LEVCO Equity Value Fund
-----------------------
Annual Report
December 31, 1997
Investment Adviser Distributor
------------------ -----------
John A. Levin & Co., Inc. LEVCO Securities, Inc.
One Rockefeller Plaza One Rockefeller Plaza
25th Floor 25th Floor
New York, New York 10020 New York, New York 10020
1.888.300.9887 1.888.300.9887
<PAGE>
LETTER TO INVESTORS FEBRUARY 24, 1998
Thank you for joining us at the start of this new venture. We have
begun our journey at a challenging and potentially rewarding time. 1997 marked
the stock market's seventh consecutive year of positive returns, and the
1995-1997 period has been the strongest consecutive three-year period for the
S&P 500 Index (Index) since the 1930's. Just two days after the LEVCO Equity
Value Fund (the Fund) commenced operations on August 4, 1997, the Index
completed an ascent to an all-time high, only to surpass that level in October
and then again in November and December as the market recovered from its October
break. In this environment, we spent approximately 3 months to bring the Fund to
a point where approximately 80% of its total assets were invested in equity
securities. From inception through December 31st, the Fund achieved a total
return of 0.80%, compared with a return of 2.91% for the S&P 500 Index over the
same period.
What recent market performance tends to obscure is that both the
economy and the market have inflection points, and we have not seen a major
directional shift in many years. Interestingly, even though 1997 was a very
strong year for the S&P 500 Index, nearly all of the gains were achieved by
August 6th. Looking towards 1998, we believe that global economic conditions,
including slowing growth in Asia, could result in lower than expected corporate
earnings. At the same time, we recognize that other factors, such as sound
foreign and domestic merger opportunities and the fiscal health of federal and
municipal governments, could help to sustain a favorable market environment.
While a market correction, then, is far from certain, we do not believe that
after this prolonged period of investment success money may be made simply from
continued multiple expansion, and we are seeking to construct a portfolio that
will be able to outperform during a significant market downturn.
In building our portfolio, we are generally looking for:
- Companies that are industry leaders with dominant positions and the
opportunity to control pricing, exploit new products and enter new and growing
markets. We are most interested in companies with new products and markets
substantial enough to sustain or enhance their earnings growth rate.
- Companies that are unlocking value by merging with another company in
order to achieve significant cost savings and create new market opportunities or
that are unlocking value by dividing into several pieces in order to produce a
higher stock market valuation.
- Companies that are selling at relatively low multiples of cash flow
and asset value and where management has indicated its commitment to taking
activist measures towards realizing value. Significantly, we believe the
companies the Fund owns in this category have the financial strength to achieve
this objective.
<PAGE>
- Utility companies with special attributes growing out of mergers,
specific regulatory developments and legislation. We believe these companies
offer significant growth potential as compared to traditional utility
investments.
In accordance with our commitment to protecting capital, we have tried
to create a diversified portfolio, including through the selection of equities
and offsetting risks, and we are emphasizing companies with relatively
diversified foreign and domestic earnings sources.
Now that the Fund has been launched, we look forward to the coming year
and believe that we are in a strong position to perform well in a more
multi-directional market environment. We welcome your comments and thank you for
support.
