<PAGE>
As filed with the Securities and 1933 Act Registration No. 333-19297
Exchange Commission on March 2, 1999 1940 Act Registration No. 811-08007
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. 4 [X]
---
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No. 5 [X]
---
(Check appropriate box or boxes.)
---------------------------
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, 19th 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>
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Prospectus Dated May 1, 2000
LEVCO EQUITY VALUE FUND
(a series of LEVCO Series Trust)
One Rockefeller Plaza, 19th Floor
New York, New York 10020
- --------------------------------------------------------------------------------
The shares being offered by this Prospectus are Class A shares. Shares are sold
only to certain life insurance companies and their separate accounts to fund
benefits under variable annuity contracts and variable life insurance policies
offered by participating insurance companies. The separate accounts invest in
shares in accordance with allocation instructions received by owners of the
annuity contracts and life insurance policies. These allocation rights are
described in the prospectus for the separate account that accompanies this
Prospectus.
____________________
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.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved of these securities and has not passed on the adequacy
or accuracy of the information in this prospectus. It is a criminal offense to
state otherwise.
____________________
<PAGE>
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGY................................................................................. 3
MAIN RISKS........................................................................................................ 3
PAST PERFORMANCE.................................................................................................. 4
FEES AND EXPENSES................................................................................................. 5
FINANCIAL HIGHLIGHTS.............................................................................................. 6
ABOUT THE FUND.................................................................................................... 7
MORE ABOUT THE FUND'S INVESTMENTS AND RELATED RISKS............................................................... 7
MANAGEMENT........................................................................................................ 9
FUND EXPENSES..................................................................................................... 10
ABOUT YOUR INVESTMENT............................................................................................. 11
DISTRIBUTIONS AND TAXES........................................................................................... 12
SHAREHOLDER COMMUNICATIONS........................................................................................ 12
PERFORMANCE INFORMATION........................................................................................... 13
ADDITIONAL INFORMATION............................................................................................ 13
</TABLE>
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<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
Goal and Types of Investments - The investment objective of the Fund is
to achieve long-term growth of capital. The Fund pursues this objective by
normally investing at least 85% of its total assets in common stocks and other
securities having equity characteristics. These securities will be in issuers
with market capitalizations of greater than $2 billion. In managing the Fund's
investment portfolio, the investment adviser emphasizes preservation of capital
and attempts to control volatility as measured against the Standard & Poor's
Composite 500 Stock Index,(TM) (a widely recognized, unmanaged index of stocks
frequently used as a general measure of performance for large capitalization
U.S. stocks).
In addition to common stocks, the Fund may invest in preferred stocks,
convertible debt and convertible preferred securities, warrants, rights and
other securities having equity characteristics.
The Fund may invest a portion of its assets in bonds and other types of
debt obligations. Most of these debt instruments will be investment grade. The
Fund may also invest in high-quality money market instruments such as short-term
U.S. government securities, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate obligations and repurchase agreements.
While not obligated to do so, the investment adviser may also use a
variety of hedging strategies to protect against declines in the value of
securities the Fund holds. These strategies may include options on securities,
stock index options, and stock index futures and related options. They involve
unique risks, which are discussed below.
How the Investment Adviser Selects Investments - The investment adviser
follows a value-oriented investment philosophy in selecting stocks for the Fund.
This means that the investment adviser seeks securities that are currently
undervalued in relation to their intrinsic value. Using a fundamental,
research-intensive approach, the investment adviser considers factors such as:
security prices that reflect a market valuation that the investment adviser
believes 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 company; and various other
factors. Although the investment adviser considers payment of current dividends
and income in its investment decisions, they are not primary considerations.
MAIN RISKS
Investments in Equity Securities - Investments in equity securities,
such as stocks, historically have been a leading choice for long-term investors.
However, the values of stocks rise and fall depending on many factors. The stock
or other security of a company may not perform as well as expected, and may
decrease in value, because of factors related to the company (such as poorer
than expected earnings or certain management decisions) or to the industry in
which the company is engaged (such as a reduction in the demand for products or
services in a particular industry). General market and economic factors may
adversely affect securities markets, which could in turn adversely affect the
value of the Fund's investments, regardless of the performance or expected
performance of companies in which the Fund invests. There is also a risk that
the investment adviser's judgment about the attractiveness, value and potential
appreciation of particular securities will be incorrect. The same factors may
also impact the investment adviser's attempts to control volatility.
Investments in Bonds and Similar Securities - Investments in bonds and
other debt obligations pose different risks. The value of fixed income
securities generally will fall if interest rates rise. The
-3-
<PAGE>
value of a debt security may also fall as a result of other factors such as the
financial condition of the issuer, the market perception of the issuer or
general economic conditions. These investments involve a risk that the issuer
may not be able to meet its principal and interest payment obligations. The Fund
is not restricted as to the maximum maturities of debt obligations in which it
may invest. Those obligations having longer maturities involve greater risk of
fluctuations in value.
Futures, Options and Warrants - Investments in futures, options and
warrants are speculative and involve substantial risk, even when used for
hedging purposes, including the risk of a complete loss of the value of the
investment. It is possible that any hedging strategies used by the investment
adviser will not be successful.
PAST PERFORMANCE
The two tables below show information about the Fund's annual return
based on the performance of Class A shares. The first table shows the Fund's
performance for 1998 and 1999. (It does not show performance from the Fund's
commencement of operations on August 4, 1997 through December 31, 1997, when the
Fund's total return was 0.80%). The second table shows how the Fund's
performance compares to that of the S&P 500 Index. These tables allow you to
compare the Fund's performance to the performance of other mutual funds or with
the performance of the U.S. securities markets generally, and give you some
indication of the risks of investing in the Fund. The information shown assumes
reinvestment of dividends and distributions. The returns shown do not reflect
fees and charges imposed by the separate accounts that invest in the Fund's
shares. Had those fees and charge been included, returns would have been lower.
As with all mutual funds, past performance is not a prediction of future
results.
Year-to-Year Total Return
as of 12/31 Each Year
-------------------------
<TABLE>
<S> <C>
[GRAPH]
Best Quarter: 18.27% (quarter ended 12/31/98)
Worst Quarter: (10.32)% (quarter ended 9/30/98)
</TABLE>
Average Annual Return
as of 12/31
---------------------
<TABLE>
<CAPTION>
1 Year Since
12/31/99 Inception*
-------- ----------
<S> <C> <C>
Fund............ 15.73% 13.36%
S&P 500 Index... 21.04% 21.63%
</TABLE>
_______________
* From commencement of operations on 8/4/97 through 12/31/99
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<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you pay if you buy and
hold Class A shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage
of offering price)............................ NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Sales Charge (Load) Imposed on
Reinvestment of Dividends........................ NONE
Redemption Fees.................................. NONE
Exchange Fees NONE
Annual Fund Operating Expenses (expenses
that are deducted from fund assets) (as a
percentage of average net assets):
Management Fee................................... 0.85%
Distribution and Service (12b-1) Fees NONE
Other Expenses................................... 0.86%
-----
Total Annual Fund
Operating Expenses............................ 1.71%*
</TABLE>
__________
* The investment adviser voluntarily has 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. Such
arrangements typically take the form of either a reimbursement of expenses
or a fee waiver by the investment adviser. For 1999, the investment adviser
waived $127,764 of its $177,225 management fee under this arrangement. The
investment adviser has reserved the right to discontinue this arrangement
at any time.
Example: This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example is based upon Total Annual Fund Operating Expenses as set forth in
the table above. It assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. This Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same during those
periods. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
$ 174 $ 539 $ 928 $2,019
</TABLE>
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<PAGE>
FINANCIAL HIGHLIGHTS
This table describes the Fund's performance for the periods indicated.
It is intended to help you understand the Fund's financial results for a single
Class A share of the Fund. The total returns in the table represent the rate
that an investor would have earned on an investment in the Fund (assuming
reinvestment of all dividends and distributions). This information has been
audited by Ernst & Young LLP, the Fund's independent auditors. Their report,
along with the Fund's financial statements, are available without charge upon
request.
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, December 31, December 31,
------------ ------------ ------------
1999 1998 1997/a/
---- ---- -------
<S> <C> <C> <C>
Net asset value at beginning of period $ 11.18 $ 10.01 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income 0.08 0.09 0.07
Net realized and unrealized gains on investments 1.67 1.50 0.01
------- ------- -------
Total from investment operations 1.75 1.59 0.08
------- ------- -------
Less distributions:
Dividends from net investment income (0.08) (0.09) (0.07)
Distributions from net realized gains (1.20) (0.33)
------- ------- -------
Total distributions (1.28) (0.42) (0.07)
------- ------- -------
Net asset value at end of period $ 11.65 $ 11.18 $ 10.01
======= ======= =======
Total return 15.73% 15.98% 0.80%/b/
------- ------- -------
Net assets at end of period (000's) $24,088 $16,349 $13,669
------- ------- -------
Ratios/Supplemental Data:
Ratio of expenses to average net assets/c/ 1.10% 1.10% 1.10%/d/
Ratio of net investment income to average net assets 0.70% 0.89% 1.73%/d/
Portfolio turnover rate 62% 89% 36%/b/
</TABLE>
_____________________________
/a/ From commencement of operations on August 4, 1997 through December 31,
1997.
/b/ Not annualized.
/c/ Absent investment advisory fees waived and expenses reimbursed by the
investment adviser, the ratio of expenses to average net assets would have been
1.71%, 2.04% and 2.47% for the periods ended December 31, 1999, 1998 and 1997,
respectively.
/d/ Annualized.
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<PAGE>
ABOUT THE FUND
The Fund is a series of the LEVCO Series Trust. The shares being
offered by this Prospectus are Class A shares. Shares are sold only to certain
life insurance companies and their separate accounts to fund benefits under
variable annuity contracts and variable life insurance policies offered by
participating insurance companies. The separate accounts invest in shares in
accordance with allocation instructions received from owners of the annuity
contracts and life insurance policies issued by those participating companies.
These allocation rights are described in the prospectus for the separate account
that accompanies this Prospectus.
Participating insurance companies may not be affiliated with each
other. In addition, the 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 the variable annuity contracts and the life insurance policies. The
Trust does not currently foresee any disadvantages to the owners of these
contracts or policies arising from these circumstances. In the future, shares of
the Fund may also be sold to qualified pension and retirement plans. It is
theoretically possible that the interests of pension and retirement plans to
which the Fund's shares may be sold or the owners of annuity contracts or life
insurance policies participating in the Fund through the separate accounts may
at some time be in material and irreconcilable conflict. In some cases, one or
more separate accounts or pension plans may redeem all of their investments 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 to identify any material irreconcilable conflicts that may possibly arise
and to determine what action, if any, should be taken in response to those
conflicts.
MORE ABOUT THE FUND'S
INVESTMENTS AND RELATED RISKS
The Fund may use various investment instruments and practices in
pursuing its investment program. Descriptions of these instruments and
practices, and the risks associated with them, are set forth below.
You should consider the Fund as a supplement to an overall investment
program and should invest only if you are willing to undertake the risks
involved. Changes in the value of the Fund's investments will result in changes
in the value of the Fund's shares, and thus the Fund's total return to
shareholders.
Equity Securities - The Fund's investments in equity securities may
include investments in common stocks and preferred stocks of U.S. and foreign
issuers. The Fund may also purchase securities that have equity characteristics,
such as convertible securities, warrants and stock options. The value of equity
securities varies in response to many factors. Factors specific to a company,
such as certain decisions by management, lower demand for its products or
services, or even loss of a key executive, could result in a decrease in the
value of the company's securities. Factors specific to the industry in which a
company participates, such as increased competition or costs of production or
consumer or investor perception, can have a similar effect. The value of a
company's stock can also be adversely effected by changes in financial markets
generally, such as an increase in interest rates or consumer confidence, that
are unrelated to the company itself or its industry.
-7-
<PAGE>
A company's preferred stock is subject to additional risks. 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 an issuer
in those same respects. Unlike interest payments on debt securities, dividend
payments on preferred stock are generally payable at the discretion of an
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.
The Fund's focus on value stocks carries additional risks. As a group,
value stocks tend to go through cycles of relative underperformance and
out-performance in comparison to common stocks generally. These cycles may last
for several years. The risk factors discussed above and others may cause
significant fluctuations in the prices of securities in which the Fund invests
and result in losses to the Fund.
Fixed Income Securities - The Fund may invest a portion of its assets
in fixed income securities. These include bonds and other debt obligations
issued by U.S. and foreign corporations, the U.S. government or foreign
governments or their agencies, and state and local governments. These securities
may pay fixed, variable or floating rates of interest, and may include zero
coupon obligations. The Fund may invest in both investment grade debt securities
and non-investment grade debt securities (including junk bonds).
All debt securities are subject to certain risks. One risk is whether
the issuer will be able to meet principal or interest payments. Another risk is
that the prices of debt securities will generally decline as interest rates
rise. The prices of debt securities may also decline as a result of market
perception of the creditworthiness of the issuer and general market liquidity.
Non-investment grade securities, especially junk bonds, which are
highly speculative investments, are more sensitive to these risks, particularly
credit risk. Also, the markets for non-investment grade securities may be
thinner and less active than for investment grade securities. For these reasons,
the Fund will not invest more than 10% of the value of its total assets in
non-convertible debt securities that are not investment grade.
Foreign Securities - The Fund is permitted to invest up to 20% of the
value of its total assets in securities of foreign issuers. These investments
involve risks not associated with investments in the U.S., including the risk of
fluctuations in foreign currency exchange rates, unreliable and untimely
information about the issuers and political and economic instability. These
risks are more severe in emerging markets and could result in the investment
adviser misjudging the value of certain securities or in a significant loss in
the value of those securities. The Fund may enter into foreign currency forward
contracts (which are agreements to exchange an amount of currency at an agreed
time and rate) to hedge the risk of fluctuations in exchange rates. This
technique, however, may not be successful.
Illiquid Securities - The Fund may invest up to 10% of the value of its
net assets in illiquid securities. These securities lack a ready market in which
they can be sold. For this reason, illiquid securities involve the risk that the
Fund will not be able to sell them when desired or at a favorable price.
Futures, Options and Warrants - Futures, options, rights and warrants
are forms of derivative instruments. They can have equity-like characteristics
and typically derive their value, at least in part, from the value of an
underlying asset or index. The Fund may purchase and sell rights and warrants
for profit opportunity or for purposes of hedging the portfolio. The Fund may
also purchase and sell stock index futures and related options, and may trade in
options on particular securities or baskets of
-8-
<PAGE>
securities, options on securities indices and foreign currency options. The Fund
will write only covered call or covered put options. The Fund may engage in
these futures and options transactions, but only for purposes of hedging.
However, there is no requirement that the Fund hedge its portfolio or any
investment position.
Warrants are instruments that permit, but do not obligate, the holder
to subscribe for other securities. Rights are similar to warrants, but normally
have a short duration and are distributed directly by the issuer to its
shareholders. Warrants and rights are not dividend paying investments and do not
have voting rights like common stock. They also do not represent any rights in
the assets of the issuer. As a result, warrants and rights may be considered
more speculative than direct equity investments. In addition, the value of
warrants and rights do not necessarily change with the value of the underlying
securities and may cease to have value if they are not exercised prior to their
expiration dates.
A securities index futures contract does not require the physical
delivery of the securities underlying the index, but merely provides for profits
and losses resulting from changes in the market value of the contract to be
credited or debited at the close of each trading day to the respective accounts
of the parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures position is simply closed out. Changes in the
market value of a particular securities index futures contract reflect changes
in the specified index of the securities on which the futures contract is based.
