================================================================================
LEVCO EQUITY VALUE FUND
-----------------------
ANNUAL REPORT
December 31, 1999
INVESTMENT ADVISER DISTRIBUTOR
------------------ -----------
JOHN A. LEVIN & CO., INC. LEVCO SECURITIES, INC.
One Rockefeller Plaza One Rockefeller Plaza
New York, New York 10020 New York, New York 10020
1.888.300.9887 1.888.300.9887
================================================================================
<PAGE>
LETTER TO SHAREHOLDERS FEBRUARY 24, 2000
In a year marked by the remarkable strength of technology stocks trading at
extremely high valuations, we believe that we achieved solid results and
performed especially well relative to our value-oriented peers. Once again, we
were faced with an environment, especially in the fourth quarter, where the
momentum of a narrow group of stocks drove the market. Credit for our success
must go to our high quality investment personnel and their implementation of our
fundamental, team-oriented investment process. For the year ended December 31,
1999, the Fund returned 15.73%, while the S&P 500 Index achieved a return of
21.04% and the Russell 1000 Value Index rose by 7.35%.
An analysis of the various market indices tells a great deal about the stock
market of 1999. The difference between the Russell 1000 Value Index and the S&P
500 Index can be attributed to the technology sector, which represents
approximately 30% of the S&P 500 and rose approximately 75% for the year.
Of course, nothing better illustrates the leadership of technology than the
85.6% rise in the NASDAQ Index (the home of most of the dot.com stocks). This
rise was the greatest rise ever achieved by a "broad" market index. There have
been only eight other instances in which a major market index has risen even
half that amount, and on 7 of those 8 occasions, the rise followed a decline in
the previous year. In contrast, the performance of the NASDAQ Index in 1999 was
an astounding continuation of an unprecedented run, as the rise followed a 39.6%
gain in 1998 and marked the fifth consecutive year in which the Index has risen
in excess of 20%.
We are living in an extraordinary period for the stock market. Still, while many
of the leading technology companies are and will be leaders of the American
economy, this market is home to countless technology stocks with astronomical
valuations based on extraordinary assumptions. Since many of these companies may
fail, especially given their relatively brief histories in a competitive
industry, the assumptions being made with regard to such companies will not
become reality, and the stock market could be heavily impacted. In the best case
scenario, there will be an orderly movement of capital to those companies that
do succeed.
Stepping back from the surge in valuations, we can see that technology is having
an extremely positive impact on the U.S. economy. Presently, we see our economy
in a virtuous cycle. Since companies, generally speaking, do not have the
ability to raise profits by increasing pricing, they are investing in research
and development and capital, which, hopefully, leads to wider operating margins
and greater profitability through augmented production efficiency. Productivity
in the third quarter rose 4.2%, and this rise in productivity offsets increases
in wage costs and thereby acts as an important check on inflation.
<PAGE>
Our contact with companies further enhances our awareness of the ways in which
technology is enhancing productivity. For instance, we know that a major
automobile manufacturer that acquires some $80 billion of components and
materials annually is in the process of shifting those purchases to AutoXchange,
an internet-based vehicle, which should result in billions of dollars of cost
savings. While most people think of e-commerce as operating between businesses
and consumers, business to business is where the real economic impact of
e-commerce will be felt. Aggregating the resulting cost savings should lead to
tremendous efficiency and productivity gains on a macroeconomic level.
Our long-term outlook, then, for the economy and the stock market is positive.
In the shorter term, we are concerned about profit growth in the first half of
2000. More generally, we have not forgotten that things move in cycles, even
though this has not been obvious recently in the stock market or the U.S.
economy. History illustrates, however, that cycles can be of random duration. So
while we seem to be in an outlier with respect to the pattern of economic
cycles, the important thing to remember is that it will take a reversal in
current trends for there to be a shift from our present phase.
