<PAGE>
[LEXINGTON LOGO]
PROSPECTUS MAY 3, 1999
THE LEXINGTON FUNDS(R)
<TABLE>
<S> <C> <C> <C>
DOMESTIC EQUITY FUNDS INTERNATIONAL AND GLOBAL FIXED-INCOME FUNDS AND PRECIOUS METALS FUNDS
FUNDS MONEY MARKET FUNDS
LEXINGTON GROWTH AND LEXINGTON GLOBAL LEXINGTON GNMA LEXINGTON GOLDFUND,
INCOME FUND, INC. CORPORATE LEADERS INCOME FUND, INC. INC.
FUND, INC.
LEXINGTON SMALLCAP LEXINGTON INTERNATIONAL LEXINGTON GLOBAL INCOME LEXINGTON SILVER FUND,
FUND, INC. FUND, INC. FUND INC.
LEXINGTON WORLDWIDE LEXINGTON MONEY MARKET
EMERGING MARKETS TRUST
FUND, INC.
LEXINGTON SMALL CAP ASIA
GROWTH FUND, INC.
LEXINGTON TROIKA DIALOG
RUSSIA FUND, INC.
</TABLE>
The Securities and Exchange Commission has not approved nor disapproved the
shares of any of the Funds. The Securities and Exchange Commission also has not
determined whether this Prospectus is accurate or complete. Any person who tells
you that the Securities and Exchange Commission has made such an approval or
determination is committing a crime.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Domestic Equity Funds
Lexington Growth and Income Fund, Inc. ................... 4
Lexington SmallCap Fund, Inc. ............................ 6
International and Global Funds
Lexington Global Corporate Leaders Fund, Inc. ............ 8
Lexington International Fund, Inc. ....................... 10
Lexington Worldwide Emerging Markets Fund, Inc. .......... 12
Lexington Small Cap Asia Growth Fund, Inc. ............... 14
Lexington Troika Dialog Russia Fund, Inc. ................ 16
Fixed Income Funds and Money Market Funds
Lexington GNMA Income Fund, Inc. ......................... 18
Lexington Global Income Fund.............................. 20
Lexington Money Market Trust.............................. 22
Precious Metals Funds
Lexington Goldfund, Inc. ................................. 24
Lexington Silver Fund, Inc. .............................. 26
Risks of Investing
Risks of Investing in Mutual Funds........................ 28
Risks of Investing in Securities of Small Companies....... 28
Risks of Investing in Foreign Securities.................. 28
Risks of Investing in Lower Quality Debt Securities....... 29
Risks of Investing in Securities of Russian Companies..... 29
Non-diversified Portfolio................................. 29
Precious Metals........................................... 30
Temporary Defensive Position.............................. 30
Management of the Funds..................................... 31
Shareholder Information
Investment Options........................................ 37
What You Need to Know About Your Lexington Account........ 38
Becoming a Lexington Shareholder.......................... 38
Buying Additional Shares.................................. 38
Exchanging Shares......................................... 39
Minimum Account Balance................................... 39
Redeeming Your Shares..................................... 40
Redeeming by Written Instruction.......................... 40
Redeeming by Telephone.................................... 40
Redeeming by Check........................................ 41
Systematic Withdrawal Plan................................ 41
How Fund Shares are Priced................................ 41
Dividends and Capital Gain Distributions.................. 42
Taxes..................................................... 42
Distribution of Fund's Shares............................... 44
Financial Highlights........................................ 45
</TABLE>
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Growth and Income Fund's principal investment
OBJECTIVE objective is long-term capital appreciation. Income is a
secondary objective.
INVESTMENT The Lexington Growth and Income Fund, Inc. ("the Fund") will
STRATEGY invest at least 65% of its total assets in common stocks of
U.S. companies, which may include dividend paying securities
and securities convertible into shares of common stock. The
Fund seeks to invest in large, ably managed and well financed
companies. The investment approach is to identify high
quality companies with good earnings and price momentum which
sell at attractive valuations.
The Fund may invest the remaining 35% of its assets in
foreign securities and smaller capitalization companies.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price of one or more of the
companies in the Fund's portfolio. Due to the inherent
effects of the stock market, the value of the Fund will
fluctuate with the movement of the market as well as in
response to the activities of individual companies in the
Fund's portfolio.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
4
<PAGE>
DOMESTIC EQUITY FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1989 through 1998. The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH & INCOME FUND
--------------------
<S> <C>
1989 27.56%
1990 -10.27%
1991 24.87%
1992 12.36%
1993 13.22%
1994 -3.11%
1995 22.57%
1996 26.46%
1997 30.36%
1998 21.42%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Growth &
Income Fund 21.42(%) 18.90(%) 15.76(%)
S&P 500 28.72(%) 24.09(%) 19.22(%)
----------------------------------------
1 Year 5 Year 10
Year
</TABLE>
- --------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 21.95% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -14.87% for the third quarter in 1990.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
Management Fees 0.63%
Rule 12b-1 Fees 0.25%
Other Fees 0.28%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.16%
</TABLE>
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. It also assumes that your
investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------
<S> <C> <C> <C>
$118.23 $368.48 $638.31 $1,408.96
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
5
<PAGE>
LEXINGTON SMALLCAP FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington SmallCap Fund's principal investment
OBJECTIVE objective is long-term capital appreciation. The Lexington
SmallCap Fund will seek to obtain its objective through
investment in equity securities and equivalents primarily
of domestic companies having market capitalizations of
less than $1 billion.
INVESTMENT The Lexington SmallCap Fund, Inc. (the "Fund") will invest at
STRATEGY least 90% of its assets in domestic companies having market
capitalizations between $20 million and $1 billion at the
time of investment. The Fund may invest the remaining 10% of
its assets in a similar manner, or in securities of companies
with market capitalizations below $20 million, above $1
billion, foreign companies with dollar denominated shares
traded in the United States, American Depository Shares or
Receipts, real estate investment trusts and cash. The Fund
will invest primarily in listed securities or those traded
over-the-counter.
In selecting investments for the Fund, Lexington Management
Corporation ("the Manager") and the sub-adviser have
established a universe of small capitalization stocks that
are screened using the sub-adviser's proprietary stock
selectivity model. The quality of each company including its
risk/reward prospects are reviewed and analyzed. This
approach takes into account both value and growth stocks.
Once the stocks are evaluated and ranked by expected future
relative price performance, the Manager and sub-adviser build
the portfolio, taking into account both sector and
diversification considerations.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price of one or more of the
companies in the Fund's portfolio. Due to the inherent
effects of the stock market, the value of the Fund will
fluctuate with the movement of the market as well as in
response to the activities of individual companies in the
Fund's portfolio. Also, the Fund's focus on small cap stocks
may expose investors to additional risks. Smaller companies
typically have more limited product lines, markets and
financial resources than larger companies, and their
securities may trade less frequently and in more limited
volume than those of larger, more mature companies. As a
result, small cap stocks, and therefore the Fund, may
fluctuate significantly more in value than larger cap stocks
and funds that focus on them.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
6
<PAGE>
DOMESTIC EQUITY FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance since inception (01/02/96)
through 12/31/98. The table shows how the average annual returns compares with
the most commonly used index for its market segment for 1, 5 and 10 years (or
since inception). You should remember that past performance is not an indication
of future performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SMALL CAP FUND
--------------
<S> <C>
1996 17.50%
1997 10.47%
1998 6.73%
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
SmallCap Fund 6.73(%) 11.51(%)
Russell 2000 Index -2.55(%) 11.56(%)
---------------------------------------
1 Year Since
Inception
(01/02/96)
</TABLE>
- --------------------------------------------------------------------------------
During the three year period shown in the above bar graph chart, the fund's
highest quarterly return was 15.04% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -11.43% for the fourth quarter in 1997.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 1.67%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 2.92%
</TABLE>
* In 1998, 0.33% of the management fee was voluntarily waived
by the Manager, and as a result, net expenses were actually
2.59%.
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$295.04 $903.65 $1,537.84 $3,242.41
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
7
<PAGE>
LEXINGTON GLOBAL CORPORATE LEADERS FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Global Corporate Leaders Fund's investment
OBJECTIVE objective is to seek long-term growth of capital through
investment in equity securities and equity equivalents of
foreign and U.S. companies.
INVESTMENT The Lexington Global Corporate Leaders Fund, Inc. (the
STRATEGY "Fund") normally invests at least 65% of its total assets in
a diversified portfolio of blue chip securities that the
Manager believes represent "corporate leaders" in their
respective industries.
The Fund may invest in the securities of companies and
governments of the following regions:
- Asia Region (including Japan);
- Europe;
- Latin America;
- Africa;
- North America (including U.S. and Canada); and,
- Other areas and countries as the Manager may decide from
time to time.
The Fund will normally invest in at least three different
countries. The Fund intends to select the countries,
currencies and companies that provide the greatest potential
for long- term growth.
The Fund may invest 35% of its total assets in:
- securities of smaller capitalization companies;
- debt securities; and
- other investments.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price of one of the companies in
the Fund's portfolio. Due to the inherent effects of stock
markets, the value of the Fund will fluctuate with the
movements as well as in response to the activities of
individual companies in the Fund's portfolio. By investing in
foreign stocks, the Fund exposes shareholders to additional
risks. Some foreign stock markets tend to be more volatile
than the U.S. market due to economic and political
instability and regulatory conditions in these countries. In
addition, most of the foreign securities in which the Fund
invests are denominated in foreign currencies, whose values
may decline against the U.S. dollar.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
8
<PAGE>
INTERNATIONAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1989 through 1998. The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL CORPORATE LEADERS FUND
-----------------------------
<S> <C>
89 25.10%
90 -16.75%
91 15.55%
92 -3.55%
93 31.88%
94 1.84%
95 10.69%
96 16.43%
97 6.90%
98 19.06%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Global Corporate
Leaders Fund 19.06(%) 10.81(%) 9.84(%)
MSCI-World Index 24.80(%) 15.77(%) 10.70(%)
------------------------------------------
1 Year 5 Year 10
Year
</TABLE>
- --------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 16.76% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -18.32% for the third quarter in 1990.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
Management Fees 1.00%
Rule 12b-1 Fees None
Other Fees 1.12%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 2.12%
</TABLE>
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$215.05 $663.92 $1,139.01 $2,451.76
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
9
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington International Fund's investment objective is
OBJECTIVE to seek long-term growth of capital through investment in
equity securities and equity equivalents of companies
outside of the U.S.
INVESTMENT The Lexington International Fund, Inc. (the "Fund") will
STRATEGY invest at least 65% of its total assets in securities and
equivalents of companies outside of the U.S. The Fund
generally invests the remaining 35% of its total assets in a
similar manner, but may invest those assets in companies in
the United States, in debt securities or other investments.
The Fund intends to provide investors with the opportunity to
invest in a portfolio of securities of companies and
governments located throughout the world. In making the
allocation of assets among the various countries and
geographic regions, the Fund considers such factors as
prospects for relative economic-growth; expected levels of
inflation and interest rates; government polices influencing
business conditions; the range of investment opportunities
available to international investors; and other pertinent
financial, tax, social, political and national factors -- all
in relation to the prevailing prices of the securities in
each country or region. The Fund does not anticipate
concentrating its investments in any particular region.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price of one or more of the
companies in the Fund's portfolio. Due to the inherent
effects of stock markets, the value of the Fund will
fluctuate with the movement of the markets as well as in
response to the activities of individual companies in the
Fund's portfolio. By investing in foreign stocks, the Fund
exposes shareholders to additional risks. Foreign stock
markets tend to be more volatile than the U.S. market due to
economic and political instability and regulatory conditions
in some countries. In addition, most of the foreign
securities in which the Fund invests are denominated in
foreign currencies, whose values may decline against the U.S.
dollar.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
10
<PAGE>
INTERNATIONAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance since inception (01/03/94)
through 1998. The table shows how the average annual return compares with the
most commonly used index for its market segment for 1, 5 and 10 years (or since
inception). You should remember that past performance is not an indication of
future performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
INTERNATIONAL FUND
------------------
<S> <C>
94 5.87%
95 5.77%
96 13.57%
97 1.61%
98 19.02%
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
International Fund 19.02(%) 9.00(%)
EAFE 20.33(%) 9.25(%)
----------------------------------------------
1 Year Since Inception
(01/03/94)
</TABLE>
- --------------------------------------------------------------------------------
During the five year period shown in the above bar graph chart, the fund's
highest quarterly return was 17.09% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -10.65% for the fourth quarter in 1997.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 1.00%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 2.25%
</TABLE>
* In 1998, 0.50% of the management fee was voluntarily waived
by the Manager, and as a result, net expenses were actually
1.75%.
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$228.09 $703.27 $1,204.94 $2,584.93
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
11
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Worldwide Emerging Markets Fund's investment
OBJECTIVE objective is to seek long-term growth of capital primarily
through investment in equity securities and equity
equivalents of emerging market companies.
INVESTMENT The Lexington Worldwide Emerging Markets Fund, Inc. (the
STRATEGY "Fund") will invest at least 65% of its total assets
according to its investment objective. The Fund's definition
of emerging markets includes, but is not limited to, the
following:
- Africa: Botswana, Egypt, Ghana, Ivory Coast, Kenya,
Mauritius, Morocco, Namibia, South Africa, Swaziland,
Tunisia, Zambia and Zimbabwe;
- Asia: Bahrain, Bangladesh, China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore,
South Korea, Sri Lanka, Taiwan and Thailand;
- Europe: Croatia, Cyprus, Czech Republic, Estonia, Finland,
Greece, Hungary, Latvia, Lithuania, Poland, Portugal,
Romania, Russia, Slovakia and Slovenia;
- The Middle East: Israel, Jordan, Lebanon, Oman and Turkey;
- Latin America: Argentina, Bolivia, Brazil, Chile,
Colombia, Ecuador, Mexico, Nicaragua, Peru and Venezuela.
The Manager of the Fund considers an emerging markets company
to be any company domiciled in an emerging market country, or
any company that derives 50% or more of its total revenue
from either goods or services produced or sold in countries
with emerging markets.
The Fund may invest the remaining 35% of its assets in equity
securities without regard to whether the issuer qualifies as
an emerging market company, debt securities denominated in
the currency of an emerging market country or issued or
guaranteed by an emerging market company or the government of
an emerging market country, short-term or medium-term debt
securities or other types of securities.
The Fund's investment approach is to focus on positive
returns through long-term capital gains. The investment
strategy is based on a top-down approach that compares macro
trends, such as economics, politics, industry trends, and
commodity trends on a relative basis. Countries are grouped
regionally and globally and ranked based on their macro
scores. Once specific countries are identified as relative
outperformers, specific companies are selected as
investments. The selection process for selecting individual
companies is based on fundamental research, industry themes,
and identifying specific catalysts for growth.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price of one of the companies in
the Fund's portfolio. In addition, the risks of investing in
emerging markets are considerable. Emerging stock markets
tend to be more volatile than the U.S. market due to the
relative immaturity, and occasional instability, of their
political and economic systems. In the past many emerging
markets restricted the flow of money into or out of their
stock markets, and some continue to impose restrictions on
foreign investors. These markets tend to be less liquid and
offer less regulatory protection for investors. The economies
of emerging countries may be predominately based on only a
few industries or on revenue from particular commodities,
international aid and other assistance. In addition, most of
the foreign securities in which the Fund invests are
denominated in foreign currencies, whose values may decline
against the U.S. dollar.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
12
<PAGE>
INTERNATIONAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1989 through 1998*. The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
* Prior to June 17, 1991, the Fund operated under a different investment
objective.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
WORLDWIDE EMERGING MARKETS FUND
-------------------------------
<S> <C>
89 28.11%
90 -14.44%
91 24.19%
92 3.77%
93 63.37%
94 -13.81%
95 -5.93%
96 7.38%
97 -11.40%
98 -29.06%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Worldwide
Emerging
Markets Fund -29.06(%) -11.36(%) 2.36(%)
MSCI
Emerging
Markets Free -25.34(%) -9.27(%) 10.95(%)
EAFE 20.33(%) 9.25(%) 5.86(%)
-----------------------------------------
1 Year 5 Year 10
Year
-----------------------------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's highest quarterly return
was 31.81% for the fourth quarter in 1993 and the fund's lowest quarterly return was -26.18% for the
third quarter in 1998.
</TABLE>
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 0.60%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.85%
</TABLE>
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$187.91 $581.69 $1,000.66 $2,169.16
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
13
<PAGE>
LEXINGTON SMALL CAP ASIA GROWTH FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Small Cap Asia Growth Fund's investment
OBJECTIVE objective is to seek long-term capital appreciation
primarily by investing in equity securities and equity
equivalents of companies in the Asia Region having market
capitalizations of less than $1 billion.
INVESTMENT The Lexington Small Cap Asia Growth Fund, Inc. (the "Fund")
STRATEGY will normally invest at least 65% of its total assets in
equity securities of smaller companies in the Asia Region.
The Fund will primarily invest in listed securities but may
also invest in unlisted securities.
The Fund intends to invest primarily in companies which:
- have proven management;
- are undervalued and under-researched by the investment
community;
- are within industry sectors with strong growth prospects;
and
- which have potential investment returns that are superior
to the Asian market as a whole.
The Fund may invest 35% of its total assets in:
- companies with market capitalizations of $1 billion or
more;
- companies outside the Asia Region (e.g. Australia or New
Zealand);
- debt securities; and
- other investments.
The Fund considers the following countries to be in the Asia
Region:(1)
<TABLE>
<S> <C> <C> <C> <C>
Bangladesh India Malaysia Singapore Taiwan
China Indonesia Pakistan Sri Lanka Thailand
Hong Kong Korea The Philippines Vietnam
</TABLE>
The Fund will normally invest in at least three different
countries. The Fund does not intend to invest in Japanese
securities.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price in one of the companies in
the Fund's portfolio. The Fund's volatility may be increased
by its heavy concentration in emerging Asian markets as they
tend to be much more volatile than the U.S. market due to
their relative immaturity and instability. The economies of
emerging countries may be predominately based on only a few
industries or on revenue from particular commodities,
international aid and other assistance. Some emerging Asian
countries, such as Malaysia in 1998, have restricted the flow
or money into or out of the country. Emerging markets also
tend to be less liquid and offer less regulatory protection
for investors. Since mid-1997 Asia has faced serious economic
problems and disruptions, causing substantial losses for some
investors. Also, most of the securities in which the Fund
invests are denominated in foreign currencies, whose values
may decline against the U.S. dollar.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
(1) The Fund considers a company to be within the Asia Region
if its principal securities' trading market is located in
the Asia Region.
14
<PAGE>
INTERNATIONAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance since inception (07/03/95)
through 12/31/98. The table shows how the average annual return compares with
the most commonly used index for its market segment for 1, 5 and 10 years (or
since inception). You should remember that past performance is not an indication
of future performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
CROSBY SMALL CAP ASIA GROWTH FUND
---------------------------------
<S> <C>
95 -4.39%
96 25.50%
97 -42.32%
98 -19.41%
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Crosby Small Cap
Asia Growth Fund -19.41(%) -14.82(%)
MSCI All Country
Far East ex-Japan -4.83(%) -13.21(%)
EAFE 20.33(%) 10.24(%)
---------------------------------------
1 Year Since
Inception
(07/03/95)
---------------------------------------------------------------------------------------------------
During the four year period shown in the above bar graph chart, the fund's highest quarterly return
was 23.43% for the fourth quarter in 1998 and the fund's lowest quarterly return was -41.41% for
the fourth quarter in 1997.
</TABLE>
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as % of
offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
Management Fees 1.25%
Rule 12b-1 Fees None
Other Fees 1.61%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 2.86%
</TABLE>
* In 1998, 0.36% of the management fee was voluntarily waived
by the Manager, and as a result, net expenses were actually
2.50%.
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$289.06 $885.87 $1,508.50 $3,185.46
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
15
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Troika Dialog Russia Fund's investment
OBJECTIVE objective is to seek long-term capital appreciation
through investment primarily in equity securities of
Russian companies.
INVESTMENT The Lexington Troika Dialog Russia Fund, Inc. (the "Fund")
STRATEGY seeks to achieve its objective by investing at least 65% of
its total assets in equity securities and equity equivalents
of Russian companies. The Fund may invest the other 35% of
its total assets in debt securities issued by Russian
companies and debt securities issued or guaranteed by the
Russian government. The Fund may also invest in the equity
securities of issuers outside of Russia which the Fund
believes will experience growth in revenue and profits from
participation in the development of the economies of the
former Soviet Union.
PRINCIPAL The Fund's investments will include investments in Russian
RISKS companies that have characteristics and business
relationships common to companies outside of Russia, and as a
result, outside economic forces may cause fluctuations in the
value of securities held by the Fund.
Additional risks associated with investing in securities of
Russian issuers include:
- The lack of available reliable financial information which
has been prepared and audited in accordance with U.S. or
Western European generally accepted accounting principles
and auditing standards;
- The extremely volatile and often illiquid nature of the
secondary market for Russian securities;
- A cumbersome share registration system for recording
ownership of Russian securities which may adversely affect
a person's ability to prove ownership.
- The potential for unfavorable action such as
expropriation, dilution, devaluation, default or excessive
taxation by the Russian government or any of its agencies
or political subdivisions with respect to investments in
Russian securities by or for the benefit of foreign
entities.
The Fund is a non-diversified investment company. There is
additional risk associated with being non-diversified, since
a greater proportion of total assets may be invested in a
single company.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
16
<PAGE>
INTERNATIONAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance since inception (07/03/96)
through 12/31/98. The table shows how the average annual return compares with
the most commonly used index for its market segment for 1, 5 and 10 years (or
since inception). You should remember that past performance is not an indication
of future performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
TROIKA DIALOG RUSSIA FUND
-------------------------
<S> <C>
96 -9.01%
97 67.50%
98 -82.99%
</TABLE>
<TABLE>
<S> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH
12/31/98
Troika Dialog
Russia Fund -82.99(%) -40.63(%)
Moscow Times
Index -79.62(%) -30.08(%)
Russian Trading
System Index -85.15(%) -41.79(%)
--------------------------------------
1 Year Since
Inception
(07/03/96)
--------------------------------------------------------------------------------------------------
During the three year period shown in the above bar graph chart, the fund's highest quarterly
return was 46.00% for the first quarter in 1997 and the fund's lowest quarterly return was -64.89%
for the third quarter in 1998.
