PROSPECTUS
April 29, 1996
Lexington Growth and Income
Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service - 1-800-526-0056
Institutional/Financial Adviser Services - 1-800-367-9160
24 Hour Account Information - 1-800-526-0052
A NO-LOAD MUTUAL FUND THAT IS FULLY MANAGED. ITS PRINCIPAL INVESTMENT OBJECTIVE
IS LONG TERM APPRECIATION OF CAPITAL. INCOME RETURN IS A SECONDARY OBJECTIVE.
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Lexington Growth and Income Fund, Inc. (the "Fund") is a no load
open-end diversified management investment company. The Fund's
principal investment objective is long term appreciation of capital.
Income is a secondary objective.
Shareholders may invest, reinvest or redeem shares at any time
without charge or penalty.
Lexington Management Corporation ("LMC") is the Investment Adviser
of the Fund. Lexington Funds Distributor, Inc. ("LFD") is the
Distributor of shares of the Fund.
This Prospectus concisely sets forth information about the Fund
that you should know before investing. It should be read and retained
for future reference.
A Statement of Additional Information dated April 29, 1996, which
provides a further discussion of certain areas in this Prospectus and
other matters that may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call the appropriate telephone
number above or write to the address listed above.
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.
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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.
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Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management fees ..................................................... 0.71%
12b-1 fees .......................................................... 0.25%
Other fees .......................................................... 0.13%
-----
Total Fund Operating Expenses ........................................... 1.09%
=====
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period $11.11 $34.66 $60.08 $132.87
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
indirectly. (For more complete descriptions of the various costs and expenses,
see "How to Purchase Shares" and "Investment Adviser and Distributor" below.)
The Expenses and Example (except the 12b-1 fees) appearing in the table above
are based on the Fund's expenses for the period from January 1, 1995 to December
31, 1995. The 12b-1 fees shown in the table reflect the maximum amount which may
be paid under the Distribution Plan. See "Distribution Plan." The Example shown
in the table above should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Financial Highlights information for each of the years in the
five year period ended December 31, 1995 has been audited by KPMG Peat Marwick
LLP, Independent Auditors, whose report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the Statement of
Additional Information. The Fund's annual report, which contains additional
information, is available upon request and without charge.
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Selected Per Share Data for a share outstanding throughout the period
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............ $14.36 $16.16 $16.25 $16.39 $14.24 $16.19 $14.39 $13.58 $19.16 $18.62
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from
investment operations:
Net investment income .......... 0.22 0.17 0.21 0.23 0.35 0.60 0.50 0.46 0.43 0.47
Net realized and unrealized gain
(loss) on investments ........ 3.00 (0.68) 1.94 1.79 3.17 (2.25) 3.44 0.80 0.02 3.06
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss)
from investment operations ..... 3.22 (0.51) 2.15 2.02 3.52 (1.65) 3.94 1.26 0.45 3.53
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from
net investment income ........ (0.22) (0.16) (0.21) (0.32) (0.35) (0.30) (0.60) (0.45) (0.51) (0.66)
Distributions from
net realized capital gains ... (1.65) (0.91) (2.03) (1.84) (1.02) - (1.54) - (5.52) (2.33)
Distributions in excess of
net realized gains
(temporary book-tax difference). - (0.22) - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions .............. (1.87) (1.29) (2.24) (2.16) (1.37) (0.30) (2.14) (0.45) (6.03) (2.99)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period ... $15.71 $14.36 $16.16 $16.25 $16.39 $14.24 $16.19 $14.39 $13.58 $19.16
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return ..................... 22.57% (3.11%) 13.22% 12.36% 24.87% (10.27%) 27.56% 9.38% 0.15% 20.52%
Ratio to average net assets:
Expenses ....................... 1.09% 1.15% 1.29% 1.20% 1.13% 1.04% 1.02% 1.10% 0.96% 0.95%
Net investment income .......... 1.38% 1.06% 1.20% 2.57% 2.19% 3.91% 2.82% 3.20% 2.37% 2.52%
Portfolio turnover ...............159.94% 63.04% 93.90% 88.13% 80.33% 67.39% 64.00% 81.10% 95.28% 81.95%
Net assets, end of period
(000's omitted) ...............$138,901 $124,289 $134,508 $126,241 $121,263 $104,664 $128,329 $111,117 $112,780 $124,678
</TABLE>
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DESCRIPTION OF THE FUND
The Fund is an open-end diversified management investment company. It is
called a no-load Fund because its shares are sold without a sales charge.
INVESTMENT OBJECTIVE
The Fund's principal investment objective is long term appreciation of
capital. Income is a secondary objective. The Fund normally will invest its
assets in publicly traded common stocks and senior securities convertible into
common stocks of domestic and foreign companies. It intends however, when it
deems it appropriate for defensive purposes, to make investments in varying
amounts of senior securities such as bonds, debentures, and preferred stocks.
The Fund attempts to achieve its objective by investing principally in publicly
traded common stocks, bonds, debentures and preferred stock (which may be
convertible into or which carries the right to be converted into common stock),
and secondarily in securities as described above which offer attractive current
yields and the potential for capital appreciation.
INVESTMENT POLICY AND RESTRICTIONS
The Fund's principal investment objective is long term appreciation of
capital. Income return is a secondary objective. The Fund will not: (i) issue
senior securities; (ii) underwrite securities of other issuers; (iii) purchase
or sell real estate, commodity contracts or commodities (however, the Fund may
purchase interests in real estate investment trusts whose securities are
registered under the Securities Act of 1933 and are readily marketable); (iv)
make loans to other persons except (a) through the purchase of a portion or
portions of publicly distributed bonds, notes, debentures and evidences of
indebtedness authorized by its investment policy, 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; (v) purchase the securities of another investment company or investment
trust except in the open market where no profit results to a sponsor or dealer,
other than the customary broker's commission; (vi) purchase any security on
margin or effect a short sale of a security; (vii) buy securities from or sell
securities to any of its officers and directors or its investment adviser or
principal distributor as principal; (viii) contract to sell any security or
evidence of interest therein except to the extent that the same shall be owned
by the Fund; (ix) retain securities of an issuer when one or more of the
officers and directors of the Fund or the investment adviser or a person owning
more than 10% of the stock of either, own beneficially more than 0.5% of the
securities of such issuer and the persons owning more than 0.5% of such
securities together own beneficially more than 5% of the securities of such
issuer; (x) invest more than 5% of the value of its total assets in the
securities of any one issuer nor acquire more than 10% of the outstanding voting
securities of any one issuer; (xi) invest in companies for the purpose of
exercising management or control; or (xii) concentrate its investments in a
particular industry; thus the Fund will not purchase a security if the immediate
effect of such purchase would be to increase the Fund's holdings in such
industry above 25% of the Fund's assets. The 5% diversification limitation set
forth in subparagraph (x) above does not apply to obligations issued or
guaranteed as to principal and interest by the United States government, nor
does it apply to bank certificates of deposit, which are not classified by the
Fund as securities for the purposes of this limitation.
The Fund shareholder vote required for modification of its investment
policies or restrictions is the lesser of: (a) 67% or more of the voting
securities present at a meeting if the holders of more than 50% are present or
represented by proxy; or (b) more than 50% of the voting securities.
In addition to the above fundamental investment restrictions, the Fund has
undertaken not to: a) invest an aggregate of more than 5% of its total assets in
the securities of unseasoned issuers and equity securities of issuers which are
not readily marketable; b) purchase any class of securities of an issuer if such
purchase would cause the Fund to own at the time of the purchase more than 10%
of any such class of securities of an issuer; c) invest in puts, calls,
straddles, spreads, and any combination thereof; d) invest in
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<PAGE>
interests in oil, gas or other mineral exploration or development programs; e)
pledge, mortgage or hypothecate the assets of the greater than 15% of the gross
assets of the Fund taken at cost; or f) invest more than 20% of its assets in
foreign companies.
The Fund has authority to borrow money from a bank not in excess of the
lesser of: (a) 5% of the gross assets of the Fund at the current market value at
the time of such borrowing; or (b) 10% of the gross assets of the Fund taken at
cost. Any such borrowing may be undertaken only as a temporary measure for
extraordinary or emergency purposes. This borrowing power has not been exercised
by the Fund's management.