To hedge the Fund's portfolio, the investment adviser 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. If there
is a correlation between the Fund's portfolio and a particular stock index, the
sale of a futures contract on that index could reduce general market risk and
permit the Fund to retain its securities position.
A put option gives the purchaser of the option the right to sell, and
obligates the writer to buy, an underlying asset or index at a stated exercise
price at any time prior to the expiration of the option. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, an
underlying asset or index at a stated exercise price at any time prior to the
expiration of the option.
While generally used to limit risk, the use of derivative instruments
like futures, options, rights and warrants can increase the volatility of the
Fund's portfolio. Particular futures and options positions may create investment
exposures that are greater than the costs of those positions would suggest. This
means that a small investment could have a large potential positive or negative
impact on the Fund's performance. If the Fund invests in these instruments at
inappropriate times or judges market conditions incorrectly, they may lower the
Fund's return or result in substantial losses. Changes in the liquidity of the
secondary markets in which these instruments trade can result in significant,
rapid and unpredictable changes in their prices, which could also cause losses
to the Fund.
Temporary Defensive Investments - During periods of adverse market or
economic conditions, the Fund may temporarily invest all or a substantial
portion of is assets in high quality, fixed income securities, money market
instruments and money market mutual funds, or it may hold cash. The Fund may not
achieve its investment objective in these circumstances. The Fund may also hold
these investments for liquidity purposes.
MANAGEMENT
The Board of Trustees of the Trust is responsible for supervising the
business and affairs of the Fund. The Board of Trustees has delegated
responsibility for management of the Fund's investments 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.
-9-
<PAGE>
Investment Adviser - John A. Levin & Co., Inc. serves as the Fund's
investment adviser. Subject to the 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 the Fund's investments. The
investment adviser also provides administrative services required by the Trust
and the Fund, except for certain accounting related services furnished by
Integrated Fund Services, Inc. ("Integrated"). 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. The Fund pays the investment adviser
monthly compensation for these services 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 that is attributable to the investments of,
or contracts or policies held by, customers of those financial institutions.
During the fiscal year ended December 31, 1999, the investment adviser waived
$127,764 of its fee as a result of its undertaking to limit the Fund's annual
expense ratio at 1.10%.
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 BKF Capital Group, Inc. ("BKF") a 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
$8.7 billion in assets for its clients.
The portfolio managers of the Fund, who have managed the Fund since it
commenced operations, are:
John A. Levin: Chairman, Chief Executive Officer, President
and Director of the investment adviser (and President of its
predecessor) since 1982; Chairman, Chief Executive Officer
President and Director of BKF 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; Vice Chairman and Director of BKF since June, 1996.
Transfer Agent and Accounting Services - The Trust has retained
Integrated Fund Services, Inc. P.O. Box 5354, Cincinnati, Ohio 45201, to serve
as the Fund's transfer agent and dividend paying agent. Integrated is a direct,
wholly owned subsidiary of Fort Washington Investment Advisors, Inc., a direct,
wholly owned subsidiary of Western and Southern Life Insurance Company, a mutual
life insurance company.
Integrated 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 Integrated a monthly fee of $2,000. This fee will increase when
the Fund's average monthly net assets exceed $50 million.
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 Integrated; fees of the Fund's independent auditors and custodian and certain
related expenses; taxes; organization costs; brokerage fees and commissions;
interest; costs incident to meetings of the Board of
-10-
<PAGE>
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. 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 - The distributor, LEVCO Securities, Inc., offers
the Fund's shares to 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. It 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. Because the Fund
may hold shares that are listed on foreign exchanges that trade on weekends or
other days when the Fund does not calculate its net asset value, the Fund's net
asset value may change on days when separate accounts will not be able to
purchase or redeem Fund shares.
The Fund effects orders to purchase or redeem shares from participating
insurance companies that are based on premium payments, surrender and transfer
requests and other transaction requests from the owners of variable annuity
contracts and variable insurance policies offered by those insurance companies,
or from their annuitants and beneficiaries, at the net asset value per share
next computed after the separate account receives the 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 insurance
company for more information on purchasing Fund 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.
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<PAGE>
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 of the Fund.
Tax Matters - Applicable provisions of the Internal Revenue Code
require that investments of a segregated asset account of an insurance company,
such as the separate accounts of participating insurance companies that own
shares of the Fund, must be "adequately diversified" for 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 them. The
Fund plans to satisfy the requirements of those provisions at all times.
Fund dividends and distributions will be taxable, if at all, to the
separate accounts that hold Fund shares, and not to the owners of variable
annuity contracts or variable life insurance policies offered by participating
insurance companies. A separate account will include dividends and distributions
in its taxable income in the year in which they are received. The tax status of
any dividend or distribution is the same regardless of how long the separate
account has been an investor in the Fund and whether or not dividends and
distributions are reinvested or taken in cash. In general, dividends paid from
the Fund's net investment income (which would include short-term capital gains)
are taxable as ordinary income. 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 Fund shares generally will result in recognition of
capital gain or loss for federal income tax purposes.
The tax status of dividends and distributions for each calendar year
will be detailed in the annual tax statements from the Fund.
The above discussion provides very general information only. It does
not address the tax treatment of the owners of variable annuity contracts or
variable life insurance policies offered by participating insurance companies.
Owners of these contracts or life insurance policies should consult the
prospectuses for the separate accounts for information concerning the Federal
income tax treatment of the separate accounts that own Fund shares and of owning
the annuity contracts or life insurance policies, and should consult their own
tax advisors concerning the Federal and state tax consequences of these
investments.
SHAREHOLDER COMMUNICATIONS
It is expected that owners of variable annuity contracts or variable
life insurance policies offered by participating insurance companies who have
given instructions for separate accounts to invest in the Fund's shares will
receive reports from the participating insurance companies that include, among
other things, the Fund's unaudited semi-annual financial statements and year-end
financial statements audited by the Trust's independent auditors. The reports
will show the investments owned by the Fund and provide other information about
the Fund and its operations. The Fund may pay a portion of the cost of preparing
certain of those reports. Owners of variable annuity contracts or variable life
insurance policies 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.
-12-
<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 - 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.
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 - LEVCO Securities, Inc., One Rockefeller Plaza, New York,
New York 10020, serves as the distributor of the Fund's shares. The distributor
is a wholly-owned subsidiary of the investment adviser.
Independent Auditors - Ernst & Young LLP, 1300 Chiquita Center, 250
East Fifth Street, Cincinnati, Ohio 45202, 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.
-13-
<PAGE>
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.
-14-
<PAGE>
- --------------------------------------------------------------------------------
LEVCO EQUITY VALUE FUND
- --------------------------------------------------------------------------------
Investment Adviser
John A. Levin & Co., Inc.
One Rockefeller Plaza
New York, New York 10020
Distributor
LEVCO Securities, Inc.
One Rockefeller Plaza
New York, New York 10020
Custodian
UMB Bank, N.A.
P.O. Box 419226
Kansas City, Missouri 64141-6226
Transfer Agent
Integrated Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
Independent Auditors
Ernst & Young LLP
1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
Legal Counsel
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
- --------------------------------------------------------------------------------
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>
FOR MORE INFORMATION
For more information about the Fund, the following documents are
available free upon request:
Annual/Semi-Annual Reports - Additional information is available in the
Fund's annual and semi-annual reports to shareholders. The annual report
contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information (SAI) - The SAI provides more
details about the Fund and its policies. A current SAI is on file with the SEC
and is incorporated by reference into (and is legally a part of) this
Prospectus.
TO OBTAIN INFORMATION
To obtain free copies of the annual or semi-annual report or the SAI or
discuss questions about the Fund:
By Telephone - Call 1-800-300-9887
By Mail - Write to: LEVCO Securities, Inc., One Rockefeller Plaza, 25th
Floor, New York, New York 10020
From the SEC - Information about the Fund (including the SAI) can be
reviewed and copied at the SEC's Public Reference Room in Washington D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Reports and other information about the Fund
are available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act File Number 811-08007
<PAGE>
- --------------------------------------------------------------------------------
--------------------------------------------------------------------------
Prospectus Dated May 1, 2000
LEVCO EQUITY VALUE FUND
(a series of LEVCO Series Trust)
One Rockefeller Plaza, 19th Floor
New York, New York 10020
- --------------------------------------------------------------------------------
The shares being offered by this Prospectus are Class B shares. Shares are sold
only to certain life insurance companies and their separate accounts to fund
benefits under variable annuity contracts and variable life insurance policies
offered by participating insurance companies. The separate accounts invest in
shares in accordance with allocation instructions received by owners of the
annuity contracts and life insurance policies. These allocation rights are
described in the prospectus for the separate account that accompanies this
Prospectus.
____________________
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.
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved of these securities and has not passed on the adequacy
or accuracy of the information in this prospectus. It is a criminal offense to
state otherwise.
____________________
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
INVESTMENT OBJECTIVE AND STRATEGY................................................................................. 3
MAIN RISKS........................................................................................................ 3
PAST PERFORMANCE.................................................................................................. 4
FEES AND EXPENSES................................................................................................. 5
FINANCIAL HIGHLIGHTS.............................................................................................. 6
ABOUT THE FUND.................................................................................................... 7
MORE ABOUT THE FUND'S INVESTMENTS AND RELATED RISKS............................................................... 7
MANAGEMENT........................................................................................................ 9
FUND EXPENSES..................................................................................................... 10
ABOUT YOUR INVESTMENT............................................................................................. 11
DISTRIBUTION PLAN................................................................................................. 12
DISTRIBUTIONS AND TAXES........................................................................................... 12
SHAREHOLDER COMMUNICATIONS........................................................................................ 12
PERFORMANCE INFORMATION........................................................................................... 13
ADDITIONAL INFORMATION............................................................................................ 13
</TABLE>
-2-
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
Goal and Types of Investments - The investment objective of the Fund is
to achieve long-term growth of capital. The Fund pursues this objective by
normally investing at least 85% of its total assets in common stocks and other
securities having equity characteristics. These securities will be in issuers
with market capitalizations of greater than $2 billion. In managing the Fund's
investment portfolio, the investment adviser emphasizes preservation of capital
and attempts to control volatility as measured against the Standard & Poor's
Composite 500 Stock Index,(TM) (a widely recognized, unmanaged index of stocks
frequently used as a general measure of performance for large capitalization
U.S. stocks).
In addition to common stocks, the Fund may invest in preferred stocks,
convertible debt and convertible preferred securities, warrants, rights and
other securities having equity characteristics.
The Fund may invest a portion of its assets in bonds and other types of
debt obligations. Most of these debt instruments will be investment grade. The
Fund may also invest in high-quality money market instruments such as short-term
U.S. government securities, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate obligations and repurchase agreements.
While not obligated to do so, the investment adviser may also use a
variety of hedging strategies to protect against declines in the value of
securities the Fund holds. These strategies may include options on securities,
stock index options, and stock index futures and related options. They involve
unique risks, which are discussed below.
How the Investment Adviser Selects Investments - The investment adviser
follows a value-oriented investment philosophy in selecting stocks for the Fund.
This means that the investment adviser seeks securities that are currently
undervalued in relation to their intrinsic value. Using a fundamental,
research-intensive approach, the investment adviser considers factors such as:
security prices that reflect a market valuation that the investment adviser
believes 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 company; and various other
factors. Although the investment adviser considers payment of current dividends
and income in its investment decisions, they are not primary considerations.
MAIN RISKS
Investments in Equity Securities - Investments in equity securities,
such as stocks, historically have been a leading choice for long-term investors.
However, the values of stocks rise and fall depending on many factors. The stock
or other security of a company may not perform as well as expected, and may
decrease in value, because of factors related to the company (such as poorer
than expected earnings or certain management decisions) or to the industry in
which the company is engaged (such as a reduction in the demand for products or
services in a particular industry). General market and economic factors may
adversely affect securities markets, which could in turn adversely affect the
value of the Fund's investments, regardless of the performance or expected
performance of companies in which the Fund invests. There is also a risk that
the investment adviser's judgment about the attractiveness, value and potential
appreciation of particular securities will be incorrect. The same factors may
also impact the investment adviser's attempts to control volatility.
Investments in Bonds and Similar Securities - Investments in bonds and
other debt obligations pose different risks. The value of fixed income
securities generally will fall if interest rates rise. The
-3-
<PAGE>
value of a debt security may also fall as a result of other factors such as the
financial condition of the issuer, the market perception of the issuer or
general economic conditions. These investments involve a risk that the issuer
may not be able to meet its principal and interest payment obligations. The Fund
is not restricted as to the maximum maturities of debt obligations in which it
may invest. Those obligations having longer maturities involve greater risk of
fluctuations in value.
Futures, Options and Warrants - Investments in futures, options and
warrants are speculative and involve substantial risk, even when used for
hedging purposes, including the risk of a complete loss of the value of the
investment. It is possible that any hedging strategies used by the investment
adviser will not be successful.
PAST PERFORMANCE
The two tables below show information about the Fund's annual return
based on the performance of Class A shares. There were no Class B shares
outstanding during the periods shown. The first table shows the Fund's
performance for 1998 and 1999. (It does not show the performance from the Fund's
commencement of operations on August 4, 1997 through December 31, 1997, when the
Fund's total return was 0.80%). The second table shows how the Fund's
performance compares to that of the S&P 500 Index. These tables allow you to
compare the Fund's performance to the performance of other mutual funds or with
the performance of the U.S. securities markets generally, and give you some
indication of the risks of investing in the Fund. The information shown assumes
reinvestment of dividends and distributions. The returns shown do not reflect
fees and charges imposed by the separate accounts that invest in the Fund's
shares. Had those fees and charges been included, returns would have been lower.
As with all mutual funds, past performance is not a prediction of future
results.
Year-to-Year Total Return
as of 12/31 Each Year
-------------------------
<TABLE>
<S> <C>
[OBJECT OMITTED]
Best Quarter: 18.27 % (quarter ended 12/31/98)
Worst Quarter: (10.32) % (quarter ended9/30/98)
</TABLE>
Average Annual Return
as of 12/31
---------------------
<TABLE>
<CAPTION>
1 Year Since
12/31/98 Inception*
-------- ----------
<S> <C> <C>
Fund..................... 15.73% 13.36%
S&P 500 Index............ 21.04% 21.63%
</TABLE>
_________________
* From commencement of operations on 8/4/97 through 12/31/99
-4-
<PAGE>
FEES AND EXPENSES
This table describes the fees and expenses that you pay if you buy and
hold Class B shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (fees paid directly from your
investment):
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage
of offering price)............................ NONE
Maximum Deferred Sales Charge (Load) NONE
Maximum Sales Charge (Load) Imposed on
Reinvestment of Dividends........................ NONE
Redemption Fees.................................. NONE
Exchange Fees.................................... NONE
Annual Fund Operating Expenses (expenses
that are deducted from fund assets) (as a
percentage of average net assets):
Management Fee................................... 0.85%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses................................... 0.86%
-----
Total Annual Fund
Operating Expenses............................ 1.96%*
</TABLE>
__________
* The investment adviser voluntarily has 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. Such
arrangements typically take the form of either a reimbursement of expenses
or a fee waiver by the investment adviser. For 1999, the investment adviser
waived $ 127,764 of its $177,225 management fee under this arrangement. The
investment adviser has reserved the right to discontinue this arrangement
at any time.
Example: This Example is intended to help you compare the cost of investing in
the Fund with the cost of investing in other mutual funds.
