<PAGE>
As filed with the Securities and Exchange Commission on April 30, 1998
File No. 333-19297
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 2 [X]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 3 [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 Post-Effective Amendment becomes effective.
It is proposed that this filing will become effective (check appropriate box)
[X] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
FORM N-1A
LEVCO SERIES TRUST
CROSS REFERENCE SHEET
N-1A ITEM NUMBER
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PART A CAPTION
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1. Cover Page Cover Page
2. Synopsis Prospectus Summary and
Summary of Expenses
3. Condensed Financial Information Financial Highlights
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 *
2
<PAGE>
PART B CAPTION
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10. Cover Page Cover Page
11. Table of Contents Table of Contents
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;
Investment Advisory
Agreement
15. Control Persons and Principal Holders Additional Information
of Securities
16. Investment Advisory and Other Investment Advisory
Services Agreement; Additional
Information
17. Brokerage Allocation and Other Portfolio Transactions
Practices and Brokerage
18. Capital Stock and Other Securities *
19. Purchase, Redemption and Pricing of Determination of Net
Securities Being Offered Asset Value; Purchases
and Redemptions of
Shares
20. Tax Status Taxes
21. Underwriters Distributor;
Distribution Plan
3
<PAGE>
22. Calculation of Performance Data Performance Information
23. Financial Statements Statement of Assets and
Liabilities
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* Omitted because answer is negative or inapplicable
4
<PAGE>
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Prospectus Dated April 30, 1998
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 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. In the
future, Shares may also be sold to qualified pension and retirement plans.
____________________
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 April 30, 1998, 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 1-888-300-9887.
____________________
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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Page
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PROSPECTUS SUMMARY 3
FINANCIAL HIGHLIGHTS 5
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
DISTRIBUTIONS AND TAXES 15
SHAREHOLDER COMMUNICATIONS 16
PERFORMANCE INFORMATION 17
ADDITIONAL INFORMATION 17
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<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 $7.5 billion in assets
for its clients. See "MANAGEMENT - Investment
Adviser".
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. In the future, Shares may also be
sold to qualified pension and
-3-
<PAGE>
plans.
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
Countrywide Fund Services, Inc.
("Countrywide") a monthly fee 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. The
Fund also pays Countrywide a separate fee for
acting as the transfer agent. 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". The Investment Adviser
has voluntarily undertaken to limit expenses
of the Fund (exclusive of taxes, interest,
brokerage commissions, certain distribution
expenses and extraordinary expenses) to 1.10%
of its average net assets. The Investment
Adviser reserves the right to discontinue this
policy at any time.
Dividends and Capital
Gains Distributions The Fund declares and pays income dividends
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".
Risk 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.
-4-
<PAGE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a share outstanding throughout
the period from August 4, 1997 (commencement of operations) through December
31, 1997. The information in this table has been audited by Ernst & Young
LLP, the Fund's independent auditors. The following information should be
read in conjunction with the audited financial statements and related notes
which are incorporated by reference in the Fund's Statement of Additional
Information.
Further information about the Fund's performance is contained in the
Fund's annual report to shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
<S> <C>
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
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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%
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Net assets at end of period (000's) $13,669
------
Ratio of expenses to average net assets 1.10% (a)
Ratio of net investment income to average net assets 1.73%
Portfolio turnover rate 36%
Average commission rate per share $0.0579
</TABLE>
(a) Absent investment advisory fees waived and
expenses reimbursed by the Investment Adviser, the
ratio of expenses to average net assets would have
been 2.47%.
-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 ("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. The Fund is currently the Trust's sole investment portfolio. 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") 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, the Investment Adviser utilizes a
research intensive approach that gives consideration 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. In
addition to using a value oriented stock selection process, the Investment
Adviser seeks to preserve capital and control volatility through the
construction of a diversified portfolio. Although payment of current
dividends and income
-6-
<PAGE>
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 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
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<PAGE>
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 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
-8-
<PAGE>
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.
