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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. ___ [_]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 2 [X]
(Check appropriate box or boxes.)
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LEVCO SERIES TRUST
(Exact Name of Registrant as Specified in Charter)
One Rockefeller Plaza, New York, NY 10020
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 332-8400
Norris Nissim, Esq.
John A. Levin & Co., Inc.
One Rockefeller Plaza, 25th Floor
New York, New York 10020
(Name and Address of Agent for Service)
Copy to:
Kenneth S. Gerstein, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Approximate Date of Proposed Public Offering:
As soon as practicable after this Registration Statement is declared effective.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
hereby elects to register an indefinite number of shares of beneficial interest.
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FORM N-1A
LEVCO SERIES TRUST
CROSS REFERENCE SHEET
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PART A
Item Number Caption Prospectus Caption
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<S> <C> <C>
1. Cover Page Cover Page
2. Synopsis Prospectus Summary and Summary of Expenses
3. Condensed Financial Information *
4. General Description of Registrant Prospectus Summary; About the Fund; Investment Objective and
Policies; Investment Restrictions; Additional Information
5. Management of Fund Prospectus Summary; Management; Additional Information; Fund
Expenses
5A. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities Prospectus Summary; Additional Information; Distributions and
Taxes; Shareholder Communications
7. Purchase of Securities Being Offered About Your Investment
8. Redemption or Repurchase About Your Investment
9. Pending Legal Proceedings *
10. Cover Page Cover Page
11. Table of Contents Table of Contents
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<TABLE>
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PART A
Item Number Caption Prospectus Caption
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<S> <C> <C>
12. General Information and History *
13. Investment Objectives and Policies Investment Objective and Policies; Investment Restrictions;
Special Investment Techniques
14. Management of the Fund Trustees and Officers
15. Control Persons and Principal Holders of Securities Additional Information
16. Investment Advisory and Other Services Investment Advisory Agreement; Additional Information
17. Brokerage Allocation and Other Practices Portfolio Transactions and Brokerage
18. Capital Stock and Other Securities *
19. Purchase, Redemption and Pricing of Securities Determination of Net Asset Value; Purchases and Redemptions of
Being Offered Shares
20. Tax Status Taxes
21. Underwriters Distributor, Distribution Plan
22. Calculation of Performance Data Performance Information
23. Financial Statements Because Registrant has no assets, financial statements are omitted
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* Omitted because answer is negative or inapplicable.
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PART C
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Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PRELIMINARY PROSPECTUS -- SUBJECT TO COMPLETION -- May 20, 1997
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Prospectus Dated [ ], 1997
LEVCO EQUITY VALUE FUND
(a series of LEVCO Series Trust)
One Rockefeller Plaza
25th Floor
New York, New York 10020
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LEVCO Equity Value Fund (the "Fund") is a series of LEVCO Series Trust (the
"Trust"), an open-end, diversified, management investment company (commonly
known as a mutual fund). The investment objective of the Fund is to achieve
long-term growth of capital through an emphasis on the preservation of capital
and an attempt to control volatility as measured against the Standard & Poor's
Composite 500 Stock Index (the "S&P 500"). The Fund pursues this objective by
investing its assets primarily in common stocks and other securities having
equity characteristics, which, in the opinion of the Fund's investment adviser,
are currently undervalued in relation to their intrinsic value. In pursuing its
objective, the Fund may utilize a variety of investment techniques. See
"INVESTMENT OBJECTIVE AND POLICIES" and "INVESTMENT DESCRIPTIONS AND PRACTICES."
Options on securities, stock index options and stock index futures and related
options may be used by the Fund for hedging purposes and involve certain risks.
See "HEDGING STRATEGIES."
John A. Levin & Co., Inc. (the "Investment Adviser") serves as the
investment adviser of the Fund.
The shares of the Fund being offered by this Prospectus ("Shares"), which
are Class A Shares, are distributed by LEVCO Securities, Inc. (the
"Distributor"). Shares are sold only to certain life insurance companies
("Participating Companies") and their separate accounts ("Separate Accounts") to
fund benefits under variable annuity contracts ("Contracts") and variable life
insurance policies ("Policies") offered by Participating Companies. The Separate
Accounts invest in Shares in accordance with allocation instructions received
from Contract and Policy owners ("Contract Owners" and "Policy Owners"). These
allocation rights are described in the prospectus for the Separate Account that
accompanies this Prospectus. Shares are redeemed to the extent necessary to
provide benefits under the Contracts and Policies.
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This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information containing
more detailed information about the Fund dated [xxxxxxxx, 1997], has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Statement of Additional Information is available, without charge,
upon request by calling 1-800-xxx-xxxx.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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PROSPECTUS SUMMARY............................................................ 4
ABOUT THE FUND................................................................ 7
INVESTMENT OBJECTIVE AND POLICIES............................................. 7
INVESTMENT DESCRIPTIONS AND PRACTICES......................................... 8
INVESTMENT RESTRICTIONS.......................................................11
HEDGING STRATEGIES............................................................12
MANAGEMENT....................................................................14
FUND EXPENSES.................................................................15
ABOUT YOUR INVESTMENT.........................................................15
DISTRIBUTIONS AND TAXES.......................................................16
SHAREHOLDER COMMUNICATIONS....................................................17
PERFORMANCE INFORMATION.......................................................17
ADDITIONAL INFORMATION........................................................18
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and in the Statement of
Additional Information.
The Fund LEVCO Equity Value Fund (the "Fund") is a series of
LEVCO Series Trust, a Delaware business trust which
is an open-end, diversified, management investment
company (commonly known as a mutual fund). The
investment objective of the Fund is to achieve
long- term growth of capital through an emphasis
on the preservation of capital and an attempt to
control volatility as measured against the
Standard & Poor's Composite 500 Stock Index (the
"S&P 500"). The Fund pursues its objective by
investing its assets primarily in common stocks
and other securities having equity characteristics
which, in the opinion of the Fund's investment
adviser, are currently undervalued in relation to
their intrinsic value. See "INVESTMENT OBJECTIVES
AND POLICIES" and "INVESTMENT DESCRIPTIONS AND
PRACTICES." For hedging purposes, the Fund may use
options on securities, stock index options, and
stock index futures and related options. Use of
these instruments involves certain risks. See
"HEDGING STRATEGIES."
Investment Adviser John A. Levin & Co., Inc., serves as the Fund's
investment adviser (the "Investment Adviser").
Together with its predecessor, the Investment
Adviser has provided investment advisory services
to clients since 1982. The Investment Adviser is an
indirect, wholly-owned subsidiary of Baker,
Fentress & Company ("Baker Fentress"), a closed-end
investment company listed on the New York Stock
Exchange. Clients of the Investment Adviser include
U.S. and foreign individuals, trusts, non-profit
organizations, registered investment funds,
investment partnerships, endowments, and pension
and profit-sharing funds. The Investment Adviser
currently manages approximately $7 billion in
assets for its clients. See "MANAGEMENT -
Investment Adviser."
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The Offering The shares of the Fund being offered by this
Prospectus ("Shares") are offered by LEVCO
Securities, Inc., which serves as the distributor
of Shares (the "Distributor"). Shares are sold
only to certain life insurance companies
("Participating Companies") and their separate
accounts (collectively, "Separate Accounts") to
fund benefits under variable annuity contracts
("Contracts") and variable life insurance policies
("Policies") offered by Participating Companies.
The Separate Accounts invest in Shares in
accordance with allocation instructions received
by Participating Companies from Contract and
Policy owners ("Contract Owners" and "Policy
Owners"). These allocation rights are further
described in the prospectus for the Separate
Account that accompanies this Prospectus. Shares
are redeemed to the extent necessary to provide
benefits under the Contracts and Policies and to
reflect the allocation instructions of Contract
and Policy Owners.
Share Price Shares are being offered at net asset value per
share without any sales charge. See "ABOUT YOUR
INVESTMENT - Purchase of Shares." Shares are
redeemable at their then current net asset value
per Share which may be more or less than their
cost. See "ABOUT YOUR INVESTMENT - Redemption of
Shares."
Fees and Expenses The Fund pays a fee to the Investment Adviser
calculated daily and payable monthly at an annual
rate of 0.85% of average daily net assets of the
Fund. The Fund also pays Baker Fentress a monthly
fee currently equal to $2,000 for providing
accounting services to the Fund. This fee will
increase once the Fund's average monthly net assets
exceed $50 million. See "ADDITIONAL INFORMATION--
Transfer Agent and Accounting Services" in the
Statement of Additional Information. In addition,
the Fund bears all of the expenses associated with
its operation. See "FUND EXPENSES".
Dividends and Capital The Fund declares and pays income dividends
Gains Distributions quarterly. Capital gains, if any, are distributed
at least annually. Payment of all dividends and
capital distributions will be made in Shares. See
"DISTRIBUTIONS AND TAXES."
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Risks Considerations The net asset value per Share and dividends of the
Fund will fluctuate and will depend on the changes
in the values of the Fund's investments and the
income and dividends received on those investments.
Policy Owners and Contract Owners should review
carefully the investment objective, policies and
practices of the Fund and consider their ability to
assume the risks associated with an investment in
Shares by the Separate Accounts. Certain of the
investment practices of the Fund involve various
risks. These practices include: the purchase of
non-investment grade debt securities and foreign
securities; lending securities; the use of options
on securities, stock index options, and stock index
futures and related options; and the use of
repurchase agreements. See "INVESTMENT OBJECTIVE
AND POLICIES" and "INVESTMENT DESCRIPTIONS AND
PRACTICES" and "HEDGING STRATEGIES". No assurance
can be given that the investment objective of the
Fund will be achieved.
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ABOUT THE FUND
LEVCO Equity Value Fund (the "Fund") is a series of LEVCO Series Trust (the
"Trust"), a business trust that is registered under the Investment Company Act
of 1940 (the "1940 Act") with the Securities and Exchange Commission ("SEC") as
an open-end, diversified, management investment company. The Trust was organized
on January 2, 1997 under the laws of the State of Delaware. As of the date of
this Prospectus, the Fund is the Trust's sole investment portfolio and has not
yet commenced operations. Shares of the Fund being offered by this Prospectus
("Shares"), which are Class A shares of the Fund, are sold by LEVCO Securities,
Inc. (the "Distributor") only to certain life insurance companies
("Participating Companies") and their separate accounts ("Separate Accounts") to
fund benefits under variable annuity contracts ("Contracts") and variable life
insurance policies ("Policies") offered by Participating Companies. Shares may
in the future be sold to qualified pension and retirement plans ("Plans"). The
Separate Accounts invest in Shares in accordance with allocation instructions
received from the owners of Contracts and Policies ("Contract Owners" and
"Policy Owners"). These allocation rights are described in the prospectus for
the Separate Account that accompanies this Prospectus. Shares are redeemed to
the extent necessary to provide benefits under Contracts and Policies.
Participating Companies may not be affiliated with each other. In addition,
Participating Companies and their Separate Accounts may be subject to insurance
regulation that varies from state to state and may be subject to state insurance
and federal tax or other regulation that varies between Contracts and Policies.
The Trust does not currently foresee any disadvantages to Contract or Policy
Owners arising from these circumstances. However, it is theoretically possible
that the interests of Plans or Contract or Policy Owners participating in the
Fund through the Separate Accounts might at some time be in material and
irreconcilable conflict. In some cases, one or more Separate Accounts might
redeem its investment in the Fund, which could possibly force the Fund to sell
portfolio securities at disadvantageous prices. The Board of Trustees of the
Trust intends to monitor events in order to identify any material irreconcilable
conflicts that may possibly arise and to determine what action, if any, should
be taken in response thereto.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to achieve long-term growth of
capital through an emphasis on the preservation of capital and an attempt to
control volatility as measured against the Standard & Poor's Composite 500 Stock
Index (the "S&P 500"). The Fund pursues this objective by investing its assets
primarily in common stocks and other securities having equity characteristics,
such as convertible debt and convertible preferred securities, preferred stocks,
warrants and rights (collectively, "Equity Securities"). The Fund invests in
Equity Securities which, in the opinion of the Fund's investment adviser, John
A. Levin & Co., Inc. (the "Investment Adviser"), are currently undervalued in
relation to their intrinsic value as indicated by the earnings and cash flow
potential or the asset value of their respective issuers. The Investment
Adviser's determination of value also takes into consideration growth and new
products on a selective basis. In evaluating investments for the Fund,
consideration is given to such factors as: security prices that reflect a market
valuation which is judged to be below the estimated present or future value of
the company; favorable earnings growth prospects; expected above average return
on equity and dividend yield; the financial condition of the issuer; and various
qualitative factors. Although payment of current dividends and income are
considered by the Investment Adviser in selecting investments for the Fund, they
are not primary factors in the selection of investments.
Under normal market conditions, the Fund invests at least 85% of its total
assets in Equity Securities. For hedging purposes, the Fund may use options on
securities, stock index options, and stock
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index futures and related options. These investments involve certain risks. See
"HEDGING STRATEGIES". The Fund may also invest in debt securities, including
U.S. Government securities and corporate debt securities (such as bonds, notes
and debentures). Certain of the Fund's investments in debt securities will be
obligations which, at the time of purchase, are rated "A" or better by Standard
& Poor's Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's") or,
if unrated, are of comparable quality as determined by the Investment Adviser.
However, the Fund may invest up to 10% of the value of its total assets in
non-convertible, non-investment grade debt securities (commonly known as "high
yield" or "junk" bonds). These investments involve certain risks. See
"INVESTMENT DESCRIPTIONS AND PRACTICES - Non-Investment Grade Debt Securities".
The Fund may also invest in money market instruments (see "INVESTMENT
DESCRIPTIONS AND PRACTICES - Short-Term Investments"), including repurchase
agreements. Investments in debt securities will generally be made to reduce the
Fund's equity exposure. During periods of high market valuations or adverse
market conditions or for liquidity purposes, all or any portion of the Fund's
assets may be invested temporarily in high quality debt securities or money
market instruments, or held as cash.
No assurance can be given that the investment objective of the Fund will be
achieved.
INVESTMENT DESCRIPTIONS AND PRACTICES
The types of securities in which the Fund invests and the investment
practices in which the Fund may engage are summarized below. In addition, the
Fund may use options on securities, stock index options and stock index futures
and related options for hedging purposes. See "HEDGING STRATEGIES".
Common Stock. Common stock are shares of a corporation or other entity that
represent an equity interest and entitle the holder to share in the profits, if
any, of the entity after required payments to holders of preferred stock and
debt securities.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Before conversion,
convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers, but
lower than the yields on non-convertible debt. Convertible securities are
usually subordinated to comparable non-convertible securities, but rank senior
to common stock in a corporation's capital structure.
Warrants and Rights. Among the Equity Securities the Fund may purchase are
warrants and rights to purchase securities. Warrants and rights are derivative
instruments that permit, but do not obligate, the holder to purchase securities
at a specified price during a specified time period. Neither warrants nor rights
carry with them the right to dividends or voting rights with respect to the
securities that they entitle the holder to purchase, and they do not represent
any rights in the assets of the issuer. They involve the risk that they will
decline in value if the price of the related securities declines. If the price
of the related security does not increase to a price higher than the price at
which the warrants or rights may be exercised, the warrant or right may become
worthless. As a result, warrants and rights are more speculative than certain
other types of equity investments. In addition, the value of a warrant or right
does not necessarily change with the value of the underlying securities, and a
warrant or right ceases to have value if it is not exercised prior to its
expiration date.
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Preferred Stock. Preferred stocks generally pay dividends at specified
rates and have a preference over common stock in the payment of dividends and
the liquidation of an issuer's assets. However, preferred stock is junior to the
debt securities of the issuer in those same respects. Unlike interest payments
on debt securities, dividends on preferred stock are generally payable at the
discretion of the issuer's board of directors. The market prices of preferred
stocks will fluctuate based, in part, on changes in interest rates and are more
sensitive to changes in the issuer's creditworthiness than are the prices of
debt securities. Preferred stock may decline in value if dividends are not paid.
Debt Securities. The Fund's investments in debt securities may include
bonds, notes, bills, debentures, bank obligations, loan participations, and
other similar instruments. These securities include U.S. Government securities,
which are debt obligations that are issued or guaranteed by the U.S. Government
or by one of its agencies or instrumentalities, and debt obligations issued by
corporations, banks or other business entities. There are no restrictions on the
maximum maturity and duration of debt securities purchased by the Fund. The
interest rates payable on debt securities may be fixed, floating or variable or
may be zero coupon debt securities.
Non-Investment Grade Debt Securities. The Fund may invest up to 10% of the
value of its total assets in non-convertible, non-investment grade debt
securities. Convertible debt securities purchased by the Fund are not subject to
this limitation because they are purchased based upon their potential for
capital growth. Non-investment grade debt securities (typically called "junk
bonds") are securities that have received a rating from a nationally recognized
statistical rating organization ("NRSRO") of below investment grade or have been
given no rating, and are considered by the NRSRO to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal. Non-
investment grade debt securities in the lowest rating categories may involve a
substantial risk of default or may be in default. Changes in economic conditions
or developments regarding the individual issuer are more likely to cause price
volatility and weaken the capacity of the issuers of non-investment grade debt
securities to make principal and interest payments than is the case for higher
grade debt securities. An economic downturn affecting an issuer of non-
investment grade debt securities may result in an increased incidence of
default. In addition, the market for lower grade debt securities may be thinner
and less active than for higher grade debt securities. A debt security will not
be considered non-investment grade for purposes of the percentage limitation set
forth above if it has received an investment grade rating from one or more
NRSRO's, notwithstanding the fact that a lower rating has been given by any
other NRSRO.
Short-Term Investments. The Fund may invest in money market instruments,
which are high quality short-term debt obligations. Money market instruments
generally have remaining maturities of one year or less. Among the types of
money market instruments that may be purchased by the Fund are: short-term U.S.
government securities, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate obligations and repurchase agreements.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to any of the types of debt securities in which it is authorized to
invest. Repurchase agreements will be effected only with banks, savings
institutions and broker-dealers. These agreements involve the purchase by the
Fund of a debt security with the condition that after a stated period of time,
the original seller will buy back the same security at a predetermined price or
yield. Repurchase agreements are used to enhance liquidity and to earn income
for periods as short as overnight. In the event the original seller defaults on
its obligation to repurchase the securities, as a result of its bankruptcy or
otherwise, the Fund will seek to sell the securities. Such action could involve
costs or delays, and the Fund's ability to dispose of the securities may be
restricted. To minimize risk, the securities underlying each repurchase
agreement will be maintained with the Fund's custodian, or a subcustodian, in an
amount at least equal to the repurchase
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price under the agreement (including accrued interest thereunder), and such
agreements will only be effected with parties that meet certain creditworthiness
standards. However, in the event the other party to a repurchase agreement fails
to repurchase the securities subject to the agreement, the Fund could suffer a
loss to the extent it is precluded from selling the securities or if, due to
delays, proceeds from the sale are less than the repurchase price.
Restricted Securities. The Fund may invest up to 10% of its net assets in
securities subject to restrictions on disposition under the Securities Act of
1933, as amended ("restricted securities"). Such investments, however, will be
limited to certain restricted securities that may be sold to institutional
investors pursuant to Rule 144A. In some cases, these securities may be
difficult to value to the extent that they are not publicly traded, and may be
difficult to sell promptly at favorable prices. The Fund's policies are intended
to enable it to invest a limited portion of its assets in investments that are
subject to restrictions on disposition, but which nevertheless are considered to
be attractive by the Investment Adviser. Except as described above, the Fund
does not purchase illiquid securities, including repurchase agreements maturing
in more than seven days.
Foreign Securities. The Fund may invest up to 20% of its total assets in
securities of foreign issuers, including depository receipts, such as American
Depository Receipts ("ADRs"), which represent ownership of specific foreign
securities. Investments in foreign securities involve certain risks. There may
be more limited publicly available information regarding foreign securities than
would be the case with respect to the securities of U.S. issuers, and different
accounting standards may be used by foreign issuers. Foreign securities markets
in which securities purchased by the Fund may trade are in some cases not as
liquid as U.S. markets. Foreign securities also entail certain additional risks
such as the risks of changes in the value of foreign currency relative to the
U.S. dollar, possible imposition of withholding or confiscatory taxes, possible
currency transfer restrictions, expropriation or other adverse political or
economic developments, and the difficulty of enforcing obligations in foreign
jurisdictions. The purchase of securities denominated in foreign currencies will
subject the value of the Fund's investments in those securities to fluctuations
due to changes in foreign exchange rates. Due to these factors, the prices of
securities of foreign issuers may be more volatile than those of comparable
domestic issuers.
To hedge against the effects of changes in foreign exchange rates, the Fund
may enter into forward foreign currency exchange contracts ("forward
contracts"). These contracts represent agreements to exchange an amount of
currency at an agreed upon future time and rate. The Fund will generally use
forward contracts only to "lock in" the price in U.S. dollars of a foreign
security intended to be purchased or sold, but in certain limited cases may use
such contracts to hedge against an anticipated substantial decline in the price
of a foreign currency against the U.S. dollar. Forward contracts will not be
used in all cases and, in any event, cannot protect the Fund against declines in
the prices of the securities; nor do they completely protect against all changes
in the values of foreign securities due to fluctuations in foreign exchange
rates. If anticipated currency movements are not accurately predicted, the Fund
will sustain losses on these contracts.
Lending Securities. In order to earn additional income, the Fund may lend
its portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund and are at all
times secured by collateral, consisting of cash or U.S. Government securities,
or any combination thereof, equal to not less than 100% of the market value,
determined daily, of the securities loaned. Any cash collateral will be invested
by the Fund in short-term investments. Lending securities involves certain
risks, the most significant of which is the risk that a borrower may fail to
return a portfolio security. The Fund's Board of Trustees has adopted policies
designed to minimize such risks. The Fund may lend securities in an amount not
exceeding one-third of the value of its total assets,
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measured at the time any such loan is made. Securities lending involves a form
of leverage, and the Fund may incur a loss if securities purchased with the
collateral from securities loans decline in value or if the income earned does
not cover the Fund's transaction costs.
When-Issued Securities. In order to help ensure the availability of
suitable securities for investment, the Fund may purchase securities on a "when-
issued" or on a "forward delivery" basis. Securities purchased in this manner
will be delivered to the Fund at a future date beyond the customary settlement
time. It is expected that, in normal circumstances, the Fund will take delivery
of such securities. In general, the Fund does not pay for the securities or
become entitled to dividends or interest until the purchase of the securities is
settled. There are no percentage of asset limitations on this practice. However,
while awaiting delivery of any securities purchased on such a basis, the Fund
will establish a segregated account consisting of cash or liquid securities
equal to the amount of its commitments to purchase securities on a "when-issued"
basis.
PORTFOLIO TURNOVER
There are no fixed limitations regarding portfolio turnover. However, it is
estimated that the Fund's annual portfolio turnover rate will not exceed 100%.
Although the Fund generally does not engage in short-term trading, securities
may be sold without regard to the time they have been held when investment
considerations warrant such action. As a result, under certain market
conditions, the portfolio turnover rate of the Fund may be higher. Brokerage
costs will be commensurate with the rate of the Fund's trading activity, so that
a higher turnover rate will result in higher brokerage costs.
INVESTMENT CHARACTERISTICS
The investment performance of the Fund will vary over time based upon
changes in the values of its investments and the dividends and interest received
on those investments. The value of the Fund's investments will be affected by a
variety of factors, including the perceived financial condition and earnings of
issuers; market and industry trends; economic, social and political
developments; and changes in interest rates. The net asset value per share of
the Fund can be expected to fluctuate daily.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment policies and restrictions which are
described in this Prospectus and in the Statement of Additional Information.
Except as otherwise noted, these policies and restrictions are not fundamental
and may be changed by the Board of Trustees of the Trust. However, the Fund's
investment objective may not be changed without the vote of the holders of a
majority of the Fund's outstanding shares (a "Majority Shareholder Vote"), which
means the affirmative vote of the lesser of: (1) more than 50% of the
outstanding shares of the Fund (including shares of all classes); or (2) 67% or
more of the shares present at a meeting of shareholders if more than 50% of the
Fund's outstanding shares (including shares of all classes) are represented at
the meeting in person or by proxy. Each Separate Account owning shares will vote
its shares in accordance with instructions received from Contract Owners or
Policy Owners, annuitants and beneficiaries. See "SHAREHOLDER COMMUNICATIONS".
The following investment restrictions, and certain additional investment
restrictions set forth in the Statement of Additional Information, are
fundamental and may not be changed without a Majority Shareholder Vote. Under
these restrictions, the Fund may not:
1. Purchase a security, other than U.S. Government securities, if as a
result of such purchase more than 5% of the value of the Fund's total assets
would be invested in the securities of any one issuer, or the Fund would own
more than 10% of the voting securities, or of any class of securities, of any
one
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<PAGE>
issuer. For purposes of this restriction, all outstanding indebtedness of
an issuer is deemed to be a single class.
2. Purchase a security, other than U.S. Government securities, if as a
result of such purchase 25% or more of the value of the Fund's total assets
would be invested in the securities of issuers in any one industry.
HEDGING STRATEGIES
The Fund may purchase and sell (or write) options on individual stocks,
baskets of stocks, and stock indices, and may purchase and sell stock index
futures and related options, but only for hedging purposes. Use of these
techniques involves certain risks. See "Risks of Futures and Options" below.
The Fund engages in these transactions in order to protect against declines in
the value of securities it holds or increases in the costs of securities to be
acquired. More detailed descriptions of the Fund's use of options and futures
are contained in the Statement of Additional Information.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may use futures contracts and related options for the purpose of
seeking to reduce the overall investment risk that would otherwise be associated
with the securities in which it invests. For example, the Fund may sell a stock
index futures contract in anticipation of a general market or market sector
decline that might adversely affect prices of the Fund's portfolio securities.
To the extent that there is a correlation between the Fund's portfolio and a
particular stock index, the sale of futures contracts on that index could reduce
general market risk and permit the Fund to retain its securities positions.
The Fund may purchase call options on individual stocks and baskets of
stocks, or purchase stock index futures contracts (and call options on such
contracts) to hedge against a market advance that might increase the prices of
securities that the Fund is planning to acquire. Alternatively, the Fund may
purchase put options on individual stocks and baskets of stocks, or sell stock
index futures contracts (or purchase puts on such contracts) to provide
protection against a decline in the price of a security below a specified level
or a sector or general market decline. The Fund may purchase and write options
in combination with each other to adjust the risk and return of its overall
investment positions. For example, the Fund may purchase a put option and write
a call option on the same underlying instrument, in order to synthesize a
position similar to that which would be achieved by selling a futures contract.
By purchasing a put option on an individual stock, the Fund could hedge the
risk of a devaluation of that individual stock. The value of the put option
would be expected to rise as a result of a market decline and thus could offset
all or a portion of losses resulting from declines in the prices of individual
securities held by the Fund. However, option premiums tend to decrease over time
as the expiration date nears. Therefore, because of the cost of the option (in
the form of premium and transaction costs), the Fund would suffer a loss in the
put option if prices do not decline sufficiently to offset the deterioration in
the value of the option premium.
By purchasing a call option on a stock index, the Fund would attempt to
participate in potential price increases of the underlying index, with results
similar to those obtainable from purchasing a futures contract, but with risk
limited to the cost of the option if stock prices fell. At the same time, the
Fund would suffer a loss if stock prices do not rise sufficiently to offset the
cost of the option.
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<PAGE>
The Fund may engage in the writing (selling) of covered call options with
respect to the securities in the Fund's portfolio to supplement the Fund's
income and enhance total returns. The Fund may write (sell) listed or over-the-
counter call options on individual securities held by the Fund, on baskets of
such securities or on the Fund's portfolio as a whole. The Fund will write only
covered call options, that is, the Fund will write call options only when it has
in its portfolio (or has the right to acquire at no cost) the securities subject
to the option. A written option may also be considered to be covered if the Fund
owns an option that entirely or partially offsets its obligations under the
written option. Index options will be considered covered if the pattern of price
fluctuations of the Fund's portfolio or a portion thereof substantially
replicates the pattern of price fluctuations in the index underlying the option.
A call option written by the Fund obligates the Fund to sell specified
securities to the holder of the option at a predetermined price if the option is
exercised on or before its expiration date. An index call option written by the
Fund obligates the Fund to make a cash payment to the holder of the option if
the option is exercised and the value of the index has risen above a
predetermined level on or before the expiration date of the option. The Fund may
terminate its obligations under a call option by purchasing an option identical
to the one written. Writing covered call options provides the Fund with
opportunities to increase the returns earned from portfolio securities through
the receipt of premiums paid by the purchasers of the options. Writing covered
call options may reduce the Fund's returns if the value of the underlying
security or index increases and the option position is exercised or closed out
by the Fund at a loss.
RISKS OF FUTURES AND OPTIONS
The purchase and sale of options, and futures contracts and related
options involve risks different from those involved with direct investments in
securities, and also require different skills from the Investment Adviser in
managing the Fund's portfolio of investments. While utilization of options,
futures contracts and similar instruments may be advantageous to the Fund, if
the Investment Adviser is not successful in employing such instruments in
managing the Fund's investments or in predicting market changes, the Fund's
performance will be worse than if the Fund did not make such investments. It is
possible that there will be imperfect correlation, or even no correlation,
between price movements of the investments being hedged and the options or
futures used. It is also possible that the Fund may be unable to purchase or
sell a portfolio security at a time that otherwise would be favorable for it to
do so, or that the Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions or that the Fund
may be unable to close out or liquidate its hedged position. In addition, the
Fund will pay commissions and other costs in connection with such investments,
which may increase the Fund's expenses and reduce its yield. A more complete
discussion of the possible risks involved in transactions in options and
futures contracts is contained in the Statement of Additional Information. The
Fund's current policy is to limit options and futures transaction to those
described above. The Fund may purchase and write both over-the-counter and
exchange traded options.
The Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and premiums paid
for unexpired options on such contracts, other than for bona fide hedging
purposes as defined by the Commodity Futures Trading Commission, would exceed 5%
of the liquidation value of the Fund's assets, after taking into account
unrealized profits and losses on such contracts and options. The in-the-money
amount of an option on a futures contract may be excluded in calculating this 5%
limitation. The Fund may invest up to 5% of the value of its total assets,
represented by the premiums paid, for the purchase of options on securities and
stock index options. The Fund may not write options on securities or stock
indices with aggregate exercise prices in excess of 30% of the value of the
Fund's assets measured at the time an option is written.
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<PAGE>
MANAGEMENT
The business and affairs of the Fund are managed under the general
direction and supervision of the Board of Trustees of the Trust. Responsibility
for management of the Fund's investments has been delegated by the Board of
Trustees to the Investment Adviser. Other matters relating to the Fund's day-to-
day operations are handled by the Trust's officers, each of whom is an officer
or employee of the Investment Adviser.
INVESTMENT ADVISER
The Investment Adviser, John A. Levin & Co., Inc., provides investment
advisory services to the Fund pursuant to an Investment Advisory Agreement with
the Fund (the "Advisory Agreement"). Subject to such policies as the Board of
Trustees may determine, the Investment Adviser makes all investment decisions
for the Fund and places all orders for the purchase and sale of investments by
the Fund. The Investment Adviser also provides administrative services required
by the Trust and the Fund, except for certain accounting related services that
are furnished by an affiliate of the Investment Adviser. Administrative services
may be furnished through the Investment Adviser's affiliates. The Investment
Advisor furnishes, without expense to the Fund, the services of its personnel to
serve as officers and Trustees of the Trust. In consideration of the services
provided by the Investment Adviser, the Fund pays the Investment Adviser a
monthly fee computed at the annual rate of 0.85% of the Fund's average daily net
assets.
Together with its predecessor, the Investment Adviser has provided
investment advisory services to clients since 1982. The Investment Adviser is an
indirect, wholly-owned subsidiary of Baker, Fentress & Company ("Baker
Fentress"), a closed-end investment company listed on the New York Stock
Exchange (the "NYSE"). Clients of the Investment Adviser include U.S. and
foreign individuals, trusts, non-profit organizations, registered investment
funds, investment partnerships, endowments, and pension and profit-sharing
funds. The Investment Adviser currently manages approximately $7 billion in
assets for its clients.
The following persons serve as the portfolio managers of the Fund:
John A. Levin: President of the Investment Adviser (and its
predecessor) since 1982; Director, President and Chief Executive
Officer of Baker Fentress since June, 1996.
Melody L. Prenner Sarnell: Executive Vice President of the Investment
Adviser; securities analyst and portfolio manager of the Investment
Adviser (and its predecessor) since 1984; Director of Baker Fentress
since June, 1996.
Jeffrey A. Kigner: Executive Vice President of the Investment
Adviser; securities analyst and portfolio manager of the Investment
Adviser (and its predecessor) since 1984; Director of Baker Fentress
since June, 1996.
TRANSFER AGENT AND ACCOUNTING SERVICES
The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent"), P.O. Box 5354, Cincinnati, Ohio 45201, to serve as the Fund's transfer
agent and dividend paying agent. The Transfer Agent is an indirect, wholly-owned
subsidiary of Countrywide Credit Industries, Inc., a NYSE listed company
principally engaged in the business of residential mortgage lending.
The Fund also pays Baker Fentress a monthly fee for providing accounting
related services to the Trust, assisting in supervising various other services
and providing other specific services to the Fund including, but not limited to:
internal fund accounting and auditing services, valuing the Trust's assets and
calculating the net asset value of the shares of the Fund, assisting in the
preparation and filing of the Trust's tax returns, accumulating information for
the Trust's financial statements and preparing reports to the shareholders. This
fee is currently equal to $2,000, but will increase when the Fund's average
monthly net assets exceed $50 million. See "ADDITIONAL INFORMATION - Transfer
Agent and Accounting Services" in the Statement of Additional Information.
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<PAGE>
FUND EXPENSES
The Fund pays all of its expenses other than those expressly assumed by the
Investment Adviser or the Distributor. Expenses of the Fund are deducted from
the Fund's total income before dividends are paid. The Fund's expenses include,
but are not limited to: fees paid to the Investment Adviser; fees paid to Baker
Fentress for providing accounting services; fees of the Fund's independent
auditors and custodian and certain related expenses; taxes; organization
costs; interest, costs incident to meetings of the Board of Trustees of the
Trust and meetings of the Fund's shareholders; costs of printing and mailing
prospectuses and reports to shareholders and the filing of reports with
regulatory bodies; legal fees and disbursements; fees payable to federal and
state regulatory authorities; fees and expenses of Trustees who are not
affiliated with the Investment Adviser or the Distributor; and any
extraordinary expenses. Brokerage fees and expenses are also borne by the Fund
and are included in the purchase and sales price of a security.
ABOUT YOUR INVESTMENT
PURCHASE OF SHARES
Shares are offered for sale on a continuous basis directly by the
Distributor to the Separate Accounts at net asset value per share on each day
on which the NYSE is open for business, without any sales charge. Net asset
value per share is calculated once daily at 4:15 p.m., New York time, Monday
through Friday, each day the NYSE is open. Net asset value per share is computed
by subtracting the Fund's liabilities (including accrued expenses and dividends
payable) from the value of the Fund's investments and other assets and dividing
the result by the total number of shares of the Fund outstanding. The
determination of net asset value is made separately for each class of shares of
the Fund.
The Fund effects orders to purchase or redeem Shares, that are based on
premium payments, surrender and transfer requests and any other transaction
requests from Contract Owners and Policy Owners, annuitants and beneficiaries at
the net asset value per share next computed after the Separate Account receives
such transaction request. Any orders to purchase or redeem Shares that are not
based on actions by Contract Owners or Policy Owners, annuitants, and
beneficiaries will be effected at the net asset value per share next computed
after the order is received by the Distributor. The Fund reserves the right to
suspend the sale of Shares in response to conditions in the securities markets
or for other reasons.
Individuals may not place orders to purchase Shares directly. Please refer
to the prospectus for the Separate Account of the Participating Company for more
information on the purchase of Shares.
REDEMPTION OF SHARES
A Separate Account may redeem all or any portion of the Shares that it
holds at any time at the next computed net asset value per share, as described
above. Shares that are redeemed are entitled to any dividends that have been
declared as payable to record owners up to and including the day the redemption
is effected. There is no redemption charge. Payment of the redemption price
will normally be made within seven days after receipt of such tender for
redemption.
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<PAGE>
The right of redemption may be suspended and the date of payment of the
redemption price may be postponed for any period during which the NYSE is closed
(other than customary weekend and holiday closings) or during which the SEC
determines that trading thereon is restricted, or for any period during which an
emergency (as determined by the SEC) exists as a result of which disposal by the
Fund of securities is not reasonably practicable or as a result of which it is
not reasonably practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the SEC may by order permit for the
protection of shareholders.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund declares and distributes dividends from net investment income
quarterly and will distribute its net capital gains, if any, at least annually.
Payment of all dividends and capital gains distributions will be made in Shares.
TAX MATTERS
The following discussion is a summary of the federal tax treatment of the
Fund and some of the tax consequences to the Separate Accounts of investing in
the Fund. It does not address the tax treatment of the Contract Owners or Policy
Owners. Contract Owners and Policy Owners should consult the prospectuses of the
Separate Accounts for information concerning the Federal income tax consequences
of owning Contracts or Policies, and should consult their own tax advisors
concerning the federal and state tax consequences of such investments.
The Fund intends to qualify each year as a regulated investment company (a
"RIC") by satisfying the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), concerning the diversification of the
Fund's assets, distribution of its income, and sources of its income. If so
qualified, the Fund will not be subject to Federal income tax to the extent that
it distributes its net income to shareholders as required by the Code. If for
any taxable year the Fund does not qualify as an RIC, then all of its taxable
income will be subjected to federal corporate income tax. Federal income tax
would be imposed on the Fund if it failed to make certain distributions of its
income to shareholders. The Fund intends to make distributions in a manner which
will avoid the imposition of such tax. In addition, a 4% excise tax would be
imposed upon the Fund if, in a particular calendar year, the Fund failed to
distribute substantially all of its ordinary income and net capital gains for a
twelve-month period, generally ending on October 31st. This excise tax will not
apply to the Fund if at all times during the calendar year each Shareholder in
the Fund was a "segregated asset account" (as defined in the Code) or a
qualified plan. The Fund has been informed that the Participating Companies
intend to qualify the separate Accounts as segregated asset accounts.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified", in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, that
RIC will not be treated as a single investment for these purposes, but rather
the segregated asset account will be treated as owning its proportionate share
of each of the assets of the RIC. The Fund plans to satisfy these conditions at
all times.
Distributions by the Fund will be taxable, if at all, to the Separate
Accounts, and not to Contract or Policy Owners. A separate Account will include
distributions in its taxable income in the year in which they are received
(notwithstanding the fact that they are reinvested). Distributions by the Fund
of income and the excess of net short-term capital gain over net long-term
capital loss will be treated as ordinary income and distributions by the Fund of
net long-term capital gain over net short-term capital loss will be treated as
long-term capital gain. Redemptions of Shares generally will result in
recognition of capital gain or loss, if any, for federal income tax purposes.
Contract Owners and Policy owners should consult the prospectuses of the
Separate Accounts for information concerning the Federal income tax treatment
of separate Accounts that own Shares.
The foregoing discussion of Federal income tax consequences is based on tax
laws and regulations as in effect on the date of this Prospectus, and is subject
to change by legislative or administrative action.
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<PAGE>
SHAREHOLDER COMMUNICATIONS
It is expected that Contract Owners and Policy Owners who have given
instructions for Separate Accounts to invest in Shares will receive from the
Participating Companies reports that will include, among other things, the
Fund's unaudited semi-annual financial statements and year-end financial
statements audited by the Trust's independent auditors. Each report will
show the investments owned by the Fund and will provide other information about
the Fund and its operations. The Fund may pay a portion of the cost of preparing
certain of those reports. Contract Owners and Policy Owners may obtain
information about the performance of the Fund on any business day by calling
toll-free 1-800-[xxx-xxxx] between 8:15 a.m. and 6:00 p.m., New York time.
Each Separate Account owning Shares will vote its shares in accordance with
instructions received from Contract Owners or Policy Owners, annuitants and
beneficiaries. Shares held by a Separate Account as to which no instructions
have been received will be voted for or against any matter, or in abstention, in
the same proportion as the Shares held by that Account as to which instructions
have been received. Shares held by a Separate Account that are not attributable
to Contracts or Policies will also be voted for or against any proposition in
the same proportion as the Shares for which voting instructions are received by
the Separate Account. If a Participating Company determines, however, that it
is permitted to vote any such Shares in its own right, it may elect to do so,
subject to the then current interpretations of the 1940 Act and the rules
thereunder.
PERFORMANCE INFORMATION
From time to time the Fund may advertise or report certain information
about its investment performance. The Fund may present standardized and
nonstandardized total return in advertisements or other material. Standardized
total return is calculated in accordance with a formula prescribed by the SEC.
Under this method, total return is calculated by determining the difference
between the net asset value of all Shares held at the end of the period for
which a quotation is being given and the net asset value per share for each
Share held at the beginning of the period (assuming reinvestment of dividends
and other distributions), and then dividing that difference by the per Share net
asset value at the beginning of the period. (The calculations implicitly
reflect the compounding of dividends and other distributions by assuming
reinvestment.) The average annual compounded rate of return is the yearly rate
of return that, when applied evenly to each annual period and compounded, would
produce the total return for the period quoted. Nonstandardized total return
differs from standardized total return in that it may be related to a
nonstandard period or presented as an aggregate rate of return, rather than as
an annual average. Quotations of total return do not reflect charges imposed at
the Account level.
The performance of the Fund may be compared to the performance of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
performance information may be compared with data published by Lipper Analytical
Services, Inc. or to unmanaged indices of stock market performance. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by various national or local
financial publications, such as Business Week, Forbes, Fortune, Institutional
Investor, Money, The Wall Street Journal, Barron's, Changing Times, Morningstar,
Mutual Fund Values, U.S.A. Today, The New York Times, or other industry or
financial publications.
Quotations of performance are historical, and should not be considered as
indicative of future results.
-17-
<PAGE>
ADDITIONAL INFORMATION
Description of Shares. The Trust is a Delaware business trust organized
pursuant to a Certificate of Trust dated January 2, 1997. It is authorized to
issue an unlimited number of shares of beneficial interest, $.001 par value,
and to issue one or more series of such shares, each representing interests in a
separate investment portfolio. As of the date of this Prospectus, the Trust has
established only one series of its shares, representing interests in the Fund.
The Board of Trustees has the power to establish additional series of shares
representing interests in other investment portfolios and, subject to the 1940
Act and other applicable laws and regulations, to issue two or more classes of
shares of each series. Shares are fully paid and non-assessable, and have no
preemptive or conversion rights.
Shares being offered pursuant to this Prospectus are Class A shares of the
Fund. Class B shares of the Fund are offered pursuant to a separate prospectus.
The Class A and Class B shares each represent interests in the Fund, but differ
in that the Class B shares, unlike Class A shares, bear certain expenses
associated with the different investor services and distribution arrangement
that has been implemented for that class.
Shareholders of the Fund, together with shareholders of any other series of
the Trust that may in the future be organized, are entitled to vote on the
election of Trustees and the ratification of the Trust's independent auditors
when those matters are voted upon at a meeting of shareholders. On other matters
affecting the Fund on which shareholders of the Fund are entitled to vote,
shares of the Fund and any other series would generally be voted as a separate
class. Although shares of each class of the Fund will generally vote together on
matters affecting the Fund and the Trust, each class has exclusive voting rights
on matters which relate solely to its distribution or investor services
arrangements and will vote separately on any matter as to which the interests of
shareholders of the classes differ. Each Share (and fractional Share) is
entitled to that number of votes which equals the net asset value of such Share
(or fraction thereof). All shares of the Trust have non-cumulative voting
rights, meaning that shareholders entitled to cast more than 50% of the votes
for the election of Trustees can elect all of the Trustees standing for election
if they choose to do so.
Under Delaware law, shareholders of the Fund could, under certain
circumstances, be held personally liable for the obligations of the Trust but
only to the extent of the shareholder's investment. However, the Declaration of
Trust disclaims liability of the shareholders, Trustees or officers of the Trust
for acts or obligations of the Trust, which are binding only on the assets and
property of the Trust and requires that notice of the disclaimer be given in
each contract or obligation entered into or executed by the Trust or the
Trustees. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and should be considered remote.
Annual meetings of shareholders will not be held except as required by the
1940 Act or other applicable law. A meeting will be held on the removal of a
Trustee or Trustees of the Trust if requested in writing by holders of not less
than 10% of the outstanding shares of the Trust.
Custodian. UMB Bank, n.a., P.O. Box 419226, Kansas City, Missouri 64141-
6226, serves as custodian of the assets of the Fund. The custodian maintains
custody of all securities and other assets of the Fund, and is authorized to
hold the Fund's investments in securities depositories and to use sub-custodians
which have been approved by the Trust.
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<PAGE>
Distributor. The Distributor, LEVCO Securities, Inc., One Rockefeller
Plaza, New York, New York 10020, serves as the distributor of Shares. The
Distributor is a wholly-owned subsidiary of the Investment Adviser.
Independent Auditors. Ernst & Young LLP, Sears Tower, 233 South Wacker
Drive, Chicago, Illinois 60606-6301, serves as the independent auditors of
the Fund. Financial Statements of the Fund appearing in the Fund's annual report
will be audited by Ernst & Young LLP.
Counsel. Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York
10022, serves as counsel to the Fund, and also serves as counsel to the
Investment Adviser and its affiliates on certain matters.
Control Persons. As of the date of this Prospectus, all of the outstanding
shares of the Fund were owned by Mr. Norris Nissim, an interested person of the
Fund. This control relationship will continue to exist until such time as the
above-described share ownership represents 25% or less of the outstanding shares
of the Fund. Through the exercise of voting rights with respect to the shares,
the controlling person set forth above may be able to determine the outcome of
shareholder voting on matters as to which shareholder approval is required.
Additional Information. This Prospectus, including the Statement of
Additional Information which has been incorporated herein by reference, does not
contain all the information set forth in the Registration Statement filed by the
Trust with the SEC. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
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<PAGE>
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LEVCO EQUITY VALUE FUND
- -------------------------------------------------------------------------------
INVESTMENT ADVISER
John A. Levin & Co., Inc.
One Rockefeller Center, 25th Floor
New York, New York 10020
DISTRIBUTOR
LEVCO Securities, Inc.
One Rockefeller Center, 25th Floor
New York, New York 10020
CUSTODIAN
UMB Bank, n.a.
P.O. Box 419226
Kansas City, Missouri 64141-6226
TRANSFER AGENT
Countrywide Financial Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Ernst & Young LLP
Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6301
LEGAL COUNSEL
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
SHAREHOLDER INQUIRIES
1 (800) [ ]
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NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS OR IN APPROVED SALES LITERATURE IN CONNECTION
WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE TRUST OR
BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER.
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PRELIMINARY PROSPECTUS -- SUBJECT TO COMPLETION -- May 20, 1997
- --------------------------------------------------------------------------------
Prospectus Dated [ ], 1997
LEVCO EQUITY VALUE FUND
(a series of LEVCO Series Trust)
One Rockefeller Plaza, 25th Floor
New York, New York 10020
- --------------------------------------------------------------------------------
LEVCO Equity Value Fund (the "Fund") is a series of LEVCO Series Trust (the
"Trust"), an open-end, diversified, management investment company (commonly
known as a mutual fund). The investment objective of the Fund is to achieve
long-term growth of capital through an emphasis on the preservation of capital
and an attempt to control volatility as measured against the Standard & Poor's
Composite 500 Stock Index (the "S&P 500"). The Fund pursues this objective by
investing its assets primarily in common stocks and other securities having
equity characteristics, which, in the opinion of the Fund's investment adviser,
are currently undervalued in relation to their intrinsic value. In pursuing its
objective, the Fund may utilize a variety of investment techniques. See
"INVESTMENT OBJECTIVE AND POLICIES" and "INVESTMENT DESCRIPTIONS AND PRACTICES".
Options on securities, stock index options and stock index futures and related
options may be used by the Fund for hedging purposes and involve certain risks.
See "HEDGING STRATEGIES".
John A. Levin & Co., Inc. (the "Investment Adviser") serves as the
investment adviser of the Fund.
The shares of the Fund being offered by this Prospectus ("Shares"), which
are Class B Shares, are distributed by LEVCO Securities, Inc. (the
"Distributor"). Shares are sold only to certain life insurance companies
("Participating Companies") and their separate accounts ("Separate Accounts") to
fund benefits under variable annuity contracts ("Contracts") and variable life
insurance policies ("Policies") offered by Participating Companies. The Separate
Accounts invest in Shares in accordance with allocation instructions received
from Contract and Policy owners ("Contract Owners" and "Policy Owners"). These
allocation rights are described in the prospectus for the Separate Account that
accompanies this Prospectus. Shares are redeemed to the extent necessary to
provide benefits under the Contracts and Policies.
____________________
This Prospectus sets forth concisely the information about the Fund that a
prospective investor ought to know before investing. It should be read and
retained for future reference. A Statement of Additional Information containing
more detailed information about the Fund dated [xxxxxxxx, 1997], has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. The Statement of Additional Information is available, without charge,
upon request by calling 1-800-xxx-xxxx.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY............................................................3
ABOUT THE FUND................................................................6
INVESTMENT OBJECTIVE AND POLICIES.............................................6
INVESTMENT DESCRIPTIONS AND PRACTICES.........................................7
INVESTMENT RESTRICTIONS......................................................10
HEDGING STRATEGIES...........................................................11
MANAGEMENT...................................................................13
FUND EXPENSES................................................................14
ABOUT YOUR INVESTMENT........................................................14
DISTRIBUTION PLAN............................................................15
DISTRIBUTIONS AND TAXES......................................................15
SHAREHOLDER COMMUNICATIONS...................................................16
PERFORMANCE INFORMATION......................................................17
ADDITIONAL INFORMATION.......................................................17
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information appearing elsewhere in this Prospectus and in the Statement of
Additional Information.
The Fund LEVCO Equity Value Fund (the "Fund") is a series of
LEVCO Series Trust, a Delaware business trust which
is an open-end, diversified, management investment
company (commonly known as a mutual fund). The
investment objective of the Fund is to achieve
long-term growth of capital through an emphasis on
the preservation of capital and an attempt to
control volatility as measured against the
Standard & Poor's Composite 500 Stock Index (the
"S&P 500"). The Fund pursues its objective by
investing its assets primarily in common stocks
and other securities having equity characteristics
which, in the opinion of the Fund's investment
adviser, are currently undervalued in relation to
their intrinsic value. See "INVESTMENT OBJECTIVES
AND POLICIES" and "INVESTMENT DESCRIPTIONS AND
PRACTICES." For hedging purposes, the Fund may use
options on securities, stock index options, and
stock index futures and related options. Use of
these instruments involves certain risks. See
"HEDGING STRATEGIES".
Investment Adviser John A. Levin & Co., Inc., serves as the Fund's
investment adviser (the "Investment Adviser").
Together with its predecessor, the Investment
Adviser has provided investment advisory services
to clients since 1982. The Investment Adviser is an
indirect, wholly-owned subsidiary of Baker,
Fentress & Company ("Baker Fentress"), a closed-end
investment company listed on the New York Stock
Exchange. Clients of the Investment Adviser include
U.S. and foreign individuals, trusts, non-profit
organizations, registered investment funds,
investment partnerships, endowments, and pension
and profit-sharing funds. The Investment Adviser
currently manages approximately $7 billion in
assets for its clients. See "MANAGEMENT -Investment
Adviser".
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<PAGE>
The Offering The shares of the Fund being offered by this
Prospectus ("Shares") are offered by LEVCO
Securities, Inc., which serves as the distributor
of Shares (the "Distributor"). Shares are sold
only to certain life insurance companies
("Participating Companies") and their separate
accounts (collectively, "Separate Accounts") to
fund benefits under variable annuity contracts
("Contracts") and variable life insurance policies
("Policies") offered by Participating Companies.
The Separate Accounts invest in Shares in
accordance with allocation instructions received
by Participating Companies from Contract and
Policy owners ("Contract Owners" and "Policy
Owners"). These allocation rights are further
described in the prospectus for the Separate
Account that accompanies this Prospectus. Shares
are redeemed to the extent necessary to provide
benefits under the Contracts and Policies and to
reflect the allocation instructions of Contract
and Policy Owners.
Share Price Shares are being offered at net asset value per
share without any sales charge. See "ABOUT YOUR
INVESTMENT - Purchase of Shares". Shares are
redeemable at their then current net asset value
per Share which may be more or less than their
cost. See "ABOUT YOUR INVESTMENT - Redemption of
Shares".
Fees and Expenses The Fund pays a fee to the Investment Adviser
calculated daily and payable monthly at an annual
rate of 0.85% of average daily net assets of the
Fund. The Fund also pays Baker Fentress a monthly
fee currently equal to $2,000 for providing
accounting services to the Fund. This fee will
increase once the Fund's average monthly net assets
exceed $50 million. See "ADDITIONAL INFORMATION--
Transfer Agent and Accounting Services" in the
Statement of Additional Information. In addition,
the Fund bears all of the expenses associated with
its operation. See "FUND EXPENSES". These expenses
include payments in an amount up to 0.25% annually
of the Fund's average net assets that are made by
the Fund to reimburse the Distributor for expenses
it incurs in connection with assisting
Participating Companies in providing reports and
information to prospective investors, Policy Owners
and Contract Owners as well as amounts expended to
reimburse Participating Companies for certain of
their costs of training their sales personnel. See
"DISTRIBUTION PLAN".
Dividends and Capital The Fund declares and pays income dividends
Gains Distributions quarterly. Capital gains, if any, are distributed
at least annually. Payment of all dividends and
capital gains distributions will be made in Shares.
See "DISTRIBUTIONS AND TAXES".
4
<PAGE>
Risks Considerations The net asset value per Share and dividends of the
Fund will fluctuate and will depend on the changes
in the values of the Fund's investments and the
income and dividends received on those investments.
Policy Owners and Contract Owners should review
carefully the investment objective, policies and
practices of the Fund and consider their ability to
assume the risks associated with an investment in
Shares by the Separate Accounts. Certain of the
investment practices of the Fund involve various
risks. These practices include: the purchase of
non-investment grade debt securities and foreign
securities; lending securities; the use of options
on securities, stock index options; stock index
futures and related options, and the use of
repurchase agreements. See "INVESTMENT OBJECTIVE
AND POLICIES" and "INVESTMENT DESCRIPTIONS AND
PRACTICES" and "HEDGING STRATEGIES". No assurance
can be given that the investment objective of the
Fund will be achieved.
5
<PAGE>
ABOUT THE FUND
LEVCO Equity Value Fund (the "Fund") is a series of LEVCO Series Trust (the
"Trust"), a business trust that is registered under the Investment Company Act
of 1940 (the "1940 Act") with the Securities and Exchange Commission (the "SEC")
as an open-end, diversified, management investment company. The Trust was
organized on January 2, 1997 under the laws of the State of Delaware. As of the
date of this Prospectus, the Fund is the Trust's sole investment portfolio and
has not yet commenced operations. Shares of the Fund being offered by this
Prospectus ("Shares"), which are Class B shares of the Fund, are sold by LEVCO
Securities, Inc. (the "Distributor") only to certain life insurance companies
("Participating Companies") and their separate accounts ("Separate Accounts") to
fund benefits under variable annuity contracts ("Contracts") and variable life
insurance policies ("Policies") offered by Participating Companies. Shares may
in the future be sold to qualified pension and retirement plans ("Plans"). The
Distributor receives a fee representing reimbursement of its expenses incurred
with respect to the distribution of the Shares offered pursuant to this
Prospectus. The Separate Accounts invest in Shares in accordance with allocation
instructions received from the owners of Contracts and Policies ("Contract
Owners" and "Policy Owners"). These allocation rights are described in the
prospectus for the Separate Account that accompanies this Prospectus. Shares are
redeemed to the extent necessary to provide benefits under Contracts and
Policies.
Participating Companies may not be affiliated with each other. In addition,
Participating Companies and their Separate Accounts may be subject to insurance
regulation that varies from state to state and may be subject to state insurance
and federal tax or other regulation that varies between Contracts and Policies.
The Trust does not currently foresee any disadvantages to Contract or Policy
Owners arising from these circumstances. However, it is theoretically possible
that the interests of Contract or Policy Owners participating in the Fund
through the Separate Accounts or Plans might at some time be in material and
irreconcilable conflict. In some cases, one or more Separate Accounts might
redeem its investment in the Fund, which could possibly force the Fund to sell
portfolio securities at disadvantageous prices. The Board of Trustees of the
Trust intends to monitor events in order to identify any material irreconcilable
conflicts that may possibly arise and to determine what action, if any, should
be taken in response thereto.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to achieve long-term growth of
capital through an emphasis on the preservation of capital and an attempt to
control volatility as measured against the Standard & Poor's Composite 500 Stock
Index (the "S&P 500"). The Fund pursues this objective by investing its assets
primarily in common stocks and other securities having equity characteristics,
such as convertible debt and convertible preferred securities, preferred stocks,
warrants and rights (collectively, "Equity Securities"). The Fund invests in
Equity Securities which, in the opinion of the Fund's investment advisor, John
A. Levin & Co., Inc. (the "Investment Adviser"), are currently undervalued in
relation to their intrinsic value as indicated by the earnings and cash flow
potential or the asset value of their respective issuers. The Investment
Adviser's determination of value also takes into consideration growth and new
products on a selective basis. In evaluating investments for the Fund,
consideration is given to such factors as: security prices that reflect a market
valuation which is judged to be below the estimated present or future value of
the company; favorable earnings growth prospects; expected above average return
on equity and dividend yield; the financial condition of the issuer; and various
qualitative factors. Although payment of current dividends and income are
considered by the Investment Adviser in selecting investments for the Fund, they
are not primary factors in the selection of investments.
6
<PAGE>
Under normal market conditions, the Fund invests at least 85% of its total
assets in Equity Securities. For hedging purposes, the Fund may use options on
securities, stock index options, and stock index futures and related options.
These investments involve certain risks. See "HEDGING STRATEGIES." The Fund
may also invest in debt securities, including U.S. Government securities and
corporate debt securities (such as bonds, notes and debentures). Certain of the
Fund's investments in debt securities will be obligations which, at the time of
purchase, are rated "A" or better by Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's") or, if unrated, are of comparable
quality as determined by the Investment Adviser. However, the Fund may invest
up to 10% of the value of its total assets in non-convertible, non-investment
grade debt securities (commonly known as "high yield" or "junk" bonds). These
investments involve certain risks. See "INVESTMENT DESCRIPTIONS AND PRACTICES -
Non-Investment Grade Debt Securities". The Fund may also invest in money market
instruments (see "INVESTMENT DESCRIPTIONS AND PRACTICES - Short-Term
Investments"), including repurchase agreements. Investments in debt securities
will generally be made to reduce the Fund's equity exposure. During periods of
high market valuations or adverse market conditions or for liquidity purposes,
all or any portion of the Fund's assets may be invested temporarily in high
quality debt securities or money market instruments, or held as cash.
