As filed with the Securities and Exchange Commission on March 2, 1998
Registration No. 333-2265
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 3 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 4 X
(Check appropriate box or boxes.)
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
-----------------------------------------
(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
-------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Troika Dialog Russia Fund, Inc.
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
-----------------------------------------
(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue, New York, New York 10022
It is proposed that this filing will become effective 60 days
after filing, pursuant to paragraph (a) of Rule 485.
---------------------------------------
The Registrant has registered an indefinite number of shares
pursuant to Section 24(f) of the Investment Company Act of 1940. A
Rule 24(f)(2) notice for the Registrant's fiscal year ending December
31, 1997, will be filed by March 31, 1998.
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- --------------- ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 12
4. General Description of Registrant 3
5. Management of the Fund 42
5a. Management's Discussion of Fund Performance *
6. Capital Stock and Other Securities 61
7. Purchase of Securities Being Offered 51
8. Redemption or Repurchase 54
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ----------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 61 (Part A)
13. Investment Objectives and Policies 20 (Part A)
14. Management of the Registrant 2
15. Control Persons and Principal Holders 6
of Securities
16. Investment Advisory and Other Services 6
17. Brokerage Allocation and Other Practices 7
18. Capital Stock and Other Securities 61 (Part A)
19. Purchase, Redemption and Pricing of 51, 54 (Part A)
securities being offered
20. Tax Status 9
21. Underwriters 6 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 16 (Part B)
PART C
- ------
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C to this
Registration Statement.
* Not Applicable
<PAGE>
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
24 Hour Investor Information--1-800-526-0057
PROSPECTUS
May 1, 1998
The following eleven mutual funds (each a "Fund," and collectively the
"Funds") are offered in this Prospectus:
Fund Name NASDAQ Symbol
Lexington Crosby Small Cap Asia Growth Fund, Inc. LXCAX
Lexington Global Corporate Leaders Fund, Inc, LXGLX
(formerly, Lexington Global Fund, Inc.)
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 Fund, Inc. LESVX
(formerly, Lexington SmallCap ValueFund, Inc.)
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 Ramirez Global Income Fund 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
<PAGE>
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. These risks are discussed more
fully on page 37 of this Prospectus, and investors should read these sections in
detail. The Fund may not be appropriate for all investors. As with all mutual
funds, there is no guarantee a Fund will achieve its objective.
Please read this Prospectus before investing and retain it for future
reference. A Statement of Additional Information dated May 1, 1998, 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.
2
<PAGE>
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 .............. 27
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
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 equity securities
and equivalents of companies in the Asia Region having market capitalizations of
less than $1 billion.
Lexington Global Corporate Leaders Fund, Inc.
The Lexington Global Corporate Leaders Fund's investment objective is to
seek long term growth of capital through investment in equity securities and
equivalents of foreign and U.S. companies. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in a diversified
portfolio of blue chip securities that in the opinion of the Fund represent
"corporate leaders" in their respective industries.
Lexington International Fund, Inc.
The Lexington International Fund's investment objective is to seek
long-term growth of capital through investment in equity securities and
equivalents of companies outside the United States.
3
<PAGE>
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 or unrated debt securities.
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 and equivalents of emerging market companies.
Domestic Equity Funds
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. The Fund
will seek to achieve its objective over the long term through investment in the
stocks of large, ably managed and well financed companies.
Lexington SmallCap Fund, Inc.
The Lexington SmallCap Fund's principal investment objective is long term
capital appreciation. The Lexington SmallCap Fund will seek to obtain its
objective through investment in equity securities and equivalents primarily of
domestic companies having market capitalizations 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,
4
<PAGE>
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.
Fees and Expenses of the Funds
Shareholder Transaction Expenses
An investor would pay the following charges when buying or redeeming
shares of a Fund:
- --------------------------------------------------------------------------------
Maximum
Maximum Sales
Sales Load Imposed
Load Imposed on Reinvested Deferred Sales Redemption
on Purchases Dividends Load Fees+ Exchange Fees
- --------------------------------------------------------------------------------
None None None None None
- --------------------------------------------------------------------------------
+ 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>
International Funds
Lexington Crosby Small Cap Asia Growth Fund 1.25 1.05 2.30*
Lexington Global Corporate Leaders Fund, Inc. 1.00 0.75 1.75
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 0.35 1.85**
Lexington Worldwide Emerging Markets Fund 1.00 0.82 1.82
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic Equity Funds
Lexington Growth and Income Fund 0.64 0.25 0.28 1.17
Lexington SmallCap Fund 1.00 0.25 1.32 2.57*
- ------------------------------------------------------------------------------------------------------------------------------------
Precious Metals Funds
Lexington Goldfund 0.90 0.25 0.50 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Domestic Fixed-Income Funds
Lexington GNMA Income Fund 0.60 0.41 1.01
- ------------------------------------------------------------------------------------------------------------------------------------
Money Market Funds
Lexington Money Market Trust 0.50 0.50 1.00*
* Net of reimbursement or waivers
**Net of redemption fee proceeds
</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:
1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------
Lexington Crosby Small Cap Asia Growth Fund 23.31 71.84 123.02 263.57
Lexington Global Corporate Leaders Fund 17.78 55.11 94.89 206.24
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 39.42 58.17 100.07 216.92
Lexington Worldwide Emerging Markets Fund 18.49 57.25 98.52 213.73
Lexington Growth and Income Fund 11.92 37.16 64.37 142.04
Lexington SmallCap Fund 26.01 79.95 136.54 290.49
Lexington Goldfund 16.78 52.03 89.69 195.45
Lexington GNMA Income Fund 10.30 32.15 55.79 123.62
Lexington Money Market Trust 10.20 31.84 55.25 122.46
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,
1988 (or inception of Fund, if later), through December 31, 1997, was audited
by KPMG Peat Marwick LLP, whose reports, appear in the 1997 Annual Reports of
the Funds.
Lexington Crosby Small Cap Asia Growth Fund
<TABLE>
<CAPTION>
July 3, 1995
(commencement of operations)
1997 1996 to December 31, 1995
-------- -------- ---------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 12.24 $ 9.76 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) on investments (5.13) 2.54 (0.24)
- -----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (5.18) 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 $ 7.06 $ 12.24 $ 9.76
- -----------------------------------------------------------------------------------------------------------------------------
Total return (42.32%) 25.50% (4.39)%*
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
Expenses, before reimbursement or waiver 2.30% 2.64% 3.51%*
- -----------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.30% 2.42% 1.75%*
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), before reimbursement or waiver (0.32%) (0.86)% (1.24)%*
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), net of reimbursement or waiver (0.32%) (0.64)% 0.52%*
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 187.41% 176.49% 40.22%*
- -----------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions** $ 0.005 -- --
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 13,867 $ 23,796 $ 8,936
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** The average commission paid on equity security transactions for the
year ended December 31, 1996 was less than $0.005 per share of securities
purchased and sold. In accordance with SEC disclosure guidelines, the
average commissions paid on equity security transactions are calculated
for the periods beginning with the year ended December 31, 1996, but not
for prior periods.
8
<PAGE>
Lexington Global Corporate Leaders Fund
<TABLE>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.28 $ 11.32 $ 11.17 $ 13.51 $ 11.09
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.03 0.01 0.09 0.02 0.06
Net realized and unrealized gain (loss)
on investments 0.73 1.84 1.10 0.23 3.47
Total income (loss)
from investment operations 0.76 1.85 1.19 0.25 3.53
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.09) (0.16) (0.29) -- (0.06)
Distributions in excess of net investments
income (temporary book-tax difference) -- -- (0.13) -- --
- ----------------------------------------------------------------------------------------------------------
Dividends from net realized capital gains (1.36) (1.73) (0.62) (2.46) (1.05)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- -- (0.13) --
- ----------------------------------------------------------------------------------------------------------
Total distributions (1.45) (1.89) (1.04) (2.59) (1.11)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.59 $ 11.28 $ 11.32 $ 11.17 $ 13.51
- ----------------------------------------------------------------------------------------------------------
Total return 6.90% 16.43% 10.69% 1.84% 31.88%
- ----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------
Expenses 1.75% 1.90% 1.67% 1.61% 1.49%
- ----------------------------------------------------------------------------------------------------------
Net investment income 0.23% 0.11% 0.48% 0.14% 0.52%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover 117.48% 128.05% 166.35% 83.40% 84.61%
- ----------------------------------------------------------------------------------------------------------
Average commission paid on equity SEC transactions* $ 0.01 $ 0.03 -- -- --
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $35,085 $37,223 $53,614 $67,392 $87,313
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.57 $ 10.26 $ 12.83 $ 10.89 $ 9.89
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.06 0.09 0.11 0.01 0.02
Net realized and unrealized gain (loss)
on investments (0.47) 1.50 (2.25) 2.72 1.56
Total income (loss)
from investment operations (0.41) 1.59 (2.14) 2.73 1.58
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.07) (0.08) (0.11) (0.02) (0.02)
Distributions in excess of net investments
income (temporary book-tax difference) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Dividends from net realized capital gains -- (0.20) (0.32) (0.77) (0.56)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Total distributions (0.07) (0.28) (0.43) (0.79) (0.58)
Net asset value, end of period $ 11.09 $ 11.57 $ 10.26 $ 12.83 $ 10.89
Total return (3.55%) 15.55% (16.75%) 25.10% 15.99%
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------
Expenses 1.52% 1.57% 1.59% 1.64% 1.80%
- ----------------------------------------------------------------------------------------------------------
Net investment income 0.55% 0.79% 0.99% 0.13% 0.12%
Portfolio turnover 81.38% 75.71% 81.88% 113.58% 96.90%
Average commission paid on equity SEC transactions* -- -- -- -- --
Net assets, end of period (000's omitted) $50,298 $53,886 $50,501 $57,008 $38,150
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
9
<PAGE>
Lexington International Fund
<TABLE>
<CAPTION>
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.86 $10.60 $10.37 $10.00
Income (loss) from investment operations:
Net investment income (loss) 0.07 (.02) (.01) (.08)
Net realized and unrealized gain on investments 0.10 1.45 .61 .67
- ------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.17 1.43 .60 .59
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.13) (.20) -- --
Dividends in excess of net investment income
(temporary book-tax difference) -- -- (.35) --
Distributions from net realized capital gains (0.80) (.97) (.02) (.10)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- -- (.12)
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.93) (1.17) (.37) (.22)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.10 $10.86 $10.60 $10.37
- ------------------------------------------------------------------------------------------------------------------------------
Total return 1.61% 13.57% 5.77% 5.87%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.15% 2.45% 2.46% 2.39%
- ------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.75% 2.45% 2.46% 2.39%
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), before reimbursement or waiver 0.13% (0.39%) (.12%) (.94%)
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), net of reimbursement or waiver 0.53% (0.39%) (.12%) (.94%)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 122.56% 113.55% 137.72% 100.10%
- ------------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* $0.01 $0.03 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $19,949 $18,891 $17,855 $17,843
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
10
<PAGE>
Lexington Ramirez Global Income Fund
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.22 $ 10.75 $ 9.80 $ 10.95 $ 10.39 $ 10.35
Income (loss) from investment operations:
Net investment income 1.04 1.01 0.96 0.46 0.53 0.61
Net realized and unrealized gain (loss)
on investments (0.50) 0.36 0.95 (1.16) 0.58 0.04
- -------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.54 1.37 1.91 (0.70) 1.11 0.65
- -------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.91) (0.86) (0.96) (0.45) (0.55) (0.61)
Distributions from net realized gains (0.27) (.04) -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions (1.18) (.90) (0.96) (0.45) (0.55) (0.61)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.58 $ 11.22 $ 10.75 $ 9.80 $ 10.95 $ 10.39
- -------------------------------------------------------------------------------------------------------------
Total return 5.00% 13.33% 20.10% (6.52%) 10.90% 6.51%
- -------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.17% 2.33% 3.07% 1.80% 1.44% 1.54%
- -------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.50% 1.50% 2.75% 1.50% 1.44% 1.50%
- -------------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 8.99% 9.49% 9.48% 4.18% 4.83% 5.88%
- -------------------------------------------------------------------------------------------------------------
Net investment income, net of
reimbursement or waiver 9.66% 10.32% 9.80% 4.48% 4.83% 5.92%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover 117.94% 71.83% 164.72% 10.20% 31.06% 31.24%
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $23,668 $29,110 $12,255 $10,351 $14,576 $13,085
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.05 $ 10.12 $ 10.03 $ 9.67
Income (loss) from investment operations:
Net investment income 0.67 0.73 0.63 0.63
Net realized and unrealized gain (loss)
on investments 0.30 (0.09) 0.09 0.36
- ---------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.97 0.64 0.72 0.99
- ---------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.67) (0.71) (0.63) (0.63)
Distributions from net realized gains -- -- -- --
- ---------------------------------------------------------------------------------------
Total distributions (0.67) (0.71) (0.63) (0.63)
- ---------------------------------------------------------------------------------------
Net asset value, end of period $ 10.35 $ 10.05 $ 10.12 $ 10.03
- ---------------------------------------------------------------------------------------
Total return 10.03% 6.62% 7.40% 10.54%
- ---------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 1.65% 1.61% 1.72% 1.50%
- ---------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.12% 1.08% 1.20% 1.33%
- ---------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 6.11% 6.67% 5.70% 6.16%
- ---------------------------------------------------------------------------------------
Net investment income, net of
reimbursement or waiver 6.64% 7.20% 6.22% 6.33%
- ---------------------------------------------------------------------------------------
Portfolio turnover 29.45% 44.50% 46.60% 67.11%
- ---------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $12,252 $10,707 $12,739 $13,139
- ---------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
Lexington Troika Dialog Russia Fund
<TABLE>
<CAPTION>
July 3, 1996 to
1997 December 31, 1996**
---- -------------------
<S> <C> <C>
Net asset value, beginning of period $11.24 $12.12
- ------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.01) (0.05)
Net realized and unrealized gain (loss) on investments 7.57 (0.51)
- ------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 7.56 (0.56)
- ------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (1.30) (0.32)
- ------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (0.32)
- ------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.50 $11.24
- ------------------------------------------------------------------------------------------------------------
Total return 67.50% (9.01)%*
- ------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
Expenses, before reimbursement or redemption fee proceeds 2.89% 5.07%*
- ------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or redemption fee proceeds 1.85% 2.65%*
- ------------------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waivers (1.14)% (3.69)%*
- ------------------------------------------------------------------------------------------------------------
Net investment loss, net of reimbursement or waivers (0.11)% (1.27)%*
- ------------------------------------------------------------------------------------------------------------
Portfolio turnover 66.84% 115.55%*
- ------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions -- --***
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $137,873 $13,846
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* 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 year
ended December 31, 1997 and for the period ended December 31, 1996 was less
than $0.005 per share of securities purchased and sold.
