THE LEXINGTON FUNDS
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Shareholder Services--1-800-526-0056
1-201-845-7300
Institutional/Financial Adviser Services--1-800-367-9160
24 Hour Account Information--1-800-526-0052
PROSPECTUS
May 1, 1997
The following eleven mutual funds (each a "Fund," and collectively the
"Funds") are offered in this Prospectus:
FUND NAME NASDAQ SYMBOL
Lexington Convertible Securities Fund CNCVX
Lexington Crosby Small Cap Asia Growth Fund, Inc. LXCAX
Lexington GNMA Income Fund, Inc. LEXNX
Lexington Goldfund, Inc. LEXMX
Lexington Growth and Income Fund, Inc. LEXRX
Lexington International Fund, Inc. LEXIX
Lexington Money Market Trust LMMXX
Lexington Ramirez Global Income Fund LEBDX
Lexington SmallCap Value Fund, Inc. LESVX
Lexington Troika Dialog Russia Fund, Inc. LETRX
Lexington Worldwide Emerging Markets Fund, Inc. LEXGX
Each Fund's shares offered in this Prospectus are sold at net asset value
with no sales load, no commissions and (except for certain redemptions of the
Lexington Troika Dialog Russia Fund) no redemption or exchange fees. The minimum
initial investment in each Fund is $1000 ($5,000 for the Lexington Troika Dialog
Russia Fund), and subsequent investments must be at least $50. See "How to
Invest in the Funds."
Each Fund is an open-end management investment company and managed by
Lexington Management Corporation (the "Manager"), an affiliate of Lexington
Funds Distributor Inc. (the "Distributor"). Each Fund has its own investment
objective and policies designed to meet different investment goals. The
Lexington Convertible Securities and Lexington Ramirez Global Income Funds may
invest without limitation in lower rated debt securities commonly referred to as
"junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. Lexington Troika Dialog Russia Fund involves speculative
investments and special risks, such as political, economic and legal
uncertainties, currency fluctuations, portfolio settlement and custody risks and
risks of loss arising out of Russia's system of share registration. The Fund may
not be appropriate for all investors. As with all mutual funds, there is no
guarantee a Fund will achieve its objective.
<PAGE>
Please read this Prospectus before investing and retain it for future
reference. A Statement of Additional Information dated May 1,1997, has been
filed with the Securities and Exchange Commission, is incorporated to this
Prospectus by reference and is available without charge by calling the
appropriate telephone number above or writing to the address listed above.
Information about the Lexington Funds is available on the Internet at
http://www.sec.gov or http://www.lexingtonfunds.com
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE LEXINGTON MONEY MARKET TRUST WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF (OR ENDORSED OR
GUARANTEED BY)ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY. INVESTING IN MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL, AND THEIR VALUE AND RETURN WILL FLUCTUATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
The Lexington Funds ............................... 3
Fees and Expenses of the Funds .................... 5
Financial Highlights .............................. 8
The Funds' Investment Objectives
and Policies .................................... 19
Portfolio Securities .............................. 28
Other Investment Practices ........................ 32
Risk Considerations ............................... 34
Management of the Funds ........................... 41
How to Contact the Funds .......................... 52
How to Invest in the Funds ........................ 52
How to Redeem an Investment
in the Funds .................................... 55
Exchange/Telephone Redemption
Privileges and Restrictions .................... 58
How Net Asset Value is Determined ................. 59
Dividends and Distributions ....................... 61
Taxation .......................................... 62
General Information ............................... 63
Back-up Withholding ............................... 65
Glossary .......................................... 66
2
<PAGE>
THE LEXINGTON FUNDS
The Funds' investment objectives are summarized below. See "The Funds'
Investment Objectives and Policies" beginning on page 19, "Portfolio Securities"
beginning on page 28, "Other Investment Practices" beginning on page 19 and
"Risk Considerations" beginning on page 35 for more detailed information.
INTERNATIONAL FUNDS
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
The Lexington Crosby Small Cap Asia Growth Fund's investment objective is
to seek long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
LEXINGTON INTERNATIONAL FUND, INC.
The Lexington International Fund's investment objective is to seek
long-term growth of capital through investment in common stocks and equivalents
of companies domiciled in foreign countries.
LEXINGTON RAMIREZ GLOBAL INCOME FUND
The Lexington Ramirez Global Income Fund's investment objective is to seek
high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests in a combination of foreign and
domestic high-yield, lower rated debt securities, commonly known as "junk
bonds."
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
The Lexington Troika Dialog Russia Fund's investment objective is to seek
long-term capital appreciation through investment primarily in the equity
securities of Russian companies.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
The Lexington Worldwide Emerging Markets Fund's investment objective is to
seek long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in emerging countries
and emerging markets.
3
<PAGE>
DOMESTIC EQUITY FUNDS
LEXINGTON CONVERTIBLE SECURITIES FUND
The Lexington Convertible Securities Fund's investment objective is total
return which it seeks to achieve by providing capital appreciation, current
income and conservation of the shareholders capital.
LEXINGTON GROWTH AND INCOME FUND, INC.
The Lexington Growth and Income Fund's principal investment objective is
long term appreciation of capital. Income is a secondary objective.
LEXINGTON SMALLCAP VALUE FUND, INC.
The Lexington SmallCap Value Fund's principal investment objective is long
term capital appreciation. The Lexington SmallCap Value Fund will seek to obtain
its objective through investment in common stocks and equivalents primarily of
companies domiciled in the United States with a market capitalization of less
than $1 billion.
PRECIOUS METALS FUNDS
LEXINGTON GOLDFUND, INC.
The Lexington Goldfund's investment objective is to attain capital
appreciation and such hedge against loss of buying power as may be obtained
through investment in gold securities of companies engaged in mining or
processing gold throughout the world.
DOMESTIC FIXED-INCOME FUNDS
LEXINGTON GNMA INCOME FUND, INC.
The Lexington GNMA Income Fund's investment objective is to seek a high
level of current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA ("Ginnie Mae") Certificates
that are guaranteed as to the timely payment of principal and interest by the
United States Government.
MONEY MARKET FUNDS
LEXINGTON MONEY MARKET TRUST
The Lexington Money Market Trust's investment objective is to seek as high
a level of current income from short-term investments as is consistent with the
preservation of capital and liquidity. The Lexington Money Market Trust seeks to
maintain a stable net asset value of $1 per share.
4
<PAGE>
FEES AND EXPENSES OF THE FUNDS
SHAREHOLDER TRANSACTION EXPENSES
An investor would pay the following charges when buying or redeeming
shares of a Fund:
<TABLE>
<CAPTION>
MAXIMUM
MAXIMUM SALES
SALES LOAD IMPOSED DEFERRED SALES REDEMPTION
LOAD IMPOSED ON REINVESTED LOAD FEES+ EXCHANGE FEES
ON PURCHASES DIVIDENDS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
None None None None None
- ------------------------------------------------------------------------------------------------------------
</TABLE>
+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. LEXINGTON TROIKA DIALOG RUSSIA FUND ONLY: you
will pay a redemption fee of 2% for shares you redeem within 365 days after
you have purchased them. See "How to Redeem an Investment in the Funds."
5
<PAGE>
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT RULE 12B-1 OTHER OPERATING
FEES FEES FEES EXPENSES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTERNATIONAL FUNDS
Lexington Crosby Small Cap Asia
Growth Fund 1.25 1.17 2.42 *
Lexington International Fund 1.00 0.25 0.50 1.75 *
Lexington Ramirez Global Income Fund 1.00 0.25 0.25 1.50 *
Lexington Troika Dialog Russia Fund 1.25 0.25 1.65 3.35 *
Lexington Worldwide Emerging
Markets Fund 1.00 0.76 1.76
- -----------------------------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY FUNDS
Lexington Convertible Securities
Fund 1.00 0.25 1.14 2.39
Lexington Growth and Income Fund 0.68 0.25 0.20 1.13
Lexington SmallCap Value Fund 1.00 0.25 1.23 2.48 *
- -----------------------------------------------------------------------------------------------------------------------------------
PRECIOUS METALS FUNDS
Lexington Goldfund 0.84 0.25 0.51 1.60
- -----------------------------------------------------------------------------------------------------------------------------------
DOMESTIC FIXED-INCOME FUNDS
Lexington GNMA Income Fund 0.60 0.45 1.05
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
Lexington Money Market Trust 0.50 0.50 1.00 *
* Net of reimbursement or waivers
</TABLE>
This table is intended to assist the investor in understanding the
various expenses of each Fund. Operating expenses are paid out of a Fund's
assets and are factored into the Fund's share price. Each Fund estimates that it
will have the expenses listed (expressed as a percentage of average net assets)
for the current fiscal year.
6
<PAGE>
EXAMPLE OF EXPENSES FOR THE FUNDS
Assuming, hypothetically, that each fund's annual return is 5% and that
its operating expenses are as set forth on previous page, an investor buying
$1,000 of a fund's shares would have paid the following total expenses upon
redeeming such shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lexington Crosby Small Cap Asia Growth Fund 24.51 75.45 129.05 275.63
Lexington International Fund 17.78 55.11 94.89 206.24
Lexington Ramirez Global Income Fund 15.26 47.41 81.84 179.05
Lexington Troika Dialog Russia Fund 54.11 103.01 174.55 363.98
Lexington Worldwide Emerging Markets Fund 17.89 55.41 95.41 207.31
Lexington Convertible Securities Fund 24.21 74.55 127.55 272.63
Lexington Growth and Income Fund 11.52 35.91 62.23 137.46
Lexington SmallCap Value Fund 25.11 77.25 132.05 281.60
Lexington Goldfund 16.27 50.49 87.08 190.01
Lexington GNMA Income Fund 10.71 33.41 57.94 128.26
Lexington Money Market Trust 10.20 31.84 55.25 122.46
</TABLE>
This example is to show the effect of expenses. This example does not
represent past or future expenses or returns; actual expenses and returns may
vary.
7
<PAGE>
FINANCIAL HIGHLIGHTS
SELECTED PER SHARE DATA AND RATIOS
The following financial information for the periods ended December 31,
1991 (or inception of Fund, if later), through December 31, 1996, was audited by
KPMG Peat Marwick LLP, whose report, dated December 31, 1996, appears in the
1996 Annual Reports of the Funds.
<TABLE>
<CAPTION>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND
JULY 3, 1995
(COMMENCEMENT OF OPERATIONS)
1996 TO DECEMBER 31, 1995
-------- ---------------------------
<S> <C> <C>
Net asset value, beginning of period $ 9.76 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.05) 0.02
Net realized and unrealized gain (loss) on investments 2.54 (0.24)
- --------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 2.49 (0.22)
Less distributions:
Distributions from net investment income -- (0.02)
Distributions in excess of net investment income (0.01) --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.24 $ 9.76
- --------------------------------------------------------------------------------------------------------------------------------
Total return 25.50% (4.39)%*
Ratios to average net asset of:
Expenses, before reimbursement or waiver 2.64% 3.51%*
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.42% 1.75%*
Net investment loss, before reimbursement or waiver (0.86)% (1.24)%*
Net investment loss (0.64)% 0.52%*
Portfolio turnover 176.49% 40.22%*
Average commission paid on equity security transactions** -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $23,796 $8,936
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
**The average commission paid on equity security transactions for the period
ended December 31, 1996 is less than $0.05 per share of securities purchased and
sold. In accordance with recent SECdisclosure guidelines, average commissions
were calculated for the current period and not for prior periods.
8
<PAGE>
LEXINGTON INTERNATIONAL FUND
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net asset value, beginning of period $10.60 $10.37 $10.00
Income (loss) from investment operations:
Net investment loss (.02) (.01) (.08)
Net realized and unrealized gain on investments 1.45 .61 .67
- --------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.43 .60 .59
Less distributions:
Distributions from net investment income (.20) -- --
Dividends in excess of net investment income
(temporary book-tax difference) -- (.35) --
Distributions from net realized capital gains (.97) (.02) (.10)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- (.12 )
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.17) (.37) (.22)
Net asset value, end of period $10.86 $10.60 $10.37
Total return 13.57% 5.77% 5.87%
Ratio to average net assets:
Expenses 2.45% 2.46% 2.39%
Net investment loss (0.39%) (.12%) (.94%)
Portfolio turnover 113.55% 137.72% 100.10%
Average commission paid on equity security transactions* $0.03 -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $18,891 $17,855 $17,843
</TABLE>
*IN ACCORDANCE WITH RECENT SECDISCLOSURE GUIDELINES, AVERAGE COMMISSIONS ARE
CALCULATED FOR THE CURRENT PERIOD AND NOT FOR PRIOR PERIODS.
9
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.75 $ 9.80 $ 10.95 $10.39 $10.35 $10.05
Income (loss) from investment operations:
Net investment income 1.01 0.96 0.46 0.53 0.61 0.67
Net realized and unrealized gain (loss)
on investments 0.36 0.95 (1.16) 0.58 0.04 0.30
- -------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.37 1.91 (0.70) 1.11 0.65 0.97
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.86) (0.96) (0.45) (0.55) (0.61) (0.67)
Distributions from net realized gains (.04) -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (.90) (0.96) (0.45) (0.55) (0.61) (0.67)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.22 $10.75 $ 9.80 $10.95 $10.39 $10.35
- -------------------------------------------------------------------------------------------------------------------------------
Total return 13.33% 20.10% (6.52%) 10.90% 6.51% 10.03%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.33% 3.07% 1.80% 1.44% 1.54% 1.65%
- -------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.50% 2.75% 1.50% 1.44% 1.50% 1.12%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 9.49% 9.48% 4.18% 4.83% 5.88% 6.11%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 10.32% 9.80% 4.48% 4.83% 5.92% 6.64%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 71.83% 164.72% 10.20% 31.06% 31.24% 29.45%
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $29,110 $12,255 $10,351 $14,576 $13,085 $12,252
- -------------------------------------------------------------------------------------------------------------------------------
*Annualized
</TABLE>
<TABLE>
<CAPTION>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.12 $10.03 $ 9.67 $10.55
Income (loss) from investment operations:
Net investment income 0.73 0.63 0.63 0.78
Net realized and unrealized gain (loss)
on investments (0.09) 0.09 0.36 (0.86)
- ----------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.64 0.72 0.99 (0.08)
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.71) (0.63) (0.63) (0.80)
Distributions from net realized gains -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.71) (0.63) (0.63) (0.80)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.05 $10.12 $10.03 $ 9.67
- ----------------------------------------------------------------------------------------------------------
Total return 6.62% 7.40% 10.54% (0.21%)
- ----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 1.61% 1.72% 1.50% 1.97%
- ----------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.08% 1.20% 1.33% --
- ----------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 6.67% 5.70% 6.16% 5.98%
- ----------------------------------------------------------------------------------------------------------
Net investment income 7.20% 6.22% 6.33% 7.95%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover 44.50% 46.60% 67.11% 66.77%
Net assets, end of period (000's omitted) $10,707 $12,739 $13,139 $11,049
- ----------------------------------------------------------------------------------------------------------
Annualized
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON TROIKA DIALOG RUSSIA FUND
JULY 3, 1996 TO
DECEMBER 31, 1996**
-----------------
<S> <C>
Net asset value, beginning of period $12.12
- -------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.05)
Net realized and unrealized gain (loss) on investments (0.51)
- -------------------------------------------------------------------------------------
Total income (loss) from investment operations (0.56)
- -------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income
Distributions from net realized capital gains (0.32)
- -------------------------------------------------------------------------------------
Total distributions (0.32)
- -------------------------------------------------------------------------------------
Net asset value, end of period $11.24
- -------------------------------------------------------------------------------------
Total return (9.01)%*
- -------------------------------------------------------------------------------------
Ratios to average net asset of
EXPENSES, BEFORE REIMBURSEMENT OR WAIVERS 5.07%*
- ------------------------------------------------------------------------------------
Expenses, net of reimbursement or waivers 2.65%*
- ------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waivers (3.69)%*
- ------------------------------------------------------------------------------------
Net investment loss (1.27)%*
- ------------------------------------------------------------------------------------
Portfolio turnover 115.55%*
- ------------------------------------------------------------------------------------
Average commission paid on equity security transactions --***
- ------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $13,846
- ------------------------------------------------------------------------------------
*Annualized
**The Fund's commencement of operations was June 3, 1996 with the investment of
its initial capital. The Fund's registration statement with the Securities and
Exchange Commission became effective on July 3, 1996. Financial results prior to
the effective date of the Fund's registration statement are not presented in
this Financial Highlights Table.
***The average commission paid on equity security transactions for the period
ended December 31, 1996 was less than $0.005 per share of securities purchased
and sold.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND
1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.70 $11.47 $13.96 $ 8.66 $ 9.03 $ 8.56 $10.79
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income -- 0.08 (0.01) 0.05 0.07 0.09 0.25
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.79 (0.76) (1.92) 5.43 0.27 1.97 (1.81)
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.79 (0.68) (1.93) 5.48 0.34 2.06 (1.56)
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (0.08) -- (0.01) (0.11) (0.11) (0.24)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
income (temporary book-tax difference) -- (0.01) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains -- -- (0.47) (0.17) (0.60) (1.48) (0.43)
- -----------------------------------------------------------------------------------------------------------------------------
Distributions in excess of capital gains
(temporary book-tax difference) -- -- (0.09) -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.09) (0.56) (0.18) (0.71) (1.59) (0.67)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.49 $10.70 $11.47 $13.96 $ 8.66 $ 9.03 $ 8.56
- -----------------------------------------------------------------------------------------------------------------------------
Total return 7.38% (5.93%) (13.81%) 63.37% 3.77% 24.19% (14.44%)
- -----------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.76% 1.88% 1.65% 1.64% 1.89% 1.97% 1.42%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.01)% 0.70% (0.06)% 0.21% 0.75% 0.79% 2.52%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 86.26% 92.85% 75.56% 38.35% 91.27% 112.03% 52.48%
- -----------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security
transactions* -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $254,673 $265,544 $288,581 $230,473 $30,021 $25,060 $22,192
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1989 1988 1987 1986
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.72 $8.01 $11.80 $ 9.96
- ---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ---------------------------------------------------------------------------------------------
Net investment income 0.13 0.12 0.14 0.16
- ---------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 2.32 0.71 0.12 1.88
- ---------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 2.45 0.83 0.26 2.04
- ---------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.21) (0.12) (0.38) (0.20)
- ---------------------------------------------------------------------------------------------
Distributions in excess of net investment
income (temporary book-tax difference) -- -- -- --
- ---------------------------------------------------------------------------------------------
Distributions from capital gains (0.17) -- (3.67) --
- ---------------------------------------------------------------------------------------------
Distributions in excess of capital gains
(temporary book-tax difference) -- -- -- --
- ---------------------------------------------------------------------------------------------
Total distributions (0.38) (0.12) (4.05) (0.20)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $10.79 $ 8.72 $ 8.01 $11.80
- ---------------------------------------------------------------------------------------------
Total return 28.11% 10.36% 0.35% 20.73%
- ---------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.36% 1.33% 1.34% 1.32%
- ----------------------------------------------------------------------------------------------
Net investment income (loss) 1.18% 1.27% 1.26% 1.24%
- ---------------------------------------------------------------------------------------------
Portfolio turnover 59.07% 47.63% 83.21% 54.20%
- ---------------------------------------------------------------------------------------------
Average commission paid on equity security
transactions* -- -- -- --
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $29,126 $26,389 $25,579 $29,862
- ----------------------------------------------------------------------------------------------
</TABLE>
*The average commission paid on equity security transactions for the year ended
December 31, 1996 is less than $0.005 per share of securities purchased and
sold. In accordance with recent SECdisclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
12
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON CONVERTIBLE SECURITIES FUND
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.66 $11.84 $14.10 $13.80 $12.41
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11 0.15 0.08 -- 0.18
Net realized and unrealized gain (loss)
on investments 0.55 2.04 0.10 0.89 1.39
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.66 2.19 0.18 0.89 1.57
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.15) (0.07) -- (0.18)
Dividends from net realized capital gains (0.55) (0.22) (2.32) (0.59) --
Distribution in excess of capital gains
(temporary book-tax difference) -- -- (0.05) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (0.66) (0.37) (2.44) (0.59) (0.18)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.66 $13.66 $11.84 $14.10 $13.80
- ------------------------------------------------------------------------------------------------------------------------------
Total return 4.89% 18.63% 1.30% 6.53% 12.82%
- -------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses, before reimbursement of waiver 2.39% 2.52% 2.81% 2.76% 3.02%
- -------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.39% 2.52% 2.75% 2.76% 2.32%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), before
reimbursement or waiver 0.77% 1.24% 0.50% (0.04%) 0.70%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.77% 1.24% 0.56% (0.04%) 1.40%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 18.45% 11.23% 38.14% 6.53% 12.58%
- -------------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* 0.04 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $11,208 $11,641 $8,117 $8,319 $7,180
- -------------------------------------------------------------------------------------------------------------------------------
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.74 $ 9.55 $ 9.51 $ 9.35
- -------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.22 0.50 0.64 0.42
Net realized and unrealized gain (loss)
on investments 3.68 (0.81) 0.04 0.19
- -------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 3.90 (0.31) 0.68 0.61
- -------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.23) (0.50) (0.64) (0.42)
Dividends from net realized capital gains -- -- -- (0.03)
Distribution in excess of capital gains
(temporary book-tax difference) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (0.23) (0.50) (0.64) (0.45)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $12.41 $8.74 $9.55 $9.51
- -------------------------------------------------------------------------------------------------------------------
Total return 45.06% (3.39%) 7.16% 6.96%
- --------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses, before reimbursement of waiver 3.42% 4.51% 2.64% 4.12%
- --------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.50% 2.68% 2.13% 2.00%
- --------------------------------------------------------------------------------------------------------------------
Net investment income (loss), before
reimbursement or waiver 1.14% 3.09% 5.74% 3.43%
- --------------------------------------------------------------------------------------------------------------------
Net investment income 2.06% 4.92% 6.25% 5.55%
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 29.46% 25.58% 34.23% 39.70%
- --------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $6,599 $4,744 $5,986 $6,930
- --------------------------------------------------------------------------------------------------------------------
*In accordance with recent SEC disclosure guidelines, the average commission is
calculated for the current period, but not for prior periods.
