THE LEXINGTON FUNDS
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Shareholder Services--1-800-526-0056
1-201-845-7300
Institutional/Financial Adviser Services--1-800-367-9160
24 Hour Account Information--1-800-526-0052
24 Hour Investor Information--1-800-526-0057
PROSPECTUS
May 1, 1998
The following eleven mutual funds (each a "Fund," and collectively the
"Funds") are offered in this Prospectus:
FUND NAME NASDAQ SYMBOL
Lexington Crosby Small Cap Asia Growth Fund, Inc. LXCAX
Lexington Global Corporate Leaders Fund, Inc, LXGLX
(formerly, Lexington GlobalFund, Inc.)
Lexington GNMA Income Fund, Inc. LEXNX
Lexington Goldfund, Inc. LEXMX
Lexington Growth and Income Fund, Inc. LEXRX
Lexington International Fund, Inc. LEXIX
Lexington Money Market Trust LMMXX
Lexington Ramirez Global Income Fund LEBDX
Lexington SmallCap Fund, Inc. LESVX
(formerly, Lexington SmallCap ValueFund, Inc.)
Lexington Troika Dialog Russia Fund, Inc. LETRX
Lexington Worldwide Emerging Markets Fund, Inc. LEXGX
Each Fund's shares offered in this Prospectus are sold at net asset value
with no sales load, no commissions and (except for certain redemptions of the
Lexington Troika Dialog Russia Fund) no redemption or exchange fees. The minimum
initial investment in each Fund is $1,000 ($5,000 for the Lexington Troika
Dialog Russia Fund), and subsequent investments must be at least $50. See "How
to Invest in the Funds."
Each Fund is an open-end management investment company and managed by
Lexington Management Corporation (the "Manager"), an affiliate of Lexington
Funds Distributor Inc. (the "Distributor"). Each Fund has its own investment
objective and policies designed to meet different investment goals. The
Lexington Ramirez Global Income Fund may invest without limitation in lower
rated debt securities commonly referred to as "junk bonds." Investments of this
type are subject to greater risk of loss of principal and
<PAGE>
interest. LEXINGTON TROIKA DIALOG RUSSIA FUND INVOLVES SPECULATIVE INVESTMENTS
AND SPECIAL RISKS, SUCH AS POLITICAL, ECONOMIC AND LEGAL UNCERTAINTIES, CURRENCY
FLUCTUATIONS, PORTFOLIO SETTLEMENT AND CUSTODY RISKS AND RISKS OF LOSS ARISING
OUT OF RUSSIA'S SYSTEM OF SHARE REGISTRATION. THESE RISKS ARE DISCUSSED MORE
FULLY ON PAGE 37 OF THIS PROSPECTUS, AND INVESTORS SHOULD READ THESE SECTIONS IN
DETAIL. THE FUND MAY NOT BE APPROPRIATE FOR ALL INVESTORS. AS WITH ALL MUTUAL
FUNDS, THERE IS NO GUARANTEE A FUND WILL ACHIEVE ITS OBJECTIVE.
Please read this Prospectus before investing and retain it for future
reference. A Statement of Additional Information dated May 1, 1998, has been
filed with the Securities and Exchange Commission, is incorporated to this
Prospectus by reference and is available without charge by calling the
appropriate telephone number above or writing to the address listed above.
Information about the Lexington Funds is available on the Internet at
http://www.sec.gov or http://www.lexingtonfunds.com
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE LEXINGTON MONEY MARKET TRUST WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF (OR ENDORSED OR
GUARANTEED BY)ANY BANK, NOR ARE THEY FEDERALLY INSURED OR OTHERWISE PROTECTED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC"), THE FEDERAL RESERVE BOARD OR
ANY OTHER AGENCY. INVESTING IN MUTUAL FUNDS INVOLVES INVESTMENT RISKS, INCLUDING
THE POSSIBLE LOSS OF PRINCIPAL, AND THEIR VALUE AND RETURN WILL FLUCTUATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
2
<PAGE>
The Lexington Funds ....................................................... 3
Fees and Expenses of the Funds ............................................ 5
Financial Highlights ...................................................... 8
The Funds' Investment Objectives and Policies ............................. 19
Portfolio Securities ...................................................... 27
Other Investment Practices ................................................ 32
Risk Considerations ....................................................... 34
Management of the Funds ................................................... 41
How to Contact the Funds .................................................. 52
How to Invest in the Funds ................................................ 52
How to Redeem an Investment in the Funds .................................. 55
Exchange/Telephone Redemption Privileges and Restrictions ................. 58
How Net Asset Value is Determined ......................................... 59
Dividends and Distributions ............................................... 61
Taxation .................................................................. 62
General Information ....................................................... 63
Back-up Withholding ....................................................... 66
Glossary .................................................................. 66
THE LEXINGTON FUNDS
The Funds' investment objectives are summarized below. See "The Funds'
Investment Objectives and Policies" beginning on page 19, "Portfolio Securities"
beginning on page 27, "Other Investment Practices" beginning on page 32 and
"Risk Considerations" beginning on page 34 for more detailed information.
INTERNATIONAL FUNDS
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
The Lexington Crosby Small Cap Asia Growth Fund's investment objective is
to seek long-term capital appreciation through investment in equity securities
and equivalents of companies in the Asia Region having market capitalizations of
less than $1 billion.
LEXINGTON GLOBAL CORPORATE LEADERS FUND, INC.
The Lexington Global Corporate Leaders Fund's investment objective is to
seek long term growth of capital through investment in equity securities and
equivalents of foreign and U.S. companies. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in a diversified
portfolio of blue chip securities that in the opinion of the Manager represent
"corporate leaders" in their respective industries.
LEXINGTON INTERNATIONAL FUND, INC.
The Lexington International Fund's investment objective is to seek
long-term growth of capital through investment in equity securities and
equivalents of companies outside the United States.
3
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
The Lexington Ramirez Global Income Fund's investment objective is to seek
high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests in a combination of foreign and
domestic high-yield, lower rated or unrated debt securities.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
The Lexington Troika Dialog Russia Fund's investment objective is to seek
long-term capital appreciation through investment primarily in the equity
securities of Russian companies.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
The Lexington Worldwide Emerging Markets Fund's investment objective is to
seek long-term growth of capital primarily through investment in equity
securities and equivalents of emerging market companies.
DOMESTIC EQUITY FUNDS
LEXINGTON GROWTH AND INCOME FUND, INC.
The Lexington Growth and Income Fund's principal investment objective is
long term appreciation of capital. Income is a secondary objective. The Fund
will seek to achieve its objective over the long term through investment in the
stocks of large, ably managed and well financed companies.
LEXINGTON SMALLCAP FUND, INC.
The Lexington SmallCap Fund's principal investment objective is long term
capital appreciation. The Lexington SmallCap Fund will seek to obtain its
objective through investment in equity securities and equivalents primarily of
domestic companies having market capitalizations of less than $1 billion.
PRECIOUS METALS FUNDS
LEXINGTON GOLDFUND, INC.
The Lexington Goldfund's investment objective is to attain capital
appreciation and such hedge against loss of buying power as may be obtained
through investment in gold securities of companies engaged in mining or
processing gold throughout the world.
DOMESTIC FIXED-INCOME FUNDS
LEXINGTON GNMA INCOME FUND, INC.
The Lexington GNMA Income Fund's investment objective is to seek a high
level of current income, consistent with liquidity and safety of principal,
4
<PAGE>
through investment primarily in mortgage-backed GNMA ("Ginnie Mae") Certificates
that are guaranteed as to the timely payment of principal and interest by the
United States Government.
MONEY MARKET FUNDS
LEXINGTON MONEY MARKET TRUST
The Lexington Money Market Trust's investment objective is to seek as high
a level of current income from short-term investments as is consistent with the
preservation of capital and liquidity. The Lexington Money Market Trust seeks to
maintain a stable net asset value of $1 per share.
FEES AND EXPENSES OF THE FUNDS
SHAREHOLDER TRANSACTION EXPENSES
An investor would pay the following charges when buying or redeeming shares
of a Fund:
- --------------------------------------------------------------------------------
MAXIMUM
MAXIMUM SALES
SALES LOAD IMPOSED 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 Small Cap Asia Growth Fund 1.25 1.05 2.30*
Lexington Global Corporate Leaders Fund, Inc. 1.00 0.75 1.75
Lexington International Fund 1.00 0.25 0.50 1.75*
Lexington Ramirez Global Income Fund 1.00 0.25 0.25 1.50*
Lexington Troika Dialog Russia Fund 1.25 0.25 0.35 1.85**
Lexington Worldwide Emerging Markets Fund 1.00 0.82 1.82
- ---------------------------------------------------------------------------------------------------------------------------
DOMESTIC EQUITY FUNDS
Lexington Growth and Income Fund 0.64 0.25 0.28 1.17
Lexington SmallCap Fund 1.00 0.25 1.32 2.57*
- ---------------------------------------------------------------------------------------------------------------------------
PRECIOUS METALS FUNDS
Lexington Goldfund 0.90 0.25 0.50 1.65
- ---------------------------------------------------------------------------------------------------------------------------
DOMESTIC FIXED-INCOME FUNDS
Lexington GNMA Income Fund 0.60 0.41 1.01
- ---------------------------------------------------------------------------------------------------------------------------
MONEY MARKET FUNDS
Lexington Money Market Trust 0.50 0.50 1.00*
* Net of reimbursement or waivers
**Net of redemption fee proceeds
</TABLE>
This table is intended to assist the investor in understanding the various
expenses of each Fund. Operating expenses are paid out of a Fund's assets and
are factored into the Fund's share price. Each Fund estimates that it will have
the expenses listed (expressed as a percentage of average net assets) for the
current fiscal year.
6
<PAGE>
EXAMPLE OF EXPENSES FOR THE FUNDS
Assuming, hypothetically, that each fund's annual return is 5% and that its
operating expenses are as set forth on previous page, an investor buying $1,000
of a fund's shares would have paid the following total expenses upon redeeming
such shares:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lexington Crosby Small Cap Asia Growth Fund 23.31 71.84 123.02 263.57
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Global Corporate Leaders Fund 17.78 55.11 94.89 206.24
- ---------------------------------------------------------------------------------------------------------------------------
Lexington International Fund 17.78 55.11 94.89 206.24
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Ramirez Global Income Fund 15.26 47.41 81.84 179.05
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Troika Dialog Russia Fund 39.42 58.17 100.07 216.92
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Worldwide Emerging Markets Fund 18.49 57.25 98.52 213.73
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Growth and Income Fund 11.92 37.16 64.37 142.04
- ---------------------------------------------------------------------------------------------------------------------------
Lexington SmallCap Fund 26.01 79.95 136.54 290.49
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Goldfund 16.78 52.03 89.69 195.45
- ---------------------------------------------------------------------------------------------------------------------------
Lexington GNMA Income Fund 10.30 32.15 55.79 123.62
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Money Market Trust 10.20 31.84 55.25 122.46
</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, 1988
(or inception of Fund, if later), through December 31, 1997, was audited by KPMG
Peat Marwick LLP, whose reports appear in the 1997 Annual Reports of the Funds.
<TABLE>
<CAPTION>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND
JULY 3, 1995
(COMMENCEMENT OF OPERATIONS)
1997 1996 TO DECEMBER 31, 1995
-------- -------- ---------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $12.24 $ 9.76 $10.00
Income (loss) from investment operations:
Net investment income (loss) (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) on investments (5.13) 2.54 (0.24)
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations (5.18) 2.49 (0.22)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income -- -- (0.02)
Distributions in excess of net investment income -- (0.01) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.06 $12.24 $ 9.76
- ---------------------------------------------------------------------------------------------------------------------------
Total return (42.32%) 25.50% (4.39)%*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses, before reimbursement or waiver 2.30% 2.64% 3.51%*
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.30% 2.42% 1.75%*
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), before reimbursement or waiver (0.32%) (0.86)% (1.24)%*
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), net of reimbursement or waiver (0.32%) (0.64)% 0.52%*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 187.41% 176.49% 40.22%*
- ---------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions** $0.005 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $13,867 $23,796 $8,936
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** The average commission paid on equity security transactions for the year
ended December 31, 1996 was less than $0.005 per share of securities
purchased and sold. In accordance with SECdisclosure guidelines, the
average commissions paid on equity security transactions are calculated for
the periods beginning with the year ended December 31, 1996, but not for
prior periods.
8
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GLOBAL CORPORATE LEADERS FUND
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $11.28 $11.32 $11.17 $13.51 $11.09 $11.57 $10.26 $12.83 $10.89 $ 9.89
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income 0.03 0.01 0.09 0.02 0.06 0.06 0.09 0.11 0.01 0.02
Net realized and
unrealized gain (loss)
on investments 0.73 1.84 1.10 0.23 3.47 (0.47) 1.50 (2.25) 2.72 1.56
Total income (loss)
from investment operations 0.76 1.85 1.19 0.25 3.53 (0.41) 1.59 (2.14) 2.73 1.58
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income (0.09) (0.16) (0.29) -- (0.06) (0.07) (0.08) (0.11) (0.02) (0.02)
Distributions in excess
of net investments income
(temporary book-tax difference) -- -- (0.13) -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Dividends from net
realized capital gains (1.36) (1.73) (0.62) (2.46) (1.05) -- (0.20) (0.32) (0.77) (0.56)
Distributions in excess
of net realized capital
gains (temporary book-
tax difference) -- -- -- (0.13) -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.45) (1.89) (1.04) (2.59) (1.11) (0.07) (0.28) (0.43) (0.79) (0.58)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.59 $11.28 $11.32 $11.17 $13.51 $11.09 $11.57 $10.26 $12.83 $10.89
- ------------------------------------------------------------------------------------------------------------------------------
Total return 6.90% 16.43% 10.69% 1.84% 31.88% (3.55%) 15.55% (16.75%) 25.10% 15.99%
- ------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------
Expenses 1.75% 1.90% 1.67% 1.61% 1.49% 1.52% 1.57% 1.59% 1.64% 1.80%
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.23% 0.11% 0.48% 0.14% 0.52% 0.55% 0.79% 0.99% 0.13% 0.12%
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 117.48% 128.05% 166.35% 83.40% 84.61% 81.38% 75.71% 81.88% 113.58% 96.90%
- ------------------------------------------------------------------------------------------------------------------------------
Average commission paid
on equity security transactions* $0.01 $0.03 -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of
period (000's omitted) $35,085 $37,223 $53,614 $67,392 $87,313 $50,298 $53,886 $50,501 $57,008 $38,150
- ------------------------------------------------------------------------------------------------------------------------------
* In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON INTERNATIONAL FUND
1997 1996 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net asset value, beginning of period $10.86 $10.60 $10.37 $10.00
Income (loss) from investment operations:
Net investment income (loss) 0.07 (0.02) (0.01) (0.08)
Net realized and unrealized gain on investments 0.10 1.45 0.61 0.67
- ---------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 0.17 1.43 0.60 0.59
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.13) (0.20) -- --
Dividends in excess of net investment income
(temporary book-tax difference) -- -- (0.35) --
Distributions from net realized capital gains (0.80) (0.97) (0.02) (0.10)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- -- (0.12)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (0.93) (1.17) (0.37) (0.22)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.10 $10.86 $10.60 $10.37
- ---------------------------------------------------------------------------------------------------------------------------
Total return 1.61% 13.57% 5.77% 5.87%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.15% 2.45% 2.46% 2.39%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.75% 2.45% 2.46% 2.39%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), before reimbursement or waiver 0.13% (0.39%) (0.12%) (0.94%)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (loss), net of reimbursement or waiver 0.53% (0.39%) (0.12%) (0.94%)
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 122.56% 113.55% 137.72% 100.10%
- ---------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions* $0.01 $0.03 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $19,949 $18,891 $17,855 $17,843
- ---------------------------------------------------------------------------------------------------------------------------
* In accordance with SEC disclosure guidelines, the average commissions are calculated for the periods beginning with the
year ended December 31, 1996, but not for prior periods.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.22 $10.75 $ 9.80 $ 10.95 $10.39 $10.35 $10.05 $10.12 $10.03 $ 9.67
Income (loss) from investment operations:
Net investment income 1.04 1.01 0.96 0.46 0.53 0.61 0.67 0.73 0.63 0.63
Net realized and unrealized gain (loss)
on investments (0.50) 0.36 0.95 (1.16) 0.58 0.04 0.30 (0.09) 0.09 0.36
- -----------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.54 1.37 1.91 (0.70) 1.11 0.65 0.97 0.64 0.72 0.99
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.91) (0.86) (0.96) (0.45) (0.55) (0.61) (0.67) (0.71) (0.63) (0.63)
Distributions from net realized gains (0.27) (.04) -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.18) (.90) (0.96) (0.45) (0.55) (0.61) (0.67) (0.71) (0.63) (0.63)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.58 $11.22 $10.75 $ 9.80 $10.95 $10.39 $10.35 $10.05 $10.12 $10.03
- -----------------------------------------------------------------------------------------------------------------------------------
Total return 5.00% 13.33% 20.10% (6.52%) 10.90% 6.51% 10.03% 6.62% 7.40% 10.54%
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.17% 2.33% 3.07% 1.80% 1.44% 1.54% 1.65% 1.61% 1.72% 1.50%
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.50% 1.50% 2.75% 1.50% 1.44% 1.50% 1.12% 1.08% 1.20% 1.33%
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 8.99% 9.49% 9.48% 4.18% 4.83% 5.88% 6.11% 6.67% 5.70% 6.16%
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income, net of reimbursement
or waiver 9.66% 10.32% 9.80% 4.48% 4.83% 5.92% 6.64% 7.20% 6.22% 6.33%
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 117.94% 71.83% 164.72% 10.20% 31.06% 31.24% 29.45% 44.50% 46.60% 67.11%
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $23,668 $29,110 $12,255 $10,351 $14,576 $13,085 $12,252 $10,707 $12,739 $13,139
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON TROIKA DIALOG RUSSIA FUND
JULY 3, 1996 TO
1997 DECEMBER 31, 1996**
---- -----------------
<S> <C> <C>
Net asset value, beginning of period $11.24 $12.12
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.01) (0.05)
Net realized and unrealized gain (loss) on investments 7.57 (0.51)
- ---------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 7.56 (0.56)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (1.30) (0.32)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (0.32)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.50 $11.24
- ---------------------------------------------------------------------------------------------------------------------------
Total return 67.50% (9.01)%*
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses, before reimbursement or redemption fee proceeds 2.89% 5.07%*
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or redemption fee proceeds 1.85% 2.65%*
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waivers (1.14)% (3.69)%*
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss, net of reimbursement or waivers (0.11)% (1.27)%*
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 66.84% 115.55%*
- ---------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions -- --***
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $137,873 $13,846
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** The Fund's commencement of operations was June 3, 1996 with the investment
of its initial capital. The Fund's registration statement with the
Securities and Exchange Commission became effective on July 3, 1996.
Financial results prior to the effective date of the Fund's registration
statement are not presented in this Financial Highlights Table.
*** The average commission paid on equity security transactions for the year
ended December 31, 1997 and for the period ended December 31, 1996 was less
than $0.005 per share of securities purchased and sold.
12
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $11.49 $10.70 $11.47 $13.96 $8.66
- ------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.01 -- 0.08 (0.01) 0.05
Net realized and unrealized gain (loss)
on investments (1.32) 0.79 (0.76) (1.92) 5.43
- ------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (1.31) 0.79 (0.68) (1.93) 5.48
- ------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- -- (0.08) -- (0.01)
Distributions in excess of net investment
income (temporary book-tax difference) -- -- (0.01) -- --
Distributions from net realized gains -- -- -- (0.47) (0.17)
Distributions in excess of
net realized gains
(temporary book-tax difference) -- -- -- (0.09) --
Total distributions -- -- (0.09) (0.56) (0.18)
- ------------------------------------------------------------------------------------------
Net asset value, end of period $10.18 $11.49 $10.70 $11.47 $13.96
- ------------------------------------------------------------------------------------------
Total return (11.40%) 7.38% (5.93%) (13.81%) 63.37%
- ------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.82% 1.76% 1.88% 1.65% 1.64%
- ------------------------------------------------------------------------------------------
Net investment income (loss) 0.09% (0.01)% 0.70% (0.06)% 0.21%
- ------------------------------------------------------------------------------------------
Portfolio turnover 112.05% 86.26% 92.85% 75.56% 38.35%
- ------------------------------------------------------------------------------------------
Average commission paid on equity security
transactions* $0.00 $0.00 -- -- --
- ------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $137,686 $254,673 $265,544 $288,581 $230,473
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.03 $ 8.56 $10.79 $ 8.72 $ 8.01
- --------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) 0.07 0.09 0.25 0.13 0.12
Net realized and unrealized gain (loss)
on investments 0.27 1.97 (1.81) 2.32 0.71
- --------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.34 2.06 (1.56) 2.45 0.83
- --------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.11) (0.24) (0.21) (0.12)
Distributions in excess of net investment
income (temporary book-tax difference) -- -- -- -- --
Distributions from net realized gains (0.60) (1.48) (0.43) (0.17) --
Distributions in excess of
net realized gains
(temporary book-tax difference) -- -- -- -- --
Total distributions (0.71) (1.59) (0.67) (0.38) (0.12)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.66 $ 9.03 $ 8.56 $10.79 $ 8.72
- --------------------------------------------------------------------------------------------
Total return 3.77% 24.19% (14.44%) 28.11% 10.36%
- --------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.89% 1.97% 1.42% 1.36% 1.33%
- --------------------------------------------------------------------------------------------
Net investment income (loss) 0.75% 0.79% 2.52% 1.18% 1.27%
- --------------------------------------------------------------------------------------------
Portfolio turnover 91.27% 112.03% 52.48% 59.07% 47.63%
- --------------------------------------------------------------------------------------------
Average commission paid on equity security
transactions* -- -- -- -- --
- --------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $30,021 $25,060 $22,192 $29,126 $26,389
- --------------------------------------------------------------------------------------------
</TABLE>
* The average commission paid on equity security transactions for the years
ended December 31, 1997 and 1996 is less than $0.005 per share of
securities purchased and sold. In accordance with SEC disclosure
guidelines, average commissions are calculated beginning with the year
ended December 31, 1996, but not for prior periods.