12
<PAGE>
Lexington Worldwide Emerging Markets Fund
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.49 $ 10.70 $ 11.47 $ 13.96 $ 8.66
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.01 -- 0.08 (0.01) 0.05
Net realized and unrealized gain (loss)
on investments (1.32) 0.79 (0.76) (1.92) 5.43
- ----------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (1.31) 0.79 (0.68) (1.93) 5.48
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- (0.08) -- (0.01)
Distributions in excess of net investment
income (temporary book-tax difference) -- -- (0.01) -- --
Distributions from net realized gains -- -- -- (0.47) (0.17)
Distributions in excess of net realized gains
(temporary book-tax difference) -- -- -- (0.09) --
Total distributions -- -- (0.09) (0.56) (0.18)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.18 $ 11.49 $ 10.70 $ 11.47 $ 13.96
- ----------------------------------------------------------------------------------------------------------
Total return (11.40%) 7.38% (5.93%) (13.81%) 63.37%
- ----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.82% 1.76% 1.88% 1.65% 1.64%
- ----------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.09% (0.01)% 0.70% (0.06)% 0.21%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover 112.05% 86.26% 92.85% 75.56% 38.35%
- ----------------------------------------------------------------------------------------------------------
Average commission paid on equity security
transactions* $ 0.00 $ 0.00 -- -- --
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $137,686 $254,673 $265,544 $288,581 $230,473
- ----------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.03 $ 8.56 $ 10.79 $ 8.72 $ 8.01
- ----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.07 0.09 0.25 0.13 0.12
Net realized and unrealized gain (loss)
on investments 0.27 1.97 (1.81) 2.32 0.71
- ----------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.34 2.06 (1.56) 2.45 0.83
- ----------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.11) (0.24) (0.21) (0.12)
Distributions in excess of net investment
income (temporary book-tax difference) -- -- -- -- --
Distributions from net realized gains (0.60) (1.48) (0.43) (0.17) --
Distributions in excess of net realized gains
(temporary book-tax difference) -- -- -- -- --
Total distributions (0.71) (1.59) (0.67) (0.38) (0.12)
- ----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.66 $ 9.03 $ 8.56 $ 10.79 $ 8.72
- ----------------------------------------------------------------------------------------------------------
Total return 3.77% 24.19% (14.44%) 28.11% 10.36%
- ----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.89% 1.97% 1.42% 1.36% 1.33%
- ----------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.75% 0.79% 2.52% 1.18% 1.27%
- ----------------------------------------------------------------------------------------------------------
Portfolio turnover 91.27% 112.03% 52.48% 59.07% 47.63%
- ----------------------------------------------------------------------------------------------------------
Average commission paid on equity security
transactions* -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $30,021 $25,060 $22,192 $29,126 $26,389
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* The average commission paid on equity security transactions for the years
ended December 31, 1997 and 1996 is less than $0.005 per share of
securities purchased and sold. In accordance with SEC disclosure
guidelines, average commissions are calculated beginning with the year
ended December 31, 1996, but not for prior periods.
13
<PAGE>
Lexington Growth and Income Fund
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 18.56 $ 15.71 $ 14.36 $ 16.16 $ 16.25
Income from investment operations:
Net investment income 0.05 0.07 0.22 0.17 0.21
Net realized and unrealized gain (loss)
on investments 5.46 4.08 3.00 (0.68) 1.94
- --------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 5.51 4.15 3.22 (0.51) 2.15
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.07) (0.13) (0.22) (0.16) (0.21)
Distributions from net realized capital gains (3.73) (1.17) (1.65) (0.91) (2.03)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- -- (0.22) --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (3.80) (1.30) (1.87) (1.29) (2.24)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 20.27 $ 18.56 $ 15.71 $ 14.36 $ 16.16
- --------------------------------------------------------------------------------------------------------------------
Total return 30.36% 26.46% 22.57% (3.11%) 13.22%
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.17% 1.13% 1.09% 1.15% 1.29%
- --------------------------------------------------------------------------------------------------------------------
Net investment income 0.21% 0.43% 1.38% 1.06% 1.20%
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 88.15% 101.12% 159.94% 63.04% 93.90%
- --------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions* $ 0.07 $ 0.07 -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $228,037 $200,309 $138,901 $124,289 $134,508
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 16.39 $ 14.24 $ 16.19 $ 14.39 $ 13.58
Income from investment operations:
Net investment income 0.23 0.35 0.60 0.50 0.46
Net realized and unrealized gain (loss)
on investments 1.79 3.17 (2.25) 3.44 0.80
- --------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 2.02 3.52 (1.65) 3.94 1.26
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.32) (0.35) (0.30) (0.60) (0.45)
Distributions from net realized capital gains (1.84) (1.02) -- (1.54) --
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Total distributions (2.16) (1.37) (0.30) (2.14) (0.45)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.25 $ 16.39 $ 14.24 $ 16.19 $ 14.39
- --------------------------------------------------------------------------------------------------------------------
Total return 12.36% 24.87% (10.27%) 27.56% 9.38%
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- --------------------------------------------------------------------------------------------------------------------
Expenses 1.20% 1.13% 1.04% 1.02% 1.10%
- --------------------------------------------------------------------------------------------------------------------
Net investment income 2.57% 2.19% 3.91% 2.82% 3.20%
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 88.13% 80.33% 67.39% 64.00% 81.10%
- --------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions* -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $126,241 $121,263 $104,664 $128,329 $111,117
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
14
<PAGE>
Lexington SmallCap Fund
<TABLE>
<CAPTION>
January 2, 1996
(commencement of operations)
1997 December 31, 1996
---- ---------------------------
<S> <C> <C>
Net asset value, beginning of period $11.73 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.19) (0.18)
Net realized and unrealized gain on investments 1.41 1.94
- --------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.22 1.76
- --------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.15) --
Distributions from net realized capital gains (1,41) (0.03)
- --------------------------------------------------------------------------------------------------------------------
Total distributions (1.56) --
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.39 $11.73
- --------------------------------------------------------------------------------------------------------------------
Total return 10.47% 17.50%
- --------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- --------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.57% 3.04%
- --------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.57% 2.48%
- --------------------------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (1.78%) (2.34)%
- --------------------------------------------------------------------------------------------------------------------
Net investment loss (1.78%) (1.78)%
- --------------------------------------------------------------------------------------------------------------------
Portfolio turnover 39.09% 60.92%
- --------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions $ 0.04 $ 0.03
- --------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $9,565 $8,061
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
Lexington Goldfund
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 5.97 $ 6.24 $ 6.37 $ 6.90 $ 3.70
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income -- 0.02 -- 0.03 0.01
Net realized and unrealized gain (loss)
on investments (2.52) 0.50 (0.12) (0.53) 3.21
- ------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (2.52) 0.52 (0.12) (0.50) 3.22
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.21) (0.79) (0.01) (0.03) (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.21) (0.79) (0.01) (0.03) (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.24 $ 5.97 $ 6.24 $ 6.37 $ 6.90
- ------------------------------------------------------------------------------------------------------------------------
Total return (42.98%) 7.84% (1.89%) (7.28%) 89.96%
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.65% 1.60% 1.70% 1.54% 1.63%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.17% (0.32)% 0.07% 0.50% 0.25%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 38.32% 31.04% 40.41% 23.77% 28.41%
- ------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* .02 .02 -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 53,707 $ 109,287 $ 135,779 $ 159,435 $ 159,479
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20
- ------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02 0.04 0.04 0.05 0.04
Net realized and unrealized gain (loss)
on investments (0.98) (0.35) (1.36) 1.18 (0.98)
- ------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (0.96) (0.31) (1.32) 1.23 (0.94)
- ------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02) (0.04) (0.04) (0.05) (0.05)
- ------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.04) (0.04) (0.05) (0.05)
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 3.70 $ 4.68 $ 5.03 $ 6.39 $ 5.21
- ------------------------------------------------------------------------------------------------------------------------
Total return (20.51%) (6.14%) (20.35%) 23.6 (15.18%)
- ------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ------------------------------------------------------------------------------------------------------------------------
Expenses 1.69% 1.43% 1.36% 1.42% 1.61%
- ------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.58% 0.81% 0.69% 1.14% 0.78%
- ------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 13.18% 22.14% 12.43% 15.98% 20.45%
- ------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 71,856 $ 96,316 $ 106,074 $ 154,484 $ 92,782
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
** In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
16
<PAGE>
Lexington GNMA Income Fund
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.12 $ 8.19 $ 7.60 $ 8.32 $ 8.26
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.51 0.53 0.58 0.55 0.59
Net realized and unrealized gain (loss)
on investments 0.29 (0.08) 0.59 (0.72) 0.06
- -------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.80 0.45 1.17 (0.17) 0.65
Less distributions:
Dividends from net investment income (0.52) (0.52) (0.58) (0.55) (0.59)
Distributions from net realized capital gains -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.52) (0.58) (0.55) (0.59)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.40 $ 8.12 $ 8.19 $ 7.60 $ 8.32
- -------------------------------------------------------------------------------------------------------------
Total return 10.20% 5.71% 15.91% (2.07%) 8.06%
- -------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- -------------------------------------------------------------------------------------------------------------
Expenses 1.01% 1.05% 1.01% 0.98% 1.02%
- -------------------------------------------------------------------------------------------------------------
Net investment income 6.28% 6.56% 7.10% 6.90% 6.96%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover 134.28% 128.76% 30.69% 37.15% 52.34%
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $158,071 $133,777 $130,681 $132,108 $149,961
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.45 $ 7.90 $ 7.88 $ 7.45 $ 7.58
- -------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.61 0.64 0.65 0.69 0.64
Net realized and unrealized gain (loss)
on investments (0.19) 0.55 0.03 0.42 (0.13)
- -------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.42 1.19 0.68 1.11 0.51
Less distributions:
Dividends from net investment income (0.61) (0.64) (0.66) (0.68) (0.61)
Distributions from net realized capital gains -- -- -- -- (0.03)
- -------------------------------------------------------------------------------------------------------------
Total distributions (0.61) (0.64) (0.66) (0.68) (0.64)
- -------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.26 $ 8.45 $ 7.90 $ 7.88 $ 7.45
- -------------------------------------------------------------------------------------------------------------
Total return 5.19% 15.75% 9.23% 15.60% 6.90%
- -------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- -------------------------------------------------------------------------------------------------------------
Expenses 1.01% 1.02% 1.04% 1.03% 1.07%
- -------------------------------------------------------------------------------------------------------------
Net investment income 7.31% 7.97% 8.43% 8.88% 8.31%
- -------------------------------------------------------------------------------------------------------------
Portfolio turnover 180.11% 138.71% 112.55% 102.66% 233.48%
- -------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $132,048 $122,191 $ 98,011 $ 96,465 $ 97,185
- -------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Lexington Money Market Trust
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0458 0.0441 0.0495 0.0330 0.0230
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0458) (0.0441) (0.0495) (0.0330) (0.0230)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