The Example is based upon Total Annual Fund Operating Expenses as set forth in
the table above. It assumes that you invest $10,000 in the Fund for the time
periods indicated and then redeem all of your shares at the end of those
periods. This Example also assumes that your investment has a 5% return each
year and that the Fund's operating expenses remain the same during those
periods. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
$ 199 $ 615 $1,057 $2,285
</TABLE>
-5-
<PAGE>
FINANCIAL HIGHLIGHTS
This table describes the Fund's performance for the periods indicated.
It is intended to help you understand the Fund's financial results for a single
Class A share of the Fund. There were no Class B shares outstanding during the
periods shown. The total returns in the table represent the rate that an
investor would have earned on an investment in the Fund (assuming reinvestment
of all dividends and distributions). This information has been audited by Ernst
& Young LLP, the Fund's independent auditors. Their report, along with the
Fund's financial statements, are available without charge upon request.
<TABLE>
<CAPTION>
Year Ended Year Ended Period Ended
December 31, 1999 December 31, 1998 December 31, 1997/a/
----------------- ----------------- --------------------
<S> <C> <C> <C>
Net asset value at beginning of period $ 11.18 $ 10.01 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income 0.08 0.09 0.07
Net realized and unrealized gains on investments 1.67 1.50 0.01
------- ------- -------
Total from investment operations 1.75 1.59 0.08
------- ------- -------
Less distributions:
Dividends from net investment income (0.08) (0.09) (0.07)
Distributions from net realized gains (1.20) (0.33) ----
------- ------- -------
Total distributions (1.28) (0.42) (0.07)
------- ------- -------
Net asset value at end of period $ 11.65 $ 11.18 $ 10.01
======= ======= =======
Total return 15.73% 15.98% 0.80%/b/
------- ------- -------
Net assets at end of period (000's) $24,088 $16,349 $13,669
------- ------- -------
Ratios/Supplemental Data:
Ratio of expenses to average net assets3 1.10% 1.10% 1.10%/d/
Ratio of net investment income to average net assets 0.70% 0.89% 1.73%/d/
Portfolio turnover rate 62% 89% 36%/b/
</TABLE>
__________________________
/a/ From commencement of operations on August 4, 1997 through December 31,
1997.
/b/ Not annualized.
/c/ Absent investment advisory fees waived and expenses reimbursed by the
investment adviser, the ratio of expenses to average net assets would have been
1.71%, 2.04% and 2.47% for the periods ended December 31, 1999, 1998 and 1997,
respectively.
/d/ Annualized.
-6-
<PAGE>
ABOUT THE FUND
The Fund is a series of the LEVCO Series Trust. The shares being
offered by this Prospectus are Class B shares. Shares are sold only to certain
life insurance companies and their separate accounts to fund benefits under
variable annuity contracts and variable life insurance policies offered by
participating insurance companies. LEVCO Securities, Inc., the distributor of
the Fund's shares, receives a fee representing reimbursement of its expenses
incurred in connection with the distribution of the shares offered by this
Prospectus. The separate accounts invest in shares in accordance with allocation
instructions received from owners of the annuity contracts and life insurance
policies issued by those participating companies. These allocation rights are
described in the prospectus for the separate account that accompanies this
Prospectus.
Participating insurance companies may not be affiliated with each
other. In addition, the 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 the variable annuity contracts and the life insurance policies. The
Trust does not currently foresee any disadvantages to the owners of these
contracts or policies arising from these circumstances. In the future, shares of
the Fund may also be sold to qualified pension and retirement plans. It is
theoretically possible that the interests of pension and retirement plans to
which the Fund's shares may be sold or the owners of annuity contracts or life
insurance policies participating in the Fund through the separate accounts may
at some time be in material and irreconcilable conflict. In some cases, one or
more separate accounts or pension plans may redeem all of their investments 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 to identify any material irreconcilable conflicts that may possibly arise
and to determine what action, if any, should be taken in response to those
conflicts.
MORE ABOUT THE FUND'S
INVESTMENTS AND RELATED RISKS
The Fund may use various investment instruments and practices in
pursuing its investment program. Descriptions of these instruments and
practices, and the risks associated with them, are set forth below.
You should consider the Fund as a supplement to an overall investment
program and should invest only if you are willing to undertake the risks
involved. Changes in the value of the Fund's investments will result in changes
in the value of the Fund's shares, and thus the Fund's total return to
shareholders.
Equity Securities - The Fund's investments in equity securities may
include investments in common stocks and preferred stocks of U.S. and foreign
issuers. The Fund may also purchase securities that have equity characteristics,
such as convertible securities, warrants and stock options. The value of equity
securities varies in response to many factors. Factors specific to a company,
such as certain decisions by management, lower demand for its products or
services, or even loss of a key executive, could result in a decrease in the
value of the company's securities. Factors specific to the industry in which a
company participates, such as increased competition or costs of production or
consumer or investor perception, can have a similar effect. The value of a
company's stock can also be adversely effected by changes in financial markets
generally, such as an increase in interest rates or consumer confidence, that
are unrelated to the company itself or its industry.
-7-
<PAGE>
A company's preferred stock is subject to additional risks. 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 an issuer
in those same respects. Unlike interest payments on debt securities, dividend
payments on preferred stock are generally payable at the discretion of an
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.
The Fund's focus on value stocks carries additional risks. As a group,
value stocks tend to go through cycles of relative underperformance and
out-performance in comparison to common stocks generally. These cycles may last
for several years. The risk factors discussed above and others may cause
significant fluctuations in the prices of securities in which the Fund invests
and result in losses to the Fund.
Fixed Income Securities - The Fund may invest a portion of its assets
in fixed income securities. These include bonds and other debt obligations
issued by U.S. and foreign corporations, the U.S. government or foreign
governments or their agencies, and state and local governments. These securities
may pay fixed, variable or floating rates of interest, and may include zero
coupon obligations. The Fund may invest in both investment grade debt securities
and non-investment grade debt securities (including junk bonds).
All debt securities are subject to certain risks. One risk is whether
the issuer will be able to meet principal or interest payments. Another risk is
that the prices of debt securities will generally decline as interest rates
rise. The prices of debt securities may also decline as a result of market
perception of the creditworthiness of the issuer and general market liquidity.
Non-investment grade securities, especially junk bonds, which are
highly speculative investments, are more sensitive to these risks, particularly
credit risk. Also, the markets for non-investment grade securities may be
thinner and less active than for investment grade securities. For these reasons,
the Fund will not invest more than 10% of the value of its total assets in
non-convertible debt securities that are not investment grade.
Foreign Securities - The Fund is permitted to invest up to 20% of the
value of its total assets in securities of foreign issuers. These investments
involve risks not associated with investments in the U.S., including the risk of
fluctuations in foreign currency exchange rates, unreliable and untimely
information about the issuers and political and economic instability. These
risks are more severe in emerging markets and could result in the investment
adviser misjudging the value of certain securities or in a significant loss in
the value of those securities. The Fund may enter into foreign currency forward
contracts (which are agreements to exchange an amount of currency at an agreed
time and rate) to hedge the risk of fluctuations in exchange rates. This
technique, however, may not be successful.
Illiquid Securities - The Fund may invest up to 10% of the value of its
net assets in illiquid securities. These securities lack a ready market in which
they can be sold. For this reason, illiquid securities involve the risk that the
Fund will not be able to sell them when desired or at a favorable price.
Futures, Options and Warrants - Futures, options, rights and warrants
are forms of derivative instruments. They can have equity-like characteristics
and typically derive their value, at least in part, from the value of an
underlying asset or index. The Fund may purchase and sell rights and warrants
for profit opportunity or for purposes of hedging the portfolio. The Fund may
also purchase and sell stock index futures and related options, and may trade in
options on particular securities or baskets of
-8-
<PAGE>
securities, options on securities indices and foreign currency options. The Fund
will write only covered call or covered put options. The Fund may engage in
these futures and options transactions, but only for purposes of hedging.
However, there is no requirement that the Fund hedge its portfolio or any
investment position.
Warrants are instruments that permit, but do not obligate, the holder
to subscribe for other securities. Rights are similar to warrants, but normally
have a short duration and are distributed directly by the issuer to its
shareholders. Warrants and rights are not dividend paying investments and do not
have voting rights like common stock. They also do not represent any rights in
the assets of the issuer. As a result, warrants and rights may be considered
more speculative than direct equity investments. In addition, the value of
warrants and rights do not necessarily change with the value of the underlying
securities and may cease to have value if they are not exercised prior to their
expiration dates.
A securities index futures contract does not require the physical
delivery of the securities underlying the index, but merely provides for profits
and losses resulting from changes in the market value of the contract to be
credited or debited at the close of each trading day to the respective accounts
of the parties to the contract. On the contract's expiration date, a final cash
settlement occurs and the futures position is simply closed out. Changes in the
market value of a particular securities index futures contract reflect changes
in the specified index of the securities on which the futures contract is based.
To hedge the Fund's portfolio, the investment adviser 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. If there
is a correlation between the Fund's portfolio and a particular stock index, the
sale of a futures contract on that index could reduce general market risk and
permit the Fund to retain its securities position.
A put option gives the purchaser of the option the right to sell, and
obligates the writer to buy, an underlying asset or index at a stated exercise
price at any time prior to the expiration of the option. A call option gives the
purchaser of the option the right to buy, and obligates the writer to sell, an
underlying asset or index at a stated exercise price at any time prior to the
expiration of the option.
While generally used to limit risk, the use of derivative instruments
like futures, options, rights and warrants can increase the volatility of the
Fund's portfolio. Particular futures and options positions may create investment
exposures that are greater than the costs of those positions would suggest. This
means that a small investment could have a large potential positive or negative
impact on the Fund's performance. If the Fund invests in these instruments at
inappropriate times or judges market conditions incorrectly, they may lower the
Fund's return or result in substantial losses. Changes in the liquidity of the
secondary markets in which these instruments trade can result in significant,
rapid and unpredictable changes in their prices, which could also cause losses
to the Fund.
Temporary Defensive Investments - During periods of adverse market or
economic conditions, the Fund may temporarily invest all or a substantial
portion of is assets in high quality, fixed income securities, money market
instruments and money market mutual funds, or it may hold cash. The Fund may not
achieve its investment objective in these circumstances. The Fund may also hold
these investments for liquidity purposes.
MANAGEMENT
The Board of Trustees of the Trust is responsible for supervising the
business and affairs of the Fund. The Board of Trustees has delegated
responsibility for management of the Fund's investments 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.
-9-
<PAGE>
Investment Adviser - John A. Levin & Co., Inc. serves as the Fund's
investment adviser. Subject to the 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 the Fund's investments. The
investment adviser also provides administrative services required by the Trust
and the Fund, except for certain accounting related services furnished by
Integrated Fund Services, Inc. ("Integrated"). 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. The Fund pays the investment adviser
monthly compensation for these services 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 that is attributable to the investments of,
or contracts or policies held by, customers of those financial institutions.
During the fiscal year ended December 31, 1999, the investment adviser waived
$127,764 of its fee as a result of its undertaking to limit the Fund's annual
expense ratio at 1.10%.
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 BKF Capital Group, Inc. ("BKF") a 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
$8.7 billion in assets for its clients.
The portfolio managers of the Fund, who have managed the Fund since it
commenced operations, are:
John A. Levin: Chairman, Chief Executive Officer, President
and Director of the investment adviser (and President of its
predecessor) since 1982; Chairman, Chief Executive Officer,
President and Director of BKF since June 1996.
Jeffrey A. Kigner: Co-Chairman, Chief Investment Officer and
Director of the investment adviser; securities analyst and
portfolio manager of the investment adviser (and its
predecessor) since 1984; Vice Chairman and Director of BKF
since June 1996.
Transfer Agent and Accounting Services - The Trust has retained
Integrated Fund Services, Inc., P.O. Box 5354, Cincinnati, Ohio 45201, to serve
as the Fund's transfer agent and dividend paying agent. Integrated is a direct,
wholly owned subsidiary of Fort Washington Investment Advisors, Inc., a direct,
wholly owned subsidiary of Western and Southern Life Insurance Company, a mutual
life insurance company.
Integrated 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 Integrated a monthly fee of $2,000. This fee will increase when
the Fund's average monthly net assets exceed $50 million.
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 Integrated; payments to the distributor under the distribution plan adopted
by the Trustees of the Trust; fees of the Fund's independent auditors and
custodian and certain related expenses; taxes; organization
-10-
<PAGE>
costs; brokerage fees and commissions; 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. 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 - The distributor, LEVCO Securities, Inc., offers
the Fund's shares to 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. It 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. Because the Fund
may hold shares that are listed on foreign exchanges that trade on weekends or
other days when the Fund does not calculate its net asset value, the Fund's net
asset value may change on days when separate accounts will not be able to
purchase or redeem Fund shares.
The Fund effects orders to purchase or redeem shares from participating
insurance companies that are based on premium payments, surrender and transfer
requests and other transaction requests from the owners of variable annuity
contracts and variable insurance policies offered by those insurance companies,
or from their annuitants and beneficiaries, at the net asset value per share
next computed after the separate account receives the 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 insurance
company for more information on purchasing Fund 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.
-11-
<PAGE>
DISTRIBUTION PLAN
Levco Securities, Inc. is the Fund's distributor. The Trust has adopted
a Rule 12b-1 distribution plan under which the Fund may pay to the distributor
up to 0.25% of the average daily net assets of the shares in distribution fees.
These payments cover things such as payments the distributor makes to other
organizations, including participating insurance companies, for promoting the
sale of Fund shares or for reimbursing them for distribution or shareholder
service expenses. Because these 12b-1 expenses are paid out of the Fund's assets
on an ongoing basis, over time they will increase the cost of your investment
and may cost you more than other types of sales charges.
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 of the Fund.
Tax Matters - Applicable provisions of the Internal Revenue Code
require that investments of a segregated asset account of an insurance company,
such as the separate accounts of participating insurance companies that own
shares of the Fund, must be "adequately diversified" for 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 them. The
Fund plans to satisfy the requirements of those provisions at all times.
Fund dividends and distributions will be taxable, if at all, to the
separate accounts that hold Fund shares, and not to the owners of variable
annuity contracts or variable life insurance policies offered by participating
insurance companies. A separate account will include dividends and distributions
in its taxable income in the year in which they are received. The tax status of
any dividend or distribution is the same regardless of how long the separate
account has been an investor in the Fund and whether or not dividends and
distributions are reinvested or taken in cash. In general, dividends paid from
the Fund's net investment income (which would include short-term capital gains)
are taxable as ordinary income. 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 Fund shares generally will result in recognition of
capital gain or loss for federal income tax purposes.
The tax status of dividends and distributions for each calendar year
will be detailed in the annual tax statements from the Fund.
The above discussion provides very general information only. It does
not address the tax treatment of the owners of variable annuity contracts or
variable life insurance policies offered by participating insurance companies.
Owners of these contracts or life insurance policies should consult the
prospectuses for the separate accounts for information concerning the Federal
income tax treatment of the separate accounts that own Fund shares and of owning
the annuity contracts or life insurance policies, and should consult their own
tax advisors concerning the Federal and state tax consequences of these
investments.
SHAREHOLDER COMMUNICATIONS
It is expected that owners of variable annuity contracts or variable
life insurance policies offered by participating insurance companies who have
given instructions for separate accounts to invest in the
-12-
<PAGE>
Fund's shares will receive reports from the participating insurance companies
that include, among other things, the Fund's unaudited semi-annual financial
statements and year-end financial statements audited by the Trust's independent
auditors. The reports will show the investments owned by the Fund and provide
other information about the Fund and its operations. The Fund may pay a portion
of the cost of preparing certain of those reports. Owners of variable annuity
contracts or variable life insurance policies 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.
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 - 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.
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.
