276
Total net assets -- 100.0%
- ------------------------------------------------------------
</TABLE>

ADR -- American Depository Receipts.

# -- Non-income producing security.

r -- Restricted Security. Purchased in a private placement transaction; resale
to the public may require registration or may extend only to qualified
institutional buyers.

See Notes to Financial Statements

8
<PAGE> 98

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL FUND

<TABLE>
COMMON STOCKS -- 93.2%
- ------------------------------------------------------------
<S> <C> <C>
AUSTRALIA -- 2.5% Shares Value
- ------------------------------------------------------------
BANKS -- 1.8%
............................................................
Australia and New Zealand
Banking Group, Ltd. 3,751,475 $ 25,879,227
- ------------------------------------------------------------
BUILDING MATERIALS -- 0.7%
............................................................
Pioneer International, Ltd. 4,578,810 10,916,349
.................... ..................... -------------
Total Australia 36,795,576
- ------------------------------------------------------------
AUSTRIA -- 0.6%
- ------------------------------------------------------------
STEEL -- 0.6%
............................................................
Boehler-Uddeholm AG 132,640 8,763,278
.................... ..................... -------------
Total Austria 8,763,278
- ------------------------------------------------------------
CANADA -- 3.8%
- ------------------------------------------------------------
BANKS -- 1.5%
............................................................
Canadian Imperial Bank of
Commerce 705,092 22,679,292
- ------------------------------------------------------------
DIVERSIFIED INDUSTRIALS -- 1.0%
............................................................
Imasco, Ltd. 804,800 14,858,685
- ------------------------------------------------------------
METALS & MINERALS -- 1.3%
............................................................
Noranda, Inc. 1,067,399 18,436,695
.................... ..................... -------------
Total Canada 55,974,672
- ------------------------------------------------------------
DENMARK -- 0.7%
- ------------------------------------------------------------
BANKS -- 0.7%
............................................................
BG Bank A/S 162,505 10,064,796
.................... ..................... -------------
Total Denmark 10,064,796
- ------------------------------------------------------------
FINLAND -- 2.5%
- ------------------------------------------------------------
FOREST PRODUCTS & PAPER -- 2.1%
............................................................
Metra OYJ ABP 336,011 11,023,812
............................................................
UPM-Kymmene OYJ 732,430 20,158,067
.................... ..................... -------------
31,181,879
- ------------------------------------------------------------
MACHINERY -- 0.4%
............................................................
Rauma Group OYJ 251,930 5,165,807
.................... ..................... -------------
Total Finland 36,347,686
- ------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
FRANCE -- 8.4%
- ------------------------------------------------------------
BANKS -- 2.1%
............................................................
Societe Generale 150,880 $ 31,368,715
- ------------------------------------------------------------
BEVERAGES -- 1.2%
............................................................
Pernod-Ricard SA 263,778 18,280,260
- ------------------------------------------------------------
BUILDING MATERIALS & COMPONENTS -- 1.9%
............................................................
Lafarge SA 271,572 28,073,385
- ------------------------------------------------------------
OIL -- INTERNATIONAL -- 1.8%
............................................................
Elf Aquitaine SA 181,500 25,516,748
- ------------------------------------------------------------
TOBACCO -- 1.4%
............................................................
SEITA SA 455,293 20,633,424
.................... ..................... -------------
Total France 123,872,532
- ------------------------------------------------------------
GERMANY -- 4.8%
- ------------------------------------------------------------
BANKS -- 1.3%
............................................................
Commerzbank AG 485,960 18,495,747
- ------------------------------------------------------------
BUILDING MATERIALS -- 1.9%
............................................................
Friedrich Grohe AG 33,208 11,222,437
............................................................
Dyckerhoff AG 45,200 17,653,961
.................... ..................... -------------
28,876,398
- ------------------------------------------------------------
CHEMICALS -- 0.7%
............................................................
Bayer AG 189,886 9,825,495
- ------------------------------------------------------------
CONSUMER DURABLES -- MISCELLANEOUS -- 0.9%
............................................................
Buderus AG 27,795 13,860,282
.................... ..................... -------------
Total Germany 71,057,922
- ------------------------------------------------------------
HONG KONG -- 7.2%
- ------------------------------------------------------------
BANKS -- 1.4%
............................................................
HSBC Holdings PLC 880,400 21,531,153
- ------------------------------------------------------------
METALS & MINING -- 0.3%
............................................................
Yanzhou Coal Mining Co., Ltd.
# 21,746,000 4,153,547
- ------------------------------------------------------------
PRINTING & PUBLISHING -- 1.0%
............................................................
South China Morning Post
(Holdings), Ltd. 32,175,000 15,467,598
- ------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

9
<PAGE> 99
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL FUND

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
RETAIL -- GENERAL MERCHANDISE -- 0.2%
............................................................
Dickson Concepts
(International), Ltd. 2,208,000 $ 3,077,520
- ------------------------------------------------------------
REAL ESTATE DEVELOPMENT -- 1.5%
............................................................
Hang Lung Development Company 8,150,000 8,098,906
............................................................
New World Development Co.,
Ltd. 7,124,000 13,790,919
.................... ..................... -------------
21,889,825
- ------------------------------------------------------------
UTILITY -- ELECTRIC -- 2.3%
............................................................
CLP Holdings Limited 4,540,000 20,682,765
............................................................
Swire Pacific Ltd. - Class A 3,419,800 12,909,357
.................... ..................... -------------
33,592,122
- ------------------------------------------------------------
UTILITY -- TELECOMMUNICATIONS -- 0.5%
............................................................
Hong Kong Telecommunications,
Ltd. 3,807,200 7,149,024
.................... ..................... -------------
Total Hong Kong 106,860,789
- ------------------------------------------------------------
IRELAND -- 2.3%
- ------------------------------------------------------------
FOOD PRODUCERS -- 0.6%
............................................................
Greencore Group PLC 1,546,416 8,412,277
- ------------------------------------------------------------
PAPER -- 1.7%
............................................................
Jefferson Smurfit Group PLC 8,482,255 25,200,756
.................... ..................... -------------
Total Ireland 33,613,033
- ------------------------------------------------------------
ITALY -- 1.7%
- ------------------------------------------------------------
OIL EXPLORATION & PRODUCTION -- 1.7%
............................................................
ENI SPA 3,783,924 24,799,703
.................... ..................... -------------
Total Italy 24,799,703
- ------------------------------------------------------------
JAPAN -- 9.4%
- ------------------------------------------------------------
AUTO PARTS -- 0.5%
............................................................
Koito Manufacturing Co., Ltd. 1,414,000 6,979,068
- ------------------------------------------------------------
AUTOS & TRUCKS -- 0.4%
............................................................
Suzuki Motor Corporation 647,000 5,873,977
- ------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
ELECTRONIC COMPONENTS -- 1.7%
............................................................
Nintendo Co., Ltd. 263,800 $ 24,425,043
- ------------------------------------------------------------
ELECTRONICS -- 3.0%
............................................................
Kyocera Corporation 466,900 22,809,249
............................................................
Nichicon Corporation 1,165,000 13,011,131
............................................................
Sony Corporation 99,400 8,558,777
.................... ..................... -------------
44,379,157
- ------------------------------------------------------------
FINANCIAL SERVICES -- 1.2%
............................................................
Promise Company, Ltd. 442,400 18,201,562
- ------------------------------------------------------------
IRON/STEEL -- 0.6%
............................................................
Yodogawa Steel Works 1,911,000 8,936,404
- ------------------------------------------------------------
LEISURE -- TOYS -- 1.5%
............................................................
NAMCO, Ltd. 963,300 22,488,681
- ------------------------------------------------------------
REAL ESTATE INVESTMENT & MANAGEMENT -- 0.5%
............................................................
Daito Trust Construction Co.,
Ltd. 949,000 7,179,810
.................... ..................... -------------
Total Japan 138,463,702
- ------------------------------------------------------------
NETHERLANDS -- 8.4%
- ------------------------------------------------------------
BANKS -- 1.7%
............................................................
ABN AMRO Holding N.V. 1,043,725 24,422,757
- ------------------------------------------------------------
CHEMICALS -- 1.6%
............................................................
Akzo Nobel N.V. 109,074 24,246,745
- ------------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 0.5%
............................................................
Hollandsche Beton Groep N.V. 381,500 7,951,738
- ------------------------------------------------------------
INSURANCE -- 0.9%
............................................................
Fortis Amev N.V. 242,471 14,196,236
- ------------------------------------------------------------
INSURANCE -- MULTI-LINE -- 2.2%
............................................................
ING Groep N.V. 490,381 32,109,941
- ------------------------------------------------------------
TELECOMMUNICATIONS -- 0.9%
............................................................
Koninklijke KPN NV 331,530 12,761,045
- ------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

10
<PAGE> 100
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL FUND

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION SERVICES -- 0.6%
............................................................
TNT Post Group N.V. # 331,530 $ 8,474,768
.......................................... -------------
Total Netherlands 124,163,230
- ------------------------------------------------------------
NEW ZEALAND -- 0.3%
- ------------------------------------------------------------
BUILDING MATERIALS -- 0.3%
............................................................
Fletcher Challenge Building 3,788,279 4,719,467
.......................................... -------------
Total New Zealand 4,719,467
- ------------------------------------------------------------
NORWAY -- 1.7%
- ------------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 0.6%
............................................................
Kvaerner ASA - Class A 267,545 9,065,139
- ------------------------------------------------------------
PHARMACEUTICALS & HEALTHCARE -- 1.1%
............................................................
Nycomed Amersham 2,172,315 16,136,225
.......................................... -------------
Total Norway 25,201,364
- ------------------------------------------------------------
SINGAPORE -- 1.0%
- ------------------------------------------------------------
BANKS -- 0.5%
............................................................
Development Bank of
Singapore, Ltd. 1,443,370 7,987,957
- ------------------------------------------------------------
DIVERSIFIED INDUSTRIES -- 0.5%
............................................................
Jardine Matheson Holdings,
Ltd. 2,780,600 7,507,620
.......................................... -------------
Total Singapore 15,495,577
- ------------------------------------------------------------
SPAIN -- 3.8%
- ------------------------------------------------------------
BANKS -- 1.5%
............................................................
Banco Santander SA 846,000 21,690,179
- ------------------------------------------------------------
OIL -- INTERNATIONAL -- 1.3%
............................................................
Repsol SA 353,375 19,504,986
- ------------------------------------------------------------
TELECOMMUNICATIONS -- 1.0%
............................................................
Telefonica de Espana SA 316,363 14,651,600
.......................................... -------------
Total Spain 55,846,765
- ------------------------------------------------------------
SWEDEN -- 1.5%
- ------------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.5%
............................................................
Electrolux AB - Class B 1,313,650 22,566,925
.......................................... -------------
Total Sweden 22,566,925
- ------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
SWITZERLAND -- 9.6%
- ------------------------------------------------------------
BANKS -- 1.3%
............................................................
Credit Suisse Group 84,448 $ 18,790,199
- ------------------------------------------------------------
BUILDING MATERIALS -- 0.6%
............................................................
Sarna Kunststoff Holding AG
"registered" 5,080 8,875,194
- ------------------------------------------------------------
FOOD PRODUCERS -- 1.8%
............................................................
Nestle SA "registered" 12,189 26,084,639
- ------------------------------------------------------------
INSURANCE -- 1.7%
............................................................
Swiss Reinsurance Co.
"registered" 10,090 25,517,493
- ------------------------------------------------------------
MACHINERY & EQUIPMENT -- 2.7%
............................................................
SIG Schweizerische Industrie-
Gesellschaft Holding 21,432 17,450,099
............................................................
Sulzer AG "registered" (P.C.) 28,680 22,632,970
.......................................... -------------
40,083,069
- ------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 1.5%
............................................................
Novartis AG "registered" 13,633 22,685,535
.......................................... -------------
Total Switzerland 142,036,129
- ------------------------------------------------------------
UNITED KINGDOM -- 23.0%
- ------------------------------------------------------------
APPAREL & TEXTILES -- 0.6%
............................................................
Coats Viyella PLC 7,665,850 9,400,992
- ------------------------------------------------------------
AUTOS -- 0.8%
............................................................
Lex Service PLC 1,367,300 11,292,628
- ------------------------------------------------------------
BANKS -- 2.9%
............................................................
Abbey National PLC 1,022,349 18,166,648
............................................................
National Westminster Bank PLC 1,401,031 25,035,901
.......................................... -------------
43,202,549
- ------------------------------------------------------------
BUILDING MATERIALS -- 1.7%
............................................................
Hanson PLC 4,012,587 24,386,532
- ------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

11
<PAGE> 101
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
INTERNATIONAL FUND

<TABLE>
<CAPTION>
Shares Value
- ------------------------------------------------------------
<S> <C> <C>
DIVERSIFIED -- 1.4%
............................................................
Cookson Group PLC 6,214,560 $ 21,360,117
- ------------------------------------------------------------
DIVERSIFIED INDUSTRIALS -- 3.5%
............................................................
BTR PLC 5,819,190 16,505,834
............................................................
Elementis PLC 1,813,920 4,600,317
............................................................
Tomkins PLC 5,529,083 30,005,193
.......................................... -------------
51,111,344
- ------------------------------------------------------------
ENERGY -- MISCELLANEOUS -- 0.5%
............................................................
BG PLC 1,235,294 7,141,667
- ------------------------------------------------------------
FOOD & BEVERAGES -- 1.6%
............................................................
Allied Domecq PLC 2,578,004 24,216,869
- ------------------------------------------------------------
FOOD PRODUCERS -- 1.9%
............................................................
Hillsdown Holdings PLC 8,384,145 22,801,971
............................................................
Tate & Lyle PLC 666,200 5,282,661
.......................................... -------------
28,084,632
- ------------------------------------------------------------
INSURANCE -- 1.9%
............................................................
CGU PLC 1,514,885 28,258,394
- ------------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 1.0%
............................................................
Medeva PLC 5,075,970 14,397,729
- ------------------------------------------------------------
RETAIL -- FOOD CHAINS -- 1.1%
............................................................
Safeway PLC 2,502,850 16,390,813
- ------------------------------------------------------------
TOBACCO -- 1.9%
............................................................
B.A.T Industries PLC 2,787,129 27,901,936
- ------------------------------------------------------------
UTILITY -- ELECTRIC -- 1.0%
............................................................
Powergen PLC 1,080,000 14,920,388
- ------------------------------------------------------------
UTILITY -- WATER -- 1.2%
............................................................
Hyder PLC 1,129,000 17,688,278
.......................................... -------------
Total United Kingdom 339,754,868
............................................................
Total common stocks
(cost $1,183,166,225) 1,376,398,014
- ------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS
- -- 6.7%
- -----------------------------------------------------------
Principal
COMMERCIAL PAPER -- 6.4% Amount Value
- -----------------------------------------------------------
<S> <C> <C>
Centex Corporation
7.00%, 7/01/1998 $20,000,000 $ 20,000,000
...........................................................
International Lease Finance
Corporation
5.51%, 7/07/1998 30,000,000 29,972,450
...........................................................
Lockheed Martin Corporation
5.67%, 7/06/1998 44,750,000 44,714,759
.......................................... -------------
94,687,209
- -----------------------------------------------------------
CASH EQUIVALENTS -- 0.3%
- -----------------------------------------------------------
Vista Institutional Prime
Money Market Fund 4,826,689 4,826,689
- -----------------------------------------------------------
Total short-term investments
(cost $99,513,898) 99,513,898
- -----------------------------------------------------------
Total investments -- 99.9%
(cost $1,282,680,123) 1,475,911,912
...........................................................
Other assets in excess of
liabilities -- 0.1% 893,472
.......................................... -------------
Total net assets -- 100.0% $1,476,805,384
- -----------------------------------------------------------
</TABLE>

# Non-income producing security.

P.C. -- Participation Certificates.

See Notes to Financial Statements

12
<PAGE> 102

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND

<TABLE>
<CAPTION>
COMMON STOCKS -- 99.4%
- -----------------------------------------------------------
AUSTRALIA -- 2.9% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
BANKS -- 1.6%
...........................................................
Australia & New Zealand Banking
Group, Ltd. 16,940 $ 116,859
- -----------------------------------------------------------
DIVERSIFIED COMPANIES -- 1.3%
...........................................................
Reinsurance Australia Corporation 37,170 94,878
...................... ...................... ---------
Total Australia 211,737
- -----------------------------------------------------------
CANADA -- 2.9%
- -----------------------------------------------------------
BANKS -- 1.6%
...........................................................
Canadian Imperial Bank of Commerce 3,710 119,332
- -----------------------------------------------------------
METALS & MINERALS -- 1.3%
...........................................................
Noranda, Inc. 5,415 93,531
...................... ...................... ---------
Total Canada 212,863
- -----------------------------------------------------------
FINLAND -- 2.7%
- -----------------------------------------------------------
FOREST PRODUCTS & PAPER -- 2.7%
...........................................................
UPM-Kymmene Corporation OYJ 4,035 111,052
...........................................................
Metra OYJ ABP 2,651 86,974
...................... ...................... ---------
Total Finland 198,026
- -----------------------------------------------------------
FRANCE -- 6.4%
- -----------------------------------------------------------
BANKS -- 2.0%
...........................................................
Societe Generale 725 150,731
- -----------------------------------------------------------
BEVERAGES -- 1.1%
...........................................................
Pernod-Ricard SA 1,200 83,162
- -----------------------------------------------------------
BUILDING MATERIALS & COMPONENTS -- 1.9%
...........................................................
Lafarge SA 1,327 137,177
- -----------------------------------------------------------
TOBACCO -- 1.4%
...........................................................
SEITA SA 2,235 101,288
...................... ...................... ---------
Total France 472,358
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
GERMANY -- 2.7% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
BANKS -- 1.3%
...........................................................
Commerzbank AG 2,500 $ 95,151
- -----------------------------------------------------------
MEDICAL PRODUCTS -- 1.4%
...........................................................
Draegerwerk AG 4,185 99,928
...................... ...................... ---------
Total Germany 195,079
- -----------------------------------------------------------
HONG KONG -- 3.7%
- -----------------------------------------------------------
BANKS -- 0.6%
...........................................................
Dao Heng Bank Group, Ltd. 30,000 42,588
- -----------------------------------------------------------
REAL ESTATE DEVELOPMENT -- 0.9%
...........................................................
New World Development Co., Ltd. 33,000 63,883
- -----------------------------------------------------------
RETAIL -- SPECIALTY -- 0.5%
...........................................................
Dickson Concepts International, Ltd. 28,000 39,027
- -----------------------------------------------------------
UTILITY -- ELECTRIC -- 1.3%
...........................................................
CLP Holdings Limited 22,000 100,225
- -----------------------------------------------------------
UTILITY -- TELECOMMUNICATIONS -- 0.4%
...........................................................
Hong Kong Telecommunications, Ltd. 14,800 27,791
...................... ...................... ---------
Total Hong Kong 273,514
- -----------------------------------------------------------
IRELAND -- 1.7%
- -----------------------------------------------------------
PAPER -- 1.7%
...........................................................
Jefferson Smurfit Group PLC 41,620 123,653
...................... ...................... ---------
Total Ireland 123,653
- -----------------------------------------------------------
ITALY -- 1.1%
- -----------------------------------------------------------
OIL EXPLORATION & PRODUCTION -- 1.1%
...........................................................
ENI SPA 12,000 78,648
...................... ...................... ---------
Total Italy 78,648
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

13
<PAGE> 103
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND

<TABLE>
<CAPTION>
- -----------------------------------------------------------
JAPAN -- 9.9% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
AUTO PARTS -- 0.9%
...........................................................
NIFCO, Inc. 8,000 $ 63,407
- -----------------------------------------------------------
ELECTRONIC COMPONENTS -- 1.8%
...........................................................
Nintendo Co., Ltd. 1,400 129,625
- -----------------------------------------------------------
ELECTRONICS -- 3.0%
...........................................................
Kyocera Corporation 2,500 122,131
...........................................................
Nichicon Corporation 9,000 100,515
...................... ...................... ---------
222,646
- -----------------------------------------------------------
FINANCIAL SERVICES -- 1.4%
...........................................................
Promise Company, Ltd. 2,550 104,914
- -----------------------------------------------------------
FOODS -- 0.8%
...........................................................
MOS Food Services 5,000 59,444
- -----------------------------------------------------------
LEISURE/TOYS -- 2.0%
...........................................................
NAMCO, Ltd. 6,300 147,076
...................... ...................... ---------
Total Japan 727,112
- -----------------------------------------------------------
NETHERLANDS -- 7.3%
- -----------------------------------------------------------
BANKS -- 1.7%
...........................................................
ABN AMRO Holding N.V. 5,335 124,837
- -----------------------------------------------------------
CHEMICALS -- 1.8%
...........................................................
Akzo Nobel N.V. 605 134,489
- -----------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 1.8%
...........................................................
Hollandsche Beton Groep N.V 6,415 133,710
- -----------------------------------------------------------
INSURANCE -- MULTI-LINE -- 2.0%
...........................................................
ING Groep N.V. 2,165 141,763
...................... ...................... ---------
Total Netherlands 534,799
- -----------------------------------------------------------
NEW ZEALAND -- 1.2%
- -----------------------------------------------------------
BUILDING MATERIALS -- 1.2%
...........................................................
Fletcher Challenge Building 69,015 85,979
...................... ...................... ---------
Total New Zealand 85,979
- -----------------------------------------------------------
NORWAY -- 1.2%
- -----------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 0.4%
...........................................................
Kvaerner ASA - Class A 960 32,527
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
JAPAN -- 9.9% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
MEDICAL PRODUCTS & SUPPLIES -- 0.8%
...........................................................
Nycomed Amersham PLC -- Class B 7,805 $ 57,977
...................... ...................... ---------
Total Norway 90,504
- -----------------------------------------------------------
SINGAPORE -- 0.5%
- -----------------------------------------------------------
DIVERSIFIED -- 0.5%
...........................................................
Jardine Matheson Holdings, Ltd. 14,000 37,800
...................... ...................... ---------
Total Singapore 37,800
- -----------------------------------------------------------
SPAIN -- 1.3%
- -----------------------------------------------------------
OIL -- INTERNATIONAL -- 1.3%
...........................................................
Repsol SA 1,700 93,834
...................... ...................... ---------
Total Spain 93,834
- -----------------------------------------------------------
SWEDEN -- 1.6%
- -----------------------------------------------------------
ELECTRICAL EQUIPMENT -- 1.6%
...........................................................
Electrolux AB - Class B 6,675 114,668
...................... ...................... ---------
Total Sweden 114,668
- -----------------------------------------------------------
SWITZERLAND -- 8.2%
- -----------------------------------------------------------
BANKS -- 0.8%
...........................................................
Credit Suisse Group 257 57,184
- -----------------------------------------------------------
BUILDING MATERIALS -- 1.5%
...........................................................
Forbo Holding AG "registered" 224 114,008
- -----------------------------------------------------------
FOOD PRODUCERS -- 1.1%
...........................................................
Nestle SA "registered" 38 81,321
- -----------------------------------------------------------
INSURANCE -- 1.8%
...........................................................
Swiss Reinsurance Co. "registered" 52 131,507
- -----------------------------------------------------------
MACHINERY & EQUIPMENT -- 1.4%
...........................................................
SIG Schweizerische
Industrie-Gesellschaft Holding AG 128 104,219
- -----------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 1.6%
...........................................................
Novartis AG 70 116,481
...................... ...................... ---------
Total Switzerland 604,720
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

14
<PAGE> 104
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND

<TABLE>
<CAPTION>
- -----------------------------------------------------------
UNITED KINGDOM -- 18.0% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
APPAREL & TEXTILES -- 1.0%
...........................................................
Coats Viyella PLC 59,050 $ 72,416
- -----------------------------------------------------------
AUTOS -- 1.2%
...........................................................
Lex Service PLC 10,900 90,024
- -----------------------------------------------------------
BANKS -- 1.2%
...........................................................
National Westminster Bank PLC 4,900 87,561
- -----------------------------------------------------------
BUILDING MATERIALS -- 2.0%
...........................................................
Hanson PLC 24,100 146,468
- -----------------------------------------------------------
DIVERSIFIED INDUSTRIALS -- 6.0%
...........................................................
BTR PLC 32,417 91,950
...........................................................
Cookson Group PLC 27,000 92,802
...........................................................
Elementis PLC 47,400 120,212
...........................................................
Tomkins PLC 25,432 138,014
...................... ...................... ---------
442,978
- -----------------------------------------------------------
FOOD & BEVERAGES -- 1.3%
...........................................................
Allied Domecq PLC 9,860 92,621
- -----------------------------------------------------------
INSURANCE -- 1.6%
...........................................................
CGU PLC 6,340 118,265
- -----------------------------------------------------------
MEDICAL PRODUCTS & SUPPLIES -- 1.0%
...........................................................
Medeva PLC 25,878 73,402
- -----------------------------------------------------------
TOBACCO -- 1.9%
...........................................................
B.A.T. Industries PLC 14,000 140,154
- -----------------------------------------------------------
UTILITY -- ELECTRIC -- 0.8%
...........................................................
Powergen PLC 4,400 60,787
...................... ...................... ---------
Total United Kingdom 1,324,676
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -----------------------------------------------------------
UNITED STATES -- 26.1% Shares Value
- -----------------------------------------------------------
<S> <C> <C>
AEROSPACE -- 1.5%
...........................................................
Northrop Grumman Corporation 1,100 $ 113,438
- -----------------------------------------------------------
AUTOS & TRUCKS -- 2.2%
...........................................................
Ford Motor Company 1,100 64,900
...........................................................
General Motors Corporation 1,400 93,538
...................... ...................... ---------
158,438
- -----------------------------------------------------------
BANKS -- 2.4%
...........................................................
Bankers Trust Corporation 500 58,031
...........................................................
First Chicago NBD Corporation 1,300 115,212
...................... ...................... ---------
173,243
- -----------------------------------------------------------
BUILDING & FOREST PRODUCTS -- 1.3%
...........................................................
Weyerhaeuser Company 2,000 92,375
- -----------------------------------------------------------
CONGLOMERATES -- 0.8%
...........................................................
Tenneco, Inc. 1,600 60,900
- -----------------------------------------------------------
FINANCIAL SERVICES -- 0.8%
...........................................................
Associates First Capital Corporation 1 71
...........................................................
Beneficial Corporation 400 61,275
...................... ...................... ---------
61,346
- -----------------------------------------------------------
INSURANCE -- 2.0%
...........................................................
Safeco Corporation 1,800 81,675
...........................................................
TIG Holdings, Inc. 2,800 64,400
...................... ...................... ---------
146,075
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

15
<PAGE> 105
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND

<TABLE>
<CAPTION>
Shares Value
- -----------------------------------------------------------
<S> <C> <C>
MACHINERY -- 1.1%
...........................................................
New Holland N.V. 4,200 $ 82,425
- -----------------------------------------------------------
METALS & MINING -- 0.9%
...........................................................
Aluminum Company of America 1,000 65,937
- -----------------------------------------------------------
OIL -- DOMESTIC -- 2.4%
...........................................................
Occidental Petroleum Corporation 2,300 62,100
...........................................................
Phillips Petroleum Company 2,400 115,650
...................... ...................... ---------
177,750
- -----------------------------------------------------------
PHOTOGRAPHY & OPTICAL -- 1.3%
...........................................................
Eastman Kodak Company 1,300 94,981
- -----------------------------------------------------------
POLLUTION CONTROL -- 1.1%
...........................................................
Waste Management, Inc. 2,400 84,000
- -----------------------------------------------------------
RAILROADS -- 0.9%
...........................................................
Norfolk Southern Corporation 2,300 68,569
- -----------------------------------------------------------
RETAIL -- SPECIALTY APPAREL -- 0.8%
...........................................................
Abercrombie & Fitch Co. # 1,290 56,760
- -----------------------------------------------------------
STEEL -- 0.7%
...........................................................
USX-U.S. Steel Group, Inc. 1,600 52,800
- -----------------------------------------------------------
TOBACCO -- 1.4%
...........................................................
Philip Morris Companies, Inc. 2,600 102,375
- -----------------------------------------------------------
UTILITY -- ELECTRIC -- 2.3%
...........................................................
Illinova Corporation 2,100 63,000
...........................................................
PacifiCorp 1,200 27,150
...........................................................
PP&L Resources, Inc. 3,400 77,138
...................... ...................... ---------
167,288
- -----------------------------------------------------------
UTILITY -- TELEPHONE -- 2.2%
...........................................................
ALLTEL Corporation 1,800 83,700
...........................................................
AT&T Corp. 1,300 74,262
............................................. ---------
157,962
............................................. ---------
Total United States 1,916,662
- -----------------------------------------------------------
Total common stocks
(cost $6,771,625) 7,296,632
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Principal
CASH EQUIVALENTS -- 1.8% Amount Value
- -----------------------------------------------------------
<S> <C> <C>
Chase Bank Domestic Liquidity Fund
(cost $135,816) $135,816 $ 135,816
- -----------------------------------------------------------
Total investments -- 101.2%
(cost $6,907,441) 7,432,448
...........................................................
Liabilities in excess of other
assets -- (1.2)%
.............................................. (87,163)
---------
Total net assets -- 100.0% $7,345,285
- -----------------------------------------------------------
</TABLE>

# Non-income producing security.
See Notes to Financial Statements

16
<PAGE> 106

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
BALANCED FUND

<TABLE>
<CAPTION>
COMMON STOCKS -- 43.0% Shares Value
- ----------------------------------------------------------
<S> <C> <C>
AEROSPACE -- 2.0%
..........................................................
Lockheed Martin Corporation 5,700 $ 603,487
..........................................................
Northrop Grumman Corporation 10,200 1,051,875
..........................................................
Rockwell International Corporation 9,000 432,563
..................... ...................... ----------
2,087,925
- ----------------------------------------------------------
APPAREL & TEXTILES -- 0.5%
..........................................................
Russell Corporation 15,800 476,963
- ----------------------------------------------------------
AUTO PARTS -- 0.6%
..........................................................
Dana Corporation 11,000 588,500
..........................................................
Meritor Automotive, Inc. 2,000 48,000
..................... ...................... ----------
636,500
- ----------------------------------------------------------
AUTOS & TRUCKS -- 2.6%
..........................................................
Ford Motor Company 25,000 1,475,000
..........................................................
General Motors Corporation 18,600 1,242,713
..................... ...................... ----------
2,717,713
- ----------------------------------------------------------
BANKS -- 2.2%
..........................................................
Banc One Corporation 4,200 234,413
..........................................................
Comerica, Inc. 2,100 139,125
..........................................................
First Chicago NBD Corporation 9,800 868,525
..........................................................
First Union Corporation 12,100 704,825
..........................................................
National City Corporation 4,500 319,500
..................... ...................... ----------
2,266,388
- ----------------------------------------------------------
BEVERAGES -- 0.5%
..........................................................
Anheuser-Busch Companies, Inc. 10,000 471,875
- ----------------------------------------------------------
BUILDING & FOREST PRODUCTS -- 0.9%
..........................................................
Georgia-Pacific (Timber Group) 11,400 262,912
..........................................................
Weyerhaeuser Company 15,000 692,813
..................... ...................... ----------
955,725
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
CHEMICALS -- 1.6%
..........................................................
The Dow Chemical Company 9,500 $ 918,531
..........................................................
Eastman Chemical Company 11,400 709,650
..........................................................
Millennium Chemicals, Inc. 2,142 72,560
..................... ...................... ----------
1,700,741
- ----------------------------------------------------------
CONGLOMERATES -- 0.8%
..........................................................
Tenneco, Inc. 21,800 829,763
- ----------------------------------------------------------
CONSUMER PRODUCTS -- 0.5%
..........................................................
Tupperware Corporation 17,200 483,750
- ----------------------------------------------------------
ENGINEERING & CONSTRUCTION -- 0.4%
..........................................................
Harsco Corporation 10,000 458,125
- ----------------------------------------------------------
FINANCIAL SERVICES -- 1.5%
..........................................................
Associates First Capital
Corporation -- Class A 6,552 503,685
..........................................................
Beneficial Corporation 4,200 643,387
..........................................................
Transamerica Corporation 3,600 414,450
..................... ...................... ----------
1,561,522
- ----------------------------------------------------------
HEALTHCARE -- DRUGS -- 0.2%
..........................................................
American Home Products Corporation 800 41,400
..........................................................
Bristol Myers Squibb Company 1,600 183,900
..................... ...................... ----------
225,300
- ----------------------------------------------------------
HEALTHCARE -- MEDICAL PRODUCTS -- 0.1%
..........................................................
Baxter International, Inc. 2,800 150,675
- ----------------------------------------------------------
HOUSEHOLD FURNISHINGS & APPLIANCES -- 0.9%
..........................................................
Whirlpool Corporation 13,700 941,875
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

17
<PAGE> 107
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
BALANCED FUND

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
INSURANCE -- 3.0%
..........................................................
American General Corporation 10,700 $ 761,706
..........................................................
Harleysville Group, Inc. 18,000 373,500
..........................................................
Lincoln National Corporation 5,000 456,875
..........................................................
Safeco Corporation 14,200 644,325
..........................................................
St. Paul Companies, Inc. 14,200 597,288
..........................................................
TIG Holdings, Inc. 13,900 319,700
..................... ...................... ----------
3,153,394
- ----------------------------------------------------------
LEISURE/TOYS -- 0.5%
..........................................................
Fortune Brands, Inc. 12,500 480,469
- ----------------------------------------------------------
MACHINERY -- 0.7%
..........................................................
Deere & Company 1,500 79,312
..........................................................
New Holland N.V. 34,000 667,250
..................... ...................... ----------
746,562
- ----------------------------------------------------------
METALS & MINING -- 1.9%
..........................................................
Aluminum Company of America 13,300 876,969
..........................................................
Phelps Dodge Corporation 9,000 514,687
..........................................................
Reynolds Metals Company 9,900 553,781
..................... ...................... ----------
1,945,437
- ----------------------------------------------------------
OIL -- DOMESTIC -- 3.6%
..........................................................
Atlantic Richfield Company 10,700 835,938
..........................................................
Occidental Petroleum Corporation 31,000 837,000
..........................................................
Phillips Petroleum Company 22,600 1,089,038
..........................................................
USX-Marathon Group, Inc. 18,000 617,625
..........................................................
Ultramar Diamond Shamrock
Corporation 14,000 441,875
..................... ...................... ----------
3,821,476
- ----------------------------------------------------------
PAPER -- 1.4%
..........................................................
Georgia-Pacific Group 6,700 394,881
..........................................................
International Paper Company 16,000 688,000
..........................................................
Union Camp Corporation 7,500 372,188
..................... ...................... ----------
1,455,069
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
PHOTOGRAPHY & OPTICAL -- 0.7%
..........................................................
Eastman Kodak Company 9,700 $ 708,706
- ----------------------------------------------------------
POLLUTION CONTROL -- 1.1%
..........................................................
Browning-Ferris Industries, Inc. 11,918 414,150
..........................................................
Waste Management, Inc. 20,900 731,500
..................... ...................... ----------
1,145,650
- ----------------------------------------------------------
RAILROADS -- 1.0%
..........................................................
CSX Corporation 8,000 364,000
..........................................................
Norfolk Southern Corporation 23,000 685,687
..................... ...................... ----------
1,049,687
- ----------------------------------------------------------
RETAIL -- 1.8%
..........................................................
Intimate Brands, Inc. 13,200 363,825
..........................................................
J.C. Penney Company, Inc. 7,500 542,344
..........................................................
May Department Stores Company 8,000 524,000
..........................................................
Sears, Roebuck & Company 8,200 500,713
..................... ...................... ----------
1,930,882
- ----------------------------------------------------------
SAVINGS & LOAN -- 1.5%
..........................................................
Fannie Mae 13,500 820,125
..........................................................
H.F. Ahmanson & Company 11,000 781,000
..................... ...................... ----------
1,601,125
- ----------------------------------------------------------
STEEL -- 0.7%
..........................................................
USX-U.S. Steel Group, Inc. 23,000 759,000
- ----------------------------------------------------------
TOBACCO -- 1.4%
..........................................................
Philip Morris Companies, Inc. 36,000 1,417,500
- ----------------------------------------------------------
TRUCKING -- 0.2%
..........................................................
Ryder System, Inc. 5,600 176,750
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

18
<PAGE> 108
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
BALANCED FUND

<TABLE>
<CAPTION>
Shares Value
- ----------------------------------------------------------
<S> <C> <C>
UTILITY -- ELECTRIC -- 4.9%
..........................................................
CMS Energy Corporation 5,600 $ 246,400
..........................................................
Central & South West Corporation 14,700 395,063
..........................................................
DTE Energy Company 12,000 484,500
..........................................................
Edison International 19,300 570,556
..........................................................
Entergy Corporation 7,700 221,375
..........................................................
GPU, Inc. 5,700 215,531
..........................................................
Illinova Corporation 27,000 810,000
..........................................................
PacifiCorp 18,300 414,038
..........................................................
PECO Energy Company 14,000 408,625
..........................................................
PP&L Resources, Inc. 20,600 467,362
..........................................................
Public Service Enterprises Group,
Inc. 7,100 244,506
..........................................................
SCANA Corporation 14,700 438,244
..........................................................
Texas Utilities Company 5,538 230,519
..................... ...................... ----------
5,146,719
- ----------------------------------------------------------
UTILITY -- GAS PIPELINE -- 0.5%
..........................................................
Nicor, Inc. 6,000 240,750
..........................................................
Peoples Energy Corporation 8,500 328,312
..................... ...................... ----------
569,062
- ----------------------------------------------------------
UTILITY -- TELEPHONE -- 2.8%
..........................................................
AT&T Corporation 16,400 936,850
..........................................................
ALLTEL Corporation 16,100 748,650
..........................................................
Bell Atlantic Corporation 12,288 560,640
..........................................................
SBC Communications, Inc. 17,314 692,560
..................... ...................... ----------
2,938,700
- ----------------------------------------------------------
Total common stocks (cost
$36,671,272) 45,011,028
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
CORPORATE BONDS Principal
- -- 19.2% Amount Value
- ----------------------------------------------------------
<S> <C> <C>
BANKS -- 2.3%
..........................................................
MBNA Corporation, 6.0375%,
6/17/2002 # $ 1,500,000 $ 1,494,529
..........................................................
MBNA Global Capital Securities,
CLB 2/01/2007, 6.51875%,
2/01/2027 # 1,000,000 932,881
..................... ...................... ----------
2,427,410
- ----------------------------------------------------------
EUROBANKS -- 5.8%
..........................................................
Foreningsbanken Kredit AB, CLB
12/18/2001, 6.4375%,
12/29/2049 # 2,500,000 2,509,500
..........................................................
Nordbanken, CLB 10/25/2001,
6.2875%, 10/29/2049 # 2,000,000 2,006,922
..........................................................
Okobank, CLB 9/27/1999,
7.23828%, 9/29/2049 # 1,500,000 1,498,007
..................... ...................... ----------
6,014,429
- ----------------------------------------------------------
FINANCIAL SERVICES -- 6.8%
..........................................................
Countrywide Home Loans, Inc.,
6.84%, 10/22/2004 2,500,000 2,564,855
..........................................................
Florida Windstorm (Acquired
7/31/1997, cost $998,883),
6.85%, 8/25/2007 r 1,000,000 1,037,516
..........................................................
Lehman Brothers, Inc., 6.50%,
4/15/2008 2,000,000 2,007,506
..........................................................
URSA Major Rated Limited
(Acquired 1/28/1998,
cost $1,483,505), 5.90%,
1/06/2003 r 1,500,000 1,504,261
..................... ...................... ----------
7,114,138
- ----------------------------------------------------------
PAPER -- 1.8%
..........................................................
Fort Howard Corporation,
11.00%, 1/02/2002 1,828,480 1,868,381
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