Although the Fund has the right to pledge, mortgage or hypothecate its
assets, in order to comply with a state statute, the Fund will not, as a matter
of operating policy while offering shares in such state, pledge, mortgage or
hypothecate its portfolio securities to the extent that at any time the
percentage of pledged securities will exceed 10% of the offering price of the
Fund's shares.
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 debt
securities 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
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.
Risk Considerations
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally are
denominated and pay interest or dividends in foreign currencies, the value of
the assets of the Fund as measured in United States dollars will be affected
favorably or unfavorably by changes in the relationship of the United States
dollar and other currency rates. The Fund may incur costs in connection with the
conversion or transfer of foreign currencies. In addition, there may be less
publicly available information about foreign companies than United States
companies. Foreign companies may not be subject to accounting, auditing, and
financial reporting standards, practices and requirements comparable to those
applicable to United States companies. Foreign securities markets, while growing
in volume, have for the most part substantially less volume than United States
securities markets and securities of foreign companies are generally less liquid
and at times their prices may be more volatile than securities of comparable
United States companies. Foreign stock exchanges, brokers and listed companies
are generally subject to less government supervision and regulation than in the
United States. The customary settlement time for foreign securities may be
longer than the 5 day customary settlement time for United States securities.
Although the Fund will try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization or foreign government
restrictions or other adverse political, social or diplomatic developments that
could affect investment in these nations.
Income from foreign securities held by the Fund may, and in some cases will
be reduced by a withholding tax at the source or other foreign taxes. A
shareholder of the Fund will, subject to certain restrictions, be entitled to
claim a creditor deduction for United States Federal income tax purposes for the
shareholder's pro rata share of such foreign taxes paid by the Fund. (See
Dividends, Capital Gains, Distributions and Tax Matters).
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<PAGE>
PORTFOLIO TURNOVER
In the selection of various securities, long-term potential will take
precedence over short term market fluctuations. While management maintains the
flexibility to sell portfolio securities regardless of how long they have been
held by the Fund, it is anticipated that the Fund's annual portfolio turnover
rate will not exceed 100%. A rate of 100% could occur for example, if all of the
securities held by the Fund were replaced within a period of one year. High
portfolio turnover rates can result in corresponding increases in brokerage
costs. For the fiscal year ending December 31, 1995 the portfolio turnover rate
was 159.94%.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Directors. There are currently nine Directors (of whom six are
non-affiliated persons) who meet five times each year. The Statement of
Additional Information contains additional information regarding the directors
and officers of the Fund.
PORTFOLIO MANAGER
The Fund is managed by an investment management team. Alan H. Wapnick, Vice
President is the lead manager.
Mr. Wapnick is a Senior Vice President of LMC and Director of Domestic
Investment Equity Strategy and is responsible for portfolio management. He has
26 years investment experience. Prior to joining LMC 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.
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 of the Fund.
Lexington Funds Distributor, Inc. ("LFD") is the distributor of shares of the
Fund.
LMC, established in 1938, currently manages over $3.0 billion in assets. LMC
serves as investment adviser to other investment companies and private and
institutional investment accounts. Included among these clients are persons and
organizations which own significant amounts of capital stock of LMC's parent.
The clients pay fees which LMC considers comparable to the fees paid by
similarly served clients.
LMC is paid an investment advisory fee at the annual rate of 0.75% of the
average daily net assets of the Fund up to $100 million and 0.60% of such assets
in excess of $100 million up to $150 million. For the fiscal year ended December
31, 1995, the Fund paid advisory fees to LMC of $935,397.
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 and LFD are wholly-owned subsidiaries 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. See "Investment
Adviser and Distributor" in the Statement of Additional Information.
HOW TO PURCHASE SHARES
Initial Investment-Minimum $1,000. By Mail: Send a check payable to Lexington
Growth and Income Fund, Inc., along with a completed New Account Application to
State Street Bank and Trust Company (the "Agent"). See the back cover of this
Prospectus for the Agent's address.
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Subsequent Investments-Minimum $50. By Mail: Send a check payable to Lexington
Growth and Income Fund, Inc., to the Agent, accompanied by either the detachable
form which is part of the confirmation of a prior transaction or a letter
indicating the dollar amount of the investment and identifying the Fund, account
number and registration.
Broker-Dealers: You may invest in shares of the Fund through broker-dealers who
are members of the National Association of Securities Dealers, Inc., and other
financial institutions and who have selling agreements with LFD. Broker-dealers
and financial institutions who process such purchase and sale transactions for
their customers may charge a transaction fee for these services. The fee may be
avoided by purchasing shares directly from the Fund.
The Open Account: By investing in the Fund, a shareholder appoints the Agent, as
his agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares (see "Dividend, Distribution and Reinvestment
Policy"). Stock certificates will be issued for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check or
federal funds wire, certificates will not be issued for 30 days. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund). A
shareholder may arrange to make additional purchases of shares automatically on
a monthly or quarterly basis with the Automatic Investing Plan, "Lex-O-Matic".
The investments of $50 or more are automatically deducted from a checking
account on or about the 15th day of each month. The institution must be an
Automated Clearing House (ACH) member. Should an order to purchase shares of a
fund be cancelled because your automated transfer does not clear, you will be
responsible for any resulting loss incurred by that fund. The shareholder
reserves the right to discontinue the Lex-O-Matic program provided written
notice is given ten days prior to the scheduled investment date. Further
information regarding this service can be obtained from Lexington by calling
1-800-526-0056.
On payroll deduction accounts administered by a employer and on payments
into qualified pension or profit sharing plans and other continuing purchase
programs, there are no minimum purchase requirements.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined as of the close
of trading on each day the New York Stock Exchange is open, by dividing the
value of the Fund's securities plus any cash and other assets (including accrued
dividends and interest) less all liabilities (including accrued expenses) by the
number of shares outstanding, the result being adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange is valued at
the last sale price prior to the time when assets are valued on the principal
exchange on which the security is traded. If no sale is reported at that time,
the mean between the current bid and asked price will be used. However, when LMC
deems it appropriate, prices obtained for the day of valuation from a third
party pricing service will be used. For over-the-counter securities the mean
between the bid and asked prices is used. Short-term securities having maturity
of 60 days or less are valued at amortized cost when it is determined by the
Fund's Board of Directors that amortized cost reflects the fair value of such
securities. Securities for which market quotations are not readily available and
other assets are valued by the Fund management in good faith under the direction
of the Fund's Board of Directors.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities used in computing the net asset value of the shares
of the Fund are determined as of the earlier of such market close or the closing
time of the New York Stock Exchange (the "Exchange"). Foreign currency exchange
rates are also generally determined prior to the close of the Exchange.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the Exchange, which will not be reflected in the computation of net asset value,
if, during such periods, events occur which materially affect the value of such
securities, the securities will be valued at their fair market value as
determined by the investment adviser and approved in good faith by the
Board of Directors.
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<PAGE>
In order to determine net asset value per share, the aggregate value of
portfolio securities is added to the value of the Fund's other assets, such as
cash and receivables; the total of the assets thus obtained, less liabilities,
is then divided by the number of shares outstanding.
Terms of Offering: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss the Fund reserves the right to
redeem shares owned by the purchaser, seek reimbursement directly from the
purchaser and may prohibit or restrict the purchaser in placing future orders in
any of the Lexington Funds.
The Fund reserves the right to reject any order, and to waive or lower the
investment minimums with respect to any person or class of persons, including
shareholders of the Fund's special investment programs. An order to purchase
shares is not binding on the Fund until it has been confirmed by the Agent.
Account Statements: The Agent will send shareholders either purchasing or
redeeming shares of the Fund, a confirmation of the transaction indicating the
date the purchase or redemption was accepted, the number of shares purchased or
redeemed, the purchase or redemption price per share, and the amount purchased
or redemption proceeds. A statement is also sent to shareholders whenever a
distribution is paid, or when a change in the registration, address, or dividend
option occurs. Shareholders are urged to retain their account statements for tax
purposes.
HOW TO REDEEM SHARES
By Mail: Send to the Agent (see the back cover of this Prospectus for the
address): (1) a written request for redemption, signed by each registered owner
exactly as the shares are registered including the name of the Fund, account
number and exact registration; (2) stock certificates for any shares to be
redeemed which are held by the shareholder; (3) signature guarantees, when
required, and (4) the additional documents required for redemptions by
corporations, executors, administrators, trustees, and guardians. Redemptions by
mail will not become effective until all documents in proper form have been
received by the Agent. If a shareholder has any questions regarding the
requirements for redeeming shares, he should call the Fund at the toll free
number on the back cover prior to submitting a redemption request. If a
redemption request is sent to the Fund in New Jersey, it will be forwarded to
the Agent and the effective date of redemption will be the date received by the
Agent.