No assurance can be given that the investment objective of the Fund will be
achieved.
INVESTMENT DESCRIPTIONS AND PRACTICES
The types of securities in which the Fund invests and the investment
practices in which the Fund may engage are summarized below. In addition, the
Fund may use options on securities, stock index options and stock index futures
and related options for hedging purposes. See "HEDGING STRATEGIES."
Common Stock. Common stock are shares of a corporation or other entity
that represent an equity interest and entitle the holder to share in the
profits, if any, of the entity after required payments to holders of preferred
stock and debt securities.
Convertible Securities. A convertible security is a bond, debenture, note,
preferred stock or other security that may be converted into or exchanged for a
prescribed amount of common stock of the same or a different issuer within a
particular period of time at a specified price or formula. Before conversion,
convertible securities ordinarily provide a stream of income with generally
higher yields than those of common stocks of the same or similar issuers, but
lower than the yields on non-convertible debt. Convertible securities are
usually subordinated to comparable non-convertible securities, but rank senior
to common stock in a corporation's capital structure.
Warrants and Rights. Among the Equity Securities the Fund may purchase are
warrants and rights to purchase securities. Warrants and rights are derivative
instruments that permit, but do not obligate, the holder to purchase securities
at a specified price during a specified time period. Neither warrants nor
rights carry with them the right to dividends or voting rights with respect to
the securities
7
<PAGE>
that they entitle the holder to purchase, and they do not represent any rights
in the assets of the issuer. They involve the risk that they will decline in
value if the price of the related securities declines. If the price of the
related security does not increase to a price higher than the price at which the
warrants or rights may be exercised, the warrant or right may become worthless.
As a result, warrants and rights are more speculative than certain other types
of equity investments. In addition, the value of a warrant or right does not
necessarily change with the value of the underlying securities, and a warrant or
right ceases to have value if it is not exercised prior to its expiration date.
Preferred Stock. Preferred stocks generally pay dividends at specified
rates and have a preference over common stock in the payment of dividends and
the liquidation of an issuer's assets. However, preferred stock is junior to
the debt securities of the issuer in those same respects. Unlike interest
payments on debt securities, dividends on preferred stock are generally payable
at the discretion of the issuer's board of directors. The market prices of
preferred stocks will fluctuate based, in part, on changes in interest rates and
are more sensitive to changes in the issuer's creditworthiness than are the
prices of debt securities. Preferred stock may decline in value if dividends
are not paid.
Debt Securities. The Fund's investments in debt securities may include
bonds, notes, bills, debentures, bank obligations, loan participations, and
other similar instruments. These securities include U.S. Government securities,
which are debt obligations that are issued or guaranteed by the U.S. Government
or by one of its agencies or instrumentalities, and debt obligations issued by
corporations, banks or other business entities. There are no restrictions on
the maximum maturity and duration of debt securities purchased by the Fund. The
interest rates payable on debt securities may be fixed, floating or variable or
may be zero coupon debt securities.
Non-Investment Grade Debt Securities. The Fund may invest up to 10% of the
value of its total assets in non-convertible, non-investment grade debt
securities. Convertible debt securities purchased by the Fund are not subject
to this limitation because they are purchased based upon their potential for
capital growth. Non-investment grade debt securities (typically called "junk
bonds") are securities that have received a rating from a nationally recognized
statistical rating organization ("NRSRO") of below investment grade or have been
given no rating, and are considered by the NRSRO to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal. Non-
investment grade debt securities in the lowest rating categories may involve a
substantial risk of default or may be in default. Changes in economic
conditions or developments regarding the individual issuer are more likely to
cause price volatility and weaken the capacity of the issuers of non-investment
grade debt securities to make principal and interest payments than is the case
for higher grade debt securities. An economic downturn affecting an issuer of
non-investment grade debt securities may result in an increased incidence of
default. In addition, the market for lower grade debt securities may be thinner
and less active than for higher grade debt securities. A debt security will not
be considered non-investment grade for purposes of the percentage limitation set
forth above if it has received an investment grade rating from one or more
NRSRO's, notwithstanding the fact that a lower rating has been given by any
other NRSRO.
Short-Term Investments. The Fund may invest in money market instruments,
which are high quality short-term debt obligations. Money market instruments
generally have remaining maturities of one year or less. Among the types of
money market instruments that may be purchased by the Fund are: short-term U.S.
government securities, certificates of deposit, bankers' acceptances, commercial
paper, short-term corporate obligations and repurchase agreements.
Repurchase Agreements. The Fund may enter into repurchase agreements with
respect to any of the types of debt securities in which it is authorized to
invest. Repurchase agreements will be effected
8
<PAGE>
only with banks, savings institutions and broker-dealers. These agreements
involve the purchase by the Fund of a debt security with the condition that
after a stated period of time, the original seller will buy back the same
security at a predetermined price or yield. Repurchase agreements are used to
enhance liquidity and to earn income for periods as short as overnight. In the
event the original seller defaults on its obligation to repurchase the
securities, as a result of its bankruptcy or otherwise, the Fund will seek to
sell the securities. Such action could involve costs or delays, and the Fund's
ability to dispose of the securities may be restricted. To minimize risk, the
securities underlying each repurchase agreement will be maintained with the
Fund's custodian, or a subcustodian, in an amount at least equal to the
repurchase price under the agreement (including accrued interest thereunder),
and such agreements will only be effected with parties that meet certain
creditworthiness standards. However, in the event the other party to a
repurchase agreement fails to repurchase the securities subject to the
agreement, the Fund could suffer a loss to the extent it is precluded from
selling the securities or, if due to delays, proceeds from the sale are less
than the repurchase price.
Restricted Securities. The Fund may invest up to 10% of its net assets in
securities subject to restrictions on disposition under the Securities Act of
1933, as amended ("restricted securities"). Such investments, however, will be
limited to certain restricted securities that may be sold to institutional
investors pursuant to Rule 144A. In some cases, these securities may be
difficult to value to the extent that they are not publicly traded, and may be
difficult to sell promptly at favorable prices. The Fund's policies are intended
to enable it to invest a limited portion of its assets in investments that are
subject to restrictions on disposition, but which nevertheless are considered to
be attractive by the Investment Adviser. Except as described above, the Fund
does not purchase illiquid securities, including repurchase agreements maturing
in more than seven days.
Foreign Securities. The Fund may invest up to 20% of its total assets in
securities of foreign issuers, including depository receipts, such as American
Depository Receipts ("ADRs"), which represent ownership of specific foreign
securities. Investments in foreign securities involve certain risks. There may
be more limited publicly available information regarding foreign securities than
would be the case with respect to the securities of U.S. issuers, and different
accounting standards may be used by foreign issuers. Foreign securities markets
in which securities purchased by the Fund may trade are in some cases not as
liquid as U.S. markets. Foreign securities also entail certain additional risks
such as the risks of changes in the value of foreign currency relative to the
U.S. dollar, possible imposition of withholding or confiscatory taxes, possible
currency transfer restrictions, expropriation or other adverse political or
economic developments, and the difficulty of enforcing obligations in foreign
jurisdictions. The purchase of securities denominated in foreign currencies
will subject the value of the Fund's investments in those securities to
fluctuations due to changes in foreign exchange rates. Due to these factors,
the prices of securities of foreign issuers may be more volatile than those of
comparable domestic issuers.
To hedge against the effects of changes in foreign exchange rates, the Fund
may enter into forward foreign currency exchange contracts ("forward
contracts"). These contracts represent agreements to exchange an amount of
currency at an agreed upon future time and rate. The Fund will generally use
forward contracts only to "lock in" the price in U.S. dollars of a foreign
security intended to be purchased or sold, but in certain limited cases may use
such contracts to hedge against an anticipated substantial decline in the price
of a foreign currency against the U.S. dollar. Forward contracts will not be
used in all cases and, in any event, cannot protect the Fund against declines in
the prices of the securities; nor do they completely protect against all changes
in the values of foreign securities due to fluctuations in foreign exchange
rates. If anticipated currency movements are not accurately predicted, the Fund
will sustain losses on these contracts.
9
<PAGE>
Lending Securities. In order to earn income, the Fund may lend its
portfolio securities to brokers, dealers and other financial institutions,
provided that such loans are callable at any time by the Fund and are at all
times secured by collateral, consisting of cash or U.S. Government securities,
or any combination thereof, equal to not less than 100% of the market value,
determined daily, of the securities loaned. Any cash collateral will be invested
by the Fund in short-term investments. Lending securities involves certain
risks, the most significant of which is the risk that a borrower may fail to
return a portfolio security. The Fund's Board of Trustees has adopted policies
designed to minimize such risks. The Fund may lend securities in an amount not
exceeding one-third of the value of its total assets, measured at the time any
such loan is made. Securities lending involves a form of leverage, and the Fund
may incur a loss if securities purchased with the collateral from securities
loans decline in value or if the income earned does not cover the Fund's
transaction costs.
When-Issued Securities. In order to help ensure the availability of
suitable securities for investment, the Fund may purchase securities on a "when-
issued" or on a "forward delivery" basis. Securities purchased in this manner
will be delivered to the Fund at a future date beyond the customary settlement
time. It is expected that, in normal circumstances, the Fund will take delivery
of such securities. In general, the Fund does not pay for the securities or
become entitled to dividends or interest until the purchase of the securities is
settled. There are no percentage of asset limitations on this practice.
However, while awaiting delivery of any securities purchased on such a basis,
the Fund will establish a segregated account consisting of cash or liquid
securities equal to the amount of its commitments to purchase securities on a
"when-issued" basis.
PORTFOLIO TURNOVER
There are no fixed limitations regarding portfolio turnover. However, it
is estimated that the Fund's annual portfolio turnover rate will not exceed
100%. Although the Fund generally does not engage in short-term trading,
securities may be sold without regard to the time they have been held when
investment considerations warrant such action. As a result, under certain
market conditions, the portfolio turnover rate of the Fund may be higher.
Brokerage costs will be commensurate with the rate of the Fund's trading
activity so that a higher turnover rate will result in higher brokerage costs.
INVESTMENT CHARACTERISTICS
The investment performance of the Fund will vary over time based upon
changes in the values of its investments and the dividends and interest received
on those investments. The value of the Fund's investments will be affected by a
variety of factors, including the perceived financial condition and earnings of
issuers; market and industry trends; economic, social and political
developments; and changes in interest rates. The net asset value per share of
the Fund can be expected to fluctuate daily.
INVESTMENT RESTRICTIONS
The Fund has adopted certain investment policies and restrictions which are
described in this Prospectus and in the Statement of Additional Information.
Except as otherwise noted, these policies and restrictions are not fundamental
and may be changed by the Board of Trustees of the Trust. However, the Fund's
investment objective may not be changed without the vote of the holders of a
majority of the Fund's outstanding shares (a "Majority Shareholder Vote"), which
means the affirmative vote of the lesser of: (1) more than 50% of the
outstanding shares of the Fund (including shares of all classes); or (2) 67% or
more of the shares present at a meeting of shareholders if more than 50% of the
Fund's outstanding shares (including shares of all classes) are represented at
the meeting in person or by
10
<PAGE>
proxy. Each Separate Account owning shares will vote its shares in accordance
with instructions received from Contract Owners or Policy Owners, annuitants and
beneficiaries. See "SHAREHOLDER COMMUNICATIONS". The following investment
restrictions, and certain additional investment restrictions set forth in the
Statement of Additional Information, are fundamental and may not be changed
without a Majority Shareholder Vote. Under these restrictions, the Fund may
not:
1. Purchase a security, other than U.S. Government securities, if as a
result of such purchase more than 5% of the value of the Fund's total assets
would be invested in the securities of any one issuer, or the Fund would own
more than 10% of the voting securities, or of any class of securities, of any
one issuer. For purposes of this restriction, all outstanding indebtedness of
an issuer is deemed to be a single class.
2. Purchase a security, other than U.S. Government securities, if as a
result of such purchase 25% or more of the value of the Fund's total assets
would be invested in the securities of issuers in any one industry.
HEDGING STRATEGIES
The Fund may purchase and sell (or write) options on individual stocks,
baskets of stocks, and stock indices, and may purchase and sell stock index
futures and related options, but only for hedging purposes. Use of these
techniques involves certain risks. See "Risks of Futures and Options." The Fund
engages in these transactions in order to protect against declines in the value
of securities it holds or increases in the costs of securities to be acquired.
More detailed descriptions of the Fund's use of options and futures are
contained in the Statement of Additional Information.
FUTURES AND OPTIONS TRANSACTIONS
The Fund may use futures contracts and related options for the purpose of
seeking to reduce the overall investment risk that would otherwise be associated
with the securities in which it invests. For example, the Fund may sell a stock
index futures contract in anticipation of a general market or market sector
decline that might adversely affect prices of the Fund's portfolio securities.
To the extent that there is a correlation between the Fund's portfolio and a
particular stock index, the sale of futures contracts on that index could reduce
general market risk and permit the Fund to retain its securities positions.
The Fund may purchase call options on individual stocks and baskets of
stocks, or purchase stock index futures contracts (and call options on such
contracts) to hedge against a market advance that might increase the prices of
securities that the Fund is planning to acquire. Alternatively, the Fund may
purchase put options on individual stocks and baskets of stocks, or sell stock
index futures contracts (or purchase puts on such contracts) to provide
protection against a decline in the price of a security below a specified level
or a sector or general market decline. The Fund may purchase and write options
in combination with each other to adjust the risk and return of its overall
investment positions. For example, the Fund may purchase a put option and write
a call option on the same underlying instrument, in order to synthesize a
position similar to that which would be achieved by selling a futures contract.
By purchasing a put option on an individual stock, the Fund could hedge the
risk of a devaluation of that individual stock. The value of the put option
would be expected to rise as a result of a market decline and thus could offset
all or a portion of losses resulting from declines in the prices of individual
securities held by the Fund. However, option premiums tend to decrease over time
as the expiration date nears. Therefore, because of the cost of the option (in
the form of premium and
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<PAGE>
transaction costs), the Fund would suffer a loss in the put option if prices do
not decline sufficiently to offset the deterioration in the value of the option
premium.
By purchasing a call option on a stock index, the Fund would attempt to
participate in potential price increases of the underlying index, with results
similar to those obtainable from purchasing a futures contract, but with risk
limited to the cost of the option if stock prices fell. At the same time, the
Fund would suffer a loss if stock prices do not rise sufficiently to offset the
cost of the option.
The Fund may engage in the writing (selling) of covered call options with
respect to the securities in the Fund's portfolio to supplement the Fund's
income and enhance total returns. The Fund may write (sell) listed or over-the-
counter call options on individual securities held by the Fund, on baskets of
such securities or on the Fund's portfolio as a whole. The Fund will write only
covered call options, that is, the Fund will write call options only when it
has in its portfolio (or has the right to acquire at no cost) the securities
subject to the option. A written option may also be considered to be covered if
the Fund owns an option that entirely or partially offsets its obligations under
the written option. Index options will be considered covered if the pattern of
price fluctuations of the Fund's portfolio or a portion thereof substantially
replicates the pattern of price fluctuations in the index underlying the option.
A call option written by the Fund obligates the Fund to sell specified
securities to the holder of the option at a predetermined price if the option is
exercised on or before its expiration date. An index call option written by the
Fund obligates the Fund to make a cash payment to the holder of the option if
the option is exercised and the value of the index has risen above a
predetermined level on or before the expiration date of the option. The Fund may
terminate its obligations under a call option by purchasing an option identical
to the one written. Writing covered call options provides the Fund with
opportunities to increase the returns earned from portfolio securities through
the receipt of premiums paid by the purchasers of the options. Writing covered
call options may reduce the Fund's returns if the value of the underlying
security or index increases and the option position is exercised or closed out
by the Fund at a loss.
RISKS OF FUTURES AND OPTIONS
The purchase and sale of options, and futures contracts and related
options, involve risks different from those involved with direct investments in
securities, and also require different skills from the Investment Adviser in
managing the Fund's portfolio of investments. While utilization of options,
futures contracts and similar instruments may be advantageous to the Fund, if
the Investment Adviser is not successful in employing such instruments in
managing the Fund's investments or in predicting market changes, the Fund's
performance will be worse than if the Fund did not make such investments. It is
possible that there will be imperfect correlation, or even no correlation,
between price movements of the investments being hedged and the options or
futures used. It is also possible that the Fund may be unable to purchase or
sell a portfolio security at a time that otherwise would be favorable for it to
do so, or that the Fund may need to sell a portfolio security at a
disadvantageous time, due to the need for the Fund to maintain "cover" or to
segregate securities in connection with hedging transactions or that the Fund
may be unable to close out or liquidate its hedged position. In addition, the
Fund will pay commissions and other costs in connection with such investments,
which may increase the Fund's expenses and reduce its yield. A more complete
discussion of the possible risks involved in transactions in options and futures
contracts is contained in the Statement of Additional Information. The Fund's
current policy is to limit options and futures transaction to those described
above. The Fund may purchase and write both over-the-counter and exchange traded
options.
12
<PAGE>
The Fund will not enter into any futures contracts or related options if
the sum of the initial margin deposits on futures contracts and premiums paid
for unexpired options on such contracts, other than for bona fide hedging
purposes as defined by the Commodity Futures Trading Commission, would exceed 5%
of the liquidation value of the Fund's assets, after taking into account
unrealized profits and losses on such contracts and options. The in-the-money
amount of an option on a futures contract may be excluded in calculating this 5%
limitation. The Fund may invest up to 5% of the value of its total assets,
represented by the premiums paid, for the purchase of options on securities and
stock index options. The Fund may not write options on securities or stock
indices with aggregate exercise prices in excess of 30% of the value of the
Fund's assets measured at the time an option is written.
MANAGEMENT
The business and affairs of the Fund are managed under the general
direction and supervision of the Board of Trustees of the Trust. Responsibility
for management of the Fund's investments has been delegated by the Board of
Trustees to the Investment Adviser. Other matters relating to the Fund's day-to-
day operations are handled by the Trust's officers, each of whom is an officer
or employee of the Investment Adviser.
INVESTMENT ADVISER
The Investment Adviser, John A. Levin & Co., Inc., provides investment
advisory services to the Fund pursuant to an Investment Advisory Agreement with
the Fund (the "Advisory Agreement"). Subject to such policies as the Board of
Trustees may determine, the Investment Adviser makes all investment decisions
for the Fund and places all orders for the purchase and sale of investments by
the Fund. The Investment Adviser also provides administrative services required
by the Trust and the Fund, except for certain accounting related services that
are furnished by an affiliate of the Investment Adviser. Administrative services
may be furnished through the Investment Adviser's affiliates. The Investment
Adviser furnishes, without expense to the Fund, the services of its personnel to
serve as officers and Trustees of the Trust. In consideration of the services
provided by the Investment Adviser, the Fund pays the Investment Adviser a
monthly fee computed at the annual rate of 0.85% of the Fund's average daily net
assets.
Together with its predecessor, the Investment Adviser has provided
investment advisory services to clients since 1982. The Investment Adviser is
an indirect wholly-owned subsidiary of Baker, Fentress & Company ("Baker
Fentress"), a closed-end investment company listed on the New York Stock
Exchange (the "NYSE"). Clients of the Investment Adviser include U.S. and
foreign individuals, trusts, non-profit organizations, registered investment
funds, investment partnerships, endowments, and pension and profit-sharing
funds. The Investment Adviser currently manages approximately $7 billion in
assets for its clients.
The following persons serve as the portfolio managers of the Fund:
John A. Levin: President of the Investment Adviser (and its
predecessor) since 1982; Director, President and Chief Executive
Officer of Baker Fentress since June, 1996.
Melody L. Prenner Sarnell: Executive Vice President of the
Investment Adviser; securities analyst and portfolio manager of the
Investment Adviser (and its predecessor) since 1984; Director of Baker
Fentress since June, 1996.
13
<PAGE>
Jeffrey A. Kigner: Executive Vice President of the Investment Adviser;
securities analyst and portfolio manager of the Investment Adviser
(and its predecessor) since 1984; Director of Baker Fentress since
June, 1996.
TRANSFER AGENT AND ACCOUNTING SERVICES
The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent"), P.O. Box 5354, Cincinnati, Ohio 45201, to serve as the Fund's transfer
agent and dividend paying agent. The Transfer Agent is an indirect, wholly-owned
subsidiary of Countrywide Credit Industries, Inc., a NYSE listed company
principally engaged in the business of residential mortgage lending.
The Fund also pays Baker Fentress a monthly fee for providing accounting
services to the Trust, assisting in supervising various other services and
providing other specific services to the Fund including, but not limited to:
internal fund accounting and auditing services, valuing the Trust's assets and
calculating the net asset value of the shares of the Fund, assisting in the
preparation and filing of the Trust's tax returns, accumulating information for
the Trust's financial statements and preparing reports to the shareholders. This
fee is currently equal to $2,000, but will increase when the Fund's average
monthly net assets exceed $50 million. See "ADDITIONAL INFORMATION - Transfer
Agent and Accounting Services" in the Statement of Additional Information.
FUND EXPENSES
The Fund pays all of its expenses other than those expressly assumed by the
Investment Adviser or the Distributor. Expenses of the Fund are deducted from
the Fund's total income before dividends are paid. The Fund's expenses include,
but are not limited to: fees paid to the Investment Adviser; fees paid to Baker
Fentress for providing accounting services; payments to the Distributor pursuant
to the Distribution Plan adopted by the Trust; fees of the Fund's independent
auditors and custodian and certain related expenses; taxes; organization costs;
interest, costs incident to meetings of the Board of Trustees of the Trust and
meetings of the Fund's shareholders; costs of printing and mailing prospectuses
and reports to shareholders and the filing of reports with regulatory bodies;
legal fees and disbursements; fees payable to federal and state regulatory
authorities; fees and expenses of Trustees who are not affiliated with the
Investment Adviser or the Distributor; and any extraordinary expenses. Brokerage
fees and expenses are also borne by the Fund and are included in the purchase
and sales price of a security.
ABOUT YOUR INVESTMENT
PURCHASE OF SHARES
Shares are offered for sale on a continuous basis directly by the
Distributor, to the Separate Accounts at net asset value per share on each day
on which the NYSE is open for business, without any sales charge. Net asset
value per share is calculated once daily at 4:15 p.m., New York time, Monday
through Friday, each day the NYSE is open. Net asset value per share is computed
by subtracting the Fund's liabilities (including accrued expenses and dividends
payable) from the value of the Fund's investments and other assets and dividing
the result by the total number of shares of the Fund outstanding. The
determination of net asset value is made separately for each class of shares of
the Fund.
The Fund effects orders to purchase or redeem Shares, that are based on
premium payments, surrender and transfer requests and any other transaction
requests from Contract Owners and Policy Owners, annuitants and beneficiaries at
the net asset value per share next computed after the Separate Account receives
such transaction request. Any orders to purchase or redeem Shares that are not
based on actions by Contract Owners or Policy Owners, annuitants, and
beneficiaries will be effected at the net
14
<PAGE>
asset value per share next computed after the order is received by the
Distributor. The Fund reserves the right to suspend the sale of Shares in
response to conditions in the securities markets or for other reasons.
Individuals may not place orders to purchase Shares directly. Please refer
to the prospectus for the Separate Account of the Participating Company for more
information on the purchase of Shares.
REDEMPTION OF SHARES
A Separate Account may redeem all or any portion of the Shares that it
holds at any time at the next computed net asset value per share, as described
above. Shares that are redeemed are entitled to any dividends that have been
declared as payable to record owners up to and including the day the redemption
is effected. There is no redemption charge. Payment of the redemption price
will normally be made within seven days after receipt of such tender for
redemption.
The right of redemption may be suspended and the date of payment of the
redemption price may be postponed for any period during which the NYSE is closed
(other than customary weekend and holiday closings) or during which the SEC
determines that trading thereon is restricted, or for any period during which an
emergency (as determined by the SEC) exists as a result of which disposal by the
Fund of securities is not reasonably practicable or as a result of which it is
not reasonably practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the SEC may by order permit for the
protection of shareholders.
DISTRIBUTION PLAN
Under a distribution plan adopted by the Trust in accordance with Rule
12b-1 under the 1940 Act (the "Distribution Plan"), the Fund is authorized to
reimburse the Distributor for: payments made by the Distributor to other
securities dealers, Participating Companies and financial institutions which
engage in efforts to promote the sale of the Shares and which sell such Shares
or to reimburse such organizations for distribution related or shareholder
services related expenses they incur in selling Shares or providing Fund related
services to their customers; and such other activities related to the promotion
of sales of the Shares as may from time to time be specifically authorized by
the Board of Trustees, including a majority of the Trustees who are not
"interested persons" (as defined by the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the Distribution Plan
or any other agreement in respect of the Distribution Plan. Under the Plan, the
Trust is authorized to expend an amount annually which shall not exceed 0.25%
annually of the average daily net assets of Shares and such expenditures shall
be allocated solely to the holders of Shares and not to the holders of any other
class.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
The Fund declares and distributes dividends from net investment income
quarterly and will distribute its net capital gains, if any, at least annually.
Payment of all dividends and capital gains distributions will be made in Shares.
TAX MATTERS
The following discussion is a summary of the federal tax treatment of the
Fund and some of the tax consequences to the Separate Accounts of investing in
the Fund. It does not address the tax treatment of the Contract Owners or Policy
Owners. Contract Owners and Policy Owners should consult the prospectuses of the
Separate Accounts for information concerning the Federal income tax consequences
of owning Contracts or Policies, and should consult their own tax advisors
concerning federal and state tax consequences of such investments.
The Fund intends to qualify each year as a regulated investment company (a
"RIC") by satisfying the requirements of Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), concerning the diversification of the
Fund's assets, distribution of its income, and sources of its income. If so
qualified, the Fund will not be subject to Federal income tax to the extent that
it distributes its net income to shareholders as required by the Code. If for
any taxable year the Fund does not qualify as a RIC, then all of its taxable
income will be subject to federal corporate income tax.
Federal income tax would be imposed on the Fund if it failed to make
certain distributions of its income to shareholders. The Fund intends to
15
<PAGE>
make distributions in a manner which will avoid the imposition of such tax.
In addition, a 4% excise tax would be imposed upon the Fund if, in a particular
calendar year, the Fund failed to distribute substantially all of its ordinary
income and net capital gains for a twelve-month period, generally ending on
October 31st. This excise tax will not apply to the Fund if at all times during
the calendar year each shareholder in the Fund was a "segregated asset account"
(as defined in the Code) or a qualified plan. The Fund has been informed that
the Participating Companies intend to qualify the Separate Accounts as
segregated assets accounts.
Section 817(h) of the Code requires that investments of a segregated
asset account of an insurance company be "adequately diversified", in
accordance with Treasury Regulations promulgated thereunder, in order for the
holders of variable annuity contracts or variable life insurance policies
investing in the account to receive the tax-deferred or tax-free treatment
generally afforded holders of annuities or life insurance policies under the
Code. The Department of the Treasury has issued Regulations under section
817(h) which, among other things, provide the manner in which a segregated asset
account will treat investments in a RIC for purposes of the applicable
diversification requirements. Under the Regulations, if a RIC satisfies certain
conditions, that RIC will not be treated as a single investment for these
purposes, but rather the segregated asset account will be treated as owning its
proportionate share of each of the assets of the RIC. The Fund plans to satisfy
these conditions at all times.
Distributions by the Fund will be taxable, if at all, to the Separate
Accounts, and not to Contract or Policy Owners. A Separate Account will include
distributions in its taxable income in the year in which they are received
(notwithstanding the fact that they are reinvested). Distributions by the Fund
of income and the excess of net short-term capital gain over net long-term
capital loss will be treated as ordinary income, and distributions by the Fund
at net long-term capital gain over net short-term capital loss will be treated
as long-term capital gain. Redemptions of Shares generally will result in
recognition of capital gain or loss, if any, for federal income tax purposes.
Contract Owners and Policy Owners should consult the prospectuses of the
Separate Accounts for information concerning the Federal income tax treatment of
Separate Accounts that own shares.
The foregoing discussion of Federal income tax consequences is based on tax
laws and regulations as in effect on the date of this Prospectus, and is subject
to change by legislative or administrative action.
SHAREHOLDER COMMUNICATIONS
It is expected that Contract Owners and Policy Owners who have given
instructions for Separate Accounts to invest in Shares will receive from the
Participating Companies reports that will include, among other things, the
Fund's unaudited semi-annual financial statements and year-end financial
statements audited by the Trust's independent auditors. Each report will show
the investments owned by the Fund and will provide other information about the
Fund and its operations. The Fund may pay a portion of the cost of preparing
certain of those reports. Contract Owners and Policy Owners may obtain
information about the performance of the Fund on any business day by calling
toll-free 1-800-[xxx-xxxx] between 8:15 a.m. and 6:00 p.m., New York time.
Each Separate Account owning Shares will vote its shares in accordance with
instructions received from Contract Owners or Policy Owners, annuitants and
beneficiaries. Shares held by a Separate Account as to which no instructions
have been received will be voted for or against any matter, or in abstention, in
the same proportion as the Shares held by that Account as to which instructions
have been received. Shares held by a Separate Account that are not attributable
to Contracts or Policies will also be voted for or against any proposition in
the same proportion as the Shares for which voting instructions are received by
the Separate Account. If a Participating Company determines, however, that it is
permitted to vote any such Shares in its own right, it may elect to do so,
subject to the then current interpretations of the 1940 Act and the rules
thereunder.
16
<PAGE>
PERFORMANCE INFORMATION
From time to time the Fund may advertise or report certain information
about its investment performance. The Fund may present standardized and
nonstandardized total return in advertisements or other material. Standardized
total return is calculated in accordance with a formula prescribed by the SEC.