-13-
<PAGE>
Distributor - LEVCO Securities, Inc., One Rockefeller Plaza, New York,
New York 10020, serves as the distributor of the Fund's shares. The distributor
is a wholly-owned subsidiary of the investment adviser.
Independent Auditors - Ernst & Young LLP, 1300 Chiquita Center, 250
East Fifth Street, Cincinnati, Ohio 45202, 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.
-14-
<PAGE>
- --------------------------------------------------------------------------------
LEVCO EQUITY VALUE FUND
- --------------------------------------------------------------------------------
Investment Adviser
John A. Levin & Co., Inc.
One Rockefeller Plaza
New York, New York 10020
Distributor
LEVCO Securities, Inc.
One Rockefeller Plaza
New York, New York 10020
Custodian
UMB Bank, N.A.
P.O. Box 419226
Kansas City, Missouri 64141-6226
Transfer Agent
Integrated Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
Independent Auditors
Ernst & Young LLP
1300 Chiquita Center
250 East Fifth Street
Cincinnati, Ohio 45202
Legal Counsel
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
- --------------------------------------------------------------------------------
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>
FOR MORE INFORMATION
For more information about the Fund, the following documents are
available free upon request:
Annual/Semi-Annual Reports - Additional information is available in the
Fund's annual and semi-annual reports to shareholders. The annual report
contains a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
Statement of Additional Information (SAI) - The SAI provides more
details about the Fund and its policies. A current SAI is on file with the SEC
and is incorporated by reference into (and is legally a part of) this
Prospectus.
TO OBTAIN INFORMATION
To obtain free copies of the annual or semi-annual report or the SAI or
discuss questions about the Fund:
By Telephone - Call 1-800-300-9887
By Mail - Write to: LEVCO Securities, Inc., One Rockefeller Plaza, 25th
Floor, New York, New York 10020F
From the SEC - Information about the Fund (including the SAI) can be
reviewed and copied at the SEC's Public Reference Room in Washington D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at 1-202-942-8090. Reports and other information about the Fund
are available on the EDGAR database on the SEC's Internet site at
http://www.sec.gov, and copies of this information may be obtained, upon payment
of a duplicating fee, by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
Investment Company Act File Number 811-08007
<PAGE>
- --------------------------------------------------------------------------------
Statement of Additional Information dated May 1, 2000
LEVCO EQUITY VALUE FUND
(a series of LEVCO Series Trust)
One Rockefeller Plaza, 19th 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(TM) (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
May 1, 2000, 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
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
INVESTMENT OBJECTIVE AND POLICIES.................................................................................. 3
INVESTMENT RESTRICTIONS............................................................................................ 10
PORTFOLIO TRANSACTIONS AND BROKERAGE............................................................................... 12
DETERMINATION OF NET ASSET VALUE................................................................................... 13
TAXES.............................................................................................................. 14
PURCHASES AND REDEMPTIONS OF SHARES................................................................................ 15
TRUSTEES AND OFFICERS.............................................................................................. 15
INVESTMENT ADVISORY AGREEMENT...................................................................................... 19
DISTRIBUTOR........................................................................................................ 20
DISTRIBUTION PLAN [Applicable to the Class B Shares Only].......................................................... 20
SPECIAL INVESTMENT TECHNIQUES...................................................................................... 21
PERFORMANCE INFORMATION............................................................................................ 25
ADDITIONAL INFORMATION............................................................................................. 26
</TABLE>
<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-22] under "SPECIAL INVESTMENT TECHNIQUES." The principal 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 derivative 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. 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 decline. If
the price of the related security does not increase to a price higher than the
price at which the warrants or rights may be exercised, the warrant or right may
become worthless. As a result, warrants and rights are more speculative than
certain other types of equity investments. In addition, the value of a warrant
or a 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
before its expiration date. 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.
These payments 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 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
3
<PAGE>
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 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"), which represent ownership of specific foreign securities. 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, confiscatory taxation, and the difficulty of
enforcing obligations in foreign jurisdictions. 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
4
<PAGE>
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.
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
- ---------------------
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.
5
<PAGE>
Repurchase agreements involve certain risks not associated with direct
investments in debt securities. If the seller under a repurchase agreement
becomes insolvent, the Fund's right to dispose of the securities may be
restricted, or the value of the securities may decline before the Fund is able
to dispose of them. In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before the repurchase
of the securities under a repurchase agreement is accomplished, the Fund may
encounter delay and incur costs, including a decline in the value of the
securities, before being able to sell the securities. If the seller defaults,
the value of such securities may decline before the Fund is able to dispose of
them. If the Fund enters into a repurchase agreement that is subject to foreign
law and the other party defaults, the Fund may not enjoy protections comparable
to those provided to certain repurchase agreements under U.S. bankruptcy law,
and may suffer delays and losses in disposing of the collateral as a result.
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 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
- ------------------------
As described in the Fund's Prospectuses, the Fund may invest in bonds
and other types of debt obligations of U.S. and foreign issuers. Fixed income
securities purchased by the Fund may include, among others: bonds, notes and
debentures issued by corporations; Government Securities; municipal securities;
mortgage-backed and asset-backed securities; and debt securities issue or
guaranteed by foreign governments, their agencies, instrumentalities or
political subdivisions, or by government owned, controlled or sponsored
entities, including central banks. Under certain circumstances, these
investments are subject to certain quality limitations and other restrictions
and include money market instruments and other types of obligations. Investors
should recognize that, although securities ratings of debt securities 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.
Additionally, 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.
Non-Investment Grade Debt Securities. As discussed in the Prospectuses,
------------------------------------
the Fund may invest in both investment grade and non-investment grade debt
securities. Non-investment grade debt securities
6
<PAGE>
(typically called "junk bonds") are securities that are considered to be
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal. The Fund will not invest 10% or more of the value of its
total assets in non-convertible securities which are not investment grade.
Companies that issue these securities often are highly leveraged and
may not have available to them more traditional methods of financing. Therefore,
the risk associated with acquiring the securities of such issuers generally is
greater than is the case with higher grade securities. These securities may be
particularly susceptible to economic downturns. It is likely that an economic
recession could disrupt severely the market for such securities and may have an
adverse impact on the value of such securities. For example, during an economic
downturn or a sustained period of rising interest rates, highly leveraged
issuers of these securities may not have sufficient revenues to meet their
interest payment obligations. The issuer's ability to service its debt
obligations also may be affected adversely by specific corporate developments,
forecasts, or the unavailability of additional financing. The risk of loss
because of default by the issuer is significantly greater for the holders of
these securities because such securities generally are unsecured and often are
subordinated to other creditors of the issuer.
Because there is no established retail secondary market for many of
these securities, the Fund anticipates that such securities could be sold only
to a limited number of dealers or institutional investors. To the extent a
secondary trading market for these securities does exist, it generally is not as
liquid as the secondary market for higher grade securities. The lack of a liquid
secondary market may have an adverse impact on market price and yield and the
Fund's ability to dispose of particular issues when necessary to meet the Fund's
liquidity needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the issuer. The lack of a liquid
secondary market for certain securities also may make it more difficult for the
Fund to obtain accurate market quotations for purposes of valuing the Fund's
portfolio and calculating its net asset value. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of these securities. In such cases, judgment may play a
greater role in valuation because less reliable, objective data may be
available.
The Fund may acquire these securities during an initial offering. Such
securities may involve special risks because they are new issues. The Fund has
no arrangement with any person concerning the acquisition of such securities,
and the Investment Adviser will review the credit and other characteristics
pertinent to such new issues.
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 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.
7
<PAGE>
Forward Foreign Currency Contracts
- ----------------------------------
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"). The Fund will
generally use forward contracts only to "lock in" the price in U.S. dollars of a
foreign security intended to be purchase 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. Moreover, 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,
nor do they completely protect against all changes in the values of foreign
securities due to fluctuations in foreign exchange rates. Hedging transactions
preclude the opportunity for gain if the value of the hedged currency should
rise. If anticipated currency movements are not accurately predicted, the Fund
will sustain losses on those contracts. The Fund will not speculate in forward
currency contracts. If the Fund enters into a position hedging transaction, the
Fund's custodian will place cash or liquid securities in a separate account in
an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. If the value of the securities placed in
the account declines, additional cash or securities will be placed in the
account so that the value of cash or securities in the account will equal the
amount of the Fund's commitments with respect to such contracts. The Fund will
not attempt to hedge all of its non-U.S. portfolio positions and will enter into
such transactions only to the extent, if any, deemed appropriate by the
Investment Adviser. The Fund will not enter into forward contracts for terms of
more than one year.
Securities Loans
- ----------------
Consistent with applicable regulatory requirements, the Fund may lend
its United States portfolio securities to brokers, dealers and other financial
institutions, provided that such loans are callable at any time by the Fund
(subject to the notice provisions described below) and are at all times secured
by cash or cash equivalents maintained in a segregated account pursuant to
applicable regulations and which are equal to at least the market value,
determined daily, of the loaned securities. The advantage of such loans is that
the Fund continues to receive the income on the loaned securities while 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
8
<PAGE>
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.
When-Issued Securities
- ----------------------
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.
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.
Temporary Investments
- ---------------------
For defensive purposes, the Fund may temporarily invest all or a
substantial portion of its assets in high quality fixed income securities and
money market instruments, or may temporarily hold cash in such amounts as the
Investment Adviser deems appropriate. Fixed income securities will be deemed to
be of high quality if they are rated "A" or better by S&P or Moody's or, if
unrated, are determined to be of comparable quality by the Investment Adviser.
Money market instruments are high quality, short-term fixed income obligations
(which generally have remaining maturities of one year or less), and may
include: Government Securities; commercial paper; certificates of deposit and
banker's acceptances issued by domestic branches of United States banks that are
members of the Federal Deposit Insurance Corporation; and repurchase agreements
for Government Securities. In lieu of purchasing money market instruments, the
Fund may purchase shares of money market mutual funds that invest primarily in
Government Securities and repurchase agreements involving those securities,
subject to certain limitations imposed by the Investment Company Act of 1940
(the "1940 Act"). The Fund, as an investor in a money market fund, will
indirectly bear the fees and expenses of that fund, which will be in addition to
the fees and expenses of the Fund. Repurchase Agreements involve certain risks
not associated with
9
<PAGE>
direct investments in debt securities. See "INVESTMENT OBJECTIVE AND PRACTICES
- -- Repurchase Agreements."
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 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 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. 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.
Under its fundamental policies, 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.
3. 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.
4. 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
10
<PAGE>
invest in the securities of issuers engaged in the foregoing
activities and may invest in securities secured by real estate
or interests therein.
5. 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.
6. 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.
7. Make loans of money or securities, except that the Fund may
lend money through the purchase of permitted investments,
including repurchase agreements, and may lend its portfolio
securities in an amount not exceeding 33-1/3% of the value of
the Fund's total assets.
The Fund has adopted the following additional investment restrictions
which are not fundamental and may be changed by the Board of Trustees. Under
these restrictions, the Fund may not:
1. Make short sales of securities (other than short sales
against-the-box) or purchase securities on margin, but the
Fund may make margin deposits in connection with its permitted
investment activities.
2. Invest in the securities of a company for the purpose of
exercising management or control; however, this shall not be
deemed to prohibit the Fund from exercising voting rights with
respect to its portfolio securities.
3. Pledge, mortgage, hypothecate or otherwise encumber its
assets, except to secure permitted borrowings and to implement
collateral and similar arrangements incident to permitted
investment practices.
4. Purchase securities which are illiquid, including repurchase
agreements maturing in more than seven days, except the Fund
may invest up to 10% of its net assets in certain restricted
securities that may be sold to institutional investors
pursuant to Rule 144A.
5. Purchase securities of other investment companies, except to
the extent permitted under the 1940 Act.
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.
11
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE
------------------------------------
Subject to the general supervision of the Fund's Board of Trustees, the
Investment Adviser is responsible for decisions to buy and sell securities for
the Fund, the selection of brokers and dealers to effect the transactions and
the negotiation of brokerage commissions, if any. Purchases and sales of
securities on a stock exchange are effected through brokers who charge a
commission for their services. In the over-the-counter market, securities are
generally traded on a "net" basis with non-affiliated dealers acting as
principal for their own accounts without a stated commission, although the price
of the securities usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price which includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. Certain money market instruments may be purchased
directly from an issuer, in which case no commission or discounts are paid. The
Fund anticipates that its transactions involving foreign securities will be
effected primarily on the principal stock exchanges for such securities. Fixed
commissions on such transactions are generally higher than negotiated
commissions on domestic transactions. There is also generally less government
supervision and regulation of foreign stock exchanges and brokers than in the
United States.
The Investment Adviser currently serves as investment adviser to a
number of clients, and may in the future act as investment adviser to other
clients, including other registered investment companies. It is the practice of
the Investment Adviser to cause purchase and sale transactions to be allocated
among the portfolios whose assets it manages in such manner as it deems
equitable. In making such allocations, the main factors considered are the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held and the opinions of the persons
responsible for managing the Fund and the other client accounts. This procedure
may, under certain circumstances, have an adverse effect on the Fund.
The policy of the Fund regarding purchases and sales of securities is
that primary consideration will be given to obtaining the most favorable prices
and efficient executions of transactions. Consistent with this policy, when
securities transactions are effected on a stock exchange, the Fund's policy is
to pay commissions which are considered fair and reasonable without necessarily
determining that the lowest possible commissions are paid in all circumstances.
The Board of Trustees of the Fund believes that a requirement always to seek the
lowest commission cost could impede effective management and preclude the Fund
and the Investment Adviser from obtaining high quality brokerage and research
services. In seeking to determine the reasonableness of brokerage commissions
paid in any transaction, the Investment Adviser may rely on its experience and
knowledge regarding commissions generally charged by various brokers and on
their judgment in evaluating the brokerage and research services received from
the broker effecting the transaction. Such determinations are necessarily
subjective and imprecise, as in most cases an exact dollar value for those
services is not ascertainable.
In seeking to implement the Fund's policies, the Investment Adviser
effects transactions with those brokers and dealers who it believes provide the
most favorable prices and which are capable of providing efficient executions.
If the Investment Adviser believes such price and execution are obtainable from
more than one broker or dealer, it may give consideration to placing
transactions with 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
12
<PAGE>
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 was paid to the Distributor. For the fiscal years ended December 31,
1998 and 1999, the Fund paid total brokerage commissions of $30,288 and $35,883
respectively, $1,968 of which was paid to the Distributor in 1999.
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 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
13
<PAGE>
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.
The following table shows the calculation of the net asset value per
share (offering price) of the Fund as of December 31, 1999:
(a) (b) (c)
Net Assets Shares Outstanding Offering Price (a)+(b)
----------- ------------------ ----------------------
$24,088,488 2,067,095 $11.65
TAXES
-----
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 declares and distributed 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 will be made in Shares of the Fund.
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
14
<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.
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.
Dividends and interest received by the Fund from foreign investments,
if any, 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
15
<PAGE>
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.
16
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Address Position(s) with Trust During Last Five Years
- --------------------- ---------------------- ----------------------
<S> <C> <C>
John A. Levin, 61* Trustee, Co-Chairman and Chairman, Chief Executive Officer,
One Rockefeller Plaza President President and Director of the Investment
25th Floor Adviser, BKF Capital Group, Inc. ("BKF")
New York, NY 10020 and the Distributor. Mr. Levin was also
President of the predecessor of the
Investment Adviser
Jeffrey A. Kigner, 39* Trustee and Co-Chairman Co-Chairman, Chief Investment Officer and
One Rockefeller Plaza Director of the Investment Adviser. Prior
25th Floor to this, Mr. Kigner was a portfolio manager at
New York, NY 10020 the predecessor of the Investment Adviser.