</TABLE>
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable)+ 2.00%
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
Management Fees 1.25%
Rule 12b-1 Fees 0.25%
Other Fees 1.14%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 2.64%
</TABLE>
* In 1998, expenses were reduced by 0.80% as a result of
redemption fee proceeds. Net expenses were actually 1.84%.
+ The 2.00% redemption fee only applies to shares held less
than 365 days.
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$471.84 $820.41 $1,400.12 $2,973.44
</TABLE>
You would pay the following expenses if you did not redeem your
shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$267.12 $820.41 $1,400.12 $2,973.44
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
17
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington GNMA Income Fund's investment objective is
OBJECTIVE to seek a high level of current income, consistent with
liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae")
Certificates that are guaranteed as to the timely payment
of principal and interest by the United States Government.
INVESTMENT Under normal conditions, the Lexington GNMA Income Fund, Inc.
STRATEGY (the "Fund") will invest at least 80% of the value of its
total assets in Government National Mortgage Association
("GNMA") mortgage-backed securities (also known as "GNMA
Certificates").(2) The remaining assets of the Fund will be
invested in other securities issued or guaranteed by the U.S.
Government, including U.S. Treasury securities.
PRINCIPAL Through investment in GNMA securities, the Fund may expose
RISKS you to certain risks which may cause you to lose money.
Mortgage prepayments are affected by the level of interest
rates and other factors, including general economic
conditions and the underlying location and age of the
mortgage. In periods of rising interest rates, the prepayment
rate tends to decrease, lengthening the average life of a
pool of GNMA securities. In periods of falling interest
rates, the prepayment rate tends to increase, shortening the
life of a pool. Because prepayments of principal generally
occur when interest rates are declining, it is likely that
the Fund may have to reinvest the proceeds of prepayments at
lower interest rates than those of their previous
investments. If this occurs, the Fund's yields will decline
correspondingly.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
(2) Please refer to the statement of additional information
for a complete description of GNMA certificates and
Modified Pass through GNMA Certificates. The Fund intends
to use the proceeds from principal payments to purchase
additional GNMA Certificates or other U.S. Government
guaranteed securities.
18
<PAGE>
FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1989 through 1998. The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GNMA INCOME FUND
----------------
<S> <C>
89 15.60%
90 9.23%
91 15.75%
92 5.19%
93 8.06%
94 -2.07%
95 15.91%
96 5.71%
97 10.20%
98 7.52%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
GNMA Income Fund 7.52(%) 7.29(%) 8.98(%)
Lehman Brothers
Mortgage-Backed
Securities Index 6.96(%) 7.23(%) 9.13(%)
----------------------------------------
1 Year 5 Year 10 Year
</TABLE>
- --------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 8.88% for the second quarter in 1989 and the
fund's lowest quarterly return was -2.42% for the first quarter in 1994.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
Management Fees 0.57%
Rule 12b-1 Fees None
Other Fees 0.44%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.01%
</TABLE>
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------
<S> <C> <C> <C>
$103.01 $321.54 $557.85 $1,236.24
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
19
<PAGE>
LEXINGTON GLOBAL INCOME FUND
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Global Income Fund's investment objective is
OBJECTIVE to seek high current income. Capital appreciation is a
secondary objective. The Lexington Global Income Fund
invests in a combination of foreign and domestic
high-yield, lower rated or unrated debt securities.
INVESTMENT The Lexington Global Income Fund (the "Fund") invests in a
STRATEGY variety of foreign and domestic high yield, lower rated or
unrated debt securities.
The Fund, under normal conditions, invests substantially all
of its assets in lower rated or unrated debt securities of
domestic companies, companies in developed foreign countries,
and companies in emerging markets. The credit quality of the
foreign debt securities which the Fund intends to buy is
generally equal to U.S. corporate debt securities known as
"junk bonds". The debt securities in which the Fund invests
consist of bonds, notes, debentures and other similar
instruments. The Fund may invest in debt securities issued by
foreign governments, their agencies and instrumentalities,
central banks, commercial banks and other corporate entities.
The Fund may invest up to 100% of its total assets in
domestic and foreign debt securities that are rated below
investment grade or are of comparable quality. The Fund may
also invest in securities that are in default as to payment
of principal and/or interest, and bank loan participations
and assignments.
The Fund's investment strategy stresses diversification to
help reduce the Fund's price volatility. Global fixed income
securities are divided into four categories. The categories
reflect whether the securities are U.S. dollar denominated or
not and whether borrowers are in developed markets or
emerging markets. The Fund then seeks to select the best
values in each of these four segments. The balance the Fund
maintains between these sectors attempts to limit the price
volatility.
PRINCIPAL Through investment in bonds, the Fund may expose you to
RISKS certain risks which may cause you to lose money. Junk bonds
have a higher risk of default, tend to be less liquid, and
may be more difficult to value. The Fund could lose money
because of foreign government actions, political instability,
or lack of adequate and accurate information. Currency and
investment risks tend to be higher in emerging markets.
The Fund is a non-diversified investment company. There is
additional risk associated with being non-diversified, since
a greater proportion of total assets may be invested in a
single company.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
20
<PAGE>
FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1989 through 1998.* The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
* Prior to December 31, 1994, the Fund operated under a different investment
objective.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL INCOME FUND
------------------
<S> <C>
89 7.40%
90 6.62%
91 10.03%
92 6.51%
93 10.90%
94 -6.52%
95 20.10%
96 13.33%
97 5.00%
98 8.21%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Global Income
Fund 8.21(%) 7.65(%) 7.96(%)
Lehman
Brothers
Global Bond
Index 15.33(%) 8.43(%) 9.33(%)
---------------------------------------
1 Year 5 10
Year Year
------------------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's highest
quarterly return was 8.76% for the second quarter in 1995 and the fund's lowest quarterly
return was -6.61% for the first quarter in 1994.
</TABLE>
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as % of
offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 0.64%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.89%
</TABLE>
* In 1998, 0.39% of the management fee was voluntarily waived
by the Manager, and as a result, net expenses were actually
1.50%.
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$191.94 $593.91 $1,021.27 $2,211.54
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
21
<PAGE>
LEXINGTON MONEY MARKET TRUST
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Money Market Trust's investment objective is
OBJECTIVE to seek as high a level of current income from short-term
investments as is consistent with the preservation of
capital and liquidity. The Lexington Money Market Trust
seeks to maintain a stable net asset value of $1 per
share.
INVESTMENT The Lexington Money Market Trust (the "Fund") will invest in
STRATEGY short-term money market instruments that have been rated in
one of the two highest rating categories by both S&P and
Moody's, both major rating agencies. The Fund invests in
short-term money market instruments (those with a remaining
maturity of 397 days or less) that offer attractive yields
and are considered to be undervalued relative to issues of
similar credit quality and interest rate sensitivity.
The Fund will also insure that its money market instruments
average weighted maturities do not exceed 90 days.
PRINCIPAL An investment in the Fund is not insured or guaranteed by the
RISKS Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your
investment at $1.00 per share, it is possible to lose money
by investing in the Fund.
22
<PAGE>
MONEY MARKET FUNDS
For information on the Fund's 7-day yield please call the Fund at
1-800-526-0056. You should remember that past performance is not an indication
of future performance.
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
Management Fees 0.50%
Rule 12b-1 Fees None
Other Fees 0.55%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.05%
Fee Waiver and/or Expense Reimbursement 0.05%
NET EXPENSES 1.00%
</TABLE>
* Lexington Management Corporation has contractually agreed to
reduce its management fee in order to limit the Fund's annual
total operating expenses (exclusive of taxes and interest) to
1.00%. This agreement has a one-year term, renewable at the
end of each fiscal year.
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------
<S> <C> <C> <C>
$102.00 $318.40 $552.46 $1,224.62
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
FEES AND EXPENSES 23
<PAGE>
LEXINGTON GOLDFUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Goldfund's investment objective is to attain
OBJECTIVE capital appreciation and such hedge against the loss of
buying power of the U.S. Dollar as may be obtained through
investment in gold and securities of companies engaged in
mining or processing gold throughout the world.
INVESTMENT Under normal conditions the Lexington Goldfund, Inc. (the
STRATEGY "Fund") will invest at least 65% of the value of its total
assets in gold and the equity securities of companies engaged
in mining or processing gold ("gold-related securities"). The
Fund may also invest in other precious metals, including
platinum, palladium and silver. The Fund intends to invest
less than half of the value of its assets in gold and other
precious metals.
The Fund's performance and ability to meet its objective will
be largely dependent on the market value of gold. The
portfolio manager seeks to maximize on advances and minimize
on declines by monitoring and anticipating shifts in the
relative values of gold related companies throughout the
world. A substantial portion of the Fund's investments will
be in the securities of foreign issuers.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price in one of the companies in
the Fund's portfolio. Due to the inherent effects of the
stock market, the value of the Fund will fluctuate with the
movement of the market as well as in response to the
activities of individual companies in the Fund's portfolio.
In addition, the Fund's focus on precious metals and precious
metal stocks may expose the investor to additional risks. The
market for gold or other precious metals is concentrated in
countries that have the potential for instability and the
market for gold and other precious metals is widely
unregulated. As a result, the price of precious gold and
precious metal stocks, and therefore the Fund, may fluctuate
significantly.
The Fund is a non-diversified investment company. There is
additional risk associated with being non-diversified, since
a greater proportion of total assets may be invested in a
single company.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
24
<PAGE>
PRECIOUS METAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1989 through 1998. The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<S> <C>
1989 23.62%
1990 -20.65%
1991 -6.14%
1992 -20.51%
1993 86.96%
1994 -7.28%
1995 -1/89%
1996 7.84%
1997 -42.98%
1998 -6.39%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Goldfund -6.39(%) -12.14(%) -3.28(%)
Gold Bullion -0.83(%) -6.02(%) -3.50(%)
S&P 500 28.72(%) 24.09(%) 19.22(%)
----------------------------------------
1 Year 5 Year 10 Year
</TABLE>
- --------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 34.36% for the second quarter in 1993 and the
fund's lowest quarterly return was -29.07% for the fourth quarter in 1997.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
Management Fees 0.92%
Rule 12b-1 Fees 0.25%
Other Fees 0.57%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.74%
</TABLE>
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------
<S> <C> <C> <C>
$176.84 $547.99 $943.74 $2,051.67
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
25
<PAGE>
LEXINGTON SILVER FUND, INC.
RISK/RETURN SUMMARY
INVESTMENT - The Lexington Silver Fund's investment objective is to
OBJECTIVE maximize total return on its assets from long-term growth
of capital and income principally through investment in a
portfolio of securities which are engaged in the
exploration, mining, processing, fabrication or
distribution of silver ("silver-related companies") and in
silver bullion.
INVESTMENT Lexington Silver Fund, Inc. (the "Fund") will seek to achieve
STRATEGY its objective through investment in common stocks of
established silver-related companies and in silver bullion
which have the potential for long-term growth of capital or
income, or both. The common stocks of silver-related
companies in which the Fund intends to invest may or may not
pay dividends. The Fund may also invest in other types of
securities of silver-related companies including convertible
securities, preferred stocks, bonds, notes and warrants. When
the Manager believes that the return on debt securities will
equal or exceed the return on common stocks, the Fund may, in
pursuing its objective of maximizing growth and income,
substantially increase its holding in debt securities.
The securities in which the Fund invests include issues of
established silver-related companies domiciled in the United
States, Canada and Mexico as well as other silver producing
countries throughout the world. At least 80% of the Fund's
assets will be invested in established silver-related
companies which have been in business more than three years.
Approximately 80% of silver is provided as a by-product or
co-product of other mining operations, such as gold mining.
The Fund has the ability to significantly increase its
exposure to silver by increasing its holding of silver
bullion.
PRINCIPAL Through stock investment, the Fund may expose you to common
RISKS stock risks which may cause you to lose money if there is a
sudden decline in the share price in one of the companies in
the Fund's portfolio. Due to the inherent effects of the
stock market, the value of the Fund will fluctuate with the
movement of the market as well as in response to the
activities of individual companies in the Fund's portfolio.
In addition, the Fund's focus on precious metals and precious
metal stocks may expose the investor to additional risks. The
market for silver is relatively limited, the sources of
silver are concentrated in countries that have the potential
for instability and the market for silver is widely
unregulated. As a result, the price of silver, and therefore
the Fund, may fluctuate significantly.
The Fund is a non-diversified investment company. There is
additional risk associated with being non-diversified, since
a greater proportion of total assets may be invested in a
single company.
For a more detailed risk discussion involving investments in
this Fund, please read "Risks of Investing" on page 28.
26
<PAGE>
PRECIOUS METAL FUNDS
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance since inception (01/02/92)
through 12/31/98. The table shows how the average annual returns compares with
the most commonly used index for its market segment for 1, 5 and 10 years (or
since inception). You should remember that past performance is not an indication
of future performance.
PAST FUND PERFORMANCE The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from
year-to-year. The chart at the right compares the Fund's performance with
the most commonly used index for its market segment. Of course, past
performance is no guarantee of future results.
----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SILVER FUND
-----------
<S> <C>
92 -19.01%
93 76.52%
94 -8.37%
95 12.37%
96 2.38%
97 -8.05%
98 -29.64%
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS THROUGH 12/31/98
Silver Fund
S&P 500 -29.64(%) - 7.37(%) 0.96(%)
Silver 28.72(%) 24.09(%) 19.51(%)
Bullion -16.51(%) -0.43(%) 3.39(%)
----------------------------------------
1 Year 5 Year Since
Inception
(01/02/92)
</TABLE>
- --------------------------------------------------------------------------------
During the seven year period shown in the above bar graph chart, the fund's
highest quarterly return was 28.47% for the second quarter in 1993 and the
fund's lowest quarterly return was -18.60% for the fourth quarter in 1994.
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
FEES AND
EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER FEES (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a %
of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested
Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
Management Fees 1.00%
Rule 12b-1 Fees None
Other Fees 1.37%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 2.37%
</TABLE>
Example of Expenses: This example is intended to help you
compare the cost of investing in the Fund with the cost of
investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for
the time periods indicated and then redeem all of your shares
at the end of those periods. This example also assumes that
your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- -----------------------------------------
<S> <C> <C> <C>
$240.12 $739.46 $1,265.42 $2,706.22
</TABLE>
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
27
<PAGE>
RISKS OF INVESTING
RISKS OF INVESTING IN MUTUAL FUNDS
The following risks are common to all mutual funds and, therefore, apply to the
Funds:
- - Market Risk. The market value of a security may go up or down, sometimes
rapidly and unpredictably. A decline in market value may cause a security to
be worth less than it was at the time of purchase. Market risk applies to
individual securities, a particular sector or the entire economy.
- - Manager Risk. Fund management affects Fund performance. A Fund may lose money
if the Fund manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly.
- - Year 2000 Risk. Preparing for Year 2000 is a high priority for the Manager.
The Manager is diligently working with external partners, suppliers, vendors
and other service providers to ensure that the systems with which it
interacts will remain operational at all times. The Manager does not
anticipate that the move to Year 2000 will have a material impact on its
ability to continue to provide the Funds with service at current levels;
however, the Manager cannot make any assurances that the steps it has taken
to ensure Year 2000 compliance will be successful. In addition, there can be
no assurance that Year 2000 issues will not affect the companies in which the
Funds invest or worldwide markets and economies.
RISKS OF INVESTING IN SECURITIES OF SMALL COMPANIES
The following risks apply to all mutual funds that invest in securities of small
companies (market value of less than U.S. $1 billion) including Lexington
SmallCap Fund, Lexington Small Cap Asia Growth Fund and Lexington Troika Dialog
Russia Fund.
Investing in small companies generally involve greater risk than investing in
larger companies for the following reasons, among others:
- - limited product lines;
- - limited markets or financial or managerial resources;
- - their securities may be more susceptible to losses and risks of bankruptcy;
- - their securities may trade less frequently and with lower volume, leading to
greater price fluctuations; and,
- - their securities are subject to increased volatility and reduced liquidity
due to limited market making and arbitrage activities.
RISKS OF INVESTING IN FOREIGN SECURITIES
The following risks apply to all mutual funds that invest in foreign securities
including Lexington Small Cap Asia Growth Fund, Lexington Global Corporate
Leaders Fund, Lexington Goldfund, Lexington Growth and Income Fund, Lexington
International Fund, Lexington Global Income Fund, Lexington Silver Fund,
Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging Markets
Fund.
- - Legal System and Regulation Risk. Foreign countries have different legal
systems and different regulations concerning financial disclosure, accounting
and auditing standards. Corporate financial information that would be
disclosed under U.S. law may not be available. Foreign accounting and
auditing standards may render a foreign corporate balance sheet more
difficult to understand and interpret than one subject to U.S. law and
standards. Additionally, government oversight of foreign stock exchanges and
brokerage industries may be less stringent than in the U.S.
28
<PAGE>
RISKS OF INVESTING
- - Currency Risk. Most foreign stocks are denominated in the currency of the
stock exchange where they are traded. The Fund's Net Asset Value is
denominated in U.S. dollars. The exchange rate between the U.S. dollar and
most foreign currencies fluctuates; therefore, the Net Asset Value of the
Fund will be affected by a change in the exchange rate between the U.S.
dollar and the currencies in which the Fund's stocks are denominated. The
Fund may also incur transaction costs associated with exchanging foreign
currencies into U.S. dollars.
- - Stock Exchange and Market Risk. Foreign stock exchanges generally have less
volume than U.S. stock exchanges. Therefore, it may be more difficult to buy
or sell shares of foreign securities, which increases the volatility of share
prices on such markets. Additionally, trading on foreign stock markets may
involve longer settlement periods and higher transaction costs.
- - Expropriation Risk. Foreign governments may expropriate the Fund's
investments either directly by restricting the Fund's ability to sell a
security or by imposing exchange controls that restrict the sale of a
currency or by taxing the Fund's investments at such high levels as to
constitute confiscation of the security. There may be limitations on the
ability of the Fund to pursue and collect a legal judgment against a foreign
government.
RISKS OF INVESTING IN LOWER-QUALITY DEBT SECURITIES
The following risks apply to all mutual funds that invest in lower-quality debt
securities commonly referred to as "junk bonds" including Lexington Global
Income Fund and Lexington Troika Dialog Russia Fund.
Junk bonds are highly speculative. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of issuers of their
securities to make principal and interest payments than with higher-grade debt
securities.
RISKS OF INVESTING IN SECURITIES OF RUSSIAN COMPANIES
The following risks apply to all mutual funds that invest in securities of
Russian companies including Lexington Troika Dialog Russia Fund.
- - Political Risk. Since the breakup of the Soviet Union in 1991, Russia has
experienced and continues to experience dramatic political and social change.
Russia is undergoing a rapid transition from a centrally-controlled command
system to a more market-oriented democratic model. The Funds may be affected
unfavorably by political developments, social instability, changes in
government policies, and other political and economic developments.
- - Market Concentration and Liquidity Risk. The Russian securities markets are
substantially smaller, less liquid and more volatile than the securities
markets in the United States. A few issuers represent a large percentage of
market capitalization and trading volume. Due to these factors and despite
the Funds' policies on liquidity, it may be difficult for the Funds to buy or
sell some securities because of the poor liquidity.
- - Settlement and Custody Risk. Ownership of shares in Russian companies is
recorded by the companies themselves and by registrars instead of through a
central registration system. It is possible that the Funds' ownership rights
could be lost through fraud or negligence. Since the Russian banking
institutions and registrars are not guaranteed by the state, the Funds may
not be able to pursue claims on behalf of the Funds' shareholders.
NON-DIVERSIFIED PORTFOLIO
The following risks apply to all mutual funds that are non-diversified
investment companies including Lexington Goldfund, Lexington Silver Fund,
Lexington Global Income Fund and Lexington Troika Dialog Russia Fund.
29
<PAGE>
These Funds may invest a greater proportion of their total assets in a single
company, which increases risk. However, these Funds intend to comply with
diversification requirements of the federal tax law to qualify as regulated
investment companies. For more detailed information on the federal tax law
diversification requirement, see the tax section of the Fund's Statement of
Additional Information.
PRECIOUS METALS
The following risks apply to all mutual funds that invest in precious metals
including Lexington Goldfund and Lexington Silver Fund.
Precious metal investments have the following characteristics:
- - earn no income;
- - transaction and storage costs may be higher; and
- - the Fund will realize gain only with an increase in the market price.
TEMPORARY DEFENSIVE POSITION
When the Funds anticipate unusual market or other conditions, they may
temporarily depart from their goal and invest substantially in high-quality
short-term investments. This could help the Fund avoid losses but may mean lost
opportunities.
30
<PAGE>
MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Lexington Management Corporation (LMC), a wholly-owned subsidiary of Lexington
Global Asset Managers, Inc. ("LGAM"), is the investment adviser to the Lexington
Funds. LMC and its predecessor companies, registered investment advisers under
the Investment Advisers Act of 1940, as amended, were established in 1938. LMC
is located at P.O. Box 1515, Park 80 West Plaza Two, Saddle Brook, New Jersey
07663. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities have a controlling interest in LGAM. LMC advises private
clients as well as the Lexington Funds. LMC supervises and assists in the
overall management of the Funds, subject to the oversight by the Board of
Directors or Trustees.
SUB-ADVISERS
Lexington SmallCap Fund. Market Systems Research Advisors, Inc. ("MSR Advisors")
is the sub-adviser of Lexington SmallCap Fund. MSR Advisors is located at 80
Maiden Lane, New York, NY 10038. MSR Advisors provides investment advice and
management to Lexington SmallCap Fund. MSR is 65% owned by LGAM and 35% owned by
Frank A. Peluso, the President and C.E.O. of MSR Advisors.
