As filed with the Securities and Exchange Commission on March 3, 1997
Registration No. 2-32488
811-1838
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 37 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 19 X
(Check appropriate box or boxes.)
LEXINGTON WORLDWIDE EMERGING MARKETS 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 Worldwide Emerging Markets 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, Kamin & Frankel
919 Third Avenue, New York, NY 10022
------------------------------------
It is proposed that this filing will become effective
60 days after filing filing pursuant to Paragraph (a) of Rule 485.
--------------------------------------
The Registrant has registered an indefinite number of shares under
the Securities Act of 1933, pursuant to Section 24(f) of the Investment
Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal
year ended December 31, 1996 was filed on February 26, 1997.
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS 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 13
4. General Description of Registration 3
5. Management of the Fund 42
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 WORLDWIDE EMERGING MARKETS 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 6
15. Control Persons and Principal Holders 8
of Securities
16. Investment Advisory and Other Services 8
17. Brokerage Allocation and Other Practices 9
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 10
21. Underwriters 8
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 17
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
PROSPECTUS
___________, 1997
The following twelve mutual funds (each a "Fund," and collectively the
"Funds") are offered in this Prospectus:
Fund Name Nasdaq Symbol
Lexington Convertible Securities Fund CNCVX
Lexington Crosby Small Cap Asia Growth Fund, Inc. LXCAX
Lexington Global Fund, Inc. LXGLX
Lexington GNMA Income Fund, Inc. LEXNX
Lexington Goldfund, Inc. LEXMX
Lexington Growth and Income Fund, Inc. LEXRX
Lexington International Fund, Inc. LEXIX
Lexington Money Market Trust LMMXX
Lexington Ramirez Global Income Fund LEBDX
Lexington SmallCap Value Fund, Inc. LESVX
Lexington Troika Dialog Russia Fund, Inc. LETRX
Lexington Worldwide Emerging Markets Fund, Inc. LEXGX
Each Fund's shares offered in this Prospectus are sold at net asset value
with no sales load, no commissions and (except for certain redemptions of the
Lexington Troika Dialog Russia Fund) no redemption or exchange fees. The minimum
initial investment in each Fund is $1000 ($5,000 for the Lexington Troika Dialog
Russia Fund), and subsequent investments must be at least $50. See "How to
Invest in the Funds."
Each Fund is an open-end management investment company and managed by
Lexington Management Corporation (the "Manager"), an affiliate of Lexington
Funds Distributor (the "Distributor"). Each Fund has its own investment
objective and policies designed to meet different investment goals. The
Lexington Convertible Securities and Lexington Ramirez Global Income Funds may
invest without limitation in lower rated debt securities commonly referred to as
"junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. As with all mutual funds, there is no guarantee a Fund
will achieve its objective.
<PAGE>
Please read this Prospectus before investing and retain it for future
reference. A Statement of Additional Information dated __________,1997, has been
filed with the Securities and Exchange Commission, is incorporated to this
Prospectus by reference and is available without charge by calling the
appropriate telephone number above or writing to the address listed above.
Information about the Lexington Funds is available on the internet at
http:\\www.sec.gov.
AN INVESTMENT IN THE FUNDS IN 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.
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.
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.
TABLE OF CONTENTS
The Lexington Funds ............................................. 3
Fees and Expenses of the Funds .................................. 5
Financial Highlights ............................................ 8
The Funds' Investment Objectives
and Policies .................................................. 20
Other Investment Practices ...................................... 33
Risk Considerations ............................................. 36
Management of the Funds ......................................... 42
How to Contact the Funds ........................................ 51
How to Invest in the Funds ...................................... 51
How to Redeem an Investment
in the Funds .................................................. 54
Exchange Privileges and
Restrictions .................................................. 56
How Net Asset Value is Determined
Dividends and Distributions ..................................... 57
Taxation ........................................................ 59
General Information ............................................. 61
Backup Withholding .............................................. 63
Glossary ........................................................ 64
2
<PAGE>
THE LEXINGTON FUNDS
The Funds' investment objectives are summarized below. See "The Funds'
Investment Objectives and Policies" beginning on page __, "Portfolio Securities"
beginning on page __, "Other Investment Practices" beginning on page ___ and
"Risk Considerations" beginning on page __ for more detailed information.
International Funds
Lexington Crosby Small Cap Asia Growth Fund, Inc.
The Lexington Crosby Small Cap Asia Growth Fund's investment objective is
to seek long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
Lexington Global Fund, Inc.
The Lexington Global Fund's investment objective is to seek long-term
growth of capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States.
Lexington International Fund, Inc.
The Lexington International Fund's investment objective is to seek
long-term growth of capital through investment in common stocks and equivalents
of companies domiciled in foreign countries.
Lexington Ramirez Global Income Fund
The Lexington Ramirez Global Income Fund's investment objective is to seek
high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests in a combination of foreign and
domestic high-yield, lower rated debt securities, commonly known as "junk
bonds."
Lexington Troika Dialog Russia Fund, Inc.
The Lexington Troika Dialog Russian Fund's investment objective is to seek
long-term capital appreciation through investment primarily in the equity
securities of Russian companies.
Lexington Worldwide Emerging Markets Fund, Inc.
The Lexington Worldwide Emerging Markets Fund's investment objective is to
seek long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in emerging countries
and emerging markets.
3
<PAGE>
Domestic Equity Funds
Lexington Convertible Securities Fund
The Lexington Convertible Securities Fund's investment objective is total
return which it seeks to achieve by providing capital appreciation, current
income and conservation of the shareholders capital.
Lexington Growth and Income Fund, Inc.
The Lexington Growth and Income Fund's principal investment objective is
long term appreciation of capital. Income is a secondary objective.
Lexington SmallCap Value Fund, Inc.
The Lexington SmallCap Value Fund's principal investment objective is long
term capital appreciation. The Lexington SmallCap Value Fund will seek to obtain
its objective through investment in common stocks and equivalents of companies
domiciled in the United States with a market capitalization of less than $1
billion.
Precious Metals Funds
Lexington Goldfund, Inc.
The Lexington Goldfund's investment objective is to attain capital
appreciation and such hedge against loss of buying power as may be obtained
through investment in gold securities of companies engaged in mining or
processing gold throughout the world.
Domestic Fixed-Income Funds
Lexington GNMA Income Fund, Inc.
The Lexington GNMA Income Fund's investment objective is to seek a high
level of current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
Money Market Funds
Lexington Money Market Trust
The Lexington Money Market Trust's investment objective is to seek as high
a level of current income from short-term investments as is consistent with the
preservation of capital and liquidity. The Lexington Money Market Trust seeks to
maintain a stable net asset value of $1 per share.
4
<PAGE>
Fees and Expenses of the Funds
Shareholder Transaction Expenses
An investor would pay the following charges when buying or redeeming shares
of a Fund:
- --------------------------------------------------------------------------------
Maximum
Maximum Sales
Sales Load Imposed Deferred Sales Redemption
Load Imposed on Reinvested Load Fees+ Exchange Fees
on Purchases Dividends
- --------------------------------------------------------------------------------
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> <C>
International Funds
Lexington Crosby SmallCap Asia Growth Fund 1.25 1.17 2.42*
Lexington Global Fund 1.00 0.90 1.90
Lexington International Fund 1.00 0.25 1.20 2.45
Lexington Ramirez Global Income Fund 1.00 0.25 0.25 1.50*
Lexington Troika Dialog Russia Fund 1.25 0.25 1.50 2.65*
Lexington Worldwide Emerging Markets Fund 1.00 0.76 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Domestic Equity Funds
Lexington Convertible Securities Fund 1.00 0.25 1.14 2.39
Lexington Growth and Income Fund 0.68 0.25 0.20 1.13
Lexington SmallCap Value Fund 1.00 0.25 1.23 2.48*
- ---------------------------------------------------------------------------------------------------------------------------
Precious Metals Funds
Lexington Goldfund 0.84 0.25 0.51 1.60
- ---------------------------------------------------------------------------------------------------------------------------
Domestic Fixed-Income Funds
Lexington GNMA Income Fund 0.60 0.45 1.05
- ---------------------------------------------------------------------------------------------------------------------------
Money Market Funds
Lexington Money Market Trust 0.50 0.50 1.00*
</TABLE>
* Net of reimbursement
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 above, an investor buying $1,000 of a fund's
shares would have paid the following total expenses upon redeeming such shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lexington Crosby SmallCap Asia Growth Fund 24.51 75.45 129.05 275.63
Lexington Global Fund 19.29 59.70 102.64 222.21
Lexington International Fund 24.81 76.35 130.55 278.62
Lexington Ramirez Global Income Fund 15.26 47.41 81.84 179.05
Lexington Troika Dialog Russia Fund 54.11 103.01 174.55 363.98
Lexington Worldwide Emerging Markets Fund 17.89 55.41 95.41 207.31
Lexington Convertible Securities Fund 24.21 74.55 127.55 272.63
Lexington Growth and Income Fund 11.52 35.91 62.23 137.46
Lexington SmallCap Value Fund 25.11 77.25 132.05 281.60
Lexington Goldfund 16.27 50.49 87.08 190.01
Lexington GNMA Income Fund 10.71 33.41 57.94 128.26
Lexington Money Market Trust 10.20 31.84 55.25 122.46
</TABLE>
This example is to show the effect of expenses. This example does not
represent past or future expenses or returns; actual expenses and returns may
vary.
7
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
The following financial information for the periods ended December 31,
1991, through December 31, 1996, was audited by KPMG Peat Marwick LLP, whose
report, dated December 31, 1996, appears in the 1996 Annual Reports of the
Funds.
<TABLE>
<CAPTION>
Lexington Crosby Small Cap Asia Growth Fund
1996 1995
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 9.76 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.05) 0.02
Net realized and unrealized gain (loss) on investments 2.54 (0.24)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 2.49 (0.22)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (0.01) (0.02)
Distributions in excess of net investment income (0.01) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.24 $ 9.76
- ----------------------------------------------------------------------------------------------------------------------
Total return 25.50% (4.39)%*
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
Expenses, before reimbursement or waiver 2.64% 3.51%
- ----------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.42% 1.75%
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (0.86)% (1.24)%
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss (0.64)% 0.52%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 176.49% 40.22%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 23,796 $ 8,936
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
The average commission paid on equity security transactions for the period ended
December 31, 1996 is less than $0.005 per share of securities purchased and
sold. In accordance with recent SEC disclosure guidelines, average commissions
were calculated for the current period and not for prior periods.
8
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Global Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.32 $ 11.17 $ 13.51 $ 11.09 $ 11.57
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.01 0.09 0.02 0.06 0.06
Net realized and unrealized gain (loss)
on investments 1.84 1.10 0.23 3.47 (0.47)
- ----------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.85 1.19 0.25 3.53 (0.41)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.16) (0.29) -- (0.06) (0.07)
Distributions in excess of net investments
income (temporary book-tax difference) -- -- (0.13) -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (1.73) (0.62) (2.46) (1.05)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- (0.13) -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.89) (1.04) (2.59) (1.11) (0.07)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.28 $ 11.32 $ 11.17 $ 13.51 $ 11.09
- ----------------------------------------------------------------------------------------------------------------
Total return 16.43% 10.69% 1.84% 31.88% (3.55%)
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Expenses 1.90% 1.67% 1.61% 1.49% 1.52%
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.11% 0.48% 0.14% 0.52% 0.55%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128.05% 166.35% 83.40% 84.61% 81.38%
- ----------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions** $ 0.03 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 37,223 $ 53,614 $ 67,392 $ 87,313 $ 50,298
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
Net asset value, beginning of period $ 10.26 $ 12.83 $ 10.89 $ 9.89 $ 9.50
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) from investment operations:
Net investment income 0.09 0.11 0.01 0.02 0.01
Net realized and unrealized gain (loss)
on investments 1.50 (2.25) 2.72 1.56 0.38
Total income (loss)
from investment operations 1.59 (2.14) 2.73 1.58 0.39
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.08) (0.11) (0.02) (0.02) --
Distributions in excess of net investments
income (temporary book-tax difference) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions 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 (0.28) (0.43) (0.79) (0.58) --
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.57 $ 10.26 $ 12.83 $ 10.89 $ 9.89
- ----------------------------------------------------------------------------------------------------------------
Total return 15.55% (16.75%) 25.10% 15.99% 5.47%*
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Expenses 1.57% 1.59% 1.64% 1.80% 1.20%*
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.79% 0.99% 0.13% 0.12% 0.19%*
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 75.71% 81.88% 113.58% 96.90% 95.66%*
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 53,886 $ 50,501 $ 57,008 $ 38,150 $ 31,250
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** In accordance with recent SEC disclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
9
<PAGE>
FINANCIAL HIGHLIGHTS Lexington International Fund
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.60 $ 10.37 $ 10.00
Income (loss) from investment operations:
Net investment loss (.02) (.01) (.08)
Net realized and unrealized gain on investments 1.45 .61 .67
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.43 .60 .59
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (.20) -- --
Dividends in excess of net investment income
(temporary book-tax difference) -- (.35) --
Distributions from net realized capital gains (.97) (.02) (.10)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- (.12)
----- ----- -----
Total distributions (1.17) (.37) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.86 $ 10.60 $ 10.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total return 13.57% 5.77% 5.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 2.45% 2.46% 2.39%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.39%) (.12%) (.94%)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 113.55% 137.72% 100.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions* $ 0.03 ------ ------
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 18,891 $ 17,855 $ 17,843
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
10
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Ramirez Global Income Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.75 $ 9.80 $ 10.95 $ 10.39 $ 10.35
Income (loss) from investment operations:
Net investment income 1.01 0.96 0.46 0.53 0.61
Net realized and unrealized gain (loss)
on investments 0.36 0.95 (1.16) (0.58) (0.04)
- -----------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.37 1.91 (0.70) 1.11 0.65
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.86) (0.96) (0.45) (0.55) (0.61)
Distributions from net realized gains (0.04) -- -- -- --
---- ---- ---- ---- ----
Total Distributions (0.90) (0.96) (0.45) (0.55) (0.61)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.22 $ 10.75 $ 9.80 $ 10.95 $ 10.39
- -----------------------------------------------------------------------------------------------------------
Total return 13.33% 20.10% (6.52%) 10.90% 6.51%
- -----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.33% 3.07% 1.80% 1.44% 1.54%
- -----------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.50% 2.75% 1.50% 1.44% 1.50%
- -----------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 9.49% 9.48% 4.18% 4.83% 5.88%
- -----------------------------------------------------------------------------------------------------------
Net investment income 10.32% 9.80% 4.48% 4.83% 5.92%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover 71.83% 164.72% 10.20% 31.06% 31.24%
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 29,110 $ 12,255 $ 10,351 $ 14,576 $ 13,085
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.05 $ 10.12 $ 10.03 $ 9.67 $ 10.55
Income (loss) from investment operations:
Net investment income 0.67 0.73 0.63 0.63 0.78
Net realized and unrealized gain (loss)
on investments 0.30 (0.09) 0.09 0.36 (0.86)
- ----------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.97 0.64 0.72 0.99 (0.08)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.67) (0.71) (0.63) (0.63) (0.80)
Distributions from net realized gains -- -- -- -- --
---- ---- ---- ---- ----
(0.67) (0.71) (0.63) (0.63) (0.80)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.35 $ 10.05 $ 10.12 $ 10.03 $ 9.67
- ----------------------------------------------------------------------------------------------------------------
Total return 10.03% 6.62% 7.40% 10.54% (0.21%)
- ----------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 1.65% 1.61% 1.72% 1.50% 1.97%
- ----------------------------------------------------------------------------------------------------------------
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% 5.98%
- ----------------------------------------------------------------------------------------------------------------
Net investment income 6.64% 7.20% 6.22% 6.33% 7.95%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 29.45% 44.50% 46.60% 67.11% 66.77%
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 12,252 $ 10,707 $ 12,739 $ 13,139 $ 11,049
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
11
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Troika Dialog Russia Fund
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Net asset value, beginning of period $ 12.12
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.05)
Net realized and unrealized gain (loss) on investments (0.51)
------
Total income (loss) from investment operations (0.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income
Distributions from net realized capital gains (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (9.01)%*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waivers 5.07%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waivers 2.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income, before reimbursement or waivers (3.69)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (1.26%)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 115.55%*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions paid
on equity security transactions --***
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 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 period
ended December 31, 1996 is less than $0.005 per share of securities
purchased and sold.