19
<PAGE> 109
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
BALANCED FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
TRANSPORTATION -- 2.5%
..........................................................
Delta Air Lines ETC:
9.90%, 1/02/2002 $ 150,000 $ 165,603
10.50%, 4/30/2016 750,000 1,011,934
..........................................................
Northwest Airlines, Inc.,
11.30%, 12/21/2012 1,078,338 1,427,613
..................... ...................... ----------
2,605,150
- ----------------------------------------------------------
Total corporate bonds (cost
$19,813,501) 20,029,508
- ----------------------------------------------------------
GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 11.4%
- ----------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.7%
..........................................................
Federal Home Loan Mortgage
Corporation,
1189 K, 9.570629%, 1/15/2021# 858,708 875,526
..........................................................
2067 PD, 6.50%, 9/15/2026 2,900,000 2,922,733
..........................................................
Federal National Mortgage
Association:
G93-31 SD, 10.30143%,
12/25/2022 # 486,770 476,508
..........................................................
0.00%, 10/09/2019 3,025,000 869,024
..........................................................
1998-34 2, 7.00%, 6/18/2028 866,728 851,424
..................... ...................... ----------
5,995,215
- ----------------------------------------------------------
PASS-THROUGH SECURITIES -- 3.0%
..........................................................
Government National Mortgage
Association,
8404, 7.00%, 9/20/2018 # 948,904 973,755
..........................................................
8919, 6.875%, 2/20/2022 # 1,182,161 1,211,632
..........................................................
8247, 7.00%, 7/20/2023 # 919,357 942,442
..................... ...................... ----------
3,127,829
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
STRIPPED MORTGAGE-BACKED SECURITIES -- 2.7%
..........................................................
Federal Home Loan Mortgage
Corporation:
1627 PN (IO), 6.00%,
9/15/2022 $ 3,100,000 $ 933,852
..........................................................
1965 SA (Inverse IO),
2.049999%, 3/15/2024 # 3,050,000 408,194
..........................................................
Federal National Mortgage
Association:
1997-65 A (PO), 0.00%,
9/25/2000 1,585,179 1,466,200
..................... ...................... ----------
2,808,246
- ----------------------------------------------------------
Total government agency
mortgage-backed securities
(cost $11,868,698) 11,931,290
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
NON-AGENCY MORTGAGE-
BACKED SECURITIES
- -- 19.5%
- ------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED
SECURITIES -- 16.5%
............................................................
Aesop Funding II LLC (Acquired
7/23/97, cost $2,200,000),
1997-1 A1, 6.22%, 10/20/2001r 2,200,000 2,220,735
............................................................
Commercial Financial Services
Securitized Multiple Asset
Rated Trust (Acquired
2/24/1998, cost $1,195,453),
1998-1 A1, 7.45%, 3/15/2006 r 1,195,453 1,197,879
............................................................
Ditech Home Loan Owner Trust,
1997-1 A3, 6.71%, 8/15/2018 1,750,000 1,782,296
............................................................
Firstplus Home Loan Owner
Trust, 1998-1 A4, 6.20%,
3/10/2015 1,500,000 1,505,542
............................................................
Green Tree Financial
Corporation, 1996-5 B2,
8.45%, 7/15/2027 1,549,754 1,634,990
............................................................
Heilig-Meyers Master Trust
(Acquired 2/20/1998, cost
$1,399,872), 1998-1A A,
6.125%, 1/20/2007 r 1,400,000 1,398,412
............................................................
IMC Home Equity Loan Trust,
1996-4 A4, 7.11%, 8/25/2014 1,250,000 1,290,967
............................................................
</TABLE>

See Notes to Financial Statements

20
<PAGE> 110
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
BALANCED FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- ------------------------------------------------------------
<S> <C> <C>
Nomura Asset Securities
Corporation:
1995-MD3 A1B, 8.15%,
3/04/2020 1,000,000 1,102,813
............................................................
1998-D6 A1B, 6.59%, 3/17/2028 2,500,000 2,572,162
............................................................
Chase Commercial Mortgage
Securities Corporation,
1997-1 X (IO), 1.3965%,
4/19/2015 # 23,240,320 1,856,506
............................................................
Donaldson, Lufkin & Jenrette
(Acquired 4/25/1997, cost
$732,279), 1997-CF1 S (IO),
1.09368%, 3/15/2017 # r 11,859,874 733,830
...................... ...................... ----------
17,296,132
- ------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 3.0%
............................................................
GE Capital Mortgage Services,
Inc., 1995-8 A5, 7.50%,
10/25/2025 896,719 894,192
............................................................
Independent National Mortgage
Corporation, 1996-D A2,
7.00%, 5/25/2026 380,084 381,249
............................................................
PNC Mortgage Securities
Corporation, 1996-1 A11,
Class Z, 7.50%, 6/25/2026 1,843,801 1,878,505
...................... ...................... ----------
3,153,946
- ------------------------------------------------------------
Total non-agency mortgage-backed securities
(cost $20,161,367) 20,450,078
- ------------------------------------------------------------
PREFERRED STOCKS
- -- 0.9% Shares
- ----------------------------------------------------------
Home Ownership Funding 2,
(Acquired 2/20/1997, Cost
$1,000,000) r 1,000 953,750
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS Principal
- -- 5.1% Amount Value
- -----------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bonds:
7.50%, 11/15/2016 $ 1,500,000 $ 1,801,408
...........................................................
6.50%, 11/15/2026 750,000 833,203
...........................................................
6.375%, 8/15/2027 750,000 824,063
...........................................................
6.125%, 11/15/2027 750,000 803,907
..................... ...................... -----------
4,262,581
- -----------------------------------------------------------
U.S. Treasury Notes:
...........................................................
6.625%, 5/15/2007 1,000,000 1,075,001
- -----------------------------------------------------------
Total U.S. Treasury obligations
(cost $5,199,250) 5,337,582
- -----------------------------------------------------------
SHORT-TERM INVESTMENTS -- 2.4%
- -----------------------------------------------------------
VARIABLE RATE DEMAND
NOTES* -- 2.4%
...........................................................
General Mills, Inc., 5.2651% 1,621,420 1,621,420
...........................................................
Sara Lee, Corp., 5.2562% 878,922 878,922
..................... ...................... -----------
Total short-term investments 2,500,342
(cost $2,500,342)
- -----------------------------------------------------------
Total investments -- 101.5%
(cost $97,214,430) 106,213,578
...........................................................
Liabilities in excess of other
assets -- (1.5)% (1,618,165)
..................... ...................... -----------
$104,595,413
Total net assets -- 100.0%
- -----------------------------------------------------------
</TABLE>

# Variable rate security. The rate listed is as of June 30, 1998.

* 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, 1998.

IO -- Interest Only.

PO-- Principal Only.

ETC -- Equipment Trust Certificate.

CLB -- Callable.

r -- Restricted Security. Purchased in a private placement transaction; resale
to the public may require registration or may extend only to qualified
institutional buyers.
See Notes to Financial Statements

21
<PAGE> 111
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
CORPORATE BONDS AND Principal
NOTES -- 25.3% Amount Value
- -------------------------------------------------------------
<S> <C> <C>
APPAREL -- 0.8%
.............................................................
La Petite Holdings, CLB 8/01/1998,
9.625%, 8/01/2001 $ 350,000 $ 360,500
- -------------------------------------------------------------
BANKS -- 3.3%
.............................................................
The Hertz Corporation, 6.625%,
5/15/2008 1,000,000 1,011,861
.............................................................
MBNA Corporation, 6.0375%,
6/17/2002 # 500,000 498,176
................. .................
----------
1,510,037
- -------------------------------------------------------------
EUROBANKS -- 2.0%
.............................................................
Fokus Bank A/S, CLB 9/29/1999,
6.90%, 9/29/2004 # 500,000 503,919
.............................................................
Hong Kong & Shanghai Bank, CLB
8/26/1998, 6.00%, 8/29/2049 # 555,000 412,143
................. .................
----------
916,062
- -------------------------------------------------------------
FINANCIAL SERVICES -- 6.9%
.............................................................
Newcourt Credit Group,
5.91%, 10/24/2000 # 500,000 501,505
.............................................................
Countrywide Home Loans, Inc.,
6.2225%, 3/16/2005 # 750,000 751,632
.............................................................
General Motors Acceptance Corp.,
8.25%, 3/01/2005 1,000,000 1,113,549
.............................................................
Lehman Brothers, Inc.,
6.50%, 4/15/2008 750,000 752,815
................. .................
----------
3,119,501
- -------------------------------------------------------------
INDUSTRIAL -- 0.6%
.............................................................
Westinghouse Electric Corporation,
8.93%, 6/22/1999 250,000 255,462
- -------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------
Principal
Amount Value
<S> <C> <C>
OIL & GAS (DOMESTIC) -- 1.0%
.............................................................
Harcor Energy, Inc., CLB 7/15/1999,
14.875%, 7/15/2002 $ 400,000 $ 475,000
- -------------------------------------------------------------
SAVINGS & LOAN -- 1.1%
.............................................................
Western Financial Savings, CLB
7/1/2000, 8.50%, 7/01/2003 500,000 492,423
- -------------------------------------------------------------
TELECOMMUNICATIONS -- 6.5%
.............................................................
Comcast Cable Communications, Inc.,
8.375%, 5/01/2007 500,000 562,470
.............................................................
Teleport Communications, CLB
7/01/2001, 0.00%, 7/01/2007+ 1,150,000 1,000,500
.............................................................
TKR Cable, Inc., CLB 10/30/1999,
10.50%, 10/30/2007 500,000 547,873
.............................................................
Worldcom, Inc., CLB 1/15/2001,
8.875%, 1/15/2006 775,000 842,813
................. .................
----------
2,953,656
- -------------------------------------------------------------
TRANSPORTATION -- 2.1%
.............................................................
Delta Air Lines ETC:
9.90%, 1/02/2002 250,000 276,005
.............................................................
10.50%, 4/30/2016 500,000 674,622
................. .................
----------
950,627
- -------------------------------------------------------------
UTILITY -- 1.0%
.............................................................
Calenergy Co., Inc., CLB 1/15/1999,
10.25%, 1/15/2004 400,000 431,000
- -------------------------------------------------------------
Total corporate bonds and notes
(cost $11,349,464) 11,464,268
- -------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

22
<PAGE> 112
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
GOVERNMENT AGENCY
MORTGAGE-BACKED Principal
SECURITIES -- 16.5% Amount Value
- -------------------------------------------------------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 13.4%
.............................................................
Federal Home Loan Mortgage
Corporation:
1573 GC, 9.617275%, 1/15/2023 # $1,272,812 $ 1,237,639
.............................................................
1261 J, 8.00%, 7/15/2021 649,703 680,489
.............................................................
2067 PD, 6.50%, 9/15/2026 1,500,000 1,511,758
.............................................................
1468 S, 11.691%, 2/15/2023 # 449,224 473,348
.............................................................
2043 SC, 10.12813%, 4/15/2028 # 399,363 396,272
.............................................................
1564 SE, 8.226833%, 8/15/2008 # 353,637 356,257
.............................................................
2036 Z, 7.00%, 3/15/2028 109,020 108,679
.............................................................
2055 ZA, 6.50%, 5/15/2013 1,005,417 974,611
.............................................................
Federal National Mortgage
Association:
G93-27 SB, 6.46933%, 8/25/2023 # 115,176 98,845
.............................................................
1993-37 SB, 7.02916%, 3/25/2023 # 224,549 215,169
................. .................
----------
6,053,067
- -------------------------------------------------------------
PASS-THROUGH SECURITIES -- 1.1%
.............................................................
Government National Mortgage
Association, 8247, 7.00%,
7/20/2023 # 459,678 471,221
- -------------------------------------------------------------
STRIPPED MORTGAGE-BACKED SECURITIES -- 2.0%
.............................................................
Federal Home Loan Mortgage
Corporation, 1965 SA (Inverse
IO), 2.049999%, 3/15/2024 # 1,000,000 133,834
.............................................................
Federal National Mortgage
Association (PO): 1997-76 B,
0.00%, 6/25/2018 685,025 671,730
0.00%, 10/09/2019 400,000 114,912
................. .................
----------
920,476
- -------------------------------------------------------------
Total government agency mortgage-
backed securities (cost
$7,068,743) 7,444,764
- -------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
NON-AGENCY MORTGAGE- Principal
BACKED SECURITIES -- 31.7% Amount Value
- -------------------------------------------------------------
- -------------------------------------------------------------
<S> <C> <C>
ASSET-BACKED SECURITIES -- 13.8%
.............................................................
Associates Manufactured Housing
Pass-Through Certificates, 1996-2
A4, 6.60%, 6/15/2027 $ 500,000 $ 511,772
.............................................................
Commercial Financial Services
Securitized Multiple Asset Rated
Trust (Acquired 9/24/1997, cost
$376,613), 1997-5 A1, 7.72%,
6/15/2005 r 376,613 378,790
.............................................................
Commercial Financial Services
Securitized Multiple Asset Rated
Trust (Acquired 2/24/1998, cost
$170,779), 1998-1 A1, 7.45%,
3/15/2006 r 170,779 171,126
.............................................................
CPS Auto Trust 1998-1 A, 6.00%,
8/15/2003 480,628 480,553
.............................................................
Ditech Home Loan Owner Trust,
1997-1 A3, 6.71%, 8/15/2018 600,000 611,073
.............................................................
Firstplus Home Loan Trust, 1996-2
A4, 7.35%, 10/20/2009 499,852 505,758
.............................................................
Firstplus Home Loan Owner Trust,
1998-1 A4, 6.20%, 3/10/2015 400,000 401,478
.............................................................
Green Tree Financial Corporation:
1995-4 A4, 6.75%, 6/15/2025 400,000 406,334
.............................................................
1996-5 B2, 8.45%, 7/15/2027 749,881 791,124
.............................................................
Green Tree Recreational, Equipment
& Consumer Trust, 1996-B CTFS,
7.70%, 7/15/2018 450,000 449,016
.............................................................
Heilig-Meyers Master Trust
(Acquired 2/20/1998, cost
$499,954), 1998-1A A, 6.125%,
1/20/2007 r 500,000 499,433
.............................................................
IMC Home Equity Loan Trust, 1996-4
A4, 7.11%, 8/25/2014 1,000,000 1,032,773
................. .................
----------
6,239,230
- -------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

23
<PAGE> 113
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- -------------------------------------------------------------
<S> <C> <C>
COLLATERALIZED MORTGAGE OBLIGATIONS -- 17.9%
.............................................................
Blackrock Capital Finance L.P.
(Acquired 6/23/1997, cost
$276,801), 1997-R2 AP, 7.04398%,
12/25/2035 # r $ 278,498 $ 293,173
.............................................................
CMC Securities Corporation, 1994-G,
7.00%, 9/25/2024 200,000 203,959
.............................................................
Citicorp Mortgage Securities, Inc.:
1990-D A1, 9.50%, 10/25/2005 129,518 129,432
.............................................................
1997-3 A2, 6.92%, 8/25/2027 323,265 324,718
.............................................................
Collateralized Mortgage Obligations
Trust, 57-D, 9.90%, 2/01/2019 396,972 428,616
.............................................................
Commercial Mortgage Acceptance
Corporation (Acquired 3/13/1998,
cost $433,589), 1996-C2 A2,
6.8516%, 9/15/2023 r 428,831 430,034
.............................................................
The C.S. First Boston Mortgage
Securities Corp. Commercial
Mortgage Pass-Through
Certificates, Series, 1998-C1
A1B, 6.48%, 5/17/2008 1,000,000 1,017,666
.............................................................
GE Capital Mortgage Services, Inc.,
1994-24 A4, 7.00%, 7/25/2024 169,843 172,910
.............................................................
Housing Securities, Inc.:
(Acquired 3/03/1995, cost
$314,978), 1994-1 AB2, 6.50%,
3/25/2009 r 477,239 390,501
.............................................................
(Acquired 1/19/1995, cost
$183,274)
1994-2 B1, 6.50%, 7/25/2009 r 243,554 219,945
.............................................................
Independent National Mortgage
Corporation, 1995-F A5, 8.25%,
5/25/2010 1,000,000 1,036,980
.............................................................
</TABLE>

<TABLE>
<CAPTION>
- -------------------------------------------------------------
Principal
Amount Value
<S> <C> <C>
Nomura Asset Securities
Corporation:
1995-MD3 A1B, 8.15%, 3/04/2020 $ 750,000 $ 827,110
.............................................................
1998-D6 A1B, 6.59%, 3/17/2028 1,050,000 1,080,308
.............................................................
Ocwen Residential MBS Corp.
(Acquired 6/18/1998, cost
$998,750), 1998-R2 AP, 4.9739%,
11/25/2034 r # 1,000,000 999,061
.............................................................
Resolution Trust Corporation,
1994-C2 G, 8.00%, 4/25/2025 540,366 545,389
................. .................
----------
8,099,802
- -------------------------------------------------------------
Total non-agency mortgage-backed
securities (cost $14,101,007) 14,339,032
- -------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 20.5%
- -------------------------------------------------------------
U.S. Treasury Bonds:
7.50%, 11/15/2016 2,500,000 3,002,345
.............................................................
6.375%, 8/15/2027 2,375,000 2,609,533
.............................................................
6.125%, 11/15/2027 775,000 830,704
.............................................................
U.S. Treasury Notes:
6.25%, 2/15/2003 750,000 772,032
.............................................................
5.875%, 11/15/2005 500,000 509,844
.............................................................
6.625%, 5/15/2007 500,000 537,500
.............................................................
5.625%, 5/15/2008 1,000,000 1,014,063
- -------------------------------------------------------------
Total U.S. Treasury obligations
(cost $9,081,048) 9,276,021
- -------------------------------------------------------------
PREFERRED STOCK -- 1.1% Shares
- -------------------------------------------------------------
Home Ownership Funding 2, (Acquired
2/20/1997, cost $500,000) r 500 476,875
- -------------------------------------------------------------
</TABLE>

See Notes to Financial Statements

24
<PAGE> 114
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
VARIABLE RATE DEMAND Principal
NOTES* -- 3.3% Amount Value
- -------------------------------------------------------------
<S> <C> <C>
General Mills, Inc., 5.2651% $ 240,255 $ 240,255
.............................................................
Pitney Bowes, Inc., 5.2651% 935,320 935,320
.............................................................
Sara Lee Corp., 5.2562% 326,435 326,435
................. .................
----------
Total variable rate demand notes
(cost $1,502,010) 1,502,010
- -------------------------------------------------------------
Total investments -- 98.4%
(cost $43,602,272) 44,502,970
.............................................................
Other assets in excess of
liabilities -- 1.6% 744,831
................. .................
----------
Total net assets -- 100.0% $45,247,801
- -------------------------------------------------------------
</TABLE>

# Variable rate security. Rate listed is as of June 30, 1998.

* 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, 1998.

IO -- Interest Only.

PO -- Principal Only.

CLB -- Callable.

r -- Restricted Security. Purchased in a private placement transaction; resale
to the public may require registration or may extend only to qualified
institutional buyers.

ETC -- Equipment Trust Certificate.

+ -- Deferred interest security that receives no coupon payments until a
predetermined date.

See Notes to Financial Statements

25
<PAGE> 115

Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
LOW DURATION FUND

<TABLE>
<CAPTION>
CORPORATE BONDS Principal
AND NOTES -- 35.2% Amount Value
- ----------------------------------------------------------
<S> <C> <C>
APPAREL -- 1.4%
..........................................................
La Petite Holdings, CLB
8/01/1998, 9.625%, 8/01/2001 $ 3,500,000 $ 3,605,000
- ----------------------------------------------------------
BANKS -- 3.0%
..........................................................
Chase Capital II, CLB 2/1/2007
6.21875%, 2/01/2027 # 2,100,000 2,062,101
..........................................................
MBNA Corporation,
6.0375%, 6/17/2002 # 1,125,000 1,120,897
..........................................................
MBNA Global Capital
Securities,
CLB 2/01/2007, 6.51875%,
2/01/2027 # 2,000,000 1,865,762
..........................................................
Old Kentucky Capital Trust I,
6.51875%, 2/01/2027 # 2,500,000 2,497,272
..................... ..................... -----------
7,546,032
- ----------------------------------------------------------
EUROBANKS -- 9.7%
..........................................................
Fokus Bank A/S, CLB 9/29/1999,
6.90%, 9/29/2004 # 4,000,000 4,031,352
..........................................................
Foreningsbanken Kredit AB,
CLB 12/18/2001, 6.4375%,
12/29/2049 # 5,750,000 5,771,850
..........................................................
Hong Kong & Shanghai Bank, CLB
8/26/1998, 6.00%, 8/29/2049# 3,500,000 2,599,100
..........................................................
Nordbanken, CLB 10/25/2001,
6.2875%, 10/29/2049 # 5,830,000 5,850,177
..........................................................
Okobank, CLB 9/09/2002,
6.1875%, 9/29/2049 # 2,750,000 2,746,345
..........................................................
Skandinavinska Enskilda
Banken, CLB 6/28/2003,
6.6875%, 6/29/2049 # 3,500,000 3,529,470
..................... ..................... -----------
24,528,294
- ----------------------------------------------------------
FINANCIAL SERVICES -- 4.7%
..........................................................
Newcourt Credit Group, 5.91%,
10/24/2000 # 2,750,000 2,758,280
..........................................................
Countrywide Home Loans, Inc.,
6.2225%, 3/16/2005 # 5,000,000 5,010,879
..........................................................
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
Florida Windstorm (Acquired
7/31/1997, cost $3,496,092),
6.85%, 8/25/2007 r $ 3,500,000 $ 3,631,305
..........................................................
General Motors Acceptance
Corporation,
8.25%, 3/01/2005 500,000 556,774
..................... ..................... -----------
11,957,238
- ----------------------------------------------------------
MISCELLANEOUS -- 1.6%
..........................................................
URSA Major Rated Limited
(Acquired 1/28/1998, cost
$3,956,013), 5.90%,
1/06/2003 r 4,000,000 4,011,364
- ----------------------------------------------------------
OIL & GAS (DOMESTIC) -- 2.2%
..........................................................
Harcor Energy, Inc., CLB
7/15/1999, 14.875%,
7/15/2002 4,636,000 5,505,250
- ----------------------------------------------------------
PAPER -- 1.1%
..........................................................
Fort Howard Corporation,
11.00%, 1/02/2002 2,696,375 2,755,216
- ----------------------------------------------------------
REAL ESTATE -- 2.4%
..........................................................
Taubman Realty Group, L.P.,
6.7375%, 7/30/2001 # 6,000,000 6,101,207
- ----------------------------------------------------------
TELECOMMUNICATIONS -- 5.7%
..........................................................
Continental Cablevision, Inc.,
CLB 6/01/1999, 11.00%,
6/01/2007 4,000,000 4,350,080
..........................................................
Illinois Bell Telephone Co.,
CLB 9/11/1998, 7.625%,
4/01/2006 300,000 302,577
..........................................................
</TABLE>

See Notes to Financial Statements

26
<PAGE> 116
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
LOW DURATION FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
Teleport Communications, CLB
7/01/2001, 0.00%,
7/01/2007+ $ 5,215,000 $ 4,537,050
..........................................................
TKR Cable, Inc., CLB
10/30/1999, 10.50%,
10/30/2007 4,675,000 5,122,612
..................... ..................... -----------
14,312,319
- ----------------------------------------------------------
UTILITY -- ELECTRIC -- 3.4%
..........................................................
Calenergy Co., Inc., CLB
1/15/1999, 10.25%, 1/15/2004 3,350,000 3,609,625
..........................................................
Long Island Lighting Co., CLB
9/11/1998, 8.90%, 7/15/2019 4,800,000 5,090,956
..................... ..................... -----------
8,700,581
- ----------------------------------------------------------
Total corporate bonds and notes (cost
$88,719,210) 89,022,501
- ----------------------------------------------------------
GOVERNMENT AGENCY MORTGAGE-BACKED SECURITIES -- 11.6%
- ----------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 6.1%
..........................................................
Federal Home Loan Mortgage Corporation:
1081 I, 7.00%, 12/15/2019 20,402 20,375
..........................................................
1194 G, 6.50%, 10/15/2006 500,000 503,607
..........................................................
1206 GA, 7.00%, 3/15/2018 2,177,324 2,178,162
..........................................................
1267 O, 7.25%, 12/15/2005 30,176 30,323
..........................................................
1336 H, 7.75%, 1/15/2021 400,000 409,683
..........................................................
1543 KE, 9.17437%,
9/15/2022 # 1,046,602 1,028,965
..........................................................
1617 D, 6.50%, 11/15/2023 71,000 69,665
..........................................................
1944 SB, 10.5625%,
3/15/2027 # 132,077 133,107
..........................................................
2036 Z, 7.00%, 3/15/2028 320,758 319,755
..........................................................
2039 Z, 6.50%, 3/15/2013 1,014,920 1,008,577
..........................................................
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
2043 SC, 10.12813%,
4/15/2028 # $ 1,597,452 $ 1,585,087
..........................................................
2055 ZA, 6.50%, 5/15/2013 2,312,458 2,241,604
..........................................................
Federal National Mortgage Association:
1988-26 C, 7.50%, 7/25/2018 71,972 72,736
..........................................................
1990-112 E, 8.50%, 7/25/2019 10,457 10,444
..........................................................
1991-147 K, 7.00%, 1/25/2021 5,000 5,042
..........................................................
1991-153 N, 7.50%, 2/25/2007 207,422 212,698
..........................................................
1992-138 O, 7.50%, 7/25/2022 42,947 42,854
..........................................................
1992-163 E, 6.75%, 9/25/2022 307,392 307,670
..........................................................
1993-23 SH, 9.75053%,
3/25/2023 # 2,260,872 2,212,707
..........................................................
1993-45 SB, 8.994%,
4/25/2023 # 1,500,000 1,449,982
..........................................................
1994-60 D, 7.00%, 4/25/2024 30,000 30,512
..........................................................
1997-76 FT, 6.0875%,
9/17/2027 # 1,583,947 1,544,734
..................... ..................... -----------
15,418,289
- ----------------------------------------------------------
PASS-THROUGH SECURITIES -- 3.8%
..........................................................
Federal Home Loan Mortgage
Corporation, 255452, 8.50%,
2/01/2008 481,445 501,103
..........................................................
Federal National Mortgage
Association,
21130, 8.00%, 9/01/2000 4,388 4,544
..........................................................
Government National Mortgage Association:
8067, 7.00%, 11/20/2022 # 1,302,650 1,335,920
..........................................................
8247, 7.00%, 7/20/2023 # 919,357 942,442
..........................................................
8898, 6.875%, 1/20/2022 # 3,327,950 3,410,916
..........................................................
8956, 7.375%, 4/20/2022 # 3,310,761 3,411,110
..................... ..................... -----------
9,606,035
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

27
<PAGE> 117
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
LOW DURATION FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
STRIPPED MORTGAGE-BACKED SECURITIES -- 1.7%
..........................................................
Federal Home Loan Mortgage Corporation,
1965 SA (Inverse IO),
2.049999%, 3/15/2024 # $10,500,000 $ 1,405,258
..........................................................
Federal National Mortgage Association:
1993-72 J (IO), 6.50%,
12/25/2006 1,023,636 74,201
..........................................................
1993-97 L (IO), 7.50%,
5/25/2023 1,095,099 71,879
..........................................................
1997-65 A (PO), 0.00%,
9/25/2000 2,642,135 2,443,823
..........................................................
1997-7 SP (IO), 2.60%,
04/18/2015 22,993,118 472,332
........................................... -----------
4,467,493
- ----------------------------------------------------------
Total government agency mortgage-backed
securities (cost $28,694,791) 29,491,817
- ----------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED SECURITIES -- 36.2%
- ----------------------------------------------------------
ASSET-BACKED SECURITIES -- 25.3%
..........................................................
Asset-Backed Securities
Investment Trust (Acquired
8/08/1997, cost $4,000,000),
1997-D A, 6.79%, 8/17/2003 r 4,000,000 4,009,836
..........................................................
Champion Auto Grantor Trust
(Acquired 3/18/1998, cost
$2,206,222), 1998-A A,
6.11%, 10/15/2002 r 2,206,256 2,210,737
..........................................................
Commercial Financial Services
Securitized Multiple Asset
Rated Trust (Acquired
09/24/1997, cost
$2,353,829), 1997-5 A1,
7.72%, 6/15/2005 r 2,353,829 2,367,437
..........................................................
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
Commercial Financial Services
Securitized Multiple Asset
Rated Trust (Acquired
2/24/1998, Cost $2,927,640),
1998-1 A1, 7.45%,
3/15/2006 r $ 2,927,640 $ 2,933,580
..........................................................
Commercial Mortgage Acceptance
Corporation (Acquired
3/13/1998, cost $1,858,238),
1996-C2 A2, 6.8516%,
9/15/2023 r 1,837,850 1,843,001
..........................................................
CPS Auto Trust, 1998-1 A,
6.00%, 8/15/2003 1,922,513 1,922,213
..........................................................
Ditech Home Loan Owner Trust,
1997-1 A3, 6.71%, 8/15/2018 3,280,000 3,340,532
..........................................................
Firstplus Home Loan Owner
Trust:
1996-2 A4, 7.35%, 10/20/2009 3,998,814 4,046,060
..........................................................
1998-1 A4, 6.20%, 3/10/2015 2,456,000 2,465,075
..........................................................
1998-4 A4, 6.32%, 3/10/2017 5,000,000 5,015,000
..........................................................
First Tennessee Auto Grantor
Trust (Acquired 4/17/1998,
cost $3,284,803), 1998-A A,
6.134%, 4/15/2003 r 3,284,803 3,285,316
..........................................................
Green Tree Financial
Corporation:
1995-4 A4, 6.75%, 6/15/2025 5,435,000 5,521,063
..........................................................
1996-5 B2, 8.45%, 7/15/2027 4,145,001 4,372,976
..........................................................
Green Tree Recreational,
Equipment & Consumer Trust,
1996-B CTFS, 7.70%,
7/15/2018 2,250,000 2,245,079
..........................................................
Heilig-Meyers Master Trust
(Acquired 2/20/1998, cost
$4,099,626), 1998-1A A,
6.125%, 1/20/2007 r 4,100,000 4,095,351
..........................................................
</TABLE>

See Notes to Financial Statements

28
<PAGE> 118
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
LOW DURATION FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
Long Beach Acceptance Auto
Grantor Trust (Acquired
1/29/1998, cost $2,225,348),
1998-1 A, 6.19%, 1/25/2004 r $ 2,225,373 $ 2,226,070
..........................................................
The Money Store Residential
Trust, 1998-I A2, 6.20%,
3/15/2008 2,250,000 2,252,813
..........................................................
Nomura Asset Securities
Corporation, 1995-MD3 A1B,
8.15%, 3/04/2020 2,750,000 3,032,736
..........................................................
Resolution Trust Corporation,
1994-C1 F, 8.00%, 6/25/2026 2,075,145 2,088,704
..........................................................
Trust Investment Enhanced
Return Securities, 1997-7 A,
CLB 2/15/1999, 6.688%,
11/15/2003 4,700,000 4,723,298
..................... ..................... -----------
63,996,877
- ----------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.0%
..........................................................
Blackrock Capital Finance L.P.
(Acquired 6/23/1997, Cost
$1,522,404), 1997-R2 AP,
7.04398%, 12/25/2035 # r 1,531,738 1,612,450
..........................................................
Chemical Mortgage Securities,
Inc., 1993-3 A1, 7.125%,
7/25/2023 172,517 173,142
..........................................................
Citicorp Mortgage Securities,
Inc.: 1990-D A1, 9.50%,
10/25/2005 259,037 258,865
..........................................................
1997-3 A2, 6.92%, 8/25/2027 2,747,752 2,760,103
..........................................................
Countrywide Funding
Corporation, 1994-17 A9,
8.00%, 7/25/2024 4,000 4,243
..........................................................
GE Capital Mortgage Services,
Inc., 1995-8 A5, 7.50%,
10/25/2025 2,391,252 2,384,511
..........................................................
Housing Securities, Inc.,
1994-2 B1, 6.50%, 7/25/2009 218,034 196,899
..........................................................
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
Independent National Mortgage
Corporation:
1995-A A4, 8.75%, 3/25/2025 $ 18,000 $ 18,578
..........................................................
1996-D A2, 7.00%, 5/25/2026 1,628,932 1,633,924
..........................................................
Ocwen Residential MBS Corp.
(Acquired 6/18/1998, cost
$4,993,750), 1998-R2 AP,
4.9739%, 11/25/2034 # r 5,000,000 4,995,305
..........................................................
Prudential Home Mortgage
Securities, Co., 1993-36
A10, 7.25%, 10/25/2023 500,000 507,357
..........................................................
Residential Funding Mortgage
Securities Inc.: 1993-S9 A8,
8.166665%, 2/25/2008 # 125,305 125,069
..........................................................
1992-S5 A5, 7.50%, 2/25/2007 690,553 693,173
..........................................................
Salomon Brothers Mortgage
Securities VII, 1994-6 AI,
7.0105%, 5/25/2004 # 2,512,040 2,536,821
..........................................................
Structured Mortgage Asset
Residential Trust:
1991-1H, 8.25%, 6/25/2022 180,613 181,396
..........................................................
1992-3 A, 8.00%, 10/25/2007 173,063 178,479
..........................................................
1993-5A AA, 6.9367%,
6/25/2024 # 272,916 268,960
..........................................................
Walsh Acceptance (Acquired
3/06/1997, cost $1,750,106),
1997-2 A, 6.6875%,
3/01/2027 # r 1,736,539 1,736,402
..................... ..................... -----------
20,265,677
- ----------------------------------------------------------
PASS-THROUGH SECURITIES -- 0.2%
..........................................................
Citicorp Mortgage Securities,
Inc.:
1988-16 A1, 10.00%,
11/25/2018 37,210 39,807
..........................................................
1989-8 A1, 10.50%, 6/25/2019 367,994 397,248
..................... ..................... -----------
437,055
- ----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

29
<PAGE> 119
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
LOW DURATION FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
STRIPPED MORTGAGE-BACKED SECURITIES -- 2.7%
..........................................................
<S> <C> <C>
Asset Securitization
Corporation, 1997-D5, PSI
(IO), 1.37804%, 2/14/2041 # $14,885,789 $ 1,617,267
..........................................................
Chase Commercial Mortgage
Securities Corporation,
1997-1 X (IO), 1.3965%,
4/19/2015 # 25,691,230 2,052,293
..........................................................
CS First Boston Mortgage
Securities Corporation
(Acquired 8/14/1997, cost
$1,362,985), 1995-WF1 AX
(IO), 1.487257%,
12/21/2027 # r 20,702,711 1,093,372
..........................................................
Donaldson, Lufkin & Jenrette,
(Acquired 4/25/1997, Cost
$2,154,921), 1997-CF1 S
(IO), 1.09368%, 3/15/2017 #r 35,184,294 2,177,028
..................... ..................... -----------
6,939,960
- ----------------------------------------------------------
Total non-agency mortgage-backed securities
(cost $91,608,401) 91,639,569
- ----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
PREFERRED STOCK -- 0.5% Shares
- -----------------------------------------------------------
<S> <C> <C>
Home Ownership Funding 2, (Acquired
2/20/1997, cost $1,500,000) r 1,500 1,430,625
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
U.S. TREASURY OBLIGATIONS Principal
- -- 8.3% Amount
- ----------------------------------------------------------
<S> <C> <C>
U.S. Treasury Bonds:
7.500%, 11/15/2016 $ 4,300,000 5,164,033
..........................................................
6.375%, 8/15/2027 2,000,000 2,197,502
..........................................................
6.125%, 11/15/2027 3,250,000 3,483,597
..........................................................
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- ----------------------------------------------------------
<S> <C> <C>
U.S. Treasury Notes:
5.875%, 11/15/1999 $ 500,000 $ 502,344
..........................................................
6.25%, 2/15/2003 2,000,000 2,058,752
..........................................................
5.875%, 11/15/2005 2,250,000 2,294,298
..........................................................
6.50%, 10/15/2006 4,925,000 5,232,817
..................... ..................... -----------
Total U.S. Treasury
obligations (cost 20,933,343
$20,683,031)
- ----------------------------------------------------------
SHORT-TERM INVESTMENTS -- 6.9%
- ----------------------------------------------------------
DISCOUNT NOTES -- 6.5%
..........................................................
CSX Corp., 5.69%, 7/13/1998
4(2) 500,000 499,052
..........................................................
Centex Corp., 7.00%, 7/01/1998 7,000,000 7,000,000
..........................................................
International Lease Finance
Corp., 5.51%, 7/07/1998 9,000,000 8,991,734
..................... ..................... -----------
Total discount notes 16,490,786
- ----------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- 0.4%
..........................................................
General Mills, Inc., 5.2651% 965,517 965,517
- ----------------------------------------------------------
Total short-term investments
(cost $17,456,303) 17,456,303
- ----------------------------------------------------------
Total investments -- 98.7% (cost
$248,661,736) 249,974,158
..........................................................
Other assets in excess of
liabilities -- 1.3% 3,176,377
..................... ..................... -----------
Total net assets -- 100.0% $253,150,535
- ----------------------------------------------------------
</TABLE>

# Variable rate security. Rate listed is as of June 30, 1998.

* 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, 1998.