In conclusion, while appreciating the positive impact of technology on the
economy, we also recognize the absolutely extraordinary valuations being given
to companies in this sector and the volatility that may result. As investors, we
are adhering to our disciplines and our focus on risk control. When purchasing
securities, we are seeking value and generally buying stocks that have come down
from their highs. We will initiate positions in technology stocks only when
these companies meet our price and value guidelines. When selling securities, we
continue generally to reduce or eliminate positions that have experienced strong
appreciation. We strive to make well-researched stock selections and manage
portfolio risk, and we believe our approach should provide solid returns and
strong performance on a risk-adjusted basis.
As always, we welcome your comments and thank you for your continued support.
Sincerely,
John A. Levin Jeffrey A. Kigner
Co-Chairman Co-Chairman
and President
<PAGE>
LEVCO Equity Value Fund
Comparison of the Change in Value of a $10,000 Investment
in LEVCO Equity Value Fund, the S&P 500 Index
and the Russell 1000 Value Index
[GRAPHIC OMITTED]
12/31/99
--------
LEVCO Equity Value Fund $13,529
S&P 500 Index $16,017
Russell 1000 Value $13,319
---------------------------------
LEVCO Equity Value Fund
Average Annual Total Return
1 Year 15.73%
Since Inception (8/4/97) 13.36%
---------------------------------
Past performance is not predictive of future performance.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
ASSETS
Investments in securities:
At acquisition cost $ 22,000,756
============
At value (Note 1) $ 24,123,419
Dividends receivable 14,210
Interest receivable 6,905
Receivable for capital shares sold 14
Organization expenses, net (Note 1) 66,780
Other assets 20
------------
TOTAL ASSETS 24,211,348
------------
LIABILITIES
Due to Adviser (Note 3) 59,250
Accrued expenses 63,610
------------
TOTAL LIABILITIES 122,860
------------
NET ASSETS $ 24,088,488
============
NET ASSETS CONSIST OF:
Paid-in capital $ 21,965,553
Undistributed net investment income 611
Distributions in excess of realized gains (339)
Net unrealized appreciation on investments 2,122,663
------------
Net assets $ 24,088,488
============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, $0.001 par value) 2,067,095
============
Net asset value, offering price and
redemption price per share (Note 1) $ 11.65
============
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1999
INVESTMENT INCOME
Dividends $ 283,990
Interest 90,978
------------
TOTAL INVESTMENT INCOME 374,968
------------
EXPENSES
Investment advisory fees (Note 3) 177,225
Professional fees 59,784
Trustees' fees and expenses (Note 3) 30,000
Accounting services fees 29,500
Amortization of organization expenses (Note 1) 25,850
Transfer agent fees 12,000
Insurance expense 8,216
Custodian fees 6,072
Shareholder reporting costs 3,926
Registration fees 2,350
Pricing costs 1,259
Other expenses 932
------------
TOTAL EXPENSES 357,114
Fees waived by the Adviser (Note 3) (127,764)
------------
NET EXPENSES 229,350
------------
NET INVESTMENT INCOME 145,618
------------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized gains from security transactions 2,240,877
Net change in unrealized appreciation/
depreciation on investments 496,676
------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS 2,737,553
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 2,883,171
============
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Year For the Year
Ended Ended
December 31, December 31,
1999 1998
------------ ------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 145,618 $ 131,394
Net realized gains from security transactions 2,240,877 642,605
Net change in unrealized appreciation/depreciation
on investments 496,676 1,430,085
------------ ------------
Net increase in net assets from operations 2,883,171 2,204,084
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (145,134) (131,388)
From net realized gains (2,238,080) (462,547)
In excess of net realized gains (339) (2,797)
------------ ------------
Decrease in net assets from distributions to shareholders (2,383,553) (596,732)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 5,314,786 615,145
Net asset value of shares issued in reinvestment
of distributions to shareholders 2,383,553 596,732
Payments for shares redeemed (458,245) (139,689)
------------ ------------
Net increase in net assets from capital share transactions 7,240,094 1,072,188
------------ ------------
TOTAL INCREASE IN NET ASSETS 7,739,712 2,679,540
NET ASSETS:
Beginning of year 16,348,776 13,669,236
------------ ------------
End of year $ 24,088,488 $ 16,348,776
============ ============
UNDISTRIBUTED NET INVESTMENT INCOME $ 611 $ 127
============ ============
CAPITAL SHARE ACTIVITY:
Sold 436,034 56,820
Reinvested 205,007 53,926
Redeemed (36,660) (13,325)
------------ ------------
Net increase in shares outstanding 604,381 97,421
Shares outstanding, beginning of year 1,462,714 1,365,293
------------ ------------
Shares outstanding, end of year 2,067,095 1,462,714
============ ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios for a Share
Outstanding Throughout Each Period
<TABLE>
<CAPTION>
For the Year For the Year For the Period
Ended Ended 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
========== ========== ==========
Ratio of net 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) Represents the period from August 4, 1997 (commencement of operations)
through December 31, 1997.