13
<PAGE>
LEXINGTON GROWTH AND INCOME FUND
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $15.71 $14.36 $16.16 $16.25 $16.39 $14.24
Income from investment operations:
Net investment income 0.07 0.22 0.17 0.21 0.23 0.35
Net realized and unrealized gain (loss)
on investments 4.08 3.00 (0.68) 1.94 1.79 3.17
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 4.15 3.22 (0.51) 2.15 2.02 3.52
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.13) (0.22) (0.16) (0.21) (0.32) (0.35)
Distributions from net realized capital gains (1.17) (1.65) (0.91) (2.03) (1.84) (1.02)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- (0.22) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (1.87) (1.29) (2.24) (2.16) (1.37)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $18.56 $15.71 $14.36 $16.16 $16.25 $16.39
- -----------------------------------------------------------------------------------------------------------------------------
Total return 26.46% 22.57% (3.11%) 13.22% 12.36% 24.87%
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- -----------------------------------------------------------------------------------------------------------------------------
Expenses 1.13% 1.09% 1.15% 1.29% 1.20% 1.13%
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income 0.43% 1.38% 1.06% 1.20% 2.57% 2.19%
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 101.12% 159.94% 63.04% 93.90% 88.13% 80.33%
- -----------------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions* $0.07 -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $200,309 $138,901 $124,289 $134,508 $126,241 $121,263
- -----------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $16.19 $14.39 $13.58 $19.16
Income from investment operations:
Net investment income 0.60 0.50 0.46 0.43
Net realized and unrealized gain (loss)
on investments (2.25) 3.44 0.80 0.02
- ---------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (1.65) 3.94 1.26 0.45
- ---------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.30) (0.60) (0.45) (0.51)
Distributions from net realized capital gains -- (1.54) -- (5.52)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.30) (2.14) (0.45) (6.03)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.24 $16.19 $14.39 $13.58
- ---------------------------------------------------------------------------------------------------------
Total return (10.27%) 27.56% 9.38% 0.15%
- ---------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ---------------------------------------------------------------------------------------------------------
Expenses 1.04% 1.02% 1.10% 0.96%
- ---------------------------------------------------------------------------------------------------------
Net investment income 3.91% 2.82% 3.20% 2.37%
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover 67.39% 64.00% 81.10% 95.28%
- ---------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions* -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $104,664 $128,329 $111,117 $112,780
- ---------------------------------------------------------------------------------------------------------
*In accordance with recent SECdisclosure guidelines, the average commission is
calculated for the current period, but not for prior periods.
14
<PAGE>
LEXINGTON SMALLCAP VALUE FUND
JANUARY 2, 1996
(COMMENCEMENT OF OPERATIONS)
DECEMBER 31, 1996
---------------------------
Net asset value, beginning of period $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.18)
Net realized and unrealized gain (loss) on investments 1.94
- ----------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 1.76
- ----------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (0.03)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $11.73
- ----------------------------------------------------------------------------------------------------
Total return 17.50%
- ----------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ----------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 3.04%
- ----------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.48%
- ----------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (2.34)%
- ----------------------------------------------------------------------------------------------------
Net investment loss (1.78)%
- ----------------------------------------------------------------------------------------------------
Portfolio turnover 60.92%
- ----------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions 0.03
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $8,061
- ----------------------------------------------------------------------------------------------------
*Annualized
15
<PAGE>
LEXINGTON GOLDFUND
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $6.24 $ 6.37 $ 6.90 $ 3.70 $ 4.68 $ 5.03
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02 -- 0.03 0.01 0.02 0.04
Net realized and unrealized gain (loss)
on investments 0.50 (0.12) (0.53) 3.21 (0.98) (0.35)
- ------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.52 (0.12) (0.50) 3.22 (0.96) (0.31)
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.79) (0.01) (0.03) (0.02) (0.02) (0.04)
Distributions from net realized capital gains -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.79) (0.01) (0.03) (0.02) (0.02) (0.04)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.97 $ 6.24 $ 6.37 $ 6.90 $ 3.70 $ 4.68
- ------------------------------------------------------------------------------------------------------------------------------
Total return 7.84% (1.89%) (7.28%) 89.96% (20.51%) (6.14%)
- -------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------------------------------------
Expenses 1.60% 1.70% 1.54% 1.63% 1.69% 1.43%
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.32)% 0.07% 0.50% 0.25% 0.58% 0.81%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 31.04% 40.41% 23.77% 28.41% 13.18% 22.14%
- -------------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* .02 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $109,287 $135,779 $159,435 $159,479 $71,856 $96,3164
- --------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.39 $ 5.21 $ 6.20 $ 4.49
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.04 0.05 0.04 0.01
Net realized and unrealized gain (loss)
on investments (1.36) 1.18 (0.98) 2.07
- ----------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (1.32) 1.23 (0.94) 2.08
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) (0.05) (0.05) (0.05)
Distributions from net realized capital gains -- -- -- (0.32)
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.05) (0.05) (0.37)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.03 $ 6.39 $ 5.21 $ 6.20
- ----------------------------------------------------------------------------------------------------------
Total return (20.35%) 23.62% (15.18%) 46.56%
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------
Expenses 1.36% 1.42% 1.61% 1.29%
- ----------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.69% 1.14% 0.78% 0.57%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover 12.43% 15.98% 20.45% 13.78%
- ----------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $106,074 $154,484 $92,782 $104,842
- ----------------------------------------------------------------------------------------------------------
*In accordance with recent SEC disclosure guidelines, the average commission is
calculated for the current period, but not for prior periods.
16
<PAGE>
LEXINGTON GNMA INCOME FUND
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.19 $7.60 $8.32 $8.26 $8.45 $7.90
- ------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53 0.58 0.55 0.59 0.61 0.64
Net realized and unrealized gain (loss)
on investments (0.08) 0.59 (0.72) 0.06 (0.19) 0.55
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.45 1.17 (0.17) 0.65 0.42 1.19
Less distributions:
Dividends from net investment income (0.52) (0.58) (0.55) (0.59) (0.61) (0.64)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.58) (0.55) (0.59) (0.61) (0.64)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.12 $8.19 $7.60 $8.32 $8.26 $8.45
- ------------------------------------------------------------------------------------------------------------------------------
Total return 5.71% 15.91% (2.07%) 8.06% 5.19% 15.75%
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses 1.05% 1.01% 0.98% 1.02% 1.01% 1.02%
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 6.56% 7.10% 6.90% 6.96% 7.31% 7.97%
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 128.76% 30.69% 37.15% 52.34% 180.11% 138.71%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $133,777 $130,681 $132,108 $149,961 $132,048 $122,191
- --------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $7.88 $7.45 $7.58 $8.22
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.65 0.69 0.64 0.71
Net realized and unrealized gain (loss)
on investments 0.03 0.42 (0.13) (0.59)
- --------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.68 1.11 0.51 0.12
Less distributions:
Dividends from net investment income (0.66) (0.68) (0.61) (0.76)
- --------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains -- -- (0.03) --
- --------------------------------------------------------------------------------------------------------
Total distributions (0.66) (0.68) (0.64) (0.76)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $7.90 $7.88 $7.45 $7.58
- --------------------------------------------------------------------------------------------------------
Total return 9.23% 15.60% 6.90% 1.62%
- --------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- --------------------------------------------------------------------------------------------------------
Expenses 1.04% 1.03% 1.07% 0.98%
- --------------------------------------------------------------------------------------------------------
Net investment income 8.43% 8.88% 8.31% 8.49%
- --------------------------------------------------------------------------------------------------------
Portfolio turnover 112.55% 102.66% 233.48% 89.40%
- --------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $98,011 $96,465 $97,185 $109,793
- --------------------------------------------------------------------------------------------------------
17
<PAGE>
LEXINGTON MONEY MARKET TRUST
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0441 0.0495 0.0330 0.0230 0.0299 0.0532
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0441) (0.0495) (0.0330) (0.0230) (0.0299) (0.0532)
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------------------------------
Total return 4.50% 5.06% 3.35% 2.32% 3.03% 5.45%
- --------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.04% 1.08% 1.02% 1.00% 1.03% 1.02%
- --------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement 4.37% 4.87% 3.30% 2.30% 2.99% 5.35%
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income, net of
reimbursement 4.41% 4.95% 3.32% 2.30% 3.02% 5.37%
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $97,526 $88,786 $111,805 $94,718 $111,453 $143,137
- --------------------------------------------------------------------------------------------------------------------------------
1990 1989 1988 1987
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0732 0.0828 0.0678 0.0610
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0732) (0.0828) (0.0678) (0.0610)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------------
Total return 7.56% 8.60% 7.00% 6.29%
- -----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 0.97% 0.99% 0.97% 0.80%
- -----------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 0.97% 0.99% 0.97% 0.80%
- -----------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement 7.32% 8.29% 6.74% 6.13%
- -----------------------------------------------------------------------------------------------------------
Net investment income, net of
reimbursement 7.32% 8.29% 6.74% 6.13%
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $176,127 $182,703 $192,079 $212,487
- -----------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. Specific portfolio securities that may be purchased by the
Funds are described in "Portfolio Securities" beginning on page 28. Specific
investment practices that may be employed by the Funds are described in "Other
Investment Practices" beginning on page 32. Certain risks associated with
investments in the Funds are described in those sections as well as in "Risk
Considerations" beginning on page 34. CERTAIN TERMS USED IN THE PROSPECTUS ARE
DEFINED IN THE GLOSSARY BEGINNING ON PAGE 66.
SUMMARY COMPARISON OF FUNDS
Under normal market conditions, the Funds will invest their assets as follows:
<TABLE>
<CAPTION>
TYPICAL MARKET
ANTICIPATED ANTICIPATED CAPITALIZATION
EQUITY DEBT OF PORTFOLIO
FUND NAME EXPOSURE EXPOSURE FOCUS COMPANIES
==============================================================================================================
<S> <C> <C> <C> <C>
INTERNATIONAL FUNDS
Lexington Crosby 100% 0% Asia Small-Cap Less than
Small Cap Asia $1 billion
Growth Fund
- --------------------------------------------------------------------------------------------------------------
Lexington 100% 0% Foreign Growth Any size
International Fund
- --------------------------------------------------------------------------------------------------------------
Lexington Ramirez 0% 100% Global Income Any size
Global Income Fund
- --------------------------------------------------------------------------------------------------------------
Lexington Troika 85% 15% Russian Growth Any size
Dialog Russia Fund
- --------------------------------------------------------------------------------------------------------------
Lexington Worldwide 100% 0% Foreign Emerging Any size
Emerging Markets Growth
Fund
==============================================================================================================
DOMESTIC EQUITY FUNDS
Lexington Convertible 0-35% 65-100% Convertible Any size
Securities Fund Securities
- --------------------------------------------------------------------------------------------------------------
Lexington Growth 100% 0% Capital Appreciation Any size
and Income Fund and Income
Lexington SmallCap 100% 0% U.S. Small-Cap Between
Value Fund $20 million
and $1 billion
==============================================================================================================
PRECIOUS METALS
Lexington Goldfund 100% 0% Gold and Gold Any size
Companies
==============================================================================================================
DOMESTIC FIXED-INCOME FUNDS
Lexington GNMA 0% 100% Income N/A
Income Fund
==============================================================================================================
MONEY MARKET FUNDS
Lexington Money 0% 100% Income N/A
Market Trust
==============================================================================================================
</TABLE>
See each Fund's investment objective and policies on the following pages, and
the section titled "Portfolio Securities" for more information.
19
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
The investment objective of the Lexington Crosby Small Cap Asia Growth
Fund is long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
The Lexington Crosby Small Cap Asia Growth Fund will invest principally in
companies listed on stock exchanges in the Asia Region consisting of Bangladesh,
China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, The Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, and Vietnam ("the Asia Region"). The
Lexington Crosby Small Cap Asia Growth Fund will invest at least 65% of its
total assets in securities of companies (1) that are organized under the laws of
the above countries, (2) whose principal securities trading market is located in
those countries, and (3) that derive at least 50% of their revenues or profits
from those countries. The Lexington Crosby Small Cap Asia Growth Fund also
intends to invest in Australia and New Zealand. The Fund does not intend to
invest in Japan. The Lexington Crosby Small Cap Asia Growth Fund may also invest
in unlisted securities. Under normal market conditions, the Lexington Crosby
Small Cap Asia Growth Fund will invest substantially all of its assets in three
or more countries in the Asia Region.
The Lexington Crosby Small Cap Asia Growth Fund will invest at least 65%
of its total assets in growth companies in the Asia Region which have market
capitalizations of less than $1 billion. Approximately 13,000 companies are
listed on recognized exchanges in the Asia Region. Approximately 300 companies
in the Asia Region are capitalized over $1 billion. These companies form the
principal components of their respective market indices and consequently attract
the majority of foreign investment in the region. Approximately 3,000 companies,
which are considered small capitalization companies, will be the primary focus
for the Lexington Crosby Small Cap Asia Growth Fund's investments. These
companies are frequently under-researched by international investors and
undervalued by their markets. The companies in which the Lexington Crosby Small
Cap Asia Growth Fund intends to invest will generally have the following
characteristics: a market capitalization of less than $1 billion; are within
industry sectors with particularly strong growth prospects; part of a strong
growth industry; proven management; under-researched by the investment
community; and undervalued.
The Lexington Crosby Small Cap Asia Growth Fund intends to select
securities which can have enhanced growth prospects and may provide investment
returns superior to the Asian market as a whole. The market value of small
capitalization companies in the Asia Region tends to be volatile, and in the
20
<PAGE>
past has offered greater potential for gain as well as loss than securities of
companies traded in developed countries. It is possible that certain Lexington
Crosby Small Cap Asia Growth Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
The Lexington Crosby Small Cap Asia Growth Fund may invest in all types of
common stocks and equivalents (the following constitute equivalents: convertible
debt securities, warrants and options). The Lexington Crosby Small Cap Asia
Growth Fund may also invest in preferred stocks, bonds and other debt
obligations and money market instruments, including cash and cash deposits,
which will be denominated in U.S. Dollars or currencies related thereto.
-------------------------------
LEXINGTON INTERNATIONAL FUND, INC.
The investment objective of the Lexington International Fund is to seek
long-term growth of capital through investment in common stocks and equivalents
of companies domiciled in foreign countries. The Lexington International Fund
will invest at least 65% of its total assets in at least three foreign
countries. The Lexington International Fund will invest primarily in common
stocks and common stock equivalents. The following constitute common stock
equivalents: convertible debt securities, warrants and options. The Lexington
International Fund may also invest in preferred stocks, bonds and other debt
obligations, including money market instruments of foreign and domestic
companies and foreign and domestic government securities. The Lexington
International Fund is not required to maintain any particular geographic or
currency mix of its investments. The Lexington International Fund is not
required to maintain any particular proportion of stocks, bonds or other
securities in its portfolio.
The Lexington International Fund may invest primarily in foreign debt
securities when it appears that the capital appreciation available from
investments in such securities will equal or exceed the capital appreciation
available from investments in equity securities. The market value of debt
securities varies inversely to changes in prevailing interest rates. Investing
in debt obligations may provide an opportunity for capital appreciation when
interest rates are expected to decline. The Lexington International Fund will
invest in investment grade obligations and non-rated obligations of comparable
quality.
The Lexington International Fund may invest in securities of companies in
the following regions and the governments of those regions: the Asia Region,
including Japan; Africa; North America; Europe; Latin America; and such other
areas and countries as the Manager may determine from time to time. The
21
<PAGE>
Lexington International Fund may invest in companies located in developing
countries without limitation. Developing countries may have relatively unstable
governments, economies based on only a few industries, and securities markets
which trade a small number of companies. Prices on these exchanges tend to be
volatile and in the past these exchanges have offered greater potential for
gain, as well as loss, than exchanges in developed countries. While the
Lexington International Fund invests only in countries that it considers as
having relatively stable and friendly governments it is possible that certain
Lexington International Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
----------------------------------------
LEXINGTON RAMIREZ GLOBAL INCOME FUND
The investment objective of the Lexington Ramirez Global Income Fund is to
seek high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests primarily in lower rated and
unrated foreign debt securities whose credit quality is generally considered
equal to U.S. corporate debt securities known as "junk bonds." Junk bonds and
similarly rated foreign debt securities involve a high degree of risk and are
predominantly speculative. See "Portfolio Securities" and "Risk Considerations."
The Lexington Ramirez Global Income Fund, under normal conditions, invests
substantially all of its assets in debt securities of domestic companies,
companies of developed foreign countries, companies in emerging markets, and
debt securities issued by the U.S. and foreign governments. The debt securities
in which the Lexington Ramirez Global Income Fund invests consist of bonds,
notes, debentures and other similar instruments. The Lexington Ramirez Global
Income Fund may invest in debt securities issued by government agencies and
instrumentalities, central banks, commercial banks and other corporate entities.
The Lexington Ramirez Global Income Fund may invest up to 100% of its total
assets in domestic and foreign debt securities that are rated below investment
grade. The Lexington Ramirez Global Income Fund may also invest in securities
that are in default as to payment of principal and/or interest, and bank loan
participations and assignments.
The Lexington Ramirez Global Income Fund's investments in emerging markets
will primarily consist of the following: foreign "junk bonds," "Brady Bonds,"
and sovereign debt securities issued by emerging market governments. The
Lexington Ramirez Global Income Fund may invest in debt securities of emerging
market issuers without regard to ratings. Many emerging market debt securities
are not rated by United States rating agencies. The Lexington Ramirez Global
22
<PAGE>
Income Fund's ability to achieve its investment objectives is thus more
dependent on the Manager's credit analysis than would be the case if the
Lexington Ramirez Global Income Fund were to invest in higher quality bonds.
Currently, most emerging market debt securities are considered to have a credit
quality below investment grade.
-----------------------------
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
The investment objective of the Lexington Troika Dialog Russia Fund is to
seek long-term capital appreciation through investment primarily in the equity
securities of Russian Companies. Under normal conditions, the Lexington Troika
Dialog Russia Fund seeks to achieve its objective by investing at least 65% of
its total assets in the securities of Russian Companies. The securities in which
the Lexington Troika Dialog Russia Fund may invest are common stock, preferred
stock, convertible preferred stock, bonds, notes or debentures convertible into
common or preferred stock, direct investments in Russian Companies, stock
purchase warrants or rights, and American Depository Receipts or Global
Depository Receipts. The Lexington Troika Dialog Russia Fund may invest the
remaining 35% of its total assets in debt securities issued by Russian
Companies, debt securities issued or guaranteed by the Russian Government or a
Russian governmental entity, debt securities of corporate and government issuers
outside Russia, equity securities of issuers outside Russia which the Fund
believes will experience growth in revenue and profits from participation in the
development of the economies of the Commonwealth of Independent States, and
Short-Term and Medium-Term Debt Securities.
The Lexington Troika Dialog Russia Fund intends to invest its assets in
Russian Companies in a broad array of industries, including the following: oil
and gas, energy generation and distribution, communications, mineral extraction,
trade, financial and business services, transportation, manufacturing, real
estate, textiles, food processing and construction. The Lexington Troika Dialog
Russia Fund is not permitted to invest more than 25% of the value of its total
assets in any one industry. It may, however, invest an unrestricted amount of
its assets in the oil and gas industry. The Lexington Troika Dialog Russia
Fund's investments will include investments in Russian Companies that have
characteristics and business relationships common to companies outside of
Russia. As a result, outside economic forces may cause fluctuations in the value
of securities held by the Lexington Troika Dialog Russia Fund.
Under current conditions, the Lexington Troika Dialog Russia Fund expects
to invest at least 15% of its total assets in very liquid assets to maintain
liquidity and provide stability. As the Russian equity markets develop, however,
23
<PAGE>
and the liquidity of Russian securities becomes less of a concern, the Lexington
Troika Dialog Russia Fund will invest a greater percentage of its assets in
Russian equity securities.
-------------------------------
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
The investment objective of the Lexington Worldwide Emerging Markets Fund
is to seek long-term growth of capital primarily through investment in equity
securities and equivalents of companies domiciled in, or doing business in,
emerging countries and emerging markets. Under normal conditions, the Lexington
Worldwide Emerging Markets Fund seeks to achieve its objective by investing at
least 65% of its total assets in the equity securities and equivalents of
emerging market companies. Under normal conditions, the Lexington Worldwide
Emerging Markets Fund invests in emerging country and emerging market securities
of at least three countries outside of the United States. In the opinion of the
Manager, emerging market countries include, but are not limited to, the
following: Algeria, Argentina, Bahrain, Bangladesh, Bolivia, Botswana, Brazil,
Chile, China, Colombia, Costa Rica, Cyprus, Czech Republic, Dominican Republic,
Ecuador, Egypt Estonia, Finland, Ghana, Greece, Hong Kong, Hungary, India,
Indonesia, Israel, Ivory Coast, Jamaica, Jordan, Kenya, Lebanon, Malaysia,
Mauritius, Mexico, Morocco, Namibia, Nicaragua, Nigeria, Oman, Pakistan, Panama,
Peru, Philippines, Poland, Portugal, Russia, Singapore, Slovakia, South Africa,
South Korea, Sri Lanka Swaziland, Taiwan, Thailand, Trinidad & Tobago, Tunisia,
Turkey, Uruguay, Venezuela, Zambia, Zimbabwe. The Lexington Worldwide Emerging
Markets Fund may also invest in equity securities and equivalents of companies
that derive 50% or more of their total revenue from either goods or services
produced in emerging market countries or sales made in those countries.
The Lexington Worldwide Emerging Markets Fund's investments in emerging
country equity securities are not subject to any maximum limit, and the
Lexington Worldwide Emerging Markets Fund intends to invest substantially all of
its assets in emerging country and emerging market equity securities. The
Lexington Worldwide Emerging Markets Fund may invest the remaining 35% of its
total assets in equity securities without regard to whether they qualify as
emerging country or emerging market equity securities, debt securities
denominated in the currency of an emerging market or issued or guaranteed by an
emerging market company or the government of an emerging country, and Short-Term
and Medium-Term Debt Securities.
------------------------------------
LEXINGTON CONVERTIBLE SECURITIES FUND
The investment objective of the Lexington Convertible Securities Fund is
total return which it seeks to achieve by providing capital appreciation,
current income and conservation of shareholders capital. Under normal
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<PAGE>
conditions, the Lexington Convertible Securities Fund seeks to achieve its
objective by investing at least 65% of its total assets in debt securities
convertible into shares of common stock ("convertible securities"). The
Lexington Convertible Securities Fund may invest without limitation in
high-yield debt securities rated below investment grade. Such lower rated
securities are commonly referred to as "junk bonds." Junk bonds are considered
speculative and pose a greater risk of loss of principal and interest than
investment grade securities. See "Portfolio Securities" and "Risk
Considerations." Common stock received upon the conversion or sale of
convertible securities held by the Lexington Convertible Securities Fund will
either continue to be held by the Lexington Convertible Securities Fund or be
sold.
The convertible securities held by the Lexington Convertible Securities
Fund may consist of securities rated in the six highest rating categories by a
major rating service and non-rated debt securities. The Lexington Convertible
Securities Fund will not invest in any security which has been rated lower than
"B" by S&P or Moody's, which are both major rating services, or non-rated
securities of comparable quality.
