<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>
<PAGE>
LEXINGTON GLOBAL INCOME FUND
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
Global Income Fund, dated May 3, 1999, as it may be revised from time to
time. To obtain a copy of the Fund's prospectus at no charge, please write
to the Fund at P.O. Box 1515, Park 80 West - Plaza Two, Saddle Brook, New
Jersey 07663 or call the following toll-free numbers:
Shareholder Services: 1-800-526-0056
Institutional/Financial Adviser Services: 1-800-367-9160
24-Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's Investment
Adviser.Lexington Funds Distributor, Inc. ("LFD") serves as the Fund's
Distributor.
TABLE OF CONTENTS
Page
History of the Fund. . . . . . . . . . . . . . . . . . . . 3
Investment Strategies and Risks of the Fund. . . . . . . . 3
Investment Restrictions. . . . . . . . . . . . . . . . . . 14
Portfolio Transactions and Turnover. . . . . . . . . . . . 16
Management of the Fund . . . . . . . . . . . . . . . . . . 17
Control Persons and Principal Holders of Securities. . . . 22
Investment Adviser, Administrator and Distributor. . . . . 22
Determination of Net Asset Value . . . . . . . . . . . . . 24
Distribution Plan . . . . . . . . . . . . . . . . . . . . .25
Telephone Exchange Provisions. . . . . . . . . . . . . . . 26
Tax Sheltered Retirement Plans . . . . . . . . . . . . . . 28
Capital Stock of the Fund. . . . . . . . . . . . . . . . . 29
Dividend Distribution and Reinvestment Policy . . . . . . 29
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 29
Calculation of Performance Data. . . . . . . . . . . . . . 34
Custodian, Transfer Agent and Dividend Disbursing Agent. . 36
Counsel and Independent Auditors . . . . . . . . . . . . . 36
Financial Statements. . . . . . . . . . . . . . . . . . . 37
History of the Fund
- -------------------
Lexington Global Income Fund (the "Fund") is a trust formed under the
laws of the Commonwealth of Massachusetts on February 24, 1983. The Fund
was formerly named "Lexington Ramirez Global Income Fund", and its original
name was "Lexington Tax Exempt Bond Trust". At a meeting held on November
30, 1994, the shareholders of the Fund approved changes to certain of the
Fund's investment objectives and strategies. The Fund is a non-diversified
open-end management investment company.
Investment Strategies and Risks of the Fund
- -------------------------------------------
The Fund, under normal circumstances, invests substantially all of
its assets in debt securities of issuers in the United States, developed
foreign countries and emerging markets. For purposes of its investment
objective, the Fund considers an emerging country to be any country whose
economy and market the World Bank or United Nations considers to be
emerging or developing. The Fund may also invest in debt securities traded
in any market, of companies that derive 50% or more of their total revenue
from either goods or services produced in such emerging countries and
emerging markets or sales made in such countries. Determinations as to
eligibility will be made by LMC based on publicly available information and
inquiries made to the companies. It is possible in the future that
sufficient numbers of emerging country or emerging market debt securities
would be traded on securities markets in industrialized countries so that
a major portion, if not all, of the Fund's assets would be invested in
securities traded on such markets, although such a situation is unlikely
at present.
Currently, investing in many of the emerging countries and emerging
markets is not feasible or may involve political risks. Accordingly, LMC
currently intends to consider investments only in those countries in which
it believes investing is feasible and does not involve such risks. The
list of acceptable countries will be reviewed by LMC and approved by the
Board of Trustees on a periodic basis and any additions or deletions with
respect to such list will be made in accordance with changing economic and
political circumstances involving such countries.
In determining the appropriate distribution of investments among
various countries and geographic regions for the Fund, LMC ordinarily
consider the following factors: prospects for relative economic growth
among the different countries in which the Fund may invest; expected levels
of inflation; government policies influencing business conditions; the
outlook for currency relationships; and the range of the individual
investment opportunities available to international investors.
Although the Fund values assets daily in terms of U.S. dollars, the
Fund does not intend to convert holdings of foreign currencies into U.S.
dollars on a daily basis. The Fund will do so from time to time, and
investors should be aware of the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference ("spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may
offer to sell a foreign currency to the Fund at one rate, while offering
a lesser rate of exchange should the Fund desire to sell that currency to
the dealer.
The Fund may invest in the following types of money market
instruments (i.e., debt instruments with less than 12 months remaining
until maturity) denominated in U.S. dollars or other currencies: (a)
obligations issued or guaranteed by the U.S. or foreign governments, their
agencies, instrumentalities or municipalities; (b) obligations of
international organizations designed or supported by multiple foreign
governmental entities to promote economic reconstruction or development;
(c) finance company obligations, corporate commercial paper and other
short-term commercial obligations; (d) bank obligations (including
certificates of deposit, time deposits, demand deposits and bankers'
acceptances), subject to the restriction that the Fund may not invest more
than 25% of its total assets in bank securities; (e) repurchase agreements
with respect to the foregoing; and (f) other substantially similar
short-term debt securities with comparable characteristics.
Samurai and Yankee Bonds-Subject to its respective fundamental
investment restrictions, the Fund may invest in yen-denominated bonds sold
in Japan by non-Japanese issuers ("Samurai bonds"), and may invest in
dollar-denominated bonds sold in the United States by non-U.S. issuers
("Yankee bonds"). It is the policy of the Fund to invest in Samurai or
Yankee bond issues only after taking into account considerations of quality
and liquidity, as well as yield.
Commercial Bank Obligations - Obligations of foreign branches of U.S.
banks and of foreign banks are obligations of the issuing bank and may be
general obligations of the parent
bank. Such obligations, however, may be limited by the terms of a
specific obligation and by government regulation. As with investment
in non-U.S. securities in general, investments in the obligations of
foreign branches of U.S. banks and of foreign banks may subject the Fund
to investment risks that are different in some respect from those of
investments in obligations of domestic issuers. Although the Fund
typically will acquire obligations issued and supported by the credit
of U.S. or foreign banks having total assets at the time of purchase in
excess of $1 billion, this $1 billion figure is not a fundamental
investment policy or restriction of the Fund. For the purposes of
calculation with respect to the $1 billion figure, the assets of a bank
will be deemed to include the assets of its U.S. and non-U.S. branches.
Options on securities, securities indices and currencies - The Fund
may purchase call options on debt securities that it intends to purchase
(or on currencies in which those securities are denominated) in order to
limit the risk of a substantial increase in the market price of such
security (or an adverse movement in the applicable currency). The Fund
also may purchase call options on underlying securities or
currencies it owns in order to protect unrealized gains on call
options previously written by it. A call option would be purchased for
this purpose where tax considerations make it inadvisable to realize
such gains through a closing purchase transaction. Call options also
may be purchased at times to avoid realizing losses that would result in
a reduction of the Fund's current return. For example, where the Fund
has written a call option on an underlying security or currency having a
current market value below the price at which such security or currency was
purchased by the Fund, an increase in the market price could result in the
exercise of the call option written by the Fund and the realization of
a loss on the underlying security or currency with the same exercise
price and expiration date as the option previously written.
The Fund may purchase put options on particular debt 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).
The Fund also may purchase put options at a time when the Fund does not
own the underlying security or currency. By purchasing put options on a
security or currency it does not own, the Fund seeks to benefit from a
decline in the market price of the underlying security or currency. If the
put option is not sold when it has remaining value, and if the market
price of the underlying security or currency remains equal to or greater
than the exercise price during the life of the put option, the Fund will
lose its entire investment in the put option. In order for the purchase
of a put option to be profitable, the market price of the underlying
security or currency must decline sufficiently below the exercise price
to cover the premium and transaction cost, unless the put option is sold
in a closing sale transaction. 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. The Fund will not enter into options on securities,
securities indices or currencies or related options (including options on
futures) if the sum of initial margin deposits and premiums paid for any
such option or options would exceed 5% of its total assets, and it will not
enter into options with respect to more than 25% of its total assets.
