Dear Shareholders:
- --------------------------------------------------------------------------------
This is the first annual report for the Lexington Troika Dialog Russia Fund.
The Fund became available for sale on July 3, 1996, a day which has greater
significance as the date for the second round of voting for the Russian
Presidential elections.
The highlight of 1996 was the Russian Presidential elections and the
re-election of President Yeltsin. It was this event and the increasing
anticipation of defeat for the Communist Party, which propelled the equity
markets in the second quarter of 1996, advancing 100% in this period. The boom
was led by the most liquid stocks such as Mosenergo, Lukoil, UES, and
Rostelecom.
The bull market evaporated on July fourth, and a 30% rapid correction
indicated that the much anticipated new wave of investment was not yet ready to
invest in Russia. The third quarter of 1996 was a somewhat uneventful period,
comprising a series of market rallies, which were dealt a heavy blow with the
news that President Yeltsin would have to undergo heart surgery.
The fourth quarter of 1996 was altogether more optimistic. The President's
heart operation was successfully completed. Investor interest in Russia
increased due to a very well received ADR placing for the gas company Gazprom, a
successful debut of a sovereign Eurobond issue, and the arrival of the first
Russian company to be listed on the NYSE. During late 1996, management of the
economy returned, as many of the pre-election expenditure promises were left to
wither, and the collection of taxes and state revenue became primary objectives.
Through the end of 1996, the Fund maintained an approximate sector
allocation of 35% in Oil and Gas, 20% Utilities, and 20% Telecoms. In order to
be able to ensure overall liquidity, the Fund maintained a high level of liquid
debt instruments at 20%. Major portfolio holdings included Lukoil, UES,
Rostelecom, and the sovereign Eurobond issue.
Fund Performance
July 3, 1996 December 31, 1996 % Change
------------ ----------------- --------
Unmanaged Moscow Times Index ......... 150.98 143.54 (4.9%)
Unmanaged Russian Trading System Index 227.79 200.50 (12.0%)
Fund Net Asset Value ................. 12.12 11.24 (4.6%)*
Market Strategy and Outlook for 1997
Economy: Increasing focus on the economy is expected in 1997. Monthly
performance will be partly judged by whether or not the government is allowed to
make the regular draw downs on the $10 billion IMF loan. The continuing decrease
of inflation to around 12% for 1997 from 22% in 1996, and 130% in 1995,
controlled ruble depreciation, and the anticipation of GDP growth in 1997 are
among the more positive features of the economy. On the negative side, there
remains the risk of labor unrest due to the inability to fully escape from the
clutches of the barter cycle.
Politics: The President's health remains a distraction. New presidential
elections in the event of Yeltsin's death or incapacity would create
uncertainty. The communist draw at the polls is, however, likely to decline as
restructuring advances. In the meantime, likely successors hovering in the wings
include Prime Minister Chernomyrdin, former General Lebed, and Moscow Mayor
Luzhkov.
1
<PAGE>
Markets: Investors are likely to increase their Russia weighting. This
process is already underway in the first weeks of 1997. Investors are keen to
see whether Russia can repeat its 1996 feat of showing the best performance
among emerging markets, recording an increase of over 150% according to the
unmanaged International Finance Corporation Global Russia Index. Primary
interest remains among the more liquid shares, and in particular among those
shares where an ADR has been created. The Fund will aim to emulate this trend.
There is still considerable risk in this market; so although our long term
outlook is quite bullish we expect a continuation of volatility over the near
term. Sincerely,
Gavin Rankin Nancy Herring Robert M. DeMichele
Portfolio Manager Portfolio Manager President
February, 1997 February, 1997 February, 1997
CHART/BEGIN
Printed version of this shareholder report contains a
graphic chart indicating the comparison of change in
value of a $10,000 investment in Lexington Troika
Dialog Russia Fund, Inc., the unmanaged Moscow Times (MT)
Index and the unmanaged Russian Trading System (RTS)
Index from 7/3/96 through 12/31/96.
CHART/END
*-9.01% is the since commencement (7/3/96) average annual standard total return
for the period ended December 31, 1996. Investment return and principal value
of an investment will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than their original cost. Total return represents
past performance and is not predictive of future results.
2
<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
----------
3
<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
----------
4
<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.
5
<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.
6
<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.
7
<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.
8
<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.
9
<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
--------- -----------
10
<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.
11
<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>
12
<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>
13
<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
14
<PAGE>
(left column)
LEXINGTON
INVESTOR SERVICES
- ---------------------------------------------
As a Lexington shareholder, you should be
aware of the many services available to you.