Total return 4.68% 4.50% 5.06% 3.35% 2.32%
- ----------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.04% 1.04% 1.08% 1.02% 1.00%
- ----------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 1.00% 1.00% 1.00%
- ----------------------------------------------------------------------------------------------------
Net investment income, before
- ----------------------------------------------------------------------------------------------------
reimbursement 4.55% 4.37% 4.87% 3.30% 2.30%
- ----------------------------------------------------------------------------------------------------
Net investment income, net of
- ----------------------------------------------------------------------------------------------------
reimbursement 4.58% 4.41% 4.95% 3.32% 2.30%
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 95,149 $ 97,526 $ 88,786 $111,805 $ 94,718
- ----------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0299 0.0532 0.0732 0.0828 0.0678
- ----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0299) (0.0532) (0.0732) (0.0828) (0.0678)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ----------------------------------------------------------------------------------------------------
Total return 3.03% 5.45% 7.56% 8.60% 7.00%
- ----------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.03% 1.02% 0.97% 0.99% 0.97%
- ----------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 0.97% 0.99% 0.97%
- ----------------------------------------------------------------------------------------------------
Net investment income, before
- ----------------------------------------------------------------------------------------------------
reimbursement 2.99% 5.35% 7.32% 8.29% 6.74%
- ----------------------------------------------------------------------------------------------------
Net investment income, net of
- ----------------------------------------------------------------------------------------------------
reimbursement 3.02% 5.37% 7.32% 8.29% 6.74%
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $111,453 $143,137 $176,127 $182,703 $192,079
- ----------------------------------------------------------------------------------------------------
</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 Global Corporate 100% 0% Global Value Over
Leaders Fund $1 billion
-----------------------------------------------------------------------------------------
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 Growth 100% 0% Capital Appreciation Any size
and Income Fund and Income
-----------------------------------------------------------------------------------------
Lexington SmallCap 100% 0% U.S. Small-Cap Between
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 equity securities
and equivalents of companies in the Asia Region having market capitalizations of
less than $1 billion. Under normal conditions, the Fund will invest at least 65%
of its total assets in this manner. The Fund considers the following to be
countries in the Asia Region: Bangladesh, China, Hong Kong, India, Indonesia,
Korea, Malaysia, Pakistan, The Phillippines, Singapore, Sri Lanka, Taiwan,
Thailand and Vietnam. The Fund does not intend to invest in Japanese securities.
The Fund considers a company to be within the Asia Region if it is organized
under the laws of a country located in the Asia Region, if its principal
securities trading market is located in the Asia Region, and if it derives at
least 50% of its revenues or profits from the Asia Region. The Fund generally
invests the remaining 35% of its total assets in a similar manner, but may
invest those assets in companies having market capitalizations of $1 billion or
more, in securities of companies located outside the Asia Region (for example,
Australia or New Zealand), or in debt securities or other investments (see
"Portfolio Securities" and "Other Investment Practices"). The Fund will invest
primarily in companies listed on stock exchanges but may also invest in unlisted
securities. Under normal market conditions, the Fund maintains investments in at
least three Asian countries at all times.
The Fund invests in companies with proven management that are undervalued
and under-researched by the investment community, and that are within industry
sectors with particularly strong growth prospects. There are approximately 3,000
small capitalization companies in the Asia Region which will be the primary
focus of the Fund's investments. The market value of small capitalization
companies in the Asia Region tends to be volatile, and in the past has offered
greater potential for gain as well as loss than securities traded in developed
countries. It is possible that the Fund investments could be subject to foreign
expropriation or exchange control restrictions. (see "Risk Considerations.") The
Fund intends to select securities which could have enhanced growth prospects and
which may provide investment returns superior to the Asian market as a whole.
----------
Lexington Global Corporate Leaders Fund, Inc.
The investment objective of the Lexington Global Corporate Leaders Fund is
to seek long-term growth of capital through investment in equity securities and
equivalents of foreign and U.S. companies. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in a
20
<PAGE>
diversified portfolio of blue chip securities that in the opinion of the Manager
represents "corporate leaders" in their respective industries. The Fund may
invest in securities of companies in the following regions (including
governments of these regions): the Asia Region (including Japan); Europe;
Central and South America; Africa, North America (including the U.S. and Canada)
and such other areas and countries as the Manager may decide from time to time.
The Fund generally invests the remaining 35% of its total assets in a similar
manner, but may invest those assets in securities of smaller capitalization
companies, debt securities or other investments (see "Portfolio Securities" and
"Other Investment Practices"). Under normal market conditions, the Fund will
maintain investments in three countries at all times, however the Fund is not
required to maintain any particular geographic or currency mix of its
investments.
It is possible that certain investments could be subject to foreign
expropriation or exchange control restrictions (see "Risk Considerations.") The
Fund may choose to invest in foreign debt securities when it appears that the
capital appreciation available from investments in such securities will equal or
exceed the capital appreciation from investments in equity securities. The
market value of debt securities varies inversely to changes in prevailing
interest rates, and investing in debt securities may provide an opportunity for
capital appreciation when interest rates are expected to decline. With respect
to debt securities, the Fund will invest in investment grade obligations and
non-rated obligations of comparable quality. There is no particular proportion
of stocks, bonds or other securities that the Fund is required to maintain. The
Fund intends to select the countries, currencies, and companies providing the
greatest potential for long-term growth.
----------
Lexington International Fund, Inc.
The investment objective of the Lexington International Fund is to seek
long-term growth of capital through investment in equity securities and
equivalents of companies outside the United States. The Fund will invest at
least 65% of its total assets in this manner. The Fund may invest in securities
of companies in the following regions (including governments of these regions):
the Asia Region (including Japan); Europe; Latin America; Africa and such other
areas and countries as the Manager may decide from time to time. The Fund
generally invests the remaining 35% of its total assets in a similar manner, but
may invest those assets in companies in the United States, in debt securities or
other investments (see "Portfolio Securities" and "Other Investment Practices").
Under normal market conditions, the Fund will maintain investments in three
foreign countries at all times, however the
21
<PAGE>
Fund is not required to maintain any particular geographic or currency mix of
its investments.
The 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. The market value of securities traded on exchanges in
developing countries tends to be volatile, and in the past has offered greater
potential for gain as well as loss than securities traded in developed
countries. It is possible that certain investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations." The
Fund may choose to invest in foreign debt securities when it appears that the
capital appreciation available from investments in such securities will equal or
exceed the capital appreciation from investments in equity securities. The
market value of debt securities varies inversely to changes in prevailing
interest rates, and investing in debt securities may provide an opportunity for
capital appreciation when interest rates are expected to decline. With respect
to debt securities, the Fund will invest in investment grade obligations and
non-rated obligations of comparable quality. There is no particular proportion
of stocks, bonds or other securities that the Fund is required to maintain. The
Fund intends to select the countries, currencies, and companies providing the
greatest potential for long-term growth.
----------
Lexington Ramirez Global Income Fund
The investment objective of the Lexington Ramirez Global Income Fund is to
seek high current income. The Fund invests primarily in a combination of foreign
and domestic high yield, lower rated or unrated debt securities. The
appreciation of capital is a secondary objective. Under normal conditions its
investments will consist of debt securities issued by U.S. and foreign
government agencies and instrumentalities, and debt securities issued by U.S.
companies, companies in developed markets and companies in emerging markets,
including debt securities issued by central banks, commercial banks, and other
corporate entities. Debt securities investments consist of bonds, notes,
debentures and other similar instruments.
The Fund will invest primarily in foreign debt securities whose credit
quality is generally considered equal to U.S. corporate debt securities known as
"junk bonds". It may invest up to 100% of its total assets in domestic and
foreign debt securities that are rated below investment grade, and may also
invest in securities that are in default as to payment of principal and/or
interest. Junk bonds and similarly rated foreign debt securities involve a high
22
<PAGE>
degree of risk and are predominately speculative. The Fund may also invest in
bank loan participations and assignments and other securities (See "Portfolio
Securities", "Investment Practices" and "Risk Considerations"). The Fund's
investments in emerging markets will consist primarily of foreign "junk bonds",
"Brady Bonds", and sovereign debt securities issued by emerging market
governments. The 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, and are considered to have a credit quality below
investment grade. The Fund's ability to achieve its investment objective is thus
more dependent on the Manager's credit analysis than would be the case if the
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
The investment objective of the Lexington Troika Dialog Russia Fund is to
seek long-term capital appreciation through investment primarily in equity
securities of Russian companies. Under normal conditions, the Fund seeks to
achieve its objective by investing at least 65% of its total assets in equity
securities of Russian Companies. The Fund may invest the remaining 35% of its
total assets in a similar manner, but may invest those 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, short-term or medium-term debt securities, as
well as 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. The securities in
which the Fund may invest include common stock equivalents (see "Portfolio
Securities" and "Other Investment Practices").
The Fund intends to invest its assets in Russian Companies in a broad
array of industries, including 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 Fund is not permitted to invest more than 25% of the value of
its total assets in any one industry, except that it may invest an unrestricted
amount of its assets in the oil and gas industry. The Fund's investments will
include investments in Russian Companies that have characteristics and business
relationships common to companies outside of Russia, and as a result, outside
economic forces may cause fluctuations in the value of securities held by the
Fund. Under current conditions, the Fund expects to
23
<PAGE>
invest at least 15% of its total assets in very liquid assets to maintain
liquidity and provide stability, however, as the Russian equity markets develop
and the liquidity of Russian securities becomes less of a concern, the Fund may
increase the percentage of its assets invested in Russian equity securities
(also see "Risk Considerations - Concentration in Securities of Russian
Companies"; "Risk Considerations - Settlement and Custody").
----------
Lexington Worldwide Emerging Markets Fund
The investment objective of the Lexington Worldwide Emerging Markets Fund
is to seek long-term growth of capital through investment in equity securities
and equivalents of emerging markets companies. The Fund will invest at least 65%
of its total assets according to this objective. In the opinion of the Manager,
emerging market countries include, but are not limited to, the following: (Asia)
Bahrain, Bangladesh, China, Hong Kong, India, Indonesia, Israel, Jordan,
Lebanon, Malaysia, Oman, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan, Thailand and Turkey; (Europe) Cyprus, Czech Republic, Estonia,
Finland, Greece, Hungary, Poland, Portugal and Russia; (Africa) Algeria,
Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Namibia,
Nigeria, South Africa, Swaziland, Tunisia, Zambia and Zimbabwe; and (Latin
America including the Caribbean) Argentina, Bolivia, Brazil, Chile, Colombia,
Jamaica, Mexico, Nicaragua, Panama, Peru, Venezuela and Trinidad and Tobago).