13
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GROWTH AND INCOME FUND
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $18.56 $15.71 $14.36 $16.16 $16.25
Income from investment operations:
Net investment income 0.05 0.07 0.22 0.17 0.21
Net realized and unrealized gain (loss)
on investments 5.46 4.08 3.00 (0.68) 1.94
- --------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 5.51 4.15 3.22 (0.51) 2.15
- --------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.07) (0.13) (0.22) (0.16) (0.21)
Distributions from net
realized capital gains (3.73) (1.17) (1.65) (0.91) (2.03)
Distributions in excess
of net realized gains
(temporary book-tax difference) -- -- -- (0.22) --
- --------------------------------------------------------------------------------------------
Total distributions (3.80) (1.30) (1.87) (1.29) (2.24)
- --------------------------------------------------------------------------------------------
Net asset value, end of period $20.27 $18.56 $15.71 $14.36 $16.16
- --------------------------------------------------------------------------------------------
Total return 30.36% 26.46% 22.57% (3.11%) 13.22%
- --------------------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------------------
Expenses 1.17% 1.13% 1.09% 1.15% 1.29%
- --------------------------------------------------------------------------------------------
Net investment income 0.21% 0.43% 1.38% 1.06% 1.20%
- --------------------------------------------------------------------------------------------
Portfolio turnover 88.15% 101.12% 159.94% 63.04% 93.90%
- --------------------------------------------------------------------------------------------
Average commission paid
on equity security transactions* $0.07 $0.07 -- -- --
- --------------------------------------------------------------------------------------------
Net assets, end of period
(000's omitted) $228,037 $200,309 $138,901 $124,289 $134,508
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.39 $14.24 $16.19 $14.39 $13.58
Income from investment operations:
Net investment income 0.23 0.35 0.60 0.50 0.46
Net realized and unrealized gain (loss)
on investments 1.79 3.17 (2.25) 3.44 0.80
- -------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 2.02 3.52 (1.65) 3.94 1.26
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.32) (0.35) (0.30) (0.60) (0.45)
Distributions from net
realized capital gains (1.84) (1.02) -- (1.54) --
Distributions in excess
of net realized gains
(temporary book-tax difference) -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Total distributions (2.16) (1.37) (0.30) (2.14) (0.45)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $16.25 $16.39 $14.24 $16.19 $14.39
- -------------------------------------------------------------------------------------------------
Total return 12.36% 24.87% (10.27%) 27.56% 9.38%
- -------------------------------------------------------------------------------------------------
Ratios to average net assets:
- -------------------------------------------------------------------------------------------------
Expenses 1.20% 1.13% 1.04% 1.02% 1.10%
- -------------------------------------------------------------------------------------------------
Net investment income 2.57% 2.19% 3.91% 2.82% 3.20%
- -------------------------------------------------------------------------------------------------
Portfolio turnover 88.13% 80.33% 67.39% 64.00% 81.10%
- -------------------------------------------------------------------------------------------------
Average commission paid
on equity security transactions* -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Net assets, end of period
(000's omitted) $126,241 $121,263 $104,664 $128,329 $111,117
- -------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
14
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON SMALLCAP FUND
JANUARY 2, 1996
(COMMENCEMENT OF OPERATIONS)
1997 DECEMBER 31, 1996
---- ---------------------------
<S> <C> <C>
Net asset value, beginning of period $11.73 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.19) (0.18)
Net realized and unrealized gain on investments 1.41 1.94
- ---------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.22 1.76
Less distributions:
Distributions from net investment income (0.15) --
Distributions from net realized capital gains (1,41) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions (1.56) --
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $11.39 $11.73
- ---------------------------------------------------------------------------------------------------------------------------
Total return 10.47% 17.50%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.57% 3.04%
- ---------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.57% 2.48%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (1.78%) (2.34)%
- ---------------------------------------------------------------------------------------------------------------------------
Net investment loss (1.78%) (1.78)%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 39.09% 60.92%
- ---------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions $ 0.04 $ 0.03
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $9,565 $8,061
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $5.97 $6.24 $6.37 $6.90 $3.70
- -------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income -- 0.02 -- 0.03 0.01
Net realized and unrealized gain (loss)
on investments (2.52) 0.50 (0.12) (0.53) 3.21
- -------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (2.52) 0.52 (0.12) (0.50) 3.22
- -------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.21) (0.79) (0.01) (0.03) (0.02)
- -------------------------------------------------------------------------------------------------
Total distributions (0.21) (0.79) (0.01) (0.03) (0.02)
- -------------------------------------------------------------------------------------------------
Net asset value, end of period $3.24 $5.97 $6.24 $6.37 $6.90
- -------------------------------------------------------------------------------------------------
Total return (42.98%) 7.84% (1.89%) (7.28%) 89.96%
- -------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -------------------------------------------------------------------------------------------------
Expenses 1.65% 1.60% 1.70% 1.54% 1.63%
- -------------------------------------------------------------------------------------------------
Net investment income (loss) 0.17% (0.32)% 0.07% 0.50% 0.25%
- -------------------------------------------------------------------------------------------------
Portfolio turnover 38.32% 31.04% 40.41% 23.77% 28.41%
- -------------------------------------------------------------------------------------------------
Average commission paid on equity
security transactions* .02 .02 -- -- --
- -------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $53,707 $109,287 $135,779 $159,435 $159,479
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $4.68 $5.03 $6.39 $5.21 $6.20
- ----------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02 0.04 0.04 0.05 0.04
Net realized and unrealized gain (loss)
on investments (0.98) (0.35) (1.36) 1.18 (0.98)
- ----------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (0.96) (0.31) (1.32) 1.23 (0.94)
- ----------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.02) (0.04) (0.04) (0.05) (0.05)
- ----------------------------------------------------------------------------------------------
Total distributions (0.02) (0.04) (0.04) (0.05) (0.05)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $3.70 $4.68 $5.03 $6.39 $5.21
- ----------------------------------------------------------------------------------------------
Total return (20.51%) (6.14%) (20.35%) 23.62% (15.18%)
- ----------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------
Expenses 1.69% 1.43% 1.36% 1.42% 1.61%
- ----------------------------------------------------------------------------------------------
Net investment income (loss) 0.58% 0.81% 0.69% 1.14% 0.78%
- ----------------------------------------------------------------------------------------------
Portfolio turnover 13.18% 22.14% 12.43% 15.98% 20.45%
- ----------------------------------------------------------------------------------------------
Average commission paid on equity
security transactions* -- -- -- -- --
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $71,856 $96,316 $106,074 $154,484 $92,782
- ----------------------------------------------------------------------------------------------
* In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GNMA INCOME FUND
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.12 $8.19 $7.60 $8.32 $8.26
- ----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.51 0.53 0.58 0.55 0.59
Net realized and unrealized gain (loss)
on investments 0.29 (0.08) 0.59 (0.72) 0.06
- ----------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.80 0.45 1.17 (0.17) 0.65
Less distributions:
Dividends from net investment income (0.52) (0.52) (0.58) (0.55) (0.59)
Distributions from net
realized capital gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------
Total distributions (0.52) (0.52) (0.58) (0.55) (0.59)
- ----------------------------------------------------------------------------------------------
Net asset value, end of period $8.40 $8.12 $8.19 $7.60 $8.32
- ----------------------------------------------------------------------------------------------
Total return 10.20% 5.71% 15.91% (2.07%) 8.06%
- ----------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------
Expenses 1.01% 1.05% 1.01% 0.98% 1.02%
- ----------------------------------------------------------------------------------------------
Net investment income 6.28% 6.56% 7.10% 6.90% 6.96%
- ----------------------------------------------------------------------------------------------
Portfolio turnover 134.28% 128.76% 30.69% 37.15% 52.34%
- ----------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $158,071 $133,777 $130,681 $132,108 $149,961
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.45 $7.90 $7.88 $7.45 $7.58
- ---------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.61 0.64 0.65 0.69 0.64
Net realized and unrealized gain (loss)
on investments (0.19) 0.55 0.03 0.42 (0.13)
- ---------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.42 1.19 0.68 1.11 0.51
Less distributions:
Dividends from net investment income (0.61) (0.64) (0.66) (0.68) (0.61)
Distributions from net
realized capital gains -- -- -- -- (0.03)
- ---------------------------------------------------------------------------------------------
Total distributions (0.61) (0.64) (0.66) (0.68) (0.64)
- ---------------------------------------------------------------------------------------------
Net asset value, end of period $8.26 $8.45 $7.90 $7.88 $7.45
- ---------------------------------------------------------------------------------------------
Total return 5.19% 15.75% 9.23% 15.60% 6.90%
- ---------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------
Expenses 1.01% 1.02% 1.04% 1.03% 1.07%
- ---------------------------------------------------------------------------------------------
Net investment income 7.31% 7.97% 8.43% 8.88% 8.31%
- ---------------------------------------------------------------------------------------------
Portfolio turnover 180.11% 138.71% 112.55% 102.66% 233.48%
- ---------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $132,048 $122,191 $98,011 $96,465 $97,185
- ---------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON MONEY MARKET TRUST
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $ 1.00 $ 1.00 $ 1.00 1.00
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0458 0.0441 0.0495 0.0330 0.0230
- -----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0458) (0.0441) (0.0495) (0.0330) (0.0230)
- -----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -----------------------------------------------------------------------------------------------------
Total return 4.68% 4.50% 5.06% 3.35% 2.32%
- -----------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.04% 1.04% 1.08% 1.02% 1.00%
- -----------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 1.00% 1.00% 1.00%
- -----------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement 4.55% 4.37% 4.87% 3.30% 2.30%
- -----------------------------------------------------------------------------------------------------
Net investment income, net of
reimbursement 4.58% 4.41% 4.95% 3.32% 2.30%
- -----------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $95,149 $97,526 $88,786 $111,805 $94,718
- -----------------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
---- ---- ---- ---- ----
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0299 0.0532 0.0732 0.0828 0.0678
- --------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0299) (0.0532) (0.0732) (0.0828) (0.0678)
- --------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- --------------------------------------------------------------------------------------------------------
Total return 3.03% 5.45% 7.56% 8.60% 7.00%
- --------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.03% 1.02% 0.97% 0.99% 0.97%
- --------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 0.97% 0.99% 0.97%
- --------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement 2.99% 5.35% 7.32% 8.29% 6.74%
- --------------------------------------------------------------------------------------------------------
Net investment income, net of
reimbursement 3.02% 5.37% 7.32% 8.29% 6.74%
- --------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $111,453 $143,137 $176,127 $182,703 $192,079
- -------------------------------------------------------------------------------------------------------
18
<PAGE>
THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
The investment objective and general investment policies of each Fund are
described below. Specific portfolio securities that may be purchased by the
Funds are described in "Portfolio Securities" beginning on page 27. Specific
investment practices that may be employed by the Funds are described in "Other
Investment Practices" beginning on page 32. Certain risks associated with
investments in the Funds are described in those sections as well as in "Risk
Considerations" beginning on page 34. CERTAIN TERMS USED IN THE PROSPECTUS ARE
DEFINED IN THE GLOSSARY BEGINNING ON PAGE 66.
SUMMARY COMPARISON OF FUNDS
Under normal market conditions, the Funds will invest their assets as follows:
TYPICAL MARKET
ANTICIPATED ANTICIPATED CAPITALIZATION
EQUITY DEBT OF PORTFOLIO
FUND NAME EXPOSURE EXPOSURE FOCUS COMPANIES
===========================================================================================================
INTERNATIONAL FUNDS
Lexington Crosby 100% 0% Asia Small-Cap Less than
Small Cap Asia $1 billion
Growth Fund
--------------------------------------------------------------------------------------------------
Lexington Global Corporate 100% 0% Global Value Over
Leaders Fund $1 billion
--------------------------------------------------------------------------------------------------
Lexington 100% 0% Foreign Growth Any size
International Fund
--------------------------------------------------------------------------------------------------
Lexington Ramirez 0% 100% Global Income Any size
Global Income Fund
--------------------------------------------------------------------------------------------------
Lexington Troika 85% 15% Russian Growth Any size
Dialog Russia Fund
--------------------------------------------------------------------------------------------------
Lexington Worldwide 100% 0% Foreign Emerging Any size
Emerging Markets Growth
Fund
===========================================================================================================
DOMESTIC EQUITY FUNDS
Lexington Growth 100% 0% Capital Appreciation Any size
and Income Fund and Income
--------------------------------------------------------------------------------------------------
Lexington SmallCap 100% 0% U.S. Small-Cap Between
Fund $20 million
and $1 billion
===========================================================================================================
PRECIOUS METALS
Lexington Goldfund 100% 0% Gold and Gold Any size
Companies
===========================================================================================================
DOMESTIC FIXED-INCOME FUNDS
Lexington GNMA 0% 100% Income N/A
Income Fund
===========================================================================================================
MONEY MARKET FUNDS
Lexington Money 0% 100% Income N/A
Market Trust
- -----------------------------------------------------------------------------------------------------------
See each Fund's investment objective and policies on the following pages, and
the section titled "Portfolio Securities" for more information.
19
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
The investment objective of the Lexington Crosby Small Cap Asia Growth Fund
is long-term capital appreciation through investment in equity securities and
equivalents of companies in the Asia Region having market capitalizations of
less than $1 billion. Under normal conditions, the Fund will invest at least 65%
of its total assets in this manner. The Fund considers the following to be
countries in the Asia Region: Bangladesh, China, Hong Kong, India, Indonesia,
Korea, Malaysia, Pakistan, The Phillippines, Singapore, Sri Lanka, Taiwan,
Thailand and Vietnam. The Fund does not intend to invest in Japanese securities.
The Fund considers a company to be within the Asia Region if it is organized
under the laws of a country located in the Asia Region, if its principal
securities trading market is located in the Asia Region, and if it derives at
least 50% of its revenues or profits from the Asia Region. The Fund generally
invests the remaining 35% of its total assets in a similar manner, but may
invest those assets in companies having market capitalizations of $1 billion or
more, in securities of companies located outside the Asia Region (for example,
Australia or New Zealand), or in debt securities or other investments (see
"Portfolio Securities" and "Other Investment Practices"). The Fund will invest
primarily in companies listed on stock exchanges but may also invest in unlisted
securities. Under normal market conditions, the Fund maintains investments in at
least three Asian countries at all times.
The Fund invests in companies with proven management that are undervalued
and under-researched by the investment community, and that are within industry
sectors with particularly strong growth prospects. There are approximately 3,000
small capitalization companies in the Asia Region which will be the primary
focus of the Fund's investments. The market value of small capitalization
companies in the Asia Region tends to be volatile, and in the past has offered
greater potential for gain as well as loss than securities traded in developed
countries. It is possible that the Fund investments could be subject to foreign
expropriation or exchange control restrictions. (see "Risk Considerations.") The
Fund intends to select securities which could have enhanced growth prospects and
which may provide investment returns superior to the Asian market as a whole.
----------
LEXINGTON GLOBAL CORPORATE LEADERS FUND, INC.
The investment objective of the Lexington Global Corporate Leaders Fund is
to seek long-term growth of capital through investment in equity securities and
equivalents of foreign and U.S. companies. The Fund seeks to achieve its
objective by investing at least 65% of its total assets in a
20
<PAGE>
diversified portfolio of blue chip securities that in the opinion of the Manager
represents "corporate leaders" in their respective industries. The Fund may
invest in securities of companies in the following regions (including
governments of these regions): the Asia Region (including Japan); Europe;
Central and South America; Africa, North America (including the U.S. and Canada)
and such other areas and countries as the Manager may decide from time to time.
The Fund generally invests the remaining 35% of its total assets in a similar
manner, but may invest those assets in securities of smaller capitalization
companies, debt securities or other investments (see "Portfolio Securities" and
"Other Investment Practices"). Under normal market conditions, the Fund will
maintain investments in three countries at all times, however the Fund is not
required to maintain any particular geographic or currency mix of its
investments.
It is possible that certain investments could be subject to foreign
expropriation or exchange control restrictions (see "Risk Considerations.") The
Fund may choose to invest in foreign debt securities when it appears that the
capital appreciation available from investments in such securities will equal or
exceed the capital appreciation from investments in equity securities. The
market value of debt securities varies inversely to changes in prevailing
interest rates, and investing in debt securities may provide an opportunity for
capital appreciation when interest rates are expected to decline. With respect
to debt securities, the Fund will invest in investment grade obligations and
non-rated obligations of comparable quality. There is no particular proportion
of stocks, bonds or other securities that the Fund is required to maintain. The
Fund intends to select the countries, currencies, and companies providing the
greatest potential for long-term growth.
----------
LEXINGTON INTERNATIONAL FUND, INC.
The investment objective of the Lexington International Fund is to seek
long-term growth of capital through investment in equity securities and
equivalents of companies outside the United States. The Fund will invest at
least 65% of its total assets in this manner. The Fund may invest in securities
of companies in the following regions (including governments of these regions):
the Asia Region (including Japan); Europe; Latin America; Africa and such other
areas and countries as the Manager may decide from time to time. The Fund
generally invests the remaining 35% of its total assets in a similar manner, but
may invest those assets in companies in the United States, in debt securities or
other investments (see "Portfolio Securities" and "Other Investment Practices").
Under normal market conditions, the Fund will maintain investments in three
foreign countries at all times, however the
21
<PAGE>
Fund is not required to maintain any particular geographic or currency mix of
its investments.
The Fund may invest in companies located in developing countries without
limitation. Developing countries may have relatively unstable governments,
economies based on only a few industries, and securities markets which trade a
small number of companies. The market value of securities traded on exchanges in
developing countries tends to be volatile, and in the past has offered greater
potential for gain as well as loss than securities traded in developed
countries. It is possible that certain investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations." The
Fund may choose to invest in foreign debt securities when it appears that the
capital appreciation available from investments in such securities will equal or
exceed the capital appreciation from investments in equity securities. The
market value of debt securities varies inversely to changes in prevailing
interest rates, and investing in debt securities may provide an opportunity for
capital appreciation when interest rates are expected to decline. With respect
to debt securities, the Fund will invest in investment grade obligations and
non-rated obligations of comparable quality. There is no particular proportion
of stocks, bonds or other securities that the Fund is required to maintain. The
Fund intends to select the countries, currencies, and companies providing the
greatest potential for long-term growth.
----------
LEXINGTON RAMIREZ GLOBAL INCOME FUND
The investment objective of the Lexington Ramirez Global Income Fund is to
seek high current income. The Fund invests primarily in a combination of foreign
and domestic high yield, lower rated or unrated debt securities. The
appreciation of capital is a secondary objective. Under normal conditions its
investments will consist of debt securities issued by U.S. and foreign
government agencies and instrumentalities, and debt securities issued by U.S.
companies, companies in developed markets and companies in emerging markets,
including debt securities issued by central banks, commercial banks, and other
corporate entities. Debt securities investments consist of bonds, notes,
debentures and other similar instruments.
The Fund will invest primarily in foreign debt securities whose credit
quality is generally considered equal to U.S. corporate debt securities known as
"junk bonds". It may invest up to 100% of its total assets in domestic and
foreign debt securities that are rated below investment grade, and may also
invest in securities that are in default as to payment of principal and/or
interest. Junk bonds and similarly rated foreign debt securities involve a high
22
<PAGE>
degree of risk and are predominately speculative. The Fund may also invest in
bank loan participations and assignments and other securities (See "Portfolio
Securities", "Investment Practices" and "Risk Considerations"). The Fund's
investments in emerging markets will consist primarily of foreign "junk bonds",
"Brady Bonds", and sovereign debt securities issued by emerging market
governments. The Fund may invest in debt securities of emerging market issuers
without regard to ratings. Many emerging market debt securities are not rated by
United States rating agencies, and are considered to have a credit quality below
investment grade. The Fund's ability to achieve its investment objective is thus
more dependent on the Manager's credit analysis than would be the case if the
Fund were to invest in higher quality bonds. Currently, most emerging market
debt securities are considered to have a credit quality below investment grade.
----------
LEXINGTON TROIKA DIALOG RUSSIA FUND
The investment objective of the Lexington Troika Dialog Russia Fund is to
seek long-term capital appreciation through investment primarily in equity
securities of Russian companies. Under normal conditions, the Fund seeks to
achieve its objective by investing at least 65% of its total assets in equity
securities of Russian Companies. The Fund may invest the remaining 35% of its
total assets in a similar manner, but may invest those assets in debt securities
issued by Russian Companies, debt securities issued or guaranteed by the Russian
Government or a Russian governmental entity, debt securities of corporate and
government issuers outside Russia, short-term or medium-term debt securities, as
well as equity securities of issuers outside Russia which the Fund believes will
experience growth in revenue and profits from participation in the development
of the economies of the Commonwealth of Independent States. The securities in
which the Fund may invest include common stock equivalents (see "Portfolio
Securities" and "Other Investment Practices").
The Fund intends to invest its assets in Russian Companies in a broad array
of industries, including oil and gas, energy generation and distribution,
communications, mineral extraction, trade, financial and business services,
transportation, manufacturing, real estate, textiles, food processing, and
construction. The Fund is not permitted to invest more than 25% of the value of
its total assets in any one industry, except that it may invest an unrestricted
amount of its assets in the oil and gas industry. The Fund's investments will
include investments in Russian Companies that have characteristics and business
relationships common to companies outside of Russia, and as a result, outside
economic forces may cause fluctuations in the value of securities held by the
Fund. Under current conditions, the Fund
23
<PAGE>
expects to invest at least 15% of its total assets in very liquid assets to
maintain liquidity and provide stability, however, as the Russian equity markets
develop and the liquidity of Russian securities becomes less of a concern, the
Fund may increase the percentage of its assets invested in Russian equity
securities (also see "Risk Considerations Concentration in Securities of Russian
Companies"; "Risk Considerations - Settlement and Custody").