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
-9-
<PAGE>
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 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
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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 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.
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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.
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
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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 Countrywide Fund Services, Inc.
("Countrywide"). 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.
The Investment Adviser may pay financial institutions a portion of this fee
received by the Investment Adviser that is attributable to customers of such
financial institutions.
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 $7.5 billion in
assets for its clients.
The following persons serve as the portfolio managers of the Fund and
have managed the Fund since its commencement of operations:
John A. Levin: Chairman and Chief Executive Officer of the
Investment Adviser (and President of its predecessor) since
1982; Director, President and Chief Executive Officer of Baker
Fentress since June, 1996.
Jeffrey A. Kigner: Co-Chairman and Chief Investment Officer
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.
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TRANSFER AGENT AND ACCOUNTING SERVICES
The Trust has retained Countrywide Fund Services, Inc., P.O. Box 5354,
Cincinnati, Ohio 45201, to serve as the Fund's transfer agent and dividend
paying agent. Countrywide is an indirect, wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a NYSE listed company principally engaged
in the business of residential mortgage lending.
Countrywide also provides the Fund with certain accounting and pricing
services, including valuing the Fund's assets and calculating the net asset
value of the Fund's shares. For providing such accounting and pricing
services, the Fund pays Countrywide a monthly fee equal to $2,000. This fee
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 Countrywide; 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. The Investment Adviser has
voluntarily undertaken to limit expenses of the Fund (exclusive of taxes,
interest, Rule 12b-1 fees, brokerage commissions, and extraordinary expenses)
to 1.10% of its average net assets. The Investment Adviser reserves the right
to discontinue this policy at any time.
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.
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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.
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 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 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
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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.
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 1-888-300-9887 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.
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<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 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
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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 were 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 Class A shares of the Fund were owned by Security Equity Life
Insurance Company. As a result, Security Equity Life Insurance Company may be
deemed to "control" the Fund, as that term is defined in the 1940 Act.
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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LEVCO EQUITY VALUE FUND
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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 Fund 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
1-888-300-9887
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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.
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<PAGE>
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Prospectus Dated April 30, 1998
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 B Shares, are distributed by LEVCO Securities, Inc. (the
"Distributor"). Shares are sold 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. In the
future, Shares may also be sold to qualified pension and retirement plans.
____________________
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 April 30, 1998, 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 1-888-300-9887.
____________________
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>
- -----------------------------------------------------------------------------
TABLE OF CONTENTS
- -----------------------------------------------------------------------------
Page
----
PROSPECTUS SUMMARY 3
FINANCIAL HIGHLIGHTS 5
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 17
PERFORMANCE INFORMATION 17
ADDITIONAL INFORMATION 18
-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 $7.5 billion in assets
for its clients. See "MANAGEMENT - Investment
Adviser".
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. In the future, Shares may also be
sold to qualified pension and retirement
-3-
<PAGE>
plans.
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
Countrywide Fund Services, Inc.
("Countrywide") a monthly fee 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. The
Fund also pays Countrywide a separate fee for
acting as the transfer agent. 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
certain expenses it incurs in connection with
the distribution of Shares. See "DISTRIBUTION
PLAN". The Investment Adviser has voluntarily
undertaken to limit expenses of the Fund
(exclusive of taxes, interest, Rule 12b-1
fees, brokerage commissions and extraordinary
expenses) to 1.10% of its average net assets.
The Investment Adviser reserves the right to
discontinue this policy at any time.
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".
Risk 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.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected per share data and ratios for a Class A share of the fund
outstanding throughout the period from August 4, 1997 (commencement of
operations) through December 31, 1997. During this period, there were no
Class B Shares of the Fund outstanding. The information in this table has
been audited by Ernst & Young LLP, the Fund's independent auditors. The
following information should be read in conjunction with the audited financial
statements and related notes which are incorporated by reference in the Fund's
Statement of Additional Information.