Vice Chairman and Director of BKF. Director
of the Distributor.
Thomas C. Barry, 56 Trustee Founder and Principal of Zephyr
320 Park Avenue Management, L.P., a firm which
New York, NY 10022 provides financial counsel, investment
research and management. Founder and
Chairman of CZ Management/South Africa
Capital Growth Fund, a fund for
private equity investments in South
Africa. Prior to this, Mr. Barry was
President and Chief Executive Officer
of Rockefeller & Co., Inc.
Charles L. Booth, Jr., 66 Trustee Presently retired. Prior to this, Mr.
215 E. 68th Street #28E Booth was Executive Vice President and
New York, NY 10021 Chief Investment Officer of Bank of
New York.
James B. Rogers, Jr., 57 Trustee Visiting Professor at Columbia
352 Riverside Drive University, columnist and commentator
New York, NY 10025 on CNBC, and private investor.
Edward J. Rosenthal, 65 Trustee Co-founder and Vice Chairman of Cramer
707 Westchester Avenue Rosenthal McGlynn, Inc., an investment
White Plains, NY 10604 advisory firm.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Principal Occupations
Name, Age and Address Position(s) with Trust During Last Five Years
- --------------------- ---------------------- ----------------------
<S> <C> <C>
Glenn A. Aigen, 37 Chief Financial Officer and Senior Vice President and Chief
One Rockefeller Plaza Treasurer Financial Officer of the Investment
25th Floor Adviser. Prior to this, Mr. Aigen was
New York, NY 10020 the Director of Operations of the
predecessor of the Investment Adviser.
Norris Nissim, 33 Secretary Vice President and General Counsel of
One Rockefeller Plaza the Investment Adviser and
25th Floor Distributor. Prior to this, Mr.
New York, NY 10020 Nissim was an associate at Schulte
Roth & Zabel LLP.
</TABLE>
*Designates a Trustee who is an "interested person" of the Trust as defined by
the 1940 Act.
John A. Levin 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 officers or employees of the Investment Adviser, the
Distributor or their affiliates, receive no compensation from the Trust.
Trustee compensation from the Trust for the 1999 fiscal year is set
forth below:
Compensation Table
------------------
<TABLE>
<CAPTION>
Pension or Total
Name of Aggregate Retirement Benefits Estimated Compensation from
Person, Compensation Accrued as Part of Benefits Upon Fund Complex Paid
Position from Fund Fund Expenses Retirement to Trustees
- -------------------- ------------ ------------------- ------------- -----------------
<S> <C> <C> <C> <C>
John A. Levin $0 $0 $0 $0
Jeffrey A. Kigner $0 $0 $0 $0
Thomas C. Barry $7,500.00 $0 $0 $7,500.00
Charles L. Booth, Jr. $7,500.00 $0 $0 $7,500.00
James B. Rogers, Jr. $7,500.00 $0 $0 $7,500.00
Edward J. Rosenthal $7,500.00 $0 $0 $7,500.00
</TABLE>
18
<PAGE>
The Trust, the Investment Adviser and the Distributor have adopted a
joint code of ethics pursuant to Rule 17j-1 under the Investment Company Act of
1940 (the "Code of Ethics") which governs personal securities trading by
Trustees and officers of the Trust and personnel of the Investment Adviser and
the Distributor. The Code of Ethics permits such individuals to purchase and
sell securities, including securities which are purchased, sold or held by the
Fund, but only subject to certain conditions designed to ensure that purchases
and sales by such individuals do not adversely affect the Fund's investment
activities.
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, New York, New York 10020. It is an indirect, wholly-owned
subsidiary of BKF.
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 was
renewed for a one year term by a vote of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons, during the
March 30, 2000 meeting of the Trust's Board. 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 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, and for the fiscal year ended December 31, 1998. During the fiscal
year ended December 31, 1999 the Adviser waived $127,764 of the $177,225
management fee.
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.
19
<PAGE>
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 was
renewed for a one year term by a vote of the Trust's Board of Trustees,
including a majority of the Trustees who are not interested persons, during the
March 30, 2000 meeting of the Trust's Board. The Distribution Agreement is
terminable without penalty, on 60 days' notice, by resolution of the Trustees or
by vote of a majority of the outstanding voting securities of the Fund, or, on
not less than 60 days' notice, by the Distributor. The Distribution Agreement
has an initial term of two years from the date of the Distribution Agreement and
may be continued in effect from year-to-year thereafter, subject to the annual
approval by (i) the Trust's Board or (ii) vote of the holders of a majority of
the Fund's outstanding voting securities, provided that in either event the
continuance must also be approved by a majority of the Trustees who are not
"interested persons" (as defined by the 1940 Act) of the Investment Adviser or
the Distributor, by vote cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement provides that it will
terminate automatically in the event of its "assignment" (as defined by the 1940
Act and the rules thereunder).
Under the terms of the Distribution Agreement, the Distributor bears
all the costs associated with distribution of the Shares of the Fund. The Trust
bears all of its costs and expenses, including the expense of preparing,
printing, mailing and otherwise distributing prospectuses, statements of
additional information, annual reports and other periodic reports for
distribution to prospective investors and the costs of preparing, distributing
and publishing sales literature and advertising materials. However, pursuant to
a plan of distribution adopted by the Trust, the Fund makes certain payments to
the Distributor for services provided by the Distributor with respect to the
Class B Shares. These payments are borne solely by holders of the Class B Shares
and are not an expense of Class A Shares. See "DISTRIBUTION PLAN." In the
Distribution Agreement, the Trust has agreed to indemnify the Distributor to the
extent permitted by applicable law against certain liabilities under the
Securities Act.
The offices of the Distributor are located at One Rockefeller Plaza,
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
20
<PAGE>
institutions which engage in efforts to promote the sale of the Class B Shares
and which sell the Class B Shares or to reimburse such organizations for
distribution related or shareholder services related expenses they incur in
selling Class B Shares or providing Fund related services to their customers.
Under the Distribution Plan, the Trust may expend an amount annually which shall
not exceed 0.25% annually of the average daily net assets of the Class B Shares.
Payments to the Distributor under the Distribution Plan will be made monthly to
reimburse the Distributor for its distribution related expenses. There is no
requirement that these expenses be incurred by the Distributor in the same
fiscal year of the Fund as the fiscal year in which reimbursement to the
Distributor will be made. However, the Distributor will not be entitled to be
paid any interest (or carrying charge) on amounts expended but not yet
reimbursed by the Trust.
A quarterly report of the amounts expended under the Distribution Plan,
and the purposes for which such expenditures were incurred, must be made to the
Board for its review. In addition, the Distribution Plan provides that it may
not be amended to increase materially the costs which holders of Class B shares
may bear for distribution pursuant to the Distribution Plan without the approval
of such shareholders and that all material amendments to the Distribution Plan
must be approved by the Board, and by the Independent Trustees who have no
direct or indirect financial interest in the operation of the Distribution Plan
or in any agreements entered into in connection with the Distribution Plan, by
vote cast in person at a meeting called for the purpose of considering such
amendments. The Distribution Plan is subject to annual approval by such vote of
the Board members and the Independent Trustees cast in person at a meeting
called for the purpose of voting on the Distribution Plan. The Distribution Plan
may be terminated at any time by vote of a majority of the Board members who are
Independent Trustees and have no direct or indirect financial interest in the
operation of the Distribution Plan or in any agreements entered into in
connection with the Distribution Plan or by vote of the holders of a majority of
the Class B Shares.
SPECIAL INVESTMENT TECHNIQUES
-----------------------------
As discussed in the Prospectuses, the Fund may engage in certain
transactions in options and futures contracts and options on futures contracts.
The specific transactions in which the Fund may engage are noted and described
in the Prospectuses. The discussion below provides additional information
regarding the use of futures and options transactions.
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
21
<PAGE>
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.
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.
Futures and Options Transactions
- --------------------------------
The Fund may use futures contracts and related options for the purpose
of seeking to reduce the overall investment risk that would otherwise be
associated with the securities in which it invests. For example, the Fund may
sell a stock index futures contract in anticipation of a general market or
market sector decline that might adversely affect prices of the Fund's portfolio
securities. To the extent that there is a correlation between the Fund's
portfolio and a particular stock index, the sale of futures contracts on that
index could reduce general market risk and permit the Fund to retain its
securities positions.
The Fund may purchase call options on individual stocks and baskets of
stocks, or purchase stock index futures contracts (and call options on such
contracts) to hedge against a market advance that might increase the prices of
securities that the Fund is planning to acquire. Alternatively, the Fund may
purchase put options on individual stocks and baskets of stocks, or sell stock
index futures contracts (or purchase puts on such contracts) to provide
protection against a decline in the price of a security below a specified level
or a sector or general market decline. The Fund may purchase and write options
in combination with each other to adjust the risk and return of its overall
investment positions. For example, the Fund may purchase a put option and write
a call option on the same underlying instrument, in order to synthesize a
position similar to that which would be achieved by selling a futures contract.
By purchasing a put option on an individual stock, the Fund could hedge
the risk of a devaluation of that individual stock. The value of the put option
would be expected to rise as a result of a market decline and thus could offset
all or a portion of losses resulting from declines in the prices of individual
securities held by the Fund. However, option premiums tend to decrease over time
as the expiration date nears. Therefore, because of the cost of the option (in
the form of premium and transaction costs), the Fund would suffer a loss in the
put option if prices do not decline sufficiently to offset the deterioration in
the value of the option premium.
By purchasing a call option on a stock index, the Fund would attempt to
participate in potential price increases of the underlying index, with results
similar to those obtainable from purchasing a futures contract, but with risk
limited to the cost of the option if stock prices fell. At the same time, the
Fund would suffer a loss if stock prices do not rise sufficiently to offset the
cost of the option.
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
22
<PAGE>
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.
Risks of Options on Stock Indices
- ---------------------------------
As discussed in the Prospectuses and above, 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
23
<PAGE>
(times the applicable multiplier) to the assigned writer. Although the Fund may
be able to minimize this risk by withholding exercise instructions until just
before the daily cutoff time, it may not be possible to eliminate this risk
entirely, because the exercise cutoff times for index options may be earlier
than those fixed for other types of options and may occur before definitive
closing index values are announced. Alternatively, when the index level is close
to the exercise price, the Fund may sell rather than exercise the option.
Although the markets for certain index option contracts have developed rapidly,
the markets for other index options are not as liquid. The ability to establish
and close out positions on such options will be subject to the development and
maintenance of a liquid secondary market. It is not certain that this market
will develop in all index option contracts. The Fund will not purchase or sell
any index option contract unless and until, in the opinion of the Investment
Adviser, the market for such options has developed sufficiently that the risk in
connection with such transactions is no greater than the risk in connection with
options on stocks.
Stock Index Futures Characteristics
- -----------------------------------
Currently, stock index futures contracts can be purchased or sold with
respect to several different stock indices, each based on a different measure of
market performance. A determination as to which of the index contracts would be
appropriate for purchase or sale by the Fund will be based upon, among other
things, the liquidity offered by such contracts and the volatility of the
underlying index.
Unlike when the Fund purchases or sells a security, no price is paid to
or received by the Fund upon the purchase or sale of a futures contract.
Instead, the Fund will be required to deposit in its segregated 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
24
<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%, and for
the one year periods ended December 31, 1998 and 1999 was respectively 15.98%
and 15.73%. The Fund's quotations of total return reflect the average annual
compounded rate of return on an assumed investment of $1,000 that equates the
initial amount invested to the ending redeemable value according to the
following formula:
25
<PAGE>
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
----------------------
Custodian
- ---------
UMB Bank, n.a., P.O. Box 419226, Kansas City, Missouri 64141-6226
serves as custodian of the Trust's assets and maintains custody of the Fund's
cash and investments. Cash held by the custodian, which may at times be
substantial, is insured by the Federal Deposit Insurance Corporation up to the
amount of available insurance coverage limits (presently, $100,000).
Control Persons and Holders of Securities
- -----------------------------------------
As of the date of this Statement of Additional Information, in excess
of 25% 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. The officers and directors of Fund do not own
any shares of the Fund.
Independent Auditors
- --------------------
Ernst & Young LLP, 1300 Chiquita Center, 250 East Fifth Street,
Cincinnati, Ohio 45202, 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 Integrated Fund Services, Inc. ("Integrated"),
P.O. Box 5354, Cincinnati, Ohio 45201, to serve as the Fund's transfer agent and
dividend paying agent. Integrated is a direct, wholly owned subsidiary of Fort
Washington Investment Advisors, Inc., a direct, wholly owned subsidiary of
Western and Southern Life Insurance Company, a mutual life insurance
company.
26
<PAGE>
Integrated 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 Integrated 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 Integrated 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. A
text-only version of the Registration Statement is available free on the
Securities and Exchange Commission's Internet web site, www.sec.gov.
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 fiscal year ended December 31, 1999.
The financial statements of the Fund incorporated by reference in this
Statement of Additional Information have been audited by Ernst & Young LLP,
independent public auditors, 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.
27
<PAGE>
LEVCO SERIES TRUST
PART C - OTHER INFORMATION
<TABLE>
<CAPTION>
Item 23. Exhibits
<S> <C>
(a)(1) Certificate of Trust dated January 2, 1997.*
(a)(2) Certificate of Amendment to Certificate of Trust dated May 9, 1997.*
(a)(3) Amended and Restated Declaration of Trust dated May 1, 1997.*
(b) By-Laws. *
(c)(1) Articles III and IV of the Amended and Restated Declaration of Trust
dated May 1, 1997.*
(c)(2) Article II of By-Laws.*
(d) Investment Advisory Contract.*
(e) Distribution Agreement.*
(f) Not Applicable.
(g) Custodian Agreement.**
(h)(1) Accounting Services Agreement.**
(h)(2) Transfer Agency and Dividend Disbursing Agreement.*
(i) Opinion and Consent of Counsel.*
(j) Consent of Independent Auditors. Filed herewith.
(k) Not Applicable.
(l) Letter of Investment Intent. *
(m) Plan Pursuant to Rule 12b-1.*
(n) Plan Pursuant to Rule 18f-3.*
(o) Reserved.
(p) Code of Ethics. Filed herewith.
</TABLE>
Item 24. Persons Controlled by or Under Common Control with the Fund
In excess of 25% 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. 25. Indemnification
- ----------------------------
* 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.
C-1
<PAGE>
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 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 26. Business and Other Connections of the Investment Adviser
The Investment Adviser is primarily engaged in the business of
providing investment advice. John A. Levin, Chairman, Chief Executive Officer
and President of the Investment Adviser,
C-2
<PAGE>
serves as a director of the following investment companies: Morgan Stanley Dean
Witter Africa Investment Fund, Inc.; Morgan Stanley Dean Witter Asia-Pacific
Fund, Inc.; Morgan Stanley Dean Witter Emerging Markets Fund, Inc.; Morgan
Stanley Dean Witter Emerging Markets Debt Fund, Inc.; Morgan Stanley Dean Witter
Global Opportunity Bond Fund, Inc.; The Morgan Stanley Dean Witter High Yield
Fund, Inc.; Morgan Stanley Dean Witter Eastern Europe Fund, Inc.; Morgan Stanley
Dean Witter Institutional Fund, Inc.; Morgan Stanley Dean Witter Universal
Funds, Inc.; Morgan Stanley Dean Witter Strategic Advisor Funds, 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 Dean Witter 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 27. Principal Underwriters
(a) Not Applicable.
(b) Set forth below is information concerning each director, officer,
or partner of LEVCO Securities, Inc.