Under this method, total return is calculated by determining the difference
between the net asset value of all Shares held at the end of the period for
which a quotation is being given and the net asset value per share for each
Share held at the beginning of the period (assuming reinvestment of dividends
and other distributions), and then dividing that difference by the per Share net
asset value at the beginning of the period. (The calculations implicitly reflect
the compounding of dividends and other distributions by assuming reinvestment.)
The average annual compounded rate of return is the yearly rate of return that,
when applied evenly to each annual period and compounded, would produce the
total return for the period quoted. Nonstandardized total return differs from
standardized total return in that it may be related to a nonstandard period or
presented as an aggregate rate of return, rather than as an annual average.
Quotations of total return do not reflect charges imposed at the Separate
Account level.
The performance of the Fund may be compared to the performance of other
mutual funds with similar investment objectives and to other relevant indices or
to rankings prepared by independent services or other financial or industry
publications that monitor the performance of mutual funds. For example,
performance information may be compared with data published by Lipper Analytical
Services, Inc. or to unmanaged indices of stock market performance. The
performance information may also include evaluations of the Fund published by
nationally recognized ranking services and by various national or local
financial publications, such as Business Week, Forbes, Fortune, Institutional
Investor, Money, The Wall Street Journal, Barron's, Changing Times, Morningstar,
Mutual Fund Values, U.S.A. Today, The New York Times, or other industry or
financial publications.
Quotations of performance are historical, and should not be considered as
indicative of future results.
ADDITIONAL INFORMATION
Description of Shares. The Trust is a Delaware business trust organized
pursuant to a Certificate of Trust dated January 2, 1997. It is authorized to
issue an unlimited number of shares of beneficial interest, $.001 par value,
and to issue one or more series of such shares, each representing interests in a
separate investment portfolio. As of the date of this Prospectus, the Trust has
established only one series of its shares, representing interests in the Fund.
The Board of Trustees has the power to establish additional series of shares
representing interests in other investment portfolios and, subject to the 1940
Act and other applicable laws and regulations, to issue two or more classes of
shares of each series. Shares are fully paid and non-assessable, and have no
preemptive or conversion rights.
Shares being offered pursuant to this Prospectus are Class B shares of the
Fund. Class A shares of the Fund are offered pursuant to a separate prospectus.
The Class A and Class B shares each represent interests in the Fund, but differ
in that the Class B shares, unlike Class A shares, bear certain expenses
associated with the different investor services and distribution arrangement
that has been implemented for that class. See "DISTRIBUTION PLAN".
Shareholders of the Fund, together with shareholders of any other series of
the Trust that may in the future be organized, are entitled to vote on the
election of Trustees and the ratification of the Trust's independent auditors
when those matters are voted upon at a meeting of shareholders. On other
17
<PAGE>
matters affecting the Fund on which shareholders of the Fund are entitled to
vote, shares of the Fund and any other series would generally be voted as a
separate class. Although shares of each class of the Fund will generally vote
together on matters affecting the Fund and the Trust, each class has exclusive
voting rights on matters which relate solely to its distribution or investor
services arrangements and will vote separately on any matter as to which the
interests of shareholders of the classes differ. Each Share (and fractional
Share) is entitled to that number of votes which equals the net asset value of
such Share (or fraction thereof). All shares of the Trust have non-cumulative
voting rights, meaning that shareholders entitled to cast more than 50% of the
votes for the election of Trustees can elect all of the Trustees standing for
election if they choose to do so.
Under Delaware law, shareholders of the Fund could, under certain
circumstances, be held personally liable for the obligations of the Trust but
only to the extent of the shareholder's investment. However, the Declaration of
Trust disclaims liability of the shareholders, trustees or officers of the Trust
for acts or obligations of the Trust, which are binding only on the assets and
property of the Trust and requires that notice of the disclaimer be given in
each contract or obligation entered into or executed by the Trust or the
Trustees. The risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself
would be unable to meet its obligations and should be considered remote.
Annual meetings of shareholders will not be held except as required by the
1940 Act or other applicable law. A meeting will be held on the removal of a
trustee or trustees of the Trust if requested in writing by holders of not less
than 10% of the outstanding shares of the Trust.
Custodian. UMB Bank, n.a., P.O. Box 419226, Kansas City, Missouri
64141-6226, serves as custodian of the assets of the Fund. The custodian
maintains custody of all securities and other assets of the Fund, and is
authorized to hold the Fund's investments in securities depositories and to use
sub-custodians which have been approved by the Trust.
Distributor. The Distributor, LEVCO Securities, Inc., One Rockefeller
Plaza, New York, New York 10020, serves as the distributor of Shares. The
Distributor is a wholly-owned subsidiary of the Investment Adviser.
Independent Auditors. Ernst & Young LLP, Sears Tower, 233 South Wacker
Drive, Chicago, Illinois 60606-6301, serves as the independent auditors of
the Fund. Financial Statements of the Fund appearing in the Fund's annual
report will be audited by Ernst & Young LLP.
Counsel. Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York
10022, serves as counsel to the Fund, and also serves as counsel to the
Investment Adviser and its affiliates on certain matters.
Control Persons. As of the date of this Prospectus, all of the outstanding
shares of the Fund were owned by Mr. Norris Nissim, an interested person of the
Fund. This control relationship will continue to exist until such time as the
above-described share ownership represents 25% or less of the outstanding shares
of the Fund. Through the exercise of voting rights with respect to the shares,
the controlling person set forth above may be able to determine the outcome of
shareholder voting on matters as to which shareholder approval is required.
Additional Information. This Prospectus, including the Statement of
Additional Information which has been incorporated herein by reference, does not
contain all the information set forth in the Registration Statement filed by the
Trust with the SEC. Copies of the Registration Statement may be obtained at a
reasonable charge from the SEC or may be examined, without charge, at the office
of the SEC in Washington, D.C.
18
<PAGE>
- --------------------------------------------------------------------------------
LEVCO EQUITY VALUE FUND
- --------------------------------------------------------------------------------
INVESTMENT ADVISER
John A. Levin & Co., Inc.
One Rockefeller Center, 25th Floor
New York, New York 10020
DISTRIBUTOR
LEVCO Securities, Inc.
One Rockefeller Center, 25th Floor
New York, New York 10020
CUSTODIAN
UMB Bank, n.a.
P.O. Box 419226
Kansas City, Missouri 64141-6226
TRANSFER AGENT
Countrywide Financial Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
INDEPENDENT AUDITORS
Ernst & Young LLP
Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606-6301
LEGAL COUNSEL
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
SHAREHOLDER INQUIRIES
1 (800) [ ]
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS OR IN APPROVED SALES LITERATURE IN CONNECTION WITH THE OFFER
CONTAINED HEREIN, AND IF GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY THE TRUST OR
BY THE DISTRIBUTOR TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER.
- --------------------------------------------------------------------------------
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION--SUBJECT TO COMPLETION - MAY 20, 1997
- --------------------------------------------------------------------------------
Statement of Additional Information dated [__________ __], 1997
LEVCO EQUITY VALUE FUND
(a series of LEVCO Series Trust)
One Rockefeller Plaza
25th Floor
New York, New York 10020
- --------------------------------------------------------------------------------
LEVCO Equity Value Fund (the "Fund") is a series of LEVCO Series Trust (the
"Trust"), an open-end, diversified, management investment company (commonly
known as a mutual fund). The investment objective of the Fund is to achieve
long-term growth of capital through an emphasis on the preservation of capital
and an attempt to control volatility as measured against the Standard & Poor's
Composite 500 Stock Index (the "S&P 500"). The Fund pursues this objective by
investing its assets primarily in common stocks and other securities having
equity characteristics, which, in the opinion of the Fund's investment adviser,
are currently undervalued in relation to their intrinsic value. In pursuing its
objective, the Fund may utilize a variety of investment techniques. See
"INVESTMENT OBJECTIVE AND POLICIES." Options on securities, stock index options
and stock index futures and related options may be used by the Fund for hedging
purposes and involve certain risks.
John A. Levin & Co., Inc. (the "Investment Adviser") serves as the
investment adviser of the Fund.
Shares of the Fund, consisting of Class A and Class B shares ("Shares"),
are distributed by LEVCO Securities, Inc. (the "Distributor"). Shares are sold
only to certain life insurance companies ("Participating Companies") and their
separate accounts ("Separate Accounts") to fund benefits under variable annuity
contracts ("Contracts") and variable life insurance policies ("Policies")
offered by Participating Companies. The Separate Accounts invest in Shares in
accordance with allocation instructions received from Contract and Policy owners
("Contract Owners" and "Policy Owners"). These allocation rights are described
in the prospectus for the Separate Account. Shares are redeemed to the extent
necessary to provide benefits under the Contracts and Policies.
-------------------------------------------------------------------
Information about the Fund is set forth in the Prospectus for Class A
shares of the Fund and the Prospectus for Class B Shares of the Fund, each dated
___________________, 1997, which provide the basic information you should know
before investing and may be obtained without charge from the Transfer Agent by
calling: 1 (800) XXX-XXXX. This Statement of Additional Information is not a
Prospectus. It contains information in addition to and more detailed than that
set forth in the Prospectus and is intended to provide you with additional
information regarding the activities and operations of the Fund. This Statement
of Additional Information should be read in conjunction with the applicable
Prospectus.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
INVESTMENT OBJECTIVE AND POLICIES................................ B-3
INVESTMENT RESTRICTIONS.......................................... B-8
PORTFOLIO TRANSACTIONS AND BROKERAGE............................. B-10
DETERMINATION OF NET ASSET VALUE................................. B-11
TAXES............................................................ B-12
PURCHASES AND REDEMPTIONS OF SHARES.............................. B-13
TRUSTEES AND OFFICERS............................................ B-13
INVESTMENT ADVISORY AGREEMENT.................................... B-15
DISTRIBUTOR...................................................... B-16
DISTRIBUTION PLAN [Applicable to the Class B Shares Only]........ B-16
SPECIAL INVESTMENT TECHNIQUES.................................... B-17
PERFORMANCE INFORMATION.......................................... B-19
ADDITIONAL INFORMATION........................................... B-21
STATEMENT OF ASSETS AND LIABILITIES.............................. B-23
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
---------------------------------
The sections below describe, in greater detail than in the Fund's
Prospectuses, some of the different types of investments which may be made by
the Fund and the different investment practices in which the Fund may engage.
The use of options and futures contracts by the Fund are discussed on page B-18
under "SPECIAL INVESTMENT TECHNIQUES". The general investment policies of the
Fund are set forth in the Prospectuses.
TYPES OF EQUITY SECURITIES
- --------------------------
Equity securities purchased by the Fund may include common and preferred
and convertible preferred stocks, and securities having equity characteristics
such as rights, warrants and convertible debt securities. See "Convertible
Securities". Common stocks and preferred stocks represent equity ownership
interests in a corporation and participate in the corporation's earnings through
dividends which may be declared by the corporation. Unlike common stocks,
preferred stocks are entitled to stated dividends payable from the corporation's
earnings, which in some cases may be "cumulative" if prior stated dividends have
not been paid. Dividends payable on preferred stock have priority over
distributions to holders of common stock, and preferred stocks generally have
preferences on the distribution of assets in the event of the corporation's
liquidation. Preferred stocks may be "participating" which means that they may
be entitled to dividends in excess of the stated dividend in certain cases. The
rights of common and preferred stocks are generally subordinate to rights
associated with a corporation's debt securities. Rights and warrants are
securities which entitle the holder to purchase the securities of a company
(generally, its common stock) at a specified price during a specified time
period. Because of this feature, the values of rights and warrants are affected
by factors similar to those which determine the price of common stocks and
exhibit similar behavior. Rights and warrants may be purchased directly or may
be acquired in connection with a corporate reorganization or exchange offer. The
purchase of rights and warrants is subject to certain limitations.
CONVERTIBLE SECURITIES
- ----------------------
Securities of this type may be purchased by the Fund. They include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. The investment value changes based upon
prevailing interest rates and other factors. They also have a "conversion value"
which is the worth in market value if the security were to be exchanged for the
underlying equity security. Conversion value fluctuates directly with the price
of the underlying security. If conversion value is substantially below
investment value, the price of the convertible security is governed principally
by its investment value. If conversion value is near or above investment value,
the price of the convertible security generally will rise above investment value
and may represent a premium over conversion value due to the combination of the
convertible security's right to interest (or dividend preference) and the
possibility of capital appreciation from the conversion feature. A convertible
security's price, when price is influenced primarily by its conversion value,
will generally yield less than a senior non-convertible security of comparable
investment value. Convertible securities
B-3
<PAGE>
may be purchased at varying price levels above their investment values or
conversion values. However, there is no assurance that any premium above
investment value or conversion value will be recovered because prices change
and, as a result, the ability to achieve capital appreciation through conversion
may never be realized.
FOREIGN SECURITIES
- ------------------
The Fund may invest up to 20% of its total assets, at the time of purchase,
in foreign securities, including the securities of certain Canadian issuers and
securities purchased by means of American Depository Receipts ("ADRs").
Investments in foreign securities will be affected by a number of factors which
ordinarily do not affect investments in domestic securities.
Foreign securities may be affected by changes in currency exchange rates,
exchange control regulations, changes in governmental administration or economic
or monetary policy (in the U.S. and abroad), political events, expropriation or
nationalization or confiscatory taxation. Dividends and interest paid on foreign
securities may be subject to foreign withholding and other foreign taxes. In
addition, there may be less publicly available information concerning foreign
issuers than domestic issuers, and foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards comparable to those of
domestic issuers. Securities of certain foreign issuers and in certain foreign
markets are less liquid and more volatile than those of domestic issuers and
markets, and foreign brokerage commissions are generally higher than in the U.S.
There is also generally less regulation and supervision of exchanges, brokers
and issuers in foreign countries.
Securities denominated in foreign currencies may be affected favorably or
unfavorably by changes in foreign currency exchange rates, and costs will be
incurred in converting one currency to another. Exchange rates are determined by
forces of supply and demand, which forces are affected by a variety of factors
including international balances of payments, economic and financial conditions,
government intervention and speculation. Foreign currency exchange transactions
of the Fund may be effected on a "spot" basis (cash basis) at the prevailing
spot rate for purchasing or selling currency. The Fund may also utilize forward
foreign currency contracts as described below.
SHORT-TERM INVESTMENTS
- ----------------------
As discussed in the Prospectuses, the Fund may invest in a variety of
short-term debt securities ("money market instruments"), including instruments
issued or guaranteed by the U.S. Government or one of its agencies or
instrumentalities ("Government Securities") and repurchase agreements for such
securities. Money market instruments are generally considered to be debt
securities having remaining maturities of approximately one year or less.
Government Securities are obligations guaranteed by the U.S. Government or
issued by its agencies or instrumentalities, including, for example, obligations
of the Export-Import Bank of the United States, the General Services
Administration, Federal Land Banks, Farmers Home Administration and Federal Home
Loan Banks. Some Government Securities, such as U.S. Treasury obligations and
obligations issued by the Export-Import Bank and the Federal Housing
Administration, are backed by the full faith and credit of the U.S. Treasury.
Others, such as those issued by Federal Home Loan Banks, are backed by the
issuer's right to borrow from the U.S. Treasury. Some, such as those issued by
the Federal National Mortgage Association and Federal Farm Credit Banks, are
backed only by the issuer's own credit, with no guarantee of U.S. Treasury
backing. Other types of money market instruments include: certificates of
deposit, bankers' acceptances, commercial paper, letters of credit, short-term
corporate obligations and other obligations discussed below.
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<PAGE>
The short-term investments of the Fund in bank obligations may include
certificates of deposit, bankers' acceptances, time deposits and letters of
credit. These investments will be limited to: (1) obligations of U.S. commercial
banks and savings institutions having total assets of $1 billion or more and
instruments secured by such obligations, including obligations of foreign
branches of U.S. banks and (2) similar obligations of foreign commercial banks
having total assets of $1 billion or more or their U.S. branches which are
denominated in U.S. dollars. Obligations of foreign banks and their U.S.
branches are subject to additional risks of the types generally associated with
investment in foreign securities. See "Foreign Securities". Similar risks may
apply to obligations of foreign branches of U.S. banks. There are currently no
reserve requirements applicable to obligations issued by foreign banks or
foreign branches of U.S. banks. Also, not all of the federal and state banking
laws and regulations applicable to domestic banks relating to maintenance of
reserves, loan limits and promotion of financial soundness apply to foreign
branches of domestic banks and none of them apply to foreign banks.
Commercial paper constituting the short-term investments of the Fund must
be rated within the two highest grades by Standard & Poor's Corporation ("S&P")
or the highest grade by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, must be issued by a company having an outstanding debt issue rated at
least BBB by S&P or Baa by Moody's. Other types of short-term corporate
obligations (including loan participations and master demand notes) must be
rated at least A by S&P or Moody's to qualify as a short-term investment of the
Fund, or, if not rated, must be issued by a company having an outstanding debt
issue rated at least A by Moody's or S&P. The quality standards described above
may be modified by the Fund upon the approval of its Board of Trustees. Short-
term obligations of the types described above, but not meeting applicable
quality standards, may be purchased if they are purchased subject to a
repurchase agreement with (or guaranteed as to principal and interest by) a
domestic or foreign bank, a domestic savings institution or a corporation which
meets those quality standards, or a foreign government having an outstanding
debt security rated at least AA by S&P or Aa by Moody's.
REPURCHASE AGREEMENTS
- ---------------------
As discussed in the Prospectuses, the Fund may enter into repurchase
agreements involving the types of securities which are eligible for purchase by
the Fund. However, there is no limitation upon the maturity of the securities
underlying the repurchase agreements.
Repurchase agreements, which may be viewed as a type of secured lending by
the Fund, typically involve the acquisition of Government Securities or other
securities from a selling financial institution such as a bank, savings and loan
association or broker-dealer. The agreement provides that the Fund will sell
back to the institution and the institution will repurchase the underlying
security ("collateral") at a specified price and at a fixed time in the future,
usually not more than seven days from the date of purchase. The Fund will
receive interest from the institution until the time when the repurchase is to
occur. Although such date is deemed to be the maturity date of a repurchase
agreement, the maturities of securities subject to repurchase agreements are not
subject to any limits and may exceed one year.
While repurchase agreements involve certain risks not associated with
direct investments in debt securities, the Fund follows procedures designed to
minimize such risks. These procedures include the requirement that the
Investment Adviser effect repurchase transactions only with large, well
capitalized United States financial institutions approved by it as creditworthy
based upon periodic review under guidelines established and monitored by the
Trustees of the Fund. In addition, the value of the collateral underlying the
repurchase agreement, which will be held by the Fund's custodian in a segregated
account on behalf of the Fund, will always be at least equal to the repurchase
price, including any accrued interest
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<PAGE>
earned on the repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such collateral.
However, the exercise of the Fund's right to liquidate such collateral could
involve certain costs or delays and, to the extent that proceeds from any sale
upon a default of the obligation to repurchase were less than the repurchase
price, the Fund could suffer a loss. The Fund does not invest in repurchase
agreements that do not mature within seven days. Investments in repurchase
agreements may at times be substantial when, in the view of the Investment
Adviser, liquidity or other considerations so warrant.
TYPES OF DEBT SECURITIES
- ------------------------
The types of debt obligations in which the Fund may invest are described in
the Prospectuses. These investments are subject to certain quality limitations
and other restrictions and include money market instruments and other types of
obligations. See "INVESTMENT DESCRIPTIONS AND PRACTICES - Short-Term
Investments" and "Equity Securities" in the Prospectuses. Debt obligations are
subject to various risks as described in the Prospectuses. In addition,
investors should recognize that, although securities ratings issued by a
securities rating service provide a generally useful guide as to credit risks,
they do not offer any criteria to evaluate interest rate risk. Changes in
interest rate levels cause fluctuations in the prices of debt obligations and
will, therefore, cause fluctuations in the net asset values per share of the
Fund.
The Fund's investments in debt securities may include obligations rated
"investment grade" by a nationally recognized statistical rating organization (a
"NRSRO") or unrated obligations which are determined to be of comparable quality
by the Investment Adviser, and may also include non-investment grade
obligations. As discussed in the Prospectuses, non-investment grade obligations
involve certain risks.
Subsequent to the purchase of a debt security by the Fund, the ratings or
credit quality of a debt security may deteriorate. Any such subsequent adverse
changes in the rating or quality of a security held by the Fund would not
require the Fund to sell the security. However, the Investment Adviser will
evaluate and monitor the quality of all investments and will dispose of
investments which have deteriorated in their creditworthiness or ratings as
determined to be necessary to assure that the Fund's overall investments are
constituted in a manner consistent with the investment objective of the Fund.
The economy and interest rates affect lower rated obligations differently
from other securities. For example, the prices of these obligations have been
found to be less sensitive to interest rate changes than higher rated
investments but more sensitive to adverse economic changes or individual
corporate developments. Also, during an economic downturn or substantial period
of rising interest rates, highly leveraged issuers may experience financial
stress which would adversely affect their ability to service their principal and
interest payment obligations, meet projected business goals and obtain
additional financing. To the extent that there is no established retail
secondary market, there may be thin trading of lower rated obligations which may
adversely impact the ability of the Investment Adviser to accurately value such
obligations and the Fund's assets and may also adversely impact the Fund's
ability to dispose of the obligations. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of lower rated obligations, especially in a thinly traded
market.
Zero Coupon Securities. Debt securities purchased by the Fund may include
zero coupon securities. These securities do not pay any interest until maturity
and, for this reason, zero coupon securities of longer maturities may trade at a
deep discount from their face or par values and may be
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<PAGE>
subject to greater fluctuations in market value than ordinary debt obligations
of comparable maturity. Current federal tax law requires that the holder of a
zero coupon security accrue a portion of the discount at which the security was
purchased as income each year, even though the holder receives no interest
payment that year. It is not anticipated that the Fund will invest more than 5%
of its assets in zero coupon securities in the coming year.
Variable Rate Securities. Debt obligations purchased by the Fund may also
include variable and floating rate securities. The interest rates payable on
these securities are adjusted either at predesignated periodic intervals or
whenever there is a change in an established market rate of interest. Other
features may include a right whereby the Fund which holds the security may
demand prepayment of the principal amount prior to the stated maturity (a
"demand feature") and the right of an issuer to prepay the principal amount
prior to maturity. One benefit of variable and floating rate securities is
that, because of interest rate adjustments on the obligation, changes in market
value that would normally result from fluctuations in prevailing interest rates
are reduced. The benefit of a demand feature is enhanced liquidity.
FORWARD FOREIGN CURRENCY CONTRACTS
- ----------------------------------
As discussed in the Prospectuses, the Fund may enter into forward currency
contracts to purchase or sell foreign currencies as a hedge against possible
variations in foreign exchange rates. A forward foreign currency exchange
contract is an agreement between the contracting parties to exchange an amount
of currency at some future time at an agreed upon rate. The rate can be higher
or lower than the spot rate between the currencies that are the subject of the
contract. A forward contract generally has no deposit requirement, and such
transactions do not involve commissions. By entering into a forward contract for
the purchase or sale of the amount of foreign currency invested in a foreign
security, the Fund can hedge against possible variations in the value of the
dollar versus the subject currency either between the date the foreign security
is purchased or sold and the date on which payment is made or received
("transaction hedging"), or during the time the Fund holds the foreign security
("position hedging"). Hedging against a decline in the value of a currency
through the use of forward contracts does not eliminate fluctuations in the
prices of securities or prevent losses if the prices of securities decline.
Hedging transactions preclude the opportunity for gain if the value of the
hedged currency should rise. The Fund will not speculate in forward currency
contracts. If the Fund enters into a "position hedging transaction," which is
the sale of forward non-U.S. currency with respect to a security held by it and
denominated in such foreign currency, the Fund's custodian will place cash or
liquid securities in a separate account in an amount equal to the value of the
Fund's total assets committed to the consummation of such forward contract. If
the value of the securities placed in the account declines, additional cash or
securities will be placed in the account so that the value of cash or securities
in the account will equal the amount of the Fund's commitments with respect to
such contracts. The Fund will not attempt to hedge all of its non-U.S. portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by the Investment Adviser. The Fund will not enter into
forward contracts for terms of more than one year.
SECURITIES LOANS
- ----------------
Consistent with applicable regulatory requirements, the Fund may lend its
United States portfolio securities to brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the Fund
(subject to the notice provisions described below) and are at all times secured
by cash or cash equivalents maintained in a segregated account pursuant to
applicable regulations and which are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while
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<PAGE>
earning interest on the amounts deposited as collateral, which interest
will be invested in short-term investments.
A loan may be terminated by the borrower on one business day's notice, or
by the Fund on four business days' notice. If the borrower fails to deliver the
loaned securities within four days of receipt of notice, the Fund could use the
collateral to replace the securities while holding the borrower liable for any
excess of replacement cost over the collateral. As with any extensions of
credit, there are risks of delay in recovery and in some cases even loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans of securities will only be made to firms deemed by the Investment
Adviser to be creditworthy (such creditworthiness will be monitored on an
ongoing basis) and when the income which can be earned from such loans justifies
the attendant risks. Upon termination of the loan, the borrower is required to
return the securities. Any gain or loss in the market price during the loan
period would inure to the Fund.
When voting or consent rights which accompany loaned securities pass to the
borrower, the Fund will follow the policy of calling the loaned securities, to
be delivered within one day after notice, to permit the exercise of such rights
if the matters involved would have a material effect on the investment in such
loaned securities. The Fund will pay reasonable finder's, administrative and
custodial fees in connection with loans of securities. The Fund will not lend
securities if to do so would cause it to have loaned securities in excess of one
third of the value of the Fund's total assets, measured at the time of such
loan. The Fund may lend foreign securities consistent with the foregoing
requirements, but has no intention of doing so in the foreseeable future.
RESTRICTED SECURITIES
- ---------------------
The Fund may invest up to 10% of its net assets in securities subject to
restrictions on disposition under the Securities Act of 1933, as amended (the
"Securities Act") ("restricted securities"). Such investments, however, will be
limited to certain restricted securities that may be sold to institutional
investors pursuant to Rule 144A. In some cases, these securities may be
difficult to value to the extent that they are not publicly traded, and may be
difficult to sell promptly at favorable prices. The Fund's policies are intended
to enable it to invest a limited portion of its assets in investments subject
to restrictions on disposition, but which nevertheless are considered by the
Investment Adviser to be attractive. Except as described above, the Fund does
not purchase illiquid securities, including repurchase agreements maturing in
more than seven days.
INVESTMENT RESTRICTIONS
-----------------------
The Fund has adopted various investment restrictions on its investment
activities. Certain of these are fundamental policies which cannot be changed
without approval by the holders of a majority, as defined in the Investment
Company Act of 1940 (the "1940 Act"), of the Fund's outstanding voting shares.
For the Fund to alter a fundamental policy requires the affirmative vote of the
lesser of the holders of (a) 67% or more of the shares of the Fund present at a
meeting of shareholders, if the holders of at least 50% of the outstanding
shares (including shares of all classes) of the Fund are present or represented
by proxy or (b) more than 50% of the outstanding shares of the Fund (including
shares of all classes). Each Separate Account owning Shares will vote its shares
in accordance with instructions received from Contract Owners or Policy Owners,
annuitants and beneficiaries. See "SHAREHOLDER COMMUNICATIONS" in the
Prospectuses.
Under its fundamental policies, the Fund may not:
1. Purchase or sell commodities, including futures contracts, except that
the Fund may purchase and sell stock index futures and related options
and, in connection with its investments in foreign securities,
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<PAGE>
may enter into transactions involving foreign currency, options on
foreign currency and forward foreign currency exchange contracts.
2. Purchase or sell real estate or interests therein, or purchase oil,
gas or other mineral leases, rights or royalty contracts or
development programs, except that the Fund may invest in the
securities of issuers engaged in the foregoing activities and may
invest in securities secured by real estate or interests therein.
3. Issue senior securities as defined by the 1940 Act or borrow money,
except that the Fund may borrow from banks for temporary extraordinary
or emergency purposes (but not for investment) in an amount up to 10%
of the value of the Fund's total assets (calculated at the time of the
borrowing). The Fund may not make investments while it has borrowings
exceeding 5% of the value of its total assets outstanding. This
restriction shall not be deemed to prohibit the Fund from purchasing
or selling securities on a when-issued or delayed-delivery basis, or
entering into repurchase agreements, lending portfolio securities,
selling securities short against-the-box, or writing covered put and
call options on securities, stock indices and foreign currencies, in
each case in accordance with such investment policies as may be
adopted by the Board of Trustees.
4. Underwrite the securities of other issuers, except to the extent that
the Fund may be deemed to be an underwriter in connection with the
disposition of portfolio securities.
5. Make loans of money or securities, except that the Fund may lend money
through the purchase of permitted investments, including repurchase
agreements, and may lend its portfolio securities in an amount not
exceeding 33-1/3% of the value of the Fund's total assets.
The Fund has adopted the following additional investment restrictions which
are not fundamental and may be changed by the Board of Trustees. Under these
restrictions, the Fund may not:
1. Make short sales of securities (other than short sales against-the-
box) or purchase securities on margin, but the Fund may make margin
deposits in connection with its permitted investment activities.
2. Invest in the securities of a company for the purpose of exercising
management or control; however, this shall not be deemed to prohibit
the Fund from exercising voting rights with respect to its portfolio
securities.
3. Pledge, mortgage, hypothecate or otherwise encumber its assets, except
to secure permitted borrowings and to implement collateral and similar
arrangements incident to permitted investment practices.
4. Purchase securities which are illiquid, including repurchase
agreements maturing in more than seven days, except the Fund may
invest up to 10% of its net assets in certain restricted securities
that may be sold to institutional investors pursuant to Rule 144A.
5. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
B-9
<PAGE>
Except as otherwise stated, all percentage limitations on the Fund's
investment practices apply at the time of an investment or a transaction. A
later change in any percentage resulting from a change in the value of the
investment or the total value of the Fund's assets will not constitute a
violation of such restriction.
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
Subject to the general supervision of the Fund's Board of Trustees, the
Investment Adviser is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with non-affiliated dealers acting as
principal for their own accounts without a stated commission, although the price
of the securities usually includes a profit to the dealer. 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. Certain money market instruments may be purchased
directly from an issuer, in which case no commission or discounts are paid. The
Fund anticipates that its transactions involving foreign securities will be
effected primarily on the principal stock exchanges for such securities. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign stock exchanges and brokers than in the
United States.
The Investment Adviser currently serves as investment adviser to a number
of clients, and may in the future act as investment adviser to other clients,
including other registered investment companies. It is the practice of the
Investment Adviser to cause purchase and sale transactions to be allocated among
the portfolios whose assets it manages in such manner as it deems equitable. In
making such allocations, the main factors considered are the respective
investment objectives, the relative size of portfolio holdings of the same or
comparable securities, the availability of cash for investment, the size of
investment commitments generally held and the opinions of the persons
responsible for managing the Fund and the other client accounts. This procedure
may, under certain circumstances, have an adverse effect on the Fund.
The policy of the Fund regarding purchases and sales of securities is that
primary consideration will be given to obtaining the most favorable prices and
efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
The Board of Trustees of the Fund believes that a requirement always to seek the
lowest commission cost could impede effective management and preclude the Fund
and the Investment Adviser from obtaining high quality brokerage and research
services. In seeking to determine the reasonableness of brokerage commissions
paid in any transaction, the Investment Adviser may rely on its experience and
knowledge regarding commissions generally charged by various brokers and on
their judgment in evaluating the brokerage and research services received from
the broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Adviser effects
transactions with those brokers and dealers who it believes provide the most
favorable prices and which are capable of providing efficient executions. If the
Investment Adviser believes such price and execution are obtainable from more
than one broker or dealer, it may give consideration to placing transactions
with
B-10
<PAGE>
those brokers and dealers who also furnish research and other services to the
Fund or the Investment Adviser. Such services may include, but are not limited
to, any one or more of the following: information as to the availability of
securities for purchase or sale; statistical or factual information or opinions
pertaining to investments; wire services; and appraisals or evaluations of
securities. The information and services received by the Investment Adviser from
brokers and dealers may be of benefit in the management of accounts of other
clients and may not in all cases benefit the Fund directly. While such services
are useful and important in supplementing its own research and facilities, the
Investment Adviser believes the value of such services is not determinable and
does not significantly reduce its expenses.
Consistent with the policies described above, brokerage transactions in
securities listed on exchanges or admitted to unlisted trading privileges may be
effected through the Distributor, a registered broker-dealer affiliated with the
Investment Adviser. In order for such transactions to be effected, the
commissions, fees or other remuneration received by the Distributor must be
reasonable and fair compared to the commissions, fees or other remuneration paid
to other brokers in connection with comparable transactions involving similar
securities being purchased or sold on an exchange during a comparable period of
time. This standard would allow the Distributor to receive no more than the
remuneration which would be expected to be received by an unaffiliated broker in
a commensurate arm's-length transaction. In approving the use of an affiliated
broker, the Board of Trustees of the Fund, including a majority of the Trustees
who are not "interested persons" (as defined in the 1940 Act) of the Trust (the
"Independent Trustees"), has adopted procedures which are reasonably designed to
provide that any commissions, fees or other remuneration paid are consistent
with the foregoing standard.
DETERMINATION OF NET ASSET VALUE
--------------------------------
The Prospectuses describe the days on which the net asset values per share
of the Fund are computed for purposes of purchases and redemptions of Shares by
investors, and also sets forth the times as of which such computations are made
and the requirements applicable to the processing of purchase and redemption
orders. Net asset value is computed once daily each day the New York Stock
Exchange (the "NYSE") is open, except that no computation need be made on a day
on which no orders to purchase or redeem Shares have been received. The NYSE
currently observes the following holidays: New Year's Day; Presidents' Day
(third Monday in February); Good Friday (Friday before Easter); Memorial Day
(last Monday in May); Independence Day; Labor Day (first Monday in September);
Thanksgiving Day (last Thursday in November); and Christmas Day.
In valuing the assets of the Fund for purposes of computing net asset
value, securities are appraised at market value as of the close of trading on
each business day when the NYSE is open. Securities, other than stock options,
listed on the NYSE or other exchanges are valued on the basis of the last sale
price on the exchange on which they are primarily traded. However, if the last
sale price on the NYSE is different than the last sale price on any other
exchange, the NYSE price will be used. If there are no sales on that day, the
securities are valued at the bid price on the NYSE or other primary exchange for
that day. Securities traded in the over-the-counter market are valued on the
basis of the last sale price as reported by NASDAQ. If there are no sales on
that day, the securities are valued at the mean between the closing bid and
asked prices as reported by NASDAQ. Stock options traded on national securities
exchanges are valued at the last sale price prior to the time of computation of
net asset value per share. Futures contracts and options thereon, which are
traded on commodities exchanges, are valued at their daily settlement value as
of the close of such commodities exchanges. Securities for which quotations are
not readily available and other assets are appraised at fair value as determined
pursuant to procedures adopted in good faith by the Board of Trustees of the
Fund. Short-
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<PAGE>
term debt securities will be valued at their current market value when available
or fair value, which for securities with remaining maturities of 60 days or less
has been determined in good faith by the Board of Trustees to be represented by
amortized cost value, absent unusual circumstances. A pricing service may be
utilized to determine the fair value of securities held by the Fund. Any such
service might value the investments based on methods which include consideration
of: yields or prices of securities of comparable quality, coupon, maturity and
type; indications as to values from dealers; and general market conditions. The
service may also employ electronic data processing techniques, a matrix system
or both to determine valuation. The Board of Trustees will review and monitor
the methods used by such services to assure itself that securities are valued at
their fair values.
The values of securities held by the Fund and other assets used in
computing net asset value are determined as of the time trading in such
securities is completed each day, which, in the case of foreign securities,
generally occurs at various times prior to the close of the NYSE. Foreign
currency exchange rates are also generally determined prior to the close of the
NYSE. On occasion, the values of such securities and exchange rates may be
affected by events occurring between the time as of which determinations of such
values or exchange rates are made and the close of the NYSE. When such events
materially affect the value of securities held by the Fund or its liabilities,
such securities and liabilities will be valued at fair value in accordance with
procedures adopted in good faith by the Fund's Board of Trustees. The values of
any assets and liabilities initially expressed in foreign currencies will be
converted to U.S. dollars at the mean between the bid and offer prices of the
currencies against U.S. dollars last quoted by any major bank.
TAXES
-----
The following is only a summary of certain additional tax considerations
that are not described in the Prospectuses and generally affect the Fund and its
shareholders. It does not address the tax treatment of the Contract Owners or
Policy Owners. Contract Owners and Policy Owners should consult the prospectuses
of the Separate Accounts for information concerning the federal income tax
consequences of owning Contracts or Policies, and should consult their own tax
advisors concerning federal and state tax consequences of such investments. No
attempt is made to present a detailed explanation of the tax treatment of the
Fund or its shareholders, and the discussions here and in the Prospectuses are
not intended as substitutes for careful tax planning.
The Fund intends to qualify as a "regulated investment company" ("RIC")
under the Internal Revenue Code of 1986 (the "Code"). If so qualified, the Fund
will not be subject to federal income tax on its investment income and net
realized capital gains to the extent that such investment income and net
realized capital gains are distributed in each taxable year to the Separate
Accounts.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified", in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions,
that RIC will not be treated as a single
B-12
<PAGE>
investment for these purposes, but rather the segregated asset account will be
treated as owning its proportionate share of each of the assets of the RIC. The
Fund plans to satisfy these conditions at all times.
Dividends and interest received by the Fund from foreign investments may
give rise to withholding and other taxes imposed by foreign countries. Tax
conventions between certain countries and the United States may reduce or
eliminate such taxes.
Under present Delaware law, the Trust is not subject to income taxation
during any fiscal year in which the Fund qualifies as a RIC. However,
the Trust might be subject to Delaware income taxes for any taxable year in
which the Fund did not so qualify. Furthermore, the Trust may be subject to tax
in certain states where it does business. In those states which have income tax
laws, the tax treatment of the Trust and its shareholders in respect to
distributions may differ from federal tax treatment.
PURCHASES AND REDEMPTIONS OF SHARES
-----------------------------------
The Fund reserves the right, in its sole discretion, to (i) suspend the
offering of shares of the Fund, and (ii) reject purchase orders when, in the
judgment of the Investment Adviser, such suspension or rejection is in the best
interest of the Fund.
The Fund may suspend redemption privileges or postpone the date of payment
(i) during any period that the NYSE or the bond market is closed or trading on
the NYSE is restricted as determined by the Securities and Exchange Commission
(the "SEC"), (ii) during any period when an emergency exists, as defined by the
rules of the SEC, as a result of which it is not reasonably practicable for the
Fund to dispose of securities owned by it or fairly to determine the value of
its assets and (iii) for such other periods as the SEC may permit.
TRUSTEES AND OFFICERS
---------------------
The Board of Trustees of the Trust has the overall responsibility for
monitoring the operations of the Trust and the Fund and for supervising the
services provided by the Investment Adviser and other organizations. The
officers of the Trust are responsible for managing the day-to-day operations of
the Trust and the Fund.
B-13
<PAGE>
Set forth below is information with respect to each of the Trustees and
officers of the Trust, including their principal occupations during the past
five years.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION(S) WITH TRUST DURING LAST FIVE YEARS
- --------------------- ---------------------- ----------------------
<S> <C> <C>
John A. Levin, 58* Trustee, Co-Chairman President of the Investment Adviser. Prior to this,
One Rockefeller Plaza and President Mr. Levin was President of the predecessor of the
25th Floor Investment Adviser. Director, President and Chief
New York, NY 10020 Executive Officer of Baker, Fentress and Company
("Baker Fentress"). Director and President of the
Distributor.
Melody L. Prenner Sarnell, 41* Trustee and Co-Chairman Executive Vice President of the
One Rockefeller Plaza Investment Adviser. Prior to this,
25th Floor Ms. Sarnell was a portfolio
New York, NY 10020 manager at the predecessor of the
Investment Adviser. Director of Baker
Fentress. Director and Executive Vice
President of the Distributor.
Jeffrey A. Kigner, 36* Trustee and Co-Chairman Executive Vice President of the
One Rockefeller Plaza Investment Adviser. Prior to this,
25th Floor Mr. Kigner was a portfolio
New York, NY 10020 manager at the predecessor of the
Investment Adviser. Director of Baker
Fentress. Director of the Distributor.
Thomas C. Barry, 53 Trustee Founder and Principal of Zephyr
320 Park Avenue Management, L.P., a firm which
New York, NY 10022 provides financial counsel,
investment research and
management. Founder and
Chairman of CZ
Management/South Africa Capital
Growth Fund, a fund for private
equity investments in South Africa.
Prior to this, Mr. Barry was
President and Chief Executive
Officer of Rockefeller & Co., Inc.
Charles L. Booth, Jr., 64 Trustee Presently retired. Prior to this, Mr.
215 E. 68th Street #28E Booth was Executive Vice
New York, NY 10021 President and Chief Investment
Officer of Bank of New York.
James B. Rogers, Jr., 54 Trustee Visiting Professor at Columbia
352 Riverside Drive University, columnist and
New York, NY 10025 commentator on CNBC, and private
investor.
Edward J. Rosenthal, 63 Trustee Co-founder and Vice Chairman of
707 Westchester Avenue Cramer Rosenthal McGlynn, Inc.,
White Plains, NY 10604 an investment advisory firm.
Glenn A. Aigen, 34 Chief Financial Officer Chief Financial Officer of the
One Rockefeller Plaza and Treasurer Investment Adviser. Prior to this,
25th Floor Mr. Aigen was the Director of
New York, NY 10020 Operations of the predecessor of
the Investment Adviser. Prior to this,
Mr. Aigen was an Audit Manager at
Richard A. Eisner & Company, LLP.
Norris Nissim, 30 Secretary Director of Legal Affairs of the
One Rockefeller Plaza Investment Adviser and
25th Floor Distributor. Prior to this, Mr.
New York, NY 10020 Nissim was an associate at Schulte
Roth & Zabel LLP. Prior to that,
Mr. Nissim was an associate at
Fried Frank Harris Shriver and
Jacobson.
</TABLE>
*Designates a Trustee who is an "interested person" of the Trust as defined
by the 1940 Act.
John A. Levin, Jeffrey A. Kigner and Melody L. Prenner Sarnell are Trustees
who are "interested persons" of the Trust (as defined by the 1940 Act) by virtue
of their affiliations with the Investment Adviser or the Distributor. Trustees
who are not officers or employees of the Investment Adviser, the Distributor or
their affiliated companies, are each paid an annual retainer of $7,500.00.
Officers of the Trust, all of whom are members, officers or employees of the
Investment Adviser, the Distributor or their affiliates, receive no compensation
from the Trust.
B-14
<PAGE>
Annual Trustee compensation from the Trust is estimated as follows:
COMPENSATION TABLE
-------------------
<TABLE>
<CAPTION>
NAME OF AGGREGATE PENSION OR RETIREMENT ESTIMATED TOTAL COMPENSATION
PERSON, COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON FROM FUND COMPLEX
POSITION FROM FUND PART OF FUND EXPENSES RETIREMENT PAID TO TRUSTEES
- ------------ ------------ --------------------- ------------- ------------------
<S> <C> <C> <C> <C>
John A. Levin $0 $0 $0 $0
Jeffrey A. Kigner $0 $0 $0 $0
Melody L. Prenner Sarnell $0 $0 $0 $0
Thomas C. Barry $7,500.00 $0 $0 $15,000.00
Charles L. Booth, Jr. $7,500.00 $0 $0 $15,000.00
James B. Rogers, Jr. $7,500.00 $0 $0 $15,000.00
Edward Rosenthal $7,500.00 $0 $0 $15,000.00
</TABLE>
INVESTMENT ADVISORY AGREEMENT
-----------------------------
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectuses entitled "MANAGEMENT - Investment
Adviser".
The Investment Adviser is a Delaware corporation with offices at One
Rockefeller Plaza, 25th Floor, New York, New York 10020. It is an indirect,
wholly-owned subsidiary of Baker Fentress.
The Investment Adviser provides investment advisory and administrative
services to the Fund pursuant to an Investment Advisory Agreement (the "Advisory
Agreement"), dated [__________ __], 1997 with the Trust. The Advisory Agreement
was approved by the Trust's Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined by the 1940 Act) of the
Trust at a meeting held on May 22, 1997, and was also approved on such date by
the vote of the sole shareholder of the Trust on such date. The Advisory
Agreement is terminable without penalty, on 60 days' notice, by the Trust's
Board or by vote of the holders of a majority of the Fund's shares, or, on not
less than 60 days' notice, by the Investment Adviser. The Advisory Agreement has
an initial term expiring on [__________ __], [1999], and may be continued in
effect from year to year thereafter subject to the annual approval thereof by
(i) the Trust's Board or (ii) vote of a majority (as defined by the 1940 Act) of
the outstanding voting securities of the Fund, provided that in either event the
continuance must also be approved by a majority of the Trustees who are not
"interested persons" (as defined by the 1940 Act) of the Trust or the Investment
Adviser, by vote cast in person at a meeting called for the purpose of voting on
such approval. The Advisory Agreement provides that it will terminate
automatically in the event of its "assignment" (as defined by the 1940 Act and
the rules thereunder).
The Investment Adviser manages the Fund's investments in accordance with
the stated policies of the Fund, subject to the supervision of the Trust's
Board. The Investment Adviser is responsible for all investment decisions for
the Fund and for placing orders for the purchase and sale of investments for the
Fund's portfolio. The Investment Adviser also provides such administrative
services
B-15
<PAGE>
as the Trust and the Fund may require, except for certain accounting related
services which are furnished by an affiliate of the Investment Adviser. See
"ADDITIONAL INFORMATION--Transfer Agent and Accounting Services". The Investment
Advisor furnishes, at its own expense, such office space, facilities, equipment,
clerical help, and other personnel and services as may reasonably be necessary
in connection with the operations of the Trust and the Fund. In addition, the
Investment Adviser pays the salaries of officers of the Trust and any fees and
expenses of Trustees of the Trust who are also officers, directors or employees
of the Investment Adviser or who are officers or employees of any company
affiliated with the Investment Adviser and bears the cost of telephone service,
heat, light, power and other utilities associated with the services it provides.
In consideration of the services provided by the Investment Adviser, the
Fund pays the Investment Adviser a monthly fee computed at the annual rate of
.85% of the Fund's average daily net assets.
DISTRIBUTOR
-----------
Shares of the Fund are distributed on a continuous basis at their current
net asset value per share, without imposition of any front-end or contingent
deferred sales charge, by the Distributor. The Distributor provides these
services to the Fund pursuant to a Distribution Agreement (the "Distribution
Agreement"), dated [__________ __], 1997, with the Trust. The Distribution
Agreement was approved by the Board of Trustees, including a majority of the
Trustees who are not parties to the Distribution Agreement or "interested
persons" (as defined by the 1940 Act) of the Investment Adviser or the
Distributor, at a meeting held on May 22, 1997. The Distribution
Agreement is terminable without penalty, on 60 days' notice, by resolution of
the Trustees or by vote of a majority of the outstanding voting securities of
the Fund, or, on not less than 60 days' notice, by the Distributor. The
Distribution Agreement has an initial term of two years from the date of the
Distribution Agreement and may be continued in effect from year-to-year
thereafter, subject to the annual approval by (i) the Trust's Board or (ii) vote
of the holders of a majority of the Fund's outstanding voting securities,
provided that in either event the continuance must also be approved by a
majority of the Trustees who are not "interested persons" (as defined by the
1940 Act) of the Investment Adviser or the Distributor, by vote cast in person
at a meeting called for the purpose of voting on such approval. The Distribution
Agreement provides that it will terminate automatically in the event of its
"assignment" (as defined by the 1940 Act and the rules thereunder).
Under the terms of the Distribution Agreement, the Distributor bears all
the costs associated with distribution of the Shares of the Fund. The Trust
bears all of its costs and expenses, including the expense of preparing,
printing, mailing and otherwise distributing prospectuses, statements of
additional information, annual reports and other periodic reports for
distribution to prospective investors and the costs of preparing, distributing
and publishing sales literature and advertising materials. However, pursuant to
a plan of distribution adopted by the Trust, the Fund makes certain payments to
the Distributor for services provided by the Distributor with respect to the
Class B Shares. These payments are borne solely by holders of the Class B Shares
and are not an expense of Class A Shares. See "DISTRIBUTION PLAN". In the
Distribution Agreement, the Trust has agreed to indemnify the Distributor to the
extent permitted by applicable law against certain liabilities under the
Securities Act.
The offices of the Distributor are located at One Rockefeller Plaza, 25th
Floor, New York, New York 10020. The Distributor is a wholly-owned subsidiary
of the Investment Adviser.
DISTRIBUTION PLAN [APPLICABLE TO THE CLASS B SHARES ONLY]
---------------------------------------------------------
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectus for Class B Shares entitled
"Distribution Plan".
B-16
<PAGE>
Distribution Plan. Rule 12b-1 (the "Rule") adopted by the SEC under the
1940 Act provides, among other things, that an investment company may bear
expenses of distributing its shares only pursuant to a plan adopted in
accordance with the Rule. The Fund's Board has adopted such a plan (the
"Distribution Plan") with respect to the Class B Shares, pursuant to which the
Trust is authorized to utilize assets to finance the distribution of the Class B
Shares of the Fund and to reimburse the Distributor for payments it makes to
other securities dealers, insurance companies and financial institutions which
engage in efforts to promote the sale of the Class B Shares and which sell the
Class B Shares or to reimburse such organizations for distribution related or
shareholder services related expenses they incur in selling Class B Shares or
providing Fund related services to their customers. Under the Distribution Plan,
the Trust may expend an amount annually which shall not exceed 0.25% annually of
the average daily net assets of the Class B Shares. Payments to the Distributor
under the Distribution Plan will be made monthly to reimburse the Distributor
for its distribution related expenses. There is no requirement that these
expenses be incurred by the Distributor in the same fiscal year of the Fund as
the fiscal year in which reimbursement to the Distributor will be made. However,
the Distributor will not be entitled to be paid any interest (or carrying
charge) on amounts expended but not yet reimbursed by the Trust.
A quarterly report of the amounts expended under the Distribution Plan, and
the purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Distribution Plan provides that it may
not be amended to increase materially the costs which holders of Class B shares
may bear for distribution pursuant to the Distribution Plan without the approval
of such shareholders and that all material amendments to the Distribution Plan
must be approved by the Board, and by the Independent Trustees who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan, by
vote cast in person at a meeting called for the purpose of considering such
amendments. The Distribution Plan is subject to annual approval by such vote of
the Board members and the Independent Trustees cast in person at a meeting
called for the purpose of voting on the Distribution Plan. The Distribution Plan
may be terminated at any time by vote of a majority of the Board members who are
Independent Trustees and have no direct or indirect financial interest in the
operation of the Distribution Plan or in any agreements entered into in
connection with the Distribution Plan or by vote of the holders of a majority of
the Class B Shares.
SPECIAL INVESTMENT TECHNIQUES
-----------------------------
As discussed in the Prospectuses, the Fund may engage in certain
transactions in options and futures contracts and options on futures contracts.
The specific transactions in which the Fund may engage are noted and described
in the Prospectuses. The discussion below provides additional information
regarding the use of options on stock indices and stock index futures.
REGULATORY MATTERS
- ------------------
The Fund will comply with and adhere to all limitations on the manner and
extent to which it effects transactions in futures and options on such futures
currently imposed by the rules and policy guidelines of the Commodity Futures
Trading Commission as conditions for the exemption of a mutual fund, or the
investment advisers thereto, from registration as a commodity pool operator. In
accordance with those restrictions, the Fund will not, as to any positions,
whether long, short or a combination thereof, enter into futures and options
thereon for which the aggregate initial margins and premiums exceed 5% of the
fair market value of its assets after taking into account unrealized profits and
losses on the options the Fund has entered into. In the case of an option that
is "in-the-money", the in-the-money amount may be excluded in computing such 5%.
(In general, a call option on a future is "in-the-money" if the value of the
future exceeds the exercise ("strike") price of the call; a put option on a
future is "in-the-money" if the value of the future which is the subject of the
put is exceeded by the strike price of the put.) The Fund may use futures and
options thereon solely for bona fide hedging or for other non-speculative
purposes within the meaning and intent of the applicable provisions of the
Commodities Exchange Act and regulations thereunder. As to long positions which
are used as part of the Fund's investment strategy and are incidental to
its
B-17
<PAGE>
activities in the underlying cash market, the "underlying commodity value" of
the Fund's futures and options thereon must not exceed the sum of (i) cash set
aside in an identifiable manner, or short-term U.S. debt obligations or other
dollar-denominated high-quality, short-term money instruments so set aside, plus
sums deposited on margin; (ii) cash proceeds from existing investments due in 30
days; and (iii) accrued profits held at the futures commission merchant. The
"underlying commodity value" of a future is computed by multiplying the size of
the future by the daily settlement price of the future. For an option on a
future, that value is the underlying commodity value of the future underlying
the option.
RISKS OF OPTIONS ON STOCK INDICES
- ---------------------------------
As discussed in the Prospectuses, the purchase and sale of options on stock
indices will be subject to risks applicable to options transactions generally.
In addition, the distinctive characteristics of options on indices create
certain risks that are not present with stock options. Index prices may be
distorted if trading of certain stocks included in the index is interrupted.
Trading in index options also may be interrupted in certain circumstances, such
as if trading were halted in a substantial number of stocks included in the
index or if dissemination of the current level of an underlying index is
interrupted. If this occurs, the Fund would not be able to close out options
which it had purchased and, if restrictions on exercise were imposed, may be
unable to exercise an option it holds, which could result in losses if the
underlying index moves adversely before trading resumes. However, it is a policy
of the Fund to purchase options only on indices which include a sufficient
number of stocks so that the likelihood of a trading halt in the index is
minimized.
The purchaser of an index option may also be subject to a timing risk. If
an option is exercised by the Fund before final determination of the closing
index value for that day, the risk exists that the level of the underlying index
may subsequently change. If such a change caused the exercised option to fall
out-of-the-money (that is, the exercising of the option would result in a loss,
not a gain), the Fund will be required to pay the difference between the
closing index value and the exercise price of the option (times the applicable
multiplier) to the assigned writer. Although the Fund may be able to minimize
this risk by withholding exercise instructions until just before the daily
cutoff time, it may not be possible to eliminate this risk entirely, because the
exercise cutoff times for index options may be earlier than those fixed for
other types of options and may occur before definitive closing index values are
announced. Alternatively, when the index level is close to the exercise price,
the Fund may sell rather than exercise the option. Although the markets for
certain index option contracts have developed rapidly, the markets for other
index options are not as liquid. The ability to establish and close out
positions on such options will be subject to the development and maintenance of
a liquid secondary market. It is not certain that this market will develop in
all index option contracts. The Fund will not purchase or sell any index option
contract unless and until in the opinion of the Investment Adviser the market
for such options has developed sufficiently that the risk in connection with
such transactions is no greater than the risk in connection with options on
stocks.
STOCK INDEX FUTURES CHARACTERISTICS
- -----------------------------------
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. A determination as to which of the index contracts would be
appropriate for purchase or sale by the Fund will be based upon, among other
things, the liquidity offered by such contracts and the volatility of the
underlying index.
Unlike when the Fund purchases or sells a security, no price is paid to or
received by the Fund upon the purchase or sale of a futures contract. Instead,
the Fund will be required to deposit in its segregated
B-18
<PAGE>
asset account an amount of cash or qualifying securities (currently U.S.
Treasury bills) currently ranging from approximately 10% to 15% of the contract
amount. This is called "initial margin." Such initial margin is in the nature of
a performance bond or good faith deposit on the contract which is returned to
the Fund upon termination of the futures contract. Gains and losses on open
contracts are required to be reflected in cash in the form of variation margin
payments which the Fund may be required to make during the term of the contracts
to its broker. Such payments would be required where, during the term of a stock
index futures contract purchased by the Fund, the price of the underlying stock
index declined, thereby making the Fund's position less valuable. In all
instances involving the purchase of stock index futures contracts by the Fund,
an amount of cash together with such other securities as permitted by applicable
regulatory authorities to be utilized for such purpose, at least equal to the
market value of the futures contracts, will be deposited in a segregated account
with the Fund's custodian to collateralize the position. At any time prior to
the expiration of a futures contract, the Fund may elect to close its position
by taking an opposite position which will operate to terminate its position in
the futures contract.
Where futures are purchased to hedge against a possible increase in the
price of a security before the Fund is able to fashion its program to invest in
the security or in options on the security, it is possible that the market may
decline. If the Fund, as a result, decided not to make the planned investment at
that time either because of concern as to the possible further market decline or
for other reasons, the Fund would realize a loss on the futures contract that is
not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the stock index future and the
portion of the portfolio being hedged, the price of stock index futures may not
correlate perfectly with movements in the stock index due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between the index
itself and the value of a future. Moreover, the deposit requirements in the
futures market are less onerous than margin requirements in the securities
market and may therefore cause increased participation by speculators in the
futures market. Such increased participation may also cause temporary price
distortions. Due to the possibility of price distortion in the futures market
and because of the imperfect correlation between movements in stock indices and
movements in the prices of stock index futures, the value of stock index futures
contracts as a hedging device may be reduced. In addition, if the Fund has
insufficient available cash, it may at times have to sell securities to meet
variation margin requirements. Such sales may have to be effected at a time
when it may be disadvantageous to do so.
PERFORMANCE INFORMATION
-----------------------
The following information supplements and should be read in conjunction
with the section in the Fund's Prospectuses entitled "PERFORMANCE
INFORMATION".
GENERALLY
- ---------
As discussed in the Prospectuses, from time to time the Trust may
disseminate quotations of total return and other performance related and
comparative information.
From time to time, the performance of the Fund may be compared to the
performance of other mutual funds following similar objectives or to recognized
market indices. Comparative performance information may be used from time to
time in advertising or marketing the Fund's shares, including data
B-19
<PAGE>
from Lipper Analytical Services, Inc., the S&P 500, the Wilshire 5000 Index, the
Dow Jones Industrial Average, Money Magazine, Morningstar, Inc. and other
industry publications. The Fund's return may also be compared to the cost of
living (measured by the Consumer Price Index) or the return of various
categories of investments (as measured by Ibbotson Associates or others) over
the same period. In addition to performance rankings, the Fund may compare its
total expense ratio to the average total expense ratio of similar funds tracked
by Lipper Analytical Services, Inc.
In advertising materials, the Trust may quote or reprint financial or
business publications and periodicals, including model portfolios or
allocations, as they relate to current economic and political conditions, fund
management, portfolio composition, investment philosophy, investment techniques,
the desirability of owning a particular mutual fund, and the Investment
Adviser's services and products. The Investment Adviser may provide information
designed to clarify investment goals and explore various financial strategies.
Such information may include information about current economic, market, and
political conditions, and may include materials that describe general principles
of investing, such as asset allocation, diversification, risk tolerance, and
goal setting. Materials may also include discussions of other products and
services offered by the Investment Adviser.