(b) Not annualized.
(c) Absent investment advisory fees waived and expenses reimbursed by the
Adviser, the ratio of expenses to average net assets would have been 1.71%,
2.04% and 2.47%(d) for the periods ended December 31, 1999, 1998 and 1997,
respectively (Note 3).
(d) Annualized.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Shares Value
------ -----
COMMON STOCKS - 90.4%
AEROSPACE & DEFENSE -4.7%
10,600 Loral Space & Communications Ltd. (a) $ 257,713
5,600 Rockwell International Corp. 268,100
3,000 Textron, Inc. 230,063
5,743 United Technologies Corp. 373,295
------------
1,129,171
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AIRLINES - 2.3%
8,100 AMR Corp. (a) 542,700
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AUTOMOBILE PARTS - 2.5%
11,200 Ford Motor Co. 598,500
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BANKING - 5.6%
8,800 Bank of New York Co., Inc. 352,000
7,400 First Union Corp. 242,812
7,000 Fleet Boston Financial Corp. 243,687
5,600 Mellon Financial Corp. 190,750
6,000 Northern Trust Corp. 318,000
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1,347,249
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CHEMICALS - 2.2%
15,000 Monsanto Co. 534,375
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COMPUTERS/COMPUTER TECHNOLOGY SERVICES - 9.4%
19,700 Compaq Computer Corp. 533,131
3,500 Hewlett-Packard Co. 398,781
3,800 International Business Machines Corp. 410,400
19,700 Seagate Technology, Inc. (a) 917,281
------------
2,259,593
------------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Shares Value
------ -----
CONTAINERS & PACKAGING - 1.7%
10,800 Owens-Illinois, Inc. (a) $ 270,675
13,300 Pactiv Corp. (a) 141,313
------------
411,988
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ELECTRONICS/ELECTRICAL COMPONENTS - 5.4%
4,196 Koninklijke (Royal) Philips Electronics N.V. 566,460
7,600 Texas Instruments Inc. 736,250
------------
1,302,710
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ENERGY & UTILITIES - 7.1%
16,748 KeySpan Corp. 388,344
8,200 Schlumberger Ltd. 461,250
1,591 Transocean Sedco Forex, Inc. 53,590
26,200 Williams Companies, Inc. 800,738
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1,703,922
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FOOD/BEVERAGES - 6.7%
5,600 Anheuser-Busch Companies, Inc. 396,900
5,600 Coca-Cola Co. 326,200
12,500 Nabisco Holdings Corp. - Class A 395,313
5,200 PepsiCo, Inc. 183,300
10,900 Ralston-Ralston Purina Group 303,838
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1,605,551
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GOLD - 0.8%
18,130 Placer Dome Inc. 194,898
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<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Shares Value
------ -----
HOUSEHOLD PRODUCTS - 6.6%
10,400 Black & Decker Corp. $ 543,400
4,900 General Electric Co. 758,275
7,200 Gillette Co. 296,550
------------
1,598,225
------------
INSURANCE - 5.6%
15,200 Ace Ltd. 253,650
7,000 Aetna Inc. 390,687
4,400 Tokio Marine & Fire Insurance Co. Ltd. - ADR 260,150
8,700 XL Capital Ltd. - Class A 451,312
------------
1,355,799
------------
MEDIA - 7.9%
14,700 Fox Entertainment Group, Inc. - Class A (a) 366,581