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
John A. Levin Chairman, Chief Executive Trustee, Co-Chairman
One Rockefeller Plaza Officer, President and and President
New York, NY 10020 Director
Jeffrey A. Kigner Director Trustee and
One Rockefeller Plaza Co-Chairman
New York, NY 10020
Norris Nissim Vice President and Secretary
One Rockefeller Plaza General Counsel
New York, NY 10020
Carol L. Novak Vice President and Secretary None
One Rockefeller Plaza
New York, NY 10020
</TABLE>
(c) Not Applicable.
Item 28. 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 Integrated Fund Services, Inc. at the following office:
Integrated Fund Services, Inc.
312 Walnut Street
Cincinnati, Ohio 45202
Item 29. Management Services
C-3
<PAGE>
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 30. Undertakings
Not applicable.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the 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 ______ day of _______, 2000.
Levco Series Trust Registrant
By:
------------------------------
John A. Levin
President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 4 to the Registration Statement of Levco Series Trust
has been signed below by the following persons in the capacities and on the date
indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Trustee and President April ___, 2000
- --------------------------- (Principal Executive Officer)
John A. Levin
Treasurer (Principal Financial April ___, 2000
- --------------------------- Officer)
Glenn A. Aigen
Trustee April ___, 2000
- ---------------------------
Jeffrey A. Kigner
Trustee April ___, 2000
- ---------------------------
Thomas C. Barry
Trustee April ___, 2000
- ---------------------------
Charles L. Booth, Jr
Trustee April ___, 2000
- ---------------------------
James B. Rogers, Jr.
Trustee April ___, 2000
- ---------------------------
Edward J. Rosenthal
</TABLE>
C-5
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" and "Independent Auditors" in the Prospectuses and
"Independent Auditors" and "Financial Statements" in the Statement of
Additional Information, both included in Post-Effective Amendment Number 4
to the Registration Statement (Form N-1A, No. 333-19297) of Levco Equity
Value Fund and to the use of our report dated February 18, 2000,
incorporated by reference therein.
/s/ Ernst & Young LLP
------------------------------
ERNST & YOUNG LLP
Cincinnati, Ohio
April 25, 2000
<PAGE>
Exhibit (P)
Baker, Fentress & Company
200 West Madison Street, Suite 3510
Chicago, Illinois 60606
John A. Levin & Co., Inc.
One Rockefeller Plaza
New York New York 10020
CODE OF ETHICS
December, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION...................................................................................... 1
PART I TRADING RESTRICTIONS...................................................................... 3
1.1. Statement of General Principles....................................................... 3
1.2. Insider Trading and Manipulative Practices............................................ 3
1.3. Initial Public Offerings.............................................................. 4
1.4. Private Placements.................................................................... 4
1.5. Restricted List....................................................................... 4
1.6. Share Ownership in BKF Affiliates..................................................... 5
1.7. Transactions in BKF Shares............................................................ 5
1.8. No Transactions with BKF or Controlled Companies...................................... 5
1.9. Restriction on Trading by Investment Professionals During a Black Out Period; Other
Restrictions on Investment Professionals.............................................. 5
1.10. Required Personal Trading Approvals................................................... 6
1.11. Restriction on Short Term Trading..................................................... 7
1.12. Certain Non-Investment Personnel...................................................... 7
1.13. Certain Exempt Transactions........................................................... 7
PART II EMPLOYEE CONDUCT......................................................................... 7
2.1. Personal Trading Accounts and Reports................................................. 7
2.2. Conflicts of Interest................................................................. 9
2.3. Service as a Director................................................................. 9
2.4. Annual Acknowledgment................................................................. 10
PART III COMPLIANCE.............................................................................. 10
3.1. Compliance Officers and Supervisory Procedures........................................ 10
3.2. Recordkeeping......................................................................... 11
3.3. Review by Board....................................................................... 11
Annex A POLICIES AND PROCEDURES DESIGNED TO DETECT AND PREVENT INSIDER TRADING
Exhibit A PERSONAL SECURITIES TRADING REQUEST FORM
Exhibit B PROPRIETARY AND EMPLOYEE RELATED ACCOUNTS
Exhibit C EMPLOYEE ANNUAL ACKNOWLEDGMENT FORM
Exhibit D LIST OF APPROVED COMPLIANCE PERSONNEL
</TABLE>
<PAGE>
INTRODUCTION
This Code of Ethics has been prepared for persons associated with
Baker, Fentress & Company ("BKF"), including persons associated with its
subsidiary, John A. Levin & Co., Inc. (LEVCO).
This Code of Ethics is written so as to be read and understood by each
Employee with respect to such Employee's activities an behalf of the Firm and
personally.
In order to make it easier to review and understand this Code of
Ethics, a few terms as commonly used throughout the Code of Ethics are defined
below:
"Client Account" means any client or investment fund, including BKF as
to which or for whom the Firm provides investment advisory or management
services, along with accounts for persons related to Employees or trusts
established for such persons so long as Employees do not have a direct
beneficial interest in such accounts.
"Compliance Officer" means Norris Nissim or such other person as may
be designated from time to time, with respect to employees of LEVCO and all
other entities in the Firm other than BKF (the "LEVCO Compliance Officer"), and
James P. Koeneman or such other person as may be designated from time to time,
with respect to employees of only BKF (the "BKF Compliance Officer").
"Employee" means each officer, director, principal or employee of the
Firm, other than (i) a member of the board of directors of BKF who is not an
"interested person" of BKF or (ii) a member of the board of directors of any BKF
subsidiary who is not an officer or employee of LEVCO or its affiliates.
"Firm" means LEVCO, BKF and each other affiliate entity under common
control which is engaged in the business of providing investment advisory or
management services. The term shall not include registered investment funds
advised by the Firm other than BKF.
"Head Trader" means Daniel E. Aron or, in his absence, such other
person as may be designated from time to time.
"Investment Professional" means an Employee who, in connection with
his or her regular functions or duties, makes or participates in making
recommendations regarding purchases or sales for Client Accounts.
"Municipal Employee" means an Employee who does not work in the Firm's
New York City office and who solely provides municipal security investment
advisory or management services to Client Accounts.
"Proprietary Account" means an account in which an Employee has a
"beneficial interest" or a "proprietary investment or trading account maintained
for the Firm or its Employees. A "beneficial interest" in an account includes
the opportunity, directly or indirectly, to profit or share in any profit in a
securities transaction taking place in the account, and an Employee shall be
deemed to have a beneficial interest in accounts in which the Employee's spouse,
children and other dependents living in the Employee's household have a
beneficial interest, in securities held by a partnership in which the Employee
is a general partner and, in certain cases, in trusts of which the Employee is a
1
<PAGE>
trustee or beneficiary. The rules promulgated under Section 16 of the Security
Exchange Act of 1934 shall generally be used to determine whether an Employee
has a beneficial interest in an account,
"Security" shall mean all investment instruments commonly viewed as
securities, whether registered or not, including any option to purchase or sell,
and any security that is exchangeable for or convertible into, any such
security, private placements, commodity futures contracts and commodity options,
swaps and other derivative instruments, but shall not include shares of
registered open-end investment companies (i.e., mutual funds), direct
----
obligations of the Government of the United States, bankers' acceptances, bank
certificates of deposit, commercial paper, foreign exchange "spot" or "forward"
contracts, short-term, high quality debt securities, including repurchase
agreements, and such other money market or investment instruments as may be
authorized by the LEVCO Compliance Officer from time to time. Additional
investment instruments may be included in the definition of Securities by a
notice from the LEVCO Compliance Officer delivered to all Employees. The I.EVCO
Compliance Officer shall deliver such notice within two business days of being
notified by an authorized officer of the Firm that the Firm has purchased or
intends to Purchase securities of that type for one or more Client Accounts.
Persons with questions not answered by this Code of Ethics should
contact the applicable Compliance Officer.
2
<PAGE>
PART I
TRADING RESTRICTIONS
1.1. Statement of General Principles.
All Employees owe a fiduciary duty to, among others, the Firm's
clients. The interests of clients must always be recognized, be respected and
come before those of Employees. In any decision relating to personal
investments or other matters, Employees must assiduously avoid serving their own
personal interests ahead of any client's interests or taking inappropriate
advantage of their position with or on behalf of the Firm. It is critical that
Employees avoid any situation that might compromise -- or appear to compromise -
- - their exercise of fully independent judgment in the interests of the Firm's
clients. All personal investment and other activities of Employees must not
only comport with the Code of Ethics and avoid any actual or potential conflicts
of interest, but must also abide by the spirit of the Code of Ethics and the
principles articulated herein, Furthermore, Employees may not use their position
with the Firm to favor family and related accounts, and accounts with respect to
which Employees have fiduciary responsibilities, over other Client Accounts.
1.2. Insider Trading and Manipulative Practices.
(a) Insider Trading.
Federal and state securities laws prohibit any purchase or sale of
securities while in possession of material non-public information which was
improperly obtained, or was obtained under circumstances contemplating that it
would not be used for personal gain, and in certain other circumstances. In
addition, "tipping" of others about such information is prohibited. The persons
covered by these restrictions are not only "insiders" of publicly traded
companies, but also any other persons who, under certain circumstances, learn of
material, non-public information about a company, such as Employees, as well as
outside attorneys, accountants, consultants or bank lending officers.
Violation of these restrictions can have severe consequences for both
the Firm and its Employees. Trading on insider information or communicating
insider information to others it may result in civil and criminal penalties,
including imprisonment of up to ten years and a criminal fine of up to
$1,000,000. In addition, the Firm may be subject to liability for insider
trading or tipping by Employees. The Firm may also be held liable for failing
to take measures to deter securities laws violations where such failure is found
to have contributed to or permitted a violation.
In view of these requirements, the Firm has adopted the general policy
that an Employee may not trade for either a Client Account or a Proprietary
Account in securities of any company about which the Employee possesses, or is
aware that the Firm possesses, material, non-public information nor "tip" others
about such information. All Employees should exercise care to adhere to this
policy and to take reasonable steps to ensure that the Firm and other Employees
adhere to the policy. Any Employee who believes that he or she may be in
possession of material non-public information should: report the matter
immediately to the Compliance Officer; not purchase or sell the securities on
behalf of yourself or others, including investment partnerships affiliated with
the Firm or private accounts managed by the Firm; and not communicate the
information to anyone inside or outside of the Firm, other than the Compliance
Officer. In addition, Employees should
3
<PAGE>
immediately inform the Compliance Officer if they become aware of any actual or
potential violation of this policy by an Employee.
Recognizing that this is a complicated subject which is not easily
reduced to a few general principles, the Firm has prepared and adopted a
statement of Policies and Procedures Designed to Detect and Prevent Insider
Trading which is attached as Annex A of this Code of Ethics. All Employees must
read and adhere to the restrictions outlined in Annex A.
(b) Manipulative Practices.
The Investment Company Act and the rules promulgated thereunder make
it illegal for any person covered by the Code of Ethics, indirectly, in
connection with the purchase or sale of a security held or to be acquired by BKF
or by LEVCO on behalf of BKF or any other entity registered under the Investment
Company Act (BKF or such other registered entities, the "Funds") to:
a. employ any device, scheme or artifice to defraud the Fund,
b. make to the Fund any untrue statement of a material fact or omit
to state to the Fund a material fact necessary in order to make
the statements made, in light of circumstances under which they
are made, not misleading;
c. engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon the Fund, or
d. engage in any manipulative practice with respect to the Fund.
1.3. Initial Public Offerings.
No Employee may acquire any Securities for his or her Proprietary
Account in an initial public offering; provided, however, that an Employee may
purchase a security issued in a thrift conversion where the Employee is a
depositor, if the Employee has received the prior approval of (i) the LEVCO
Compliance Officer, for persons employed by LEVCO or any other member of the
Firm other than BKF, or (ii) the BKF Compliance Officer, for persons employed by
BKF only.
1.4. Private Placements.
No Investment Professional shall acquire any Security in a private
placement without the prior approval of (i) the LEVCO Compliance Officer, for
persons employed by LEVCO or any other member of the Firm other than BKF, or
(ii) the BKF Compliance Officer, for persons employed by BKF only. The factors
to be taken into account in this prior approval include, among other
considerations, whether the private placement should be acquired for the Firm's
Client Accounts, whether the private placement is being offered to the
Investment Professional because of his or her position with the Firm and whether
notice to Clients is appropriate. If an Investment Professional has acquired
Securities in a private placement before becoming an Investment Professional,
the Investment Professional must disclose that investment to the LEVCO
Compliance Officer.
1.5. Restricted List.
Certain transactions in which the Firm engages may require, for either
business or legal reasons, that any Client Accounts or Proprietary Accounts do
not trade in the subject Securities
4
<PAGE>
for specified time periods. In addition, if the Firm acquires material, non-
public information regarding an issuer, it will be restricted from trading in
the securities of such issuer. A Security will be designated as "restricted" if
the Firm is involved in a transaction which places limits on the aggregate
position held by the accounts in that Security. Restricted securities will
appear on a restricted list ("Restricted List") maintained by the Head Trader,
which Employees should consult before placing any order for purchase or sale. No
Employee may engage in any trading activity with respect to a Security while it
is on the Restricted List, except with approval of the Head Trader. Restrictions
with regard to Securities on the Restricted List extend to options, rights or
warrants relating to those Securities and any Securities convertible into those
Securities.
1.6. Share Ownership in BKF Affiliates.
No Employee shall purchase or otherwise acquire (other than through an
automatic dividend reinvestment plan or upon the exercise of rights issued by
the issuer pro rata to all holders of a class of Securities to the extent such
rights were acquired from such issuer) after June 27, 1996 any share ownership
interest in any entity which is an affiliated person, or an affiliated person of
an affiliated person (together, "affiliates") of BKF (except pursuant to an
incentive compensation or stock option plan), without the prior written approval
of the applicable Compliance Officer. For this purpose, affiliates shall
include any portfolio company in which BKF owns 5% or more of the portfolio
company's outstanding voting Securities, on a fully diluted basis. The Firm
expects that approval of share ownership in a BKF affiliate will rarely, if
ever, be granted.
1.7. Transactions in BKF Shares.
Transactions by BKF's directors, officers and certain stockholders in
BKF shares are subject to the restrictions and limitations discussed in BKF's
Federal Securities Law Guide for Directors, Officers, 10% Stockholders and
Certain Other Persons.
1.8. No Transactions with BKF or Controlled Companies.
No Employee or director of LEVCO or BKF shall knowingly sell to or
purchase any Security or other property from BKF or from LEVCO or any other
company controlled by BKF without the prior written approval of the applicable
Compliance Officer. A company will be considered controlled by BKF for this
purpose if it would appear as a "controlled affiliate" in BKF's financial
statements.
1.9. Restriction on Trading by Investment Professionals During a Black
Out Period; Other Restrictions on Investment Professionals.
No Investment Professional shall purchase or sell a Security within
seven days before or three days after (the "Black Out Period") a transaction in
the same Security by the Firm on behalf of a Client Account. If an Investment
Professional executes a trade in a Proprietary Account during the Black Out
Period at a price superior to the price received by the Client Account, the
Investment Professional shall disgorge an amount equal to the difference between
the price per share received by the Investment Professional and the average
price per share received by Client Accounts during the Black Out Period,
multiplied by the number of shares purchased or sold by the Investment
Professional, and shall contribute such amount to a charitable organization
chosen by the Investment Professional and approved by the applicable Compliance
Officer.