The Trust may quote various measures of the volatility and benchmark
correlation of the Fund. In addition, the Trust may compare these
measures to those of other funds. Measures of volatility seek to compare the
Fund's historical share price fluctuations or total returns to those of a
benchmark. Measures of benchmark correlation indicate how valid a comparative
benchmark may also be. All measures of volatility and correlation are calculated
using averages of historical data.
TOTAL RETURN
- ------------
The Fund's quotations of total return will reflect the average annual
compounded rate of return on an assumed investment of $1,000 that equates the
initial amount invested to the ending redeemable value according to the
following formula:
P (1 + T)/n/ = ERV
where "P" represents a hypothetical initial investment of $1,000; "T" represents
average annual total return; "n" represents the number of years; and "ERV"
represents the ending redeemable value of the initial investment. Dividends and
other distributions are assumed to be reinvested in shares at the prices in
effect on the reinvestment dates. ERV will be adjusted to reflect the effect of
the Investment Adviser's agreement to absorb certain expenses as discussed in
the Prospectuses. Quotations of total return will be for one year, five year and
ten year periods ended on the date of the most recent balance sheet included in
the Trust's registration statement at such times as the registration statement
has been in effect for such periods. Until such time as the registration
statement has been effective for the one year, five year and ten year periods,
the Fund's quotations of total return will also include a quotation of total
return for the time period during which the registration statement has been in
effect or the time period since the commencement of operations, whichever period
begins later. The Fund may also provide quotations of total return
B-20
<PAGE>
for other periods and quotations of cumulative total returns, which reflect the
actual performance of the Fund over the entire period for which the quotation is
given.
NET ASSET VALUE
- ---------------
Charts and graphs using benchmark indices and the Fund's net asset values
or adjusted net asset values may be used to exhibit performance. An adjusted net
asset value includes any distributions paid by the Fund and reflects all
elements of its return.
ADDITIONAL INFORMATION
----------------------
CUSTODIAN
- ---------
UMB Bank, n.a., P.O. Box 419226, Kansas City, Missouri 64141-6226 serves as
custodian of the Trust's assets and maintains custody of the Fund's cash and
investments. Cash held by the custodian, which may at times be substantial, is
insured by the Federal Deposit Insurance Corporation up to the amount of
available insurance coverage limits (presently, $100,000).
CONTROL PERSONS AND HOLDERS OF SECURITIES
- -----------------------------------------
As of the date of this Statement of Additional Information, all of the
outstanding shares were owned by Mr. Norris Nissim, an officer of the Investment
Adviser and of the Fund. This control relationship will continue to exist until
such time as the above-described share ownership represents 25% or less of the
outstanding shares of the Fund. Through the exercise of voting rights with
respect to the shares, the controlling person set forth above may be able to
determine the outcome of shareholder voting on matters as to which shareholder
approval is required.
INDEPENDENT AUDITORS
- --------------------
Ernst & Young LLP, Sears Tower, 233 South Wacker Drive, Chicago, Illinois
60606-6301, serves as the independent auditors of the Fund. Financial Statements
of the Fund appearing in the Fund's annual report will be audited by Ernst &
Young LLP.
TRANSFER AGENT AND ACCOUNTING SERVICES
- -------------------------------------
The Trust has retained Countrywide Fund Services, Inc. (the "Transfer
Agent"), P.O. Box 5354, Cincinnati, Ohio 45201, to serve as the Fund's transfer
agent and dividend paying agent. The Transfer Agent is an indirect, wholly-owned
subsidiary of Countrywide Credit Industries, Inc., a NYSE listed company
principally engaged in the business of residential mortgage lending.
The Fund also pays Baker Fentress a monthly fee for providing accounting
related services to the Trust, assisting in supervising various other services
and providing other specific services to the Fund including, but not limited to:
internal fund accounting and auditing services, valuing the Trust's assets and
calculating the net asset value of the shares of the Fund, assisting in the
preparation and filing of the Trust's tax returns, accumulating information for
the Trust's financial statements and preparing reports to the shareholders. This
fee is equal to $2,000 for each month the Fund's average monthly net assets
total $50 million or less, $2,500 for each month average net assets total
$50,000,001 to $100 million, $3,000 for each month average net assets total
$100,000,001 to $200 million, $4,000 for each month average net assets total
$200,000,001 to $300 million and for each month net assets exceed $300 million,
$5,000 plus 0.001% of the Fund's average net assets in excess of $300
million.
B-21
<PAGE>
REPORTS TO SHAREHOLDERS
- -----------------------
Shareholders of the Fund will be kept fully informed through annual and
semi-annual reports showing diversification of investments, securities owned and
other information regarding the Fund's activities. The financial statements of
the Fund must be audited at least once a year by the Fund's independent
auditors.
LEGAL COUNSEL
- -------------
Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022 serves
as counsel to the Investment Adviser and its affiliates on certain matters.
REGISTRATION STATEMENT
- ----------------------
This Statement of Additional Information and the Prospectuses do not
contain all of the information set forth in the Registration Statement the Fund
has filed with the SEC. The complete Registration Statement may be obtained from
the SEC upon payment of the fee prescribed by the SEC rules and regulations.
B-22
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
[*To be filed by post-effective amendment]
B-23
<PAGE>
FORM N-1A EL
LEVCO SERIES TRUST
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
(1) Statement of Assets and Liabilities.**
(2) Report of Independent Accountants.**
(b) Exhibits
(1) (a) Certificate of Trust dated January 2, 1997.*
(b) Certificate of Amendment to Certificate of Trust dated
May 9, 1997.*
(c) Amended and Restated Declaration of Trust dated
May 1, 1997.*
(2) By-Laws.*
(3) Not Applicable.
(4) Instruments Defining the Rights of Holders of Securities.**
(5) Investment Advisory Contract.*
(6) Underwriting or Distribution Contract.*
(7) Not Applicable.
(8) Custodian Agreement.
(9) Contracts Not Made in the Ordinary Course of Business.
(a) Accounting Services Agreement.
(b) Transfer Agency and Dividend Disbursing Agreement.*
(10) Opinion and Consent of Counsel.*
(11) Consent of Independent Accountants.**
(12) Not Applicable.
(13) Letter of Investment Intent.*
(14) Not Applicable.
(15) Plan Pursuant to Rule 12b-1.*
(16) Not Applicable.
(17) Financial Data Schedule.**
(18) Plan Pursuant to Rule 18f-3.*
- -------------------
* Incorporated by Reference to Pre-Effective Amendment No. 1 to Registrant's
Registration Statement File Nos. 333-19297 and 811-08007, filed January 6,
1997.
**To be filed by post-effective amendment.
C-1
<PAGE>
Item 25. Persons Controlled by or Under Common Control with Registrant
LEVCO Equity Value Fund (the "Fund"), the initial series of LEVCO
Investment Trust (the "Trust"), may be deemed to be controlled by Mr. Norris
Nissim, an officer of John A. Levin & Co., Inc. (the "Investment Adviser") and
of the Fund, who owns all of the Fund's outstanding shares.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
-------------- ------------------------
<S> <C>
Shares of Beneficial One
Interest in LEVCO
Equity Value Fund
</TABLE>
Item. 27. Indemnification
A Delaware business trust may provide in its governing instrument for
indemnification of its officers and trustees from and against any and all claims
and demands whatsoever. Article III, Section 7 of the Amended and Restated
Declaration of Trust provides that if any shareholder or former shareholder
shall be exposed to liability by reason of a claim or demand relating to his or
her being or having been a shareholder, and not because of his or her acts or
omissions, the shareholder or former shareholder (or his or her heirs,
executors, administrators, or other legal representatives or in the case of a
corporation or other entity, its corporate or other general successor) shall be
entitled to be held harmless from and indemnified out of the assets of the Trust
against all loss and expense arising from such claim or demand.
Pursuant to Article VII, Section 2 of the Amended and Restated
Declaration of Trust, the trustees of the Trust (the "Trustees") shall not be
responsible or liable in any event for any neglect or wrongdoing of any officer,
agent, employee, investment adviser or principal underwriter of the Trust, nor
shall any Trustee be responsible for the act or omission of any other Trustee,
and the Trust out of its assets shall have the power to indemnify and hold
harmless each and every Trustee from and against any and all claims and demands
whatsoever arising out of or related to each Trustee's performance of his duties
as a Trustee of the Trust to the fullest extent permitted by law, subject to
such limitations and requirements as may be set forth in the By-Laws; provided
that nothing herein contained shall indemnify, hold harmless or protect any
Trustee from or against any liability to the Trust or any shareholder to which
he 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
office.
The Advisory Agreement will provide that John A. Levin & Co., Inc.
(the "Investment Adviser") will use its best efforts in the supervision and
management of the investment activities of the Trust, but in the absence of
willful misfeasance, bad faith, gross negligence or reckless disregard of its
obligations thereunder, the Investment Adviser shall not be liable to the Trust
or the Fund for any error of judgment or mistake of law or for any act or
omission by the Investment Adviser or for any losses sustained by the Trust, the
Fund or the shareholders.
C-2
<PAGE>
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in such Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the 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, the 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 such Act and will
be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
The Investment Adviser is primarily engaged in the business of
providing investment advice. John A. Levin, the President of the Investment
Adviser, serves as a director of the following investment companies: Morgan
Stanley Africa Investment Fund, Inc.; Morgan Stanley Asia-Pacific Fund, Inc.;
Morgan Stanley Emerging Markets Fund, Inc.; Morgan Stanley Emerging Markets Debt
Fund, Inc.; Morgan Stanley Global Opportunity Bond Fund, Inc.; The Morgan
Stanley High Yield Fund, Inc.; Morgan Stanley Russia & New Europe Fund, Inc.;
The Brazilian Investment Fund, Inc.; The Latin American Discovery Fund, Inc.;
The Malaysia Fund, Inc.; The Pakistan Investment Fund, Inc.,; The Thai Fund,
Inc.; The Turkish Investment Fund, Inc.; and The Morgan Stanley India Investment
Fund, Inc.
A description of any other business, profession, vocation, or
employment of a substantial nature in which the Investment Adviser, and each
director, executive officer, or partner of the Investment Adviser, is or has
been, at any time during the past two fiscal years, engaged in for his or her
own account or in the capacity of director, officer, employee, partner or
trustee, is set forth in the Form ADV of John A. Levin & Co., Inc. (File No.
801-52602) as filed with the Securities and Exchange Commission, and is
incorporated herein by reference.
Item 29. Principal Underwriters
LEVCO Securities, Inc., a wholly owned subsidiary of the Investment
Adviser, acts as the sole underwriter distributing securities of the Registrant.
LEVCO Securities, Inc. anticipates that it will also act as principal
distributor for LEVCO Investment Trust.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business with Underwriter with Registrant
<S> <C> <C>
John A. Levin Director and President Trustee, Co-Chairman
One Rockefeller Plaza, 25th floor and President
New York, NY 10020
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business with Underwriter with Registrant
<S> <C> <C>
Jeffrey A. Kigner Director Trustee and Co-Chairman
One Rockefeller Plaza, 25th floor
New York, NY 10020
Melody L. Prenner Sarnell Director and Executive Trustee and Co-Chairman
One Rockefeller Plaza, 25th floor Vice President
New York, NY 10020
Glenn A. Aigen Vice President and Chief Financial Officer
One Rockefeller Plaza, 25th floor Chief Financial Officer and Treasurer
New York, NY 10020
Carol L. Novak Vice President and None
One Rockefeller Plaza, 25th floor Secretary
New York, NY 10020
</TABLE>
Item 30. Location of Accounts and Records
All accounting and financial books and records required to be
maintained under Section 31(a) of the Investment Company Act of 1940, as
amended, and the rules promulgated thereunder with respect to the Registrant
will be maintained by Baker, Fentress & Company, an affiliate of the Investment
Adviser, at the following office:
Baker, Fentress & Company
200 West Madison Street
Suite 3510
Chicago, IL 60606
Item 31. Management Services
Other than as set forth in Parts A and B of this Registration
Statement, the Registrant is not a party to any management-related service
contract.
Item 32. Undertakings
Registrant undertakes to file an amendment to this Registration
Statement with certified financial statements showing the initial capital
received before accepting subscriptions from any persons in excess of 25.
Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to six months from
the effective date of the Registrant's 1933 Act Registration Statement.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant has duly caused this Pre-Effective
Amendment No. 2 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York, and State of New
York on the 27th, day of May, 1997.
LEVCO SERIES TRUST
By: /s/ John A. Levin
------------------------
Name: John A. Levin
Title: Trustee and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ John A. Levin Trustee, Co-Chairman and President May 27, 1997
- ---------------------------------------------------------------------------------------------
John A. Levin
/s/ Jeffrey A. Kigner Trustee, Co-Chairman May 27, 1997
- ---------------------------------------------------------------------------------------------
Jeffrey A. Kigner
/s/ Glenn A. Aigen Chief Financial Officer and Treasurer May 27, 1997
- ---------------------------------------------------------------------------------------------
Glenn A. Aigen
/s/ Melody L. Prenner Sarnell Trustee and Co-Chairman May 27, 1997
- ---------------------------------------------------------------------------------------------
Melody L. Prenner Sarnell
/s/ Thomas C. Barry Trustee May 27, 1997
- ---------------------------------------------------------------------------------------------
Thomas C. Barry
/s/ Charles L. Booth, Jr. Trustee May 27, 1997
- ---------------------------------------------------------------------------------------------
Charles L. Booth, Jr.
/s/ James B. Rogers, Jr. Trustee May 27, 1997
- ---------------------------------------------------------------------------------------------
James B. Rogers, Jr.
/s/ Edward J. Rosenthal Trustee May 27, 1997
- ---------------------------------------------------------------------------------------------
Edward J. Rosenthal
</TABLE>
C-5
<PAGE>
FORM N-1A EL/A
LEVCO SERIES TRUST
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(b) Exhibits
(1) (a) Certificate of Trust dated January 2, 1997.
(b) Certificate of Amendment to Certificate of Trust
dated May 9, 1997.
(c) Amended and Restated Declaration of Trust dated
May 1, 1997.
(2) By-Laws.
(5) Investment Advisory Contract
(6) Underwriting or Distribution Contract.
(8) Custodian Agreement
(9) Contracts Not Made in the Ordinary Course of
Business.
(a) Accounting Services Agreement.
(b) Transfer Agency and Dividend Disbursing
Agreement.
(10) Opinion and Consent of Counsel.
(13) Letter of Investment Intent.
(15) Plan Pursuant to Rule 12b-1.
(18) Plan Pursuant to Rule 18f-3.
C-6
<PAGE>
ACCOUNTING SERVICES AGREEMENT
AGREEMENT made as of the _____ day of __________, 1997 by and between
Baker Fentress & Company, a [Delaware corporation] ("BKF"), and LEVCO Series
Trust, a Delaware business trust (the "Trust").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act");
and
WHEREAS, the Trust desires to retain BKF to render certain accounting
services to those series of the Trust described in Schedule A hereto, (each a
"Fund" and, collectively, the "Funds"), and BKF is willing to render such
services;
W I T N E S S E T H:
--------------------
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. The Trust hereby appoints BKF to act as accounting
agent for the Trust on the terms set forth in this Agreement. BKF accepts such
appointment and agrees to render the services herein set forth for the
compensation provided for in Schedule C, annexed hereto and incorporated herein.
In the event that the Trust establishes additional series with respect
to which the Trust decides to retain BKF to act as accounting agent, the Trust
shall so notify BKF in writing. If BKF is willing to render such services, BKF
shall notify the Trust in writing whereupon such portfolio shall be deemed to be
a Fund hereunder and shall be subject to the provisions of this Agreement except
to the extent that said provisions (including those relating to the compensation
payable by the Funds to BKF) are modified with respect to such Fund in writing
by the Trust and BKF at the time. Without limiting the foregoing, it is
understood that the Trust will from time to time issue separate series or
classes of shares and may classify and reclassify shares of any such series or
class. BKF shall identify to each such series or class property belonging to
such series or class and in such reports, confirmations and notices to the Trust
called for under this Agreement shall identify the series or class to which such
report, confirmation or notice pertains.
2. Delivery of Documents and Information; Changes. The Trust will
provide BKF with any documents that BKF may reasonably request and will notify
BKF as soon as possible of any matter affecting the performance by BKF of its
services under this Agreement; provided that BKF shall have no responsibility
for compliance with the terms of any document (including the Declaration of
Trust, By-Laws and Prospectuses of the Trust) or with any accounting policy or
procedure adopted by the Trust until BKF has received such document or notice of
such policy or procedure.
<PAGE>
3. Duties. Subject to the supervision and direction of the Board of
Trustees of the Trust, BKF, as accounting agent, will provide the accounting
related services to the Trust listed in Schedule B annexed hereto and
incorporated herein.
Subject to paragraph 2 of this Agreement, in performing its duties as
accounting agent for the Trust, BKF will act in accordance with the Declaration
of Trust, By-Laws, and Prospectuses of the Trust and with the instructions and
directions of the Board of Trustees of the Trust and will, in all material
respects, conform to and comply with the requirements of the 1940 Act and the
rules thereunder and all other applicable federal or state laws and regulations.
4. Compensation. BKF shall bear all expenses in connection with the
performance of its services under this Agreement, except as noted below.
(a) The Trust shall compensate BKF for its services rendered
pursuant to this Agreement in accordance with the fees set forth in Schedule C,
annexed hereto and incorporated herein. BKF shall bear its own expenses in
connection with the performance of its services under this Agreement, except
that BKF shall be entitled to reimbursement of these out-of-pocket disbursements
specified in Schedule D, annexed hereto and incorporated herein, in addition to
the fees shown in Schedule C. BKF shall have no responsibility for payment of
any expense properly payable by the Trust, including, but not limited, to costs
of printing and mailing prospectuses, reports and notices; taxes and fees
payable to federal, state and other governmental agencies; outside auditing
expenses; outside legal expenses.
-2-
<PAGE>
(b) BKF will bill the Trust as soon as practicable after the
end of each calendar quarter, and said billings will be detailed in accordance
with the out-of-pocket schedule. The Trust will promptly pay to BKF the
amount of such billing.
5. Changes in Equipment, Systems, Service, Etc. BKF reserves the
right to make changes from time to time, as it deems advisable, relating to its
services, systems, programs, rules, operating schedules and equipment, so long
as such changes do not adversely affect the service provided to the Trust under
this Agreement.
6. Records, BKF shall keep records relating to the services to be
performed hereunder, in the form and manner, and for such period as it may deem
advisable and is agreeable to the Trust but not inconsistent with the rules and
regulations of appropriate government authorities, in particular, Section 31 of
the 1940 Act and the rules thereunder. BKF agrees that all such records prepared
or maintained by BKF relating to the services to be performed by BKF hereunder
are the property of the Trust and will be preserved, maintained, and made
available with such section and rules of the 1940 Act and will be promptly
surrendered to the Trust on and in accordance with its request.
7. Confidentiality. BKF shall handle in confidence all information
relating to the Trust's business, which is received by BKF during the course of
rendering any service hereunder.
8. Notification of Error. The Trust will notify BKF of any balancing
or control error caused by BKF within three (3) business days after receipt of
any reports rendered by BKF to the Trust, or within three (3) business days
after discovery of any error or omission not covered in the balancing or control
procedure, or within three (3) business days of receiving notice from any
shareholder.
9. Limitation of Liability.
(a) BKF shall not be liable to the Trust for any error of
judgment or mistake of law or for any loss suffered by the Trust in connection
with the performance of its obligations and duties under this Agreement
(including losses resulting from mechanical breakdowns or the failure of
communications or power supplies beyond BKF's control), except a loss resulting
from BKF's willful misfeasance, bad faith or negligence in the performance of
such obligations and duties, or by reason of its reckless disregard thereof. The
Trust will indemnify BKF against and hold it harmless from any and all losses,
claims, damages, liabilities or expenses (including reasonable counsel fees and
expenses) resulting from any claim, demand, action or suit not resulting from
the willful misfeasance, bad faith or negligence of BKF in the performance of
such obligations and duties or by reason of its reckless disregard thereof. The
Trust and BKF agree that the obligations of the Trust under this Agreement shall
not be binding upon any of the members of the Trust's Board of Trustees,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Trust, individually, but are binding only upon the assets and
property of the Trust, as provided in the Declaration of Trust. The execution
and delivery of this Agreement have been authorized by the Board of Trustees and
signed by an authorized officer of the Trust, acting as such, and neither such
authorization by such members of the Board of Trustees nor such execution and
delivery by such officer shall be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but shall
bind only the assets and property of the Trust as provided in the Declaration of
Trust.
(b) In no event and under no circumstances shall either party to
this Agreement be liable to the other party for consequential or indirect loss
of profits, reputation or business or any other special damages under any
provision of this Agreement or for any act or failure to act hereunder.
10. Term and Termination.
(a) This Agreement shall remain in effect for an initial term of
two years from the date hereof and from year to year thereafter provided such
continuance is approved at least annually by the Board of Trustees of the Trust,
and such continuance is also approved annually by the vote of a majority of the
trustees of the Trust who are not parties to this agreement or "interested
persons" (as defined in the 1940 Act) of any such party; and provided, however,
that: (a) the Trust may, at any time and without the payment of any penalty,
terminate this Agreement upon sixty days' written notice to BKF; (b) this
agreement shall immediately terminate in the event of its assignment (as such
term is used by the 1940 Act and the rules thereunder); and (c) BKF may
terminate this agreement without payment of any penalty on sixty day's written
notice to the Trust.
-3-
<PAGE>
(b) In the event a termination notice is given by the Trust, all
reasonable out-of-pocket expenses associated with movement of records and
materials and conversion thereof will be borne by the Trust.
11. Amendment to this Agreement. No provision of this Agreement may
be changed, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, discharge
or termination is sought.
12. Miscellaneous.
(a) Any notice or other instrument authorized or required by
this Agreement to be given in writing to the Trust or BKF shall be sufficiently
given if addressed to the party and received by it at its office set forth below
or at such other place as it may from time to time designate in writing.
To the Trust:
LEVCO Series Trust
One Rockefeller Plaza
25th Floor
New York, New York 10020
Attention: Glenn Aigen
To BKF:
200 West Madison Street
Suite 3510
Chicago, Illinois 60606
Attn: James P. Koneman
(b) This Agreement shall extend to and shall be binding upon the
parties hereto and their respective successors and permitted assigns.
(c) This Agreement shall be construed in accordance with the laws
of the State of New York.
(d) This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and which collectively shall be
deemed to constitute only one instrument.
(e) The captions of this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect.
(f) This Agreement and the schedules hereto constitute the entire
agreement between the parties hereto with respect to the matters described
herein.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
BAKER FENTRESS & COMPANY
By:
---------------------
LEVCO SERIES TRUST
By:
---------------------
-5-
<PAGE>
SCHEDULE A
SERIES OF THE TRUST
The series of LEVCO Series Trust currently subject to this Agreement are as
follows:
LEVCO Equity Value Fund
-6-
<PAGE>
SCHEDULE B
ACCOUNTING RELATED SERVICES
A. Portfolio Accounting Services:
(1) Maintain portfolio records on a trade date +1 basis using security
trade information communicated from the investment manager on a timely
basis.
(2) For each valuation date, obtain prices from a pricing source approved
by the Board of Trustees and apply those prices to the portfolio
positions. For those securities where market quotations are not readily
available, the Board of Trustees shall approve, in good faith, the
method for determining the fair value for such securities. If the Fund
desires to provide a price which varies from the pricing source, the
Fund shall promptly notify and supply BKF with the valuation of any
such security on each valuation date. All pricing changes made by the
Fund will be in writing and must specifically identify the securities
to be changed by CUSIP, name of security, new price or rate to be
applied, and, if applicable, the time period for which the new price is
effective.
(3) Identify interest and dividend accrual balances as of each valuation
date and calculate gross earnings on investments for the accounting
period.
(4) Determine gain/loss on security sales and identify them as to short-
short, short- or long-term status; account for periodic distributions
of gains or losses to shareholders and maintain undistributed gain or
loss balances as of each valuation date.
B. Expense Accrual and Payment Services;
(1) For each valuation date, calculate the expense accrual amounts as
directed by the Trust as to methodology, rate or dollar amount.
(2) Record payments for Fund expenses upon receipt of written authorization
from the Fund.
(3) Account for Trust expenditures and maintain expense accrual balances at
the level of accounting detail, as agreed upon by BKF and the Trust.
(4) Provide expense accrual and payment reporting.
-7-
<PAGE>
C. Fund Valuation and Financial Reporting Services:
(1) Account for Fund share purchases, sales, exchanges, transfers, dividend
reinvestments, and other Fund share activity as reported by the
transfer agent on a timely basis.
(2) Determine net investment income (earnings) for the Fund as of each
valuation date. Account for periodic distributions of earnings to
shareholders and maintain undistributed net investment income balances
as of each valuation date.
(3) Maintain a general ledger for the Fund in the form as agreed upon.
(4) For each day the Fund is open as defined in the prospectus relating to
shares of the Fund as in effect from time to time, determine the net
asset value per share of the Fund according to the accounting policies
and procedures set forth in the prospectus.
(5) Calculate per share net asset value, per share net earnings, and other
per share amounts reflective of Fund operation at such time as required
by the nature and characteristics of the Fund.
(6) Communicate, at an agreed upon time, the per share price for each
valuation date to parties as agreed upon from time to time.
(7) Prepare monthly reports which document the adequacy of accounting
detail to support month-end ledger balances.
D. Tax Accounting Services:
(1) Maintain accounting records for the investment portfolio of the Fund to
support the tax reporting required for IRS-defined regulated investment
companies, under the Internal Revenue Code of 1986, as amended, and
regulations thereunder.
(2) Maintain tax lot detail for the investment portfolio.
(3) Calculate taxable gain/loss on security sales using the tax lot relief
method designed by the Fund.
(4) Provide the necessary financial information to support the taxable
components of income and capital gains distributions to the transfer
agent to support tax reporting to the shareholders.
(5) Assist the Fund's independent public accounts in preparation of the
Fund's federal and state income tax returns.
-8-
<PAGE>
E. Compliance Control Services
(1) Support reporting to regulatory bodies and support financial statement
preparation by making the Fund accounting records available to the
Fund, its investment adviser, the Securities and Exchange Commission,
and the Fund's independent public accountants.
F. Shareholder and Regulatory Reporting:
(1) Support reporting to shareholders by preparing, subject to approval by
the Treasurer of the Trust, financial statements for inclusion in
annual and semiannual reports to shareholders.
(2) Prepare and, subject to approval by the Treasurer of the Trust, file
with the Securities and Exchange Commission, reports on Form N-SAR
and Rule 24f-2 Notices.
9
<PAGE>
SCHEDULE C
FEE SCHEDULE
In consideration of the services provided under this Agreement, BKF shall be
entitled to receive a monthly fee, payable monthly in arrears, equal to the
following:
Average Monthly Net Assets Monthly Fee
-------------------------- -----------
$ 0 - 50,000,000 $2,000
50 - 100,000,000 $2,500
100 - 200,000,000 $3,000
200 - 300,000,000 $4,000
over 300,000,000 $5,000 plus
0.001% on amount in excess
of $300 million.
Monthly fees shall be pro-rated for any month as to which this Agreement is not
in effect for the entire month.
-10-
<PAGE>
SCHEDULE D
OUT-OF-POCKET EXPENSES
Out-of-pocket expenses are limited to the following items:
- - Postage (including overnight or other courier services)
- - Telephone
- - Telecommunications charges (including FAX)
- - Duplicating charges
- - Pricing services
- - Forms and supplies
- - Such other expenses as are agreed to by BKF and the Trust
- - Charges related to EDGAR conversion and filing
-11-
<PAGE>
0397/LEVC.RRS
CUSTODY AGREEMENT
Dated ________________, 1997
Between
UMB Bank, N.A.
and
John A. Levin & Co., Inc.
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
1. Appointment of Custodian 1
2. Definitions 1
(a) Securities 1
(b) Assets 2
(c) Instructions and Special Instructions 2
3. Delivery of Corporate Documents 2
4. Powers and Duties of Custodian and Domestic Subcustodian 3
(a) Safekeeping 4
(b) Manner of Holding Securities 4
(c) Free Delivery of Assets 6
(d) Exchange of Securities 6
(e) Purchases of Assets 6
(f) Sales of Assets 7
(g) Options 7
(h) Futures Contracts 8
(i) Segregated Accounts 9
(j) Depositary Receipts 9
(k) Corporate Actions, Put Bonds, Called Bonds, Etc. 9
(l) Interest Bearing Deposits 10
(m) Foreign Exchange Transactions 10
(n) Pledges or Loans of Securities 11
(o) Stock Dividends, Rights, Etc. 12
(p) Routine Dealings 12
(q) Collections 12
(r) Bank Accounts 13
(s) Dividends, Distributions and Redemptions 13
(t) Proceeds from Shares Sold 13
(u) Proxies and Notices; Compliance with the Shareholders
Communication Act of 1985 13
(v) Books and Records 14
(w) Opinion of Fund's Independent Certified Public Accountants 14
(x) Reports by Independent Certified Public Accountants 14
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
(y) Bills and Others Disbursements 14
5. Subcustodians 15
(a) Domestic Subcustodians 15
(b) Foreign Subcustodians 15
(c) Interim Subcustodians 16
(d) Special Subcustodians 16
(e) Termination of a Subcustodian 17
(f) Certification Regarding Foreign Subcustodians 17
6. Standard of Care 17
(a) General Standard of Care 17
(b) Actions Prohibited by Applicable Law, Events Beyond
Custodian's Control, Armed Conflict, Sovereign
Risk, Etc. 17
(c) Liability for Past Records 18
(d) Advice of Counsel 18
(e) Advice of the Fund and Others 18
(f) Instructions Appearing to be Genuine 18
(g) Exceptions from Liability 19
7. Liability of the Custodian for Actions of Others 19
(a) Domestic Subcustodians 19
(b) Liability for Acts and Omissions of Foreign Subcustodians 19
(c) Securities Systems, Interim Subcustodians,
Special Subcustodians, Securities Depositories and
Clearing Agencies 20
(d) Defaults or Insolvencies of Brokers, Banks, Etc. 20
(e) Reimbursement of Expenses 20
8. Indemnification 20
(a) Indemnification by Fund 20
(b) Indemnification by Custodian 21
9. Advances 21
10. Liens 21
11. Compensation 22
12. Powers of Attorney 22
13. Termination and Assignment 22
14. Additional Funds 23
15. Notices 23
16. Miscellaneous 23
</TABLE>
<PAGE>
CUSTODY AGREEMENT
-----------------
This agreement made as of this ______ day of ___________________, 199___,
between UMB Bank, n.a., a national banking association with its principal place
of business located at Kansas City, Missouri (hereinafter "Custodian"), and each
of the Funds which have executed the signature page hereof together with such
additional Funds which shall be made parties to this Agreement by the execution
of a separate signature page hereto (individually, a "Fund" and collectively,
the "Funds").