The remaining assets of the Lexington Convertible Securities Fund may be
invested in securities other than convertible securities. The Lexington
Convertible Securities Fund may invest in dividend and non-dividend paying
non-convertible common stocks, corporate bonds, covered call options and put
options, stock index options, U.S. Government securities, repurchase agreements
and money market securities.
---------------------
LEXINGTON GROWTH AND INCOME FUND, INC.
The Lexington Growth and Income Fund's principal investment objective is
long term capital appreciation. Income is a secondary objective. The Fund seeks
to achieve its objective over the long term through investment in the stocks of
large, ably managed and well financed companies. Generally, the Lexington Growth
and Income Fund invests its assets in publicly traded common stocks and senior
securities convertible into common stocks of domestic and foreign companies.
--------------------
LEXINGTON SMALLCAP VALUE FUND, INC.
The investment objective of the Lexington SmallCap Value Fund is to seek
long term capital appreciation. Under normal conditions, the Lexington SmallCap
Value Fund seeks its objective by investing in common stocks and equivalents of
domestic companies with a market capitalization under $1 billion. Warrants and
convertible debt securities are common stock equivalents in which the Lexington
SmallCap Value Fund may invest. The Lexington SmallCap Value Fund will invest at
25
<PAGE>
least 90% of its assets in domestic companies which have market capitalizations
between $20 million and $1 billion at the time of investment. The remainder of
its assets may be invested in securities of companies with market
capitalizations below $20 million, above $1 billion, foreign companies with
dollar denominated shares traded in the United States, American Depository
Shares or Receipts, real estate investment trusts, and cash.
The Lexington SmallCap Value Fund will invest it assets primarily in the
equity securities of domestic companies listed on stock exchanges or traded
over-the-counter. The Lexington SmallCap Value Fund may invest in foreign
companies whose shares are traded in U.S. dollar denominated markets.
The companies in which the Lexington SmallCap Value Fund intends to invest
will generally have the following characteristics: a market capitalization of
less than $1 billion; a high relative ratio of revenue per share to stock price;
a low relative ratio of price to book value per share; a positive cash flow and
other measures of financial stability; and a low stock price relative to
historical levels.
-------------------
LEXINGTON GOLDFUND, INC.
The Lexington Goldfund's principal investment objective is to attain
capital appreciation and such hedge against loss of buying power as may be
obtained through investment in gold and equity securities of companies engaged
in mining or processing gold throughout the world. Under normal conditions, at
least 65% of the value of the total assets of the Lexington Goldfund will be
invested in gold and the securities of companies engaged in mining or processing
gold ("gold-related securities"). The Lexington Goldfund may also invest in
other precious metals, including platinum, palladium and silver. The Lexington
Goldfund intends to invest less than half of the value of its assets in gold and
other precious metals and more than half of the value of its assets in
gold-related securities, including securities of foreign issuers.
The Lexington Goldfund is designed to provide investors with a means to
protect against declines in the value of the U.S. dollar against world
currencies. To the extent that the Lexington Goldfund's investments in
gold-related securities appreciate in value relative to the U.S. dollar, the
Lexington Goldfund's investments may serve to offset declines in the buying
power of the U.S. dollar. Management believes that, over the long term,
investing in gold will protect capital from adverse monetary and political
developments. Investments in gold may provide more of a hedge against a decline
in the buying power of the dollar, devaluation and inflation than other types of
investments. The value of gold-related debt securities, however, will generally
not react to fluctuations in the price of gold. The market value of debt
securities of companies engaged in mining or processing gold can be expected to
fluctuate inversely with prevailing interest rates.
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<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
The investment objective of the Lexington GNMA Income Fund is to seek a
high level of current income, consistent with liquidity and safety of principal.
Under normal market conditions, the Lexington GNMA Income Fund will invest at
least 80% of the value of its total assets in Government National Mortgage
Association ("GNMA") mortgage-backed securities (also known as "GNMA
Certificates"). Lexington GNMA Certificates represent part ownership of a pool
of mortgage loans. The timely payment of interest and principal on each
certificate is guaranteed by the full faith and credit of the United States
Government. The principal on Lexington GNMA Certificates is scheduled to be paid
back by the borrower over the length of the loan. The remaining assets of the
Lexington GNMAIncome Fund will be invested in other securities issued or
guaranteed by the U.S. Government, including U.S. Treasury securities.
The Lexington GNMA Income Fund will purchase "modified pass through" type
GNMA Certificates. "Modified pass through" GNMA Certificates entitle the holder
to receive all interest and principal payments owed by the borrower even if the
borrower has not made payment. The Lexington GNMA Income Fund intends to use the
proceeds from principal payments to purchase additional GNMA Certificates or
other U.S. Government guaranteed securities.
------------------------
LEXINGTON MONEY MARKET TRUST
The investment objective of the Lexington Money Market Trust is to seek as
high a level of current income as is consistent with the preservation of capital
and liquidity by investing in short-term money market instruments. The following
are the money market instruments in which the Lexington Money Market Trust will
invest: U.S. Government securities, time deposits, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements and other money
market instruments.The Lexington Money Market Trust seeks to maintain a stable
net asset value of $1 per share.
The Lexington Money Market Trust will invest in money market instruments
that have been rated in one of the two highest rating categories by both S&P and
Moody's, both major rating agencies. A "Tier 1" security is one that has been
rated by either S&P or Moody's in the highest rating category, or, if unrated,
is of comparable quality. A "Tier 2" security is one that has been rated in the
second highest category by either S&P or Moody's, or, if unrated, is of
comparable quality. Up to 5% of the total assets of the Lexington Money Market
Trust may be invested in a single Tier 1 security (other than U.S. Government
securities). In addition, the Lexington Money Market Trust may not invest more
than 5% of its total assets in Tier 2 securities, and may not invest more than
1% of its total assets in any single Tier 2 security.
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<PAGE>
The Lexington Money Market Trust may only invest in money market
instruments with a remaining maturity of 397 days or less, provided that the
Fund's average weighted maturity does not exceed 90 days.
PORTFOLIO SECURITIES
EQUITY SECURITIES
The Lexington Convertible Securities Fund, Lexington Goldfund, Lexington
Growth and Income Fund, Lexington Crosby Small Cap Asia Growth Fund, Lexington
International Fund, Lexington SmallCap Value Fund, Lexington Troika Dialog
Russia Fund and Lexington Worldwide Emerging Markets Fund invest in common
stocks and some of the funds may invest in common stock equivalents (see chart).
The following constitute common stock equivalents: warrants, options and
convertible debt securities, ADRs, GDRs and EDRs. Common stock equivalents may
be converted into or provide the holder with the right to common stock. These
funds may also invest in other types of equity securities, including preferred
stocks, and equity derivative securities.
DEBT SECURITIES
The Lexington Ramirez Global Income Fund and the Lexington Convertible
Securities Fund will invest primarily in debt securities and the Lexington GNMA
Income Fund will have substantially all of its assets invested in GNMA
Certificates and U.S. Government securities.
The Lexington Goldfund, Lexington International Fund, Lexington Troika
Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund may invest
primarily in debt securities when the Manager believes that debt securities will
provide capital appreciation through favorable changes in relative foreign
exchange rates, in relative interest rate levels or in the creditworthiness of
issuers.
The Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging
Markets Fund may, under normal conditions, invest up to 35% of their total
assets in Short-Term and Medium-Term Debt Securities. The Short-Term and
Medium-Term Debt Securities in which the Funds may invest are foreign and
domestic debt securities, including short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) obligations
issued by the U.S. Government, foreign governments, foreign and domestic
corporations and banks, and repurchase agreements.
JUNK BONDS. The Lexington Ramirez Global Income Fund, Lexington
Convertible Securities Fund and Lexington Troika Dialog Russia Fund may invest
in high yield, lower rated debt securities known as "junk bonds." Junk bonds are
debt obligations rated below investment grade and non-rated securities of
28
<PAGE>
comparable quality. Junk bonds are considered speculative and thus pose a
greater risk of default than investment grade securities. Investments of this
type are subject to greater risk of loss of principal and interest, but in
general provide higher yields than higher rated debt obligations. Bonds issued
by companies domiciled in emerging markets are usually rated below investment
grade. The Lexington Ramirez Global Income Fund may invest in securities that
are in default as to payment of principal and/or interest. Debt securities
purchased by Lexington Crosby Small Cap Asia Growth Fund, Lexington
International Fund and Lexington Worldwide Emerging Markets Fund must be of
investment grade quality or comparable thereto.
ZERO COUPON BONDS. The Lexington Ramirez Global Income Fund may invest in
zero coupon bonds. Zero coupon bond prices are highly sensitive to changes in
market interest rates. The original issue discount on the zero coupon bonds must
be included ratably in the income of the Lexington Ramirez Global Income Fund as
the income accrues even though payment has not been received. The Lexington
Ramirez Global Income Fund nevertheless intends to distribute an amount of cash
equal to the currently accrued original issue discount, and this may require
liquidating securities at times they might not otherwise do so and may result in
capital loss. See "Tax Information" in the Statement of Additional Information.
LOAN PARTICIPATION AND ASSIGNMENTS. The Lexington Ramirez Global Income
Fund may invest in loans arranged through private negotiations between a foreign
entity and one or more lenders. The majority of the Lexington Ramirez Global
Income Fund's investments in loans in emerging markets is expected to be in the
form of participation in loans ("Participations") and assignments of portions of
loans from third parties ("Assignments"). Participations typically will result
in the Lexington Ramirez Global Income Fund having a contractual relationship
only with the Lender, not with the borrower. The Lexington Ramirez Global Income
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the Participation and only
upon receipt by the Lender of the payments from the borrower. As a result, the
Lexington Ramirez Global Income Fund will assume the credit risk of both the
borrower and the Lender that is selling the Participation. When the Lexington
Ramirez Global Income Fund purchases Assignments from Lenders, the Lexington
Ramirez Global Income Fund will acquire direct rights against the borrower on
the Loan. The Lexington Ramirez Global Income Fund may have difficulty disposing
of Assignments and Participations. The liquidity of such securities is limited
and the Lexington Ramirez Global Income Fund anticipates that such securities
could be sold only to a limited number of institutional investors. The lack of a
liquid secondary market could have an adverse impact on the value of such
securities.
BRADY BONDS. The Lexington Ramirez Global Income Fund may invest in "Brady
Bonds". Brady Bonds are securities created through the exchange of existing
29
<PAGE>
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with a debt restructuring plan introduced by former
U.S. Secretary of the Treasury, Nicholas F. Brady. Fund investors should
recognize that BradyBonds have been issued only recently and, accordingly, do
not have a long payment history. DEPOSITORY RECEIPTS
DEPOSITORY RECEIPTS
Each Lexington Fund (except Lexington Money Market Trust and Lexington
GNMAIncome Fund) may invest in American Depository Receipts ("ADRs") and similar
securities. ADRs are securities traded in the U.S. that are backed by securities
of foreign issuers.
INVESTMENT COMPANIES
Each Lexington Fund (except the Lexington Money Market Trust) may invest up
to 10% of its total assets in shares of other investment companies that invest
in securities which the Funds may otherwise invest.
U.S. GOVERNMENT SECURITIES
All Lexington Funds may invest in fixed-rate and floating- or
variable-rate U.S. government securities. The U.S. Government guarantees
payments of interest and principal of U.S. Treasury bills, notes and bonds,
mortgage-related securities of the GNMA, and other securities issued by the U.S.
government. Other securities issued by U.S. government agencies or
instrumentalities are supported only by the credit of the agency or
instrumentality, for example those issued by the Federal Home Loan Bank, whereas
others, such as those issued by the FNMA, Farm Credit System and Student Loan
Marketing Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. government securities generally are considered to be among
the safest short-term investments. However, the U.S. government does not
guarantee the net asset value of the Funds' shares. With respect to U.S.
government securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. government will provide support to such agencies
or instrumentalities. Accordingly, such U.S. government securities may involve
risk of loss of principal and interest.
The following table illustrates investments that the Funds primarily
invest in or are permitted to invest in, as indicated in dark shade. The light
shade indicates that the Fund's policy may permit such investments within
limits.
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<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SECURITIES
DARK SHADE:
Fund invests primarily in these types of investments, or Fund's policy permits
such investments.
LIGHT SHADE: Within limits, Fund's policy may permit such investments.
TYPE OF PORTFOLIO SECURITY
<TABLE>
<CAPTION>
Lexington Crosby Lexington Lexington Lexington Lexington Worldwide Lexington
Small Cap Asia International Ramirez Global Troika Dialog Emerging Convertible
Growth Fund Fund Income Fund Russia Fund Markets Fund Securities Fund
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options) *
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Convertible Debt Securities)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Depository Receipts)
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Derivative Securities *
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Below Investment
Grade) or (Junk Bonds)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities
(Loan Participation and Assignments)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities)
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Bullion
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Lexington Lexington *Lexingtonn
Growth and SmallCap Value Lexington GNMA Income Money Market
Income Fund Fund Goldfund Fund Trust Fund
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Convertible Debt Securities)
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Depository Receipts)
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Derivative Securities
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Below Investment
Grade) or (Junk Bonds)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities
(Loan Participation and Assignments)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities)
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Bullion
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Notes: Lexington Ramirez Global Income Fund may invest in options and
derivatives with respect to debt securities, not equity securities. Lexington
Money Market Trust is not permitted to purchase any of the portfolio securities
identified in this table, and may only invest in short-term securities such as
commercial paper, short-term government securities, banker's acceptances or
other money market instruments.
31
<PAGE>
Other Investment Practices
The following table and sections summarize certain investment practices that the
Funds are permitted to engage in. These practices may involve risks. The
Glossary section at the end of this Prospectus briefly describes each of the
investment techniques summarized below. The Statement of Additional Information,
under the heading "Investment Objectives and Policies of the Funds," contains
more detailed information about certain of these practices.
<TABLE>
<CAPTION>
Lexington Crosby Lexington Lexington Lexington Lexington Worldwide Lexington
Small Cap Asia International Ramirez Global Troika Dialog Emerging Convertible
Growth Fund Fund Income Fund Russia Fund Markets Fun Securities Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Repurchase agreements(1) x x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions1
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed x x x x
one-third of total fund assets
for leveraging purposes
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions x
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
one-third of total fund assets x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and forward x x x x x
commitment securities
- ------------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2) x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies(3) x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities x x x
and indices3
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered call options(3) x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered put options(3) x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts x x
- ------------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options
on futures(4) x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Equity swap
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
5% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to x
10% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
15% of fund's net assets x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Lexington Lexington *Lexingtonn
Growth and SmallCap Value Lexington GNMA Income Money Market
Income Fund Fund Goldfund Fund Trust
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements(1) x x x x x
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions1
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed x
one-third of total fund assets
for leveraging purposes
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement x x
- ------------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions x
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
one-third of total fund assets x
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and forward x x
commitment securities
- ------------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2) x
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and indices3
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered call options(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered put options(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts
- ------------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options
on futures(4) x
- ------------------------------------------------------------------------------------------------------------------------------------
Equity swap
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
5% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to x
10% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
15% of fund's net assets x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
-----------
1 Under the Investment Company Act, repurchase agreements and reverse dollar
roll transactions are considered to be loans by a fund and must be fully
collateralized by collateral assets. If the seller defaults on its
obligations to repurchase the underlying security, a fund may experience
delay or difficulty in exercising it rights to realize upon the security,
may incur a loss if the value of the security declines and may incur
disposition costs in liquidating the security.
2 A fund that may enter into in forward currency contracts may not do so with
respect to more than 70% of its total assets.
3 A FUND WILL NOT ENTER INTO OPTIONS ON SECURITIES, SECURITIES INDICES OR
CURRENCIES OR RELATED OPTIONS (INCLUDING OPTIONS ON FUTURES) IF THE SUM OF
INITIAL MARGIN DEPOSITS AND PREMIUMS PAID FOR ANY SUCH OPTION OR OPTIONS
WOULD EXCEED 5% OF ITS TOTAL ASSETS, AND IT WILL NOT ENTER INTO OPTIONS
WITH RESPECT TO MORE THAN 25% OF ITS TOTAL ASSETS.
4 A Fund may purchase and sell futures contracts and related options under
the following conditions: (a) the then-current aggregate futures market
prices of financial instruments required to be delivered and purchased
under open futures contracts shall not exceed 30% of the Fund's total
assets, at market value; and (b) no more than 5% of the assets, at market
value at the time of entering into a contract, shall be committed to margin
deposits in relation to futures contracts.
BORROWING FOR TEMPORARY OR EMERGENCY PURPOSES
For temporary or emergency purposes, Lexington Convertible Securities Fund
and Lexington Growth and Income Fund may borrow up to 10% of their total assets.
Lexington Money Market Trust may borrow up to one-third of its total assets;
Lexington GNMAIncome Fund may not borrow money, and the remaining Lexington
Funds may borrow up to 5% of their total assets. For leveraging purposes, some
Lexington Funds (see Chart)may borrow up to one-third of their total assets.
DEFENSIVE INVESTMENTS AND PORTFOLIO TURNOVER
Each Lexington Fund may invest up to 100% of its total assets in cash or
high-quality debt obligations for temporary defensive purposes.
The "portfolio turnover rate" is the frequency a Fund buys and sells
securities. Frequent transactions involve added expense. All Funds except
Lexington Convertible Securities Fund, Lexington Goldfund and Lexington SmallCap
Value Fund expect a portfolio turnover rate of greater than 100%.
HEDGING AND RISK MANAGEMENT PRACTICES
The Lexington Funds (other than the Lexington Money Market Trust) may
"hedge" against changes in financial markets, currency rates and interest rates.
A typical hedge is designed to offset a decline that could hurt the value of the
Fund's securities. The Lexington Funds may hedge with "derivatives." Derivatives
are instruments whose value is linked to, or derived from, another instrument,
like an index or a commodity. Some Lexington Funds (see chart) may invest in
options and futures contracts.
33
<PAGE>
Hedging transactions involve certain risks. Although a Fund may benefit
from hedging, unanticipated changes in interest rates or securities prices may
result in greater losses for a Fund than if it did not hedge. If a Fund does not
correctly predict a hedge, it may lose money. In addition, a Fund pays
commissions and other costs in connection with such investments. Hedging
transactions may not exist is some countries.
INVESTMENT RESTRICTIONS
The investment objective of each Lexington Fund is fundamental and may not
be changed without shareholder approval but, unless otherwise stated, each
Fund's other investment policies may be changed by its Board. If a Fund changes
its investment objective or policies, you should consider whether that Fund is
right for you. The Lexington Funds are subject to additional investment policies
and restrictions described in the Statement of Additional Information, some of
which are fundamental.
RISK CONSIDERATIONS
SMALL COMPANIES
The Lexington Crosby Small Cap Asia Growth Fund and Lexington SmallCap
Value Fund emphasize investments in smaller companies that may benefit from the
development of new products and services. Such smaller companies may present
greater opportunities for capital appreciation but may involve greater risk than
larger, more mature issuers. Such smaller companies may have limited product
lines, markets or financial resources, and their securities may trade less
frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
those of larger issuers.
Many companies traded on securities markets in many foreign countries are
smaller, newer and less seasoned than companies whose securities are traded on
securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets and with respect to such companies,
which may contribute to increased volatility and reduced liquidity of such
markets or such securities. Accordingly, each of these markets and companies may
be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. To the extent that any of these countries
34
<PAGE>
experiences rapid increases in its money supply and investment in equity
securities for speculative purposes, the equity securities traded in any such
country may trade at price-earning multiples higher than those of comparable
companies trading on securities markets in the United States, which may not be
sustainable. In addition, risks due to the lack of modern technology, the lack
of a sufficient capital base to expand business operations, the possibility of
permanent or temporary termination of trading, and greater spreads between bid
and ask prices may exist in such markets.
FOREIGN SECURITIES
The Lexington Crosby Small Cap Asia Growth Fund, Lexington Goldfund,
Lexington Growth and Income Fund, Lexington International Fund, Lexington
Ramirez Global Income Fund, Lexington Troika Dialog Russia Fund and Lexington
Worldwide Emerging Markets Fund have the right to purchase securities in foreign
countries. Accordingly, shareholders should consider carefully the substantial
risks involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks of loss inherent in
domestic investments. The Lexington Crosby Small Cap Asia Growth Fund, Lexington
International Fund, Lexington Ramirez Global Income Fund, Lexington Troika
Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund, may invest in
securities of companies domiciled in, and in markets of, so-called emerging
market countries. These investments may be subject to higher risks than
investments in more developed countries.
Foreign investments involve the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends) or
other taxes imposed with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country and repatriation of investments), default in
foreign government securities, and political or social instability or diplomatic
developments that could adversely affect investments. In addition, there is
often less publicly available information about foreign issuers than those in
the U.S. Foreign companies are often not subject to uniform accounting, auditing
and financial reporting standards. Further, these funds may encounter
difficulties in pursuing legal remedies or in obtaining judgments in foreign
courts. Additional risk factors, including use of domestic and foreign custodian
banks and depositories, are described elsewhere in this Prospectus and in the
Statement of Additional Information.
Brokerage commissions, fees for custodial services and other costs
relating to investments in other countries are generally greater than in the
U.S. Foreign markets have different clearance and settlement procedures from
35
<PAGE>
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions. The inability of a
fund to make intended security purchases due to settlement difficulties could
cause it to miss attractive investment opportunities. Inability to sell a
portfolio security due to settlement problems could result in loss to the fund
if the value of the portfolio security declined or result in claims against the
fund. In certain countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers, and listed
companies than in the U.S. The securities markets of many of the countries in
which these funds may invest may also be smaller, less liquid, and subject to
greater price volatility than those in the U.S.
Because certain foreign securities may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of a fund's securities denominated in the currency. Such
changes also affect the fund's income and distributions to shareholders. A fund
may be affected either favorably or unfavorably by changes in the relative rates
of exchange between the currencies of different nations, and a fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which one of these funds may invest also may have fixed
or managed currencies that are not freely convertible at market rates into the
U.S. dollar. Certain currencies may not be internationally traded. A number of
these currencies have experienced steady devaluation relative to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact on
the fund. Many countries in which a fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the fund. The fund may pay a "foreign
premium" to establish an investment position which it cannot later recoup
because of changes in that country's foreign investment laws.
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LOWER-QUALITY DEBT
The Lexington Convertible Securities Fund, Lexington Troika Dialog Russia
Fund, Lexington Goldfund, Inc. and Lexington Ramirez Global Income Fund are
authorized to invest high-yield, lower-rated debt securities commonly referred
to as "junk bonds." Lower-rated debt securities are considered highly
speculative and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than with higher-grade debt securities.