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Worldwide Emerging Markets Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.70 $ 11.47 $ 13.96 $ 8.66 $ 9.03
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income -- 0.08 (0.01) 0.05 0.07
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
- ------------------------------------------------------------------------------------------------------------------
on investments 0.79 (0.76) (1.92) 5.43 0.27
- ------------------------------------------------------------------------------------------------------------------
Total income (loss)
- ------------------------------------------------------------------------------------------------------------------
from investment operations 0.79 (0.68) (1.93) 5.48 0.34
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- (0.08) -- (0.01) (0.11)
- ------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
- ------------------------------------------------------------------------------------------------------------------
income (temporary book-tax difference) -- (0.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Distributions from capital gains -- -- (0.47) (0.17) (0.60)
- ------------------------------------------------------------------------------------------------------------------
Distributions in excess of capital gains
- ------------------------------------------------------------------------------------------------------------------
(temporary book-tax difference) -- -- (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.09) (0.56) (0.18) (0.71)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.49 $ 10.70 $ 11.47 $ 13.96 $ 8.66
- ------------------------------------------------------------------------------------------------------------------
Total return 7.38% (5.93%) (13.81%) 63.37% 3.77%
- ------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.76% 1.88% 1.65% 1.64% 1.89%
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.01)% 0.70% (0.06)% 0.21% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover 86.26% 92.85% 75.56% 38.35% 91.27%
- ------------------------------------------------------------------------------------------------------------------
Average commission paid
equity security transactions* -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 254,673 $ 265,544 $ 288,581 $ 230,473 $ 30,021
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987 1986
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.56 $ 10.79 $ 8.72 $ 8.01 $ 11.80 $ 9.96
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.09 0.25 0.13 0.12 0.14 0.16
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
- ---------------------------------------------------------------------------------------------------------------------------------
on investments 1.97 (1.891) 2.32 0.71 0.12 1.88
- ---------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
- ---------------------------------------------------------------------------------------------------------------------------------
from investment operations 2.06 (1.56) 2.45 0.83 0.26 2.04
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.11) (0.24) (0.21) (0.12) (0.38) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
- ---------------------------------------------------------------------------------------------------------------------------------
income (temporary book-tax difference) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains (1.48) 0.43) (0.17) -- (3.67) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of capital gains
- ---------------------------------------------------------------------------------------------------------------------------------
(temporary book-tax difference) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.59) (0.67) (0.38) (0.12) (4.05) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.03 $ 8.56 $ 10.79 $ 8.72 $ 8.01 $ 11.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total return 24.19% (14.44%) 28.11% 10.36% 0.35% 20.73%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.97% 1.42% 1.36% 1.33% 1.34% 1.32%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.79% 2.52% 1.18% 1.27% 1.26% 1.24%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 112.03% 52.48% 59.07% 47.63% 83.21% 54.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission paid
on equity security transactions* -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 25,060 $ 22,192 $ 29,126 $ 26,389 $ 25,579 $ 29,862
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The average commission paid on equity security transactions for the year ended
December 31, 1996 is less than $0.005 per share of securities purchased and
sold. In accordance with recent SEC disclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
13
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Convertible Securities Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.66 $ 11.84 $ 14.10 $ 13.80
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11 0.15 0.08 --
Net realized and unrealized gain (loss)
on investments 0.55 2.04 0.10 0.89
- ---------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.66 2.19 0.18 0.89
- ---------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.15) (0.07) --
Dividends from net realized capital gains (0.55) (0.22) (2.32) (0.59)
Distribution in excess of capital gains
(temporary book-tax difference) -- -- (0.05) --
- ---------------------------------------------------------------------------------------------------
Total distributions (0.66) (0.37) (2.44) (0.59)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.66 $ 13.66 $ 11.84 $ 14.10
- ---------------------------------------------------------------------------------------------------
Total return 4.89% 18.63% 1.30% 6.53%
- ---------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------
Expenses, before reimbursement of waiver 2.39% 2.52% 2.81% 2.76%
- ---------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.39% 2.52% 2.75% 2.76%
- ---------------------------------------------------------------------------------------------------
Net investment income (loss), before
- ---------------------------------------------------------------------------------------------------
reimbursement or waiver 0.77% 1.24% 0.50% (0.04%)
- ---------------------------------------------------------------------------------------------------
Net investment income 0.77% 1.24% 0.56% (0.04%)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover 18.45% 11.23% 38.14% 6.53%
- ---------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions* 0.04 -- -- --
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 11,208 $ 11,641 $ 8,117 $ 8,319
- ---------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.41 $ 8.74 $ 9.55 $ 9.51 $ 9.35
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.18 0.22 0.50 0.64 0.42
Net realized and unrealized gain (loss)
on investments 1.39 3.68 (0.81) 0.04 0.19
- ---------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.57 3.90 (0.31) 0.68 0.61
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.18) (0.23) (0.50) (0.64) (0.42)
Dividends from net realized capital gains -- -- -- -- (0.03)
Distribution in excess of capital gains
(temporary book-tax difference) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (0.18) (0.23) (0.50) (0.64) (0.45)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.80 $ 12.41 $ 8.74 $ 9.55 $ 9.51
- ---------------------------------------------------------------------------------------------------------------
Total return 12.82% 45.06% (3.39%) 7.16% 6.96%
- ---------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement of waiver 3.02% 3.42% 4.51% 2.64% 4.12%
- ---------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.32% 2.50% 2.68% 2.13% 2.00%
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss), before
- ---------------------------------------------------------------------------------------------------------------
reimbursement or waiver 0.70% 1.14% 3.09% 5.74% 3.43%
- ---------------------------------------------------------------------------------------------------------------
Net investment income 1.40% 2.06% 4.92% 6.25% 5.55%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover 12.58% 29.46% 25.58% 34.23% 39.70%
- ---------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions* -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 7,180 $ 6,599 $ 4,744 $ 5,986 $ 6,930
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
14
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Growth and Income Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.71 $ 14.36 $ 16.16 $ 16.25 $ 16.39
Income from investment operations:
Net investment income 0.07 0.22 0.17 0.21 0.23
Net realized and unrealized gain (loss)
on investments 4.08 3.00 (0.68) 1.94 1.79
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 4.15 3.22 (0.51) 2.15 2.02
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.13) (0.22) (0.16) (0.21) (0.32)
Distributions from net realized capital gains (1.17) (1.65) (0.91) (2.03) (1.84)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- (0.22) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (1.87) (1.29) (2.24) (2.16)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.56 $ 15.71 $ 14.36 $ 16.16 $ 16.25
- ---------------------------------------------------------------------------------------------------------------------
Total return 26.46% 22.57% (3.11%) 13.22% 12.36%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.13% 1.09% 1.15% 1.29% 1.20%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.43% 1.38% 1.06% 1.20% 2.57%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 101.12% 159.94% 63.04% 93.90% 88.13%
- ---------------------------------------------------------------------------------------------------------------------
Average commissions paid on
equity security transactions* $ 0.07 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 200,309 $ 138,901 $ 124,289 $ 134,508 $ 126,241
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.24 $ 16.19 $ 14.39 $ 13.58 $ 19.16
Income from investment operations:
Net investment income 0.35 0.60 0.50 0.46 0.43
Net realized and unrealized gain (loss)
on investments 3.17 (2.25) 3.44 0.80 0.02
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 3.52 (1.65) 3.94 1.26 0.45
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.35) (0.30) (0.60) (0.45) (0.51)
Distributions from net realized capital gains (1.02) -- (1.54) -- (5.52)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.37) (0.30) (2.14) (0.45) (6.03)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.39 $ 14.24 $ 16.19 $ 14.39 $ 13.58
- ---------------------------------------------------------------------------------------------------------------------
Total return 24.87% (10.27%) 27.56% 9.38% 0.15%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.13% 1.04% 1.02% 1.10% 0.96%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.19% 3.91% 2.82% 3.20% 2.37%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 80.33% 67.39% 64.00% 81.10% 95.28%
- ---------------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 121,263 $ 104,664 $ 128,329 $ 111,117 $ 112,780
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
15
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Small Cap
Value Fund
1996
---------
Net asset value, beginning of period $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.18)
Net realized and unrealized gain (loss) on investments 1.94
- --------------------------------------------------------------------------------
Total income (loss) from investment operations 1.76
- --------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (0.03)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 11.73
- --------------------------------------------------------------------------------
Total return 17.50%
- --------------------------------------------------------------------------------
Ratios to average net asset of:
- --------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 3.04%
- --------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.48%
- --------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (2.34)%
- --------------------------------------------------------------------------------
Net investment loss (1.78)%
- --------------------------------------------------------------------------------
Portfolio turnover 60.92%
- --------------------------------------------------------------------------------
Average commissions paid on equity security transactions $ 0.03
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 8,061
- --------------------------------------------------------------------------------
16
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Goldfund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.24 $ 6.37 $ 6.90 $ 3.70 $ 4.68
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02 -- 0.03 0.01 0.02
Net realized and unrealized gain (loss)
on investments 0.50 (0.12) (0.53) 3.21 (0.98)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.52 (0.12) (0.50) 3.22 (0.96)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.79) (0.01) (0.03) (0.02) (0.02)
Distributions from net realized
capital gains -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (0.79) (0.01) (0.03) (0.02) (0.02)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.97 $ 6.24 $ 6.37 $ 6.90 $ 3.70
- ---------------------------------------------------------------------------------------------------------------------
Total return 7.84% (1.89%) (7.28%) 89.96% (20.51%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.60% 1.70% 1.54% 1.63% 1.69%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.32)% 0.07% 0.50% 0.25% 0.58%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 31.04% 40.41% 23.77% 28.41% 13.18%
- ---------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity
security transactions* $ 0.02 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 109,287 $ 135,779 $ 159,435 $ 159,479 $ 71,856
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 5.03 $ 6.39 $ 5.21 $ 6.20 $ 4.49
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.04 0.04 0.05 0.04 0.01
Net realized and unrealized gain (loss)
on investments (0.35) (1.36) 1.18 (0.98) 2.07
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (0.31) (1.32) 1.23 (0.94) 2.08
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) (0.04) (0.05) (0.05) (0.05)
Distributions from net realized
capital gains -- -- -- -- (0.32)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.04) (0.05) (0.05) (0.37)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20
- ---------------------------------------------------------------------------------------------------------------------
Total return (6.14%) (20.35%) 23.62% (15.18%) 46.56%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.43% 1.36% 1.42% 1.61% 1.29%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.81% 0.69% 1.14% 0.78% 0.57%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 22.14% 12.43% 15.98% 20.45% 13.78%
- ---------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity
security transactions* -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 96,316 $ 106,074 $ 154,484 $ 92,782 $ 104,842
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
17
<PAGE>
FINANCIAL HIGHLIGHTS Lexington GNMA Income Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.19 $ 7.60 $ 8.32 $ 8.26 $ 8.45
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53 0.58 0.55 0.59 0.61
Net realized and unrealized gain (loss)
on investments (0.08) 0.59 (0.72) 0.06 (0.19)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.45 1.17 (0.17) 0.65 0.42
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.52) (0.58) (0.55) (0.59) (0.61)
Distributions from net realized
capital gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.58) (0.55) (0.59) (0.61)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.12 $ 8.19 $ 7.60 $ 8.32 $ 8.26
- ----------------------------------------------------------------------------------------------------------------------
Total return 5.71% 15.91% (2.07%) 8.06% 5.19%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ----------------------------------------------------------------------------------------------------------------------
Expenses 1.05% 1.01% 0.98% 1.02% 1.01%
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 6.56% 7.10% 6.90% 6.96% 7.31%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 128.76% 30.69% 37.15% 52.34% 180.11%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 133,777 $ 130,681 $ 132,108 $ 149,961 $ 132,048
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.90 $ 7.88 $ 7.45 $ 7.58 $ 8.22
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.64 0.65 0.69 0.64 0.71
Net realized and unrealized gain (loss)
on investments 0.55 0.03 0.42 (0.13) (0.59)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.19 0.68 1.11 0.51 0.12
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.64) (0.66) (0.68) (0.64) (0.73)
Distributions from net realized
capital gains -- -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.66) (0.68) (0.64) (0.76)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.45 $ 7.90 $ 7.88 $ 7.45 $ 7.58
- ----------------------------------------------------------------------------------------------------------------------
Total return 15.75% 9.23% 15.60% 6.90% 1.62%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ----------------------------------------------------------------------------------------------------------------------
Expenses 1.02% 1.04% 1.03% 1.07% 0.98%
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 7.97% 8.43% 8.88% 8.31% 8.49%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 138.71% 112.55% 102.66% 233.48% 89.40%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 122,191 $ 98,011 $ 96,465 $ 97,185 $ 109,793
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Money Market Trust
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<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 0.0441 0.0495 0.0330 0.0230 0.0299
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0441) (0.0495) (0.0330) (0.0230) (0.0299)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total return 4.50% 5.06% 3.35% 2.32% 3.03%
- ---------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.04% 1.08% 1.02% 1.00% 1.03%
- ---------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income, before
---------------------------------------------------------------------------------------------------------------------
reimbursement 4.37% 4.87% 3.30% 2.30% 2.99%
---------------------------------------------------------------------------------------------------------------------
Net investment income, net of
---------------------------------------------------------------------------------------------------------------------
reimbursement 4.41% 4.95% 3.32% 2.30% 3.02%
N---------------------------------------------------------------------------------------------------------------------
et assets, end of period (000's omitted) $ 97,526 $ 88,786 $ 111,805 $ 94,718 $ 111,453
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<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 0.0532 0.0732 0.0828 0.0678 0.0610
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0532) (0.0732) (0.0828) (0.0678) (0.0610)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total return 5.45% 7.56% 8.60% 7.00% 6.29%
- ---------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.02% 0.97% 0.99% 0.97% 0.80%
- ---------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 0.97% 0.99% 0.97% 0.80%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income, before
- ---------------------------------------------------------------------------------------------------------------------
reimbursement 5.35% 7.32% 8.29% 6.74% 6.13%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income, net of
- ---------------------------------------------------------------------------------------------------------------------
reimbursement 5.37% 7.32% 8.29% 6.74% 6.13%
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 143,137 $ 176,127 $ 182,703 $ 192,079 $ 212,487
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<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 __. Specific
investment practices that may be employed by the Funds are described in "Other
Investment Practices" beginning on page __. Certain risks associated with
investments in the Funds are described in those sections as well as in "Risk
Considerations" beginning on page __. CERTAIN TERMS USED IN THE PROSPECTUS ARE
DEFINED IN THE GLOSSARY BEGINNING ON PAGE __.
Summary Comparison of Funds
Under normal market conditions, the Funds will invest their assets as follows:
<TABLE>
<CAPTION>
Typical Market
Anticipated Anticipated Capitalizatioin
Equity Debt of Portfolio
Fund Name Exposure Exposure Focus Campanies
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
International Lexington Crosby 100% 0% Asia Small-Cap Less than
Funds Small Cap Asia $1 billion
Growth Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Global 100% 0% Foreign Growth Any size
Fund
----------------------------------------------------------------------------------------------------------------------
Lexington 100% 0% Foreign Growth Any size
International Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Ramirez 0% 100% Global Income Any size
Global Income Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Troika 85% 15% Russian Growth Any size
Dialog Russia Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Worldwide 100% 0% Foreign Emerging Any size
Emer0ging Markets Growth
Fund
====================================================================================================================================
Domestic Lexington Convertible 0-35% 100% Convertible Any size
Equity Securities Fund Securities
Funds ----------------------------------------------------------------------------------------------------------------------
Lexington Growth 0-100% 0-100% Capital and Income Any size
and Income Fund
----------------------------------------------------------------------------------------------------------------------
Lexington SmallCap 100% 0% U.S. Small-Cap Between
Value Fund $20 million
and $1 billion
====================================================================================================================================
Precious Lexington Goldfund 100% 0% Gold and Gold Any size
Metals Companies
====================================================================================================================================
Domestic Lexington GNMA 0% 100% Income N/A
Fixed- Income Fund
Income
Funds
====================================================================================================================================
Money Lexington Money 0% 100% Income N/A
Market Market Trust
Funds
====================================================================================================================================
</TABLE>
20
<PAGE>
Lexington Crosby Small Cap Asia Growth Fund, Inc.
The investment objective of the Lexington Crosby Small Cap Asia Growth Fund
is long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
The Lexington Crosby Small Cap Asia Growth Fund will invest principally in
companies listed on stock exchanges in the Asia Region consisting of Bangladesh,
China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, The Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, and Vietnam ("the Asia Region"). The
Lexington Crosby Small Cap Asia Growth Fund will invest at least 65% of its
total assets in securities of companies (1) that are organized under the laws of
the above countries, (2) whose principal securities trading market is located in
those countries, and (3) that derive at least 50% of their revenues or profits
from those countries. The Lexington Crosby Small Cap Asia Growth Fund also
intends to invest in Australia and New Zealand. The Lexington Crosby Small Cap
Asia Growth Fund may also invest in unlisted securities. Under normal market
conditions, the Lexington Crosby Small Cap Asia Growth Fund will invest
substantially all of its assets in three or more countries in the Asia Region.
The Lexington Crosby Small Cap Asia Growth Fund will invest at least 65% of
its total assets in growth companies in the Asia Region which have market
capitalizations of less than $1 billion. Approximately 13,000 companies are
listed on recognized exchanges in the Asia Region. Approximately 300 companies
in the Asia Region are capitalized over $1 billion. These companies form the
principal components of their respective market indices and consequently attract
the majority of foreign investment in the region. Approximately 3,000 companies,
which are considered small capitalization companies, will be the primary focus
for the Lexington Crosby Small Cap Asia Growth Fund's investments. These
companies are frequently under-researched by international investors and
undervalued by their markets. The companies in which the Lexington Crosby Small
Cap Asia Growth Fund intends to invest will generally have the following
characteristics: a market capitalization of less than $1 billion; part of a
strong growth industry; proven management; under-researched; and undervalued.
The Lexington Crosby Small Cap Asia Growth Fund intends to select
securities which can have enhanced growth prospects and may provide investment
returns superior to the Asian market as a whole. The market value of small
capitalization companies in the Asia Region tends to be volatile, and in the
past has offered greater potential for gain as well as loss than securities of
companies traded in developed countries. It is possible that certain Lexington
Crosby Small Cap Asia Growth Fund investments
21
<PAGE>
could be subject to foreign expropriation or exchange control restrictions. See
"Risk Considerations."
The Lexington Crosby Small Cap Asia Growth Fund may invest in all types of
common stocks and equivalents (the following constitute equivalents: convertible
debt securities, warrants and options). The Lexington Crosby Small Cap Asia
Growth Fund may also invest in preferred stocks, bonds and other debt
obligations and money market instruments, including cash and cash deposits,
which will be denominated in U.S. Dollars or currencies related thereto.
----------
Lexington Global Fund, Inc.
The investment objective of the Lexington Global Fund is to seek long-term
growth of capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States. The Lexington Global Fund
will invest at least 65% of its total assets in at least three countries, one of
which may be the United States. The Lexington Global Fund will invest primarily
in the common stocks and common stock equivalents. The following constitute
common stock equivalents: convertible debt securities, warrants and options. The
Lexington Global Fund may also invest in preferred stocks, bonds and other debt
obligations, including money market instruments of foreign and domestic
companies and foreign and domestic government securities. The Lexington Global
Fund is not required to maintain any particular geographic or currency mix of
its investments. The Lexington Global Fund is not required to maintain any
particular proportion of stocks, bonds or other securities in its portfolio.
The Lexington Global Fund may invest primarily in foreign debt securities
when it appears that the capital appreciation available from investments in such
securities will equal or exceed the capital appreciation available from
investments in equity securities. The market value of debt securities varies
inversely to changes in prevailing interest rates. Investing in debt obligations
may provide an opportunity for capital appreciation when interest rates are
expected to decline.
The Lexington Global Fund may invest in securities of companies in the
following regions and the governments of those regions: the Pacific Basin,
Africa; Western Europe and North America; and such other areas and countries as
the Manager may determine from time to time. The Lexington Global Fund may
invest in companies located in developing countries without limitation.
Developing countries may have relatively unstable governments, economies based
on only a few industries, and securities markets which trade a small number of
companies. Prices on these
22
<PAGE>
exchanges tend to be volatile and in the past these exchanges have offered
greater potential for gain, as well as loss, than exchanges in developed
countries. While the Lexington Global Fund invests only in countries that it
considers as having relatively stable and friendly governments it is possible
that certain Lexington Global Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
----------
Lexington International Fund, Inc.
The investment objective of the Lexington International Fund is to seek
long-term growth of capital through investment in common stocks and equivalents
of companies domiciled in foreign countries. The Lexington International Fund
will invest at least 65% of its total assets in at least three foreign
countries. The Lexington International Fund will invest primarily in common
stocks and common stock equivalents. The following constitute common stock
equivalents: convertible debt securities, warrants and options. The Lexington
International Fund may also invest in preferred stocks, bonds and other debt
obligations, including money market instruments of foreign and domestic
companies and foreign and domestic government securities. The Lexington
International Fund is not required to maintain any particular geographic or
currency mix of its investments. The Lexington International Fund is not
required to maintain any particular proportion of stocks, bonds or other
securities in its portfolio.
The Lexington International Fund may invest primarily in foreign debt
securities when it appears that the capital appreciation available from
investments in such securities will equal or exceed the capital appreciation
available from investments in equity securities. The market value of debt
securities varies inversely to changes in prevailing interest rates. Investing
in debt obligations may provide an opportunity for capital appreciation when
interest rates are expected to decline. The Lexington International Fund will
invest in investment grade obligations and non-rated obligations of comparable
quality.
The Lexington International Fund may invest in securities of companies in
the following regions and the governments of those regions: the Pacific Basin;
Africa; North America; Western Europe; and such other areas and countries as the
Manager may determine from time to time. The Lexington International Fund may
invest in companies located in developing countries without limitation.
Developing countries may have relatively unstable governments, economies based
on only a few industries, and securities markets which trade a small number of
companies. Prices on these exchanges tend to be volatile and in the past these
exchanges have offered greater potential
23
<PAGE>
for gain, as well as loss, than exchanges in developed countries. While the
Lexington International Fund invests only in countries that it considers as
having relatively stable and friendly governments it is possible that certain
Lexington International Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
----------
Lexington Ramirez Global Income Fund
The investment objective of the Lexington Ramirez Global Income Fund is to
seek high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests primarily in lower rated and
unrated foreign debt securities whose credit quality is generally considered
equal to U.S. corporate debt securities known as "junk bonds." Junk bonds and
similarly rated foreign debt securities involve a high degree of risk and are
predominantly speculative. See "Portfolio Securities" and "Risk Considerations."
The Lexington Ramirez Global Income Fund, under normal conditions, invests
substantially all of its assets in debt securities of domestic companies,
companies of developed foreign countries, and companies in emerging markets. The
debt securities in which the Lexington Ramirez Global Income Fund invests
consist of bonds, notes, debentures and other similar instruments. The Lexington
Ramirez Global Income Fund may invest in debt securities issued by governments,
their agencies and instrumentalities, central banks, commercial banks and other
corporate entities. The Lexington Ramirez Global Income Fund may invest up to
100% of its total assets in domestic and foreign debt securities that are rated
below investment grade. The Lexington Ramirez Global Income Fund may also invest
in securities that are in default as to payment of principal and/or interest,
and bank loan participations and assignments.
The Lexington Ramirez Global Income Fund's investments in emerging markets
will primarily consist of the following: foreign "junk bonds," "Brady Bonds,"
and sovereign debt securities issued by emerging market governments. The
Lexington Ramirez Global Income Fund may invest in debt securities of emerging
market issuers without regard to ratings. Many emerging market debt securities
are not rated by United States rating agencies. The Lexington Ramirez Global
Income Fund's ability to achieve its investment objectives is thus more
dependent on the Manager's credit analysis than would be the case if the
Lexington Ramirez Global Income Fund were to invest in higher quality bonds.
Currently, most emerging market debt securities are considered to have a credit
quality below investment grade.
----------
24
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
The investment objective of the Lexington Troika Dialog Russia Fund is to
seek long-term capital appreciation through investment primarily in the equity
securities of Russian companies. Under normal conditions, the Lexington Troika
Dialog Russia Fund seeks to achieve its objective by investing at least 65% of
its total assets in the securities of Russian Companies. The securities in which
the Lexington Troika Dialog Russia Fund may invest are common stock, preferred
stock, convertible preferred stock, bonds, notes or debentures convertible into
common or preferred stock, direct investments in Russian companies, stock
purchase warrants or rights, and American Depository Receipts or Global
Depository Receipts. The Lexington Troika Dialog Russia Fund may invest the
remaining 35% of its total assets in debt securities issued by Russian
Companies, debt securities issued or guaranteed by the Russian Government or a
Russian governmental entity, debt securities of corporate and government issuers
outside Russia, equity securities of issuers outside Russia which Lexington
Troika Dialog believes will experience growth in revenue and profits from
participation in the development of the economies of the Commonwealth of
Independent States, and Short-Term and Medium-Term Debt Securities.
The Lexington Troika Dialog Russia Fund intends to invest its assets in
Russian Companies in a broad array of industries, including the following: oil
and gas, energy generation and distribution, communications, mineral extraction,
trade, financial and business services, transportation, manufacturing, real
estate, textiles, food processing and construction. The Lexington Troika Dialog
Russia Fund is not permitted to invest more than 25% of the value of its total
assets in any one industry. It may, however, invest an unrestricted amount of
its assets in the oil and gas industry. The Lexington Troika Dialog Russia
Fund's investments will include investments in Russian Companies that have
characteristics and business relationships common to companies outside of
Russia. As a result, outside economic forces may cause fluctuations in the value
of securities held by the Lexington Troika Dialog Russia Fund.
Under current conditions, the Lexington Troika Dialog Russia Fund expects
to invest at least 20% of its total assets in very liquid assets to maintain
liquidity and provide stability. As the Russian equity markets develop, however,
and the liquidity of Russian securities becomes less problematic, the Lexington
Troika Dialog Russia Fund will invest a greater percentage of its assets in
Russian equity securities.
