================================================================================
LEVCO EQUITY VALUE FUND
-----------------------
ANNUAL REPORT
December 31, 1998
INVESTMENT ADVISER DISTRIBUTOR
------------------ -----------
JOHN A. LEVIN & CO., INC. LEVCO SECURITIES, INC.
One Rockefeller Plaza One Rockefeller Plaza
New York, New York 10020 New York, New York 10020
1.888.300.9887 1.888.300.9887
================================================================================
<PAGE>
LETTER TO INVESTORS FEBRUARY 24, 1999
The backdrop for the first full year for the LEVCO Equity Value Fund (the
Fund) was a global economy touched by financial crisis and a domestic economy
that saw slower corporate earnings growth. The year also witnessed continued
growth in mergers and acquisition activity and the Federal Reserve's stepping in
to lower interest rates in response to economic and political uncertainties.
Perhaps most importantly, investor confidence and public participation in the
equity markets remained high, manifesting itself through the purchase of
well-known companies at escalating prices. The result was an extraordinarily
volatile year for the stock market that ended with a powerful rise led by a
narrow group of stocks. For the year ended December 31, 1998, the Fund achieved
a total return of 15.98%, compared with a return of 28.58% for the S&P 500 Index
over the same period. Since its inception on August 4, 1997, the Fund has
achieved an average annual total return of 11.73%, while the S&P 500 Index has
achieved an average annual total return of 22.01% over the same period.
The mixed and volatile nature of the market in 1998 may be illustrated in a
number of ways. While the S&P Index returned 28.58% for the year, it suffered a
decline of 19.3% between July 20th and August 31st. Though the S&P 500 Index
recorded its fourth consecutive year of gains in excess of 20% and its eighth
consecutive year of growth, these gains were achieved chiefly as the result of
the performance of a limited number of the largest cap stocks. Performance gains
were not distributed broadly, as seven of the eleven industry sectors
underperformed the Index by significant margins. Were each company in the S&P
500 Index given an equal weighting, the annual return would have been 13.5%. On
a fundamental level, corporate earnings for the S&P 500 companies showed their
smallest increase in 7 years while the average price/earnings ratio for the
Index increased much more significantly. Thus, from a valuation perspective, the
rise in the Index was accompanied by an increase in its risk level.
The split nature of the market is illustrated by the large gap between the
performance of "growth" and "value" stocks. While the S&P/Barra Growth Index
returned 42.2% for the year, the S&P/Barra Value Index generated a 14.7% return.
Simply put, investment style played a crucial role in determining performance
relative to the S&P 500 Index.
Our strategy remains consistent. We continue to look for strong companies
where we can identify developments that should lead to appreciation above and
beyond that which could be achieved through a mere expansion in multiples. We
continue to look for strong risk-adjusted returns by building a portfolio with
companies trading at
<PAGE>
relatively lower multiples of cash flow and earnings (adjusted for special
items). And in this environment, we see opportunities for mergers and
restructurings to create added value as well as protection in our portfolio.
As always, we welcome your comments and thank you for your support.
Sincerely,
/s/ John A. Levin /s/ Jeffrey A. Kigner
John A. Levin Jeffrey A. Kigner
Co-Chairman Co-Chairman
and President
LEVCO Equity Value Fund
Comparison of the Change in Value of a $10,000 Investment
in LEVCO Equity Fund and the S&P 500 Index
12/31/98
--------
LEVCO Equity Value Fund $11,691
S&P 500 Index $13,233
---------------------------------
LEVCO Equity Value Fund
Average Annual Total Return
1 Year 15.98%
Since Inception (8/4/97) 11.73%
---------------------------------
Past performance is not predictive of future performance.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments in securities:
At acquisition cost $ 14,661,491
============
At value (Note 1) $ 16,287,478
Dividends receivable 9,869
Interest receivable 3,280
Due from adviser (Note 3) 11,069
Organization expenses, net (Note 1) 92,630
------------
TOTAL ASSETS 16,404,326
------------
LIABILITIES
Accrued expenses 55,550
------------
TOTAL LIABILITIES 55,550
------------
NET ASSETS $ 16,348,776
============
Net assets consist of:
Paid-in capital $ 14,725,459
Undistributed net investment income 127
Distributions in excess of net realized gains (2,797)
Net unrealized appreciation on investments 1,625,987
------------
Net assets $ 16,348,776
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, $0.001 par value) 1,462,714
============
Net asset value, offering price and
redemption price per share (Note 1) $ 11.18
============
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
INVESTMENT INCOME
Dividends $ 218,005
Interest 76,142
-----------
TOTAL INVESTMENT INCOME 294,147
-----------
EXPENSES
Investment advisory fees (Note 3) 124,710
Professional fees 48,530
Accounting services fees 32,500
Trustees' fees and expenses (Note 3) 30,000
Amortization of organization expenses (Note 1) 25,850
Transfer agent fees 12,000
Shareholder report printing 10,758
Custodian fees 8,888
Insurance expense 7,200
Pricing costs 1,126
Registration fees 419
Other expenses 602
-----------
TOTAL EXPENSES 302,583
Fees waived and expenses reimbursed by the Adviser (Note 3) (139,830)
-----------
NET EXPENSES 162,753
-----------
NET INVESTMENT INCOME 131,394
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 642,605
Net change in unrealized appreciation/
depreciation on investments 1,430,085
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 2,072,690
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,204,084
===========
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year Period
Ended Ended
December 31, December 31,
1998 1997 (a)
------------ ------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 131,394 $ 95,250
Net realized gains (losses) from security transactions 642,605 (180,058)
Net change in unrealized appreciation/depreciation
on investments 1,430,085 195,902
------------ ------------
Net increase in net assets from operations 2,204,084 111,094
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (131,388) (95,129)
From net realized gains (462,547) --
In excess of net realized gains (2,797) --
------------ ------------
Decrease in net assets from distributions to shareholders (596,732) (95,129)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 615,145 13,585,403
Net asset value of shares issued in reinvestment
of distributions to shareholders 596,732 95,129
Payments for shares redeemed (139,689) (27,261)
------------ ------------
Net increase in net assets from capital share transactions 1,072,188 13,653,271
------------ ------------
TOTAL INCREASE IN NET ASSETS 2,679,540 13,669,236
NET ASSETS:
Beginning of period 13,669,236 --
------------ ------------
End of period $ 16,348,776 $ 13,669,236
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 127 $ 121
============ ============
CAPITAL SHARE ACTIVITY:
Sold 56,820 1,358,540
Reinvested 53,926 9,480
Redeemed (13,325) (2,727)
------------ ------------
Net increase in shares outstanding 97,421 1,365,293
Shares outstanding, beginning of period 1,365,293 --
------------ ------------
Shares outstanding, end of period 1,462,714 1,365,293
============ ============
</TABLE>
(a) Represents the period from August 4, 1997 (commencement of operations)
through December 31, 1997.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share
Outstanding Throughout Each Period
<TABLE>
<CAPTION>
Year Period
Ended Ended
December 31, December 31,
1998 1997 (a)
---------- ----------
<S> <C> <C>
Net asset value at beginning of period $ 10.01 $ 10.00
---------- ----------
Income from investment operations:
Net investment income 0.09 0.07
Net realized and unrealized gains
on investments 1.50 0.01
---------- ----------
Total from investment operations 1.59 0.08
---------- ----------
Less distributions:
Dividends from net investment income (0.09) (0.07)
Distributions from net realized gains (0.33) --
---------- ----------
Total distributions (0.42) (0.07)
---------- ----------
Net asset value at end of period $ 11.18 $ 10.01
========== ==========
Total return 15.98% 0.80%(b)
========== ==========
Net assets at end of period (000's) $ 16,349 $ 13,669
========== ==========
Ratio of net expenses to average net assets (c) 1.10% 1.10%(d)
Ratio of net investment income to average net assets 0.89% 1.73%(d)
Portfolio turnover rate 89% 36%(b)
</TABLE>
(a) Represents the period from August 4, 1997 (commencement of operations)
through December 31, 1997.
(b) Not annualized.
(c) Absent investment advisory fees waived and expenses reimbursed by the
Adviser, the ratio of expenses to average net assets would have been 2.04%
and 2.47% for the periods ended December 31, 1998 and 1997, respectively
(Note 3).