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 "Brady Bonds" and zero coupon bonds. Brady
Bonds are securities created through the exchange of existing commercial
bank loans to public and private entities in certain emerging markets for
new bonds in connection with a debt restructuring plan. Investors should
recognize that Brady Bonds have been issued only recently and, accordingly,
do not have a long payment history. Zero coupon bonds pay income only at
maturity. The prices of these bonds are highly sensitive to changes in
market interest rates. The original issue discount on the zero coupon
bonds must be included ratably in the income of the Fund as the income
accrues even though payment has not been received. The Fund nevertheless
intend to distribute an amount of cash equal to the currently accrued
original issue discount, and this may require liquidating securities at
times they might not otherwise do so and may result in capital loss. See
"Tax Matters" in this Statement of Additional Information.
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.
The Fund is authorized to make short sales of securities, although
it has no current intention of doing so. A short sale is a transaction
in which the Fund sells a security in anticipation that the market price
of that security will decline. The Fund may make short sales as a form
of hedging to offset potential declines in long positions in securities
it owns and in order to maintain portfolio flexibility. The Fund only
may make short sales "against the box." In this type of short sale, at the
time of the sale, the Fund owns the security it has sold short or has the
immediate and unconditional right to acquire the identical security
at no additional cost.
In a short sale, the seller does not immediately deliver the
securities sold and does not receive the proceeds from the sale. To
make delivery to the purchaser, the executing broker borrows the
securities being sold short on behalf of the seller. The seller is
said to have a short position in the securities sold until it delivers
the securities sold, at which time it receives the proceeds of the sale.
To secure its obligation to deliver securities sold short, the Fund
will deposit in a separate account with its custodian an equal amount of
the securities sold short or securities convertible into or
exchangeable for such securities at no cost. The Fund could close out
a short position by purchasing and delivering an equal amount of the
securities sold short, rather than by delivering securities already
held by the Fund, because the Fund might want to continue to receive
interest and dividend payments on securities in its portfolio that are
convertible into the securities sold short.
The Fund might make a short sale "against the box" in order to hedge
against market risks when LMC believes that the price of a security may
decline, causing a decline in the value of a security owned by the Fund
or a security convertible into or exchangeable for such security, or when
LMC wants to sell the security the Fund owns at a current attractive
price, but also wishes to defer recognition or gain or loss for federal
income tax purposes and for purposes of satisfying certain tests
applicable to regulated investment companies under the Internal
Revenue Code.
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 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 linked 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.
Covered Put and Call Options - Options may be used as a means of
participating in an anticipated price change of a security on a more
limited basis than would be possible if the security itself were purchased.
The Fund may write put options. The Fund would write put options only on
a covered basis, which means that the Fund would either (i) set aside cash,
U.S. government securities or other liquid, high-grade debt securities in
an amount not less than the exercise price at all times while the put
option is outstanding (the rules of the Options Clearing Corporation
currently require that such assets be deposited in escrow to secure payment
of the exercise price), (ii) sell short the security or currency underlying
the put option at the same or higher price than the exercise price of the
put option, or (iii) purchase a put option, if the exercise price of the
purchased put option is the same or higher than the exercise price of the
put option sold by the Fund. The Fund generally would write covered put
options in circumstances where LMC wishes to purchase the underlying
security or currency for the Fund's portfolio at a price lower than the
current market price of the security or currency. In such event, the Fund
would write a put option at an exercise price which, reduced by the premium
received on the option, reflects the lower price it is willing to pay.
Since the Fund also would receive interest on debt securities or currencies
maintained to cover the exercise price of the option, this technique could
be used to enhance current return during periods of market uncertainty.
The risk in such a transaction would be that the market price of the
underlying security or currency would decline below the exercise price less
the premiums received.
The Fund may write call options only on securities owned by the Fund
or securities which the Fund has the right to acquire without additional
consideration. Since it can be expected that a call option will be
exercised if the market value of the underlying security increases to a
level greater than the exercise price, this strategy will generally be used
when the investment adviser believes that the call premium received by the
Fund plus anticipated appreciation in the price of the underlying security,
up to the exercise price of the call, will be greater than the appreciation
in the price of the security.
The Fund intends to limit transactions as described in this paragraph
to those where the sum of initial margin deposits and premiums paid does
not exceed 5% of its total assets. The Fund will not write options in
excess of 25% of its total assets. The Fund will cause its custodian to
segregate cash, U.S. Government Securities or other high grade liquid debt
obligations having a value sufficient to meet the Fund's obligations under
the call options.
Futures and Options on Futures - The Fund may enter into interest
rate or currency futures contracts ("Futures" or "Futures Contracts") as
a hedge against changes in prevailing levels of interest rates or currency
exchange rates in order to establish more definitely the effective return
on securities or currencies held or intended to be acquired by the Fund.
The Fund's hedging may include sales of Futures as an offset against the
effect of expected increases in interest rates or currency exchange rates,
and purchases of Futures as an offset against the effect of expected
declines in interest rates or currency exchange rates.
The Fund will not enter into Futures Contracts for speculation and
the Fund only will enter into Futures Contracts which are traded on
national futures exchanges and are standardized as to maturity date and
underlying financial instrument. The principal interest rate and currency
Futures exchanges in the United States are the Board of Trade of the City
of Chicago and the Chicago Mercantile Exchange. Futures exchanges and
trading are regulated under the Commodity Exchange Act by the Commodity
Futures Trading Commission ("CFTC"). Futures are exchanged in London at
the London International Financial Futures Exchange. The Fund's Futures
transactions will be entered into for traditional hedging purposes; that
is, Futures Contracts will be sold to protect against a decline in the
price of securities or currencies that the Fund owns, or Futures Contracts
will be purchased to protect the Fund against an increase in the price of
securities or currencies it has committed to purchase or expects to
purchase.
An interest rate Futures Contract provides for the future sale by one
party and purchase by another party of a specified amount of a specific
financial instrument (debt security or currency) for a specified price at
a designated date, time and place. Brokerage fees are incurred when a
Futures Contract is bought or sold, and margin deposits must be maintained
at all times the Futures Contract is outstanding.
Although Futures Contracts typically require future delivery of and
payment for financial instruments or currencies, Futures Contracts usually
are closed out before the delivery date. Closing out an open Futures
Contract sale or purchase is effected by entering into an offsetting
Futures Contract purchase or sale, respectively, for the same aggregate
amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the original
sale price, the Fund realizes a gain; if it is more, the Fund realizes a
loss. Conversely, if the offsetting sale price is more than the original
purchase price, the Fund realizes a gain; if it is less, the Fund realizes
a loss. The transaction costs also must be included in these calculations.
There can be no assurance, however, that the Fund will be able to enter
into an offsetting transaction with respect to a particular Futures
Contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, the Fund will continue to be required to maintain
the margin deposits on the Futures Contract.
Options on Futures Contracts are similar to options on securities or
currencies except that options on Futures Contracts give the purchaser the
right, in return for the premium paid, to assume a position in a Futures
Contract (a long position if the option is a call and a short position if
the option is a put), rather than to purchase or sell the Futures Contract,
at a specified exercise price at any time during the period of the option.
Upon exercise of the option, the delivery of the Futures position by the
writer of the option to the holder of the option will be accompanied by
delivery of the accumulated balance in the writer's Futures margin account
which represents the amount by which the market price of the Futures
Contract, at exercise, exceeds (in the case of a call) or is less than (in
the case of a put) the exercise price of the option on the Futures
Contract. If an option is exercised on the last trading day prior to the
expiration date of the option, the settlement will be made entirely in cash
equal to the difference between the exercise price of the option and the
closing level of the securities, currencies or index upon which the Futures
Contracts are based on the expiration date. Purchasers of options who fail
to exercise their options prior to the exercise date suffer a loss of the
premium paid.
To reduce or eliminate the leverage then employed by the Fund, or to
reduce or eliminate the hedge position then currently held by the Fund, the
Fund may seek to close out an option position by selling an option covering
the same securities or contract and having the same exercise price and
expiration date. Trading in options on Futures Contracts began relatively
recently. The ability to establish and close out positions on such options
will be subject to the development and maintenance of a liquid secondary
market. It is not certain that this market will develop.
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.
The prices of Futures Contracts are volatile and are influenced,
among other things, by actual and anticipated changes in interest rates,
which in turn are affected by fiscal and monetary policies and national and
international political and economic events.