----------
25
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
The investment objective of the Lexington Worldwide Emerging Markets Fund
is to seek long-term growth of capital primarily through investment in equity
securities and equivalents of companies domiciled in, or doing business in,
emerging countries and emerging markets. Under normal conditions, the Lexington
Worldwide Emerging Markets Fund seeks to achieve its objective by investing at
least 65% of its total assets in the equity securities and equivalents of
emerging market companies. Under normal conditions, the Lexington Worldwide
Emerging Markets Fund invests in emerging country and emerging market securities
of at least three countries outside of the United States. In the opinion of the
Manager, emerging market countries include, but are not limited to, the
following: Algeria, Argentina, Bangladesh, Bolivia, Botswana, Brazil, Chile,
China, Colombia, Costa Rica, Cyprus, Czech Republic, Dominican Republic,
Ecuador, Egypt, Finland, Ghana, Greece, Hong Kong, Hungary, India, Indonesia,
Israel, Ivory Coast, Jamaica, Jordan, Kenya, Malaysia, Mauritius, Mexico,
Morocco, Nicaragua, Nigeria, Pakistan, Panama, Peru, Philippines, Poland,
Portugal, Russia, Singapore, Slovakia, South Africa, South Korea, Sri Lanka,
Taiwan, Thailand, Trinidad & Tobago, Tunisia, Turkey, Uruguay, Venezuela,
Zambia, Zimbabwe.
The Lexington Worldwide Emerging Markets Fund may also invest in equity
securities and equivalents of companies that derive 50% or more of their total
revenue from either goods or services produced in emerging market countries or
sales made in those countries. The Lexington Worldwide Emerging Markets Fund's
investments in emerging country equity securities are not subject to any maximum
limit, and the Lexington Worldwide Emerging Markets Fund intends to invest
substantially all of its assets in emerging country and emerging market equity
securities. The Lexington Worldwide Emerging Markets Fund may invest the
remaining 35% of its total assets in equity securities without regard to whether
they qualify as emerging country or emerging market equity securities, debt
securities denominated in the currency of an emerging market or issued or
guaranteed by an emerging market company or the government of an emerging
country, and Short-Term and Medium-Term Debt Securities.
----------
Lexington Convertible Securities Fund
The investment objective of the Lexington Convertible Securities Fund is
total return which it seeks to achieve by providing capital appreciation,
current income and conservation of shareholders capital. Under normal
conditions, the Lexington Convertible Securities Fund seeks to achieve its
objective by investing at least 65% of its total assets in debt securities
convertible into shares of common stock ("convertible securities"). The
26
<PAGE>
Lexington Convertible Securities Fund may invest without limitation in
high-yield debt securities rated below investment grade. Such lower rated
securities are commonly referred to as "junk bonds." Junk bonds are considered
speculative and pose a greater risk of loss of principal and interest than
investment grade securities. See "Portfolio Securities" and "Risk
Considerations." Common stock received upon the conversion or sale of
convertible securities held by the Lexington Convertible Securities Fund will
either continue to be held by the Lexington Convertible Securities Fund or be
sold.
The convertible securities held by the Lexington Convertible Securities
Fund may consist of securities rated in the six highest rating categories by a
major rating service and non-rated debt securities. The Lexington Convertible
Securities Fund will not invest in any security which has been rated lower than
"B" by S&P or Moody's, which are both major rating services, or non-rated
securities of comparable quality.
No more than 35% of the Lexington Convertible Securities Fund's total
assets will be invested in securities other than convertible securities. The
Lexington Convertible Securities Fund may invest in dividend and non-dividend
paying non-convertible common stocks, corporate bonds, covered call options and
put options, stock index options, U.S. Government securities, repurchase
agreements and money market securities.
----------
Lexington Growth and Income Fund
The Lexington Growth and Income Fund's principal investment objective is
long-term capital appreciation. Income is a secondary objective. Generally, the
Lexington Growth and Income Fund invests its assets in publicly traded common
stocks and senior securities convertible into common stocks of domestic and
foreign companies.
----------
Lexington SmallCap Value Fund
The investment objective of the Lexington SmallCap Value Fund is to seek
long-term capital appreciation. Under normal conditions, the Lexington SmallCap
Value Fund seeks its objective by investing in common stocks and equivalents of
domestic companies with a market capitalization under $1 billion. Warrants,
options and convertible debt securities are common stock equivalents in which
the Lexington SmallCap Value Fund may invest. The Lexington SmallCap Value Fund
will invest at least 90% of its assets in domestic companies which have market
capitalizations between $20 million and $1 billion at the time of investment.
The remainder of its
27
<PAGE>
assets may be invested in securities of companies with market capitalizations
below $20 million, above $1 billion, foreign companies with dollar denominated
shares traded in the United States, American Depository Shares or Receipts, real
estate investment trusts, and cash.
The Lexington SmallCap Value Fund will invest it assets primarily in the
equity securities of domestic companies listed on stock exchanges or traded over
the counter. The Lexington SmallCap Value Fund may invest in foreign companies
whose shares are traded in U.S. dollar denominated markets.
The companies in which the Lexington SmallCap Value Fund intends to invest
will generally have the following characteristics: a market capitalization of
less than $1 billion; high relative ratio of revenue per share to stock price; a
low relative ratio of price to book value per share; a positive cash flow and
other measures of financial stability; and a low stock price relative to
historical levels.
----------
Lexington Goldfund
The Lexington Goldfund's principal investment objective is to attain
capital appreciation and such hedge against loss of buying power as may be
obtained through investment in gold and equity securities of companies engaged
in mining or processing gold throughout the world. Under normal conditions, at
least 65% of the value of the total assets of the Lexington Goldfund will be
invested in gold and the securities of companies engaged in mining or processing
gold ("gold-related securities"). The Lexington Goldfund may also invest in
other precious metals, including platinum, palladium and silver. The Lexington
Goldfund intends to invest less than half of the value of its assets in gold and
other precious metals and more than half of the value of its assets in
gold-related securities, including securities of foreign issuers.
The Lexington Goldfund is designed to provide investors with a means to
protect against declines in the value of the U.S. dollar against world
currencies. To the extent that the Lexington Goldfund's investments in
gold-related securities appreciate in value relative to the U.S. dollar, the
Lexington Goldfund's investments may serve to offset declines in the buying
power of the U.S. dollar. Management believes that, over the long term,
investing in gold will protect capital from adverse monetary and political
developments. Investments in gold may provide more of a hedge against a decline
in the buying power of the dollar, devaluation and inflation than other types of
investments. The value of gold-related debt securities, however, will generally
not react to fluctuations in the price of gold. The market value of debt
securities of companies engaged in mining or processing gold can be expected to
fluctuate inversely with prevailing interest rates.
----------
28
<PAGE>
Lexington GNMA Income Fund
The investment objective of the Lexington GNMA Income Fund is to seek a
high level of current income, consistent with liquidity and safety of principal.
Under normal market conditions, the Lexington GNMA Income Fund will invest at
least 80% of the value of its total assets in Government National Mortgage
Association ("GNMA") mortgage-backed securities (also known as "GNMA
Certificates"). Lexington GNMA Certificates represent part ownership of a pool
of mortgage loans. The timely payment of interest and principal on each
certificate is guaranteed by the full faith and credit of the United States
Government. The principal on Lexington GNMA Certificates is scheduled to be paid
back by the borrower over the length of the loan. The Lexington GNMA Income Fund
will invest the remaining 20% of its total assets in other securities issued or
guaranteed by the U.S. Government, including U.S. Treasury securities.
The Lexington GNMA Income Fund will purchase "modified pass through" type
GNMA Certificates. "Modified pass through" GNMA Certificates entitle the holder
to receive all interest and principal payments owed by the borrower even if the
borrower has not made payment. The Lexington GNMA Income Fund intends to use the
proceeds from principal payments to purchase additional GNMA Certificates or
other U.S. Government guaranteed securities.
----------
Lexington Money Market Trust
The investment objective of the Lexington Money Market Trust is to seek as
high a level of current income as is consistent with the preservation of capital
and liquidity by investing in short-term money market instruments. The following
are the money market instruments in which the Lexington Money Market Trust will
invest: U.S. Government securities, time deposits, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements and other money
market instruments. The Lexington Money Market Trust seeks to maintain a stable
net asset value of $1 per share.
The Lexington Money Market Trust will invest in money market instruments
that have been rated in one of the two highest rating categories by both S&P and
Moody's, both major rating agencies. A "Tier 1" security is one that has been
rated by either S&P or Moody's in the highest rating category, or, if unrated,
is of comparable quality. A "Tier 2" security is one that has been rated in the
second highest category by either S&P or Moody's, or, if unrated, is of
comparable quality. Up to 5% of the total assets of the Lexington Money Market
Trust may be invested in a single Tier 1 security (other than U.S. Government
securities). In addition, the Lexington Money Market Trust may not invest more
than 5% of its total assets in Tier 2 securities, and may not invest more than
1% of its total assets in any single Tier 2 security.
29
<PAGE>
The Lexington Money Market Trust may only invest in money market
instruments with a remaining maturity of 397 days or less, provided that the
Fund's average weighted maturity does not exceed 90 days.
PORTFOLIO SECURITIES
Equity Securities
The Lexington Convertible Securities Fund, Lexington Goldfund and Lexington
Growth and Income Fund may purchase common stocks. The Lexington Crosby SmallCap
Asia Growth Fund, Lexington Global Fund, Lexington International Fund, Lexington
SmallCap Value Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide
Emerging Markets Fund emphasize investments in common stock and common stock
equivalents. The following constitute common stock equivalents: warrants,
options and convertible debt securities. 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. The Lexington Troika Dialog Russia Fund may
invest directly in Russian companies.
Debt Securities
Debt securities will constitute at least 65% of the Lexington Convertible
Securities Fund's and up to 100% of the Lexington Ramirez Global Income Fund's
total assets, and the GNMA Income Fund will have substantially all of its assets
invested in GNMA Certificates and U.S. Government securities. The debt
securities in which the Lexington Funds may invest include bond, notes,
debentures and other similar instruments. The debt securities acquired by the
Lexington Convertible Securities Fund may include high yield, lower-rated debt
securities known as "junk bonds," and the Lexington Ramirez Global Income Fund
may invest 100% of its total assets in junk bonds. The Lexington Ramirez Global
Income Fund may invest in securities that are in default as to payment of
principal and/or interest. The Lexington Ramirez Global Income Fund may also
invest in "Brady Bonds" and sovereign debt securities issued by emerging market
governments.
The Lexington Global Fund, 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.
30
<PAGE>
It is likely that many of the debt securities in which the Lexington Troika
Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund invest will be
unrated and may have speculative characteristics. The Lexington Crosby Small Cap
Asia Growth Fund and Lexington International Fund will only invest in investment
grade debt obligations.
Junk Bonds. The Lexington Convertible Securities Fund and Lexington Ramirez
Global Income 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.
Zero Coupon Bonds. The Lexington Ramirez Global Fixed 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
Fixed Income Fund as the income accrues even though payment has not been
received. The Lexington Ramirez Global Fixed Income Fund nevertheless intend 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
Fixed Income's investments in loans in emerging markets is expected to be in the
form of participation in loans ("Participations") and assignments of portions of
loans from third parties ("Assignments"). Participations typically will result
in the Lexington Ramirez Global Fixed Income having a contractual relationship
only with the Lender, not with the borrower. The Lexington Ramirez Global Fixed
Income 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 Fixed Income will assume the credit risk of both
the borrower and the Lender that is selling the Participation. When the
Lexington Ramirez Global Fixed Income purchases Assignments from Lenders, the
Lexington Ramirez Global Fixed Income will acquire direct rights against the
borrower
31
<PAGE>
on the Loan. The Lexington Ramirez Global Fixed Income may have difficulty
disposing of Assignments and Participation. The liquidity of such securities is
limited and the Lexington Ramirez Global Fixed Income 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.
Short-Term and Medium-Term Debt Securities. 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 money market securities, including
short-term (less than twelve months to maturity) and medium-term (not greater
than five years to maturity) high-quality obligations issued by the U.S.
Government, foreign governments, foreign and domestic corporations and banks,
and repurchase agreements.
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 for new bonds in developing countries. Brady Bonds issued
by Brazil, Mexico and Venezuela currently are rated below investment grade.
Brady Bonds have been issued only recently and do not have a long payment
history.
Depositary Receipts
The Lexington SmallCap Value and Lexington Troika Dialog Russia Funds may
invest in American Depositary 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 in which it may otherwise invest.
U.S. Government Securities
All Lexington Funds may invest in fixed-rate and floating- or variable-rate
U.S. government securities. The U.S. Government guarantees payments of interest
and principal of U.S. Treasury bills, notes and bonds, mortgage-related
securities of the GNMA, and other securities issued by the U.S. government.
Other securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of the agency or instrumentality,
32
<PAGE>
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.
OTHER INVESTMENT PRACTICES
The following table and sections summarize certain investment practices of
the Funds. 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.
33
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Lexington Lexington Lexington
Crosby Ramirez Troika Worldwide Lexington
Small Cap Lexington Lexington Global Dialog Emerging Convertible
Asia Growth Global International Income Russia Markets Securities
Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Repurchase agreements1 X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions2
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X X X X X
one-third of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions X
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed 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 contracts2 X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies3 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities X X X
and indices3
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered call options3 X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered put options3 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts4 X
- ------------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options X X X X X X
on futures4
- ------------------------------------------------------------------------------------------------------------------------------------
Equity swap
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
5% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X
10% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X X X X X X
15% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Lexington Lexington Lexington
Growth and SmallCap Lexington Money
Income Value Lexington GNMA Income Market
Fund Fund Goldfund Fund Trust
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Repurchase agreements1 X X X X X
- ------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions2
- ------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X X
one-third of total fund assets
- ------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement X X
- ------------------------------------------------------------------------------------------------------------------
Dollar roll transactions
- ------------------------------------------------------------------------------------------------------------------
Leverage X
- ------------------------------------------------------------------------------------------------------------------
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 X
commitment securities
- ------------------------------------------------------------------------------------------------------------------
Forward currency contracts2 X
- ------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies3
- ------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and indices3
- ------------------------------------------------------------------------------------------------------------------
Write covered call options3 X
- ------------------------------------------------------------------------------------------------------------------
Write covered put options3
- ------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts4
- ------------------------------------------------------------------------------------------------------------------
Futures and swaps and options X
on futures4
- ------------------------------------------------------------------------------------------------------------------
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
15% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<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 invest in forward currency contracts may not invest more
than 70% of its assets in such contracts.
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
Funds may borrow up to 5% of their total assets for temporary or emergency
purposes.
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. The following funds
expect a portfolio turnover rate of greater than 100%:
Hedging and Risk Management Practices
The Lexington Funds (other than the 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.
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
35
<PAGE>
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 Small Cap
Value Fund emphasize investments in smaller companies that may benefit from the
development of new products and services. Such smaller companies may present
greater opportunities for capital appreciation but may involve greater risk than
larger, more mature issuers. Such smaller companies may have limited product
lines, markets or financial resources, and their securities may trade less
frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
those of larger issuers.
Many companies traded on securities markets in many foreign countries are
smaller, newer and less seasoned than companies whose securities are traded on
securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets and with respect to such companies,
which may contribute to increased volatility and reduced liquidity of such
markets or such securities. Accordingly, each of these markets and companies may
be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. To the extent that any of these countries
experiences rapid increases in its money supply and investment in equity
securities for speculative purposes, the equity securities traded in any such
country may trade at price-earning multiples higher than those of comparable
companies trading on securities
36
<PAGE>
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 Global 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 and Lexington Global Fund, and particularly the Lexington
Ramirez Global Income Fund, Lexington Troika Dialog Russia Fund and Lexington
Worldwide Emerging Markets Fund, may invest in securities of companies domiciled
in, and in markets of, so-called emerging market countries. These investments
may be subject to higher risks than investments in more developed countries.
Foreign investments involve the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends) or
other taxes imposed with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country and repatriation of investments), default in
foreign government securities, and political or social instability or diplomatic
developments that could adversely affect investments. In addition, there is
often less publicly available information about foreign issuers than those in
the U.S. Foreign companies are often not subject to uniform accounting, auditing
and financial reporting standards. Further, these funds may encounter
difficulties in pursuing legal remedies or in obtaining judgments in foreign
courts. Additional risk factors, including use of domestic and foreign custodian
banks and depositories, are described elsewhere in this Prospectus and in the
Statement of Additional Information.
Brokerage commissions, fees for custodial services and other costs relating
to investments in other countries are generally greater than in the U.S. Foreign
markets have different clearance and settlement procedures from those in the
U.S., and certain markets have experienced times when
37
<PAGE>
settlements did not keep pace with the volume of securities transactions. The
inability of a fund to make intended security purchases due to settlement
difficulties could cause it to miss attractive investment opportunities.
Inability to sell a portfolio security due to settlement problems could result
in loss to the fund if the value of the portfolio security declined or result in
claims against the fund. In certain countries, there is less government
supervision and regulation of business and industry practices, stock exchanges,
brokers, and listed companies than in the U.S. The securities markets of many of
the countries in which these funds may invest may also be smaller, less liquid,
and subject to greater price volatility than those in the U.S.
Because certain foreign securities may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of a fund's securities denominated in the currency. Such
changes also affect the fund's income and distributions to shareholders. A fund
may be affected either favorably or unfavorably by changes in the relative rates
of exchange between the currencies of different nations, and a fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which one of these funds may invest also may have fixed
or managed currencies that are not freely convertible at market rates into the
U.S dollar. Certain currencies may not be internationally traded. A number of
these currencies have experienced steady devaluation relative to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact on
the fund. Many countries in which a fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the fund. The fund may pay a "foreign
premium" to establish an investment position which it cannot later recoup
because of changes in that country's foreign investment laws.
38
<PAGE>
Lower-Quality Debt
The Lexington Convertible Securities, Lexington Troika Dialog Russia and
Lexington Ramirez Global Income Funds are authorized to invest high-yield,
lower-rated debt securities. 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 Russian 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 political environment in Russia in 1997 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 civil war in Chechnya has highlighted the political tensions
that exist between the central government in Moscow and some of the regions
within the Russian Federation and has contributed to political instability by
weakening confidence domestically and internationally in the government. The
risk exists that armed conflict in Chechnya will continue, which could deter
foreign investment and international aid and further weaken the reformist
government's control. A continuing trend away from reformers toward
conservatives could further deter foreign investment if foreign policy
initiatives contrary to western interests (Iran, Iraq) lead to a deterioration
in relations between the Russian Federation and the West. The risk also exists
that the political tensions associated with the war in Chechnya will lead to
attempts for independence in other regions within the
39
<PAGE>
Russian Federation. The war in Chechnya and other inflammatory issues may also
lead to greater tensions and divisions between the President and the
legislature.
The military could have a negative impact on Russia's political and
economic future. The declining stature of Russia as a world power has led to a
widespread sentiment among Russians for a return to Russia's status as a
superpower. Demobilization of troops, cuts in the military budget, the growth of
significant gaps in living standards between the military and civilian sectors,
and the perception of an external threat from NATO could lead to further
political unrest.
Moreover, it is uncertain whether Russia's privatization process will
continue. Although government officials have publicly pledged their continued
support for the reform process. It is also unclear whether the reforms intended
to liberalize prevailing economic structures based on free market principles
will be successful, particularly in terms of foreign ownership of Russian
companies.
The planned economy of the former Soviet Union was run with qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian businesses do not have any recent history of operating within a
market-oriented economy. In general, relative to companies operating in Western
economies, companies in Russia are characterized by a lack of: (i) management
with experience of operating in a market economy; (ii) modern technology; and,
(iii) a sufficient capital base with which to develop and expand their
operations. It is unclear what will be the future effect on Russian companies,
if any, of Russia's continued attempts to move toward a more market-oriented
economy.
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.
40
<PAGE>
The Russian securities markets are substantially smaller, less liquid and
significantly more volatile than the securities markets in the United States. In
addition, there is little historical data on these securities markets because
they are of recent origin. A substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges and
over-the-counter markets. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Some issuers may be exposed to center-regional conflicts in jurisdiction in the
areas of taxation and overall corporate governance which could put the Fund's
investments at risk. In addition, because the Russian securities markets are
smaller and less liquid than in the United States, obtaining prices on portfolio
securities from independent sources may be more difficult than in other markets.
Although evolving rapidly, even the largest of Russia's stock exchanges are
not well developed compared to Western stock exchanges. The actual volume of
exchange-based trading in Russia is low and active on-market trading generally
occurs only in the shares of a few private companies. Most secondary market
trading of equity securities occurs through over-the-counter trading facilitated
by a growing number of licensed brokers. Shares are traded on the
over-the-counter market primarily by the management of enterprises, investment
funds, short-term speculators and foreign investors.
Interest Rates
The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value, and an interest rate
increase produces a decrease in value. The longer the remaining maturity of a
security, the more sensitive that security is to changes in interest rates.
Changes in the ability of an issuer to make payments of interest and principal
and in the market's perception of the issuer's creditworthiness also affect the
market value of that issuer's debt securities.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a fund's portfolio. Mortgage prepayments are affected by the level of
interest rates and other factors, including general economic conditions and the
underlying location and age of the mortgage. In periods of rising interest
rates, the prepayment rate tends to decrease, lengthening the average life of a
pool of mortgage-related securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the average life of a pool.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Lexington GNMA Income Fund may have to reinvest
the proceeds of prepayments at lower interest rates
41
<PAGE>
than those of their previous investments. If this occurs, a fund's yield will
decline correspondingly. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates than
other fixed-income securities of comparable duration, although they have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Lexington GNMA Income Fund purchases mortgage-related
securities at a premium, unscheduled prepayments, which are made at par, result
in a loss equal to any unamortized premium. Duration is one of the fundamental
tools used by the Manager in managing interest rate risks including prepayment
risks. See "Duration" in the Glossary.