----------
LEXINGTON WORLDWIDE EMERGING MARKETS FUND
The investment objective of the Lexington Worldwide Emerging Markets Fund
is to seek long-term growth of capital through investment in equity securities
and equivalents of emerging markets companies. The Fund will invest at least 65%
of its total assets according to this objective. In the opinion of the Manager,
emerging market countries include, but are not limited to, the following: (Asia)
Bahrain, Bangladesh, China, Hong Kong, India, Indonesia, Israel, Jordan,
Lebanon, Malaysia, Oman, Pakistan, the Philippines, Singapore, South Korea, Sri
Lanka, Taiwan, Thailand and Turkey; (Europe) Cyprus, Czech Republic, Estonia,
Finland, Greece, Hungary, Poland, Portugal and Russia; (Africa) Algeria,
Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco, Namibia,
Nigeria, South Africa, Swaziland, Tunisia, Zambia and Zimbabwe; and (Latin
America including the Caribbean) Argentina, Bolivia, Brazil, Chile, Colombia,
Jamaica, Mexico, Nicaragua, Panama, Peru, Venezuela and Trinidad and Tobago).
The Manager considers an emerging markets company to be any company domiciled in
an emerging country, or any company that derives 50% or more of its total
revenue from either goods or services produced or sold in emerging countries.
Under normal conditions, the Fund maintains investments in at least three
countries outside the United States.
The Fund generally invests the remaining 35% of its assets in a similar
manner, but may invest in equity securities without regard to whether they
qualify as emerging country or emerging market securities, debt securities
denominated in the currency of an emerging market or issued or guaranteed by an
emerging market company or the government of an emerging country, short-term or
medium-term debt securities or other securities (see "Portfolio Securities" and
"Other Investment Practices"). (Also see "Risk Considerations").
----------
LEXINGTON GROWTH AND INCOME FUND
The principal investment objective of Lexington Growth and Income Fund is
long-term capital appreciation. Income is a secondary objective. The
24
<PAGE>
Fund will invest at least 65% of its total assets in common stocks of U.S.
companies, which may include senior securities convertible into shares of common
stock. The Fund seeks to achieve its objective over the long-term through
investment in the stocks of large, ably managed and well financed companies.
Income is a secondary objective. The Fund generally invests the remaining 35% of
its total assets in a similar manner, but may invest those assets in foreign
securities, depository receipts, or other types of investments (see "Portfolio
Securities").
----------
LEXINGTON SMALLCAP FUND
The investment objective of the Lexington SmallCap Fund is long-term
capital appreciation. Under normal conditions, it seeks to achieve its objective
by investing in equity securities and equivalents of domestic companies having
market capitalizations under $1 billion. The Fund will invest at least 90% of
its assets in domestic companies having market capitalizations between $20
million and $1 billion at the time of investment. The Fund may invest the
remaining 10% of its total assets in a similar manner, or in securities of
companies with market capitalizations below $20 million, above $1 billion,
foreign companies with dollar denominated shares traded in the United States,
American Depository Shares or Receipts, real estate investment trusts and cash.
The Fund will invest primarily in the equity securities of U.S.
companies listed on stock exchanges or traded over-the- counter.
In selecting investments for the Fund, the Manager and Sub-Adviser have
established a universe of small capitalization stocks that are screened using
the Sub-Adviser's proprietary stock selectivity model. Once the stocks are
evaluated and ranked by expected future relative price performance, the Adviser
and Sub-Adviser establish both sector and diversification allocations in
building the portfolio. In addition, the quality of the company and the
risk/reward prospects for each security is reviewed and analyzed. This approach
takes into account both value and growth stocks rather than being limited to
only a value criteria. The Manager and Sub-Adviser believe that this
multi-faceted process will enhance investment performance and will improve the
consistency of portfolio results over time. The Manager and Sub-Adviser can
change the proportion of the Fund's assets that are invested in particular
companies and industries based on its evaluation of the outlook for specific
industries and companies and the economy.
LEXINGTON GOLDFUND, INC.
The Lexington Goldfund's principal investment objective is to attain
capital appreciation and such hedge against loss of buying power as may be
25
<PAGE>
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 Fund will be invested in gold
and the securities of companies engaged in mining or processing gold
("gold-related securities"). The Fund may also invest in other precious metals,
including platinum, palladium and silver. The Fund intends to invest less than
half of the value of its assets in gold and other precious metals and more than
half of the value of its assets in gold-related securities, including securities
of foreign issuers.
The Fund is designed to provide investors with a means to protect against
declines in the value of the U.S. dollar against world currencies. To the extent
that the Fund's investments in gold-related securities appreciate in value
relative to the U.S. dollar, the Fund's investments may serve to offset declines
in the buying power of the U.S. dollar. Management believes that, over the long
term, investing in gold will protect capital from adverse monetary and political
developments. Investments in gold may provide more of a hedge against a decline
in the buying power of the dollar, devaluation and inflation than other types of
investments. The value of gold-related debt securities, however, will generally
not react to fluctuations in the price of gold. The market value of debt
securities of companies engaged in mining or processing gold can be expected to
fluctuate inversely with prevailing interest rates.
LEXINGTON GNMA INCOME FUND, INC.
The investment objective of the Lexington GNMA Income Fund is to seek a
high level of current income, consistent with liquidity and safety of principal.
Under normal market conditions, the Fund will invest at least 80% of the value
of its total assets in Government National Mortgage Association ("GNMA")
mortgage-backed securities (also known as "GNMA Certificates"). GNMA
Certificates represent part ownership of a pool of mortgage loans. The timely
payment of interest and principal on each certificate is guaranteed by the full
faith and credit of the United States Government. The principal on GNMA
Certificates is scheduled to be paid back by the borrower over the length of the
loan. The remaining assets of the Fund will be invested in other securities
issued or guaranteed by the U.S. Government, including U.S.
Treasury securities.
The Fund will purchase "modified pass through" type GNMA Certificates.
"Modified pass through" GNMA Certificates entitle the holder to receive all
interest and principal payments owed by the borrower even if the borrower has
not made payment. The Fund intends to use the proceeds from principal payments
to purchase additional GNMA Certificates or other U.S. Government guaranteed
securities.
----------
26
<PAGE>
LEXINGTON MONEY MARKET TRUST
The investment objective of the Lexington Money Market Trust is to seek as
high a level of current income as is consistent with the preservation of capital
and liquidity by investing in short-term money market instruments. The following
are the money market instruments in which the Lexington Money Market Trust will
invest: U.S. Government securities, time deposits, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements and other money
market instruments. The Lexington Money Market Trust seeks to maintain a stable
net asset value of $1 per share.
The Lexington Money Market Trust will invest in money market instruments
that have been rated in one of the two highest rating categories by both S&P and
Moody's, both major rating agencies. A "Tier 1" security is one that has been
rated by either S&P or Moody's in the highest rating category, or, if unrated,
is of comparable quality. A "Tier 2" security is one that has been rated in the
second highest category by either S&P or Moody's, or, if unrated, is of
comparable quality. Up to 5% of the total assets of the Lexington Money Market
Trust may be invested in a single Tier 1 security (other than U.S. Government
securities). In addition, the Lexington Money Market Trust may not invest more
than 5% of its total assets in Tier 2 securities, and may not invest more than
1% of its total assets in any single Tier 2 security.
The Lexington Money Market Trust may only invest in money market
instruments with a remaining maturity of 397 days or less, provided that the
Fund's average weighted maturity does not exceed 90 days.
PORTFOLIO SECURITIES
EQUITY SECURITIES
The Lexington Goldfund, Lexington Global Corporate Leaders Fund, Lexington
Growth and Income Fund, Lexington Crosby Small Cap Asia Growth Fund, Lexington
International Fund, Lexington SmallCap Fund, Lexington Troika Dialog Russia Fund
and Lexington Worldwide Emerging Markets Fund invest in common stocks and some
of the funds may invest in common stock equivalents (see chart). The following
constitute common stock equivalents: warrants, options and convertible debt
securities, ADRs, GDRs and EDRs. Common stock equivalents may be converted into
or provide the holder with the right to common stock. These funds may also
invest in other types of equity securities, including preferred stocks, and
equity derivative securities.
DEBT SECURITIES
The Lexington Ramirez Global Income Fund will invest primarily in debt
securities and the Lexington GNMA Income Fund will have substantially all of its
assets invested in GNMA Certificates and U.S. Government securities.
27
<PAGE>
The Lexington Goldfund, Lexington International Fund, Lexington Troika
Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund may invest
primarily in debt securities when the Manager believes that debt securities will
provide capital appreciation through favorable changes in relative foreign
exchange rates, in relative interest rate levels or in the creditworthiness of
issuers.
The Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging
Markets Fund may, under normal conditions, invest up to 35% of their total
assets in Short-Term and Medium-Term Debt Securities. The Short-Term and
Medium-Term Debt Securities in which the Funds may invest are foreign and
domestic debt securities, including short-term (less than twelve months to
maturity) and medium-term (not greater than five years to maturity) obligations
issued by the U.S. Government, foreign governments, foreign and domestic
corporations and banks, and repurchase agreements.
JUNK BONDS. The Lexington Ramirez Global Income Fund, and Lexington Troika
Dialog Russia Fund may invest in high yield, lower rated debt securities known
as "junk bonds." Junk bonds are debt obligations rated below investment grade
and non-rated securities of comparable quality. Junk bonds are considered
speculative and thus pose a greater risk of default than investment grade
securities. Investments of this type are subject to greater risk of loss of
principal and interest, but in general provide higher yields than higher rated
debt obligations. Bonds issued by companies domiciled in emerging markets are
usually rated below investment grade. The Lexington Ramirez Global Income Fund
may invest in securities that are in default as to payment of principal and/or
interest. Debt securities purchased by Lexington Crosby Small Cap Asia Growth
Fund, Lexington International Fund and Lexington Worldwide Emerging Markets Fund
must be of investment grade quality or comparable thereto.
ZERO COUPON BONDS. The Lexington Ramirez Global Income Fund may invest in
zero coupon bonds. Zero coupon bond prices are highly sensitive to changes in
market interest rates. The original issue discount on the zero coupon bonds must
be included ratably in the income of the Lexington Ramirez Global Income Fund as
the income accrues even though payment has not been received. The Lexington
Ramirez Global Income Fund nevertheless intends to distribute an amount of cash
equal to the currently accrued original issue discount, and this may require
liquidating securities at times they might not otherwise do so and may result in
capital loss. See "Tax Information" in the Statement of Additional Information.
LOAN PARTICIPATION AND ASSIGNMENTS. The Lexington Ramirez Global Income
Fund may invest in loans arranged through private negotiations between a foreign
entity and one or more lenders. The majority of the Lexington Ramirez Global
Income Fund's investments in loans in emerging
28
<PAGE>
markets is expected to be in the form of participation in loans
("Participations") and assignments of portions of loans from third parties
("Assignments"). Participations typically will result in the Lexington Ramirez
Global Income Fund having a contractual relationship only with the Lender, not
with the borrower. The Lexington Ramirez Global Income Fund will have the right
to receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. As a result, the Lexington Ramirez
Global Income Fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation. When the Lexington Ramirez Global
Income Fund purchases Assignments from Lenders, the Lexington Ramirez Global
Income Fund will acquire direct rights against the borrower on the Loan. The
Lexington Ramirez Global Income Fund may have difficulty disposing of
Assignments and Participations. The liquidity of such securities is limited and
the Lexington Ramirez Global Income Fund anticipates that such securities could
be sold only to a limited number of institutional investors. The lack of a
liquid secondary market could have an adverse impact on the value of such
securities.
BRADY BONDS. The Lexington Ramirez Global Income Fund may invest in "Brady
Bonds". Brady Bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with a debt restructuring plan introduced by former
U.S. Secretary of the Treasury, Nicholas F. Brady. Fund investors should
recognize that BradyBonds have been issued only recently and, accordingly, do
not have a long payment history.
DEPOSITORY RECEIPTS
Each Lexington Fund (except Lexington Money Market Trust and Lexington GNMA
Income Fund) may invest in American Depository Receipts ("ADRs") and similar
securities. ADRs are securities traded in the U.S. that are backed by securities
of foreign issuers.
INVESTMENT COMPANIES
Each Lexington Fund (except the Lexington Money Market Trust) may invest up
to 10% of its total assets in shares of other investment companies that invest
in securities which the Funds may otherwise invest.
U.S. GOVERNMENT SECURITIES
All Lexington Funds may invest in fixed-rate and floating- or variable-rate
U.S. government securities. The U.S. government guarantees the timely payment of
interest and principal of U.S. Treasury bills, notes and bonds, mortgage-related
securities of the GNMA, and other securities issued by the U.S. government.
Other securities issued by U.S. government agencies or
29
<PAGE>
instrumentalities are supported only by the credit of the agency or
instrumentality, for example those issued by the Federal Home Loan Bank, whereas
others, such as those issued by the FNMA, Farm Credit System and Student Loan
Marketing Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. government securities generally are considered to be among
the safest short-term investments. However, the U.S. government does not
guarantee the net asset value of the Funds' shares. With respect to U.S.
government securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. government will provide support to such agencies
or instrumentalities. Accordingly, such U.S. government securities may involve
risk of loss of principal and interest.
The following table illustrates investments that the Funds primarily invest
in or are permitted to invest in, as indicated in dark shade. The light shade
indicates that the Fund's policy may permit such investments within limits.
30
<PAGE>
PORTFOLIO SECURITIES
DARK SHADE:
Fund invests primarily in these types of investments, or Fund's policy
permits such investments.
[DARK SHADE represented in EDGAR format by X]
LIGHT SHADE:
Within limits, Fund's policy may permit such investments.
[LIGHT SHADE represented in EDGAR format by O]
</TABLE>
<TABLE>
<CAPTION>
Lexington
Crosby Lexington Lexington Lexington Lexington Lexington
Small Cap Global Ramirez Troika Worldwide Growth
Asia Corporate Lexington Global Dialog Emerging and
Growth Leaders International Income Russia Markets Income
TYPE OF PORTFOLIO SECURITY Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Common Stocks X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants) 0 0 O 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options) 0 0 0 0* 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Convertible Debt Securities) 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Depository Receipts) 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Derivative Securities 0 0 0 0* 0
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Below Investment
Grade) or (Junk Bonds) X 0
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds) X
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities
(Loan Participation and Assignments) 0
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates)
- ------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities) 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Bullion
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Lexington *Lexington
Lexington GNMA Money
SmallCap Lexington Income Market
TYPE OF PORTFOLIO SECURITY Fund Goldfund Fund Trust
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stocks X X
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants) 0 0
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options) 0
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Convertible Debt Securities) 0 0
- ------------------------------------------------------------------------------------------------
Common Stock Equivalents
(Depository Receipts) 0 0
- ------------------------------------------------------------------------------------------------
Preferred Stocks 0 0
- ------------------------------------------------------------------------------------------------
Equity Derivative Securities 0
- ------------------------------------------------------------------------------------------------
Debt Securities (Below Investment
Grade) or (Junk Bonds) 0
- ------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds)
- ------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon)
- ------------------------------------------------------------------------------------------------
Debt Securities
(Loan Participation and Assignments)
- ------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates) X
- ------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities) 0 0 0
- ------------------------------------------------------------------------------------------------
Gold Bullion 0
- ------------------------------------------------------------------------------------------------
</TABLE>
* NOTES: LEXINGTON RAMIREZ GLOBAL INCOME FUND MAY INVEST IN OPTIONS AND
DERIVATIVES WITH RESPECT TO DEBT SECURITIES, NOT EQUITY SECURITIES. LEXINGTON
MONEY MARKET TRUST IS NOT PERMITTED TO PURCHASE ANY OF THE PORTFOLIO SECURITIES
IDENTIFIED IN THIS TABLE, AND MAY ONLY INVEST IN SHORT-TERM SECURITIES SUCH AS
COMMERCIAL PAPER, SHORT-TERM GOVERNMENT SECURITIES, BANKER'S ACCEPTANCES OR
OTHER MONEY MARKET INSTRUMENTS.
31
<PAGE>
OTHER INVESTMENT PRACTICES
The following table and sections summarize certain investment practices
that the Funds are permitted to engage in. These practices may involve risks.
The Glossary section at the end of this Prospectus briefly describes each of the
investment techniques summarized below. The Statement of Additional Information,
under the heading "Investment Objectives and Policies of the Funds," contains
more detailed information about certain of these practices.
<TABLE>
<CAPTION>
Lexington
Crosby Lexington Lexington Lexington Lexington Lexington
Small Cap Global Ramirez Troika Worldwide Growth
Asia Corporate Lexington Global Dialog Emerging and Lexington
Growth Leaders International Income Russia Markets Income SmallCap
Fund Fund Fund Fund Fund Fund Fund Fund
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Repurchase agreements(1) X X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X X X X X
one-third of total fund assets
for leveraging purposes
- -----------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement X X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions X
- -----------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed X X X X X X
one-third of total fund assets
- -----------------------------------------------------------------------------------------------------------------------------------
When-issued and forward X X X X X X
commitment securities
- -----------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2) X X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies(3) X X
- -----------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities X X
and indices(3)
- -----------------------------------------------------------------------------------------------------------------------------------
Write covered call options(3) X X X X X
- -----------------------------------------------------------------------------------------------------------------------------------
Write covered put options(3) X X
- -----------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts(4) X X
- -----------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options X X X X X X
on futures(4)
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X
5% of fund's net assets
- -----------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X X X X X X
15% of fund's net assets
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Lexington Lexington
GNMA Money
Lexington Income Market
Goldfund Fund Trust
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Repurchase agreements(1) X X X
- --------------------------------------------------------------------------
Borrowing not to exceed X
one-third of total fund assets
for leveraging purposes
- --------------------------------------------------------------------------
Reverse repurchase agreement X
- --------------------------------------------------------------------------
Dollar roll transactions
- --------------------------------------------------------------------------
Securities lending not to exceed X X
one-third of total fund assets
- --------------------------------------------------------------------------
When-issued and forward X X
commitment securities
- --------------------------------------------------------------------------
Forward currency contracts(2) X
- --------------------------------------------------------------------------
Purchase options on securities
and currencies(3)
- --------------------------------------------------------------------------
Purchase options on securities
and indices(3)
- --------------------------------------------------------------------------
Write covered call options(3)
- --------------------------------------------------------------------------
Write covered put options(3)
- --------------------------------------------------------------------------
Interest rate futures contracts(4)
- --------------------------------------------------------------------------
Futures and swaps and options X
on futures(4)
- --------------------------------------------------------------------------
Illiquid securities limited to
5% of fund's net assets
- --------------------------------------------------------------------------
Illiquid securities limited to X
15% of fund's net assets
- --------------------------------------------------------------------------
</TABLE>
32
<PAGE>
1 Under the Investment Company Act, repurchase agreements are considered to be
loans by a fund and must be fully collateralized by collateral assets. If the
seller defaults on its obligations to repurchase the underlying security, a
fund may experience delay or difficulty in exercising it rights to realize
upon the security, may incur a loss if the value of the security declines and
may incur disposition costs in liquidating the security.
2 A fund that may enter into forward currency contracts may not do so with
respect to more than 70% of its total assets.
3 A fund will not enter into options on securities, securities indices or
currencies or related options (including options on futures) if the sum of
initial margin deposits and premiums paid for any such option or options
would exceed 5% of its total assets, and it will not enter into options with
respect to more than 25% of its total assets.
4 A Fund may purchase and sell futures contracts and related options under the
following conditions: (a) the then-current aggregate futures market prices of
financial instruments required to be delivered and purchased under open
futures contracts shall not exceed 30% of the Fund's total assets, at market
value; and (b) no more than 5% of the assets, at market value at the time of
entering into a contract, shall be committed to margin deposits in relation
to futures contracts.
BORROWING FOR TEMPORARY OR EMERGENCY PURPOSES
For temporary or emergency purposes, Lexington Growth and Income Fund may
borrow up to 10% of its total assets. Lexington Money Market Trust may borrow up
to one-third of its total assets; Lexington GNMAIncome Fund may not borrow
money, and the remaining Lexington Funds may borrow up to 5% of their total
assets. For leveraging purposes, some Lexington Funds (see Chart)may borrow up
to one-third of their total assets.
DEFENSIVE INVESTMENTS AND PORTFOLIO TURNOVER
Each Lexington Fund may invest up to 100% of its total assets in cash or
high-quality debt obligations for temporary defensive purposes.
The "portfolio turnover rate" is the frequency a Fund buys and sells
securities. Frequent transactions involve added expense. All Funds except
Lexington Goldfund and Lexington SmallCap Fund expect a portfolio turnover rate
of greater than 100%.
HEDGING AND RISK MANAGEMENT PRACTICES
The Lexington Funds (other than the Lexington Money Market Trust) may
"hedge" against changes in financial markets, currency rates and interest rates.
A typical hedge is designed to offset a decline that could hurt the value of the
Fund's securities. The Lexington Funds may hedge with "derivatives." Derivatives
are instruments whose value is linked to, or derived from, another instrument,
like an index or a commodity. Some Lexington Funds (see chart) may invest in
options and futures contracts.
33
<PAGE>
Hedging transactions involve certain risks. Although a Fund may benefit
from hedging, unanticipated changes in interest rates or securities prices may
result in greater losses for a Fund than if it did not hedge. If a Fund does not
correctly predict a hedge, it may lose money. In addition, a Fund pays
commissions and other costs in connection with such investments. Hedging
transactions may not exist is some countries.