(d) Annualized.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Shares Value
------ -----
COMMON STOCKS - 88.3%
AEROSPACE & DEFENSE - 7.5%
4,400 AlliedSignal Inc. $ 194,975
2,500 Lockheed Martin Corp. 211,875
7,000 Loral Space & Communications Limited (a) 124,687
6,800 TRW Inc. 382,075
2,800 United Technologies Corp. 304,500
-----------
1,218,112
-----------
BANKING - 6.3%
14,100 Bank of New York Company, Inc. 567,525
2,800 Mellon Bank Corp. 192,500
3,000 Northern Trust Corp. 261,937
-----------
1,021,962
-----------
BASIC MATERIALS - 2.2%
7,400 Getchell Gold Corp. (a) 201,650
16,300 MacMillan Bloedel Limited 163,000
-----------
364,650
-----------
CHEMICALS - 4.0%
3,200 E.I. du Pont de Nemours and Company 169,800
10,200 Monsanto Company 484,500
-----------
654,300
-----------
COMPUTERS/COMPUTER TECHNOLOGY SERVICES - 3.4%
3,000 International Business Machines Corp. 554,250
-----------
CONTAINERS & PACKAGING - 2.7%
14,500 Owens-Illinois, Inc. (a) 444,062
-----------
ELECTRONICS/ELECTRICAL COMPONENTS - 8.5%
6,900 Koninklijke (Royal) Philips Electronics N.V. 467,044
8,100 Sundstrand Corp. 420,188
6,100 Texas Instruments Inc. 521,931
-----------
1,409,163
-----------
ENERGY & UTILITIES - 7.6%
16,748 KeySpan Energy 519,188
14,000 Potomac Electric Power Company 368,375
13,700 Sempra Energy 347,638
-----------
1,235,201
-----------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Shares Value
------ -----
COMMON STOCKS - CONTINUED
FOOD/BEVERAGES - 3.9%
2,600 Anheuser-Busch Companies, Inc. $ 170,625
4,700 Nabisco Holdings Corp. - Class A 195,050
1,000 PepsiCo, Inc. 40,937
7,000 Ralston-Ralston Purina Group 226,625
-----------
633,237
-----------
HOUSEHOLD PRODUCTS - 1.8%
5,300 Black & Decker Corp. 297,131
-----------
INSURANCE - 11.4%
9,700 Ace, Limited 334,044
6,600 Aetna Inc. 518,925
4,200 EXEL Limited - Class A 315,000
5,600 PartnerRe Limited 256,200
10,900 TIG Holdings, Inc. 169,631
4,400 Tokio Marine & Fire Insurance Co. Limited - ADR 267,300
-----------
1,861,100
-----------
MEDIA - 9.7%
6,800 Chancellor Media Corp. (a) 325,550
2,700 Fox Entertainment Group, Inc. (a) 68,006
11,100 MediaOne Group, Inc. (a) 521,700
10,200 Tribune Company 673,200
-----------
1,588,456
-----------
OFFICE EQUIPMENT - 0.5%
8,800 IKON Office Solutions, Inc. 75,350
-----------
OIL & GAS DRILLING - 7.7%
3,700 Amerada Hess Corp. 184,075
11,000 Conoco Inc. - Class A (a) 229,625
13,100 Unocal Corp. 382,356
14,900 Williams Companies, Inc. 464,694
-----------
1,260,750
-----------
PHARMACEUTICALS - 3.9%
1,900 Eli Lilly and Company 168,863
2,800 Genentech, Inc. (a) 223,125
2,000 Pfizer Inc. 250,875
-----------
642,863
-----------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1998
Shares Value
------ -----
COMMON STOCKS - CONTINUED
RETAIL STORES - 1.4%
4,800 J.C. Penney Company, Inc. $ 225,000
-----------
SOFTWARE & PROCESSING - 3.4%
17,400 First Data Corp. 551,363
-----------
UTILITIES - GAS - 0.7%
4,000 Equitable Resources, Inc. 116,500
-----------
UTILITIES - TELEPHONE - 1.7%
5,000 Bell Atlantic Corp. 284,063
-----------
TOTAL COMMON STOCKS (COST $12,911,594) $14,437,513
-----------
PREFERRED STOCKS - 4.9%
3,100 MediaOne Group "ATI" PIES $ 206,150
10,600 News Corp. Limited - ADR 261,688
2,800 Owens-Illinois, Inc. 119,000
3,900 Sealed Air Corp. (a) 202,312
-----------
TOTAL PREFERRED STOCKS (COST $689,082) $ 789,150
-----------
MONEY MARKET FUNDS - 6.4%
1,060,815 United Missouri Bank Money Market Fiduciary
(Cost $1,060,815) $ 1,060,815
-----------
TOTAL INVESTMENTS AT VALUE - 99.6%
(COST $14,661,491) $16,287,478
OTHER ASSETS IN EXCESS OF LIABLITIES - 0.4% 61,298
-----------
NET ASSETS - 100.0% $16,348,776
===========
(a) Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The LEVCO Equity Value Fund (the Fund) is a no-load, diversified series of the
LEVCO Series Trust (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Trust was
organized as a Delaware business trust on January 2, 1997. The Fund commenced
operations on August 4, 1997.
The Fund's investment objective is long-term growth of capital through an
emphasis on the preservation of capital and an attempt to control volatility as
measured against the Standard & Poor's Composite 500 Stock Index. The Fund
pursues this objective by investing its assets primarily in common stocks and
other securities having equity characteristics.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern Time). Securities which are traded over-the-counter
are valued at the last sales price, if available, otherwise, at the last quoted
bid price. Securities traded on a national stock exchange are valued based upon
the closing price on the principal exchange where the security is traded.