Lexington Small Cap Asia Growth Fund. Crosby Asset Management (US) Inc. (Crosby)
is the sub-adviser of the Lexington Small Cap Asia Growth Fund. Crosby is
located at 32/F Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road,
Central, Hong Kong. Crosby is a subsidiary of Crosby Group, Hong Kong. Crosby
provides investment advice and management to Lexington Small Cap Asia Growth
Fund.
Lexington Troika Dialog Russia Fund. Troika Dialog Asset Management (TDAM) is
the sub-adviser of Lexington Troika Dialog Russia Fund. TDAM is located at
Romanov Pereulok #4, 103875 Moscow, Russia. TDAM provides investment advice and
management to Lexington Troika Dialog Russia Fund. TDAM is a majority owned
subsidiary of The Bank of Moscow.
Lexington Worldwide Emerging Markets Fund. Stratos Advisors, Inc. (Stratos) is
the sub-adviser of Lexington Worldwide Emerging Markets Fund. Stratos is located
at 20 Exchange Place, 52nd Floor, New York, NY 10005. Stratos provides
investment advice and management to Lexington Worldwide Emerging Markets Fund.
31
<PAGE>
PORTFOLIO MANAGERS
LEXINGTON SMALLCAP FUND
[DEMICHELE PHOTO]
ROBERT M. DEMICHELE. Mr. DeMichele is one of three lead managers of a
portfolio management team that manages the Lexington SmallCap Fund.
Mr. DeMichele is Chairman and Chief Executive Officer of LMC. He is
also the Chairman of the Investment Strategy Group. In addition, he
is President of Lexington Global Asset Managers, Inc., LMC's parent
company. He holds similar offices in other companies owned by
Lexington Global Asset Managers, Inc., as well as the Lexington
Funds. Prior to joining LMC in 1981, Mr. DeMichele was a Vice President at A.G.
Becker, Inc., the securities division of Warburg, Paribus, Becker, an
international investment banking firm. From 1973 to 1981, Mr. DeMichele held
several positions, the most recent managing A.G. Becker's Funds Evaluation and
Consulting Group for both the East and West Coasts. Mr. DeMichele graduated from
Union College with a B.A. Degree in Economics and from Cornell University with
an M.B.A. in Finance.
ALAN H. WAPNICK. Please see biography under Lexington Growth and
Income Fund.
[PELUSO PHOTO]
FRANK A. PELUSO. Mr. Peluso is one of three lead managers of a
portfolio management team that manages the Lexington SmallCap Fund.
He has 36 years investment experience. Mr. Peluso is President and
Chief Executive Officer of MSR, the sub-adviser to the Fund. Mr.
Peluso utilizes a proprietary analytical system to identify
securities with performance potential which he believes to be
exceptional. In addition, Mr. Peluso's proprietary data is used by
professional money managers, insurance companies, brokerage firms,
banks, mutual fund companies and pension funds. In 1976, he established
Marketiming Inc. (currently named Market Systems Research, Inc., a fully-owned
subsidiary of MSR). He was with MSR since its inception in 1986. Mr. Peluso
graduated from Princeton University and completed a year of post-graduate study
at Columbia University, and two years of post-graduate study at Princeton
University with a Fellowship in Mathematics.
LEXINGTON GROWTH AND INCOME FUND
[WAPNICK PHOTO]
ALAN H. WAPNICK. Mr. Wapnick is a member of an investment management
team that manages the Lexington Global Corporate Leaders Fund and
Lexington SmallCap Fund. Mr. Wapnick is the lead manager for
Lexington Growth and Income Fund. Mr. Wapnick is Senior Vice
President, Director of Domestic Investment Equity Strategy of LMC.
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 graduated from Dartmouth College and
received an M.B.A. from Columbia University.
LEXINGTON GLOBAL CORPORATE LEADERS FUND
[SALER PHOTO]
RICHARD T. SALER. Mr. Saler is a member of an investment management
team that manages the Lexington Global Corporate Leaders Fund. He is
the lead manager of an investment management team for Lexington
International Fund. Mr. Saler is Senior Vice President, Director of
International Investment Strategy of LMC. Mr. Saler is responsible
for international investment analysis and portfolio management at
LMC. He has thirteen years of investment experience. Mr. Saler has
focused on international markets since first joining LMC in 1986. In 1991 he was
a strategist with Nomura Securities and rejoined LMC in 1992. Mr. Saler
graduated from New York University with a B.S. Degree in Marketing and from New
York University's Graduate School of Business Administration with an M.B.A. in
Finance.
32
<PAGE>
PORTFOLIO MANAGERS
[SCHWARTZ PHOTO]
PHILIP A. SCHWARTZ, CFA. Mr. Schwartz is also a member of an
investment management team that manages the Lexington Global
Corporate Leaders Fund and Lexington International Fund. Mr. Schwartz
is a Vice President at LMC, a Chartered Financial Analyst and a
member of the New York Society of Security Analysts. He is
responsible for international investment analysis and portfolio
management at LMC, and has twelve years of investment experience.
Prior to joining LMC in 1993, Mr. Schwartz was Vice President of
European Research Sales with Cheuvreux De Virieu in Paris and New York, serving
the institutional market. Prior to Cheuvreux, he was affiliated with Olde and
Co. and Kidder, Peabody as a stockbroker. Mr. Schwartz earned his B.A. and M.A.
Degrees from Boston University.
ALAN H. WAPNICK. Please see biography under Lexington Growth and Income Fund.
LEXINGTON INTERNATIONAL FUND
RICHARD T. SALER. Please see biography under Lexington Global
Corporate Leaders Fund.
PHILLIP A. SCHWARTZ, CFA. Please see biography under Lexington Global
Corporate Leaders Fund.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND
[VIEGAS PHOTO]
ALFREDO M. VIEGAS. Mr. Viegas is a member of the portfolio management
team for Lexington Worldwide Emerging Markets Fund. Mr. Viegas is
Chief Executive Officer and Senior Portfolio Manager of Stratos. In
1995, Mr. Viegas established VZB Partners LLC ("VZB"), an offshore
investment manager. Mr. Viegas is responsible for corporate analysis
and bottom-up research. He has concentrated on analyzing equity
opportunities not only in emerging markets but also in newly
developing or frontier markets where the quality of public available information
is scarce and direct research is imperative. Prior to VZB, Mr. Viegas was Vice
President and Latin American Equity Strategist for emerging markets with Salomon
Brothers from 1993 to 1995. From 1991 to 1993, he was a research analyst with
Morgan Stanley. Mr. Viegas is a graduate of Wesleyan University with a B.A. in
Classics and Medieval History.
[ZAIDI PHOTO]
MOHAMMED ZAIDI. Mr. Zaidi is a member of the Portfolio Management
team for the Lexington Worldwide Emerging Markets Fund. Mr. Zaidi is
a Portfolio Manager at Stratos. Mr. Zaidi is responsible for
fundamental corporate analysis with a particular focus on Asian and
Middle Eastern markets as well as the Risk Control Officer. Mr. Zaidi
has been a Portfolio Manager at VZB since 1997. Mr. Zaidi was Chief
Financial Officer and a Partner at Paradigm Software, Inc. from 1992
to 1995. Mr. Zaidi is a graduate of the University of Pennsylvania
with a B.S. in Economics from the Wharton School. Mr. Zaidi also holds an M.B.A.
in Finance from M.I.T. Sloan School of Management.
LEXINGTON SMALL CAP ASIA GROWTH FUND
[LAM PHOTO]
CHRISTINA LAM. Ms. Lam is the lead manager on a portfolio management
team that manages the Lexington Small Cap Asia Growth Fund. Ms. Lam
is Vice President and Portfolio Manager of the Lexington Small Cap
Asia Growth Fund. Ms. Lam joined Crosby Asset Management in 1991. She
is responsible for the investment management of the listed equity
portfolios under the management of Crosby Asset Management. After
graduating with a Law Degree with Honors from Warwick University, she
qualified as a Barrister from Lincoln's Inn in London. In 1987 she joined
Schroder Securities Limited in Hong Kong as an investment analyst, where her
coverage included the utilities, industrials and retail sectors and
conglomerates.
33
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND
[MC CARTHY PHOTO]
TIMOTHY D. MCCARTHY is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. Mr. McCarthy has a
B.S. degree in Economics from the State University of New York at
Oneonta and an M.B.A. from the State University of New York at
Binghamton. He joined Troika Dialog, Moscow in July, 1998. Prior to
May, 1998 he was an Executive Director with Alfa Asset Management,
Moscow. From January, 1995 to March, 1997 he was co-founder and
director of Capital Regent Securities, a Moscow based investment and advisory
firm. From June, 1990 to December, 1994 he was a consultant and senior
consultant with Deloitte & Touche Management Consulting in New York.
[HISEY PHOTO]
RICHARD M. HISEY, C.F.A. Mr. Hisey is a member of the portfolio
management team and investment strategist for the Lexington Troika
Dialog Russia Fund. Mr. Hisey is Managing Director and Chief
Financial Officer of LMC. He is also a Vice President and a member of
the Board of Directors of the Lexington Family of Mutual Funds. Mr.
Hisey is Executive Vice President and Chief Financial Officer of
Lexington Global Assets Managers, Inc., the parent company of LMC. He
sits on the Investment Company Institute's Accounting/Treasurers,
International and Tax Committees. He is a Chartered Financial Analyst and is a
member of the New York Society of Security Analysts. Prior to joining LMC in
1986, Mr. Hisey was a Senior Financial Analyst for Richardson Vicks, Inc. Mr.
Hisey is a graduate with Distinction of the University of Connecticut with a
Bachelor of Arts in Soviet and Eastern European Studies. His undergraduate work
included studies at Middlebury College and at Leningrad State University in the
former Soviet Union. He also holds an M.B.A. from the University of Connecticut.
[VARDANIAN PHOTO]
RUBEN VARDANIAN is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. Mr. Vardanian is
Chairman of the Board of Troika Dialog Asset Management. He is Vice
Chairman of the Board of Directors of the Depository Clearing
Company, Moscow. He is a member of the expert council of the Federal
Securities Commission of Russia and a Director of the Russian Trading
System (RTS). He is also Chairman of the Board of Directors of the
Russian Capital markets self-regulatory organization (NAUFOR). Mr. Vardanian
received a Masters Degree with Distinction from the Finance Department of Moscow
State University. He received post-graduate training with Banca CRT in Italy and
with the Emerging Markets Division of Merrill Lynch in New York.
[TEPLUKHIN PHOTO]
PAVEL TEPLUKHIN. Dr. Teplukhin is a member of the portfolio
management team that manages the Lexington Troika Dialog Russia Fund.
He is the President of Troika Dialog Asset Management. Dr. Teplukhin
received a diploma in Economics and a Doctorate in Economic Analysis
and Statistics from Moscow State University. He also received a
Master of Science in Economics/ Macroeconomics from the London School
of Economics. From 1993 to 1996, Dr. Teplukhin was Economic Adviser
to the First Deputy Prime Minister at the Ministry of Finance of the Russian
Federation.
[LARICHEV PHOTO]
OLEG LARICHEV is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. Mr. Larichev
received a Master of Arts in Economics from the New Economic School,
Moscow and a Diploma in Computer Graphics from Moscow State
University. He has been associated with Troika Dialog, Moscow since
September, 1996. Prior to September, 1996 he was an economics expert
with the Russian European Center for Economic Policy. Prior to April,
1995 he held part-time positions with the World Bank and the Moscow
office of the London School of Economics.
34
<PAGE>
PORTFOLIO MANAGERS
BOARD OF ADVISERS. The Board of Advisers to the Lexington Troika Dialog Russia
Fund is composed of experts in Russian political and economic affairs. The Board
of Advisers provides LMC and the Board of Directors with periodic updates on
political and macroeconomic conditions and trends in Russia, and their political
implication for the overall investment environment in Russia. As a result, LMC
and the Board of Directors will be better able to oversee and safeguard the
assets of Lexington Troika Dialog Russia Fund. The members of the Board of
Advisers are:
KEITH BUSH is a Senior Associate -- Russian and Eurasian Studies at the Center
for Strategic and International Studies in Washington, D.C. Prior to 1994, Mr.
Bush was the Director of Radio Free Europe's Radio Liberty Research area. Mr.
Bush has published more than 1,000 analyses on developments in the former Soviet
Union.
MARIN J. STRMECKI is the Director of Programs for the Smith Richardson
Foundation. Prior to 1994, Dr. Strmecki served as a Legislative Assistant to
U.S. Senator Orrin Hatch. Prior to 1993, Dr. Strmecki served as a Special
Assistant for Public Policy on the Policy Planning Staff of the U.S. Office of
the Secretary, Department of Defense. Prior to 1992, Dr. Strmecki served as a
Professional Staff Member of the Foreign Relations Committee of the U.S. Senate.
Dr. Strmecki also served as a Foreign Policy Consultant to former U.S. President
Richard M. Nixon from 1990 to 1994.
LEXINGTON GNMA INCOME FUND
[JAMISON PHOTO]
DENIS P. JAMISON, CFA. Mr. Jamison manages the Lexington GNMA Income
Fund, Lexington Money Market Trust and Lexington Global Income Fund.
Mr. Jamison is Senior Vice President and Director of Fixed Income
Strategy of LMC. Mr. Jamison is responsible for fixed-income
portfolio management. He is a Chartered Financial Analyst and a
member of the New York Society of Security Analysts. Prior to joining
LMC in 1981, Mr. Jamison spent nine years at Arnold Bernhard &
Company, an investment counseling and financial services organization. At
Bernhard, he was a Vice President supervising the security analyst staff and
managing investment portfolios. He is a specialist in government, corporate and
municipal bonds. Mr. Jamison graduated from the City College of New York with a
B.A. in Economics.
[MC CARTHY PHOTO]
ROSEANN G. MCCARTHY. Ms. McCarthy is a co-manager of the Lexington
GNMA Income Fund and the Lexington Money Market Trust. Ms. McCarthy
is an Assistant Vice President of LMC. Prior to joining the Fixed
Income Department in 1997, she was Mutual Fund Marketing and Research
Coordinator. Prior to 1995, Ms. McCarthy was Fund Statistician and a
Shareholder Service Representative for the Lexington Funds. Ms.
McCarthy is a graduate of Hofstra University with a B.B.A. in
Marketing and has an M.B.A. in Finance from Seton Hall University.
LEXINGTON GLOBAL INCOME FUND
DENIS P. JAMISON, CFA. Please see biography under Lexington GNMA
Income Fund.
35
<PAGE>
LEXINGTON MONEY MARKET TRUST
DENIS P. JAMISON, CFA. Please see biography under Lexington GNMA
Income Fund.
ROSEANN G. MCCARTHY. Please see biography under Lexington GNMA Income
Fund.
LEXINGTON GOLDFUND
[VAIL PHOTO]
JAMES A. VAIL, CFA. Mr. Vail manages the Lexington Goldfund and the
Lexington Silver Fund. Mr. Vail is a Vice President of LMC and is
responsible for precious metals analysis and portfolio management at
LMC. He is a Chartered Financial Analyst, a member of the New York
Society of Security Analysts and has 25 years of investment
experience. Prior to joining LMC in 1991, Mr. Vail held investment
research positions with Chemical Bank, Oppenheimer & Co., Robert
Fleming Inc. and most recently, Beacon Trust Company, where he was a
Senior Investment Analyst. Mr. Vail is a graduate of St. Peter's College with a
B.S. and holds an M.B.A. in Finance from Seton Hall University.
LEXINGTON SILVER FUND
JAMES A. VAIL, CFA. Please see biography under Lexington Goldfund.
MANAGEMENT FEES AND EXPENSE LIMITS
Each Fund pays a management fee at an annual rate based on its average daily net
assets, to LMC as follows: Growth and Income Fund pays 0.75% on the first $100
million of average daily net assets, 0.60% on the next $50 million, 0.50% on the
next $100 million and 0.40% thereafter. SmallCap Fund pays 1.00%. Global
Corporate Leaders Fund pays 1.00%. International Fund pays 1.00%. Worldwide
Emerging Markets Fund pays 1.00%. Small Cap Asia Growth Fund pays 1.25%. Russia
Fund pays 1.25%. GNMA Income Fund pays 0.60% on the first $150 million, 0.50% on
the next $250 million, 0.45% on the next $400 million, and 0.40% thereafter.
Global Income Fund pays 1.00%. Money Market Trust pays 0.50%. Goldfund pays
1.00% on the first $50 million and 0.75% thereafter. Silver Fund pays 1.00% on
the first $30 million and 0.75% thereafter.
GNMA Income Fund and Money Market Trust have contractual expense limitations
with LMC. The agreements have a one-year term, renewable at the end of each
fiscal year. GNMA Income Fund's annual expenses are limited to 1.50% of average
daily net assets up to $30 million, and 1.00% thereafter. Money Market Trust's
annual expenses are limited to 1.00%. LMC has voluntarily agreed to limit annual
expenses to 2.50% of average daily net assets for each of the Funds except for
Russia Fund, GNMA Income Fund and Money Market Trust. This limit is exclusive of
12b-1 fees. With respect to Russia Fund, LMC has voluntarily agreed to limit
annual expenses to 3.35% of average daily net assets, inclusive of 12b-1 fees.
These voluntary limits became effective January 1, 1999, and may be terminated
at any time.
36
<PAGE>
INVESTMENT OPTIONS
TO OPEN A NEW ACCOUNT, COMPLETE AND MAIL THE NEW ACCOUNT APPLICATION
INCLUDED WITH THIS PROSPECTUS.
- --------------------------------------------------------------------------------
Mail your completed application, any checks and correspondence to the
Transfer Agent:
TRANSFER AGENT
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
P.O. Box 419648
Kansas City, Missouri 64141-6648
OVERNIGHT MAIL
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
330 W. 9th Street
Kansas City, MO 64105
Checks should be made payable to: The Lexington Funds
Call a Lexington shareholder service representative Monday through
Friday between 9:00 A.M. and 5:00 P.M. Eastern time for information on the
Funds or your account, at:
(800) 526-0056 OR (201) 845-7300 FOR SERVICE M-F 9 A.M.- 5 P.M. EASTERN
TIME
(800) 526-0052 FOR 24 HOUR ACCOUNT INFORMATION "LEXLINE"
(800) 526-0057 FOR 24 HOUR PROSPECTUS INFORMATION
Trade requests received after 4 P.M. Eastern time (1 P.M. Pacific time)
will be executed at the following business day's closing price.
Once an account is established you can:
- SELL OR EXCHANGE SHARES BY PHONE.
Contact the Lexington Funds at 800-526-0056.
- BUY OR EXCHANGE SHARES ONLINE.
Go to WWW.LEXINGTONFUNDS.COM. and follow our online instructions to
enable this service.
- BUY, SELL OR EXCHANGE SHARES BY MAIL.
Mail buy/sell order(s), investment or redemption instructions and any
required payment by check:
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
P.O. Box 419648
Kansas City, Missouri 64141-6648
- BUY SHARES BY WIRING FUNDS.
To: State Street Bank and Trust Company DDA Account #99043713;
[Lexington Fund you are investing in]
For credit to: [shareholder(s) name]
Account number:
ABA Routing #011000028
37
<PAGE>
SHAREHOLDER INFORMATION
WHAT YOU NEED TO KNOW ABOUT YOUR LEXINGTON ACCOUNT
You pay no sales charges to invest in The Lexington Funds. The minimum initial
investment for the Funds (except Lexington Troika Dialog Russia Fund) is $1,000,
and the minimum subsequent investment is $50. The minimum initial investment for
Lexington Troika Dialog Russia Fund is $5,000. The minimum initial investment
for IRAs is $250. Under certain conditions we may waive these minimums for
qualified plan accounts. If you buy shares through a broker or investment
advisor, they may apply different requirements. All investments must be made in
U.S. dollars. In addition, we reserve the right to reject any purchase.
BECOMING A LEXINGTON SHAREHOLDER
To open a new account:
- - BY MAIL. Send your completed application, with a check payable to The
Lexington Funds, to the appropriate address. Your check must be in U.S.
dollars and drawn only on a bank located in the United States. We do not
accept third-party checks, "starter" checks, credit-card checks, traveler's
checks, instant-loan checks or cash investments. We may impose a charge on
checks that do not clear.
- - BY WIRE. Call us at 800-526-0056 to let us know that you intend to make your
initial investment by wire. Tell us your name and the amount you want to
invest. We will give you further instructions and a fax number to which you
should send your completed New Account application. To ensure that we handle
your investment accurately, include complete account information in all wire
instructions.
Then request your bank to wire money from your account to the attention of:
State Street Bank and Trust Company
DDA account #99043713
[Lexington Fund you are investing in]
For credit to: [shareholder(s) name]
Shareholder(s) account #
ABA Routing #011000028
Please note that your bank may charge a wire transfer fee.
BUYING ADDITIONAL SHARES
- - BY MAIL. Complete the form at the bottom of any Lexington statement and mail
it with your check payable to The Lexington Funds. Or mail the check with a
signed letter noting the name of the Fund in which you want to invest, your
account number and telephone number.
- - "LEX-O-MATIC" THE AUTOMATIC INVESTMENT PLAN:
- A shareholder may make additional purchases of shares automatically on a
monthly or quarterly basis with the automatic investing plan,
"Lex-O-Matic."
- You may not use a "Lex-O-Matic" investment to open a new account. The
minimum investment amount must still be made into the Fund. The minimum
Lex-O-Matic investment amount is $50.
- Your bank must be a member of the Automated Clearing House.
- To establish "Lex-O-Matic," attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank account to your
Lexington Account Application or a "Lex-O-Matic" Application.
38
<PAGE>
SHAREHOLDER INFORMATION
- Investments will automatically be transferred into your Lexington Account
from your checking or savings account.
- Investments may be transferred either monthly or quarterly on or about the
15th day of the month.
- You should allow 20 business days for this service to become effective.
- You may cancel or change the amount of your Lex-O-Matic at any time
provided that a letter is sent to the Transfer Agent ten days prior to the
scheduled investment date. Your request will be processed upon receipt.
By investing in the Lexington Funds, you appoint the Transfer Agent as your
agent to establish an open account to which all shares purchased will be
credited, along with any dividends and capital gain distributions which are paid
in additional shares (see "Dividends and Distributions"). Stock certificates
will be issued, upon written request, for full shares of Lexington Funds.