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.
Signature Guarantee: Signature guarantees are required in connection with (a)
redemptions by mail involving $25,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) changes in instructions as to where the
proceeds of redemptions are to be sent, and (d) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. A notary
public is not an acceptable guarantor.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") specifying the total number
of shares to be redeemed, or (c) on all stock certificates tendered for
redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power.
Redemption Price: The redemption price will be the net asset value per share of
the Fund next determined after receipt by the Agent of a redemption request in
proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information).
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The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) and mail the proceeds to the shareholder. Shareholders
will be notified before these redemptions are to be made and will have 30 days
to make an additional investment to bring their accounts up to the required
minimum.
SHAREHOLDER SERVICES
Transfer: Shares of the Fund may be transferred to another owner. A signature
guarantee of the registered owner is required on the letter of instruction or
accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect to withdraw cash in fixed
amounts from their accounts at regular intervals. The minimum investment to
establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required.
Group Sub-Accounting: To minimize recordkeeping by fiduciaries, corporations,
and certain other investors, the minimum initial investment may be waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share next determined at the
time of the exchange. In the event shares of one or more of these funds being
exchanged by a single investor have a value in excess of $500,000, the shares of
the Fund will not be purchased until the third business day following the
redemption of the shares being exchanged in order to enable the redeeming fund
to utilize normal securities settlement procedures in transferring the proceeds
of the redemption to the Fund. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
The Lexington Funds currently available for exchange are:
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in, emerging
countries and emerging markets.
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)/Seeks long-term growth of
capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)/Seeks long-term growth
of capital through investment in common stocks of companies domiciled
in foreign countries. Shares of the Fund are not presently available
for sale in Missouri and Vermont.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC./Seeks long-term capital
appreciation through investment in companies domiciled in the Asia
Region with a market capitalization of less than $1 billion.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC./Seeks long-term capital appreciation
through investment primarily in the equity securities of Russian
companies. The Fund is expected to be available in June, 1996 and has
a $5,000 minimum investment.
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LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income by investing in a combination of foreign and domestic
high-yield, lower rated debt securities. Capital appreciation is a
secondary objective.
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through
investment in gold bullion and equity securities of companies engaged
in mining or processing gold throughout the world.
LEXINGTON SMALLCAP VALUE FUND, INC./Seeks long-term capital appreciation through
investment in common stocks of companies domiciled in the United
States with a market capitalization of less than $1 billion.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)/Seeks long-term
capital growth and income through investment in an equal number of
shares of the common stocks of a fixed list of American blue chip
corporations.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)/Seeks long-term
capital appreciation through investments in stocks of large, ably
managed and well financed companies. Income is a secondary objective.
LEXINGTON CONVERTIBLE SECURITIES FUND. (NASDAQ Symbol: CNCVX)/Seeks total return
by providing capital appreciation, current income and conservation of
capital through investments in a diversified portfolio of securities
convertible into shares of common stock. Shares of the Fund are not
presently available for sale in Vermont.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity
through investments in interest bearing short term money market
instruments.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)/Seeks current income
exempt from Federal income taxes while maintaining liquidity and
stability of principal through investment in short-term municipal
securities.
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
initial investment of the Fund being purchased. If, however, an account already
exists in the Fund being bought, there is a $500 minimum exchange required.
Shareholders must provide the account number of the existing account.
Any exchange between mutual funds is, in effect, a redemption of shares in
one Fund and a purchase in the other Fund. Shareholders should consider the
possible tax effects of an exchange.
TELEPHONE EXCHANGE PROVISIONS-Exchange instructions may be given in writing or
by telephone. Telephone exchanges may only be made if a Telephone Authorization
form has been previously executed and filed with LFD. Telephone exchanges are
permitted only after a minimum of 7 days have elapsed from the date of a
previous exchange. Exchanges may not be made until all checks in payment for the
shares to be exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at the Agent;
shares held in certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for these
services. Any new account established with the same registration will also have
the privilege of exchange by telephone in the Lexington Funds.
9
<PAGE>
All accounts involved in a telephonic exchange must have the same
registration and dividend option as the account from which the shares were
transferred and will also have the privilege of exchange by telephone in the
Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD, distributor of
the Lexington Group of Mutual Funds as the true and lawful attorney to surrender
for redemption or exchange any and all non-certificated shares held by the Agent
in account(s) designated, or in any other account with the Lexington Funds,
present or future, which has the identical registration with full power of
substitution in the premises, authorizes and directs LFD to act upon any
instruction from any person by telephone for exchange of shares held in any of
these accounts, to purchase shares of any other Lexington Fund that is
available, provided the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed, and
agrees that neither LFD, the Agent, nor 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. LFD, the 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 exchange transactions will take place on recorded telephone
lines and each transaction will be confirmed in writing by the Fund. LFD
reserves the right to cease to act as agent subject to the above appointment
upon thirty (30) days' written notice to the address of record. If other than an
individual, it is certified 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 power to
take action called for by this continuing Authorization.
Exchange Authorization forms, Telephone Authorization forms and prospectuses
of the other funds may be obtained from LFD.
The Distributor has made arrangements with certain dealers to accept
instructions by telephone to exchange shares of the Fund for shares of one of
the other Lexington funds at net asset value as described above. Under this
procedure, the dealer must agree to indemnify the Distributor and the Lexington
funds from any loss or liability that any of them might incur as a result of the
acceptance of such telephone exchange orders. A properly signed Exchange
Authorization must be received by the Distributor within five days of the
exchange request. In each such exchange, the registration of the shares of the
fund being acquired must be identical to the registration of the shares of the
fund exchanged. Shares in certificate form are not eligible for this type of
exchange. LFD reserves the right to reject any telephone exchange request. Any
telephone exchange orders so rejected may be processed by mail.
This exchange offer is available only in states where shares of the fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Salary Reduction
Plans, Section 457 Deferred Compensation Plans and 403(b)(7) Plans. Plan support
services are available through the Shareholder Services Department of LMC at
1-800-526-0056. (See "Tax-Sheltered Retirement Plans" in the Statement of
Additional Information.)
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay quarterly dividends from investment income after the
close of each quarter, if earned and as declared by its Board of Directors. The
Board of Directors may, at its discretion, elect to retain or declare and pay
distributions from any realized security profits.
10
<PAGE>
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 that he
wants to receive his 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. An account of such shares owned by
each shareholder will be maintained by the Agent. Shareholders whose accounts
are maintained by the Agent will have the same rights as other shareholders with
respect to shares so registered (see "How to Purchase Shares-The Open Account").
DISTRIBUTION PLAN
The Board of Directors of the Fund has adopted a Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940,
after having concluded that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan provides that the Fund may pay
distribution fees, including payments to the Distributor, at an annual rate not
to exceed 0.25% of its average daily net assets for distribution services.
Distribution payments will be made as follows: The Fund either directly or
through the Adviser, may make payments periodically (i) to the Distributor or to
any broker-dealer (a "Broker") who is registered under the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and who has entered into a Selected Dealer Agreement
with the Distributor, (ii) to other persons or organizations ("Servicing
Agents") who have entered into shareholder processing and service agreements
with the Adviser or with the Distributor, with respect to Fund shares owned by
shareholders for which such Broker is the dealer or holder of record or such
servicing agent has a servicing relationship, or (iii) for expenses associated
with distribution of Fund shares, including the compensation of the sales
personnel of the Distributor; payments of no more than an effective annual rate
of 0.25%, or such lesser amounts as the Distributor determines appropriate.
Payments may also be made for any advertising and promotional expenses relating
to selling efforts, including but not limited to the incremental costs of
printing, prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to persons who are not shareholders of
the Fund; the costs of preparing and distributing any other supplemental sales
literature; costs of radio, television, newspaper and other advertising;
telecommunications expenses, including the cost of telephones, telephone lines
and other communications equipment, incurred by or for the Distributor in
carrying out its obligations under the Distribution Agreement. LMC, at no
additional cost to the Fund, may pay to Shareholder Service Agents, additional
amounts from past profits for administrative services.