Sincerely,
/s/John A. Levin /s/Jeffrey A. Kigner
John A. Levin Jeffrey A. Kigner
Co-Chairman Co-Chairman
and President
LEVCO EQUITY VALUE FUND
Comparison of the Change in Value of a $10,000 Investment
Levco Equity Value Fund and S&P 500 Index
LEVCO
EQUITY VALUE S&P 500
DATE FUND INDEX
8-4-97 10,000 10,000
8-31-97 9,950 9,484
9-30-97 10,095 10,004
10-31-97 9,784 9,670
11-30-97 9,884 10,118
12-31-97 10,080 10,292
Levco Equity Value Fund Total Return Since Inception (8/4/97):0.80%
Past performance is not predictive of future performance.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
Investments in securities:
At acquisition cost $ 13,737,631
============
At value (Note 1) $ 13,933,533
Receivable for securities sold 27,538
Dividends receivable 12,457
Interest receivable 10,350
Due from adviser (Note 3) 29,240
Organization expenses, net (Note 1) 118,481
------------
TOTAL ASSETS 14,131,599
------------
LIABILITIES
Payable for securities purchased 394,995
Payables for accounting and transfer agent fees 3,000
Other accrued expenses 64,368
------------
TOTAL LIABILITIES 462,363
------------
NET ASSETS $ 13,669,236
============
Net assets consist of:
Paid-in capital $ 13,653,271
Accumulated net realized losses from
security transactions (180,058)
Undistributed net investment income 121
Net unrealized appreciation on investments 195,902
------------
Net assets $ 13,669,236
============
Shares of beneficial interest outstanding
(unlimited number of shares
authorized, $0.001 par value) 1,365,293
============
Net asset value, offering price and
redemption price per share (Note 1) $ 10.01
============
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the Period August 4, 1997 (Commencement of Operations)
Through December 31, 1997
INVESTMENT INCOME
Dividends $ 56,517
Interest 99,460
---------
TOTAL INVESTMENT INCOME 155,977
---------
EXPENSES
Investment advisory fees (Note 3) 46,200
Trustees' fees and expenses 30,000
Professional fees 24,000
Amortization of organization expenses (Note 1) 10,771
Accounting services fees 8,000
Insurance expense 5,240
Registration fees 4,100
Transfer agent fees 4,000
Custodian fees 3,353
Other expenses 503
---------
TOTAL EXPENSES 136,167
Fees waived and expenses reimbursed
by the Adviser (Note 3) (75,440)
---------
NET EXPENSES 60,727
---------
NET INVESTMENT INCOME 95,250
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized losses from security transactions (180,058)
Net change in unrealized appreciation/depreciation
on investments 195,902
---------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 15,844
---------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 111,094
=========
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF CHANGES IN NET ASSETS
For the Period August 4, 1997 (Commencement of Operations)
Through December 31, 1997
FROM OPERATIONS:
Net investment income $ 95,250
Net realized losses from security transactions (180,058)
Net change in unrealized appreciation/depreciation
on investments 195,902
------------
Net increase in net assets from operations 111,094
------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (95,129)
------------
FROM CAPITAL SHARE TRANSACTIONS (a):
Proceeds from shares sold 13,585,403
Net asset value of shares issued in reinvestment
of distributions to shareholders 95,129
Payments for shares redeemed (27,261)
------------
Net increase in net assets from capital share transactions 13,653,271
------------
TOTAL INCREASE IN NET ASSETS 13,669,236
NET ASSETS:
Beginning of period 0
------------
End of period - (including undistributed net investment
income of $121) $ 13,669,236
============
(a) Number of shares:
Sold 1,358,540
Reinvested 9,480
Redeemed (2,727)
------------
Net increase in shares outstanding 1,365,293
Shares outstanding, beginning of period 0
------------
Shares outstanding, end of period 1,365,293
============
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share Outstanding Throughout the Period
From August 4, 1997 (Commencment of Operations) Through December 31, 1997
Net asset value at beginning of period $ 10.00
--------
Income from investment operations:
Net investment income 0.07
Net realized and unrealized gains
on investments 0.01
--------
Total from investment operations 0.08
--------
Less distributions:
Dividends from net investment income (0.07)
--------
Net asset value at end of period $ 10.01
========
Total return 0.80%(a)
========
Net assets at end of period (000's) $ 13,669
========
Ratio of expenses to average net assets (b) 1.10%
Ratio of net investment income to average net assets 1.73%
Portfolio turnover rate 36%(a)
Average commission rate per share $ 0.0579
(a) Not annualized.