INVESTMENT RESTRICTIONS
The investment objective of each Lexington Fund is fundamental and may not
be changed without shareholder approval but, unless otherwise stated, each
Fund's other investment policies may be changed by its Board. If a Fund changes
its investment objective or policies, you should consider whether that Fund is
right for you. The Lexington Funds are subject to additional investment policies
and restrictions described in the Statement of Additional Information, some of
which are fundamental.
RISK CONSIDERATIONS
SMALL COMPANIES
The Lexington Crosby Small Cap Asia Growth Fund and Lexington SmallCap Fund
emphasize investments in smaller companies that may benefit from the development
of new products and services. Such smaller companies may present greater
opportunities for capital appreciation but may involve greater risk than larger,
more mature issuers. Such smaller companies may have limited product lines,
markets or financial resources, and their securities may trade less frequently
and in more limited volume than those of larger, more mature companies. As a
result, the prices of their securities may fluctuate more than those of larger
issuers.
Many companies traded on securities markets in many foreign countries are
smaller, newer and less seasoned than companies whose securities are traded on
securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets and with respect to such companies,
which may contribute to increased volatility and reduced liquidity of such
markets or such securities. Accordingly, each of these markets and companies may
be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. To the extent that any of these countries
experiences rapid increases in its money
34
<PAGE>
supply and investment in equity securities for speculative purposes, the equity
securities traded in any such country may trade at price-earning multiples
higher than those of comparable companies trading on securities markets in the
United States, which may not be sustainable. In addition, risks due to the lack
of modern technology, the lack of a sufficient capital base to expand business
operations, the possibility of permanent or temporary termination of trading,
and greater spreads between bid and ask prices may exist in such markets.
FOREIGN SECURITIES
The Lexington Crosby Small Cap Asia Growth Fund, Lexington Goldfund,
Lexington Growth and Income Fund, Lexington International Fund, Lexington
Ramirez Global Income Fund, Lexington Troika Dialog Russia Fund and Lexington
Worldwide Emerging Markets Fund have the right to purchase securities in foreign
countries. Accordingly, shareholders should consider carefully the substantial
risks involved in investing in securities issued by companies and governments of
foreign nations, which are in addition to the usual risks of loss inherent in
domestic investments. The Lexington Crosby Small Cap Asia Growth Fund, Lexington
Global Corporate Leaders Fund, Lexington International Fund, Lexington Ramirez
Global Income Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide
Emerging Markets Fund, may invest in securities of companies domiciled in, and
in markets of, so-called emerging market countries. These investments may be
subject to higher risks than investments in more developed countries.
Foreign investments involve the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends) or
other taxes imposed with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country and repatriation of investments), default in
foreign government securities, and political or social instability or diplomatic
developments that could adversely affect investments. In addition, there is
often less publicly available information about foreign issuers than those in
the U.S. Foreign companies are often not subject to uniform accounting, auditing
and financial reporting standards. Further, these funds may encounter
difficulties in pursuing legal remedies or in obtaining judgments in foreign
courts. Additional risk factors, including use of domestic and foreign custodian
banks and depositories, are described elsewhere in this Prospectus and in the
Statement of Additional Information.
Brokerage commissions, fees for custodial services and other costs relating
to investments in other countries are generally greater than in the
35
<PAGE>
U.S. Foreign markets have different clearance and settlement procedures from
those in the U.S., and certain markets have experienced times when settlements
did not keep pace with the volume of securities transactions. The inability of a
fund to make intended security purchases due to settlement difficulties could
cause it to miss attractive investment opportunities. Inability to sell a
portfolio security due to settlement problems could result in loss to the fund
if the value of the portfolio security declined or result in claims against the
fund. In certain countries, there is less government supervision and regulation
of business and industry practices, stock exchanges, brokers, and listed
companies than in the U.S. The securities markets of many of the countries in
which these funds may invest may also be smaller, less liquid, and subject to
greater price volatility than those in the U.S.
Because certain foreign securities may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of a fund's securities denominated in the currency. Such
changes also affect the fund's income and distributions to shareholders. A fund
may be affected either favorably or unfavorably by changes in the relative rates
of exchange between the currencies of different nations, and a fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which one of these funds may invest also may have fixed
or managed currencies that are not freely convertible at market rates into the
U.S. dollar. Certain currencies may not be internationally traded. A number of
these currencies have experienced steady devaluation relative to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact on
the fund. Many countries in which a fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the fund. The fund may pay a "foreign
premium" to
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establish an investment position which it cannot later recoup because of changes
in that country's foreign investment laws.
LOWER-QUALITY DEBT
The Lexington Troika Dialog Russia Fund, Lexington Goldfund, Inc. and
Lexington Ramirez Global Income Fund are authorized to invest high-yield,
lower-rated debt securities commonly referred to as "junk bonds." Lower-rated
debt securities are considered highly speculative and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than with higher-grade debt securities.
CONCENTRATION IN SECURITIES OF RUSSIAN COMPANIES
The Lexington Troika Dialog Russia Fund concentrates its investment in
companies that have their principal activities in Russia. Consequently, the
Lexington Troika Dialog Russia Fund's share value may be more volatile than that
of investment companies not sharing this geographic concentration. Since the
breakup of the Soviet Union at the end of 1991, Russia has experienced dramatic
political and social change. The political system in Russia is emerging from a
long history of extensive state involvement in economic affairs. The country is
undergoing a rapid transition from a centrally-controlled command system to a
market-oriented, democratic model. The Lexington Troika Dialog Russia Fund may
be affected unfavorably by political or diplomatic developments, social
instability, changes in government policies, taxation and interest rates,
currency repatriation restrictions and other political and economic developments
in the law or regulations in Russia and, in particular, the risks of
expropriation, nationalization and confiscation of assets and changes in
legislation relating to foreign ownership. See "Russia" and "Russian Company" in
the Glossary.
The Russian securities markets are substantially smaller, less liquid and
significantly more volatile than the securities markets in the United States. In
addition, there is little historical data on these securities markets because
they are of recent origin. A substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges and
over-the-counter markets. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Some issuers may be exposed to center-regional conflicts in jurisdiction in the
areas of taxation and overall corporate governance which could put the Fund's
investments at risk. In addition, because the Russian securities markets are
smaller and less liquid than in the United States, obtaining prices on portfolio
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securities from independent sources may be more difficult than in other markets.
The political environment in Russia in 1998 is more stable than in 1993 and
earlier when clashes between reformers and reactionaries were continuous,
setting the stage for an attempted coup d'etat in October 1993. Nevertheless,
there is still a great deal of uncertainty surrounding the political future of
the country. The political system continues to be very dependent on one person
Boris Yeltsin, the President. His term ends in the year 2000 and there is a
great deal of uncertainty surrounding his successor as he has stated that he
will not run again. Compounding the uncertainty are relations between the
reformist government and the communist-led Duma which have at times been very
strained. The reform movement itself has been tarnished by allegations of
corruption and "cronyism" among the top reformers in the government and in the
reform process itself. Power sharing between the central government in Moscow
and the regional governments has been a subject of continuing and often heated
debate. If the political future begins to favor the conservative factions over
the reformers and relations between the Russian Federation and the West were to
deteriorate, foreign investment in Russia would likely be deterred. Continuing
tensions between the center and the regions could lead to attempts for
independence in some regions, as was the case in Chechnya.
The declining stature and funding of the military could have a negative
impact on Russia's political and economic future. Morale in the military is very
poor as significant gaps in living standards between the military and civilian
sectors continue to widen and as the perception grows that NATO continues to
expand while Russia's sphere of influence continues to contract. Current and
former military leaders are increasingly outspoken in their criticism of the
administration's handling of military affairs. Some are positioning themselves
as candidates for the presidency. All of these factors could lead to further
political unrest.
Moreover, it is uncertain whether Russia's reform process will continue.
Although the government has publicly pledged its continued support for the
reform process, allegations of corruption in the privatization process have
delayed scheduled actions. Revenues from privatization are a necessary source of
funding for the federal government. It is also unclear whether the reforms
intended to liberalize prevailing economic structures based on free market
principles will be successful. Foreign participation in privatization auctions
has been limited or prohibited in the past and the management of many companies
continue to favor majority shareholders over minority, including, foreign
shareholders and, in general may not be responsive to shareholders.
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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.
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.
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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 than those of their previous
investments. If this occurs, a fund's yield will decline correspondingly. Thus,
mortgage-related securities may have less potential for capital appreciation in
periods of falling interest rates than other fixed-income securities of
comparable duration, although they have a comparable risk of decline in market
value in periods of rising interest rates. To the extent that the Lexington GNMA
Income Fund purchases mortgage-related securities at a premium, unscheduled
prepayments, which are made at par, result in a loss equal to any unamortized
premium. Duration is one of the fundamental tools used by the Manager in
managing interest rate risks including prepayment risks. See "Duration" in the
Glossary.
NON-DIVERSIFIED PORTFOLIO. The Lexington Goldfund, Lexington Ramirez Global
Income Fund and Lexington Troika Dialog Russia Fund are "non-diversified"
investment companies under the Investment Company Act. This means that they are
not limited in the proportion of their total assets that may be invested in a
single company. They may invest a greater portion of their assets in fewer
companies than "diversified" funds, and thus may be subject to greater risk.
These Funds, however, intend to comply with the diversification requirements of
the federal tax law as necessary to qualify as regulated investment companies.
PRECIOUS METALS
The Lexington Goldfund may invest in gold bullion and other precious
metals. These precious metals investments earn no income return, unlike savings
deposits, bonds or even stocks which may produce interest or dividend income.
Transaction and storage costs may be higher than costs relating to the buying,
holding and selling of more traditional types of investments. An increase in the
market price of precious metals is the only way the Fund will be able to realize
a gain on these investments.
SETTLEMENT AND CUSTODY
The Funds that invest in foreign securities, especially the Lexington
Troika Dialog Russia Fund could be subject to risks not normally associated
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with U.S. investments because of newly developed securities markets and the
underdeveloped state of banking and telecommunications systems. Russia does not
have a central registration system, therefore ownership of shares is recorded by
the companies themselves and by registrars located throughout Russia. Although
these registrars may be inspected, it is possible that the Fund's ownership
rights could be lost through fraud, negligence or even mere oversight on behalf
the registrars, and the Fund could experience difficulty enforcing any rights
against the registrar or issuer in the event of loss of share registration. Due
to local postal and banking standards, there are risks that the payment of
dividends or other distributions could be delayed or lost. Russian banking
institutions and registrars are not guaranteed by the state.
In light of these risks, the Board of Directors of the Lexington Troika
Dialog Russia Fund has approved procedures whereby the Fund will not invest in
the securities of a Russian company unless that company's registrar has entered
into a contract with the Fund's Sub-Custodian Bank. This protective contract
gives the Sub-Custodian Bank the right to conduct regular share confirmations on
behalf of the Fund. These procedures also require the Sub-Custodian Bank to
provide certain information on a periodic basis to the Board of Directors
concerning the registration of shares and custody arrangements in Russia.
MANAGEMENT OF THE FUNDS
BOARD OF DIRECTORS/TRUSTEES
Each Lexington Fund has either a Board of Directors or a Board of Trustees
that establishes its policies and supervises and reviews its management.
Day-to-day operations of the Lexington Funds are administered by the officers of
the Lexington Funds and by the Manager and Sub-Advisers pursuant to the terms of
an investment management agreement with each fund and investment sub-advisory
agreements between the Manager and the Sub-Advisers.
BOARD OF ADVISERS
With respect to the Lexington Troika Dialog Russia Fund, the Manager and
the Fund's Board of Directors will receive oversight assistance from a Board of
Advisers which will be composed of experts in Russian political and economic
affairs. The Board of Advisers will be responsible for providing the Manager and
the Fund's Board of Directors with periodic updates on political and
macroeconomic conditions and trends in Russia, and their potential implication
for the overall investment environment in Russia. This will enhance the ability
of the Manager and the Fund's Board of Directors to oversee and safeguard the
assets of the Lexington Troika Dialog Russia Fund.
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The members of the Board of Advisers currently are:Keith Bush, Senior
Associate-Russian and Eurasian Studies at the Center for Strategic and
International Studies;and Marin J. Strmecki, Ph.D., Director of Programs for the
Smith Richardson Foundation. See Statement of Additional Information for further
information on the Board of Advisers.
INVESTMENT ADVISER
Lexington Management Corporation is the Manager of the Lexington Funds. The
Manager was established in 1938 and is an investment adviser registered as such
with the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended. The Manager advises private clients as well as the Lexington
Funds. The Manager is a wholly-owned subsidiary of Lexington Global Asset
Managers, Inc., a Delaware corporation. Descendants of Lunsford Richardson, Sr.,
their spouses, trusts and other related entities have a controlling interest in
Lexington Global Asset Managers, Inc.
(NASDAQSymbol:LGAM).
THE SUB-ADVISERS
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND
The Manager has entered into a Sub-Advisory Agreement with Crosby Asset
Management (US) Inc. ("Crosby"). Under the Sub-Advisory Agreement, Crosby will
provide the Lexington Crosby Small Cap Asia Growth Fund with investment
management services. Crosby was established on October 4, 1990 in the British
Virgin Islands. Crosby manages assets and provides investment advice for
investment company and institutional private accounts around the world. It is a
subsidiary of the Crosby Group, Hong Kong.
LEXINGTON RAMIREZ GLOBAL INCOME FUND
The Manager has entered into a Sub-Advisory Agreement with MFR Advisors,
Inc. ("MFR"). Under the Sub-Advisory Agreement, MFR will provide the Lexington
Ramirez Global Income Fund with investment and economic research services. MFR
manages assets for both investment companies and institutions. MFR is a
subsidiary of Maria Fiorini Ramirez, Inc.
LEXINGTON SMALLCAP FUND
The Manager has entered into a Sub-Advisory Agreement with Market Systems
Research Advisors, Inc. ("MSR Advisors"). Under the Sub-Advisory Agreement, MSR
Advisors will provide the Lexington SmallCap Fund with investment advice and
management of the Fund's investment program.
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LEXINGTON TROIKA DIALOG RUSSIA FUND
The Manager has entered into a Sub-Advisory Agreement with Troika Dialog
Asset Management ("TDAM"). Under the Sub-Advisory Agreement, TDAM will provide
the Lexington Troika Dialog Russia Fund with investment advice and management of
the Fund's investment program. TDAM is a majority owned subsidiary of The Bank
of Moscow.
REGISTERED SERVICE MARK
The Manager as owner of the registered service mark "Lexington" will
sublicense the Funds to include the word "Lexington" as part of their names
subject to revocation by the Manager in the event that the Funds cease to engage
the Manager or its affiliates as investment manager or distributor. Crosby has
authorized the Lexington Crosby Small Cap Asia Growth Fund to include the word
"Crosby" as part of its corporate name subject to revocation by Crosby in the
event the Lexington Crosby Small Cap Asia Growth Fund ceases to engage Crosby as
Sub-Adviser. In that event the Funds will be required upon demand of the Manager
(or with regard to the Lexington Crosby Small Cap Asia Growth Fund, Crosby) to
change their respective names to delete the word "Lexington" (or with regard to
the Lexington Crosby Small Cap Asia Growth Fund, "Crosby") therefrom.
PORTFOLIO MANAGERS
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND
CHRISTINA LAM is a lead manager (Simon C.N. Thompson is the other lead
manager) on a portfolio management team that manages the Lexington Crosby Small
Cap Asia Growth Fund. Ms. Lam is Vice President and Portfolio Manager of the
Lexington Crosby Small Cap Asia Growth Fund. Ms. Lam joined Crosby Asset
Management in 1991. She is responsible for the investment management of the
listed equity portfolios under the management of Crosby Asset Management which
include a major Asian small capitalization account. After graduating with a Law
Degree with Honors from Warwick University, she qualified as a Barrister from
Lincoln's Inn in London. She moved to Hong Kong in 1987 where she joined
Schroder Securities Limited in Hong Kong as an investment analyst, where her
coverage included the utilities, industrials and retail sectors and
conglomerates.
SIMON C.N. THOMPSON is a lead manager (Ms. Lam is the other lead manager)
on a portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Mr. Thompson is Vice President and Portfolio Manager of the
Lexington Crosby Small Cap Asia Growth Fund. Mr. Thompson is responsible for the
Fund's overall investment strategy. Mr. Thompson was appointed a Director and
Chief Portfolio Investment
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Strategist of Crosby Asset Management in 1993. From 1988 to 1996 he was
President and Chief Executive Officer of Crosby Securities, Inc. New York. Prior
to 1980 he was an International Portfolio Manager with Phillip's and Drew (UBS).
He is currently the Portfolio Director for other investment funds advised by
Crosby Asset Management.
LEXINGTON GLOBAL CORPORATE LEADERS FUND, INC.
RICHARD T. SALER is part of an investment management team that manages the
Lexington Global Corporate Leaders Fund, Inc. 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 twelve 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, CFA is part of an investment management team that
manages the Lexington Global Corporate Leaders Fund, Inc. Mr. Schwartz is a Vice
President of the Manager, Chartered Financial Analyst and member of the New York
Society of Security Analysts. He is responsible for international investment
analysis and portfolio management at the Manager, and has nine years investment
experience. Prior to joining Lexington in 1993, Mr. Schwartz was Vice President
of European Research Sales with Cheuvreux De Virieu in Paris and New York,
serving the institutional market. Prior to Cheuvreux, he was affiliated with
Olde and Co. and Kidder, Peabody as a stockbroker. Mr. Schwartz earned his B.A.
and M.A. degrees from Boston University.
ALAN H. WAPNICK is part of an investment management team that manages the
Lexington Global Corporate Leaders Fund, Inc. Mr. Wapnick is Senior Vice
President, Director of Domestic Investment Equity Strategy of the Manager. Mr.
Wapnick is responsible for domestic investment analysis and portfolio management
at LMC. He has 27 years investment experience. Prior to joining the Manager in
1986, Mr. Wapnick was an equity analyst with Merrill Lynch, J.&W. Seligman, Dean
Witter and most recently Union Carbide Corporation. Mr. Wapnick is a graduate of
Dartmouth College and received a Master's Degree in Business Administration from
Columbia University.
LEXINGTON 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
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gold, silver and platinum on an international basis having managed precious
metals and international funds for more than 14 years. Mr. Radsch is a graduate
of Yale University with a B.A. degree and holds an M.B.A. in Finance from
Columbia University.
LEXINGTON GROWTH AND INCOME FUND
ALAN H. WAPNICK is portfolio manager of the Lexington Growth and Income
Fund. Mr. Wapnick is Senior Vice President, Director of Domestic Investment
Equity Strategy of the Manager. Mr. Wapnick is responsible for domestic
investment analysis and portfolio management at LMC. He has 27 years investment
experience. Prior to joining the Manager in 1986, Mr. Wapnick was an equity
analyst with Merrill Lynch, J.&W. Seligman, Dean Witter and most recently Union
Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth College and received
a Master's Degree in Business Administration from Columbia University.
LEXINGTON GNMA INCOME FUND
DENIS P. JAMISON, CFA manages the Lexington GNMA Income Fund. Mr. Jamison
is Senior Vice President and Director Fixed Income Strategy of the Manager. Mr.
Jamison is responsible for fixed-income portfolio management. He is a member of
the New York Society of Security Analysts. Prior to joining the Manager in 1981,
Mr. Jamison had spent nine years at Arnold Bernhard & Company, an investment
counseling and financial services organization. At Bernhard, he was a Vice
President supervising the security analyst staff and managing investment
portfolios. He is a specialist in government, corporate and municipal bonds. Mr.
Jamison is a graduate of the City College of New York with a B.A. in Economics.
LEXINGTON INTERNATIONAL FUND
RICHARD T. SALER is the lead manager on an investment management team that
manages the Lexington International Fund. Mr. Saler is Senior Vice President,
Director of International Investment Strategy of the Manager. Mr. Saler is
responsible for international investment analysis and portfolio management at
the Manager. He has twelve 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, CFA is a co-manager on an investment management team
that manages the Lexington International Fund.
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Mr. Schwartz is a Vice President of the Manager, Chartered Financial Analyst and
member of the New York Society of Security Analysts. He is responsible for
international investment analysis and portfolio management at the Manager, and
has nine years investment experience. Prior to joining Lexington in 1993, Mr.
Schwartz was Vice President of European Research Sales with Cheuvreux De Virieu
in Paris and New York, serving the institutional market. Prior to Cheuvreux, he
was affiliated with Olde and Co. and Kidder, Peabody as a stockbroker. Mr.
Schwartz earned his B.A. and M.A. degrees from Boston University.
LEXINGTON MONEY MARKET TRUST
DENIS P. JAMISON, CFA is portfolio manager of the Lexington Money Market
Trust. Mr. Jamison also manages the Lexington GNMA Income Fund and the Lexington
Ramirez GlobalIncome Fund. Mr. Jamison is Senior Vice President and Director
Fixed Income Strategy of Lexington Management Corporation. Mr. Jamison is
responsible for fixed-income portfolio management. He is a member of the New
York Society of Security Analysts. Prior to joining the Manager in 1981, Mr.
Jamison had spent nine years at Arnold Bernhard & Company, an investment
counseling and financial services organization. At Bernhard, he was a Vice
President supervising the security analyst staff and managing investment
portfolios. He is a specialist in government, corporate and municipal bonds. Mr.
Jamison is a graduate of the City College of New York with a B.A. in Economics.
LEXINGTON RAMIREZ GLOBAL INCOME FUND
DENIS P. JAMISON, CFA manages the Lexington Ramirez Global Income Fund. Mr.