Non-diversified Portfolio. The Lexington Goldfund and Lexington Troika
Dialog Russia Fund are "non-diversified" investment companies under the
Investment Company Act. This means that the Lexington Goldfund and Lexington
Troika Dialog Russia Fund are not limited in the proportion of their total
assets that may be invested in a single company. The Lexington Goldfund and
Lexington Troika Dialog Russia Fund may invest a greater portion of their assets
in fewer companies than "diversified" funds, and thus may be subject to greater
risk. The Lexington Goldfund and Lexington Troika Dialog Russia Fund, however,
intend to comply with the diversification requirements of federal tax laws to
qualify as a regulated investment company.
MANAGEMENT OF THE FUNDS
Board of Directors/Trustee
Each Lexington Fund has either a Board of Directors or a Board of Trustees
that establishes its policies and supervises and reviews its management.
Day-to-day operations of the Lexington Funds are administered by the officers of
the Lexington Funds and by the Manager and Sub-Advisers pursuant to the terms of
an investment management agreement with each fund and investment sub-advisory
agreements between the Manager and the Sub-Advisers.
Board of Advisers
The Lexington Troika Dialog Russia Fund's Board of Directors will receive
oversight assistance from a Board of Advisers which will be composed of experts
in Russian political and economic affairs. The Board of Advisers will be
responsible for providing the Board of Directors with periodic updates on
political and macroeconomic conditions and trends in Russia, and their potential
implication for the overall investment environment in
42
<PAGE>
Russia. This will enhance the Board of Directors' ability to oversee and
safeguard the assets of the Lexington Troika Dialog Russia Fund.
Investment Adviser
Lexington Management Corporation is the Manager of the Lexington Funds. The
Manager was formed 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.
THE SUB-ADVISERS
Lexington Convertible Securities Fund
The Manager has entered into a Sub-Advisory Agreement with Ariston Capital
Management Corporation ("Ariston"). Under the Sub-Advisory Agreement, Ariston
will provide the Lexington Convertible Securities Fund with investment
management and administrative services. Ariston also serves as investment
adviser to private and institutional investment accounts. Such accounts own a
significant number of shares of the Lexington Convertible Securities Fund as
part of their investment program. Ariston was founded in 1977 and provides
investment management to individuals, corporations, pension and profit sharing
plans, and other qualified retirement plan accounts. Ariston is recognized for
its expertise in portfolio management, specializing in convertible securities
and market forecasting.
Lexington Crosby Small Cap Asia Growth Fund
The Manager has entered into a Sub-Advisory Agreement with Crosby Asset
Management (US) Inc. ("Crosby"). Under the Sub-Advisory Agreement, Crosby will
provide the Lexington Crosby Small Cap Asia Growth Fund with investment
management services. Crosby was established on October 4, 1990 in the British
Virgin Islands. Crosby manages assets and provides investment advice for
investment company and institutional private accounts around the world. It is a
subsidiary of the Crosby Group.
43
<PAGE>
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
does not manage any assets for investment companies, but is an institutional
manager for private clients. MFR is a subsidiary of Maria Fiorini Ramirez, Inc.
Lexington SmallCap Value Fund
The Manager has entered into a Sub-Advisory Agreement with Capital
Technology Inc. ("CTI"). Under the Sub-Advisory Agreement, CTI will provide the
Lexington SmallCap Value Fund with investment advice and management of the
Fund's investment program. CTI was founded in Charlotte, North Carolina in 1977
and invests exclusively in domestic smaller capitalization stocks. CTI currently
manages assets both small and mid cap growth and value styles for primarily
institutional clients.
Lexington Troika Dialog Russia Fund
The Manager has entered into a Sub-Advisory Agreement with Troika Dialog
Asset Management ("TDAM"). Under the Sub-Advisory Agreement, TDAM will provide
the Lexington Troika Dialog Russia Fund with investment advice and management of
the Fund's investment program. TDAM is a wholly owned subsidiary of Troika
Dialog which was founded in Moscow, Russia in 1991 by Dialog Bank and Troika
Capital Corporation.
The Manager as owner of the registered service mark "Lexington" will
sublicense the Sub-Advised 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.
44
<PAGE>
PORTFOLIO MANAGERS
Lexington Convertible Securities Fund
Richard B. Russell manages the Lexington Convertible Securities Fund. Mr.
Russell is President of Ariston Capital Management Corporation, the Lexington
Convertible Securities Fund's Sub-Adviser. He is a graduate of the School of
Business at the University of Washington and has completed additional training
at the New York Institute of Finance. He is a recognized authority on portfolio
management, particularly through the use of convertible securities and market
forecasting. He has spent his entire professional career as an independent money
manager, dating from 1972. Before founding Ariston in 1977, he was a full-time
manager of private family assets. Mr. Russell has conducted extensive research
on investment topics.
Lexington Crosby Small Cap Asia Growth Fund
Christina Lam is a lead manager (Nigel Webber is the other lead manager) on
a portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Ms. Lam is Vice President and Portfolio Manager of the Lexington
Crosby Small Cap Asia Growth Fund. Ms. Lam joined Crosby Asset Management in
1991. She is responsible for the investment management of the listed equity
portfolios under the management of Crosby Asset Management which include a major
Asian small capitalization account. After graduating with a Law Degree with
Honors from Warwick University, she qualified as a Barrister from Lincoln's Inn
in London. She moved to Hong Kong in 1987 where she joined Schroder Securities
Limited in Hong Kong as an investment analyst, where her coverage included the
utilities, industrials and retail sectors and conglomerates.
Nigel Webber is a lead manager (Ms. Lam is the other lead manager) on a
portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Mr. Webber is Vice President and Portfolio Manager of the Lexington
Crosby Small Cap Asia Growth Fund. Mr. Webber is responsible for the Fund's
overall investment strategy. Mr. Webber was appointed a Managing Director of
Crosby Asset Management in October 1993 with primary responsibility for business
development. He joined Crosby Asset Management after being a partner in Causeway
Capital Limited, a leading independent U.K. investment management firm
specializing in private equity investment and smaller listed companies. He
started his career at KPMG Peat Marwick, followed by five years at Citicorp
International Bank Limited in London and New York and three years with
Mercantile House Holdings PLC a leading financial services group. In 1987, he
joined as Managing Director, an investment company specializing in the
45
<PAGE>
financial sector where he first became associated with the Crosby Group. He was
a Director and member of the investment committee of The Thai Development
Capital Fund Limited and The China Investment Company Ltd., two funds managed by
Crosby Asset Management from their launch until September 1993.
Lexington Global Fund
Richard Saler is part of an investment management team that manages the
Lexington Global Fund. Mr. Saler is Senior Vice President, Director of
International Investment Strategy of the Manager. Mr. Saler is responsible for
international investment analysis and portfolio management at the Manager. He
has ten years of investment experience. Mr. Saler has focused on international
markets since first joining the Manager in 1986. In 1991 he was a strategist
with Nomura Securities and rejoined the Manager in 1992. Mr. Saler is a graduate
of New York University with a B.S. Degree in Marketing and an M.B.A. in Finance
from New York University's Graduate School of Business Administration.
Phillip A. Schwartz is part of an investment management team that manages
the Lexington Global Fund. Mr. Schwartz is a Vice President of the Manager,
Chartered Financial Analyst and member of the New York Security Analysts
Association. He is responsible for international investment analysis and
portfolio management at the Manager, and has eight years investment experience.
Prior to joining Lexington in 1993, Mr. Schwartz was Vice President of European
Research Sales with Cheuvreux Devirieu 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.
Alan Wapnick is part of an investment management team that manages the
Lexington Global Fund. Mr. Wapnick is Senior Vice President, Director of
Domestic Investment Equity Strategy at the Manager. Mr. Wapnick is responsible
for domestic investment analysis and portfolio management at LMC. He has 26
years investment experience. Prior to joining the Manager in 1986, Mr. Wapnick
was an equity analyst with Merrill Lynch, J.&W. Seligman, Dean Witter and most
recently Union Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth
College and received a Master's Degree in Business Administration from Columbia
University.
Lexington GNMA Income Fund
Denis P. Jamison manages the Lexington GNMA Income Fund. Mr. Jamison is
Senior Vice President and Director Fixed Income Strategy of Lexington Management
Corporation. Mr. Jamison is responsible for fixed-
46
<PAGE>
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 Goldfund
Robert W. Radsch, CFA, is portfolio manager of the Lexington Goldfund. Mr.
Radsch is a Vice President of the Manager. Prior to joining Lexington in July
1994, he was Senior Vice President, Portfolio Manager and Chief Economist for
the Bull & Bear Group. He has extensive experience managing gold, silver and
platinum on an international basis having managed precious metals and
international funds for more than 13 years. Mr. Radsch is a graduate of Yale
University with a B.A. degree and holds an M.B.A. in Finance from Columbia
University.
Lexington Growth and Income Fund
Mr. Wapnick is portfolio manager of the Lexington Growth and Income Fund.
Lexington International Fund
Mr. Saler and Mr. Schwartz manage the Lexington International Fund as an
investment management team. Mr. Saler is the lead manager and Mr. Schwartz is
the co-manager.
Lexington Money Market Trust
Mr. Jamison is portfolio manager of the Lexington Money Market Trust.
Lexington Ramirez Global Income Fund
Maria Fiorini Ramirez, President and Chief Executive Officer of MFR
Advisors Inc., began her career as a credit analyst with American Express
International Banking Corporation in 1968. In 1972, she moved to Banco Nazionale
De Lavoro in New York. The following year, 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
47
<PAGE>
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 Small Cap Value Fund
Dennis Hamilton is one of two lead managers (Robb W. Rowe is the other lead
manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund. Mr. Hamilton is Vice President and Portfolio Manager of CTI. He is
responsible for issue selection and the day to day investment activities of the
SmallCap Value Fund. Mr. Hamilton joined CTI in 1994 after being a principal at
Mercer Investment Consulting, Inc. He has also served as Director of Pension
Investment for several multi-billion dollar corporate pension funds and was
President and Chief Investment Officer of Western Reserve Capital Management,
Inc., an SEC registered investment advisor. He is an Honors graduate of Colgate
University and earned an MBA from Harvard Business School in 1971.
Robb W. Rowe is one of two lead managers (Mr. Hamilton is the other lead
manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund. Mr. Rowe is President and principal shareholder of CTI. He is
responsible for the SmallCap Value Fund's overall investment strategy. Mr. Rowe
joined CTI in 1982 after being Vice President and Regional Manager of AG Becker
Co. He is a graduate of Ripon College and receive an MBA from the University of
Chicago in 1971.
Lexington Troika Dialog Russia Fund
Peter Derby is a manager on a portfolio management team (the other members
of the portfolio management team include Gavin Rankin and Ruben Vardanian) that
manages the Lexington Troika Dialog Russia Fund. Mr. Derby is the Chairman of
the Board of TDAM and is the President, Chief Executive Officer and founder of
Troika Dialog and is the President and Chief Executive Officer of Dialog Bank, a
position he has held since 1991. Mr. Derby participated in the drafting of
corporate, banking and securities legislation in Russia and is currently a
member of the Expert Council of Russia's Federal Securities Exchange Commission.
Mr. Derby holds numerous director positions in Russian enterprises and
charities; he is a founding and current Member of the Board of the Moscow
International Currency Exchange, and is a Member of the Board of Directors of
the American Chamber of Commerce in Russia.
48
<PAGE>
Mr. Derby is Treasurer and Member of the Board of Junior Achievement in Russia.
He is a founding Member of the Russian-American Professional Club in New York
City.
Gavin Rankin is is the lead manager of a portfolio management team (the
other members of the portfolio management team include Mr. Peter Derby and Mr.
Ruben Vardanian) that manages the Lexington Troika Dialog Russia Fund. Mr.
Rankin Head of Research for TDAM and Troika Dialog. He is responsible, along
with other members of the portfolio management team, for the Fund's overall
investment strategy. Before joining Troika Dialog, he was the Founder and Chief
Executive Officer of Lonpra A.S., an investment banking firm in Czechoslovakia
in 1991. Mr. Rankin received a degree in law (L.L.B.) from the University of
Buckingham in England and also qualified as a Chartered Accountant with Price
Waterhouse. Mr. Rankin has extensive experience in East European equity research
and management.
Ruben Vardanian is a manager on a portfolio management team (the other
members of the portfolio management team include Mr. Peter Derby and Mr. Gavin
Rankin) that manages the Lexington Troika Dialog Russia Fund. Mr. Vardanian is
President of TDAM and Executive Director of Troika Dialog. Mr. Vardanian, a
Russian national, is a sitting member of the Moscow Times Index Composition
Committee. He is a Director and former Chairman of the Board of Directors of the
Depository Clearing Company. He is also Chairman of the Board of Directors of
the Russian capital markets self-regulatory organization (PAUFOR). Mr. Vardanian
received a Masters Degree with Distinction from the Finance Department of Moscow
State University. He received post-graduate training with Banca CRT in Italy and
the Emerging Markets Division of Merrill Lynch in New York.
Lexington Worldwide Emerging Markets Fund
Mr. Saler is the lead manager of an investment management team that manages
the Lexington Worldwide Emerging Markets Fund.
49
<PAGE>
HOW TO DO BUSINESS WITH THE FUNDS
How to Contact the Funds .................................................... 51
How to Invest in the Funds .................................................. 51
How to Redeem an Investment in the Funds .................................... 54
Exchange Privileges and Restrictions ........................................ 56
FUND INFORMATION
How Net Asset Value Is Determined ........................................... 57
Dividends and Distributions ................................................. 58
Taxation .................................................................... 60
General Information ......................................................... 61
Backup Withholding .......................................................... 63
Glossary .................................................................... 64
50
<PAGE>
HOW TO CONTACT THE FUNDS
Call a Lexington shareholder service representative for information on the
Funds or your account, at:
(800) 526-0056 or
(201) 845-7300 for Service
(800) 526-0052 for 24 Hour
Account Information
Mail your completed application, any checks, investment or redemption
instructions and correspondence to the Transfer Agent:
Transfer Agent:
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
How to Invest in the Funds
The Funds' shares are offered directly to the public, with no sales load,
at their nextdetermined net asset value after receipt of an order with payment.
The Funds' shares are offered for sale by State Street Bank and Trust Company
(the "Transfer Agent") and through selected securities brokers and dealers.
If an order, together with payment in proper form, is received by the
Transfer Agent by 4:00 p.m., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading, fund shares will be purchased at the
fund's next-determined net asset value. Orders for fund shares received after
the Funds' cutoff times will be purchased at the next-determined net asset value
after receipt of the order.
The minimum investment in each fund is described in this section. The
Manager or the Distributor, in its discretion, may waive these minimums. The
Funds do not accept third-party checks or cash investments. Checks must be in
U.S. dollars and, to avoid fees and delays, drawn only on banks located in the
U.S. See the Statement of Additional Information for further details.
51
<PAGE>
Initial Investments
Minimum Initial Investment (except Lexington
Troika Dialog Russia Fund): $1,000
Minimum Initial Investment for the Lexington Troika
Dialog Russia Fund: $5,000
Initial Investments by Check
o Complete the New Account Application. Tell us in which fund(s) you
want to invest and make your check payable to The Lexington Funds.
o Mail the New Account Application and check to the Transfer Agent at
the address given above.
o A charge may be imposed on checks that do not clear.
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
Initial Investments by Wire
o Shares of the following Funds may be purchased by wire: Lexington
Crosby SmallCap Asia Growth Fund and Lexington Money Market Trust.
o Telephone the Funds toll-free at 1-800-526-0056. Provide the Transfer
Agent 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
Attention: Mutual Funds Dept.
Account # 99043713
For Credit to: (shareholder(s) name)
Shareholder Account Number: (shareholder(s) account number)
Name of Fund: (Lexington Fund name)
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.
52
<PAGE>
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
Minimum Subsequent Investment: $50
Subsequent Investments by Check
o Make your check payable to The Lexington Funds. Enclose the detachable
form which accompanies the Transfer Agent's confirmation of a prior
transaction with your check. If you do not have the detachable form,
mail your check with written instructions indicating the fund name and
account number to which your investment should be credited.
o A charge may be imposed on checks that do not clear.
Subsequent Investments by Wire
o You do not need to contact the Transfer Agent prior to making
subsequent investments by wire. Instruct your bank to wire funds to
the Transfer Agent using the bank wire information under "Initial
Investments by Wire" above.
"Lex-O-Matic" the Automatic Investment Plan
o A shareholder may make additional purchases of shares automatically on
a monthly or quarterly basis with the automatic investing plan,
"Lex-O-Matic."
o "Lex-O-Matic" will be established on existing accounts only. You may
not use an "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.
Investments will automatically be transferred into your Lexington
Account from your checking or savings account.
o Investments may be transferred either monthly or quarterly on or about
the 15th day of the month.
o You should allow 20 business days for this service to become
effective.
o You may cancel your Lex-O-Matic at any time provided that a letter is
sent to the Transfer Agent ten days prior to the scheduled investment
date. Your request will be processed upon receipt.
53
<PAGE>
By investing in the Lexington Funds, you appoint the Transfer Agent as your
agent to establish an open account to which all shares purchased will be
credited, along with any dividends and capital gain distributions which are paid
in additional shares (see "Dividends and Distributions"). Stock certificates
will be issued, upon written request, for full shares of Lexington Funds.
Certificates will not be issued for 30 days unless payment is made by certified
check, cashier's check or federal funds wire. In order to facilitate redemptions
and transfers, most shareholders elect not to receive certificates
You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders for customers may charge a fee
for their services. The fee may be avoided by purchasing shares directly from
the Lexington Funds.
HOW TO REDEEM AN INVESTMENT IN THE FUNDS
The Funds will redeem all or any portion of an investors outstanding shares
upon request. Redemptions can be made on any day that the NYSE is open for
trading. The redemption price is the net asset value per share next determined
after the shares are validly tendered for redemption and such request is
received by the Transfer Agent. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholders instructions. The Funds may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below.
A 2% redemption fee will be charged on the redemption of shares of the
Troika Dialog Russia Fund held less than 365 days. The redemption fee will not
apply to shares representing the reinvestment of dividends and capital gains
distributions. The redemption fee will be applied on a share by share basis
using the "first shares in, first shares out" (FIFO) method. Therefore, the
oldest shares are considered to have been sold first.
54
<PAGE>
Redeeming by Written Instruction
o Write a letter giving your name, account number, the name of the fund
from which you wish to redeem and the dollar amount or number of
shares you wish to redeem.
o Signature-guarantee your letter if you want the redemption proceeds to
go to a party other than the account owner(s), your predesignated bank
account or if the dollar amount of the redemption exceeds $25,000.
Signature guarantees may be provided by an eligible guarantor
institution such as a commercial bank, an NASD member firm such as a
stock broker, a savings association or national securities exchange.
Contact the Transfer Agent 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.
Redeeming by Telephone
o Shares of the Money Market Trust may redeemed by telephone. Call the
Fund 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, either mailed to
the registered address, wired to a bank account or mailed to any other
designated person. A new form must be completed whenever these
instructions are revised.
o Telephone redemption privileges may be cancelled by instructing the
Transfer Agent in writing. Your request will be processed upon
receipt.
55
<PAGE>
o Exchange by telephone, see below "Exchange Privileges and Restrictions."
Redeeming by Check
o Checkwriting is available on the Money Market Trust.
o The minimum amount per check is $100 or more up to $500,000 at no
charge. Checks for less than $100 or over $500,000 will not be
honored.
o All checks require only one signature unless otherwise indicated.
o Checks will be returned to you at the end of each month.
o Redemption checks are free, but a charge of $15.00 may be imposed for
any stop payments requested.
o Redemption checks should not be used to close your account.
o Procedures for redemptions by telephone, at no charge, or check may
only be used for shares for which share certificates have not been
issued, and may not be used to redeem shares purchased by check which
have been on the books of the Fund for less than 15 days.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature guarantee is required. The minimum payment amount is $100 from each
fund account. Payments may be made either monthly or quarterly on the 1st of
each month. Depending on the form of payment requested, shares will 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 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 of over $500,000 will take three days to
complete. See the discussion of fund telephone procedures and limitations of
liability under "Telephone Transactions" above.
56
<PAGE>
Purchasing and Redeeming Shares by Exchange
o You may make exchange 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.
o Telephone exchanges 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.
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 for the Lexington
Troika Dialog Russia Fund.
The value of securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be translated into U.S. dollars at
the last price of their respective currency denomination against U.S. dollars
quoted by a major bank or, if no such quotation is available, at the rate of
exchange determined in accordance with policies established in good faith by the
Boards. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of fund shares even
without any change in the foreign-currency denominated values of such
securities.
57
<PAGE>
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 Convertible Securities Fund, Lexington Goldfund, Lexington
Growth and Lexington Income Fund, Lexington International Fund, Lexington
Ramirez Global Income Fund, Lexington SmallCap Value Fund and Lexington Troika
Dialog Russia Fund have each adopted a Distribution Plan. The Distribution Plan
provides that the Funds may pay distribution fees up to 0.25% of their average
daily net assets for distribution services.
SHAREHOLDER SERVICE AGREEMENTS
The Lexington Crosby Small Cap Asia Growth Fund, Lexington Global Fund,
Lexington GNMA Income Fund and Lexington Worldwide Emerging Markets Fund may
enter into Shareholder Servicing Agreements with one or more Shareholder
Servicing Agents. The Shareholder Servicing Agents provide various services to
shareholders. For these services, each Shareholder Servicing Agent receives fees
up to 0.25% of the average daily net assets of the Fund represented by shares
owned during the period for which payment is made. The Manager, at no additional
cost to the Funds, may pay to Shareholder Servicing Agents additional amounts
from its past profits. Each Shareholder Servicing Agent may, from time to time,
voluntarily waive all or a portion of the fees payable to it.