(b) Absent investment advisory fees waived and expenses reimbursed by the
Adviser, the ratio of expenses to average net assets would have been 2.47%.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
Shares Value
------ -----
COMMON STOCKS - 84.0%
Aerospace & Defense - 7.2%
2,600 General Motors Corporation - Class H $ 96,037
4,700 Lockheed Martin Corporation 462,950
8,200 Rockwell International Corporation 428,450
------------
987,437
------------
Automobile Manufacturing - .8%
1,700 General Motors Corporation 103,063
------------
Automobile Parts - 1.5%
5,300 Tenneco, Inc. 209,350
------------
Basic Materials - 4.5%
13,500 Allegheny Teledyne Inc. 349,312
7,800 Getchell Gold Corporation (a) 187,200
8,000 MacMillan Bloedel Limited 85,000
------------
621,512
------------
Beverages - 2.3%
7,100 Anheuser-Busch Companies, Inc. 312,400
------------
Chemicals - 5.9%
3,100 Air Products and Chemicals, Inc. 254,975
4,300 E.I. du Pont de Nemours and Company 258,269
3,800 IMC Global Inc. 124,450
3,900 Monsanto Company 163,800
------------
801,494
------------
Computers/Computer Technology Services - 3.6%
6,100 Electronic Data Systems 268,019
2,100 International Business Machines Corporation 219,581
------------
487,600
------------
Conglomerates - 2.2%
8,000 Fortune Brands, Inc. 296,500
------------
Containers & Packaging - 2.6%
9,400 Owen-Illinois, Inc. (a) 356,612
------------
Electrical Components - 1.8%
5,000 Sunstrand Corporation 251,907
------------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
Shares Value
------ -----
COMMON STOCKS - Continued
Electronics - 1.0%
6,700 Dollar Thrifty Automotive Group, Inc. (a) $ 137,350
------------
Household Products - 3.5%
6,100 Black & Decker Corporation 238,281
4,800 Kimberly-Clark Corporation 236,700
------------
474,981
------------
Industrial - 2.3%
3,800 Minnesota Mining and Manufacturing Company 311,838
------------
Insurance - 10.8%
1,800 Ace, Limited (a) 173,700
6,800 Aetna Inc. 479,825
2,500 American International Group 271,875
1,200 EXEL Limited 76,050
4,800 PartnerRe Limited 222,600
4,400 Tokio Marine & Fire Insurance Company - ADR 254,100
------------
1,478,150
------------
Media - 6.2%
8,100 Tribune Company 504,225
11,900 U S WEST Media Group (a) 343,612
------------
847,837
------------
Office Equipment - 1.3%
6,300 IKON Office Solutions, Inc. 177,188
------------
Oil and Gas Drilling - 4.2%
4,400 Amerada Hess Corporation 241,450
8,700 Unocal Corporation 337,669
------------
579,119
------------
Pharmaceuticals - 7.2%
3,200 Genentech, Inc. (a) 194,000
6,500 Pfizer Inc. 484,656
6,100 Rhone-Poulenc SA - ADR 270,688
300 Warner-Lambert Company 37,200
------------
986,544
------------
Restaurants - 1.4%
4,100 McDonald's Corporation 195,775
------------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1997
Shares Value
------ -----
COMMON STOCKS - Continued
Retail Stores - 1.6%
3,600 J.C. Penney Company, Inc. $ 217,125
------------
Software & Processing - 2.2%
10,100 First Data Corporation 295,425
------------
Utilities - Electric - 5.5%
1,700 Consolidated Edison, Inc. 69,700
14,900 Long Island Lighting Company 448,862
5,600 Texas Utilities Company 232,750
------------
751,312
------------
Utilities - Gas - 2.3%
8,700 Equitable Resources, Inc. 307,763
------------
Utilities - Telephone - 2.1%
3,200 Bell Atlantic Corporation 291,200
------------
Total Common Stocks (Cost $11,283,580) $ 11,479,482
------------
Face
Value
-----
MONEY MARKET FUNDS - 17.9%
$2,454,051 United Missouri Bank Money Market Fiduciary
(Cost $2,454,051) $ 2,454,051
------------
Total Investments at Value - 101.9% $ 13,933,533
Liabilities in Excess of Other Assets - (1.9)% (264,297)
------------
Net Assets - 100.0% $ 13,669,236
============
(a) Non-income producing security.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The LEVCO Equity Value Fund (the Fund) is a no-load, diversified series of the
LEVCO Series Trust (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Trust was
organized as a Delaware business trust on January 2, 1997. The Fund commenced
operations on August 4, 1997.