The Manager considers an emerging markets company to be any company domiciled in
an emerging country, or any company that derives 50% or more of its total
revenue from either goods or services produced or sold in emerging countries.
Under normal conditions, the Fund maintains investments in at least three
countries outside the United States.
The Fund generally invests the remaining 35% of its assets in a similar
manner, but may invest in equity securities without regard to whether they
qualify as emerging country or emerging market 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, short-term or
medium-term debt securities or other securities (see "Portfolio Securities" and
"Other Investment Practices"). (Also see "Risk Considerations").
----------
Lexington Growth and Income Fund
The principal investment objective of Lexington Growth and Income Fund is
long-term capital appreciation. Income is a secondary objective. The Fund will
invest at least 65% of its total assets in common stocks of U.S.
24
<PAGE>
companies, which may include senior securities convertible into shares of common
stock. The Fund seeks to achieve its objective over the long-term through
investment in the stocks of large, ably managed and well financed companies.
Income is a secondary objective. The Fund generally invests the remaining 35% of
its total assets in a similar manner, but may invest those assets in foreign
securities, depository receipts, or other types of investments (see "Portfolio
Securities").
----------
Lexington SmallCap Fund
The investment objective of the Lexington SmallCap Fund is long-term
capital appreciation. Under normal conditions, it seeks to achieve its objective
by investing in equity securities and equivalents of domestic companies having
market capitalizations under $1 billion. The Fund will invest at least 90% of
its assets in domestic companies having market capitalizations between $20
million and $1 billion at the time of investment. The Fund may invest the
remaining 10% of its total assets in a similar manner, or 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 Fund will invest primarily in the equity securities of U.S. companies listed
on stock exchanges or traded over-the-counter.
In selecting investments for the Fund, the Manager and Sub-Adviser have
established a universe of small capitalization stocks that are screened using
the Sub-Adviser's proprietary stock selectivity model. Once the stocks are
evaluated and ranked by expected future relative price performance, the Adviser
and Sub-Adviser establish both sector and diversification allocations in
building the portfolio. In addition, the quality of the company and the
risk/reward prospects for each security is reviewed and analyzed. This approach
takes into account both value and growth stocks rather than being limited to
only a value criteria. The Manager and Sub-Adviser believe that this
multi-faceted process will enhance investment performance and will improve the
consistency of portfolio results over time. The Manager and Sub-Adviser can
change the proportion of the Fund's assets that are invested in particular
companies and industries based on its evaluation of the outlook for specific
industries and companies and the economy.
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
25
<PAGE>
engaged in mining or processing gold throughout the world. Under normal
conditions, at least 65% of the value of the total assets of the Fund will be
invested in gold and the securities of companies engaged in mining or processing
gold ("gold-related securities"). The Fund may also invest in other precious
metals, including platinum, palladium and silver. The Fund 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 Fund 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 Fund's investments in gold-related securities appreciate in value
relative to the U.S. dollar, the Fund'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.
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 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"). 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 GNMA
Certificates is scheduled to be paid back by the borrower over the length of the
loan. The remaining assets of the Fund will be invested in other securities
issued or guaranteed by the U.S. Government, including U.S. Treasury securities.
The 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 Fund intends to use the proceeds from principal payments
to purchase additional GNMA Certificates or other U.S. Government guaranteed
securities.
----------
26
<PAGE>
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.
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 Goldfund, Lexington Global Corporate Leaders Fund, Lexington
Growth and Income Fund, Lexington Crosby Small Cap Asia Growth Fund, Lexington
International Fund, Lexington SmallCap 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 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.
27
<PAGE>
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, 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 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
28
<PAGE>
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
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 Brady Bonds have been issued only recently and, accordingly, do
not have a long payment history.
Depository Receipts
Each Lexington Fund (except Lexington Money Market Trust and Lexington
GNMA Income 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 the
timely payment 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
29
<PAGE>
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.
30
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO SECURITIES
DARK SHADE:
Fund invests primarily in these types of investments, or Fund's policy
permits such investments.
[DARK SHADE represented in EDGAR format by X]
LIGHT SHADE:
Within limits, Fund's policy may permit such investments.
[LIGHT SHADE represented in EDGAR format by O]
<TABLE>
<CAPTION>
Lexington
Crosby Lexington Lexington Lexington Lexington Lexington
Small Cap Global Ramirez Troika Worldwide Growth
Asia Corporate Lexington Global Dialog Emerging and
Growth Leaders International Income Russia Markets Income
TYPE OF PORTFOLIO SECURITY Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stocks X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants) O O O O O
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options) O O O * O O
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Convertible Debt Securities) O O O O O O
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Depository Receipts) O O O O O O
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks O O O O O O
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Derivative Securities O O O * O O
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Below Investment
Grade) or (Junk Bonds) X O
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds) X
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon) O
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities
(Loan Participation and Assignments) O
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities) O O O O O O O
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Bullion
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Lexington *Lexington
Lexington GNMA Money
SmallCap Lexington Income Market
TYPE OF PORTFOLIO SECURITY Fund Goldfund Fund Trust
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks X X
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants) O O
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options) O
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Convertible Debt Securities) O O
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Depository Receipts) O O
- ------------------------------------------------------------------------------------------------
Preferred Stocks O O
- ------------------------------------------------------------------------------------------------
Equity Derivative Securities O
- ------------------------------------------------------------------------------------------------
Debt Securities (Below Investment
Grade) or (Junk Bonds) O
- ------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds)
- ------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon)
- ------------------------------------------------------------------------------------------------
Debt Securities
(Loan Participation and Assignments)
- ------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates) X
- ------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities) O O O
- ------------------------------------------------------------------------------------------------
Gold Bullion O
- ------------------------------------------------------------------------------------------------
</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 Lexington
Small Cap Global Ramirez Troika Worldwide Growth
Asia Corporate Lexington Global Dialog Emerging and Lexington
Growth Leaders International Income Russia Markets Income SmallCap
Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Repurchase agreements(1) X X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions(1)
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X X X X X
one-third of total fund assets
for leveraging purposes
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions X
- -----------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- -----------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed X X X X X X
one-third of total fund assets
- -----------------------------------------------------------------------------------------------------------------------------------
When-issued and forward X X X X X X
commitment securities
- -----------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2) X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies(3) X X
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities X X
and indices(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Write covered call options(3) X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Write covered put options(3) X X
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts(4) X X
- -----------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options X X X X X X
on futures(4)
- -----------------------------------------------------------------------------------------------------------------------------------
Equity swap
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X
5% of fund's net assets
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
10% of fund's net assets
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X X X X X X
15% of fund's net assets
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Lexington Lexington
GNMA Money
Lexington Income Market
Goldfund Fund Trust
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase agreements(1) X X X
- --------------------------------------------------------------------------
Reverse dollar roll
transactions(1)
- --------------------------------------------------------------------------
Borrowing not to exceed X
one-third of total fund assets
for leveraging purposes
- --------------------------------------------------------------------------
Reverse repurchase agreement X
- --------------------------------------------------------------------------
Dollar roll transactions
- --------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- --------------------------------------------------------------------------
Securities lending not to exceed X X
one-third of total fund assets
- --------------------------------------------------------------------------
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 indices(3)
- --------------------------------------------------------------------------
Write covered call options(3)
- --------------------------------------------------------------------------
Write covered put options(3)
- --------------------------------------------------------------------------
Interest rate futures contracts(4)
- --------------------------------------------------------------------------
Futures and swaps and options X
on futures(4)
- --------------------------------------------------------------------------
Equity swap
- --------------------------------------------------------------------------
Illiquid securities limited to
5% of fund's net assets
- --------------------------------------------------------------------------
Illiquid securities limited to
10% of fund's net assets
- --------------------------------------------------------------------------
Illiquid securities limited to X
15% of fund's net assets
- --------------------------------------------------------------------------
</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 Growth and Income Fund may
borrow up to 10% of its total assets. Lexington Money Market Trust may borrow up
to one-third of its total assets; Lexington GNMA Income 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 Goldfund and Lexington SmallCap 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
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
experiences rapid increases in its money
34
<PAGE>
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
Global Corporate Leaders 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
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U.S. Foreign markets have different clearance and settlement procedures from
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
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establish an investment position which it cannot later recoup because of changes
in that country's foreign investment laws.
Lower-Quality Debt
The 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
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securities from independent sources may be more difficult than in other markets.
The political environment in Russia in 1998 is more stable than in 1993
and earlier when clashes between reformers and reactionaries were continuous,
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 political system continues to be very dependent on one person
- -- Boris Yeltsin, the President. His term ends in the year 2000 and there is
a great deal of uncertainty surrounding his successor as he has stated that he
will not run again. Compounding the uncertainty are relations between the
reformist government and the communist-led Duma which have at times been very
strained. The reform movement itself has been tarnished by allegations of
corruption and "cronyism" among the top reformers in the government and in the
reform process itself. Power sharing between the central government in Moscow
and the regional governments has been a subject of continuing and often heated
debate. If the political future begins to favor the conservative factions over
the reformers and relations between the Russian Federation and the West were to
deteriorate, foreign investment in Russia would likely be deterred. Continuing
tensions between the center and the regions could lead to attempts for
independence in some regions, as was the case in Chechnya.
The declining stature and funding of the military could have a negative
impact on Russia's political and economic future. Morale in the military is
very poor as significant gaps in living standards between the military and
civilian sectors continue to widen and as the perception grows that NATO
continues to expand while Russia's sphere of influence continues to contract.
Current and former military leaders are increasingly outspoken in their
criticism of the administration's handling of military affairs. Some are
positioning themselves as candidates for the presidency. All of these
factors could lead to further political unrest.
Moreover, it is uncertain whether Russia's process will continue.
Although the government has publicly pledged its continued support for the
reform process, allegations of corruption in the privatization process have
delayed scheduled actions. Revenues from privatization are a necessary source
of funding for the federal government. It is also unclear whether the reforms
intended to liberalize prevailing economic structures based on free market
principles will be successful. Foreign participation in privatization auctions
has been limited or prohibited in the past and the management of many companies
continue to favor majority shareholders over minority, including, foreign
shareholders and, in general may not be responsive to shareholders.
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
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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.
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
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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 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, Lexington Ramirez
Global Income Fund and Lexington Troika Dialog Russia Fund are "non-diversified"
investment companies under the Investment Company Act. This means that they are
not limited in the proportion of their total assets that may be invested in a
single company. They may invest a greater portion of their assets in fewer
companies than "diversified" funds, and thus may be subject to greater risk.
These Funds, 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
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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 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 institutions 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
With respect to the Lexington Troika Dialog Russia Fund, the Manager and
the 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 Manager
and the Fund's 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 ability
of the Manager and the Fund's Board of Directors 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, Managing Director and Chief
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Financial Officer of Lexington Management Corporation 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.
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.
(NASDAQ Symbol: LGAM).
THE SUB-ADVISERS
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.
Lexington SmallCap Fund
The Manager has entered into a Sub-Advisory Agreement with MSR Advisors,
Inc. ("MSR"). Under the Sub-Advisory Agreement, MSR will provide the Lexington
SmallCap Fund with investment advice and management of the Fund's investment
program.
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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 majority owned subsidiary of The Bank
of Moscow.
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 Crosby Small Cap Asia Growth Fund
Christina Lam is a lead manager (Simon C.N. Thompson 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.
Simon C.N. Thompson 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. Thompson is Vice President and Portfolio Manager of the
Lexington Crosby Small Cap Asia Growth Fund. Mr. Thompson is responsible for the
Fund's overall investment strategy. Mr. Thompson was appointed a Director and
Chief Portfolio Investment
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Strategist of Crosby Asset Management in 1993. From 1988 to 1996 he was
President and Chief Executive Officer of Crosby Securities, Inc. New York. Prior
to 1980 he was an International Portfolio Manager with Phillip's and Drew (UBS).
He is currently the Portfolio Director for other investment funds advised by
Crosby Asset Management.
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 14 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.
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 27 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
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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 eleven 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 nine 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,
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 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.
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
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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
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 Fund
Robert M. DeMichele is one of three lead managers of a portfolio
management team that manages the Lexington SmallCap Fund.