58
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Each fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. The amount and frequency of fund
distributions are not guaranteed and are at the discretion of the Board.
Currently, the Lexington Funds intend to distribute according to the following
schedule:
<TABLE>
<CAPTION>
Income Dividends Capital Gains
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lexington Convertible Declared and paid quarterly Declared and paid annually
Securities
Lexington Growth and Income
Lexington Ramirez Global
Income
- ---------------------------------------------------------------------------------------------------------------------------
Lexington GNMA Income Declared and paid monthly Declared and paid annually
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Crosby SmallCap Declared and paid annually Declared and paid annually
Asia Growth
Lexington International
Lexington SmallCap Value
Lexington Troika Dialog
Russia
Lexington Global
Lexington Worldwide
Emerging Markets
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Goldfund Declared daily and paid Declared and paid in
semi-annually annually
- ---------------------------------------------------------------------------------------------------------------------------
</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 by the amount of the distribution, net of any
subsequent market fluctuations. For example, assume that on December 31, the
Growth and Income Fund declared a dividend in the amount of $0.50 per share. If
the 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.
59
<PAGE>
"Buying a Dividend"
If you buy shares of a fund just before a distribution, you will pay the
full price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." In the example above,
if you bought shares on December 30, you would have paid $10.00 per share. On
December 31, the Fund would pay you $0.50 per share as a dividend and your
shares would now be worth $9.50 per share. Unless your account is a tax-deferred
account, dividends paid to you would be included in your gross income for tax
purposes even though you may not have participated in the increase of net asset
value of the Fund, regardless of whether you reinvested the dividends.
TAXATION
Each of the funds has elected and intends to continue to qualify to be
treated as a regulated investment company under Subchapter M of the Code, by
distributing substantially all of its net investment income and net capital
gains to its shareholders and meeting other requirements of the Code relating to
the sources of its income and diversification of assets. Accordingly, the Funds
generally will not be liable for federal income tax or excise tax based on net
income except to the extent their earnings are not distributed or are
distributed in a manner that does not satisfy the requirements of the Code. If a
fund is unable to meet certain Code requirements, it may be subject to taxation
as a corporation. Funds investing in foreign securities also may incur tax
liability to the extent they invest in "passive foreign investment companies."
See "Portfolio Securities" and the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase fund shares) receive from the Funds are considered ordinary
income. Part of the distributions paid by the Funds may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of a fund are treated by shareholders as
long-term capital gains regardless of the length of time the fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Funds.
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
60
<PAGE>
and dividends. Investors (including tax exempt and foreign investors) are
advised to consult their own tax advisers regarding the particular tax
consequences to them of an investment in shares of the Funds. Additional
information on tax matters relating to the Funds and their shareholders is
included in the Statement of Additional Information.
GENERAL INFORMATION
The Funds
The Lexington Convertible Securities Fund, Lexington Money Market Trust and
Lexington Ramirez Global Income Fund are business trusts organized under the
laws of Massachusetts. The Lexington Crosby Small Cap Asia Growth Fund,
Lexington Global Fund, Lexington GNMA Income Fund, Lexington Growth and
Lexington Income Fund, Lexington International Fund, Lexington SmallCap Value
Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging
Markets Fund are Maryland corporations. The assets and liabilities of each
business trust and corporation are separate and distinct from each other
business trust or corporation.
The Funds 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.
61
<PAGE>
Performance Information
From time to time, the Funds may publish their total return, and, in the
case of certain funds, current yield and tax equivalent yield in advertisements
and communications to investors. Total return information generally will include
a fund's average annual compounded rate of return over the most recent four
calendar quarters and over the period from the fund's inception of operations. A
fund may also advertise aggregate and average total return information over
different periods of time. Each fund's average annual compounded rate of return
is determined by reference to a hypothetical $1,000 investment that includes
capital appreciation and depreciation for the stated period according to a
specific formula. Aggregate total return is calculated in a similar manner,
except that the results are not annualized. Total return figures will reflect
all recurring charges against each fund's income.
Current yield as prescribed by the SEC is an annualized percentage rate
that reflects the change in value of a hypothetical account based on the income
received from the fund during a 30-day period. It is computed by determining the
net change, excluding capital changes, in the value of a hypothetical
preexisting account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. See "Performance
Information" in the Statement of Additional Information. Investment results of
the Funds will fluctuate over time, and any presentation 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.
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, except for most money market
transactions
62
<PAGE>
(monthly) and preauthorized automatic investment, exchange and
redemption services (quarterly).
o Annual and semiannual 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.
BACKUP WITHHOLDING
Tax-payer identification number (TIN)
Be sure to complete the Tax-Payer 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 tax-payer 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.
Backup withholding could apply to payments made to a shareholders account while
awaiting receipt of a TIN. Special rules apply for certain entities. 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 backup 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 shareholders account by a fund may be
subject to up to 30% withholding instead of backup 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.
63
<PAGE>
----------
This Prospectus is not an offering of the securities herein described in
any state in which the offering is unauthorized. No salesperson dealer or other
person is authorized to give any information or make any representation other
than those contained in this Prospectus, the Statement of Additional
Information, or in the Funds' official sales literature.
----------
GLOSSARY
o Cash equivalents. Cash equivalents are short-term, interest-bearing
instruments or deposits and may include, for example, commercial paper,
certificates of deposit, repurchase agreements, bankers' acceptances, U.S.
Treasury Bills, bank money market deposit accounts, master demand notes and
money market mutual funds. These consist of high-quality debt obligations,
certificates of deposit and bankers' acceptances rated at least A-1 by S&P
or Prime1 by Moody's, or the issuer has an outstanding issue of debt
securities rated at least A by S&P or Moody's, or are of comparable quality
in the opinion of the Manager.
o Collateral assets. Collateral assets include cash, letters of credit, U.S.
government securities or other high-grade liquid debt or equity securities
(except that instruments collateralizing loans by the Money Market Funds
must be debt securities rated in the highest grade). Collateral assets are
separately identified and rendered unavailable for
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 Depositary receipts. Depositary receipts include American depositary
receipts ("ADRs"), European depositary receipts ("EDRs"), global depositary
receipts ("GDRs") and other similar instruments. Depositary receipts
64
<PAGE>
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. Traditionally, a debt security's "term to maturity" characterizes
a security's sensitivity to changes in interest rates. "Term to maturity,"
however, measures only the time until a debt security provides its final
payment, taking no account of prematurity payments. Most debt securities
provide interest ("coupon") payments in addition to a final ("par") payment
at maturity, and some securities have call provisions allowing the issuer
to repay the instrument in full before maturity date, each of which affect
the security's response to interest rate changes. "Duration" is considered
a more precise measure of interest rate risk than "term to maturity."
Determining duration may involve the Manager's estimates of future economic
parameters, which may vary from actual future values. Fixed income
securities with effective durations of three years are more responsive to
interest rate fluctuations than those with effective durations of one year.
For example, if interest rates rise by 1%, the value of securities having
an effective duration of three years will generally decrease by
approximately 3%.
o Emerging market companies. A company is considered to be an emerging market
company if its securities are principally traded in the capital market of
an emerging market country; it derives at least 50% of its total revenue
from either goods produced or services rendered in emerging market
countries or from sales made in such emerging market countries, regardless
of where the securities of such companies are principally traded; or it is
organized under the laws of, and with a principal office in, an emerging
market country. An emerging market country is one having an economy and
market that are or would 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
65
<PAGE>
another non-equity or equity investment Equity swaps transitions may be
volatile and may present the fund with counterparty risks.
o FHLMC. The Federal Home Loan Mortgage Corporation.
o FNMA. The Federal National Mortgage Association.
o Forward currency contracts. A forward currency contract is a contract
individually negotiated and privately traded by currency traders and their
customers and creates an obligation to purchase or sell a specific currency
for an agreed-upon price at a future date. The Funds generally do not enter
into forward contracts with terms greater than one year. A fund generally
enters into forward contracts only under two circumstances. First, if a
fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security by entering into a forward contract to buy the
amount of a foreign currency needed to settle the transaction. Second, if
the Manager believes that the currency of a particular foreign country will
substantially rise or fall against the U.S. dollar, it may enter into a
forward contract to buy or sell the currency approximating the value of
some or all of a fund's portfolio securities denominated in such currency.
A fund will not enter into a forward contract if, as a result, it would
have more than one-third of total assets committed to such contracts
(unless it owns the currency that it is obligated to deliver or has caused
its custodian to segregate segregable assets having a value sufficient to
cover its obligations). Although forward contracts are used primarily to
protect a fund from adverse currency movements, they involve the risk that
currency movements will not be accurately predicted.
o Futures and options on futures. An interest rate futures contract is an
agreement to purchase or sell debt securities, usually U.S. government
securities, at a specified date and price. For example, a fund may sell
interest rate futures contracts (i.e., enter into a futures contract to
sell the underlying debt security) in an attempt to hedge against an
anticipated increase in interest rates and a corresponding decline in debt
securities it owns. Each fund will have collateral assets equal to the
purchase price of the portfolio securities represented by the underlying
interest rate futures contracts it has an obligation to purchase.
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
66
<PAGE>
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 Board and guidelines adopted by the 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 Municipal securities. Municipal securities are obligations issued by, or on
behalf of, states, territories and possessions of the U.S. and the District
of Columbia, and their political subdivisions, agencies, authorities and
instrumentalities, including It industrial development bonds, as well as
obligations of certain agencies and instrumentalities of the U.S.
government. Municipal securities eve classified as general obligation
bonds, revenue bonds and notes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from revenue derived from
a particular facility, class of facilities or the proceeds of a special
excise or other specific revenue source, but not from the issuer's general
taxing power. Private activity bonds and industrial revenue bonds, in most
cases, are revenue bonds that do not carry the pledge of the credit of the
issuing municipality but generally are guaranteed by the corporate entity
on whose behalf they are issued. Notes short-term instruments that are
obligations of the issuing municipalities or agencies sold in anticipation
of a bond sale, collection of taxes or other receipt of revenues.
o Options on securities, securities indices and currencies. A fund may
purchase call options on securities that it intends to purchase (or on
currencies
67
<PAGE>
in which those securities are denominated) in order to limit the risk of a
substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of
the underlying security below the exercise price less the premium paid for
the option (or an adverse movement in the applicable currency relative to
the U.S. dollar). Prior to expiration, most options are expected to be sold
in a closing sale transaction. Profit or loss from the sale depends upon
whether the amount received is more or less than the premium paid plus
transaction costs. A fund may purchase put and call options on stock
indices in order to 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.
68
<PAGE>
o Securities lending. A fund may lend securities to brokers, dealers and
other financial organizations. Each securities loan is collateralized with
collateral assets in an amount at least equal to the current market value
of the loaned securities, plus accrued interest. There is a risk of delay
in receiving collateral or in recovering the securities loaned or even a
loss of rights in collateral should the borrower fail financially.
o S&P 500. Standard & Poor's 500 Composite Stock Price Index.
o U.S. government securities. These include U.S. Treasury bills, notes, bonds
and other obligations issued or guaranteed by the U.S. government, its
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.
69
<PAGE>
----------
Investment Manager
Lexington Management Corporation
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, N.J. 07663
Distributor
Lexington Funds Distributor, Inc.
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, N.J. 07663
All shareholder requests for services
of any kind shall be sent to:
Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
Custodian
Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
New York, New York 10022
Legal Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Auditors
KMPG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
----------
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1997
This Statement of Additional Information which is not a prospectus, should
be read in conjunction with the current prospectus, of Lexington Worldwide
Emerging Markets Fund, Inc. (the "Fund"), dated April 30, 1997, and as it may be
revised from time to time. To obtain a copy of the Fund's prospectus at no
charge, please write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two,
Saddle Brook, New Jersey 07663 or call the following toll-free numbers:
Shareholder Services:-1-800-526-0056
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.
Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
Page
General Information and History ........................................... 2
Investment Objectives and Policies ........................................ 2
Risk Considerations ....................................................... 3
Investment Policy and Restrictions ........................................ 4
Management of the Fund .................................................... 6
Investment Adviser, Distributor and Administrator ......................... 8
Portfolio Transactions and Brokerage Commissions .......................... 9
Tax-Sheltered Retirement Plans ............................................ 10
Determination of Net Asset Value .......................................... 10
Tax Matters ............................................................... 10
Performance Calculation ................................................... 15
Shareholder Reports ....................................................... 16
Financial Statements ...................................................... 17
1
<PAGE>
GENERAL INFORMATION AND HISTORY
The Fund was formerly named "Lexington Growth Fund, Inc.". At a meeting held
on June 14, 1991, the shareholders of the Fund approved a change in the Fund's
name to "Lexington Worldwide Emerging Markets Fund, Inc." in connection with a
change in the Fund's fundamental investment objective which was also approved by
the shareholders at that time.
INVESTMENT OBJECTIVE AND POLICIES
For a full description of the Fund's investment objective and policies, see
the Prospectus under "Investment Objective and Policies."
CERTAIN INVESTMENT METHODS
Settlement Transactions-When the Fund enters into contracts for the purchase or
sale of a portfolio security denominated in a foreign currency, it may be
required to settle a purchase transaction in the relevant foreign currency or
receive the proceeds of a sale in that currency. In either event, the Fund will
be obligated to acquire or dispose of such foreign currency as is represented by
the transaction by selling or buying an equivalent amount of United States
dollars. Furthermore, the Fund may wish to "lock in" the United States dollar
value of the transaction at or near the time of a purchase or sale of portfolio
securities at the exchange rate or rates then prevailing between the United
States dollar and the currency in which the foreign security is denominated.
Therefore, the Fund may, for a fixed amount of United States dollars, enter into
a foreign exchange contract for the purchase or sale of the amount of foreign
currency involved in the underlying securities transaction. In so doing, the
Fund will attempt to insulate itself against possible losses and gains resulting
from a change in the relationship between the United States dollar and the
foreign currency during the period between the date a security is purchased or
sold and the date in which payment is made or received. This process is known as
"transaction hedging".
To effect the translation of the amount of foreign currencies involved in
the purchase and sale of foreign securities and to effect the "transaction
hedging" described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e. cash) basis or on a forward basis whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the time of the
contract, for receipt or delivery at a specified date which may be any fixed
number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign currency when foreign securities are
purchased or sold for settlement beyond customary settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.
Portfolio Hedging-Some or all of the Fund's portfolio will be denominated in
foreign currencies. As a result, in addition to the risk of change in the market
value of portfolio securities, the value of the portfolio in the United States
dollars is subject to fluctuations in the exchange rate between such foreign
currencies and the United States dollar. When, in the opinion of LMC, it is
desirable to limit or reduce exposure in a foreign currency in order to moderate
potential changes in the United States dollar value of the portfolio, the Fund
may enter into a forward foreign currency exchange contract by which the United
States dollar value of the underlying foreign portfolio securities can be
approximately matched by an equivalent United States dollar liability. This
technique is known as "portfolio hedging" and moderates or reduces the risk of
change in the United States dollar value of the fund's portfolio only during the
period before the maturity of the forward contract (which will not be in excess
of one year). The Fund will not attempt to hedge all of its foreign portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by LMC. Hedging against a decline in the value of currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. The Fund will not enter into
forward foreign currency exchange transactions for speculative purposes. The
Fund intends to limit transactions as described in this paragraph to not more
than 70% of total Fund assets.
Forward Commitments-The Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as the Fund, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets. Although the Fund will enter into such contracts with the
intention of acquiring the securities, the Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments. When the Fund engages in a forward commitment transaction, the
custodian will set aside cash, U.S. government securities or other high quality
debt
2
<PAGE>
obligations equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required subsequently to
place additional assets in the separate account in order to ensure that the
value of the account remains equal to the amount of the Fund's commitment.
Because the Fund will set aside cash or liquid assets to satisfy its purchase
commitments in the manner described, the Fund's liquidity and ability to manage
its portfolio might be adversely affected in the event its commitments to make
forward purchases exceed 70% of the value of its assets. In the case of a
forward commitment to sell portfolio securities, the Fund's custodian will hold
the portfolio securities themselves in a segregated account while the commitment
is outstanding.
RISK CONSIDERATIONS
Investors should recognize that investing in securities of companies in
emerging markets and emerging countries involves certain risk considerations,
including those set forth below, which are not typically associated with
investing in securities of U.S.
companies.
Foreign Currency Considerations
The Fund's assets will be invested in securities of companies in emerging
markets and emerging countries and substantially all income will be received by
the Fund in foreign currencies. However, the Fund will compute and distribute
its income in dollars, and the computation of income will be made on the date of
its receipt by the Fund at the foreign exchange rate in effect on that date.
Therefore, if the value of the foreign currencies in which the Fund receives its
income falls relative to the dollar between receipt of the income and the making
of Fund distributions, the Fund will be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in dollars to meet
distribution requirements.
The value of the assets of the Fund as measured in dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer. The
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward or futures contracts to purchase or
sell foreign currencies.
Investment and Repatriation Restrictions
Some emerging countries have laws and regulations which currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized. The
Fund may invest in these investment funds subject to the provisions of the 1940
Act as discussed below under "Investment Restrictions". If the Fund invests in
such investment funds, the Fund's shareholders will bear not only their
proportionate share of the expenses of the Fund (including operating expenses
and the fees of the Investment Manager), but also will bear indirectly similar
expenses of the underlying investment funds.
In addition to the foregoing investment restrictions, prior governmental
approval for foreign investments may be required under certain circumstances in
some emerging countries, while the extent of foreign investment in domestic
companies may be subject to limitation in other emerging countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in emerging countries to prevent, among other concerns, violation of
foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
emerging countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental approval for such repatriation.
Emerging Country and Emerging Market Securities Markets
Trading volume on emerging country stock exchanges is substantially less
than that on the New York Stock Exchange. Further, securities of some emerging
country or emerging market companies are less liquid and more volatile than
securities of comparable U.S. companies. Similarly, volume and liquidity in most
emerging country bond markets is substantially less than in the U.S. and,
consequently, volatility of price can be greater than in the U.S. Fixed
commissions on emerging country stock or emerging market exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund
endeavors to achieve the most favorable net results on its portfolio
3
<PAGE>
transactions and may be able to purchase the securities in which the Fund may
invest on other stock exchanges where commissions are negotiable.
Companies in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about an emerging country
company than about a U.S. company. Further, there is generally less governmental
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the U.S.
Economic and Political Risks
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Further, the economies of developing countries
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the Fund's
investments in those countries. In addition, it may be more difficult to obtain
a judgement in a court outside of the United States.
INVESTMENT POLICY AND 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:
a. 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.
b. The Fund shall not act as an 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.
c. The Fund shall not purchase real estate, interests in real
estate or real estate limited partnership interests 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.
d. 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, may engage in
transactions on a when-issued or forward commitment basis, and
may enter into forward currency contracts.
e. The Fund shall 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.
f. The Fund will not hold more than 5% of the value of its total
assets in the securities of any one issuer or hold more than
10% of the outstanding voting securities of any one issuer.
This restriction applies only to 75% of the value of the
Fund's total assets. Securities issued or guaranteed by the
U.S. Government, its agencies and instrumentalities are
excluded from this restriction.
4
<PAGE>
g. The Fund will not concentrate its investments in any one
industry except that the Fund may invest up to 25% of its
total assets in securities issuers principally engaged in any
one industry. This limitation, however, will not apply to
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, securities invested in, or
repurchase agreements for, U.S. Government securities, and
certificates of deposit, or bankers' acceptances, or
securities of U.S. banks and bank holding companies.
h. The Fund shall 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 them
in an amount not exceeding one-third of the value of its total
assets; and (e) for purposes of leveraging, the Fund may
borrow money from banks (including its custodian bank), only
if, immediately after such borrowing, the value of the Fund's
assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all
outstanding borrowings. If at any time, the value of the
Fund's assets fails to meet the 300% asset coverage
requirement relative only to leveraging, the Fund will, within
three days (not including Sundays and holidays), reduce its
borrowings to the extent necessary to meet the 300% test.
In addition 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:
i. 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.
ii. The Fund will not purchase the securities of any other
investment company, except as permitted under the 1940 Act.
iii. The Fund will not purchase any securities on margin or 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.
iv. The Fund shall not buy securities from or sell securities
(other than securities issued by the Fund) to any of its
officers, directors or its investment adviser or distributor
as principal.
v. The Fund shall not contract to sell any security or evidence
of interest therein, except to the extent that the same shall
be owned by the Fund.
vi. The Fund will not purchase securities of an issuer if to the
Fund's knowledge, one or more of the Directors or officers of
the Fund or LMC individually owns beneficially more than 0.5%
and together own beneficially more than 5% of the securities
of such issuer nor will the Fund hold the securities of such
issuer.
vii. The Fund will not, except for investments which, in the
aggregate, do not exceed 5% of the Fund's total assets taken
at market value, purchase securities unless the issuer thereof
or any company on whose credit the purchase was based has a
record of at least three years continuous operations prior to
the purchase.
viii. The Fund will not invest for the purpose of exercising control
over or management of any company.
ix. The Fund shall not write, purchase or sell puts, calls or
combinations thereof. However, 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.
5
<PAGE>
x. The Fund will 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.
xi. The Fund will not purchase interests in oil, gas, mineral
leases or other exploration programs; however, this policy
will not prohibit the acquisition of securities of companies
engaged in the production or transmission of oil, gas or other
materials.