There is a risk of imperfect correlation between changes in prices
of Futures Contracts and prices of the securities or currencies in the
Fund's portfolio being hedged. The degree of imperfection of correlation
depends upon circumstances such as: variations in speculative market demand
for Futures and for debt securities or currencies, including technical
influences in Futures trading; and differences between the financial
instruments being hedged and the instruments underlying the standard
Futures Contracts available for trading, with respect to interest rate
levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a
well-conceived hedge may be unsuccessful to some degree because of
unexpected market behavior or interest rate trends.
Furthermore, in the case of a Futures Contract purchase, in order to
be certain that the Fund has sufficient assets to satisfy its obligations
under a Futures Contract, the Fund sets aside and commits to back the
Futures Contract an amount of cash, U.S. government securities and other
liquid, high grade debt securities equal in value to the current value of
the underlying instrument less margin deposit.
Repurchase Agreements - The Fund's investment portfolio may include
repurchase agreements ("repos")with banks and dealers in U.S. Government
securities. A repurchase agreement involves the purchase by the Fund of
an investment contract from a bank or a dealer in U.S. Government
securities which contract is secured by debt securities whose value
is equal to or greater than the value of the repurchase agreement
including the agreed upon interest. The agreement provides that the
institution will repurchase the underlying securities at an agreed upon
time and price. 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 total amount received on repurchase would
exceed the price paid by the Fund, reflecting an agreed upon rate of
interest for the period from the date of the repurchase agreement to
the settlement date, and would not be related to the interest rate
on the underlying securities. The difference between the total amount
to be received upon the repurchase of the securities and the price paid
by the Fund upon their acquisition is accrued daily as interest. If
the institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. In addition, if bankruptcy
proceedings are commenced with respect to the seller, realization
on the collateral by the Fund may be delayed or limited and the Fund
may incur additional costs. In such case the Fund will be subject to risks
associated with changes in the market value of the collateral securities.
The Fund 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 intends to limit repurchase agreements to
transactions with institutions believed by LMC to present minimal credit
risk.
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. The Fund
will maintain, in a segregated account with a custodian, cash, U.S.
government securities or other liquid, high grade debt securities in an
amount sufficient to cover its obligation under reverse repurchase
agreements.
Roll Transactions - The Fund also may engage in "roll" borrowing
transactions which involve the Fund's sale of fixed income securities
together with a commitment (for which the Fund may receive a fee) to
purchase similar, but not identical, securities at a future date. The Fund
will maintain, in a segregated account with a custodian, cash, U.S.
government securities or other liquid, high grade debt securities in an
amount sufficient to cover its obligation under "roll" transactions.
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.
Interest Rate and Currency and Currency Swaps
The Fund usually will enter into interest rate swaps on a net basis,
that is, the two payment streams are netted out in a cash settlement on the
payment date or dates specified in the instrument, with the Fund receiving
or paying, as the case may be, only the net amount of the two payments.
Inasmuch as swaps, caps, floors, collars and other derivative transactions
are entered into for good faith hedging purposes, LMC and the Fund believe
that they do not constitute senior securities under the 1940 Act and, thus,
will not treat them as being subject to the Fund's borrowing restrictions.
The Fund will not enter into any swap, cap, floor, collar or other
derivative transaction unless, at the time of entering into the
transaction, the unsecured long-term debt rating of the counterparty
combined with any credit enhancements is rated at least A by Moody's
Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") or has an equivalent rating from a nationally recognized
statistical rating organization or is determined to be of equivalent credit
quality by LMC. If a counterparty defaults, the Fund may have contractual
remedies pursuant to the agreements related to the transactions. The swap
market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market
has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed and, for that reason, they are less liquid than swaps.
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.
Emerging Countries
The Fund may invest in debt securities in emerging markets.
Investing in securities in emerging countries may entail greater risks than
investing in debt securities in developed countries. These risks include
(i) less social, political and economic stability; (ii) the small current
size of the markets for such securities and the currently low or
nonexistent volume of trading, which result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may
restrict the Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests;
(iv) foreign taxation; and (v) the absence of developed structures
governing private or foreign investment or allowing for judicial redress
for injury to private property.
Religious and Ethnic Instability
Certain countries in which the Fund may invest may have vocal
minorities that advocate radical religious or revolutionary philosophies
or support ethnic independence. Any disturbance on the part of such
individuals could carry the potential for wide-spread destruction or
confiscation of property owned by individuals and entities foreign to such
country and could cause the loss of the Fund's investment in those
countries.
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.
Investment Restrictions
- -----------------------
The Fund's investment policy, and the investment restrictions set
forth below, may not be changed without the affirmative vote (defined as
the lesser of: 67% of the shares represented at a meeting at which 50% of
the outstanding shares are present or 50% of the outstanding shares) of the
Fund's shareholders. These restrictions may be summarized as follows:
The Fund shall not:
(1) issue any senior security (as defined in the 1940 Act), except
that (a) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program,
including reverse repurchase agreements, delayed delivery and
when-issued securities, which may be considered the issuance
of senior securities to the extent permitted under applicable
regulations; (b) the Fund may engage in transactions that may
result in the issuance of a senior security to the extent
permitted under applicable regulations, the interpretation of
the 1940 Act or an exemptive order; (c) the Fund may engage in
short sales of securities to the extent permitted in its
investment program and other restrictions; (d) the purchase or
sale of futures contracts and related options shall not be
considered to involve the issuance of senior securities; and
(e) subject to fundamental restrictions, the Fund may borrow
money as authorized by the 1940 Act;
(2) 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,
and (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.
(3) underwrite securities of other issuers;
(4) concentrate its investments in a particular industry to an
extent greater than 25% of the value of its total assets,
provided that such limitation shall not apply to securities
issued or guaranteed by the U.S. Government or its agencies;
(5) 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 for hedging purposes, may engage in
transactions on a when-issued or forward commitment basis and
may enter into forward currency contracts. 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
issued by companies, including real estate investment trusts,
which deal in real estate or interests therein.
(6) make loans to other persons except: (a) through the purchase
of a portion or portions of an issue or issues of securities
issued or guaranteed by the U.S. Government or its agencies,
or (b) through investments in "repurchase agreements" (which
are arrangements under which the Fund acquires a debt security
subject to an obligation of the seller to repurchase it at a
fixed price within a short period), provided that no more than
5% of the Fund's assets may be invested in repurchase
agreements;
(7) purchase the securities of another investment company or
investment trust, except in the open market and then only if
no profit, other than the customary broker's commission,
results to a sponsor or dealer, or by merger or other
reorganization;
(8) buy securities from or sell securities (other than securities
issued by the Fund) to any of its officers, Trustees or LMC as
principal; (9) contract to sell any security or evidence of
interest therein, except to the extent that the same shall be
owned by the Fund;
(10) purchase or retain securities of an issuer when one or more of
the officers and Trustees of the Fund or of the investment
adviser, or a person owning more that 10% of the stock of
either, own beneficially more than 1/2 of 1% of the securities
of such issuer and such persons owning more than 1/2 of 1% of
such securities together own beneficially more than 5% of the
securities of such issuer;
(11) invest more than 5% of its total assets in the securities of
any one issuer (except securities issued or guaranteed by the
U.S. Government) except that such restriction shall not apply
to 50% of the Fund's portfolio;
(12) purchase any security if such purchase would cause the Fund to
own at the time of purchase more than 10% of the outstanding
voting securities of any one issuer;
(13) invest more than 15% of its net assets in illiquid securities.
Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days
and in the usual course of business without taking a materially
reduced price. Such securities include, but are not limited
to, time deposits and repurchase agreements with maturities
longer than seven days. Securities that may be resold under
Rule 144A or securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended, shall not be deemed
illiquid solely by reason of being unregistered. LMC shall
determine whether a particular security is deemed to be liquid
based on the trading markets for the specific security and
other factors; and
(14) invest in interest in oil, gas or other mineral exploration or
development programs.
The following investment policy of the Fund is not a fundamental
policy and may be changed by a vote of a majority of the Fund's Board of
Trustees without shareholder approval. 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.