Further information about the Fund's performance is contained in the
Fund's annual report to shareholders, which may be obtained without charge.
<TABLE>
<CAPTION>
<S> <C>
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%
------
Net assets at end of period (000's) $13,669
------
Ratio of expenses to average net assets 1.10% (a)
Ratio of net investment income to average net assets 1.73%
Portfolio turnover rate 36%
Average commission rate per share $0.0579
</TABLE>
(a) Absent investment advisory fees waived and
expenses reimbursed by the Fund's Investment
Adviser, the ratio of expenses to average net assets
would have been 2.47%.
-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. The Fund is currently the Trust's sole investment
portfolio. 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") 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 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, the Investment Adviser utilizes a
research intensive approach that gives consideration 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. In
addition to using a value oriented stock selection process, the Investment
Adviser seeks to preserve capital and control volatility
-6-
<PAGE>
through the construction of a diversified portfolio. 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 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
-7-
<PAGE>
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 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
-8-
<PAGE>
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.
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
-9-
<PAGE>
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 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
-10-
<PAGE>
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 the 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
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<PAGE>
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.
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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 Countrywide Fund Services, Inc.
("Countrywide"). 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.
The Investment Adviser may pay financial institutions a portion of this fee
received by the Investment Adviser that is attributable to customers of such
financial institutions.
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 $7.5 billion in
assets for its clients.
The following persons serve as the portfolio managers of the Fund and
have managed the Fund since its commencement of operations:
John A. Levin: Chairman and Chief Executive Officer of the
Investment Adviser (and President of its predecessor) since
1982; Director, President and Chief Executive Officer of Baker
Fentress since June, 1996.
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<PAGE>
Jeffrey A. Kigner: Co-Chairman and Chief Investment Officer 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., P.O. Box 5354,
Cincinnati, Ohio 45201, to serve as the Fund's transfer agent and dividend
paying agent. Countrywide is an indirect, wholly-owned subsidiary of
Countrywide Credit Industries, Inc., a NYSE listed company principally engaged
in the business of residential mortgage lending.
Countrywide also provides the Fund with certain accounting and pricing
services, including valuing the Funds assets and calculating the net asset
value of the Fund's shares. For providing such accounting and pricing
services, the Fund pays Countrywide a monthly fee equal to $2,000. This fee
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 Countrywide; 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. The
Investment Adviser has voluntarily undertaken to limit expenses of the Fund
(exclusive of taxes, interest, Rule 12b-1 fees, brokerage commissions and
extraordinary expenses) to 1.10% of its average net assets. The Investment
Adviser reserves the right to discontinue this policy at any time.
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
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<PAGE>
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.
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.
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<PAGE>
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 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.
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<PAGE>
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 1-888-300-9887 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 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,
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<PAGE>
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 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.
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<PAGE>
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
were 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 Class A shares of the Fund were owned by Security Equity Life
Insurance Company. Through the exercise of voting rights with respect to the
Class A 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. As of the date of this Prospectus, there are no
outstanding Class B shares of the Fund.
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>
- -----------------------------------------------------------------------------
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 Fund 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
1-888-300-9887
- -----------------------------------------------------------------------------
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 dated April 30, 1998
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 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. In the future, Shares may also be sold to
qualified pension and retirement plans.
--------------------------------------------------------------
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 April 30, 1998, which provide the basic information you should know
before investing and may be obtained without charge from the Transfer Agent by
calling: 1-888-300-9887. 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
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INVESTMENT OBJECTIVE AND POLICIES 3
INVESTMENT RESTRICTIONS 8
PORTFOLIO TRANSACTIONS AND BROKERAGE 10
DETERMINATION OF NET ASSET VALUE 11
TAXES 12
PURCHASES AND REDEMPTIONS OF SHARES 13
TRUSTEES AND OFFICERS 13
INVESTMENT ADVISORY AGREEMENT 16
DISTRIBUTOR 17
DISTRIBUTION PLAN [Applicable to the Class B Shares Only] 18
SPECIAL INVESTMENT TECHNIQUES 19
PERFORMANCE INFORMATION 21
ADDITIONAL INFORMATION 22
<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
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.