IO -- Interest Only.

PO -- Principal Only.

CLB -- Callable.

r Restricted Security. Purchased in a private placement transaction; resale to
the public may require registration or may extend only to qualified
institutional buyers.

4(2) -- Restricted security requiring resale to institutional investors.

+ -- Deferred interest security that receives no coupon payments until a
predetermined date.

See Notes to Financial Statements

30
<PAGE> 120
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT FUND

<TABLE>
<CAPTION>
CORPORATE BONDS AND Principal
NOTES -- 33.0% Amount Value
- -----------------------------------------------------------
APPAREL -- 1.3%
...........................................................
<S> <C> <C>
La Petite Holdings, CLB
8/01/1998, 9.625%, 8/01/2001 $ 350,000 $ 360,500
- -----------------------------------------------------------
BANKS -- 1.8%
...........................................................
MBNA Corporation, 6.0375%,
6/17/2002 # 500,000 498,176
- -----------------------------------------------------------
EUROBANKS -- 9.7%
...........................................................
Fokus Bank A/S, CLB 9/29/1999,
6.90%, 9/29/2004 # 600,000 604,703
...........................................................
Foreningsbanken Kredit AB, CLB
12/18/2001, 6.4375%,
12/29/2049 # 750,000 752,850
...........................................................
Nordbanken, CLB 10/25/2001,
6.2875%, 10/29/2049 # 550,000 551,903
...........................................................
Skandinavinska Enskilda Banken,
CLB 6/28/2003, 6.6875%,
6/29/2049 # 800,000 806,736
..................... ...................... ----------
2,716,192
- -----------------------------------------------------------
FINANCIAL SERVICES -- 4.5%
...........................................................
Newcourt Credit Group, 5.91%,
10/24/2000 # 500,000 501,505
...........................................................
Countrywide Home Loans, Inc.,
6.2225%, 3/16/2005 # 750,000 751,632
..................... ...................... ----------
1,253,137
- -----------------------------------------------------------
OIL & GAS (DOMESTIC) -- 2.7%
...........................................................
Harcor Energy, Inc., CLB
7/15/1999, 14.875%, 7/15/2002 650,000 771,875
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------
PAPER & FOREST PRODUCTS -- 1.7%
...........................................................
<S> <C> <C>
Fort Howard Corporation, 11.00%,
1/02/2002 $ 463,440 $ 473,553
- -----------------------------------------------------------
TELECOMMUNICATIONS -- 7.3%
...........................................................
Continental Cablevision, Inc.,
CLB 6/01/1999, 11.00%,
6/01/2007 700,000 761,264
...........................................................
Illinois Bell Telephone Co., CLB
9/11/1998, 7.625%, 4/01/2006 150,000 151,288
...........................................................
Teleport Communications, CLB
7/01/2001, 0.00%, 7/01/2007 + 750,000 652,500
...........................................................
TKR Cable, Inc., CLB 10/30/1999,
10.50%, 10/30/2007 450,000 493,086
..................... ...................... ----------
2,058,138
- -----------------------------------------------------------
UTILITY -- ELECTRIC -- 4.0%
...........................................................
Calenergy Co., Inc., CLB
1/15/1999, 10.25%, 1/15/2004 500,000 538,750
...........................................................
Long Island Lighting Co., CLB
9/11/1998, 8.90%, 7/15/2019 550,000 583,339
..................... ...................... ----------
1,122,089
- -----------------------------------------------------------
Total corporate bonds and notes
(cost $9,253,774) 9,253,660
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

31
<PAGE> 121
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT FUND

<TABLE>
<CAPTION>
GOVERNMENT AGENCY
MORTGAGE-BACKED Principal
SECURITIES -- 21.3% Amount Value
- -----------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 8.5%
...........................................................
<S> <C> <C>
Federal Home Loan Mortgage
Corporation:
1081 I, 7.00%, 12/15/2019 $ 8,390 $ 8,379
...........................................................
1206 GA, 7.00%, 3/15/2018 417,645 417,806
...........................................................
1988 SD, 10.25%, 9/15/2027 # 975,610 981,636
...........................................................
2036 Z, 7.00%, 3/15/2028 79,287 79,039
...........................................................
2043 SC, 10.12813%, 4/15/2028 # 285,259 283,051
...........................................................
2055 ZA, 6.50%, 5/15/2013 603,250 584,766
...........................................................
Federal National Mortgage
Association:
1992-39 SD, 22.9866%,
7/25/2019 # 38,319 39,257
..................... ...................... ----------
2,393,934
- -----------------------------------------------------------
GOVERNMENT AGENCY NOTES -- 1.4%
...........................................................
Federal Home Loan Bank, CLB
9/16/1998, 4.69%, 3/16/1999 # 400,000 398,130
- -----------------------------------------------------------
PASS-THROUGH SECURITIES -- 7.5%
...........................................................
Federal Housing Authority
Project, 7.43%, 2/01/2023 135,150 137,382
...........................................................
Government National Mortgage
Association,
8067, 7.00%, 11/20/2022 # 521,060 534,368
...........................................................
8346, 7.00%, 12/20/2023 # 1,071,298 1,098,198
...........................................................
8570, 7.00%, 10/20/2019 # 313,313 321,500
..................... ...................... ----------
2,091,448
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------
STRIPPED MORTGAGE-BACKED SECURITIES -- 3.9%
...........................................................
<S> <C> <C>
Federal National Mortgage
Association, 1993-129 J (IO),
6.50%, 2/25/2007 $ 970,629 $ 90,208
...........................................................
1993-97 L (IO), 7.50%,
5/25/2023 403,875 26,509
...........................................................
1997-65 A (PO), 0.00%,
9/25/2000 337,818 312,463
...........................................................
1997-76 B (PO), 0.00%,
6/25/2018 685,025 671,730
..................... ...................... ----------
1,100,910
- -----------------------------------------------------------
Total government agency mortgage-backed
securities (cost $5,948,740) 5,984,422
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

32
<PAGE> 122
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT FUND

<TABLE>
<CAPTION>
NON-AGENCY MORTGAGE-
BACKED SECURITIES -- Principal
16.9% Amount Value
- -----------------------------------------------------------
ASSET-BACKED SECURITIES -- 11.3%
...........................................................
<S> <C> <C>
Asset-Backed Securities
Investment Trust (Acquired
8/08/1997, cost $500,000),
1997-D A, 6.79%, 8/17/2003 r $ 500,000 $ 501,229
...........................................................
Champion Auto Grantor Trust
(Acquired 10/28/1997, cost
$168,851), 1997-D A, 6.27%,
9/15/2002 r 168,851 169,325
...........................................................
Commercial Financial Services
Securitized Multiple Asset
Rated Trust (Acquired
9/24/1997, cost $376,613),
1997-5 A1, 7.72%, 6/15/2005 r 376,613 378,790
...........................................................
First Tennessee Auto Grantor
Trust (Acquired 4/17/1998,
cost $887,785), 1998-A A,
6.134%, 4/15/2003 r 887,785 887,923
...........................................................
Long Beach Acceptance Auto
Grantor Trust (Acquired
1/29/1998, cost $447,795),
1998-1 A, 6.19%, 1/25/2004 r 447,800 447,940
...........................................................
The Money Store Home Equity
Trust, 1994-C A3, 7.40%,
3/15/2018 278,553 280,089
...........................................................
Trust Investment Enhanced Return
Securities, 1997-7A, CLB
2/15/1999, 6.688%, 11/15/2003 500,000 502,478
..................... ...................... ----------
3,167,774
- -----------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 5.6%
...........................................................
<S> <C> <C>
American Housing Trust, XD,
8.60%, 11/25/2015 $ 429,321 $ 429,856
...........................................................
Citicorp Mortgage Securities,
Inc., 1990-D A1, 9.50%,
10/25/2005 129,518 129,432
...........................................................
Resolution Trust Corporation,
1994-C2 G, 8.00%, 4/25/2025 360,244 363,593
...........................................................
Salomon Brothers Mortgage
Securities VI, 1986-1 A,
6.00%, 12/25/2011 373,786 370,918
...........................................................
Walsh Acceptance (Acquired
3/06/1997, cost $291,684),
1997-2 A, 6.6875%, 3/01/2027 #
r 289,423 289,401
..................... ...................... ----------
1,583,200
- -----------------------------------------------------------
Total non-agency mortgage-backed securities
(cost $4,748,668) 4,750,974
- -----------------------------------------------------------
U.S. TREASURY
OBLIGATIONS -- 3.6%
- -----------------------------------------------------------
U.S. Treasury Notes, 5.875%,
3/31/1999 (cost $1,002,185) 1,000,000 1,003,126
- -----------------------------------------------------------
SHORT-TERM INVESTMENTS -- 26.7%
- -----------------------------------------------------------
DISCOUNT NOTES -- 24.9%
...........................................................
CSX Corp., 0.00%, 7/13/1998 4(2) 1,500,000 1,497,155
...........................................................
Exxon Asset Management, 5.54%,
7/01/1998 4(2) 1,500,000 1,500,000
...........................................................
Lockheed Martin Corp.:
5.67%, 7/06/1998 4(2) 1,250,000 1,249,016
...........................................................
5.70%, 7/21/1998 4(2) 1,500,000 1,495,250
...........................................................
Tyson Foods, Inc., 5.67%,
7/06/1998 1,250,000 1,249,016
..................... ...................... ----------
Total discount notes 6,990,437
- -----------------------------------------------------------
</TABLE>

See Notes to Financial Statements

33
<PAGE> 123
Schedule of Investments -- June 30, 1998
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT FUND

<TABLE>
<CAPTION>
Principal
Amount Value
- -----------------------------------------------------------
VARIABLE RATE DEMAND NOTES* -- 1.8%
...........................................................
<S> <C> <C>
General Mills, Inc., 5.2651% $ 957 $ 957
...........................................................
Pitney Bowes, Inc., 5.2651% 488,381 488,381
..................... ...................... ----------
Total variable rate demand notes 489,338
- -----------------------------------------------------------
Total short-term investments
(cost $7,479,775) 7,479,775
- -----------------------------------------------------------
Total investments -- 101.5%
(cost $28,433,142) 28,471,957
...........................................................
Liabilities in excess of other
assets -- (1.5)% (433,479)
..................... ...................... ----------
Total net assets -- 100.0% $28,038,478
- -----------------------------------------------------------
</TABLE>

# Variable rate security. Rate listed is as of June 30, 1998.

* 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, 1998.

IO -- Interest Only.

PO -- Principal Only.

CLB -- Callable.

r -- Restricted Security. Purchased in a private placement transaction; resale
to the public may require registration or may extend only to qualified
institutional buyers.

4(2) -- Restricted security requiring resale to institutional investors.

+ -- Deferred interest security that receives no coupon payments until a
predetermined date.

See Notes to Financial Statements

34
<PAGE> 124

(Intentionally Left Blank)
<PAGE> 125

Financial Statements -- June 30, 1998
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
EQUITY
INCOME MID-CAP SMALL
FUND FUND CAP FUND
---------------------------------------
<S> <C> <C> <C>
ASSETS:
Investments, at value*................................ $174,632,849 $7,578,068 $92,833,069
Foreign currency**.................................... -- -- --
Cash.................................................. 729 11,515 107,585
Dividends and interest receivable..................... 406,212 10,436 33,074
Receivable from Advisor............................... -- -- --
Receivable for investments sold....................... 569,635 -- 1,877,318
Receivable for Fund shares sold....................... 28 -- 226,577
Prepaid expenses...................................... 12,990 6,635 15,966
------------ ---------- -----------
Total assets..................................... 175,622,443 7,606,654 95,093,589
------------ ---------- -----------
LIABILITIES:
Payable for forward currency exchange contracts....... -- -- --
Payable to Advisor.................................... 108,182 674 59,838
Payable for investments purchased..................... 176,612 45,039 14,613
Payable for Fund shares repurchased................... 3,310 -- 84,061
Dividends payable..................................... -- -- --
Accrued expenses and other liabilities................ 79,754 21,761 21,801
------------ ---------- -----------
Total liabilities................................ 367,858 67,474 180,313
------------ ---------- -----------
Net assets....................................... $175,254,585 $7,539,180 $94,913,276
============ ========== ===========
NET ASSETS CONSIST OF:
Paid in capital....................................... $110,271,920 $7,095,188 $87,939,585
Undistributed (distributions in excess of) net
investment income.................................. 52,825 -- --
Undistributed net realized gain (loss) on
securities......................................... 20,801,091 805,357 6,094,381
Net unrealized appreciation (depreciation) of
securities and foreign currency.................... 44,128,749 (361,365) 879,310
------------ ---------- -----------
Net assets....................................... $175,254,585 $7,539,180 $94,913,276
============ ========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE:
Shares outstanding (unlimited shares of no par value
authorized)........................................ 7,958,305 583,725 3,584,579
Net asset value per share (offering and redemption
price)............................................. $ 22.02 $ 12.92 $ 26.48
============ ========== ===========
*Cost of Investments................................... $130,504,100 $7,939,433 $91,953,759
============ ========== ===========
**Cost of Foreign Currency.............................. $ -- $ -- $ --
============ ========== ===========
</TABLE>

See Notes to Financial Statements

36
<PAGE> 126
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TOTAL LOW SHORT-TERM
INTERNATIONAL GLOBAL EQUITY BALANCED RETURN BOND DURATION INVESTMENT
FUND FUND FUND FUND FUND FUND
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,475,911,912 $7,432,448 $106,213,578 $44,502,970 $249,974,158 $28,471,957
2,226 81,127 -- -- -- --
51,741 -- -- 2,559 -- --
6,622,150 17,969 715,502 465,168 2,585,770 256,143
-- 675 -- -- -- 2,517
5,413,808 -- 180,507 135 230,810 4,711
11,822,254 -- -- 550,326 2,271,181 479,019
46,064 6,604 8,818 6,402 15,589 9,791
-------------- ---------- ------------ ----------- ------------ -----------
1,499,870,155 7,538,823 107,118,405 45,527,560 255,077,508 29,224,138
-------------- ---------- ------------ ----------- ------------ -----------
1,323,573 6,070 -- -- -- --
900,305 -- 64,706 3,245 54,871 --
4,878,853 32,817 2,379,308 -- -- --
14,974,451 102,078 -- 15,180 380,331 1,002,871
-- -- -- 227,308 1,293,755 136,991
987,589 52,573 78,978 34,026 198,016 45,798
-------------- ---------- ------------ ----------- ------------ -----------
23,064,771 193,538 2,522,992 279,759 1,926,973 1,185,660
-------------- ---------- ------------ ----------- ------------ -----------
$1,476,805,384 $7,345,285 $104,595,413 $45,247,801 $253,150,535 $28,038,478
============== ========== ============ =========== ============ ===========
$1,288,778,487 $6,831,129 $ 91,283,788 $44,088,113 $251,083,806 $28,184,516
(6,410,587) (24,779) 1,426 34,272 -- (72,392)
1,162,718 13,165 4,311,051 224,718 754,307 (112,461)
193,274,766 525,770 8,999,148 900,698 1,312,422 38,815
-------------- ---------- ------------ ----------- ------------ -----------
$1,476,805,384 $7,345,285 $104,595,413 $45,247,801 $253,150,535 $28,038,478
============== ========== ============ =========== ============ ===========
58,310,329 645,500 5,272,538 3,362,189 24,826,266 2,767,981
$ 25.33 $ 11.38 $ 19.84 $ 13.46 $ 10.20 $ 10.13
============== ========== ============ =========== ============ ===========
$1,282,680,123 $6,907,441 $ 97,214,430 $43,602,272 $248,661,736 $28,433,142
============== ========== ============ =========== ============ ===========
$ 2,229 $ 80,372 $ -- $ -- $ -- $ --
============== ========== ============ =========== ============ ===========
</TABLE>

See Notes to Financial Statements

37
<PAGE> 127

Financial Statements -- Year Ended June 30, 1998
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
EQUITY SMALL
INCOME MID-CAP CAP
FUND FUND FUND
---------------------------------------
<S> <C> <C> <C>
INVESTMENT INCOME
Income*
Dividends......................................... $ 5,351,735 $ 103,729 $ 298,766
Interest.......................................... 76,780 14,269 162,805
----------- --------- -----------
Total income................................. 5,428,515 117,998 461,571
----------- --------- -----------
Expenses
Advisory fee...................................... 1,424,185 40,200 491,489
Legal and auditing fees........................... 29,751 5,882 12,064
Custodian fees and expenses....................... 33,355 5,920 12,319
Accounting and transfer agent fees and expenses... 52,938 41,133 40,976
Administration fee................................ 72,478 1,758 14,624
Trustees' fees and expenses....................... 6,323 7,247 5,964
Reports to shareholders........................... -- 1,281 3,480
Registration fees................................. 20,915 38,504 30,824
Other expenses.................................... 12,331 4,200 4,231
----------- --------- -----------
Total expenses............................... 1,652,276 146,125 615,971
Less, expense reimbursement....................... -- (92,525) --
----------- --------- -----------
Net expenses................................. 1,652,276 53,600 615,971
----------- --------- -----------
Net investment income (loss)......................... 3,776,239 64,398 (154,400)
----------- --------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on securities and foreign
currency transactions........................... 29,878,073 928,847 9,968,991
Net change in unrealized appreciation
(depreciation) of securities and foreign
currency........................................ 5,189,945 (555,561) (3,968,125)
----------- --------- -----------
Net gain (loss) on investments....................... 35,068,018 373,286 6,000,866
----------- --------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $38,844,257 $ 437,684 $ 5,846,466
=========== ========= ===========

*Net of Foreign Taxes Withheld......................... $ 42,115 $ 2,179 $ --
=========== ========= ===========
</TABLE>

See Notes to Financial Statements

38
<PAGE> 128
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
GLOBAL TOTAL LOW SHORT-TERM
INTERNATIONAL EQUITY BALANCED RETURN BOND DURATION INVESTMENT
FUND FUND FUND FUND FUND FUND
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 33,083,711 $ 169,316 $ 1,313,683 $ 99,707 $ 313,046 $ 6,962
4,377,102 1,778 4,194,926 1,581,652 13,763,729 1,616,135
------------ --------- ----------- ---------- ----------- ----------
37,460,813 171,094 5,508,609 1,681,359 14,076,775 1,623,097
------------ --------- ----------- ---------- ----------- ----------
8,732,479 44,469 761,196 126,038 918,112 94,570
157,845 6,272 23,172 14,041 42,101 12,980
558,256 16,173 23,265 7,573 54,713 12,358
384,869 50,442 65,557 46,902 121,796 53,464
237,374 2,193 35,806 6,098 76,301 9,050
5,517 7,194 5,492 5,762 5,155 5,286
106,270 1,411 249 -- 22,600 5,617
165,981 38,638 23,332 27,899 48,168 23,424
38,339 4,144 7,723 1,160 12,981 2,335
------------ --------- ----------- ---------- ----------- ----------
10,386,930 170,936 945,792 235,473 1,301,927 219,084
-- (111,644) -- (86,499) (144,309) (105,600)
------------ --------- ----------- ---------- ----------- ----------
10,386,930 59,292 945,792 148,974 1,157,618 113,484
------------ --------- ----------- ---------- ----------- ----------
27,073,883 111,802 4,562,817 1,532,385 12,919,157 1,509,613
------------ --------- ----------- ---------- ----------- ----------
3,289,299 121,357 5,754,835 318,597 1,052,667 (42,539)
70,706,856 225,531 2,122,314 504,670 (221,716) (20,572)
------------ --------- ----------- ---------- ----------- ----------
73,996,155 346,888 7,877,149 823,267 830,951 (63,111)
------------ --------- ----------- ---------- ----------- ----------
$101,070,038 $ 458,690 $12,439,966 $2,355,652 $13,750,108 $1,446,502
============ ========= =========== ========== =========== ==========

$ 3,609,869 $ 13,148 $ 7,242 $ -- $ -- $ --
============ ========= =========== ========== =========== ==========
</TABLE>

See Notes to Financial Statements

39
<PAGE> 129

Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
EQUITY INCOME FUND MID-CAP FUND
------------------------------ --------------------------------------
Year Ended Year Ended Year Ended January 2, 1997**
June 30, 1998 June 30, 1997 June 30, 1998 through June 30, 1997
------------------------------ --------------------------------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss).......... $ 3,776,239 $ 4,697,583 $ 64,398 $ 12,624
Net realized gain (loss) on securities
and foreign currency transactions... 29,878,073 34,935,223 928,847 6,232
Net change in unrealized appreciation
(depreciation) of securities and
foreign currency.................... 5,189,945 4,211,108 (555,561) 194,196
------------ ------------ ----------- ----------
Net increase in net assets
resulting from operations...... 38,844,257 43,843,914 437,684 213,052
------------ ------------ ----------- ----------
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income................. (3,812,071) (4,609,150) (66,341) (10,925)
Net realized gain on securities
transactions........................ (26,619,074) (18,088,501) (129,478) --
------------ ------------ ----------- ----------
Total dividends and
distributions.................. (30,431,145) (22,697,651) (195,819) (10,925)
------------ ------------ ----------- ----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold......... 23,627,560 42,695,225 6,338,383 2,380,798
Shares issued in connection with
payment of dividends and
distributions....................... 29,778,874 21,727,110 194,620 10,844
Cost of shares redeemed............... (72,438,773) (82,232,891) (1,222,885) (606,572)
------------ ------------ ----------- ----------
Net increase (decrease) in net
assets from Fund share
transactions................... (19,032,339) (17,810,556) 5,310,118 1,785,070
------------ ------------ ----------- ----------
Total increase (decrease) in net assets... (10,619,227) 3,335,707 5,551,983 1,987,197
NET ASSETS:
Beginning of period................... 185,873,812 182,538,105 1,987,197 --
------------ ------------ ----------- ----------
End of period*........................ $175,254,585 $185,873,812 $ 7,539,180 $1,987,197
============ ============ =========== ==========
*Including undistributed (distributions in
excess of) net investment income of: $ 52,825 $ 88,433 $ -- $ 1,699
============ ============ =========== ==========
CHANGES IN SHARES OUTSTANDING:
Shares sold........................... 1,065,609 2,183,683 489,941 226,865
Shares issued in connection with
payment of dividends and
distributions....................... 1,451,197 1,142,942 15,545 942
Shares redeemed....................... (3,307,554) (4,228,482) (92,361) (57,207)
------------ ------------ ----------- ----------
Net increase (decrease).......... (790,748) (901,857) 413,125 170,600
============ ============ =========== ==========
** Commencement of operations
</TABLE>

See Notes to Financial Statements

40
<PAGE> 130

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
SMALL CAP FUND INTERNATIONAL FUND GLOBAL EQUITY FUND
------------------------------ ------------------------------- --------------------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended January 2, 1997**
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998 through June 30, 1997
------------------------------ ------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ (154,400) $ 18,067 $ 27,073,883 $ 14,552,015 $ 111,802 $ 46,344
9,968,991 1,503,738 3,289,299 953,040 121,357 21,267
(3,968,125) 3,726,110 70,706,856 105,727,351 225,531 300,239
------------ ------------ -------------- ------------- ----------- ----------
5,846,466 5,247,915 101,070,038 121,232,406 458,690 367,850
------------ ------------ -------------- ------------- ----------- ----------
(111,869) (56,310) (32,976,929) (15,060,247) (175,171) (45,630)
(5,072,568) (2,033,874) -- (3,759,354) (91,582) --
------------ ------------ -------------- ------------- ----------- ----------
(5,184,437) (2,090,184) (32,976,929) (18,819,601) (266,753) (45,630)
------------ ------------ -------------- ------------- ----------- ----------
140,132,855 21,595,726 1,292,839,186 655,854,799 4,309,902 3,368,545
5,017,869 1,901,255 29,643,512 17,244,335 263,932 44,743
(78,429,678) (15,605,197) (802,298,868) (217,976,937) (1,150,082) (5,912)
------------ ------------ -------------- ------------- ----------- ----------
66,721,046 7,891,784 520,183,830 455,122,197 3,423,752 3,407,376
------------ ------------ -------------- ------------- ----------- ----------
67,383,075 11,049,515 588,276,939 557,535,002 3,615,689 3,729,596
27,530,201 16,480,686 888,528,445 330,993,443 3,729,596 --
------------ ------------ -------------- ------------- ----------- ----------
$ 94,913,276 $ 27,530,201 $1,476,805,384 $ 888,528,445 $ 7,345,285 $3,729,596
============ ============ ============== ============= =========== ==========
$ -- $ 18,067 $ (6,410,587) $ (1,195,950) $ (24,779) $ (453)
============ ============ ============== ============= =========== ==========
5,096,875 998,558 52,830,892 29,673,741 388,720 332,759
207,693 97,400 1,253,628 739,904 25,235 4,002
(2,875,106) (713,459) (32,528,515) (9,851,367) (104,646) (571)
------------ ------------ -------------- ------------- ----------- ----------
2,429,462 382,499 21,556,005 20,562,278 309,309 336,190
============ ============ ============== ============= =========== ==========
</TABLE>

See Notes to Financial Statements

41
<PAGE> 131

Financial Statements
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
BALANCED FUND
-----------------------------------
Year Ended Year Ended
June 30, 1998 June 30, 1997
-----------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 4,562,817 $ 3,580,837
Net realized gain (loss) on securities transactions.... 5,754,835 4,518,798
Net change in unrealized appreciation (depreciation) of
securities........................................... 2,122,314 3,306,702
------------ ------------
Net increase in net assets resulting from
operations...................................... 12,439,966 11,406,337
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................................. (4,563,299) (3,999,551)
Net realized gain on securities transactions........... (5,598,223) (2,410,169)
------------ ------------
Total dividends and distributions................. (10,161,522) (6,409,720)
------------ ------------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold.......................... 34,493,608 39,290,919
Shares issued in connection with payment of dividends
and distributions.................................... 9,851,285 6,071,836
Cost of shares redeemed................................ (32,186,438) (30,799,051)
------------ ------------
Net increase (decrease) in net assets from Fund
share transactions.............................. 12,158,455 14,563,704
------------ ------------
Total increase (decrease) in net assets..................... 14,436,899 19,560,321
NET ASSETS:
Beginning of period.................................... 90,158,514 70,598,193
------------ ------------
End of period*......................................... $104,595,413 $ 90,158,514
============ ============
*Including undistributed (distributions in excess of) net
investment income of: $ 1,426 $ 50,696
============ ============
CHANGES IN SHARES OUTSTANDING:
Shares sold............................................ 1,728,761 2,119,226
Shares issued in connection with payment of dividends
and distributions.................................... 508,237 325,867
Shares redeemed........................................ (1,616,205) (1,658,360)
------------ ------------
Net increase (decrease)........................... 620,793 786,733
============ ============
</TABLE>

See Notes to Financial Statements

42
<PAGE> 132

- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
TOTAL RETURN BOND FUND LOW DURATION FUND SHORT-TERM INVESTMENT FUND
----------------------------- ----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended Year Ended Year Ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 1,532,385 $ 1,964,962 $ 12,919,157 $ 10,574,255 $ 1,509,613 $ 1,058,876
318,597 (42,063) 1,052,667 1,057,714 (42,539) (46,704)
504,670 978,811 (221,716) 764,193 (20,572) (5,502)
----------- ------------ ------------ ------------- ------------ ------------
2,355,652 2,901,710 13,750,108 12,396,162 1,446,502 1,006,670
----------- ------------ ------------ ------------- ------------ ------------
(1,622,000) (1,964,962) (13,340,819) (10,574,255) (1,509,613) (1,058,876)
-- (241,973) (1,045,647) (176,195) -- --
----------- ------------ ------------ ------------- ------------ ------------
(1,622,000) (2,206,935) (14,386,466) (10,750,450) (1,509,613) (1,058,876)
----------- ------------ ------------ ------------- ------------ ------------
33,566,256 14,661,662 182,933,522 191,220,600 50,189,024 39,041,151
1,101,255 1,802,150 12,908,812 10,052,581 894,623 570,013
(4,460,475) (46,271,666) (113,269,472) (220,866,044) (44,698,826) (36,567,972)
----------- ------------ ------------ ------------- ------------ ------------
30,207,036 (29,807,854) 82,572,862 (19,592,863) 6,384,821 3,043,192
----------- ------------ ------------ ------------- ------------ ------------
30,940,688 (29,113,079) 81,936,504 (17,947,151) 6,321,710 2,990,986
14,307,113 43,420,192 171,214,031 189,161,182 21,716,768 18,725,782
----------- ------------ ------------ ------------- ------------ ------------
$45,247,801 $ 14,307,113 $253,150,535 $ 171,214,031 $ 28,038,478 $ 21,716,768
=========== ============ ============ ============= ============ ============
$ 34,272 $ 105,637 $ -- $ 446,351 $ (72,392) $ (17,486)
=========== ============ ============ ============= ============ ============
2,516,857 1,130,467 17,898,633 18,787,386 4,944,329 3,847,758
82,830 139,510 1,263,801 990,060 88,164 56,209
(334,936) (3,568,847) (11,074,513) (21,739,355) (4,404,554) (3,605,096)
----------- ------------ ------------ ------------- ------------ ------------
2,264,751 (2,298,870) 8,087,921 (1,961,909) 627,939 298,871
=========== ============ ============ ============= ============ ============
</TABLE>

See Notes to Financial Statements

43
<PAGE> 133

- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998

NOTE 1.

ACCOUNTING POLICIES. Hotchkis and Wiley Funds (the "Trust") is registered under
the Investment Company Act of 1940 as a diversified, open-end, management
investment company. The Trust was organized as a Massachusetts business trust on
August 22, 1984 and consists of ten series of shares comprising the Balanced
Fund (formerly named the Balanced Income Fund), the Small Cap Fund, the Equity
Income Fund, the International Fund, the Total Return Bond Fund, the Low
Duration Fund, the Short-Term Investment Fund, the Mid-Cap Fund, the Global
Equity Fund and the Equity Fund for Insurance Companies (collectively, the
"Funds"), the assets of which are invested in separate, independently managed
portfolios. The accompanying financial statements exclude financial information
for the Equity Fund for Insurance Companies; financial statements for that Fund
are reported on separately. Investment operations of the Funds began on August
13, 1985 (the Balanced Fund), September 20, 1985 (the Small Cap Fund), June 24,
1987 (the Equity Income Fund), October 1, 1990 (the International Fund), January
29, 1993 (the Equity Fund for Insurance Companies), May 18, 1993 (the Low
Duration Fund and the Short-Term Investment Fund), December 6, 1994 (the Total
Return Bond Fund), and January 2, 1997 (the Mid-Cap Fund and the Global Equity
Fund).

The Balanced Fund seeks to preserve capital while producing a high total return.
The Small Cap Fund seeks capital appreciation. The Equity Income Fund seeks to
provide current income and long-term growth of income, accompanied by growth of
capital. The International Fund seeks to provide current income and long-term
growth of income, accompanied by growth of capital. The Total Return Bond Fund
seeks to maximize long-term total return. The Low Duration Fund seeks to
maximize total return, consistent with preservation of capital. The Short-Term
Investment Fund seeks to maximize total return, consistent with preservation of
capital. The Mid-Cap Fund seeks to provide current income and long-term growth
of income, accompanied by growth of capital. The Global Equity Fund seeks to
provide current income and long-term growth of income, accompanied by growth of
capital. The following is a summary of significant accounting policies followed
by the Funds 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 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. Fixed income securities are normally valued on the
basis of quotes obtained from brokers and dealers or pricing services. Certain
fixed income securities for which daily market quotations are not readily
available may be valued pursuant to guidelines established by the Board of
Trustees, with reference to fixed income securities whose prices are more
readily obtainable or an appropriate matrix utilizing similar factors. As a
broader market does not

44
<PAGE> 134
- --------------------------------------------------------------------------------

exist, the proceeds received upon the disposal of such securities may differ
from quoted values previously furnished by such market makers. 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 Funds are maintained
in U.S. dollars. For the International Fund and the Global Equity Fund, 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 International Fund
and the Global Equity Fund do 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
International Fund and the Global Equity Fund do 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.

FORWARD CURRENCY EXCHANGE CONTRACTS: The International Fund and the Global
Equity Fund utilize forward currency exchange contracts for the purpose of
hedging foreign currency risk. At June 30, 1998 all of the open forward
contracts are hedging foreign currency risk on unsettled trades. 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 each Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and each 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 Funds 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.

RESTRICTED SECURITIES: The Small Cap, Balanced, Total Return Bond, Low Duration,
and Short-Term Investment Funds own investment securities which are unregistered
and thus restricted as to resale.

45
<PAGE> 135
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998

These securities are valued by the Funds after giving due consideration to
pertinent factors including recent private sales, market conditions and the
issuer's financial performance. Where future disposition of these securities
requires registration under the Securities Act of 1933, the Funds have the right
to include these securities in such registration, generally without cost to the
Funds. The Funds have no right to require registration of unregistered
securities. At June 30, 1998, the Small Cap, Balanced, Total Return Bond, Low
Duration and Short-Term Investment Funds had restricted securities with an
aggregate market value of $1,593,900, $9,046,383, $3,858,938, $44,158,231, and
$8,416,029, respectively, representing 1.7%, 8.6%, 8.5%, 17.4%, and 30.0% of the
net assets of each Fund, respectively. Of these amounts, the Balanced, Total
Return Bond, Low Duration and Short-Term Investment Funds had restricted
securities that were determined to be illiquid pursuant to guidelines adopted by
the Board of Trustees with an aggregate market value of $3,435,970, $1,883,569,
$17,774,634 and $668,191, respectively, representing 3.3%, 4.2%, 7.0% and 2.4%
of the net assets of each Fund, respectively, for the year ended June 30, 1998.

WHEN-ISSUED SECURITIES: The Funds may purchase securities on a when-issued or
delayed delivery basis. Although the payment and interest terms of these
securities are established at the time the purchaser enters into the agreement,
these securities may be delivered and paid for at a future date, generally
within 45 days. The Funds record purchases of when-issued securities and reflect
the values of such securities in determining net asset value in the same manner
as other portfolio securities. The Funds segregate and maintain at all times
cash or other liquid assets in an amount at least equal to the amount of
outstanding commitments for when-issued securities.

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
daily and paid monthly for the Total Return Bond, Low Duration and Short-Term
Investment Funds, declared and paid quarterly for the Balanced and Equity Income
Funds, declared and paid semi-annually for the Mid-Cap, International and Global
Equity Funds and declared and paid annually for the Small Cap Fund.
Distributions of net realized capital gains, if any, will be declared at least
annually. Effective July 1, 1998, the Total Return Bond, Low Duration and
Short-Term Investment Funds will declare and pay dividends monthly.

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

46
<PAGE> 136
- --------------------------------------------------------------------------------

principles require that permanent financial reporting and tax differences
relating to shareholder distributions be reclassified to paid in capital.

NOTE 2.

INVESTMENT ADVISORY AGREEMENTS. Each Fund has an investment advisory agreement
with the Advisor. The Advisor receives a fee, computed daily and payable
monthly, at the annual rates presented below as applied to each Fund's daily net
assets. The Advisor has voluntarily agreed to pay all operating expenses in
excess of the annual rates presented below as applied to each Fund's daily net
assets. For the year ended June 30, 1998, the Advisor reimbursed the following
expenses:

<TABLE>
<CAPTION>
Equity Income Mid-Cap Small Cap International Global Equity Balanced
Fund Fund Fund Fund Fund Fund
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ANNUAL ADVISORY RATE........ 0.75% 0.75% 0.75% 0.75% 0.75% 0.75%
ANNUAL CAP ON EXPENSES...... 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
EXPENSES REIMBURSED......... $0 $92,525 $0 $0 $111,644 $0
</TABLE>

<TABLE>
<CAPTION>
Total Return Low Duration Short-Term
Bond Fund Fund Investment Fund
-----------------------------------------------------
<S> <C> <C> <C>
ANNUAL ADVISORY RATE............................ 0.55% 0.46% 0.40%
ANNUAL CAP ON EXPENSES.......................... 0.65% 0.58% 0.48%
EXPENSES REIMBURSED............................. $86,499 $144,309 $105,600
</TABLE>

The Equity Income, International and Global Equity Funds paid commissions on
Fund transactions to an affiliated broker in the amounts of $12,468, $302,055
and $414, respectively, during the year ended June 30, 1998.

As permitted under Rule 10f-3 of the Investment Company Act of 1940, the Board
of Trustees of the Funds have adopted procedures which allow the Funds, 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.

47
<PAGE> 137
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998

NOTE 3.

SECURITIES TRANSACTIONS. Purchases and sales of investment securities, other
than short-term investments, for the year ended June 30, 1998 were as follows:

<TABLE>
<CAPTION>
Purchases Sales
---------------------------------- ----------------------------------
Fund U.S. Government Other U.S. Government Other
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EQUITY INCOME FUND......... -- $ 42,665,881 -- $ 84,469,892
MID-CAP FUND............... -- 8,425,310 -- 3,617,487
SMALL CAP FUND............. -- 114,673,692 -- 53,477,227
INTERNATIONAL FUND......... -- 701,629,674 -- 219,348,442
GLOBAL EQUITY FUND......... -- 6,535,691 -- 3,046,569
BALANCED FUND.............. $ 63,339,502 69,212,096 $71,097,502 49,069,258
TOTAL RETURN BOND FUND..... 38,451,939 34,721,822 25,479,793 18,148,362
LOW DURATION FUND.......... 116,290,995 184,158,820 98,926,814 123,128,398
SHORT-TERM INVESTMENT
FUND..................... 13,194,366 14,060,334 10,630,619 13,361,625
</TABLE>

As of June 30, 1998, unrealized appreciation (depreciation) for federal income
tax purposes was as follows:

<TABLE>
<CAPTION>
Net Appreciation Appreciated Depreciated
Fund (Depreciation) Securities Securities
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EQUITY INCOME FUND........................... $ 44,075,639 $ 46,310,456 $ (2,234,817)
MID-CAP FUND................................. (363,736) 420,412 (784,148)
SMALL CAP FUND............................... 606,223 9,237,435 (8,631,212)
INTERNATIONAL FUND........................... 174,358,554 283,091,074 (108,732,520)
GLOBAL EQUITY FUND........................... 441,254 957,282 (516,028)
BALANCED FUND................................ 8,999,148 9,951,376 (952,228)
TOTAL RETURN BOND FUND....................... 884,791 1,021,401 (136,610)
LOW DURATION FUND............................ 1,270,207 2,311,092 (1,040,885)
SHORT-TERM INVESTMENT FUND................... 38,815 76,043 (37,228)
</TABLE>

At June 30, 1998, the cost of investments for federal income tax purposes was
$130,557,210, $7,941,804, $92,226,846, $1,301,553,358, $6,991,194, $97,214,430,
$43,618,179, $248,703,951 and $28,433,142 for the Equity Income, Mid-Cap, Small
Cap, International, Global Equity, Balanced,

48
<PAGE> 138
- --------------------------------------------------------------------------------

Total Return Bond, Low Duration and Short-Term Investment Funds, respectively.
Any differences between book and tax are due primarily to wash sale losses and
REIT return of capital distributions. In addition, the cost basis differences in
the International Fund and Global Equity Fund are due to mark-to-market
adjustments for passive foreign investment companies.