WITNESSETH:
WHEREAS, each Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended; and
WHEREAS, each Fund desires to appoint Custodian as its custodian for
the custody of Assets (as hereinafter defined) owned by such Fund which Assets
are to be held in such accounts as such Fund may establish from time to time;
and
WHEREAS, Custodian is willing to accept such appointment on the terms
and conditions hereof.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties hereto, intending to be legally bound, mutually covenant and
agree as follows:
1. APPOINTMENT OF CUSTODIAN.
------------------------
Each Fund hereby constitutes and appoints the Custodian as custodian
of Assets belonging to each such Fund which have been or may be from time to
time deposited with the Custodian. Custodian accepts such appointment as a
custodian and agrees to perform the duties and responsibilities of Custodian as
set forth herein on the conditions set forth herein.
2. DEFINITIONS.
-----------
For purposes of this Agreement, the following terms shall have the
meanings so indicated:
(a) "Security" or "Securities" shall mean stocks, bonds, bills,
rights, script, warrants, interim certificates and all negotiable or
nonnegotiable paper commonly known as Securities and other instruments or
obligations.
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(b) "Assets" shall mean Securities, monies and other property held by
the Custodian for the benefit of a Fund.
(c)(1) "Instructions", as used herein, shall mean: (i) a tested telex,
a written (including, without limitation, facsimile transmission) request,
direction, instruction or certification signed or initialed by or on behalf of a
Fund by an Authorized Person (as defined in Section 3); (ii) a telephonic or
other oral communication from a person the Custodian reasonably believes to be
an Authorized Person; or (iii) a communication effected directly between an
electro-mechanical or electronic device or system (including, without
limitation, computers) on behalf of a Fund. Instructions in the form of oral
communications shall be confirmed by the appropriate Fund by tested telex or in
writing in the manner set forth in clause (i) above, but the lack of such
confirmation shall in no way affect any action taken by the Custodian in
reliance upon such oral Instructions prior to the Custodian's receipt of such
confirmation. Each Fund authorizes the Custodian to record any and all
telephonic or other oral Instructions communicated to the Custodian.
(c)(2) "Special Instructions", as used herein, shall mean Instructions
countersigned or confirmed in writing by the Chief Financial Officer of a Fund
or any other person designated by the Chief Financial Officer of such Fund in
writing, which countersignature or confirmation shall be included on the same
instrument containing the Instructions or on a separate instrument relating
thereto.
(c)(3) Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, facsimile transmission or telex
number agreed upon from time to time by the Custodian and each Fund.
(c)(4) Where appropriate, Instructions and Special Instructions shall
be continuing instructions.
3. DELIVERY OF CORPORATE DOCUMENTS.
-------------------------------
Each of the parties to this Agreement represents that its execution
does not violate any of the provisions of its respective charter, articles of
incorporation, articles of association or bylaws and all required corporate
action to authorize the execution and delivery of this Agreement has been taken.
Each Fund has furnished the Custodian with copies, properly certified
or authenticated, with all amendments or supplements thereto, of the following
documents:
(a) Certificate of Incorporation (or equivalent document) of the Fund
as in effect on the date hereof;
(b) By-Laws of the Fund as in effect on the date hereof;
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(c) Resolutions of the Board of Directors of the Fund appointing the
Custodian and approving the form of this Agreement; and
(d) The Fund's current prospectus and statements of additional
information.
Each Fund shall promptly furnish the Custodian with copies of any updates,
amendments or supplements to the foregoing documents.
In addition, each Fund has delivered or will promptly deliver to the
Custodian, copies of the Resolution(s) of its Board of Directors or Trustees and
all amendments or supplements thereto, properly certified or authenticated,
designating certain officers or employees of each such Fund who will have
continuing authority to certify to the Custodian: (a) the names, titles,
signatures and scope of authority of all persons authorized to give Instructions
or any other notice, request, direction, instruction, certificate or instrument
on behalf of each Fund, and (b) the names, titles and signatures of those
persons authorized to countersign or confirm Special Instructions on behalf of
each Fund (in both cases collectively, the "Authorized Persons" and
individually, an "Authorized Person"). Such Resolutions and certificates may be
accepted and relied upon by the Custodian as conclusive evidence of the facts
set forth therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar Resolution or certificate to the
contrary. Upon delivery of a certificate which deletes or does not include the
name(s) of a person previously authorized to give Instructions or to countersign
or confirm Special Instructions, such persons shall no longer be considered an
Authorized Person authorized to give Instructions or to countersign or confirm
Special Instructions. Unless the certificate specifically requires that the
approval of anyone else will first have been obtained, the Custodian will be
under no obligation to inquire into the right of the person giving such
Instructions or Special Instructions to do so. Notwithstanding any of the
foregoing, no Instructions or Special Instructions received by the Custodian
from a Fund will be deemed to authorize or permit any director, trustee,
officer, employee, or agent of such Fund to withdraw any of the Assets of such
Fund upon the mere receipt of such authorization, Special Instructions or
Instructions from such director, trustee, officer, employee or agent.
4. POWERS AND DUTIES OF CUSTODIAN AND DOMESTIC SUBCUSTODIAN.
--------------------------------------------------------
Except for Assets held by any Subcustodian appointed pursuant to
Sections 5(b), (c), or (d) of this Agreement, the Custodian shall have and
perform the powers and duties hereinafter set forth in this Section 4. For
purposes of this Section 4 all references to powers and duties of the
"Custodian" shall also refer to any Domestic Subcustodian appointed pursuant to
Section 5(a).
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(a) Safekeeping.
-----------
The Custodian will keep safely the Assets of each Fund which are
delivered to it from time to time. The Custodian shall not be responsible for
any property of a Fund held or received by such Fund and not delivered to the
Custodian.
(b) Manner of Holding Securities.
----------------------------
(1) The Custodian shall at all times hold Securities of each Fund
either: (i) by physical possession of the share certificates or other
instruments representing such Securities in registered or bearer form; or (ii)
in book-entry form by a Securities System (as hereinafter defined) in accordance
with the provisions of sub-paragraph (3) below.
(2) The Custodian may hold registrable portfolio Securities which
have been delivered to it in physical form, by registering the same in the name
of the appropriate Fund or its nominee, or in the name of the Custodian or its
nominee, for whose actions such Fund and Custodian, respectively, shall be fully
responsible. Upon the receipt of Instructions, the Custodian shall hold such
Securities in street certificate form, so called, with or without any indication
of fiduciary capacity. However, unless it receives Instructions to the contrary,
the Custodian will register all such portfolio Securities in the name of the
Custodian's authorized nominee. All such Securities shall be held in an account
of the Custodian containing only assets of the appropriate Fund or only assets
held by the Custodian as a fiduciary, provided that the records of the Custodian
shall indicate at all times the Fund or other customer for which such Securities
are held in such accounts and the respective interests therein.
(3) The Custodian may deposit and/or maintain domestic Securities
owned by a Fund in, and each Fund hereby approves use of: (a) The Depository
Trust Company; (b) The Participants Trust Company; and (c) any book-entry system
as provided in (i) Subpart O of Treasury Circular No. 300, 31 CFR 306.115, (ii)
Subpart B of Treasury Circular Public Debt Series No. 27-76, 31 CFR 350.2, or
(iii) the book-entry regulations of federal agencies substantially in the form
of 31 CFR 306.115. Upon the receipt of Special Instructions, the Custodian may
deposit and/or maintain domestic Securities owned by a Fund in any other
domestic clearing agency registered with the Securities and Exchange Commission
("SEC") under Section 17A of the Securities Exchange Act of 1934 (or as may
otherwise be authorized by the SEC to serve in the capacity of depository or
clearing agent for the Securities or other assets of investment companies) which
acts as a Securities depository. Each of the foregoing shall be referred to in
this Agreement as a "Securities System", and all such Securities Systems shall
be listed on the attached Appendix A. Use of a Securities System shall be in
accordance with applicable Federal Reserve Board and SEC rules and regulations,
if any, and subject to the following provisions:
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<PAGE>
(i) The Custodian may deposit the Securities directly or through one
or more agents or Subcustodians which are also qualified to act
as custodians for investment companies.
(ii) The Custodian shall deposit and/or maintain the Securities in a
Securities System, provided that such Securities are represented
in an account ("Account") of the Custodian in the Securities
System that includes only assets held by the Custodian as a
fiduciary, custodian or otherwise for customers.
(iii) The books and records of the Custodian shall at all times
identify those Securities belonging to any one or more Funds
which are maintained in a Securities System.
(iv) The Custodian shall pay for Securities purchased for the account
of a Fund only upon (a) receipt of advice from the Securities
System that such Securities have been transferred to the Account
of the Custodian in accordance with the rules of the Securities
System, and (b) the making of an entry on the records of the
Custodian to reflect such payment and transfer for the account
of such Fund. The Custodian shall transfer Securities sold for
the account of a Fund only upon (a) receipt of advice from the
Securities System that payment for such Securities has been
transferred to the Account of the Custodian in accordance with
the rules of the Securities System, and (b) the making of an
entry on the records of the Custodian to reflect such transfer
and payment for the account of such Fund. Copies of all advices
from the Securities System relating to transfers of Securities
for the account of a Fund shall be maintained for such Fund by
the Custodian. The Custodian shall deliver to a Fund on the next
succeeding business day daily transaction reports which shall
include each day's transactions in the Securities System for the
account of such Fund. Such transaction reports shall be
delivered to such Fund or any agent designated by such Fund
pursuant to Instructions, by computer or in such other manner as
such Fund and Custodian may agree.
(v) The Custodian shall, if requested by a Fund pursuant to
Instructions, provide such Fund with reports obtained by the
Custodian or any Subcustodian with respect to a Securities
System's accounting system, internal accounting control and
procedures for safeguarding Securities deposited in the
Securities System.
(vi) Upon receipt of Special Instructions, the Custodian shall
terminate the use of any Securities System on behalf of a Fund
as promptly as practicable and
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<PAGE>
shall take all actions reasonably practicable to safeguard the
Securities of such Fund maintained with such Securities System.
(c) Free Delivery of Assets.
-----------------------
Notwithstanding any other provision of this Agreement and except as
provided in Section 3 hereof, the Custodian, upon receipt of Special
Instructions, will undertake to make free delivery of Assets, provided such
Assets are on hand and available, in connection with a Fund's transactions and
to transfer such Assets to such broker, dealer, Subcustodian, bank, agent,
Securities System or otherwise as specified in such Special Instructions.
(d) Exchange of Securities.
----------------------
Upon receipt of Instructions, the Custodian will exchange portfolio
Securities held by it for a Fund for other Securities or cash paid in connection
with any reorganization, recapitalization, merger, consolidation, or conversion
of convertible Securities, and will deposit any such Securities in accordance
with the terms of any reorganization or protective plan.
Without Instructions, the Custodian is authorized to exchange
Securities held by it in temporary form for Securities in definitive form, to
surrender Securities for transfer into a name or nominee name as permitted in
Section 4(b)(2), to effect an exchange of shares in a stock split or when the
par value of the stock is changed, to sell any fractional shares, and, upon
receiving payment therefor, to surrender bonds or other Securities held by it at
maturity or call.
(e) Purchases of Assets.
-------------------
(1) Securities Purchases. In accordance with Instructions, the
Custodian shall, with respect to a purchase of Securities, pay for such
Securities out of monies held for a Fund's account for which the purchase was
made, but only insofar as monies are available therein for such purpose, and
receive the portfolio Securities so purchased. Unless the Custodian has received
Special Instructions to the contrary, such payment will be made only upon
receipt of Securities by the Custodian, a clearing corporation of a national
Securities exchange of which the Custodian is a member, or a Securities System
in accordance with the provisions of Section 4(b)(3) hereof. Notwithstanding the
foregoing, upon receipt of Instructions: (i) in connection with a repurchase
agreement, the Custodian may release funds to a Securities System prior to the
receipt of advice from the Securities System that the Securities underlying such
repurchase agreement have been transferred by book-entry into the Account
maintained with such Securities System by the Custodian, provided that the
Custodian's instructions to the Securities System require that the Securities
System may make
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<PAGE>
payment of such funds to the other party to the repurchase agreement only upon
transfer by book-entry of the Securities underlying the repurchase agreement
into such Account; (ii) in the case of Interest Bearing Deposits, currency
deposits, and other deposits, foreign exchange transactions, futures contracts
or options, pursuant to Sections 4(g), 4(h), 4(l), and 4(m) hereof, the
Custodian may make payment therefor before receipt of an advice of transaction;
and (iii) in the case of Securities as to which payment for the Security and
receipt of the instrument evidencing the Security are under generally accepted
trade practice or the terms of the instrument representing the Security expected
to take place in different locations or through separate parties, such as
commercial paper which is indexed to foreign currency exchange rates,
derivatives and similar Securities, the Custodian may make payment for such
Securities prior to delivery thereof in accordance with such generally accepted
trade practice or the terms of the instrument representing such Security.
(2) Other Assets Purchased. Upon receipt of Instructions and except
as otherwise provided herein, the Custodian shall pay for and receive other
Assets for the account of a Fund as provided in Instructions.
(f) Sales of Assets.
---------------
(1) Securities Sold. In accordance with Instructions, the Custodian
will, with respect to a sale, deliver or cause to be delivered the Securities
thus designated as sold to the broker or other person specified in the
Instructions relating to such sale. Unless the Custodian has received Special
Instructions to the contrary, such delivery shall be made only upon receipt of
payment therefor in the form of: (a) cash, certified check, bank cashier's
check, bank credit, or bank wire transfer; (b) credit to the account of the
Custodian with a clearing corporation of a national Securities exchange of which
the Custodian is a member; or (c) credit to the Account of the Custodian with a
Securities System, in accordance with the provisions of Section 4(b)(3) hereof.
Notwithstanding the foregoing, Securities held in physical form may be delivered
and paid for in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for such
Securities, provided that the Custodian shall have taken reasonable steps to
ensure prompt collection of the payment for, or return of, such Securities by
the broker or its clearing agent, and provided further that the Custodian shall
not be responsible for the selection of or the failure or inability to perform
of such broker or its clearing agent or for any related loss arising from
delivery or custody of such Securities prior to receiving payment therefor.
(2) Other Assets Sold. Upon receipt of Instructions and except as
otherwise provided herein, the Custodian shall receive payment for and deliver
other Assets for the account of a Fund as provided in Instructions.
(g) Options.
-------
7
<PAGE>
(1) Upon receipt of Instructions relating to the purchase of an
option or sale of a covered call option, the Custodian shall: (a) receive and
retain confirmations or other documents, if any, evidencing the purchase or
writing of the option by a Fund; (b) if the transaction involves the sale of a
covered call option, deposit and maintain in a segregated account the Securities
(either physically or by book-entry in a Securities System) subject to the
covered call option written on behalf of such Fund; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any notices or
other communications evidencing the expiration, termination or exercise of such
options which are furnished to the Custodian by the Options Clearing Corporation
(the "OCC"), the securities or options exchanges on which such options were
traded, or such other organization as may be responsible for handling such
option transactions.
(2) Upon receipt of Instructions relating to the sale of a naked
option (including stock index and commodity options), the Custodian, the
appropriate Fund and the broker-dealer shall enter into an agreement to comply
with the rules of the OCC, the SEC or of any registered national securities
exchange or similar organization. Pursuant to that agreement and such Fund's
Instructions, the Custodian shall: (a) receive and retain confirmations or other
documents, if any, evidencing the writing of the option; (b) deposit and
maintain in a segregated account, Securities (either physically or by book-entry
in a Securities System), cash and/or other Assets; and (c) pay, release and/or
transfer such Securities, cash or other Assets in accordance with any such
agreement and with any notices or other communications evidencing the
expiration, termination or exercise of such option which are furnished to the
Custodian by the OCC, the securities or options exchanges on which such options
were traded, or such other organization as may be responsible for handling such
option transactions. The appropriate Fund and the broker-dealer shall be
responsible for determining the quality and quantity of assets held in any
segregated account established in compliance with applicable margin maintenance
requirements and the performance of other terms of any option contract.
(h) Futures Contracts.
-----------------
Upon receipt of Instructions, the Custodian shall enter into a futures
margin procedural agreement among the appropriate Fund, the Custodian and the
designated futures commission merchant (a "Procedural Agreement"). Under the
Procedural Agreement the Custodian shall: (a) receive and retain confirmations,
if any, evidencing the purchase or sale of a futures contract or an option on a
futures contract by such Fund; (b) deposit and maintain in a segregated account
cash, Securities and/or other Assets designated as initial, maintenance or
variation "margin" deposits intended to secure such Fund's performance of its
obligations under any futures contracts purchased or sold, or any options on
futures contracts written by such Fund, in accordance with the provisions of any
Procedural Agreement designed to comply with the provisions of the Commodity
Futures Trading Commission and/or any commodity exchange or contract market
(such as the Chicago Board of Trade), or any similar organization(s), regarding
such margin deposits; and (c) release Assets from and/or
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<PAGE>
transfer Assets into such margin accounts only in accordance with any such
Procedural Agreements. The appropriate Fund and such futures commission merchant
shall be responsible for determining the type and amount of Assets held in the
segregated account or paid to the broker-dealer in compliance with applicable
margin maintenance requirements and the performance of any futures contract or
option on a futures contract in accordance with its terms.
(i) Segregated Accounts.
-------------------
Upon receipt of Instructions, the Custodian shall establish and
maintain on its books a segregated account or accounts for and on behalf of a
Fund, into which account or accounts may be transferred Assets of such Fund,
including Securities maintained by the Custodian in a Securities System pursuant
to Paragraph (b)(3) of this Section 4, said account or accounts to be maintained
(i) for the purposes set forth in Sections 4(g), 4(h) and 4(n) and (ii) for the
purpose of compliance by such Fund with the procedures required by the SEC
Investment Company Act Release Number 10666 or any subsequent release or
releases relating to the maintenance of segregated accounts by registered
investment companies, or (iii) for such other purposes as may be set forth, from
time to time, in Special Instructions. The Custodian shall not be responsible
for the determination of the type or amount of Assets to be held in any
segregated account referred to in this paragraph, or for compliance by the Fund
with required procedures noted in (ii) above.
(j) Depositary Receipts.
-------------------
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered Securities to the depositary used for such Securities by an issuer
of American Depositary Receipts or International Depositary Receipts
(hereinafter referred to, collectively, as "ADRs"), against a written receipt
therefor adequately describing such Securities and written evidence satisfactory
to the organization surrendering the same that the depositary has acknowledged
receipt of instructions to issue ADRs with respect to such Securities in the
name of the Custodian or a nominee of the Custodian, for delivery in accordance
with such instructions.
Upon receipt of Instructions, the Custodian shall surrender or cause to be
surrendered ADRs to the issuer thereof, against a written receipt therefor
adequately describing the ADRs surrendered and written evidence satisfactory to
the organization surrendering the same that the issuer of the ADRs has
acknowledged receipt of instructions to cause its depository to deliver the
Securities underlying such ADRs in accordance with such instructions.
(k) Corporate Actions, Put Bonds, Called Bonds, Etc.
------------------------------------------------
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Upon receipt of Instructions, the Custodian shall: (a) deliver warrants,
puts, calls, rights or similar Securities to the issuer or trustee thereof (or
to the agent of such issuer or trustee) for the purpose of exercise or sale,
provided that the new Securities, cash or other Assets, if any, acquired as a
result of such actions are to be delivered to the Custodian; and (b) deposit
Securities upon invitations for tenders thereof, provided that the consideration
for such Securities is to be paid or delivered to the Custodian, or the tendered
Securities are to be returned to the Custodian.
Notwithstanding any provision of this Agreement to the contrary, the
Custodian shall take all necessary action, unless otherwise directed to the
contrary in Instructions, to comply with the terms of all mandatory or
compulsory exchanges, calls, tenders, redemptions, or similar rights of security
ownership, and shall notify the appropriate Fund of such action in writing by
facsimile transmission or in such other manner as such Fund and Custodian may
agree in writing.
The Fund agrees that if it gives an Instruction for the performance of an
act on the last permissible date of a period established by any optional offer
or on the last permissible date for the performance of such act, which this
exceeds the forty-eight hour notification interval requested by the Custodian
for corporate actions, the Fund shall hold the Bank harmless from any adverse
consequences in connection with acting upon or failing to act upon such
Instructions.
(l) Interest Bearing Deposits.
-------------------------
Upon receipt of Instructions directing the Custodian to purchase interest
bearing fixed term and call deposits (hereinafter referred to, collectively, as
"Interest Bearing Deposits") for the account of a Fund, the Custodian shall
purchase such Interest Bearing Deposits in the name of such Fund with such banks
or trust companies, including the Custodian, any Subcustodian or any subsidiary
or affiliate of the Custodian (hereinafter referred to as "Banking
Institutions"), and in such amounts as such Fund may direct pursuant to
Instructions. Such Interest Bearing Deposits may be denominated in U.S. dollars
or other currencies, as such Fund may determine and direct pursuant to
Instructions. The responsibilities of the Custodian to a Fund for Interest
Bearing Deposits issued by the Custodian shall be that of a U.S. bank for a
similar deposit. With respect to Interest Bearing Deposits other than those
issued by the Custodian, (a) the Custodian shall be responsible for the
collection of income and the transmission of cash to and from such accounts; and
(b) the Custodian shall have no duty with respect to the selection of the
Banking Institution or for the failure of such Banking Institution to pay upon
demand.
(m) Foreign Exchange Transactions.
-----------------------------
(l) Each Fund hereby appoints the Custodian as its agent in the
execution of all currency exchange transactions. The Custodian agrees to provide
exchange rate and
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U.S. Dollar information, in writing, to the Funds. Such information shall be
supplied by the Custodian at least by the business day prior to the value date
of the foreign exchange transaction, provided that the Custodian receives the
request for such information at least two business days prior to the value date
of the transaction.
(2) Upon receipt of Instructions, the Custodian shall settle foreign
exchange contracts or options to purchase and sell foreign currencies for spot
and future delivery on behalf of and for the account of a Fund with such
currency brokers or Banking Institutions as such Fund may determine and direct
pursuant to Instructions. If, in its Instructions, a Fund does not direct the
Custodian to utilize a particular currency broker or Banking Institution, the
Custodian is authorized to select such currency broker or Banking Institution as
it deems appropriate to execute the Fund's foreign currency transaction.
(3) Each Fund accepts full responsibility for its use of third party
foreign exchange brokers and for execution of said foreign exchange contracts
and understands that the Fund shall be responsible for any and all costs and
interest charges which may be incurred as a result of the failure or delay of
its third party broker to deliver foreign exchange. The Custodian shall have no
responsibility or liability with respect to the selection of the currency
brokers or Banking Institutions with which a Fund deals or the performance of
such brokers or Banking Institutions.
(4) Notwithstanding anything to the contrary contained herein, upon
receipt of Instructions the Custodian may, in connection with a foreign exchange
contract, make free outgoing payments of cash in the form of U.S. Dollars or
foreign currency prior to receipt of confirmation of such foreign exchange
contract or confirmation that the countervalue currency completing such contract
has been delivered or received.
(5) The Custodian shall not be obligated to enter into foreign
exchange transactions as principal. However, if the Custodian has made available
to a Fund its services as a principal in foreign exchange transactions and
subject to any separate agreement between the parties relating to such
transactions, the Custodian shall enter into foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery on
behalf of and for the account of the Fund, with the Custodian as principal.
(n) Pledges or Loans of Securities.
------------------------------
(1) Upon receipt of Instructions from a Fund, the Custodian will release
or cause to be released Securities held in custody to the pledgees designated in
such Instructions by way of pledge or hypothecation to secure loans incurred by
such Fund with various lenders including but not limited to UMB Bank, n.a.;
provided, however, that the Securities shall be released only upon payment to
the Custodian of the monies borrowed, except that in cases where additional
collateral is required to secure existing borrowings, further Securities may be
released or delivered, or caused to be released or delivered for that
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purpose upon receipt of Instructions. Upon receipt of Instructions, the
Custodian will pay, but only from funds available for such purpose, any such
loan upon re-delivery to it of the Securities pledged or hypothecated therefor
and upon surrender of the note or notes evidencing such loan. In lieu of
delivering collateral to a pledgee, the Custodian, on the receipt of
Instructions, shall transfer the pledged Securities to a segregated account for
the benefit of the pledgee.
(2) Upon receipt of Special Instructions, and execution of a separate
Securities Lending Agreement, the Custodian will release Securities held in
custody to the borrower designated in such Instructions and may, except as
otherwise provided below, deliver such Securities prior to the receipt of
collateral, if any, for such borrowing, provided that, in case of loans of
Securities held by a Securities System that are secured by cash collateral, the
Custodian's instructions to the Securities System shall require that the
Securities System deliver the Securities of the appropriate Fund to the borrower
thereof only upon receipt of the collateral for such borrowing. The Custodian
shall have no responsibility or liability for any loss arising from the delivery
of Securities prior to the receipt of collateral. Upon receipt of Instructions
and the loaned Securities, the Custodian will release the collateral to the
borrower.
(o) Stock Dividends, Rights, Etc.
-----------------------------
The Custodian shall receive and collect all stock dividends, rights, and
other items of like nature and, upon receipt of Instructions, take action with
respect to the same as directed in such Instructions.
(p) Routine Dealings.
----------------
The Custodian will, in general, attend to all routine and mechanical
matters in accordance with industry standards in connection with the sale,
exchange, substitution, purchase, transfer, or other dealings with Securities or
other property of each Fund except as may be otherwise provided in this
Agreement or directed from time to time by Instructions from any particular
Fund. The Custodian may also make payments to itself or others from the Assets
for minor disbursements and out-of-pocket expenses incidental to handling
Securities or other similar items relating to its duties under this Agreement,
provided that all such payments shall be accounted for to the appropriate Fund.
(q) Collections.
-----------
The Custodian shall (a) collect amounts due and payable to each Fund with
respect to portfolio Securities and other Assets; (b) promptly credit to the
account of each Fund all income and other payments relating to portfolio
Securities and other Assets held by the Custodian hereunder upon Custodian's
receipt of such income or payments or as otherwise agreed in writing by the
Custodian and any particular Fund; (c) promptly endorse
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<PAGE>
and deliver any instruments required to effect such collection; and (d) promptly
execute ownership and other certificates and affidavits for all federal, state,
local and foreign tax purposes in connection with receipt of income or other
payments with respect to portfolio Securities and other Assets, or in connection
with the transfer of such Securities or other Assets; provided, however, that
with respect to portfolio Securities registered in so-called street name, or
physical Securities with variable interest rates, the Custodian shall use its
best efforts to collect amounts due and payable to any such Fund. The Custodian
shall notify a Fund in writing by facsimile transmission or in such other manner
as such Fund and Custodian may agree in writing if any amount payable with
respect to portfolio Securities or other Assets is not received by the Custodian
when due. The Custodian shall not be responsible for the collection of amounts
due and payable with respect to portfolio Securities or other Assets that are in
default.
(r) Bank Accounts.
-------------
Upon Instructions, the Custodian shall open and operate a bank account or
accounts on the books of the Custodian; provided that such bank account(s) shall
be in the name of the Custodian or a nominee thereof, for the account of one or
more Funds, and shall be subject only to draft or order of the Custodian. The
responsibilities of the Custodian to any one or more such Funds for deposits
accepted on the Custodian's books shall be that of a U.S. bank for a similar
deposit.
(s) Dividends, Distributions and Redemptions.
----------------------------------------
To enable each Fund to pay dividends or other distributions to shareholders
of each such Fund and to make payment to shareholders who have requested
repurchase or redemption of their shares of each such Fund (collectively, the
"Shares"), the Custodian shall release cash or Securities insofar as available.
In the case of cash, the Custodian shall, upon the receipt of Instructions,
transfer such funds by check or wire transfer to any account at any bank or
trust company designated by each such Fund in such Instructions. In the case of
Securities, the Custodian shall, upon the receipt of Special Instructions, make
such transfer to any entity or account designated by each such Fund in such
Special Instructions.
(t) Proceeds from Shares Sold.
-------------------------
The Custodian shall receive funds representing cash payments received for
shares issued or sold from time to time by each Fund, and shall credit such
funds to the account of the appropriate Fund. The Custodian shall notify the
appropriate Fund of Custodian's receipt of cash in payment for shares issued by
such Fund by facsimile transmission or in such other manner as such Fund and the
Custodian shall agree. Upon receipt of Instructions, the Custodian shall: (a)
deliver all federal funds received by the Custodian in payment for shares as may
be set forth in such Instructions and at a time agreed upon between the
Custodian and such Fund; and (b) make federal funds available to a Fund
13
<PAGE>
as of specified times agreed upon from time to time by such Fund and the
Custodian, in the amount of checks received in payment for shares which are
deposited to the accounts of such Fund.