Portfolio Transactions and Turnover
- -----------------------------------
Subject to policies established by the Fund's Board of Trustees, LMC
is responsible for the execution of the Fund's portfolio transactions and
the selection of broker/dealers that execute such transactions on behalf
of the Fund. In executing portfolio transactions, LMC seeks the best net
results for the Fund, taking into account such factors as the price
(including the applicable brokerage commission or dealer spread), size of
the order, difficulty of execution and operational facilities of the firm
involved. Although LMC generally seeks reasonably competitive commission
rates and spreads, payment of the lowest commission or spread is not
necessarily consistent with the best net results. While the Fund may
engage in soft dollar arrangements for research services, as described
below, the Fund has no obligation to deal with any broker/dealer or group
of broker/dealers in the execution of portfolio transactions.
Debt securities generally are traded on a "net" basis with a dealer
acting as principal for its own account without a stated commission,
although the price of the security usually includes a profit to the dealer.
U.S. and foreign government securities and money market instruments
generally are traded in the OTC markets. In underwritten offerings,
securities usually are purchased at a fixed price which includes an amount
of compensation to the underwriter. On occasion, securities may be
purchased directly from an issuer, in which case no commissions or
discounts are paid. Broker/dealers may receive commissions on futures,
currency and options transactions.
Consistent with the interests of the Fund, LMC may select brokers to
execute the Fund's portfolio transactions on the basis of the research and
brokerage services they provide to LMC for its use in managing the Fund and
its other advisory accounts. Such services may include furnishing
analyses, reports and information concerning issuers, industries,
securities, geographic regions, economic factors and trends, portfolio
strategy, and performance of accounts; and effecting securities
transactions and performing functions incidental thereto (such as clearance
and settlement). Research and brokerage services received from such
brokers are in addition to, and not in lieu of, the services required to
be performed by LMC under the Advisory Agreement (defined below). A
commission paid to such brokers may be higher than that which another
qualified broker would have charged for effecting the same transaction,
provided that LMC determines in good faith that such commission is
reasonable in terms either of that particular transaction or the overall
responsibility of LMC to the Fund and its other clients and that the total
commissions paid by the Fund will be reasonable in relation to the benefits
received by the Fund over the long term. Research services may also be
received from dealers who execute Fund transactions.
Investment decisions for the Fund and for other investment accounts
managed by LMC are made independently of each other in light of differing
conditions. However, the same investment decision occasionally may be made
for two or more of such accounts. In such cases, simultaneous transactions
may occur. Purchases or sales are then allocated as to price or amount in
a manner deemed fair and equitable to all accounts involved. While in some
cases this practice could have a detrimental effect upon the price or value
of the security as far as the Fund is concerned, in other cases LMC
believes that coordination and the ability to participate in volume
transactions will be beneficial to the Fund.
The Fund engages in portfolio trading when LMC concludes that the
sale of a security owned by the Fund and/or the purchase of another
security of better value can enhance principal and/or increase income.
A security may be sold to avoid any prospective decline in market value,
or a security may be purchased in anticipation of a market rise.
Consistent with the Fund's investment objectives, a security also may be
sold and a comparable security purchased coincidentally in order to take
advantage of what is believed to be a disparity in the normal yield and
price relationship between the two securities. Although the Fund generally
does not intend to trade for short-term profits, the securities in the
Fund's portfolio will be sold whenever LMC believes it is appropriate to
do so, without regard to the length of time a particular security may have
been held (except to the extent necessary to avoid non-compliance with the
"Short-Short Limitation" described below in "Taxes General"). The Fund
anticipates that its portfolio turnover rate will exceed 100%. A 100%
portfolio turnover rate would occur if the lesser of the value of purchases
or sales of portfolio securities for the Fund for a year (excluding
purchases of U.S. Treasury and other securities with a maturity at the date
of purchase of one year or less) were equal to 100% of the average monthly
value of the securities, excluding short-term investments, held by the Fund
during such year. Higher portfolio turnover involves correspondingly
greater brokerage commissions and other transaction costs that the Fund
will bear directly. The portfolio turnover rates for the Fund for the last
three fiscal years were as follows: 1996, 71.83%, 1997, 117.94% and 1998,
45.26%.
Management of the Fund
- ----------------------
The Fund's Trustees 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), TRUSTEE. 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), TRUSTEE. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor, formerly, Assistant Vice President and Securities Analyst,
Lexington Management Corporation.
*+ RICHARD M. HISEY (40), DIRECTOR and VICE PRESIDENT. P.O. Box 1515, Saddle
Brook, N.J. 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 Advisers, Inc.; Executive Vice President,
Chief Financial Officer and General Manager - Mutual Funds, Lexington Global
Asset Managers, Inc.
*+ LAWRENCE KANTOR (51), VICE PRESIDENT AND TRUSTEE. 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), TRUSTEE. 300 Raritan Center Parkway, Edison, N.J.
08818. General Counsel, Federal Business Center; Counsel, Ribis, Graham
&Curtin.
+ ANDREW M. MCCOSH (58), TRUSTEE. 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), TRUSTEE. 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), TRUSTEE. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston, Massachusetts.
*+ DENIS P. JAMISON (51), VICE PRESIDENT AND PORTFOLIO MANAGER. P.O. Box 1515,
Saddle Brook, NJ 07663. Senior Vice President, Director of Fixed Income
Investment Strategy, 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, Jamison,
Kantor, Lavery, Maher, McCosh, Miller, Preston and Stowe, 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 Trustees met 5 times during the twelve months ended
December 31, 1998, and each of the Trustees attended at least 75% of
those meetings.
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each
meeting of the Board of Trustee or any committee thereof up to a maximum
of $9,000 per year for Trustees living outside the U.S. and $6,000 per
year for Trustee living within the U.S. Each Trustee 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 Trustee
also serves as a Trustee of other investment companies advised by LMC.
Each Trustee receives a fee, allocated among all investment companies
for which the Trustee serves.
Set forth below is information regarding compensation paid or
accrued during the period January 1, 1998 to December 31, 1998 for each
Trustee:
- --------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION NUMBER OF
NAME OF TRUSTEE 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 $1,712 $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 Trustees 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
Trustee 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 will be eligible to serve as Honorary Trustees 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 Trustee upon retirement assuming various
compensation and years of service classifications. As of December 31,
1998, the estimated credited years of service for Trustees 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, the following persons are known by fund
management to have owned beneficially, directly or indirectly, 5% or more
of the outstanding shares of Lexington Global Income Fund.: Smith
Richardson Foundation, 60 Jesup Road, Westport, CT 06880, 34%.
Investment Adviser, Distributor and Administrator
- -------------------------------------------------
The Fund has entered into an investment advisory contract with LMC,
P.O. Box 1515, Park 80 West Plaza Two, Saddle Brook, New Jersey 07663.
LMC, as such provides investment advice and in general conducts the
management and investment program of the Fund under the supervision and
control of the Trustees of the Fund.
Pursuant to an investment advisory agreement, the Fund pays LMC an
investment advisory fee of 1% of the Fund's average net asset value, after
deduction of Fund expenses, if any, in excess of the expense limitations
set forth below. The fee is computed on the basis of current net assets
at the end of each business day and is payable at the end of each month.
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.
For the fiscal years ended December 31, 1996, 1997 and 1998, the Fund paid
$175,988, $212,446 and $317,877 respectively, in investment advisory fees
to LMC, and the Fund was reimbursed $145,984, 141,233 and $125,346,
respectively.
Lexington Management Corporation has agreed to voluntarily limit the
total operating expenses of the Fund (excluding interest, taxes, brokerage
and extraordinary expenses, but including management fee and operating
expenses) to an annual rate of 2.50% of the Fund's average net assets
through April 30, 2000 or such later date to be determined by Lexington
Management Corporation.
Under the terms of the investment advisory agreement, LMC also pays
the Fund's expenses for a trading function to place orders for the purchase
and sale of portfolio securities for the Fund; office rent, utilities,
telephone, furniture and supplies utilized at the Fund's principal office;
salaries and payroll expenses of persons serving as officers or Trustees
of the Fund who are also employees of LMC or any of its affiliates.