Mr. DeMichele is Chairman and Chief Executive Officer of Lexington
Management Corporation. He is also the Chairman of the Investment Strategy
Group. In addition, he is President of Lexington Global Asset Managers, Inc.,
LMC's parent company. He holds similar offices in other companies owned
by Lexington Global Asset Managers, Inc., as well as the Lexington Funds. Prior
to joining LMC in 1981, Mr. DeMichele was a Vice President at A.G. Becker, Inc.
the securities division of Warburg, Paribus, Becker, an international investment
banking firm. From 1973 to 1981, Mr. DeMichele held several positions, the most
recent managing A.G. Becker's Funds Evaluation and Consulting Group for both the
East and West coasts. Mr. DeMichele is a graduate of Union College with a B.A.
Degree in Economics and an M.B.A. in Finance from Cornell University.
Alan T. Wapnick is one of three lead managers of a portfolio management
team that manages the Lexington SmallCap Value 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 27 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
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and received a Master's Degree in Business Administration from Columbia
University.
Frank A. Peluso is one of three lead managers of a portfolio management
team that manages the Lexington Small Cap Value Fund. He has 35 years investment
experience. Mr. Peluso is President and Chief Executive Officer of Market System
Research Advisors, Inc. (MSR), the sub-adviser to the Fund. Mr. Peluso utilizes
a proprietary analytical system to identify securities with performance
potential which he believes to be exceptional. In addition, Mr. Peluso's
proprietary data is used by professional money managers, insurance companies,
brokerage firms, banks, mutual fund companies and pension funds. Mr. Peluso is a
graduate of Princeton University and has completed a year of post-graduate study
at Columbia University.
Lexington Troika Dialog Russia Fund
Gavin Rankin, LLB, ACA is the lead manager of the Lexington Troika Dialog
Russia Fund. Mr. Rankin is Chief Investment Officer for Troika Dialog Asset
Management. He is responsible, along with other members of the portfolio
management team, for the Fund's overall investment strategy. He was previously
Head of Research for Troika Dialog from 1995-1997. Mr. Rankin represented
Schroders Investment Bank in the Czech and Slovak Republics, and served other
capital market clients including Wood and Co. and EPIC from 1991-1995. He was
also 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 (ACA) with Price Waterhouse. Mr. Rankin has extensive
experience in East European equity research and management.
Richard M. Hisey, CFA, is a portfolio manager and the investment
strategist based in the United States. He is a member of the Board of Advisers
and Board of Directors of Lexington Troika Dialog Russia Fund. He is also a
Managing Director and Chief Financial Officer of Lexington Management
Corporation, the Fund's Investment Advisor. Mr. Hisey sits on the Investment
Company Institute's Accounting/Treasurers, International and Tax Committees. He
is a Chartered Financial Analyst and is also a member of the New York Society of
Security Analysts. Mr. Hisey is a graduate with Distinction of the University of
Connecticut with a Bachelor of Arts in Soviet and Eastern European Studies. His
undergraduate work included studies at Middlebury College and at Leningrad State
University in the Former Soviet Union. He also holds an M.B.A. from the
University of Connecticut.
Pavel Teplukhin is a member of the portfolio management team that manages
the Lexington Troika Dialog Russia Fund. He is the President of
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Troika Dialog Asset Management. Dr. Teplukhin received a diploma in Economics
and a Doctorate in Economic Analysis and Statistics from Moscow State
University. He also received a Master of Science in Economics/Macroeconomics
from the London School of Economics. From 1993-1996 Dr. Teplukhin was Economic
Adviser to the First Deputy Prime Minister at the Ministry of Finance of the
Russian Federation.
Ruben Vardanian is a member of the portfolio management team that manages
the Lexington Troika Dialog Russia Fund. Mr. Vardanian is Chairman of the Board
of Troika Dialog Asset Management. He is Vice Chairman of the Board of Directors
of the Depository Clearing Company. He is Vice Chairman of the Board of
Directors of the Depository Clearing Company. He is a member of the expert
council of the Federal Securities Commission and a Director of the Russian
Trading System (RTS). He is also Chairman of the Board of Directors of the
Russian Capital markets self-regulatory organization (NAUFOR). 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 eleven 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. However, these management fees are not necessarily
greater than the management fees of other investment companies with similar
objectives and policies.
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.
Management Fee Average Daily Net
(Annual Rate) Assets (if applicable)
================================================================================
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 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 Fund 1.00% *
================================================================================
Lexington Goldfund 1.00% First $50 million
0.75% Over $50 million
================================================================================
Lexington GNMA Income Fund 0.60% First $150 million
0.50% Next $250 million
0.45% Next $400 million
0.40% Over $800 million
================================================================================
Lexington Money Market Trust 0.50% *
================================================================================
*One rate applies to the Fund's average daily net assets
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<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.
The Manager has agreed to reduce its management fee if necessary to keep total
annual operating expenses at or below two and one-half percent (2.50%) of each
fund's average daily net assets except for Lexington International Fund, whose
annual expenses will be kept at or below 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%); Lexington GNMA Income Fund, one and one-half percent (1.50%) of
average daily net assets up to $30 million and one percent (1.00%) thereafter;
and Lexington Money Market Trust, one percent (1.00%). Total annual operating
expense limits may also be subject to state blue sky regulations. 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
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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.
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 may act as the Funds' broker 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 as its
broker only when, in the judgement of the Manager and pursuant to review by the
Boards of Directors, Troika Dialog 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.
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<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
(800) 526-0057 for 24 Hour Investor 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 Funds' shares may also be purchased through selected broker-dealers or
financial institutions who have entered into servicing arrangements with the
Funds ("servicing agents"). Such servicing agents are authorized to accept
purchase and redemption orders on the Funds' behalf up until 4:00 p.m. New York
time, based on the net asset value per share of the fund next computed after the
order is placed with the servicing agent. Under these circumstances, the fund
would be deemed to have received a purchase or redemption order when the
authorized servicing agent accepts the order and it is accepted by the
Distributor.
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
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<PAGE>
only on banks located in the U.S. See the Statement of Additional Information
for further details.
The Funds and the Distributor each reserve the right It to reject any
order in whole or in part.
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)
ABA Routing Number 011000028
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<PAGE>
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.
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.
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<PAGE>
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.
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 redemp-
55
<PAGE>
tion 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. Redemption
fee proceeds will be applied to the Fund's aggregate expenses allocable to
providing custody, accounting and pricing, redemption services, including
transfer agent fees, postage, printing, telephone costs and employment costs
relating to the handling and processing of redemptions. Any excess fee proceeds
will be added to the Fund's capital.
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 Federal Deposit 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
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<PAGE>
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.
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) peri-
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odic 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.
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.
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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
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
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<PAGE>
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.
Distribution Plan
The Lexington Goldfund, Lexington Growth and Income Fund, Lexington
International Fund, Lexington Ramirez Global Income Fund, Lexington SmallCap
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 Funds 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. To the extent that a Fund participates in a Distribution Plan, as
noted above, the Shareholder Servicing Agents will receive fees of up to 0.25%
of the average daily assets from the Distribution Plan.
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.
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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 Ramirez Global Declared and paid annually Declared and paid annually
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 Global Corporate
Leaders Fund
Lexington Gold Fund
Lexington International Fund
Lexington SmallCap Fund
Lexington Troika Dialog
Russia Fund
Lexington Worldwide
Emerging Markets Fund
- ---------------------------------------------------------------------------------------
Lexington Growth and Declared and paid Declared and paid
Income Fund semi-annually annually
- ---------------------------------------------------------------------------------------
Lexington Money Market 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.
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"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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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 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 Global Corporate Leaders Fund,
Lexington Goldfund, Lexington GNMA Income Fund, Lexington Growth and Income
Fund, Lexington International Fund, Lexington SmallCap 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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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
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Ethics is 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 enti-
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ties. For 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.
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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 Blue Chip. The common stocks of a nationally or internationally known
company that has a long record of profit growth and dividend payment and a
reputation for quality management, products and services. Blue chip stocks
typically are relatively high priced and have moderate dividend yields.
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
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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 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
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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 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
inter-
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est 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.
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
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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 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
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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 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, New Jersey 07663
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 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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72
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LEXINGTON FUNDS DISTRIBUTOR, INC.
Park 80 West/Plaza Two
Saddle Brook, New Jersey 07663
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
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, 1998, 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 ............................................................... 10
Performance Calculation ................................................... 14
Shareholder Reports ....................................................... 14
Other Information ......................................................... 14
Financial Statements ...................................................... 15
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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 (60), 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 (53), 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 (68), Director, 340 East 72nd Street, News York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research Department-CPC
International, Inc.
*+BARBARA R. EVANS (37), 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 (39), Vice President, Portfolio Manager 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 (50), 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 (51), 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 (57), 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 (71), 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 (65), Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts.
+MARGARET W. RUSSELL (77). Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor. Formerly, Community Affairs Director, Union Camp
Corporation.
*+ALLEN H. STOWE (60), Director. 3674 Fifth and Ocean Avenues, Normandy Beach,
New Jersey 08739. President, Shelter Service Company, Inc.; President,
Dartmouth Co-operative Society Co., Inc.
*+LISA CURCIO (38), 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.
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<PAGE>
*+RICHARD LAVERY (43), 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.
*+JANICE CARNICELLI (38), 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 (35), 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.
*PAVEL TEPLUKHIN (33), Vice President and Portfolio Manager. 6/3 1st Kolobovsky
per, Moscow, 103051, Russia. President, Troika Dialog Asset Management.
Executive Vice President and Chief Economist, Troika Dialog. Prior to
March 1996, Dr. Telplukhin was Economic Adviser to the First Deputy Prime
Minister at the Ministry of Finance of the Russian Federation.
*RUBEN VARDANIAN (30), Vice President, 6/3 1st Kolobovsky per, Moscow, 103051,
Russia. Chairman of the Board, Troika Dialog Asset Management. President
and Chief Operating Officer, Troika Dialog.
*+CHRISTIE CARR-WALDRON (30), Assistant Treasurer P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to October 1992, Senior Accountant. KPMG Peat Marwick
LLP.
*+CATHERINE DUBIS (29), Assistant Treasurer. P.O. Box 1515, Saddle Brook, New
Jersey 07663. Prior to October 1997, Manager, Fund Accounting.
*+SIOBHAN GILFILLAN (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+JOANK. LEDERER (31), 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.
*+SHERI MOSCA (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+PETER CORNIOTES (35), 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 (37), 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 TDAM as defined in the
Investment Company Act of 1940, as amended.
+Messrs. Chada, Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery,
Miller, Maher, McCosh, Preston and Stowe and Mmes. Carnicelli, Carr-Waldron,
Curcio, Dubis, 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: Gavin Rankin, Pavel Teplukhin and Ruben
Vardanian. The primary residence for Mr. Rankin, Mr. Teplukhin and Mr. Vardanian
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.
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
3
<PAGE>
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.
Set forth below is information regarding compensation paid or accrued for
the fiscal year ended December 31, 1997 for each director.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of Directorships
Name of Director Compensation from Fund Fund and Fund Complex in Fund Complex
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $1,824 $26,821 15
- -----------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 16
- -----------------------------------------------------------------------------------------------------
Beverley C. Duer $1,824 $27,521 16
- -----------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- -----------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- -----------------------------------------------------------------------------------------------------
Jerard F. Maher $1,824 $29,521 16
- -----------------------------------------------------------------------------------------------------
Andrew M. McCosh $1,712 $25,029 15
- -----------------------------------------------------------------------------------------------------
Donald B. Miller $1,824 $26,821 15
- -----------------------------------------------------------------------------------------------------
Francis Olmsted* $1,085 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
John G. Preston $1,824 $26,821 15
- -----------------------------------------------------------------------------------------------------
Margaret W. Russell $1,824 $27,045 15
- -----------------------------------------------------------------------------------------------------
Philip C. Smith* $1,200 $19,200 N/A
- -----------------------------------------------------------------------------------------------------
Francis A. Sunderland* $1,085 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
Allan H. Stowe $224 $2,574 2
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Retired
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, 1997, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCosh, Miller, Preston and
Russell are 2, 19, 2, 2, 23, 19 and 16, respectively.