CONCENTRATION IN SECURITIES OF RUSSIAN COMPANIES
The Lexington Troika Dialog Russia Fund concentrates its investment in
companies that have their principal activities in Russia. Consequently, the
Lexington Troika Dialog Russia Fund's share value may be more volatile than that
of investment companies not sharing this geographic concentration. Since the
breakup of the Soviet Union at the end of 1991, Russia has experienced dramatic
political and social change. The political system in Russia is emerging from a
long history of extensive state involvement in economic affairs. The country is
undergoing a rapid transition from a centrally-controlled command system to a
market-oriented, democratic model. The Lexington Troika Dialog Russia Fund may
be affected unfavorably by political or diplomatic developments, social
instability, changes in government policies, taxation and interest rates,
currency repatriation restrictions and other political and economic developments
in the law or regulations in Russia and, in particular, the risks of
expropriation, nationalization and confiscation of assets and changes in
legislation relating to foreign ownership. See "Russia" and "Russian Company" in
the Glossary.
The Russian securities markets are substantially smaller, less liquid and
significantly more volatile than the securities markets in the United States. In
addition, there is little historical data on these securities markets because
they are of recent origin. A substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges and
over-the-counter markets. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Some issuers may be exposed to center-regional conflicts in jurisdiction in the
areas of taxation and overall corporate governance which could put the Fund's
investments at risk. In addition, because the Russian securities markets are
smaller and less liquid than in the United States, obtaining prices on portfolio
securities from independent sources may be more difficult than in other markets.
The political environment in Russia in 1997 is more stable than in 1993
and earlier when clashes between reformers and reactionaries were continuous,
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<PAGE>
setting the stage for an attempted coup d'etat in October 1993. Nevertheless,
there is still a great deal of uncertainty surrounding the political future of
the country. The civil war in Chechnya has highlighted the political tensions
that exist between the central government in Moscow and some of the regions
within the Russian Federation and has contributed to political instability by
weakening confidence domestically and internationally in the government. The
risk exists that armed conflict in Chechnya will continue, which could deter
foreign investment and international aid and further weaken the reformist
government's control. A continuing trend away from reformers toward
conservatives could further deter foreign investment if foreign policy
initiatives contrary to western interests (Iran, Iraq) lead to a deterioration
in relations between the Russian Federation and the West. The risk also exists
that the political tensions associated with the war in Chechnya will lead to
attempts for independence in other regions within the Russian Federation. The
war in Chechnya and other inflammatory issues may also lead to greater tensions
and divisions between the President and the legislature.
The military could have a negative impact on Russia's political and
economic future. The declining stature of Russia as a world power has led to a
widespread sentiment among Russians for a return to Russia's status as a
superpower. Demobilization of troops, cuts in the military budget, the growth of
significant gaps in living standards between the military and civilian sectors,
and the perception of an external threat from NATO could lead to further
political unrest.
Moreover, it is uncertain whether Russia's privatization process will
continue. Although government officials have publicly pledged their continued
support for the reform process. It is also unclear whether the reforms intended
to liberalize prevailing economic structures based on free market principles
will be successful, particularly in terms of foreign ownership of Russian
companies.
The planned economy of the former Soviet Union was run with qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian businesses do not have any recent history of operating within a
market-oriented economy. In general, relative to companies operating in Western
economies, companies in Russia are characterized by a lack of: (i) management
with experience of operating in a market economy; (ii) modern technology; and,
(iii) a sufficient capital base with which to develop and expand their
operations. It is unclear what will be the future effect on Russian companies,
if any, of Russia's continued attempts to move toward a more market-oriented
economy.
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Russia's economy has experienced severe economic recession, if not
depression, since 1990 during which time the economy has been characterized by
high rates of inflation, high rates of unemployment, declining gross domestic
product, deficit government spending, and a devaluing currency. The economic
reform program has involved major disruptions and dislocations in various
sectors of the economy. The economic problems have been exacerbated by a growing
liquidity crisis which culminated in a bank liquidity crisis in August 1995. The
taxation system has had numerous attempts at reform, but a failure to collect
taxes is an ongoing major problem.
Russia presently receives significant financial assistance from a number
of countries through various programs. To the extent these programs are reduced
or eliminated in the future, Russian economic development may be adversely
impacted.
Although evolving rapidly, even the largest of Russia's stock exchanges
are not well developed compared to Western stock exchanges. The actual volume of
exchange-based trading in Russia is low and active on-market trading generally
occurs only in the shares of a few private companies. Most secondary market
trading of equity securities occurs through over-the-counter trading facilitated
by a growing number of licensed brokers. Shares are traded on the
over-the-counter market primarily by the management of enterprises, investment
funds, short-term speculators and foreign investors.
INTEREST RATES
The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value, and an interest rate
increase produces a decrease in value. The longer the remaining maturity of a
security, the more sensitive that security is to changes in interest rates.
Changes in the ability of an issuer to make payments of interest and principal
and in the market's perception of the issuer's creditworthiness also affect the
market value of that issuer's debt securities.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a fund's portfolio. Mortgage prepayments are affected by the level of
interest rates and other factors, including general economic conditions and the
underlying location and age of the mortgage. In periods of rising interest
rates, the prepayment rate tends to decrease, lengthening the average life of a
pool of mortgage-related securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the average life of a pool.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Lexington GNMA Income Fund may have to reinvest
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the proceeds of prepayments at lower interest rates than those of their previous
investments. If this occurs, a fund's yield will decline correspondingly. Thus,
mortgage-related securities may have less potential for capital appreciation in
periods of falling interest rates than other fixed-income securities of
comparable duration, although they have a comparable risk of decline in market
value in periods of rising interest rates. To the extent that the Lexington GNMA
Income Fund purchases mortgage-related securities at a premium, unscheduled
prepayments, which are made at par, result in a loss equal to any unamortized
premium. Duration is one of the fundamental tools used by the Manager in
managing interest rate risks including prepayment risks. See "Duration" in the
Glossary.
NON-DIVERSIFIED PORTFOLIO. The Lexington Goldfund and Lexington Troika
Dialog Russia Fund are "non-diversified" investment companies under the
Investment Company Act. This means that the Lexington Goldfund and Lexington
Troika Dialog Russia Fund are not limited in the proportion of their total
assets that may be invested in a single company. The Lexington Goldfund and
Lexington Troika Dialog Russia Fund may invest a greater portion of their assets
in fewer companies than "diversified" funds, and thus may be subject to greater
risk. The Lexington Goldfund and Lexington Troika Dialog Russia Fund, however,
intend to comply with the diversification requirements of federal tax laws to
qualify as a regulated investment company.
PRECIOUS METALS
The Lexington Goldfund may invest in gold bullion and other precious
metals. These precious metals investments earn no income return, unlike savings
deposits, bonds or even stocks which may produce interest or dividend income.
Transaction and storage costs may be higher than costs relating to the buying,
holding and selling of more traditional types of investments. An increase in the
market price of precious metals is the only way the Fund will be able to realize
a gain on these investments.
SETTLEMENT AND CUSTODY
The Funds that invest in foreign securities, especially the Lexington
Troika Dialog Russia Fund could be subject to risks not normally associated with
U.S. investments because of newly developed securities markets and the
underdeveloped state of banking and telecommunications systems. Russia does not
have a central registration system, therefore ownership of shares is recorded by
the companies themselves and by registrars located throughout Russia. Although
these registrars may be inspected, it is possible that the Fund's ownership
rights could be lost through fraud, negligence or even mere oversight on behalf
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<PAGE>
the registrars, and the Fund could experience difficulty enforcing any rights
against the registrar or issuer in the event of loss of share registration. Due
to local postal and banking standards, there are risks that the payment of
dividends or other distributions could be delayed or lost. Russian banking
institutitons and registrars are not guaranteed by the state.
In light of these risks, the Board of Directors of the Lexington Troika
Dialog Russia Fund has approved procedures whereby the Fund will not invest in
the securities of a Russian company unless that company's registrar has entered
into a contract with the Fund's Sub-Custodian Bank. This protective contract
gives the Sub-Custodian Bank the right to conduct regular share confirmations on
behalf of the Fund. These procedures also require the Sub-Custodian Bank to
provide certain information on a periodic basis to the Board of Directors
concerning the registration of shares and custody arrangements in Russia.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS/TRUSTEES
Each Lexington Fund has either a Board of Directors or a Board of Trustees
that establishes its policies and supervises and reviews its management.
Day-to-day operations of the Lexington Funds are administered by the officers of
the Lexington Funds and by the Manager and Sub-Advisers pursuant to the terms of
an investment management agreement with each fund and investment sub-advisory
agreements between the Manager and the Sub-Advisers.
BOARD OF ADVISERS
The Lexington Troika Dialog Russia Fund's Board of Directors will receive
oversight assistance from a Board of Advisers which will be composed of experts
in Russian political and economic affairs. The Board of Advisers will be
responsible for providing the Board of Directors with periodic updates on
political and macroeconomic conditions and trends in Russia, and their potential
implication for the overall investment environment in Russia. This will enhance
the Board of Directors' ability to oversee and safeguard the assets of the
Lexington Troika Dialog Russia Fund.
The members of the Board of Advisers currently are:Keith Bush, Senior
Associate-Russian and Eurasian Studies at the Center for Strategic and
International Studies:Richard M. Hisey, Executive Vice President and Chief
Financial Officer of Lexington Global Asset Managers, Inc. and Marin J.
Strmecki, Ph.D., Director of Programs for the Smith Richardson Foundation. See
Statement of Additional Information for further information on the Board of
Advisers.
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INVESTMENT ADVISER
Lexington Management Corporation is the Manager of the Lexington Funds.
The Manager was established in 1938 and is an investment adviser registered as
such with the Securities and Exchange Commission under the Investment Advisers
Act of 1940, as amended. The Manager advises private clients as well as the
Lexington Funds. The Manager is a wholly-owned subsidiary of Lexington Global
Asset Managers, Inc., a Delaware corporation. Descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities have a
controlling interest in Lexington Global Asset Managers, Inc.
(NASDAQSymbol:LGAM).
THE SUB-ADVISERS
LEXINGTON CONVERTIBLE SECURITIES FUND
The Manager has entered into a Sub-Advisory Agreement with Ariston Capital
Management Corporation ("Ariston"). Under the Sub-Advisory Agreement, Ariston
will provide the Lexington Convertible Securities Fund with investment
management and administrative services. Ariston also serves as investment
adviser to private and institutional investment accounts. Such accounts own a
significant number of shares of the Lexington Convertible Securities Fund as
part of their investment program. Ariston was founded in 1977 and provides
investment management to individuals, corporations, pension and profit sharing
plans, and other qualified retirement plan accounts. Ariston is recognized for
its expertise in portfolio management, specializing in convertible securities
and market forecasting.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND
The Manager has entered into a Sub-Advisory Agreement with Crosby Asset
Management (US) Inc. ("Crosby"). Under the Sub-Advisory Agreement, Crosby will
provide the Lexington Crosby Small Cap Asia Growth Fund with investment
management services. Crosby was established on October 4, 1990 in the British
Virgin Islands. Crosby manages assets and provides investment advice for
investment company and institutional private accounts around the world. It is a
subsidiary of the Crosby Group, Hong Kong.
LEXINGTON RAMIREZ GLOBAL INCOME FUND
The Manager has entered into a Sub-Advisory Agreement with MFR Advisors,
Inc. ("MFR"). Under the Sub-Advisory Agreement, MFR will provide the Lexington
Ramirez Global Income Fund with investment and economic research services. MFR
manages assets for both investment companies and institutions. MFR is a
subsidiary of Maria Fiorini Ramirez, Inc.
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LEXINGTON SMALLCAP VALUE FUND
The Manager has entered into a Sub-Advisory Agreement with Capital
Technology Inc. ("CTI"). Under the Sub-Advisory Agreement, CTI will provide the
Lexington SmallCap Value Fund with investment advice and management of the
Fund's investment program. CTI was founded in Charlotte, North Carolina in 1977
and invests exclusively in domestic smaller capitalization stocks. CTI currently
manages assets both small and mid cap growth and value styles for primarily
institutional clients.
LEXINGTON TROIKA DIALOG RUSSIA FUND
The Manager has entered into a Sub-Advisory Agreement with Troika Dialog
Asset Management ("TDAM"). Under the Sub-Advisory Agreement, TDAM will provide
the Lexington Troika Dialog Russia Fund with investment advice and management of
the Fund's investment program. TDAM is a wholly owned subsidiary of Troika
Dialog which was founded in Moscow, Russia in 1991 by Dialog Bank and Troika
Capital Corporation.
REGISTERED SERVICE MARK
The Manager as owner of the registered service mark "Lexington" will
sublicense the Funds to include the word "Lexington" as part of their names
subject to revocation by the Manager in the event that the Funds cease to engage
the Manager or its affiliates as investment manager or distributor. Crosby has
authorized the Lexington Crosby Small Cap Asia Growth Fund to include the word
"Crosby" as part of its corporate name subject to revocation by Crosby in the
event the Lexington Crosby Small Cap Asia Growth Fund ceases to engage Crosby as
Sub-Adviser. In that event the Funds will be required upon demand of the Manager
(or with regard to the Lexington Crosby Small Cap Asia Growth Fund, Crosby) to
change their respective names to delete the word "Lexington" (or with regard to
the Lexington Crosby Small Cap Asia Growth Fund, "Crosby") therefrom.
PORTFOLIO MANAGERS
LEXINGTON CONVERTIBLE SECURITIES FUND
Richard B. Russell manages the Lexington Convertible Securities Fund. Mr.
Russell is President of Ariston Capital Management Corporation, the Lexington
Convertible Securities Fund's Sub-Adviser. He is a graduate of the School of
Business at the University of Washington and has completed additional training
at the New York Institute of Finance. He is a recognized authority on portfolio
management, particularly through the use of convertible securities and market
forecasting. He has spent his entire professional career as an independent money
manager, dating from 1972. Before founding Ariston in 1977, he was a full-time
manager of private family assets. Mr. Russell has conducted extensive research
on investment topics.
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LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND
CHRISTINA LAM is a lead manager (Nigel Webber is the other lead manager)
on a portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Ms. Lam is Vice President and Portfolio Manager of the Lexington
Crosby Small Cap Asia Growth Fund. Ms. Lam joined Crosby Asset Management in
1991. She is responsible for the investment management of the listed equity
portfolios under the management of Crosby Asset Management which include a major
Asian small capitalization account. After graduating with a Law Degree with
Honors from Warwick University, she qualified as a Barrister from Lincoln's Inn
in London. She moved to Hong Kong in 1987 where she joined Schroder Securities
Limited in Hong Kong as an investment analyst, where her coverage included the
utilities, industrials and retail sectors and conglomerates.
NIGEL WEBBER is a lead manager (Ms. Lam is the other lead manager) on a
portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Mr. Webber is Vice President and Portfolio Manager of the Lexington
Crosby Small Cap Asia Growth Fund. Mr. Webber is responsible for the Fund's
overall investment strategy. Mr. Webber was appointed a Managing Director of
Crosby Asset Management in October 1993 with primary responsibility for business
development. He joined Crosby Asset Management after being a partner in Causeway
Capital Limited, a leading independent U.K. investment management firm
specializing in private equity investment and smaller listed companies. He
started his career at KPMG Peat Marwick, followed by five years at Citicorp
International Bank Limited in London and New York and three years with
Mercantile House Holdings PLC a leading financial services group. In 1987, he
joined as Managing Director, an investment company specializing in the financial
sector where he first became associated with the Crosby Group. He was a Director
and member of the investment committee of The Thai Development Capital Fund
Limited and The China Investment Company Ltd., two funds managed by Crosby Asset
Management from their launch until September 1993.
LEXINGTON GOLDFUND
Robert W. Radsch, CFA, is portfolio manager of the Lexington Goldfund. Mr.
Radsch is a Vice President of the Manager. Prior to joining Lexington in July
1994, he was Senior Vice President, Portfolio Manager and Chief Economist for
the Bull & Bear Group. He has extensive experience managing gold, silver and
platinum on an international basis having managed precious metals and
international funds for more than 13 years. Mr. Radsch is a graduate of Yale
University with a B.A. degree and holds an M.B.A. in Finance from Columbia
University.
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LEXINGTON GROWTH AND INCOME FUND
Alan Wapnick is portfolio manager of the Lexington Growth and Income Fund.
Mr. Wapnick is Senior Vice President, Director of Domestic Investment Equity
Strategy of the Manager. Mr. Wapnick is responsible for domestic investment
analysis and portfolio management at LMC. He has 26 years investment experience.
Prior to joining the Manager in 1986, Mr. Wapnick was an equity analyst with
Merrill Lynch, J.&W. Seligman, Dean Witter and most recently Union Carbide
Corporation. Mr. Wapnick is a graduate of Dartmouth College and received a
Master's Degree in Business Administration from Columbia University.
LEXINGTON GNMA INCOME FUND
Denis P. Jamison manages the Lexington GNMA Income Fund. Mr. Jamison is
Senior Vice President and Director Fixed Income Strategy of the Manager. Mr.
Jamison is responsible for fixed-income portfolio management. He is a member of
the New York Society of Security Analysts. Prior to joining the Manager in 1981,
Mr. Jamison had spent nine years at Arnold Bernhard & Company, an investment
counseling and financial services organization. At Bernhard, he was a Vice
President supervising the security analyst staff and managing investment
portfolios. He is a specialist in government, corporate and municipal bonds. Mr.
Jamison is a graduate of the City College of New York with a B.A. in Economics.
LEXINGTON INTERNATIONAL FUND
Richard T. Saler is the lead manager on an investment management team that
manages the Lexington International Fund. Mr. Saler is Senior Vice President,
Director of International Investment Strategy of the Manager. Mr. Saler is
responsible for international investment analysis and portfolio management at
the Manager. He has ten years of investment experience. Mr. Saler has focused on
international markets since first joining the Manager in 1986. In 1991 he was a
strategist with Nomura Securities and rejoined the Manager in 1992. Mr. Saler is
a graduate of New York University with a B.S. Degree in Marketing and an M.B.A.
in Finance from New York University's Graduate School of Business
Administration.
PHILLIP A. SCHWARTZ is a co-manager on an investment management team that
manages the Lexington International Fund. Mr. Schwartz is a Vice President of
the Manager, Chartered Financial Analyst and member of the New York Security
Analysts Association. He is responsible for international investment analysis
and portfolio management at the Manager, and has eight years investment
experience. Prior to joining Lexington in 1993, Mr. Schwartz was Vice President
of European Research Sales with Cheuvreux De Virieu in Paris and New York,
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serving the institutional market. Prior to Cheuvreux, he was affiliated with
Olde and Co. and Kidder, Peabody as a stockbroker. Mr. Schwartz earned his B.A.
and M.A. degrees from Boston University.
LEXINGTON MONEY MARKET TRUST
DENIS P. JAMISON is portfolio manager of the Lexington Money Market Trust.
Mr. Jamison also manages the Lexington GNMA Income Fund and the Lexington
Ramirez GlobalIncome Fund. Mr. Jamison is Senior Vice President and Director
Fixed Income Strategy of Lexington Management Corporation. Mr. Jamison is
responsible for fixed-income portfolio management. He is a member of the New
York Society of Security Analysts. Prior to joining the Manager in 1981, Mr.
Jamison had spent nine years at Arnold Bernhard & Company, an investment
counseling and financial services organization. At Bernhard, he was a Vice
President supervising the security analyst staff and managing investment
portfolios. He is a specialist in government, corporate and municipal bonds. Mr.
Jamison is a graduate of the City College of New York with a B.A. in Economics.
LEXINGTON RAMIREZ GLOBAL INCOME FUND
Denis P. Jamison manages the Lexington Ramirez Global Income Fund. Mr.
Jamison is Senior Vice President and Director Fixed Income Strategy of Lexington
Management Corporation. Mr. Jamison is responsible for fixed-income portfolio
management. He is a member of the New York Society of Security Analysts. Prior
to joining the Manager in 1981, Mr. Jamison had spent nine years at Arnold
Bernhard & Company, an investment counseling and financial services
organization. At Bernhard, he was a Vice President supervising the security
analyst staff and managing investment portfolios. He is a specialist in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics.
MARIA FIORINI RAMIREZ, President and Chief Executive Officer of MFR
Advisors Inc. In 1973 she started a ten year association with Merrill Lynch,
serving as Vice President and Senior Money Market Economist. She joined Becker
Paribas in 1984 as Vice President and Senior Money Market Economist before
joining Drexel Burnham Lambert that same year as First Vice President and Money
Market Economist. She was promoted to Managing Director of Drexel in 1986. From
April, 1990 to August 1992, Ms. Ramirez was the President and Chief Executive
Officer of Maria Ramirez Capital Consultants, Inc., a subsidiary of John Hancock
Freedom Securities Corporation. Ms. Ramirez established MFR in August, 1992, MFR
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is Sub-Adviser to the Lexington Ramirez Global Income Fund. Ms. Ramirez holds a
B.A. in Business Administration and Economics from Pace University.
LEXINGTON SMALLCAP VALUE FUND
DENNIS HAMILTON is one of two lead managers (Robb W. Rowe is the other
lead manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund. Mr. Hamilton is Vice President and Portfolio Manager of Capital
Technology, Inc. ("CTI"). He is responsible for issue selection and the day to
day investment activities of the Lexington SmallCap Value Fund. Mr. Hamilton
joined CTI in 1994 after being a principal at Mercer Investment Consulting, Inc.
He has also served as Director of Pension Investment for several multi-billion
dollar corporate pension funds and was President and Chief Investment Officer of
Western Reserve Capital Management, Inc., an SEC registered investment advisor.
He is an Honors graduate of Colgate University and earned an MBA from Harvard
Business School in 1971.
ROBB W. ROWE is one of two lead managers (Mr. Hamilton is the other lead
manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund. Mr. Rowe is President and principal shareholder of CTI. He is
responsible for the Lexington SmallCap Value Fund's overall investment strategy.
Mr. Rowe joined CTI in 1982 after being Vice President and Regional Manager of
AG Becker Co. He is a graduate of Ripon College and received an MBA from the
University of Chicago in 1971.
LEXINGTON TROIKA DIALOG RUSSIA FUND
PETER DERBY is a manager on a portfolio management team that manages the
Lexington Troika Dialog Russia Fund. Mr. Derby is the Chairman of the Board of
TDAM and is the President, Chief Executive Officer and founder of Troika Dialog
and is the President and Chief Executive Officer of Dialog Bank, a position he
has held since 1991. Mr. Derby participated in the drafting of corporate,
banking and securities legislation in Russia and is currently a member of the
Expert Council of Russia's Federal Securities Exchange Commission. Mr. Derby
holds numerous director positions in Russian enterprises and charities; he is a
founding and current Member of the Board of the Moscow International Currency
Exchange, and is a Member of the Board of Directors of the American Chamber of
Commerce in Russia. Mr. Derby is Treasurer and Member of the Board of Junior
Achievement in Russia. He is a founding Member of the Russian-American
Professional Club in New York City.