Jamison is Senior Vice President and Director Fixed Income Strategy of Lexington
Management Corporation. Mr. Jamison is responsible for fixed-income portfolio
management. He is a member of the New York Society of Security Analysts. Prior
to joining the Manager in 1981, Mr. Jamison had spent nine years at Arnold
Bernhard & Company, an investment counseling and financial services
organization. At Bernhard, he was a Vice President supervising the security
analyst staff and managing investment portfolios. He is a specialist in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics.
MARIA FIORINI RAMIREZ, President and Chief Executive Officer of MFR
Advisors Inc. In 1973 she started a ten year association with Merrill Lynch,
serving as Vice President and Senior Money Market Economist. She joined Becker
Paribas in 1984 as Vice President and Senior Money Market Economist before
joining Drexel Burnham Lambert that same year as First
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Vice President and Money Market Economist. She was promoted to Managing Director
of Drexel in 1986. From April, 1990 to August 1992, Ms. Ramirez was the
President and Chief Executive Officer of Maria Ramirez Capital Consultants,
Inc., a subsidiary of John Hancock Freedom Securities Corporation. Ms. Ramirez
established MFR in August, 1992, MFR is Sub-Adviser to the Lexington Ramirez
Global Income Fund. Ms. Ramirez holds a B.A. in Business Administration and
Economics from Pace University.
LEXINGTON SMALLCAP FUND
ROBERT M. DEMICHELE is one of three lead managers of a portfolio management
team that manages the Lexington SmallCap Fund. Mr. DeMichele is Chairman and
Chief Executive Officer of Lexington Management Corporation. He is also the
Chairman of the Investment Strategy Group. In addition, he is President of
Lexington Global Asset Managers, Inc., LMC's parent company. He holds similar
offices in other companies owned byLexington Global Asset Managers, Inc., as
well as the Lexington Funds. Prior to joining LMC in 1981, Mr.DeMichele was a
Vice President at A.G. Becker, Inc. the securities division of Warburg, Paribus,
Becker, an international investment banking firm. From 1973 to 1981, Mr.
DeMichele held several positions, the most recent managing A.G.Becker's Funds
Evaluation and Consulting Group for both the East andWest coasts. Mr. DeMichele
is a graduate of Union College with a B.A. Degree in Economics and an M.B.A. in
Finance from Cornell University.
ALAN H. WAPNICK is one of three lead managers of a portfolio management
team that manages the Lexington SmallCap Fund. Mr. Wapnick is Senior Vice
President, Director of Domestic Investment Equity Strategy of the Manager. Mr.
Wapnick is responsible for domestic investment analysis and portfolio management
at LMC. He has 27 years investment experience. Prior to joining the Manager in
1986, Mr. Wapnick was an equity analyst with Merrill Lynch, J.&W. Seligman, Dean
Witter and most recently Union Carbide Corporation. Mr. Wapnick is a graduate of
Dartmouth College and received a Master's Degree in Business Administration from
Columbia University.
FRANK A. PELUSO is one of three lead managers of a portfolio management
team that manages the LexingtonSmallCap Fund.He has 35 years investment
experience.Mr. Peluso is President and Chief Executive Officer of Market System
Research Advisors, Inc. (MSR), the sub-adviser to the Fund. Mr. Peluso utilizes
a proprietary analytical system to identify securities with performance
potential which he believes to be exceptional. In addition, Mr. Peluso's
proprietary data is used by professional money managers, insurance companies,
brokerage firms, banks, mutual fund companies and
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pension funds. Mr. Peluso is a graduate of Princeton University and has
completed a year of post-graduate study at Columbia University, and two years
post-graduate study at Princeton University with a Fellowship in Mathematics.
LEXINGTON TROIKA DIALOG RUSSIA FUND
GAVIN RANKIN, LLB, ACA is the lead manager of the Lexington Troika Dialog
Russia Fund. Mr. Rankin is Chief Investment Officer for Troika Dialog Asset
Management. He is responsible, along with other members of the portfolio
management team, for the Fund's overall investment strategy. He was previously
Head of Research for Troika Dialog from 1995-1997. Mr. Rankin represented
Schroders Investment Bank in the Czech and Slovak Republics, and served other
capital market clients including Wood and Co. and EPIC from 1991-1995. He was
also the Founder and Chief Executive Officer of Lonpra A.S., an investment
banking firm in Czechoslovakia in 1991. Mr. Rankin received a degree in law
(L.L.B.) from the University of Buckingham inEngland and also qualified as a
Chartered Accountant (ACA) with Price Waterhouse.Mr. Rankin has extensive
experience in East European equity research and management.
RICHARD M. HISEY,CFA, is a portfolio manager and the investment strategist
based in the United States. He is a member of the Board of Directors of
Lexington Troika Dialog Russia Fund. He is also a Managing Director and Chief
Financial Officer of Lexington Management Corporation, the Fund's Investment
Advisor. Mr.Hisey sits on the Investment Company Institute's
Accounting/Treasurers, International and Tax Committees. He is a Chartered
Financial Analyst and is also a member of the New York Society of Security
Analysts. Mr. Hisey is a graduate with Distinction of the University of
Connecticut with a Bachelor of Arts inSoviet and Eastern European Studies. His
undergraduate work included studies at Middlebury College and at Leningrad State
University in the Former Soviet Union. He also holds an M.B.A. from the
University of Connecticut.
PAVEL TEPLUKHIN is a member of the portfolio management team that manages
the Lexington Troika Dialog Russia Fund. He is the President of Troika Dialog
Asset Management. Dr. Teplukhin received a diploma inEconomics and a Doctorate
in Economic Analysis and Statistics fromMoscow State University. He also
received a Master of Science inEconomics/Macroeconomics from the London School
of Economics. From 1993-1996 Dr. Teplukhin was Economic Adviser to the First
Deputy Prime Minister at the Ministry of Finance of the Russian Federation.
RUBEN VARDANIAN is a member of the portfolio management team that manages
the Lexington Troika Dialog Russia Fund.Mr.Vardanian is
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Chairman of the Board of Troika Dialog Asset Management. He is Vice Chairman of
the Board of Directors of the Depository Clearing Company. He is a member of the
expert council of the Federal Securities Commission of Russia and a Director of
the Russian Trading System (RTS). He is also Chairman of the Board of Directors
of the Russian Capital markets self-regulatory organization (NAUFOR).Mr.
Vardanian received a MastersDegree with Distinction from the Finance Department
of Moscow State University.He received post-graduate training with Banca CRT
inItaly and with the Emerging Markets Division of Merrill Lynch in New York.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND
RICHARD T. SALER is the lead manager on an investment management team that
manages the Lexington Worldwide Emerging Markets Fund. Mr. Saler is Senior Vice
President, Director of International Investment Strategy of the Manager. Mr.
Saler is responsible for international investment analysis and portfolio
management at the Manager. He has twelve 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.
MANAGEMENT FEES AND OTHER EXPENSES
The Manager provides the Funds with advice on buying and selling
securities, manages the Funds' Investments, including the placement of orders
for portfolio transactions, furnishes the Funds with office space and certain
administrative services and provides personnel needed by the Funds with respect
to the Manager's responsibilities under the Manager's Investment Management
Agreement with each fund. The Manager also compensates the members of the Funds'
Board of Directors or Trustees who are interested persons of the Manager, and
assumes the cost of printing prospectuses and shareholder reports for
dissemination to prospective investors.
The management fees for all the Funds except Lexington Growth and Income
Fund, Lexington GNMA Income Fund and Lexington Money Market Trust are higher
than for most mutual funds. However, these management fees are not necessarily
greater than the management fees of other investment companies with similar
objectives and policies.
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As compensation, each Lexington Fund pays the Manager a management fee
(accrued daily but paid when requested by the Manager) based upon the value of
the average daily net assets of that fund, according to the following table.
MANAGEMENT FEE AVERAGE DAILY NET
(ANNUAL RATE) ASSETS (IF APPLICABLE)
Lexington Crosby Small Cap
Asia Growth Fund 1.25% *
- --------------------------------------------------------------------------------
Lexington Global Corporate
Leaders Fund 1.00% *
- --------------------------------------------------------------------------------
Lexington International Fund 1.00% *
- --------------------------------------------------------------------------------
Lexington Ramirez Global
Income Fund 1.00% *
- --------------------------------------------------------------------------------
Lexington Troika Dialog
Russia Fund 1.25% *
- --------------------------------------------------------------------------------
Lexington Worldwide Emerging
Markets Fund 1.00% *
- --------------------------------------------------------------------------------
Lexington Growth and 0.75% First $100 million
Income Fund 0.60% Next $50 million
0.50% Next $100 million
0.40% Over $250 million
- --------------------------------------------------------------------------------
Lexington SmallCap Fund 1.00% *
- --------------------------------------------------------------------------------
Lexington Goldfund 1.00% First $50 million
0.75% Over $50 million
- --------------------------------------------------------------------------------
Lexington GNMA Income Fund 0.60% First $150 million
0.50% Next $250 million
0.45% Next $400 million
0.40% Over $800 million
- --------------------------------------------------------------------------------
Lexington Money Market Trust 0.50% *
- --------------------------------------------------------------------------------
*One rate applies to the Fund's average daily net assets
The Manager also serves as the Funds' Administrator (the "Administrator").
The Administrator performs services with regard to various aspects of each
fund's administrative operations at cost.
Each fund is responsible for its own operating expenses including, but not
limited to: the Manager's fees; taxes, if any; brokerage and commission
expenses, if any; interest charges on any borrowings; transfer agent,
administrator, custodian, legal and auditing fees; shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Director or
Trustees who are not interested persons of the Manager; salaries of certain
personnel; costs and expenses of calculating its daily net asset value; costs
and expenses of accounting, bookkeeping and record keeping required under the
Investment Company Act of 1940; insurance premiums; trade association dues; fees
and expenses of registering and maintaining
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registration of its shares for sale under federal and applicable state
securities laws; all costs associated with shareholders meetings and the
preparation and dissemination of proxy materials, except for meetings called
solely for the benefit of the Manager or its affiliates; printing and mailing
prospectuses, statements of additional information and reports to shareholders;
and other expenses relating to that fund's operations, plus any extraordinary
and nonrecurring expenses that are not expressly assumed by the Manager.
The Manager has agreed to reduce its management fee if necessary to keep
total annual operating expenses at or below two and one-half percent (2.50%) of
each fund's average daily net assets except for Lexington International Fund,
whose annual expenses will be kept at or below one and three-quarters percent
(1.75%); Lexington Ramirez Global Income Fund, one and one-half percent (1.50%);
Lexington Troika Dialog Russia Fund, three and thirty-five one-hundredths of one
percent (3.35%); Lexington GNMA Income Fund, one and one-half percent (1.50%) of
average daily net assets up to $30 million and one percent (1.00%) thereafter;
and Lexington Money Market Trust, one percent (1.00%). Total annual operating
expense limits may also be subject to state blue sky regulations. The Manager
also may reduce additional amounts in these or other of the Funds to increase
the return to a fund's investors. The Manager may terminate these voluntary
reductions at any time.
In addition, the Manager may elect to absorb operating expenses that a fund
is obligated to pay to increase the return to that fund's investors. If the
Manager performs a service or assumes an operating expense for which a fund is
obligated to pay and the performance of such service or payment of such expense
is not an obligation of the Manager under the Investment Management Agreement,
the Manager is entitled to seek reimbursement from that fund for the Manager's
costs incurred in rendering such service or assuming such expense. The Manager
also may compensate broker-dealers and other intermediaries that distribute a
fund's shares as well as other service providers of shareholder and
administrative services. The Manager may also sponsor seminars and educational
programs on the Funds for financial intermediaries and shareholders.
The Manager considers a number of factors in determining which brokers or
dealers to use for each fund's portfolio transactions. Although these factors
are more fully discussed in the Statement of Additional Information, they
include, but are not limited to, reasonableness of commissions, quality of
services, and execution and availability of research that the Manager may
lawfully and appropriately use in its investment management and advisory
capacities. Provided the Funds receive prompt execution at competitive prices,
the Manager also may consider the sale of
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a fund's shares as a factor in selecting broker-dealers for that fund's
portfolio transactions.
It is anticipated that Troika Dialog may act as the Funds' broker in the
purchase and sale of portfolio securities and, in that capacity, will receive
brokerage commissions from the Funds. The Funds will use Troika Dialog as its
broker only when, in the judgement of the Manager and pursuant to review by the
Boards of Directors, Troika Dialog will obtain a price and execution at least as
favorable as that available from other qualified brokers. See "Portfolio
Transactions and Brokerage Commissions" in the Statement of Additional
Information.
HOW TO CONTACT THE FUNDS
Call a Lexington shareholder service representative Monday-Friday between
9-5 ET for information on the Funds or your account, at:
(800) 526-0056 OR (201) 845-7300 FOR SERVICE
(800) 526-0052 FOR 24 HOUR ACCOUNT INFORMATION
(800) 526-0057 FOR 24 HOUR INVESTOR INFORMATION
Mail your completed application, any checks, investment or redemption
instructions and correspondence to the Transfer Agent:
TRANSFER AGENT:
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
HOW TO INVEST IN THE FUNDS
The Funds' shares are offered directly to the public, with no sales load,
at their next determined net asset value after receipt of an order with payment.
The Funds' shares are offered for sale by State Street Bank and Trust Company
(the "Transfer Agent") and through selected securities brokers and dealers.
If an order, together with payment in proper form, is received by the
Transfer Agent by 4:00 p.m., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading, fund shares will be purchased at the
fund's next-determined net asset value. Orders for fund shares received after
the Funds' cutoff times will be purchased at the next-determined net asset value
after receipt of the order.
The Funds' shares may also be purchased through selected broker-dealers or
financial institutions who have entered into servicing arrangements with the
Funds ("servicing agents"). Such servicing agents are authorized to accept
purchase and redemption orders on the Funds' behalf
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up until 4:00 p.m. New York time, based on the net asset value per share of the
fund next computed after the order is placed with the servicing agent. Under
these circumstances, the fund would be deemed to have received a purchase or
redemption order when the authorized servicing agent accepts the order and it is
accepted by the Distributor.
The minimum investment in each fund is described in this section. The
Manager or the Distributor, in its discretion, may waive these minimums. THE
FUNDS DO NOT ACCEPT THIRD-PARTY CHECKS OR CASH INVESTMENTS. THIRD PARTY CHECKS
ARE DEFINED AS CHECKS MADE PAYABLE TO SOMEONE OTHER THAN THE FUND. Checks must
be in U.S. dollars and, to avoid fees and delays, drawn only on banks located in
the U.S. See the Statement of Additional Information for further details.
The Funds and the Distributor each reserve the right It to reject any order
in whole or in part.
INITIAL INVESTMENTS
MINIMUM INITIAL INVESTMENT (EXCEPT LEXINGTON
TROIKA DIALOG RUSSIA FUND): $1,000
MINIMUM INITIAL INVESTMENT FOR THE LEXINGTON TROIKA
DIALOG RUSSIA FUND: $5,000
MINIMUM INITIAL INVESTMENT FOR IRAS $250
INITIAL INVESTMENTS BY CHECK
o Complete the New Account Application. Tell us in which fund(s) you want to
invest and make your check payable to THE LEXINGTON FUNDS.
o Mail the New Account Application and check to the Transfer Agent at the
address given above. o A charge may be imposed on checks that do not
clear.
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
INITIAL INVESTMENTS BY WIRE
o Shares of the Funds may be purchased by wire if a prospectus has been
received and read prior to investing. The purchase will be made at the net
asset value on the day received if the wire is received prior to 4 pm ET.
o Telephone the Funds toll-free at 1-800-526-0056. Provide the Fund with
your name, dollar amount to be invested and fund(s) in which you want to
invest. They will provide you with further instructions to complete your
purchase. Complete information regarding your account
53
<PAGE>
must be included in all wire instructions to ensure accurate handling of
your investment.
o Request your bank to transmit immediately available funds by wire for
purchase of shares in your name to the following:
State Street Bank and Trust Company
Account No. 99043713
Re: Lexington Fund you are investing in
Account of (your Registration)
Account # (of new account)
ABARouting Number 011000028
o A completed New Account Application must then be forwarded to the Fund at
the address on the Application.
o Your bank may charge a fee for any wire transfers.
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
MINIMUM SUBSEQUENT INVESTMENT:$50
SUBSEQUENT INVESTMENTS BY CHECK
o Make your check payable to The Lexington Funds. Enclose the detachable
form which accompanies the Transfer Agent's confirmation of a prior
transaction with your check. If you do not have the detachable form,
mail your check with written instructions indicating the fund name and
account number to which your investment should be credited.
o A charge may be imposed on checks that do not clear.
SUBSEQUENT INVESTMENTS BY WIRE
o You do not need to contact the Transfer Agent prior to making
subsequent investments by wire. Instruct your bank to wire funds to the
Transfer Agent using the bank wire information under "Initial
Investments by Wire" above.
"LEX-O-MATIC" THE AUTOMATIC INVESTMENT PLAN
o A shareholder may make additional purchases of shares automatically on
a monthly or quarterly basis with the automatic investing plan,
"Lex-O-Matic."
o "Lex-O-Matic" will be established on existing accounts only. You may
not use a "Lex-O-Matic" investment to open a new account. The minimum
automatic investment amount is $50.
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o Your bank must be a member of the Automated Clearing House.
o To establish Lex-O-Matic, attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank account to
your Lexington Account Application or your letter of instruction.
o Investments will automatically be transferred into your Lexington
Account from your checking or savings account. The institution must be
an Automated Clearing House (ACH) member.
o Investments may be transferred either monthly or quarterly on or about
the 15th day of the month.
o You should allow 20 business days for this service to become effective.
o You may cancel your Lex-O-Matic at any time provided that a letter is
sent to the Transfer Agent ten days prior to the scheduled investment
date. Your request will be processed upon receipt.
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 the Distributor.
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 investor's 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
55
<PAGE>
case of shares purchased by check and redeemed shortly after the purchase, the
Transfer Agent will not mail redemption proceeds until it has been notified that
the monies used for the purchase have been collected, which may take up to 15
days from the purchase date. You may redeem shares of the Lexington Funds
through broker-dealers or financial institutions that have selling agreements
with the Distributor. Broker-dealers and financial institutions that process
such orders for customers may charge a fee for their services. The fee may be
avoided by redeeming shares directly from the Lexington Funds.
A 2% redemption fee will be charged on the redemption of shares of the
Lexington Troika Dialog Russia Fund held less than 365 days. The redemption fee
will not apply to shares representing the reinvestment of dividends and capital
gains distributions. The redemption fee will be applied on a share by share
basis using the "first shares in, first shares out" (FIFO) method. Therefore,
the oldest shares are considered to have been sold first. Redemption fee
proceeds will be applied to the Fund's capital.
REDEEMING BY WRITTEN INSTRUCTION
o Write a letter giving your name, account number, the name of the fund
from which you wish to redeem and the dollar amount or number of shares
you wish to redeem.
o Signature guarantee your letter if you want the redemption proceeds to
go to a party other than the account owner(s), your predesignated bank
account or if the dollar amount of the redemption exceeds $25,000. The
Transfer Agent requires that the guarantor be either a commercial bank
which is a member of the FederalDeposit Insurance Corporation, a trust
company, a savings and loan association, a savings bank, a credit
union, a member firm of a domestic stock exchange, or a foreign branch
of any of the foregoing. A NOTARY PUBLIC IS NOT AN ACCEPTABLE
GUARANTOR. CONTACT THE FUND FOR MORE INFORMATION.
o If a redemption request is sent to the Fund in New Jersey, it will be
forwarded to the Transfer Agent and the effective date of redemption
will be the date received by the Transfer Agent.
o Checks for redemption proceeds will normally be mailed within three
business days, but will not be mailed until all checks in payment for
the shares to be redeemed have been cleared. Shareholders who redeem
all their shares will receive a check representing the value of the
shares redeemed plus the accrued dividends through the date of
redemption. Where shareholders redeem only a portion of their shares,
all dividends declared but unpaid will be distributed on the next
dividend payment date. The Transfer Agent will restrict the mailing of
redemption proceeds to a shareholder address of record within 30
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<PAGE>
days of such address being changed, unless the shareholder provides a
signature guaranteed letter of instruction.
REDEEMING BY TELEPHONE
o Shares of the Funds may redeemed by telephone. A telephone redemption
in good order will be processed at the net asset value of the Fund next
determined. There is a maximum telephone redemption limit of $100,000
per business day. Call the Fund between 9 a.m. and 4 p.m. ET toll free
at 1-800-526-0056.
o A redemption authorization and signature guarantee must be given before
a shareholder may redeem by telephone. A redemption authorization form
is contained in the New Account Application and authorization forms may
be obtained by calling the Funds.
o Shareholders may elect on the redemption authorization form to have
redemption proceeds, in any amount of $200 or more, mailed to the
registered address or to any other designated person. There is a
minimum of $1,000 to have your redemption proceeds wired to a bank
account. A new form must be completed whenever these instructions are
revised.
o Telephone redemption privileges may be canceled by instructing the
Transfer Agent in writing. Your request will be processed upon receipt.
o Telephone Exchanges may only involve shares held on deposit by the
Transfer Agent, not shares held in certificate form by the shareholder.
o Exchange/Redemption by telephone, see below "Exchange/Telephone
Privileges and Restrictions."
REDEEMING BY CHECK
o Checkwriting is available on the Lexington Money Market Trust.
o The minimum amount per check is $100 or more up to $500,000 at no
charge. Checks for less than $100 or over $500,000 will not be honored.
o All checks require only one signature unless otherwise indicated.
o Canceled 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.