4
<PAGE>
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
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
5
<PAGE>
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:
(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
6
<PAGE>
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, 1999 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 and for the fiscal year ended December 31, 1997, the Fund
paid LMC $1,307,946 in investment advisory fees.
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 and Kantor and Mmes. Carnicelli,
Carr-Waldron, Curcio, Dubis, 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
7
<PAGE>
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 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
8
<PAGE>
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 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.
9
<PAGE>
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 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
10
<PAGE>
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 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
11
<PAGE>
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.
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
12
<PAGE>
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 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.
13
<PAGE>
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
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 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. The average annual standard total
return for the one year period and since commencement (7/3/96) to December 31,
1997 was 67.50% and 36.73%
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, 5%; Piedmont Associates, P.O. Box
20124, Greensboro, N. C. 27420, 5% and Robert Craddock Norwood Clinic, Box
C-230, Birmingham, AL 35283, 5%.
14
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(Including the Portfolio of Investments)
December 31, 1997
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ----------------------------------------------------------------------------------------------------------
Common Stock & Preferred Stock: 74.3%
Aerospace & Defense: 0.6%
<S> <C> <C>
32,500,000 Aviastar1,2 ......................................................... $ 788,125
----------
Airlines: 1.3%
7,700 Aeroflot1,2 ......................................................... 985,600
10,000,000 Tyumen Avia Trans2 .................................................. 795,000
----------
1,780,600
----------
Auto Trucks & Parts: 2.6%
Common Stock
25,700 Gorkovsky Auto Plant2 ............................................... 2,802,585
100,000 Kamaz2 .............................................................. 183,250
----------
2,985,835
----------
Preferred Stock
10,000 Gorkovsky Auto Plant1,2 ............................................. 530,000
----------
Total Auto Trucks & Parts ........................................ 3,515,835
----------
Banking: 0.8%
151,000 Inkombank (ADR)2 .................................................... 1,094,750
----------
Brewers: 1.1%
119,700 Sun Brewing (GDR)2 .................................................. 1,568,070
----------
Building Materials: 0.6%
38,000 Alfa Cement1,2 ...................................................... 779,000
----------
Food Wholesalers: 0.3%
26,160 Krasny Oktyabr ...................................................... 457,800
----------
Foods: 0.3%
23,800 Samson1,2 ........................................................... 452,200
----------
Machinery: 3.0%
67,000 Electrosila2 ........................................................ 654,925
15,000 Izhorskie Zavody2 ................................................... 1,185,750
850,000 Krasny Kotelschik1,2 ................................................ 174,250
88,000 Leningradsky Metallurgical Plant2 ................................... 1,042,800
50,000 Zvezda1,2 ........................................................... 1,037,500
----------
4,095,225
----------
</TABLE>
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(Including the Portfolio of Investments)
December 31, 1997 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ----------------------------------------------------------------------------------------------------------
Medical Equipment: 0.2%
<S> <C> <C>
21,900 Medpolimer1,2 ....................................................... $ 224,475
----------
Merchandising: 1.0%
7,000 Gostiny Dvor1,2 ..................................................... 210,000
260,000 Trade House GUM ..................................................... 721,500
10,000 Trade House GUM (ADR)2 .............................................. 61,250
1,120,000 Tsum Jsc Torgovy .................................................... 397,600
----------
1,390,350
----------
Metals: 0.1%
2,000 Solikamsk Magnesium Plant1,2 ........................................ 186,500
----------
Natural Gas: 0.6%
Common Stock
15,000 Gazprom (ADR) ....................................................... 361,875
----------
Preferred Stock
1,800 Transneft1,2 540,000
----------
Total Natural Gas ................................................ 901,875
----------
Oil & Gas Holding Companies: 18.2%
Common Stock
261,500 Lukoil Holdings of Russia2 .......................................... 6,019,730
2,125 Lukoil Holdings of Russia (ADR) ..................................... 196,031
7,000,000 Sibneft2 ............................................................ 5,075,000
6,550,000 Slavneft1,2 ......................................................... 2,620,000
640,000 Surgutneftegaz (ADR) ................................................ 6,520,000
----------
20,430,761
----------
Preferred Stock
5,000 Lukoil Holdings of Russia (ADR) ..................................... 162,500
285,000 Lukoil Holdings of Russia ........................................... 4,488,750
----------
4,651,250
----------
Total Oil & Gas Holding Companies ................................ 25,082,011
----------
Oil & Gas Producing Companies: 6.5%
Common Stock
10,000 Megionneftegaz2 ..................................................... 52,000
165,000 Orenburgneft2 ....................................................... 965,250
290,000 Purneftegaz2 ........................................................ 2,296,800
32,300 Tatneft (ADR) ....................................................... 4,602,750
12,300 Tomskneft2 .......................................................... 147,600
----------
8,064,400
----------
</TABLE>
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(Including the Portfolio of Investments)
December 31, 1997 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ----------------------------------------------------------------------------------------------------------
Oil & Gas Producing Companies (continued):
Preferred Stock
<S> <C> <C>
140,000 Megionneftegaz2 ..................................................... $ 406,000
80,000 Purneftegaz2 ........................................................ 276,000
4,000 Samaraneftegaz2 ..................................................... 21,000
4,000 Udmurtneftegaz1,2 ................................................... 145,000
----------
848,000
----------
Total Oil & Gas Producing Companies .............................. 8,912,400
----------
Oil Drilling: 0.9%
355,000 Komitek Oil Company2 ................................................ 1,240,725
----------
Steel & Iron: 1.2%
2,000 Chelyabinsky Trubny Zavod2 .......................................... 290,000
199,000 Pervouralsk Pipe Works1,2 ........................................... 572,125
17,354 Seversky Tube Works1,2 .............................................. 56,400
46,000 Sinarsky Trubny1,2 .................................................. 280,600
4,450,000 Taganrogaky Metallurgical Plant1,2 .................................. 534,000
----------
1,733,125
----------
Telecommunications: 16.2%
Common Stock
710,000 Bashinformsvyaz1,2 .................................................. 1,171,500
4,610 Chelyabinsksvyazinform2 ............................................. 258,160
250,000 Irkutskelectrosvyaz2 ................................................ 298,750
51,000 Krasnoyarskelectrosvyaz2 ............................................ 479,400
9,500 Lensvyaz1,2 ......................................................... 451,250
34,400 Moscow Intercity International Telephone1,2 ......................... 227,040
800 Moscow Telephone Systems ............................................ 1,090,000
243,890 Murmanskelectrosvyaz2 ............................................... 596,311
501,000 Nizhnovsvyazinform2 ................................................. 1,801,095
20,383 Novosibirskaya Telephone2 ........................................... 1,487,959
30,000 Novosibirskelectrosvyaz2 ............................................ 180,000
693,000 Rostelecom2 ......................................................... 2,460,150
17,000 Samarasvyazinform2 .................................................. 1,513,000
50,000 Smolensksvyazinform1,2 .............................................. 150,000
40,000 St. Petersburg Intercity International Telephone1,2 ................. 62,000
600,000 St. Petersburg Telecommunication2 ................................... 825,000
</TABLE>
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(Including the Portfolio of Investments)
December 31, 1997 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ----------------------------------------------------------------------------------------------------------
Telecommunications (continued):
<S> <C> <C>
130,000 Tyumentelecom2 ...................................................... $ 547,300
10,000,000 Uralsvyazinform ..................................................... 580,000
80,020 Volgogradelectrosvyaz1,2 ............................................ 300,075
17,000 Yartelecom1,2 ....................................................... 85,000
----------
14,563,990
----------
Preferred Stock
650,000 Irkutskelectrosvyaz1,2 .............................................. 464,750
95,000 Krasnoyarskelectrosvyaz1,2 .......................................... 394,250
27,000 Lensvyaz1,2 ......................................................... 540,000
1,450 Moscow Telephone Systems ............................................ 1,016,450
175,000 Murmanskelectrosvyaz1,2 ............................................. 170,625
360,000 Nizhnovsvyazinform1,2 ............................................... 792,000
10,000 Novosbirskaya Telephone1,2 .......................................... 300,000
60,000 Novosbirskelectrosvyaz1,2 ........................................... 264,000
800,000 Rostelecom2 ......................................................... 1,864,000
8,300 Samarasvyazinform1,2 ................................................ 435,750
100,000 Smolensksvyazinform1,2 .............................................. 150,000
210,000 St. Petersburg Telecommunication2 ................................... 183,750
279,099 Tyumentelecom2 ...................................................... 555,407
33,500 Uraltelecom2 ........................................................ 527,625
45,000 Yartelecom1,2 ....................................................... 135,000
---------
7,793,607
----------
Total Telecommunications ......................................... 22,357,597
----------
Utilities: 18.8%
Common Stock
3,575,000 Bashkirenergo2 ...................................................... 1,930,500
1,700,000 Chelyabenergo2 ...................................................... 901,000
1,150,000 Irkutskenergo ....................................................... 227,700
500,000 Komienergo1,2 ....................................................... 75,000
1,170,000 Lenenergo2 .......................................................... 848,835
6,750,000 Mosenergo ........................................................... 8,572,500
1,600,000 Samaraenergo2 ....................................................... 880,000
1,485,000 Sverdlovskenergo2 ................................................... 854,618
19,800,000 Unified Energy Systems2 ............................................. 5,987,520
70,000 Unified Energy Systems (GDR)2 ....................................... 2,100,000
----------
22,377,673
----------
Preferred Stock
450,000 Chelyabenergo2 ...................................................... 128,250
915,000 Krasnoyarskenergo2 .................................................. 160,125
85,000 Novosbirskenergo1,2 ................................................. 459,000
</TABLE>
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(Including the Portfolio of Investments)
December 31, 1997 (continued)
<TABLE>
<CAPTION>
Number of shares
or Value
Principal Amount Security (Note 1)
- ----------------------------------------------------------------------------------------------------------
Utilities (continued):
Preferred Stock
<S> <C> <C>
24,600 Permenergo2 ......................................................... $ 92,250
700,000 Samaraenergo2 ....................................................... 239,750
1,906,000 Sverdloskenergo2 .................................................... 601,343
8,500,000 Unified Energy Systems .............................................. 1,857,250
-----------
3,537,968
-----------
Total Utilities .................................................. 25,915,641
-----------
Total Common & Preferred Stock
(Cost $125,164,983) ................................................. 102,476,304
-----------
Government Obligations: 4.1%
$2,000,000 City of Moscow, 9.5%, due 5/31/00 ................................... 1,875,000
2,000,000 Russia Ministry of Finance, 10.0%, due 6/26/07 ...................... 1,855,500
2,000,000 Russia Ministry of Finance, 9.25%, due 11/27/01 ..................... 1,907,000
-----------
Total Government Obligations
(Cost $6,048,933) ................................................... 5,637,500
-----------
Short-Term Investments: 18.7%
U.S. Government Agency Obligations: 17.0%
$13,500,000 Federal Home Loan Mortgage Bank, 4.75%, due 01/02/98 ................ 13,498,219
10,000,000 Federal National Mortgage Association, 5.54%, due 01/26/98 .......... 9,961,900
-----------
23,460,119
-----------
U.S. Government Obligations: 1.7%
$1,000,000 United States Treasury Bills, 5.15%, due 01/29/98 ................... 996,280
1,000,000 United States Treasury Bills, 5.325%, due 01/10/98 .................. 999,250
350,000 United States Treasury Bills, 5.35%, due 06/25/98 ................... 341,152
-----------
2,336,682
-----------
Total Short-Term Investments
(Cost $25,795,887) .................................................. 25,796,801
-----------
Total Investments: 97.1%
(Cost $157,009,803+)(Note 1) ........................................ 133,910,605
Other assets in excess of liabilities: 2.9% ......................... 3,962,677
-----------
Total Net Assets: 100.0%
(equivalent to $17.50 per share on 7,879,455 shares outstanding) .... $137,873,282
===========
</TABLE>
1 Illiquid Security (Note 8).
2 Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $157,440,602.