Any of the other expenses incurred in the operation of the Fund shall
be borne by the Fund, including, among other things, fees of its custodian,
transfer and shareholder servicing agent; cost of pricing and calculating
its daily net asset value and of maintaining its books and accounts
required by the Investment Company Act of 1940; expenditures in connection
with meetings of the Fund's Trustees and shareholders, except those called
to accommodate LMC; fees and expenses of Trustees who are not affiliated
with or interested persons of LMC; in maintaining registration of its
shares under state securities laws or in providing shareholder and dealer
services; insurance premiums on property or personnel of the Fund which
inure to its benefit; costs of preparing and printing reports, proxy
statements and prospectuses of the Fund for distribution to its
shareholders; legal, auditing and accounting fees; fees and expenses of
registering and maintaining registration of its shares for sales under
Federal and applicable state securities laws; and all other expenses in
connection with issuance, registration and transfer of its shares.
LMC's services are provided and investment advisory its fee is paid
pursuant to an agreement which will automatically terminate if assigned and
which may be terminated by either party upon 60 days' notice. The terms
of the Agreement must be approved by shareholders of the Fund at the first
annual meeting, and any renewal thereof as to the Agreement must be
approved at least annually by a majority of the Fund's Board of Trustees,
including a majority of Trustees 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 also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and
provides facilities for such services. The Fund shall reimburse LMC for
its actual cost in providing such services, facilities and expenses.
LMC serves as investment adviser to other investment companies as
well as private and institutional investment clients. Included among these
clients are persons and organizations which own significant amounts of
capital stock of LMC's parent company Piedmont Management Company Inc.
These clients pay fees which LMC considers comparable to the fee levels for
similarly served clients.
LMC's accounts are managed independently with reference to applicable
investment objectives and current security holdings, but on occasion more
than one fund or counsel account may seek to engage in transactions in the
same security at the same time. To the extent practicable, such
transactions will be effected on a pro rata basis in proportion to the
respective amounts of securities to be bought and sold for each portfolio,
and the allocated transactions will be averaged as to price. While this
procedure may adversely affect the price or volume of a given Fund
transaction, the ability of the Fund to participate in combined
transactions may generally produce better overall executions.
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 Trustees, including a majority who are not "interested persons."
Of the Trustees, executive officers and employees ("affiliated
persons") of the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey,
Jamison, Kantor, Lavery and Mmes. Carnicelli, Carr-Waldron, Curcio, Dubis,
Gilfillan, Lederer and Mosca (see "Management of the Trust") may also be
deemed affiliates of LMC by virtue of being officers, Trustees or employees
thereof. As of February 28, 1999, all officers and Trustees of the Fund
as a group, were beneficial owners of less than 1% of the shares of the
Fund.
LMC and LFD are wholly-owned subsidiaries of Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson,
Sr., their spouses, trusts and other related entities have a majority
voting control of outstanding shares of Lexington Global Asset Managers,
Inc. common stock.
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.
The Fund's portfolio securities and other assets are valued as
follows:
Long-term debt obligations are valued at the mean of representative
quoted bid or asked prices for such securities or, if such prices are not
available, at prices for securities of comparable maturity, quality and
type; however, when LMC deems it appropriate, prices obtained for the day
of valuation from a bond pricing service will be used. Short-term debt
investments are amortized to maturity based on their cost, adjusted for
foreign exchange translation, provided such valuation represents fair
value.
Options on currencies purchased by the Fund are valued at their last
bid price in the case of listed options or at the average of the last bid
prices obtained from dealers in the case of OTC options. The value of each
security denominated in a currency other than U.S. dollars will be
translated into U.S. dollars at the prevailing market rate as determined
by LMC on that day.
Securities and assets for which market quotations are not readily
available (including restricted securities which are subject to limitations
as to their sale) are valued at fair value as determined in good faith by
or under the direction of the Fund's Board of Trustees. The valuation
procedures applied in any specific instance are likely to vary from case
to case. However, consideration is generally given to the financial
position of the issuer and other fundamental analytical data relating to
the investment and to the nature of the restrictions on disposition of the
securities (including any registration expenses that might be borne by the
Fund in connection with such disposition). In addition, specific factors
also are generally considered, such as the cost of the investment, the
market value of any unrestricted securities of the same class (both at the
time of purchase and at the time of valuation), the size of the holding,
the prices of any recent transactions or offers with respect to such
securities and any available analysts' reports regarding the issuer.
The fair value of any other assets is added to the value of all
securities positions to arrive at the value of the Fund's total assets.
The Fund's liabilities, including accruals for expenses, are deducted from
its total assets. Once the total value of the Fund's net assets is so
determined, that value is then divided by the total number of shares
outstanding (excluding treasury shares), and the result, rounded to the
nearest cent, is the net asset value per share.
Any assets or liabilities initially denominated in terms of foreign
currencies are translated into U.S. dollars at the official exchange rate
or at the mean of the current bid and asked prices of such currencies
against the U.S. dollar last quoted by a major bank that is a regular
participant in the foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such
major banks. If none of these alternatives are available or none are
deemed to provide a suitable methodology for converting a foreign currency
into U.S. dollars, management at the direction of the Board of Trustees,
in good faith, will establish a conversion rate for such currency.
European, Far Eastern or Latin American securities trading may not
take place on all days on which the NYSE is open. Further, trading takes
place in Japanese markets on certain Saturdays and in various foreign
markets on days on which the NYSE is not open. Consequently, the
calculation of the Fund's respective net asset values therefore may not
take place contemporaneously with the determination of the prices of
securities held by the Fund. Events affecting the values of portfolio
securities that occur between the time their prices are determined and the
close of regular trading on the NYSE will not be reflected in the Fund's
net asset value unless LMC, under the supervision of the Fund's Board of
Trustees, determines that the particular event would materially affect net
asset value. As a result, the Fund's net asset value may be significantly
affected by such trading on days when a shareholder cannot purchase or
redeem shares of the Fund.
Distribution Plan
- -----------------
The Fund has adopted a Distribution Plan (the "Plan") in
accordance with Rule 12b-1 under the Investment Company Act of 1940,
which provides that the Fund may pay distribution fees including
payments to the Distributor, at an annual rate not to exceed 0.25% of its
average daily net assets for distribution services.
Distribution payments will be made as follows: The Fund, either
directly or through the Adviser, may make payments periodically (i) to the
Distributor or to any broker-dealer (a "Broker") who is registered under
the Securities Exchange Act of 1934 and a member in good standing of
the National Association of Securities Dealers, Inc. and who has
entered into a Selected Dealer Agreement with the Distributor, (ii) to
other persons or organizations ("Servicing Agents") who have entered
into shareholder processing and service agreements with the Adviser or
with the Distributor, with respect to Fund shares owned by shareholders
for which such Broker is the dealer or holder of record or such
servicing agent has a servicing relationship, or (iii) for expenses
associated with distribution of Fund shares, including the
compensation of the sales personnel of the Distributor; payments of no
more than an effective annual rate of 0.25%, or such lesser amounts as
the Distributor determines appropriate. Payments may also be made for
any advertising and promotional expenses relating to selling efforts,
including but not limited to the incremental costs of printing
prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to persons who are not
shareholders of the Fund; the costs of preparing and distributing
any other supplemental sales literature; costs of radio,
television, newspaper and other advertising; telecommunications
expenses, including the cost of telephones, telephone lines and other
communications equipment, incurred by or for the Distributor in carrying
out its obligations under the Distribution Agreement.
Quarterly, in each year that this Plan remains in effect, the
Fund's Treasurer shall prepare and furnish to the Directors of the
Fund a written report, complying with the requirements of Rule 12b-1,
setting forth the amounts expended by the Fund under the Plan and
purposes for which such expenditures were made.
The Plan shall become effective upon approval of the Plan, the
form of Selected Dealer Agreement and the form of Shareholder Service
Agreement, by the majority votes of both (a) the Fund's Directors and the
Directors who are not interested persons (as defined in Section 2(a)(19)
of the 1940 Act) of the Fund and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the
Plan (the "Qualified Directors"), cast in person at a meeting called for
the purpose of voting on the Plan and (b) the outstanding voting
securities of the Fund, as defined in Section 2(a)(42) of the 1940 Act.
The Plan shall remain in effect for one year from its adoption date
and may be continued thereafter if the Plan and all related agreements are
approved at least annually a majority vote of the Directors of the
Fund, including a majority of the Qualified Directors cast in person
at a meeting called for the purpose of voting on such Plan and agreements.