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o Procedures for redemptions by telephone, at no charge, or check may
only be used for shares for which share certificates have not been
issued, and may not be used to redeem shares purchased by check which
have been on the books of the Fund for less than 15 days.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature guarantee is required. The minimum payment amount is $100 from each
fund account. Payments may be made monthly, quarterly, semi-annually or
annually. Systematic withdrawals occur on the 28th of each month. If the 28th
falls on a weekend or holiday, the withdrawal will occur on the preceding
business day. Depending on the form of payment requested, shares may be redeemed
up to five business days before the redemption proceeds are scheduled to be
received by the shareholder. The redemption may result in the recognition of
gain or loss for income tax purposes.
EXCHANGE/TELEPHONE REDEMPTION PRIVILEGES AND RESTRICTIONS
Shares of the Lexington Funds may be exchanged for shares of equivalent
value of any Lexington Fund. If an exchange involves investing in a Lexington
Fund not already owned, the dollar amount of the exchange must meet the minimum
initial investment amount. An exchange may result in a recognized gain or loss
for income tax purposes. Exchanges over $500,000 may take up to three business
days to complete. See the discussion of fund telephone procedures and
limitations of liability under "Telephone Transactions" above.
PURCHASING AND REDEEMING SHARES BY EXCHANGE
o You may make exchange/redemption requests in writing or by telephone.
Telephone exchanges may only be made if you have completed a Telephone
Authorization form. Telephone exchanges may not be made within 7 days
of a previous exchange.
o The minimum exchange required is $500, unless a new account is being
established.
o Telephone exchanges/redemptions may only involve shares held on deposit
by the Transfer Agent, not shares held in certificate form by the
shareholder.
o Any new account established by a shareholder will also have the
privilege of exchange by telephone in the Lexington Funds. All accounts
involved in a telephonic exchange must have the same dividend option as
the account from which the shares are transferred.
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o Telephone redemption privileges are not available on retirement plan
accounts.
TELEPHONE EXCHANGE/TELEPHONE REDEMPTION IDENTIFICATION PROCEDURES
You agree that neither the Distributor, the Transfer Agent, or the Fund(s)
will be liable for any loss, expense or cost arising out of any requests
effected in accordance with this authorization which would include requests
effected by imposters or persons otherwise unauthorized to act on behalf of the
account. The above provision is subject to the procedures outlined below. The
Distributor, the Transfer Agent and the Fund, will employ reasonable procedures
to confirm that instructions communicated by telephone are genuine and if they
do not employ reasonable procedures they may be liable for any losses due to
unauthorized or fraudulent instructions. The following identification procedures
may include, but are not limited to, the following: account number, registration
and address, taxpayer identification number and other information particular to
the account. In addition, all telephone exchange and telephone redemption
transactions will take place on recorded telephone lines and each transaction
will be confirmed in writing by the Fund. If the Shareholder is an entity other
than an individual, such entity may be required to certify that certain persons
have been duly elected and are now legally holding the titles given and that the
said corporation, trust, unincorporated association, etc. is duly organized and
existing and has the power to take action called for by this continuing
authorization.
HOW NET ASSET VALUE IS DETERMINED
The net asset value of each Fund is determined once daily as of 4:00 p.m.,
New York time, on each day that the NYSE is open for trading. Per share net
asset value is calculated by dividing the value of each fund's total net assets
by the total number of that fund's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either the last
reported sales price or, in the case of securities for which there is no
reported last sale and fixed-income securities, the mean between the closing bid
and asked price. Securities traded over-the-counter are valued at the mean
between the last current bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at their
fair values as determined in good faith under the supervision of the Funds'
officers, and by the Manager and the Boards, in accordance with methods that are
specifically authorized by the Boards. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value. When Fund
management deems it appropriate prices obtained for the day of valuation from a
third party pricing service will be used to value portfolio securities.
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The value of securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be translated into U.S. dollars at
the last price of their respective currency denomination against U.S. dollars
quoted by a major bank or, if no such quotation is available, at the rate of
exchange determined in accordance with policies established in good faith by the
Boards. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of fund shares even
without any change in the foreign-currency denominated values of such
securities.
Because foreign securities markets may close before the Funds determine
their net asset values, events affecting the value of portfolio securities
occurring between the time prices are determined and the time the Funds
calculate their net asset values may not be reflected unless the Manager, under
supervision of the Board, determines that a particular event would materially
affect a fund's net asset value.
DISTRIBUTION PLAN
The Lexington Goldfund, Lexington Growth and Income Fund, Lexington
International Fund, Lexington Ramirez Global Income Fund, Lexington SmallCap
Fund and Lexington Troika Dialog Russia Fund have each adopted a Distribution
Plan. The Distribution Plan provides that the Funds may pay distribution fees up
to 0.25% of their average daily net assets for distribution services.
SHAREHOLDER SERVICE AGREEMENTS
The Funds may enter into Shareholder Servicing Agreements with one or more
Shareholder Servicing Agents. The Shareholder Servicing Agents provide various
services to shareholders. For these services, each Shareholder Servicing Agent
receives fees up to 0.25% of the average daily net assets of the Fund
represented by shares owned during the period for which payment is made. The
Manager, at no additional cost to the Funds, may pay to Shareholder Servicing
Agents additional amounts from its past profits. Each Shareholder Servicing
Agent may, from time to time, voluntarily waive all or a portion of the fees
payable to it. To the extent that a Fund participates in a Distribution Plan, as
noted above, the Shareholder Servicing Agents will receive fees of up to 0.25%
of the average daily assets from the Distribution Plan.
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TAX-SHELTERED RETIREMENT PLANS
The Funds offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, Traditional and Roth IRA's, SEP-IRA's and IRA Rollover
Accounts, 401(k) Plans and 403(b)(7) Plans. Plan support services are available
through the Shareholder Services Department of LMC. For further information call
1-800-526-0056.
DIVIDENDS AND DISTRIBUTIONS
Each fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. The amount and frequency of fund
distributions are not guaranteed and are at the discretion of the Board.
Currently, the Lexington Funds intend to distribute according to the following
schedule:
<TABLE>
<CAPTION>
INCOME DIVIDENDS CAPITAL GAINS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
LEXINGTON RAMIREZ GLOBAL Declared and paid quarterly Declared and paid annually
INCOME FUND
- -----------------------------------------------------------------------------------------------
LEXINGTON GNMA INCOME FUND Declared and paid monthly Declared and paid annually
LEXINGTON CROSBY SMALL CAP Declared and paid annually Declared and paid annually
ASIA GROWTH FUND
LEXINGTON GLOBAL CORPORATE
LEADERS FUND
LEXINGTON GOLDFUND
LEXINGTON INTERNATIONAL FUND
LEXINGTON SMALLCAP FUND
LEXINGTON TROIKA DIALOG
RUSSIA FUND
LEXINGTON WORLDWIDE
EMERGING MARKETS FUND
- -----------------------------------------------------------------------------------------------
LEXINGTON GROWTH AND Declared and paid Declared and paid
INCOME FUND semi-annually annually
- -----------------------------------------------------------------------------------------------
LEXINGTON MONEYMARKET Declared daily Not expected
TRUST and paid monthly
- -----------------------------------------------------------------------------------------------
</TABLE>
Unless investors request cash distributions in writing, all dividends and
other distributions will be reinvested automatically in additional shares of the
applicable fund and credited to the shareholders account at the closing net
asset value on the reinvestment date.
DISTRIBUTIONS AFFECT A FUND'S NET ASSET VALUE
Distributions are paid to you as of the record date of a distribution of a
fund, regardless of how long you have held the shares. Dividends and capital
gains awaiting distribution are included in each fund's daily net asset
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value. The share price of a fund drops on the ex-dividend date by the amount of
the distribution, net of any subsequent market fluctuations. For example, assume
that on December 31, the Lexington Growth and Income Fund declared a dividend in
the amount of $0.50 per share. If the Lexington Growth and Income Fund's share
price was $10.00 on December 30, the Fund's share price on December 31 would be
$9.50, barring market fluctuations.
"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 Internal
Revenue Code of 1986, as amended (the "Code"), by distributing substantially all
of its net investment income (net of expenses) and net capital gains (net of
capital losses)to its shareholders and meeting other requirements of the Code
relating to the sources of its income and diversification of its assets.
Accordingly, the Funds generally will not be liable for federal income or excise
tax 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 fails
to satisfy any of the Code requirements for qualification as a regulated
investment company, it will be taxed at regular corporate tax rates on all of
its taxable income (including capital gains) without any deduction for
distributions to shareholders, and distributions to shareholders will be taxable
as ordinary dividends (even if derived from a Fund's net long-term capital
gains) to the extent of that Fund's current and accumulated earnings and
profits.
For federal income tax purposes, distributions by a Fund of its net
investment income and the excess, if any, of its net short-term capital gain
over its 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 treated as dividends. Part of the distributions paid by the
Funds
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may be eligible for the dividends-received deduction allowed to corporate
shareholders under the Code. Because it is anticipated that the investment
income of the Lexington Crosby Small Cap Asia Growth Fund, the Lexington
International Fund, the Lexington Troika Dialog Russia Fund and the Lexington
Worldwide Emerging Markets Fund will not include dividends from domestic
corporations, none of the ordinary income dividends paid by such Funds should
qualify for the dividends-received deduction. Distributions by the Fund of the
excess, if any, of its net long-term capital gain over its net short-term
capital loss are designated as capital gain dividends and are taxable to
shareholders as long-term capital gains regardless of the length of time the
Fund's shares were held. Distributions of income and capital gains are taxed in
the manner described above, whether they are received in cash or reinvested in
additional shares of the Funds.
Each fund will inform its investors of the source of their distributions at
the time they are paid, and will, promptly after the close of each calendar
year, advise investors of the federal income tax character of those
distributions and dividends. Investors (including tax exempt and foreign
investors) are advised to consult their own tax advisers regarding the
particular tax consequences to them of an investment in shares of the Funds.
Additional information on tax matters relating to the Funds and their
shareholders is included in the Statement of Additional Information.
GENERAL INFORMATION
THE FUNDS
The Lexington Money Market Trust and Lexington Ramirez Global Income Fund
are business trusts organized under the laws of Massachusetts. The Lexington
Crosby Small Cap Asia Growth Fund, Lexington Global Corporate Leaders Fund,
Lexington Goldfund, Lexington GNMA Income Fund, Lexington Growth and Income
Fund, Lexington International Fund, Lexington SmallCap Fund, Lexington Troika
Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund are Maryland
corporations. The assets and liabilities of each business trust and corporation
are separate and distinct from each other business trust or corporation.
The Funds may offer other classes of shares to eligible investors and may
in the future designate other classes of
shares for specific purposes.
SHAREHOLDER RIGHTS
Shares issued by the Funds have no preemptive, conversion or subscription
rights. Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to
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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.
PERFORMANCE INFORMATION
From time to time, the Funds may publish their total return, and, in the
case of certain funds, current yield and tax equivalent yield in advertisements
and communications to investors. Total return information generally will include
a fund's average annual compounded rate of return over the most recent four
calendar quarters and over the period from the fund's inception of operations. A
fund may also advertise aggregate and average total return information over
different periods of time. Each fund's average annual compounded rate of return
is determined by reference to a hypothetical $1,000 investment that includes
capital appreciation and depreciation for the stated period according to a
specific formula. Aggregate total return is calculated in a similar manner,
except that the results are not annualized. Total return figures will reflect
all recurring charges against each fund's income.
Current yield as prescribed by the SEC is an annualized percentage rate
that reflects the change in value of a hypothetical account based on the income
received from the fund during a 30-day period. It is computed by determining the
net change, excluding capital changes, in the value of a hypothetical
preexisting account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. See "Performance
Information" in the Statement of Additional Information.
Comparative performance information may be used from time to time in
advertising and marketing a Fund's shares. The performance information may
include data from sources such as Lipper Analytical Services, Inc. or major
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market indices. Such comparative performance information will be stated in the
same terms in which the comparative data and indices are stated.
Investment results of the Funds will fluctuate over time, and any
representation of the Funds' total return or current yield for any prior period
should not be considered as a representation of what an investors total return
or current yield may be in any future period. The Funds' Annual Report contains
additional performance information and is available upon request and without
charge by calling (800) 526-0056.
CODE OF ETHICS
The Code of Ethics adopted by the Lexington Funds, the Manager and the
Sub-Advisers prohibits affiliated personnel from engaging in personal investment
activities which compete with or attempt to take advantage of the Funds' planned
portfolio transactions. The objective of the Code of Ethics is that the
operations of the Funds, the Manager and the Sub-Advisers be carried out for the
exclusive benefit of the Fund's shareholders. The Funds, the Manager and the
Sub-Advisers maintain careful monitoring of compliance with the Code of Ethics.
LEGAL OPINION
The validity of shares offered by this Prospectus will be passed on by
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022.
SHAREHOLDER REPORTS AND INQUIRIES
During the year, the Funds will send you the following information:
o Confirmation statements are mailed after every transaction that affects
your account balance, including preauthorized automatic investment,
exchange and redemption transactions. Lexington Money Market Trust,
Lexington GNMA Income Fund and Lexington Ramirez Global Income Fund
provide quarterly confirmation statements. All other Funds will provide
confirmation statements annually, unless the account balance is
affected by any daily transactions. Shareholders are urged to retain
their account statements for tax purposes.
o Annual and semi-annual reports are mailed approximately 60 days after
December 31 and June 30.
o 1099 tax form(s) are mailed by January 31.
Unless otherwise requested, only one copy of each shareholder report or other
material sent to shareholders will be mailed to each household with accounts
under common ownership and the same address regardless of the
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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
TAXPAYER IDENTIFICATION NUMBER ("TIN")
Be sure to complete the Taxpayer Identification Number section of the Fund's
application when you open an account. Under the backup withholding rules of the
Code, certain shareholders may be subject to 31% backup withholding of federal
income tax on ordinary income dividends, capital gain dividends and redemption
payments made by the Funds. In order to avoid backup withholding, a shareholder
must provide the Funds with a correct TIN (which for an individual is usually a
Social Security number) or certify that the shareholder is a corporation or
otherwise exempt from or not subject to backup withholding.
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THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES HEREIN DESCRIBED IN
ANY STATE IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALESPERSON, DEALER OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF ADDITIONAL
INFORMATION, OR IN THE FUNDS' OFFICIAL SALES LITERATURE.
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GLOSSARY
o BLUE CHIP. The common stocks of a nationally or internationally known company
that has a long record of profit growth and dividend payment and a reputation
for quality management, products and services. Blue chip stocks typically are
relatively high priced and have moderate dividend yields.
o CASH EQUIVALENTS. Cash equivalents are short-term, interest-bearing
instruments or deposits and may include, for example, commercial paper,
certificates of deposit, repurchase agreements, bankers' acceptances, U.S.
Treasury Bills, bank money market deposit accounts, master demand notes and
money market mutual funds. These consist of high-quality debt obligations,
certificates of deposit and bankers' acceptances rated at least A-1 by S&P or
Prime1 by Moody's, or the issuer has an outstanding issue of debt securities
rated at least A by S&P or Moody's, or are of comparable quality in the
opinion of the Manager.
o COLLATERAL ASSETS. Collateral assets include cash, letters of credit, U.S.
government securities or other high-grade liquid debt or equity securities
(except that instruments collateralizing loans by the Money Market Funds must
be debt securities rated in the highest grade). Collateral assets are
separately identified and rendered unavailable for investment or sale.
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o CONVERTIBLE SECURITY. A convertible security is a fixed-income security (a
bond or preferred stock) that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the
same or a different issuer. Convertible securities are senior to common stock
in a corporation's capital structure but are usually subordinated to similar
non-convertible securities. The price of a convertible security is influenced
by the market value of the underlying common stock.
o COVERED CALL OPTION. A call option is "covered" if the fund owns the
underlying securities, has the right to acquire such securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an off setting call option.
o COVERED PUT OPTION. A put option is "covered" if the fund has collateral
assets with a value not less than the exercise price of the option or holds a
put option on the underlying security.
o DEPOSITORY RECEIPTS. Depository receipts include American depository receipts
("ADRs"), European depository receipts ("EDRs"), global depository receipts
("GDRs") and other similar instruments. Depository receipts are receipts
typically issued in connection with a U.S. or foreign bank or trust company
and evidence ownership of underlying securities issued by a foreign
corporation.
o DERIVATIVES. Derivatives include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts
and swaps and options on futures contracts on U.S. government and foreign
government securities and currencies.
o DOLLAR ROLL TRANSACTION. A dollar roll transaction is similar to a reverse
repurchase agreement except it requires a fund to repurchase a similar rather
than the same security.
o DURATION. A time measure of a bond's interest-rate sensitivity, based on the
weighted average of the time periods over which a bond's cash flows accrue to
the bondholder. Time periods are weighted by multiplying by the present value
of its cash flow divided by the bond's price. (A bonds cash flows consist of
coupon payments and repayment of capital). A bond's duration will almost
always be shorter than its maturity, with the exception of zero-coupon bonds,
for which maturity and duration are equal.
o EMERGING MARKET COMPANIES. A company is considered to be an emerging market
company if its securities are principally traded in the capital market of an
emerging market country; it derives at least 50% of its total 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 trad-
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ed; or it is organized under the laws of, and with a principal office in, an
emerging market country. An emerging market country is one having an economy
and market that are or would be considered by the World Bank or the United
Nations to be emerging or developing.
o EQUITY DERIVATIVE SECURITIES. These include, among other things, options on
equity securities, warrants and future contracts on equity securities.
o EQUITY SWAPS. Equity swaps allow the parties to exchange the dividend income
or other components of return on an equity investment (E.G., a group of
equity securities or an index) for a component of return on another
non-equity or equity investment. Equity swaps transitions may be volatile and
may present the fund with counterparty risks.
o FHLMC. The Federal Home Loan Mortgage Corporation.
o FNMA. The Federal National Mortgage Association.
o FORWARD CURRENCY CONTRACTS. A forward currency contract is a contract
individually negotiated and privately traded by currency traders and their
customers and creates an obligation to purchase or sell a specific currency
for an agreed-upon price at a future date. The Funds generally do not enter
into forward contracts with terms greater than one year. A fund generally
enters into forward contracts only under two circumstances. First, if a fund
enters into a contract for the purchase or sale of a security denominated in
a foreign currency, it may desire to "lock in" the U.S. dollar price of the
security by entering into a forward contract to buy the amount of a foreign
currency needed to settle the transaction. Second, if the Manager believes
that the currency of a particular foreign country will substantially rise or
fall against the U.S. dollar, it may enter into a forward contract to buy or
sell the currency approximating the value of some or all of a fund's
portfolio securities denominated in such currency. A fund will not enter into
a forward contract if, as a result, it would have more than one-third of
total assets committed to such contracts (unless it owns the currency that it
is obligated to deliver or has caused its custodian to segregate segregable
assets having a value sufficient to cover its obligations). Although forward
contracts are used primarily to protect a fund from adverse currency
movements, they involve the risk that currency movements will not be
accurately predicted.
o FUTURES AND OPTIONS ON FUTURES. An interest rate futures contract is an
agreement to purchase or sell debt securities, usually U.S. government
securities, at a specified date and price. For example, a fund may sell
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.
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Each fund will have collateral assets equal to the purchase price of
the portfolio securities represented by the underlying interest rate futures
contracts it has an obligation to purchase.
o GNMA. The Government National Mortgage Association.
o HIGHLY RATED DEBT SECURITIES. Debt securities rated within the three highest
grades by Standard & Poor's Corporation ("S&P") (AAA to A), Moodys Investors
Services, Inc. ("Moody's") (Aaa to A) or Fitch Investor Services, Inc.
("Fitch") (AAA to A), or in unrated debt securities deemed to be of
comparable quality by the Manager using guidelines approved by the Board of
Trustees. See the Appendix to the Statement of Additional Information for a
description of these ratings.
o ILLIQUID SECURITIES. The Funds treat any securities subject to restrictions
on repatriation for more than seven days, and securities issued in connection
with foreign debt conversion programs that are restricted as to remittance of
invested capital or profit, as illiquid. The Funds also treat repurchase
agreements with maturities in excess of seven days as illiquid. Illiquid
securities do not include securities that are restricted from trading on
formal markets for some period of time but for which an active informal
market exists, or securities that meet the requirements of Rule 144A under
the Securities Act of 1933 and that, subject to the review by the Funds'
Board and guidelines adopted by the Funds' Board, the Manager has determined
to be liquid.
o INVESTMENT GRADE. Investment grade debt securities are those rated within the
four highest grades by S&P (at least BBB), Moody's (at least Baa) or Fitch
(at least Baa) or in unrated debt securities deemed to be of comparable
quality by the Manager using guidelines approved by the Board of Trustees.
o LEVERAGE. Some funds may use leverage in an effort to increase return.
Although leverage creates an opportunity for increased income and gain, it
also creates special risk considerations. Leveraging also creates interest
expenses that can exceed the income from the assets retained.
o OPTIONS ON SECURITIES, SECURITIES INDICES AND CURRENCIES. A fund may purchase
call options on securities that it intends to purchase (or on currencies in
which those securities are denominated) in order to limit the risk of a
substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of the
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
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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 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.
0 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.
1 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.
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o U.S. GOVERNMENT SECURITIES. These include U.S. Treasury bills, notes, bonds
and other obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
o WARRANT. A warrant typically is a long-term option that permits the holder to
buy a specified number of shares of the issuer's underlying common stock at a
specified exercise price by a particular expiration date. A warrant not
exercised or disposed of by its expiration date expires worthless.
o WHEN-ISSUED AND FORWARD COMMITMENT SECURITIES. The Funds may purchase U.S.
government or other securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" or "delayed delivery" basis. The
price is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date. When-issued securities and
forward commitments may be sold prior to the settlement date, but a fund will
enter into when-issued and forward commitments only with the intention of
actually receiving or delivering the securities. No income accrues on
securities that have been purchased pursuant to a forward commitment or on a
when-issued basis prior to delivery to a fund. At the time a fund enters into
a transaction on a when-issued or forward commitment basis, it supports its
obligation with collateral assets equal to the value of the when-issued or
forward commitment securities and causes the collateral assets to be marked
to market daily. There is a risk that the securities may not be delivered and
that the fund may incur a loss.
o ZERO COUPON BONDS. Zero coupon bonds are debt obligations that do not pay
current interest and are consequently issued at a significant discount from
face value. The discount approximates the total interest the bonds will accrue
and compound over the period to maturity or the first interest-payment date at
a rate of interest reflecting the market rate of interest at the time of
issuance.