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.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
+S.M.S. CHADHA (59), Director. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.
*+ROBERT M. DEMICHELE (52), President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.,
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc. Director, Chartwell Re Corporation, Claredon
National Insurance Company, The Navigator's Group, Inc., Unione Italiana
Reinsurance; Vanguard Cellular Systems, Inc. and Weeden & Co.; Vice Chairman
of the Board of Trustees, Union College and Trustee, Smith Richardson
Foundation.
+BEVERLEY C. DUER, Director, 340 East 72nd Street, New York, N.Y. 10021. Private
Investor. Formerly, Manager of Operations Research Department, CPC
International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation.
*+LAWRENCE KANTOR, Vice President and Director. P.O. Box 1515, Saddle Brook,
N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc; Executive Vice President and General
Manager-Mutual Funds, Lexington Global Asset Managers, Inc.
+JERARD F. MAHER (50), Director. 300 Raritan Center Parkway, Edison, N.J. 08818.
General Counsel, Federal Business Center; Counsel, Ribis, Graham & Curtin.
+ANDREW M. McCOSH (56), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland.
+DONALD B. MILLER, Director. 10725 Quail Covey Road, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President, Director and
C.E.O., Media General Broadcast Services (advertising firm).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts 02181.
Associate Professor of Finance, Boston College, Boston, Massachusetts.
+MARGARET RUSSELL. Director. 55 North Mountain Avenue, Montclair, N.J. 07042.
Private Investor; formerly, Community Affairs Director, Union Camp
Corporation.
*+RICHARD T. SALER, Vice President and Portfolio Manager. P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Director of International Equity
Investment Strategy, Lexington Management Corporation. Prior to July 1992,
Securities Analyst, Nomura Securities, Inc. Prior to November 1991, Vice
President, Lexington Management Corporation.
6
<PAGE>
*+LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663 Senior Vice President and Secretary, Lexington Management Corporation;
Vice President and Secretary, Lexington Funds Distributor, Inc; Secretary,
Lexington Global Asset Managers, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. 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.; Chief Financial Officer,
Market Systems Research Advisors, Inc; Executive Vice President and Chief
Financial Officer, Lexington Global Asset Managers, Inc.
*+RICHARD J. LAVERY, 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 A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to November, 1993, Supervisor Investment Accounting, Alliance Capital
Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+PETER CORNIOTES, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J. 07663.
Assistant Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington Group
of Investment Companies.
*"Interested person" and/or "Affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
+ Messrs. Chadha, Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery,
Luehs, Maher, McCosh, Miller, Preston and Saler and Mmes. Carnicelli, Carr,
Curcio, Evans, Gilfillan, Mosca and Russell hold similar offices with some or
all of the other investment companies advised and/or distributed by LMC and
LFD.
The Board of Directors met 5 times during the twelve months ended December
31, 1996, and each of the Directors attended at least 75% of those meetings.
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. Each Director who is not an
affiliate of the advisor is compensated for his or her services according to a
fee schedule which recognizes the fact that each Director also serves as a
Director of other investment companies advised by LMC. Each Director receives a
fee, allocated among all investment companies for which the Director serves.
Effective September 12, 1995 each Director receives annual compensation of
$24,000. Prior to September 12, 1995, the directors who were not employed by the
Fund or its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1996 to December 31, 1996 for each Director:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in Fund
Fund Complex
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $856 $13,696 16
- --------------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 17
- --------------------------------------------------------------------------------------------------------
Beverley C. Duer $1,712 $29,110 17
- --------------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 16
- --------------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 16
- --------------------------------------------------------------------------------------------------------
Jerard F. Maher $856 $16,046 17
- --------------------------------------------------------------------------------------------------------
Andrew M. McCosh $856 $13,696 16
- --------------------------------------------------------------------------------------------------------
Donald B. Miller $1,712 $26,760 16
- --------------------------------------------------------------------------------------------------------
Francis Olmsted* $1,068 $16,800 N/A
- --------------------------------------------------------------------------------------------------------
John G. Preston $1,712 $26,760 16
- --------------------------------------------------------------------------------------------------------
Margaret W. Russell $1,712 $25,048 16
- --------------------------------------------------------------------------------------------------------
Philip C. Smith $1,600 $25,080 16
- --------------------------------------------------------------------------------------------------------
Francis A. Sunderland* $744 $10,528 N/A
- --------------------------------------------------------------------------------------------------------
</TABLE>
*Retired
7
<PAGE>
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1996, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCosh, Miller, Preston and
Russell are 1, 18, 1, 1, 22, 18 and 15, respectively.
Highest Annual Compensation Paid by All Funds
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
Years of
Service Estimated Annual Benefit Upon Retirement
------- ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
INVESTMENT 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 December 5, 1994, (the "Advisory Agreement"). LFD is
the distributor of Fund shares pursuant to a Distribution Agreement dated
December 4, 1990 (the "Distribution Agreement"). Both of 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 or the Distribution
Agreement or "interested persons" of any such party) on December 5, 1994. LMC
makes recommendations to the Fund with respect to its investments and investment
policies. LMC is paid an investment advisory fee at the annual rate of 1.00% of
the Fund's average daily net assets. Advisory fees paid to LMC by the Fund for
the last three fiscal years are as follows: December 31, 1994, $3,028,315;
December 31, 1995, $2,837,412 and December 31, 1996, $3,176,490.
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. Currently, the most restrictive of such expense limitation would
require LMC to reduce its fee so that ordinary expense (excluding interest,
taxes, brokerage commissions and extraordinary expenses) for any fiscal year do
not exceed 2.5% of the first $30 million of the Fund's average daily net assets,
plus 2.0% of the next $70 million, plus 1.5% of the Fund's average daily net
assets in excess of $100 million. LFD pays the advertising and sales expenses of
the continuous offering of Fund shares, including the cost of printing
prospectuses, proxies and shareholder reports for persons other than existing
shareholders. The Fund furnishes LFD, at printer's overrun cost paid by LFD,
such copies of its prospectus and annual, semi-annual and other reports and
shareholder communications as may reasonably be required for sales purposes.
8
<PAGE>
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.
The Advisory Agreement and the Distribution 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 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. LMC shall not be liable to the
Fund or its shareholders for any act or omission by LMC, its officers, directors
or employees for any loss sustained by the Fund or its shareholders except in
the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. Descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities have a
majority voting control of outstanding shares of Lexington Global Asset
Managers, Inc.
Of the directors, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs, and Saler and
Mmes. Carnicelli, Carr, Curcio, Gilfillan 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. As of February 28, 1997, all officers
and directors of the Fund as a group owned of record and beneficially less than
1% of the capital stock of the Fund.
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 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 advisory 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 of 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 commissions paid are "reasonable in the relation to the
value of the brokerage and research services provided...viewed in terms of
either that particular transactions 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 execution services alone; nor generally can the value
of research services to the Fund be measured. Research services furnished might
be useful and of value to LMC and its affiliates, in serving other clients as
well as the Fund. On the other hand, any research services obtained by LMC or
its affiliates from the placement of portfolio brokerage of other clients might
be useful and of value to LMC in carrying out its obligations to the Fund.
The Fund anticipates that its brokerage transactions involving securities of
companies domiciled in countries other than the United States will normally be
conducted on the principal stock exchanges of those countries. 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 Fund paid brokerage commissions and portfolio turnover rates are as
follows:
9
<PAGE>
Total Brokerage Portfolio Turnover
Commissions Paid Rate
---------------- ------------------
1994 ......................... $2,815,460% 79.56%
1995 ......................... 3,157,822 92.85
1996 ......................... 3,925,598 86.26
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 contracting 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 ($2,250 for
spousal IRAs) 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 ($2,250 spousal) 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 contributions 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 individuals earned annual income (as
defined in the Code) and in applying these limitations not more than $200,000 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 the
investment adviser, 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is normally determined at 4:00
p.m. New York time on each Fund "business day" which is any day on which the New
York Stock Exchange is open for business. 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.
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.
10
<PAGE>
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 can 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 the 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.
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. The 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. The IRS has held in several private rulings (and Treasury Regulations
now provide) that 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 qualifying electing fund (a "QEF") in which event the Fund
will each year have ordinary income equal to its pro
11
<PAGE>
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 (because it is
unable to, chooses not to or otherwise) 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, (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 plus (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, such gain will not be subject to the Short-Short Gain Test, and
the Fund's holding period with respect to such PFIC stock commences on the first
day of the next taxable year. If the Fund makes such election in the first
taxable year it holds PFIC stock, the Fund will include ordinary income from any
mark to market gain, if any, and 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 which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. With regard to forward
currency contracts, there does not appear to be any formal or informal authority
which identifies the issuer of such instrument.
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).
12
<PAGE>
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 will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
The 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. If net capital gain 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. The Code provides, however, that under certain conditions
only 50% of the capital gain recognized upon the Fund's disposition of domestic
"small business" stock will be subject to tax.
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.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction because of their special characteristics and other
than for purposes of special taxes such as the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of qualifying
dividends received by the Fund from domestic corporations for the taxable year.
A dividend received by the Fund will not be treated as a qualifying dividend (1)
if it has been received with respect to any share of stock that the Fund has
held for less than 46 days (91 days in the case of certain preferred stock),
excluding for this purpose under the rules of Code Section 246(c)(3) and (4):
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any period
during which the Fund has an option to sell, is under a contractual obligation
to sell, has made and not closed a short sale of, is the grantor of a
deep-in-the-money or otherwise nonqualified option to buy, or has otherwise
diminished its risk of loss by holding other positions with respect to, such (or
substantially identical) stock; (2) to the extent that the Fund is under an
obligation (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property; or (3) to the
extent the stock on which the dividend is paid is treated as debt-financed under
the rules of Code Section 246A. Moreover, the dividends-received deduction for a
corporate shareholder may be disallowed or reduced (1) if the corporate
shareholder fails to satisfy the foregoing requirements with respect to its
shares of the Fund or (2) by application of Code Section 246(b) which in general
limits the dividends-received deduction to 70% of the shareholder's taxable
income (determined without regard to the dividends-received deduction and
certain other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act of
1986, a tax is imposed for taxable years beginning after 1986 and before 1996 at
the rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined
without regard to the deduction for this tax and the AMT net operating loss
deduction) over $2 million. For purposes of the corporate AMT and the
environmental superfund tax (which are discussed above), the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, corporate shareholders will generally be required
to take the full amount of any dividend received from the Fund into account
(without a dividends-received deduction) in determining its adjusted current
earnings, which are used in computing an additional corporate preference item
(i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings
over its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
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
13
<PAGE>
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consist of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes paid by the Fund, but would be treated as having
paid his pro rata share of such foreign taxes and would therefore be allowed to
either deduct such amount in computing taxable income or use such amount
(subject to various Code limitations) as a foreign tax credit against federal
income tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income his pro
rata share of such foreign taxes plus the portion of dividends received from the
Fund representing income derived from foreign sources. No deduction for foreign
taxes could be claimed by an individual shareholder who does not itemize
deductions. Each shareholder should consult his own tax adviser regarding the
potential application of foreign tax credits.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the 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 such distributions 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 by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
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) (discussed above in connection with the dividends-received
deduction for corporations) 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
14
<PAGE>
30% (or lower 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 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 its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
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(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1, 5 or 10 year periods or at the end of the
1, 5 or 10 year periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's Registration Statement. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5 or 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 Composite Stock Price Index, Morgan Stanley Capital
International World Index or the Dow Jones Industrial Average, the Fund
calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Fund shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value.
15
<PAGE>
In June 1991, shareholders approved a change in the Fund's investment
objective. Previously, the Fund was managed as a domestic growth fund.
Accordingly, the performance data represents total return under both objectives.
The Lexington Worldwide Emerging Markets Fund, Inc.'s total return for the one,
five and ten year period ended December 31, 1996 is as follows:
Average Annual
Period Total Return
------ ------------
1 year ended December 31, 1996 7.38%
5 years ended December 31, 1996 8.10%
10 years ended December 31, 1996 8.33%
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the Fund's
holdings and other information. In addition, shareholders will receive annual
financial statements audited by KPMG Peat Marwick LLP, the Fund's independent
auditors.
16
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 99.9%
ARGENTINA: 2.0%
97,000 Banco Frances del Rio de la Plata S.A. .............$ 2,667,500
98,400 Telefonica de Argentina S.A. (ADR) ................. 2,546,100
------------
5,213,600
------------
BRAZIL: 12.0%
379,400 Aracruz Celulose S.A. (ADR) ........................ 3,130,050
8,290,000 Cia Tecidos Norte De Mina (Preferred shares) ....... 2,645,622
12,118,000 Companhia Cimento Portland Itau .................... 4,256,314
216,800 Compania Vale Do Rio Doce (ADR) (Preferred shares)1. 4,172,858
24,943,000 Petroleo Brasileiro S.A.(Preferred shares) ......... 3,972,759
54,336,000 Telecomunicacoes Brasileiras S.A. .................. 4,183,341
20,100,000 Telecomunicacoes de Sao Paulo S.A. ................. 4,352,353
3,682,057,000 Usinas Siderurgicas de Minas Gerais S.A. ........... 3,756,140
------------
30,469,437
------------
CHILE: 5.4%
773,800 Antofagasta Holdings Plc ........................... 4,502,293
159,100 Banco O'Higgins (ADR) .............................. 3,689,131
199,300 Banco Santander (ADR) .............................. 2,989,500
186,100 Maderas y Sinteticos Sociedad Anonima S.A. (ADR) ... 2,605,400
------------
13,786,324
------------
COLUMBIA: 0.7%
85,000 Banco Ganadero S.A. (ADR) .......................... 1,827,500
------------
CZECH REPUBLIC: 1.3%
26,580 SPT Telekon AS1 .................................... 3,305,415
------------
GREECE: 5.5%
160,100 Delta Dairy S.A. (Preferred shares) ................ 1,330,327
61,800 Ergo Bank S.A. ..................................... 3,132,458
71,600 Hellenic Bottling Company S.A. ..................... 2,294,183
128,700 Hellenic Tellecommunication Organization S.A. ...... 2,198,818
303,900 Michaniki S.A. ..................................... 2,352,757
49,300 Titan Cement Company ............................... 2,680,715
------------
13,989,258
------------
HONG KONG: 6.3%
736,000 Citic Pacific, Ltd. ................................ 4,272,323
3,744,000 Founder Hong Kong, Ltd.1............................ 1,440,001
3,986,000 Guangdong Investments .............................. 3,839,136
7,350,000 Qingling Motors Company1............................ 4,062,219
510,000 Wharf (Holdings), Ltd. ............................. 2,545,056
------------
16,158,735
------------
17
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
HUNGARY: 1.7%
72,820 Pick Szeged Rt. ....................................$ 4,311,087
------------
INDIA: 1.1%
200 Bajaj Auto, Ltd. ................................... 4,769
151,000 Hindalco Industries, Ltd. .......................... 2,767,101
------------
2,771,870
------------
INDONESIA: 4.1%
1,780,000 PT Ramayana Lestari Sentosa1 ....................... 3,842,539
1,166,000 PT Semen Cibinong .................................. 3,282,073
1,876,000 PT Tambang Timah ................................... 3,414,518
------------
10,539,130
------------
ISRAEL: 1.5%
74,300 Teva Pharmaceutical Industries, Ltd. (ADR) ......... 3,719,644
------------
MALAYSIA: 10.2%
43,000 Berjaya Sports Toto Bhd ............................ 214,531
371,000 Hong Leong Credit Bhd .............................. 2,335,730
1,765,000 Magnum Corporation Bhd ............................. 3,424,462
265,000 Malayan Banking Bhd ................................ 2,938,025
1,457,000 MBF Capital Bhd .................................... 2,365,348
260,000 O.Y.L. Industries Bhd .............................. 2,753,904
1,228,000 Public Finance Bhd ................................. 2,139,452
759,000 Sime Darby Bhd ..................................... 2,990,312
1,310,000 Sungei Way Holdings Bhd ............................ 3,890,310
703,000 Tanjong Plc ........................................ 2,811,437
------------
25,863,511
------------
MEXICO: 6.9%
1,641,000 Cemex S.A. de C.V. "B" ............................. 6,399,711
127,400 Grupo Casa Autrey, S.A. de C.V. (ADR) .............. 2,484,300
2,721,500 Grupo Industrial Maseco S.A. de C.V. ............... 3,450,264
71,500 Grupo Televisa S.A. (ADR)1 ......................... 1,832,188
219,700 Tubos De Acero De Mexico S.A. (ADR)1 ............... 3,487,738
------------
17,654,201
------------
18
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
PAKISTAN: 0.6%
313,700 Pakistan Investment Fund, Inc.1 ....................$ 1,607,713
------------
PHILIPPINES: 5.8%
7,079,250 Filinvest Land, Inc.1 .............................. 2,207,218
4,210,000 Fortune Cement Corporation1 ........................ 2,121,007
8,503,275 International Container Terminal Service, Inc.1 .... 4,445,628
341,900 Manila Electric Company "B" ........................ 2,794,999
5,919,000 Universal Robina Corporation ....................... 3,319,591
------------
14,888,443
------------
POLAND: 7.0%
116,100 Debica S.A. ........................................ 2,597,574
603,280 Elektrim Towarzystwo Handlowe S.A. ................. 5,483,376
29,803 Gorazdze S.A. ...................................... 744,941
980,100 Mostostal-Export S.A. .............................. 2,329,888
447,900 Polifarb Cieszyn Wroclaw S.A. ...................... 2,489,625
209,500 Stomil Olsztyn S.A.1 ............................... 2,709,827
33,361 Zaklady Piwowarski w Zywcu S.A. .................... 1,551,124
------------
17,906,355
------------
PORTUGAL: 1.0%
86,200 Portugal Telecom S.A. .............................. 2,454,131
------------
RUSSIA: 5.1%
27,780 Lexington Troika Dialog Russia Fund, Inc. .......... 312,248
486,300 LUKoil Holdings of Russia1 ......................... 5,495,190
1,354,000 Rostelekom1 ........................................ 3,276,680
42,869,000 Unified Energy System1 ............................. 3,901,079
------------
12,985,197
------------
SINGAPORE: 5.5%
304,000 City Developments, Ltd. ............................ 2,738,310
760,000 DBS Land, Ltd. ..................................... 2,798,075
654,000 Far East Levingston Shipbuilding, Ltd. ............. 3,413,022
821,000 Jardine Strategic Holdings, Ltd. ................... 2,972,020
781,000 Want Want Holdings1 ................................ 2,054,030
------------
13,975,457
------------
SOUTH AFRICA: 3.2%
33,000 Anglo American Corporation of South Africa,
Ltd. (ADR) ........................................ 1,798,500
194,600 Driefontein Consolidated, Ltd. ..................... 2,048,970
85,300 Liberty Life Association of Africa, Ltd. ........... 2,142,897
122,986 Rustenburg Platinum Holdings, Ltd. (ADR)1 .......... 1,682,759
7,600 Vaal Reefs Exploration & Mining Company, Ltd. ...... 487,440
------------
8,160,566
------------
19
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
SOUTH KOREA: 2.9%
43,500 Hyundai Motor Company, Ltd. ........................$ 1,028,977
76,600 Korea Electric Power Corporation ................... 2,228,693
49,950 Pohang Iron & Steel Company, Ltd. .................. 2,156,327
20,200 Pohang Iron & Steel Company, Ltd. (ADR) ............ 409,050
27,100 Samsung Electronics Company ........................ 1,458,368
------------
7,281,415
------------
TAIWAN: 2.2%
256,125 Taiwan Fund, Inc. .................................. 5,698,781
------------
THAILAND: 3.2%
246,000 Advanced Info Service Plc. ......................... 2,110,761
197,000 BEC World Public Company Ltd.1 ..................... 1,782,525
523,000 Krung Thai Bank Public Company, Ltd. ............... 1,009,690
310,000 Matichon Public Company, Ltd. ...................... 876,559
191,600 Shinawatra Computer Company, Plc ................... 2,316,533
------------
8,096,068
------------
TURKEY: 1.2%
11,656,000 Akbank T.A.S. ...................................... 1,585,216
13,834,000 Arcelik A.S. ....................................... 1,411,068
------------
2,996,284
------------
VENEZUELA: 3.5%
95,700 Compania Anonima Nacional Telefonos
de Venezuela (ADR)1 ............................... 2,691,563
621,870 Mantex S.A. (ADR) .................................. 2,709,425
512,749 Mavesa S.A. (ADR) .................................. 3,433,316
------------
8,834,304
------------
TOTAL COMMON STOCKS (cost $244,923,408) ............ 254,494,426
------------
20
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 0.1%
$300,000 U.S. Treasury Bills, 5.02%, due 02/13/97
(cost $298,201) ...................................$ 298,158
------------
TOTAL INVESTMENTS: 100.0% (cost $245,221,609+)
(Note 1) .......................................... 254,792,584
Liabilities in excess of other assets: ............. (119,778)
------------
TOTAL NET ASSETS: 100.0% (equivalent to $11.49 per
share on 22,161,235 shares outstanding) ...........$254,672,806
============
1Non-income producing securities.
ADR-American Depository Receipt.
+Aggregate cost for Federal income tax purposes is $245,222,883.