This Plan may not be amended in order to increase materially the amount to
be spent for distribution assistance without shareholder approval. All
material amendments to this Plan must be approved by a vote of the
Directors of the Fund, and of the Qualified Directors, cast in person at
a meeting called for the purpose of voting thereon.
The Plan may be terminated at any time by a majority vote of the
Qualified Directors who have no direct or indirect financial interest in
the operation of the Plan or in any agreements related to the Plan or by
vote of a majority of the outstanding voting securities of the Fund, as
defined in Section 2(a)(42) of the 1940 Act.
While the Plan is in effect, the selection and nomination of
the"non-interested" Directors of the Fund will be committed to the
discretion of the Qualified Directors then in office.
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 semi-annual dividends 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 for federal income tax purposes 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.
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. However, gain
recognized on the disposition of a debt obligation purchased by the Fund
at a market discount (generally, at a price less than its principal amount)
will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the
debt obligation.
In general, for purposes of determining whether capital gain
or loss recognized by the Fund on the disposition of an asset is long-term
or short-term, the holding period of the asset may be affected if (1) the
asset is used to close a "short sale" (which includes for certain purposes
the acquisition of a put option) or is substantially identical to another
asset so used, (2) the asset is otherwise held by the Fund as part of a
"straddle" (which term generally excludes a situation where the asset is
stock and the Fund grants a qualified covered call option (which, among
other things, must not be deep-in-the-money) with respect thereto) or (3)
the asset is stock and the Fund grants an in-the-money qualified covered
call option with respect thereto. In addition, the Fund may be required
to defer the recognition of a loss on the disposition of an asset held as
part of a straddle to the extent of any unrecognized gain on the offsetting
position.
Any gain recognized by the Fund on the lapse of, or any gain
or loss recognized by the Fund from a closing transaction with respect to,
an option written by the Fund will be treated as a short-term capital gain
or loss.
Certain transactions that may be engaged in by the Fund (such
as regulated futures contracts and options on futures contracts) will be
subject to special tax treatment as "Section 1256 contracts." Section 1256
contracts are treated as if they are sold for their fair market value on
the last business day of the taxable year, even though a taxpayer's
obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as
of such date. Any gain or loss recognized as a consequence of the year-end
deemed disposition of Section 1256 contracts is taken into account for the
taxable year together with any other gain or loss that was previously
recognized upon the termination of Section 1256 contracts during that
taxable year. Any capital gain or loss for the taxable year with respect
to Section 1256 contracts (including any capital gain or loss arising as
a consequence of the year-end deemed sale of such contracts) is generally
treated as 60% long-term capital gain or loss and 40% short-term capital
gain or loss. The Fund, however, may elect not to have this special tax
treatment apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of the Fund that are not Section 1256
contracts.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) for any taxable year, to elect (unless it made a taxable year
election for excise tax purposes as discussed below) to treat all or any
part of any net capital loss, any net long-term capital loss or any net
foreign currency loss incurred after October 31 as if it had been incurred
in the succeeding year.
In addition to satisfying the requirements described above, the
Fund must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each
quarter of the Fund' taxable year, at least 50% of the value of the Fund'
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to each of which the Fund has not invested more than 5% of the
value of the Fund' 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 (call or put) with
respect to a security is treated as issued by the issuer of the security,
not the issuer of the option. However, with regard to forward currency
contracts, there does not appear to be any formal or informal authority
which identifies the issuer of such instrument. For purposes of asset
diversification testing, obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government such as the Government National
Mortgage Corporation, the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan
Bank, the Federal Home Loan Mortgage Corporation, the Federal National
Mortgage Association, and the Student Loan Marketing Association are
treated as U.S. Government securities.
If for any taxable year the Fund does not qualify as a
regulated investment company, all of its taxable income (including its net
capital gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will
be taxable to the shareholders as ordinary dividends to the extent of the
Fund' current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends-received deduction in the case
of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated
investment company that fails to distribute in each calendar year an amount
equal to 98% of ordinary taxable income for the calendar year and 98% of
capital gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having
a taxable year ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a regulated
investment company is treated as having distributed any amount on which it
is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company
shall: (1) reduce its capital gain net income (but not below its net
capital gain) by the amount of any net ordinary loss for the calendar year;
and (2) exclude foreign currency gains and losses incurred after October
31 of any year (or after the end of its taxable year if it has made a
taxable year election) in determining the amount of ordinary taxable income
for the current calendar year (and, instead, include such gains and losses
in determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise
tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its
investment company taxable income for each taxable year. Such
distributions will be taxable to shareholders as ordinary income and
treated as dividends for federal income tax purposes, but they will not
qualify for the 70% dividends-received deduction for corporate
shareholders.
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 the shareholder
has held his shares or whether such gain was recognized by the Fund prior
to the date on which the shareholder acquired his shares.
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 the assets held by the
Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically
constitute a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by
the Fund into account in the year in which 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 a 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) to them during the year.
The Fund will be required in certain cases to withhold and
remit to the U.S. Treasury 31% of ordinary income dividends and capital
gain dividends, and the proceeds of redemption of shares, paid to any
shareholder (1) who has failed to provide a correct taxpayer identification
number, (2) who is subject to backup withholding for failure properly to
report the receipt of interest or dividend income, or (3) who has failed
to certify to the Fund that it is not subject to backup withholding or that
it is an "exempt recipient" (such as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or
redemption of shares of the Fund in an amount equal to the difference
between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so
recognized may be disallowed if the shareholder purchases other shares of
the Fund within 30 days before or after the sale or redemption. In
general, any gain or loss arising from (or treated as arising from) the
sale or redemption of shares of the Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale
or redemption of shares held for six months or less will be treated as a
long-term capital loss to the extent of the amount of capital gain
dividends received on such shares. For this purpose, the special holding
period rules of Code Section 246(c)(3) and (4) generally will apply in
determining the holding period of shares. 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 the shareholder will be subject to U.S.
withholding tax at the rate of 30% (or lower applicable treaty rate) on the
gross amount of the dividend. Such a foreign shareholder would generally
be exempt from U.S. federal income tax on gains realized on the sale or
redemption of shares of the Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a
U.S. trade or business carried on by a foreign shareholder, then ordinary
income and capital gain dividends received in respect of, and any gains
realized upon the sale of, shares of the Fund will be subject to U.S.
federal income tax at the rates applicable to U.S. 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 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 dividends
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 investment in the
Fund.
Performance Calculation
- -----------------------
For purposes of quoting and comparing the performance of the Fund to
that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in
terms of total returns and yield. Under the rules of the Securities and
Exchange Commission ("SEC rules"), funds advertising performance must
include total return quotes calculated according to the following formula:
P(l+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the 1, 5
or 10 year periods 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 Funds' Registration Statement. 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 a
Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Standard & Poor's 500 Stock Index or
the Dow Jones Industrial Average, the Fund calculates its aggregate total
return for the specified periods of time by assuming the investment of
$10,000 in Fund shares and assuming the reinvestment of each dividend or
other distribution at net asset value on the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment
from the ending value and by dividing the remainder by the beginning value.
Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under the
SEC rules.
Prior to January, 1995, the Fund was managed under a different
investment objective. The Fund's average annual total return for the one,
five and ten year period ended December 31, 1998 are 8.21%, 7.65% and
7.96%, respectively.
In addition to the total return quotations discussed above, the Fund
may advertise its yield based on a 30-day (or one month) period ended on
the date of the most recent balance sheet included in the Fund's
Registration Statement, computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
YIELD = 2 [ a-b - 1 ]
(cd + 1)6
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the
period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
Under this formula, interest earned on debt obligations for purposes
of "a" above, is calculated by (1) computing the yield to maturity of each
obligation held by a Fund based on the market value of the obligation
(including actual accrued interest) at the close of business on the last
day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest), (2) dividing that
figure by 360 and multiplying the quotient by the market value of the
obligation (including actual accrued interest as referred to above) to
determine the interest income on the obligation for each day of the
subsequent month that the obligation is held by the Fund (assuming a month
of 30 days) and (3) computing the total of the interest earned on all debt
obligations and all dividends accrued on all equity securities during the
30-day period. In computing dividends accrued, dividend income is
recognized by accruing 1/360 of the stated dividend rate of a security each
day that the security is held by the Fund. Undeclared earned income,
computed in accordance with generally accepted accounting principles, may
be subtracted from the maximum offering price calculation required pursuant
to "d" above.