At June 30, 1998, the Short-Term Investment Fund deferred, on a tax basis,
post-October losses of $6,520. Such amounts may be used to offset future capital
gains. Tax basis post-October losses from foreign currency related transactions
of $1,933,868 and $9,545 for the International and Global Equity Funds,
respectively, are not recognized for federal income tax purposes until fiscal
1999.

At June 30, 1998, the Short-Term Investment Fund had accumulated net realized
capital loss carryovers of $3,422 expiring in 2003, $63,545 expiring in 2004 and
$38,974 expiring in 2005. The Total Return Bond and Short-Term Investment Funds
utilized capital loss carryovers of $82,785 and $16,148, respectively, in 1998.
To the extent the Short-Term Investment Fund realizes future net capital gains,
those gains will be offset by any unused capital loss carryover.

NOTE 4.

FEDERAL TAX DISCLOSURE (UNAUDITED). For the year ended June 30, 1998, the
following percent of ordinary distributions paid qualifies for the dividend
received deduction available to corporate shareholders: Equity Income Fund 91%,
Mid-Cap Fund 15%, Small Cap Fund 3%, Global Equity Fund 17%, Balanced Fund 25%,
Total Return Bond Fund 5%, and Low Duration Fund 2%.

During the year ended June 30, 1998, the International Fund generated
$35,906,512 of foreign source income and paid $3,609,869 of foreign taxes. The
Fund elects to pass foreign taxes through to the Fund's shareholders for their
1998 tax returns. Updated data will be sent with 1998 Forms 1099-DIV to enable
shareholders to have information to claim either a foreign tax credit or to take
a foreign tax deduction on their 1998 income tax returns.

During the year ended June 30, 1998, the following Funds paid capital gain
dividends (taxable as long-term capital gains).

<TABLE>
<CAPTION>
% of
Capital Gain
Distribution at
Maximum Rate
Per Share of 20%
--------- ---------------
<S> <C> <C>
EQUITY INCOME FUND... $2.9033 37.44%
SMALL CAP FUND....... $0.8879 39.22%
BALANCED FUND........ $0.9877 62.45%
LOW DURATION FUND.... $0.0369 92.65%
</TABLE>

Information regarding these distributions was provided with the 1997 Forms
1099-DIV sent to shareholders in January 1998.

49
<PAGE> 139

Financial Highlights
- --------------------------------------------------------------------------------
EQUITY INCOME FUND

<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year................ $21.25 $18.91 $17.24 $15.07 $15.50
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income........................ 0.46 0.49 0.45(1) 0.49 0.46
Net realized and unrealized gain on
investments................................ 4.02 4.15 2.89 2.48 0.10
------ ------ ------ ------ ------
Total from investment operations............. 4.48 4.64 3.34 2.97 0.56
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income)....... (0.46) (0.48) (0.57) (0.44) (0.46)
Distributions (from realized gains).......... (3.25) (1.82) (1.10) (0.36) (0.53)
------ ------ ------ ------ ------
Total distributions.......................... (3.71) (2.30) (1.67) (0.80) (0.99)
------ ------ ------ ------ ------
Net Asset Value, End of Year...................... $22.02 $21.25 $18.91 $17.24 $15.07
====== ====== ====== ====== ======
Total Return...................................... 22.60% 26.15% 20.04% 20.49% 3.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)................ $175.3 $185.9 $182.5 $127.1 $87.2
Ratio of expenses to average net assets:
Before expense reimbursement................. 0.87% 0.88% 0.98% 1.02% 1.05%
After expense reimbursement.................. 0.87% 0.88% 0.98% 1.00% 1.00%
Ratio of net investment income to average net
assets:
Before expense reimbursement................. 1.99% 2.49% 2.56% 3.11% 2.85%
After expense reimbursement.................. 1.99% 2.49% 2.56% 3.14% 2.90%
Portfolio turnover rate........................... 23% 44% 24% 50% 36%
</TABLE>

(1) Net investment income per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.

See Notes to Financial Statements

50
<PAGE> 140

Financial Highlights
- --------------------------------------------------------------------------------
MID-CAP FUND

<TABLE>
<CAPTION>
Year Ended January 2, 1997*
June 30, through
1998 June 30, 1997
---------- ----------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $11.65 $10.00
------ ------
Income from Investment Operations:
Net investment income.................................. 0.13 0.07
Net realized and unrealized gain on investments........ 1.60 1.64
------ ------
Total from investment operations....................... 1.73 1.71
------ ------
Less Distributions:
Dividends (from net investment income)................. (0.14) (0.06)
Distributions (from realized gains).................... (0.32) --
------ ------
Total distributions.................................... (0.46) (0.06)
------ ------
Net Asset Value, End of Period.............................. $12.92 $11.65
====== ======
Total Return................................................ 15.00% 17.15%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................ $7.5 $2.0
Ratio of expenses to average net assets:
Before expense reimbursement........................... 2.72% 8.26%+
After expense reimbursement............................ 1.00% 1.00%+
Ratio of net investment income (loss) to average net assets:
Before expense reimbursement........................... (0.52)% (5.39)%+
After expense reimbursement............................ 1.20% 1.87%+
Portfolio turnover rate..................................... 71% 23%++
</TABLE>

* Commencement of operations.
+ Annualized.
++ Not annualized.

See Notes to Financial Statements

51
<PAGE> 141

Financial Highlights
- --------------------------------------------------------------------------------
SMALL CAP FUND

<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year................. $23.83 $21.33 $21.53 $19.53 $19.88
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income (loss).................. (0.06)(1) 0.03 0.05(1) (0.06) (0.01)
Net realized and unrealized gain on
investments................................. 5.13 5.62 2.80 2.84 0.78
------ ------ ------ ------ ------
Total from investment operations.............. 5.07 5.65 2.85 2.78 0.77
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income)........ (0.05) (0.09) -- -- (0.20)
Distributions (from realized gains)........... (2.37) (3.06) (3.05) (0.78) (0.92)
------ ------ ------ ------ ------
Total distributions........................... (2.42) (3.15) (3.05) (0.78) (1.12)
------ ------ ------ ------ ------
Net Asset Value, End of Year....................... $26.48 $23.83 $21.33 $21.53 $19.53
====== ====== ====== ====== ======
Total Return....................................... 22.24% 29.74% 14.24% 14.79% 3.77%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)................. $94.9 $27.5 $16.5 $20.5 $13.1
Ratio of expenses to average net assets:
Before expense reimbursement.................. 0.94% 1.30% 1.21% 1.49% 1.65%
After expense reimbursement................... 0.94% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income (loss) to average
net assets:
Before expense reimbursement.................. (0.23)% (0.20)% 0.03% (0.82)% (0.71)%
After expense reimbursement................... (0.23)% 0.10% 0.24% (0.34)% (0.06)%
Portfolio turnover rate............................ 85% 88% 119% 81% 44%
</TABLE>

(1) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the year.

See Notes to Financial Statements

52
<PAGE> 142

Financial Highlights
- --------------------------------------------------------------------------------
INTERNATIONAL FUND

<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year............. $ 24.17 $20.44 $17.70 $16.79 $14.63
-------- ------ ------ ------ ------
Income from Investment Operations:
Net investment income..................... 0.59 0.59(1) 0.56(1) 0.28 0.26
Net realized and unrealized gain on
investments............................. 1.23 3.78 2.51 1.52 2.19
-------- ------ ------ ------ ------
Total from investment operations.......... 1.82 4.37 3.07 1.80 2.45
-------- ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income).... (0.66) (0.48) (0.14) (0.44) (0.14)
Distributions (from realized gains)....... -- (0.16) (0.19) (0.45) (0.15)
-------- ------ ------ ------ ------
Total distributions....................... (0.66) (0.64) (0.33) (0.89) (0.29)
-------- ------ ------ ------ ------
Net Asset Value, End of Year................... $ 25.33 $24.17 $20.44 $17.70 $16.79
======== ====== ====== ====== ======
Total Return................................... 7.77% 21.59% 18.61% 11.08% 16.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)............. $1,476.8 $888.5 $331.0 $51.5 $26.0
Ratio of expenses to average net assets:
Before expense reimbursement.............. 0.89% 1.07% 1.11% 1.39% 1.61%
After expense reimbursement............... 0.89% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net
assets:
Before expense reimbursement.............. 2.32% 2.59% 2.67% 2.45% 2.01%
After expense reimbursement............... 2.32% 2.66% 2.78% 2.83% 2.62%
Portfolio turnover rate........................ 20% 18% 12% 24% 23%
</TABLE>

(1) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the year.

See Notes to Financial Statements

53
<PAGE> 143

Financial Highlights
- --------------------------------------------------------------------------------
GLOBAL EQUITY FUND

<TABLE>
<CAPTION>
Year Ended January 2, 1997*
June 30, through
1998 June 30, 1997
------------ ----------------
<S> <C> <C>
Net Asset Value, Beginning of Period........................ $11.09 $10.00
------ ------
Income from Investment Operations:
Net investment income.................................. 0.28 0.14
Net realized and unrealized gain on investments........ 0.51 1.09
------ ------
Total from investment operations....................... 0.79 1.23
------ ------
Less Distributions:
Dividends (from net investment income)................. (0.32) (0.14)
Distributions (from realized gains).................... (0.18) --
------ ------
Total distributions.................................... (0.50) (0.14)
------ ------
Net Asset Value, End of Period.............................. $11.38 $11.09
====== ======
Total Return................................................ 7.61% 12.32%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)........................ $7.3 $3.7
Ratio of expenses to average net assets:
Before expense reimbursement........................... 2.88% 4.43%+
After expense reimbursement............................ 1.00% 1.00%+
Ratio of net investment income to average net assets:
Before expense reimbursement........................... 0.00% 0.07%+
After expense reimbursement............................ 1.88% 3.50%+
Portfolio turnover rate..................................... 54% 18%++
</TABLE>

* Commencement of operations.
+ Annualized.
++ Not annualized.

See Notes to Financial Statements

54
<PAGE> 144

Financial Highlights
- --------------------------------------------------------------------------------
BALANCED FUND

<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.............. $19.38 $ 18.27 $ 16.74 $15.71 $16.69
------ ------- ------- ------ ------
Income from Investment Operations:
Net investment income...................... 0.89 0.90(1) 0.94 0.89 0.89
Net realized and unrealized gain (loss) on
investments.............................. 1.58 1.86 1.53 1.53 (0.27)
------ ------- ------- ------ ------
Total from investment operations........... 2.47 2.76 2.47 2.42 0.62
------ ------- ------- ------ ------
Less Distributions:
Dividends (from net investment income)..... (0.90) (0.99) (0.92) (0.80) (0.94)
Distributions (from realized gains)........ (1.11) (0.66) (0.02) (0.57) (0.66)
Return of capital.......................... -- -- -- (0.02) --
------ ------- ------- ------ ------
Total distributions........................ (2.01) (1.65) (0.94) (1.39) (1.60)
------ ------- ------- ------ ------
Net Asset Value, End of Year.................... $19.84 $ 19.38 $ 18.27 $16.74 $15.71
====== ======= ======= ====== ======
Total Return.................................... 13.29% 15.75% 15.04% 16.40% 3.60%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions).............. $104.6 $90.2 $70.6 $32.1 $36.0
Ratio of expenses to average net assets:
Before expense reimbursement............... 0.93% 0.98% 1.06% 1.19% 1.20%
After expense reimbursement................ 0.93% 0.98% 1.00% 1.00% 1.00%
Ratio of net investment income to average net
assets:
Before expense reimbursement............... 4.49% 4.77% 5.20% 5.44% 5.04%
After expense reimbursement................ 4.49% 4.77% 5.26% 5.63% 5.24%
Portfolio turnover rate......................... 121% 117% 92% 51% 97%
</TABLE>

(1) Net investment income per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.

See Notes to Financial Statements

55
<PAGE> 145

Financial Highlights
- --------------------------------------------------------------------------------
TOTAL RETURN BOND FUND

<TABLE>
<CAPTION>
Year Ended June 30, December 6, 1994*
------------------------------ through
1998 1997 1996 June 30, 1995
-----------------------------------------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................ $13.04 $12.78 $12.94 $12.00
------ ------ ------ ------
Income from Investment Operations:
Net investment income.......................... 0.89 0.99 0.84(1) 0.46
Net realized and unrealized gain on
investments.................................. 0.50 0.30 0.06 0.94
------ ------ ------ ------
Total from investment operations............... 1.39 1.29 0.90 1.40
------ ------ ------ ------
Less Distributions:
Dividends (from net investment income)......... (0.97) (0.92) (0.93) (0.46)
Distributions (from realized gains)............ -- (0.11) (0.13) --
------ ------ ------ ------
Total distributions............................ (0.97) (1.03) (1.06) (0.46)
------ ------ ------ ------
Net Asset Value, End of Period...................... $13.46 $13.04 $12.78 $12.94
====== ====== ====== ======
Total Return........................................ 11.04% 10.48% 7.05% 11.88%++
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (millions)................ $45.2 $14.3 $43.4 $15.3
Ratio of expenses to average net assets:
Before expense reimbursement................... 1.02% 0.95% 0.98% 2.93%+
After expense reimbursement.................... 0.65% 0.65% 0.68% 0.80%+
Ratio of net investment income to average net
assets:
Before expense reimbursement................... 6.28% 6.78% 6.86% 4.92%+
After expense reimbursement.................... 6.65% 7.08% 7.16% 7.05%+
Portfolio turnover rate............................. 195% 173% 51% 68%++
</TABLE>

* Commencement of operations.
(1) Net investment income per share is calculated using ending balances prior to
consideration of adjustments for permanent book and tax differences.
+ Annualized.
++ Not annualized.

See Notes to Financial Statements

56
<PAGE> 146

Financial Highlights
- --------------------------------------------------------------------------------
LOW DURATION FUND

<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.................... $10.23 $10.12 $10.15 $ 9.93 $10.00
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income............................ 0.66 0.66 0.68 0.75 0.77
Net realized and unrealized gain on
investments.................................... 0.05 0.10 0.06 0.23 0.11
------ ------ ------ ------ ------
Total from investment operations................. 0.71 0.76 0.74 0.98 0.88
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income)........... (0.68) (0.64) (0.72) (0.75) (0.77)
Distributions (from realized gains).............. (0.06) (0.01) (0.05) (0.01) (0.18)
------ ------ ------ ------ ------
Total distributions.............................. (0.74) (0.65) (0.77) (0.76) (0.95)
------ ------ ------ ------ ------
Net Asset Value, End of Year.......................... $10.20 $10.23 $10.12 $10.15 $ 9.93
====== ====== ====== ====== ======
Total Return.......................................... 7.19% 7.79% 7.47% 10.23% 9.02%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions).................... $253.2 $171.2 $189.2 $123.3 $36.5
Ratio of expenses to average net assets:
Before expense reimbursement..................... 0.65% 0.66% 0.60% 0.75% 1.10%
After expense reimbursement...................... 0.58% 0.58% 0.58% 0.58% 0.58%
Ratio of net investment income to average net assets:
Before expense reimbursement..................... 6.39% 6.26% 7.07% 7.43% 6.82%
After expense reimbursement...................... 6.46% 6.34% 7.09% 7.61% 7.34%
Portfolio turnover rate............................... 119% 202% 50% 71% 254%
</TABLE>

See Notes to Financial Statements

57
<PAGE> 147

Financial Highlights
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT FUND

<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
1998 1997 1996 1995 1994
------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year..................... $10.15 $10.17 $10.12 $10.21 $10.00
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income............................. 0.63 0.58 0.66 0.66 0.53
Net realized and unrealized gain (loss) on
investments..................................... 0.00 (0.01) 0.05 (0.09) 0.21
------ ------ ------ ------ ------
Total from investment operations.................. 0.63 0.57 0.71 0.57 0.74
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income)............ (0.65) (0.59) (0.66) (0.66) (0.53)
Return of capital................................. -- -- (0.00) -- --
------ ------ ------ ------ ------
Total distributions............................... (0.65) (0.59) (0.66) (0.66) (0.53)
------ ------ ------ ------ ------
Net Asset Value, End of Year........................... $10.13 $10.15 $10.17 $10.12 $10.21
====== ====== ====== ====== ======
Total Return........................................... 6.37% 5.77% 7.23% 5.78% 7.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions)..................... $28.0 $21.7 $18.7 $19.8 $10.5
Ratio of expenses to average net assets:
Before expense reimbursement...................... 0.92% 0.96% 0.88% 1.26% 2.06%
After expense reimbursement....................... 0.48% 0.48% 0.48% 0.48% 0.48%
Ratio of net investment income to average net assets:
Before expense reimbursement...................... 5.92% 5.34% 6.15% 5.74% 4.16%
After expense reimbursement....................... 6.36% 5.82% 6.55% 6.52% 5.74%
Portfolio turnover rate................................ 121% 154% 60% 81% 135%
</TABLE>

See Notes to Financial Statements

58
<PAGE> 148
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of Hotchkis and Wiley Funds:

In our opinion, the accompanying statements of assets and liabilities, including
the schedules 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 Income Fund, the Mid-Cap
Fund, the Small Cap Fund, the International Fund, the Global Equity Fund, the
Balanced Fund, the Total Return Bond Fund, the Low Duration Fund and the
Short-Term Investment Fund (nine of the ten portfolios of Hotchkis and Wiley
Funds, the "Funds") at June 30, 1998, the results of each of their operations,
the changes in each of their net assets and the financial highlights for each of
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Funds'
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, 1998 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Milwaukee, WI
August 12, 1998

59
<PAGE> 149

HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998

<TABLE>
<CAPTION>
COMMON STOCKS--99.4% SHARES VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C>
AEROSPACE--3.6%
Lockheed Martin Corporation............................ 2,700 $ 285,862
Northrop Grumman Corporation........................... 8,800 907,500
Rockwell International Corporation..................... 6,000 288,375
-----------
1,481,737
-----------
APPAREL & TEXTILES--1.0%
Russell Corporation.................................... 13,300 401,494
-----------
AUTO PARTS--1.6%
Dana Corporation....................................... 11,000 588,500
Meritor Automotive, Inc. .............................. 2,000 48,000
-----------
636,500
-----------
AUTOS & TRUCKS--6.3%
Ford Motor Company..................................... 24,500 1,445,500
General Motors Corporation............................. 17,000 1,135,813
-----------
2,581,313
-----------
BANKS--6.7%
Banc One Corporation................................... 3,400 189,763
First Chicago NBD Corporation.......................... 10,000 886,250
First Union Corporation................................ 11,070 644,827
Fleet Financial Group, Inc. ........................... 6,000 501,000
KeyCorp................................................ 14,200 505,875
-----------
2,727,715
-----------
BEVERAGES--0.8%
Anheuser-Busch Companies, Inc. ........................ 7,000 330,312
-----------
BUILDING & FOREST PRODUCTS--2.2%
Georgia-Pacific (Timber Group)......................... 9,700 223,706
Weyerhaeuser Company................................... 14,500 669,719
-----------
893,425
-----------
CHEMICALS--4.3%
The Dow Chemical Company............................... 7,600 734,825
duPont (E.I.) de Nemours & Company..................... 6,000 447,750
Eastman Chemical Company............................... 8,100 504,225
Millennium Chemicals, Inc. ............................ 2,214 74,999
-----------
1,761,799
-----------
</TABLE>

See Notes to Financial Statements.
1
<PAGE> 150
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1998

<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
CONGLOMERATES--1.6%
Tenneco, Inc. ......................................... 17,300 $ 658,481
-----------
CONSUMER PRODUCTS--0.9%
Tupperware Corporation................................. 13,600 382,500
-----------
DRUGS--1.0%
American Home Products Corporation..................... 8,000 414,000
-----------
ENGINEERING & CONSTRUCTION--0.8%
Harsco Corporation..................................... 7,400 339,013
-----------
FINANCIAL SERVICES--4.5%
Associates First Capital Corporation--Class A.......... 6,421 493,614
Beneficial Corporation................................. 3,300 505,519
Household International, Inc. ......................... 9,000 447,750
Transamerica Corporation............................... 3,300 379,912
-----------
1,826,795
-----------
HOUSEHOLD FURNISHINGS & APPLIANCES--2.4%
Whirlpool Corporation.................................. 14,000 962,500
-----------
INSURANCE--5.5%
American General Corporation........................... 6,087 433,318
Lincoln National Corporation........................... 5,200 475,150
Safeco Corporation..................................... 14,000 635,250
St. Paul Companies, Inc. .............................. 9,400 395,388
TIG Holdings, Inc. .................................... 13,300 305,900
-----------
2,245,006
-----------
LEISURE/TOYS--1.0%
Fortune Brands, Inc. .................................. 10,000 384,375
-----------
MACHINERY--1.5%
New Holland N.V........................................ 30,500 598,563
-----------
MEDICAL PRODUCTS & SUPPLIES--0.9%
Baxter International, Inc. ............................ 6,700 360,543
-----------
METALS & MINING--2.7%
Aluminum Company of America............................ 8,300 547,281
Phelps Dodge Corporation............................... 3,200 183,000
Reynolds Metals Company................................ 6,600 369,188
-----------
1,099,469
-----------
</TABLE>

See Notes to Financial Statements.
2
<PAGE> 151
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1998

<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
NATURAL GAS--1.4%
Eastern Enterprises.................................... 13,600 $ 583,100
-----------
OIL--DOMESTIC--8.4%
Atlantic Richfield Company............................. 8,500 664,063
Occidental Petroleum Corporation....................... 33,700 909,900
Phillips Petroleum Company............................. 20,000 963,750
USX-Marathon Group, Inc. .............................. 13,900 476,944
Ultramar Diamond Shamrock Corporation.................. 13,000 410,312
-----------
3,424,969
-----------
PAPER--2.5%
Georgia-Pacific Group.................................. 4,600 271,112
International Paper Company............................ 12,400 533,200
Union Camp Corporation................................. 4,200 208,425
-----------
1,012,737
-----------
PHOTOGRAPHY & OPTICAL--1.7%
Eastman Kodak Company.................................. 9,200 672,175
-----------
POLLUTION CONTROL--2.5%
Browning-Ferris Industries, Inc. ...................... 10,072 350,002
Waste Management, Inc. ................................ 18,800 658,000
-----------
1,008,002
-----------
RAILROADS--1.6%
CSX Corporation........................................ 1,900 86,450
Norfolk Southern Corporation........................... 19,100 569,419
-----------
655,869
-----------
RETAIL--5.0%
Intimate Brands, Inc. ................................. 9,700 267,356
J.C. Penney Company, Inc. ............................. 8,200 592,963
May Department Stores Company.......................... 10,300 674,650
Sears, Roebuck & Company............................... 8,000 488,500
-----------
2,023,469
-----------
SAVINGS & LOANS--4.1%
Fannie Mae............................................. 12,300 747,225
H.F. Ahmanson & Company................................ 12,800 908,800
-----------
1,656,025
-----------
STEEL--1.4%
USX-U.S. Steel Group, Inc. ............................ 17,000 561,000
-----------
</TABLE>

See Notes to Financial Statements.
3
<PAGE> 152
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS, CONTINUED
June 30, 1998

<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C>
TOBACCO--3.2%
Philip Morris Companies, Inc. ......................... 33,000 $ 1,299,375
-----------
TRUCKING--0.6%
Ryder System, Inc. .................................... 8,000 252,500
-----------
UTILITY--ELECTRIC--10.9%
CMS Energy Corporation................................. 12,000 528,000
Central & South West Corporation....................... 7,000 188,125
DTE Energy Company..................................... 4,000 161,500
Edison International................................... 6,000 177,375
Entergy Corporation.................................... 7,400 212,750
GPU, Inc. ............................................. 5,400 204,188
Illinova Corporation................................... 27,200 816,000
PECO Energy Company.................................... 12,900 376,519
P P & L Resources, Inc. ............................... 26,000 589,875
PacifiCorp............................................. 8,600 194,575
Public Service Enterprises Group, Inc. ................ 11,000 378,812
SCANA Corporation...................................... 13,200 393,525
Texas Utilities Company................................ 5,502 229,021
-----------
4,450,265
-----------
UTILITY--TELEPHONE--6.8%
AT&T Corporation....................................... 16,600 948,275
ALLTEL Corporation..................................... 13,600 632,400
Bell Atlantic Corporation.............................. 11,980 546,587
SBC Communications, Inc. .............................. 16,090 643,600
-----------
2,770,862
-----------
Total common stocks (cost $28,457,258)................. 40,455,888
-----------

PRINCIPAL
VARIABLE RATE DEMAND NOTES#--0.1% AMOUNT
- --------------------------------------------------------------------------------------

General Mills, Inc., 5.2651%........................... $49,892 49,892
-----------
Total variable rate demand notes (cost $49,892)........ 49,892
-----------
Total investments--99.5% (cost $28,507,150)................. 40,505,780
Other assets in excess of liabilities--0.5%................. 219,675
-----------
TOTAL NET ASSETS--100.0%............................... $40,725,455
===========
</TABLE>

- ---------------

# 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, 1998.

See Notes to Financial Statements.

4
<PAGE> 153

HOTCHKIS
AND WILEY FUNDS Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998

<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $28,507,150)............... $40,505,780
Cash................................................... 22,857
Dividends and interest receivable...................... 99,332
Receivable for investments sold........................ 164,200
Prepaid expenses....................................... 152
-----------
Total assets...................................... 40,792,321
-----------
LIABILITIES:
Payable to Advisor..................................... 4,278
Payable for investments purchased...................... 30,095
Accrued expenses and other liabilities................. 32,493
-----------
Total liabilities................................. 66,866
-----------
Net assets........................................ $40,725,455
===========
NET ASSETS CONSIST OF:
Paid in capital........................................ $25,310,831
Undistributed net investment income.................... 310
Undistributed net realized gains on investments........ 3,415,684
Net unrealized appreciation on investments............. 11,998,630
-----------
Net assets........................................ $40,725,455
===========
CALCULATION OF NET ASSET VALUE PER SHARE:
Shares outstanding (unlimited shares of no par value
authorized)........................................... 2,195,850
Net asset value per share (offering and redemption
price)................................................ $ 18.55
===========
</TABLE>

See Notes to Financial Statements.
5
<PAGE> 154

HOTCHKIS
AND WILEY FUNDS Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
Year ended June 30, 1998

<TABLE>
<S> <C>
INVESTMENT INCOME
Income *
Dividends.............................................. $1,035,546
Interest............................................... 18,385
----------
Total income...................................... 1,053,931
----------
Expenses
Advisory fee........................................... 196,908
Legal and auditing fees................................ 16,138
Custodian fees and expenses............................ 13,066
Accounting fee......................................... 18,243
Administration fee..................................... 5,403
Trustees' fees and expenses............................ 6,190
Reports to shareholders................................ 16,993
Other expenses......................................... 2,576
----------
Total expenses.................................... 275,517
Less, expense reimbursement............................ (78,609)
----------
Net expenses...................................... 196,908
----------
Net investment income..................................... 857,023
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain on securities transactions........... 3,890,091
Net change in unrealized appreciation of securities.... 3,049,489
----------
Net gain on investments........................... 6,939,580
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $7,796,603
==========
- ---------------
* Net of Foreign Taxes withheld............................. $ 7,828
==========
</TABLE>

See Notes to Financial Statements.
6
<PAGE> 155

HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
<S> <C> <C>
OPERATIONS:
Net investment income.................................. $ 857,023 $ 761,065
Net realized gain on securities transactions........... 3,890,091 2,210,721
Net change in unrealized appreciation of securities.... 3,049,489 4,166,465
----------- -----------
Net increase in net assets resulting from
operations...................................... 7,796,603 7,138,251
----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income.................................. (862,305) (766,577)
Net realized gain on securities transactions........... (2,201,788) (922,992)
----------- -----------
Total dividends and distributions................. (3,064,093) (1,689,569)
----------- -----------
FUND SHARE TRANSACTIONS:
Net proceeds from shares sold.......................... 0 1,201,572
Shares issued in connection with payment of dividends
and distributions.................................... 3,064,093 1,689,569
Cost of shares redeemed................................ (30,000) (30,000)
----------- -----------
Net increase in net assets from Fund share
transactions.................................... 3,034,093 2,861,141
----------- -----------
Total increase in net assets................................ 7,766,603 8,309,823
NET ASSETS:
Beginning of year...................................... 32,958,852 24,649,029
----------- -----------
End of year*........................................... $40,725,455 $32,958,852
=========== ===========
*Including undistributed net investment income of:.......... $ 310 $ 5,592
=========== ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold............................................ 0 81,632
Shares issued in connection with payment of dividends
and distributions.................................... 178,122 116,057
Shares redeemed........................................ (1,656) (2,141)
----------- -----------
Net increase...................................... 176,466 195,548
=========== ===========
</TABLE>

See Notes to Financial Statements.
7
<PAGE> 156

HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 1998

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 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
(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.

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.

FEDERAL INCOME TAXES: It is the Fund's policy to meet the
requirements of the Internal Revenue Code applicable to regulated
investment companies and the Fund intends to distribute substantially
all of its investment company net 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.

8
<PAGE> 157
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS, CONTINUED
June 30, 1998

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 quarterly. Distributions of net realized
capital gains, if any, will be declared 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. 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, 1998, the
Advisor paid $78,609 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, 1998 were $9,220,708 and $7,666,568, respectively. There
were no purchases or sales of long-term U.S. government securities.

At June 30, 1998 (for financial reporting and federal income tax
purposes), net unrealized appreciation aggregated $11,998,630, of
which $12,377,033 related to appreciated securities and $378,403
related to depreciated securities. At June 30, 1998, the cost of
investments for book and federal income tax purposes was $28,507,150.

9
<PAGE> 158

HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.......................... $16.32 $13.51 $11.53 $ 9.89 $10.31
------ ------ ------ ------ ------
Income from Investment Operations:
Net investment income................................... 0.41 0.39 0.34 0.41 0.40
Net realized and unrealized gain (loss) on
investments........................................... 3.31 3.30 2.26 1.59 (0.24)
------ ------ ------ ------ ------
Total from investment operations........................ 3.72 3.69 2.60 2.00 0.16
------ ------ ------ ------ ------
Less Distributions:
Dividends (from net investment income).................. (0.41) (0.40) (0.40) (0.34) (0.38)
Distributions (from realized gains)..................... (1.08) (0.48) (0.22) (0.02) (0.20)
------ ------ ------ ------ ------
Total distributions..................................... (1.49) (0.88) (0.62) (0.36) (0.58)
------ ------ ------ ------ ------
Net Asset Value, End of Year................................ $18.55 $16.32 $13.51 $11.53 $ 9.89
====== ====== ====== ====== ======
Total Return................................................ 23.69% 28.20% 22.93% 20.62% 1.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (millions).......................... $40.7 $33.0 $24.6 $17.4 $10.5
Ratio of expenses to average net assets:
Before expense reimbursement............................ 0.73% 0.75% 0.76% 1.05% 1.20%
After expense reimbursement............................. 0.52% 0.53% 0.54% 0.58% 0.60%
Ratio of net investment income to average net assets:
Before expense reimbursement............................ 2.06% 2.50% 2.78% 3.58% 3.32%
After expense reimbursement............................. 2.27% 2.72% 3.00% 4.03% 3.91%
Portfolio turnover.......................................... 21% 22% 21% 29% 26%
</TABLE>

See Notes to Financial Statements.
10
<PAGE> 159

HOTCHKIS
AND WILEY FUNDS
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Trustees and Shareholders of the Hotchkis and Wiley 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 Hotchkis and Wiley Equity Fund
for Insurance Companies (one of the ten portfolios of Hotchkis and Wiley Funds,
the "Fund") at June 30, 1998, 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 five years in the period
then ended, 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, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

Milwaukee, WI
August 12, 1998

11
<PAGE> 160
PART C
OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.

(a) Financial Statements:

The following financial statements are included in the Statement of
Additional Information constituting Part B of this Registration Statement:

Equity Fund for Insurance Companies Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Equity Income Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Balanced Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Small Cap Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

International Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

C-1
<PAGE> 161

Low Duration Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Short-Term Investment Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Total Return Bond Series
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, years ended June 30, 1998
and 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Mid-Cap Fund
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, year ended June 30, 1998
and period from January 2, 1997 to June 30, 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

Global Equity Fund
Schedule of Investments, June 30, 1998
Statement of Assets and Liabilities, June 30, 1998
Statement of Operations, June 30, 1998
Statement of Changes in Net Assets, year ended June 30, 1998
and period from January 2, 1997 to June 30, 1997
Financial Highlights
Notes to Financial Statements
Report of Independent Accountants

The following financial statements are included in the Prospectuses
constituting Part A of this Registration Statement:

Financial Highlights

(b) Exhibits:
(1)(a) Restated Declaration of Trust2
(b) Certificate of Designation2
(2) By-Laws*
(3) Not applicable
(4) Not applicable
(5) (a) Investment Advisory Agreement relating to the
Balanced Fund2
(b) Investment Advisory Agreement relating to the
Equity Income Fund2
(c) Investment Advisory Agreement relating to the
International Fund2
(d) Investment Advisory Agreement relating to the
Equity Fund for Insurance Companies2
(e) Investment Advisory Agreement relating to the
Low Duration Fund2
(f) Investment Advisory Agreement relating to the
Total Return Bond Fund2
(g) Investment Advisory Agreement relating to the
Small Cap Fund2
(h) Investment Advisory Agreement relating to the
Short-Term Investment Fund2
(i) Investment Advisory Agreement
relating to the Mid-Cap Fund3
(j) Investment Advisory Agreement
relating to the Global Equity Fund3

(6) Agreement with Merrill Lynch Funds Distributor, Inc.*
(7) Not applicable
(8) (a) Custodian Agreement with First Wisconsin Trust
Company*

C-2
<PAGE> 162

(b) Global Custody Tri-Party Agreement*

(9) (a) Fund Administration Servicing Agreement1
(b) License Agreement with Merrill Lynch & Co., Inc.2
(c) Shareholder Servicing Agent Agreement*
(10) Not applicable
(11) Consents of PricewaterhouseCoopers LLP*
(12) Not applicable
(13) Not Applicable
(14) Not Applicable
(15) Not applicable
(18) Not applicable
(27) Financial Data Schedules*
(27.1) Financial Data Schedule Balanced Fund
(27.2) Financial Data Schedule Small Cap Fund
(27.3) Financial Data Schedule Equity Income Fund
(27.4) Financial Data Schedule International Fund
(27.5) Financial Data Schedule Equity Fund For
Insurance Companies
(27.6) Financial Data Schedule Low Duration Fund
(27.7) Financial Data Schedule Short-Term Investment Fund
(27.8) Financial Data Schedule Total Return Bond Fund
(27.9) Financial Data Schedule Mid-Cap Fund
(27.10) Financial Data Schedule Global Equity Fund

1Incorporated herein by reference and previously filed as an exhibit
to Post-effective Amendment No. 21 to the Registration Statement on Form N-1A
filed via EDGAR on October 3, 1996.

2Incorporated herein by reference and previously filed as an exhibit to
Post-effective Amendment No. 23 to the Registration Statement on Form N-1A filed
via EDGAR on December 17, 1996.

3Incorporated herein by reference and previously filed as an exhibit to
Post-effective Amendment No. 24 to the Registration Statement on Form N-1A filed
via EDGAR on July 30, 1997.

- --------------------------
* Filed herewith.

ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

See "General Information About the Trust" in the Statement of
Additional Information.

ITEM 26. NUMBER OF HOLDERS OF SECURITIES. At June 30, 1998, there were
1,437 record holders of shares of beneficial interest of the Small Cap Series of
the Registrant, 453 record holders of shares of beneficial interest of the
Balanced Series, 488 record holders of shares of beneficial interest of the
Equity Income Series, 12,904 record holders of shares of beneficial interest of
the International Series, 1 record holder of shares of beneficial interest of
the Equity Fund for Insurance Companies Series, 1,996 record holders of shares
of beneficial interest of the Low Duration Series, 271 record holders of shares
of beneficial interest of the Short-Term Investment Series, 221 record holders
of shares of beneficial interest of the Total Return Bond Series, 91 record
holders of shares of beneficial interest of the Mid-Cap Fund and 80 record
holders of shares of beneficial interest of the Global Equity Fund.

C-3
<PAGE> 163
ITEM 27. INDEMNIFICATION.

Section 12 of Article SEVENTH of Registrant's Declaration of Trust,
states as follows:

(c)(1) As used in this paragraph the following terms shall
have the meanings set forth below:

(i) the term "indemnitee" shall mean any present
or former Trustee, officer or employee of the Trust, any
present or former Trustee or officer of another trust or
corporation whose securities are or were owned by the Trust or
of which the Trust is or was a creditor and who served or
serves in such capacity at the request of the Trust, any
present or former investment advisor, sub-advisor or principal
underwriter of the Trust and the heirs, executors,
administrators, successors and assigns of any of the
foregoing; however, whenever conduct by an indemnitee is
referred to, the conduct shall be that of the original
indemnitee rather than that of the heir, executor,
administrator, successor or assignee;

(ii) the term "covered proceeding" shall mean any
threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, to
which an indemnitee is or was a party or is threatened to be
made a party by reason of the fact or facts under which he or
it is an indemnitee as defined above;

(iii) the term "disabling conduct" shall mean
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of the office
in question;

(iv) the term "covered expenses" shall mean
expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
an indemnitee in connection with a covered proceeding; and

(v) the term "adjudication of liability" shall
mean, as to any covered proceeding and as to any indemnitee,
an adverse determination as to the indemnitee whether by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent.