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
Assets
<S> <C>
Investments, at value (cost $157,009,803) (Note1). ................................. $133,910,605
Cash ............................................................................... 519,525
Receivable for investment securities sold .......................................... 3,701,260
Receivable for shares sold ......................................................... 1,311,376
Dividends and interest receivable .................................................. 70,358
Deferred organization expense, net (Note 1) ........................................ 73,070
Other receivable ................................................................... 102,000
-----------
Total Assets ........................................................ 139,688,194
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ................................... 143,231
Payable for shares redeemed ........................................................ 1,131,498
Distributions payable .............................................................. 407,560
Accrued expenses ................................................................... 132,623
-----------
Total Liabilities ................................................... 1,814,912
-----------
Net Assets: (equivalent to $17.50 per share on
7,879,455 shares outstanding) (Note 5). .......................................... $137,873,282
===========
Net Assets consist of:
Capital stock -- authorized 1,000,000,000 shares,
$.001 par value per share .......................................................... $7,879
Additional paid-in capital (Note 1) ................................................ 159,587,173
Accumulated deficit (Note 1) ....................................................... (27,179)
Accumulated net realized gain on investments (Note 1) .............................. 1,404,607
Unrealized depreciation on investments ............................................. (23,099,198)
-----------
Total Net Assets .................................................... $137,873,282
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
Investment Income
<S> <C>
Dividends .................................................................... $ 115,632
Interest ..................................................................... 1,726,873
-----------
1,842,505
Less: foreign tax expense .................................................... 15,006
-----------
Total investment income ................................................. $ 1,827,499
Expenses
Investment advisory fee (Note 2) ............................................. 1,307,946
Custodian expense ............................................................ 967,109
Distribution expense (Note 3) ................................................ 261,583
Transfer agent and shareholder servicing expense (Note 2) .................... 115,918
Printing and mailing expenses ................................................ 71,113
Professional fees ............................................................ 67,501
Registration fees ............................................................ 54,862
Accounting expenses (Note 2) ................................................. 51,188
Directors' fees and expenses ................................................. 45,689
Amortization of deferred organization costs (Note 1) ......................... 21,463
Computer processing fees ..................................................... 13,247
Other expenses ............................................................... 43,069
-----------
Total expenses .......................................................... 3,020,688
Less: Redemption fee proceeds (Note 4 ) ................................. 1,083,027 1,937,661
----------- -----------
Net investment loss ..................................................... (110,162)
Realized and Unrealized Gain (Loss) on Investments (Note 6)
Net realized gain on investments ............................................. 11,101,736
Net change in unrealized appreciation on investments ......................... (24,013,755)
-----------
Net realized and unrealized loss on investments .............................. (12,912,019)
-----------
Decrease in Net Assets Resulting from Operations ............................. $ (13,022,181)
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
June 3, 1996
(commencement
Year ended of operations) to
December 31, December 31,
1997 1996
------------ ----------------
<S> <C> <C>
Net investment loss ........................................................... $ (110,162) $ (58,025)
Net realized gain from security transactions .................................. 11,101,736 457,898
Net change in unrealized appreciation of investments .......................... (24,013,755) 914,557
----------- ----------
Net increase (decrease) in net assets resulting from operations .......... (13,022,181) 1,314,430
Distributions to shareholders from net realized gains
from security transactions ............................................... (9,633,271) (380,748)
Increase in net assets from capital share transactions (Note 5) ............... 146,682,278 12,912,774
----------- ----------
Net increase in net assets .......................................... 124,026,826 13,846,456
Net Assets:
Beginning of period ........................................................... 13,846,456 --
----------- ----------
End of period (including accumulated deficit of $27,179
and $0, 1997 and 1996, respectively) ..................................... $137,873,282 $13,846,456
=========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 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. The Fund commenced operations on June 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 on a straight line basis 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, 1997.
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, 1997,
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.
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (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 could 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 ("TDAM") under
which TDAM provides the Fund with investment management services. Pursuant to
the terms of the sub-advisory contract between LMC and TDAM, LMC pays TDAM a
monthly sub-advisory fee at the annual rate of 0.625% of the Fund's average
daily net assets. For 1997, LMC has agreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses but including management fee, 12B-1 fees and operating
expenses) to an annual rate of 3.35% of the Fund's average net assets. No
reimbursement was required for the year ended December 31, 1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $101,046 which are 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 year ended December 31,
1997 were $261,583 and are set forth in the statement of operations.
4. REDEMPTION FEE
A fee is charged on the redemption of shares equal to 2% of the redemption price
of shares of the Fund held less than 365 days that are being redeemed.
Redemption fee proceeds will be applied to the Fund's aggregate expenses
allocable to providing custody and redemption services, including transfer agent
fees, postage, printing, telephone costs and employment costs relating to the
handling and processing of redemptions. Any excess fee proceeds will be added to
the Fund's capital. Total redemption fee proceeds for the year ended December
31, 1997 were $2,171,365. The amount available for offset against Fund expenses
was $1,083,027 and is set forth in the statement of operations. Excess fee
proceeds of $1,088,338 were added to the Fund's capital.
<PAGE>
Lexington Troika Dialog Russia Fund, Inc. Notes to Financial Statements December
31, 1997 and 1996 (continued) 5. Capital Stock Transactions in capital stock
were as follows:
<TABLE>
<CAPTION>
June 3, 1996
(commencement of
Year ended operations) to
December 31, 1997 December 31, 1996
------------------- --------------------
Shares Amount Shares Amount
------- -------- ------- --------
<S> <C> <C> <C> <C>
Shares sold .................................... 11,666,846 $250,987,395 1,211,091 $12,667,903
Shares issued on reinvestment of dividends ..... 537,246 9,215,535 33,799 376,183
Redemption fee proceeds ........................ -- 1,088,338 -- --
--------- ----------- --------- -----------
12,204,092 261,291,268 1,244,890 13,044,086
Shares redeemed ................................ (5,556,760) (114,608,990) (12,767) (131,312)
--------- ----------- --------- -----------
Net increase ................................... 6,647,332 $146,682,278 1,232,123 $12,912,774
========= =========== ======== ==========
</TABLE>
6. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1997, excluding short-term securities, were $162,304,648 and
$53,786,844, respectively.
At December 31, 1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$3,777,484 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $27,307,481.
7. 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 Fund
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
7. INVESTMENT AND CONCENTRATION RISKS (CONTINUED)
may be forced to remit securities before payment is received.
FOREIGN CURRENCY AND EXCHANGE RISK The Fund's assets are invested in
securities denominated in rubles, which 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.
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 contracts as a
result of the potential inability of counterparties to meet the terms of their
contracts.
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
8. ILLIQUID 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.
<TABLE>
<CAPTION>
Initial Average
Acquisition Cost Per Market % of Net
Security Shares Date Share Value Assets
------- ------ ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Aeroflot 7,700 6/16/97 $161.13 $985,600 0.71%
Alfa Cement 38,000 3/25/97 18.20 779,000 0.57
Aviastar 32,500,000 6/25/97 0.04 788,125 0.57
Bashinformsvyaz 710,000 6/9/97 2.25 1,171,500 0.85
Gorkovsky Auto Plant (Preferred Stock) 10,000 7/2/97 40.70 530,000 0.38
Gostiny Dvor 7,000 10/6/97 42.50 210,000 0.15
Irkutskelectrosvyaz (Preferred Stock) 650,000 2/17/97 1.00 464,750 0.34
Komienergo 500,000 8/5/97 0.50 75,000 0.05
Krasnoyarskelectrosvyaz (Preferred Stock) 95,000 4/28/97 7.25 394,250 0.29
Krasny Kotelschik 850,000 9/23/97 0.38 174,250 0.13
Lensvyaz 9,500 2/14/97 48.94 451,250 0.33
Lensvyaz (Preferred Stock) 27,000 2/14/97 35.38 540,000 0.39
Medpolimer 21,900 8/6/97 10.50 224,475 0.16
Moscow Intercity International Telephone 34,400 5/27/97 18.36 227,040 0.17
Murmanskelectrosvyaz (Preferred Stock) 175,000 4/9/97 1.41 170,625 0.12
Nizhnovsvyazinform (Preferred Stock) 360,000 11/20/96 2.35 792,000 0.57
Novosbirskaya Telephone (Preferred Stock) 10,000 8/7/97 40.00 300,000 0.22
Novosbirskelectrosvyaz (Preferred Stock) 60,000 5/30/97 5.59 264,000 0.19
Novosbirskenergo (Preferred Stock) 85,000 2/27/97 5.65 459,000 0.33
Pervouralsk Pipe Works 199,000 3/21/97 5.64 572,125 0.41
Samarasvyazinform (Preferred Stock) 8,300 1/9/97 48.11 435,750 0.32
Samson 23,800 7/9/97 50.82 452,200 0.33
Seversky Tube Works 17,354 3/21/97 3.17 56,400 0.04
Sinarsky Trubny 46,000 4/9/97 10.63 280,600 0.20
Slavneft 6,550,000 5/6/97 0.72 2,620,000 1.90
Smolensksvyazinform 50,000 6/20/97 6.40 150,000 0.11
Smolensksvyazinform (Preferred Stock) 100,000 8/6/97 5.00 150,000 0.11
Solikamsk Magnesium Plant 2,000 9/30/97 115.13 186,500 0.14
St.Petersburg Intercity
International Telephone 40,000 5/27/97 2.60 62,000 0.04
Taganrogaky Metallurgical Plant 4,450,000 4/24/97 0.22 534,000 0.39
Transneft (Preferred Stock) 1,800 7/27/97 53.06 540,000 0.39
Udmurtneftegaz (Preferred Stock) 4,000 1/20/97 57.00 145,000 0.11
Volgogradelectrosvyaz 80,020 4/21/97 3.91 300,075 0.22
Yartelecom 17,000 4/14/97 7.34 85,000 0.06
Yartelecom (Preferred Stock) 45,000 4/14/97 4.26 135,000 0.10
Zvezda 50,000 8/21/97 29.90 1,037,500 0.75
---------- -----
$16,743,015 12.14%
========== =====
</TABLE>
9. TAX INFORMATION (UNAUDITED)
Capital gain distributions paid to shareholders by the Fund during the year
ended December 31, 1997, whether taken in shares or cash were:
$964, 632 are designated as 28 percent long-term capital gains.
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
July 3, 1996
(effective SEC
Year ended registration date)
December 31, to December 31,
1997 1996**
------------ -------------
<S> <C> <C>
Net asset value, beginning of period. ................................. $ 11.24 $ 12.12
-------- --------
Income (loss) from investment operations:
Net investment loss ................................................ (0.01) (0.05)
Net realized and unrealized gain (loss) on investments ............. 7.57 (0.51)
-------- --------
Total income (loss) from investment operations ........................ 7.56 (0.56)
-------- --------
Less distributions:
Distributions from net realized gains .............................. (1.30) (0.32)
-------- --------
Net asset value, end of period. ....................................... $ 17.50 $ 11.24
======== ========
Total return 67.50% (9.01%)*
Ratio to average net assets:
Expenses, before reimbursement or redemption fee proceeds. ......... 2.89% 5.07%*
Expenses, net of reimbursement or redemption fee proceeds. ......... 1.85% 2.65%*
Net investment loss, before reimbursement or
redemption fee proceeds .......................................... (1.14%) (3.69%)*
Net investment loss ................................................ (0.11%) (1.27%)*
Portfolio turnover rate ............................................ 66.84% 115.55%*
Average commission paid on equity security transactions*** ......... -- --
Net assets, end of period (000's omitted). ......................... $ 137,873 $ 13,846
</TABLE>
*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 year
ended December 31, 1997 and for the period ended December 31, 1996 was less
than $0.005 per share of securities purchased and sold.
<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, 1997, the related statements of operations
for the year then ended, the statement of changes in net assets and the
financial highlights for the year then ended and 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 audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian. As to securities sold,
but not yet 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, 1997, the results
of its operations for the year then ended, and changes in its net assets and the
financial highlights for the year then ended and for the period from July 3,
1996 (effective SECregistration date) to December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 12, 1998
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1997 was filed
electronically on February 27, 1998 (as form type N-30D). Financial
statements from this 1997 Annual Report have been included in the
Statement of Additional Information.