---------------------------
At December 31, 1996, the composition of the Fund's net assets by industry
concentration was as follows:
Left Column
Banking ............................... 7.8%
Capital Equipment ..................... 5.3
Construction and Housing .............. 0.9
Consumer (Durables) ................... 4.6
Consumer (Non-Durables) ............... 8.5
Electrical and Electronics ............ 1.5
Energy Sources ........................ 3.7
Financial Services .................... 5.2
Gold .................................. 1.0
Health & Personal Care ................ 2.4
Right Column
Materials ............................. 21.7%
Merchandising ......................... 1.5
Multi-Industry ........................ 10.7
Real Estate ........................... 4.0
Services .............................. 5.5
Telecommunications .................... 9.8
Trade ................................. 2.2
U.S. Government Obligations ........... 0.1
Utilities ............................. 3.6
-----
Total Net Assets .............. 100.0%
=====
The Notes to Financial Statement are an integral part of this statement.
21
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996
Assets
Investments, at value (cost $245,221,609) (Note 1) ............... $254,792,584
Cash ............................................................. 224,869
Foreign currencies, at value (cost $2,097,058) ................... 2,097,348
Receivable for investment securities sold ........................ 3,172,247
Receivable for shares sold ....................................... 445,011
Dividends and interest receivable ................................ 184,512
Foreign taxes recoverable ........................................ 7,191
------------
Total Assets ..................................................... 260,923,762
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ................. 213,891
Payable for investment securities purchased ...................... 3,116,159
Payable for shares redeemed ...................................... 2,454,555
Accrued expenses ................................................. 466,351
------------
Total Liabilities ................................................ 6,250,956
------------
Net Assets (equivalent to $11.49 per share
on 22,161,235 shares outstanding) (Note 3) ...................... $254,672,806
============
Net Assets consist of:
Capital stock-authorized 100,000,000 shares, $1.00 par value
per share ....................................................... $ 22,161,235
Additional paid-in capital (Note 1) .............................. 250,326,948
Distributions in excess of net investment income (Note 1) ........ (56,742)
Accumulated net realized loss on investments and
foreign currency transactions (Notes 1 and 6) ................... (27,325,466)
Net unrealized appreciation of investments and
foreign currency transactions ................................... 9,566,831
------------
$254,672,806
============
The Notes to Financial Statements are an integral part of this statement.
22
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Operations
Year ended December 31, 1996
Investment Income
Income
Dividends ..........................................$ 5,190,190
Interest ........................................... 973,380
-----------
6,163,570
Less: Foreign tax expense .......................... 600,569
-----------
Total investment income ......................... $ 5,563,001
Expenses
Investment advisory fee (Note 2) ................... 3,176,490
Transfer agent and shareholder servicing expense
(Note 2) .......................................... 998,436
Custodian expense .................................. 766,489
Accounting expenses (Note 2) ....................... 242,862
Printing and mailing expenses ...................... 159,965
Registration fees .................................. 51,372
Professional fees .................................. 46,344
Computer processing fees ........................... 18,114
Directors' fees and expenses ....................... 16,232
Other expenses ..................................... 105,092
-----------
Total expenses .................................. 5,581,396
-----------
Net investment loss ............................ (18,395)
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Net realized gain (loss) on:
Investments ....................................... 7,637,557
Foreign currency transactions ..................... (300,025)
-----------
Net realized gain .............................. 7,337,532
Net change in unrealized appreciation on:
Investments ....................................... 12,559,897
Foreign currency translation of other assets
and liabilities .................................. (2,519)
-----------
Net change in unrealized appreciation .......... 12,557,378
-----------
Net realized and unrealized gain ............... 19,894,910
-----------
Increase in Net Assets Resulting from Operations .... $19,876,515
===========
The Notes to Financial Statements are an integral part of this statement.
23
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995
1996 1995
------------ ------------
Net investment income (loss) .....................$ (18,395) $ 1,973,177
Net realized gain (loss) on investments and
foreign currency transactions ................... 7,337,532 (33,750,839)
Net change in unrealized appreciation on
investments and foreign currency translations ... 12,557,378 16,901,196
------------ ------------
Increase (decrease) in net assets
resulting from operations ..................... 19,876,515 (14,876,466)
Distributions to shareholders from net
investment income (Note 1) - (1,973,177)
Distributions to shareholders in excess of net
investment income (Note 1) - (195,271)
Distributions to shareholders from net realized
gains from security transactions (Note 1) ....... - (9,702)
Decrease in net assets from capital share
transactions (Note 3) ........................... (30,748,162) (5,982,120)
------------ ------------
Net decrease in net assets ............... (10,871,647) (23,036,736)
Net Assets
Beginning of period .............................. 265,544,453 288,581,189
------------ ------------
End of period (including distributions in excess
of net investment income of $56,742 and
$420,121, respectively) .........................$254,672,806 $265,544,453
============ ============
The Notes to Financial Statements are an integral part of these statements.
24
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
1. Significant Accounting Policies
Lexington Worldwide Emerging Markets Fund, Inc. (the "Fund") is an open-end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek
long-term growth of capital primarily through investment in equity securities
domiciled in, or doing business in, emerging countries and emerging markets. 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. 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 and
distributions to shareholders are recorded on the ex-dividend date. Interest
income, adjusted for amortization of premiums and accretion of discounts, is
accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in 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 foreign
exchange contracts outstanding at December 31, 1996.
Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
Distributions Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed is determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1996,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Net investment income, net realized gains and net
realized assets were not affected by this change.
25
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995 (continued)
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 1.00% of the Fund's average daily net assets. The
investment advisory contract provides that the total annual expenses of the Fund
(including management fees, but excluding interest, taxes, brokerage commissions
and extraordinary expenses) will not exceed the level of expenses which the Fund
is permitted to bear under the most restrictive expense limitation imposed by
any state in which shares of the Fund are offered for sale. No reimbursement was
required for the year ended December 31, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $517,910 which were incurred by the Fund, but
paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
------------------------ ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 22,719,087 $266,562,359 22,479,065 $242,654,550
Shares issued to shareholders on reinvestment
of dividends .................................... - - 183,411 1,963,204
---------- ----------- ---------- ------------
22,719,087 266,562,359 22,662,476 244,617,754
Shares redeemed ..................................(25,383,903) (297,310,521) (23,001,849) (250,599,874)
---------- ----------- ---------- ------------
Net decrease .................................... (2,664,816) $(30,748,162) (339,373) $ (5,982,120)
========== ============ ========== ============
</TABLE>
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year
ended December 31, 1996, excluding short-term securities, were $ 255,441,337 and
$ 274,438,387, respectively.
At December 31, 1996, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$35,995,940 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $26,430,383.
26
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995 (continued)
5. Investment and Concentration Risks
The Fund's investments in foreign securities may involve risks not present
in domestic investments. Since foreign securities may be denominated in a
foreign currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/ or credit risk
of the investments.
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.
6. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for federal income tax purposes as of
December 31, 1996 are approximately $22,320,887 expiring in 2003.
To the extent any future capital gains are offset by these losses, such
gains would not be distributed to shareholders.
27
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................... $10.70 $11.47 $13.96 $ 8.66 $ 9.03
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income (loss) ........................... - .08 (.01) .05 .07
Net realized and unrealized gain
(loss) on investments and foreign currency
transactions .......................................... .79 (.76) (1.92) 5.43 .27
------ ------ ------ ------ ------
Total income (loss) from investment operations .......... .79 (.68) (1.93) 5.48 .34
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ................... - (.08) - (.01) (.11)
Distributions in excess of net investment income
(temporary book-tax difference) ....................... - (.01) - - -
Distributions from net realized gains .................. - - (.47) (.17) (.60)
Distributions in excess of net realized gains (temporary
book-tax difference) ................................. - - (.09) - -
------ ------ ------ ------ ------
Total distributions ..................................... - (.09) (.56) (.18) (.71)
------ ------ ------ ------ ------
Net asset value, end of period .......................... $11.49 $10.70 $11.47 $13.96 $ 8.66
====== ====== ====== ====== ======
Total return ............................................ 7.38% (5.93%) (13.81%) 63.37% 3.77%
Ratio to average net assets:
Expenses ............................................... 1.76% 1.88% 1.65% 1.64% 1.89%
Net investment income (loss) ........................... (.01%) .70% (.06%) .21% .75%
Portfolio turnover rate ................................. 86.26% 92.85% 79.56% 38.35% 91.27%
Average commission paid on equity security transactions* - - - - -
Net assets at end of period (000's omitted) ............$254,673 $265,544 $288,581 $230,473 $30,021
</TABLE>
- ---------------
*The average commission paid on equity security transactions for the year ended
December 31, 1996 is less than $0.005 per share of securities purchased and
sold. In accordance with recent SEC disclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
28
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Worldwide Emerging Markets Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Worldwide
Emerging Markets Fund, Inc. as of December 31, 1996, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Worldwide Emerging Markets Fund, Inc. as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 10, 1997
29
<PAGE>
PART C. OTHER INFORMATION
- -----------------------------
Item 24. Financial Statements and Exhibits - List
- --------------------------------------------------
The Annual Report for the year ending December 31, 1996 was
filed electronically on February 27, 1997 (as form type N-30D).
Financial statements from this 1996 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 29
dated February 10, 1997
Statement of Net Assets (Including 17-21
the Portfolio of Investments) as of
December 31, 1996 (1)
Statement of Assets and Liabilities 22
as of December 31, 1996
Statement of Operations for the year 23
ended December 31, 1996 (2)
Statements of Changes in Net Assets for 24
the years ended December 31, 1996 and 1995
Notes to financial statements 25-28
Schedules II-VII and other Financial Statements, for
which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission,
are omitted because they are not required under the
related instructions, they are inapplicable, or the
required information is presented in the financial
statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
- -------------------------------------------------
(b) Exhibits:
1. Form of Articles Amendment and Restatement -
Filed electronically 4/29/96 - Incorporated by reference
2. Form of Amended By-Laws - Filed electronically
3. Not Applicable
4. Form of Stock Certificate Specimen - Filed 4/17/91 -
Incorporated by reference
5. Form of Investment Advisory Agreement between
Registrant and Lexington Management Corporation - Filed
electronically 4/29/96 - Incorporated by reference
6. Form of Distribution Agreement between Registrant and
Lexington Funds Distributor, Inc. - Filed electronically
7. Not Applicable
8a. Transfer Agency Agreement between Registrant and State
Street Bank and Trust Company - Filed electronically
4/29/96 - Incorporated by reference
8b. Custodian Agreement between Registrant and Chase
Manhattan Bank, N.A. - Filed electronically 4/29/96 -
Incorporated by reference
9. Form of Administrative Services Agreement
between the Fund and Lexington Management Corporation -
Filed electronically 4/29/96 - Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered - Filed 9/24/73 - 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 4/29/96 - Incorporated by reference
15. Not Applicable
16. Performance Calculation - Filed 5/2/88 - Incorporated by reference
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.
None.
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 14, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 12,405
($1.00 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 Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Tax Free Money Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington Convertible Securities Fund
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 Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President and
Vice President & Director Treasurer
Lawrence Kantor* Executive Vice President Director & Vice
and Director President
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 Worldwide Emerging Markets Fund,
Inc., Park 80 West - Plaza Two, Saddle Brook, New Jersey 07663 will
maintain physical possession of each such account, book or other document
of the Company, except for those maintained by the Registrant's Custodian,
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, or Transfer Agent, State Street Bank and Trust
Company, c/o National Financial Data Services, 1004 Baltimore, 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 Worldwide Emerging Markets 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. 2-32488
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Form of By-Laws
Form of Distribution Agreement
Consent of Kramer, Levin, Kamin & Frankel
Consent of independent auditors for the inclusion of their
report herein
Article 6 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 28th day of February, 1997.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
/s/ Robert M. DeMichele
-------------------------------
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
the 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 February 28, 1997
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey Principal Financial February 28, 1997
- -------------------- and Accounting Officer
Richard M. Hisey
/s/ Lisa Curcio Principal Compliance February 28, 1997
- --------------- Officer
Lisa Curcio
*Beverley C. Duer, P.E. Director February 28, 1997
- ----------------------
Beverley C. Duer, P.E.
*Barbara R. Evans Director February 28, 1997
- -----------------------
Barbara R. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director February 28, 1997
- -----------------
Lawrence Kantor
*Jerard F. Maher Director February 28, 1997
- -----------------
Jerard F. Maher
*Donald B. Miller Director February 28, 1997
- -----------------
Donald B. Miller
*John G. Preston Director February 28, 1997
- -----------------
John G. Preston
*Margaret W. Russell Director February 28, 1997
- --------------------
Margaret W. Russell
*By: /s/ Lisa Curcio
------------------
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
WORLDWIDE EMERGING MARKETS 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, 1997.
/s/ S.M.S. Chadha
_____________________________
S.M.S. Chadha
<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
WORLDWIDE EMERGING MARKETS 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, 1997.
/s/ Jerard F. Maher
_____________________________
Jerard F. Maher
<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
WORLDWIDE EMERGING MARKETS 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, 1997.
/s/ Andrew M. McCosh
_____________________________
Andrew M. McCosh
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
(A Maryland Corporation)
BY-LAWS
______________________________
ARTICLE I
STOCKHOLDERS
Section 1. Place of Meeting. All meetings of the
stockholders shall be held at the principal office of the Corporation in
the State of Maryland or at such other place within or without the State
of Maryland as may from time to time be designated by the Board of
Directors and stated in the notice of meeting.
Section 2. Annual Meetings. Annual meetings of the
stockholders of the Corporation need not be held except as required
under the Maryland General Corporation Law.
Section 3. Special or Extraordinary Meetings. Special or
extraordinary meetings of the stockholders for any purpose or purposes
may be called by the Chairman of the Board of Directors, if any, or by
the President or by the Board of Directors. In addition, such special
or extraordinary meetings shall be called by the Secretary upon receipt
of the request in writing signed by stockholders entitled to cast at
least 25% of all the votes entitled to be cast at the meeting stating
the purpose of the meeting and the matters proposed to be acted on and
upon payment by such stockholders of the estimated costs of preparing
and mailing a notice of the meeting. Unless requested by stockholders
entitled to cast a majority of all the votes entitled to be cast at the
meeting, a special meeting need not be called to consider any matter
which is substantially the same as a matter voted on at a special
meeting of the stockholders held during the preceding 12 months.
Section 4. Notice of Meeting of Stockholders. Not less
than ten days and not more than ninety days written or printed notice of
every meeting of stockholders, stating the time and place thereof (and
the purpose of any special or extraordinary meeting), shall be given to
each stockholder entitled to vote thereat and each other stockholder
entitled to notice, by leaving the same with him or at his residence or
usual place of business or by mailing it, postage prepaid, and addressed
to him at his address as it appears upon the books of the Corporation.
Each person who is entitled to notice of any meeting waives
notice if he is present at the meeting, attends in person or by proxy or
either before or after the meeting signs a waiver of notice which is
filed with the records of stockholders meetings.
Section 5. Closing of Transfer Books, Record Dates. The
Board of Directors may direct that the stock transfer books of the
Corporation be closed for a stated period not exceeding twenty days for
the purpose of making any proper determination with respect to
stockholders, including which stockholders are entitled to notice of and
to vote at the meeting, receive a dividend or be allotted other rights.
If such books are closed for the purpose of determining stockholders
entitled to notice of or to vote at a meeting of stockholders, such
books shall be closed for at least ten days immediately preceding such
meeting. In lieu of providing for the closing of the stock transfer
books, the Board of Directors may set a date, not exceeding ninety days
and not less than ten days preceding the date of any meeting of
stockholders, and not exceeding ninety days preceding any dividend
payment date or any date for the allotment of rights, as a record
date for the determination of the stockholders entitled to notice of and
to vote at such meeting, or entitled to receive such dividends or
rights, as the case may be; and only stockholders of record on such date
shall be entitled to notice of and to vote at such meeting or to receive
such dividends or rights, as the case may be.
Section 6. Quorum, Adjournment of Meetings. The presence
in person or by proxy of the holders of one-third of the shares of stock
of the Corporation entitled to vote without regard to class shall
constitute a quorum at any meeting of the stockholders, except with
respect to any matter which by law requires the approval of one or more
classes of stock, in which case the presence in person or by proxy of
the holders of one-third of the of the shares of stock of each class
entitled to vote on the matter shall constitute a quorum. A majority of
all the votes cast at a meeting at which a quorum is present is
sufficient to approve any matter which properly comes before the
meeting, unless otherwise provided by applicable law, the Articles of
Incorporation or the By-Laws of Corporation. If at any meeting of the
stockholders there shall be less than a quorum present, the stockholders
present at such meeting may, without further notice, adjourn the same
from time to time (but not more than 120 days after the original record
date for such meeting) until a quorum shall attend, but no business
shall be transacted at any such adjourned meeting except such as might
have been lawfully transacted had the meeting not been adjourned.
Section 7. Voting and Inspectors. At all meetings of
stockholders every stockholder of record entitled to vote thereat shall
be entitled to vote at such meeting either in person or by written proxy
appointed by instrument in writing subscribed by such stockholder or his
duly authorized attorney. Unless a proxy provides otherwise,
such proxy is not valid more than eleven months after its date.
At any election of Directors, the Board of Directors prior
thereto may, or, if they have not so acted, the Chairman of the meeting
may appoint two inspectors of election who shall first subscribe an oath
or affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their
ability, and shall after the election make a certificate of the result
of the vote taken. No candidate for the office of Director shall be
appointed such inspector.
The Chairman of the meeting may cause a vote by ballot to be
taken upon any election or matter.
Section 8. Conduct of Stockholders Meetings. The meetings
of the stockholders shall be presided over by the Chairman of the Board,
or if he shall not be present or if there is no Chairman, by the
President, or if he shall not be present, by a Vice-President, or if
neither the President nor any Vice-President is present, by a chairman
to be elected at the meeting. The Secretary of the Corporation, if
present, shall act as Secretary of such meetings, or if he is not
present, an Assistant Secretary shall so act, and if neither the
Secretary nor an assistant Secretary is present, by a secretary to be
elected at the meeting.
Section 9. Concerning Validity of Proxies, Ballots, Etc.
At every meeting of the stockholders, all proxies shall be received and
taken in charge of and all ballots shall be received and canvassed by
the secretary of the meeting, who shall decide all questions touching
the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless inspectors of election shall
have been appointed as provided in Section 7, in which event such
inspectors of election shall decide all such questions.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number and Term of Office. The business and
properties of the Corporation shall be conducted and managed under the
direction of a Board of Directors consisting of thirteen Directors,
which number may be increased and decreased as provided in Section 2 of
this Article. Each director shall hold office until his successor is
duly elected and qualifies. Directors need not be stockholders.
Section 2. Increase or Decrease in Number of Directors.
The Board of Directors, by the vote of a majority of the entire Board,
may increase the number of Directors to a number not exceeding fifteen,
and may elect Directors to fill the vacancies created by any such
increase in the number of Directors until the next annual meeting of
stockholders and until their successors are duly elected and qualify.
The Board of Directors, by the vote of a majority of the entire Board,
may decrease the number of Directors to a number not less than two, but
any such decrease shall not affect the term of office of any Director.
Vacancies occurring other than by reason of any such increase shall be
filled as provided by the Maryland General Corporation Law.
Section 3. Place of Meeting. The Directors may hold their
meetings, have one or more offices, and keep the books of the
Corporation outside the State of Maryland, at any office or offices of
the Corporation or at any other place as they may from time to time
determine, and in the case of meetings, as they may from time to time
determine or as shall be specified in the respective notices of such
meetings or waivers of notice thereof.
Section 4. Regular Meetings. Regular meetings of the
Board of Directors shall be held at such time and on such notice, if
any, as the Directors may from time to time determine.
Section 5. Special Meetings. Special meetings of the
Board of Directors shall be held from time to time upon call of the
Chairman of the Board of Directors, if any, the President or two or more
of the Directors, by oral or telegraphic or written notice duly served
on each Director not less than one business day before such meeting or
if sent or mailed to each Director not less than three business days
before such meeting. Each Director who is entitled to notice waives
such notice if he either before or after the meeting signs a waiver of
the notice which is filed with the minutes of the meeting or is present
at the meeting. Such notice or waiver of notice need not state the
purpose or purposes of such meeting.
Section 6. Quorum. One third of the Directors then in
office (but in no event less than two Directors), shall constitute a
quorum for the transaction of business. If at any meeting of the Board
there shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time until a quorum shall have been
obtained. The act of the majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Directors,
except as may be otherwise specifically provided by applicable law, by
the Articles of Incorporation or by these By-Laws.
Section 7. Telephonic Meeting. The members of the Board
of Directors or any committee of the Board of Directors may participate
in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in such meeting
can hear each other at the same time, and participation in a meeting by
these means constitutes presence in person at such meeting.
Section 8. Executive Committee. The Board of Directors
may elect from the Directors an Executive Committee to consist of such
number of Directors (but not less than two) as the Board may from time
to time determine. The Board of Directors by such affirmative vote
shall have power at any time to change the members of such Committee and
may fill vacancies in the Committee by election from the Directors.
When the Board of Directors is not in session, the Executive Committee
shall have and may exercise any or all of the powers of the Board of
Directors in the management of the business and affairs of the
Corporation (including the power to authorize the seal of the
Corporation to be affixed to all papers which may require it) except as
provided by law and except the power to increase or decrease the size
of, or fill vacancies on the Board. The Executive Committee may fix its
own rules of procedure, and may meet, when and as provided by such rules
or by resolution of the Board of Directors, but in every case the
presence of a majority shall be necessary to constitute a quorum.