(d) The Trust shall not indemnify any indemnitee for any
covered expenses in any covered proceeding if there has been an
adjudication of liability against such indemnitee expressly based on a
finding of disabling conduct.

(e) Except as set forth in (d) above, the Trust shall
indemnify an indemnitee for covered expenses in any covered
proceeding, whether or not there is an adjudication of liability as to
such indemnitee, if a determination has been made that the indemnitee
was not liable by reason of disabling conduct by (i) a final decision
of the court or other body before which the covered proceeding was
brought; or (ii) in the absence of such decision, a reasonable
determination, based on a review of the facts, by either (a) the vote
of a majority of a quorum of Trustees who are neither "interested
persons," as defined in the 1940 Act, nor parties to the covered
proceeding or (b) an independent legal counsel in a written opinion;
provided that such Trustees or counsel, in reaching such
determination, may but need not presume the absence of disabling
conduct on the part of the indemnitee by reason of the manner in which
the covered proceeding was terminated.

(f) Covered expenses incurred by an indemnitee in
connection with a covered proceeding shall be advanced by the Trust to
an indemnitee prior to the final disposition of a covered proceeding
upon the request of the indemnitee for such advance and the
undertaking by or on behalf of the indemnitee to repay the advance
unless it is ultimately determined that the indemnitee is entitled to
indemnification thereunder, but only if one or more of the following
is the case: (i) the indemnitee shall provide a security for such
undertaking; (ii) the Trust shall be insured against losses arising
out of any lawful advances; or (iii) there shall have been a
determination, based on a review of the readily available facts (as
opposed to a full trial-type inquiry) that there is a reason to
believe that the indemnitee ultimately will be found entitled to
indemnification by either independent legal counsel in a written
opinion or by the vote of a majority of a

C-4
<PAGE> 164
quorum of trustees who are neither "interested persons" as defined in
the 1940 Act nor parties to the covered proceeding.

(g) Nothing herein shall be deemed to affect the right of
the Trust and/or any indemnitee to acquire and pay for any insurance
covering any or all indemnitees to the extent permitted by the 1940
Act or to affect any other indemnification rights to which any
indemnitee may be entitled to the extent permitted by the 1940 Act.

Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of Registrant pursuant to the foregoing provisions, or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer or controlling person of
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.

See "Organization and Management" in the Prospectuses constituting
Part A of this Registration Statement and "Management" in the Statement of
Additional Information constituting Part B of this Registration Statement.
Information as to Hotchkis and Wiley, a division of Merrill Lynch Asset
Management, L.P., is included in its Form ADV filed with the Securities and
Exchange Commission (File No. 801-11583), as most recently amended, the text of
which is incorporated herein by reference.

ITEM 29. PRINCIPAL UNDERWRITERS.

(a) The Registrant's principal underwriter, Merrill Lynch Funds
Distributor, Inc. ("MLFD"), a division of Princeton Funds Distributor, Inc.
("PFD") also acts as principal underwriter for the following open-end registered
investment companies:

Financial Institutions Series Trust, Merrill Lynch Adjustable Rate
Securities Fund, Inc., Merrill Lynch Americas Income Fund, Inc., Merrill Lynch
Asset Builder Program, Inc., Merrill Lynch Asset Growth Fund, Inc., Merrill
Lynch Asset Income Fund, Inc., Merrill Lynch Basic Value Fund, Inc., Merrill
Lynch California Municipal Series Trust, Merrill Lynch Capital Fund, Inc.,
Merrill Lynch Convertible Fund, Inc., Merrill Lynch Corporate Bond Fund, Inc.,
Merrill Lynch Corporate High Yield Fund, Inc., Merrill Lynch Developing Capital
Markets Fund, Inc., Merrill Lynch Dragon Fund, Inc., Merrill Lynch Emerging
Tigers Fund, Inc., Merrill Lynch EuroFund, Merrill Lynch Federal Securities
Trust, Merrill Lynch Fundamental Growth Fund, Inc., Merrill Lynch Funds for
Institutions Series, Merrill Lynch Fund for Tomorrow, Inc., Merrill Lynch Global
Allocation Fund, Inc., Merrill Lynch Global Bond Fund for Investment and
Retirement, Merrill Lynch Global Growth Fund, Inc., Merrill Lynch Global
Holdings, Inc., Merrill Lynch Global Resources Trust, Merrill Lynch Global
SmallCap Fund, Inc., Merrill Lynch Global Technology Fund, Inc., Merrill Lynch
Global Utility Fund, Inc., Merrill Lynch Global Value Fund, Inc., Merrill Lynch
Growth Fund, Merrill Lynch Healthcare Fund, Inc., Merrill Lynch Intermediate
Government Bond Fund, Merrill Lynch International Equity Fund, Merrill Lynch
Latin America Fund, Inc., Merrill Lynch Middle East/Africa Fund, Inc., Merrill
Lynch Multi-State Limited Maturity Municipal Series Trust, Merrill Lynch
Multi-State Municipal Series Trust, Merrill Lynch Municipal Bond Fund, Inc.,
Merrill Lynch Municipal Series Trust, Merrill Lynch Pacific Fund, Inc., Merrill
Lynch Phoenix Fund, Inc., Merrill Lynch Ready Assets Trust, Merrill Lynch
Retirement Series Trust, Merrill Lynch Series Fund, Inc., Merrill Lynch
Short-Term Global Income Fund, Inc., Merrill Lynch Special Value Fund, Inc.,
Merrill Lynch Strategic Dividend Fund, Merrill Lynch Technology Fund, Inc.,
Merrill Lynch U.S. Treasury Money Fund, Merrill Lynch U.S.A. Government
Reserves, Merrill Lynch Utility Income Fund, Inc., Merrill Lynch Variable Series
Funds, Inc., and Merrill Lynch World Income Fund, Inc.

MLFD also acts as the principal underwriter for the following
closed-end registered investment companies: Merrill Lynch High Income
Municipal Bond Program, Inc., Merrill Lynch Municipal Strategy Fund, Inc. and
Merrill Lynch Senior Floating Rate Fund, Inc. A separate division of PFD acts
as the principal underwriter of a number of other investment companies.

C-5
<PAGE> 165

(b) Set forth below is information concerning each director and
officer of Princeton Funds Distributor. The principal business address of each
such person is P.O. Box 9011, Princeton, New Jersey 08543-9011, except that the
address of Messrs. Breen, Crook, Fatseas and Wasel is One Financial Center, 23rd
Floor, Boston, Massachusetts 02111-2665.

<TABLE>
<CAPTION>
Position(s) and Office(s) Position and Offices
Name with Princeton Funds Distributor with Registrant
---- -------------------------------- --------------------
<S> <C> <C>
Terry K. Glenn............. President and Director None
Richard L. Reller.......... Director None
Thomas J. Verage........... Director None
Robert W. Crook............ Senior Vice President None
Michael J. Brady........... Vice President None
William M. Breen........... Vice President None
Michael G. Clark........... Vice President None
James J. Fatseas........... Vice President None
Debra W. Landsman-Yaros.... Vice President None
Michelle T. Lau............ Vice President None
Gerald M. Richard.......... Vice President and Treasurer None
Salvatore Venezia.......... Vice President None
William Wasel.............. Vice President None
Robert Harris.............. Secretary Assistant Secretary
</TABLE>

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.

The accounts, books and other documents required to be maintained by
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the rules promulgated thereunder are in the possession of Registrant or
Registrant's investment adviser, 800 West 6th Street, Fifth Floor, Los Angeles,
California 90017, Registrant's custodian and administrator, Firstar Trust
Company, 615 East Michigan Street, Milwaukee, Wisconsin 53202, or Registrant's
sub-custodian, The Chase Manhattan Bank, N.A., Four Chase Metro Tech Center,
Brooklyn, New York 11245.

ITEM 31. MANAGEMENT SERVICES.

Not applicable.

ITEM 32. UNDERTAKINGS.

The Registrant hereby undertakes to furnish to each person to whom a
Prospectus is delivered with a copy of Registrant's latest annual report to
shareholders upon request and without charge.

C-6
<PAGE> 166
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Post-Effective Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act of
1933 and has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles and State of California on the 27th day of August, 1998.

HOTCHKIS AND WILEY FUNDS

By: /s/ NANCY D. CELICK
-------------------------------
Nancy D. Celick
President

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.

Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ NANCY D. CELICK Principal Executive Officer August 28, 1998
- ----------------------------------------
Nancy D. Celick

/s/ GRACIE FERMELIA Principal Financial and Accounting August 28, 1998
- ---------------------------------------- Officer
Gracie Fermelia

/s/ ROBERT L. BURCH III Trustee August 28, 1998
- ----------------------------------------
Robert L. Burch III

/s/ JOHN GAVIN Trustee August 28, 1998
- ----------------------------------------
John Gavin

/s/ JOE GRILLS Trustee August 28, 1998
- ----------------------------------------
Joe Grills

Trustee
- ----------------------------------------
John F. Hotchkis

/s/ ROBERT B. HUTCHINSON Trustee August 28, 1998
- ----------------------------------------
Robert B. Hutchinson

/s/ Michael L. Quinn Trustee August 28, 1998
- ----------------------------------------
Michael L. Quinn

/s/ MERLE T. WELSHANS Trustee August 28, 1998
- ----------------------------------------
Merle T. Welshans

/s/ RICHARD R. WEST Trustee August 28, 1998
- ----------------------------------------
Richard R. West

</TABLE>

<PAGE> 167
HOTCHKIS AND WILEY FUNDS

EXHIBIT INDEX

Exhibit
Number Description Page
- ------- ---------- ----

(1) (a) Restated Declaration of Trust2
(b) Certificate of Designation2

(2) By-Laws*

(3) Not applicable

(4) Not applicable

(5) (a) Investment Advisory Agreement relating to the
Balanced Fund2
(b) Investment Advisory Agreement relating to the Equity
Income Fund2
(c) Investment Advisory Agreement relating to the
International Fund2
(d) Investment Advisory Agreement relating to the Equity
Fund for Insurance Companies2
(e) Investment Advisory Agreement relating to the Low
Duration Fund2
(f) Investment Advisory Agreement to the Total Return
Bond Fund2
(g) Investment Advisory Agreement relating to the Small
Cap Fund2
(h) Investment Advisory Agreement relating to the
Short-Term Investment Fund2
(i) Investment Advisory Agreement relating to the Mid-Cap
Fund3
(j) Investment Advisory Agreement relating to the Global
Equity Fund3

(6) Agreement with Merrill Lynch Funds Distributor, Inc.*

(7) Not applicable

(8) (a) Custodian Agreement with First Wisconsin Trust
Company*
(b) Global Custody Tri-Party Agreement*

(9) (a) Fund Administration Servicing Agreement1
(b) License Agreement with Merrill Lynch & Co., Inc.2
(c) Shareholder Servicing Agent Agreement*

(10) Not applicable

(11) Consents of PricewaterhouseCoopers LLP*

<PAGE> 168

Exhibit
Number Description Page
- ------- ----------- ----

(12) Not applicable

(13) Not Applicable

(14) Not Applicable

(15) Not applicable

(18) Not applicable

(27) Financial Data Schedules*
(27.1) Financial Data Schedule Balanced Fund
(27.2) Financial Data Schedule Small Cap Fund
(27.3) Financial Data Schedule Equity Income Fund
(27.4) Financial Data Schedule International Fund
(27.5) Financial Data Schedule Equity Fund For Insurance Companies
(27.6) Financial Data Schedule Low Duration Fund
(27.7) Financial Data Schedule Short-Term Investment Fund
(27.8) Financial Data Schedule Total Return Bond Fund
(27.9) Financial Data Schedule Mid-Cap Fund
(27.10) Financial Data Schedule Global Equity Fund

1Incorporated herein by reference and previously filed as an exhibit
to Post-effective Amendment No. 21 to the Registration Statement on Form N-1A
filed via EDGAR on October 3, 1996.

2Incorporated herein by reference and previously filed as an exhibit
to Post-effective Amendment No. 23 to the Registration Statement on Form N-1A
filed via EDGAR on December 17, 1996.

3Incorporated herein by reference and previously filed as an exhibit
to Post-effective Amendment No. 24 to the Registration Statement on Form N-1A
filed via EDGAR on July 30, 1997.

- --------------------------
* Filed herewith

<PAGE> 1
EXHIBIT 99.B.2

OLYMPIC TRUST

BY-LAWS

ARTICLE I
SHAREHOLDERS

Section 1. Place of Meeting. All meetings of the Shareholders (which
term as used herein shall, together with all other terms defined in the
Declaration of Trust, have the same meaning as in the Declaration of Trust)
shall be held at the principal office of the Trust or at such other place as may
from time to time be designated by the Board of Trustees and stated in the
notice of meeting.

Section 2. Calling of Meetings. Meetings of the Shareholders for any
purpose or purposes (including the election of Trustees) may be called by the
Chairman of the Board of Trustees, if any, or by the President or by the Board
of Trustees and shall be called by the Secretary upon receipt of the request in
writing signed by Shareholders holding not less than one-third in amount of the
entire number of Shares issued and outstanding and entitled to vote thereat.
Such request shall state the purpose or purposes of the proposed meeting.

Section 3. Notice of Meetings. Not less than ten days' and not more
than ninety days' written or printed notice of every meeting of Shareholders,
stating the time and place thereof (and the general nature of the business
proposed to be transacted at any special or extraordinary meeting), shall be
given to each Shareholder entitled to vote thereat by leaving the same with him
or at his residence or usual place of business or by mailing it,

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postage prepaid and addressed to him at his address as it appears upon the books
of the Trust.

No notice of the time, place or purpose of any meeting of Shareholders
need be given to any Shareholder who attends in person or by proxy or to any
Shareholder who, in writing executed and filed with the records of the meeting,
either before or after the holding thereof, waives such notice.

Section 4. Record Dates. The Board of Trustees may fix, in advance, a
date, not exceeding ninety days and not less than ten days preceding the date of
any meeting of Shareholders, and not exceeding ninety days preceding any
dividend payment date or any date for the allotment of rights, as a record date
for the determination of the Shareholders entitled to receive such dividends or
rights, as the case may be; and only Shareholders of record on such date shall
be entitled to notice of and to vote at such meeting or to receive such
dividends or rights, as the case may be.

Section 5. Quorum, Adjournment of Meetings. The presence in person or
by proxy of the holders of record of one-third of the Shares of the stock of the
Trust issued and outstanding and entitled to vote thereat, shall constitute a
quorum at all meetings of the Shareholders. If at any meeting of the
Shareholders there shall be less than a quorum present, the Shareholders present
at such meeting may, without further notice, adjourn the same from time to time
until a quorum shall attend, but no business shall be transacted at any such
adjourned meeting

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except such as might have been lawfully transacted had the meeting not been
adjourned.

Section 6. Voting and Inspectors. At all meetings of Shareholders every
Shareholder of record entitled to vote thereat shall be entitled to vote at such
meeting either in person or by proxy appointed by instrument in writing
subscribed by such Shareholder or his duly authorized attorney-in-fact.

All elections of Trustees shall be had by a plurality of the votes cast
and all questions shall be decided by a majority of the votes cast, in each case
at a duly constituted meeting, except as otherwise provided in the Declaration
of Trust or in these By-Laws or by specific statutory provision superseding the
restrictions and limitations contained in the Declaration of Trust or in these
By-Laws.

At any election of Trustees, the Board of Trustees prior thereto may,
or, if they have not so acted, the Chairman of the meeting may, and upon the
request of the holders of ten per cent (10%) of the Shares entitled to vote at
such election shall, appoint two inspectors of election who shall first
subscribe an oath of affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result of the
vote taken. No candidate for the office of Trustee shall be appointed such
inspector.

The Chairman of the meeting may cause a vote by ballot to be taken upon
any election or matter, and such vote shall be

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taken upon the request of the holders of ten per cent (10%) of the Shares
entitled to vote on such election or matter.

Section 7. Conduct of Shareholders' Meetings. The meetings of the
Shareholders shall be presided over by the Chairman of the Board of Trustees, If
any, or if he shall not be present, by the President, or if he shall not be
present, by a Vice-President, or if neither the Chairman of the Board of
Trustees, the President nor any Vice-President is present, by a chairman to be
elected at the meeting. The Secretary of the Trust, if present, shall act as
Secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor an Assistant Secretary is present,
then the meeting shall elect its secretary.

Section 8. Concerning Validity of Proxies, Ballots, Etc. At every
meeting of the Shareholders, all proxies shall be received and taken in charge
of and all ballots shall be received and canvassed by the secretary of the
meeting, who shall decide all questions touching the qualification of voters,
the validity of the proxies, and the acceptance or rejection of votes, unless
inspectors of election shall have been appointed as provided in Section 6, in
which event such inspectors of election shall decide all such questions.

ARTICLE II
BOARD OF TRUSTEES

Section 1. Number of Tenure of Office. The business and property of the
Trust shall be conducted and managed by a Board

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of Trustees consisting of the number of initial Trustees, which number may be
increased or decreased as provided in Section 2 of this Article. The Board of
Trustees may sit and alter the terms of office of the Trustees, may lengthen or
lessen their own terms or make their terms of indefinite duration, all subject
to the 1940 Act. Trustees need not be Shareholders.

Section 2. Increase or Decrease in Number of Trustees; Removal. The
Board of Trustees may increase the number of Trustees to a number not exceeding
fifteen, and may elect Trustees to fill the vacancies created by any such
increase in the number of Trustees; the Board of Trustees may likewise decrease
the number of Trustees to a number not less than three. Vacancies occurring
other than by reason of any such increase shall be filled as provided for a
Massachusetts business corporation. In the event that after proxy material has
been printed for a meeting of Shareholders at which Trustees are to be elected
any one or more management nominees dies or becomes incapacitated, the
authorized number of Trustees shall be automatically reduced by the number of
such nominees, unless the Board of Trustees prior to the meeting shall otherwise
determine. Any Trustee at any time may be removed either with or without cause
by resolution duly adopted by the affirmative votes of the holders of the
majority of the Shares of the Trust present in person or by proxy at any meeting
of Shareholders at which such vote may be taken, provided that a quorum is
present, or by such larger vote as may be required by Massachusetts law. Any
Trustee at any time may be removed for cause by resolution duly adopted

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at any meeting of the Board of Trustees provided that notice thereof is
contained in the notice of such meeting and that such resolution is adopted by
the vote of at least two thirds of the Trustees whose removal is not proposed.
As used herein, "for cause" shall mean any cause which under Massachusetts law
would permit the removal of a Trustee of a business trust.

Section 3. Place of Meeting. The Trustees may hold their meetings, have
one or more offices, and keep the books of the Trust outside Massachusetts, at
any office or offices of the Trust or at any other place as they may from time
to time by resolution determine, or, in the case of meetings, as they may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.

Section 4. Regular Meetings. Regular meetings of the Board of Trustees
shall be held at such time and on such notice, if any, as the Trustees may from
time to time determine.

Section 5. Special Meetings. Special meetings of the Board of Trustees
may be held from time to time upon call of the Chairman of the Board of
Trustees, if any, the President or two or more of the Trustees, by oral or
telegraphic or written notice duly served on or sent or mailed to each Trustee
not less than one day before such meeting. No notice need be given to any
Trustee who attends in person or to any Trustee who, in writing executed and
filed with the records of the meeting either before or after the holding
thereof, waives such notice. Such notice or

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waiver of notice need not state the purpose or purposes of such meeting.

Section 6. Quorum. One-third of the Trustees then in office shall
constitute a quorum for the transaction of business, provided that a quorum
shall in no case be less than two Trustees. If at any meeting of the Board there
shall be less than a quorum present (in person or by open telephone line, to the
extent permitted by the 1940 Act), a majority of those present may adjourn the
meeting from time to time until a quorum shall have been obtained. The act of
the majority of the Trustees present at any meeting at which there is a quorum
shall be the act of the Board, except as may be otherwise specifically provided
by statute, by the Declaration of Trust or by these By-Laws.

Section 7. Executive Committee. The Board of Trustees may, by the
affirmative vote of a majority of the entire Board, elect from the Trustees an
Executive Committee to consist of such number of Trustees as the Board may from
time to time determine. The Board of Trustees by such affirmative vote shall
have power at any time to change the members of such Committee and may fill
vacancies in the Committee by election from the Trustees. When the Board of
Trustees is not in session, the Executive Committee shall have and may exercise
any or all of the powers of the Board of Trustees in the management of the
business and affairs of the Trust (including the power to authorize the seal of
the Trust to be affixed to all papers which may require it) except as provided
by law and except the power to increase or decrease the size of,

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or fill vacancies on the Board. The Executive Committee may fix its own rules of
procedure, and may meet, when and as provided by such rules or by resolution of
the Board of Trustees, but in every case the presence of a majority shall be
necessary to constitute a quorum. In the absence of any member of the Executive
Committee the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Trustees to act in the
place of such absent member.

Section 8. Other Committees. The Board of Trustees, by the affirmative
vote of a majority of the entire Board, may appoint other committees which shall
in each case consist of such number of members (not less than two) and shall
have and may exercise such powers as the Board may determine in the resolution
appointing them. A majority of all members of any such committee may determine
its action, and fix the time and place of its meetings, unless the Board of
Trustees shall otherwise provide. The Board of Trustees shall have power at any
time to change the members and powers of any such committee, to fill vacancies,
and to discharge any such committee.

Section 9. Informal Action by and Telephone Meetings of Trustees and
Committees. Any action required or permitted to be taken at any meeting of the
Board of Trustees or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board, or of such
committee, as the case may be. Trustees or members of a committee of the Board
of Trustees may participate in a meeting by means of a conference telephone or
similar communications

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equipment; such participation shall, except as otherwise required by the 1940
Act, have the same effect as presence in person.

Section 10. Compensation of Trustees. Trustees shall be entitled to
receive such compensation from the Trust for their services as may from time to
time be voted by the Board of Trustees.

Section 11. Dividends. Dividends or distributions payable on the Shares
may, but need not be, declared by specific resolution of the Board as to each
dividend or distribution; in lieu of such specific resolutions, the Board may,
by general resolution, determine the method of computation thereof, the method
of determining the Shareholders to which they are payable and the methods of
determining whether and to which Shareholders they are to be paid in cash or in
additional Shares.

ARTICLE III
OFFICERS

Section 1. Executive Officers. The executive officers of the Trust
shall be chosen by the Board of Trustees. These may include a Chairman of the
Board of Trustees, and shall include a President, one or more Vice-Presidents
(the number thereof to be determined by the Board of Trustees), a Secretary and
a Treasurer. The Chairman of the Board of Trustees, if any, shall be selected
from among the Trustees. The Board of Trustees may also in its discretion
appoint Assistant Secretaries, Assistant Treasurers, and other officers, agents
and employees, who shall have such authority and perform such duties as the
Board or the

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Executive Committee may determine. The Board of Trustees may fill any vacancy
which may occur in any office. Any two offices, except those of President and
Vice-President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed, acknowledged or
verified by two or more officers.

Section 2. Term of Office. The term of office of all officers shall be
as fixed by the Board of Trustees; however, any officer may be removed from
office at any time with or without cause by the vote of a majority of the entire
Board of Trustees.

Section 3. Powers and Duties. The officers of the Trust shall have such
powers and duties as generally pertain to their respective offices, as well as
such powers and duties as may from time to time be conferred by the Board of
Trustees or the Executive Committee.

ARTICLE IV
SHARES

Section 1. Certificates of Shares. Each Shareholder of the Trust may be
issued a certificate or certificates for his Shares in such form as the Board of
Trustees may from time to time prescribe, but only if and to the extent and on
the conditions prescribed by the Board.

Section 2. Transfer of Shares. Shares shall be transferable on the
books of the Trust by the holder thereof in person or by his duly authorized
attorney or legal

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representative, upon surrender and cancellation of certificates, if any, for the
same number of Shares, duly endorsed or accompanied by proper instruments of
assignment and transfer, with such proof of the authenticity of the signature as
the Trust or its agent may reasonably require; in the case of shares not
represented by certificates, the same or similar requirements may be imposed by
the Board of Trustees.

Section 3. Stock Ledgers. The stock ledgers of the Trust, containing
the name and address of the Shareholders and the number of shares held by them
respectively, shall be kept at the principal offices of the Trust or, if the
Trust employs a transfer agent, at the offices of the transfer agent of the
Trust.

Section 4. Lost, Stolen or Destroyed Certificates. The Board of
Trustees may determine the conditions upon which a new certificate may be issued
in place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such certificate
or his legal representative to give bond, with sufficient surety to the Trust
and the transfer agent, if any, to indemnify it and such transfer agent against
any and all loss or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost, stolen or destroyed.

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ARTICLE V
SEAL

The Board of Trustees shall provide a suitable seal of the Trust, in
such form and bearing such inscriptions as it may determine.

ARTICLE VI
FISCAL YEAR

The fiscal year of the Trust shall be fixed by the Board of Trustees.

ARTICLE VII
AMENDMENT OF BY-LAWS

The By-Laws of the Trust may be altered, amended, added to or
repealed by the Shareholders or by majority vote of the entire Board of
Trustees, but any such alteration, amendment, addition or repeal of the By-Laws
by action of the Board of Trustees may be altered or repealed by the
Shareholders.

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EXHIBIT 99.B.6

DISTRIBUTION AGREEMENT

AGREEMENT made as of the 1st day of September, 1997 between HOTCHKIS
AND WILEY FUNDS, a Massachusetts business trust (the "Fund"), and MERRILL LYNCH
FUNDS DISTRIBUTOR, INC., a Delaware corporation (the "Distributor").

W I T N E S S E T H:

WHEREAS, the Fund is registered under the Investment Company Act of
1940, as amended to date (the "Investment Company Act"), as an open-end
investment company and it is affirmatively in the interest of the Fund to offer
its shares for sale continuously; and

WHEREAS, the Fund is comprised of ten separate portfolios, namely, the
Equity Income Fund, the Mid-Cap Fund, the Small Cap Fund, the International
Fund, the Global Equity Fund, the Balanced Income Fund, the Total Return Bond
Fund, the Low Duration Fund, the Short-Term Investment Fund and the Equity Fund
for Insurance Companies (the "Series"), each of which pursues its own investment
objective through separate investment policies; and

WHEREAS, the Distributor is a securities firm engaged in the business
of selling shares of investment companies, either directly to purchasers or
through other securities dealers; and

WHEREAS, the Fund and the Distributor wish to enter into an agreement
with each other with respect to the continuous offering of shares of each Series
other than the Equity Fund for Insurance Companies (collectively, the "Shares")
in order to promote the growth of the Series and facilitate the distribution of
Shares.

NOW, THEREFORE, the parties agree as follows:

Section 1. Appointment of the Distributor. The Fund hereby appoints the
Distributor as the principal underwriter and distributor of the Fund to sell
Shares to the public and hereby

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agrees during the term of this Agreement to sell Shares of the Fund to the
Distributor upon the terms and conditions herein set forth.

Section 2. Exclusive Nature of Duties. The Distributor shall be the
exclusive representative of the Fund to act as principal underwriter and
distributor of its Shares, except that:

(a) The exclusive rights granted to the Distributor to purchase
Shares from the Fund shall not apply to shares of the Fund issued in connection
with the merger or consolidation of any other investment company or personal
holding company with the Fund or the acquisition by purchase or otherwise of all
(or substantially all) the assets or the outstanding shares of any such company
by the Fund.

(b) Such exclusive rights also shall not apply to Shares issued by
the Fund pursuant to reinvestment of dividends or capital gains distributions.

(c) Such exclusive rights shall not apply to Shares issued by the
Fund pursuant to purchases made through entities which provide investor
recordkeeping services and with which either the Fund or its investment adviser
has entered into contractual arrangements to allow such entities to offer Shares
for purchase.

(d) Such exclusive rights also shall not apply to Shares issued by
the Fund pursuant to any exchange or reinstatement privilege afforded redeeming
shareholders or to any other Shares as shall be agreed between the Fund and the
Distributor from time to time.

Section 3. Purchase of Shares from the Fund.

(a) The Distributor shall have the rights to buy from the Fund the
Shares needed, but not more than the Shares needed (except for clerical errors
in transmission), to fill

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unconditional orders for Shares of the Fund placed with the Distributor by
investors or securities dealers. Investors eligible to purchase Shares shall be
those persons so identified in the currently effective prospectus and statement
of additional information of the Fund under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the Shares. The price which the
Distributor shall pay for Shares so purchased from the Fund shall be the net
asset value, determined as set forth in Section 3(c) hereof.

(b) The Shares are to be resold by the Distributor to investors at
net asset value, as set forth in Section 3(c) hereof, or to securities dealers
having agreements with the Distributor upon the terms and conditions set forth
in Section 7 hereof.

(c) The net asset value of Shares of a Series shall be determined by
the Fund or any agent of the Fund in accordance with the method set forth in
the prospectus and/or statement of additional information of the Fund and
guidelines established by the Board of Trustees.

(d) The Fund shall have the right to suspend the sale of its Shares
at times when redemption is suspended pursuant to the conditions set forth in
Section 4(b) hereof. The Fund shall also have the right to suspend the sale of
its Shares if trading on the New York Stock Exchange shall have been suspended,
or a banking moratorium shall have been declared by federal or New York
authorities, or if there shall have been some other event which, in the judgment
of the Fund, makes it impracticable or inadvisable to sell the Shares.

(e) The Fund, or any agent of the Fund designated in writing by the
Fund, shall be promptly advised of all purchase orders for Shares received by
the Distributor. Any order may be rejected by the Fund, provided, however, that
the Fund will not arbitrarily or

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without reasonable cause refuse to accept or confirm orders for the purchase of
Shares. The Fund (or its agent) will confirm orders upon their receipt, will
make appropriate book entries and, upon receipt by the Fund (or its agent) of
payment therefor, will deliver deposit receipts or certificates for such Shares
pursuant to the instructions of the Distributor. Payment shall be made to the
Fund in New York Clearing House funds. The Distributor agrees to cause such
payment and such instructions to be delivered promptly to the Fund (or its
agent).

Section 4. Repurchase or Redemption of Shares by the Fund.

(a) Any of the outstanding Shares may be tendered for redemption at
any time, and the Fund agrees to repurchase or redeem the Shares so tendered in
accordance with its obligations as set forth in Article FOURTH, paragraph 6 of
its Restated Declaration of Trust, as amended from time to time, and in
accordance with the applicable provisions set forth in the prospectus and
statement of additional information of the Fund. The price to be paid to redeem
or repurchase the Shares shall be equal to the net asset value for that Series
calculated in accordance with the provisions of Section 3(c) hereof. All
payments by the Fund hereunder shall be made in the manner set forth below.

The Fund shall pay the total amount of the redemption price as
defined in the above paragraph pursuant to the instructions of the Distributor
on or before the seventh business day subsequent to its having received the
notice of redemption in proper form. The proceeds of any redemption of Shares
shall be paid by the Fund to or for the account of the shareholder, in each case
in accordance with the applicable provisions of the prospectus and statement of
additional information.

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(b) Redemption of Shares or payment may be suspended at times when
the New York Stock Exchange is closed, when trading on said exchange is closed,
when trading on said exchange is restricted, when an emergency exists as a
result of which disposal by the Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for the Fund fairly to determine
the value of its net assets, or during any other period when the Securities and
Exchange Commission, by order, so permits.

Section 5. Duties of the Fund.

(a) The Fund shall furnish to the Distributor copies of all
information, financial statements and other papers which the Distributor may
reasonably request for use in connection with the distribution of Shares of the
Fund, and this shall include, upon request by the Distributor, one certified
copy of all financial statements prepared for the Fund by independent public
accountants. The Fund shall make available to the Distributor such number of
copies of its prospectus and statement of additional information as the
Distributor shall reasonably request.

(b) The Fund shall such steps as may be necessary to register the
Shares under the Securities Act to the end that there will be available for sale
such number of Shares as the Distributor reasonably may be expected to sell.

(c) The Fund shall use its best efforts to file notices and maintain
the notification regarding an appropriate number of its Shares for sale under
the securities laws of such states as the Distributor and the Fund may approve.
Any such notification may be withheld, terminated or withdrawn by the Fund at
any time in its discretion. As provided in Section 8(c) hereof, the expense of
notices and maintenance of notification shall be borne by the Fund. The

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Distributor shall furnish such information and other material relating to its
affairs and activities as may be required by the Fund in connection with such
notification.

(d) The Fund will furnish in reasonable quantities upon request by
the Distributor, copies of annual and interim reports of the Fund.

Section 6. Duties of the Distributor.

(a) The Distributor shall devote reasonable time and effort to
effect sales of Shares of the Fund, but shall not be obligated to sell any
specific number of Shares. The services of the Distributor to the Fund hereunder
are not to be deemed exclusive and nothing herein contained shall prevent the
Distributor from entering into like arrangements with other investment companies
so long as the performance of its obligations hereunder is not impaired thereby.

(b) In selling the Shares of the Fund, the Distributor shall use
its best efforts in all respects duly to conform with the requirements of all
federal and state laws relating to the sale of such securities. Neither the
Distributor nor any selected dealer nor any other person is authorized by the
Fund to give any information or to make any representations, other than those
contained in the registration statement or related prospectus and statement of
additional information and any sales literature specifically approved by the
Fund.

(c) The Distributor shall adopt and follow procedures, as approved
by the officers of the Fund, for the confirmation of sales to investors and
selected dealers, the collection of amounts payable by investors and selected
dealers on such sales, and the cancellation of unsettled transactions, as may be
necessary to comply with the requirements of the National

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Association of Securities Dealers, Inc. (the "NASD"), as such requirements may
from time to time exist.

Section 7. Selected Dealer Agreements.

(a) The Distributor shall have the right to enter into selected
dealer agreements with securities dealers of its choice ("selected dealers") for
the sale of Shares, provided that the Fund shall approve the forms of agreements
with dealers. Shares sold to selected dealers shall be for resale by such
dealers only at net asset value determined as set forth in Section 3(c) hereof.
The form of agreement with selected dealers to be used in the offering of the
Shares is attached hereto as Exhibit A.

(b) The Distributor shall offer and sell Shares only to such
selected dealers as are members in good standing of the NASD.

Section 8. Payment of Expenses.

(a) The Fund shall bear all costs and expenses of the Fund,
including fees and disbursements of its counsel and auditors, in connection with
the preparation and filing of any required registration statements and/or
prospectuses and statements of additional information under the Investment
Company Act, the Securities Act, and all amendments and supplements thereto, and
preparing and mailing annual and interim reports and proxy materials to
shareholders (including but not limited to the expense of setting in type any
such registration statements, prospectuses, statements of additional
information, annual or interim reports or proxy materials).

(b) The Distributor shall be responsible for any payments which it
agrees to make to selected dealers as reimbursement for their expenses
associated with payments of sales

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commissions to financial consultants or other persons directly involved in
selling Shares. In addition, after the prospectuses, statements of additional
information and annual and interim reports have been prepared and set in type,
the Distributor shall bear the costs and expenses of printing and distributing
any copies thereof which are to be used in connection with the offering of
Shares to selected dealers or investors pursuant to this Agreement. The
Distributor shall bear the costs and expenses of preparing, printing and
distributing any other literature used by the Distributor or furnished by it for
use by selected dealers in connection with the offering of the Shares for sale
to the public and any expenses of advertising incurred by the Distributor in
connection with such offering.

(c) Each Series shall bear the cost and expenses of filing notices
relating to the Shares of such Series for sale pursuant to this Agreement and,
if necessary or advisable in connection therewith, of qualifying the Fund as a
broker or dealer in such states of the United States or other jurisdictions as
shall be selected by the Fund and the Distributor pursuant to Section 5(c)
hereof and the cost and expenses payable to each such state for continuing
notification or qualification therein until the Fund decides to discontinue such
notification or qualification pursuant to Section 5(c) hereof.

Section 9. Indemnification.

(a) The Fund shall indemnify and hold harmless the Distributor and
each person, if any, who controls the Distributor against any loss, liability,
claim, damage or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith) arising by reason of any person
acquiring any Shares, which may be based upon the Securities Act, or on

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any other statute or at common law, on the ground that the registration
statement or related prospectus and statement of additional information, as from
time to time amended and supplemented, or an annual or interim report to
shareholders of the Fund, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with, information
furnished to the Fund in connection therewith by or on behalf of the
Distributor, provided, however, that in no case (i) is the indemnity of the Fund
in favor of the Distributor and any such controlling persons to be deemed to
protect the Distributor or any such controlling persons thereof against any
liability to the Fund or its security holders to which the Distributor or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of their duties or
by reasons of the reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made against the
Distributor or any such controlling persons, unless the Distributor or such
controlling persons, as the case may be, shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon the
Distributor or such controlling persons (or after the Distributor or such
controlling persons shall have received notice of such service on any designated
agent), but failure to notify the Fund of any such claim shall not relieve it
from any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
paragraph. The Fund will be entitled to participate at its own expense in the
defense, or, if it so

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elects, to assume the defense of any suit brought to enforce any such liability,
but if the Fund elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Distributor or such controlling
person or persons, defendant or defendants in the suit. If the Fund elects to
assume the defense of any such suit and retain such counsel, the Distributor or
such controlling person or persons, defendant or defendants in the suit, shall
bear the fees and expenses of any additional counsel retained by them, but, in
case the Fund does not elect to assume the defense of any such suit, it will
reimburse the Distributor or such controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any counsel
retained by them. The Fund shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any of the Shares.

(b) The Distributor shall indemnify and hold harmless the Fund and
each of its Trustees and officers and each person, if any, who controls the Fund
against any loss, liability, claim, damage or expense described in the foregoing
indemnity contained in subsection (a) of this Section, but only with respect to
statements or omissions made in reliance upon, and in conformity with,
information furnished to the Fund in writing by or on behalf of the Distributor
for use in connection with the registration statement or related prospectus and
statement of additional information, as from time to time amended, or the annual
or interim reports to shareholders. In case any action shall be brought against
the Fund or any person so indemnified, in respect of which indemnity may be
sought against the Distributor, the Distributor shall have the rights and duties
given to the Fund, and the Fund and each person so indemnified shall have the
rights and duties given to the Distributor by the provisions of subsection (a)
of this Section 9.