Securities for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share.
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income are declared and paid quarterly to
shareholders of the Fund. Net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Payment of all dividends and
capital gains distributions is made in shares. Income distributions and capital
gain distributions are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles.
Organization expenses -- Expenses of organization, net of certain expenses paid
by the Adviser, have been capitalized and are being amortized on a straight-line
basis over five years.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
LEVCO EQUITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
Federal income taxes -- The Fund has complied with the special provisions of the
Internal Revenue Code available to regulated investment companies and,
therefore, no federal income tax provision is required.
The following information is based upon the federal income tax cost of portfolio
investments of $14,667,718 as of December 31, 1998:
Gross unrealized appreciation.......................$2,425,179
Gross unrealized depreciation........................ (805,419)
----------
Net unrealized appreciation.........................$1,619,760
==========
The difference between the federal income tax cost of portfolio investments and
the acquisition cost is due to certain timing differences in the recognition of
capital losses under income tax regulations and generally accepted accounting
principles.
2. INVESTMENT TRANSACTIONS
During the year ended December 31, 1998, cost of purchases and proceeds from
sales and maturities of investment securities, other than short-term
investments, amounted to $13,182,839 and $11,508,349, respectively.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by John A. Levin & Co., Inc. (the Adviser)
under the terms of an Investment Advisory Agreement. The Adviser also provides
certain administrative services required by the Trust and the Fund. Under the
Investment Advisory Agreement, the Fund pays the Adviser a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.85% of its
average daily net assets. The Adviser currently intends to limit the total
operating expenses of the Fund to 1.10% of its average daily net assets.
Accordingly, the Adviser voluntarily waived its investment advisory fees of
$124,710 and reimbursed the Fund for $15,120 of other operating expenses for the
year ended December 31, 1998. Certain trustees and officers of the Trust are
also officers of the Adviser.
TRUSTEES COMPENSATION
No compensation is paid by the Fund to officers and trustees of the Fund who are
affiliated with the Adviser and/or LEVCO Securities, Inc., the Distributor of
the Fund's shares. The Fund pays each unaffiliated trustee an annual retainer of
$7,500 and certain expenses the trustees incur in attending meetings.
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trustees of
Levco Equity Value Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of Levco Equity Value Fund as of December 31,
1998, the related statement of operations for the year then ended, and the
statement of changes in net assets and the financial highlights for the year
ended December 31, 1998 and for the period from August 4, 1997 (commencement of
operations) to December 31, 1997. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1998, by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Levco
Equity Value Fund as of December 31, 1998, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
January 29, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0001029881
<NAME> LEVCO EQUITY VALUE FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 14,661,491
<INVESTMENTS-AT-VALUE> 16,287,478
<RECEIVABLES> 24,218
<ASSETS-OTHER> 92,360
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 16,404,326
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 55,550
<TOTAL-LIABILITIES> 55,550
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 14,725,459
<SHARES-COMMON-STOCK> 1,462,714
<SHARES-COMMON-PRIOR> 1,365,293
<ACCUMULATED-NII-CURRENT> 127
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 2,797
<ACCUM-APPREC-OR-DEPREC> 1,625,987
<NET-ASSETS> 16,348,776
<DIVIDEND-INCOME> 218,005
<INTEREST-INCOME> 76,142
<OTHER-INCOME> 0
<EXPENSES-NET> 162,753
<NET-INVESTMENT-INCOME> 131,394
<REALIZED-GAINS-CURRENT> 642,605
<APPREC-INCREASE-CURRENT> 1,430,085
<NET-CHANGE-FROM-OPS> 2,204,084
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 131,388
<DISTRIBUTIONS-OF-GAINS> 462,547
<DISTRIBUTIONS-OTHER> 2,797
<NUMBER-OF-SHARES-SOLD> 56,820
<NUMBER-OF-SHARES-REDEEMED> 13,325
<SHARES-REINVESTED> 53,926
<NET-CHANGE-IN-ASSETS> 2,679,540
<ACCUMULATED-NII-PRIOR> 121
<ACCUMULATED-GAINS-PRIOR> (180,058)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 124,710
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 302,583
<AVERAGE-NET-ASSETS> 14,807,658
<PER-SHARE-NAV-BEGIN> 10.01
<PER-SHARE-NII> .09
<PER-SHARE-GAIN-APPREC> 1.50
<PER-SHARE-DIVIDEND> .09
<PER-SHARE-DISTRIBUTIONS> .33
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.18
<EXPENSE-RATIO> 1.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