4
<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
5
<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
6
<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
7
<PAGE>
loans is that the Fund continues to receive the income on the loaned
securities while 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.
8
<PAGE>
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, 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.
9
<PAGE>
5. Purchase securities of other investment companies, except to
the extent permitted under the 1940 Act.
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.
10
<PAGE>
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 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.
For the period August 4, 1997 (commencement of operations) through
December 31, 1997, the Fund paid total brokerage commissions of $28,439.00,
none of which were paid to the Distributor.
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; Martin Luther King Day (third Monday in January);
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
11
<PAGE>
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-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
12
<PAGE>
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.
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.
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.
13
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION(S) WITH TRUST DURING LAST FIVE YEARS
- --------------------- ---------------------- ----------------------
<S> <C> <C>
John A. Levin, 59* Trustee, Co-Chairman and Chairman and Chief Executive
One Rockefeller Plaza President Officer of the Investment Adviser.
25th Floor Prior to this, Mr. Levin was
New York, NY 10020 President of the predecessor of the
Investment Adviser. Director,
President and Chief Executive
Officer of Baker, Fentress &
Company ("Baker Fentress").
Director and President of the
Distributor.
Jessica M. Bibliowicz, 38* Trustee President and Chief Operating
One Rockefeller Plaza Officer of the Investment Adviser.
25th Floor Prior to this, Ms. Bibliowicz was
New York, NY 10020 Chairman of the Board and Chief
Executive Officer at Smith Barney
Mutual Funds Management, Inc.
and Senior Vice President at
Prudential Securities. Director of
Baker Fentress. Director, President
and Chief Operating Officer of the
Distributor.
Jeffrey A. Kigner, 37* Trustee and Co-Chairman Co-Chairman and Chief Investment
One Rockefeller Plaza Officer of the Investment Adviser.
25th Floor Prior to this, Mr. Kigner was a
New York, NY 10020 portfolio manager at the
predecessor of the Investment
Adviser. Director of Baker
Fentress. Director of the
Distributor.
Thomas C. Barry, 54 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.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS
NAME, AGE AND ADDRESS POSITION(S) WITH TRUST DURING LAST FIVE YEARS
- --------------------- ---------------------- ----------------------
<S> <C> <C>
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., 55 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, 35 Chief Financial Officer and Chief Financial Officer of the
One Rockefeller Plaza 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 Audit Manager
at Richard A. Eisner & Company,
LLP.
Norris Nissim, 31 Secretary Director of Legal Affairs of the
One Rockefeller Plaza Investment Adviser and Distributor.
25th Floor Prior to this, Mr. Nissim was an
New York, NY 10020 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, Jessica M. Bibliowicz and Jeffrey A. Kigner 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.
15
<PAGE>
Annual Trustee compensation from the Trust is estimated as follows:
<TABLE>
<CAPTION>
COMPENSATION TABLE
------------------
PENSION OR TOTAL
NAME OF AGGREGATE RETIREMENT BENEFITS ESTIMATED COMPENSATION FROM
PERSON, COMPENSATION ACCRUED AS PART OF BENEFITS UPON FUND COMPLEX
POSITION FROM FUND FUND EXPENSES RETIREMENT PAID TO TRUSTEES
- -------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C>
John A. Levin $0 $0 $0 $0
Jessica M. $0 $0 $0 $0
Bibliowicz
Jeffrey A. $0 $0 $0 $0
Kigner
Thomas C. $7,500.00 $0 $0 $7,500.00
Barry
Charles L. $7,500.00 $0 $0 $7,500.00
Booth, Jr.
James B. $7,500.00 $0 $0 $7,5000.00
Rogers, Jr.