10
<PAGE> 11

Section 10. Duration and Termination of this Agreement. This Agreement
shall become effective as of the date first above written and shall remain in
force until September 1, 1999 and thereafter as to any Series, but only so long
as such continuance is specifically approved at least annually by (i) the
Trustees, or by the vote of a majority of the outstanding voting securities of
the Series, and (ii) by the vote of a majority of those Trustees who are not
parties to this Agreement or interested persons of any such party cast in person
at a meeting called for the purpose of voting on such approval.

This Agreement may be terminated at any time, without the payment of
any penalty, by the Trustees or by vote of a majority of the outstanding voting
securities of the Fund, or by the Distributor, on sixty days' written notice to
the other party. This Agreement shall automatically terminate in the event of
its assignment.

The terms "vote of a majority of the outstanding voting securities,"
"assignment," "affiliated person" and "interested person," when used in this
Agreement, shall have the respective meanings specified in the Investment
Company Act.

Section 11. Amendments of this Agreement. This Agreement may be amended
as to any Series by the parties only if such amendment is specifically approved
by (i) the Trustees, or by the vote of a majority of outstanding voting
securities of that Series, and (ii) by the vote of a majority of those Trustees
of the Fund who are not parties to this Agreement or interested persons of any
such party cast in person at a meeting called for the purpose of voting on each
approval.

Section 12. Governing Law. The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of New York
as at the time in effect and the

11
<PAGE> 12

applicable provisions of the Investment Company Act. To the extent that the
applicable law of the State of New York or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act, the
latter shall control.

Section 13. Agreement Binding Only on Fund Property. The Distributor
understands that the obligations of this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund's property; the
Distributor represents that it has notice of the provisions of the Fund's
Restated Declaration of Trust disclaiming shareholder liability for acts or
obligations of the Fund.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.

HOTCHKIS AND WILEY FUNDS

By /s/ Nancy D. Celick
--------------------------------------

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By /s/ ILLEGIBLE
--------------------------------------

12
<PAGE> 13

EXHIBIT A

HOTCHKIS AND WILEY FUNDS

SELECTED DEALER AGREEMENT

Gentlemen:

Merrill Lynch Funds Distributor, Inc. (the "Distributor") has an
agreement with Hotchkis and Wiley Funds, a Massachusetts business trust (the
"Fund"), pursuant to which it acts as the distributor for the sale of shares of
the Fund (collectively, the "Shares"), and as such has the right to distribute
Shares of the Fund for resale. The Fund is an open-end investment company
registered under the Investment Company Act of 1940, as amended, and its Shares
being offered to the public are registered under the Securities Act of 1933, as
amended. You have received a copy of the Distribution Agreement between ourself
and the Fund and reference is made herein to certain provisions of such
Distribution Agreement. The terms "Prospectus" and "Statement of Additional
Information" as used herein refer to the prospectus and statement of additional
information, respectively, on file with the Securities and Exchange Commission
which is part of the most recent effective registration statement pursuant to
the Securities Act of 1933, as amended. As principal, we offer to sell to you,
as a member of the Selected Dealers Group, Shares of the Fund upon the
following terms and conditions:

1. In all sales of these Shares to the public you shall act as dealer
for your own account, and in no transaction shall you have any authority to act
as agent for the Fund, for us or for any other member of the Selected Dealers
Group.

2. Orders received from you will be accepted through us only at the
public offering price applicable to each order, as set forth in the current
Prospectus and Statement of Additional Information of the Fund. The procedure
relating to the handling of orders shall be subject to Section 4 hereof and
instructions which we or the Fund shall forward from time to time to you. All
orders are subject to acceptance or rejection by the Distributor or the Fund in
the sole discretion of either. The minimum initial and subsequent purchase
requirements are as set forth in the current Prospectus and Statement of
Additional Information of the Fund.

3. You shall not place orders for any of the Shares unless you have
already received purchase orders for such Shares at the applicable public
offering prices and subject to the terms hereof and of the Distribution
Agreement. You agree that you will not offer or sell any of the Shares except
under circumstances that will result in compliance with the applicable federal
and state securities laws and that in connection with the sales and offers to
sell Shares you will furnish to each person to whom any such sale or offer is
made a copy of the Prospectus and, if requested, the Statement of Additional
Information (as then amended or supplemented) and will not furnish to any
person any information relating to the Shares of the Fund which is inconsistent
in any respect with the information contained in the Prospectus and Statement
of Additional Information (as then amended or supplemented) or cause any
advertisement to be published in any newspaper or posted in any public place
without our consent and the consent of the Fund.

<PAGE> 14
4. As a selected dealer, you are hereby authorized (i) to place
orders directly with the Fund for Shares of the Fund to be resold by us to you
subject to the applicable terms and conditions governing the placement of
orders by us set forth in Section 3 of the Distribution Agreement, and (ii) to
tender Shares directly to the Fund or its agent for redemption subject to the
applicable terms and conditions set forth in Section 4 of the Distribution
Agreement.

5. You shall not withhold placing orders received from your
customers so as to profit yourself as a result of such withholding: e.g., by a
change in the "net asset value" from that used in determining the offering
price to your customers.

6. No person is authorized to make any representations concerning
Shares of the Fund except those contained in the current Prospectus and
Statement of Additional Information of the Fund and in such printed information
subsequently issued by us or the Fund as information supplemental to such
Prospectus and Statement of Additional Information. In purchasing Shares
through us you shall rely solely on the representations contained in the
Prospectus and Statement of Additional Information and supplemental information
above mentioned. Any printed information which we furnish you other than the
Fund's Prospectus, Statement of Additional Information, periodic reports and
proxy solicitation material are our sole responsibility and not the
responsibility of the Fund, and you agree that the Fund shall have no liability
or responsibility to you in these respects unless expressly assumed in
connection therewith.

7. You agree to deliver to each of the purchasers making purchases
from you a copy of the then current Prospectus and, if requested, the Statement
of Additional Information at or prior to the time of offering or sale and you
agree thereafter to deliver to such purchasers copies of the annual and interim
reports and proxy solicitation materials of the Fund. You further agree to
endeavor to obtain proxies from such purchasers. Additional copies of the
Prospectus and Statement of Additional Information, annual or interim reports
and proxy solicitation materials of the Fund will be supplied to you in
reasonable quantities upon request.

8. We reserve the right in our discretion, without notice, to
suspend sales or withdraw the offering of Shares entirely. Each party hereto
has the right to cancel this Agreement upon notice to the other party.

9. We shall have full authority to take such action as we may deem
advisable in respect of all matters pertaining to the continuous offering. We
shall be under no liability to you except for lack of good faith and for
obligations expressly assumed by us herein. Nothing contained in this paragraph
is intended to operate as, and the provisions of this paragraph shall not in
any way whatsoever constitute, a waiver by you of compliance with any provision
of the Securities Act of 1933, as amended, or of the rules and regulations
of the Securities and Exchange Commission issued thereunder.

10. You represent that you are a member of the National Association
of Securities Dealers, Inc. and we both hereby agree to abide by the Conduct
Rules of such Association.

2
<PAGE> 15
11. Upon application to us, we will inform you as to the states in
which we believe notifications of the intention to sell the Shares have been
duly filed, or where no such notification is required, but we assume no
responsibility or obligation as to your right to sell Shares in any
jurisdiction. We will file with the Department of State in New York a Further
State Notice with respect to the Shares, if necessary.

12. All communications to us should be sent to the address below. Any
notice to you shall be duly given if mailed or telegraphed to you at the
address specified by you below.

13. Your first order placed pursuant to this Agreement for the
purchase of Shares of the Fund will represent your acceptance of this Agreement.

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.

By /s/ ILLEGIBLE
------------------------------------------
(Authorized Signature)

Please return one signed copy of this Agreement to:

MERRILL LYNCH FUNDS DISTRIBUTOR, INC.
Box 9011
Princeton, New Jersey 08543-9011

Accepted:

Firm Name:
-------------------------------

By:
--------------------------------------

Address:
---------------------------------

-----------------------------------------

Date:
------------------------------------

<PAGE> 1
EXHIBIT 99.B.8(a)

CUSTODIAN AGREEMENT

THIS AGREEMENT made on October 1, 1990, between Olympic Trust, a
Massachusetts business trust (hereinafter called the "Trust") currently
consisting of four separate portfolios, and FIRST WISCONSIN TRUST COMPANY, a
corporation organized under the laws of the State of Wisconsin (hereinafter
called "Custodian"),

W I T N E S S E T H :

WHEREAS, the Trust desires that its securities and cash shall be
hereafter held and administered by Custodian pursuant to the terms of this
Agreement;

NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and Custodian agree as follows:

1. Definitions

The word "securities" as used herein includes stocks, shares, bonds,
debentures, notes, mortgages or other obligations, and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same, or evidencing or representing any other rights or
interests therein, or in any property or assets.

The words "officers' certificate" shall mean a request or direction or
certification in writing signed in the name of the Trust by any two of the
President, a Vice President, the Secretary and the Treasurer of the Trust, or
any other persons duly authorized to sign by the Board of Trustees.

The word "Board" shall mean Board of Trustees of the Trust.

2. Names, Titles and Signatures of the Trust's Officers

An officer of the Trust will certify to Custodian the names and
signatures of those persons authorized to sign the officers' certificates
described in Section 1 hereof, and the names of the members of the Board of
Trustees, together with any changes which may occur from time to time.

Additional Series. The Trust is authorized to issue separate classes of
shares of beneficial interest representing interests in separate investment
portfolios. The parties intend that each portfolio established by the Trust,
now or in the future, be covered by the terms and conditions of this agreement.
The portfolio covered by this Agreement is the International Fund (the "Fund").

3. Receipt and Disbursement of Money

A. Custodian shall open and maintain a separate account or accounts in
the name of the Fund, subject only to draft or order by Custodian acting
pursuant to the terms of this Agreement. Custodian shall hold in such account or
accounts, subject to the provisions hereof, all cash received by it from or for
the account of the Fund. Custodian shall make payments of cash to, or for the
account of, the Fund from such cash only:

- 1 -
<PAGE> 2

(a) for the purchase of securities for the portfolio of the Fund upon
the delivery of such securities to Custodian, registered in the
name of the Fund or of the nominee of Custodian referred to in
Section 7 or in proper form for transfer;

(b) for the purchase or redemption of shares of beneficial interest
of the Fund upon delivery thereof to Custodian, or upon proper
instructions from the Trust;

(c) for the payment of interest, dividends, taxes, investment
adviser's fees or operating expenses (including, without
limitation thereto, fees for legal, accounting, auditing and
custodian services and expenses for printing and postage);

(d) for payments in connection with the conversion, exchange or
surrender of securities owned or subscribed to by the Fund held
by or to be delivered to Custodian; or

(e) for other proper business purposes certified by resolution of the
Board of Trustees of the Trust.

Before making any such payment, Custodian shall receive (and may rely
upon) an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c) or (d) of this
Subsection A, and also, in respect of item (e), upon receipt of an officers'
certificate specifying the amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose to be a proper
corporate purpose, and naming the person or persons to whom such payment is to
be made, provided, however, that an officers' certificate need not precede the
disbursement of cash for the purpose of purchasing a money market instrument, or
any other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.

B. Custodian is hereby authorized to endorse and collect all checks,
drafts or other orders for the payment of money received by Custodian for the
account of the Trust.

C. Custodian shall, upon receipt of proper instructions, make federal
funds available to the Trust as of specified times agreed upon from time to time
by the Trust and the Custodian in the amount of checks received in payment for
shares of the Trust which are deposited into the Trust's account.

4. Segregated Accounts

Upon receipt of proper instructions, the Custodian shall establish and
maintain a segregated account(s) for and on behalf of the Fund, into which
account(s) may be transferred cash and/or securities.

- 2 -
<PAGE> 3

5. Transfer, Exchange, Redelivery, etc. of Securities

Custodian shall have sole power to release or deliver any securities of
the Trust held by it pursuant to this Agreement. Custodian agrees to transfer,
exchange or deliver securities held by it hereunder only:

(a) for sales of such securities for the account of the Fund upon
receipt by Custodian of payment therefor;

(b) when such securities are called, redeemed or retired or otherwise
become payable;

(d) in exchange for, or upon conversion into, other securities
alone or other securities and cash whether pursuant to any plan
of merger, consolidation, reorganization, recapitalization or
readjustment, or otherwise;

(e) upon conversion of such securities pursuant to their terms into
other securities;

(f) upon exercise of subscription, purchase or other similar rights
represented by such securities;

(g) for the purpose of exchanging interim receipts or temporary
securities for definitive securities;

(h) for the purpose of redeeming in kind shares of beneficial
interest of the Trust upon delivery thereof to Custodian; or

(i) for other proper corporate purposes.

As to any deliveries made by Custodian pursuant to items (a), (b), (d),
(e), (f), and (g), securities or cash receivable in exchange therefor shall be
deliverable to Custodian.

Before making any such transfer, exchange or delivery, Custodian shall
receive (and may rely upon) an officers' certificate requesting such transfer,
exchange or delivery, and stating that it is for a purpose permitted under the
terms of items (a), (b), (c), (d), (e), (f), (g) or (h) of this Section 5 and
also, in respect of item (i), upon receipt of an officers' certificate
specifying the securities to be delivered, setting forth the purpose for which
such delivery is to be made, declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made, provided, however, that an officers' certificate need not precede
any such transfer, exchange or delivery of a money market instrument, or any
other security with same or next-day settlement, if the President, a Vice
President, the Secretary or the Treasurer of the Trust issues appropriate oral
or facsimile instructions to Custodian and an appropriate officers' certificate
is received by Custodian within two business days thereafter.

- 3 -
<PAGE> 4

6. Custodian's Acts Without Instructions

Unless and until Custodian receives an officers' certificate to the
contrary, Custodian shall: (a) present for payment all coupons and other income
items held by it for the account of the Fund, which call for payment upon
presentation and hold the cash received by it upon such payment for the account
of the Fund; (b) collect interest and cash dividends received, with notice to
the Fund, for the account of the Fund; (c) hold for the account of the Fund
hereunder all stock dividends, rights and similar securities issued with respect
to any securities held by it hereunder; and (d) execute, as agent on behalf of
each fund, all necessary ownership certificates required by the Internal Revenue
Code or the Income Tax Regulations of the United States Treasury Department or
under the laws of any state now hereafter in effect, inserting the Trust's and
the Fund's name on such certificates as the owner of the securities covered
thereby, to the extent it may lawfully do so.

7. Registration of Securities

Except as otherwise directed by an officers' certificate, Custodian
shall register all securities, except such as are in bearer form, in the name of
a registered nominee of Custodian as defined in the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder or in any provision
of any subsequent federal tax law exempting such transaction from liability for
stock transfer taxes, and shall execute and deliver all such certificates in
connection therewith as may be required by such laws or regulations or under the
laws of any state. Custodian shall use its best efforts to the end that the
specific securities held by it hereunder shall be at all times identifiable in
its records.

The Trust shall from time to time furnish to Custodian appropriate
instruments to enable Custodian to hold or deliver in proper form for transfer,
or to register in the name of its registered nominee, any securities which it
may hold for the account of the Fund and which may from time to time be
registered in the name of the Fund.

8. Voting and Other Action

Neither Custodian nor any nominee of Custodian shall vote any of the
securities held hereunder by or for the account of the Trust, except in
accordance with the instructions contained in an officers' certificate.
Custodian shall deliver, or cause to be executed and delivered, to the Trust
all notices, proxies and proxy soliciting materials with relation to such
securities, such proxies to be executed by the registered holder of such
securities (if registered otherwise than in the name of the Trust), but without
indicating the manner in which such proxies are to be voted.

9. Transfer Tax and Other Disbursements

The Trust shall pay or reimburse Custodian from tine to time for any
transfer taxes payable upon transfers of securities made hereunder, and for all
other necessary and proper disbursements and expenses made or incurred by
Custodian in the performance of this Agreement.

- 4 -
<PAGE> 5

Custodian shall execute and deliver such certificates in connection
with securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state, to exempt
from taxation any exemptable transfers and/or deliveries of any such securities.

10. Concerning Custodian

Custodian shall be paid as compensation for its services pursuant to
this Agreement such compensation as may from time to time be agreed upon in
writing between the two parties. Until modified in writing, such compensation
shall be as set forth in Exhibit A attached hereto.

Custodian shall not be liable for any action taken in good faith upon
any certificate herein described or certified copy of any resolution of the
Board, and may rely on the genuineness of any such document which it may in good
faith believe to have been validly executed.

The Trust agrees to indemnify and hold harmless Custodian and its
nominee from all taxes, charges, expenses, assessments, claims and liabilities
(including counsel fees) incurred or assessed against it or by its nominee in
connection with the performance of this Agreement, except such as may arise
from its or its nominee's own negligent action, negligent failure to act or
willful misconduct. Custodian is authorized to charge any account of the Trust
for such items. In the event of any advance of cash for any purpose made by
Custodian resulting from orders or instructions of the Trust, or in the event
that Custodian or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with the performance
of this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any property
at any time held for the account of the Trust shall be security therefor.

11. Subcustodians

If the Trust requires the Custodian to engage specific subcustodians
for the safekeeping and/or clearing of assets, the Trust agrees to indemnify and
hold harmless Custodian from all claims, expenses and liabilities incurred or
assessed against it in connection with the use of such subcustodian in regard to
the Fund's assets, except as may arise from its own negligent action, negligent
failure to act or willful misconduct.

The Custodian is authorized and directed to engage Citibank, N.A.
(Citibank) as global subcustodian for the Fund. The Board of Trustees of the
Trust has approved the retention of Citibank as subcustodian by the Custodian,
and the use by Citibank of the foreign subcustodians and securities depositories
as set forth in Exhibit B, subject to the terms and conditions of the attached
global subcustodian agreement by and between Citibank and the Custodian attached
hereto as Exhibit C.

- 5 -
<PAGE> 6

It is further understood that with respect to the Fund's assets held by
foreign subcustodians, the Custodian shall not be liable for any loss resulting
from nationalization, expropriation, other governmental actions, currency
restrictions, devaluations or fluctuations and market conditions which prevent
the orderly execution of securities transactions. Neither the Custodian nor the
Fund shall be liable to the other for any loss due to forces beyond their
control, such as strikes, work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission, or radiation, or acts of God.
Notwithstanding anything herein to the contrary, if the Custodian credits the
Fund's custody account on a payable date, or at any time prior to the actual
collection and reconciliation to the custody account, with interest, dividends,
redemptions or any other amount due, the Fund will promptly return any such
amount upon oral or written notification (i) that such amount has not been
received in the ordinary course of business or (ii) that such amount was
incorrectly credited.

12. Reports by Custodian

Custodian shall furnish the Trust periodically as agreed upon with a
statement summarizing all transactions and entries for the account of the Trust.
Custodian shall furnish to the Trust, at the end of every month, a list of the
portfolio securities showing the aggregate cost of each issue. The books and
records of Custodian pertaining to its actions under this Agreement shall be
open to inspection and audit at reasonable times by officers of, and of auditors
employed by, the Trust.

13. Termination or Assignment

This Agreement may be terminated by the Trust, or by Custodian, on
ninety (90) days notice, given in writing and sent by registered mail to
Custodian at P.O. Box 2054, Milwaukee, Wisconsin 53201, or to the Trust at 800
West Sixth Street, Suite 540, Los Angeles, California 90017, as the case may be.
Upon any termination of this Agreement, pending appointment of a successor to
Custodian or a vote of the shareholders of the Trust to dissolve or to function
without a custodian of its cash, securities and other property, Custodian shall
not deliver cash, securities or other property of the Trust to the Trust, but
may deliver them to a bank or trust company of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last published
report of not less than Two Million Dollars ($2,000,000) as a Custodian for the
Trust to be held under terms similar to those of this Agreement, provided,
however, that Custodian shall not be required to make any such delivery or
payment until full payment shall have been made by the Trust of all liabilities
constituting a charge on or against the properties then held by Custodian or on
or against Custodian, and until full payment shall have been made to Custodian
of all its fees, compensation, costs and expenses, subject to the provisions of
Section 10 of this Agreement.

This Agreement may not be assigned by Custodian without the consent of
the Trust, authorized or approved by a resolution of its Board of Trustees.

- 6 -
<PAGE> 7

14. Deposits of Securities in Securities Depositories

No provision of this Agreement shall be deemed to prevent the use by
Custodian of a central securities clearing agency or securities depository,
provided, however, that Custodian and the central securities clearing agency or
securities depository meet all applicable federal and state laws and
regulations, and the Board of Trustees of the Trust approves by resolution the
use of such central securities clearing agency or securities depository.

15. Records

To the extent that Custodian in any capacity prepares or maintains any
records required to be maintained and preserved by the Trust pursuant to the
provisions of the Investment Company Act of 1940, as amended, or the rules and
regulations promulgated thereunder, Custodian agrees to make any such records
available to the Trust upon request and to preserve such records for the periods
prescribed in Rule 31a-2 under the Investment Company Act of 1940, as amended.

16. Enforcement of Claims

The name "Olympic Trust" is the designation of the Trustees under a
Declaration of Trust, and the Custodian acknowledges that all persons dealing
with the Trust must look solely to the property of the Trust for the enforcement
of claims against the Trust, as neither the Trustees, officers, agents or
shareholders assume any personal liability for obligations entered into on
behalf of the Trust.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and their respective corporate seals to be affixed hereto as of the
date first above written by their respective officers thereunto duly authorized.

Executed in several counterparts, each of which is an original.

Attest: FIRST WISCONSIN TRUST COMPANY

/s/ ANDREA LYDOPH By /s/ JAMES D. HINTZ
- --------------------------------- --------------------------------
ASSISTANT SECRETARY VICE PRESIDENT

Attest: OLYMPIC TRUST

/s/ M.A. deVILLIERS By /s/ GEORGE REBHAN
- --------------------------------- --------------------------------

- 7 -
<PAGE> 8

AMENDMENT TO CUSTODIAN AGREEMENT

The Custodian Agreement made and entered into on January 31, 1990 by and between
Olympic Trust, A Massachusetts business Trust (Hereinafter referred to as the
"Trust") and Firstar Trust Company, a Corporation organized under the laws of
the state of Wisconsin, (hereinafter referred to as "Agent") is hereby amended
to add the following paragraph:

17. Additional Series. Olympic Trust is authorized to issue separate classes of
shares of beneficial interest representing interests in separate investment
portfolios. There are currently seven portfolios covered by this agreement,
Equity Fund for Insurance Co's, The Equity Income, Balanced Income, Small Cap,
International, Low Duration, and Short Term Investment Portfolios. The parties
intend that each portfolio established by the Trust, now or in the future, be
covered by the terms & conditions of this agreement.

Dated this 25th day of May, 1993

Attest: FIRSTAR TRUST COMPANY

/s/ MARGARET A. DE VILLIERS By /s/ JOE REDWINE
- --------------------------------- --------------------------------
Assistant Secretary Vice President

Attest: OLYMPIC TRUST

/s/ ANDREA LYDOPH By /s/ GEORGE REBHAN
- --------------------------------- --------------------------------
Assistant Secretary

<PAGE> 9

FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES

MUTUAL FUND CUSTODIAL AGENT SERVICE
ANNUAL FEE SCHEDULE FOR
DOMESTIC PORTFOLIOS

- Fund groups with an aggregate market value in excess of $100 million

- Annual fee based on market value of assets:

$0.20 per $1,000 (2 basis points)

- Minimum annual fee per fund: $5,000

- Investment transactions: (purchase, sale, exchange, tender, redemption,
maturity, receipt, delivery)

$12.00 per book entry security (depository or Federal Reserve system)

$25.00 per definitive security (physical)

$75.00 per Euroclear

$ 8.00 per principal reduction on pass-through certificates

$35.00 per option/futures contract

$ 7.50 per variation margin transaction

$ 7.50 per Fed wire deposit or withdrawal

- Variable Amount Notes: Used as a short-term investment, variable amount
notes offer safety and prevailing high interest rates. Our charge,
which is 1/4 of 1%, is deducted from the variable amount note income at
the time it is credited to your account.

- Extraordinary expenses: Based on time and complexity involved.

- Out-of-pocket expenses: Charged to the account.

- Fees are billed quarterly, based on market value at the beginning of
the quarter.

<PAGE> 10

FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES

MUTUAL FUND CUSTODIAL AGENT SERVICE
ANNUAL FEE SCHEDULE FOR
DOMESTIC PORTFOLIOS
FOR

OLYMPIC LOW DURATION FUND
OLYMPIC SHORT TERM INVESTMENT FUND

- Annual fee per fund based on market value of assets:

$1.00 per $1,000 on the first $5 million

$0.50 per $1,000 on the next $5 million

$0.25 per $1,000 on the next $40 million

$0.20 per $1,000 on the balance

- Minimum annual fee: $3,000

- Investment transactions: (purchase, sale, exchange, tender, redemption,
maturity, receipt, deliver)

$17.00 per book entry security (depository or Federal Reserve System)

$25.00 per definitive security (physical)

$75.00 per Euroclear

$ 8.00 per principal reduction on pass-through certificates

$35.00 per option/futures contract

$12.00 per variation margin transaction

$ 7.50 per Fed wire deposit or withdrawal

- Extraordinary expenses: Based on time and complexity involved.

- Out-of-pocket expenses: Charged to the account

- Fees are billed quarterly, based on market value at the beginning of
the quarter.

<PAGE> 1
EXHIBIT 99.B.8(B)

GLOBAL CUSTODY TRI-PARTY AGREEMENT

This AGREEMENT, effective 11-30, 1994, shall be by and among THE CHASE
MANHATTAN BANK, N.A. (the "Bank"), Firstar Trust Company (the "Customer") and
Hotchkis and Wiley Funds (the "Fund").

1. CUSTOMER ACCOUNTS.

The Bank agrees to establish and maintain the following accounts
("Accounts"):

(a) A custody account in the name of the Fund ("Custody Account") for
any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any other rights or
interests therein and other similar property whether certificated or
uncertificated as may be received by the Bank or its Subcustodian (as defined in
Section 3) for the account of the Fund ("Securities"); and

(b) A deposit account in the name of the Fund ("Deposit Account") for
any and all cash in any currency received by the Bank or its Subcustodian for
the account of the Fund, which cash shall not be subject to withdrawal by draft
or check.

The Customer and the Fund warrant their authority to: 1) deposit the
cash and Securities ("Assets") received in the Accounts and 2) give Instructions
(as defined in Section 11) concerning the Accounts. The Bank may deliver
securities of the same class in place of those deposited in the Custody Account.

Upon written agreement by and among the Bank, the Customer and the
Fund, additional Accounts may be established and separately accounted for as
additional Accounts under the terms of this Agreement.

2. MAINTENANCE OF SECURITIES AND CASH AT BANK AND SUBCUSTODIAN LOCATIONS.

Unless Instructions specifically require another location acceptable to
the Bank:

(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and

(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.

Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular currency.
To the extent Instructions are issued and the Bank can comply with such
Instructions, the Bank is authorized to maintain cash balances on deposit for
the Fund with itself or one of its affiliates at such reasonable rates of
interest as may from time to time be paid on such accounts, or in non-interest
bearing accounts as the Fund may direct, if acceptable to the Bank.

If the Fund wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by the Bank and the Fund.

<PAGE> 2
3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.

The Bank may act under this Agreement through the subcustodians listed
in Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer and the Fund authorizes
the Bank to hold Assets in the Accounts in accounts which the Bank has
established with one or more of its branches or Subcustodians. The Bank and
Subcustodians are authorized to hold any of the Securities in their account with
any securities depository in which they participate.

The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer and the Fund will be given reasonable notice by the
Bank of any amendment to Schedule A. Upon request by the Customer or the Fund,
the Bank will identify the name, address and principal place of business of any
Subcustodian of the Fund's Assets and the name and address of the governmental
agency or other regulatory authority that supervises or regulates such
Subcustodian.

4. USE OF SUBCUSTODIAN.

With Respect to Assets credited to the Accounts in the custody of a
Subcustodian:

(a) The Bank will identify such Assets on its books as belonging to the
Fund.

(b) A Subcustodian will hold such Assets together with assets belonging
to other similar funds or other customers of the Bank in accounts identified on
such Subcustodian's books as special custody accounts for the exclusive benefit
of customers of the Bank.

(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only to
the instructions of such Subcustodian.

(d) Any agreement the Bank enters into with a Subcustodian for holding
its customer's assets shall provide that such assets will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of such
Subcustodian except for safe custody or administration, and that the beneficial
ownership of such assets will be freely transferable without the payment of
money or value other than for safe custody or administration. The foregoing
shall not apply to the extent of any special agreement or arrangement made by
the Fund with any particular Subcustodian.

5. DEPOSIT ACCOUNT TRANSACTIONS.

(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required by
the Bank.

(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its discretion,
may advance the Customer such excess amount which shall be deemed a loan payable
on demand, bearing interest at the rate customarily charged by the Bank on
similar loans.

(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit Account,
with interest, dividends, redemptions or any other amount due, the Customer or
the Fund will promptly return any such amount upon oral or written notification:
(i) that such amount has not been received in the ordinary course of business or
(ii) that such amount was incorrectly credited. If the Customer or the Fund does
not promptly return any amount upon such notification, the Bank shall be
entitled, upon oral or written notification to the Customer and the Fund, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in

<PAGE> 3
any insolvency proceeding or take any other action with respect to the
collection of such amount, but may act for the Customer upon Instructions after
consultation with the Fund.

6. CUSTODY ACCOUNT TRANSACTIONS.

(a) Securities will be transferred, exchanged or delivered by the Bank
or its Subcustodian upon receipt by the Bank of Instructions which include all
information required by the Bank. Settlement and payment for Securities received
for, and delivery of Securities out of, the Custody Account may be made in
accordance with the customary or established securities trading or securities
processing practices and procedures in the jurisdiction or market in which the
transaction occurs, including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the expectation of
receiving later payment and free delivery. Delivery of Securities out of the
Custody Account may also be made in any manner specifically required by
Instructions acceptable to the Bank.

(b) The Bank, in its discretion, may credit or debit the Accounts on a
contractual settlement date with cash or Securities with respect to any sale,
exchange or purchase of Securities. Otherwise, such transactions will be
credited or debited to the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.

(i) The Bank may reverse credits or debits made to the Accounts in its
discretion if the related transaction fails to settle within a
reasonable period, determined by the Bank in its discretion, after the
contractual settlement date for the related transaction.

(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the credits and
debits of the particular transaction at any time.

7. ACTIONS OF THE BANK.

The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the Bank
will:

(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items which
call for payment upon presentation, to the extent that the Bank or Subcustodian
is actually aware of such opportunities.

(b) Execute in the name of the Fund such ownership and other
certificates as may be required to obtain payments in respect of Securities.

(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.

(e) Issue statements to the Customer and the Fund, at times mutually
agreed upon, identifying the Assets in the Accounts.

The Bank will send the Customer and the Fund an advice or notification
of any transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer or the Fund sends the Bank a written exception or
objection to any Bank statement within sixty (60) days of receipt, the Customer
and the Fund shall be deemed to have approved such statement. In such event, or
where the Customer or the Fund has otherwise approved any such statement, the
Bank shall, to the extent permitted by law, be

<PAGE> 4
released, relieved and discharged with respect to all matters set forth in such
statement or reasonably implied therefrom as though it had been settled by the
decree of a court of competent jurisdiction in an action where the Customer and
the Fund and all persons having or claiming an interest in the Accounts were
parties.

All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer and the Fund. The Bank shall have no liability for any loss occasioned
by delay in the actual receipt of notice by the Bank or by its Subcustodians of
any payment, redemption or other transaction regarding Securities in the Custody
Account in respect of which the Bank has agreed to take any action under this
Agreement.

8. CORPORATE ACTIONS; PROXIES.

Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities (other
than a proxy), such as subscription rights, bonus issues, stock repurchase plans
and rights offerings, or legal notices or other material intended to be
transmitted to securities holders ("Corporate Actions"), the Bank will give the
Fund notice of such Corporate Actions to the extent that the Bank's central
corporate actions department has actual knowledge of a Corporate Action in time
to notify its customers.

When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Fund or its Authorized Person, but if Instructions are not
received in time for the Bank to take timely action, or actual notice of such
Corporate Action was received too late to seek Instructions, the Bank is
authorized to sell such rights entitlement or fractional interest and to credit
the Deposit Account with the proceeds or take any other action it deems, in good
faith, to be appropriate in which case it shall be held harmless for any such
action.

The Bank will deliver proxies to the Fund or its designated agent
pursuant to special arrangements which may have been agreed to in writing. Such
proxies shall be executed in the appropriate nominee name relating to Securities
in the Custody Account registered in the name of such nominee but without
indicating the manner in which such proxies are to be voted; and where bearer
Securities are involved, proxies will be delivered in accordance with
Instructions.

9. NOMINEES.

Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities depository,
as the case may be. The Bank may, without notice to the Customer or the Fund,
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer or the Fund. In the
event that any Securities registered in a nominee name are called for partial
redemption by the issuer, the Bank may allot the called portion to the
respective beneficial holders of such class of security in any manner the Bank
deems to be fair and equitable. The Customer and the Fund jointy and severally
agrees to hold the Bank, Subcustodians, and their respective nominees harmless
from any liability arising directly or indirectly from their status as a mere
record holder of Securities in the Custody Account.

10. AUTHORIZED PERSONS.

As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or the Fund or their designated agent to act on behalf
of the Customer and the Fund under this Agreement. Such persons shall continue
to be Authorized Persons until such time as the Bank receives Instructions from
the Customer or the Fund, or its designated agent, that any such employee or
agent is no longer an Authorized Person.

<PAGE> 5
11. INSTRUCTIONS.

The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information system
acceptable to the Bank which the Bank believes in good faith to have been given
by Authorized Persons or which are transmitted with proper testing or
authentication pursuant to terms and conditions which the Bank may specify.
Unless otherwise expressly provided, all Instructions shall continue in full
force and effect until canceled or superseded.

Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which confirmation
may bear the facsimile signature of such Person), but the party designating the
Authorized Person will hold the Bank harmless for the failure of an Authorized
Person to send such confirmation in writing, the failure of such confirmation to
conform to the telephone instructions received or the Bank's failure to produce
such confirmation at any subsequent time. The Bank may electronically record any
Instructions given by telephone, and any other telephone discussions with
respect to the Custody Account. The party designating the Authorized Person
shall be responsible for safeguarding any testkeys, identification codes or
other security devices which the Bank shall make available to the Customer, the
Fund or their Authorized Persons.

12. STANDARD OF CARE; LIABILITIES.

(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in Instructions
which are consistent with the provisions of this Agreement as follows:

(i) The Bank will use reasonable care with respect to its obligations
under this Agreement and the safekeeping of Assets. The Bank shall be
liable to the Customer or the Fund for any loss which shall occur as
the result of the failure of a Subcustodian to exercise reasonable care
with respect to the safekeeping of such Assets to the same extent that
the Bank would be liable to the Customer or the Fund if the Bank were
holding such Assets in New York. In the event of any loss to the
Customer or the Fund by reason of the failure of the Bank or its
Subcustodian to utilize reasonable care, the Bank shall be liable to
the Customer or the Fund only to the extent of the Customer or the
Fund's direct damages, to be determined based on the market value of
the property which is the subject of the loss at the date of discovery
of such loss and without reference to any special conditions or
circumstances.

(ii) The Bank will not be responsible for any act, omission, default or
for the solvency of any broker or agent which it or a Subcustodian
appoints unless such appointment was made negligently or in bad faith.

(iii) The Bank shall be indemnified by, and without liability to the
Customer or the Fund for any action taken or omitted by the Bank
whether pursuant to Instructions or otherwise within the scope of this
Agreement if such act or omission was in good faith, without
negligence. In performing its obligations under this Agreement, the
Bank may rely on the genuineness of any document which it believes in
good faith to have been validly executed.

(iv) The Customer and/or the Fund agrees to pay for and hold the Bank
harmless from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and any related
expenses with respect to income from or Assets in the Accounts.

<PAGE> 6
(v) The Bank shall be entitled to rely, and may act, upon the advice of
counsel (who may be counsel for the Customer or the Fund) on all
matters and shall be without liability for any action reasonably taken
or omitted pursuant to such advice.

(vi) The Bank need not maintain any insurance for the benefit of the
Customer or the Fund.

(vii) Without limiting the foregoing, the Bank shall not be liable for
any loss which results from: 1) the general risk of investing, or 2)
investing or holding Assets in a particular country including, but not
limited to, losses resulting from nationalization, expropriation or
other governmental actions; regulation of the banking or securities
industry; currency restrictions, devaluations or fluctuations; and
market conditions which prevent the orderly execution of securities
transactions or affect the value of Assets.

(viii) Neither party shall be liable to the other for any loss due to
forces beyond their control including, but not limited to strikes or
work stoppages, acts of war or terrorism, insurrection, revolution,
nuclear fusion, fission or radiation, or acts of God.

(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty or
responsibility to:

(i) question Instructions or make any suggestions to the Customer,
the Fund or an Authorized Person regarding such Instructions;

(ii) supervise or make recommendations with respect to investments or
the retention of Securities;

(iii) advise the Customer or the Fund or an Authorized Person regarding
any default in the payment of principal or income of any security other
than as provided in Section 5(c) of this Agreement;

(iv) evaluate or report to the Customer, the Fund or an Authorized
Person regarding the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made pursuant
to this Agreement;

(v) review or reconcile trade confirmations received from brokers. The
Customer, the Fund or its Authorized Persons (as defined in Section 10)
issuing Instructions shall bear any responsibility to review such
confirmations against Instructions issued to and statements issued by
the Bank.

(c) The Customer and the Fund authorize the Bank to act under this
Agreement notwithstanding that the Bank or any of its divisions or affiliates
may have a material interest in a transaction, or circumstances are such that
the Bank may have a potential conflict of duty or interest including the fact
that the Bank or any of its affiliates may provide brokerage services to other
customers, act as financial advisor to the issuer of Securities, act as a lender
to the issuer of Securities, act in the same transaction as agent for more than
one customer, have a material interest in the issue of Securities, or earn
profits from any of the activities listed herein.

13. FEES AND EXPENSES.

The Fund or the Customer agrees to pay the Bank for its services under
this Agreement such amount as may be agreed upon in writing, together with the
Bank's reasonable out-of-pocket or incidental expenses, including, but not
limited to, legal fees. The Bank shall have a lien on and is authorized to
charge any Accounts of the Fund for any amount owing to the Bank under any
provision of this Agreement.