The Fund's investment objective is 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 Fund
pursues this objective by investing its assets primarily in common stocks and
other securities having equity characteristics.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(currently 4:00 p.m., Eastern time). Securities which are traded
over-the-counter are valued at the last sales price, if available, otherwise, at
the last quoted bid price. Securities traded on a national stock exchange are
valued based upon the closing price on the principal exchange where the security
is traded.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share.
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income are declared and paid quarterly to
shareholders of the Fund. Net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Payment of all dividends and
capital gains distributions will be made in shares. Income distributions and
capital gain distributions are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Organization expenses -- Expenses of organization, net of certain expenses paid
by the Adviser, have been capitalized and are being amortized on a straight-line
basis over five years.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
LEVCO EQUITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
Federal income taxes -- The Fund has complied with the special provisions of the
Internal Revenue Code available to regulated investment companies and therefore
no federal income tax provision is required. The accumulated net realized
capital loss on sales of investments for federal income tax purposes at December
31, 1997 amounted to $176,701. This loss is available to offset taxable capital
gains and, if not applicable, expires on December 31, 2005.
The following information is based upon the federal income tax cost of portfolio
investments of $13,740,988 as of December 31, 1997:
Gross unrealized appreciation............................. $ 615,179
Gross unrealized depreciation............................. (422,634)
Net unrealized appreciation............................... $ 192,545
2. INVESTMENT TRANSACTIONS
During the period ended December 31, 1997, purchases and proceeds from sales and
maturities of investment securities, other than short-term investments, amounted
to $14,807,104 and $3,347,776, respectively.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by John A. Levin & Co., Inc. (the Adviser)
under the terms of an Investment Advisory Agreement. The Adviser also provides
certain administrative services required by the Trust and the Fund. Under the
Investment Advisory Agreement, the Fund pays the Adviser a fee, which is
computed and accrued daily and paid monthly at an annual rate of .85% of its
average daily net assets. The Adviser currently intends to limit the total
operating expenses of the Fund to 1.10% of its average daily net assets.
Accordingly, the Adviser voluntarily waived its entire investment advisory fee
of $46,200 and reimbursed the Fund for $29,240 of other operating expenses for
the period ended December 31, 1997. Certain trustees and officers of the Trust
are also officers of the Adviser.
TRUSTEES COMPENSATION
No compensation is paid by the Fund to officers and trustees of the Fund who are
affiliated with the Adviser and/or the Distributor. The Fund pays each
unaffiliated trustee an annual retainer of $7,500 and certain expenses the
trustees incur in attending meetings.
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trustees of
LEVCO Equity Value Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of LEVCO Equity Value Fund as of December 31,
1997, and the related statements of operations and changes in net assets and the
financial highlights for the period from August 4, 1997 (commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1997, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of LEVCO
Equity Value Fund as of December 31, 1997, the results of its operations and the
changes in its net assets for the period then ended, and the financial
highlights presented herein for the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
Chicago, Illinois
January 15, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029881
<NAME> LEVCO EQUITY VALUE FUND
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 13,737,631
<INVESTMENTS-AT-VALUE> 13,933,533
<RECEIVABLES> 79,585
<ASSETS-OTHER> 118,481
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,131,599
<PAYABLE-FOR-SECURITIES> 394,995
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 67,368
<TOTAL-LIABILITIES> 462,363
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,653,271
<SHARES-COMMON-STOCK> 1,365,293
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 121
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (180,058)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 195,902
<NET-ASSETS> 13,669,236
<DIVIDEND-INCOME> 56,517
<INTEREST-INCOME> 99,460
<OTHER-INCOME> 0
<EXPENSES-NET> 60,727
<NET-INVESTMENT-INCOME> 95,250
<REALIZED-GAINS-CURRENT> (180,058)
<APPREC-INCREASE-CURRENT> 195,902
<NET-CHANGE-FROM-OPS> 111,094
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 95,129
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,358,540
<NUMBER-OF-SHARES-REDEEMED> 2,727
<SHARES-REINVESTED> 9,480
<NET-CHANGE-IN-ASSETS> 13,669,236
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 46,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136,167
<AVERAGE-NET-ASSETS> 13,524,749
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> .07
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<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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