NANCY HERRING is a lead manager of a portfolio management team that manages
the Lexington Troika Dialog Russia Fund. Ms. Herring manages the Russian
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domestic mutual funds of Troika Dialog. She was appointed Managing Director in
1996. Before joining TDAM, Ms. Herring, a U.S. citizen, was a portfolio manager
of a U.S. equity fund for Dean Witter Intercapital. In all, she has over twelve
years of security industry experience. Her Master's Degree in Business
Administration was earned in International Business and Finance at Columbia
University Graduate School of Business.
GAVIN RANKIN is a lead manager of a portfolio management team that manages
the Lexington Troika Dialog Russia Fund. Mr. Rankin is Head of Research for TDAM
and Troika Dialog. He is responsible, along with other members of the portfolio
management team, for the Fund's overall investment strategy. Before joining
Troika Dialog, he was the Founder and Chief Executive Officer of Lonpra A.S., an
investment banking firm in Czechoslovakia in 1991. Mr. Rankin received a degree
in law (L.L.B.) from the University of Buckingham in England and also qualified
as a Chartered Accountant with Price Waterhouse. Mr. Rankin has extensive
experience in East European equity research and management.
RUBEN VARDANIAN is a manager on a portfolio management team that manages
the Lexington Troika Dialog Russia Fund. Mr. Vardanian is President of TDAM and
Executive Director of Troika Dialog. Mr. Vardanian, a Russian national, is a
sitting member of the Moscow Times Index Composition Committee. He is a Director
and former Chairman of the Board of Directors of the Depository Clearing
Company. He is also Chairman of the Board of Directors of the Russian capital
markets self-regulatory organization (PAUFOR). Mr. Vardanian received a Masters
Degree with Distinction from the Finance Department of Moscow State University.
He received post-graduate training with Banca CRT in Italy and the Emerging
Markets Division of Merrill Lynch in New York.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND
Richard T. Saler is the lead manager on an investment management team that
manages the Lexington Worldwide Emerging Markets Fund. Mr. Saler is Senior Vice
President, Director of International Investment Strategy of the Manager. Mr.
Saler is responsible for international investment analysis and portfolio
management at the Manager. He has ten years of investment experience. Mr. Saler
has focused on international markets since first joining the Manager in 1986. In
1991 he was a strategist with Nomura Securities and rejoined the Manager in
1992. Mr. Saler is a graduate of New York University with a B.S. Degree in
Marketing and an M.B.A. in Finance from New York University's Graduate School of
Business Administration.
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MANAGEMENT FEES AND OTHER EXPENSES
The Manager provides the Funds with advice on buying and selling
securities, manages the Funds' Investments, including the placement of orders
for portfolio transactions, furnishes the Funds with office space and certain
administrative services and provides personnel needed by the Funds with respect
to the Manager's responsibilities under the Manager's Investment Management
Agreement with each fund. The Manager also compensates the members of the Funds'
Board of Directors or Trustees who are interested persons of the Manager, and
assumes the cost of printing prospectuses and shareholder reports for
dissemination to prospective investors.
The management fees for all the Funds except Lexington Growth and Income
Fund, Lexington GNMA Income Fund and Lexington Money Market Trust are higher
than for most mutual funds.
As compensation, each Lexington Fund pays the Manager a management fee
(accrued daily but paid when requested by the Manager) based upon the value of
the average daily net assets of that fund, according to the following table.
<TABLE>
<CAPTION>
MANAGEMENT FEE AVERAGE DAILY NET
(ANNUAL RATE) ASSETS (IF APPLICABLE)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lexington Crosby Small Cap
Asia Growth Fund 1.25% *
- ------------------------------------------------------------------------------------------------------
Lexington International Fund 1.00% *
- ------------------------------------------------------------------------------------------------------
Lexington Ramirez Global
Income Fund 1.00% *
- ------------------------------------------------------------------------------------------------------
Lexington Troika Dialog Russia Fund 1.25% *
- ------------------------------------------------------------------------------------------------------
Lexington Worldwide Emerging
Markets Fund 1.00% *
- ------------------------------------------------------------------------------------------------------
Lexington Convertible
Securities Fund 1.00% *
- -----------------------------------------------------------------------------------------------------
Lexington Growth and 0.75% First $100 million
Income fund 0.60% Next $50 million
0.50% Next $100 million
0.40% Over $250 million
- ------------------------------------------------------------------------------------------------------
Lexington SmallCap Value Fund 1.00% *
- ------------------------------------------------------------------------------------------------------
Lexington Goldfund 1.00% First $50 million
0.75% Over $50 million
- -------------------------------------------------------------------------------------------------------
Lexington GNMA Income Fund 0.60% *
- -------------------------------------------------------------------------------------------------------
Lexington Money Market Trust 0.50% *
- -------------------------------------------------------------------------------------------------------
</TABLE>
*One rate applies to the Fund's average daily net assets
49
<PAGE>
The Manager also serves as the Funds' Administrator (the "Administrator").
The Administrator performs services with regard to various aspects of each
fund's administrative operations at cost.
Each fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Director or
Trustees who are not interested persons of the Manager; salaries of certain
personnel; costs and expenses of calculating its daily net asset value; costs
and expenses of accounting, bookkeeping and record keeping required under the
Investment Company Act of 1940; insurance premiums; trade association dues; fees
and expenses of registering and maintaining registration of its shares for sale
under federal and applicable state securities laws; all costs associated with
shareholders meetings and the preparation and dissemination of proxy materials,
except for meetings called solely for the benefit of the Manager or its
affiliates; printing and mailing prospectuses, statements of additional
information and reports to shareholders; and other expenses relating to that
fund's operations, plus any extraordinary and nonrecurring expenses that are not
expressly assumed by the Manager.
For certain funds, the Manager has agreed to reduce its management fee if
necessary to keep total annual operating expenses at or below the following
percentages of each fund's average daily net assets. Lexington International
Fund, one and three-quarters percent (1.75%); Lexington Ramirez Global Income
Fund, one and one-half percent (1.50%); Lexington Troika Dialog Russia Fund,
three and thirty-five one-hundredths of one percent (3.35%); and Lexington Money
Market Trust, one percent (1.00%). The Manager also may reduce additional
amounts in these or other of the Funds to increase the return to a fund's
investors. The Manager may terminate these voluntary reductions at any time.
In addition, the Manager may elect to absorb operating expenses that a
fund is obligated to pay to increase the return to that fund's investors. If the
Manager performs a service or assumes an operating expense for which a fund is
obligated to pay and the performance of such service or payment of such expense
is not an obligation of the Manager under the Investment Management Agreement,
the Manager is entitled to seek reimbursement from that fund for the Manager's
costs incurred in rendering such service or assuming such expense. The Manager
also may compensate broker-dealers and other intermediaries that distribute a
fund's shares as well as other service providers of shareholder and
administrative services. The Manager may also sponsor seminars and educational
programs on the Funds for financial intermediaries and shareholders.
50
<PAGE>
The Manager considers a number of factors in determining which brokers or
dealers to use for each fund's portfolio transactions. Although these factors
are more fully discussed in the Statement of Additional Information, they
include, but are not limited to, reasonableness of commissions, quality of
services, and execution and availability of research that the Manager may
lawfully and appropriately use in its investment management and advisory
capacities. Provided the Funds receive prompt execution at competitive prices,
the Manager also may consider the sale of a fund's shares as a factor in
selecting broker-dealers for that fund's portfolio transactions.
It is anticipated that Troika Dialog or SocGen-Crosby Securities (HK)
Limited may act as two of the Fund's brokers in the purchase and sale of
portfolio securities and, in that capacity, will receive brokerage commissions
from the Funds. The Funds will use Troika Dialog or SocGen-Crosby Securities
(HK) Limited as its broker only when, in the judgement of the Manager and
pursuant to review by the Boards of Directors, Troika Dialog or SocGen-Crosby
Securities (HK) Limited will obtain a price and execution at least as favorable
as that available from other qualified brokers. See "Portfolio Transactions and
Brokerage Commissions" in the Statement of Additional Information.
51
<PAGE>
HOW TO CONTACT THE FUNDS
Call a Lexington shareholder service representative Monday-Friday between
9-5 ET for information on the Funds or your account, at:
(800) 526-0056 OR (201) 845-7300 FOR SERVICE
(800) 526-0052 FOR 24 HOUR ACCOUNT INFORMATION
Mail your completed application, any checks, investment or redemption
instructions and correspondence to the Transfer Agent:
TRANSFER AGENT:
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
HOW TO INVEST IN THE FUNDS
The Funds' shares are offered directly to the public, with no sales load,
at their next determined net asset value after receipt of an order with payment.
The Funds' shares are offered for sale by State Street Bank and Trust Company
(the "Transfer Agent") and through selected securities brokers and dealers.
If an order, together with payment in proper form, is received by the
Transfer Agent by 4:00 p.m., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading, fund shares will be purchased at the
fund's next-determined net asset value. Orders for fund shares received after
the Funds' cutoff times will be purchased at the next-determined net asset value
after receipt of the order.
The minimum investment in each fund is described in this section. The
Manager or the Distributor, in its discretion, may waive these minimums. The
Funds do not accept third-party checks or cash investments. Third party checks
are defined as checks made payable to someone other than the Fund. Checks must
be in U.S. dollars and, to avoid fees and delays, drawn only on banks located in
the U.S. See the Statement of Additional Information for further details.
52
<PAGE>
INITIAL INVESTMENTS
Minimum Initial Investment (except Lexington
Troika Dialog Russia Fund):$1,000
MINIMUM INITIAL INVESTMENT FOR THE LEXINGTON TROIKA
DIALOG RUSSIA FUND:$5,000
INITIAL INVESTMENTS BY CHECK
o Complete the New Account Application. Tell us in which fund(s) you
want to invest and make your check payable to THE LEXINGTON FUNDS.
o Mail the New Account Application and check to the Transfer Agent at
the address given above.
o A charge may be imposed on checks that do not clear.
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
INITIAL INVESTMENTS BY WIRE
o Shares of the Funds may be purchased by wire if a prospectus has been
received and read prior to investing. The purchase will be made at the
net asset value on the day received if the wire is received prior to 4
pm ET.
o Telephone the Funds toll-free at 1-800-526-0056. Provide the Fund with
your name, dollar amount to be invested and fund(s) in which you want
to invest. They will provide you with further instructions to complete
your purchase. Complete information regarding your account must be
included in all wire instructions to ensure accurate handling of your
investment.
o Request your bank to transmit immediately available funds by wire for
purchase of shares in your name to the following:
State Street Bank and Trust Company
Account No. 99043713
Re: Lexington Fund you are
investing in
Account of (your Registration)
Account # (of new account)
ABARouting Number 011000028
O A COMPLETED NEW ACCOUNT APPLICATION MUST THEN BE FORWARDED TO THE FUND
AT THE ADDRESS ON THE APPLICATION.
o Your bank may charge a fee for any wire transfers.
53
<PAGE>
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
MINIMUM SUBSEQUENT INVESTMENT: $50
SUBSEQUENT INVESTMENTS BY CHECK
o Make your check payable to The Lexington Funds. Enclose the detachable
form which accompanies the Transfer Agent's confirmation of a prior
transaction with your check. If you do not have the detachable form,
mail your check with written instructions indicating the fund name and
account number to which your investment should be credited.
o A charge may be imposed on checks that do not clear.
SUBSEQUENT INVESTMENTS BY WIRE
o You do not need to contact the Transfer Agent prior to making
subsequent investments by wire. Instruct your bank to wire funds to
the Transfer Agent using the bank wire information under "Initial
Investments by Wire" above.
"LEX-O-MATIC" THE AUTOMATIC INVESTMENT PLAN
o A shareholder may make additional purchases of shares automatically on
a monthly or quarterly basis with the automatic investing plan,
"Lex-O-Matic."
o "Lex-O-Matic" will be established on existing accounts only. You may
not use a "Lex-O-Matic" investment to open a new account. The minimum
automatic investment amount is $50.
o Your bank must be a member of the Automated Clearing House.
o To establish Lex-O-Matic, attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank account to
your Lexington Account Application or your letter of instruction.
o Investments will automatically be transferred into your Lexington
Account from your checking or savings account. The institution must be
an Automated Clearing House (ACH) member.
o Investments may be transferred either monthly or quarterly on or about
the 15th day of the month.
o You should allow 20 business days for this service to become
effective.
o You may cancel your Lex-O-Matic at any time provided that a letter is
sent to the Transfer Agent ten days prior to the scheduled investment
date. Your request will be processed upon receipt.
54
<PAGE>
By investing in the Lexington Funds, you appoint the Transfer Agent as
your agent to establish an open account to which all shares purchased will be
credited, along with any dividends and capital gain distributions which are paid
in additional shares (see "Dividends and Distributions"). Stock certificates
will be issued, upon written request, for full shares of Lexington Funds.
Certificates will not be issued for 30 days unless payment is made by certified
check, cashier's check or federal funds wire. In order to facilitate redemptions
and transfers, most shareholders elect not to receive certificates.
You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders for customers may charge a fee
for their services. The fee may be avoided by purchasing shares directly from
the Lexington Funds.
HOW TO REDEEM AN INVESTMENT IN THE FUNDS
The Funds will redeem all or any portion of an investors outstanding
shares upon request. Redemptions can be made on any day that the NYSE is open
for trading. The redemption price is the net asset value per share next
determined after the shares are validly tendered for redemption and such request
is received by the Transfer Agent. Payment of redemption proceeds is made
promptly regardless of when redemption occurs and normally within three days
after receipt of all documents in proper form, including a written redemption
order with appropriate signature guarantee. Redemption proceeds will be mailed
or wired in accordance with the shareholders instructions. The Funds may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. You may redeem
shares of the Lexington Funds through broker-dealers or financial institutions
that have selling agreements with LFD. Broker-dealers and financial institutions
that process such orders for customers may charge a fee for their services. The
fee may be avoided by redeeming shares directly from the Lexington Funds.
A 2% redemption fee will be charged on the redemption of shares of the
Lexington Troika Dialog Russia Fund held less than 365 days. The redemption fee
will not apply to shares representing the reinvestment of dividends and capital
gains distributions. The redemption fee will be applied on a share by share
basis using the "first shares in, first shares out" (FIFO) method. Therefore,
the oldest shares are considered to have been sold first.
55
<PAGE>
REDEEMING BY WRITTEN INSTRUCTION
o Write a letter giving your name, account number, the name of the fund
from which you wish to redeem and the dollar amount or number of
shares you wish to redeem.
o Signature guarantee your letter if you want the redemption proceeds to
go to a party other than the account owner(s), your predesignated bank
account or if the dollar amount of the redemption exceeds $25,000. The
Transfer Agent requires that the guarantor be either a commercial bank
which is a member of the FederalDeposit Insurance Corporation, a trust
company, a savings and loan association, a savings bank, a credit
union, a member firm of a domestic stock exchange, or a foreign branch
of any of the foregoing. A NOTARY PUBLIC IS NOT AN ACCEPTABLE
GUARANTOR. CONTACT THE FUND FOR MORE INFORMATION.
o If a redemption request is sent to the Fund in New Jersey, it will be
forwarded to the Transfer Agent and the effective date of redemption
will be the date received by the Transfer Agent.
o Checks for redemption proceeds will normally be mailed within three
business days, but will not be mailed until all checks in payment for
the shares to be redeemed have been cleared. Shareholders who redeem
all their shares will receive a check representing the value of the
shares redeemed plus the accrued dividends through the date of
redemption. Where shareholders redeem only a portion of their shares,
all dividends declared but unpaid will be distribute on the next
dividend payment date. The Transfer Agent will restrict the mailing of
redemption proceeds to a shareholder address of record within 30 days
of such address being changed, unless the shareholder provides a
signature guaranteed letter of instruction.
REDEEMING BY TELEPHONE
o Shares of the Funds may redeemed by telephone. A telephone redemption
in good order will be processed at the net asset value of the Fund
next determined. There is a maximum telephone redemption limit of
$100,000. Call the Fund between 9 a.m. and 4 p.m. ET toll free at
1-800-526-0056.
o A redemption authorization and signature guarantee must be given
before a shareholder may redeem by telephone. A redemption
authorization form is contained in the New Account Application and
authorization forms may be obtained by calling the Funds.
o Shareholders may elect on the redemption authorization form to have
redemption proceeds, in any amount of $200 or more, mailed to the
registered address or to any other designated person. There is a
minimum of $1,000 to have your Redemption proceeds wired to a bank
account. A new form must be completed whenever these instructions are
revised.
56
<PAGE>
o Telephone redemption privileges may be canceled by instructing the
Transfer Agent in writing. Your request will be processed upon
receipt.
o Telephone Exchanges may only involve shares held on deposit by the
Transfer Agent, not shares held in certificate form by the
shareholder.
o Exchange/Redemption by telephone, see below "Exchange/Telephone
Privileges and Restrictions."
REDEEMING BY CHECK
o Checkwriting is available on the Lexington Money Market Trust.
o The minimum amount per check is $100 or more up to $500,000 at no
charge. Checks for less than $100 or over $500,000 will not be
honored.
o All checks require only one signature unless otherwise indicated.
o Checks will be returned to you at the end of each month.
o Redemption checks are free, but a charge of $15.00 may be imposed for
any stop payments requested.
o Redemption checks should not be used to close your account.
o Procedures for redemptions by telephone, at no charge, or check may
only be used for shares for which share certificates have not been
issued, and may not be used to redeem shares purchased by check which
have been on the books of the Fund for less than 15 days.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature guarantee is required. The minimum payment amount is $100 from each
fund account. Payments may be made monthly, quarterly, semi-annually or
annually. Systematic withdrawals occur on the 28th of each month. If the 28th
falls on a weekend or holiday, the withdrawal will occur on the preceding
business day. Depending on the form of payment requested, shares may be redeemed
up to five business days before the redemption proceeds are scheduled to be
received by the shareholder. The redemption may result in the recognition of
gain or loss for income tax purposes.
57
<PAGE>
EXCHANGE/TELEPHONE REDEMPTION PRIVILEGES AND RESTRICTIONS
Shares of the Lexington Funds may be exchanged for shares of equivalent
value of any Lexington Fund. If an exchange involves investing in a Lexington
Fund not already owned, the dollar amount of the exchange must meet the minimum
initial investment amount. An exchange may result, in a recognized gain or loss
for income tax purposes. Exchanges over $500,000 may take up to three business
days to complete. See the discussion of fund telephone procedures and
limitations of liability under "Telephone Transactions" above.
PURCHASING AND REDEEMING SHARES BY EXCHANGE
o You may make exchange/redemption requests in writing or by telephone.
Telephone exchanges may only be made if you have completed a Telephone
Authorization form. Telephone exchanges may not be made within 7 days
of a previous exchange.
o The minimum exchange required is $500, unless a new account is being
established.
o Telephone exchanges/redemptions may only involve shares held on
deposit by the Transfer Agent, not shares held in certificate form by
the shareholder.
o Any new account established by a shareholder will also have the
privilege of exchange by telephone in the Lexington Funds. All
accounts involved in a telephonic exchange must have the same dividend
option as the account from which the shares are transferred.
o Telephone redemption privileges are not available on retirement plan
accounts.
TELEPHONE EXCHANGE/TELEPHONE REDEMPTION IDENTIFICATION PROCEDURES
You agree that neither LFD, the Transfer Agent, or the Fund(s) will be
liable for any loss, expense or cost arising out of any requests effected in
accordance with this authorization which would include requests effected by
imposters or persons otherwise unauthorized to act on behalf of the account. The
above provision is subject to the procedures outlined below. LFD, the Transfer
Agent and the Fund, will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and if they do not employ
reasonable procedures they may be liable for any losses due to unauthorized or
fraudulent instructions. The following identification procedures may include,
but are not limited to, the following: account number, registration and address,
taxpayer identification number and other information particular to the account.
In addition, all telephone exchange and telephone redemption transactions will
take place on recorded telephone lines and each transaction will be confirmed in
58
<PAGE>
writing by the Fund. If the Shareholder is an entity other than an individual,
such entity may be required to certify that certain persons have been duly
elected and are now legally holding the titles given and that the said
corporation, trust, unincorporated association, etc. is duly organized and
existing and has the power to take action called for by this continuing
authorization.
HOW NET ASSET VALUE IS DETERMINED
The net asset value of each Fund is determined once daily as of 4:00 p.m.,
New York time, on each day that the NYSE is open for trading. Per share net
asset value is calculated by dividing the value of each fund's total net assets
by the total number of that fund's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either the last
reported sales price or, in the case of securities for which there is no
reported last sale and fixed-income securities, the mean between the closing bid
and asked price. Securities traded over-the-counter are valued at the mean
between the last current bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at their
fair values as determined in good faith under the supervision of the Funds'
officers, and by the Manager and the Boards, in accordance with methods that are
specifically authorized by the Boards. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value. When Fund
management deems it appropriate prices obtained for the day of valuation from a
third party pricing service will be used to value portfolio securities.
The value of securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be translated into U.S. dollars at
the last price of their respective currency denomination against U.S. dollars
quoted by a major bank or, if no such quotation is available, at the rate of
exchange determined in accordance with policies established in good faith by the
Boards. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of fund shares even
without any change in the foreign-currency denominated values of such
securities.
Because foreign securities markets may close before the Funds determine
their net asset values, events affecting the value of portfolio securities
occurring between the time prices are determined and the time the Funds
calculate their net asset values may not be reflected unless the Manager, under
supervision of the Board, determines that a particular event would materially
affect a fund's net asset value.
59
<PAGE>
DISTRIBUTION PLAN
The Lexington Convertible Securities Fund, Lexington Goldfund, Lexington
Growth and Income Fund, Lexington International Fund, Lexington Ramirez Global
Income Fund, Lexington SmallCap Value Fund and Lexington Troika Dialog Russia
Fund have each adopted a Distribution Plan. The Distribution Plan provides that
the Funds may pay distribution fees up to 0.25% of their average daily net
assets for distribution services.
SHAREHOLDER SERVICE AGREEMENTS
The Lexington Crosby Small Cap Asia Growth Fund, Lexington GNMA Income
Fund and Lexington Worldwide Emerging Markets Fund may enter into Shareholder
Servicing Agreements with one or more Shareholder Servicing Agents. The
Shareholder Servicing Agents provide various services to shareholders. For these
services, each Shareholder Servicing Agent receives fees up to 0.25% of the
average daily net assets of the Fund represented by shares owned during the
period for which payment is made. The Manager, at no additional cost to the
Funds, may pay to Shareholder Servicing Agents additional amounts from its past
profits. Each Shareholder Servicing Agent may, from time to time, voluntarily
waive all or a portion of the fees payable to it.
TAX-SHELTERED RETIREMENT PLANS
The Funds offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Plans and
403(b)(7) Plans. Plan support services are available through the Shareholder
Services Department of LMC. For further information call 1-800-526-0056.