<PAGE> 7
14. MISCELLANEOUS.

(a) FOREIGN EXCHANGE TRANSACTIONS. To facilitate the administration of
the Fund's trading and investment activity, the Bank is authorized to enter into
spot or forward foreign exchange contracts with the Customer, the Fund or an
Authorized Person of the Customer or the Fund and may also provide foreign
exchange through its subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign exchange
facility made available. In all cases where the Bank, its subsidiaries,
affiliates or Subcustodians enter into a foreign exchange contract related to
Accounts, the terms and conditions of the then current foreign exchange contract
of the Bank, its subsidiary, affiliate or Subcustodian and, to the extent not
inconsistent, this Agreement shall apply to such transaction.

(b) CERTIFICATION OF RESIDENCY, ETC. The Fund certifies that it is a
resident of the United States and agrees to notify the Bank of any changes in
residency. The Bank may rely upon this certification or the certification of
such other facts as may be required to administer the Bank's obligations under
this Agreement. The Customer will indemnify the Bank against all losses,
liability, claims or demands arising directly or indirectly from any such
certifications.

(c) ACCESS TO RECORDS. The Bank shall allow the Customer or the Fund's
independent public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their examination of
books and records pertaining to the Customer or the Fund's affairs. Subject to
restrictions under applicable law, the Bank shall also obtain an undertaking to
permit the Customer or the Fund independent public accountants reasonable access
to the records of any Subcustodian which has physical possession of any Assets
as may be required in connection with the examination of the Customer or the
Fund's books and records.

(d) GOVERNING LAW; SUCCESSORS AND ASSIGNS. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the parties.

(e) ENTIRE AGREEMENT; APPLICABLE RIDERS. Customer and the Fund
represent that the Assets deposited in the Accounts are (Check one):

__ Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");

X Mutual Fund assets subject to certain Securities and Exchange
Commission ("SEC") rules and regulations;

__ Neither of the above.

This Agreement consists exclusively of this document together with
Schedule A, Exhibits I - _______ and the following Rider(s) [Check applicable
rider(s)]:

__ ERISA

X MUTUAL FUND

__ SPECIAL TERMS AND CONDITIONS

<PAGE> 8
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the parties.
Any amendment to this Agreement must be in writing, executed by both parties.

(f) SEVERABILITY. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on the basis
of any particular circumstances or in any jurisdiction, the validity, legality
and enforceability of such provision or provisions under other circumstances or
in other jurisdictions and of the remaining provisions will not in any way be
affected or impaired.

(g) WAIVER. Except as otherwise provided in this Agreement, no failure
or delay on the part of either party in exercising any power or right under this
Agreement operates as a waiver, nor does any single or partial exercise of any
power or right preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of this Agreement,
or waiver of any breach or default, is effective unless in writing and signed by
the party against whom the waiver is to be enforced.

(h) NOTICES. All notices under this Agreement shall be effective when
actually received. Any notices or other communications which may be required
under this Agreement are to be sent to the parties at the following addresses or
such addresses as may subsequently be given to the other party in writing:

Bank: The Chase Manhattan Bank, N.A.
4 Chase MetroTech Center 18th Fl.
Brooklyn, NY 11245
Attention: Global Custody Division

or telex: ______________________

Customer: Firstar Trust Company
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
Attn: A. McVoy (414) 287-3706

or fax: (414) 287-3781

Fund: Hotchkis & Wiley Funds
800 West 6th Street
Suite 540
Los Angeles, California 90017

or telex: 213-623-7047

<PAGE> 9
(i) TERMINATION. This Agreement may be terminated by the Customer, the
Fund or the Bank by giving sixty (60) days written notice to the other, provided
that such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is given
by the Bank, the Customer or the Fund shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions specifying the names of
the persons to whom the Bank shall deliver the Assets. In either case the Bank
will deliver the Assets to the persons so specified, after deducting any amounts
which the Bank determines in good faith to be owed to it under Section 13. If
within sixty (60) days following receipt of a notice of termination by the Bank,
the Bank does not receive Instructions from the Customer or the Fund specifying
the names of the persons to whom the Bank shall deliver the Assets, the Bank, at
its election, may deliver the Assets to a bank or trust company doing business
in the State of New York to be held and disposed of pursuant to the provisions
of this Agreement, or to Authorized Persons, or may continue to hold the Assets
until Instructions are provided to the Bank.

FIRSTAR TRUST COMPANY

By: /s/ JOE D. REDWINE
------------------------------------
Vice President

THE CHASE MANHATTAN BANK, N.A.

By: /s/ ROBERT G. TRIANO
------------------------------------
Robert G. Triano
Vice President

Hotchkis and Wiley Funds

By: /s/ NANCY D. CELICK
------------------------------------
President

<PAGE> 10
STATE OF )
: ss.
COUNTY OF )

On this 28th day of November , 19 , before me personally came Joe D. Redwine, to
me known, who being by me duly sworn, did depose and say that he/she resides in
Milwaukee at 615 E. Michigan that he/she is Vice President of Firstar Trust Co.,
the entity described in and which executed the foregoing instrument; that he/she
knows the seal of said entity, that the seal affixed to said instrument is such
seal, that it was so affixed by order of said entity, and that he/she signed
his/her name thereto by like order.

/s/ JOE D. REDWINE
------------------------

Sworn to before me this 28 day of Nov, 1994.

/s/ MICHAEL R. MCVOY
- --------------------------
Notary

My commission is permanent

<PAGE> 11
STATE OF California )
: ss.
COUNTY OF Los Angeles )

On this 30th day of November , 1994, before me personally came Nancy D Celick,
to me known, who being by me duly sworn, did depose and say that he/she resides
in LA at 2839 Wigtown Rd; LA, CA that he/she is President of Hotchkis and Wiley
Funds, the entity described in and which executed the foregoing instrument; that
he/she knows the seal of said entity, that the seal affixed to said instrument
is such seal, that it was so affixed by order of said entity, and that he/she
signed his/her name thereto by like order.

/s/ NANCY D CELICK
-------------------------

Sworn to before me this 30th day of Nov., 1994.

/s/ KAREN L. BYNUM II
- -------------------------
Notary

<PAGE> 12
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )

On this 22 day of November , 1994, before me personally came Robert
G. Triano, to me known, who being by me duly sworn, did depose and say that
he/she resides in Redbank, NJ at 15 Delaware Ave.; that he/she is Vice President
of THE CHASE MANHATTAN BANK, (National Association), the corporation described
in and which executed the foregoing instrument; that he/she knows the seal of
said corporation, that the seal affixed to said instrument is such corporate
seal, that it was so affixed by order of the Board of Directors of said
corporation, and that he/she signed his/her name thereto by like order.

/s/ ROBERT G. TRIANO
-------------------------

Sworn to before me this 22nd day of November, 1994.

/s/ LAIYEE NG
- ----------------------------------
Notary

LAIYEE NG
Notary Public, State of New York
No. 01NG-5012928
Qualified in Queens County
Cert. Filed in Kings & N.Y. Counties
Commission Expires June 15, 1995

<PAGE> 13
Mutual Fund Rider to Global Custody Tri-Party Agreement
Among The Chase Manhattan Bank, N.A., Firstar Trust Company
and Hotchkis and Wiley Funds effective_____________

The Fund represents that the Assets being placed in the Bank's custody
are subject to the Investment Company Act of 1940 (the Act), as the same may be
amended from time to time.

Except to the extent that the Bank has specifically agreed to comply
with a condition of a rule, regulation, interpretation promulgated by or under
the authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.

The following modifications are made to the Agreement:

Section 3. SUBCUSTODIANS AND SECURITIES DEPOSITORIES.

Add the following language to the end of Section 3:

The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible
foreign custodian or an eligible foreign securities depository, which
are further defined as follows:

(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the Investment Company Act of 1940;

(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a country
other than the United States that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent
thereof)(iii) a banking institution or trust company incorporated or
organized under the laws of a country other than the United States or a
majority owned direct or indirect subsidiary of a qualified U.S. bank
or bank holding company that is incorporated or organized under the
laws of a country other than the United States which has such other

<PAGE> 14
qualifications as shall be specified in Instructions and approved by
the Bank; or (iv) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC; and

(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling
of securities or equivalent book-entries.

The Fund represents that its Board of Directors has approved each of
the Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, which are attached
as Exhibits I through __ of Schedule A, and further represents that its Board
has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Fund(s) and
its (their) shareholders. The Bank will supply the Customer with any amendment
to Schedule A for approval. The Customer has supplied or will supply the Bank
with certified copies of its Board of Directors resolution(s) with respect to
the foregoing prior to placing Assets with any Subcustodian so approved.

Section 11. INSTRUCTIONS.

Add the following language to the end of Section 11:

Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 of this Agreement may be made only for the purposes
listed below. Instructions must specify the purpose for which any
transaction is to be made and Customer or the Fund, as the case may be,
shall be solely responsible to assure that Instructions are in accord
with any limitations or restrictions applicable to the Fund or Customer
by law or as may be set forth in its prospectus.

(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;

(b) When Securities are called, redeemed or retired, or otherwise
become payable;

(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;

(d) Upon conversion of Securities pursuant to their terms into other
securities;

14
<PAGE> 15

(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;

(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;

(g) In connection with any borrowings by the Fund requiring a pledge of
Securities, but only against receipt of amounts borrowed;

(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Fund;

(i) For the purpose of redeeming shares of the capital stock of the
Fund and the delivery to, or the crediting to the account of, the Bank,
its Subcustodian or the Fund's transfer agent, such shares to be
purchased or redeemed;

(j) For the purpose of redeeming in kind shares of the Fund against
delivery to the Bank, its Subcustodian or the Customer's transfer agent
of such shares to be so redeemed;

(k) For delivery in accordance with the provisions of any agreement
among the Fund, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Fund;

(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt
for the Securities which are to be held in escrow. Upon exercise of the
option, or at expiration, the Bank will receive from brokers the
Securities previously deposited. The Bank will act strictly in
accordance with Instructions in the delivery of Securities to be held
in escrow and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to make
proper request for such return;

(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;

<PAGE> 16
(n) For other proper purposes as may be specified in Instructions
issued by an officer of the Fund which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing the Fund; and

(o) Upon the termination of this Agreement as set forth in Section
14(i).

Section 12. STANDARD OF CARE; LIABILITIES.

Add the following subsection (c) to Section 12:

(c) The Bank hereby warrants to the Customer and the Fund that in its
opinion, after due inquiry, the established procedures to be followed
by each of its branches, each branch of a qualified U.S. bank, each
eligible foreign custodian and each eligible foreign securities
depository holding the Fund's Securities pursuant to this Agreement
afford protection for such Securities at least equal to that afforded
by the Bank's established procedures with respect to similar securities
held by the Bank and its securities depositories in New York.

SECTION 14. ACCESS TO RECORDS.

ADD THE FOLLOWING LANGUAGE TO THE END OF SECTION 14(C):

Upon reasonable request from the Fund, the Bank shall furnish the Fund
such reports (or portions thereof) of the Bank's system of internal
accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Fund with
such similar reports as it may reasonably request with respect to each
Subcustodian and securities depository holding the Fund's assets.

<PAGE> 17

SEPTEMBER, 1997

SUB-CUSTODIANS EMPLOYED BY

THE CHASE MANHATTAN BANK, LONDON, GLOBAL CUSTODY

<TABLE>
<CAPTION>
COUNTRY SUB-CUSTODIAN CORRESPONDENT BANK
- ------- ------------- ------------------
<S> <C> <C>

ARGENTINA The Chase Manhattan Bank The Chase Manhattan Bank
Arenales 707, 5th Floor Buenos Aires
1061Buenos Aires
ARGENTINA

AUSTRALIA The Chase Manhattan Bank The Chase Manhattan Bank
36th Floor Sydney
World Trade Centre
Jamison Street
Sydney
New South Wales 2000
AUSTRALIA

AUSTRIA Creditanstalt - Bankverein Bank Austria
Julius Tandler Platz - 3 Vienna
A - 1011, Vienna
AUSTRIA

BAHRAIN The British Bank of the Middle East National Bank of Bahrain
PO Box 57 Manama
Manama
BAHRAIN

BANGLADESH Standard Chartered Bank Standard Chartered Bank
18-20 Motijheel C.A. Dhaka
Box 536,
Dhaka-1000
BANGLADESH

BELGIUM Generale Bank Credit Lyonnais
3 Montagne Du Parc Brussels
1000 Bruxelles
BELGIUM

BERMUDA The Bank of Bermuda Ltd The Bank of Bermuda Ltd
6 Front Street Hamilton
Hamilton
BERMUDA HMDX

</TABLE>

Page 1
<PAGE> 18

<TABLE>
<S> <C> <C>
BOTSWANA Barclays Bank of Botswana Limited Barclays Bank of Botswana Ltd
Barclays House Gaborone
Khama Crescent
Gaborone
BOTSWANA

BRAZIL Banco Chase Manhattan, S.A. Banco Chase Manhattan S.A.
Chase Manhattan Center Sao Paulo
Rua Verbo Divino, 1400
Sao Paulo, SP 04719-002
BRAZIL

BULGARIA ING Bank ING Bank
Sofia Branch Sofia
7 Vassil Levski Street
1000 Sofia
BULGARIA

CANADA Canada Trust Royal Bank of Canada
Canada Trust Tower Toronto
BCE Place
161 Bay at Front
Toronto
Ontario M5J 2T2
CANADA

The Royal Bank of Canada Royal Bank of Canada
Royal Bank Plaza Toronto
Toronto
Ontario M5J 2J5
CANADA

CHILE Citibank N.A., Citibank N.A.,
Alumada, 40 Santiago
Santiago,
CHILE

COLOMBIA Cititrust Colombia S.A. Cititrust Colombia S.A.
Sociedad Fiduciaria Sociedad Fiduciaria
Carrera 9a No 99-02 Santafe de Bogota
Santafe de Bogota, DC
COLOMBIA

CROATIA Privredna Banka Zagreb d.d. Privredna Banka Zagreb d.d.
Savska c.28 Zagreb
10000 Zagreb
CROATIA

</TABLE>

Page 2
<PAGE> 19

<TABLE>
<S> <C> <C>
CYPRUS Barclays Bank plc . Barclays Bank plc,
Cyprus Offshore Banking Unit Nicosia
2nd & 3rd Floor
88 Dighenis Akritas Avenue
PO Box 7320
1644 Nicosia
CYPRUS

CZECH REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Komercni Banka, A.S.,
Na Prikope 14 Praha
115 20 Praha 1
CZECH REPUBLIC

DENMARK Den Danske Bank Unibank
2 Holmens Kanala DK 1091 Copenhagen
Copenhagen
DENMARK

ECUADOR Citibank, N.A. Citibank N.A.,
Juan Leon Mera Quito
130 y Patria
Quito
ECUADOR

EGYPT National Bank of Egypt National Bank of Egypt
1187, Corniche El-Nile Plaza Cairo
Cairo
EGYPT

ESTONIA HansaBank Tallinna Bank
Liivalaia 8 Tallinn
EE0100 Tallinn
ESTONIA

EUROBONDS Cedel Bank S.A. ECU:Lloyds Bank PLC
67 Boulevard Grande Duchesse Charlotte International Banking Division
LUXEMBOURG London
A/c The Chase Manhattan Bank, N.A. For all other currencies: see
London relevant country
A/c No. 17817

EURO CDS First Chicago Clearing Centre ECU:Lloyds Bank PLC
27 Leadenhall Street Banking Division London
London EC3A 1AA For all other currencies: see
UNITED KINGDOM relevant country

</TABLE>

Page 3
<PAGE> 20

<TABLE>
<S> <C> <C>
FINLAND Merita Bank Ltd Merita Bank Ltd
2598 Custody Services Helsinki
Fabianinkatu 29B
Helsinki
FINLAND

FRANCE Banque Paribas Societe Generale
Ref 256 Paris
BP 141
3, Rue D'Antin
75078 Paris
Cedex 02
FRANCE

Societe Generale Societe Generale
50 Boulevard Haussman
75009 Paris
FRANCE

GERMANY Dresdner Bank A.G. Chase Bank A.G.
Juergen-Ponto-Platz 1 Frankfurt
Frankfurt/Main
GERMANY

GHANA Barclays Bank of Ghana Ltd Barclays Bank of Ghana Ltd
Barclays House Accra
High Street
Accra
GHANA

GREECE Barclays Bank Plc National Bank of Greece S.A.
1 Kolokotroni Street Athens
10562 Athens A/c Chase Manhattan Bank,
GREECE London A/c No. 040/7/921578-68

HONG KONG The Chase Manhattan Bank, The Chase Manhattan Bank,
40/F One Exchange Square Hong Kong
8, Connaught Place
Central, Hong Kong
HONG KONG

HUNGARY Citibank Budapest Rt. Citibank Budapest Rt.
Szabadsag ter 7-9 Budapest
Budapest V
H-1051
HUNGARY

</TABLE>

Page 4
<PAGE> 21

<TABLE>
<S> <C> <C>
INDIA The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation Limited
52/60 Mahatma Gandhi Road Bombay
Bombay 400 001
INDIA

Deutsche Bank AG Deutsche Bank
Securities & Custody Services Bombay
Kodak House
222 D.N. Road, Fort
Bombay 400 001
INDIA

INDONESIA The Hongkong and Shanghai The Chase Manhattan Bank
Banking Corporation Limited Jakarta
World Trade Center
J1. Jend Sudirman Kav. 29-31
Jakarta 10023
INDONESIA

IRELAND Bank of Ireland Allied Irish Bank
International Financial Services Centre Dublin
1 Harbourmaster Place
Dublin 1
IRELAND

ISRAEL Bank Leumi Le-Israel B.M. Bank Leumi Le-Israel B.M.
19 Herzl Street Tel Aviv
61000 Tel Aviv
ISRAEL

ITALY Banque Paribas, The Chase Manhattan Bank,
2 Piazza San Fedele Milan
20121 Milan
ITALY

IVORY COAST Societe Generale De Banques En Cote D'Ivoire Societe Generale
(SGBCI) Paris
5 et 7, Avenue J. Anoma - 01 B.P. 1355
Abidjan 01
IVORY COAST

JAPAN The Fuji Bank Ltd The Chase Manhattan Bank
6-7 Nihonbashi-Kabutocho Tokyo
Chuo-Ku
Tokyo
JAPAN

</TABLE>

Page 5
<PAGE> 22

<TABLE>
<S> <C> <C>
JORDAN Arab Bank Limited Arab Bank Limited
P O Box 950544-5 Amman
Amman
Shmeisani
JORDAN

KENYA Barclays Bank of Kenya Barclays Bank of Kenya
Third Floor Nairobi
Queensway House
Nairobi
Kenya

LATVIA Hansabank - Latvija Hansabank - Latvija
Kalku iela 26 Latvia
Riga, LV 1050
Latvia

LEBANON The British Bank of the Middle East The Chase Manhattan Bank
Ras-Beirut Branch New York
PO Box 11-1380
Abdel Aziz,
Ras-Beirut
LEBANON

LITHUANIA Vilniaus Bankas AB Vilniaus Bankas AB
Ukmerges str. 41-106 Vilnius
LT 2662 Vilnius
LITHUANIA

LUXEMBOURG Banque Generale du Luxembourg S.A. Banque Generale du Luxembourg
50 Avenue J.F. Kennedy S.A.
L-2951 LUXEMBOURG Luxembourg

MALAYSIA The Chase Manhattan Bank (M) Berhad, The Chase Manhattan Bank,
Menara Dion, Level 26, Kuala Lumpur
Jalan Sultan Ismail
50250, Kuala Lumpur
MALAYSIA

MAURITIUS Hongkong and Shanghai Banking Corporation Ltd Hongkong and Shanghai Banking
Curepipe Road Corporation Ltd.
Curepipe Curepipe
MAURITIUS

MEXICO The Chase Manhattan Bank, S.A. No correspondent Bank
Prolongacion Paseo de la Reforma no. 600,
PB Colonia Santa Fe Pena Blanca
01210 Mexico D.F.

</TABLE>

Page 6
<PAGE> 23

MOROCCO Banque Commerciale du Maroc Banque Commerciale du Maroc
2 Boulevard Moulay Youssef Casablanca
Casablanca 20000
MOROCCO

NAMIBIA Standard Bank Namibia Ltd Standard Corporate &
Mutual Platz - 3rd Floor Merchant Bank
P.O.Box 3327 South Africa
Windhoek
NAMIBIA

NETHERLANDS ABN AMRO N.V. ING Barings
Securities Centre Amsterdam
P O Box 3200
4800 De Breda
NETHERLANDS

NEW ZEALAND National Nominees Limited National Bank of New Zealand
Level 2 BNZ Tower Wellington
125 Queen Street
Auckland
NEW ZEALAND

NORWAY Den Norske Bank Den Norske Bank ASA
Stranden 21 Oslo
PO Box 1171 Sentrum
N-0107 Oslo
NORWAY

OMAN The British Bank of the Middle East Oman Arab Bank
Bait Al Falaj Ruwi, Muscat
Main Office
Ruwi, Muscat
SULTANATE OF OMAN

PAKISTAN Citibank N.A. Citibank N.A.
AWT Plaza Karachi
11 Chundrigar Road
Karachi 74200
PAKISTAN

Deutsche Bank A.G. Deutsche Bank
Unitowers Karachi
I.I. Chundrigar Road
Karachi
PAKISTAN

</TABLE>

Page 7
<PAGE> 24

PERU Citibank, N.A. Citibank N.A.
Camino Real 457 Lima
CC Torre Real - 5th Floor
San Isidro, Lima 27
PERU

PHILIPPINES The Hongkong and Shanghai The Hongkong and Shanghai
Banking Corporation Limited Banking Corporation
33/F Tektite Tower B Manila
Exchange Road
Ortigas Center
Pasig City
PHILIPPINES

POLAND Bank Polska Kasa Opieki S.A. - Grupa Pekao SA Bank Polska Kasa Opieki S.A.
Custody Department Warsaw
Centrum Bankowo Finansowe building, III floor
Nowy Swiat 6/12 street,
00-400 Warsaw
POLAND

Bank Handlowy w. Warszawie. S.A. Bank Handlowy W. Warszawie S.A..
Custody Dept. Warsaw
ul. Chalubinskiego8
P.O. Box 129
00-950 Warsaw
POLAND

PORTUGAL Banco Espirito Santo e Comercial de Lisboa S.A. BancoPinto & Sotto Mayor
Servico de Titulos Lisbon
Rua Mouzinho da Silveira, 36 R/c
1250 Lisbon
PORTUGAL

ROMANIA ABN-AMRO Bank (Romania) S.A. ABN-Amro Bank (Romania) S.A
World Trade Centre Building-E, 2nd Floor Bucharest
Bld. Expozitiei Nr. 2
78334 Bucharest 1
ROMANIA

ING Bank ING Bank
Bucharest Branch Bucharest
13-15 Kiseleff Blvd
Sector 1
Bucharest
ROMANIA
</TABLE>

Page 8
<PAGE> 25

RUSSIA Chase Manhattan Bank International ("CMBI") The Chase Manhattan Bank
1st Tverskaya - Yamskaya, 23 New York
125047 Moscow A/C The Chase Manhattan
RUSSIA London (US$ Nostro Account)

SHANGHAI (CHINA) The Hongkong and Shanghai Citibank
Banking Corporation Limited New York
5/F. Marine Tower
1 Pudong Avenue
Shanghai 200120
THE PEOPLE'S REPUBLIC OF CHINA

SHENZHEN (CHINA) The Hongkong and Shanghai The Chase Manhattan Bank
Banking Corporation Limited Hong Kong
1st Floor
Century Plaza Hotel
No.1 Chun Feng Lu
Shenzhen
THE PEOPLE'S REPUBLIC OF CHINA

SINGAPORE Standard Chartered Bank, The Chase Manhattan Bank,
3/F, 6 Battery Road Singapore
SINGAPORE 049909

SLOVAK REPUBLIC Ceskoslovenska Obchodni Banka, A.S. Ceskoslovenska Obchodni Banka A.S.
Michalska 18 Slovak Republic
815 63 Bratislava
SLOVAK REPUBLIC

SLOVENIA Banka Creditanstalt d.d. Ljubljana Creditanstalt d.d.
Kotnikova 5 Ljubljana
SL-61104 Ljubljana
SLOVENIA

SOUTH AFRICA The Standard Bank of South Africa Limited The Standard Bank of South Africa
Standard Corporate and Merchant Bank Division Ltd
1st Floor Standard Corporate and Merchant
No. 5 Simmonds Street Bank Division
Marshall Town South Africa
Johannesburg
SOUTH AFRICA

SOUTH KOREA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation Limited
6/F Kyobo Building Seoul
#1 Chongro, 1-ka Chongro-Ku,
Seoul
SOUTH KOREA

</TABLE>

Page 9
<PAGE> 26

<TABLE>
<S> <C> <C>
SPAIN The Chase Manhattan Bank. The Chase Manhattan Bank,
Paseo de la Castellana, 51 Madrid
28046 Madrid
SPAIN

SRI LANKA The Hongkong & Shanghai The Hongkong & Shanghai
Banking Corporation Limited Banking Corporation
Unit #02-02 West Block, Colombo
World Trade Center
Colombo 1,
SRI LANKA

SWAZILAND Stanbic Bank Swaziland Ltd Standard Corporate and
Stanbic House Merchant Bank
P.O. Box A294, Swazi Plaza South Africa
Mbabane
SWAZILAND

SWEDEN Skandinaviska Enskilda Banken Svenska Handelsbanken
Sergels Torg 2 Stockholm
S-106 40
Stockholm
SWEDEN

SWITZERLAND Union Bank of Switzerland Union Bank of Switzerland
45 Bahnhofstrasse Zurich
8021 Zurich
SWITZERLAND

TAIWAN The Chase Manhattan Bank, No correspondent Bank
14th Floor,
2, Tun Hwa S. Road Sec. 1
Taipei
TAIWAN
Republic of China

THAILAND The Chase Manhattan Bank, The Chase Manhattan Bank,
Bubhajit Building Bangkok
20 North Sathorn Road
Silom, Bangrak
Bangkok 10500
THAILAND

TUNISIA Banque Internationale Arabe de Tunisie Banque Internationale Arabe de
70-72 Avenue Habib Bourguiba Tunisie, Tunisia
P.O. Box 520
1080 Tunis Cedex
TUNISIA
</TABLE>

Page 10
<PAGE> 27

<TABLE>
<S> <C> <C>
TURKEY The Chase Manhattan Bank, The Chase Manhattan Bank,
Emirhan Cad. No: 145 Istanbul
Atakule, A Blok Kat:11
80700-Dikilitas/Besiktas
Istanbul
TURKEY

U.K. The Chase Manhattan Bank, The Chase Manhattan Bank,
Trinity Tower London
9 Thomas More Street
London E1 9YT
UNITED KINGDOM

URUGUAY The First National Bank of Boston The First National Bank of Boston
Zabala 1463 Montevideo
Montevideo
URUGUAY

U.S.A. The Chase Manhattan Bank, The Chase Manhattan Bank,
1 Chase Manhattan Plaza New York
New York
NY 10081
U.S.A.

VENEZUELA Citibank N.A. Citibank N.A.
Carmelitas a Altagracia Caracas
Edificio Citibank
Caracas 1010
VENEZUELA

ZAMBIA Barclays Bank of Zambia Barclays Bank of Zambia Ltd
Kafue House Lusaka
Cairo Road
P.O.Box 31936
Lusaka
ZAMBIA

ZIMBABWE Barclays Bank of Zimbabwe Barclays Bank of Zimbabwe
2nd Floor Harare
3 Anchor House
Jason Mayo Avenue
Harare
ZIMBABWE

</TABLE>

Page 11
<PAGE> 28

MERRILL LYNCH ASSET MANAGEMENT
CUSTODY FEE SCHEDULE
EFFECTIVE APRIL 1, 1996

U.S. Assets (Per Account):
First $1 billion: 0.5 basis points (0.00005)
Next $1 billion: 0.4 basis points (0.00004)
Over $2 billion: 0.3 basis points (0.00003)

Book Entry Transactions: $6.00 per transaction
Physical Transactions: $15.00 per transaction

Global Assets:

<TABLE>
<CAPTION>
MARKET B.P. FEE TRANSACTIONS
----------------------- ------------ ----------------
<S> <C> <C>
ARGENTINA 35 $100.00
AUSTRALIA 6 45.00
AUSTRIA 10 50.00
BANGLADESH 40 100.00
BELGIUM 10 50.00
BOTSWANA 40 100.00
BRAZIL 35 100.00
CANADA 5 50.00
CEDEL 3 0.00
CHILE 35 100.00
CHINA (SHANGHAI) 40 100.00
CHINA (SHENZHEN) 40 100.00
COLOMBIA 35 100.00
CZECH REPUBLIC 40 100.00
DENMARK 10 50.00
EURO CDs 4 30.00
FINLAND 10 50.00
FRANCE 6 50.00
GERMANY 6 45.00
GHANA 50 150.00
GREECE 40 100.00
HONG KONG 10 50.00
HUNGARY 40 100.00
INDIA 40 100.00
INDONESIA 35 100.00
IRELAND 8 40.00
ISRAEL 40 100.00
ITALY 10 50.00
JAPAN 4 50.00
JORDAN 40 100.00
KENYA 50 150.00
KOREA 25 100.00
LUXEMBOURG 10 50.00
MALAYSIA 10 50.00
MAURITIUS 50 150.00
MEXICO 15 50.00
MOROCCO 40 100.00
NETHERLANDS 7 50.00
NEW ZEALAND 8 50.00

</TABLE>

<PAGE> 29

<TABLE>
<CAPTION>
MARKET B.P. FEE TRANSACTIONS
----------------------------- ----------------------- ------------------------
<S> <C> <C>
NORWAY 10 50.00
PAKISTAN 40 100.00
PERU 40 100.00
PHILIPPINES 35 100.00
POLAND 40 100.00
PORTUGAL 35 100.00
SINGAPORE 10 50.00
SLOVAKIA 50 150.00
SOUTH AFRICA 10 50.00
SPAIN 15 75.00
SRI LANKA 40 100.00
SWEDEN 8 50.00
SWITZERLAND 8 50.00
TAIWAN 35 100.00
THAILAND 15 100.00
TURKEY 40 100.00
UNITED KINGDOM 5 40.00
URUGUAY 40 100.00
VENEZUELA 40 100.00
ZAMBIA 50 150.00
ZIMBABWE 40 100.00
</TABLE>

OTHER SERVICES:

Futures: $15.00 per futures transaction
$10.00 per mark-to-market wire

Options: $25.00 per transaction

Out of Pocket Fees: Passed-through as incurred (e.g., stamp taxes, registration
fees, scrip fees, etc)

Approved By:
-------------------------------
Kevin Bowman, VP
Merrill Lynch Asset Management

Approved By: /s/ Susan Chanko
-------------------------------
Susan Chanko, VP
Chase Manhattan Bank

<PAGE> 30

Amendment to Global Custody Tri-Party Agreement

AMENDMENT, dated April 21, 1998 to the 11/30/94 Global Custody
Tri-Party Agreement ("Agreement"), by and among Hotchkis and Wiley Funds, having
a place of business at 800 West Sixth Street, Fifth Floor, Los Angeles,
California 90017, The Chase Manhattan Bank (as successor by operation of law to
The Chase Manhattan Bank, N.A.) ("Bank"), having a place of business at 270 Park
Ave., New York, N.Y. 10017-2070, and Firstar Trust Company, having a place of
business at 615 East Michigan Avenue, Milwaukee, Wisconsin 53202.

It is hereby agreed as follows:

A. Except as modified hereby, the Agreement is confirmed in all
respects. If any of the terms of this Amendment conflict with any of the terms
of the Agreement, the terms of this Amendment shall prevail. Capitalized terms
used herein without definition shall have the meanings ascribed to them in the
Agreement.

B. The Agreement is amended by deleting the amendments to Section 3 of
the Agreement contained in that certain Mutual Fund Rider to Global Custody
Tri-Party Agreement among the parties (the "Mutual Fund Rider").

C. Add a new Section 15 to the Agreement as follows:

15. COMPLIANCE WITH SEC RULE 17f-5.

(a) The Fund's board of trustees (hereinafter "Board") hereby delegates
to Bank, and, except as to the country or countries as to which Bank may, from
time to time, advise the Fund that it does not accept such delegation, Bank
hereby accepts the delegation to it, of the obligation to perform as the Fund's
"Foreign Custody Manager" (as that term is defined in SEC rule 17f-5(a)(2)),
both for the purpose of selecting Eligible Foreign Custodians (as that term is
defined in SEC rule 17f-5(a)(1), and as the same may be amended from time to
time, or that have otherwise been made exempt pursuant to an SEC exemptive
order) to hold Assets and of evaluating the contractual arrangements with such
Eligible Foreign Custodians (as set forth in SEC rule 17f-5(c)(2)); provided
that, the term Eligible Foreign Custodian shall not include any "Compulsory
Depository." A Compulsory Depository shall mean a securities depository or
clearing agency the use of which is compulsory because: (1) its use is required
by law or regulation, (2) securities cannot be withdrawn from the depository, or
(3) maintaining securities outside the depository is not consistent with
prevailing custodial practices in the country which the depository serves.
Compulsory Depositories used by Chase as of the date hereof are set forth in
Appendix 1-A hereto, and as the same may be amended on notice to the Fund from
time to time.

(b) In connection with the foregoing, Bank shall:

-1-
<PAGE> 31

(i) provide written reports notifying the Fund's Board of the placement
of Assets with particular Eligible Foreign Custodians and Compulsory
Depositories and of any material change in the arrangements with such
Eligible Foreign Custodians and, to the extent Bank is aware of the
same, any material change in the arrangements with Compulsory
Depositories, with such reports to be provided to the Fund's Board at
such times as the Board deems reasonable and appropriate based on the
circumstances of the Fund's foreign custody arrangements (and until
further notice from the Fund such reports shall be provided not less
than quarterly with respect to the placement of Assets with particular
Eligible Foreign Custodians and Compulsory Depositories (it being
understood that Bank shall not be responsible to make the Fund's
decision to place Assets with any Compulsory Depository) and with
reasonable promptness upon the occurrence of any material change in the
arrangements with such Eligible Foreign Custodians and, to the extent
Bank is aware of the same, any material change in the arrangements with
Compulsory Depositories);

(ii) exercise the reasonable care, prudence and diligence in performing
as the Fund's Foreign Custody Manager of a New York bank subject to a
New York standard of care having responsibility for the safekeeping of
Assets would exercise;

(iii) in selecting an Eligible Foreign Custodian, first have determined
that Assets placed and maintained in the safekeeping of such Eligible
Foreign Custodian shall be subject to reasonable care, based on the
standards applicable to custodians in the relevant market, after having
considered all factors relevant to the safekeeping of such Assets,
including, without limitation, those factors set forth in SEC rule
17f-5(c)(1)(i)-(iv);

(iv) determine that the written contract with the Eligible Foreign
Custodian (or, in the case of an Eligible Foreign Custodian that is a
securities depository or clearing agency, such contract, the rules or
established practices or procedures of the depository, or any
combination of the foregoing) requires that the Eligible Foreign
Custodian will provide reasonable care for Assets based on the
standards applicable to custodians in the relevant market. In making
this determination, Bank shall consider the provisions of Rule
17f-5(c)(2), together with whether Bank shall be liable to the Fund for
any loss which shall occur as the result of the failure of the Eligible
Foreign Custodian to exercise reasonable care with respect to the
safekeeping of such Assets to the same extent that Bank would be liable
to the Fund if Bank were holding such Assets in New York; and

(v) have established a system to monitor the continued appropriateness
of maintaining Assets with particular Eligible Foreign Custodians and
of the governing contractual arrangements; it being understood,
however, that in the event that Bank shall have determined that the
existing Eligible Foreign Custodian in a given country would no longer
afford Assets reasonable care and

-2-
<PAGE> 32

that no other Eligible Foreign Custodian in that country would afford
reasonable care, Bank shall promptly so advise the Fund and shall then
act in accordance with the Instructions of the Fund with respect to the
disposition of the affected Assets.

Subject to (b)(i)-(v) above, Bank is hereby authorized to place and maintain
Assets on behalf of the Fund with Eligible Foreign Custodians pursuant to a
written contract deemed appropriate by Bank.

(c) Except as expressly provided herein, the Fund shall be solely
responsible to assure that the maintenance of Assets hereunder complies with the
rules, regulations, interpretations and exemptive orders promulgated by or under
the authority of the SEC.

(d) Bank represents to Fund that it is a U.S. Bank as defined in Rule
17f-5(a)(7). The Fund represents to Bank that: (1) the Assets being placed and
maintained in Bank's custody are subject to the Investment Company Act of 1940,
as the same may be amended from time to time (the "1940 Act"); and (2) (i) its
Board has determined that it is reasonable to rely on Bank to perform as the
Fund's Foreign Custody Manager or (ii) its Foreign Custody Manager (other than
Bank) shall have determined that the Fund may maintain Assets in each country in
which the Fund's Assets shall be held hereunder and determined to accept the
risks arising therefrom (including, but not limited to, a country's financial
infrastructure (and including any Compulsory Depository operating in such
country), prevailing custody and settlement practices, laws applicable to the
safekeeping and recovery of Assets held in custody, and the likelihood of
nationalization, currency controls and the like).

D. Add the following after the first sentence of Section 3 of the
Agreement:

At the request of the Fund, Bank may, but need not, add to Schedule A
an Eligible Foreign Custodian that is either a bank or a non-Compulsory
Depository where Bank has not acted as Foreign Custody Manager with
respect to the selection thereof. Bank shall notify the Fund in the
event that it elects not to add any such entity.

E. Add the following language to the end of Section 3 of the Agreement:

The term Subcustodian as used herein shall mean the following:

(a) a "U.S. Bank," which shall mean a U.S. bank as defined in SEC rule
17f-5(a)(7); and

(b) an "Eligible Foreign Custodian," which shall mean (i) a banking
institution or trust company, incorporated or organized under the laws
of a country other than the United States, that is regulated as such by
that country's government or an agency thereof, (ii) a majority-owned
direct or indirect subsidiary of a U.S. bank or bank holding company
which subsidiary is incorporated or organized under the

-3-
<PAGE> 33

laws of a country other than the United States, (iii) a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, that acts as a system for
the central handling of securities or equivalent book-entries in that
country and that is regulated by a foreign financial regulatory
authority as defined under Section 2(a)(50) of the 1940 Act, (iv) a
securities depository or clearing agency organized under the laws of a
country other than the United States to the extent acting as a
transnational system for the central handling of securities or
equivalent book-entries, and (v) any other entity that shall have been
so qualified by exemptive order, rule or other appropriate action of
the SEC.