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INVESTMENT MANAGER
Lexington Management Corporation
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
DISTRIBUTOR
Lexington Funds Distributor, Inc.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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
KPMG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
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
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LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1998
This statement of additional information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington GNMA Income
Fund, Inc. (the "Fund"), dated May 1, 1998, 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") serves as the Fund's investment
adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
PAGE
Investment Objective ..................................................... 2
What Are GNMA Certificates? .............................................. 2
Investment Policy and Restrictions ....................................... 3
Investment Adviser, Distributor and Administrator ........................ 4
Portfolio Transactions ................................................... 5
Tax-Sheltered Retirement Plans ........................................... 6
Dividend, Distribution and Reinvestment Policy ........................... 7
Tax Matters .............................................................. 7
Investment Return Information ............................................ 10
Custodian, Transfer Agent and Dividend Disbursing Agent .................. 12
Management of the Fund ................................................... 12
Financial Statements ..................................................... 16
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INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high level of current income,
consistent with liquidity and safety of principal. At least 80% of the assets of
the Fund will be invested in "GNMA Certificates" (popularly called "Ginnie
Maes") which are Government National Mortgage Association ("GNMA")
mortgage-backed securities representing part ownership of a pool of mortgage
loans. GNMA is a U.S. Government corporation within the Department of Housing
and Urban Development. Such loans are initially made by lenders such as mortgage
bankers, commercial banks and savings and loan associations and are either
insured by the Federal Housing Administration (FHA) or Farmers' Home
Administration (FmHA) or guaranteed by the Veterans Administration (VA). A GNMA
Certificate represents an interest in a specific pool of such mortgages which,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each certificate is guaranteed by the full faith and credit of the United States
Government.
GNMA Certificates differ from bonds in that principal is scheduled to be
paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. The Fund will purchase "modified pass through" type GNMA
Certificates, which entitle the holder to receive all interest and principal
payments owed on the mortgages in the pool (net of issuers' and GNMA fees),
regardless of whether or not the mortgagor has made such payment. The Fund will
use principal payments to purchase additional GNMA Certificates or other
government guaranteed securities. The balance of the Fund's assets will be
invested in other securities issued or guaranteed by the U.S. Government,
including U.S. Treasury bills, notes or bonds. The Fund may also invest in
repurchase agreements (see "Investment Policy and Restrictions") secured by such
U.S. Government securities or GNMA Certificates.
WHAT ARE GNMA CERTIFICATES?
GNMA Certificates are created by an "issuer", which is an FHA approved
mortgage banker who also meets criteria imposed by GNMA. The issuer assembles a
pool of FHA, FmHA, or VA insured or guaranteed mortgages which are homogeneous
as to interest rate, maturity and type of dwelling. Upon application by the
issuer, and after approval by GNMA of the pool, GNMA provides its commitment to
guarantee timely payment of principal and interest on the GNMA Certificates
backed by the mortgages included in the pool. The GNMA Certificates, endorsed by
GNMA, are then sold by the issuer through securities dealers.
GNMA is authorized under the Federal National Housing Act to guarantee
timely payment of principal and interest on GNMA Certificates. This guarantee is
backed by the full faith and credit of the United States. GNMA may borrow U.S.
Treasury funds to the extent needed to make payments under its guarantee. When
mortgages in the pool underlying the GNMA Certificates are prepaid by mortgagors
or by result of foreclosure, such principal payments are passed through to the
certificate holders. Accordingly, the life of the GNMA Certificate is likely to
be substantially shorter than the stated maturity of the mortgages in the
underlying pool. Because of such variation in prepayment rates, it is not
possible to predict the life of a particular GNMA certificate but FHA statistics
indicate that 25 to 30 year single family dwelling mortgages have an average
life of approximately 12 years. The majority of GNMA certificates are backed by
mortgages of this type, and accordingly the generally accepted practice has
developed to treat GNMA certificates as 30 year securities which prepay fully in
the 12th year.
GNMA certificates bear a nominal "coupon rate" which represents the
effective FHA-VA mortgage rate at the time of issuance, less 0.5% which
constitutes the GNMA and issuer's fees. For providing its guarantees, GNMA
receives an annual fee of 0.06% of the outstanding principal on certificates
backed by single family dwelling mortgages, and the issuer receives an annual
fee of 0.44% for assembling the pool and for passing through monthly payments of
interest and principal.
Payments to holders of GNMA certificates consist of the monthly
distributions of interest and principal less the GNMA and issuer's fees. The
actual yield to be earned by a holder of a GNMA certificate is calculated by
dividing such payments by the purchase price paid for the GNMA certificate
(which may be at a premium or a discount from the face value of the
certificate). Monthly distributions of interest, as contrasted to semi-annual
distributions which are common for other fixed interest investments, have the
effect of compounding and thereby raising the effective annual yield earned on
GNMA certificates. Because of the variation in the life of the pools of
mortgages which back various GNMA certificates, and because it is impossible to
anticipate the rate of interest at which future principal payments may be
reinvested, the actual yield earned from a portfolio of GNMA certificates, such
as that in which the Fund is invested, will differ significantly from the yield
estimated by using an assumption of a 12 year life for each GNMA certificate
included in such a portfolio as described.
The actual rate of prepayment for any GNMA certificate does not lend itself
to advance determination, although regional and other characteristics of a given
mortgage pool may provide some guidance for investment analysis. Also, secondary
market trading of outstanding GNMA certificates tends to be concentrated in
issues bearing the current coupon rate.
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INVESTMENT POLICY AND RESTRICTIONS
The Fund's fundamental investment policy is to seek high current income
consistent with liquidity and safety of principal through investment of at least
80% of its assets in GNMA certificates, with other investments limited to
securities issued or guaranteed by the U.S. Government or its agencies, or in
repurchase agreements secured by such instruments. This policy, and the
investment restrictions set forth below, may not be changed without the
affirmative vote (defined as the lesser of: 67% of the shares represented at a
meeting at which 50% of the outstanding shares are present, or 50% of the
outstanding shares) of the Fund's shareholders. These restrictions may be
summarized as follows:
The Fund will not (i) issue senior securities; (ii) borrow money; (iii)
underwrite securities of other issuers; (iv) concentrate its investments in a
particular industry to an extent greater than 25% of its total assets, provided
that such limitation shall not apply to securities issued or guaranteed by the
U.S. Government or its agencies; (v) purchase or sell real estate, commodity
contracts or commodities (however, the Fund may purchase interests in GNMA
mortgage-backed certificates); (vi) make loans to other persons except: (a)
through the purchase of a portion or portions of an issue or issues of
securities issued or guaranteed by the U.S. Government or its agencies, or (b)
through investments in "repurchase agreements" (which are arrangements under
which the Fund acquires a debt security subject to an obligation of the seller
to repurchase it at a fixed price within a short period), provided that no more
than 10% of the Fund's assets may be invested in repurchase agreements which
mature in more than seven days; (vii) purchase the securities of another
investment company or investment trust, except in the open market and then only
if no profit, other than the customary broker's commission, results to a sponsor
or dealer, or by merger or other reorganization; (viii) purchase any security on
margin or effect a short sale of a security; (ix) buy securities from or sell
securities (other than securities issued by the Fund) to any of its officers,
directors or its investment adviser, as principal; (x) contract to sell any
security or evidence of interest therein, except to the extent that the same
shall be owned by the Fund; (xi) purchase or retain securities of an issuer when
one or more of the officers and directors of the Fund or of the LMC, or a person
owning more than 10% of the stock of either, own beneficially more than 1/2 of
1% of the securities of such issuer and such persons owning more than 1/2 of 1%
of such securities together own beneficially more than 5% of the securities of
such issuer; (xii) invest more than 5% of its total assets in the securities of
any one issuer (except securities issued or guaranteed by the U.S. Government or
its agencies), except that such restriction shall not apply to 25% of the Fund's
portfolio so long as the net asset value of the portfolio does not exceed
$2,000,000; (xiii) purchase any securities if such purchase would cause the Fund
to own at the time of purchase more than 10% of the outstanding voting
securities of any one issuer; (xiv) purchase any security restricted as to
disposition under Federal securities laws; (xv) invest in interests in oil, gas
or other mineral exploration or development programs; or (xvi) buy or sell puts,
calls or other options.
GNMA Certificates may at times be purchased or sold on a delayed delivery
basis or on a when-issued basis. These transactions arise when GNMA Certificates
are purchased or sold by the Fund with payment and delivery taking place in the
future, in order to secure what is considered to be an advantageous price and
yield to the Fund. No payment is made until delivery is due, often a month or
more after the purchase. The Settlement date on such transactions will take
place no more than 120 days from the trade date. When the Fund engages in
when-issued and delayed delivery transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure of the buyer or
seller to do so may result in the Fund missing the opportunity of obtaining a
price considered to be advantageous. While when-issued GNMA Certificates may be
sold prior to the settlement date, the Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a GNMA
Certificate on a when-issued basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The Fund does not
believe that its net asset value or income will be adversely affected by its
purchase of GNMA Certificates on a when-issued basis. The Fund may invest in
when-issued securities without other conditions. Such securities either will
mature or be sold on or about the settlement date. The Fund may earn interest on
such account or securities for the benefit of shareholders.
The Fund may purchase construction loan securities which are issued to
finance building costs. The funds are disbursed as needed or in accordance with
a prearranged plan. The securities provide for the timely payment to the
registered holder of interest at the specified rate plus scheduled installments
of principal. Upon completion of the construction phase, the construction loan
securities are terminated, and project loan securities are issued. It is the
Fund's policy to record these GNMA certificates on trade date, and to segregate
assets to cover its commitments on trade date as well.
The Fund's investment portfolio may include repurchase agreements ("repos")
with banks and dealers in U.S. Government securities. A repurchase agreement
involves the purchase by the Fund of an investment contract from a bank or a
dealer in U.S. Government securities which contract is secured by U.S.
Government obligations or GNMA Certificates whose value is equal to or greater
than the value of the repurchase agreement including the agreed upon interest.
The agreement provides that the institution will repurchase the underlying
securities at an agreed upon time and
3
<PAGE>
price. The total amount received on repurchase would exceed the price paid by
the Fund, reflecting an agreed upon rate of interest for the period from the
date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the underlying securities. The difference
between the total amount to be received upon the repurchase of the securities
and the price paid by the Fund upon their acquisition is accrued daily as
interest. If the institution defaults on the repurchase agreement, the Fund will
retain possession of the underlying securities. In addition, if bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral by the Fund may be delayed or limited and the Fund may incur
additional costs. In such case the Fund will be subject to risks associated with
changes in the market value of the collateral securities. The Fund intends to
limit repurchase agreements to transactions with institutions believed by the
adviser to present minimal credit risk. Also, the Fund has undertaken not to
invest in real estate limited partnership interests, oil, gas or mineral leases,
as well as exploration or development programs. The Fund will not purchase
warrants except in units with other securities in original issuance thereof or
attached to other securities, if at the time of purchase, the Fund's investment
in warrants, valued at the lower of cost or market, would exceed 5% of the
Fund's total assets. Warrants which are not listed on the New York or American
stock exchanges shall not exceed 2% of the Fund's net assets. Shares of the Fund
will not be issued for consideration other than cash.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663, is the investment adviser to the Fund, and,
as such, advises and makes recommendations to the Fund with respect to its
investments and investment policies.
Pursuant to an investment advisory agreement the Fund pays LMC an investment
advisory fee at the annual rate of 0.60% of its average daily net assets up to
$150 million; 0.50% of such value in excess of $150 million up to $400 million;
0.45% of such value in excess of $400 million up to $800 million; and 0.40% of
such value in excess of $800 million; after deduction of Fund expenses, if any,
in excess of the expense limitations set forth below. The fee is computed on the
basis of current net assets at the end of each business day and is payable at
the end of each month.
Under the terms of the advisory agreement LMC also pays the Fund's expenses
for office rent, utilities, telephone, furniture and supplies utilized for the
Fund's principal office and the salaries and payroll expense of officers and
directors of the Fund who are also employees of LMC or its affiliates in
carrying out its duties under the investment advisory agreement. The Fund pays
all its other expenses, including custodian and transfer agent fees, legal and
registration fees, audit fees, printing of prospectuses, shareholder reports and
communications required for regulatory purposes or for distribution to existing
shareholders, computation of net asset value, mailing of shareholder reports and
communications, portfolio brokerage, taxes and independent director's fees, and
furnishes LFD, at printer's overrun cost paid by LFD, such copies of its
prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes.
LMC must also reimburse the Fund to the extent that all of the Fund's other
expenses (including the investment advisory fee) exclusive of interest and taxes
exceed 1.5% of the Fund's net assets up to $30 million and 1% of the net assets
in excess of $30 million during any fiscal year calculated by averaging such net
assets daily. In the event that the Fund's expenses exceed such limitation at
any month end, the investment advisory fee paid by the Fund for such month is
reduced accordingly. In addition to the provisions of the advisory agreement, in
order to comply with the securities regulations of certain states the adviser
has agreed to remit to the Fund the amount that the ordinary business expenses
of the Fund, including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses such as litigation exceed, for any fiscal
year, 1.5% of the average net assets of the Fund.
LMC's services are provided and its investment advisory fee is paid pursuant
to an agreement which will automatically terminate if assigned and which may be
terminated by either party upon 60 days' notice. The terms of the agreement and
any renewal thereof must be approved at least annually by a majority of the
Fund's Board of Directors, including a majority of directors who are not parties
to the agreement or "interested persons" of such parties, as such term is
defined under the Investment Company Act of 1940, as amended.
LMC serves as investment adviser to other investment companies (see
"Exchange Privilege" in the Prospectus) as well as private and institutional
investment clients. Included among these clients are persons and organizations
which own significant amounts of capital stock of LMC's parent company (see
below). These clients pay fees which LMC considers comparable to the fee levels
for similarly served clients.
LMC's accounts are managed independently with reference to applicable
investment objectives and current security holdings, but on occasion more than
one fund or counsel account may seek to engage in transactions in the same
security at the same time. To the extent practicable, such transactions will be
effected on a pro rata basis in proportion to the respective amounts of
securities to be bought and sold for each portfolio, and the allocated
4
<PAGE>
transactions will be averaged as to price. While this procedure may adversely
affect the price or volume of a given Fund transaction, the ability of the Fund
to participate in combined transactions may generally produce better overall
executions.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC also serves as distributor for Fund shares under a distribution
agreement which is subject to annual approval by a majority of the Fund's Board
of Directors, including a majority who are not "interested persons".
Fund Advisory Fee Paid to LMC:
Fiscal Year Ended Management Fee
December 31, 1995 $761,888
December 31, 1996 758,779
December 31, 1997 859,774
Of the directors, executive officers, employees ("affiliated persons") of
the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Jamison, Kantor and Lavery
and Mmes. Carnicelli, Carr-Waldron, Curcio, DiFalco, Gilfillan, Lederer and
Mosca (see "Management of the Fund") may also be deemed affiliates of LMC by
virtue of being officers, directors or employees thereof. As of February 28,
1998, 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.
LMC is a wholly-owned subsidiary of Lexington Global Asset Managers, Inc., a
Delaware corporation with offices at Park 80 West Plaza Two, Saddle Brook, New
Jersey 07663. 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.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased directly from dealers acting as principal
underwriters or market makers for GNMA certificates or government securities.
Such transactions are usually conducted on a net basis and accordingly no
brokerage commissions are paid by the Fund. The Fund may also execute
transactions through broker-dealers on a commission basis.
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
broker-dealers to execute the Fund's portfolio transactions. However, pursuant
to the Fund's investment management agreement, management consideration may be
given in the selection of broker-dealers to research provided and payment may be
made of a commission higher than that charged by another broker-dealer which
does not furnish research services or which furnishes research services deemed
to be 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 a 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 transaction or his overall responsibilities with respect
to the accounts as to which he exercises investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services might exceed commissions
that would be payable for 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.
For the fiscal years ended December 31, 1995, 1996 and 1997 the Fund paid
brokerage commissions of $30,151, $57,767 ,and $40,646, respectively. The Fund's
portfolio turnover rate for the fiscal years ending December 31, 1995, 1996 and
1997 were respectively, 30.69%, 128.76% and 134.28%.
5
<PAGE>
TAX-SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit Sharing
Plans including a 401(k) Salary Reduction Plan, Section 457 Deferred
Compensation Plan and a 403(b)(7) Plan. Plan services are available by
contacting the Shareholder Services Department of the Distributor at
1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT ("Traditional IRA and ROTH IRA")
What's the Difference between a Traditional IRA and a Roth IRA?
With a Traditional IRA, an individual can contribute up to $2,000 per year
and may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Non deductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59-1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.
With a Roth IRA, the contribution limits are essentially the same as
Traditional IRA's, but there is no tax deduction for contributions. All
dividends and investment growth in the account are tax-free. Most important with
a Roth IRA: there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Traditional IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70-1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a
Traditional IRA and a Roth IRA:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Characteristics Traditional Roth
IRA IRA
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligibility * Individuals (and their spouses) * Individuals (and their spouses)
who receive compensation who receive compensation
* Individuals age 70-1/2 and over * Individuals age 70-1/2 may con-
may not contribute tribute
- -----------------------------------------------------------------------------------------------------------
Tax Treatment Contributions * Subject to limitations, contribu- * No deduction permitted for
tions are deductible amounts contributed
- -----------------------------------------------------------------------------------------------------------
Contribution Limits * Individuals may contribute up to * Individuals may generally con-
$2,000 annually (or 100% of tribute up to $2,000 (or 100% of
compensation if less) compensation, if less)
* Deductibility depends on income * Ability to contribute phases out
level for individuals who are at income levels of $95,000 to
active participants in an $110,000 (individual taxpayer)
employer-sponsored retirement and $150,000 to $160,000 (mar-
plan ried taxpayers)
* Overall limit for contributions to
all IRA's (Traditional and Roth
combined) is $2,000 annually (or
100% of compensation, if less)
- -----------------------------------------------------------------------------------------------------------
Earnings * Earnings and interest are not * Earnings and interest are not
taxed when received by your IRA taxed when received by your IRA
- -----------------------------------------------------------------------------------------------------------
Rollover/Conversions * Individual may rollover amounts * Rollovers from other Roth IRAs
held in employer-sponsored or Traditional IRAs only
retirement arrangements * Amounts rolled over (or con-
(401(k), SEP IRA, etc.) tax free verted) from another Traditional
to Traditional IRA IRA are subject to income tax in
the year rolled over or converted
* Tax on amounts rolled over or
converted in 1998 is spread over
four year period (1998-2001)
- -----------------------------------------------------------------------------------------------------------
Withdrawals * Total (principal + earnings) tax- * Not taxable as long as a qualified
able as income in year distribution - generally, account
withdrawn (except for any prior open for 5 years, and age 59-1/2
non-deductible contributions) * Minimum withdrawals not
* Minimum withdrawals must required after age 70-1/2
begin after age 70-1/2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The minimum initial investment to establish a tax-sheltered plan is $250.
Subsequent investments are subject to a minimum of $50 for each account.
6
<PAGE>
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make
tax deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are, however, a number of special rules which apply
when self-employed individuals participate in such plans. Currently purchase
payments under a self-employed plan are deductible only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the individual's earned annual income (as
defined in the Code) and in applying these limitations not more than $150,000 of
"earned income" may be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available a
Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA Plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no obligation
to continue to invest in the Fund and may terminate the plan with the Fund at
any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by the LMC,
the cost of the plans generally is borne by the Fund; however, each IRA Plan
account is subject to an annual maintenance fee of $12.00 charged by the Agent.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay monthly dividends from investment income after the
close of each month, if earned and as declared by its Board of Directors. The
Fund intends to declare or distribute a dividend from capital gain income if
any, in December in order to comply with distribution requirements of the 1986
Tax Reform Act to avoid the imposition of a 4% excise tax. The Fund adopted a
fiscal year ending on December 31.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing requesting
payments in cash. This request must be received by the Agent at least seven days
before the dividend record date. Upon receipt by the Agent of such written
notice, all further payments will be made in cash until written notice to the
contrary is received. A record of shares owned by each shareholder will be
maintained by the Agent. These accounts will have the rights of other
shareholders with respect to shares so registered (see "How to Purchase Shares -
The Open Account" in the Prospectus).
Reference is made to the Notes to Financial Statements regarding the amount
and age of any capital loss carryforward at the end of the Fund's last fiscal
year. It is the Fund's policy to offset realized capital gains against its
capital loss carryforwards and not to distribute any offset gains.
TAX MATTERS
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by the
Fund made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and will therefore count
toward satisfaction of the Distribution Requirement.
If the Fund has a net capital loss (ie., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. As of December 31, 1997, the Fund has a capital
loss carryforward of $1,054,628, which expires in 2003. Under Code sections 382
and 383, if the Fund has an "ownership change," then the Fund's use of its
capital loss
7
<PAGE>
carryforward in any year following the ownership change will be limited to an
amount equal to the net asset value of the Fund immediately prior to the
ownership change multiplied by the long-term tax-exempt rate (which is published
monthly by the Internal Revenue Service) in effect for the month in which the
ownership change occurs (the rate for April 1998 is 5.04%). The Fund will use
its best efforts to avoid having an ownership change. However, because of
circumstances which may be beyond the control or knowledge of the Fund, there
can be no assurance that the Fund will not have, or has not already had, an
ownership change. If the Fund has or has had an ownership change, then any
capital gain net income for any year following the ownership change in excess of
the annual limitation on the capital loss carryforward will have to be
distributed by the Fund and will be taxable to shareholders as described under
"Fund Distributions" below.