Certificates will not be issued for 30 days after payment is received. In order
to facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders for customers may charge a fee
for their services. The fee may be avoided by purchasing shares directly from
the Lexington Funds.
EXCHANGING SHARES
Shares of the Lexington Funds may be exchanged for shares of equivalent value of
any Lexington Fund. If an exchange involves investing in a Lexington Fund not
already owned, the dollar amount of the exchange must meet the minimum initial
investment amount of the new Fund. An exchange will result in a recognized gain
or loss for income tax purposes. Exchanges of over $500,000 may take three days
to complete.
You may make exchange requests in writing or by telephone. Telephone exchanges
may only be made if you have completed a Telephone Authorization form which is
included on your new account application, or you can request it separately by
calling shareholder services at 800-526-0056. Telephone exchanges may not be
made within 7 calendar days of a previous exchange.
If not a new account, the minimum exchange required is $500; $250 for Individual
Retirement Accounts.
Telephone exchanges may only involve shares held on deposit by the Transfer
Agent, not shares held in certificate form by the shareholder.
Any new account established by a shareholder will also have the privilege of
exchange by telephone in the Lexington Funds unless you decline this privilege
on the application or the transfer agent is notified by the shareholder in
writing to remove the privilege. All accounts involved in a telephonic exchange
must have the same dividend option, registration and social security number as
the account from which the shares are transferred.
MINIMUM ACCOUNT BALANCES
Due to the costs of maintaining small accounts, we require a minimum combined
account balance of $1,000. If your account balance falls below that amount for
any reason other than market fluctuations, we will ask you to add to your
account. If your account balance is not brought up to the minimum or you do not
send us other instructions, we will redeem your shares and send you the
proceeds. We believe that this policy is in the best interests of all our
shareholders.
39
<PAGE>
REDEEMING YOUR SHARES
The Funds will redeem all or any portion of your outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent. Payment of redemption proceeds is made promptly regardless of
when redemption occurs and normally within three business days after receipt of
all documents in proper form by our transfer agent, including a written
redemption order with appropriate signature guarantee. Redemption proceeds will
be mailed or wired in accordance with the shareholder's instructions. The Funds
may suspend the right of redemption under certain extraordinary circumstances in
accordance with the rules of the SEC. In the case of shares purchased by check
and redeemed shortly after the purchase, the Transfer Agent will not mail
redemption proceeds until it has been notified that the monies used for the
purchase have been collected, which may take up to 15 days from the purchase
date. Shares tendered for redemptions through brokers or dealers (other than the
Distributor) may be subject to a service charge by such brokers or dealers.
Procedures for requesting a redemption are set forth below.
A 2% redemption fee will be charged on the redemption of shares of the Lexington
Troika Dialog Russia Fund held less than 365 days. The redemption fee will not
apply to shares representing the reinvestment of dividends and capital gains
distributions. The redemption fee will be applied on a share by share basis
using the "first shares in, first shares out" (FIFO) method. Therefore, the
oldest shares are sold first.
The transfer agent will restrict the mailing of redemption proceeds to a
shareholder address of record within 30 days of such address being changed,
unless the shareholder provides a signature guaranteed letter of instruction.
REDEEMING BY WRITTEN INSTRUCTION
Write a letter giving your name, account number, the name of the fund from which
you wish to redeem and the dollar amount or number of shares you wish to redeem.
Signature-guarantee your letter if you want the redemption proceeds to be made
payable and/or mailed to a party other than the account owner(s) as registered
in our records, your predesignated bank account or if the dollar amount of the
redemption exceeds $25,000. Signature guarantees may be provided by an eligible
guarantor institution such as a commercial bank, an NASD member firm such as a
stockbroker, a savings association or national securities exchange. Notary
Publics are not acceptable Guarantors. Contact the Transfer Agent for more
information.
If a redemption request is sent to the Fund in New Jersey, it will be forwarded
to the Transfer Agent and the effective date of redemption will be the date
received by the Transfer Agent. Checks for redemption proceeds will normally be
mailed within three business days. Shareholders who redeem all their shares will
receive a check representing the value of the shares redeemed plus the accrued
dividends if applicable through the date of redemption. Where shareholders
redeem only a portion of their shares, all dividends declared but unpaid will be
distributed on the next dividend payment date.
REDEEMING BY TELEPHONE
- - Shares of the Fund may be redeemed by telephone. Call the Fund toll free at
1-800-526-0056. New applicants may decline this privilege by checking the
appropriate box on the application.
40
<PAGE>
SHAREHOLDER INFORMATION
- - For shareholders who have not previously authorized the redemption privilege
a redemption authorization and signature guarantee must be given before a
shareholder may redeem by telephone. Authorization forms may be obtained by
calling the Fund at 800-526-0056.
- - Telephone redemption privileges may be cancelled by instructing the Transfer
Agent in writing. Your request will be processed upon receipt.
- - Exchange by telephone. (See "Exchanging Shares")
REDEEMING BY CHECK
- - Check writing is available on the Money Market Trust at no charge.
- - The minimum amount per check is $100 or more up to $500,000. Checks for less
than $100 or over $500,000 will not be honored.
- - All checks require only one signature unless otherwise indicated. Checks will
be returned to you at the end of each month.
- - Redemption checks are free, but a charge of $15.00 may be imposed for any
stop payments requested.
- - Redemption checks should not be used to close your account.
- - Redemptions by check are available for shares for which share certificates
have not been issued, and may not be used to redeem shares purchased by check
which have been on the books of the Fund for less than 15 days.
SYSTEMATIC WITHDRAWAL PLAN
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or electronic funds). If the proceeds are to be mailed to a
third party a signature guarantee is required. The minimum payment amount is
$100 from each Fund account. Payments may be made either monthly, quarterly,
semi-annually or annually on the 28th of each month. If the 28th falls on a
weekend or a holiday, the withdrawal will occur on the preceding business day.
The redemption will result in the recognition of a gain or loss for income tax
purposes.
HOW FUND SHARES ARE PRICED
How and when we calculate the Funds' price or net asset value (NAV) determines
the price at which you will buy or sell shares. The net asset value of each fund
is determined once daily as of 4:00 p.m., New York time, on each day that the
NYSE is open for trading. Per share net asset value is calculated by dividing
the value of each fund's total net assets by the total number of that fund's
shares then outstanding.
As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed-income securities, the mean between the closing bid and asked
prices. Securities traded over-the-counter are valued at the mean between the
last current bid and asked prices. Securities for which market quotations are
not readily available or which are illiquid are valued at their fair values as
determined in good faith under the supervision of the Funds' officers, and by
the Manager and the Boards, in accordance with methods that are specifically
authorized by the Boards. Short-term obligations with maturities of 60 days or
less are valued at amortized cost as reflecting fair value. When Fund management
deems it appropriate, prices obtained for the day of valuation from a third
party pricing service will be used to value portfolio securities.
41
<PAGE>
The value of securities denominated in foreign currencies and traded on foreign
exchanges or in foreign markets will be translated into U.S. dollars at the last
price of their respective currency denomination against U.S. dollars quoted by a
major bank or, if no such quotation is available, at the rate of exchange
determined in accordance with policies established in good faith by the Boards.
Because the value of securities denominated in foreign currencies must be
translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of fund shares even
without any change in the foreign-currency denominated values of such
securities.
Because foreign securities markets may close before the Funds determine their
net asset values, events affecting the value of portfolio securities occurring
between the time prices are determined and the time the Funds calculate their
net asset values may not be reflected unless the Manager, under supervision of
the Board, determines that a particular event would materially affect a fund's
net asset value.
- - Foreign Funds. Several of our Funds invest in securities denominated in
foreign currencies and traded on foreign exchanges. To determine their value, we
convert their foreign-currency price into U.S. dollars by using the exchange
rate last quoted by a major bank. Exchange rates fluctuate frequently and may
affect the U.S. dollar value of foreign-denominated securities, even if their
market prices do not change. In addition, some foreign exchanges are open for
trading when the U.S. market is closed. As a result, a Fund's foreign
securities -- and its price -- may fluctuate during periods when you can't buy,
sell or exchange shares in the Fund.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Each Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.
- - You are not guaranteed any distributions.
- - The Board of Directors has discretion in determining the amount and frequency
of the distributions.
- - Unless you request cash distributions in writing, all dividends and other
distributions will be reinvested automatically in additional shares and
credited to the shareholders' account.
Distributions Affect NAV.
- - The Funds will pay distributions as of the record date.
- - Dividends and capital gains waiting distribution are included in each Fund's
daily NAV.
Buying a Dividend. If you buy shares of a Fund just before a distribution, you
will pay the full price for the shares and receive a portion of the purchase
price back as a taxable distribution when the distribution is made.
TAXES
Each Fund intends to qualify as a regulated investment company, which means that
it pays no federal income tax on the earnings or capital gains it distributes to
its shareholders. The following statements apply with respect to each Fund:
- - Ordinary dividends from the Fund are taxable as ordinary income and dividends
from the Fund's long-term capital gains are taxable as capital gain.
- - Dividends are treated in the same manner for federal income tax purposes
whether you receive them in the form of cash or additional shares. They may
also be subject to state and local taxes.
42
<PAGE>
SHAREHOLDER INFORMATION
- - Dividends from the Lexington GNMA Income Fund, Inc. that are attributable to
interest on certain U.S. Government obligations may be exempt from certain
state and local income taxes. The extent to which ordinary dividends are
attributable to U.S. Government obligations will be provided from the Fund.
- - Certain dividends paid to you in January will be taxable as if they had been
paid the previous December.
- - We will mail you tax statements annually showing the amounts and tax status
of the distributions you received.
- - When you sell (redeem) or exchange shares of a Fund, you must recognize any
gain or loss. However, as long as Lexington Money Market Trust's NAV per
share does not deviate from $1.00, there will be no gain or loss.
- - Under certain circumstances, a Fund may be in a position to "pass-through" to
you the right to a credit or deduction for foreign taxes paid by the Fund.
- - Because your tax treatment depends on your purchase price and tax position,
you should keep your regular account statements for use in determining your
tax.
- - You should review the more detailed discussion of federal income tax
considerations in the Statement of Additional Information, which is available
for free by calling 1-800-526-0056.
***We provide this tax information for your general information. You should
consult your own tax adviser about the tax consequences of investing in a
Fund.***
43
<PAGE>
DISTRIBUTION OF FUND'S SHARES
DISTRIBUTION PLAN. The following Funds have adopted a plan under Rule 12b-1 for
the sale and distribution of shares:
- - Lexington Goldfund;
- - Lexington Global Income Fund;
- - Lexington Growth and Income Fund;
- - Lexington International Fund;
- - Lexington SmallCap Fund;
- - Lexington Troika Dialog Russia Fund; and
- - Lexington Worldwide Emerging Markets Fund.
Under the distribution plan, the Funds may pay fees up to 0.25% of their average
daily net assets for distribution services.
SHAREHOLDER SERVICING AGREEMENTS. The Funds may enter into Shareholder Servicing
Agreements with one or more Shareholder Servicing Agents to provide various
services to shareholders as follows:
- - Each Agent receives fees up to 0.25% of the average daily net assets of the
Fund.
- - LMC may pay additional fees from its past profits, at no additional costs to
the Funds.
- - Each Agent may waive all or a portion of the fees.
- - If a Fund has a distribution plan, the Agents will receive fees of up to
0.25% of the average daily assets from the distribution plan.
44
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights table on the following pages are intended to help you
understand the Fund's financial performance for the past 5 years. Certain
information reflects financial highlights for a single share. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.
45
<PAGE>
DOMESTIC EQUITY FUNDS
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS GROWTH AND INCOME FUND SMALLCAP FUND
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994 1998 1997 1996(a)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $20.27 $18.56 $15.71 $14.36 $16.16 $11.39 $11.73 $10.00
Net investment income (loss) -- 0.05 0.07 0.22 0.17 (0.02) (0.19) (0.18)
Net realized and unrealized gain (loss)
from investment operations 4.30 5.46 4.08 3.00 (0.68) 0.75 1.41 1.94
Total income (loss) from investment
operations 4.30 5.51 4.15 3.22 (0.51) 0.73 1.22 1.76
Less distributions:
Distributions from net investment
income -- (0.07) (0.13) (0.22) (0.16) -- -- --
Distributions in excess of net
investment income -- -- -- -- -- -- -- --
Distributions from net realized gains (2.66) (3.73) (1.17) (1.65) (0.91) (0.22) -- --
Distributions in excess of net
realized gains -- -- -- -- (0.22) -- (1.56) (0.03)
Total distributions (2.66) (3.80) (1.30) (1.87) (1.29) (0.22) (1.56) (0.03)
Net asset value, end of period $21.91 $20.27 $18.56 $15.71 $14.36 $11.90 $11.39 $11.73
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 21.42% 30.36% 26.46% 22.57% (3.11)% 6.73% 10.47% 17.50%
RATIOS/SUPPLEMENTAL DATA
Net asset, end of period (thousands) $245,790 $228,037 $200,309 $138,901 $124,829 $8,172 $9,565 $8,061
Ratio of expenses to average net
assets, before reimbursement or waiver 1.16% 1.17% 1.13% 1.09% 1.15% 2.92% 2.57% 3.04%
Ratio of expenses to average net
assets, net of reimbursement or waiver 1.16% 1.17% 1.13% 1.09% 1.15% 2.59% 2.57% 2.48%
Ratio of net investment income (loss)
to average net assets, before
reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06% (2.00)% (1.78)% (2.34)%
Ratio of net investment income (loss)
to average net assets, net of
reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06% (1.67)% (1.78)% (1.78)%
Portfolio Turnover Rate 63.20% 88.15% 101.12% 159.94% 63.04% 145.94% 39.09% 60.92%
</TABLE>
<TABLE>
<S> <C>
* Annualized.
(a) SmallCap Fund commenced operations on January 2, 1996.
(b) Small Cap Asia Growth Fund commenced operations on July 3,
1995.
</TABLE>
46
<PAGE>
GLOBAL AND INTERNATIONAL FUNDS
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SMALL CAP ASIA GROWTH FUND GLOBAL CORPORATE LEADERS FUND
1998 1997 1996 1995(b) 1998 1997 1996 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$7.06 $12.24 $9.76 $10.00 $10.59 $11.28 $11.32 $11.17 $13.51
-- (0.05) (0.05) 0.02 0.99 0.03 0.01 0.09 0.02
(1.37) (5.13) 2.54 (0.24) 1.02 0.73 1.84 1.10 0.23
(1.37) (5.18) 2.49 (0.22) 2.01 0.76 1.85 1.19 0.25
-- -- -- (0.02) (0.80) (0.09) (0.16) (0.29) --
-- -- (0.01) -- -- -- -- (0.13) --
-- -- -- -- (2.34) (1.36) (1.73) (0.62) (2.46)
-- -- -- -- -- -- -- -- (0.13)
-- -- (0.01) (0.02) (3.14) (1.45) (1.89) (1.04) (2.59)
$5.69 $7.06 $12.24 $9.76 $9.46 $10.59 $11.28 $11.32 $11.17
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
(19.41)% (42.32)% 25.50% (4.39)%* 19.06% 6.90% 16.43% 10.69% 1.84%
$18,278 $13,867 $23,796 $8,936 $17,803 $35,085 $37,223 $53,614 $67,392
2.86% 2.30% 2.64% 3.51%* 2.12% 1.75% 1.90% 1.67% 1.61%
2.50% 2.30% 2.42% 1.75%* 2.12% 1.75% 1.90% 1.67% 1.61%
(0.57)% (0.32)% (0.86)% (1.24)%* (0.06)% 0.23% 0.11% 0.48% 0.14%
(0.21)% (0.32)% (0.64)% 0.52%* (0.06)% 0.23% 0.11% 0.48% 0.14%
193.48% 187.41% 176.49% 40.22%* 137.33% 177.48% 128.05% 166.35% 83.40%
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL FUND
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994(c)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $10.86 $10.60 $10.37 $10.00
Net investment income (loss) 0.17 0.07 (0.02) (0.01) (0.08)
Net realized and unrealized gain (loss) from
investment operations 1.74 0.10 1.45 0.61 0.67
Total income (loss) from investment operations 1.91 0.17 1.43 0.60 0.59
Less distributions:
Distributions from net investment income (0.06) (0.13) (0.20) -- --
Distributions in excess of net investment income -- -- -- (0.35) --
Distributions from net realized gains (0.34) (0.80) (0.97) (0.02) (0.10)
Distributions in excess of net realized gains -- -- -- -- (0.12)
Total distributions (0.40) (0.93) (1.17) (0.37) (0.22)
Net asset value, end of period $11.61 $10.10 $10.86 $10.60 $10.37
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 19.02% 1.61% 13.57% 5.77% 5.87%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $24,000 $19,949 $18,891 $17,855 $17,843
Ratio of expenses to average net assets, before
reimbursement or waiver 2.25% 2.15% 2.45% 2.46% 2.39%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.75% 1.75% 2.45% 2.46% 2.39%
Ratio of net investment income (loss) to average
net assets, before reimbursement or waiver (0.16)% 0.13% (0.39)% (0.12)% (0.94)%
Ratio of net investment income (loss) to average
net assets, net of reimbursement or waiver 0.35% 0.53% (0.39)% (0.12)% (0.94)%
Portfolio Turnover Rate 143.67% 122.56% 113.55% 137.72% 100.10%
</TABLE>
<TABLE>
<S> <C>
* Annualized.
# (before, or net of) reimbursement or waiver or redemption
fee proceeds.
(c) International Fund commenced operations on January 3, 1994.
(d) The Fund's commencement of operations was June 3, 1996 with
the investment of its initial capital. The Fund's
registration statement with the Securities and Exchange
Commission became effective on July 3, 1996. Financial
results prior to the effective date of the Fund's
registration statement are not presented in this Financial
Highlights Table.
</TABLE>
48
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
GLOBAL INCOME FUND RUSSIA FUND WORLDWIDE EMERGING MARKETS FUND
1998 1997 1996 1995 1994 1998 1997 1996(d) 1998 1997 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$10.58 $11.22 $10.75 $9.80 $10.95 $17.50 $11.24 $12.12 $10.18 $11.49 $10.70 $11.47
0.90 1.04 1.01 0.96 0.46 0.15 (0.01) (0.05) 0.12 0.01 -- 0.08
(0.07) (0.50) 0.36 0.95 (1.16) (14.70) 7.57 (0.51) (3.08) (1.32) 0.79 (0.76)
0.83 0.54 1.37 1.91 (0.70) (14.55) 7.56 (0.56) (2.96) (1.31) 0.79 (0.68)
(0.87) (0.91) (0.86) (0.96) (0.45) (0.07) -- -- (0.09) -- -- (0.08)
-- -- -- -- -- -- -- -- -- -- -- (0.01)
(0.18) (0.27) (0.04) -- -- (0.24) (1.30) (0.32) -- -- -- --
-- -- -- -- -- -- -- -- -- -- -- --
(1.05) (1.18) (0.90) (0.96) (0.45) (0.31) (1.30) (0.32) (0.09) -- -- (0.09)
$10.36 $10.58 $11.22 $10.75 $9.80 $2.64 $17.50 $11.24 $7.13 $10.18 $11.49 $10.70
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
8.21% 5.00% 13.33% 20.10% (6.52)% (82.99)% 67.50% (9.01)%* (29.06)% (11.40)% 7.38% (5.93)%
$36,407 $23,668 $29,110 $12,255 $10,351 $19,147 $137,873 $13,846 $65,323 $137,686 $254,673 $265,544
1.89% 2.17% 2.33% 3.07% 1.80% 2.64% 2.89%# 5.07%*# 1.85% 1.82% 1.76% 1.88%
1.50% 1.50% 1.50% 2.75% 1.50% 1.84% 1.85%# 2.65%*# 1.85% 1.82% 1.76% 1.88%
10.99% 8.99% 9.49% 9.48% 4.18% 0.57% (1.14)%# (3.69)%*# 1.14% 0.09% (0.01)% 0.70%
11.38% 9.66% 10.32% 9.80% 4.48% 1.36% (0.11)%# (1.27)%*# 1.14% 0.09% (0.01)% 0.70%
45.25% 117.94% 71.83% 164.72% 10.20% 65.76% 66.84% 115.55% 107.19% 112.05% 86.26% 92.85%
1994
<S> <C>
$13.96
(0.01)
(1.92)
(1.93)
--
--
(0.47)
(0.09)
(0.56)
$11.47
- -------------------------------
- -------------------------------
<S> <C>
(13.81)%
$288,581
1.65%
1.65%
(0.06)%
(0.06)%
79.56%
</TABLE>
49
<PAGE>
PRECIOUS METALS FUNDS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GOLDFUND
<CAPTION>
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $3.24 $5.97 $6.24 $6.37 $6.90
Net investment income (loss) -- -- 0.02 -- 0.03
Net realized and unrealized gain (loss) from
investment operations (0.21) (2.52) 0.50 (0.12) (0.53)
Total income (loss) from investment operations (0.21) (2.52) 0.52 (0.12) (0.50)
Less distributions:
Distributions from net investment income -- (0.21) (0.79) (0.01) (0.03)
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions -- (0.21) (0.79) (0.01) (0.03)
Net asset value, end of period $3.03 $3.24 $5.97 $6.24 $6.37
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (6.39)% (42.98)% 7.84% (1.89)% 7.28%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $50,841 $53,707 $109,287 $135,779 $159,435
Ratio of expenses to average net assets, before
reimbursement or waiver 1.74% 1.65% 1.60% 1.70% 1.54%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.74% 1.65% 1.60% 1.70% 1.54%
Ratio of net investment income (loss) to average net
assets, before reimbursement or waiver 0.08% 0.17% (0.32)% 0.07% 0.50%
Ratio of net investment income (loss) to average net
assets, net of reimbursement or waiver 0.08% 0.17% (0.32)% 0.07% 0.50%
Portfolio Turnover Rate 28.93% 38.32% 31.04% 40.41% 23.77%
</TABLE>
<TABLE>
<S> <C>
* Annualized.