For purposes of clarity, it is agreed that as used in Section 12(a)(i), the term
Subcustodian shall include neither any Eligible Foreign Custodian as to which
Bank has not acted as Foreign Custody Manager nor any Compulsory Depository.

F. Insert the following language in the first sentence of Section 4(d)
of the Agreement following the phrase "except for safe custody or
administration": "or, in the case of cash deposits, liens or rights in favor of
creditors of the Subcustodian arising under bankruptcy, insolvency or similar
laws,".

G. Insert the following language at the beginning of the second
sentence of Section 12(a)(i) of the Agreement:

"Except with respect to those countries as to which the parties may
from time to time agree in writing otherwise,".

G. The insert to Section 11 and the added subsection (c) [sic] to
Section 12 of the Agreement contained in the Mutual Fund Rider are deleted.

*********************

[SIGNATURES FOLLOW]

-4-
<PAGE> 34

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.

HOTCHKIS AND WILEY FUNDS THE CHASE MANHATTAN BANK

By: /s/ Nancy D. Celick By: /s/ Jerry E. Garcia

Name: Nancy D. Celick Name: Jerry E. Garcia

Title: President Title: Vice President

FIRSTAR TRUST COMPANY

By: /s/ Michael R. McVoy

Name: Michael R. McVoy

Title: Vice President

-5-

<PAGE> 35
APPENDIX 1-A

-1-

COMPULSORY DEPOSITORIES
AS OF SEPTEMBER 12, 1997

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ARGENTINA CAJA DE VALORES Equity, Corporate & Government Debt
- ----------------------------------------------------------------------------------------------------------------------
AUSTRALIA AUSTRACLEAR LTD. Corporate Debt, Money Market +
Semi-Government Debt
- ----------------------------------------------------------------------------------------------------------------------
CHESS Equity
(Clearing House Electronic Sub-register System)
- ----------------------------------------------------------------------------------------------------------------------
RITS Government Debt
(Reserve Bank Information and Transfer Systems)
- ----------------------------------------------------------------------------------------------------------------------
AUSTRIA OESTERREICHISCHE KONTROLBANK AG Equity, Corporate Debt + Government Debt
- -----------------------------------------------------------------------------------------------------------------------
BELGIUM CIK Equity + Corporate Debt
(Caisse Interprofessionnelle de Depots et de Virements
de Titres
- ----------------------------------------------------------------------------------------------------------------------
BANQUE NATIONALE DE BELGIQUE Treasury Bills + Government Debt
- ----------------------------------------------------------------------------------------------------------------------
BRAZIL BOVESPA Equity
(Bolsa de Valores de Sao Paolo)
- ----------------------------------------------------------------------------------------------------------------------
BVRJ Equity
(Bolsa de Valores de Rio de Janeiro)
- ----------------------------------------------------------------------------------------------------------------------
CANADA CDS Equity, Corporate + Government Debt
(Canadian Depository for Securities)
- ----------------------------------------------------------------------------------------------------------------------
CHINA, SHANGHAI SSCCRC Equity
(Shanghai Securities Central Clearing and Registration
Corp.)
- ----------------------------------------------------------------------------------------------------------------------
CHINA, SHENZHEN SSCC Equity
(Shenzhen Securities Registration Co., Ltd.)
- ----------------------------------------------------------------------------------------------------------------------
CZECH REPUBLIC SCP Equity + Long-Term Government Debt
(Securities Center)
- ----------------------------------------------------------------------------------------------------------------------
TKD Treasury Bills + Money Market
(Trh Kratkododich Diluhopisu or Short-Term Bond Market)
- ----------------------------------------------------------------------------------------------------------------------
DENMARK VP Equity, Corporate + Government Debt
(Vaerdipapircentralen)
- ----------------------------------------------------------------------------------------------------------------------
EGYPT MISR CLEARING & SEC. DEP. Equity
- ----------------------------------------------------------------------------------------------------------------------
ESTONIA EVK Equity
(Estonian Central Depository for Securities Ltd.)
- ----------------------------------------------------------------------------------------------------------------------
EUROMARKET CEDEL & EUROCLEAR Euro-Debt
- ----------------------------------------------------------------------------------------------------------------------
FINLAND CSR Equity + Government Debt
(Central Share Registry Finland)
- ----------------------------------------------------------------------------------------------------------------------
HELSINKI MONEY MARKET CENTER LTD. Money Market
- ----------------------------------------------------------------------------------------------------------------------
FRANCE SICOVAM Equity + Corporate Debt
(Banque de France)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
-2-

COMPULSORY DEPOSITORIES
AS OF SEPTEMBER 12, 1997

<TABLE>
<CAPTION>
COUNTRY DEPOSITORY INSTRUMENT
<S> <C> <C>
FRANCE SATURNE Government Debt.
(Banque de France)

GERMANY DKV Equity, Corporate + Government Debt
(Deutscher Kassenverein)

GREECE APOTHETIRIO TITLON A.E. Equity
BANK OF GREECE Government Debt

HONG KONG CCASS Equity
(Central Clearing and Settlement System)

CMU Corporate + Government Debt
(Central Moneymarkets Unit)

HUNGARY KELER LTD. Equity + Government Debt

IRELAND CREST Equity

GSO Government Debt
(Gilt Settlement Office)

ISRAEL TASE CLEARING HOUSE Equity, Corporate + Government Debt
(Tel Aviv Stock Exchange Clearing House)

ITALY MONTE TITOLI Equity + Corporate Debt

BANK OF ITALY Government Debt

JAPAN BANK OF JAPAN Registered Government Debt

LATVIA LCD Equity + Government Debt
(Latvian Central Depository)

LEBANON MIDCLEAR Equity
(Custodian and Clearing Center of Lebanon and the Middle
East)

LUXEMBOURG CEDEL Equity

MALAYSIA MCD Equity
(Malaysian Central Depository Snd Bhd)

MAURITIUS CDS Equity
(Central Depository System)

MEXICO INDEVAL Equity, Corporate + Government Debt.
(Institucion para el Deposito de Valores)

MOROCCO MAROCLEAR Equity + Corporate Debt

BANK AL'MAGHRIB Government Debt

NETHERLANDS NECIGEF/KAS ASSOCIATE NV Equity, Corp. + Govt. Debt

DE NEDERLANDSCHE BANK N.V. Money Market
</TABLE>

<PAGE> 37
-3-

COMPUSORY DEPOSITORIES
AS OF SEPTEMBER 12, 1997

<TABLE>
<S> <C> <C>
COUNTRY DEPOSITORY INSTRUMENT

NETHERLANDS NIEC Premium Bonds
(Nederlands Interprofessioneel Effectencentrum
B.V.)

NEW ZEALAND AUSTRACLEAR NEW ZEALAND Equity, Corporate + Government Debt

NORWAY VPS Equity, Corporate + Government Debt
(Verdipapirsentralen)

OMAN NONE

PAKISTAN CDC Equity
(Central Depository Company of Pakistan Ltd.)

PERU CAVALI Equity
(Caja de Valores)

PHILIPPINES PCD Equity
(Philippine Central Depository)

POLAND NDS Equity, Long-Term Government Debt +
(National Securities Depository) Vouchers

CRT TREASURY-BILLS
(Central Registry of Treasury-Bills)

PORTUGAL INTERBOLSA Equity, Corporate + Government Debt

ROMANIA SNCDD-RASDAQ Equity
(National Company for Clearing, Settlement and
Depository for Securities)

BUDAPEST STOCK EXCHANGE REGISTRY Equity

NATIONAL BANK OF ROMANIA Treasury-Bills

RUSSIA MICEX GKOs
(Moscow Interbank Currency Exchange) (Gosudartvennye Kratkosrochnye
Obyazatelstva [T-Bills])
OFZs
(Obligatsyi Federalnogo Zaima
[Federal Loan Bonds])s

SINGAPORE CDP Equity + Corporate Debt and
(Central Depository Pte, Ltd.) Malaysian equities traded on CLOB

MONETARY AUTHORITY OF SINGAPORE Government Debt

SLOVAK REPUBLIC SCP Equity + Government Debt
(Stredisko Cennych Papiru)

NATIONAL BANK OF SLOVAKIA Treasury-Bills

SO. AFRICA CD Corporate + Government Debt
(Central Depository)

SO. KOREA KSD Equity, Corporate + Government Debt

</TABLE>
<PAGE> 38
-4-

COMPULSORY DEPOSITORIES
AS OF SEPTEMBER 12, 1997

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
COUNTRY DEPOSITORY INSTRUMENT
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SPAIN SCLV Equity + Corporate Debt.
(Servicio de compensacion y Liquidacion de Valores)
- -------------------------------------------------------------------------------------------------------------------------
CBEO
(Central Book Entry Office) Government Debt
- -------------------------------------------------------------------------------------------------------------------------
SRI LANKA CDS Equity
(Central Depository System (Private) Ltd.)
- -------------------------------------------------------------------------------------------------------------------------
SWEDEN VPC Equity, Corporate + Government Debt
(Vardepapperscentralen AB)
- -------------------------------------------------------------------------------------------------------------------------
SWITZERLAND SEGA
(Schweizerische Effekten-Giro AG) Equity, Corporate + Government Debt
- -------------------------------------------------------------------------------------------------------------------------
TAIWAN TSCD Equity + Government Debt
(Taiwan Securities Central Depository Co., Ltd.)
- -------------------------------------------------------------------------------------------------------------------------
THAILAND TSDC Equity, Corporate + Government Debt
(Thailand Securities Depository Company Ltd.)
- -------------------------------------------------------------------------------------------------------------------------
TUNISIA STICODEVAM Equity
(Societe Tunisienne Interprofessionnelle pour la
Compensacion et le Depot des Valeurs Mobilieres)
- -------------------------------------------------------------------------------------------------------------------------
MINISTRY OF FINANCE Government Debt tradable on the stock
exchange (BTNBs)
- -------------------------------------------------------------------------------------------------------------------------
CENTRAL BANK OF TUNISIA Government Debt tradable on the stock
exchange (BTCs)
- -------------------------------------------------------------------------------------------------------------------------
TURKEY TAKAS BANK Equity + Corporate Debt
- -------------------------------------------------------------------------------------------------------------------------
CENTRAL BANK OF TURKEY Government Debt
- -------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM CREST Equity + Corp. Debt
- -------------------------------------------------------------------------------------------------------------------------
CMO Sterling CDs & CP
(Central Moneymarket Office)
- -------------------------------------------------------------------------------------------------------------------------
CGO Gilts
(Central Gilts Offices)
- -------------------------------------------------------------------------------------------------------------------------
UNITED STATES DTC Equity + Corporate Debt
(Depository Trust Company)
- -------------------------------------------------------------------------------------------------------------------------
PTC Mortgage Back Debt
(Participants Trust Company)
- -------------------------------------------------------------------------------------------------------------------------
FED BOOK-ENTRY Government Debt.
- -------------------------------------------------------------------------------------------------------------------------
ZAMBIA LuSE Equity + Government Debt
(LuSE Central Shares Depository Ltd.)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE> 1
EXHIBIT 99.B.9(c)

SHAREHOLDER SERVICING AGENT AGREEMENT

THIS AGREEMENT, made and entered into on this 31st day of January,
1990, by and between Olympic Trust, a Massachusetts business trust (hereinafter
referred to as the "Trust"), and First Wisconsin Trust Company, a corporation
organized under the laws of the State of Wisconsin, (hereinafter referred to as
"Agent");

WITNESSETH:

WHEREAS, the Trust is an open-end management investment company which
is registered under the Investment Company Act of 1940 and consists of three
separate portfolios (the "Funds"); and

WHEREAS, the Agent is a trust company and, among other things, is in
the business of administering transfer and dividend disbursing agent functions
for the benefit of its customers.

NOW, THEREFORE, the Trust and the Agent do mutually promise and agree
as follows:

1. Employment. The Trust hereby employs the Agent to act as Shareholder
Servicing Agent for the Trust. The Agent shall, at its own expense, render the
services and assume the obligations herein set forth subject to being
compensated therefor as herein provided.

2. Authority of Agent. The Agent is hereby authorized by the Trust to
receive all cash which may from time to time be delivered to it by or for the
account of any Fund of the Trust; to issue confirmations and/or certificates for
shares of beneficial interest of the Trust upon receipt of payment; to redeem or
repurchase on behalf of the Trust shares of beneficial interest of the Trust
upon receipt of certificates properly endorsed or properly executed written
requests as described in the prospectus of the Trust and to act as dividend
disbursing agent for the Trust.

3. Duties of the Agent: Agent hereby agrees to:

A. Process new accounts.

B. Process purchases, both initial and subsequent, in accordance
with conditions set forth in the Trust's prospectus as
mutually agreed by the Trust and the Agent.

C. Transfer shares of beneficial interest to an existing account
or to a new account upon receipt of required documentation in
good order.

D. Redeem uncertificated and/or certificated shares upon receipt
of required documentation in good order.

- 1 -
<PAGE> 2

E. Issue and/or cancel certificates as instructed; replace lost,
stolen or destroyed certificates upon receipt of satisfactory
indemnification or bond.

F. Distribute dividends and/or capital gain distributions. This
includes disbursement as cash or reinvestment and to change
the disbursement option at the request of shareholders.

G. Process exchanges between funds (process and direct
purchase/redemption and initiate new account or process to
existing account).

H. Make miscellaneous changes to records, including, but not
necessarily limited to, address changes and changes in plans
(such as systematic withdrawal, dividend reinvestment, etc.).

I. Prepare and mail a confirmation statement as each transaction
is recorded in a shareholder account with the original being
sent to the shareholder.

1. Prepare and send to the shareholder a confirmation
statement as each transaction is recorded in a
shareholder account.

2. Duplicate confirmations will be available on request
within current year.

J. Answer telephone calls and correspondence and reply to
shareholder requests, except those items addressed in
referrals to the Trust set forth in Paragraph 4 below.

K. Report to the Trust:

Daily - transaction journal with analysis of accounts.

Monthly - analysis of transactions and accounts by types.

L. Daily control and reconciliation of Trust shares with Agent's
records and the Trust's office records.

M. Prepare and mail annual Form 1099, 1099 Div, 1099B, 1099R and
Form W-2P to shareholders to whom taxable dividends or
distributions are paid, with a copy for the IRS.

N. Provide readily obtainable data which may from time to time be
requested for audit purposes and allow access to Trust's
auditors.

O. Replace lost or destroyed checks.

P. Continuously maintain all records for active and closed
accounts.

- 2 -
<PAGE> 3

Q. Furnish shareholder data information for a current calendar
year in connection with IRAs (including 5498s) and qualified
Keogh plans in a format suitable for mailing to shareholders.

4. Referrals to the Trust. Agent hereby agrees to refer to the Trust
for reply the following:

A. Requests for investment information, including performance and
outlook.

B. Requests for information about specific plans, i.e., IRA,
Keogh, Systematic Withdrawal.

C. Requests for historical Fund net asset values.

D. Requests for information about the value and timing of
dividend payments.

E. Questions regarding correspondence from the Trust and
newspaper articles.

F. Any requests for information from nonshareholders.

G. Any other types of shareholder requests as the Trust may
request from the Agent in writing.

5. Compensation to the Agent. The Agent shall be compensated for its
services hereunder as may from time to time be agreed upon in writing between
the two parties. The Trust will reimburse the Agent for all out-of-pocket
expenses, including, but not necessarily limited to, postage, confirmation
forms, proxies, etc. Special projects, not included in the fee schedule and
requested by proper instructions from the Trust, shall be completed by the Agent
and invoiced to the Trust as mutually agreed upon.

6. Rights and Powers of the Agent. The Agent's rights and powers with
respect to acting for and on behalf of the Trust, including rights and powers of
the Agent's officers and directors, shall be as follows:

A. No order, direction, approval, contract or obligation on
behalf of the Trust with or in any way affecting the Agent
shall be deemed binding unless made in writing and signed on
behalf of the Trust by an officer or officers of the Trust who
have been duly authorized to so act on behalf of the Trust by
its Board of Trustees.

B. The services of the Agent to the Trust are not to be deemed
exclusive and the Agent shall be free to render similar
services to others as long as its services for others does not
in any manner or way hinder, preclude or prevent the Agent
from performing its duties and obligations under this
Agreement.

- 3 -
<PAGE> 4

C. The Trust will indemnify the Agent and hold it harmless from
and against all costs, losses, and expenses which may be
incurred by it and all claims and liabilities which may be
asserted or assessed against it as a result of any action
taken by it without negligence and in good faith, and for any
act, omission, delay or refusal made by the Agent in
connection with this agency in reliance upon or in accordance
with any instruction or advice of any duly authorized officer
of the Trust.

7. Termination of Agreement. This Agreement shall continue in force and
effect until terminated or amended to such an extent that a new Agreement is
deemed advisable by either party. Notwithstanding anything herein to the
contrary, this Agreement may be terminated at any time, without payment of any
penalty, by the Trust or Agent upon ninety (90) days written notice to the
other party.

8. Amendment. This Agreement may be amended by mutual written consent
of the parties. If, at any time during the existence of this Agreement, the
Trust deems it necessary or advisable in the best interests of the Trust that
any amendment of this Agreement be made in order to comply with the
recommendations or requirements of the Securities and Exchange Commission or
state regulatory agencies or other governmental authority, or to obtain any
advantage under state or federal laws, and shall notify the Agent of the form of
amendment which it deems necessary or advisable and the reasons therefor, and if
the Agent declines to assent to such amendment, the Trust may terminate this
Agreement forthwith.

9. Notice. Any notice that is required to be given by the parties to
each other under the terms of this Agreement shall be in writing, addressed and
delivered, or mailed postpaid to the other party at the principal place of
business of such party.

10. Enforcement of Claims. The name "Olympic Trust" is the designation
of the Trustees under a Declaration of Trust, and the Custodian acknowledges
that all persons dealing with the Trust must look solely to the property of the
Trust for the enforcement of claims against the Trust, as neither the Trustees,
officers, agents or shareholders assume any personal liability for obligations
entered into on behalf of the Trust.

OLYMPIC TRUST FIRST WISCONSIN TRUST COMPANY

By: /s/ GEORGE REBHAN By: /s/ JAMES D. HINTZ
-------------------------------- --------------------------------

Attest: Attest: /s/ ANDREA LYDOPH
---------------------------- ----------------------------
Assistant Secretary

- 4 -
<PAGE> 5

FIRST WISCONSIN TRUST COMPANY
MUTUAL FUND SERVICES

SHAREHOLDER ACCOUNTING SERVICES
NO-LOAD FUNDS
ANNUAL FEE SCHEDULE

Features

- Quarterly Dividends

- Telephone Exchange

- Telephone Redemption

Annual Fee Schedule

$10.00 per Shareholder Account on the first 10,000 accounts

$ 9.50 per Shareholder Account on the next 10,000 accounts

$ 9.00 per Shareholder Account on the next 40,000 accounts

$ 8.50 per Shareholder Account on the next 40,000 accounts

$ 8.00 per Shareholder Account on the balance

Minimum annual fees of $18,000 for the first fund and $6,000 for
each additional fund.

- $7.50 per Federal Wire Transfer

- $5.00 per Exchange

- $2.00 per Shareholder Account for daily accrual and/or monthly
dividends

Fees Billed Monthly

Plus Out-of-Pocket Expenses including, but not limited to:

- Telephone

- Postage

- Programming

- Retention of Records

- Stationary/Envelopes

- Mailing

- Insurance

- Proxies

- Microfilm/Fiche of Records

- Special Reports

- All Other Out-of-Pocket Expenses

<PAGE> 6

AMENDMENT TO SHAREHOLDER SERVICING AGREEMENT

The Shareholder Servicing Agreement made and entered into on January 31, 1990 by
and between Olympic Trust, A Massachusetts business Trust (Hereinafter referred
to as the "Trust") and Firstar Trust Company, a Corporation organized under the
laws of the state of Wisconsin, (hereinafter referred to as "Agent") is hereby
amended to add the following paragraph:

17, Additional Series. Olympic Trust is authorized to issue separate classes of
shares of beneficial interest representing interests in separate investment
portfolios. There are currently seven portfolios covered by this agreement,
Equity Fund for Insurance Co's, The Equity Income, Balanced Income, Small Cap,
International, Low Duration, and Short Term Investment Portfolios. The parties
intend that each portfolio established by the Trust, now or in the future, be
covered by the terms & conditions of this agreement.

Dated this 25th day of May, 1993

Attest: FIRSTAR TRUST COMPANY

/s/ MARGARET A. de VILLIERS /s/ JOE D. REDWINE
- ---------------------------------- -----------------------------------
Assistant Secretary Vice President

Attest: OLYMPIC TRUST

/s/ ANDREA ADOLPH /s/ GEORGE REBHAN
- ---------------------------------- -----------------------------------
Assistant Secretary

<PAGE> 7

FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES

SHAREHOLDER ACCOUNTING SERVICES
NO-LOAD FUNDS
ANNUAL FEE SCHEDULE

ANNUAL FEE SCHEDULE

- - $13.00 per shareholder account

- - Minimum annual $6,000

- $2.00 per shareholder account for daily accrual and/or monthly
dividends

- - Plus out-of-pocket expenses, including but not limited to:

- Telephone - toll-free lines

- Postage

- Programming

- Stationery/envelopes

- Mailing

- Insurance

- Proxies

- Retention of records

- Microfilm/fiche of records

- Special reports

- All other out-of-pocket expenses

- - Fees are billed monthly

<PAGE> 8

FIRSTAR TRUST COMPANY
MUTUAL FUND SERVICES

SHAREHOLDER ACCOUNTING SERVICES
NO-LOAD FUNDS
ANNUAL FEE SCHEDULE
FOR

OLYMPIC LOW DURATION FUND
OLYMPIC SHORT TERM INVESTMENT FUND

ANNUAL FEE SCHEDULE

- - $11.00 per shareholder account on the first 20,000 accounts
$10.50 per shareholder account on the next 40,000 accounts
$10.00 per shareholder account on the balance

- - $6,000 annual minimum fee for each fund

- - $2.00 per shareholder account for daily accrual and/or monthly
dividends

- - Plus out-of-pocket expenses, including but not limited to:

- Telephone - toll-free lines

- Postage

- Programming

- Stationery/envelopes

- Mailing

- Insurance

- Proxies

- Retention of records

- Microfilm/fiche of records

- Special reports

- All other out-of-pocket expenses

- - Fees are billed monthly

<PAGE> 1
EXHIBIT 99.B.11

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 26 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
August 12, 1998, relating to the financial statements and financial highlights
of the Equity Income Fund, the Mid-Cap Fund, the Small Cap Fund, the
International Fund, the Global Equity Fund, the Balanced Fund, the Total Return
Bond Fund, the Low Duration Fund and the Short-Term Investment Fund (nine of
the ten portfolios of Hotchkis and Wiley Funds), which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "General
Information About the Trust" in such Statement of Additional Information and to
the reference to us under the heading "Financial Highlights" in such Prospectus.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
August 26, 1998
<PAGE> 2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to use in the Statement of Additional Information
constituting part of this Post-Effective Amendment No. 26 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
August 12, 1998, relating to the financial statements and financial highlights
of the Equity Fund for Insurance Companies (one of the ten portfolios of
Hotchkis and Wiley Funds), which appears in such Statement of Additional
Information, and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "General Information About the
Trust" in such Statement of Additional Information and to the reference to us
under the heading "Financial Highlights" in such Prospectus.

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
August 26, 1998

<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> BALANCED FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 97,214
<INVESTMENTS-AT-VALUE> 106,213
<RECEIVABLES> 896
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 107,118
<PAYABLE-FOR-SECURITIES> 2,379
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 144
<TOTAL-LIABILITIES> 2,523
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 91,284
<SHARES-COMMON-STOCK> 5,273
<SHARES-COMMON-PRIOR> 4,652
<ACCUMULATED-NII-CURRENT> 1
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,311
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,999
<NET-ASSETS> 104,595
<DIVIDEND-INCOME> 1,314
<INTEREST-INCOME> 4,195
<OTHER-INCOME> 0
<EXPENSES-NET> 946
<NET-INVESTMENT-INCOME> 4,563
<REALIZED-GAINS-CURRENT> 5,755
<APPREC-INCREASE-CURRENT> 2,122
<NET-CHANGE-FROM-OPS> 12,440
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,563
<DISTRIBUTIONS-OF-GAINS> 5,598
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,729
<NUMBER-OF-SHARES-REDEEMED> 1,616
<SHARES-REINVESTED> 508
<NET-CHANGE-IN-ASSETS> 14,437
<ACCUMULATED-NII-PRIOR> 51
<ACCUMULATED-GAINS-PRIOR> 4,106
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 761
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 946
<AVERAGE-NET-ASSETS> 101,538
<PER-SHARE-NAV-BEGIN> 19.38
<PER-SHARE-NII> 0.89
<PER-SHARE-GAIN-APPREC> 1.58
<PER-SHARE-DIVIDEND> 0.90
<PER-SHARE-DISTRIBUTIONS> 1.11
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.84
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> SMALL CAP FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 91,954
<INVESTMENTS-AT-VALUE> 92,833
<RECEIVABLES> 2,137
<ASSETS-OTHER> 124
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 95,094
<PAYABLE-FOR-SECURITIES> 15
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 166
<TOTAL-LIABILITIES> 181
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,940
<SHARES-COMMON-STOCK> 3,585
<SHARES-COMMON-PRIOR> 1,155
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 6,094
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 879
<NET-ASSETS> 94,913
<DIVIDEND-INCOME> 299
<INTEREST-INCOME> 163
<OTHER-INCOME> 0
<EXPENSES-NET> 616
<NET-INVESTMENT-INCOME> (154)
<REALIZED-GAINS-CURRENT> 9,969
<APPREC-INCREASE-CURRENT> (3,968)
<NET-CHANGE-FROM-OPS> 5,847
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 112
<DISTRIBUTIONS-OF-GAINS> 5,073
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,097
<NUMBER-OF-SHARES-REDEEMED> 2,875
<SHARES-REINVESTED> 208
<NET-CHANGE-IN-ASSETS> 67,383
<ACCUMULATED-NII-PRIOR> 18
<ACCUMULATED-GAINS-PRIOR> 1,446
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 491
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 616
<AVERAGE-NET-ASSETS> 65,739
<PER-SHARE-NAV-BEGIN> 23.83
<PER-SHARE-NII> (0.06)
<PER-SHARE-GAIN-APPREC> 5.13
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 2.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 26.48
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> EQUITY INCOME FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 130,504
<INVESTMENTS-AT-VALUE> 174,633
<RECEIVABLES> 976
<ASSETS-OTHER> 14
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175,623
<PAYABLE-FOR-SECURITIES> 177
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 191
<TOTAL-LIABILITIES> 368
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 110,272
<SHARES-COMMON-STOCK> 7,958
<SHARES-COMMON-PRIOR> 8,749
<ACCUMULATED-NII-CURRENT> 53
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,801
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,129
<NET-ASSETS> 175,255
<DIVIDEND-INCOME> 5,351
<INTEREST-INCOME> 77
<OTHER-INCOME> 0
<EXPENSES-NET> 1,652
<NET-INVESTMENT-INCOME> 3,776
<REALIZED-GAINS-CURRENT> 29,878
<APPREC-INCREASE-CURRENT> 5,190
<NET-CHANGE-FROM-OPS> 38,844
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,812
<DISTRIBUTIONS-OF-GAINS> 26,619
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,066
<NUMBER-OF-SHARES-REDEEMED> 3,308
<SHARES-REINVESTED> 1,451
<NET-CHANGE-IN-ASSETS> (10,619)
<ACCUMULATED-NII-PRIOR> 88
<ACCUMULATED-GAINS-PRIOR> 21,804
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,424
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,652
<AVERAGE-NET-ASSETS> 189,877
<PER-SHARE-NAV-BEGIN> 21.25
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 4.02
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 3.25
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.02
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> INTERNATIONAL FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 1,282,680
<INVESTMENTS-AT-VALUE> 1,475,912
<RECEIVABLES> 23,858
<ASSETS-OTHER> 100
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,499,870
<PAYABLE-FOR-SECURITIES> 4,879
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,186
<TOTAL-LIABILITIES> 23,065
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,288,778
<SHARES-COMMON-STOCK> 58,310
<SHARES-COMMON-PRIOR> 36,754
<ACCUMULATED-NII-CURRENT> (6,411)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,163
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 193,275
<NET-ASSETS> 1,476,805
<DIVIDEND-INCOME> 33,084
<INTEREST-INCOME> 4,377
<OTHER-INCOME> 0
<EXPENSES-NET> 10,387
<NET-INVESTMENT-INCOME> 27,074
<REALIZED-GAINS-CURRENT> 3,289
<APPREC-INCREASE-CURRENT> 70,707
<NET-CHANGE-FROM-OPS> 101,070
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 32,977
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 52,831
<NUMBER-OF-SHARES-REDEEMED> 32,529
<SHARES-REINVESTED> 1,254
<NET-CHANGE-IN-ASSETS> 588,277
<ACCUMULATED-NII-PRIOR> (1,196)
<ACCUMULATED-GAINS-PRIOR> (1,438)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 8,732
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 10,387
<AVERAGE-NET-ASSETS> 1,166,271
<PER-SHARE-NAV-BEGIN> 24.17
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 1.23
<PER-SHARE-DIVIDEND> 0.66
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 25.33
<EXPENSE-RATIO> 0.89
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> EQUITY FUND FOR INSURANCE COMPANIES
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 28,507
<INVESTMENTS-AT-VALUE> 40,506
<RECEIVABLES> 263
<ASSETS-OTHER> 23
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,792
<PAYABLE-FOR-SECURITIES> 30
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37
<TOTAL-LIABILITIES> 67
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,311
<SHARES-COMMON-STOCK> 2,196
<SHARES-COMMON-PRIOR> 2,019
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,415
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,999
<NET-ASSETS> 40,725
<DIVIDEND-INCOME> 1,036
<INTEREST-INCOME> 18
<OTHER-INCOME> 0
<EXPENSES-NET> 197
<NET-INVESTMENT-INCOME> 857
<REALIZED-GAINS-CURRENT> 3,890
<APPREC-INCREASE-CURRENT> 3,050
<NET-CHANGE-FROM-OPS> 7,797
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 862
<DISTRIBUTIONS-OF-GAINS> 2,202
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1
<SHARES-REINVESTED> 178
<NET-CHANGE-IN-ASSETS> 7,767
<ACCUMULATED-NII-PRIOR> 6
<ACCUMULATED-GAINS-PRIOR> 1,727
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 197
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 276
<AVERAGE-NET-ASSETS> 37,802
<PER-SHARE-NAV-BEGIN> 16.32
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> 3.31
<PER-SHARE-DIVIDEND> 0.41
<PER-SHARE-DISTRIBUTIONS> 1.08
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.55
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> LOW DURATION FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 248,662
<INVESTMENTS-AT-VALUE> 249,974
<RECEIVABLES> 5,088
<ASSETS-OTHER> 16
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 255,078
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,927
<TOTAL-LIABILITIES> 1,927
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 251,084
<SHARES-COMMON-STOCK> 24,826
<SHARES-COMMON-PRIOR> 16,738
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 755
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,312
<NET-ASSETS> 253,151
<DIVIDEND-INCOME> 313
<INTEREST-INCOME> 13,764
<OTHER-INCOME> 0
<EXPENSES-NET> 1,158
<NET-INVESTMENT-INCOME> 12,919
<REALIZED-GAINS-CURRENT> 1,053
<APPREC-INCREASE-CURRENT> (222)
<NET-CHANGE-FROM-OPS> 13,750
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,341
<DISTRIBUTIONS-OF-GAINS> 1,046
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 17,899
<NUMBER-OF-SHARES-REDEEMED> 11,075
<SHARES-REINVESTED> 1,264
<NET-CHANGE-IN-ASSETS> 81,937
<ACCUMULATED-NII-PRIOR> 446
<ACCUMULATED-GAINS-PRIOR> 723
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 918
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,302
<AVERAGE-NET-ASSETS> 199,937
<PER-SHARE-NAV-BEGIN> 10.23
<PER-SHARE-NII> 0.66
<PER-SHARE-GAIN-APPREC> 0.05
<PER-SHARE-DIVIDEND> 0.68
<PER-SHARE-DISTRIBUTIONS> 0.06
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.20
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 7
<NAME> SHORT-TERM INVESTMENT FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 28,433
<INVESTMENTS-AT-VALUE> 28,472
<RECEIVABLES> 742
<ASSETS-OTHER> 10
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 29,224
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,186
<TOTAL-LIABILITIES> 1,186
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 28,184
<SHARES-COMMON-STOCK> 2,768
<SHARES-COMMON-PRIOR> 2,140
<ACCUMULATED-NII-CURRENT> (72)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (113)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39
<NET-ASSETS> 28,038
<DIVIDEND-INCOME> 7
<INTEREST-INCOME> 1,616
<OTHER-INCOME> 0
<EXPENSES-NET> 113
<NET-INVESTMENT-INCOME> 1,510
<REALIZED-GAINS-CURRENT> (42)
<APPREC-INCREASE-CURRENT> (21)
<NET-CHANGE-FROM-OPS> 1,447
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,510
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,944
<NUMBER-OF-SHARES-REDEEMED> 4,404
<SHARES-REINVESTED> 88
<NET-CHANGE-IN-ASSETS> 6,322
<ACCUMULATED-NII-PRIOR> (18)
<ACCUMULATED-GAINS-PRIOR> (125)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 219
<AVERAGE-NET-ASSETS> 23,700
<PER-SHARE-NAV-BEGIN> 10.15
<PER-SHARE-NII> 0.63
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.13
<EXPENSE-RATIO> 0.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 8
<NAME> TOTAL RETURN BOND FUND
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 43,602
<INVESTMENTS-AT-VALUE> 44,503
<RECEIVABLES> 1,016
<ASSETS-OTHER> 9
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 45,528
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 280
<TOTAL-LIABILITIES> 280
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,088
<SHARES-COMMON-STOCK> 3,362
<SHARES-COMMON-PRIOR> 1,097
<ACCUMULATED-NII-CURRENT> 34
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 225
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 901
<NET-ASSETS> 45,248
<DIVIDEND-INCOME> 100
<INTEREST-INCOME> 1,581
<OTHER-INCOME> 0
<EXPENSES-NET> 149
<NET-INVESTMENT-INCOME> 1,532
<REALIZED-GAINS-CURRENT> 319
<APPREC-INCREASE-CURRENT> 505
<NET-CHANGE-FROM-OPS> 2,356
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,622
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,517
<NUMBER-OF-SHARES-REDEEMED> 335
<SHARES-REINVESTED> 83
<NET-CHANGE-IN-ASSETS> 30,941
<ACCUMULATED-NII-PRIOR> 106
<ACCUMULATED-GAINS-PRIOR> (76)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 126
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 235
<AVERAGE-NET-ASSETS> 23,027
<PER-SHARE-NAV-BEGIN> 13.04
<PER-SHARE-NII> 0.89
<PER-SHARE-GAIN-APPREC> 0.50
<PER-SHARE-DIVIDEND> 0.97
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.46
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 9
<NAME> MID-CAP FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 7,939
<INVESTMENTS-AT-VALUE> 7,578
<RECEIVABLES> 10
<ASSETS-OTHER> 18
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,606
<PAYABLE-FOR-SECURITIES> 45
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22
<TOTAL-LIABILITIES> 67
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,095
<SHARES-COMMON-STOCK> 584
<SHARES-COMMON-PRIOR> 171
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 805
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (361)
<NET-ASSETS> 7,539
<DIVIDEND-INCOME> 104
<INTEREST-INCOME> 14
<OTHER-INCOME> 0
<EXPENSES-NET> 54
<NET-INVESTMENT-INCOME> 64
<REALIZED-GAINS-CURRENT> 929
<APPREC-INCREASE-CURRENT> (555)
<NET-CHANGE-FROM-OPS> 438
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 66
<DISTRIBUTIONS-OF-GAINS> 129
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 490
<NUMBER-OF-SHARES-REDEEMED> 92
<SHARES-REINVESTED> 15
<NET-CHANGE-IN-ASSETS> 5,552
<ACCUMULATED-NII-PRIOR> 2
<ACCUMULATED-GAINS-PRIOR> 6
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 40
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 146
<AVERAGE-NET-ASSETS> 5,382
<PER-SHARE-NAV-BEGIN> 11.65
<PER-SHARE-NII> 0.13
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> 0.14
<PER-SHARE-DISTRIBUTIONS> 0.32
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.92
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>

<ARTICLE> 6
<SERIES>
<NUMBER> 10
<NAME> GLOBAL EQUITY FUND
<MULTIPLIER> 1000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<INVESTMENTS-AT-COST> 6,907
<INVESTMENTS-AT-VALUE> 7,432
<RECEIVABLES> 19
<ASSETS-OTHER> 88
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,539
<PAYABLE-FOR-SECURITIES> 33
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161
<TOTAL-LIABILITIES> 194
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,831
<SHARES-COMMON-STOCK> 646
<SHARES-COMMON-PRIOR> 336
<ACCUMULATED-NII-CURRENT> (25)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 526
<NET-ASSETS> 7,345
<DIVIDEND-INCOME> 169
<INTEREST-INCOME> 2
<OTHER-INCOME> 0
<EXPENSES-NET> 59
<NET-INVESTMENT-INCOME> 112
<REALIZED-GAINS-CURRENT> 121
<APPREC-INCREASE-CURRENT> 226
<NET-CHANGE-FROM-OPS> 459
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 175
<DISTRIBUTIONS-OF-GAINS> 92
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 389
<NUMBER-OF-SHARES-REDEEMED> 104
<SHARES-REINVESTED> 25
<NET-CHANGE-IN-ASSETS> 3,616
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 23
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 44
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 171
<AVERAGE-NET-ASSETS> 5,944
<PER-SHARE-NAV-BEGIN> 11.09
<PER-SHARE-NII> 0.28
<PER-SHARE-GAIN-APPREC> 0.51
<PER-SHARE-DIVIDEND> 0.32
<PER-SHARE-DISTRIBUTIONS> 0.18
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.38
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>