The Fund may also from time to time advertise its yield based on a
90-day period ended on the date of the most recent balance sheet included
in the Fund's Registration Statement, computed in accordance with the yield
formula described above, as adjusted to conform with the differing period
for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based
on a 30-day or 90-day period) will be given no greater prominence than the
information prescribed under SEC rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing
that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
Custodian, Transfer Agent and Dividend Disbursing Agent
- -------------------------------------------------------
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York,
New York 10036 has been retained to act as the Custodian for the
Fund's portfolio securities including those to be held by foreign banks
and foreign securities depositories which qualify as eligible foreign
custodians under the rules adopted by the S.E.C. and for the Fund's
domestic securities and other assets. State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02181, has been
retained to act as the transfer agent and dividend disbursing agent.
Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust
Company have any part in determining the investment policies of the Fund
or in determining which portfolio securities are to be purchased or sold
by the Fund or in the declaration of dividends and distributions.
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 RAMIREZ GLOBAL INCOME FUND
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
PRINCIPAL
AMOUNT VALUE
OR SHARES SECURITY (NOTE 1)
- ------------------------------------------------------------------------------
LONG-TERM DEBENTURES: 91.8%
GOVERNMENT OBLIGATIONS: 54.6%
ARGENTINA: 5.5%
$ 2,200,000 Republic of Argentina,
9.75%, due 09/19/27 ..................... $1,988,849
----------
BRAZIL: 3.9%
2,355,240 Republic of Brazil, "C" Bond,
5.00%, due 04/15/14 ..................... 1,413,144
----------
DOMINICAN REPUBLIC: 2.2%
1,200,000 Central Bank of Dominican Republic,
Floating Rate Note,
6.625%, due 08/30/24 .................... 798,000
----------
ECUADOR: 1.6%
1,100,000 Government of Ecuador,
Floating Rate Note,
6.625%, due 02/28/25 .................... 580,250
----------
GREECE: 10.2%
500,000,000 * Hellenic Republic,
9.80%, due 03/21/00 ..................... 1,780,952
310,000,000 * Hellenic Republic,
Floating Rate Note,
13.10%, due 10/23/03 .................... 1,136,867
200,000,000 * Hellenic Republic,
8.80%, due 06/19/07 ..................... 796,667
----------
3,714,486
----------
HUNGARY: 5.3%
200,000,000* Government of Hungary,
21.00%, due 10/24/99 .................... 964,938
200,000,000* Government of Hungary,
16.00%, due 11/24/00 .................... 950,352
----------
1,915,290
----------
KOREA: 2.8%
1,000,000 Republic of Korea,
8.75%, due 04/15/03 ..................... 1,021,080
----------
MEXICO: 2.1%
1,000,000 United Mexican States,
6.25%, due 12/31/19 ..................... 775,000
1,000,000 United Mexican States (Rights) .......... -
----------
775,000
----------
NORWAY: 3.7%
10,000,000 * Government of Norway,
7.00%, due 05/31/01 ..................... 1,345,363
----------
PHILIPPINES: 2.9%
40,000,000 * Republic of the Philippines,
18.50%, due 05/07/00 .................... 1,055,929
----------
PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
=============== ================================== =============
POLAND: 6.8%
4,500,000* Government of Poland,
12.00%, due 06/12/01 ............. $1,296,137
4,000,000* Government of Poland,
12.00%, due 02/12/03 ............. 1,175,745
----------
2,471,882
----------
SOUTH AFRICA: 2.5%
5,100,000* Electricity Supply Commission
(ESKOM),
11.00%, due 06/01/08 ............. 645,793
2,000,000* Republic of South Africa,
12.00%, due 02/28/05 ............. 288,546
----------
934,339
----------
UNITED KINGDOM: 4.6%
1,000,000 * Government of United Kingdom
Treasury Bond,
6.00%, due 08/10/99 .............. 1,669,564
----------
UNITED STATES: 0.5%
$ 300,000 U.S. Strip Bond,
0.00%, due 11/15/08 .............. 184,689
----------
TOTAL GOVERNMENT OBLIGATIONS
(cost $20,905,790)................ 19,867,865
----------
CORPORATE BONDS: 37.2%
ARGENTINA: 2.5%
1,000,000 Compagnie De Radiocomunicaciones
Moviles SA,
9.25%, due 05/08/081,2 ........... 905,169
----------
CANADA: 0.9%
500,000* Rogers Communications, Inc.,
10.50%, due 02/14/06 ............. 344,251
----------
CZECH REPUBLIC: 4.0%
12,500,000 * CEZ, A.S.,
11.30%, due 06/06/05 ............. 422,201
30,000,000 * International Finance Corporation,
24.00%, due 10/12/99 ............. 1,039,207
----------
1,461,408
----------
DENMARK: 9.8%
3,482,000 * Danske Kredit,
6.00%, due 10/01/29 .............. 534,527
4,900,000 * Nykredit A/S,
6.00%, due 10/01/29 .............. 755,671
4,700,000 * Realkredit Danmark A/S,
6.00%, due 10/01/29 ............. 724,088
9,995,000 * Unikredit Realkredit,
6.00%, due 10/01/29 ............. 1,532,462
----------
3,546,748
----------
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
============= ======================================= =============
CORPORATE BONDS (CONTINUED):
DOMINICAN REPUBLIC: 3.4%
$1,500,000 Tricom, S.A.,
11.375%, due 09/01/04 ................. $ 1,233,750
-----------
MEXICO: 3.0%
1,000,000 Cemex SA,
12.75%, due 07/15/06 .................. 1,101,350
-----------
UNITED STATES: 13.6%
564,778 ABN-AMRO Mortgage Corporation,
Series 1998-1, Class B4,
6.7079%, due 04/25/281 ................ 367,635
561,608 BA Mortgage Securities, Inc.,
Series 1997-2, Class B4,
7.25%, due 10/25/271 .................. 333,630
1,000,000 Chiquita Brands International Inc.,
10.25%, due 11/01/06 .................. 1,042,500
950,000 Clark Materials Handling Company,
Senior Note, Series D,
10.75%, due 11/15/06 .................. 983,250
186,344 DLJ Mortgage Acceptance Corporation,
Series 1996-I, Class B4,
7.25%, due 09/25/111, 2 ............... 144,183
925,926 Norwest Asset Securities Corporation,
Series 1997-6, Class B4,
7.50%, due 05/25/271,2 ................ 605,613
692,808 PNC Mortgage Securities Corporation,
Series 1997-5, Class B5,
7.25%, due 10/25/271,2 ................ 452,274
694,774 PNC Mortgage Securities Corporation,
Series 1998-2, Class VB5,
6.625%, due 03/25/281,2 ............... 424,464
1,498,836 PNC Mortgage Securities Corporation,
Series 1998-11, Class 1B6,
6.50%, due 11/25/281,2 ................ 326,465
300,147 Residential Asset Securitization Trust,
Series 1997-A6, Class B4,
7.25%, due 09/25/121,2 ................ 279,043
-----------
4,959,057
-----------
TOTAL CORPORATE BONDS
(cost $13,983,516)..................... 13,551,733
-----------
TOTAL LONG-TERM DEBENTURES
(cost $34,889,306)..................... 33,419,598
-----------
SHORT-TERM INVESTMENTS: 5.6%
TURKEY: 4.0%
600,000,000,000* Government of Turkey Treasury Bills,
0.00%, due 05/05/99 .................... $ 1,443,309
-----------
UNITED STATES: 1.6%
$ 600,000 U.S. Treasury Bills,
4.25%, due 02/04/99 .................... 597,591
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,160,833)....................... 2,040,900
-----------
TOTAL INVESTMENTS: 97.4%
(cost $37,050,139+) (Note 1)............ 35,460,498
Other assets in excess of
liabilities: 2.6% ...................... 946,064
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $10.36 per share on
3,512,625 shares outstanding) .......... $36,406,562
===========
* Principal amount represents local currency.
1 Restricted Security (Note 8).
2 Illiquid Security (Note 9).
+ Aggregate cost for Federal income tax purposes is $37,050,269.