16,800 Tribune Co. 925,050
5,900 Viacom Inc. - Class B (a) 356,581
9,200 Walt Disney Co. 269,100
------------
1,917,312
------------
MEDICAL SUPPLIES - 2.7%
11,000 American Home Products Corp. 433,813
5,800 Tyco International Ltd. 225,475
------------
659,288
------------
OFFICE EQUIPMENT - 1.2%
12,900 Xerox Corp. 292,668
------------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Shares Value
------ -----
OIL & GAS DRILLING - 2.3%
11,000 Conoco Inc. - Class A $ 272,250
8,700 Unocal Corp. 291,994
------------
564,244
------------
PHARMACEUTICALS - 5.3%
6,000 Johnson & Johnson 558,750
10,100 McKesson HBOC, Inc. 227,881
5,900 Warner-Lambert Co. 483,431
------------
1,270,062
------------
RETAIL - 2.5%
4,000 Dayton Hudson Corp. 293,750
5,900 Federated Department Stores, Inc. (a) 298,319
------------
592,069
------------
SOFTWARE & PROCESSING - 2.6%
12,700 First Data Corp. 626,269
------------
UTILITIES - TELEPHONE - 5.3%
10,600 Bell Atlantic Corp. 652,562
13,400 BellSouth Corp. 627,288
------------
1,279,850
------------
TOTAL COMMON STOCKS (Cost $19,802,912) $ 21,786,443
------------
<PAGE>
LEVCO EQUITY VALUE FUND
PORTFOLIO OF INVESTMENTS
December 31, 1999
Shares Value
------ -----
PREFERRED STOCKS - 4.4%
29,000 News Corp. Ltd. - ADR $ 969,688
2,600 Owens-Illinois, Inc. 81,250
------------
TOTAL PREFERRED STOCKS (Cost $911,682) $ 1,050,938
------------
Par Value
---------
FIXED INCOME OBLIGATIONS - 4.9%
$1,170,000 U.S. Treasury Bill, 01/13/00 (Cost $1,168,479) $ 1,168,355
------------
Shares
------
MONEY MARKET FUNDS - 0.5%
117,683 United Missouri Bank Money Market Fiduciary
(Cost $117,683) $ 117,683
------------
TOTAL INVESTMENTS AT VALUE - 100.2%
(Cost $22,000,756) $ 24,123,419
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.2)% (34,931)
------------
NET ASSETS - 100.0% $ 24,088,488
============
(a) Non-income producing security.
ADR - American Depository Receipt.
See accompanying notes to financial statements.
<PAGE>
LEVCO EQUITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The LEVCO Equity Value Fund (the Fund) is a no-load, diversified series of the
LEVCO Series Trust (the Trust), an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Trust was
organized as a Delaware business trust on January 2, 1997. The Fund commenced
operations on August 4, 1997.
The Fund's investment objective is long-term growth of capital through an
emphasis on the preservation of capital and an attempt to control volatility as
measured against the Standard & Poor's Composite 500 Stock Index. The Fund
pursues this objective by investing its assets primarily in common stocks and
other securities having equity characteristics.
The following is a summary of the Fund's significant accounting policies:
Securities valuation -- The Fund's portfolio securities are valued as of the
close of business of the regular session of the New York Stock Exchange
(normally 4:00 p.m., Eastern Time). Securities which are traded over-the-counter
are valued at the last sales price, if available, otherwise, at the last quoted
bid price. Securities traded on a national stock exchange are valued based upon
the closing price on the principal exchange where the security is traded.