(e) Six month period ended December 31, 1998. The Fund changed
its fiscal year-end from June 30th to December 31st.
(f) Fiscal year-end June 30th.
</TABLE>
50
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SILVER FUND
1998(e) 1998(f) 1997(f) 1996(f) 1995(f) 1994(f)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$3.26 $3.95 $4.46 $4.00 $3.92 $3.52
(0.01) (0.02) (0.04) (0.03) (0.03) (0.02)
)
(0.52 (0.66) (0.43) 0.51 0.11 0.42
(0.53) (0.68) (0.47) 0.48 0.08 0.40
-- -- -- -- -- --
-- (0.01) (0.04) (0.02)
-- -- -- -- -- --
-- -- -- -- -- --
-- (0.01) (0.04) (0.02) -- --
$2.73 $3.26 $3.95 $4.46 $4.00 $3.92
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(16.26)% (17.32)% (10.76)% 12.02% 2.04% 11.36%
$25,560 $34,921 $42,035 $73,945 $65,517 $49,499
2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
(0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
(0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
5.68% 28.78% 18.76% 44.30% 44.22% 5.28%
</TABLE>
51
<PAGE>
FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
<TABLE>
<CAPTION>
GNMA INCOME FUND
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $8.40 $8.12 $8.19 $7.60 $8.32
Net investment income (loss) 0.48 0.51 0.53 0.58 0.55
Net realized and unrealized gain (loss)
from investment operations 0.13 0.29 (0.08) 0.59 (0.72)
Total income (loss) from investment
operations 0.61 0.80 0.45 1.17 (0.17)
Less distributions:
Distributions from net investment
income (0.48) (0.52) (0.52) (0.58) (0.55)
Distributions in excess of net
investment income -- -- -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net
realized gains -- -- -- -- --
Total distributions (0.48) (0.52) (0.52) (0.58) (0.55)
Net asset value, end of period $8.53 $8.40 $8.12 $8.19 $7.60
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 7.52% 10.20% 5.71% 15.91% (2.07)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (thousands) $273,591 $158,071 $133,777 $130,681 $132,108
Ratio of expenses to average net
assets, before reimbursement or waiver 1.01% 1.01% 1.05% 1.01% 0.98%
Ratio of expenses to average net
assets, net of reimbursement or waiver 1.01% 1.01% 1.05% 1.01% 0.98%
Ratio of net investment income (loss)
to average net assets, before
reimbursement or waiver 5.85% 6.28% 6.56% 7.10% 6.90%
Ratio of net investment income (loss)
to average net assets, net of
reimbursement or waiver 5.85% 6.28% 6.56% 7.10% 6.90%
Portfolio Turnover Rate 54.47% 134.28% 128.76% 30.69% 37.15%
</TABLE>
52
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
MONEY MARKET TRUST
1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
$1.00 $1.00 $1.00 $1.00 $1.00
0.0455 0.0458 0.0441 0.0495 0.0330
-- -- -- -- --
0.0455 0.0458 0.0441 0.0495 0.0330
(0.0455) (0.0458) (0.0441) (0.0495) (0.0330)
-- -- -- -- --
-- -- -- -- --
-- -- -- -- --
(0.0455) (0.0458) (0.0441) (0.0495) (0.0330)
$1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
---------------------------------------------------------------------
4.64% 4.68% 4.50% 5.06% 3.35%
$87,488 $95,149 $97,526 $88,786 $111,805
1.05% 1.04% 1.04% 1.08% 1.02%
1.00% 1.00% 1.00% 1.00% 1.00%
4.51% 4.55% 4.37% 4.87% 3.30%
4.56% 4.58% 4.41% 4.95% 3.32%
-- -- -- -- --
</TABLE>
53
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Statement of Additional Information (SAI) provides a more
complete discussion about the Lexington Funds and is
incorporated by reference, which means that it is considered a
part of this prospectus.
ANNUAL AND SEMI-ANNUAL REPORTS
The annual and semi-annual reports to shareholders have more
information about each Lexington Fund's investments, including
a discussion about the market conditions and investment
strategies that significantly affected the Fund's performance
during its last fiscal year.
TRADEMARKS
Lexington(R) and Global Corporate Leaders(R) are registered
trademarks of Lexington Management Corporation.
REVIEWING OR OBTAINING ADDITIONAL INFORMATION
You may obtain a copy of the SAI and the annual and semi-annual
reports (free of charge) by contacting a broker-dealer or other
financial intermediaries that sell the Fund's shares or by
writing or calling:
THE LEXINGTON FUNDS(R)
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Attn: Shareholder Services
Tel: (800) 526-0056 or (201) 845-7300
----------------------------------------------------------------
www.lexingtonfunds.com
[LOGO]
You may also obtain a copy of the SAI and the annual and
semi-annual reports (for a fee) by contacting the Public
Reference Room of the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C., telephone 800-SEC-0330.
You may also obtain this information by visiting the SEC's
Worldwide Website at http://www.sec.gov.
Investment Company Act File No. 811-0865 (Growth and Income);
811-7413 (SmallCap); 811-5113 (Global Corporate Leaders);
811-8172 (International); 811-1838 (Worldwide); 811-7287 (Small
Cap Asia Growth); 811-7587 (Russia); 811-2401 (GNMA Income);
811-4675 (Global Income); 811-2701 (Money Market); 811-2881
(Goldfund); 811-4111 (Silver).
50
<PAGE>
LEXINGTON SILVER FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 3, 1999
This Statement of Additional Information which is not a prospectus,
should be read in conjunction with the current prospectus of Lexington
Silver Fund, (the "Fund"), dated May 3, 1999, and as it may be revised
from time to time To obtain a copy of the Fund's prospectus at no charge,
please write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle
Brook, New Jersey 07663 or call the following toll-free numbers:
Shareholder Services Information: 1-800-526-0056
Sales Information: 1-800-367-9160
24-Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") is the Fund's investment
adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's
distributor.
TABLE OF CONTENTS
PAGE
History of the Fund. . . . . . . . . . . . . . . . . . . . 3
Investment Strategies and Risks of the Fund. . . . . . . . 3
Investment Policies and Restrictions . . . . . . . . . . 11
Portfolio Transactions and Turnover. . . . . . . . . . . 13
Management of the Fund . . . . . . . . . . . . . . . . . 14
Control Persons and Principal Holders of Securities. . . 19
Investment Adviser, Administrator and Distributor. . . . .19
Determination of Net Asset Value . . . . . . . . . . . . .21
Telephone Exchange Provisions. . . . . . . . . . . . . . .22
Tax Sheltered Retirement Plans . . . . . . . . . . . . . .23
Capital Stock of the Fund. . . . . . . . . . . . . . . . .24
Dividend Distribution and Reinvestment Policy. . . . . . .24
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . .25
Performance Calculation. . . . . . . . . . . . . . . . . .32
Custodian, Transfer Agent and Dividend Disbursing Agent. .33
Counsel and Independent Auditors . . . . . . . . . . . . .33
Financial Statements . . . . . . . . . . . . . . . . . . .34
History of the Fund
- -------------------
Lexington Silver Fund, Inc. (the "Fund") is a corporation formed
under the laws of the State of Maryland on January 3, 1992. The Fund is
a non-diversified open-end management investment company.
Investment Strategies and Risks of the Fund
- -------------------------------------------
The Fund's performance and ability to meet its objective will
generally be largely dependent on the market value of Silver. The Fund's
professional management seeks to maximize on advances and minimize on
declines by monitoring and anticipating shifts in the relative values of
Silver and the equity securities of companies engaged in mining or
processing Silver ( Silver-related securities''). The Fund may also
invest in other precious metals, including platinum, palladium and silver.
A substantial portion of the Fund's investments will be in the securities
of foreign issuers. There can be no assurance that the Fund's objective
will be achieved.
The Fund is of the belief that a Silver investment medium will over
the long term, protect capital from adverse monetary and political
developments of a national or international nature and, in the face of
what appears to be continuous worldwide inflation, may offer better
opportunity for capital growth than many other forms of investment.
Throughout history, Silver has been thought of as the most basic monetary
standard. Investments in Silver may provide more of a hedge against
currencies with declining buying power, devaluation, and inflation than
other types of investments. Of course, there can be no assurance that
management's belief will be realized or that the investment objective will
be achieved.
To the extent that investments in Silver and Silver related
securities appreciate in value relative to the U.S. dollar, the Fund's
investments may serve to offset erosion in the purchasing power of the
U.S. dollar.
The Fund may invest in debt securities of companies engaged in
mining and processing Silver. These debt securities can be expected to be
comparable to that of other debt obligations and generally will not react
to fluctuations in the price of Silver. An investment in the debt
instruments of these companies, therefore, cannot be expected to provide
the hedge against inflation that may be provided through investments in
equity securities of companies engaged in such activities and can be
expected to fluctuate inversely with prevailing interest rates.
It is anticipated that, except for temporary defensive or liquidity
purposes, 65% of the total assets of the Fund will be invested in Silver
and Silver-related securities. At any time management deems it advisable
for defensive or liquidity purposes, the Fund may hold cash or cash
equivalents in the currency of any major industrial nation, and invest in,
or hold unlimited amounts of debt obligations of the United States
Government or its political subdivisions, and money market instruments
including repurchase agreements with maturities of seven days or less and
Certificates of Deposit.
It is LMC's present intention to manage the Fund's investments so
that (i) less than half of the value of its portfolio will consist of
Silver or other precious metals and (ii) more than half of the value of
its portfolio will be invested in Silver- related securities, including
securities of foreign issuers. Although the Fund's Board of Directors'
present policy prohibits investments in speculative securities trading at
extremely low prices and in relatively illiquid markets, investments in
such securities can be made when and if the Board determines such
investments to be in the best interests of the Fund and its shareholders.
The policies set forth in this paragraph are subject to change by the
Board of Directors of the Fund, in its sole discretion.
The Fund may purchase stock equivalents including warrants, option,
convertible debt securities and depository receipts. The common stock
equivalents may be converted into or provide the holder with the right to
common stock. These investments are made in order to limit the risk of a
substantial increase in the market price of a security (or an adverse
movement in its applicable currency).
A warrant typically is a long-term option that permits the holder
to buy a specified number of shares of the issuer's underlying common
stock at a specified exercise price by a particular expiration date. A
warrant not exercised or disposed of by its expiration date expires
worthless.
The Fund may purchase put options on particular securities (or on
currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse
movement in the applicable currency relative to the U.S. dollar). Prior
to expiration, most options are expected to be sold in a closing sale
transaction. Profit or loss from the sale depends upon whether the amount
received is more or less than the premium paid plus transaction costs.
The Fund may purchase put and call options on stock indices in order to
hedge against risks of stock market or industry wide stock price
fluctuations.
A convertible security is a fixed-income security (a bond or
preferred stock) that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of
the same or a different issuer. Convertible securities are senior to
common stock in a corporation's capital structure but are usually
subordinated to similar non-convertible securities. The price of a
convertible security is influenced by the market value of the underlying
common stock.
Depositary receipts include American depositary receipts ("ADRs"),
European depositary receipts ("EDRs"), global depositary receipts ("GDRs")
and other similar instruments. Depositary receipts are receipts typically
issued in connection with a U.S. or foreign bank or trust company and
evidence ownership of underlying securities issued by a foreign
corporation.
The Fund may also invest in other types of equity securities
including preferred stocks. A preferred stock is a class of capital stock
that pays dividends at a specified rate and that has preference over
common stock in the payment of dividends and the liquidation of assets.
Preferred stock does not normally carry voting rights.
The Fund may invest in high yield, lower rated debt securities known
as "junk bonds." Junk bonds are debt obligations rated below investment
grade and non-rated securities of comparable quality. Junk bonds are
considered speculative and thus pose a greater risk of default than
investment grade securities. Investments of this type are subject to
greater risk of loss of principal and interest, but in general provide
higher yields than higher rated debt obligations. Bonds issued by
companies domiciled in emerging markets are usually rated below investment
grade.
The Fund may invest up to 10% of its total assets in shares of other
investment companies that invest in securities in which it may otherwise
invest.
The Fund may invest in fixed-rate and floating- or variable-rate
U.S. government securities. The U.S. Government guarantees payments of
interest and principal of U.S. Treasury bills, notes and bonds, mortgage-
related securities and other securities issued by the U.S. government.
Other securities issued by U.S. government agencies or instrumentalities
are supported only by the credit of the agency or instrumentality, for
example those issued by the Federal Home Loan Bank, whereas others, such
as those issued by the FNMA, Farm Credit System and Student Loan Marketing
Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. government securities generally are considered to be
among the safest short-term investments. However, the U.S. government
does not guarantee the net asset value of the Funds' shares. With respect
to U.S. government securities supported only by the credit of the issuing
agency or instrumentality or by an additional line of credit with the U.S.
Treasury, there is no guarantee that the U.S. government will provide
support to such agencies or instrumentalities. Accordingly, such U.S.
government securities may involve risk of loss of principal and interest.
Settlement Transactions- When the Fund enters into contracts for
purchase or sale of a portfolio security denominated in a foreign
currency, it may be required to settle a purchase transaction in the
relevant foreign currency or receive the proceeds of a sale in that
currency. In either event, the Fund will be obligated to acquire or
dispose of such foreign currency as is represented by the transaction by
selling or buying an equivalent amount of United States dollars.
Furthermore, the Fund may wish to "lock in" the United States dollar value
of the transaction at or near the time of a purchase or sale of portfolio
securities at the exchange rate or rates then prevailing between the
United States dollar and the currency in which the foreign security is
denominated. Therefore, the Fund may, for a fixed amount of United States
dollars, enter into a forward foreign exchange contract for the purchase
or sale of the amount of foreign currency involved in the underlying
securities transaction. In so doing, the Fund will attempt to insulate
itself against possible losses and gains resulting from a change in the
relationship between the United States dollar and the foreign currency
during the period between the date a security is purchased or sold and the
date on which payment is made or received. This process is known as
"transaction hedging".
To effect the translation of the amount of foreign currencies
involved in the purchase and sale of foreign securities and to effect the
"transaction hedging" described above, the Fund may purchase or sell
foreign currencies on a "spot" (i.e. cash) basis or on a forward basis
whereby the Fund purchases or sells a specific amount of foreign currency,
at a price set at the time of the contract, for receipt of delivery at a
specified date which may be any fixed number of days in the future.
Such spot and forward foreign exchange transactions may also be
utilized to reduce the risk inherent in fluctuations in the exchange rate
between the United States dollar and the relevant foreign dollar and the
relevant foreign currency when foreign securities are purchased or sold
for settlement beyond customary settlement time (as described below).
Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the
price of such securities should decline.
Portfolio Hedging- Some or all of the Fund's portfolio will be
denominated in foreign currencies. As a result, in addition to the risk
of change in the market value of portfolio securities, the value of the
portfolio in United States dollars is subject to fluctuations in the
exchange rate between such foreign currencies and the United States
dollar. When, in the opinion of LMC or Crosby it is desirable to limit or
reduce exposure in a foreign currency in order to moderate potential
changes in the United States dollar value of the portfolio, the Fund may
enter into a forward foreign currency exchange contract by which the
United States dollar value of the underlying foreign portfolio securities
can be approximately matched by an equivalent United States dollar
liability. This technique is known as "portfolio hedging" and moderates
or reduces the risk of change in the United States dollar value of the
Fund's portfolio only during the period before the maturity of the forward
contract (which will not be in excess of one year).
The Fund may hedge against changes in financial markets, currency
rates and interest rates. The Fund may hedge with "derivatives."
Derivatives are instruments whose value is lined to, or derived from,
another instrument, like an index or a commodity. The Fund, for hedging
purposes only, may also enter into forward foreign currency exchange
contracts to increase its exposure to a foreign currency that LMC expects
to increase in value relative to the United States dollar. The Fund will
not attempt to hedge all of its foreign portfolio positions and will enter
into such transactions only to the extent, if any deemed appropriate by
the investment adviser or sub-adviser. Hedging against a decline in the
value of currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such securities
decline. The Fund will not enter into forward foreign currency exchange
transactions for speculative purposes. The Fund intends to limit
transactions as described in this paragraph to not more than 70% of the
total Fund assets.
Futures, Swaps and Options on Futures - An interest rate futures
contract is an agreement to purchase or sell debt securities, usually U.S.
government securities, at a specified date and price. For example, the
fund may sell interest rate futures contracts (i.e., enter into a futures
contract to sell the underlying debt security) in an attempt to hedge
against an anticipated increase in interest rates and a corresponding
decline in debt securities it owns. The Fund will have collateral assets
equal to the purchase price of the portfolio securities represented by the
underlying interest rate futures contracts it has an obligation to
purchase. The Fund may purchase and sell futures contracts and related
options under the following conditions: (a) the then-current aggregate
futures market prices of financial instruments required to be delivered
and purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall be
committed to margin deposits in relation to futures contracts.
Equity swaps allow the parties to exchange the dividend income or
other components of return on an equity investment (e.g., a group of
equity securities or an index) for a component of return on another non-
equity or equity investment Equity swaps transitions may be volatile and
may present the fund with counterparty risks.
Repurchase Agreements - A repurchase agreement is a contract under
which the Fund would acquire a security for a relatively short period
(usually not more than 7 days) subject to the obligations of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest). Under the Investment
Company Act, repurchase agreements are considered to be loans by the Fund
and must be fully collateralized by collateral assets. If the seller
defaults on its obligations to repurchase the underlying security, the
Fund may experience delay or difficulty in exercising its rights to
realize upon the security, may incur a loss if the value of the security
declines and may incur disposition costs in liquidating the security.
The Fund intends to limit repurchase agreements to transactions with
institutions believed by LMC to present minimal credit risk. Although
the Fund may enter into repurchase agreements with respect to any
portfolio securities which it may acquire consistent with its investment
policies and restrictions, it is the Fund's present intention to enter
into repurchase agreements only with respect to obligations of the United
States government or its agencies or instrumentalities to meet anticipated
redemptions or pending investments or reinvestment of Fund assets in
portfolio securities. The Fund will enter into repurchase agreements only
with member banks of the Federal Reserve System and with "primary dealers"
in United States government securities. In addition if bankruptcy
proceedings are commenced with respect to the seller, be subject to risks
associated with changes in market value of the collateral securities. The
Fund intends to limit repurchase agreements to institutions believed by
LMC to present minimal credit risk. The Fund will not enter into
repurchase agreements maturing in more than seven days if the aggregate of
such repurchase agreements and all other illiquid securities when taken
together would exceed 15% of the total assets of the Fund. The Fund
treats any securities subject to restrictions on repatriation for more
than seven days, and securities issued in connection with foreign debt
conversion programs that are restricted as to remittance of invested
capital or profit, as illiquid. The Fund also treats repurchase
agreements with maturities in excess of seven days as illiquid. Illiquid
securities do not include securities that are restricted from trading on
formal markets for some period of time but for which an active informal
market exists, or securities that meet the requirements of Rule 144A under
the Securities Act of 1933 and that, subject to the review by the Board of
Directors and guidelines adopted by the Board of Directors, LMC has
determined to be liquid.
Reverse Repurchase Agreements - The Fund may purchase reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells
to a financial institution a security that it holds and agrees to
repurchase the same security at an agreed-upon price and date.
When Issued and Forward Commitment Securities - The Fund may make
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time ("forward commitments") because new issues of
securities are typically offered to investors, such as the Fund, on that
basis. Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. This risk
is in addition to the risk of decline in value of the Fund's other assets.
Although the Fund will enter into such contracts with the intention of
acquiring the securities, the Fund may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments. The Fund may purchase U.S. government or other securities on
a "when-issued" basis and may purchase or sell securities on a "delayed
delivery" basis. The price is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date.
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering
the securities. No income accrues on securities that have been purchased
pursuant to a forward commitment or on a when-issued basis prior to
delivery to a fund. At the time the Fund enters into a transaction on a
when-issued or forward commitment basis, it supports its obligation with
collateral assets equal to the value of the when-issued or forward
commitment securities and causes the collateral assets to be marked to
market daily. There is a risk that the securities may not be delivered
and that the fund may incur a loss.
Forward Currency Contracts - A forward currency contract is a
contract individually negotiated and privately traded by currency traders
and their customers and creates an obligation to purchase or sell a
specific currency for an agreed-upon price at a future date. The Fund
generally does not enter into forward contracts with terms greater than
one year. The Fund generally enters into forward contracts only under two
circumstances. First, if the Fund enters into a contract for the purchase
or sale of a security denominated in a foreign currency, it may desire to
"lock in" the U.S. dollar price of the security by entering into a forward
contract to buy the amount of a foreign currency needed to settle the
transaction. Second, if LMC believes that the currency of a particular
foreign country will substantially rise or fall against the U.S. dollar,
it may enter into a forward contract to buy or sell the currency
approximating the value of some or all of a fund's portfolio securities
denominated in such currency. The Fund will not enter into a forward
contract if, as a result, it would have more than one-third of total
assets committed to such contracts (unless it owns the currency that it is
obligated to deliver or has caused its custodian to segregate segregable
assets having a value sufficient to cover its obligations). Although
forward contracts are used primarily to protect the Fund from adverse
currency movements, they involve the risk that currency movements will not
be accurately predicted.
Investors should recognize that investing in securities of foreign
companies and in particular securities of companies domiciled in or doing
business in emerging markets and emerging countries involves certain risk
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies.
Foreign Currency Considerations
The Fund's assets will be invested in securities of foreign
companies and substantially all income will be received by the Fund in
foreign currencies. However, the Fund will compute and distribute its
income in dollars, and the computation of income will be made on the date
of its receipt by the Fund at the foreign exchange rate in effect on that
date. Therefore, if the value of the foreign currencies in which the Fund
receives its income falls relative to the dollar between receipt of the
income and the making of Fund distributions, the Fund will be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in dollars to meet distribution requirements.
The value of the assets of the Fund as measured in dollars also may
be affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations. Further, the Fund may incur costs in
connection with conversions between various currencies. Foreign exchange
dealers realize a profit based on the difference between the prices at
which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire
immediately to resell that currency to the dealer. The Fund will conduct
its foreign currency exchange transactions either on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market,
or through entering into forward or futures contracts to purchase or sell
foreign currencies.