(u) Proxies and Notices; Compliance with the Shareholders Communication
-------------------------------------------------------------------
Act of 1985.
-----------
The Custodian shall deliver or cause to be delivered to the appropriate
Fund all forms of proxies, all notices of meetings, and any other notices or
announcements affecting or relating to Securities owned by such Fund that are
received by the Custodian, any Subcustodian, or any nominee of either of them,
and, upon receipt of Instructions, the Custodian shall execute and deliver, or
cause such Subcustodian or nominee to execute and deliver, such proxies or other
authorizations as may be required. Except as directed pursuant to Instructions,
neither the Custodian nor any Subcustodian or nominee shall vote upon any such
Securities, or execute any proxy to vote thereon, or give any consent or take
any other action with respect thereto.
The Custodian will not release the identity of any Fund to an issuer which
requests such information pursuant to the Shareholder Communications Act of 1985
for the specific purpose of direct communications between such issuer and any
such Fund unless a particular Fund directs the Custodian otherwise in writing.
(v) Books and Records.
-----------------
The Custodian shall maintain such records relating to its activities under
this Agreement as are required to be maintained by Rule 31a-1 under the
Investment Company Act of 1940 ("the 1940 Act") and to preserve them for the
periods prescribed in Rule 31a-2 under the 1940 Act. These records shall be open
for inspection by duly authorized officers, employees or agents (including
independent public accountants) of the appropriate Fund during normal business
hours of the Custodian.
The Custodian shall provide accountings relating to its activities under
this Agreement as shall be agreed upon by each Fund and the Custodian.
(w) Opinion of Fund's Independent Certified Public Accountants.
----------------------------------------------------------
The Custodian shall take all reasonable action as each Fund may request to
obtain from year to year favorable opinions from each such Fund's independent
certified public accountants with respect to the Custodian's activities
hereunder and in connection with the preparation of each such Fund's periodic
reports to the SEC and with respect to any other requirements of the SEC.
(x) Reports by Independent Certified Public Accountants.
---------------------------------------------------
14
<PAGE>
At the request of a Fund, the Custodian shall deliver to such Fund a
written report prepared by the Custodian's independent certified public
accountants with respect to the services provided by the Custodian under this
Agreement, including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding cash, Securities and
other Assets, including cash, Securities and other Assets deposited and/or
maintained in a Securities System or with a Subcustodian. Such report shall be
of sufficient scope and in sufficient detail as may reasonably be required by
such Fund and as may reasonably be obtained by the Custodian.
(y) Bills and Other Disbursements.
-----------------------------
Upon receipt of Instructions, the Custodian shall pay, or cause to be paid,
all bills, statements, or other obligations of a Fund.
5. SUBCUSTODIANS.
-------------
From time to time, in accordance with the relevant provisions of this
Agreement, the Custodian may appoint one or more Domestic Subcustodians, Foreign
Subcustodians, Special Subcustodians, or Interim Subcustodians (as each are
hereinafter defined) to act on behalf of any one or more Funds. A Domestic
Subcustodian, in accordance with the provisions of this Agreement, may also
appoint a Foreign Subcustodian, Special Subcustodian, or Interim Subcustodian to
act on behalf of any one or more Funds. For purposes of this Agreement, all
Domestic Subcustodians, Foreign Subcustodians, Special Subcustodians and Interim
Subcustodians shall be referred to collectively as "Subcustodians".
(a) Domestic Subcustodians.
----------------------
The Custodian may, at any time and from time to time, appoint any bank as
defined in Section 2(a)(5) of the 1940 Act or any trust company or other entity,
any of which meet the requirements of a custodian under Section 17(f) of the
1940 Act and the rules and regulations thereunder, to act for the Custodian on
behalf of any one or more Funds as a subcustodian for purposes of holding Assets
of such Fund(s) and performing other functions of the Custodian within the
United States (a "Domestic Subcustodian"). Each Fund shall approve in writing
the appointment of the proposed Domestic Subcustodian; and the Custodian's
appointment of any such Domestic Subcustodian shall not be effective without
such prior written approval of the Fund(s). Each such duly approved Domestic
Subcustodian shall be listed on Appendix A attached hereto, as it may be
amended, from time to time.
(b) Foreign Subcustodians.
---------------------
The Custodian may at any time appoint, or cause a Domestic Subcustodian to
appoint, any bank, trust company or other entity meeting the requirements of an
"eligible foreign custodian" under Section 17(f) of the 1940 Act and the rules
and regulations
15
<PAGE>
thereunder to act for the Custodian on behalf of any one or more Funds as a
subcustodian or sub-subcustodian (if appointed by a Domestic Subcustodian) for
purposes of holding Assets of the Fund(s) and performing other functions of the
Custodian in countries other than the United States of America (hereinafter
referred to as a "Foreign Subcustodian" in the context of either a subcustodian
or a sub-subcustodian); provided that the Custodian shall have obtained written
confirmation from each Fund of the approval of the Board of Directors or other
governing body of each such Fund (which approval may be withheld in the sole
discretion of such Board of Directors or other governing body or entity) with
respect to (i) the identity of any proposed Foreign Subcustodian (including
branch designation), (ii) the country or countries in which, and the securities
depositories or clearing agencies (hereinafter "Securities Depositories and
Clearing Agencies"), if any, through which, the Custodian or any proposed
Foreign Subcustodian is authorized to hold Securities and other Assets of each
such Fund, and (iii) the form and terms of the subcustodian agreement to be
entered into with such proposed Foreign Subcustodian. Each such duly approved
Foreign Subcustodian and the countries where and the Securities Depositories and
Clearing Agencies through which they may hold Securities and other Assets of the
Fund(s) shall be listed on Appendix A attached hereto, as it may be amended,
from time to time. Each Fund shall be responsible for informing the Custodian
sufficiently in advance of a proposed investment which is to be held in a
country in which no Foreign Subcustodian is authorized to act, in order that
there shall be sufficient time for the Custodian, or any Domestic Subcustodian,
to effect the appropriate arrangements with a proposed Foreign Subcustodian,
including obtaining approval as provided in this Section 5(b). In connection
with the appointment of any Foreign Subcustodian, the Custodian shall, or shall
cause the Domestic Subcustodian to, enter into a subcustodian agreement with the
Foreign Subcustodian in form and substance approved by each such Fund. The
Custodian shall not consent to the amendment of, and shall cause any Domestic
Subcustodian not to consent to the amendment of, any agreement entered into with
a Foreign Subcustodian, which materially affects any Fund's rights under such
agreement, except upon prior written approval of such Fund pursuant to Special
Instructions.
(c) Interim Subcustodians.
---------------------
Notwithstanding the foregoing, in the event that a Fund shall invest in an
Asset to be held in a country in which no Foreign Subcustodian is authorized to
act, the Custodian shall notify such Fund in writing by facsimile transmission
or in such other manner as such Fund and the Custodian shall agree in writing of
the unavailability of an approved Foreign Subcustodian in such country; and upon
the receipt of Special Instructions from such Fund, the Custodian shall, or
shall cause its Domestic Subcustodian to, appoint or approve an entity (referred
to herein as an "Interim Subcustodian") designated in such Special Instructions
to hold such Security or other Asset.
(d) Special Subcustodians.
---------------------
16
<PAGE>
Upon receipt of Special Instructions, the Custodian shall, on behalf
of a Fund, appoint one or more banks, trust companies or other entities
designated in such Special Instructions to act for the Custodian on behalf of
such Fund as a subcustodian for purposes of: (i) effecting third-party
repurchase transactions with banks, brokers, dealers or other entities through
the use of a common custodian or subcustodian; (ii) providing depository and
clearing agency services with respect to certain variable rate demand note
Securities, (iii) providing depository and clearing agency services with respect
to dollar denominated Securities, and (iv) effecting any other transactions
designated by such Fund in such Special Instructions. Each such designated
subcustodian (hereinafter referred to as a "Special Subcustodian") shall be
listed on Appendix A attached hereto, as it may be amended from time to time. In
connection with the appointment of any Special Subcustodian, the Custodian shall
enter into a subcustodian agreement with the Special Subcustodian in form and
substance approved by the appropriate Fund in Special Instructions. The
Custodian shall not amend any subcustodian agreement entered into with a Special
Subcustodian, or waive any rights under such agreement, except upon prior
approval pursuant to Special Instructions.
(e) Termination of a Subcustodian.
-----------------------------
The Custodian may, at any time in its discretion upon notification to
the appropriate Fund(s), terminate any Subcustodian of such Fund(s) in
accordance with the termination provisions under the applicable subcustodian
agreement, and upon the receipt of Special Instructions, the Custodian will
terminate any Subcustodian in accordance with the termination provisions under
the applicable subcustodian agreement.
(f) Certification Regarding Foreign Subcustodians.
---------------------------------------------
Upon request of a Fund, the Custodian shall deliver to such Fund a
certificate stating: (i) the identity of each Foreign Subcustodian then acting
on behalf of the Custodian; (ii) the countries in which and the Securities
Depositories and Clearing Agencies through which each such Foreign Subcustodian
is then holding cash, Securities and other Assets of such Fund; and (iii) such
other information as may be requested by such Fund, and as the Custodian shall
be reasonably able to obtain, to evidence compliance with rules and regulations
under the 1940 Act.
6. STANDARD OF CARE.
----------------
(a) General Standard of Care.
------------------------
The Custodian shall be liable to a Fund for all losses, damages and
reasonable costs and expenses suffered or incurred by such Fund resulting from
the negligence or willful misfeasance of the Custodian; provided, however, in no
event shall the Custodian be liable for special, indirect or consequential
damages arising under or in connection with this Agreement.
17
<PAGE>
(b) Actions Prohibited by Applicable Law, Events Beyond Custodian's
Control, Sovereign Risk, Etc.
In no event shall the Custodian or any Domestic Subcustodian incur
liability hereunder (i) if the Custodian or any Subcustodian or Securities
System, or any subcustodian, Securities System, Securities Depository or
Clearing Agency utilized by the Custodian or any such Subcustodian, or any
nominee of the Custodian or any Subcustodian (individually, a "Person") is
prevented, forbidden or delayed from performing, or omits to perform, any act or
thing which this Agreement provides shall be performed or omitted to be
performed, by reason of: (a) any provision of any present or future law or
regulation or order of the United States of America, or any state thereof, or of
any foreign country, or political subdivision thereof or of any court of
competent jurisdiction (and neither the Custodian nor any other Person shall be
obligated to take any action contrary thereto); or (b) any event beyond the
control of the Custodian or other Person such as armed conflict, riots, strikes,
lockouts, labor disputes, equipment or transmission failures, natural disasters,
or failure of the mails, transportation, communications or power supply; or (ii)
for any loss, damage, cost or expense resulting from "Sovereign Risk." A
"Sovereign Risk" shall mean nationalization, expropriation, currency
devaluation, revaluation or fluctuation, confiscation, seizure, cancellation,
destruction or similar action by any governmental authority, de facto or de
jure; or enactment, promulgation, imposition or enforcement by any such
governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting a Fund's Assets; or acts of armed conflict,
terrorism, insurrection or revolution; or any other act or event beyond the
Custodian's or such other Person's control.
(c) Liability for Past Records.
--------------------------
Neither the Custodian nor any Domestic Subcustodian shall have any
liability in respect of any loss, damage or expense suffered by a Fund, insofar
as such loss, damage or expense arises from the performance of the Custodian or
any Domestic Subcustodian in reliance upon records that were maintained for such
Fund by entities other than the Custodian or any Domestic Subcustodian prior to
the Custodian's employment hereunder.
(d) Advice of Counsel.
-----------------
The Custodian and all Domestic Subcustodians shall be entitled to
receive and act upon advice of counsel of its own choosing on all matters. The
Custodian and all Domestic Subcustodians shall be without liability for any
actions taken or omitted in good faith pursuant to the advice of counsel.
(e) Advice of the Fund and Others.
-----------------------------
The Custodian and any Domestic Subcustodian may rely upon the advice
of any Fund and upon statements of such Fund's accountants and other persons
believed by it in
18
<PAGE>
good faith to be expert in matters upon which they are consulted, and neither
the Custodian nor any Domestic Subcustodian shall be liable for any actions
taken or omitted, in good faith, pursuant to such advice or statements.
(f) Instructions Appearing to be Genuine.
------------------------------------
The Custodian and all Domestic Subcustodians shall be fully protected
and indemnified in acting as a custodian hereunder upon any Resolutions of the
Board of Directors or Trustees, Instructions, Special Instructions, advice,
notice, request, consent, certificate, instrument or paper appearing to it to be
genuine and to have been properly executed and shall, unless otherwise
specifically provided herein, be entitled to receive as conclusive proof of any
fact or matter required to be ascertained from any Fund hereunder a certificate
signed by any officer of such Fund authorized to countersign or confirm Special
Instructions.
(g) Exceptions from Liability.
-------------------------
Without limiting the generality of any other provisions hereof,
neither the Custodian nor any Domestic Subcustodian shall be under any duty or
obligation to inquire into, nor be liable for:
(i) the validity of the issue of any Securities purchased by or for
any Fund, the legality of the purchase thereof or evidence of
ownership required to be received by any such Fund, or the
propriety of the decision to purchase or amount paid therefor;
(ii) the legality of the sale of any Securities by or for any Fund,
or the propriety of the amount for which the same were sold; or
(iii) any other expenditures, encumbrances of Securities, borrowings
or similar actions with respect to any Fund's Assets;
and may, until notified to the contrary, presume that all Instructions or
Special Instructions received by it are not in conflict with or in any way
contrary to any provisions of any such Fund's Declaration of Trust, Partnership
Agreement, Articles of Incorporation or By-Laws or votes or proceedings of the
shareholders, trustees, partners or directors of any such Fund, or any such
Fund's currently effective Registration Statement on file with the SEC.
7. LIABILITY OF THE CUSTODIAN FOR ACTIONS OF OTHERS.
------------------------------------------------
(a) Domestic Subcustodians
----------------------
19
<PAGE>
The Custodian shall be liable for the acts or omissions of any
Domestic Subcustodian to the same extent as if such actions or omissions were
performed by the Custodian itself.
(b) Liability for Acts and Omissions of Foreign Subcustodians.
---------------------------------------------------------
The Custodian shall be liable to a Fund for any loss or damage to such
Fund caused by or resulting from the acts or omissions of any Foreign
Subcustodian to the extent that, under the terms set forth in the subcustodian
agreement between the Custodian or a Domestic Subcustodian and such Foreign
Subcustodian, the Foreign Subcustodian has failed to perform in accordance with
the standard of conduct imposed under such subcustodian agreement and the
Custodian or Domestic Subcustodian recovers from the Foreign Subcustodian under
the applicable subcustodian agreement.
(c) Securities Systems, Interim Subcustodians, Special Subcustodians,
Securities Depositories and Clearing Agencies.
The Custodian shall not be liable to any Fund for any loss, damage or
expense suffered or incurred by such Fund resulting from or occasioned by the
actions or omissions of a Securities System, Interim Subcustodian, Special
Subcustodian, or Securities Depository and Clearing Agency unless such loss,
damage or expense is caused by, or results from, the negligence or willful
misfeasance of the Custodian.
(d) Defaults or Insolvencies of Brokers, Banks, Etc.
-----------------------------------------------
The Custodian shall not be liable for any loss, damage or expense
suffered or incurred by any Fund resulting from or occasioned by the actions,
omissions, neglects, defaults or insolvency of any broker, bank, trust company
or any other person with whom the Custodian may deal (other than any of such
entities acting as a Subcustodian, Securities System or Securities Depository
and Clearing Agency, for whose actions the liability of the Custodian is set out
elsewhere in this Agreement) unless such loss, damage or expense is caused by,
or results from, the negligence or willful misfeasance of the Custodian.
(e) Reimbursement of Expenses.
-------------------------
Each Fund agrees to reimburse the Custodian for all out-of-pocket
expenses incurred by the Custodian in connection with this Agreement, but
excluding salaries and usual overhead expenses.
8. INDEMNIFICATION.
---------------
(a) Indemnification by Fund.
-----------------------
20
<PAGE>
Subject to the limitations set forth in this Agreement, each Fund
agrees to indemnify and hold harmless the Custodian and its nominees from all
losses, damages and expenses (including attorneys' fees) suffered or incurred by
the Custodian or its nominee caused by or arising from actions taken by the
Custodian, its employees or agents in the performance of its duties and
obligations under this Agreement, including, but not limited to, any
indemnification obligations undertaken by the Custodian under any relevant
subcustodian agreement; provided, however, that such indemnity shall not apply
to the extent the Custodian is liable under Sections 6 or 7 hereof.
If any Fund requires the Custodian to take any action with respect to
Securities, which action involves the payment of money or which may, in the
opinion of the Custodian, result in the Custodian or its nominee assigned to
such Fund being liable for the payment of money or incurring liability of some
other form, such Fund, as a prerequisite to requiring the Custodian to take such
action, shall provide indemnity to the Custodian in an amount and form
satisfactory to it.
(b) Indemnification by Custodian.
----------------------------
Subject to the limitations set forth in this Agreement and in addition
to the obligations provided in Sections 6 and 7, the Custodian agrees to
indemnify and hold harmless each Fund from all losses, damages and expenses
suffered or incurred by each such Fund caused by the negligence or willful
misfeasance of the Custodian.
9. ADVANCES.
--------
In the event that, pursuant to Instructions, the Custodian or any
Subcustodian, Securities System, or Securities Depository or Clearing Agency
acting either directly or indirectly under agreement with the Custodian (each of
which for purposes of this Section 9 shall be referred to as "Custodian"), makes
any payment or transfer of funds on behalf of any Fund as to which there would
be, at the close of business on the date of such payment or transfer,
insufficient funds held by the Custodian on behalf of any such Fund, the
Custodian may, in its discretion without further Instructions, provide an
advance ("Advance") to any such Fund in an amount sufficient to allow the
completion of the transaction by reason of which such payment or transfer of
funds is to be made. In addition, in the event the Custodian is directed by
Instructions to make any payment or transfer of funds on behalf of any Fund as
to which it is subsequently determined that such Fund has overdrawn its cash
account with the Custodian as of the close of business on the date of such
payment or transfer, said overdraft shall constitute an Advance. Any Advance
shall be payable by the Fund on behalf of which the Advance was made on demand
by Custodian, unless otherwise agreed by such Fund and the Custodian, and shall
accrue interest from the date of the Advance to the date of payment by such Fund
to the Custodian at a rate agreed upon in writing from time to time by the
Custodian and such Fund. It is understood that any transaction in respect of
which the Custodian shall have made an Advance, including but not limited to a
foreign exchange
21
<PAGE>
contract or transaction in respect of which the Custodian is not acting as a
principal, is for the account of and at the risk of the Fund on behalf of which
the Advance was made, and not, by reason of such Advance, deemed to be a
transaction undertaken by the Custodian for its own account and risk. The
Custodian and each of the Funds which are parties to this Agreement acknowledge
that the purpose of Advances is to finance temporarily the purchase or sale of
Securities for prompt delivery in accordance with the settlement terms of such
transactions or to meet emergency expenses not reasonably foreseeable by a Fund.
The Custodian shall promptly notify the appropriate Fund of any Advance. Such
notification shall be sent by facsimile transmission or in such other manner as
such Fund and the Custodian may agree.
10. LIENS.
-----
The Bank shall have a lien on the Property in the Custody Account to
secure payment of fees and expenses for the services rendered under this
Agreement. If the Bank advances cash or securities to the Fund for any purpose
or in the event that the Bank or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of its duties hereunder, except such as may arise from its or
its nominee's negligent action, negligent failure to act or willful misconduct,
any Property at any time held for the Custody Account shall be security therefor
and the Fund hereby grants a security interest therein to the Bank. The Fund
shall promptly reimburse the Bank for any such advance of cash or securities or
any such taxes, charges, expenses, assessments, claims or liabilities upon
request for payment, but should the Fund fail to so reimburse the Bank, the Bank
shall be entitled to dispose of such Property to the extent necessary to obtain
reimbursement. The Bank shall be entitled to debit any account of the Fund with
the Bank including, without limitation, the Custody Account, in connection with
any such advance and any interest on such advance as the Bank deems reasonable.
11. COMPENSATION.
------------
Each Fund will pay to the Custodian such compensation as is agreed to
in writing by the Custodian and each such Fund from time to time. Such
compensation, together with all amounts for which the Custodian is to be
reimbursed in accordance with Section 7(e), shall be billed to each such Fund
and paid in cash to the Custodian.
12. POWERS OF ATTORNEY.
------------------
Upon request, each Fund shall deliver to the Custodian such proxies,
powers of attorney or other instruments as may be reasonable and necessary or
desirable in connection with the performance by the Custodian or any
Subcustodian of their respective obligations under this Agreement or any
applicable subcustodian agreement.
13. TERMINATION AND ASSIGNMENT.
--------------------------
22
<PAGE>
Any Fund or the Custodian may terminate this Agreement by notice in
writing, delivered or mailed, postage prepaid (certified mail, return receipt
requested) to the other not less than 90 days prior to the date upon which such
termination shall take effect. Upon termination of this Agreement, the
appropriate Fund shall pay to the Custodian such fees as may be due the
Custodian hereunder as well as its reimbursable disbursements, costs and
expenses paid or incurred. Upon termination of this Agreement, the Custodian
shall deliver, at the terminating party's expense, all Assets held by it
hereunder to the appropriate Fund or as otherwise designated by such Fund by
Special Instructions. Upon such delivery, the Custodian shall have no further
obligations or liabilities under this Agreement except as to the final
resolution of matters relating to activity occurring prior to the effective date
of termination.
This Agreement may not be assigned by the Custodian or any Fund without the
respective consent of the other, duly authorized by a resolution by its Board of
Directors or Trustees.
14. ADDITIONAL FUNDS.
----------------
An additional Fund or Funds may become a party to this Agreement after the
date hereof by an instrument in writing to such effect signed by such Fund or
Funds and the Custodian. If this Agreement is terminated as to one or more of
the Funds (but less than all of the Funds) or if an additional Fund or Funds
shall become a party to this Agreement, there shall be delivered to each party
an Appendix B or an amended Appendix B, signed by each of the additional Funds
(if any) and each of the remaining Funds as well as the Custodian, deleting or
adding such Fund or Funds, as the case may be. The termination of this Agreement
as to less than all of the Funds shall not affect the obligations of the
Custodian and the remaining Funds hereunder as set forth on the signature page
hereto and in Appendix B as revised from time to time.
15. NOTICES.
-------
As to each Fund, notices, requests, instructions and other writings
delivered to John A. Levin & Co., Inc., One Rockefeller Plaza, 25th Floor, New
York, New York 10020, Attn: Glenn A. Aigen, postage prepaid, or to such other
address as any particular Fund may have designated to the Custodian in writing,
shall be deemed to have been properly delivered or given to a Fund.
Notices, requests, instructions and other writings delivered to the
Securities Administration Department of the Custodian at its office at 928 Grand
Boulevard, Kansas City, Missouri, or mailed postage prepaid, to the Custodian's
Securities Administration Department, Post Office Box 419226, Kansas City,
Missouri 64141, or to such other addresses as the Custodian may have designated
to each Fund in writing, shall be deemed to have been properly delivered or
given to the Custodian hereunder; provided, however, that procedures for the
delivery of Instructions and Special Instructions shall be governed by Section
2(c) hereof.
16. MISCELLANEOUS.
-------------
23
<PAGE>
(a) This Agreement is executed and delivered in the State of Missouri and
shall be governed by the laws of such state.
(b) All of the terms and provisions of this Agreement shall be binding
upon, and inure to the benefit of, and be enforceable by the respective
successors and assigns of the parties hereto.
(c) No provisions of this Agreement may be amended, modified or waived, in
any manner except in writing, properly executed by both parties hereto;
provided, however, Appendix A may be amended from time to time as Domestic
Subcustodians, Foreign Subcustodians, Special Subcustodians, and Securities
Depositories and Clearing Agencies are approved or terminated according to the
terms of this Agreement.
(d) The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the provisions hereof or
otherwise affect their construction or effect.
(e) This Agreement shall be effective as of the date of execution hereof.
(f) This Agreement may be executed simultaneously in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
(g) The following terms are defined terms within the meaning of this
Agreement, and the definitions thereof are found in the following sections of
the Agreement:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
Account 4(b)(3)(ii)
ADR'S 4(j)
Advance 9
Assets 2(B)
Authorized Person 3
Banking Institution 4(1)
Domestic Subcustodian 5(a)
Foreign Subcustodian 5(b)
Instruction 2(c)(1)
Interim Subcustodian 5(c)
Interest Bearing Deposit 4(1)
Liability 10
OCC 4(g)(2)
Person 6(b)
Procedural Agreement 4(h)
SEC 4(b)(3)
</TABLE>
24
<PAGE>
Securities 2(a)
Securities Depositories and 5(b)
Clearing Agencies
Securities System 4(b)(3)
Shares 4(s)
Sovereign Risk 6(b)
Special Instruction 2(c)(2)
Special Subcustodian 5(c)
Subcustodian 5
1940 Act 4(v)
(h) If any part, term or provision of this Agreement is held to be
illegal, in conflict with any law or otherwise invalid by any court of competent
jurisdiction, the remaining portion or portions shall be considered severable
and shall not be affected, and the rights and obligations of the parties shall
be construed and enforced as if this Agreement did not contain the particular
part, term or provision held to be illegal or invalid.
(i) This Agreement constitutes the entire understanding and agreement
of the parties hereto with respect to the subject matter hereof, and accordingly
supersedes, as of the effective date of this Agreement, any custodian agreement
heretofore in effect between the Fund and the Custodian.
IN WITNESS WHEREOF, the parties hereto have caused this Custody Agreement
to be executed by their respective duly authorized officers.
JOHN A. LEVIN & CO., INC.
ATTEST:
- -------------------------
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
------------------------------
UMB BANK, N.A.
ATTEST:
- -------------------------
By:
--------------------------------
25
<PAGE>
Name:_____________________________________
Title:_______________________________________
Date:_______________________________________
26
<PAGE>
APPENDIX A
----------
CUSTODY AGREEMENT
DOMESTIC SUBCUSTODIANS:
United Missouri Trust Company of New York
Brown Brothers Harriman (Foreign Securities Only)
SECURITIES SYSTEMS:
Federal Book Entry
Depository Trust Company
Participant's Trust Company
SPECIAL SUBCUSTODIANS:
SECURITIES DEPOSITORIES
COUNTRIES FOREIGN SUBCUSTODIANS CLEARING AGENCIES
- --------- --------------------- -----------------
Euroclear
<TABLE>
<CAPTION>
John A. Levin & Co., Inc. UMB Bank, n.a.
<S> <C>
By: By:
------------------------------------------ ------------------------------------------
Name: Name:
---------------------------------------- ----------------------------------------
Title: Title:
--------------------------------------- ---------------------------------------
Date: Date:
---------------------------------------- ----------------------------------------
</TABLE>
27
<PAGE>
APPENDIX B
----------
CUSTODY AGREEMENT
The following open-end management investment companies ("Funds") are hereby
made parties to the Custody Agreement dated _______________________, 199____,
with UMB Bank, n.a. ("Custodian") and John A. Levin & Co., Inc., and agree to be
bound by all the terms and conditions contained in said Agreement:
LIST THE FUNDS
--------------
LEVCO Equity Value Fund
Crescendo Growth & Income Fund
ATTEST:
- ----------------- JOHN A. LEVIN & CO., INC.
By:
-----------------------------
Name:
----------------------------
Title:
---------------------------
Date:
---------------------------
ATTEST:
- ----------------- UMB BANK, N.A.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Date:
----------------------------
28
<PAGE>
UMB Bank, n.a.
and
John A. Levin & Co., Inc.
A. Annual Fee:
----------
An annual fee to be computed as of month end and payable on the last day of
each month of the Company's fiscal year, at the annual rate of:
0.05 for each $1,000 forming part of the first $1,000,000,000 of the
net assets of the Fund(s) as of that day, plus
0.025 for each $1,000 forming part of the next $1,000,000,000 of the
net assets of the Fund(s) as of that day, plus
0.01 for each $1,000 forming part of any amount exceeding
$2,000,000,000 of the net assets of the Fund(s) as of that day, plus
B. Portfolio Transaction Fees:
--------------------------
(a) For each portfolio transaction* processed through
a Depository or Federal Book-entry by the Bank $10.00
(b) For each portfolio transaction* processed through
PTC or our New York office $20.00
(c) For each portfolio transaction* processed through
Euroclear or Cedel $40.00
(d) For each option contract written $25.00
(e) For each principal/interest paydown $ 9.00
*A portfolio transaction includes a receive, delivery, maturity, free
security movement and corporate action.
Overdrafts will be calculated at UMB's prime rate and charged as a line item on
the monthly billing.
Out-of-pocket expenses will include, but are not limited to, security transfer
fees, certificate fees, shipping/courier fees or charges, FDIC insurance
premiums, specialized programming charges, and system access/connect charges.
<PAGE>
Fees for services not included or contemplated by this schedule will be
negotiated based on analysis of the services to be performed and by mutual
agreement between the above named parties.
John A. Levin & Co., Inc. UMB Bank, n.a.
By: By:
---------------------------- ----------------------------
Title: Title:
------------------------- -------------------------
Date:
-------------------------
- --------------------------------------------------------------------------------
This fee schedule pertains to custody of U.S. Domestic assets only.
UMB Bank will provide its fee schedule for international custody upon request.
- --------------------------------------------------------------------------------