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
Distributions by the 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 are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but in any year only a portion
thereof (which cannot exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund during the year) may qualify for the
70% dividends-received deduction for corporate shareholders. Because the Fund's
investment income may include interest and dividends from foreign corporations
and the Fund may have short-term capital gains, less than 100% of the ordinary
income dividends paid by the Fund may 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 shareholder held his shares.
11
<PAGE>
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made or deemed made
during the year will be sent to shareholders promptly after the end of each
year. Shareholders purchasing shares of the Fund just prior to the ex-dividend
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase reflected the amount
of such dividend.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. In order to avoid this back-up withholding, a
shareholder must provide the Fund with a correct taxpayer identification number
(which for most individuals is their Social Security number) or certify that it
is a corporation or otherwise exempt from or not subject to back-up withholding.
The new account application included with this Prospectus provides for
shareholder compliance with these certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
PERFORMANCE CALCULATION
The Fund will calculate performance on a total return basis for various
periods. The total return basis combines principal and dividend income changes
for the periods shown. Principal changes are based on the difference between the
beginning and closing net asset values for the period and assume reinvestment of
dividends paid by the Fund. Dividends are comprised of net realized capital
gains and net investment income.
Performance will vary from time to time and past results are not necessarily
representative of future results. It should be remembered that performance is a
function of portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses.
Comparative performance information may be used from time to time in
advertising or marketing of the Fund's shares, including data from Lipper
Analytical Services, Inc. or major market indices such as the Dow Jones
Industrial Average Index and Standard & Poor's 500 Composite Stock Price Index.
Such comparative performance information will be stated in the same terms in
which the comparative data and indices are stated.
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 Funds' portfolio
securities including those to be held by foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the SEC and for the Fund's domestic securities and other assets.
12
<PAGE>
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, is 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.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022 will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1996.
OTHER INFORMATION
The Fund is an open end, diversified management investment company. The Fund
was originally organized as a New Jersey corporation on February 11, 1959 with
10,000,000 shares of capital stock, $1.00 par value. The Fund reorganized as a
corporation under the laws of the State of Maryland on May 11, 1988. The Fund,
formerly known as Lexington Research Fund, Inc. adopted its present name on
April 22, 1991. The Fund has authorized capital of 500,000,000 shares of common
stock, $0.001 par value. Each share of common stock has one vote and shares
equally in dividends and distributions when and if declared by the Fund and in
the Fund's net assets upon liquidation. All shares, when issued, are fully paid
and non-assessable. There are no preemptive, conversion or exchange rights. Fund
shares do not have cumulative voting rights and, as such, holders of at least
50% of the shares voting for Directors can elect all Directors and the remaining
shareholders would not be able to elect any Directors.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate not
less than 25% of the outstanding shares, such request specifying the purposes
for which such meeting is to be called. In addition, the Directors will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director when requested to do so in writing by the recordholders
of not less than 10% of the Fund's outstanding shares. The Fund will assist
shareholders in any such communication between shareholders and Directors.
The Code of Ethics adopted by each of the Adviser and the Fund prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Fund's planned portfolio
transactions. The objective of each Code of Ethics is that the operations of the
Adviser and Fund be carried out for the exclusive benefit of the Fund's
shareholders. All organizations maintain careful monitoring of compliance with
the Code of Ethics.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the Securities and Exchange
Commission, Washington, D.C. under the Securities Act of 1933, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made. A "Statement of Additional Information," to
which reference is made in this Prospectus, provides a further discussion of
certain areas in the Prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and the Statement of Additional Information omit certain information
contained in the Registration Statement, to which reference is made, filed with
the SEC. Items which are thus omitted, including contracts and other documents
referred to or summarized herein and therein, may be obtained from the SEC upon
payment of the prescribed fees.
13
<PAGE>
(Right column)
L E X I N G T O N
LEXINGTON
GROWTH
AND
INCOME
FUND, INC.
(filled box)
(filled box) No sales charge
(filled box) No redemption fee
(filled box) Free telephone
exchange privilege
(filled box)
The Lexington Group
of
No-Load
Investment Companies
P R O S P E C T U S
APRIL 29, 1996
(Left column)
Investment Adviser
- -------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Distributor
- -------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
All shareholder requests for services of any kind
should 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
or call toll free:
Service: 1-800-526-0056
Institutional/Financial Adviser Services: 1-800-367-9160
24 Hour Account Information: 1-800-526-0052
Table of Contents Page
- -------------------------------------------------------
Fee Table .......................................... 2
Financial Highlights ............................... 2
Description of the Fund ............................ 3
Investment Objective ............................... 3
Investment Policy and Restrictions ................. 3
Portfolio Turnover ................................. 5
Management of the Fund ............................. 5
Portfolio Manager .................................. 5
Investment Adviser, Distributor and Administrator .. 5
How to Purchase Shares ............................. 5
Determination of Net Asset Value ................... 6
How to Redeem Shares ............................... 7
Shareholder Services ............................... 8
Exchange Privilege ................................. 8
Tax-Sheltered Retirement Plans ..................... 10
Dividend, Distribution and Reinvestment Policy ..... 10
Distribution Plan .................................. 11
Tax Matters ........................................ 11
Performance Calculation ............................ 12
Custodian, Transfer Agent and
Dividend Disbursing Agent ........................ 12
Counsel and Independent Auditors ................... 13
Other Information .................................. 13
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
April 29, 1996
This statement of additional information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Growth and
Income Fund, Inc. (the "Fund") dated April 29, 1996, 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 Policy and Restrictions ......................................... 2
Investment Adviser, Distributor and Administrator .......................... 3
Portfolio Turnover and Brokerage Allocations ............................... 4
Tax Sheltered Retirement Plans ............................................. 4
Dividend, Distribution and Reinvestment Policy ............................. 5
Distribution Plan .......................................................... 5
Tax Matters ................................................................ 6
Performance Calculation .................................................... 10
Custodian, Transfer Agent and Dividend Disbursing Agent..................... 10
Management of the Fund ..................................................... 11
Financial Statements ....................................................... 14
1
<PAGE>
INVESTMENT POLICY AND RESTRICTIONS
The Fund's principal investment objective is long term appreciation of
capital. Income return is a secondary objective. The Fund shall not: (i) issue
senior securities; (ii) underwrite securities of other issuers; (iii) purchase
or sell real estate, commodity contracts or commodities (however, the Fund may
purchase interests in real estate investment trusts whose securities are
registered under the Securities Act of 1933 and are readily marketable); (iv)
make loans to other persons except (a) through the purchase of a portion or
portions of publicly distributed bonds, notes, debentures and evidences of
indebtedness authorized by its investment policy, 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; (v) purchase the securities of another investment company or investment
trust except in the open market where no profit results to a sponsor or dealer,
other than the customary broker's commission; (vi) purchase any security on
margin or effect a short sale of a security; (vii) buy securities from or sell
securities to any of its officers and directors of the investment adviser or
principal distributor as principal; (viii) contract to sell any security or
evidence of interest therein except to the extent that the same shall be owned
by the Fund; (ix) retain securities of an issuer when one or more of the
officers and directors of the Fund or the investment adviser or a person owning
more than 10% of the stock of either, own beneficially more than 0.5% of the
securities of such issuer and the persons owning more than 0.5% of such
securities together own beneficially more than 5% of the securities of such
issuer; (x) invest more than 5% of the value of its total assets in the
securities of any one issuer nor acquire more than 10% of the outstanding voting
securities of any one issuer; (xi) invest in companies for the purpose of
exercising management or control; or (xii) concentrate its investments in a
particular industry; thus the Fund will not purchase a security if the immediate
effect of such purchase would be to increase the Fund's holdings in such
industry above 25% of the Fund's assets.
The Fund shareholder vote required for modification of its investment
policies or restrictions is the lesser of: (a) 67% or more of the voting
securities present at a meeting if the holders of more than 50% are present or
represented by proxy; or (b) more than 50% of the voting securities.