Risks Associated With Hedging Transactions
Hedging transactions have special risks associated with them,
including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market
movements is incorrect, the risk that the use of a hedging transaction
could result in losses greater than if it had not been used. Use of call
options could result in losses to the Fund, force the sale or purchase of
portfolio securities at inopportune times or for prices lower than current
market values, or cause the Fund to hold a security it might otherwise
sell.
Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Currency transactions can
result in losses to the Fund if the currency being hedged fluctuates in
value to a degree or in a direction that is not anticipated. Further, the
risk exists that the perceived linkage between various currencies may not
be present or may not be present during the particular time that the Fund
is engaging in portfolio hedging. Currency transactions are also subject
to risks different from those of other portfolio transactions. Because
currency control is of great importance to the issuing governments and
influences economic planning and policy, purchases and sales of currency
and related instruments can be adversely affected by government exchange
controls, limitations or restrictions on repatriation of currency, and
manipulations or exchange restrictions imposed by governments. These forms
of governmental actions can result in losses to the Fund if it is unable
to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transaction
costs.
In addition, the Fund pays commissions and other costs in connection
with such investments. Losses resulting from the use of hedging
transactions will reduce the Fund's net asset value, and possibly income,
and the losses can be greater than if hedging transactions had not been
used.
Risks of Hedging Transactions Outside the United States
When conducted outside the U.S., hedging transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing
mechanism and related guarantees, and will be subject to the risk of
government actions affecting trading in, or the price of, foreign
securities, currencies and other instruments. The value of positions taken
as part of non-U.S. hedging transactions also could be adversely affected
by: (1) other complex foreign political, legal and economic factors; (2)
lesser availability of data on which to make trading decisions than in the
U.S.; (3) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S.; (4)
the imposition of different exercise and settlement terms and procedures
and margin requirements than in the U.S.; and (5) lower trading volume and
liquidity.
Investment and Repatriation Restrictions
Some foreign countries may have laws and regulations which currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed
and traded on the stock exchanges in these countries is permitted by
certain foreign countries through investment funds which have been
specifically authorized. The Fund may invest in these investment funds
subject to the provisions of the 1940 Act as discussed below under
"Investment Restrictions". If the Fund invests in such investment funds,
the Fund's shareholders will bear not only their proportionate share of
the expenses of the Fund (including operating expenses and the fees of the
Investment Manager), but also will bear indirectly similar expenses of the
underlying investment funds.
In addition, prior governmental approval for foreign investments may
be required under certain circumstances in some foreign countries, while
the extent of foreign investment in domestic companies may be subject to
limitation in other foreign countries. Foreign ownership limitations also
may be imposed by the charters of individual companies in foreign
countries to prevent, among other concerns, violation of foreign
investment limitations.
Repatriation of investment income, capital and the proceeds of sales
by foreign investors may require governmental registration and/or approval
in some foreign countries. The Fund could be adversely affected by delays
in or a refusal to grant any required governmental approval for such
repatriation.
Foreign Securities Markets
Trading volume on foreign country stock exchanges is substantially
less than that on the New York Stock Exchange. Further, securities of some
foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Similarly, volume and liquidity in most foreign
bond markets is substantially less than in the U.S. and, consequently,
volatility of price can be greater than in the U.S. Fixed commissions on
foreign exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Fund endeavors to achieve the most favorable net
results on its portfolio transactions and may be able to purchase the
securities in which the Fund may invest on other stock exchanges where
commissions are negotiable.
Companies in foreign countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, there may be less publicly available information about a
foreign company than about a U.S. company. Further, there is generally
less governmental supervision and regulation of foreign stock exchanges,
brokers and listed companies than in the U.S. Further, these Funds may
encounter difficulties or be unable to pursue legal remedies and obtain
judgments in foreign courts.
Economic and Political Risks
The economies of individual foreign countries in which the Fund
invests may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of foreign countries generally are heavily
dependent upon international trade and, accordingly, have been and may
continue to be adversely affected by trade barriers, managed adjustments
in relative currency values and other protectionist measures imposed or
negotiated by the countries with which they trade. These economies also
have been and may continue to be adversely affected by economic conditions
in the countries with which they trade. The export driven nature of Asian
economies is often dependent on the strength of their trading partners in
the United States and Europe, although growing intra-regional trade is
seen mitigating some of this external dependence.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political
changes, government regulation, social instability or diplomatic
developments (including war) which could affect adversely the economies of
such countries or the Fund's investments in those countries. In addition,
it may be more difficult to obtain a judgement in a court outside of the
United States.
Fluctuations in the Price of Silver
The price of Silver has been subject to dramatic downward and upward
price movements over short periods of time and may be affected by
unpredictable international monetary and political policies, such as
currency devaluations or revaluations, economic conditions within an
individual country, trade imbalances, or trade or currency restrictions
between countries. The price of Silver, in turn, is likely to affect the
market prices of securities of companies mining or processing Silver, and
accordingly, the value of the Fund's investments in such securities may
also be affected.
Potential Effect of Concentration of Source of Supply and Control of Sales
The two largest national producers of Silver bullion are the
Republic of South Africa and the United States of America. Changes in
political and economic conditions affecting either country may have direct
impact on that country's sales of Silver. Under South African law, the
only authorized sales agent for Silver produced in South Africa is the
Reserve Bank of South Africa, which through its retention policies
controls the time and place of any sale of South African bullion. The
South African Ministry of Mines determines Silver mining policy. South
Africa depends predominately on Silver sales for the foreign exchange
necessary to finance its imports, and its sales policy is necessarily
subject to national economic and political developments.
Investments in Silver Bullion
Unlike certain more traditional investment vehicles such as savings
deposits and stocks and bonds, which may produce interest or dividend
income, Silver bullion earns no income return. Appreciation in the market
price of Silver is the sole manner in which the Fund will be able to
realize gains on its investment in Silver bullion. Furthermore, the Fund
may encounter storage and transaction costs in connection with its
ownership of Silver bullion which may be higher than those attendant to
the purchase, holding and disposition of more traditional types of
investments.
International and Domestic Monetary Systems
Substantial amounts of Silver bullion serving as primary official
reserve assets play a major role in the international monetary system.
Since December 31, 1974, when it again became legal to invest in Silver,
several new markets have developed in the United States. In connection
with this legalization of Silver ownership, the U.S. Treasury and the
International Monetary Fund embarked upon programs to dispose of
substantial amounts of Silver bullion.
Investment Restrictions
- -----------------------
The Fund's investment objective, as described under "Investment
Objective" in the Fund's prospectus, and the following investment
restrictions are matters or fundamental policy which may not be changed
without the affirmative vote of the lesser of (a) 67% or more of the
shares of the Fund present at a shareholders' meeting at which more than
50% of the outstanding shares are present or represented by proxy or (b)
more than 50% of the outstanding shares. Under these investment
restrictions:
(1) At least 80% of the Fund's assets will be invested in
established silver-related companies which have been in business for
more than three years.
(2) At the end of each quarter of the taxable year, (i) at least
50% of the market value of the Fund's assets be invested in cash,
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one
issuer counted for the purposes of this calculation only if the value of
thereof is not greater than 5% of the value of the Fund's total assets,
and (ii) not more than 25% of its total assets be invested in securities
of any one issuer (other than U.S. Government securities or the securities
of other regulated investment companies).
(3) The Fund will not purchase real estate, interests in real
estate or real estate limited partnership interests except that, to the
extent appropriate under its investment program, the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which deal in real
estate or interests therein.
(4) The Fund will not invest in commodity contracts, except that
the Fund may, to the extent appropriate under its investment program,
purchase securities of companies engaged in such activities, may enter
into transactions in financial and index futures contracts and related
options, may engage in transactions on a when-issued or forward
commitment basis, and may enter into forward currency contracts.
Transactions in which silver bullion is taken in payment of principal,
interest or both or a debt instrument and where the Fund disposes of the
silver bullion for cash will not be subject to this restriction.
(5) The Fund will not make loans, except that, to the extent
appropriate under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase transactions and (c) lend portfolio securities
or bullion provided that the value of such loaned securities does not
exceed one-third of the Fund's total assets.
(6) The Fund will not borrow money, except that (a) the Fund may
enter into certain futures contracts and options related thereto; (b)
the Fund may enter into commitments to purchase securities in accordance
with the Fund's investment program, including delayed delivery and
when-issued securities and reverse repurchase agreements; (c) for
temporary emergency purposes, the Fund may borrow money in amounts not
exceeding 5% of the value of its total assets at the time when the loan is
made; (d) the Fund may pledge its silver or portfolio securities or
receivables or transfer or assign or otherwise encumber them in an amount
not exceeding one-third of the value of its total assets; and (e) for
purposes of leveraging, the Fund may borrow money from banks (including
its custodian bank), only if, immediately after such borrowing, the value
of the Fund's assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all outstanding
borrowings. If at any time, the value of the Fund's assets fails to meet
the 300% asset coverage requirement relative only to leveraging, the Fund
will, within three days (not including Sundays and holidays), reduce its
borrowings to the extent necessary to meet the 300% test.
(7) The Fund will not issue any senior security (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"), except
that (a) the Fund may enter into commitments to purchase securities in
accordance with the Fund's investment program, including reverse
repurchase agreements, foreign exchange contracts, delayed delivery and
when-issued securities, which may be considered the issuance of senior
securities; (b) the Fund may engage in transactions that may result in the
issuance of a senior security to the extent permitted under applicable
regulations, interpretations of the 1940 Act or an exemptive order; (c)
the Fund may engage in short sales of securities to the extent permitted
in its investment program and other restrictions; (d) the purchase or sale
of futures contracts and related options shall not be considered to
involve the issuance of senior securities; and (e) subject to fundamental
restrictions, the Fund may borrow money as authorized by the 1940 Act.
(8) The Fund will not act as an underwriter of securities except
to the extent that, in connection with the disposition of portfolio
securities by the Fund, the Fund may be deemed to be an underwriter under
the provisions of the Securities Act of 1933, as amended (the "1933 Act").
In addition to the above fundamental restrictions, the Fund has
undertaken the following nonfundamental restrictions, which may be changed
in the future by the Board of Directors, without a vote of the
shareholders of the Fund:
(1) The Fund will not invest more than 15% of its total net assets
at market value in illiquid securities. Illiquid securities are
securities that are not readily marketable or cannot be disposed of
promptly within seven days and in the usual course of business without
taking a materially reduced price. Such securities include, but are not
limited to, time deposits and repurchase agreements with maturities longer
than seven days. Securities that may be resold under Rule 144A or
securities offered pursuant to Section 4(2) of the 1933 Act shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
(2) The Fund will not invest for the purpose of exercising
control over management of any company.
(3) The Fund may purchase and sell futures contracts and related
options under the following conditions: (a) the then-current aggregate
futures market prices of financial instruments required to be delivered
and purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
Fund's total assets, at market value at the time of entering into a
contract, shall be committed to margin deposits in relation to futures
contracts.
(4) The Fund will not issue its securities for any
considerations other than cash or securities except as a dividend or
distribution in connection with a reorganization.
(5) The Fund will not purchase the securities of any other
investment company, except as permitted under the 1940 Act.
(6) The Fund will not make short sales of securities, other than
short sales "against the box," or purchase securities on margin except
for short-term credits necessary for clearance of portfolio
transactions, provided that this restriction will not be applied to limit
the use of options, futures contracts and related options, in the manner
otherwise
permitted by the investment restrictions, policies and investment
programs of the Fund.
(7) The Fund will not write, purchase or sell puts, calls
on underlying securities. However, the Fund may invest up to 15% of the
value of its total assets in warrants. This restriction on the
purchase of warrants does not apply to warrants attached to, or otherwise
included in, a unit with other securities.
The percentage restrictions referred to above are to be adhered to
at the time of investment and are not applicable to a later increase
or decrease in percentage beyond the specified limit resulting from
change in values or net assets.
Portfolio Transactions and Turnover
- -----------------------------------
As a general matter, purchases and sales of gold and portfolio
securities by the Fund are placed by LMC with brokers and dealers who in
its opinion will provide the Fund with the best combination of price
(inclusive of brokerage commissions) and execution for its orders.
However, pursuant to the Fund's investment management agreement,
management consideration may be given in the selection of broker-dealers
to research provided and a fee higher than that charged by another
broker-dealer which does not furnish research services or which furnishes
research services deemed to be of lesser value, so long as the criteria of
Section 28(e) of the Securities Exchange Act of 1934 are met. Section
28(e) of the Securities Exchange Act of 1934 was adopted in 1975 and
specifies that a person with investment discretion shall not be "deemed to
have acted unlawfully or to have breached a fiduciary duty" solely because
such person has caused the account to pay a higher commission than the
lowest available under certain circumstances, provided that the person so
exercising investment discretion makes a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage
and research services provided . . . viewed in terms of either that
particular transaction or his overall responsibilities with respect to the
accounts as to which he exercises investment discretion."
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for research services ("soft
dollars") might exceed commissions that would be payable for execution
services alone. Nor generally can the value of research services to the
Fund be measured. Research services furnished might be useful and of
value to LMC and its affiliates, in serving other clients as well as the
Fund.
On the other hand, any research services obtained by LMC or its
affiliates from the placement of portfolio brokerage of other clients
might be useful and of value to LMC in carrying out its obligations to the
Fund. As a general matter, it is the Fund's policy to execute in the U.S.
all transactions with respect to securities traded in the U.S. and to
execute its gold transactions in the U.S. except when better price and
execution can, in the judgement of management of the Fund, be obtained
elsewhere. Over-the-counter purchases and sales are normally made with
principal market makers, except where, in the opinion of management, the
best executions are available elsewhere.
In addition, the Fund may from time to time allocate brokerage
commissions to firms which furnish research and statistical information to
LMC or which render to the Fund services which LMC is not required to
provide. The supplementary research supplied by such firms is useful in
varying degrees and is of indeterminable value. No formula has been
established for the allocation of business to such brokers. The Fund
paid brokerage commissions and portfolio turnover rates are as follows:
Fiscal
Year ended Total Brokerage Soft Dollar Portfolio
June 30, Commission Paid Commissions Paid Turnover Rate
- ---------- --------------- ---------------- -------------
1996 $ 145,681 $ 0 44.30%
1997 111,983 0 18.76%
1998 62,713 0 28.78%
Six months
ending
December 31,
- -----------
1998 36,882 0 5.68%
Management of the Fund
- ----------------------
The Fund's Directors and executive officers, their ages as of the
Fund's most recent fiscal year-end, their principal occupations and former
affiliations are set forth below:
+ S.M.S. CHADHA (61), DIRECTOR. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.
*+ ROBERT M. DEMICHELE (54), PRESIDENT AND CHAIRMAN. P.O. Box 1515, Saddle
Brook, N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc.; Director, Chartwell Re Corporation, Claredon
National Insurance Company, The Navigator's Group, Inc., Unione Italiana
Reinsurance, Vanguard Cellular Systems, Inc. and Weeden &Co.; Vice Chairman
of the Board of Trustees, Union College and Trustee, Smith Richardson
Foundation.
+ BEVERLEY C. DUER (69), DIRECTOR. 340 East 72nd Street, New York, N.Y. 10021
Private Investor. Formerly Manager, Operations Research Department, CPC
International Inc.
*+ BARBARA R. EVANS (38),DIRECTOR. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor, formerly, Assistant Vice President and Securities Analyst,
Lexington Management Corporation.
*+ LAWRENCE KANTOR (51), VICE PRESIDENT AND DIRECTOR. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Executive Vice President and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc.; Executive Vice President, Lexington
Global Asset Managers, Inc.,
+ JERARD F. MAHER (53), DIRECTOR. 300 Raritan Center Parkway, Edison, N.J.
08818. General Counsel, Federal Business Center; Counsel, Ribis, Graham
&Curtin.
+ ANDREW M. MCCOSH (58),DIRECTOR. 12 Wyvern Park, Edinburgh EH92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland..
+ DONALD B. MILLER (72), DIRECTOR. 10725 Quail Covey Drive, Boynton Beach,
Florida 33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds;
Director, Maguire Group of Connecticut; prior to January 1989, President,
Director and C.E.O., Media General Broadcast Services.
+ JOHN G. PRESTON (66), DIRECTOR. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston, Massachusetts.
*+ JAMES A. VAIL (54), VICE PRESIDENT AND PORTFOLIO MANAGER. P. O. Box 1515,
Saddle Brook, N.J. 07663. Vice President and Portfolio Manager (Domestic
Equities and Precious Metsls), Lexington Management Corporation.
*+ RICHARD M. HISEY (40), VICE PRESIDENT. P.O. Box 1515, Saddle Brook, NJ 07663
Managing Director, Chief Financial Officer 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, Chief Financial Officer and General
Manager - Mutual Funds, Lexington Global Asset Managers, Inc.
*+ LISA CURCIO (39), VICE PRESIDENT AND SECRETARY. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor, Inc.;
Secretary, Lexington Global Asset Managers, Inc.
*+ RICHARD J. LAVERY, CLU, CHFC (45), 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 (39), VICE PRESIDENT. P. O. Box 1515, Saddle Brook, N.J.
07663.
*+ CHRISTIE CARR-WALDRON (31),TREASURER, P.O. Box 1515, Saddle Brook, N.J.07663.
Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+ CATHERINE DIFALCO (29), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, New
Jersey 07663. Prior to October 1997, Manager, Fund Accounting.
*+ SIOBHAN GILFILLAN (35), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook,
N.J. 07663.
*+ JOAN K. LEDERER (32), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1997, Director of Investment Accounting, Diversified
Investment Advisors, Inc. Prior to April 1996, Assistant Vice President,
PIMCO.
*+ SHERI MOSCA (35), ASSISTANT TREASURER. P. O. Box 1515, Saddle Brook, N.J.
07663.
*+ PETER CORNIOTES (36), ASSISTANT SECRETARY. P. O. Box 1515, Saddle Brook, N.J.
07663. Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ ENRIQUE FAUST (38), ASSISTANT SECRETARY, P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Vice President, Lexington Management Corporation. Prior to
March 1994, Blue Sky Compliance Coordinator, Lexington Group of Investment
Companies.
* "Interested person" and/or "affiliated person" as defined in the
Investment Company Act of 1940, as amended.
+ Messrs. Chada, Corniotes, DeMichele, Duer, Faust, Hisey, Kantor,
Lavery, Maher, McCosh, Miller, Preston and Vail and Mmes.
Carnicelli, Carr-Waldron, Curcio, DiFalco, Evans, Gilfillan, Lederer
and Mosca hold similar offices with some or all of the other
registered investment companies advised and/or distributed by
Lexington Management Corporation or Lexington Funds Distributor,
Inc. The Board of Directors met 5 times during the twelve months
ended December 31, 1998, and each of the Directors attended at least
75% of those meetings.
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS:
Each Director is reimbursed for expenses incurred in attending each
meeting of the Board of Directors or any committee thereof up to a maximum
of $9,000 per year for Directors living outside the U.S. and $6,000 per
year for Directors living within the U.S. Each Director who is not an
affiliate of the advisor is compensated for his or her services according
to a fee schedule which recognizes the fact that each Director also serves
as a Director of other investment companies advised by LMC. Each Director
receives a fee, allocated among all investment companies for which the
Director serves.
Set forth below is information regarding compensation paid or
accrued during the period January 1, 1998 to December 31, 1998 for each
Director:
- --------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION NUMBER OF
NAME OF DIRECTOR COMPENSATION FROM FROM FUND AND DIRECTORSHIPS IN
FUND FUND COMPLEX FUND COMPLEX
- --------------------------------------------------------------------------------
S.M.S. Chadha $1,712 $27,068 15
- --------------------------------------------------------------------------------
Robert M. DeMichele 0 0 16
- --------------------------------------------------------------------------------
Beverley C. Duer $2,045 $35,518 16
- --------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- --------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- --------------------------------------------------------------------------------
Jerard F. Maher $2,462 $30,518 16
- --------------------------------------------------------------------------------
Andrew M. McCosh $1,712 $27,818 15
- --------------------------------------------------------------------------------
Donald B. Miller $1,712 $27,818 15
- --------------------------------------------------------------------------------
Frances Olmsted* $1,400 $16,800 N/A
- --------------------------------------------------------------------------------
John G. Preston $1,712 $27,818 15
- --------------------------------------------------------------------------------
Margaret W. Russell* $1,456 $23,228 N/A
- --------------------------------------------------------------------------------
Philip C. Smith* $1,280 $19,200 N/A
- --------------------------------------------------------------------------------
Frances A. Sunderland* $1,200 $16,800 N/A
- --------------------------------------------------------------------------------
*Retired
RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Effective September 12, 1995, the Directors instituted a Retirement
Plan for Eligible Directors/Trustees (the "Plan") pursuant to which
each Director/Trustee (who is not an employee of any of the Funds, the
Advisor, Administrator or Distributor or any of their affiliates) may be
entitled to certain benefits upon retirement from the Board. Pursuant to
the Plan, the normal retirement date is the date on which the eligible
Director/Trustee has attained age 65 and has completed at least ten years
of continuous and non-forfeited service with one or more of the investment
companies advised by LMC (or its affiliates) (collectively, the "Covered
Funds"). Each eligible Director/Trustee is entitled to receive from the
Covered Fund an annual benefit commencing on the first day of the calendar
quarter coincident with or next following his date of retirement equal to
5% of his compensation multiplied by the number of such Director/Trustee's
years of service (not in excess of 15 years) completed with respect to any
of the Covered Portfolios. Such benefit is payable to each eligible
Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age
72 as a mandatory retirement age for Directors/Trustees; however,
Director/Trustees serving the Funds as of September 12, 1995 are not
subject to such mandatory retirement. Directors/Trustees serving the Funds
as of September 12, 1995 who elect retirement under the Plan prior to
September 12, 1996 will receive an annual retirement benefit at any
increased compensation level if compensation is increased prior to
September 12, 1997 and receive spousal benefits (I.E., in the event the
Director/Trustee dies prior to receiving full benefits under the Plan, the
Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors
for one year after retirement and will be entitled to be reimbursed for
travel expenses to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits
payable to an eligible Director upon retirement assuming various
compensation and years of service classifications. As of December 31,
1998, the estimated credited years of service for Directors Chadha, Duer,
Maher, McCosh, Miller and Preston are 3, 20, 3, 3, 24 and 20,
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
Control Persons and Principal Holders of Securities
- ---------------------------------------------------
As of February 19, 1999, there are no persons known by fund
management to have owned beneficially, directly or indirectly, 5% or more
of the outstanding shares of Lexington Silver Fund, Inc.