In addition to satisfying the Distribution Requirement, a regulated
investment company must 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").
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
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 general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position. Any gain recognized by the Fund on
the lapse of, or any gain or loss recognized by the Fund from a closing
transaction with respect to, an option written by the Fund will be treated as a
short-term capital gain or loss.
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 made a taxable year election for excise tax purposes
as discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. For purposes of the asset
diversification test, obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government such as the Federal Agriculture
Mortgage Corporation, the Farm Credit System Financial Assistance Corporation, a
Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Government National Mortgage Corporation, and
the Student Loan Marketing Association are treated as U.S. Government
securities.
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.
8
<PAGE>
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of its
ordinary taxable income for the calendar year and 98% of its 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 and certain ordinary gains or losses incurred after
October 31 of any year (or after the end of its taxable year if it has made a
taxable year election) in determining the amount of ordinary taxable income for
the current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes. Distributions by the Fund generally will not qualify for the 70%
dividends-received deduction available to corporations on the receipt of
qualifying dividends from domestic 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).
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. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time a shareholder has held his shares or whether such gain was
recognized by the Fund prior to the date on which the shareholder acquired his
shares.
Conversely, if the Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each such shareholder
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.
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.
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 realized from a sale of the 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 realized but
undistributed income or gain or unrealized appreciation in the value of assets
held by the Fund distributions of such amounts to the shareholder will be
taxable in the manner described above, although economically they 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 they 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 month will be deemed to have been received by the
shareholders (and made by the
9
<PAGE>
Fund) on December 31 of such calendar year provided 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 distributions and the proceeds of redemption of shares, paid to
any shareholder who (1) has failed to provide a correct taxpayer identification
number, (2) is subject to backup withholding for failure properly to report the
receipt of interest or dividend income, or (3) failed to certify to the Fund
that it is not subject to backup withholding or that it is an "exempt recipient"
(such as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on a 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. Long-term capital gain recognized by an individual
shareholder will be taxed at the lowest rates applicable to capital gains if the
holder has held such shares for more than 18 months at the time of the sale.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) generally
will apply in determining the holding period of shares. Capital losses in any
year are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the dividend. A
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on a sale or redemption 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 and capital
gain dividends, and any gains realized upon a sale of shares of the Fund will be
subject to U.S. federal income tax at the rates applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, 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 (or subject to withholding at a reduced treaty
rate) unless the shareholder furnishes 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.
Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies may 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 an investment in the Fund.
INVESTMENT RETURN INFORMATION
For purposes 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
10
<PAGE>
return and yield. Under the rules of the Securities and Exchange Commission
("SEC rules"), funds advertising performance must include total return quotes
calculated according to the following formula:
P(l + T)n = ERV
Where: P=a hypothetical initial payment of $1,000
T=average annual total return
n=number of years (1, 5 or 10)
ERV=ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods at
the end of the 1, 5 or 10 year periods (or fractional
portion thereof).
Under the foregoing formula, the time period 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, the maximum sales load is deducted from the initial $1,000 payment and
all dividends and distributions by the Funds are assumed to have been reinvested
at net asset value as described in the Prospectus on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value. Any recurring account charges that
might in the future be imposed by the Funds 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 a Fund's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock 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. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules. Lexington GNMA Income Fund, Inc.'s average annual total return for the 1,
5 and 10 years ended December 31, 1997 are set forth in the table below:
Average Annual
Period Total Return
------ -------------
1 year ended December 31, 1997 10.20%
5 years ended December 31, 1997 7.40%
10 years ended December 31, 1997 8.91%
In addition to the total return quotations discussed above, the Fund may
advertise its yield based on a 30-day (or one month) period ended on the date of
the most recent balance sheet included in the Fund's Registration Statement,
computed by dividing the net investment income per share earned during the
period by the maximum offering price per share on the last day of the period,
according to the following formula:
a-b
-----
YIELD = 2[(cd + 1)6-1]
Where: a=dividends and interest earned during the period.
b=expenses accrued for the period (net of reimbursement).
c=the average daily number of shares outstanding during the period
that were entitled to receive dividends.
d=the maximum offering price per share on the last day of the period.
Under this formula, interest earned on debt obligations for the purposes of
"a" above, is calculated by (l) computing the yield to maturity of each
obligation (including actual accrued interest) at the close of business on the
last day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest), (2) dividing that
figure by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest as referred to above) to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the Fund's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the 30-day or one month
period. For mortgage or other receivables backed security subject to regular
paydowns (e.g. GNMA's), interest is calculated using the coupon rate and the
outstanding participant amount for one monthly paydown. For these types of
securities, interest income is also adjusted for the gain or loss or the monthly
paydown. In computing dividends accrued, dividend
11
<PAGE>
income is recognized by accruing 1/360 of the stated dividend rate of a security
each day that the security is in a Fund's portfolio.
The Fund may also from time to time advertise its yield based on a 90-day
period ended on the date of the most recent balance sheet included with the
Funds' Registration Statement, computed in accordance with the yield formula
described above, as adjusted to conform with the differing period for which the
yield computation is based.
Any quotation of performance stated in terms of yield (whether based on a
30-day or 90-day period) will be given no greater prominence than the
information prescribed under SEC rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing that
such performance data represents past performance and that the investment return
and principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original cost.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York,
10036, has been retained to act as the Custodian for the Fund's investments and
assets. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, has also been retained to act as the transfer agent and
dividend disbursing agent for the Fund. Neither Chase Manhattan Bank, N.A. nor
State Street Bank and Trust Company have any part in determining the investment
policies of the Fund or in determining which portfolio securities are to be
purchased or sold by the Fund or in the declaration of dividends and
distributions.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund, their ages as of the
Fund's most recent fiscal year-end and their principal occupations are set forth
below:
+S.M.S. CHADHA (60), Director. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.
*+ROBERT M. DEMICHELE (53), President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers,
Inc.; Chairman and Chief Executive Officer, Lexington Funds Distributor,
Inc., Chairman of the Board, Market Systems Research, Inc. and Market
Systems Research Advisors, Inc.; Director, Chartwell Re Corporation,
Claredon National Insurance Company, The Navigator's Group, Inc., Unione
Italiana Reinsurance, Vanguard Cellular Systems, Inc. and Weeden & Co.;
Vice Chairman of the Board of Trustees, Union College and Trustee, Smith
Richardson Foundation.
+BEVERLEY C. DUER (68), Director. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor; formerly, Manager of Operations Research Department, CPC
International, Inc.
*+BARBARA R. EVANS (37), Director. 5 Fernwood Road, Summit, N.J. 07901 Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation.
*+RICHARD M. HISEY (39), Vice President, Treasurer and Director. P.O. Box 1515,
Saddle Brook, N.J. 07663. Chief Financial Officer, Managing Director and
Director, Lexington Management Corporation; Chief Financial Officer,
Senior Vice President and Director, Lexington Funds Distributor, Inc.
Chief Financial Officer, Market Systems Research Advisors, Inc.
*+LAWRENCE KANTOR (50), 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,
General Manager-Mutual Funds, Lexington Global Asset Managers, Inc.;
Executive Vice President and Director, Lexington Funds Distributor, Inc.
+JERARD F. MAHER (52), Director. 300 Raritan Center Parkway, Edison, N.J. 08818.
General Counsel, Federal Business Center; Counsel, Ribis, Graham & Curtin.
+ANDREW M. McCOSH (57), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland.
+DONALD B. MILLER (71), Director. 10725 Quail Covey Road, Boynton Beach, 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).
12
<PAGE>
+JOHN G. PRESTON (65), Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts 02181.
+MARGARET W. RUSSELL (77), Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor, formerly Community Affairs Director, Union Camp
Corporation.
*+ALLAN H. STOWE, (60), Trustee. 3674 Fifth and Ocean Avenues, Normandy Beach,
New Jersey 08739. President, Shelter Service Company, Inc.; President,
Dartmouth Co-operative Society Co., Inc.
*+DENIS P. JAMISON, (50), Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director Fixed Income
Strategy, Lexington Management Corporation. Mr. Jamison is a Chartered
Financial Analyst and a member of the New York Society of Security
Analysts.
*+LISACURCIO (38), Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor,
Inc.; Secretary, Lexington Global Asset Managers, Inc.
*+RICHARD J. LAVERY (44), 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 (38), Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR-WALDRON (30), Assistant Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick
LLP.
*+CATHERINE DiFALCO (28), Assistant Treasurer. P.O. Box 1515, Saddle Brook, New
Jersey 07663. Prior to October 1997, Manager, Fund Accounting.
*+SIOBHAN GILFILLAN (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+JOANK. LEDERER (31), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1997, Director of Investment Accounting, Diversified
Investment Advisors, Inc. Prior to April 1996, Assistant Vice President,
PIMCO.
*+SHERI MOSCA (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+PETER CORNIOTES (35), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST (37), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington
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, Jamison, Kantor,
Lavery, Maher, McCosh, Miller, Preston and Stowe and Mmes. Carnicelli,
Carr-Waldron, Curcio, Evans, DiFalco, Gilfillan, Lederer, Mosca and Russell
hold similar offices with some or all of the other registered investment
companies advised and/or distributed by Lexington Management Corporation and
Lexington Funds Distributor, Inc.
The Board of Directors met 5 times during the twelve months ended December
31, 1997, 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 up to a maximum of $9,000 per
year for Directors living outside the U.S. and $6,000 per year for Directors
living within the U.S. 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.
13
<PAGE>
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1997 to December 31, 1997 for each Director:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of Directorships
Name of Director Compensation from Fund Fund and Fund Complex in Fund Complex
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $1,712 $26,821 15
- -----------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 16
- -----------------------------------------------------------------------------------------------------
Beverley C. Duer $1,712 $29,521 16
- -----------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- -----------------------------------------------------------------------------------------------------
Richard M. Hisey 0 0 5
- -----------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- -----------------------------------------------------------------------------------------------------
Jerard F. Maher $1,712 $29,521 16
- -----------------------------------------------------------------------------------------------------
Andrew M. McCosh $1,600 $25,029 15
- -----------------------------------------------------------------------------------------------------
Donald B. Miller $1,712 $26,821 15
- -----------------------------------------------------------------------------------------------------
Francis Olmsted* $1,319 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
John G. Preston $1,712 $26,821 15
- -----------------------------------------------------------------------------------------------------
Margaret W. Russell $1,712 $27,045 15
- -----------------------------------------------------------------------------------------------------
Philip C. Smith* $1,220 $19,200 N/A
- -----------------------------------------------------------------------------------------------------
Allen H. Stowe 0 $2,574 2
- -----------------------------------------------------------------------------------------------------
Francis A. Sunderland* $1,140 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Retired
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1997, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCash, Miller, Preston, Russell
and Stowe are 2, 19, 2, 2, 23, 19, 16, and 0, 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
14
<PAGE>
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.
15
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997
STATED PRINCIPAL VALUE
COUPON MATURITY AMOUNT (NOTE 1)
- --------------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES: 93.7%
<C> <C> <C> <C>
10.25% .................................................. 8/2029 $ 1,011,575 $ 1,096,921
9.50 .................................................... 3/2023 1,985,479 2,130,658
9.25 .................................................... 1/2026-8/2029 5,987,318 6,404,224
9.00 .................................................... 5/2020-11/2027 980,774 1,051,751
8.75 .................................................... 9/1998-10/2023 3,368,667 3,576,901
8.50 .................................................... 6/2022-1/2023 1,638,743 1,693,512
8.25 .................................................... 3/2001-10/2038 9,207,601 9,629,590
8.25* ................................................... 5/2038-10/2038 628,257 642,292
8.20 .................................................... 4/2012-5/2017 10,947,263 11,499,852
8.15 .................................................... 12/2011-9/2015 10,431,665 10,945,440
8.125 ................................................... 5/2026-6/2039 11,342,114 11,660,030
8.125* .................................................. 3/2036-6/2039 2,590,140 2,647,622
8.10 .................................................... 6/2012-7/2012 1,840,853 1,929,434
8.00 .................................................... 10/2012-11/2038 5,629,184 5,789,550
8.00* ................................................... 11/2030-11/2038 1,082,424 1,107,814
7.875 ................................................... 6/2021-7/2038 5,184,063 5,235,635
7.875* .................................................. 6/2021-7/2038 2,857,663 2,894,729
7.75 .................................................... 8/2014-3/2032 1,400,895 1,434,995
7.75* ................................................... 8/2014 658,977 671,300
7.70 .................................................... 8/2013 848,986 881,086
7.65 .................................................... 12/2012-4/2031 3,918,324 4,021,218
7.625 ................................................... 8/2032 1,545,588 1,581,322
7.50 .................................................... 4/2013 1,254,457 1,295,616
7.25 .................................................... 8/2022 2,137,196 2,185,284
7.20 .................................................... 6/2014 2,918,300 2,984,866
7.00 .................................................... 5/2026-11/2027 49,450,503 49,889,427
6.75 .................................................... 6/2013-8/2017 746,387 756,461
6.70 .................................................... 12/2014 370,111 374,737
6.65 .................................................... 12/2013-2/2015 1,688,860 1,706,335
6.55 .................................................... 11/2013 6,712 6,763
5.65 .................................................... 7/2029 481,691 418,127
------------
TOTAL GNMA CERTIFICATES (cost $143,665,169) .................................................. 148,143,492
------------
U.S. GOVERNMENT OBLIGATIONS: 10.6%
U.S. Treasury Bills, 5.00%, due 02/26/98 ......................................... 1,400,000 1,389,111
U.S. Treasury Bonds, 6.00%, due 02/15/26 ......................................... 11,000,000 10,977,230
U.S. Treasury Notes, 7.00%, due 07/15/06 ......................................... 4,000,000 4,316,880
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $16,555,964) .......................................... 16,683,221
------------
TOTAL INVESTMENTS: 104.3% (cost $160,221,133+)(Note 1) ........................................ 164,826,713
Liabilities in excess of other assets: (4.3%) ................................................. (6,755,941)
------------
TOTAL NET ASSETS: 100% (equivalent to $8.40 per share on 18,817,784 shares outstanding) ....... $158,070,772
============
*Construction loan securities (Note 1).
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
</TABLE>
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
Investments, at value
(cost $160,221,133) (Note 1) ........................... $ 164,826,713
Cash ...................................................... 18,386
Receivable for shares sold ................................ 679,041
Interest receivable ....................................... 1,256,853
-------------
Total Assets ....................................... 166,780,993
-------------
LIABILITIES
Due to Lexington Management Corporation
(Note 2) ............................................... 78,813
Payable for investment securities purchased ............... 8,221,559
Payable for shares redeemed ............................... 213,160
Distributions payable ..................................... 106,825
Accrued expenses .......................................... 89,864
-------------
Total Liabilities .................................. 8,710,221
-------------
NET ASSETS (equivalent to $8.40 per share on
18,817,784 shares outstanding) (Note 3) ................. $ 158,070,772
=============
NET ASSETS consist of:
Capital stock--authorized 100,000,000 shares
$.01 par value per share ................................ $ 188,178
Additional paid-in capital (Note 1) ....................... 154,331,238
Undistributed net investment income
(Note 1) ................................................ 404
Accumulated net realized loss on investments
(Notes 1 and 5) ......................................... (1,054,628)
Unrealized appreciation on investments .................... 4,605,580
-------------
$ 158,070,772
=============
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1997
INVESTMENT INCOME
Interest income .............................. $ 10,453,919
EXPENSES
Investment advisory fee (Note 2) .......... $ 859,774
Transfer agent and shareholder
servicing expense (Note 2) .............. 274,525
Accounting expenses (Note 2) .............. 104,755
Printing and mailing expenses ............. 40,244
Professional fees ......................... 35,464
Registration fees ......................... 26,835
Custodian expense ......................... 24,764
Computer processing fees .................. 19,556
Directors' fees and expenses .............. 17,398
Other expenses ............................ 48,809
-----------
Total expenses .......................... 1,452,124
--------------
Net investment income ................. 9,001,795
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE 4)
Net realized gain on investments .......... 2,716,315
Net change in unrealized
appreciation of investments ............. 2,258,584
--------------
Net realized and
unrealized gain ..................... 4,974,899
--------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................ $ 13,976,694
==============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1997 and 1996
1997 1996
------------- -------------
Net investment income .................... $ 9,001,795 $ 8,297,434
Net realized gain on investments ......... 2,716,315 1,733,533
Net change in unrealized appreciation
of investments ........................ 2,258,584 (3,035,171)
------------- -------------
Increase in net assets
resulting from operations ........... 13,976,694 6,995,796
Distributions to shareholders from
net investment income ................. (9,107,074) (8,115,172)
Increase in net assets from capital
share transactions (Note 3) ........... 19,424,028 4,215,069
------------- -------------
Net increase in net assets .......... 24,293,648 3,095,693
NET ASSETS
Beginning of period ................... 133,777,124 130,681,431
------------- -------------
End of period (including
undistributed net
investment income of
$404 and $9,290,
1997 and 1996, respectively) ........ $ 158,070,772 $ 133,777,124
============= =============
The Notes to Financial Statements are an integral part of these statements.
LEXINGTON GNMA INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington GNMA 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 a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae") certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government. 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 are valued at the last reported bid price as
of the last business day of the period or, if no current bid price is available,
by the valuation as determined by the Fund's management in good faith under the
direction of the Fund's Board of Directors. Short-term securities having a
maturity of 60 days or less are stated at amortized cost, which approximates
market value. 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.
WHEN-ISSUED SECURITIES The Fund, at times, may purchase GNMA certificates
on a delayed delivery, forward or when-issued basis with payment and delivery
often taking place a month or more after the initiation of the transaction. It
is the Fund's policy to record when-issued GNMA certificates (and the
corresponding obligation to pay for the securities) at the time the purchase
commitment becomes fixed--generally on the trade date. It is also the Fund's
policy to segregate assets to cover its commitments for when-issued securities
on trade date.
CONSTRUCTION LOAN SECURITIES The Fund may purchase construction loan
securities which are issued to finance building costs. The funds are disbursed
as needed or in accordance with a prearranged plan. The securities provide for
the timely payment to the registered holder of interest at the specified rate
plus scheduled installments of principal. Upon completion of the construction
phase, the construction loan securities are terminated, and project loan
securities are issued. It is the Fund's policy to record these GNMA certificates
on trade date, and to segregate assets to cover its commitments on trade date as
well.
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 are normally declared
and paid monthly and dividends from net realized capital gains are normally
declared and paid annually. However, 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
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (Continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
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 operatons 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 0.60% of the Fund's average daily net assets up to
$150 million and in decreasing stages to 0.40% of average daily net assets in
excess of $800 million. In accordance with the investment advisory agreement,
LMC is required to reimburse the Fund for any expenses, excluding interest,
taxes and extraordinary expenses which exceed 1.50% of the first $30 million of
the Fund's average daily net assets and 1.00% thereafter. No reimbursement was
required for the year ended December 31, 1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $223,510, which are incurred by the Fund, but
paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
Year ended Year ended
December 31, 1997 December 31, 1996
----------------------------------------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
Shares sold ....... 5,059,013 $ 41,657,370 4,079,533 $ 33,104,861
Shares issued on
reinvestment
of dividends 916,291 7,517,813 753,267 6,088,504
---------- ----------- ---------- -----------
5,975,304 49,175,183 4,832,800 39,193,365
Shares redeemed ... (3,624,917) (29,751,155) (4,312,315) (34,978,296)
---------- ----------- ---------- -----------
Net increase ...... 2,350,387 $ 19,424,028 520,485 $ 4,215,069
========== =========== ========== ===========
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1997, excluding short-term securities, were $231,217,041 and
$215,860,626, respectively.
At December 31,1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$4,681,862 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $76,282.
5. FEDERAL INCOME TAXES--CAPITAL LOSS CARRYFORWARDS
Capital loss carryforwards available for Federal income tax purposes as of
December 31, 1997 are: $1,054,628 expiring in 2003. To the extent any future
capital gains are offset by these losses, such gains may not be distributed to
shareholders.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $ 8.12 $ 8.19 $ 7.60 $ 8.32 $ 8.26
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ........................ 0.51 0.53 0.58 0.55 0.59
Net realized and unrealized
gain (loss) on investments ................. 0.29 (0.08) 0.59 (0.72) 0.06
-------- -------- -------- -------- --------
Total income (loss) from investment operations .. 0.80 0.45 1.17 (0.17) 0.65
-------- -------- -------- -------- --------
Less distributions:
Distributions from net investment income ..... (0.52) (0.52) (0.58) (0.55) (0.59)
-------- -------- -------- -------- --------
Net asset value, end of period .................. $ 8.40 $ 8.12 $ 8.19 $ 7.60 $ 8.32
======== ======== ======== ======== ========
Total return .................................... 10.20% 5.71% 15.91% (2.07%) 8.06%
Ratio to average net assets:
Expenses ..................................... 1.01% 1.05% 1.01% 0.98% 1.02%
Net investment income ........................ 6.28% 6.56% 7.10% 6.90% 6.96%
Portfolio turnover .............................. 134.28% 128.76% 30.69% 37.15% 52.34%
Net assets at end of period(000's omitted) ...... $158,071 $133,777 $130,681 $132,108 $149,961
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington GNMA Income Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington GNMA Income
Fund, Inc. as of December 31, 1997, 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, 1997 by correspondence with the custodian. As to securities
purchased but not yet received, 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 GNMA Income Fund, Inc. as of December 31, 1997, 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 4, 1998