Securities for which market quotations are not readily available are valued at
their fair value as determined in good faith in accordance with consistently
applied procedures established by and under the general supervision of the Board
of Trustees.
Share valuation -- The net asset value per share of the Fund is calculated daily
by dividing the total value of the Fund's assets, less liabilities, by the
number of shares outstanding. The offering price and redemption price per share
of the Fund is equal to the net asset value per share.
Investment income and distributions to shareholders -- Interest income is
accrued as earned. Dividend income is recorded on the ex-dividend date.
Dividends arising from net investment income are declared and paid quarterly to
shareholders of the Fund. Net realized short-term capital gains, if any, may be
distributed throughout the year and net realized long-term capital gains, if
any, are distributed at least once each year. Payment of all dividends and
capital gains distributions is made in shares. Income distributions and capital
gain distributions are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles.
Organization expenses -- Expenses of organization, net of certain expenses paid
by the Adviser, have been capitalized and are being amortized on a straight-line
basis over five years.
Security transactions -- Security transactions are accounted for on trade date.
Securities sold are determined on a specific identification basis.
Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
<PAGE>
LEVCO EQUITY VALUE FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1999
Federal income taxes -- The Fund has complied with the special provisions of the
Internal Revenue Code available to regulated investment companies and,
therefore, no federal income tax provision is required.
The following information is based upon the federal income tax cost of portfolio
investments of $22,001,095 as of December 31, 1999:
Gross unrealized appreciation ......... $ 4,039,535
Gross unrealized depreciation ......... (1,917,211)
-----------
Net unrealized appreciation ........... $ 2,122,324
===========
The difference between the federal income tax cost of portfolio investments and
the acquisition cost is due to certain timing differences in the recognition of
capital losses under income tax regulations and generally accepted accounting
principles.
2. INVESTMENT TRANSACTIONS
During the year ended December 31, 1999, cost of purchases and proceeds from
sales and maturities of investment securities, other than short-term
investments, amounted to $16,323,217 and $11,478,184, respectively.
3. TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AGREEMENT
The Fund's investments are managed by John A. Levin & Co., Inc. (the Adviser)
under the terms of an Investment Advisory Agreement. The Adviser also provides
certain administrative services required by the Trust and the Fund. Under the
Investment Advisory Agreement, the Fund pays the Adviser a fee, which is
computed and accrued daily and paid monthly, at an annual rate of 0.85% of its
average daily net assets.
The Adviser currently intends to limit the total operating expenses of the Fund
to 1.10% of its average daily net assets. Accordingly, the Adviser voluntarily
waived $127,764 of its investment advisory fees for the year ended December 31,
1999. Certain trustees and officers of the Trust are also officers of the
Adviser.
TRUSTEES COMPENSATION
No compensation is paid by the Fund to officers and trustees of the Fund who are
affiliated with the Adviser and/or LEVCO Securities, Inc., the Distributor of
the Fund's shares. The Fund pays each unaffiliated trustee an annual retainer of
$7,500.
4. FEDERAL TAX INFORMATION FOR SHAREHOLDERS (UNAUDITED)
On December 29, 1999, the Fund declared and paid a short-term capital gain of
$1,138,259 or $0.6081 per share and a long-term capital gain distribution of
$1,100,160 or $0.5877 per share. In January of 2000, shareholders were provided
with Form 1099-DIV which reported the amount and tax status of the capital gain
distributions paid during calendar year 1999.
<PAGE>
Report of Independent Auditors
To the Shareholders and Board of Trustees of
LEVCO Equity Value Fund
We have audited the accompanying statement of assets and liabilities, including
the portfolio of investments, of LEVCO Equity Value Fund as of December 31,
1999, the related statement of operations for the year then ended, the statement
of changes in net assets for each of the two years then ended and the financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1999, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of LEVCO
Equity Value Fund as of December 31, 1999, the results of its operations for the
year then ended, the changes in its net assets for each of the two years then
ended and the financial highlights for each of the periods indicated therein, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 18, 2000