Edward J. $7,500.00 $0 $0 $7,5000.00
Rosenthal
</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 May 22, 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 April 30, 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
16
<PAGE>
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 management fee of the Fund was waived
for the period August 4, 1997 to December 31, 1997, resulting in no fee being
paid.
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 as the Trust and the Fund may require, except for
certain accounting related services. See "ADDITIONAL INFORMATION - Transfer
Agent and Accounting Services". The Investment Adviser 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 May 22, 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
17
<PAGE>
"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".
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
18
<PAGE>
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 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
19
<PAGE>
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 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
20
<PAGE>
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 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 be. All measures of volatility and correlation are calculated using
averages of historical data.
TOTAL RETURN
- ------------
The Fund's total return (for Class A Shares) for the period August 4,
1997 (commencement of operations) through December 31, 1997 was -0.8%. The
Fund's quotations of total return reflect the
21
<PAGE>
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 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
----------------------
YEAR 2000 RISKS
- ---------------
As the year 2000 approaches, an issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. Like other mutual funds, financial and business
organizations and individuals around the world, the Fund could be adversely
affected if the computer systems used by the Investment Adviser and other
service providers to the Fund do not properly process and calculate
date-related information and data from and after January 1, 2000. The
Investment Adviser is taking steps that it believes are reasonably designed to
address the year 2000 issue with respect to the computer systems it uses and
to obtain satisfactory assurances that comparable steps are being taken by
each of the Fund's other major service providers. Based on information
currently available, the Investment Adviser does not expect to incur
significant operating expenses or be required to incur material costs to be
year 2000 compliant. There can be no assurance, however, that steps taken by
the Investment Adviser in preparation for the year 2000 will be sufficient to
avoid any adverse impact on the Fund.
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).
22
<PAGE>
CONTROL PERSONS AND HOLDERS OF SECURITIES
- -----------------------------------------
As of the date of this Statement of Additional Information, all of the
outstanding Class A Shares of the Fund were owned by Security Equity Life
Insurance Company. 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 Class A
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 were
audited by Ernst & Young LLP.
TRANSFER AGENT AND ACCOUNTING SERVICES
- --------------------------------------
The Trust has retained Countrywide Fund Services, Inc.
("Countrywide"), P.O. Box 5354, Cincinnati, Ohio 45201, to serve as the Fund's
transfer agent and dividend paying agent. Countrywide is an indirect,
wholly-owned subsidiary of Countrywide Credit Industries, Inc., a NYSE listed
company principally engaged in the business of residential mortgage lending.
Countrywide has also been retained to provide certain accounting and
pricing services to the Fund, including valuing the Fund's assets and
calculating the net asset value of shares of the Fund. For providing these
accounting services, the Fund pays Countrywide a monthly fee 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. The Fund pays a
separate Transfer Agent fee to Countrywide equal to $1,000 per month.
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.
23
<PAGE>
FINANCIAL STATEMENTS
- --------------------
The audited financial statements of the Fund and the notes thereto and
the report of Ernst & Young LLP with respect to such financial statements, are
incorporated herein by reference to the Fund's Annual Report to shareholders
for the period August 4, 1997 (commencement of operations) through December
31, 1997.
The financial statements of the Fund incorporated by reference in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent public accountants, as indicated in their report with respect
thereto. The financial statements are incorporated by reference herein in
reliance on their report given upon the authority of said firm as experts in
accounting and auditing.
24
<PAGE>
LEVCO SERIES TRUST
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements:
The Financial Statements for LEVCO Equity Value Fund, the sole
series of Registrant, and the Report of Independent Auditors are
incorporated by reference to the Registrant's Annual Report for
the fiscal year ended December 31, 1997.
(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 Auditors.
(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.
** Incorporated by Reference to Pre-Effective Amendment No. 2 to
Registrant's Registration Statement, File Nos. 333-19297 and
811-08007, filed May 28, 1997.
