<PAGE> 1
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HOTCHKIS AND
WILEY FUNDS
------------------------------------------------------------
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Equity Fund For Insurance Companies
ANNUAL REPORT
------------------------------------------------------------------------
June 30, 1998
800 West 6th Street, Fifth Floor
Los Angeles, CA 90017
(213) 362-8888
Investment Advisor: HOTCHKIS AND WILEY
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<PAGE> 2
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
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DEAR SHAREHOLDERS:
The Equity Fund for Insurance Companies' (the "Fund") total return for the
fiscal year ended June 30, 1998 was 23.7%, compared to the Standard & Poor's 500
Index ("S&P 500") return of 30.2% over the period. In the first six months of
the fiscal year, there was a dramatic rotation in market leadership away from
the narrow set of stocks that had been driving performance over the past 2 1/2
years. Announcements by Coca-Cola, Microsoft and Gillette tempered Wall Street's
enthusiasm for earnings growth expectations, prompting this rotation. In
addition, concerns over the mounting Asian debt crisis caused investors to
become increasingly defensive. The portfolio was well positioned to benefit from
this breakdown of the market's mega-cap momentum run. Many of the areas of the
market where we have identified valuation opportunities rebounded strongly as
the market focused on the underlying intrinsic value of companies. The Fund's
total return for the six months ended December 31, 1997 was 13.7% compared to
the S&P 500 return of 10.7%. However, beginning in January, powered by cash-flow
from domestic and international buyers, the market again focused on the
mega-cap, familiar names producing large returns for the S&P 500 and a handful
of companies. Sentiment again changed in April and performance across industries
became extremely mixed.
Returns in the Fund came from a variety of sources. Finance made the largest
contribution as merger activity continued to drive up valuations, followed by
utilities and consumer durables. In the utilities, both telephones and electrics
contributed. AT&T was a big winner as investors reassessed this company's
valuation and future prospects. Electric utilities stood out in the fourth
quarter of 1997, supported by favorable resolution on deregulatory issues, moves
toward consolidation, and investors' desire for stocks that are both isolated
from the international turmoil and offer strong valuation characteristics.
Within consumer durables, the best performers were autos and retailers. Autos
offer attractive valuations, strong cash flow and profitability, and are
unlocking value to shareholders through the spin-off of non-core businesses.
Retailers have reported robust earnings and are seen as one of the few industry
groups benefiting from the Asian financial crisis and subsequent currency
devaluation through reduced cost of goods. Industry groups with earnings
exposure to Asian markets were severely penalized. Basic materials companies,
especially paper and metals, held back the Fund's performance as they initially
rose on strong profits announcements and then sold off on worries of overseas
revenue exposure. Lack of exposure to technology and healthcare companies, the
two best performing sectors in the market, also hampered performance. These
stocks are trading at valuation levels far above the thresholds we are willing
to pay.
In keeping with our basic philosophy, we continue to focus on building
significant valuation support into our portfolios. On a relative basis, we think
the current portfolio is one of the cheapest in the history of the firm. Basic
materials companies now represent an exceptional valuation opportunity to buy
world class assets well below replacement costs. Furthermore, we think the
"Asian crisis" should be a long-term positive for many industries as new Asian
projects will only come on stream if they can earn a real return on capital. We
also see considerable opportunity in the utility sector and are convinced that
avoiding the more speculative areas of technology and healthcare is appropriate.
Looking forward, we believe money will flow to those stocks that have reasonable
earnings multiples and lower risk profiles as investors assess valuations
available in the current market. We believe the Fund is well positioned for the
current uncertain economic and market environment. The Fund's projected
price-to-earnings ratio of 14.6X is 59% of the S&P 500. Similarly, the Fund's
2.73% dividend yield is 192% greater than the S&P 500. We believe that these key
portfolio characteristics help control risk in a volatile market.
Gail Bardin
Portfolio Manager
The statements made in the foregoing commentary are as of June 30, 1998, and may
not accurately reflect opinions of Hotchkis and Wiley after that date. No
guarantee can be given regarding the accuracy of any opinions or predictions
made. Because the Fund is actively managed, any Fund specific information in the
commentary may no longer be accurate. The Fund may not continue to hold any
specific securities mentioned, and has no obligation to disclose purchases or
sales in such securities.
<PAGE> 3
[GRAPH]
EQUITY FUND FOR INSURANCE COMPANIES
JANUARY 29, 1993 - JUNE 30, 1998
FUND S&P 500
2Q93 $ 10472.1660 $ 10484.7720
2Q94 $ 10622.0717 $ 10628.9599
2Q95 $ 12812.6245 $ 13395.8353
2Q96 $ 15754.4082 $ 16895.9283
2Q97 $ 20199.4003 $ 22781.3891
2Q98 $ 24974.5248 $ 29683.5060
Ended
6/30/98
One Year 23.7%
Five Years 19.0%
Since Inception 18.4%
1/29/93
How a $10,000 Investment Has Grown:
The chart above shows the growth of a $10,000 investment in the Fund as
compared to the performance of a representative market index. The table below
the chart shows the average annual total returns on an investment over the
period.
Past performance is not indicative of future performance. The annual returns
assume the reinvestment of all dividends and distributions, as well as the
voluntary agreement of Hotchkis and Wiley, the Fund's advisor, to assume fees
and expenses other than advisory fees. Investment return and principal value
of shares will fluctuate so that shares, when redeemed, may be worth more or
less than their original cost.
Standard & Poor's 500 Index ("S&P 500") is a capital-weighted index,
representing the aggregate market value of the common equity of 500 stocks
primarily traded on the New York Stock Exchange. The S&P 500 is unmanaged and
include the reinvestment of all dividends, but do not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
The securities that comprise the S&P 500 may differ substantially from the
securities in the Fund's portfolio. The S&P 500 is not the only index which
may be used to characterize performance of the Fund and other indices may
portray different comparative performance. It is not possible to directly
invest in an index.
<PAGE> 4
HOTCHKIS
AND WILEY Equity Fund for Insurance Companies
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
June 30, 1998
<TABLE>
<CAPTION>
COMMON STOCKS--99.4% SHARES VALUE
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<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
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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> 5
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> 6
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
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STEEL--1.4%
USX-U.S. Steel Group, Inc. ............................ 17,000 561,000
-----------
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 7
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
-----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
VARIABLE RATE DEMAND NOTES#--0.1% AMOUNT
- --------------------------------------------------------------------------------------
<S> <C> <C>
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>
- ---------------
<TABLE>
<C> <S>
# 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.
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 8
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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, WI
August 12, 1998
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