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Notwithstanding the preceding sentences, an Investment Professional
may trade a Security during a Black Out Period applicable to that Security if
(i) the Firm had sold the Security to liquidate a Client Account (as a result of
a withdrawal or termination), or the Firm had purchased the Security for a
Client Account(s) that the Firm manages for a broker-sponsored wrap-fee program;
(ii) the Compliance Officer pre-approves the trade; and (iii) the Investment
Professional transacts in the Security following completion of all trades for
Client Accounts on that day. In addition, an Investment Professional may seek
approval from the Levco Compliance Officer to sell a Security during a Black Out
Period to protect the capital of the Investment Professional, and if approval is
granted, the Investment Professional may sell its Securities in the same
proportion that the Firm sold that Security on behalf of Client Accounts and
subject to such restrictions as the LEVCO Compliance Officer may deem
appropriate to protect the interests of Client Accounts.
When an Investment Professional recommends that a Security be bought
or sold for a Client Account, such Investment Professional must disclose to the
LEVCO Compliance Officer whether a position in that Security is currently held
in a Proprietary Account of such Investment Professional. The LEVCO Compliance
Officer may restrict such Investment Professional from buying or selling the
position from any Proprietary Account until a specified period of time after the
orders for Client Accounts have been filled and there is no buying or selling
program in progress.
1.10 Required Personal Trading Approvals.
All transactions for Proprietary Accounts must have the prior written
approval of the Head Trader or LEVCO Compliance Officer. Notwithstanding the
preceding sentence, Municipal Employees are not required to seek such approval
for transactions in equity securities (or their equivalent) that they would like
to effect in their Proprietary Account. Subject to the discretion of the
Compliance Officer, this prior approval may be withheld on any day during which
the Firm has, or is actually intending, a "buy" or "sell" order in that same
Security for Client Accounts. If an Employee has knowledge that the Firm has,
or is actually intending, a "buy" or "sell" order in a specific Security for
Client Accounts, the Employee must inform the Head Trader or LEVCO Compliance
Officer of such knowledge in seeking approval to trade in that Security. Any
transaction for which approval has been granted may be cancelled at the end of
the day by the Head Trader or LEVCO Compliance Officer and the trade allocated
to Client Accounts if determined by the Head Trader or the LEVCO Compliance
Officer to be required, and any profits realized on proscribed trades must be
disgorged and contributed by the Employee to a charitable organization chosen by
the Employee and approved by the applicable Compliance Officer.
A Personal Securities Trading Request Form should be submitted to the
Head Trader or LEVCO Compliance Officer to obtain approval for a transaction for
an Employee's Proprietary Account and the Form is attached hereto as Exhibit A.
The Head Trader or LEVCO Compliance Officer shall promptly notify the Employee
of approval or denial of clearance to trade by indicating such action on the
Personal Securities Trading Request Form. Notification of approval or denial to
trade may be verbally given; however, it shall be confirmed in writing by
indicating such action on the Personal Securities Trading Request Form within 24
hours of the verbal notification.
On a quarterly basis, or at any other time as may be prudent, the
applicable Compliance Officer shall review all personal trading activity of all
Employees. If the applicable Compliance Officer identifies any trading pattern
or personal trading that presents an actual or potential conflict of interest,
the applicable Compliance Officer will recommend to senior management of the
Firm that remedial action be taken. Such remedial action may include
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restrictions on personal trading by the Employee, disgorgement of profits,
Employee reprimand and/or Employee dismissal.
1.11. Restriction on Short Term Trading.
No Investment Professional shall profit from the purchase and sale, or
sale and purchase, of the same (or equivalent) Security within 60 calendar days
(a "Short Term Trade"). Any Short Term Trade made in violation of this
paragraph shall be unwound or, if that is not practicable, all profits from the
Short Term Trade shall be disgorged by the Investment Professional to a
charitable organization chosen by the Investment Professional and approved by
the applicable Compliance Officer; provided, however, that the applicable
Compliance Officer may exempt the transaction from this prohibition, in whole or
part, if the Compliance Officer concludes that no harm resulted (or would
result) to a Client Account from the transaction and that to unwind the
transaction or require disgorgement would be inequitable or result in undue
hardship to the Investment Professional.
1.12. Certain Non-Investment Personnel.
The restrictions of paragraphs 1.9, 1.10 and 1.11 shall not apply to
persons who are Employees of BKF only and are neither officers, portfolio
managers, analysts, traders, support staff working directly with portfolio
managers or analysts, members of the portfolio accounting staff, nor "interested
persons" (as defined in the Investment Company Act) of BKF.
1.13. Certain Exempt Transactions.
The restrictions of this Code of Ethics shall not apply to purchases
or sales in any Proprietary Account managed by a third party over which an
Employee or has no direct or indirect influence or control, purchases that are
part of any automatic dividend reinvestment plan, odd-lot purchase or sale
programs, purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of securities to the extent such rights were
acquired from such issuer, sales of such rights, and any other purchases or
sales receiving the prior approval of the applicable Compliance Officer because
they are not inconsistent with this Code of Ethics or the provisions of Rule
17j-l(b) under the Investment Company Act.
PART II
EMPLOYEE CONDUCT
2.1. Personal Trading Accounts and Reports.
A. Employees. Each Employee is required to identify to the
---------
applicable Compliance Officer no later than 10 days from the date of his/her
hire, and thereafter at least monthly, all brokerage and commodities trading
accounts (including the date of establishment of such accounts) which constitute
a Proprietary Account with respect to such Employee, all Securities which the
Employee owns or in which the Employee has a beneficial interest and all
brokerage and commodities trading accounts of persons supported by or living in
the same household as such Employees and trusts established for the Employee or
for such persons (see Exhibit B). In addition, on an annual basis, each
Employee is required to identify to the Applicable Compliance Officer the
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title, number of shares and principal amount of the Securities which the
Employee owned, or in which the Employee had a beneficial interest, during the
preceding year, as well as all brokerage and commodities trading accounts which
constitute a Proprietary Account for the Employee and all brokerage and
commodities trading accounts of persons supported by or living in the same
household as such Employee. The information provided in this annual report must
be current as of a date no more than 30 days before the annual report is
submitted. All such Proprietary and Employee related Accounts are requested to
be maintained at LEVCO Securities, Inc. and such Proprietary and Employee
related Accounts maintained with other broker-dealers must be approved by the
applicable Compliance Officer. Duplicate copies of all trade confirmations and
all brokerage statements relating to such Proprietary and Employee related
Accounts must be sent to the applicable Compliance Officer promptly, and at
least once each month; provided, however, that in lieu of providing such
duplicate confirmations, the applicable Compliance Officer may permit an
Employee to provide a report of all personal securities transactions within 10
days after the end of the quarter during which the transactions occurred.
Each Employee must report to the applicable Compliance Officer any
Proprietary Accounts managed on a discretionary basis by a third party. Each
Employee must also report to the applicable Compliance Officer any private
securities transactions for any account for which records should be provided as
set forth above which are not carried out through brokerage accounts. Prior to
arranging a personal loan with a financial institution which will be
collateralized by Securities, an Employee must obtain the approval of the
applicable Compliance Officer. Annually, each Employee is also required to
certify to the applicable Compliance Officer, among other things, that he has
reported all transactions in all such Proprietary Accounts on the form attached
hereto as Exhibit C.
B. Outside Board Members.
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A director of LEVCO who is not an officer or employee of LEVCO (an
"Outside Board Member") must (i) report, at the time the director becomes an
Outside Board Member, all securities in which the person had any direct or
indirect beneficial interest no later than ten days from the time when the
person becomes an Outside Board Member; (ii) report all personal securities
transactions within 10 days after the end of the quarter during which the
transactions occurred; and (iii) file with the Applicable Compliance Officer an
annual report that identifies the title, number of shares and principal amount
of the Securities which the Outside Board Member owned, or in which the Outside
Board Member had a beneficial interest, during the preceding year, as well as
all brokerage and commodities trading accounts which constitute a Proprietary
Account for the Outside Board Member and all brokerage and commodities trading
accounts of persons supported by or living in the same household as such Outside
Board Member. The information provided in this annual report must be current as
of a date no more than 30 days before the annual report is submitted.
An Outside Board Member may not purchase or otherwise acquire direct
or indirect beneficial ownership of any Security, and may not sell or otherwise
dispose of any Security in which he or she has direct or indirect beneficial
ownership, if he or she has actual knowledge at the time of entering into the
transaction that: (1) a Fund, pursuant to the advice of LEVCO, has purchased or
sold the Security within the last 15 calendar days, or is purchasing or selling
or intends to purchase or sell the Security in the next 15 calendar days; or (2)
LEVCO has within the last 15 calendar days considered purchasing or selling the
Security for a Fund or is considering purchasing or selling the Security for
LEVCO Series Trust or LEVCO Investment Trust or within the next 15 calendar days
is going to consider purchasing or selling the Security for a Fund, unless such
Outside Board Member:
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(i) obtains advance clearance of such transaction from the Compliance
Officer; and
(ii) reports to the Compliance Officer such transaction.
2.2. Conflicts of Interest.
It is a violation of an Employee's duty of loyalty to the Firm for any
Employee, without the prior written consent of the applicable Compliance
Officer, to:
(a) rebate, directly or indirectly, to any person, firm or
corporation any part of the compensation received from the Firm
as an Employee;
(b) accept, directly or indirectly, from any person, firm,
corporation or association, other than the Firm, compensation of
any nature as a bonus, commission, fee, gratuity or other
consideration in connection with any transaction on behalf of the
Firm or a Client Account,
(c) accept, directly or indirectly, from any person, firm,
corporation, association or other entity that does business with
or on behalf of the Firm, any gift or other thing of more than de
minimis value;
(d) participate in entertainment with clients, brokers and other
counterparties unless reasonably related to legitimate business
purposes of the Firm; or
(e) own any stock or have, directly or indirectly, any financial
interest in any other organization engaged in any securities,
financial or related business, except for a minority stock
ownership or other financial interest in any business which is
publicly owned.
In addition, no Employee, without the prior written consent of the
Compliance Officer, may provide directly or indirectly any person, firm,
corporation, association or other entity that does business with or on behalf of
the Firm with any gift or other item.
2.3. Service as a Director.
No Employee may serve as a member of the board of directors or
trustees of any business organization, other than a civic or charitable
organization, without the prior written approval of (i) the LEVCO Compliance
Officer, for employees of LEVCO or of both LEVCO and BKF, or (ii) the BKF
Compliance Officer, for employees of only BKF. The determination of an
Employee's eligibility to serve in such a position shall be based on whether
such service would be consistent with the interests of the Firm and its clients,
and no person employed by LEVCO or any other member of the Firm other than BKF
shall be allowed to serve in such a position unless authorization has been
obtained from any clients of the Firm which have notified the Firm of any
criteria they may have with respect to such service. If such service is
authorized, certain safeguards may be implemented in the discretion of the LEVCO
Compliance Officer including, but not limited to, investment restrictions and/or
isolating the Employee serving from those making investment decisions through
"Chinese Wall" or other procedures. See also Annex A - Policies and Procedures
Designed to Detect and Prevent Insider Trading.
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2.4. Annual Acknowledgment.
Each Employee shall at least annually sign a written statement in the
form of Exhibit B attached hereto acknowledging his or her receipt and
understanding of, and agreement to abide by, the policies described in this Code
of Ethics, and certifying that he or she has reported all personal securities
transactions. In addition, each Outside Board Member is required to certify
annually that he or she has read and understands the provisions of this Code
applicable to him or her and recognizes that he or she is subject to certain
provisions of the Code.
PART III
COMPLIANCE
3.1. Compliance Officers and Supervisory Procedures.
LEVCO shall designate from time to time a LEVCO Compliance Officer and
a Head Trader and their substitutes, and the names of such persons shall be
listed on Exhibit C attached hereto. BKF shall designate from time to time a
BKF Compliance Officer, and the name of such person shall also be listed on
Exhibit D. The applicable Compliance Officer shall be responsible for general
administration of the policies and procedures set forth in this Code of Ethics
other than those specifically designated for the Head Trader and the LEVCO
Compliance Officer. The applicable Compliance Officer shall be required to
identify each Employee subject to this Code and to inform such Employees of
his/her reporting obligations hereunder. The applicable Compliance Officer
shall review all reports submitted pursuant to this Code of Ethics, answer
questions regarding the policies and procedures set forth in the Code of Ethics,
update this Code of Ethics as required from time to time, and arrange for
appropriate records to be maintained, including copies of all reports submitted
under this Code of Ethics. The applicable Compliance Officers shall also
arrange for appropriate briefing of Employees of the policies of the Firm
reflected in the Code of Ethics from time to time as determined to be
appropriate by the applicable Compliance Officer. In each instance in which the
approval or authorization of the LEVCO Compliance Officer or BKF Compliance
Officer is required under this Code of Ethics, the Compliance Officer receiving
the request for approval or authorization shall, before granting approval or
authorization, confirm with the other applicable Compliance Officer that no
reason exists that would make approval or authorization inappropriate.
The LEVCO Compliance Officer may waive any requirement of this Code of
Ethics if the facts and circumstances warrant such waiver.
The applicable Compliance Officers shall investigate any possible
violations of the policies and procedures set forth in this Code of Ethics to
determine whether sanctions should be imposed, which may include, inter alia, a
letter of censure or suspension or termination of employment, or such other
course of action as may be appropriate.
On an annual basis, the LEVCO Compliance Officer will review and
consider the Firm's compliance procedures, the prior year's violations and
remedial actions taken, and any proposed updates or changes to the Firm's Codes
of Ethics.
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3.2. Recordkeeping.
The records listed below shall be maintained for a period of five
years in an easily accessible place:
. a list of all persons subject to the Code during the period;
. receipts signed by all persons subject to the Code acknowledging
receipt of copies of the Code and acknowledging that: they are
subject to it;
. a copy of each Code of Ethics that has been in effect any time
during the period;
. a copy of each report filed pursuant to the Code and a record of
any known violations and actions taken as a result thereof during
the period;
. a copy of a record of all persons who are deemed to be a
compliance officer; and
. a copy of a record of any decision to approve the acquisition of
a private placement or IPO.
3.3. Review by Board.
The officers BFK and LEVCO Series Trust, with the assistance of the
Compliance Officer, shall prepare an annual report to the boards of BFK and
LEVCO Series Trust that:
. summarizes existing procedures concerning personal investing and
any changes in those procedures during the past year;
. identifies any violations of the applicable relevant provisions
of the Code requiring significant remedial action during the past
year;
. identifies any recommended changes in existing restrictions or
procedures based upon experience under the Code, evolving
industry practices, or developments in applicable laws or
regulations; and
. certifies that BKF and LEVCO have adopted procedures reasonably
necessary to present Employees from violating the Code.
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Annex A
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POLICIES AND PROCEDURES
DESIGNED TO DETECT AND PREVENT INSIDER TRADING
Section I. Policy Statement On Insider Trading.
A. The Firm forbids any of its Employees from trading, either
personally or on behalf of others, including private accounts managed by the
Firm, while in possession of material, nonpublic information or communicating
material nonpublic information to others in violation of the law. This conduct
is frequently referred to as "insider trading." The Firm's policies apply to
every Employee and extend to activities within and outside their duties at the
Firm. Every Employee must read and retain this policy statement. Any questions
regarding the Firm's policies and procedures should be referred to the
Compliance Officer, who is responsible for the monitoring and application of
such policies and procedures.
THIS POLICY STATEMENT APPLIES TO THE FIRM AND ITS AFFILIATED
ENTITIES, AS WELL AS TO THEIR RESPECTIVE EMPLOYEES.
The term "insider trading" is not defined in the federal securities
laws, but is generally used to refer to the use of material nonpublic
information to trade in securities (whether or not one is an "insider") or to
communication of material nonpublic information to others.