*** To be filed by Post-Effective Amendment.
C-1
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
All of the Class A shares of LEVCO Equity Value Fund (the "Fund"), the
initial series of LEVCO Series Trust (the "Trust"), are owned by Security
Equity Life Insurance Company, which may be deemed to control the Fund.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
Title of Class Number of Record Holders
-------------- ------------------------
Class A Shares of One
Beneficial Interest in
LEVCO Equity Value
Fund
Class B Shares of None
Beneficial Interest in
LEVCO Equity Value
Fund
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 between the Trust and John A. Levin & Co., Inc.
the Trust's investment adviser (the "Investment Adviser"), provides that 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
C-2
<PAGE>
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.
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, Chairman and Chief Executive
Officer 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 and New Europe 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.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
John A. Levin Chairman, Chief Executive Trustee, Co-Chairman
Officer and President
</TABLE>
C-3
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITIONS AND OFFICES POSITIONS AND OFFICES
BUSINESS WITH UNDERWRITER WITH REGISTRANT
<S> <C> <C>
One Rockefeller Plaza, 25th floor and President
New York, NY 10020
Jessica M. Bibliowicz Director, President Trustee
One Rockefeller Plaza, 25th floor and Chief Operating Officer
New York, NY 10020
Jeffrey A. Kigner Director Trustee and Co-Chairman
One Rockefeller Plaza, 25th floor
New York, NY 10020
Glenn A. Aigen Vice President and Chief Chief Financial Officer
One Rockefeller Plaza, 25th floor Financial Officer and Treasurer
New York, NY 10020
Carol L. Novak Vice President and Secretary None
One Rockefeller Plaza, 25th floor
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 Countrywide Fund Services, Inc. at the following office:
Countrywide Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
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
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to the Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Amendment to the Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of New York, and State of
New York on the 30th day of April, 1998.
LEVCO SERIES TRUST
By: /s/ John A. Levin
-----------------
Name: John A. Levin
Title: Trustee, Co-Chairman 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.
/s/ John A. Levin Trustee, Co-Chairman and April 30, 1998
- -------------------------- President
John A. Levin
/s/ Jessica M. Bibliowicz Trustee April 30, 1998
- --------------------------
Jessica M. Bibliowicz
/s/ Jeffrey A. Kigner Trustee and Co-Chairman April 30, 1998
- --------------------------
Jeffrey A. Kigner
/s/ Glenn A. Aigen Chief Financial Officer and April 30, 1998
- -------------------------- Treasurer
Glenn A. Aigen
/s/ Thomas C. Barry Trustee April 30, 1998
- --------------------------
Thomas C. Barry
/s/ Charles L. Booth, Jr. Trustee April 30, 1998
- --------------------------
Charles L. Booth, Jr.
/s/ James B. Rogers, Jr. Trustee April 30, 1998
- --------------------------
James B. Rogers, Jr.
/s/ Edward J. Rosenthal Trustee April 30, 1998
- --------------------------
Edward J. Rosenthal
C-5
<PAGE>
LEVCO SERIES TRUST
EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION
(a) Financial Statements
(b) Exhibits
(11) Consent of Independent Auditors
(17) Financial Data Schedule
C-6
<PAGE>
Exhibit 24(b)(11)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the Prospectus and "Independent
Auditors" and "Financial Statements" in the Statement of Additional Information
and to the incorporation by reference, in Post-Effective Amendment Number 3 to
the Registration Statement (Form N-1A No. 811-08007) and related Prospectus of
Levco Equity Value Fund, of our report dated January 15, 1998 on the Levco
Equity Value Fund.
/s/ Ernst & Young LLP
Chicago, Illinois
April 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> AUG-04-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 13,737,631
<INVESTMENTS-AT-VALUE> 13,933,533
<RECEIVABLES> 78,585
<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
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 46,200
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 136,167
<AVERAGE-NET-ASSETS> 13,669,236
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> .07
<PER-SHARE-GAIN-APPREC> .01
<PER-SHARE-DIVIDEND> (.07)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.01
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