Section 9. Other Committees. The Board of Directors may
appoint other committees which shall in each case consist of such number
of members (not less than two) and shall have any may exercise such
powers as the Board may determine in the resolution appointing them. A
majority of all members of any such committee may determine its action,
and fix the time and place of its meeting, unless the Board of Directors
shall otherwise provide. The Board of Directors shall have power at any
time to change the members and powers of any such committee, to fill
vacancies, and to discharge any such committee. In the absence of any
member of any committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a member of the
Board of Directors to act in the place of such absent member.
Section 10. Informal Action by Directors. Except to the
extent otherwise specifically provided by applicable law, any action
required or permitted to be taken at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting, if a
written consent to such action is signed by all members of the Board or
committee and is filed with the minutes of proceedings of the Board or
committee.
Section 11. Compensation of Directors. Directors shall be
entitled to receive such compensation from the Corporation for their
services as Directors as may from time to time be voted by the Board of
Directors.
ARTICLE III
OFFICERS
Section 1. Executive Officers. The executive officers of
the Corporation shall be chosen by the Board of Directors as soon as may
be practicable after the incorporation of the corporation. These may
include a Chairman of the Board, and shall include a President, one or
more Vice Presidents (the number thereof to be determined by the Board
of Directors), a Secretary and a Treasurer. The Chairman of the Board,
if any, shall be selected from among the Directors. The Board of
Directors may also in its discretion appoint Assistant Secretaries,
Assistant Treasurers, and other officers, agents and employees, who
shall have such authority and perform such duties as the Board may
determine. The Board of Directors may fill any vacancy which may occur
in any office. Any two offices, except those of President and Vice
President, may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity, if such
instrument is required by law or these By-Laws to be executed,
acknowledged or verified by two or more officers.
Section 2. Term of Office. Unless otherwise specifically
determined by the Board of Directors, all officers of the Corporation
shall hold office until their respective successors are elected and
qualify, provided, however, that said term of office shall not create
any contract rights in the officer. If the Board of Directors in its
judgment finds that the best interests of the Corporation will be
served, the Board of Directors may remove any officer of the Corporation
at any time with or without cause.
Section 3. The President shall be the chief executive
officer of the Corporation and, subject to the Board of Directors, shall
have the general control and management of the business and affairs of
the Corporation. If no Chairman of the Board be appointed, or, if
appointed, said Chairman is absent, the President shall, if present,
preside at all meetings of the stockholders and the Board of Directors.
Section 4. The Chairman of the Board shall preside at all
meetings of the stockholders and the Board of Directors at which he
shall be present. Subject to the provisions of Section 2, he shall have
such other powers and duties as shall be prescribed by the Board of
Directors, and shall undertake such other assignments as may be
requested by the President.
Section 5. The Chairman or one or more Vice Presidents
shall have an exercise such powers and duties of the President in the
absence or inability of the President as may be assigned to them,
respectively, by resolution of the Board of Directors or, to the extent
not so assigned, as the President may assign to them, respectively. In
the absence or inability of the President to act, the powers and duties
of the President not assigned by the Board of Directors or the President
shall evolve upon the Chairman or in his absence the Vice Chairman or in
his absence the senior Vice President.
Section 6. The Secretary shall have custody of the seal of
the Corporation. He shall keep the minutes of the meetings of the
stockholders, Board of Directors and any committees thereof, and he
shall attend to the giving and serving of all notices of the
Corporation. He shall have charge of the stock certificate book and
such other books and papers as the Board may direct; and he shall
perform such other duties as may be incidental to his office or as may
be assigned to him by the Board of Directors. He shall also keep or
cause to be kept a stock book, containing the names, alphabetically
arranged, of all persons who are stockholders of the Corporation showing
their places of residence, the number an class or series of any class of
shares of stock held by them respectively, and the dates when they
respectively became the owners of record thereof, and such book shall be
open for inspection as prescribed by the laws of the state of Maryland.
Section 7. The Treasurer shall have the care and custody
of the funds and securities of the Corporation and shall deposit the
same in the name of the Corporation in such bank or banks or other
depositories and subject to withdrawal in such manner as these by-laws
or the Board of Directors may determine; he shall, if required by the
Board of Directors, give such bond for the faithful discharge of his
duties in such form as the Board of Directors may require.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificates of Shares. Except as further
described below, each stockholder of the Corporation shall be entitled
to a certificate or certificates for the number of whole shares of each
class of stock of the Corporation owned by him in such form as the Board
of Directors may from time to time prescribe. The Board of Directors of
the Corporation may authorize the issuance of some or all of the shares
of any or all of its classes or series without certificates. This
authorization does not affect shares already represented by certificates
until they are surrendered to the Corporation. At the time of issue or
transfer of shares without certificates, the Corporation shall send the
stockholder a written statement of the information required to be
provided on certificates.
Section 2. Transfer of Shares. Shares of the Corporation
shall be transferable on the books of the Corporation by the holder
thereof in person or by his duly authorized attorney or legal
representative, upon surrender and cancellation of certificates, if any,
for the same number of shares, duly endorsed or accompanied by proper
instruments of assignment and transfer, with such proof of the
authenticity of the signature as the Corporation or its agents may
reasonably require. In the case of shares not represented by
certificates, the same or similar requirements may be imposed
by the Board of Directors.
Section 3. Stock Ledgers. The stock ledgers of the
Corporation, containing the names and addresses of the stockholders and
the number of shares held by them respectively, shall be kept at the
principal offices of the Corporation, or if the Corporation employs a
transfer agent, at the offices of the transfer agent of the Corporation.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Directors may determine the conditions upon which a new
certificate of stock of the Corporation of any class may be issued in
place of a certificate which is alleged to have been lost, stolen or
destroyed; and may, in their discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient
surety to the Corporation and the transfer agent, if any, to indemnify
it and such transfer agent against any and all loss or claims which may
arise by reason of the issue of a new certificate in the place of the
one so lost, stolen or destroyed.
ARTICLE V
CORPORATE SEAL
The Board of Directors may provide a suitable corporate seal,
in such form and bearing such inscriptions as it may determine. In lieu
of fixing the Corporation s seal to a document, it is sufficient to meet
the requirements of any law, rule or regulation relating to a
corporation seal to place the word (seal) adjacent to the signature of
the person authorized to sign the document on behalf of the Corporation.
ARTICLE VI
FISCAL YEAR
The fiscal year of the corporation shall be fixed by the Board
of Directors.
ARTICLE VII
INDEMNIFICATION
Section 1. Indemnification of Directors and Officers. The
Corporation shall indemnify its directors to the fullest extent that
indemnification of directors is permitted by the Maryland General
Corporation Law. The Corporation shall indemnify its officers to the
same extent as its directors and to such further extent consistent with
law. The Corporation shall indemnify its directors and officers who
while serving as directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee, agent or
fiduciary of another corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan to the fullest extent
consistent with law. The indemnification and other rights provided by
this Article shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs,
executors and administrators of such a person. This Article shall
not protect any such person against any liability to the Corporation or
any stockholder thereof to which such person would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office
("disabling conduct").
Section 2. Advances. Any current or former director or
officer of the Corporation seeking indemnification within the scope of
this Article shall be entitled to advances from the Corporation for
payment of the reasonable expenses incurred by him in connection with
the matter as to which he is seeking indemnification in the manner and
to the fullest extent permissible under the Maryland General Corporation
Law. The person seeking indemnification shall provide to the Corporation
a written affirmation of his good faith belief that the standard of
conduct necessary for indemnification by the Corporation has been met
and a written undertaking to repay any such advances if it should
ultimately be determined that the standard of conduct has not been met.
In addition, at least one of the following additional conditions shall
be met: (a) the person seeking indemnification shall provide a security
in form and amount acceptable to the Corporation for his undertaking;
(b) the Corporation is insured against losses arising by reason of the
advance; or (c) a majority of a quorum of directors of the corporation
who are neither "interested persons" as defined in Section 2(a)(19) of
the Investment Company Act of 1940, as amended, nor parties to the
proceeding ("disinterested non-party directors"), or independent legal
counsel, in a written opinion, shall have determined, based on a review
of facts readily available to the Corporation at the time the advance is
proposed to be made, that there is reason to believe that the person
seeking indemnification will ultimately be found to be entitled to
indemnification.
Section 3. Procedure. At the request of any person
claiming indemnification under this Article, the Board of Directors
shall determine, or cause to be determined, in a manner consistent with
the Maryland General Corporation Law, whether the standards required by
this Article have been met. Indemnification shall be made only
following: (a) a final decision on the merits by a court or other body
before whom the proceeding was brought that the person to be indemnified
was not liable by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon a review of the
facts, that the person to be indemnified was not liable by reason of
disabling conduct by (i) the vote of a majority of a quorum of
disinterested non-party directors or (ii) an independent legal counsel
in a written opinion.
Section 4. Indemnification of Employees and Agents.
Employees and agents who are not officers or directors of the
Corporation may be indemnified, and reasonable expenses may be advanced
to such employees or agents, as may be provided by action of the Board
of Directors or by contract, subject to any limitations imposed by the
Investment Company Act of 1940, as from time to time amended.
Section 5. Other Rights. The Board of Directors may make
further provision consistent with law for indemnification and advance of
expenses to directors, officers, employees and agents by resolution,
agreement or otherwise. The indemnification provided by this Article
shall not be deemed exclusive of any other right, with respect to
indemnification or otherwise, to which those seeking indemnification may
be entitled under any insurance or other agreement or resolution of
stockholders or disinterested non-party directors or otherwise.
Section 6. Amendments. References in this Article are to
the Maryland General Corporation Law and to the Investment Company Act
of 1940 as from time to time amended. No amendment of the By-laws shall
affect any right of any person under this Article based on any event,
omission or proceeding prior to the amendment.
ARTICLE VIII
AMENDMENT OF BY-LAWS
The By-Laws of the Corporation may be altered, amended, added
to or repealed by the Board of Directors.
DISTRIBUTION AGREEMENT
between
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
and
LEXINGTON FUNDS DISTRIBUTOR, INC.
THIS AGREEMENT made this 14th day of June, 1991 by and between
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC., a Maryland Corporation
(hereinafter referred to as the "Fund"), and LEXINGTON FUNDS DISTRIBUTOR,
INC., a Delaware Corporation (hereinafter referred to as the "Distributor").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby acknowledged,
the parties hereto agree as follows:
FIRST: The Fund hereby appoints the Distributor as its exclusive
underwriter to promote the sale and to arrange for the sale of shares of
common stock of the Fund in jurisdictions wherein shares may legally be
offered for sale.
The Fund agrees to sell and deliver its unissued shares, as from time
to time shall be effectively registered under the Securities Act of 1933,
upon the terms hereinafter set forth.
SECOND: The Fund hereby authorizes the Distributor, subject to law
and the Articles of Incorporation of the Fund, to accept, for the account
of the Fund, orders for the purchase of its shares, satisfactory to the
Distributor, as of the time of receipt of such orders or as otherwise
described in the then current prospectus of the Fund.
THIRD: The public offering price of such shares shall be based on the
net asset value per share (as determined by the Fund) of the outstanding
shares of the Fund. The net asset value shall be regularly determined on
every business day as of the time of closing of the New York Stock Exchange.
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. The
public offering price shall become effective as set forth from time to time
in the Fund's current prospectus; such net asset value shall also be
regularly determined, and the public offering price based thereon shall
become effective, as of such other times for the regular determination of
net asset value as may be required or permitted by rules of the National
Association of Securities Dealers, Inc. or of the Securities and Exchange
Commission. The Fund shall furnish the Distributor, with all possible
promptness, a statement of each computation of net asset value, and of the
details entering into such computation.
The Distributor may, and when requested by the Fund shall, suspend its
efforts to effectuate sales of the shares of common stock at any time when
in the opinion of the Distributor or of the Fund no sales should be made
because of market or other economic considerations or abnormal circumstances
of any kind.
The Fund may withdraw the offering of its common stock (i) at any time
with the consent of the Distributor, or (ii) without such consent when so
required by the provisions of any statute or of any order, rule or
regulation of any governmental body or securities exchange having
jurisdiction. It is mutually understood and agreed that the Distributor
does not undertake to sell all or any specific portion of the shares of
common stock of the Fund.
FOURTH: The Distributor agrees that it will use its best efforts with
reasonable promptness to promote and sell shares of the Fund; but so long
as it does so, nothing herein contained shall prevent the Distributor from
entering into similar arrangements with other funds and to engage in other
activities. The Fund reserves the right to issue shares in connection with
any merger or consolidation of the Fund with any other investment company
or any personal holding company or in connection with offers of exchange
exempted from Section 11(a) of the Investment Company Act of 1940.
FIFTH: Upon a receipt by the Fund at its principal place of business
or other place designated by the Fund of an order from the Distributor,
together with delivery instructions, the Fund shall, as promptly as
practicable, cause the shareholder's account or certificates for the shares
called for in such order to be credited or delivered in such amount and in
such names as shall be specified by the Distributor, against payment
therefor in such manner as may be acceptable to the Fund.
SIXTH: All sales literature and advertisements used by the
Distributor in connection with sales of the shares of the Fund shall be
subject to the approval of the Fund. The Fund authorizes the Distributor
in connection with the sale or arranging for the sales of its shares to give
only such information and to make only such statements or representations
as are contained in the current prospectus and statement of additional
information or in sales literature or advertisements approved by the Fund
or in such financial statements and reports as are furnished to the
Distributor pursuant to this Agreement. The Fund shall not be responsible
in any way for any information, statements or representatives given or made
by the Distributor or its representatives or agents other than such
information, statements or representations contained in the then current
prospectus and statement of additional information or other financial
statements of the Fund.
SEVENTH: The Distributor as agent of the Fund is authorized, subject
to the direction of the Fund, to accept shares for redemption at their net
asset value, determined as prescribed in the then current prospectus of the
Fund. The Fund shall reimburse the Distributor monthly for its out-of-
pocket expenses reasonably incurred for carrying out the foregoing
authorization, but the Distributor shall not be entitled to any commissions
or other compensation in respect to such redemptions.
EIGHTH: The Fund shall bear:
(A) the expenses of qualification of the shares for sale in connection
with such public offerings in such states as shall be selected by the
Distributor and of continuing the qualification continued; and
(B) all legal expenses in connection with the foregoing.
NINTH: The Distributor shall bear:
(A) the expenses of printing and distributing prospectuses and
statements of additional information (other than those prospectuses and
statements of additional information required by applicable laws and
regulations to be distributed to the Fund's shareholders by the Fund) and
any other promotional or sales literature which are used by the Distributor
or furnished by the Distributor to purchasers or dealers in connection with
the Distributor's activities pursuant to this Agreement;
(B) expenses of any advertising used by the Distributor in connection
with such public offering; and
(C) all legal expenses in connection with the foregoing.
TENTH: The Distributor will accept orders for shares of the Fund only
to the extent of purchase orders actually received and not in excess of such
orders, and it will not avail itself of any opportunity of making a profit
by expediting or withholding orders.
ELEVENTH: The Fund shall keep the Distributor fully informed with
regard to its affairs, shall furnish the Distributor with a certified copy
of all financial statements, and a signed copy of each report, prepared by
independent public accountants, and with such reasonable number of printed
copies of each semi-annual and annual report of the Fund as the Distributor
may request, and shall cooperate fully in the efforts of the Distributor to
sell and arrange for the sale of its shares and in the performance by the
Distributor of all its duties under the Agreement.
TWELFTH: The Fund agrees to register, from time to time as necessary,
additional shares with the Securities and Exchange Commission, state and
other regulatory bodies and to pay the related filing fees therefor and to
file such amendments, reports and other documents as may be necessary in
order that there may be no untrue statement of a material fact in the
Registration Statement or prospectus or necessary in order that there may
be no omission to state a material fact therein necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. As used in this Agreement, the term "Registration
Statement" shall mean from time to time the Registration Statement most
recently filed by the Fund with the Securities and Exchange Commission and
effective under the Securities Act of 1933, as amended, as such Registration
Statement is amended at such time, and the terms "Prospectus" shall mean for
the purposes of this Agreement from time to time the form of prospectus and
statement of additional information authorized by the Fund for use by
Distributor and by dealers.
THIRTEENTH:
(A) The Fund and Distributor shall each comply with all applicable
provisions of the Investment Company Act of 1940, the Securities Act of
1933, and the rules and regulations of the National Association of
Securities Dealers, Inc. and of all other Federal and State laws, rules and
regulations governing the issuance and sale of shares of the Fund.
(B) In the absence of willful misfeasance, bad faith, gross negligence
or reckless disregard of obligations or duties hereunder on the part of the
Distributor, the Fund agrees to indemnify the Distributor and any
controlling person of the Distributor against any and all claims, demands,
liabilities and expenses including reasonable costs of any alleged
litigation which the Distributor may incur under the Securities Act of 1933,
or common law on otherwise, arising out of or based upon any alleged untrue
statement of a material fact contained in any registration statement,
statement of additional information or prospectus of the Fund, or any
omission to state a material fact therein, the omission of which makes any
statement contained therein misleading, unless such statement or omission
was made in reliance upon, and in conformity with written information
furnished to the Fund in connection with written information furnished to
the Fund in connection therewith by or on behalf of the Distributor. The
Distributor agrees to indemnify the Fund against any and all claims,
demands, liabilities and expenses which the Fund may incur arising out of
or based upon any act or deed of sales representatives of the Distributor
which is outside the scope of their authority under this Agreement.
(C) The Distributor agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under the
Securities Act of 1933, or common law or otherwise, arising out of or based
upon any alleged untrue statement of material fact contained in any
registration statement, statement of additional information or prospectus
of the Fund, relating to the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Fund in connection
therewith by or on behalf of the Distributor.
FOURTEENTH: Nothing herein contained shall require the Fund to take
any action contrary to any provision of its Declaration of Trust or to any
applicable statute or regulation.
FIFTEENTH: This Agreement has been approved by the Directors of the
Fund and shall become effective at the close of business on the date hereof.
This Agreement shall continue in force and effect for successive annual
periods, provided that such continuance is specifically approved at least
annually (a) (i) by the Board of Directors of the Fund, or (ii) by vote of
a majority of the Fund's outstanding voting securities (as defined in
Section 2 (a) (42) of the Investment Company Act of 1940), and (b) by vote
of majority of the Fund's Directors who are not interested persons (as
defined in Section 2 (a) (19) of the Investment Company Act of 1940) of the
Distributor by votes cast in person at a meeting called for such purposes.
SIXTEENTH: The Distributor, as the owner of the registered service
mark "Lexington" (registration number 836-088), hereby sublicenses and
authorizes the Fund to include the word "Lexington" as part of its corporate
name, subject, however, to revocation by the Distributor in the event that
the Fund ceases to engage the Distributor or affiliates of the Distributor
as investment advisor or distributor. The Fund agrees upon demand of the
Distributor to change its corporate name to delete the word "Lexington"
therefrom.
SEVENTEENTH
(A) This Agreement may be terminated at any time, without the payment
of any penalty, by vote of the Board of Directors of the Fund or by vote of
a majority of the outstanding voting securities of the Fund, or by the
Distributor, on sixty (60) days written notice of the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning
defined in Section 2(a)(4) of the Investment Company Act of 1940.
EIGHTEENTH: Any notice under this Agreement shall be in writing,
addressed and delivered, or mailed, postage paid, to the other party at such
address as such other party may designate for the receipt of such notices.
Until further notice to the other party, it is agreed that the address of
the Fund shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey and
Distributor shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate on the day and year first above written.
LEXINGTON WORLDWIDE EMERGING
MARKETS FUND, INC.
Attest: By:
__________________________________
LEXINGTON FUNDS DISTRIBUTOR, INC.
Attest: By:
___________________________________
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
February 26, 1997
Lexington Worldwide Emerging Markets Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Re: Lexington Worldwide Emerging Markets
Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Gentlemen:
We hereby consent to the reference to our firm as counsel in the
Post-Effective Amendment to the Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Board of Directors and Shareholders
Lexington Worldwide Emerging Markets Fund, Inc.
We consent to the use of our report dated February 10, 1997 included in
the Registration Statement on Form N-1A and to the references to our firm
under the headings "Financial Highlights" and "Auditors" in the Prospectus
and "Shareholder Reports" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 28, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from year-end
audited financial statements dated December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 245,221,609
<INVESTMENTS-AT-VALUE> 254,792,584
<RECEIVABLES> 3,801,770
<ASSETS-OTHER> 2,329,408
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 260,923,762
<PAYABLE-FOR-SECURITIES> 3,116,159
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,134,797
<TOTAL-LIABILITIES> 6,250,956
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 272,488,183
<SHARES-COMMON-STOCK> 22,161,235
<SHARES-COMMON-PRIOR> 24,826,051
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (56,742)
<ACCUMULATED-NET-GAINS> (27,325,466)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,566,831
<NET-ASSETS> 254,672,806
<DIVIDEND-INCOME> 5,190,190
<INTEREST-INCOME> 973,380
<OTHER-INCOME> (600,569)
<EXPENSES-NET> 5,581,396
<NET-INVESTMENT-INCOME> (18,395)
<REALIZED-GAINS-CURRENT> 7,337,532
<APPREC-INCREASE-CURRENT> 12,557,378
<NET-CHANGE-FROM-OPS> 19,876,515
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 22,719,087
<NUMBER-OF-SHARES-REDEEMED> (25,383,903)
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (30,748,162)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (35,860,265)
<OVERDISTRIB-NII-PRIOR> (420,121)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,176,490
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,581,396
<AVERAGE-NET-ASSETS> 317,688,999
<PER-SHARE-NAV-BEGIN> 10.7
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> .79
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.49
<EXPENSE-RATIO> 1.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