In addition to the above fundamental investment restrictions, the Fund has
undertaken not to: a) invest an aggregate of more than 5% of its total assets in
the securities of unseasoned issuers and equity securities of issuers which are
not readily marketable; b) purchase any class of securities of an issuer if such
purchase would cause the Fund to own at the time of the purchase more than 10%
of any such class of securities of an issuer; c) invest in puts, calls,
straddles, spreads, and any combination thereof; d) invest in interests in oil,
gas or other mineral exploration or development programs; or e) pledge, mortgage
or hypothecate the assets of the Fund to an extent greater than 15% of the gross
assets of the Fund taken at cost.
The Fund has authority to borrow money from a bank not in excess of the
lesser of: (a) 5% of the gross assets of the Fund at the current market value at
the time of such borrowing; or (b) 10% of the gross assets of the Fund taken at
cost. Any such borrowing may be undertaken only as a temporary measure for
extraordinary or emergency purposes. This borrowing power has not been exercised
by the Fund's management.
Although the Fund has the right to pledge, mortgage or hypothecate its
assets, in order to comply with a state statute, the Fund will not, as a matter
of operating policy while offering shares in such state, pledge, mortgage or
hypothecate its portfolio securities to the extent that at any time the
percentage of pledged securities will exceed 10% of the offering price of the
Fund's shares.
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 debt
securities 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
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 LMC to
present minimal credit risk. The 5% diversification limitation set forth in
subparagraph (x) above does not apply to obligations issued or guaranteed as to
principal and interest by the United States Government, nor does it apply to
bank certificates of deposit, which are not classified by the Fund as securities
for the purposes of this limitation.
2
<PAGE>
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, N.J. 07663, is the
investment adviser to the Fund, and, as such, advises and makes recommendations
to the Fund with respect to its investments and investments policies.
LMC is paid an investment advisory fee at the annual rate of 0.75% of the
net assets of the Fund up to $100 million; 0.60% of such value in excess of $100
million up to $150 million; 0.50% of such value in excess of $150 million up to
$250 million; and 0.40% of such value in excess of $250 million. This fee is
computed on the basis of the Fund's daily net assets and is payable on the last
business day 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 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 directors' fees, and
furnishes LFD, at printers overrun cost paid by LFD, such copies of its
prospectus, annual, semi-annual and other reports and shareholder communication
as may be reasonably 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
exceeding 2.5% of the first $30 million of the Fund's average daily net assets,
plus 2.0% of the next $70 million, plus 1.5% of the Fund's average daily net
assets of $100 million. 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. For the fiscal year ended December 31, 1995
no expense reimbursement was required.
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 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 and private
and institutional investment accounts. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's parent
(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 the 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
transactions will be averaged as to price. While this procedure may adversely
affect the price or volume of a given Fund transaction, LMC believes that the
ability of the Fund to participate in combined transactions may generally
produce better executions overall.
Fund Advisory Fee Paid to LMC:
Fiscal Year Investment Advisory
Ended Fees Paid to LMC
----------- -------------------
1993 .................................... $950,002
1994 .................................... 947,752
1995 .................................... 935,397
Of the directors, executive officers or employees ("affiliated persons") of
the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs,
Petruski and Wapnick and Mmes. Carnicelli, Carr, Curcio, Gilfillan 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 April 1, 1996, 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 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 of, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
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LMC and LFD are wholly-owned subsidiaries 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.
LFD 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 of directors who are not "interested
persons".
PORTFOLIO TURNOVER AND BROKERAGE ALLOCATIONS
In the selection of various securities, long-term potential will take
precedence over short term market fluctuations. While management maintains the
flexibility to sell portfolio securities regardless of how long they have been
held by the Fund, it is anticipated that the Fund's annual portfolio turnover
rate will not exceed 100%. A rate of 100% could occur for example if all of the
securities held by the Fund were replaced within a period of one year. High
portfolio turnover rates can result in corresponding increases in brokerage
costs.
Portfolio turnover is calculated by dividing the dollar value of the
portfolio purchases or sales during the year, whichever is less, by the
securities or short term notes. The turnover rate for each of the last three
fiscal years was: 1993, 93.90%; 1994, 63.04% and 1995, 159.94%.
The Fund's foremost consideration in selecting a broker is to obtain the
best price and execution of orders. From time to time, the Fund may seek
executions of stock exchange listed stocks on markets other than the stock
exchanges on a net or commission basis. In over-the-counter transactions, orders
are placed with the principal market maker for the security being purchased or
sold, unless a better price could be obtained by placing the order with another
broker.
Persons responsible for brokerage allocation are not obligated to obtain the
least expensive execution. The commission paid to a broker is only part of the
overall cost of an execution and accordingly, the Fund does not intend to apply
a rigid commission formula in determining execution costs. The Fund shall not
pay an exchange member, broker or dealer a commission for effecting a securities
transaction in excess of the amount of commission another member, broker or
dealer would have charged in effecting that transaction unless LMC, in
connection with such transaction, shall make a good faith determination that the
amount of commission charged was reasonable in relation to the value of the
brokerage and research services provided by such member, broker or dealer,
viewed in terms of either that particular transaction or the Fund's overall
transactions.
Brokerage transactions for the Fund have not been allocated to brokers
affiliated with Fund officers or directors or its investment adviser. Brokerage
commissions paid for each of the last three fiscal years were: 1993, $406,084;
1994, $209,559 and 1995, $520,808.
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit Sharing
Plans including a 401(k) Salary Reduction Plan and a 403(b)(7) Plan. Plan
services are available by contacting the Shareholder Services Department of the
Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): Individuals may make tax deductible
contributions to their own Individual Retirement Accounts established under
Section 408 of the Internal Revenue Code (the "Code"). Married investors filing
a joint return neither of whom is an active participant in an employer sponsored
retirement plan, or who have an adjusted gross income of $40,000 or less
($25,000 or less for single taxpayers) may continue to make a $2,000 ($2,250 for
spousal IRA's) annual deductible IRA contribution. For adjusted gross incomes
over $40,000 ($25,000 for single taxpayers), the IRA deduction limit is
generally phased out ratably over the next $10,000 of adjusted gross income,
subject to a minimum $200 deductible contribution. Investors who are not able to
deduct a full $2,000 ($2,250 spousal) IRA contribution because of the
limitations may make a non-deductible contribution to their IRA to the extent a
deductible contribution is not allowed. Federal income tax on accumulations
earned on non-deductible contributions is deferred until such time as these
amounts are deemed distributed to an investor. Rollovers are also permitted
under the Plan. The Disclosure statement required by the Internal Revenue
Service ("IRS") is provided by the Fund.
The minimum initial investment to establish a tax-sheltered plan through the
Fund is $250 for both Keogh Plans and IRA Plans. Subsequent investments are
subject to a minimum of $50 for each account.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make
tax deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are, however, a number of special rules
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which apply when self-employed individuals participate in such plans. Currently
purchase payments under a self-employed plan are deductible only to the extent
of the lesser of (i) $30,000 or (ii) 25% of the individuals earned annual income
(as defined in the Code) and in applying these limitations not more than
$200,000 of "earned income" may be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available a
Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the Plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA Plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no obligation
to continue to invest in the Fund and may terminate the Plan with the Fund at
any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan is
subject to an annual maintenance fee of $10.00 charged by the Agent.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay quarterly dividends from investment income after the
close of each quarter, if earned and as declared by its Board of Directors. The
Board of Directors may, at its discretion, elect to retain or declare and pay
distributions from any realized security profits.
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 State Street Bank and Trust
Company (the "Agent") in writing that he wants to receive his 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. An account of such shares owned by each shareholder will be maintained
by the Agent.
Shareholders whose accounts are maintained by the Agent will have the same
rights as other shareholders with respect to shares so registered (see "How to
Purchase Shares - The Open Account" in the Prospectus).
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the Investment Company Act of 1940, which provides that the
Fund may pay distribution fees including payments to the Distributor, at an
annual rate not to exceed 0.25% of its average daily net assets for distribution
services.
Distribution payments will be made as follows: The Fund either directly or
through the Adviser, may make payments periodically (i) to the Distributor or to
any broker-dealer (a "Broker") who is registered under the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and who has entered into a Selected Dealer Agreement
with the Distributor, (ii) to other persons or organizations ("Servicing
Agents") who have entered into shareholder processing and service agreements
with the Adviser or with the Distributor, with respect to Fund shares owned by
shareholders for which such Broker is the dealer or holder of record or such
servicing agent has a servicing relationship, or (iii) for expenses associated
with distribution of Fund shares, including the compensation of the sales
personnel of the Distributor; payments of no more than an effective annual rate
of 0.25%, or such lesser amounts as the Distributor determines appropriate.