Investment Adviser, Administrator and Distributor
- -------------------------------------------------
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle
Brook, New Jersey 07663 is the investment adviser to the Fund. Lexington
Funds Distributor, Inc. ("LFD") is the distributor of Fund shares. LMC's
services are provided and its fee is paid pursuant to an investment
management agreement, dated June 8, 1992 which will automatically
terminate if assigned and which may be terminated by either party upon 60
days' notice and was last approved on November 30, 1998. 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 makes recommendations to the Fund with respect to its
investments and investment policies.
As compensation for its services, the Fund pays LMC a monthly
management fee LMC is paid an investment advisory fee at the annual rate
of 1.00% of the net assets of the Fund up to $50,000,000 and 0.75% of
such, value in excess of $50,000,000. LMC has agreed to reduce its
management fee if necessary to keep total operating expenses at or below
2.50% of the Fund's average daily net assets. Total annual operating
expenses may also be subject to state blue sky regulations. LMC may
terminate this voluntary reduction at any time. This fee is computed on
the basis of the Fund's average daily net assets and is payable on the
last business day of each month. This fee is higher than that paid by
most other investment companies. However, it is not necessarily greater
than the management fee of other investment companies with objectives and
policies similar to this Fund. LMC's investment advisory fee will be
reduced for any fiscal year by any amount necessary to prevent Fund
expenses from exceeding the most restrictive expense limitations imposed
by the securities laws or regulations of those states or jurisdictions in
which the Fund's shares are registered or qualified for sale. Fund
advisory fees paid to LMC are as follows:
Investment Advisory
Fiscal Year Ended Fee Paid to LMC
----------------- ------------------
June 30, 1996 $ 388,784
June 30, 1997 $ 462,896
June 30, 1998 $ 630,181
6 months ending Dec. 31, 1998 $ 150,258
Under the terms of the investment management agreement, LMC 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
management 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, such copies
of its prospectus, annual, semi-annual and other reports and shareholder
communications as may be reasonably required for sales purposes.
LMC as owner of the registered service mark "Lexington" will
sublicense to the Fund to include the word "Lexington" as part of its
corporate name subject to revocation by LMC in the event that the Fund
ceases to engage LMC or its affiliate as investment adviser or
distributor.
LFD 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." Prior to May 3, 1999, LFD collected a front-end
sales load from the sale of the Fund's shares. For the fiscal years
ended June 30, 1998, 1997 and 1996, LFD collected front-end sales loads
from the Fund in the amount of (in thousands) $119.3, $57 and $1,213.9,
respectively, in underwriting commissions, and retained (in thousands)
$49.4, $24 and $188.7, respectively. For the fiscal year ending December
31, 1998, LFD collected front-end sales loads from the Fund in the amount
of (in thousands) $96.4 in underwriting commissions and retained (in
thousands) $30.4. For the fiscal year ended December 31, 1998, LFD
received no other commissions or compensation from the Fund either
directly or indirectly.
LMC is a wholly owned subsidiary of Lexington Global Asset Managers,
Inc., a publicly traded corporation. Descendants of Lunsford Richardson,
Sr., their spouses, trusts and other related entities have a majority
voting control of outstanding shares of Lexington Global Asset Managers,
Inc.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and
provides facilities for such services. The Fund shall reimburse LMC for
its actual cost in providing such services, facilities and expenses.
Of the directors, officers or employees ("affiliated persons") of
the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery and
Vail and Mmes. Carnicelli, Carr-Waldron, Curcio, DiFalco, 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
February 19, 1999, all officers and directors of the Fund as a group owned
of record and beneficially less than 1% of the outstanding shares of the
Fund.
Determination of Net Asset Value
- --------------------------------
The Fund calculates net asset value as of the close of normal
trading on the New York Stock Exchange (currently 4:00 p.m., Eastern time,
unless weather, equipment failure or other factors contribute to an
earlier closing time) each business day. It is expected that the New York
Stock Exchange will be closed on Saturdays and Sundays and on New Year's
Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Per share net asset value is
calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.
Portfolio securities are valued using current market valuations:
either the last reported sales price or, in the case of securities for
which there is no reported last sale and fixed-income securities, the mean
between the closing bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at
their fair values as determined in good faith under the supervision of the
Funds' officers, and by the Manager and the Board, in accordance with
methods that are specifically authorized by the Board. Short-term
obligations with maturities of 60 days or less are valued at amortized
cost as reflecting fair value.
Options are valued at the mean of the last bid and asked price on
the exchange where the option is primarily traded.
The value of securities denominated in foreign currencies and traded
on foreign exchanges or in foreign markets will be translated into U.S.
dollars at the last price of their respective currency denomination
against U.S. dollars quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established in good faith by the Boards. Because the value of securities
denominated in foreign currencies must be translated into U.S. dollars,
fluctuations in the value of such currencies in relation to the U.S.
dollar may affect the net asset value of the Fund's shares even without
any change in the foreign-currency denominated values of such securities.
Because foreign securities markets may close before the Fund
determines its net asset value, events affecting the value of portfolio
securities occurring between the time prices are determined and the time
the Fund calculates its net asset value may not be reflected unless the
Manager, under supervision of the Board, determines that a particular
event would materially affect the Fund's net asset value.
The price of silver bullion is determined by measuring the mean
between the closing bid and asked quotations of silver bullion set at the
time of the close of the New York Stock Exchange, as supplied by the
Fund's custodian bank or other broker-dealers or banks approved by the
Funds, on each date that the Exchange is open for business.
Telephone Exchange Provisions
- -----------------------------
Exchange instructions may be given in writing or by telephone.
Telephone exchanges may only be made if a Telephone Authorization form has
been previously executed and filed with LFD. Telephone exchanges are
permitted only after a minimum of seven (7) days have elapsed from the
date of a previous exchange. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at
State Street Bank and Trust Company (the "Agent"); shares held in
certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for
these services. Any new account established with the same registration
will also have the privilege of exchange by telephone in the Lexington
Funds. All accounts involved in a telephonic exchange must have the same
registration and dividend option as the account from which the shares were
transferred and will also have the privilege of exchange by telephone in
the Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing
telephone exchange services, a shareholder constitutes and appoints LFD as
the true and lawful attorney to surrender for redemption or exchange any
and all non-certificate shares held by the Agent in account(s) designated,
or in any other account with the Lexington Funds, present or future which
has the identical registration, with full power of substitution in the
premises. This selection also authorizes and directs LFD to act upon any
instruction from any person by telephone for exchange of shares held in
any of these accounts. In acting on a request to exchange, LFD is
authorized 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. The shareholder also agrees that neither LFD, the Agent, or the
Fund(s) will be liable for any loss, expense or cost arising out of any
requests effected in accordance with this authorization which would
include requests effected by impostors or persons otherwise unauthorized
to act on behalf of the account. LFD, 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 telephone exchange and telephone
redemption transactions will take place on recorded telephone lines and
each transaction will be confirmed in writing by the Fund. If the
shareholder is an entity other than an individual, it may be required to
certify that certain persons have been duly elected and are now legally
holding the titles given and that the said corporation, trust,
unincorporated association, etc. is duly organized and existing and has
the power to take action called for by this continuing authorization. LFD
reserves the right to cease to act as attorney subject to the above
appointment upon thirty (30) days written notice to the address of record.
Exchange Authorizations forms, Telephone Authorization forms and
prospectuses of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept
instructions by telephone to exchange shares of the Fund or shares of one
of the other Lexington Funds at net asset value as described above. Under
this procedure, the dealer must agree to indemnify LFD and the funds from
any loss or liability that any of them might incur as a result of the
acceptance of such telephone exchange orders. A properly signed Exchange
Authorization must be received by LFD within 5 days of the exchange
request. LFD reserves the right to reject any telephone exchange request.
In each such exchange, the registration of the shares of the Fund being
acquired must be identical to the registration of the shares of the Fund
being exchanged. Any telephone exchange orders so rejected may be
processed by mail.
This exchange offer is available only in states where shares of the
Fund being acquired may legally be sold and may be modified or terminated
at any time by the Fund. Broker-dealers who process exchange orders on
behalf of their customers may charge a fee for their services. Such fee
may be avoided by making requests for exchange directly to the Fund or
Agent.
Tax Sheltered Retirement Plans
- ------------------------------
The Fund makes available a variety of Prototype Pension and Profit
Sharing Plans including a 401(k) Salary Reduction Plan and a
403(b)(7) Plan. Plan services are available by contacting the
Shareholder Services Department of the Distributor at 1-800-526-0056.
Individual Retirement Account (IRA): Individuals may make tax
deductible contributions to their own Individual Retirement Accounts
("IRA") established under Section 408 of the Internal Revenue Code of
1986, as amended (the "Code"). Married investors filing a joint return
(i) neither of whom is an active participant in an employer sponsored
retirement plan, or (ii) for 1999 who have an adjusted gross income
of $51,000 or less ($31,000 or less for single taxpayers) may each make
a $2,000 annual deductible IRA contribution. For adjusted gross
incomes over $51,000 ($31,000 for single taxpayers), the IRA
deduction limit is generally phased out ratably over the next $10,000 of
adjusted gross income, subject to a minimum $200 deductible
contribution. Investors who are not able to deduct a full
$2,000 IRA contribution because of the limitations may make a
non-deductible contribution to their IRA to the extent a deductible
contribution is not allowed. Federal income tax on accumulations
earned on deductible or non-deductible contributions is deferred
until such time as these amounts are deemed distributed to an investor.
Rollovers are also permitted. The Disclosure statement required by
the Internal Revenue Service ("IRS") is provided by the Fund.
Roth IRA: Individuals may make non-deductible contributions to
their own Roth Individual Retirement Accounts ("Roth IRAs") under Section
408A of the Code. Generally, Roth IRAs are subject to many of the same
rules as Traditional IRAs. Most important with a Roth IRA: there is no
income tax on qualified withdrawals. In addition, unlike a Traditional
IRA, there is no prohibition on making contributions to a Roth IRA after
an individual reaches age 70 1/2, and there are no required minimum
withdrawals beginning at that age. Total contributions to all of an
individual's Traditional and Roth IRAs may not exceed $2,000 per year
(other limitations may apply). The $2,000 maximum contribution amount is
reduced by any amounts contributed in the same year to a Traditional IRA
or another Roth IRA. Married investors filing a joint return may not make
a Roth IRA contribution for a year in which his or her joint adjusted
gross income is $160,000 or greater (for unmarried investors, $110,000 or
greater), and the amount allowed as a contribution is phased out ratably
for married investors with an adjusted gross income of more than $150,000,
but less than $160,000 (for unmarried investors, more than $95,000, but
less than $110,000). Married investors filing separate returns may not
contribute to a Roth IRA in a year in which his or her adjusted gross
income is $10,000 or more (the allowed contribution amount is phased out
ratably over the first $10,000 of this investor's adjusted gross income).
The Disclosure statement required by the IRS is provided by the Fund upon
opening a Roth IRA.
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 which apply when self-employed individuals participate in
such plans. Currently purchase payments under a self-employed plan are
deductible only to the extent of the lesser of (i) $30,000 or (ii) 25% of
the individual's earned annual income (as defined in the Code) and in
applying these limitations not more than $150,000 of "earned income" may
be taken into account.
Corporate Pension and Profit Sharing Plans: The Fund makes
available a Prototype Defined Contribution Pension Plan and a Prototype
Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any
one of the Fund's tax sheltered plans must be carried out in accordance
with the provisions of the Plan. Accordingly, all plan documents should be
reviewed carefully before adopting or enrolling in the plan. Investors
should especially note that a penalty tax of 10% may be imposed by
the IRS on early withdrawals under corporate, Keogh or IRA Plans. It
is recommended by the IRS that an investor consult a tax adviser before
investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund and may terminate the Plan
with the Fund at any time. Except for expenses of sales and promotion,
executive and administrative personnel, and certain services which are
furnished by LMC, the cost of the plans generally is borne by the Fund;
however, each IRA Plan account is subject to an annual maintenance fee of
$12.00 charged by the Agent.
Capital Stock of the Fund
- -------------------------
The Fund has one class of stock which has no preemptive rights.
Dividend Distribution and Reinvestment Policy
- ---------------------------------------------
The Fund intends to pay dividends [semi- annually] from investment
income, 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" in the Prospectus).
Tax Matters
- -----------
Information set forth in the Prospectus and this SAI is only a
summary of certain key tax considerations generally affecting purchasers
of shares of the Fund. 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 has
been made to present a complete explanation of the federal, state and
local tax treatment of the Fund or the implications to shareholders, and
the discussions here and in the Fund's Prospectus are not intended as
substitutes for careful tax planning. Accordingly, potential purchasers
of shares of the Fund are urged to consult their tax advisers with
specific reference to their own tax circumstances. In addition, the tax
discussion in the Prospectus and this SAI is based on tax law in effect on
the date of the Prospectus and this SAI; such laws and regulations may be
changed by legislative, judicial or administrative action, sometimes with
retroactive effect.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment
company under Subchapter M of the Code. As a regulated investment
company, the Fund is not subject to federal income tax on the portion of
its net investment income (i.e., taxable interest, dividends and other
taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it
distributes to shareholders, provided that it distributes at least 90% of
its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) for
the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by
the Fund made during the taxable year or, under specified circumstances,
within twelve months after the close of the taxable year, will be
considered distributions of income and gains of the taxable year and will
therefore count toward satisfaction of the Distribution Requirement.
If the Fund has a net capital loss (i.e., an excess of capital
losses over capital gains) for any year, the amount thereof may be carried
forward up to eight years and treated as a short-term capital loss which
can be used to offset capital gains in such future years. As of December
31, 1998, the Fund had capital loss carryforwards of approximately
$3,106,844, $954,860, $1,911,797, $1,327,486, $1,756,775, $479,351, and
$2,130,561, which expire in 1999, 2000, 2001, 2002, 2004, 2005, and 2006,
respectively. Under Code Sections 382 and 383, if the Fund has an
"ownership change," then the Fund's use of its capital loss carryforwards
in any year following the ownership change will be limited to an amount
equal to the net asset value of the Fund immediately prior to the
ownership change multiplied by the long-term tax-exempt rate (which is
published monthly by the Internal Revenue Service (the "IRS")) in effect
for the month in which the ownership change occurs (the rate for May, 1999
is 4.82%). The Fund will use its best efforts to avoid having an
ownership change. However, because of circumstances which may be beyond
the control or knowledge of the Fund, there can be no assurance that it
will not have, or has not already had, an ownership change. If the Fund
has or has had an ownership change, then any capital gain net income for
any year following the ownership change in excess of the annual limitation
on the capital loss carryforwards will have to be distributed by the Fund
and will be taxable to shareholders as described under "Fund
Distributions" below.
In addition to satisfying the Distribution Requirement, a
regulated investment company must derive at least 90% of its gross income
from dividends, interest, certain payments with respect to securities
loans, gains from the sale or other disposition of stock or securities or
foreign currencies (to the extent such currency gains are directly related
to the regulated investment company's principal business of investing in
stock or securities) and other income (including but not limited to gains
from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies (the "Income
Requirement").
In general, gain or loss recognized by the Fund on the
disposition of an asset will be a capital gain or loss. In addition, gain
will be recognized as a result of certain constructive sales, including
short sales "against the box." However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market
discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market
discount which accrued during the period of time the Fund held the debt
obligation. In addition, under the rules of Code section 988, gain or
loss recognized on the disposition of a debt obligation denominated in a
foreign currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or
loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign
currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256 (unless the Fund elects otherwise),
will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain
or loss recognized by the Fund on the disposition of an asset is long-term
or short-term, the holding period of the asset may be affected if (1) the
asset is used to close a "short sale" (which includes for certain purposes
the acquisition of a put option) or is substantially identical to another
asset so used, (2) the asset is otherwise held by the Fund as part of a
"straddle" (which term generally excludes a situation where the asset is
stock and the Fund grants a qualified covered call option (which, among
other things, must not be deep-in-the-money) with respect thereto) or (3)
the asset is stock and the Fund grants an in-the-money qualified covered
call option with respect thereto. In addition, the Fund may be required
to defer the recognition of a loss on the disposition of an asset held as
part of a straddle to the extent of any unrecognized gain on the
offsetting position. Any gain recognized by the Fund on the lapse of, or
any gain or loss recognized by the Fund from a closing transaction with
respect to, an option written by the Fund will be treated as a short-term
capital gain or loss.
Certain transactions that may be engaged in by the Fund (such
as regulated futures contracts, certain foreign currency contracts, and
options on stock indexes and futures contracts) will be subject to special
tax treatment as "Section 1256 contracts." Section 1256 contracts are
treated as if they are sold for their fair market value on the last
business day of the taxable year, even though a taxpayer's obligations (or
rights) under such contracts have not terminated (by delivery, exercise,
entering into a closing transaction or otherwise) as of such date. Any
gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for that year
together with any other gain or loss that was previously recognized upon
the termination of Section 1256 contracts during the year. Any capital
gain or loss for the taxable year with respect to Section 1256 contracts
(including any capital gain or loss arising as a consequence of the year-end
deemed sale of such contracts) is generally treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund,
however, may elect not to have this special tax treatment apply to Section
1256 contracts that are part of a "mixed straddle" with other investments
of the Fund that are not Section 1256 contracts.
The Fund may purchase securities of certain foreign investment
funds or trusts which constitute passive foreign investment companies
("PFICs") for federal income tax purposes. If the Fund invests in a PFIC,
it has three separate options. First, it may elect to treat the PFIC as
a qualifying electing fund (a "QEF"), in which case it will each year have
ordinary income equal to its pro rata share of the PFIC's ordinary
earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether
the Fund receives distributions of any such ordinary earnings or capital
gains from the PFIC. Second, for tax years beginning after December 31,
1997, the Fund may make a mark-to-market election with respect to its PFIC
stock. Pursuant to such an election, the Fund will include as ordinary
income any excess of the fair market value of such stock at the close of
any taxable year over its adjusted tax basis in the stock. If the
adjusted tax basis of the PFIC stock exceeds the fair market value of such
stock at the end of a given taxable year, such excess will be deductible
as ordinary loss in the amount equal to the lesser of the amount of such
excess or the net mark-to-market gains on the stock that the Fund included
in income in previous years. The Fund's holding period with respect to
its PFIC stock subject to the election will commence on the first day of
the following taxable year. If the Fund makes the mark-to-market election
in the first taxable year it holds PFIC stock, it will not incur the tax
described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF
and does not make a mark-to-market election, then, in general, (1) any
gain recognized by the Fund upon a sale or other disposition of its
interest in the PFIC or any "excess distribution" (as defined) received by
the Fund from the PFIC will be allocated ratably over the Fund's holding
period in the PFIC stock, (2) the portion of such gain or excess
distribution so allocated to the year in which the gain is recognized or
the excess distribution is received shall be included in the Fund's gross
income for such year as ordinary income (and the distribution of such
portion by the Fund to shareholders will be taxable as an ordinary income
dividend, but such portion will not be subject to tax at the Fund level),
(3) the Fund shall be liable for tax on the portions of such gain or
excess distribution so allocated to prior years in an amount equal to, for
each such prior year, (i) the amount of gain or excess distribution
allocated to such prior year multiplied by the highest tax rate
(individual or corporate, as the case may be) in effect for such prior
year, plus (ii) interest on the amount determined under clause (i) for the
period from the due date for filing a return for such prior year until the
date for filing a return for the year in which the gain is recognized or
the excess distribution is received, at the rates and methods applicable
to underpayments of tax for such period, and (4) the distribution by the
Fund to shareholders of the portions of such gain or excess distribution
so allocated to prior years (net of the tax payable by the Fund thereon)
will again be taxable to the shareholders as an ordinary income dividend.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term
capital loss) for any taxable year, to elect (unless it made a taxable
year election for excise tax purposes as discussed below) to treat all or
any part of any net capital loss, any net long-term capital loss or any
net foreign currency loss (including, to the extent provided in Treasury
Regulations, losses recognized pursuant to the PFIC mark-to-market
election) incurred after October 31 as if it had been incurred in the
succeeding year.
In addition to satisfying the requirements described above,
the Fund must satisfy an asset diversification test in order to qualify as
a regulated investment company. Under this test, at the close of each
quarter of the Fund's taxable year, at least 50% of the value of the
Fund's assets must consist of cash and cash items, U.S. Government
securities, securities of other regulated investment companies, and
securities of other issuers (as to each of which the Fund has not invested
more than 5% of the value of its total assets in securities of such issuer
and does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses. Generally, an option (a call or a
put) with respect to a security is treated as issued by the issuer of the
security not the issuer of the option.
If for any taxable year the Fund does not qualify as a
regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without
any deduction for distributions to shareholders, and such distributions
will be taxable to the shareholders as ordinary dividends to the extent of
the Fund's current and accumulated earnings and profits. Such
distributions generally will be eligible for the dividends-received
deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated
investment company that fails to distribute in each calendar year an
amount equal to 98% of ordinary taxable income for the calendar year and
98% of capital gain net income for the one-year period ended on October 31
of such calendar year (or, at the election of a regulated investment
company having a taxable year ending November 30 or December 31, for its
taxable year (a "taxable year election")). The balance of such income
must be distributed during the next calendar year. For the foregoing
purposes, a regulated investment company is treated as having distributed
any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company
shall: (1) reduce its capital gain net income (but not below its net
capital gain) by the amount of any net ordinary loss for the calendar
year; and (2) exclude foreign currency gains and losses and ordinary gains
or losses arising as a result of a PFIC mark-to-market election (or upon
an actual disposition of the PFIC stock subject to such election) 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. Net capital gain that is distributed and
designated as a capital gain dividend will be taxable to shareholders as
long-term capital gain, regardless of the length of time a shareholder has
held his shares or whether such gain was recognized by the Fund prior to
the date on which the shareholder acquired his shares. The Code provides,
however, that under certain conditions only 50% (58% for alternative
minimum tax purposes) of the capital gain recognized upon the Fund's
disposition of domestic "small business" stock will be subject to tax.