While the law concerning insider trading is not static, it is
generally understood that the law prohibits:
(i) trading by an insider, while in possession of material,
nonpublic information;
(ii) trading by a non-insider, while in possession of material,
nonpublic information, where the information either was
disclosed to the non-insider in violation of an insider's
duty to keep it confidential or was misappropriated; or
(iii) an insider or a non-insider described in clause (ii) above
from communicating material nonpublic information to
others.
The elements of insider trading and the penalties for such unlawful
conduct are discussed below. If, after reviewing this policy statement, you
have any questions you should consult the Compliance Officer.
B. Who is an Insider?
The concept of "insider" is broad. It includes all Employees of the
Firm. In addition a person can be a "temporary insider" if he or she enters
into a confidential relationship in the conduct of a company's affairs and, as a
result, is given access to information solely for the company's purposes. The
Firm may become a temporary insider of a company it advises or for which it
performs other services. Temporary insider also may include, among others, a
company's law firm, accounting firm, consulting firm, banks and the employees of
such organizations.
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C. What is Material Information?
Trading on inside information is not a basis for liability unless
the information is material. "Material information" is generally defined as
information that is likely to be considered important by a reasonable investor
in making his or her investment decisions. Information that affects the price of
a company's securities is likely to be deemed material. This might include,
without limitation, changes in dividend policies, earnings estimates, changes in
previously released earnings estimates, significant merger or acquisition
proposals or agreements, major litigation, liquidity problems and significant
new products, services or contracts.
Material information can also relate to events or circumstances
affecting the market for a company's securities. For example, in 1987 the
Supreme Court considered as material certain information about the contents of a
forthcoming newspaper column that was expected to affect the market price of a
security. In that case, a Wall Street Journal reporter was found criminally
liable for disclosing to others the dates that reports on various companies
would appear in The Wall Street Journal and whether those reports would be
favorable or not.
D. What is Nonpublic Information?
"Nonpublic" information is any information that has not been disclosed
generally to the marketplace. Information received about another company that
is not yet in general circulation should be considered non-public. As a general
rule, one must be able to point to some fact to show that the information is
generally public. For example, information found in a report filed with the
SEC, or appearing in Dow Jones, Reuters Economic Services, Wall Street Journal
or other publications of general circulation would be considered public. In
addition, if information is being widely disseminated to traders generally by
brokers or institutional analysts, such information would be considered public
unless there is a reasonable basis to believe that such information is
confidential and carne from a corporate insider.
E. Bases for Liability
1. Fiduciary Duty Theory
In 1980, the Supreme Court found that there is no general duty to
disclose before trading on material, nonpublic information, but that such a duty
arises where there is a fiduciary relationship. A relationship must exist
between the parties to a transaction such that one party has a right to expect
that the other party will disclose any material nonpublic information or will
refrain from trading.
In 1983, the Supreme Court stated that outsiders can acquire the
fiduciary duties of insiders (i) by entering into a confidential relationship
with a company through which such outsiders will gain material nonpublic
information (e.g., attorneys, accountants, underwriters or consultants), or (ii)
by becoming "tippees" if the outsiders are aware or should have been aware that
they have been given confidential information by an insider who has violated his
or her fiduciary duty to the company's shareholders.
However, in the "tippee" situation, a breach of duty occurs only if
the insider personally benefits, directly or indirectly, from the disclosure.
The benefit does not have to be
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pecuniary, but can be a gift, a reputational benefit that will translate into
future earning, or even evidence of a relationship that suggests a quid pro quo.
2. Misappropriation Theory
Another basis for insider trading liability is the "misappropriation
theory," where liability is based on a fiduciary's undisclosed, self-serving use
of a principal's information to purchase or sell securities in breach of a
fiduciary duty, thereby defrauding the principal of the exclusive use of that
information. Liability is based on the fiduciary's deception of those who
entrusted the fiduciary with access to confidential information. Under the
theory as most recently articulated by the Supreme Court, the element of
deception may be established by an employee's breach of a company's internal
rules as contained, for example, in a company compliance manual. The
"misappropriation theory" can be the basis for both government prosecution and
civil actions brought by private parties. In addition, the Supreme Court has
also upheld the SEC's current rule with respect to tender offers that does not
require the breach of a fiduciary duty for liability when trading on inside
information regarding a tender offer.
F. Penalties for Insider Trading.
Penalties for trading on or communicating material nonpublic
information are severe, both for individuals involved in such unlawful conduct
and their employer. A person can be subject to some or all of the penalties
below even if he or she does not personally benefit from the violation.
Penalties include:
. civil injunctions
. treble damages
. disgorgement of profits
. jail sentences
. fines for the person who committed the violation of up to the
greater of $1,000,000 or three times the amount of the profit
gained or loss avoided.
In addition, any violation of this policy statement can be expected
to result in serious sanctions by the Firm including dismissal of the persons
involved.
Section II. Procedures To Implement The Firm's Policies Against Insider Trading.
The following procedures have been established to aid the Employees
of the Firm in avoiding insider trading, and to aid the Firm in preventing,
detecting and imposing sanctions against insider trading. Every Employee of the
Firm must follow these procedures or risk serious sanctions, including
dismissal, substantial personal liability and criminal penalties. If you have
any questions about the procedures you should consult the Compliance Officer.
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A. Identify Inside Information.
Before tiding for yourself or others, including investment
partnerships affiliated with the Firm or private accounts managed by the Firm,
in the securities of a company about which you may have potential inside
information, ask yourself the following questions:
(i) Is the information material? Is this information that an investor
would consider important in making his or her investment decisions? Is this
information that would substantially affect the market price of the securities
if generally disclosed? Is this information which would cause insiders to change
their trading habits?
(ii) Is the information nonpublic? To whom has this information been
provided? Has the information been filed with the SEC, or been effectively
communicated to the marketplace by being published in Reuters Economic Services,
The Wall Street Journal or other publications of general circulation or
appearing on the wire services?
If, after consideration of the above, you believe that the information
is material and nonpublic, or if you have questions as to whether the
information is material and nonpublic, you should take the following steps:
(i) Report the matter immediately to the Compliance Officer;
(ii) Do not purchase or sell the securities on behalf of yourself or
others, including investment partnerships affiliated with the
Firm or private accounts managed by the Firm; and
(iii) Do not communicate the information inside or outside the Firm,
other than to the Compliance Officer.
After the Compliance Officer has reviewed the issue, you will be
instructed to continue the prohibitions against trading and communication, or
you will be allowed to trade and communicate the information.
B. Personal Securities Trading.
The Employees of the Firm and their family members and trusts of which
such persons are trustees or in which such persons have a beneficial interest
must execute all of their equity and corporate debt securities transactions with
their broker of choice. Transactions in U.S. Government or municipal bonds are
not subject to this policy. Duplicate confirmation of trades must be forwarded
to the Compliance Officer by each Employee's broker. Such confirmations shall
include, for each transaction, the date of the transaction, the name, the
quantity and the price of the security. For purposes of this policy statement
"family members" includes any relative, spouse, or relative of the spouse of an
Employee and any other adults living in the same household as the Employee.
Personal trading should be undertaken for investment purposes only, in
amounts consistent with the normal investment practice of the person investing,
and short term trading or speculation is prohibited.
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When material nonpublic information of which the Employee is aware
become public, a reasonable period (at least 24 hours) must pass for the
marketplace to have an opportunity to evaluate and respond to the news before
personal trading is permitted.
C. Restricting Access to Material Nonpublic Information.
Information in your possession that you identify as material and
nonpublic may not be communicated to anyone, including persons within the Firm
except as provided in paragraph 1 of this Section II. The Firm is establishing
this policy to help avoid conflicts, appearances of impropriety and the misuse
of confidential, proprietary information. In addition, care should be taken so
that all material and nonpublic information is secure. For example, files
containing material nonpublic information should be sealed and access to
computer files containing material nonpublic should be restricted.
D. Arbitrage Activities.
Arbitrage activities must be conducted with particular care. Absent
authorization or clearance from the Compliance Officer, initial arbitrage
positions should only be taken after a significant corporate event is announced
or information affecting the securities markets generally or a specific industry
segment thereto is disclosed. Arbitrage personnel should limit contacts with
bankers, lawyers and other advisers of parties involved in various transactions.
E. Contacts with Third Parties.
Requests of third parties such as the press and analysts for
information should be directed to the Compliance Officer,
F. Resolving Issues Concerning Insider Trading.
If, after consideration of the items set forth in paragraph 1 of this
Section II, doubt remains as to whether information is material or nonpublic, or
if there are any unresolved questions as to the applicability or interpretation
of the foregoing procedures, or as to the propriety of any action, these matters
must be discussed with the Compliance Officer before trading or communicating
the information to anyone.
Contacts with public companies will sometimes be a part of an
Employee's research efforts. Employees may make investment decisions on the
basis of conclusions formed through such contacts and analysis of publicly
available information. Difficult legal issues arise, however, when, in the
course of these contacts, an Employee becomes aware of material, non-public
information. This could happen, for example, if a company's chief financial
officer prematurely discloses quarterly results to an analyst, or an investor
relations representative makes selective disclosure of adverse news to a handful
of investors. In such situations, the Employee should contact the Compliance
Officer immediately if you believe that you may have received material, non-
public information.
Tender offers represent a particular concern of the law of insider
trading for two reasons. First, tender offer activity often produces
extraordinary gyrations in the price of the target company's securities.
Trading during this time period is more likely to attract regulatory attention
(and produces a disproportionate percentage or insider trading cases). Second,
the SEC has adopted
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a rule that expressly forbids trading and "tipping" while in possession of
material, non-public information regarding a tender offer received from the
tender offeror, the target company or anyone acting on behalf or either. The
rule does not require a breach of a fiduciary duty for liability. Employees
should exercise particular caution any time they become aware of non-public
information relating to a tender offer.
Section III. Supervisory Procedures
The role of the Compliance Officer is critical to the
implementation and maintenance of the Firm's policies and procedures against
insider trading. Supervisory procedures can be divided into two classifications:
prevention of insider trading and detection of insider trading.
A. Prevention of Insider Trading.
To Prevent insider trading, the Compliance Officer should:
(i) provide, on a regular basis, an education program to
familiarize Employees with the Firm's policies and
procedures.
(ii) answer questions regarding the Firm's policies and
procedures;
(iii) resolve issues of whether information received by an
Employee of the Firm is material and nonpublic;
(iv) review on a regular basis and update as necessary the
Firm's policies and procedures;
(v) when it has been determined that an Employee of the Firm
has material nonpublic information:
(a) implement measures to prevent dissemination of such
information; and
(b) if necessary, restrict Employees from trading in
the securities; and
(vi) promptly review, and either approve or disapprove, in
writing, each request of an Employee for clearance to
trade in specified equity securities or corporate debt
securities.
B. Detection of Insider Trading.
To detect insider trading, the Compliance Officer should:
(i) review the confirmations received from each Employee;
(ii) review the trading activity of investment partnerships
affiliated with the Firm and private accounts managed by
the Firm; and
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(iii) coordinate the review of such reports with other
appropriate Employees of the Firm.
C. Special Reports.
Promptly upon learning of a potential violation of the Firm's Policies
and Procedures to Detect and Prevent Insider Trading the Compliance Officer
should prepare a written report to the Chief Executive Officer of the Firm
providing full details and recommendations for further action.
D. Annual Reports.
On an annual basis, the Compliance Officer should prepare a written
report to the Chief Executive officer of the Firm setting forth the following:
(i) summary of existing procedures to detect and prevent
insider trading;
(ii) full details of any investigation, either internal or by
a regulatory agency, of any suspected insider trading
and the results of such investigation;
(iii) an evaluation of the current procedures and any
recommendations for improvement; and
(iv) a description of the Firm's continuing educational
program regarding insider trading, including the dates
of such programs since the last report.
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Exhibit A
---------
PERSONAL SECURITIES TRADING REQUEST FORM
Name:_____________________________________________
Details of Proposed Transaction
- circle purchase or sale
- Date of Transaction _______________________________
- indicate name of issuer ___________________________
- type of security (e.g., note, common stock,
preferred stock) ______________________
- quantity of shares or units ______________________
- price per share/units ______________________
- approximate dollar amount ______________________
- account for which transaction will be made ______________________
- name of broker ______________________
- transaction in same security within prior
60 days ______________________
- Check here if you wish that this form shall
not be construed as an admission of direct
or indirect beneficial ownership in the
Security.
Date: _____________________________ ______________________
______________________________________________________________________________
You may/may not execute the proposed transactions described above.
Date: ___________________________________
Authorized Signature
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Exhibit B
PROPRIETARY AND EMPLOYEE RELATED ACCOUNTS
Please list all brokerage and commodity trading accounts which constitute a
Proprietary Account, all securities which you own and any trading accounts or
securities of persons supported by or living in the same household as yourself.
Also list and trusts that you have established or that have been established for
you.
NAME ON THE ACCOUNT INSTITUTION ACCOUNT #
------------------- ----------- ---------
DATE:______________________ SIGNATURE:_________________________________
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Exhibit C
---------
EMPLOYEE ANNUAL ACKNOWLEDGEMENT FORM
The undersigned employee (the "Employee") of ________________________
(the "Firm") acknowledges having received and read a copy of the Code of Ethics
along with all Annexes and Exhibits thereto, dated _______________ , 199_ (the
"Code of Ethics"), and agrees to abide by the provisions contained therein. The
Employee understands that observance of the policies and procedures contained in
the Code of Ethics is a material condition of the Employee's employment by the
Firm and that any violation of such policies and procedures by the Employee will
be grounds for immediate termination by the Firm as well as possible civil or
criminal penalties.
The Employee specifically agrees and acknowledges as follows:
a. The Employee will disclose to the Compliance Officer of the Firm
all accounts through which the Employee directly or indirectly conducts
securities or commodities trading activity of any sort, including all amounts in
which the Employee has a direct or indirect beneficial interest and all accounts
over which the Employee exercises any control.
b. The Employee will provide to the Compliance Officer, at least
monthly, copies of all trade confirmations and brokerage statements relating to
such accounts.
c. The Employee will not trade on the basis of, nor disclose to any
third party, material non-public information, nor confidential information
regarding the activities of any Client Account.
d. The Employee will not engage in transactions involving securities
appearing on a list of "Restricted Securities" that may be circulated from time
to time by the Compliance Officer and agrees to obtain the approval of the Head
Trader, or his authorized substitute, for any trade for a Proprietary Account.
e. The Employee will not, without the permission of the Compliance
Officer, disclose to any third party any information that an Employee obtains
regarding advice furnished by the Firm to its Client Accounts, non-public data
furnished by any client, or the programs, analyses or other proprietary data or
information of the Firm.
f. The Employee has provided to the applicable Compliance Officer an
annual report indicating all transactions effected during the preceding year in
all accounts which the Employee owned or in which the Employee has a beneficial
interest and all private securities transactions which are not carried out
through brokerage accounts, with such information current as of a date no more
than 30 days before the Employee submitted such annual report.
g. The Employee has been given the opportunity to take part in an
educational Program in connection with the Firm's insider trading policies and
procedures.
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By the signature below, the Employee pledges to abide by the policies
and procedures described above and affirms that the Employee has not previously
violated such policies or procedures and has reported all securities
transactions for his Proprietary Accounts in the most recent calendar Year as
required by the Code of Ethics.
___________________________ _______________________________________
Date Name of Employee
_______________________________________
Signature of Employee
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Exhibit D
---------
LIST OF APPROVED COMPLIANCE PERSONNEL
Title Person
- ----- ------
LEVCO Compliance Officer Norris Nissim
Daniel E. Aron (substitute)
BKF Compliance Officer James P. Koeneman
Head Trader Daniel E. Aron
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