Payments may also be made for any advertising and promotional expenses relating
to selling efforts, including but not limited to the incremental costs of
printing prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to persons who are not shareholders of
the Fund; the costs of preparing and distributing any other supplemental sales
literature; costs of radio, television, newspaper and other advertising;
telecommunications expenses, including the cost of telephones, telephone lines
and other communications equipment, incurred by or for the Distributor in
carrying out its obligations under the Distribution Agreement.
Quarterly, in each year that this Plan remains in effect, the Fund's
Treasurer shall prepare and furnish to the Directors of the Fund a written
report, complying with the requirements of Rule 12b-1, setting forth the amounts
expended by the Fund under the Plan and purposes for which such expenditures
were made.
The Plan shall become effective upon approval of the Plan, the form of
Selected Dealer Agreement and the form of Shareholder Service Agreement, by the
majority votes of both (a) the Fund's Directors and the Qualified Directors (as
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defined below), cast in person at a meeting called for the purpose of voting on
the Plan and (b) the outstanding voting securities of the Fund, as defined in
Section 2(a)(42) of the 1940 Act.
The Plan shall remain in effect for one year from its adoption date and may
be continued thereafter if this Plan and all related agreements are approved at
least annually a majority vote of the Directors of the Fund, including a
majority of the Qualified Directors cast in person at a meeting called for the
purpose of voting on such Plan and agreements. This Plan may not be amended in
order to increase materially the amount to be spent for distribution assistance
without shareholder approval. All material amendments to this Plan must be
approved by a vote of the Directors of the Fund, and of the Qualified Directors
(as hereinafter defined), cast in person at a meeting called for the purpose of
voting thereon.
The Plan may be terminated at any time by a majority vote of the Directors
who are not interested persons (as defined in Section 2(a)(19) of the 1940 Act)
of the Fund and have no direct or indirect financial interest in the operation
of the Plan or in any agreements related to the Plan (the "Qualified Directors")
or by vote of a majority of the outstanding voting securities of the Fund, as
defined in Section 2(a)(42) of the 1940 Act.
While this Plan shall be in effect, the selection and nomination of the
"non-interested" Directors of the Fund shall be committed to the discretion of
the Qualified Directors then in office.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
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accrued during the period of time the Fund held the debt obligation. In
addition, under the rules of Code Section 988, gain or loss recognized on the
disposition of a debt obligation denominated in a foreign currency or an option
with respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition of a
foreign currency forward contract, futures contract, option or similar financial
instrument, or of foreign currency itself, except for regulated futures
contracts or non-equity options subject to Code Section 1256 (unless the Fund
elects otherwise), will generally be treated as ordinary income or loss.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
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Conversely, if the Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction) to the extent of the amount of qualifying dividends
received by the Fund from domestic corporations for the taxable year. A dividend
received by the Fund will not be treated as a qualifying dividend (1) if it has
been received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding for
this purpose under the rules of Code Section 246(c)(3) and (4): (i) any day more
than 45 days (or 90 days in the case of certain preferred stock) after the date
on which the stock becomes ex-dividend and (ii) any period during which the Fund
has an option to sell, is under a contractual obligation to sell, has made and
not closed a short sale of, is the grantor of a deep-in-the-money or otherwise
nonqualified option to buy, or has otherwise diminished its risk of loss by
holding other positions with respect to, such (or substantially identical)
stock; (2) to the extent that the Fund is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property; or (3) to the extent the stock on
which the dividend is paid is treated as debt-financed under the rules of Code
Section 246A. Moreover, the dividends-received deduction for a corporate
shareholder may be disallowed or reduced (1) if the corporate shareholder fails
to satisfy the foregoing requirements with respect to its shares of the Fund or
(2) by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain other
items).
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. In addition, under the Superfund Amendments and Reauthorization Act of
1986, a tax is imposed for taxable years beginning after 1986 and before 1996 at
the rate of 0.12% on the excess of a corporate taxpayer's AMTI (determined
without regard to the deduction for this tax and the AMT net operating loss
deduction) over $2 million. For purposes of the corporate AMT and the
environmental superfund tax (which are discussed above), the corporate
dividends-received deduction is not itself an item of tax preference that must
be added back to taxable income or is otherwise disallowed in determining a
corporation's AMTI. However, corporate shareholders will generally be required
to take the full amount of any dividend received from the Fund into account
(without a dividends-received deduction) in determining its adjusted current
earnings, which are used in computing an additional corporate preference item
(i.e., 75% of the excess of a corporate taxpayer's adjusted current earnings
over its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which the distributions are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders
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(and made by the Fund) on December 31 of such calendar year if such dividends
are actually paid in January of the following year. Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions made
(or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions and the proceeds of redemption of shares, paid to
any shareholder (1) who has provided either an incorrect tax identification
number or no number at all, (2) who is subject to backup withholding by the IRS
for failure to report the receipt of interest or dividend income properly, or
(3) who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-received
deduction for corporations) generally will apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the dividend. Such a foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on the sale of shares of the Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends, and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless 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 differ from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in the Fund, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state and
local tax rules affecting investment in the Fund.
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PERFORMANCE CALCULATION
For purposes of quoting and comparing the performance of the Fund to that of
other mutual fund and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms of total return.
Under the rules of the Securities and Exchange Commission ("SEC rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1000
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 and 10 year periods
(or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's Registration Statement. In calculating the ending
redeemable value, all dividends and distributions by the Fund are assumed to
have been reinvested at the net asset value as described in the Prospectus on
the reinvestment dates during the period. The total return, or "T" in the
formula above, is computed by finding the average annual compounded rates of
return over the 1, 5 and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the ending redeemable value. Any
recurring account charges that might in the future be imposed by the Fund would
be included at that time. Lexington Growth and Income Fund, Inc.'s total return
for the 1,5 and 10 years ended December 31, 1995 is a follows:
Average Annual
Period Total Return
------ ------------
1 year ended December 31, 1995 ............. 22.57%
5 years ended December 31, 1995 ............ 13.54%
10 years ended December 31, 1995 ........... 11.05%
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., or with the performance of
the Standard & Poor's 500 Composite Stock Price Index or the Dow Jones
Industrial Average, the Fund calculates its aggregate total return for the
specified periods of time by 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.
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 portfolio
securities including those to be held by foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the S.E.C. and for the Fund's domestic securities and other assets.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02181, has been retained to act as the transfer agent and dividend disbursing
agent. 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.
10
<PAGE>
MANAGEMENT OF THE FUND
The Fund's directors and executive officers and their principal occupations
are:
*+ROBERT M. DEMICHELE, President and Chairman. P.O. Box 1515 Saddle Brook, N.J.
07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; Chairman and Chief Executive Officer, Lexington Funds
Distributor, Inc.; President and Director, Lexington Global Asset Managers,
Inc.; Director, Unione Italiana Reinsurance; Vice Chairman of Board of
Trustees, Union College; Director, Continental National Corporation;
Director, The Navigator's Group, Inc.; Chairman, Lexington Capital
Management, Inc.; Chairman, LCM Financial Services, Inc.; Director, Vanguard
Cellular Systems, Inc.; Chairman of the Board, Market Systems Research, Inc.
and Market Systems Research Advisors, Inc. (registered investment advisors).
Trustee, Smith Richardson Foundation.
*BEVERLEY C. DUER, P.E., Director. 340 East 72nd Street, New York, N.Y.
Private Investor. Formerly, Manager of Operations Research Department, CPC
International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation; prior to March 1987, Vice
President - Institutional Equity Sales, L.F. Rothschild, Unterberg, Towbin.
*+LAWRENCE KANTOR, Director and Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc.; Executive Vice President and General
Manager-Mutual Funds, Lexington Global Asset Managers, Inc.
+DONALD B. MILLER, Director. 3689 Quail Ridge Drive, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President, C.E.O. and
Director, Media General Broadcast Services (advertising firm).
+JOHN G. PRESTON, Director, 3 Woodfield Road, Wellesley, Massachusetts.
Associate Professor of Finance, Boston College, Boston, Massachusetts.
+MARGARET W. RUSSELL, Director, 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor, formerly Community Affairs Director, Union Camp
Corporation.