Conversely, if the Fund elects to retain its net capital gain,
the Fund will be taxed thereon (except to the extent of any available
capital loss carryovers) at the 35% corporate tax rate. If the Fund
elects to retain its net capital gain, it is expected that the Fund also
will elect to have shareholders of record on the last day of its taxable
year treated as if each such shareholder received a distribution of his
pro rata share of such gain, with the result that each shareholder will be
required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro
rata share of tax paid by the Fund on the gain, and will increase the tax
basis for his shares by an amount equal to the deemed distribution less
the tax credit.
Ordinary income dividends paid by the Fund with respect to a
taxable year will qualify for the 70% dividends-received deduction
generally available to corporations (other than corporations, such as S
corporations, which are not eligible for the deduction because of their
special characteristics and other than for purposes of special taxes such
as the accumulated earnings tax and the personal holding company tax) to
the extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. Generally, 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) 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 that the stock on which the dividend is paid is treated as debt-
financed under the rules of Code section 246A. The 46-day holding period
must be satisfied during the 90-day period beginning 45 days prior to each
applicable ex-dividend date; the 91-day holding period must be satisfied
during the 180-day period beginning 90 days before each applicable ex-
dividend date. 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. For purposes of the
corporate AMT, 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 generally will be required to take the full amount
of any dividend received from the Fund into account (without a dividends-
received deduction) in determining their 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. If more than 50%
of the value of the Fund's total assets at the close of its taxable year
consist of the stock or securities of foreign corporations, the Fund may
elect to "pass through" to the Fund's shareholders the amount of foreign
taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received,
his pro rata share of the foreign taxes paid by the Fund, but would be
treated as having paid his pro rata share of such foreign taxes and would
therefore be allowed to either deduct such amount in computing taxable
income or use such amount (subject to various Code limitations) as a
foreign tax credit against federal income tax (but not both). For
purposes of the foreign tax credit limitation rules of the Code, each
shareholder would treat as foreign source income his pro rata share of
such foreign taxes plus the portion of dividends received from the Fund
representing income derived from foreign sources. No deduction for
foreign taxes could be claimed by an individual shareholder who does not
itemize deductions. Each shareholder should consult his own tax adviser
regarding the potential application of foreign tax credits.
Distributions by the Fund that do not constitute ordinary
income dividends or capital gain dividends will be treated as a return of
capital to the extent of (and in reduction of) the shareholder's tax basis
in his shares; any excess will be treated as gain realized from a sale of
the shares, as discussed below.
Distributions by the Fund will be treated in the manner
described above regardless of whether such distributions are paid in cash
or reinvested in additional shares of the Fund (or of another fund).
Shareholders receiving a distribution in the form of additional shares
will be treated as receiving a distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment
date. In addition, if the net asset value at the time a shareholder
purchases shares of the Fund reflects realized but undistributed income or
gain or unrealized appreciation in the value of assets held by the Fund
distributions of such amounts to the shareholder will be taxable in the
manner described above, although economically they constitute a return of
capital to the shareholder.
Ordinarily, shareholders are required to take distributions by
the Fund into account in the year in which they are made. However,
dividends declared in October, November or December of any year and
payable to shareholders of record on a specified date in such month will
be deemed to have been received by the shareholders (and made by the Fund)
on December 31 of such calendar year provided such dividends are actually
paid in January of the following year. Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions
made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and
remit to the U.S. Treasury 31% of distributions and the proceeds of
redemption of shares, paid to any shareholder who (1) has failed to
provide a correct taxpayer identification number, (2) is subject to backup
withholding for failure properly to report the receipt of interest or
dividend income, or (3) failed to certify to the Fund that it is not
subject to backup withholding or that it is an "exempt recipient" (such as
a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on a sale or
redemption of shares of the Fund in an amount equal to the difference
between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so
recognized may be disallowed if the shareholder purchases other shares of
the Fund within 30 days before or after the sale or redemption. In
general, any gain or loss arising from (or treated as arising from) the
sale or redemption of shares of the Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale
or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. Capital losses in any year are
deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on
whether the income from the Fund is "effectively connected" with a U.S.
trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with
a U.S. trade or business carried on by a foreign shareholder, ordinary
income dividends paid to a foreign shareholder will be subject to U.S.
withholding tax at the rate of 30% (or lower applicable treaty rate) upon
the gross amount of the dividend. Furthermore, such foreign shareholder
may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from a Fund's
election to treat any foreign taxes paid by it as paid by its
shareholders, but may not be allowed a deduction against this gross income
or a credit against this U.S. withholding tax for the foreign
shareholder's pro rata share of such foreign taxes which it is treated as
having paid. Such a foreign shareholder would generally be exempt from
U.S. federal income tax on gains realized on the sale of shares of a Fund,
capital gain dividends and amounts retained by the Fund that are
designated as undistributed capital gains.
If the income from the Fund is effectively connected with a
U.S. trade or business carried on by a foreign shareholder, then ordinary
income and capital gain dividends, and any gains realized upon a sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, the Fund
may be required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding (or subject to
withholding at a reduced treaty rate) unless the shareholder furnishes the
Fund with proper notification of its foreign status.
The tax consequences to a foreign shareholder entitled to
claim the benefits of an applicable tax treaty may be different from those
described herein. Foreign shareholders are urged to consult their own tax
advisers with respect to the particular tax consequences to them of an
investment in the Fund, including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect.
Rules of state and local taxation of ordinary income and
capital gain dividends from regulated investment companies may differ from
the rules for U.S. federal income taxation described above. Shareholders
are urged to consult their tax advisers as to the consequences of these
and other state and local tax rules affecting an investment in the Fund.
Performance Calculation
- -----------------------
For the purposes of quoting and comparing the performance of the
Fund to that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in
terms of total return. Under the rules of the Securities and Exchange
Commission ("SEC rules"), funds advertising performance must include total
return quotes calculated according to the following formula:
P(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods or at the
end of the 1, 5 or 10 year periods (or fractional portion
thereof).
Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the
most recent quarter prior to submission of the advertising for
publication, and will cover one, five and ten year periods or a shorter
period dating from the effectiveness of the Fund's Registration Statement.
In calculating the ending redeemable value, all dividends and
distributions by the Fund are assumed to have been reinvested at net asset
value as described in the prospectus on the reinvestment dates during the
period. Total return, or "T" in the formula above, is computed by finding
the average annual compounded rates of return over the 1, 5 and 10 year
periods (or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value. Any recurring account
charges that might in the future be imposed by the Fund would be included
at that time.
The Fund may also from time to time include in such advertising a
total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the
Fund with other measures of investment return. For example, in comparing
the Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Standard and Poor's 500 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 investment of $10,000 in Fund shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial
value of the investment from the ending value and by dividing the
remainder by the beginning value.
Prior to January 1992, the fund was managed by a different
investment adviser. The total return which includes the maximum sales
charge of 5.75% for the one year, five year and since commencement
(1/2/92) period ended December 31, 1998 is as follows:
Average Annual
Period Total Return
1 year ended December 31, 1998 -33.74%
5 years ended December 31, 1998 -8.47%
Since commencement (1/2/92)
through December 31, 1998 0.10%
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 and other assets 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.
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.
Counsel and Independent Auditors
- --------------------------------
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New
York 10022 will pass upon legal matters for the Fund in connection with
the offering of its shares. KPMG 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, 1999.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
===================================================================
SILVER BULLION: 20.7%
1,051,945 fine ounces (cost
$5,887,507)2............................ $5,296,542
----------
COMMON STOCKS: 60.7%
AUSTRALIA: 5.8%
1,100,000 Aurora Gold, Ltd.2 ..................... 877,105
1,020,000 MIM Holdings, Ltd. ..................... 450,452
192,857 Pasminco, Ltd. ......................... 146,680
----------
1,474,237
----------
MEXICO: 17.7%
290,056 Corporacion Industrial San Luis
S.A. ................................... 419,406
554,016 Grupo Mexico S.A. de C.V. .............. 1,232,428
945,000 Industrias Penoles S.A. ................ 2,866,616
----------
4,518,450
----------
NORTH AMERICA: 32.9%
100,000 Adrian Resources, Ltd.2 ................ 19,532
45,000 Apex Silver Mines, Ltd.2 ............... 371,250
167,000 Atna Resources, Ltd.2 .................. 72,848
83,500 Atna Resources, Ltd.
(Warrants)1,2 .......................... -
90,000 Campbell Resources, Inc.
(Warrants)1,2 .......................... -
108,100 Coeur D'Alene Mines Corporation2 499,962
77,000 Eldorado Corporation, Ltd.1,2 .......... 20,053
239,400 Hecla Mining Company2 .................. 867,825
203,500 Homestake Mining Company ............... 1,869,656
60,000 Minefinders Corporation, Ltd.1,2 ....... 46,877
285,000 Pan American Silver Corporation1,2 1,438,043
60,000 Pan American Silver Corporation2........ 302,746
159,600 Romarco Minerals, Inc.2 ................ 155,865
300,000 Silver Standard Resources, Inc.1,2...... 234,384
50,000 Silver Standard Resources, Inc.2 ....... 39,844
47,000 Stillwater Mining Company2 ............. 1,927,000
525,000 Sunshine Mining and Refining, Inc.2 262,500
350,000 Tiomin Resources, Inc.1,2 .............. 72,919
262,500 Tiomin Resources, Inc.
(Warrants)1,2 .......................... -
50,000 TVX Gold, Inc.2 ........................ 90,625
75,000 Western Copper Holdings, Ltd.2 ......... 129,399
----------
8,421,328
----------
PERU: 3.7%
157,009 Compania de Minas Buenaventura
S.A. "B" ............................... 945,265
----------
NUMBER OF
SHARES
OR PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
===================================================================
POLAND: 0.6%
21,000 KGHM Polska Miedz S.A. (GDR) .......... $ 151,200
-----------
TOTAL COMMON STOCKS
(cost $22,978,399).................... 15,510,480
-----------
PREFERRED STOCK: 4.6%
NORTH AMERICA: 4.6%
99,000 Freeport McMoran Copper & Gold
(cost $2,081,958)..................... 1,163,250
-----------
SHORT-TERM INVESTMENT: 7.8%
U.S. GOVERNMENT AGENCY
OBLIGATION
$2,000,000 Federal Home Loan Mortgage
Corporation, 4.50%, due
01/04/99
(cost $1,999,250)..................... 1,999,250
-----------
TOTAL INVESTMENTS: 93.8%
(cost $32,947,114+) (Note 1).......... 23,969,522
Other assets in excess of
liabilities: 6.2% ..................... 1,590,623
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $2.73 per share
on 9,370,946 shares
outstanding) .......................... $25,560,145
===========
1 Restricted security (Note 6).
2 Non-income producing security.
GDR - Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $32,947,114) (Note 1) .............................. $ 23,969,522
Cash ........................................................................... 469,324
Receivable for investment securities sold ...................................... 1,385,379
Receivable for shares sold ..................................................... 39,786
Dividends and interest receivable .............................................. 3,267
-------------
Total Assets ................................................................ 25,867,278
-------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ............................... 22,783
Payable for shares redeemed .................................................... 223,165
Accrued expenses ............................................................... 61,185
-------------
Total Liabilities ........................................................... 307,133
-------------
NET ASSETS: (equivalent to $2.73 per share on
9,370,946 shares outstanding) (Note 3) ........................................ $ 25,560,145
=============
NET ASSETS consist of:
Capital stock - authorized 1,000,000,000 shares, $.001 par value per share...... $ 9,371
Additional paid-in capital (Notes 1 and 8) ..................................... 46,750,478
Accumulated net investment loss (Note 1) ....................................... (997)
Accumulated net realized loss on investments and foreign currency
transactions (Notes 1 and 8) .................................................. (12,221,115)
Unrealized depreciation of investments and foreign currency translation of other
assets and liabilities ........................................................ (8,977,592)
-------------
TOTAL NET ASSETS ............................................................ $ 25,560,145
=============
NET ASSET VALUE, REDEMPTION PRICE PER SHARE .................................... $ 2.73
=============
OFFERING PRICE PER SHARE (100/94.25 of $2.73 adjusted to the nearest cent) ..... $ 2.90
=============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF OPERATIONS
Six month period ended December 31, 1998 (Note 7)
INVESTMENT INCOME
Dividends ............................. $ 199,491
Interest .............................. 66,345
-----------
265,836
Less: foreign tax expense ............. 1,555
-----------
Total investment income ........... $ 264,281
EXPENSES
Investment advisory fee
(Note 2) ......................... 150,258
Transfer agent and shareholder
servicing expenses (Note 2) ...... 57,679
Custodian expenses ................. 43,624
Printing and mailing expenses ...... 35,870
Professional fees .................. 21,597
Accounting expenses (Note 2) ....... 13,089
Registration fees .................. 12,560
Directors' fees and expenses ....... 7,594
Computer processing fees ........... 4,126
Other expenses ..................... 9,650
-----------
Total expenses .................... 356,047
------------
Net investment loss .............. (91,766)
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 4)
Net realized loss on:
Investments ....................... (570,668)
Foreign currency transactions ..... (898)
-----------
Net realized loss ................ (571,566)
Net change in unrealized
appreciation (depreciation) of:
Investments ...................... (5,092,614)
Foreign currency translation
of other assets and
liabilities ..................... (7)
--------------
Net change in unrealized
depreciation .................... (5,092,621)
------------
Net realized and
unrealized loss ................ (5,664,187)
------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................... $ (5,755,953)
============
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the six
month period
ended
December 31, Year ended
1998 June 30,
(Note 7) 1998
-------------- --------------
Net investment loss ................... $ (91,766) $ (225,906)
Net realized loss from
investment and foreign
currency transactions .............. (571,566) (2,590,675)
Net change in unrealized
appreciation (depreciation) of
investments and foreign
currency translation ............... (5,092,621) (5,393,011)
------------ ------------
Decrease in net assets
resulting from operations......... (5,755,953) (8,209,592)
Distributions to shareholders
in excess of net investment
income (Note 1) .................... - (81,929)
Increase (decrease) in net assets
from capital share
transactions (Note 3) .............. (3,604,828) 1,177,232
------------ ------------
Net decrease in net assets .......... (9,360,781) (7,114,289)
NET ASSETS:
Beginning of period .................. 34,920,926 42,035,215
------------ ------------
End of period (including
accumulated net investment
loss of $997 and distributions
in excess of net investment
income of $191,805 in
December 31, 1998 and June
30, 1998, respectively) .......... $ 25,560,145 $ 34,920,926
============ ============
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington Strategic Silver Fund, Inc. (the "Fund") is an open-end,
non-diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's investment objective is to seek to
maximize total return from long-term growth of capital and income. The Fund
will seek to achieve its objective by investing at least 80% of its portfolio
in securities of established silver-related companies and silver bullion. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements:
INVESTMENTS Securities transactions are accounted for on a trade date
basis. Realized gains and losses from investment transactions are reported on
the identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market and
silver bullion are valued at the mean between the last current bid and asked
prices. Short-term securities having a maturity of 60 days or less are stated
at amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued by Fund
management in good faith under the direction of the Fund's Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income, adjusted for amortization of premiums and
accretion of discounts, is accrued as earned.
FOREIGN CURRENCY TRANSACTIONS Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign currency contracts in order
to hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio
positions. These contracts are marked to market daily, by recognizing the
difference between the contract exchange rate and the current market rate as
unrealized gains or losses. Realized gains or losses are recognized when
contracts are closed and are reported in the statement of operations.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. There are no forward foreign currency
contracts outstanding at December 31, 1998.
FEDERAL INCOME TAXES It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
DISTRIBUTIONS Dividends from net investment income and net realized
capital gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 1998,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets up to
$30 million and at an annual rate of 0.75% thereafter. For 1998, LMC has agreed
to voluntarily limit the total expenses of the Fund (including management fees,
but excluding interest, taxes, brokerage commissions and extraordinary
expenses) to an annual rate of 2.50% of the Fund's average daily net assets. No
reimbursement was required for the period ended December 31, 1998.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $28,848, which are incurred by the Fund, but
paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
For the six
month
period ended Year ended
December 31, 1998 June 30, 1998
---------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 2,505,470 $ 7,289,065 8,598,402 $ 33,307,344
Shares issued on reinvestment of dividends ......... - - 18,656 73,693
--------- ------------- --------- -------------
2,505,470 7,289,065 8,617,058 33,381,037
Shares redeemed .................................... (3,855,059) (10,893,893) (8,546,967) (32,203,805)
---------- ------------- ---------- -------------
Net increase (decrease) ............................ (1,349,589) $ (3,604,828) 70,091 $ 1,177,232
========== ============= ========== =============
</TABLE>
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the period
ended December 31, 1998, excluding short-term securities, were $1,531,112 and
$5,099,107, respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$1,104,043 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $10,081,635.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998 (continued)
5. INVESTMENT AND CONCENTRATION RISKS
The Fund makes significant investments in foreign securities and has an
investment objective of investing in securities of companies engaged in the
exploration, mining, processing, fabrication and distribution of silver.
There are certain risks involved in investing in foreign securities or
concentrating in specific industries that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting from
potentially adverse political and economic developments as well as the possible
imposition of foreign exchange or other foreign governmental restrictions or
laws, all of which could affect the market and/or credit risk of the
investments.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the inability of counterparties to meet the
terms of their contracts.
6. RESTRICTED SECURITIES
The following securities were purchased under Rule 144A of the Securities Act
of 1933 or issued in private placements and, unless registered under the Act or
exempted from registration, may be sold only to qualified institutional
investors.
<TABLE>
<CAPTION>
Average
Acquisition Cost Per Market Percent of Net
Security Date Shares Share Value Assets
- ------------------------------------- ------------- ---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Atna Resources, Ltd. (Warrants) 10/14/96 83,500 $ 0.00 $ - 0.00%
Campbell Resources, Inc. (Warrants) 10/25/96 90,000 0.00 - 0.00
Eldorado Corporation, Ltd. 02/22/96 77,000 5.37 20,053 0.08
Minefinders Corporation, Ltd. 03/11/97 60,000 3.66 46,877 0.18
Pan American Silver Corporation 07/17/95 285,000 5.44 1,438,043 5.63
Silver Standard Resources, Inc. 09/06/95 300,000 3.14 234,384 0.92
Tiomin Resources, Inc. 09/28/95 350,000 1.44 72,919 0.28
Tiomin Resources, Inc. (Warrants) 10/31/96 262,500 0.00 - 0.00
---------- -----
$1,812,276 7.09%
========== =====
</TABLE>
Pursuant to guidelines adopted by the Fund's Board of Directors, these
unregistered securities have been deemed to be illiquid. The Fund currently
limits investment in illiquid securities to 15% of the Fund's net assets, at
market value.
7. CHANGE IN THE FUND'S YEAR-END
The Fund changed its fiscal year-end from June 30th to December 31st. This
change was done to facilitate the administration of the Fund.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998 (continued)
8. FEDERAL INCOME TAXES - CAPITAL LOSS CARRYFORWARDS
As of December 31, 1998, $1,254,382 of capital loss carryforwards have expired
and have been reclassified to additional paid-in capital.
Capital loss carryforwards1 available for federal income tax purposes as of
December 31, 1998 are:
$3,106,844 expiring in 1999;
954,860 expiring in 2000;
1,911,797 expiring in 2001;
1,327,486 expiring in 2002;
1,756,775 expiring in 2004;
479,351 expiring in 2005; and,
2,130,561 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
1Temporary book-tax differences of $553,441 are the result of deferred
post-October losses.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six month
period ended
December 31,
Year ended June 30,
1998 --------------------------------------------------------------------
(Note 7)
--------------- 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ................................. $ 3.26 $ 3.95 $ 4.46 $ 4.00 $ 3.92 $ 3.52
-------- -------- -------- --------- --------- --------
Income (loss) from investment
operations:
Net investment loss .................... (0.01) (0.02) (0.04) (0.03) (0.03) (0.02)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ......... (0.52) (0.66) (0.43) 0.51 0.11 0.42
--------- -------- -------- --------- --------- --------
Total income (loss) from investment
operations ............................. (0.53) (0.68) (0.47) 0.48 0.08 0.40
--------- -------- -------- --------- --------- --------
Less distributions:
Distributions in excess of net
investment income ..................... - (0.01) (0.04) (0.02) - -
--------- -------- -------- --------- --------- --------
Net asset value, end of period .......... $ 2.73 $ 3.26 $ 3.95 $ 4.46 $ 4.00 $ 3.92
========= ======== ======== ========= ========= ========
Total return** .......................... (16.26)% (17.32)% (10.76)% 12.02% 2.04% 11.36%
Ratio to average net assets:
Expenses ............................... 2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
Net investment loss .................... (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Portfolio turnover rate ................. 5.68% 28.78% 18.76% 44.30% 44.22% 5.28%
Net assets, end of period (000's
omitted) ............................... $ 25,560 $ 34,921 $ 42,035 $ 73,945 $ 65,517 $ 49,499
</TABLE>
* Annualized.
** Sales load is not reflected in total return.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Strategic Silver Fund, Inc.:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Strategic
Silver Fund, Inc. as of December 31, 1998, and the related statement of
operations for the six month period then ended, the statements of changes in
net assets for the six month period ended December 31, 1998 and for the year
ended June 30, 1998 and the financial highlights for the periods indicated
herein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 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 Strategic Silver Fund, Inc. as of December 31, 1998, the result of
its operations for the six month period then ended, the changes in its net
assets for the six month period ended December 31, 1998 and for the year ended
June 30, 1998, and the financial highlights for the periods indicated herein in
conformity with generally accepted accounting principles.
KMPG LLP
New York, New York
February 8, 1999