Page in the Statement
(a) Financial statements: of Additional Information
-------------------- -------------------------
Report of Independent Auditors 27
dated February 4, 1998
Report of Net Assets at 16-18
December 31, 1997
Statement of Assets and Liabilities 19
at December 31, 1997
Statement of Operation for the period 20
June 3, 1996 (commencement of operations)
to December 31, 1997
Statement of Changes in Net Assets for 21
the year ended December 31, 1997 and from
the Commencement of Operations
June 3, 1996 (commencement of operations)
to December 31, 1996
Notes to Financial Statements 22-25
Financial Highlights 26
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Articles of Incorporation - Filed electronically
4/4/96 - Incorporated by Reference
2. By-Laws - Filed electronically
4/4/96 - Incorporated by Reference
3. Not Applicable
4. Rights of Holders Filed electronically
5a. Form of Investment Advisory Agreement between
Registrant and Lexington Management Corporation -
Filed electronically 4/4/96 - Incorporated
by Reference
5b. Form of Sub-Advisory Investment Management
Agreement between Lexington Management Corporation
and Troika Dialog - Filed electronically
4/4/96 - Incorporated by Reference
6. Form of Distribution Agreement between Registrant
and Lexington Funds Distributor, Inc. - Filed
electronically 4/4/96 - Incorporated by Reference
7. Retirement Plan for Eligible Directors Filed electronically
8. Form of Custodian Agreement between
Registrant and Chase Manhattan Bank, N.A. - Filed
electronically 4/4/96 - Incorporated by Reference
9a. Form of Transfer Agency Agreement between
Registrant and State Street Bank and Trust Company -
Filed electronically 4/4/96 - Incorporated by Reference
9b. Form of Administrative Services Agreement between
Registrant and Lexington Management Corporation -
Filed electronically 4/4/96 - Incorporated by Reference
10. Opinion of Counsel as to Legality of Securities
being registered - Filed electronically 4/4/96 -
Incorporated by Reference
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Retirement Plans - Filed electronically
4/4/96 - Incorporated by Reference
15. Form of Distribution Plan under Rule 12b-1
and Related Agreements - Filed electronically
4/4/96 - Incorporated by Reference
16. Performance Calculation Filed electronically
17. Financial Data Schedule Filed electronically
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each
such person indicate (1) if a company, the state or other sovereign
power under the laws of which it is organized, (2) the percentage of
voting securities owned or other basis of control by the person, if any,
immediately controlling it.
See "Management of the Fund" in the Prospectus and Statement of
Additional Information.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of
record holders of each class of securities of the Registrant.
The following information is given as of February 13, 1998:
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 7,742
($0.001 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified in any manner against any
liability which may be incurred in such capacity, other than insurance
provided by any director, officer, affiliated person or underwriter for
their own protection.
Under the terms of the Maryland General Corporation Law and the
Company's By-Laws, the Company may indemnify any person who was or is a
director, officer or employee of the Company to the maximum extent
permitted by the Maryland General Corporation Law; provided, however,
that Company only as authorized in the specific case upon a
determination that indemnification of such persons is proper in the
circumstances. Such determination shall be made (i) by the Board of
Directors, by a majority vote of a quorum which consists of directors
who are neither "interested persons" of Company as defined in Section
2(a)(19) of the 1940 Act, nor parties to the proceeding, or (ii) if the
required quorum is not obtainable or if a quorum of such directors so
directs by independent legal counsel in a written opinion. No
indemnification will be provided by the Company to any director or
officer of the Company for any liability to the Company or Shareholders
to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of duty.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of
a substantial nature in which the investment adviser of the Registrant,
and each director, officer or partner of any such investment adviser, is
or has been, at any time during the past two fiscal years, engaged for
his own account or in the capacity of director, officer, employee,
partner or trustee.
See Prospectus Part A and Statement of Additional Information Part
B ("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Growth and Income Fund, Inc..
Lexington GNMA Income Fund, Inc.
Lexington Ramirez Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Natural Resources Trust
Lexington Corporate Leaders Trust Fund
Lexington Convertible Securities Fund
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Value Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa Curcio* Vice President and Vice President and
Secretary Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer Chief Financial
and Director Officer and Vice Pres.
Lawrence Kantor* Executive Vice President Director and Vice Pres.
General Manager and Director
Richard Lavery* Vice President Vice President
Janice Violette* Assistant Treasurer None
(c)
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document
required to be maintained by Section 31(a) of the 1940 Act and the Rules
(17 CFR 270, 31a-1 to 31a-3) promulgated thereunder, furnish the name
and address of each person maintaining physical possession of each such
account, book or other document.
The Registrant, Lexington Troika Dialog Russia Fund, Inc.,
Park 80 West - Plaza Two, Saddle Brook, New Jersey 07663 will maintain
physical possession of such of each such account, book or other document
of the Company, except for those maintained by the Registrant's
Custodian, Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New
York, New York 10036, or Transfer Agent, State Street Bank and Trust
Company, c/o National Financial Data Services, City Center Square, 1100
Main, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B of this
Form (because the contract was not believed to be material to a
purchaser of securities of the Registrant) under which services are
provided to the Registrant, indicating the parties to the contract, the
total dollars paid and by whom for the last three fiscal years.
None.
Item 32. Undertakings -
--------------
The Registrant, Lexington Troika Dialog Russia Fund, Inc.,
undertakes to furnish a copy of the Fund's latest annual
report, upon request and without charge, to every person to
whom a prospectus is delivered.
The Registrant will hold a meeting of its public
shareholders, if requested to do so by the holders of at
least 10 percent of the Registrant's outstanding shares, to
call a meeting of shareholders for the purpose of voting
upon the question of removal of a director or directors and
to assist in communications with other shareholders.
<PAGE>
Registration No. 333-2265
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to
this filing:
Rights of Holders
Retirement Plan for Eligible Directors
Consent of Counsel
Consent of Independent Auditors
Performance Calculation
Financial Data Schedule
Cover
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933
and the Investment Company Act of 1940 the Registrant has duly caused
this Registration Statement to be signed on its behalf by the
Undersigned, thereunto duly authorized, in the City of Saddle Brook and
State of New Jersey, on the 2nd day of March, 1998.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
/s/ Robert M. DeMichele
________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele
________________________ Chairman of the Board March 2, 1998
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
________________________ Principal Financial and March 2, 1998
Richard M. Hisey Accounting Officer
and Director
/s/ Lisa Curcio
________________________ Principal Compliance March 2, 1998
Lisa Curcio Officer
*S.M.S. Chadha Director March 2, 1998
________________________
S.M.S. Chadha
*Beverley C. Duer, P.E. Director March 2, 1998
________________________
Beverley C. Duer, P.E.
*Barbara R. Evans Director March 2, 1998
________________________
Barbara R. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director March 2, 1998
_______________________
Lawrence Kantor
*Jerard F. Maher Director March 2, 1998
_______________________
Jerard F. Maher
*Andrew M. McCosh Director March 2, 1998
_______________________
Andrew M. McCosh
*Donald B. Miller Director March 2, 1998
_______________________
Donald B. Miller
*John G. Preston Director March 2, 1998
_______________________
John G. Preston
*Margaret W. Russell Director March 2, 1998
_______________________
Margaret W. Russell
*Allen H. Stowe Director March 2, 1998
_______________________
Allen H. Stowe
/s/ Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a director of LEXINGTON
TROIKA DIALOG RUSSIA FUND, INC., a Maryland corporation, to sign on his or
her or its behalf any and all Registration Statements (including any post-
effective amendments to Registration Statements) under the Securities Act
of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 27th day of February, 1998.
/s/ Allen H. Stowe
_____________________________
Allen H. Stowe
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.
Retirement Plan for Eligible Directors/Trustees
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/Trustees will be eligible to serve as Honorary
Directors/Trustees for one year after retirement and will be entitled to be
reimbursed for travel expenses to attend a maximum of two meetings.
For more information regarding these benefits, refer to the Statement of
Additional Information to the section titled "Management of the Fund".
Kramer, Levin, Naftalis & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT NUMBER
(212) 715-9100
March 2, 1998
Lexington Troika Dialog Russia Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Gentlemen:
We hereby consent to the reference of this Firm as counsel in the
Registration Statement on Form N-1A of the Lexington Troika Dialog Russia
Fund, Inc.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
Independent Auditors' Consent
To the Board of Directors and Shareholders
Lexington Troika Dialog Russia Fund, Inc.:
We consent to the use of our report dated February 12, 1998 included in
this Registration Statement on Form N-1A of the Lexington Troika Dialog
Russia Fund, Inc. dated March 2, 1998 and to the references to our firm
under the headings "Financial Highlights" in the Prospectus and
"Shareholder Reports" in the Statement of Additional Information.
KPMG Peat Marwick LLP
New York, New York
March 2, 1998
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
SCHEDULE OF PERFORMANCE QUOTATIONS
ENDING REDEEMABLE VALUE PURSUANT TO SEC RULES
N
P (1+T) = ERV
Where P = Initital payment of $1,000
T = Average annual total return
N = Number of years
FROM SEC EFFECTIVE DATE THROUGH 12/31/97
1.499 Years:
REINV. TOTAL
DATE INVESTMENT DIV. SHARES SHARES NAV VALUE
- -------------------------------------------------------------------------
07/03/96 $1,000.00 - 82.508 82.508 12.12 1,000.00
12/27/96 26.43 2.375 84.883 11.13 944.75
09/10/97 0.91 0.037 84.920 24.52 2,082.24
12/29/97 109.50 6.400 91.320 17.11 1,562.48
12/31/97 91.320 17.50 1,598.10
1/n 0.6673
(erv) 1598.10
T = ------- - 1 = -------- - 1 = 36.73%
(P) 1,000.00
1
ERV = 1,000 (1 + 0.3673 ) = $1,598.10
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
SCHEDULE OF PERFORMANCE QUOTATIONS
ENDING REDEEMABLE VALUE PURSUANT TO SEC RULES
N
P (1+T) = ERV
Where P = Initital payment of $1,000
T = Average annual total return
N = Number of years
1 Year:
REINV. TOTAL
DATE INVESTMENT DIV. SHARES SHARES NAV VALUE
- -------------------------------------------------------------------------
12/31/96 $1,000.00 - 88.968 88.968 11.24 1,000.00
09/10/97 0.95 0.039 89.007 24.52 2,182.44
12/29/97 114.77 6.708 95.714 17.11 1,637.67
12/31/97 95.714 17.50 1,675.00
1/n 1.0000
(erv) 1675.00
T = ------- - 1 = -------- - 1 = 67.50%
(P) 1,000.00
1
ERV = 1,000 (1 + 0.6750 ) = $1,675.00
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from annual
audited financial statements dated December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 157,009,803
<INVESTMENTS-AT-VALUE> 133,910,605
<RECEIVABLES> 5,184,994
<ASSETS-OTHER> 592,595
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 139,688,194
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,814,912
<TOTAL-LIABILITIES> 1,814,912
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 159,595,052
<SHARES-COMMON-STOCK> 7,879,455
<SHARES-COMMON-PRIOR> 1,232,123
<ACCUMULATED-NII-CURRENT> (27,179)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,404,607
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (23,099,198)
<NET-ASSETS> 137,873,282
<DIVIDEND-INCOME> 115,632
<INTEREST-INCOME> 1,726,873
<OTHER-INCOME> (15,006)
<EXPENSES-NET> 1,937,661
<NET-INVESTMENT-INCOME> (110,162)
<REALIZED-GAINS-CURRENT> 11,101,736
<APPREC-INCREASE-CURRENT> (24,013,755)
<NET-CHANGE-FROM-OPS> (13,022,181)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 9,633,271
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,666,846
<NUMBER-OF-SHARES-REDEEMED> 5,556,760
<SHARES-REINVESTED> 537,246
<NET-CHANGE-IN-ASSETS> 146,682,278
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 19,125
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,308
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,021
<AVERAGE-NET-ASSETS> 104,635,746
<PER-SHARE-NAV-BEGIN> 11.24
<PER-SHARE-NII> (.01)
<PER-SHARE-GAIN-APPREC> 7.57
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.30
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.50
<EXPENSE-RATIO> 1.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