+PHILIP C. SMITH, Director, 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor; Director, Southwest Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc., Investors Cash Reserve
and Plimony Fund, Inc.(registered investment companies).
+FRANCIS A. SUNDERLAND, Director, 309 Quito Place, Castle Rock, Co. 80104.
Private Investor.
*+ALAN H. WAPNICK, Vice President. P.O. Box 1515, Saddle Brook, N.J. 07663.
Senior Vice President, Director of Domestic Equity Investment Strategy,
Lexington Management Corporation.
*+LISA CURCIO,Vice President and Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor,
Inc.; Secretary, Lexington Global Asset Managers, Inc.
+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chief Financial Officer, Managing Director and Director,
Lexington Management Corporation; Chief Financial Officer, Vice President
and Director, Lexington Funds Distributor, Inc.; Chief Financial Officer,
Market Systems Research Advisors, Inc.; Executive Vice President and Chief
Financial Officer, Lexington Global Asset Managers, Inc.
+RICHARD J. LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to October 1992, Senior Accountant, KPMG Peat Marwick.
+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to November, 1993, Supervisor Investment Accounting, Alliance Capital
Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07662.
Prior to May 1994, Supervising Senior Accountant, NY Life Securities. Prior
to December 1990, Senior Accountant, Dreyfus Corporation.
11
<PAGE>
*+PETER CORNIOTES, Assistant Secretary, P.O. Box 1515, Saddle Brook, N.J. 07663.
Assistant Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington Group
of Investment Companies.
*"Interested person" and/or "Affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
+Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery, Luehs,
Miller, Petruski, Preston, Smith, Sunderland and Wapnick and Mmes. Carnicelli,
Carr, Curcio, Evans, Gilfillan, 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, 1995, and each of the Directors attended at least 75% of those meetings.
Remuneration of Directors and Certain Executive Officers
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof. Each Director who is not an
affiliate of the advisor is compensated for his or her services according to a
fee schedule which recognizes the fact that each Director also serves as a
Director of other investment companies advised by LMC. Each Director receives a
fee, allocated among all investment companies for which the Director serves.
Effective September 12, 1995 each Director receives annual compensation of
$24,000. Prior to September 12, 1995, the Directors who were not employed by the
Fund or its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1995 to December 31, 1995 for each Director:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in Fund
Fund Complex
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert M. DeMichele 0 $0 15
- --------------------------------------------------------------------------------------------------------
Beverley C. Duer $1456 22,616 15
- --------------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 14
- --------------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 14
- --------------------------------------------------------------------------------------------------------
Donald B. Miller $1456 $20,616 14
- --------------------------------------------------------------------------------------------------------
John G. Preston $1456 $20,616 14
- --------------------------------------------------------------------------------------------------------
Margaret Russell $1456 $19,560 13
- --------------------------------------------------------------------------------------------------------
Philip C. Smith $1456 $20,616 14
- --------------------------------------------------------------------------------------------------------
Francis A. Sunderland $1456 $19,560 13
- --------------------------------------------------------------------------------------------------------
</TABLE>
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive
12
<PAGE>
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, 1995, the estimated credited years
of service for Directors Duer, Miller, Preston, Russell, Smith and Sunderland
are 18, 22, 18, 15, 26 and 36, 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
13
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Growth and Income Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Growth and
Income Fund, Inc. as of December 31, 1995, 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, 1995 by correspondence with the custodian and brokers. 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 Growth and Income Fund, Inc. as of December 31, 1995, 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 5, 1996
14
<PAGE>
(Left column)
Lexington Growth and Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995
Number of Value
Shares Security (Note 1)
- -----------------------------------------------------------------------
COMMON STOCKS: 99.8%
BANKING: 6.0%
56,300 Bank of New York Company, Inc............... $ 2,744,625
33,300 J P Morgan & Company........................ 2,672,325
85,500 US Bancorp.................................. 2,869,594
------------
8,286,544
------------
Capital Equipment: 16.3%
37,300 Boeing Company.............................. 2,923,388
58,000 Ceridian Corporation1....................... 2,392,500
83,700 Deere & Company............................. 2,950,425
66,000 Dover Corporation........................... 2,433,750
48,700 Fluor Corporation........................... 3,214,200
38,600 Lockheed Martin Corporation................. 3,049,400
88,200 Loral Corporation........................... 3,120,075
18,600 Xerox Corporation........................... 2,548,200
------------
22,631,938
------------
Chemicals-Specialty: 1.8%
67,000 Union Carbide Corporation................... 2,512,500
------------
Consumer-Non Durable Goods: 9.6%
36,900 CPC International, Inc. .................... 2,532,262
41,000 Hershey Foods Corporation 2,665,000
47,100 PepsiCo, Inc................................ 2,631,712
52,200 Pioneer Hi-Bred International, Inc. ........ 2,903,625
30,600 Procter & Gamble Company.................... 2,539,800
------------
13,272,399
------------
Electrical And Electronics: 1.9%
32,300 Hewlett-Packard Company..................... 2,705,125
------------
Energy Sources: 12.4%
54,000 Burlington Resources, Inc. ................. 2,119,500
102,200 Diamond Offshore Drilling, Inc.1 ........... 3,449,250
62,000 Halliburton Company......................... 3,138,750
25,900 Mobil Corporation........................... 2,900,800
106,300 Valero Energy Corporation................... 2,604,350
67,900 Williams Companies, Inc. ................... 2,979,112
------------
17,191,762
------------
Environmental Technology: 2.0%
67,900 Millipore Corporation....................... 2,792,388
------------
(Right column)
Number of Value
Shares Security (Note 1)
- -----------------------------------------------------------------------
Financial Services: 14.2%
59,000 American Express Company.................... $ 2,441,125
30,000 American International Group................ 2,775,000
27,700 Chubb Corporatio............................ 2,679,975
32,000 Foremost Corporation of America............. 1,632,000
17,200 General Re Corporation...................... 2,666,000
39,700 Household International, Inc................ 2,347,262
37,000 NationsBank Corporation..................... 2,576,125
77,400 Safeco Corporation.......................... 2,675,137
------------
19,792,624
------------
Health & Personal Care: 8.4%
29,500 American Home Products Corporation.......... 2,861,500
56,000 Eli Lilly & Company......................... 3,150,000
33,900 Johnson & Johnson........................... 2,902,688
63,750 St. Jude Medical, Inc.1..................... 2,733,281
------------
11,647,469
------------
Healthcare Miscellaneous: 2.2%
34,400 PacifiCare Health Systems, Inc.1............ 3,001,400
------------
Materials: 5.5%
47,000 Aluminum Company of America................. 2,485,125
36,300 FMC Corporation1 2,454,788
46,800 Hercules, Inc............................... 2,638,350
------------
7,578,263
------------
Medical Products & Supplies: 2.0%
66,000 Abbott Laboratories......................... 2,755,500
------------
Merchandising: 5.7%
149,000 Borders Group, Inc.1........................ 2,756,500
73,000 Circuit City Stores, Inc. .................. 2,016,625
86,000 Winn-Dixie Stores, Inc...................... 3,171,250
------------
7,944,375
------------
Services: 7.9%
92,900 Ecolab, Inc. ............................... 2,787,000
67,900 Meredith Corporation........................ 2,843,313
63,100 Service Corporation International........... 2,776,400
54,000 Viacom, Inc.1 .............................. 2,558,250
------------
10,964,963
------------
15
<PAGE>
(Left column)
Lexington Growth and Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
Number of Value
Shares Security (Note 1)
- -----------------------------------------------------------------------
Telecommunications: 2.1%
50,500 Ameritech Corporation....................... $ 2,979,500
------------
Transportation: 1.8%
38,500 Union Pacific Corporation................... 2,541,000
------------
TOTAL COMMON STOCKS
(cost $127,470,606)....................... 138,597,750
------------
(Right column)
Number of Value
Shares Security (Note 1)
- -----------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 1.1%
$1,600,000 U.S. Treasury Bill
5.15% due O1/04/96 (cost $1,599,313)...... $ 1,599,313
------------
TOTAL INVESTMENTS: 100.9%
(cost $129,069,919+) (Note 1)............ 140,197,063
Liabilities in excess
of other assets: (0.9%).................. (1,296,523)
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $15.71 per share on
8,844,228 shares outstanding............. $138,900,540
============
- ------------
1Non-income producing securities.