60
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. The amount and frequency of fund
distributions are not guaranteed and are at the discretion of the Board.
Currently, the Lexington Funds intend to distribute according to the following
schedule:
<TABLE>
<CAPTION>
INCOME DIVIDENDS CAPITAL GAINS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
LEXINGTON CONVERTIBLE Declared and paid quarterly Declared and paid annually
SECURITIES FUND
LEXINGTON GROWTH AND INCOME FUND
LEXINGTON RAMIREZ GLOBAL
INCOME FUND
- ---------------------------------------------------------------------------------------------------
LEXINGTON GNMA INCOME FUND Declared and paid monthly Declared and paid annually
- ---------------------------------------------------------------------------------------------------
LEXINGTON CROSBY SMALL CAP Declared and paid annually Declared and paid annually
ASIA GROWTH FUND
LEXINGTON INTERNATIONAL FUND
LEXINGTON SMALLCAP VALUE FUND
LEXINGTON TROIKA DIALOG
RUSSIA FUND
LEXINGTON WORLDWIDE
EMERGING MARKETS FUND
- ---------------------------------------------------------------------------------------------------
LEXINGTON GOLDFUND Declared and paid Declared and paid
semi-annually semi-annually
- ---------------------------------------------------------------------------------------------------
LEXINGTON MONEYMARKET Declared daily Not expected
TRUST and paid monthly
- ---------------------------------------------------------------------------------------------------
</TABLE>
Unless investors request cash distributions in writing, all dividends and
other distributions will be reinvested automatically in additional shares of the
applicable fund and credited to the shareholders account at the closing net
asset value on the reinvestment date.
DISTRIBUTIONS AFFECT A FUND'S NET ASSET VALUE
Distributions are paid to you as of the record date of a distribution of a
fund, regardless of how long you have held the shares. Dividends and capital
gains awaiting distribution are included in each fund's daily net asset value.
The share price of a fund drops on the ex-dividend date by the amount of the
distribution, net of any subsequent market fluctuations. For example, assume
that on December 31, the Lexington Growth and Income Fund declared a dividend in
the amount of $0.50 per share. If the Lexington Growth and Income Fund's share
price was $10.00 on December 30, the Fund's share price on December 31 would be
$9.50, barring market fluctuations.
61
<PAGE>
"BUYING A DIVIDEND"
If you buy shares of a fund just before a distribution, you will pay the
full price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." In the example above,
if you bought shares on December 30, you would have paid $10.00 per share. On
December 31, the Fund would pay you $0.50 per share as a dividend and your
shares would now be worth $9.50 per share. Unless your account is a tax-deferred
account, dividends paid to you would be included in your gross income for tax
purposes even though you may not have participated in the increase of net asset
value of the Fund, regardless of whether you reinvested the dividends.
TAXATION
Each of the funds has elected and intends to continue to qualify to be
treated as a regulated investment company under Subchapter M of the Code, by
distributing substantially all of its net investment income and net capital
gains to its shareholders and meeting other requirements of the Code relating to
the sources of its income and diversification of assets. Accordingly, the Funds
generally will not be liable for federal income tax or excise tax based on net
income except to the extent their earnings are not distributed or are
distributed in a manner that does not satisfy the requirements of the Code. If a
fund is unable to meet certain Code requirements, it may be subject to taxation
as a corporation. Funds investing in foreign securities also may incur tax
liability to the extent they invest in "passive foreign investment companies."
See "Portfolio Securities" and the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase fund shares) receive from the Funds are considered ordinary
income. Part of the distributions paid by the Funds may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of a fund are treated by shareholders as
long-term capital gains regardless of the length of time the fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Funds.
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<PAGE>
Each fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Funds. Additional information on tax matters
relating to the Funds and their shareholders is included in the Statement of
Additional Information.
GENERAL INFORMATION
THE FUNDS
The Lexington Convertible Securities Fund, Lexington Money Market Trust
and Lexington Ramirez Global Income Fund are business trusts organized under the
laws of Massachusetts. The Lexington Crosby Small Cap Asia Growth Fund,
Lexington Goldfund, Lexington GNMA Income Fund, Lexington Growth and Income
Fund, Lexington International Fund, Lexington SmallCap Value Fund, Lexington
Troika Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund are
Maryland corporations. The assets and liabilities of each business trust and
corporation are separate and distinct from each other business trust or
corporation.
The Funds may offer other classes of shares to eligible investors and may
in the future designate other classes of shares for specific purposes.
SHAREHOLDER RIGHTS
Shares issued by the Funds have no preemptive, conversion or subscription
rights. Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by each fund and to the net assets of each fund
upon liquidation or dissolution. Each fund votes separately on matters affecting
only that fund (e.g., approval of the Investment Management Agreement). Voting
rights are not cumulative, so the holders of more than 50% of the shares voting
in any election of Trustees or Directors can, if they so choose, elect all of
the Trustees or Directors of that Fund. Although the Funds are not required, and
do not intend, to hold annual meetings of shareholders, such meetings may be
called by each Fund's Board at its discretion, or upon demand by the holders of
10% or more of the outstanding shares of the Fund for the purpose of electing or
removing Trustees or Directors. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees or Directors pursuant to the provisions of Section 16(c) of the
Investment Company Act.
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<PAGE>
PERFORMANCE INFORMATION
From time to time, the Funds may publish their total return, and, in the
case of certain funds, current yield and tax equivalent yield in advertisements
and communications to investors. Total return information generally will include
a fund's average annual compounded rate of return over the most recent four
calendar quarters and over the period from the fund's inception of operations. A
fund may also advertise aggregate and average total return information over
different periods of time. Each fund's average annual compounded rate of return
is determined by reference to a hypothetical $1,000 investment that includes
capital appreciation and depreciation for the stated period according to a
specific formula. Aggregate total return is calculated in a similar manner,
except that the results are not annualized. Total return figures will reflect
all recurring charges against each fund's income.
Current yield as prescribed by the SEC is an annualized percentage rate
that reflects the change in value of a hypothetical account based on the income
received from the fund during a 30-day period. It is computed by determining the
net change, excluding capital changes, in the value of a hypothetical
preexisting account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. See "Performance
Information" in the Statement of Additional Information.
Comparative performance information may be used from time to time in
advertising and marketing a Fund's shares. The performance information may
include data from sources such as Lipper Analytical Services, Inc. or major
market indices. Such comparative performance information will be stated in the
same terms in which the comparative data and indices are stated.
Investment results of the Funds will fluctuate over time, and any
representation of the Funds' total return or current yield for any prior period
should not be considered as a representation of what an investors total return
or current yield may be in any future period. The Funds' Annual Report contains
additional performance information and is available upon request and without
charge by calling (800) 526-0056.
CODE OF ETHICS
The Code of Ethics adopted by the Lexington Funds and the Manager
prohibits affiliated personnel from engaging in personal investment activities
which compete with or attempt to take advantage of the Funds' planned portfolio
transactions. The objective of the Funds' and the Manager's Code of Ethics is
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that the operations of the Funds and the Manager be carried out for the
exclusive benefit of the Fund's shareholders. The Funds and the Manager maintain
careful monitoring of compliance with the Code of Ethics.
LEGAL OPINION
The validity of shares offered by this Prospectus will be passed on by
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022.
SHAREHOLDER REPORTS AND INQUIRIES
During the year, the Funds will send you the following information:
o Confirmation statements are mailed after every transaction that affects
your account balance, including preauthorized automatic investment,
exchange and redemption transactions. Lexington Money Market Trust,
Lexington GNMA Income Fund and Lexington Ramirez Global Income Fund
provide quarterly confirmation statements annually. All other Funds
will provide confirmation statements annually, unless the account
balance is affected by any daily transactions. Shareholders are urged
to retain their account statements for tax purposes.
o Annual and semi-annual reports are mailed approximately 60
days after December 31 and June 30.
o 1099 TAX FORM(S) ARE MAILED BY JANUARY 31.
Unless otherwise requested, only one copy of each shareholder report or
other material sent to shareholders will be mailed to each household with
accounts under common ownership and the same address regardless of the number of
shareholders or accounts at that household or address. Any questions should be
directed to The Lexington Funds at (800) 526-0056.
BACK-UP WITHHOLDING
TAXPAYER IDENTIFICATION NUMBER (TIN)
Be sure to complete the Taxpayer Identification Number section of the
fund's application when you open an account. Federal tax law requires the fund
to withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or taxpayer identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Back-up withholding could apply to payments made to a shareholders account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
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<PAGE>
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to back-up withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholder's account by a fund may be
subject to up to 30% withholding instead of back-up withholding.
A shareholder who is an exempt recipient should furnish a TIN and check
the appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult a tax
adviser.
--------------------------
THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN
ANY STATE IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALESPERSON, DEALER OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL
INFORMATION, OR IN THE FUNDS' OFFICIAL SALES LITERATURE.
--------------------------
GLOSSARY
O CASH EQUIVALENTS. Cash equivalents are short-term, interest-bearing
instruments or deposits and may include, for example, commercial paper,
certificates of deposit, repurchase agreements, bankers' acceptances, U.S.
Treasury Bills, bank money market deposit accounts, master demand notes and
money market mutual funds. These consist of high-quality debt obligations,
certificates of deposit and bankers' acceptances rated at least A-1 by S&P or
Prime1 by Moody's, or the issuer has an outstanding issue of debt securities
rated at least A by S&P or Moody's, or are of comparable quality in the
opinion of the Manager.
O COLLATERAL ASSETS. Collateral assets include cash, letters of credit, U.S.
government securities or other high-grade liquid debt or equity securities
(except that instruments collateralizing loans by the Money Market Funds must
be debt securities rated in the highest grade). Collateral assets are
separately identified and rendered unavailable for investment or sale.
O CONVERTIBLE SECURITY. A convertible security is a fixed-income security (a
bond or preferred stock) that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the
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same or a different issuer. Convertible securities are senior to common stock
in a corporation's capital structure but are usually subordinated to similar
non-convertible securities. The price of a convertible security is influenced
by the market value of the underlying common stock.
O COVERED CALL OPTION. A call option is "covered" if the fund owns the
underlying securities, has the right to acquire such securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an off setting call option.
O COVERED PUT OPTION. A put option is "covered" if the fund has collateral
assets with a value not less than the exercise price of the option or holds
a put option on the underlying security.
O DEPOSITORY RECEIPTS. Depository receipts include American depository receipts
("ADRs"), European depository receipts ("EDRs"), global depository receipts
("GDRs") and other similar instruments. Depository receipts are receipts
typically issued in connection with a U.S. or foreign bank or trust company
and evidence ownership of underlying securities issued by a foreign
corporation.
O DERIVATIVES. Derivatives include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts
and swaps and options on futures contracts on U.S. government and foreign
government securities and currencies.
O DOLLAR ROLL TRANSACTION. A dollar roll transaction is similar to a reverse
repurchase agreement except it requires a fund to repurchase a similar rather
than the same security.
O DURATION. A time measure of a bond's interest-rate sensitivity, based on the
weighted average of the time periods over which a bond's cash flows accrue to
the bondholder. Time periods are weighted by multiplying by the present value
of its cash flow divided by the bond's price. (A bonds cash flows consist of
coupon payments and repayment of capital). A bond's duration will almost
always be shorter than its maturity, with the exception of zero-coupon bonds,
for which maturity and duration are equal.
O EMERGING MARKET COMPANIES. A company is considered to be an emerging market
company if its securities are principally traded in the capital market of an
emerging market country; it derives at least 50% of its total revenue from
either goods produced or services rendered in emerging market countries or
from sales made in such emerging market countries, regardless of where the
securities of such companies are principally traded; or it is organized under
the laws of, and with a principal office in, an emerging market country. An
emerging market country is one having an economy and market that are or would
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<PAGE>
be considered by the World Bank or the United Nations to be emerging or
developing.
O EQUITY DERIVATIVE SECURITIES. These include, among other things, options on
equity securities, warrants and future contracts on equity securities.
O EQUITY SWAPS. Equity swaps allow the parties to exchange the dividend income
or other components of return on an equity investment (e.g., a group of equity
securities or an index) for a component of return on another non-equity or
equity investment. Equity swaps transitions may be volatile and may present
the fund with counterparty risks.
O FHLMC. The Federal Home Loan Mortgage Corporation.
O FNMA. The Federal National Mortgage Association.
O FORWARD CURRENCY CONTRACTS. A forward currency contract is a contract
individually negotiated and privately traded by currency traders and their
customers and creates an obligation to purchase or sell a specific currency
for an agreed-upon price at a future date. The Funds generally do not enter
into forward contracts with terms greater than one year. A fund generally
enters into forward contracts only under two circumstances. First, if a fund
enters into a contract for the purchase or sale of a security denominated in a
foreign currency, it may desire to "lock in" the U.S. dollar price of the
security by entering into a forward contract to buy the amount of a foreign
currency needed to settle the transaction. Second, if the Manager believes
that the currency of a particular foreign country will substantially rise or
fall against the U.S. dollar, it may enter into a forward contract to buy or
sell the currency approximating the value of some or all of a fund's portfolio
securities denominated in such currency. A fund will not enter into a forward
contract if, as a result, it would have more than one-third of total assets
committed to such contracts (unless it owns the currency that it is obligated
to deliver or has caused its custodian to segregate segregable assets having a
value sufficient to cover its obligations). Although forward contracts are
used primarily to protect a fund from adverse currency movements, they involve
the risk that currency movements will not be accurately predicted.
O FUTURES AND OPTIONS ON FUTURES. An interest rate futures contract is an
agreement to purchase or sell debt securities, usually U.S. government
securities, at a specified date and price. For example, a fund may sell
interest rate futures contracts (i.e., enter into a futures contract to sell
the underlying debt security) in an attempt to hedge against an anticipated
increase in interest rates and a corresponding decline in debt securities it
owns. Each fund will have collateral assets equal to the purchase price of the
portfolio securities represented by the underlying interest rate futures
contracts it has an obligation to purchase.
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<PAGE>
O GNMA. The Government National Mortgage Association.
O HIGHLY RATED DEBT SECURITIES. Debt securities rated within the three highest
grades by Standard & Poor's Corporation ("S&P") (AAA to A), Moodys Investors
Services, Inc. ("Moody's") (Aaa to A) or Fitch Investor Services, Inc.
("Fitch") (AAA to A), or in unrated debt securities deemed to be of comparable
quality by the Manager using guidelines approved by the Board of Trustees. See
the Appendix to the Statement of Additional Information for a description of
these ratings.
O ILLIQUID SECURITIES. The Funds treat any securities subject to restrictions on
repatriation for more than seven days, and securities issued in connection
with foreign debt conversion programs that are restricted as to remittance of
invested capital or profit, as illiquid. The Funds also treat repurchase
agreements with maturities in excess of seven days as illiquid. Illiquid
securities do not include securities that are restricted from trading on
formal markets for some period of time but for which an active informal market
exists, or securities that meet the requirements of Rule 144A under the
Securities Act of 1933 and that, subject to the review by the Funds' Board and
guidelines adopted by the Funds' Board, the Manager has determined to be
liquid.
O INVESTMENT GRADE. Investment grade debt securities are those rated within the
four highest grades by S&P (at least BBB), Moody's (at least Baa) or Fitch (at
least Baa) or in unrated debt securities deemed to be of comparable quality by
the Manager using guidelines approved by the Board of Trustees.
O LEVERAGE. Some funds may use leverage in an effort to increase return.
Although leverage creates an opportunity for increased income and gain, it
also creates special risk considerations. Leveraging also creates interest
expenses that can exceed the income from the assets retained.
O OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES. A fund may purchase
call options on securities that it intends to purchase (or on currencies in
which those securities are denominated) in order to limit the risk of a
substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
underlying security below the exercise price less the premium paid for the
option (or an adverse movement in the applicable currency relative to the U.S.
dollar). Prior to expiration, most options are expected to be sold in a
closing sale transaction. Profit or loss from the sale depends upon whether
the amount received is more or less than the premium paid plus transaction
costs. A fund may purchase put and call options on stock indices in order to
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<PAGE>
hedge against risks of stock market or industry wide stock price fluctuations.
O PARTICIPATION INTERESTS. Participation interests are issued by financial
institutions and represent undivided interests in municipal securities.
Participation interests may have fixed, floating or variable rates of
interest. Some participation interests are subject to a "nonappropriation" or
"abatement" feature by which, under certain conditions, the issuer of the
underlying municipal security, without penalty, may terminate its payment
obligation. In such event, the Funds must look to the underlying collateral.
O REPURCHASE AGREEMENT. With a repurchase agreement, a fund acquires a U.S.
government security or other high-grade liquid debt instrument (for the Money
Market Funds, the instrument must be rated in the highest grade) from a
financial institution that simultaneously agrees to repurchase the same
security at a specified time and price.
O REVERSE DOLLAR ROLL TRANSACTIONS. When a fund engages in a reverse dollar
roll, it purchases a security from a financial institution and concurrently
agrees to resell a similar security to that institution at a later date at an
agreed-upon price.
O REVERSE REPURCHASE AGREEMENT. In a reverse repurchase agreement, a fund sells
to a financial institution a security that it holds and agrees to repurchase
the same security at an agreed-upon price and date.
O RUSSIA. "Russia" refers to the Russian Federation, which does not include
other countries that formerly comprised the Soviet Union.
O RUSSIAN COMPANY. "Russian Company" means a legal entity (i) that is organized
under the laws of, or with a principal office and domicile in, Russia, (ii)
for which the principal equity securities trading market is in Russia, or
(iii) that derives at least 50% of its revenues or profits from goods produced
or sold, investments made, or services performed, in Russia or that has at
least 50% of its assets situated in Russia.
O SECURITIES LENDING. A fund may lend securities to brokers, dealers and other
financial organizations. Each securities loan is collateralized with
collateral assets in an amount at least equal to the current market value of
the loaned securities, plus accrued interest. There is a risk of delay in
receiving collateral or in recovering the securities loaned or even a loss of
rights in collateral should the borrower fail financially.
O S&P 500. Standard & Poor's 500 Composite Stock Price Index.
O U.S. GOVERNMENT SECURITIES. These include U.S. Treasury bills, notes, bonds
and other obligations issued or guaranteed by the U.S. government, its
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agencies or instrumentalities.
O WARRANT. A warrant typically is a long-term option that permits the holder to
buy a specified number of shares of the issuer's underlying common stock at a
specified exercise price by a particular expiration date. A warrant not
exercised or disposed of by its expiration date expires worthless.
O WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Funds may purchase U.S.
government or other securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" or "delayed delivery" basis. The
price is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date. When-issued securities and
forward commitments may be sold prior to the settlement date, but a fund will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to a fund. At the time a fund enters into
a transaction on a when-issued or forward commitment basis, it supports its
obligation with collateral assets equal to the value of the when-issued or
forward commitment securities and causes the collateral assets to be marked to
market daily. There is a risk that the securities may not be delivered and
that the fund may incur a loss.
O ZERO COUPON BONDS. Zero coupon bonds are debt obligations that do not pay
current interest and are consequently issued at a significant discount from
face value. The discount approximates the total interest the bonds will accrue
and compound over the period to maturity or the first interest-payment date at
a rate of interest reflecting the market rate of interest at the time of
issuance.
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------------------
INVESTMENT MANAGER
Lexington Management Corporation
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, N.J. 07663
DISTRIBUTOR
Lexington Funds Distributor, Inc.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, N.J. 07663
All shareholder requests for services
of any kind shall be sent to:
TRANSFER AGENT
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
CUSTODIAN
Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
New York, New York 10022
LEGAL COUNSEL
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
AUDITORS
KMPG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
------------------
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LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1997
This Statement of Additional Information, which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Troika Dialog
Russia Fund (the "Fund"), dated May 1, 1997, and as it may be revised from time
to time. To obtain a copy of the Fund's prospectus at no charge, please write to
the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle Brook, New Jersey
07663 or call the following toll-free numbers:
Shareholder Services Information:--1-800-526-0056 (or 201-845-7300)
Institutional/Financial Adviser Services:--1-800-367-9160
24 Hour Account Information:--1-800-526-0052
Lexington Management Corporation ("LMC") is the Fund's investment adviser.
Troika Dialog Asset Management ("TDAM") is the Fund's sub-adviser. Lexington
Funds Distributor, Inc. is the Fund's distributor.
TABLE OF CONTENTS
Page
Additional Investment Practices ........................................... 2
Management of the Fund .................................................... 2
Investment Restrictions ................................................... 5
Investment Adviser, Sub-Adviser, Distributor and Administrator ............ 6
Portfolio Transactions and Brokerage Commissions .......................... 7
Redemption of Shares ...................................................... 8
Determination of Net Asset Value .......................................... 8
Telephone Exchange Provisions ............................................. 8
Tax-Sheltered Retirement Plans ............................................ 9
Tax Matters ............................................................... 9
Performance Calculation ................................................... 14
Shareholder Reports ....................................................... 14
Other Information ......................................................... 14
Financial Statements ...................................................... 15
1
<PAGE>
ADDITIONAL INVESTMENT PRACTICES
The Fund is authorized to use various investment strategies, some or all of
which may be classified as derivatives, to hedge various market risks (such as
interest rates, currency exchange rates and broad or specific market movements)
and to enhance total return, which may be deemed a form of speculation. Subject
to the requirements of the 1940 Act, the Fund may hedge up to 100% of its assets
when deemed appropriate by the Sub-Adviser. The Fund is also authorized to use
investment strategies to manage the effective maturity or duration of debt
securities or instruments held by the Fund, or to enhance the Fund's income or
gain. Although these strategies are regularly used by some investment companies
and other institutional investors in various markets, most of these strategies
are currently unavailable in Russia and may not become available in the future.
Techniques and instruments may change over time, however, as new instruments and
strategies are developed or regulatory changes occur. For a full description of
the Fund's investment practices, see the prospectus under "Additional Investment
Practices."
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
+S.M.S. CHADHA (59), Director. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.
*+ROBERT M. DEMICHELE (52), President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc.; Director, Chartwell Re Corporation, Claredon
National Insurance Company, The Navigator's Group, Inc., Unione Italiana
Reinsurance, Vanguard Cellular Systems, Inc. and Weeden & Co.; Vice Chairman
of the Board of Trustees, Union College and Trustee, Smith Richardson
Foundation.
*+BEVERLEY C. DUER (67), Director, 340 East 72nd Street, News York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research Department-CPC
International, Inc.
*+BARBARA R. EVANS (36), Director, 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May, 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation.
*+RICHARD M. HISEY (38), Vice President, Treasurer and Director. P. O. Box 1515,
Saddle Brook, N.J. 07663. Managing Director, Director and Chief Financial
Officer, Lexington Management Corporation; Chief Financial Officer, Vice
President and Director, Lexington Funds Distributor, Inc.; Director,
Lexington Capital Management, Inc.; Director, LCM Financial Services, Inc.;
Chief Financial Officer, Market Systems Research Advisors, Inc.; Executive
Vice President and Chief Financial Officer, Lexington Global Asset Managers,
Inc.