No Load-The Lexington Funds are no load
funds. That is, investments and redemptions
are made without any sales charges,
commissions or redemption fees.
----------
Free Telephone Exchange-Investments in the
Lexington Funds may be exchanged for shares
of a different Lexington Fund at any time.
----------
Check Writing Privileges-Lexington Money
Market Trust and Lexington Tax Free Money
Fund permit investors immediate access to
their funds with check writing for
withdrawals from their account.
----------
Tax Sheltered Plans-IRA, Keogh, Pension, and
Profit Sharing Prototype Plans are available
to qualified individuals. These plans offer
investment flexibility through the Share
Exchange Service, simplified record keeping,
convenience and investment supervision.
----------
Custodial Accounts for Minors-Investments may
be made on behalf of minors under the Uniform
Gifts to Minors Act currently in effect in
all states.
----------
Systematic Withdrawal Plan-An investor may
elect to receive a fixed amount from his or
her account each month or quarter, subject to
certain minimums.
----------
Complete Record Keeping-A statement is
provided for every transaction in addition to
a year-end statement with tax information.
(right column)
The Lexington Group of
No Load Investment Companies
Lexington Worldwide Emerging Markets Fund, Inc.
- -Seeks long-term growth of capital primarily through invest-
ment in equity securities of companies domiciled in, or doing
business in, emerging countries and emerging markets.
Lexington Global Fund, Inc. - Seeks long-term growth
of capital primarily through investment in common stocks of
companies domiciled in foreign countries and the United
States.
Lexington International Fund, Inc. - Seeks long-term
growth of capital through investment in companies domiciled in
foreign countries.
Lexington Troika Dialog Russia Fund, Inc. - Seeks
long-term capital appreciation through investments primarily
in the equity securities of Russian companies.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
- - Seeks long-term capital appreciation through investment in
companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
Lexington Ramirez Global Income Fund - Seeks high
current income. Capital appreciation is a secondary objective.
The Fund invests in a combination of foreign and domestic
high-yield, lower rated debt securities.
Lexington Goldfund, Inc. - Seeks capital appreciation
through investment in gold bullion and shares of gold mining
companies.
Lexington Growth and Income Fund, Inc. - Seeks
capital appreciation over the long-term through investments in
the stocks of large, ably managed and well financed companies.
Lexington Corporate Leaders Trust Fund - Seeks
capital growth and reasonable income through investment in an
equal number of shares of an established list of American blue
chip corporations.
Lexington SmallCap Value Fund, Inc. - Seeks long-
term capital appreciation through investment in common stocks
of companies domiciled in the United States with a market
capitalization of less than $1 billion.
Lexington Convertible Securities Fund - Seeks total
return by providing capital appreciation, current income and
conservation of capital through investments in a diversified
portfolio of securities convertible into shares of common
stock.
Lexington GNMA Income Fund, Inc. - Seeks to achieve
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.
Lexington Money Market Trust - Seeks a high level of
current income consistent with preservation of capital and
liquidity through investments in interest bearing short-term
money market instruments.
Lexington Tax Free Money Fund, Inc. - Seeks current
income exempt from Federal income taxes while maintaining
stability of principal, liquidity and preservation of capital.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
*Redemptions on shares of Lexington Troika Dialog Russia Fund, Inc. held less
than 365 days are subject to a redemption fee of 2% of the redemption proceeds.
15
<PAGE>
(left column)
Lexington
Troika Dialog Russia Fund, Inc.
Investment Adviser
- ----------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
- ----------------------------------------------------------
Troika Dialog Asset Management
6/3 1st Kolobovsky Per
Moscow, 103051 Russia
Distributor
- ----------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
------------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
Outside U.S. (201) 845-7300
------------------------------------------
- ----------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield * Account Balances * Exchanges *
Last Transactions * Total Return * Duplicate Statements
- ----------------------------------------------------------
This report has been prepared for the information of the
shareholders of Lexington Troika Dialog Russia Fund, Inc.
and is authorized for distribution to the public only if
it is accompanied or preceded by a currently effective
prospectus which sets forth expenses and other material
information.
(right column)
------------------------
LEXINGTON
------------------------
------------------------
LEXINGTON
TROIKA
DIALOG
RUSSIA
FUND, INC.
(filled box)
(filled box)
ANNUAL REPORT
DECEMBER 31, 1996
The Lexington Group
of No Load
Investment Companies
------------------------