+Aggregate cost for Federal Income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
16
<PAGE>
(Left column)
Lexington Growth and Income Fund, Inc.
Statement of Assets and Liabilities
December 31, 1995
Assets
Investment in securities, at value
(cost $129,069,919) (Note 1).......................... $140,197,063
Cash.................................................... 72,319
Receivable for shares sold.............................. 96,171
Dividends and interest receivable....................... 256,956
------------
Total Assets.......................................... 140,622,509
------------
Liabilities
Due to Lexington Management Corporation
(Note 2).............................................. 77,728
Payable for shares redeemed............................. 35,772
Distributions payable................................... 1,530,125
Accrued expenses........................................ 78,344
------------
Total Liabilities..................................... 1,721,969
------------
Net Assets (equivalent to $15.71 per share on
8,844,228 shares outstanding) (Note 4)................ $138,900,540
============
Net Assets consist of:
Capital stock-authorized 500,000,000
shares, $.001 par value per share..................... $ 8,844
Additional paid-in capital (Note 1)..................... 127,066,558
Undistributed net investment income
(Note 1).............................................. 695,588
Accumulated net realized gains on
investments (Note 1).................................. 2,406
Net unrealized appreciation of investments.............. 11,127,144
------------
$138,900,540
============
(Right column)
Lexington Growth and Income Fund, Inc.
Statement of Operations
Year ended December 31, 1995
Investment Income
Income
Dividends............................... $ 2,699,630
Interest................................ 543,200
-----------
3,242,830
Less: foreign tax expense............... 13,227
-----------
Total investment income........................... $ 3,229,603
Expenses
Investment advisory fee (Note 2......... 935,397
Accounting and shareholder
services expense (Note 2)............. 198,790
Custodian and transfer agent
expenses.............................. 56,625
Printing and mailing.................... 59,388
Directors' fees and expenses............ 10,371
Audit and legal......................... 38,131
Registration fees....................... 21,117
Distribution expenses (Note 3).......... 31,339
Computer processing fees................ 17,483
Other expenses.......................... 56,229
-----------
Total expenses.................................... 1,424,870
------------
Net investment income............................. 1,804,733
Realized and Unrealized Gain on Investments
(Note 5)
Net realized gain on
investments........................................... 15,931,202
Net change in unrealized appreciation on
investments........................................... 9,051,101
------------
Net realized and unrealized gain.................... 24,982,303
------------
Increase in Net Assets Resulting
from Operations....................................... $ 26,787,036
============
The Notes to Financial Statements are an integral part of these statements.
17
<PAGE>
(Left column)
Lexington Growth and Income Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
1995 1994
------------ ------------
Net investment income........................... $ 1,804,733 $ 1,410,631
Net realized gain from security
transactions.................................. 15,931,202 7,178,841
Increase (decrease) in unrealized
appreciation of investments................... 9,051,101 (12,748,337)
------------ ------------
Net increase (decrease) in net assets
resulting from operations................... 26,787,036 (4,158,865)
Distributions to shareholders from net
investment income ............................ (1,809,688) (1,348,135)
Distributions to shareholders from net
realized gains from security
transactions ................................. (13,290,821) (7,199,281)
Distributions to shareholders in excess of
net realized gains from security
transactions (Note 1)......................... - (1,937,432)
Increase in net assets from capital
share transactions (Note 4)................... 2,925,345 4,424,144
------------ ------------
Net increase (decrease) in net assets......... 14,611,872 (10,219,569)
Net Assets
Beginning of period........................... 124,288,668 134,508,237
------------ ------------
End of period (including undistributed
net investment income of $695,588
and $62,496, respectively) (Note 1)......... $138,900,540 $124,288,668
============ ============
The Notes to Financial Statements are an integral part of these statements.
Lexington Growth and Income Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
1. Significant Accounting Policies
Lexington Growth and Income 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 principal investment objective is long-term
appreciation of capital. Income is a secondary objective. The following is a
summary of the significant accounting policies followed by the Fund in the
preparation of its financial statements:
Securities Security transactions are accounted for on a trade date basis.
Realized gains and losses from security transactions are reported on the
identified cost basis. Investments are stated at market value based on closing
prices reported by the exchanges on which the securities are traded on the last
business day of the period or, for over-the-
(Right column)
counter securities, at the average between bid and asked prices. Short-term
securities are stated at amortized cost which approximates market value.
Securities for which market quotations are not readily available and other
assets are valued at fair value as determined by management and approved in good
faith by the Board of Directors. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is accrued as
earned.
Distributions In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of December 31,
1995, book and tax differences amounting to $62,496 have been reclassified from
undistributed net investment income to additional paid-in capital. In addition,
$700,543 was reclassified from accumulated net realized gains on investments to
undistributed net investment income. As of December 31, 1994, book and tax basis
differences amounting to $29,385 have been reclassified from undistributed net
investment income and distributions in excess of net realized gain to additional
paid-in capital. Distributions in excess of net realized gains reflect temporary
book-tax differences arising from Internal Revenue Code Excise Tax distribution
requirements and associated post-October loss deferral provisions, which
effectively allow the deferral of some net realized capital losses to the next
tax year.
Federal Income Taxes It is the Fund's intention 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 has been made.
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 0.75% of the Fund's average daily net assets up to
$100 million and in decreasing stages to 0.4% of average daily net assets in
excess of $250 million. The investment advisory contract provides that the total
annual expenses of the Fund (including management fees, but excluding interest,
taxes, brokerage commissions and extraordinary expenses) will not exceed the
level of expenses which the Fund is permitted to bear under the most restrictive
expense limitation imposed by any state in which shares of the Fund are offered
for sale. No reimbursement was required for the year ended December 31, 1995.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund but paid by LMC.
18
<PAGE>
(Left column)
Lexington Growth and Income Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
3. Distribution Plan
The Fund has a Distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Fund Distributors, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1995 were $31,339 which are set forth in the statement of operations.
4. Capital Stock
Transactions in capital stock were as follows:
Year Ended Year Ended
December 31, 1995 December 31, 1994
------------------------ ------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
Shares sold............. 423,165 $ 6,632,289 890,121 $14,369,520
Shares issued to share-
holders on reinvest-
ment of dividends..... 854,913 13,393,562 640,376 9,254,980
---------- ----------- ---------- -----------
1,278,078 20,025,851 1,530,497 23,624,500
Shares redeemed......... (1,087,805) (17,100,506) (1,199,120) (19,200,356)
---------- ----------- ---------- -----------
Net increase............ 190,273 $ 2,925,345 331,377 $ 4,424,144
========== =========== ========== ===========
(Right column)
5. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1995, excluding short-term securities, were $196,540,300 and
$196,214,523, respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $13,689,179 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $2,562,035.
6. Investment Risks
The Fund's ability to invest in foreign securities may involve risks not present
in domestic investments. Since foreign securities may be denominated in a
foreign currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/or credit risk
of the investments.
- --------------------------------------------------------------------------------
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period.................... $14.36 $16.16 $16.25 $16.39 $14.24
------ ------ ------ ------ ------
Income from investment operations:
Net investment income................................. .22 .17 .21 .23 .35
Net realized and unrealized gain (loss) on investments 3.00 (.68) 1.94 1.79 3.17
------ ------ ------ ------ ------
Total income (loss) from investment operations.......... 3.22 (.51) 2.15 2.02 3.52
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income.................. (.22) (.16) (.21) (.32) (.35)
Distributions from net realized capital gains......... (1.65) (.91) (2.03) (1.84) (1.02)
Distributions in excess of net realized gains
(temporary book-tax difference)..................... - (.22) - - -
------ ------ ------ ------ ------
Total distributions..................................... (1.87) (1.29) (2.24) (2.16) (1.37)
------ ------ ------ ------ ------
Net asset value, end of period.......................... $15.71 $14.36 $16.16 $16.25 $16.39
====== ====== ====== ====== ======
Total return............................................ 22.57% (3.11%) 13.22% 12.36% 24.87%
Ratios to average net assets:
Expenses.............................................. 1.09% 1.15% 1.29% 1.20% 1.13%
Net investment income................................. 1.38% 1.06% 1.20% 2.57% 2.19%
Portfolio turnover...................................... 159.94% 63.04% 93.90% 88.13% 80.33%
Net assets at end of period (000's omitted)............. $138,901 $124,289 $134,508 $126,241 $121,263
</TABLE>
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