*+LAWRENCE KANTOR (49), Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J 07663. Managing Director, General Manager and Director, Lexington
Management Corporation; Executive Vice President and Director, Lexington
Funds Distributor, Inc.; Executive Vice President and General Manager-Mutual
Funds, Lexington Global Asset Managers, Inc.
+JERARD F. MAHER (50), Director. 300 Raritan Center Parkway, Edison, New Jersey
08818-7815. General Counsel, Federal Business Centers; Counsel, Ribis, Graham
& Curtin; Trustee, Lexington Convertible Services Fund since 1986.
+ANDREW M. McCOSH (56), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland.
*+DONALD B. MILLER (70), Director. 10725 Quail Covey Road, Boynton Beach, FL
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maquire Group of Connecticut; prior to January 1989, President, Director and
C.E.O., Media General Broadcast Services (advertising firm).
*+JOHN G. PRESTON (64), Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston, Massachusetts.
*+MARGARET W. RUSSELL (76). Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor. Formerly, Community Affairs Director, Union Camp
Corporation.
*+LISA CURCIO (37), Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor, Inc.;
Secretary, Lexington Global Asset Managers, Inc.
*+RICHARD LAVERY (42), CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
2
<PAGE>
*+JANICE CARNICELLI (37), Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
+*PETER DERBY (36), Vice President. 6/3 1st Kolobovsky per, Moscow, 103051,
Russia. Chairman of the Board of Troika Dialog Asset Management. President
and Chief Executive Officer of Troika Dialog. President and Chief Executive
Officer of Dialog Bank since 1991. Director, Moscow International Currency
Exchange (MICEX). Director, American Chamber of Commerce, Moscow. Treasurer
and Director, Junior Achievement, Moscow; Founding member, Russian-American
Professional Club, New York.
+*NANCY HERRING (44), Vice President and Portfolio Manager. 6/3 1st Kolobovsky
per, Moscow, 103051, Russia. Managing Director and Chief Investment Officer,
Troika Dialog Asset Management. Prior to September 1996, Portfolio Manager,
Dean Witter Intercapital.
+*GAVIN RANKIN (34), Vice President and Portfolio Manager. 6/3 1st Kolobovsky
per, Moscow, 103051, Russia. Director of Research, Troika Dialog Asset
Management and Troika Dialog. Prior to November, 1995, Founder and Chief
Executive Officer, Lonpra A.S. (investment bankers-Czechoslovakia). Received
a degree in law (L.L.B.) from the University of Buckingham. Qualified as a
Chartered Accountant with Price Waterhouse.
+*RUBEN VARDANIAN (29), Vice President, 6/3 1st Kolobovsky per, Moscow, 103051,
Russia. President, Troika Dialog Asset Management. Executive Director, Troika
Dialog.
*+CHRISTIE CARR (29), Assistant Treasurer P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant. KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+JOAN K. LEDERER (30), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1997, Director of Investment Accounting, Diversified
Investment Advisors, Inc. Prior to April 1996, Assistant Vice President,
PIMCO.
*+THOMAS LUEHS (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November 1993, Supervisor of Investment Accounting, Alliance
Capital Management.
*+SHERI MOSCA (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+PETER CORNIOTES (34), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Vice President, Lexington Management Corporation. Assistant
Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST (36), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington
Management Corporation.
+*"Interested person" and/or "Affiliated person" of LMC or Troika Dialog as
defined in the Investment Company Act of 1940, as amended.
*+Messrs. Chada, Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery,
Luehs, Miller, Maher, McCosh, Preston and Mmes. Carnicelli, Carr, Curcio,
Evans, Gilfillan, Lederer, Mosca. and Russell hold similar offices with some
or all of the other investment companies advised and/or distributed by LMC
and LFD.
All officers and directors of the Fund are U.S. residents except for the
following three (3) individuals: Peter Derby, Ruben Vardanian and Gavin Rankin.
The primary residence for Mr. Derby, Mr. Vardanian and Mr. Rankin is in Russia.
Mr. Derby is a U.S. citizen. These three Fund officers are also executive
officers of Troika Dialog Asset Management ("TDAM"). TDAM is registered with the
U.S. Securities and Exchange Commission ("SEC") as a non-resident registered
investment adviser. TDAM has filed with the SEC an Irrevocable Appointment of
Agent for Service of Process, which designates and appoints the SEC as its agent
upon whom may be served all process, pleadings, and other papers in any civil
suit or action brought against it. This irrevocable appointment shall continue
in effect notwithstanding the subsequent withdrawal or admission of any
executive officer if such withdrawal or admission does not as a matter of law
create a new closed joint stock company. In the event of dissolution of the
closed joint stock company this irrevocable agreement shall nevertheless
continue in effect for any action against the former executive officers or the
closed joint stock company in dissolution.
Set forth below is information regarding compensation to be paid during the
current fiscal year. Since the Fund has not completed its first full year, this
information is an estimate of future payments that would be made pursuant to
existing compensation arrangements. The Board does not have any audit or
compensation committees.
Remuneration of Directors and Certain Executive Officers:
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof up to a maximum of $5,000 a
year. Each Director who is not an affiliate of the advisor is compensated for
his or her services according to a fee schedule which recognizes the fact that
each Director also serves as a Director of other investment companies advised by
LMC. Each Director receives a fee, allocated among all investment companies for
which the Director serves. Each Director receives annualized compensation of
$25,600.
3
<PAGE>
Set forth below is information regarding compensation paid or accrued for
the fiscal year ended December 31, 1996 for each director.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in Fund
Fund Complex
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $856 $13,696 16
- --------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 17
- --------------------------------------------------------------------------------------------
Beverley C. Duer $1,080 $29,110 17
- --------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 16
- --------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 16
- --------------------------------------------------------------------------------------------
Jerard F. Maher $856 $16,046 17
- --------------------------------------------------------------------------------------------
Andrew M. McCosh $856 $13,696 16
- --------------------------------------------------------------------------------------------
Donald B. Miller $1,080 $26,760 16
- --------------------------------------------------------------------------------------------
Francis Olmsted* $788 $16,800 N/A
- --------------------------------------------------------------------------------------------
John G. Preston $1,080 $26,760 16
- --------------------------------------------------------------------------------------------
Margaret W. Russell $1,080 $25,048 16
- --------------------------------------------------------------------------------------------
Philip C. Smith* $1,080 $25,080 16
- --------------------------------------------------------------------------------------------
Francis A. Sunderland* $112 $10,528 N/A
- --------------------------------------------------------------------------------------------
*Retired
</TABLE>
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1996, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCosh, Miller, Preston and
Russell are 1,18, 1, 1, 22, 18 and 15, respectively.
Highest Annual Compensation Paid by All Funds
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
Years of
Service Estimated Annual Benefit Upon Retirement
-------- ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
4
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "investment policy" and
the following investment restrictions are matters or fundamental policy which
may not be changed without the affirmative vote of the lesser of (a) 67% or more
of the shares of the Fund present at a shareholders' meeting at which more than
50% of the outstanding shares are present or represented by proxy or (b) more
than 50% of the outstanding shares. Under these investment restrictions:
(1) the Fund will not issue any senior security (as defined in the 1940
Act), except that (a) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program, including
reverse repurchase agreements, foreign exchange contracts, delayed
delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) the Fund may engage in transactions
that may result in the issuance of a senior security to the extent
permitted under applicable regulations, interpretation of the 1940 Act
or an exemptive order; (c} the Fund may engage in short sales of
securities to the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of futures contracts and related
options shall not be considered to involve the issuance of senior
securities; and (e) subject to fundamental restrictions, the Fund may
borrow money as authorized by the 1940 Act.
(2) at the end of each quarter of the taxable year, (i) with respect to at
least 50% of the market value of the Fund's assets, the Fund may invest
in cash, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of
any one issuer limited for the purchases of this calculation to an
amount not greater than 5% of the value of the Fund's total assets, and
(ii) not more than 25% of the value of its total assets be invested in
the securities of any one issuer (other than U.S. Government securities
or the securities of other regulated investment companies).
(3) the Fund will not concentrate its investments by investing more than 25%
of its assets in the securities of issuers in any one industry. This
limit will not apply to oil and gas related securities and to securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
(4) the Fund will not invest in commodity contracts, except that the Fund
may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related
options, and may enter into forward currency contracts.
(5) the Fund will not purchase real estate, interests in real estate or real
estate limited partnership interest except that, to the extent
appropriate under its investment program, the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which deal in real
estate or interests therein.
(6) the Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase transactions and (c) lend portfolio securities
provided that the value of such loaned securities does not exceed
one-third of the Fund's total assets.
(7) the Fund will not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) the Fund may pledge its portfolio securities or receivables or
transfer or assign or otherwise encumber then in an amount not exceeding
one-third of the value of its total assets; and (e) for purposes of
leveraging, the Fund may borrow money from banks (including its
custodian bank), only if, immediately after such borrowing, the value of
the Fund's assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all outstanding
borrowings. If at any time, the value of the Fund's assets fails to meet
the 300% asset coverage requirement relative only to leveraging, the
Fund will, within three days (not including Sundays and holidays),
reduce its borrowings to the extent necessary to meet the 300% test. The
Fund will only invest in reverse repurchase agreements up to 5% of the
Fund's total assets.
(8) the Fund will not act as underwriter of securities except to the extent
that, in connection with the disposition of portfolio securities by the
Fund, the Fund may be deemed to be an underwriter under the provisions
of the 1933 Act.
In additional to the above fundamental restrictions, the Fund has undertaken the
following non fundamental restrictions, which may be changed in the future by
the Board of Directors, without a vote of the shareholders of the Fund:
5
<PAGE>
(1) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days. Securities
that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
(2) The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment
programs of the Fund.
(3) The Fund may invest up to 15% of the value of its assets in warrants.
This restriction on the purchase of warrants does not apply to warrants
attached to, or otherwise included in, a unit with other securities.
(4) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
(5) The Fund will not purchase the securities of any other investment
company, except as permitted under the 1940 Act.
(6) The Fund will not invest for the purpose of exercising control over or
management of any company.
(7) The Fund will not participate on a joint or joint-and-several basis in
any securities trading account. The "bunching" of orders for the sale or
purchase of marketable portfolio securities with other accounts under
the management of the investment adviser to save commissions or to
average prices among them is not deemed to result in a securities
trading account.
The percentage restrictions referred to above are to be adhered to at the time
of investment and are not applicable to a later increase or decrease in
percentage beyond the specified limit resulting from change in values or net
assets.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle Brook, New
Jersey 07663 is the investment adviser to the Fund pursuant to an Investment
Management Agreement dated February 27, 1996 (the "Advisory Agreement").
Lexington Funds Distributor, Inc. ("LFD") is the distributor of Fund shares
pursuant to a Distribution Agreement dated Feburary 27, 1996 (the "Distribution
Agreement"). LMC has entered into a sub-adviser contract with Troika Dialog
Asset Management under which TDAM will provide the Fund with investment advice
and management of the Fund's investment program. LMC makes recommendations to
the Fund with respect to its investments and investment policies. These
agreements were approved by the Fund's Board of Directors (including a majority
of the Directors who were not parties to either the Advisory Agreement,
Sub-Advisory Agreement or the Distribution Agreement or "interested persons" of
any such party) on February 27, 1996.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC's investment advisory fee will be reduced for any fiscal year by any
amount necessary to prevent Fund expenses from exceeding the most restrictive
expense limitations imposed by the securities laws or regulations of those
states or jurisdictions in which the Fund's shares are registered or qualified
for sale. LFD pays the advertising and sales expenses related to the continuous
offering of Fund shares, including the cost of printing prospectuses, proxies
and shareholder reports for persons other than existing shareholders. The Fund
furnishes LFD, at printer's overrun cost paid by LFD, such copies of its
prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes.
LMC has agreed to voluntarily limit the total expenses of the Fund
(excluding interest, taxes, brokerage and extraordinary expenses but including
management fee and operating expenses) to an annual rate of 3.35% of the Fund's
average net assets through April 30, 1997 or such later date as may be
determined by LMC. For the fiscal year ended December 31, 1996, the Fund paid
LMC $105,882 in investment advisory fees and LMC reimbursed the Fund $145,137 in
expense reimbursements.
6
<PAGE>
The Advisory Agreement, Sub-Advisory Agreement, the Distribution Agreement
and the Administrative Services Agreement are subject to annual approval by the
Fund's Board of Directors and by the affirmative vote, cast in person at a
meeting called for such purpose, of a majority of the Directors who are not
parties either to the Advisory Agreement, Sub-Advisory Agreement or the
Distribution Agreement, as the case may be, or "interested persons" of any such
party. Either the Fund or LMC may terminate the Advisory Agreement and the Fund
or LFD may terminate the Distribution Agreement on 60 days' written notice
without penalty. The Advisory Agreement terminates automatically in the event of
assignment, as defined in the Investment Company Act of 1940. As compensation
for its services, the Fund pays LMC a monthly management fee at the annual rate
of 1.25% of the average daily net assets. This fee is higher than that paid by
most other investment companies. However, it is not necessarily greater than the
management fee of other investment companies with objectives and policies
similar to this Fund. LMC will pay TDAM an annual sub-advisory fee of 0.625% of
the Fund's average daily net assets. The sub-advisory fee will be paid by LMC,
not the Fund.
LMC as owner of the registered service mark "Lexington" will sublicense to
the Fund to include the word "Lexington" as part of its corporate name subject
to revocation by LMC in the event that the Fund ceases to engage LMC or its
affiliate as investment adviser or distributor. TDAM has authorized the Fund to
include the word "Troika Dialog" as part of it's corporate name subject to
revocation by TDAM in the event the Fund ceases to engage TDAM as Sub-Adviser.
In that event the Fund will be required upon demand of LMC or TDAM to change its
name to delete the word "Lexington" or "Troika Dialog" therefrom.
LMC shall not be liable to the Fund or its shareholders for any act or
omission by LMC, its officers, directors or employees or any loss sustained by
the Fund or its shareholders except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. Descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities have a
majority voting control of outstanding shares of Lexington Global Asset
Managers, Inc.
Of the directors, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor and Luehs and Mmes.
Carnicelli, Carr, Curcio, Gilfillan, Lederer and Mosca (see "Management of the
Fund"), may also be deemed affiliates of LMC and LFD by virtue of being
officers, directors or employees thereof.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with this policy, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the Directors may determine, LMC and Troika Dialog may consider
sales of shares of the Fund and of the other Lexington Funds as a factor in the
selection of brokers and dealers and the market in which a transaction is
executed. However, pursuant to the Fund's investment management agreement,
management consideration may be given in the selection of broker-dealers to
research provided and payment may be made of a commission higher than that
charged by another broker-dealer which does not furnish research services or
which furnishes research services deemed to be a lesser value, so long as the
criteria of Section 28(e) of the Securities Exchange Act of 1934 are met.
Section 28(e) of the Securities Exchange Act of 1934 was adopted in 1975 and
specifies that a person with investment discretion shall not be "deemed to have
acted unlawfully or to have breached a fiduciary duty" solely because such
person has caused the account to pay higher commission than the lowest available
under certain circumstances, provided that the person so exercising investment
discretion makes a good faith determination that the person so commissions paid
are "reasonable in the relation to the value of the brokerage and research
services provided . . . viewed in terms of either that particular transaction or
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services might exceed commissions
that would be payable for executions services alone. Nor generally can the value
of research services to the Fund be measured. Research services furnished might
be useful and of value to LMC and Troika Dialog and its affiliates, in serving
other clients as well as the Fund. On the other hand, any research services
obtained by LMC and TDAM or its affiliates from the placement of portfolio
brokerage of other clients might be useful and of value to LMC and TDAM in
carrying out its obligations to the Fund. Fixed commissions of foreign stock
exchange transactions are generally higher than the negotiated commission rates
available in the United States. There is generally less government supervision
and regulation of foreign stock exchanges and broker-dealers than in the United
States.
The Directors have adopted certain procedures incorporating the standards of
Rule 17e-1 under the Investment Company Act of 1940, as amended, which require
that the commissions paid to LFD or to broker-dealers affiliated with
7
<PAGE>
LFD must be "reasonable and fair compared to the commission, fee or other
remuneration comparable transactions involving similar transactions and similar
securities . . . being purchased or sold on a securities . . . exchange during a
comparable period of time". Rule 17e-1 and the procedures require the Directors
to periodically review the transactions with affiliated broker-dealers and the
procedures themselves. The procedures also require LMC and Troika Dialog to
furnish reports to the Directors and to maintain records in connection with
commissions paid to affiliated broker-dealers.
REDEMPTION OF SHARES
The Fund has elected, pursuant to Rule 18F-1 of the Investment Company Act
of 1940, to pay in cash all requests for redemption by any shareholder of
record, limited in amount, however, during any 90-day period to the lesser of
$250,000 or 1% of the value of the Fund's net assets at the beginning of such
period. Such commitment is irrevocable without the prior approval of the
Securities and Exchange Commission. In the case of request for redemptions in
excess of such amounts, the Board of Directors reserves the right to make
payments in whole or in part in securities or other assets of the Fund in case
of an emergency, or if the payments of such redemption in cash would be
detrimental to the existing shareholders of the Fund. In such circumstances the
securities distributed would be valued at the price used to compute the Fund's
net assets. Should the Fund do so, a shareholder may incur brokerage fees in
converting the securities to cash.
DETERMINATION OF NET ASSET VALUE
The Fund calculates net asset value as of the close of normal trading on the
New York Stock Exchange (currently 4:00 p.m., Eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing time) each
business day. It is expected that the New York Stock Exchange will be closed on
Saturdays and Sundays and on New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
See the Prospectus for the further discussion of net asset value.
TELEPHONE EXCHANGE PROVISIONS
Exchange instructions may be given in writing or by telephone. Telephone
exchanges may only be made if a Telephone Authorization form has been previously
executed and filed with LFD. Telephone exchanges are permitted only after a
minimum of seven (7) days have elapsed from the date of a previous exchange.
Exchanges may not be made until all checks in payment for the shares to be
exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at State Street
Bank and Trust Company (the "Agent"); shares held in certificate form by the
shareholder cannot be included. However, outstanding certificates can be
returned to the Agent and qualify for these services. Any new account
established with the same registration will also have the privilege of exchange
by telephone in the Lexington Funds. All accounts involved in a telephonic
exchange must have the same registration and dividend option as the account from
which the shares were transferred and will also have the privilege of exchange
by telephone in the Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD, distributor of
the Lexington Group of Mutual Funds, as the true and lawful attorney to
surrender for redemption or exchange any and all non-certificate shares held by
the Agent in account(s) designated, or in any other account with the Lexington
Funds, present or future which has the identical registration, with full power
of substitution in the premises, authorizes and directs LFD to act upon any
instruction from any person by telephone for exchange of shares held in any of
these accounts, to purchase shares of any other Lexington Fund that is
available, provided the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed, and
agrees that neither LFD, the Agent, or the Fund(s) will be liable for any loss,
expense or cost arising out of any requests effected in accordance with this
authorization which would include requests effected by impostors or persons
otherwise unauthorized to act on behalf of the account. LFD reserves the right
to cease to act as agent subject to the above appointment upon thirty (30) days
written notice to the address of record. If the shareholder is an entity other
than an individual, such entity may be required to certify that certain persons
have been duly elected and are now legally holding the titles given and that the
said corporation, trust, unincorporated association, etc. is duly organized and
existing and has the power to take action called for by this continuing
authorization .
Exchange Authorizations forms, Telephone Authorization forms and
prospectuses of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund or shares of one of the other Lexington
Funds at net asset value as described above. Under this procedure, the
8
<PAGE>
dealer must agree to indemnify LFD and the funds from any loss or liability that
any of them might incur as a result of the acceptance of such telephone exchange
orders. A properly signed Exchange Authorization must be received by LFD within
5 days of the exchange request. LFD reserves the right to reject any telephone
exchange request. In each such exchange, the registration of the shares of the
Fund being acquired must be identical to the registration of the shares of the
Fund being exchanged. Any telephone exchange orders so rejected may be processed
by mail.
This exchange offer is available only in states where shares of the Fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit Sharing
plans including a 401(k) Salary Reduction Plan and a 403(b)(7} Plan. Plan
services are available by contacting the Shareholder Services Department of the
Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"): Individuals may make tax deductible
contributions to their own Individual Retirement Accounts established under
Section 408 of the Internal Revenue Code (the "Code"). Married investors filing
a joint return neither of whom is an active participant in an employer sponsored
retirement plan, or who have an adjusted gross income of $40,000 or less
($25,000 or less for single taxpayers) may continue to make a $2,000 annual
deductible IRA contribution. For adjusted gross incomes above $40,000 ($25,000
for single taxpayers, the IRA deduction limit is generally phased out ratably
over the next $10,000 of adjusted gross income, subject to a minimum $200
deductible contribution. Investors who are not able to deduct a full $2,000 IRA
contribution because of the limitations may make a nondeductible contribution to
their IRA to the extent a deductible contribution is not allowed. Federal income
tax on accumulations earned on nondeductible contributions is deferred until
such time as these amounts are deemed distributed to an investor. Rollovers are
also permitted under the Plan. The disclosure statement required by the Internal
Revenue Service ("IRS") is provided by the Fund.
The minimum initial investment to establish a tax-sheltered plan is $250.
Subsequent investments are subject to a minimum of $50 for each account.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make
tax deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are, however, a number of special rules which apply
when self-employed individuals participate in such plans. Currently purchase
payments under a self-employed plan are deductible only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the individual's earned annual income (as
defined in the Code) and in applying these limitations not more than $150,000 of
"earned income" may be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available a
Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the Plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the Plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund and may terminate the Plan with the
Fund at any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan account
is subject to an annual maintenance fee of $12.00 charged by the Agent.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income
9
<PAGE>
tax on the portion of its net investment income (i.e., taxable interest,
dividends and other taxable ordinary income, net of expenses) and capital gain
net income (i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of its
investment company taxable income (i.e., net investment income and the excess of
net short-term capital gain over net long-term capital loss) for the taxable
year (the "Distribution Requirement"), and satisfies certain other requirements
of the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and will therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from such sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256 (unless the Fund
elects otherwise), will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and Fund
grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (1) above. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Certain transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss
10
<PAGE>
recognized as a consequence of the year-end deemed disposition of Section 1256
contracts is taken into account for the taxable year together with any other
gain or loss that was previously recognized upon the termination of Section 1256
contracts during that taxable year. Any capital gain or loss for the taxable
year with respect to Section 1256 contracts (including any capital gain or loss
arising as a consequence of the year-end deemed sale of such contracts) is
generally treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. A Fund, however, may elect not to have this special tax
treatment apply to Section 1256 contracts that are part of a "mixed straddle"
with other investments of the Fund that are not Section 1256 contracts. Under
Treasury Regulations, gains arising from Section 1256 contracts will be treated
for purposes of the Short-Short Gain Test as being derived from securities held
for not less than three months if the gains arise as a result of a constructive
sale under Code Section 1256.
The Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If the Fund invests in a PFIC, it may elect to
treat the PFIC as a qualified electing fund (a "QEF") in which event the Fund
will each year have ordinary income equal to its pro rata share of the PFIC's
ordinary earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether the
Fund receives distributions of any such ordinary earning or capital gain from
the PFIC. If the Fund does not elect to treat the PFIC as a QEF, then in general
(1) any gain recognized by the Fund upon sale or other disposition of its
interest in the PFIC or any excess distribution received by the Fund from the
PFIC will be allocated ratably over the Fund's holding period of its interest in
the PFIC, (2) the portion of such gain or excess distribution so allocated to
the year in which the gain is recognized or the excess distribution is received
shall be included in the Fund's gross income for such year as ordinary income
(and the distribution of such portion by the Fund to shareholders will be
taxable as an ordinary income dividend, but such portion will not be subject to
tax at the Fund level), (3) the Fund shall be liable for tax on the portions of
such gain or excess distribution so allocated to prior years in an amount equal
to, for each such prior year, the sum of (i) the amount of gain or excess
distribution allocated to such prior year multiplied by the highest tax rate
(individual or corporate) in effect for such prior year and (ii) interest on the
amount determined under clause (i) for the period from the due date for filing a
return for such prior year until the date for filing a return for the year in
which the gain is recognized or the excess distribution is received at the rates
and methods applicable to underpayments of tax for such period, and (4) the
distribution by the Fund to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the Fund
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
Under proposed Treasury Regulations the Fund can elect to recognize as gain
the excess, as of the last day of its taxable year, of the fair market value of
each share of PFIC stock over the Fund's adjusted tax basis in that share ("mark
to market gain"). Such mark to market gain will be included by the Fund as
ordinary income and will not be subject to the Short-Short Gain Test, and the
Fund's holding period with respect to such PFIC stock will commence on the first
day of the next taxable year. If the Fund makes such election in the first
taxable year it holds PFIC stock, it will not incur the tax described in the
previous paragraph.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
11
<PAGE>
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they generally should not qualify for the 70%
dividends-received deduction for corporate shareholders.
A Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Conversely, if the Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consist of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the
12
<PAGE>
shares received, determined as of the reinvestment date. In addition, if the net
asset value at the time a shareholder purchases shares of the Fund reflects
undistributed net investment income or recognized capital gain net income, or
unrealized appreciation in the value of the assets of the Fund, distributions of
such amounts will be taxable to the shareholder in the manner described above,
although they economically constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has provided
either an incorrect tax identification number or no number at all, (2) who is
subject to backup withholding for failure to report the receipt of interest or
dividend income properly an, or (3) who has failed to certify to the Fund that
it is not subject to backup withholding or that it is an "exempt recipient"
(such as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. Long-term capital gains of noncorporate taxpayers are currently taxed at
a maximum rate 11.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the dividend.
Furthermore, such a foreign shareholder may be subject to U.S. withholding tax
at the rate of 30% (or lower applicable treaty rate) on the gross income
resulting from the Fund's election to treat any foreign taxes paid by it as paid
by its shareholders, but may not be allowed a deduction against this gross
income or a credit against this U.S. withholding tax for the foreign
shareholder's pro rata share of such foreign taxes which it is treated as having
paid. Such a foreign shareholder would generally be exempt from U.S. federal
income tax on gains realized on the sale of shares of the Fund, capital gain
dividends and amounts retained by the Fund that are designated as undistributed
capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless such shareholders furnish the Fund with proper notification of their
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
13
<PAGE>
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Fund.
PERFORMANCE CALCULATION
For the purpose of quoting and comparing the performance of the Fund to that
of other mutual funds and to other relevant market indices in advertisements or
in reports to shareholders, performance may be stated in terms of total return.
Under the rules of the Securities and Exchange Commission ("SEC rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
P(l + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods or
at the end of the 1, 5 or 10 year periods (or fractional
portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's Registration Statement. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5 and 10
year periods (or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value. Any recurring account charges
that might in the future be imposed by the Fund would be included at that time.
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., or with the performance of
the Standard and Poor's 500 Stock Price Index, Dow Jones Industrial Average
Index, Morgan Stanley Capital International (EAFE) Index or, Russian Trading
System Index, Moscow Times Index, the Fund calculates its aggregate total return
for the specified periods of time assuming the investment of $10,000 in Fund
shares and assuming the reinvestment of each dividend or other distribution at
net asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. For the period from 7/3/96
(commencement of operations) to December 31, 1996, the average annual standard
total return was -9.01%.
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the Fund's
holdings and other information. In addition, shareholders will receive annual
financial statements audited by KPMG Peat Marwick LLP, the Fund's independent
auditors.
OTHER INFORMATION
As of February 21, 1997, the following persons are known by fund management
to have owned beneficially, directly or indirectly, 5% or more of the
outstanding shares of Lexington Troika Dialog Russia Fund, Inc. Smith Richardson
Foundation, 60 Jesup Road, Westport, Ct 06880, 25% and Piedmont Associates, P.O.
Box 20124, Greensboro, N. C. 27420, 17%.
14
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996
Number Value
of Shares Security (Note 1)
- --------------------------------------------------------------------------------
Common Stock: 79.8%
Food Wholesalers: 3.3%
21,360 Krasny Oktyabr2 ...................................... $ 448,560
----------
Merchandising: 2.8%
9,000 Trade House GUM2 ..................................... 247,500
2,500 Trade House GUM (ADR)2 ............................... 140,417
----------
387,917
----------
Natural Gas: 2.6%
20,500 Gazprom (ADR)2 ....................................... 361,825
----------
Oil & Gas Drilling: 14.7%
130,000 Kondpetroleum2 ....................................... 188,500
135,000 Megionneftegaz2 ...................................... 432,000
40,000 Megionneftegaz (Preferred shares)2 ................... 85,400
10,000 Nizhnevartovskneftegaz (Preferred shares)1,2 ......... 25,000
79,000 Noyabrskneftegaz2 .................................... 495,725
30,000 Noyabrskneftegaz (Preferred shares)2 ................. 126,000
150,000 Orenburgneft2 ........................................ 405,000
6,000 Tatneft (ADR)2 ....................................... 288,000
----------
2,045,625
----------
Oil & Gas Exploration: 18.4%
25,000 Chernogorneft2 ....................................... 298,750
25,000 Chernogorneft (ADR)2 ................................. 312,500
35,000 LUKoil Holdings2 ..................................... 395,500
7,000 LUKoil Holdings of Russia (ADR) ...................... 326,060
12,200 Permenergo2 .......................................... 201,910
2,000 Permneft2 ............................................ 101,000
200,000 Purneftegaz2 ......................................... 520,000
65,000 Tomskneft2 ........................................... 317,200
10,000 Tomskneft (Preferred shares)2 ........................ 34,550
1,000 Udmurtneft1,2 ........................................ 38,500
----------
2,545,970
----------
Services: 0.2%
80,000 Tsum Jsc Torgovy2 .................................... 31,240
----------
15
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number
of Shares
or Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
Telecommunications: 21.7%
6,110 Chelyabinskvyazinform1,2 ...............................$ 91,650
2,600 Chelyabinskvyazinform (Preferred shares)1,2 ............ 27,999
210,000 Irkutskelectrosvyaz2 ................................... 115,500
1,022 Moscow Telephone Systems2 .............................. 756,280
600 Moscow Telephone Systems (Preferred shares)2 ........... 255,000
126,000 Nizhnovsvyazinform1,2 .................................. 252,000
100,000 Nizhnovsvyazinform (Preferred shares)1,2 ............... 110,000
285,000 Rostelekom2 ............................................ 689,700
50,000 Rostelekom (Preferred shares)2 ......................... 93,500
2,500 Samarasvyazinform2 ..................................... 112,500
3,000 Samarasvyazinform (Preferred shares)1,2 ................ 90,000
300,000 St. Petersburg Telecommunication2 ...................... 330,000
100,000 St. Petersburg Telecommunication (Preferred shares)1,2 . 75,000
----------
2,999,129
----------
Transportation-Shipping: 0.1%
10,000 Primorsk Sea Shipping1,2 ............................... 17,500
----------
Utilities: 16.0%
2,500,000 Irkutskenergo2 ......................................... 331,250
250,000 Lenenergo (Preferred shares)2 .......................... 65,000
400,000 Mosenergo2 ............................................. 408,000
3,000 Mosenergo (ADR)2 ....................................... 92,001
800,000 Samaraenergo2 .......................................... 268,000
624,000 Sverdlovskenergo (Preferred shares)1,2 ................. 96,720
9,000,000 Unified Energy System2 ................................. 819,000
2,000,000 Unified Energy System (Preferred shares)2 .............. 133,200
----------
2,213,171
----------
Total Common Stock
(Cost $10,092,963) .....................................11,050,937
----------
Government Obligations: 10.5%
$1,500,000 Russian Ministry of Finance Note
9.25%, due 11/27/01 (Cost $1,493,538) .................. 1,450,314
----------
16
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
Short-Term Investments: 8.4%
$400,000 United States Treasury Bill 5.13% due 02/06/97 ....... $ 397,932
800,000 United States Treasury Bill 5.16% due 12/11/97 ....... 760,128
-----------
Total Short-Term Investments
(Cost $1,158,253) .................................... 1,158,060
-----------
Total Investments: 98.7%
(Cost $12,744,754+) (Note 1) ......................... 13,659,311
Other assets in excess of liabilities: 1.3% .......... 187,145
-----------
Total Net Assets: 100.0%
(equivalent to $11.24 per share on 1,232,123
shares outstanding) .................................. $13,846,456
===========
1Restricted Security (Note 7).
2Non-income producing security.
ADR-American Depository Receipt.
+Aggregate cost for Federal income tax purposes is $12,799,837.
The Notes to Financial Statements are an integral part of this statement.
17
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996
Assets
Investments, at value (cost $12,744,754) (Note 1) ................ $13,659,311
Cash ............................................................. 498,580
Due from Lexington Management Corporation (Note 2) ............... 80,159
Receivable for investment securities sold ........................ 300,000
Receivable for shares sold ....................................... 67,140
Interest receivable .............................................. 16,090
Deferred organization expense, net (Note 1) ...................... 94,533
Other receivable ................................................. 72
-----------
Total Assets ........................................... 14,715,885
-----------
Liabilities
Payable for investment securities purchased ...................... 625,250
Distributions payable ............................................ 4,565
Accrued expenses ................................................. 132,596
Other liabilities ................................................ 107,018
-----------
Total Liabilities ...................................... 869,429
-----------
Net Assets (equivalent to $11.24 per share
on 1,232,123 shares outstanding) (Note 4) ...................... $13,846,456
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.001
par value per share ............................................ $ 1,232
Additional paid in capital ....................................... 12,911,542
Accumulated net realized gain on investments (Note 1) ............ 19,125
Unrealized appreciation on investments ........................... 914,557
-----------
Total Net Assets ....................................... $13,846,456
===========
The Notes to Financial Statements are an integral part of this statement.
18
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Operations
June 3, 1996 (commencement of operations) to December 31, 1996
Investment Income
Interest .............................................. $ 98,409
---------
Expenses
Custodian expense ....................................... 105,882
Investment advisory fee (Note 2) ........................ 65,149
Professional fees ....................................... 34,058
Directors' fees and expenses ............................ 26,509
Printing and mailing expenses ........................... 16,620
Distribution expense (Note 3) ........................... 13,030
Amortization of deferred organization costs (Note 1) .... 12,485
Transfer agent and shareholder servicing expense (Note 2) 9,640
Accounting expenses (Note 2) ............................ 7,477
Registration fees ....................................... 3,278
Computer processing fees ................................ 2,886
Other expenses .......................................... 4,557
-------
Total expenses ...................................... 301,571
Less: expenses voluntarily reimbursed by the
investment adviser (Note 2) ..................... 145,137 156,434
-------- ---------
Net investment loss ............................. (58,025)
Realized and Unrealized Gain on Investments (Note 5)
Net realized gain on investments ....................... 457,898
Net change in unrealized appreciation on investments ... 914,557
----------
Net realized and unrealized gain ................ 1,372,455
----------
Increase in Net Assets Resulting from Operations ........... $1,314,430
==========
The Notes to Financial Statements are an integral part of this statement.
19
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Changes in Net Assets
June 3, 1996 (commencement of operations) to December 31, 1996
Net investment loss .............................................. $ (58,025)
Net realized gain from investments ............................... 457,898
Net change in unrealized appreciation on investments ............. 914,557
-----------
Net increase in net assets resulting from operations ......... 1,314,430
Distributions to shareholders from net realized gains on
investments .................................................... (380,748)
Increase in net assets from capital share transactions (Note 4) .. 12,912,774
-----------
Net increase in net assets ................................... 13,846,456
Net Assets:
Beginning of period .............................................. -
-----------
End of period .................................................... $13,846,456
===========
The Notes to Financial Statements are an integral part of this statement.
20
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 3, 1996 (commencement of operations) to December 31, 1996
1. Significant Accounting Policies
Lexington Troika Dialog Russia Fund, Inc. (the "Fund") is an open-end
non-diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek
long-term capital appreciation through investments primarily in the equity
securities of "Russian Companies" as defined in the prospectus. The Fund
commenced operations on June 3, 1996 and its registration statement became
effective on July 3, 1996. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements:
Investments Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked price is used. However, when Fund management deems it appropriate, prices
obtained for the day of valuation from a third party pricing service will be
used. Securities traded on the over-the-counter market are valued at the mean
between the last current bid and asked price. Short-term securities having a
maturity of 60 days or less are stated at amortized cost, which approximates
market value. Securities for which market quotations are not readily available
and other assets are valued by Fund management in good faith under the direction
of the Fund's Board of Directors. All investments quoted in foreign currencies
are valued in U.S. dollars on the basis of the foreign currency exchange rates
prevailing at the close of business. Dividend income is recorded on the
ex-dividend date. Occasionally dividend information on foreign securities is
received after the ex-dividend date and the income is recorded as soon as the
information is available to the Fund. Interest income, adjusted for amortization
of premiums and accretion of discounts, is accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in a foreign currency. The Fund may also enter into such contracts
to hedge against changes in foreign currency exchange rates on portfolio
positions. These contracts are marked to market daily, by recognizing the
difference between the contract exchange rate and the current market rate as
unrealized gains or losses. Realized gains or losses are recognized when
contracts are closed and are reported in the statement of operations. There were
no forward foreign currency exchange contracts outstanding at December 31, 1996.
Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
Distributions Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. At December 31, 1996,
reclassifications were made to the Fund's capital accounts to reflect permanent
book / tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains, and net
assets were not affected by this change.
21
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 3, 1996 (commencement of operations) to December 31, 1996 (continued)
Deferred Organization Expenses Organization expenses aggregating $107,018
have been deferred and are being amortized on a straight-line basis over five
years.
Use of 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 increases and
decreases in net assets from operations during the reporting period. Actual
results may differ from those estimates.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.25% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with Troika Dialog Asset Management, ZAO ("Troika") under
which Troika provides the Fund with investment management services. Pursuant to
the terms of the sub-advisory contract between LMC and Troika, LMC pays Troika a
monthly sub-advisory fee at the annual rate of 0.625% of the Fund's average
daily net assets. LMC has voluntarily agreed to reimburse the Fund for certain
expenses. The investment advisory fee and expense reimbursement are set forth in
the statement of operations.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $11,626 which were incurred by the Fund, but paid
by LMC.
3. Distribution Plan
The Fund has a Distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the period ended December 31,
1996 were $13,030 and are set forth in the statement of operations.
4. Capital Stock
Transactions in capital stock were as follows:
June 3, 1996
(commencement of operations)
to December 31, 1996
-----------------------------
Shares Amount
--------- -----------
Shares sold .................................... 1,211,091 $12,667,903
Shares issued on reinvestment of dividends ..... 33,799 376,183
--------- -----------
1,244,890 13,044,086
Shares redeemed ................................ (12,767) (131,312)
--------- -----------
Net increase ................................. 1,232,123 $12,912,774
--------- -----------
22
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 3, 1996 (commencement of operations) to December 31, 1996 (continued)
5. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the period ended
December 31, 1996, excluding short-term securities, were $ 16,573,159 and
$5,444,180, respectively.
At December 31, 1996, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$1,422,719 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $563,245.
6. Investment and Concentration Risks
The Fund's investments are concentrated in Russian securities and are therefore
exposed to the risks associated with that country. These risks, which may not be
present in domestic investments or in other developed countries, include:
Market, Concentration, and Liquidity Risks The Russian securities markets
are substantially smaller, less liquid, and significantly more volatile than the
securities markets in the United States. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Due to these factors, obtaining prices on portfolio securities from independent
sources may be more difficult than in other markets. In addition, despite the
Fund's policies and procedures addressing liquidity, it may be difficult for the
Fund to obtain or dispose of some investment securities because of poor
liquidity.
Settlement and Custody Risks Because of the recent formation of the
securities markets as well as the underdeveloped state of the banking and
telecommunications systems, settlement, clearing, and registration are subject
to significant risks not normally associated with investments in the United
States and more developed markets. Ownership of shares is defined according to
entries in the company's share register (maintained by third party registrars)
and normally evidenced by extracts from the register. These registrars are not
necessarily subject to effective state supervision, and it is possible for the
fund to lose its registration through fraud, negligence, or even mere oversight.
In addition, the extracts have no legal enforceability, and it is possible that
subsequent illegal amendment or other fraudulent acts may deprive the Fund of
its ownership rights. Uncertainty in settlement results from the time necessary
for buyers and sellers to physically deliver documents to the registrars which
may be located in remote areas. In the case of purchases, payment is not made
until the custodian has physically received the extract. For sales, the client
may be forced to remit securities before payment is received.
Foreign Currency and Exchange Risk The Fund's assets are invested in
securities which are denominated in rubles. Rubles are not yet freely
convertible into other currencies outside Russia. The value of the assets of the
Fund and its income, as measured in U.S. dollars, may suffer significant
declines due to disruptions in the ruble market, or be otherwise adversely
affected by exchange control regulations.
23
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Notes to Financial Statements
June 3, 1996 (commencement of operations) to December 31, 1996 (continued)
6. Investment and Concentration Risks (continued)
Political and Economic Risk Since the breakup of the Soviet Union at the end
of 1991, Russia has experienced dramatic political and social change. The
political system in Russia is emerging from a long history of extensive state
involvement in economic affairs. The country is undergoing a rapid transition
from a centrally-controlled command system to a market-oriented, democratic
model. The Fund may be affected unfavorably by political or diplomatic
developments, social instability, changes in government policies, taxation and
interest rates, currency repatriation restrictions and other political and
economic developments in the law or regulations in Russia and, in particular,
the risk of expropriation, nationalization and confiscation of assets and
changes in legislation relating to foreign ownership.
In addition to the risks described above, risks may arise from forward
foreign currency exchange contracts as a result of the potential inability of
counterparties to meet the terms of their contracts.
7. Restricted Securities
Pursuant to guidelines adopted by the Fund's Board of Directors, the following
securities have been deemed to be illiquid. The Fund currently limits investment
in illiquid securities to 15% of the Fund's net assets, at market value, at the
time of purchase.
<TABLE>
<CAPTION>
Acquisition Average Cost Percent of
Security Shares Date Per Share Market Value Net Assets
-------- ------ ---- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Chelyabinskvyazinform ................... 6,110 11/19/96 $17.72 $ 91,650 0.66%
Chelyabinskvyazinform (Preferred
shares) ............................... 2,600 11/19/96 17.23 27,999 0.20
Nizhnevartovskneftegaz (Preferred
shares) ............................... 10,000 11/1/96 3.30 25,000 0.18
Nizhnovsvyazinform ...................... 126,000 8/1/96 0.96 252,000 1.82
Nizhnovsvyazinform (Preferred shares) ... 100,000 11/20/96 1.60 110,000 0.79
Primorsk Sea Shipping ................... 10,000 6/19/96 2.00 17,500 0.13
Samarasvyazinform (Preferred shares) .... 3,000 11/19/96 36.50 90,000 0.65
St. Petersburg Telecommunication
(Preferred shares) .................... 100,000 12/5/96 0.96 75,000 0.54
Sverdlovskenergo (Preferred shares) ..... 624,000 9/4/96 0.14 96,720 0.70
Urdmurtneft ............................. 1,000 12/3/96 40.00 38,500 0.28
-------- ----
$824,369 5.95%
======== ====
</TABLE>
24
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
July 3, 1996 (effective SEC registration date) to December 31, 1996**
<TABLE>
<S> <C>
Net asset value, beginning of period .............................................................................. $12.12
------
Loss from investment operations:
Net investment loss ............................................................................................. (0.05)
Net realized and unrealized loss on investments ............................................................. (0.51)
------
Total loss from investment operations ............................................................................ (0.56)
Less distributions:
Distributions from net realized gains .......................................................................... (0.32)
------
Net asset value, end of period $11.24
======
Total return (9.01%)*
Ratio to average net assets:
Expenses, before reimbursement or waivers ...................................................................... 5.07%*
Expenses, net of reimbursement or waivers ....................................................................... 2.65%*
Net investment loss, before reimbursement or waivers ............................................................ (3.69%)*
Net investment loss ........................................................................................... (1.27%)*
Portfolio turnover rate ........................................................................................... 115.55%*
Average commissions paid on equity security transactions ....................................................... -***
Net assets at end of period (000's omitted) .................................................................... $13,846
<FN>
*Annualized
**The Fund's commencement of operations was June 3, 1996 with the investment of its initial capital. The Fund's registration
statement with the Securities and Exchange Commission became effective on July 3, 1996. Financial results prior to the
effective date of the Fund's registration statement are not presented in this Financial Highlights Table.
***The average commission paid on equity security transactions for the period ended December 31, 1996 was less than $0.005
per share of securities purchased and sold.
[/FN]
</TABLE>
25
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Troika Dialog Russia Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Troika Dialog
Russia Fund, Inc. as of December 31, 1996, the related statements of operations
and changes in net assets, for the period from June 3, 1996 (commencement of
operations) to December 31, 1996, and the financial highlights for the period
from July 3, 1996 (effective SEC registration date) to December 31, 1996. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. As to securities
purchased or sold but not received or delivered, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Troika Dialog Russia Fund, Inc. as of December 31, 1996, the results
of its operations and changes in its net assets for the period from June 3, 1996
(commencement of operations) to December 31, 1996, and the financial highlights
for the period from July 3, 1996 (effective SEC registration date) to December
31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 10, 1997
26