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $37,050,139) (Note 1)...................................... $35,460,498
Cash .................................................................................. 14,041
Receivable for shares sold ............................................................ 30,411
Interest receivable ................................................................... 1,161,672
-----------
Total Assets ...................................................................... 36,666,622
-----------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ...................................... 40,627
Payable for shares redeemed ........................................................... 10,076
Distributions payable ................................................................. 161,892
Accrued expenses ...................................................................... 47,465
-----------
Total Liabilities ................................................................. 260,060
-----------
NET ASSETS (equivalent to $10.36 per share on
3,512,625 shares outstanding) (Note 4) ............................................... $36,406,562
===========
NET ASSETS consist of:
Additional paid-in capital (Note 1) ................................................... $37,956,461
Distributions in excess of net investment income (Note 1) ............................. (134,882)
Accumulated net realized gain on investments and foreign currency transactions
(Note 1) ............................................................................. 162,854
Unrealized depreciation of investments and foreign currency translation of other assets
and liabilities ...................................................................... (1,577,871)
-----------
TOTAL NET ASSETS .................................................................. $36,406,562
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest ............................................................... $ 4,219,398
Less: foreign tax expense .............................................. 123,887
------------
Total investment income ............................................... $ 4,095,511
EXPENSES
Investment advisory fee (Note 2) ...................................... 317,877
Distribution expenses (Note 3) ........................................ 49,456
Transfer agent and shareholder servicing expenses (Note 2) ............ 40,051
Custodian expenses .................................................... 38,959
Printing and mailing expenses ......................................... 36,168
Professional fees ..................................................... 35,316
Accounting expenses (Note 2) .......................................... 22,214
Registration fees ..................................................... 19,947
Directors' fees and expenses .......................................... 17,433
Computer processing fees .............................................. 8,417
Other expenses ........................................................ 16,311
------------
Total expenses. ...................................................... 602,149
Less: expenses recovered under contract with
investment adviser (Note 2) ......................................... 125,346 476,803
------------ ------------
Net investment income. ............................................... 3,618,708
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 5)
Net realized gain (loss) on:
Investments .......................................................... 690,546
Foreign currency transactions ........................................ (847,222)
------------
Net realized loss ................................................... (156,676)
Net change in unrealized depreciation on:
Investments .......................................................... (1,138,403)
Foreign currency translation of other assets and liabilities ......... (3,093)
------------
Net change in unrealized depreciation ............................... (1,141,496)
------------
Net realized and unrealized loss .................................. (1,298,172)
------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ....................... $ 2,320,536
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997
<TABLE>
<S> <C> <C>
1998 1997
------------ ------------
Net investment income ..................................................... $ 3,618,708 $ 2,052,118
Net realized gain (loss) from investments and foreign currency
transactions ............................................................ (156,676) 94,293
Net change in unrealized depreciation of investments and foreign
currency translation .................................................... (1,141,496) (1,154,451)
------------ ------------
Increase in net assets resulting from operations ....................... 2,320,536 991,960
Distributions to shareholders from net investment income (Note 1) ......... (2,758,226) (1,746,581)
Distributions to shareholders from net realized gains from
security transactions (Note 1) .......................................... (624,804) (556,566)
Increase (decrease) in net assets from capital share
transactions (Note 4) ................................................... 13,801,323 (4,130,900)
------------ ------------
Net increase (decrease) in net assets .................................. 12,738,829 (5,442,087)
NET ASSETS:
Beginning of period ...................................................... 23,667,733 29,109,820
------------ ------------
End of period (including distributions in excess of net investment
income of $134,882 and $148,142 in 1998 and 1997,
respectively) ........................................................... $ 36,406,562 $ 23,667,733
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington Ramirez Global Income Fund (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 high current
income. Capital appreciation is a secondary objective. 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. Long-term debt obligations held by the Fund are
valued at the mean of representative quoted bid and asked prices for such
securities or, if such prices are not available, at prices for securities of
comparable maturity, quality and type; however, when LMC deems it appropriate,
prices obtained for the day of valuation from a bond pricing service will be
used. Short-term debt investments are amortized to maturity based on their cost,
adjusted for foreign exchange translation. Equity securities are valued at the
last sale price on the exchange, as of the close of business on the day the
securities are being valued. In the absence of any sales, securities are valued
at the mean of the last available bid and asked prices. Securities traded on the
over-the-counter market are valued at the mean between the last current bid and
asked prices. Securities for which market quotations are not readily available
and other assets are valued by Fund management in good faith under the direction
of the Fund's Board of Directors. All investments quoted in foreign currencies
are valued in U.S. dollars on the basis of the foreign currency exchange rates
prevailing at the close of business. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income, adjusted for
amortization of premiums and accretion of discounts, is accrued as earned.
FOREIGN CURRENCY TRANSACTIONS Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
closed and are reported in the statement of operations.
The Fund authorizes its custodian to place and maintain debt obligations 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. At December 31, 1998, the Fund had no forward
foreign currency contracts outstanding.
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.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
DISTRIBUTIONS Dividends from net investment income are normally declared
and paid quarterly and dividends from net realized capital gains are normally
declared and paid annually. However, the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code. The character of income and gains to be distributed are determined
in accordance with income tax regulations that 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. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with MFR Advisors Inc. ("MFR") under which MFR provides
the Fund with investment management services. Pursuant to the terms of the
sub-advisory contract between LMC and MFR, LMC pays MFR a monthly sub-advisory
fee at the annual rate of 0.35% of the Fund's average daily net assets in excess
of $15 million. For 1998, LMC has voluntarily agreed to limit the total expenses
of the Fund (including management fee, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) to an annual rate of 1.50% of the Fund's
average daily net assets. Total reimbursement was $125,346 for the year ended
December 31, 1998, and is set forth in the statement of operations.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $49,851, which are incurred by the Fund, but paid
by LMC.
3. DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") which allows payments to
finance activities associated with the distribution of the Fund's shares. The
Plan provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1998, were $49,456 and are set forth in the statement of operations.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1997
---------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 2,249,211 $ 24,156,657 1,230,549 $ 13,579,416
Shares issued on reinvestment of dividends ......... 290,497 3,013,322 259,657 2,825,735
--------- ------------- --------- -------------
2,539,708 27,169,979 1,490,206 16,405,151
Shares redeemed .................................... (1,263,118) (13,368,656) (1,848,616) (20,536,051)
---------- ------------- ---------- -------------
Net increase (decrease) ............................ 1,276,590 $ 13,801,323 (358,410) $ (4,130,900)
========== ============= ========== =============
</TABLE>
5. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1998, excluding short-term securities, were $27,022,134 and
$13,521,199, 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
$1,121,253 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,711,024.
6. INVESTMENT AND CONCENTRATION RISKS
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since foreign securities may be denominated in a foreign
currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/or credit risk
of the investments.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the potential inability of counterparties to
meet the terms of their contracts.
7. OPTION CONTRACTS
When the Fund writes a call option, an amount equal to the premium received by
the Fund is recorded as a liability, the value of which is marked-to-market
daily. When a written option expires, the Fund realizes a gain equal to the
amount of the premium received. When the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of the closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is eliminated. When a written call option
is exercised, the cost of the security sold will be decreased by the premium
originally received. The risk in writing a covered call option is that the Fund
gives up the opportunity to participate in any increase in the price of the
underlying security beyond the exercise price.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
7. OPTION CONTRACTS (continued)
The following written call option transactions occurred during the year ended
December 31, 1998:
<TABLE>
<CAPTION>
Number of
Premiums Contracts
------------ ----------
<S> <C> <C>
Options written, outstanding at December 31, 1997 ............... $ 42,218 1
Options written during the year ended December 31, 1998 ......... 94,645 3
Options exercised ............................................... (65,611) (2)
Options expired ................................................. (71,252) (2)
-------- ----
Options written, outstanding at December 31, 1998 ............... $ -- --
======== ====
</TABLE>
8. RESTRICTED SECURITIES
The following securities were purchased under Rule 144A of the Securities Act of
1933 and, unless registered under the Act or exempted from registration, may be
sold only to qualified institutional investors.
<TABLE>
<CAPTION>
Acquisition Principal Market Percent of
Security Date Amount Value Net Assets
- -------------------------------------------- ------------- ------------ ------------- -----------
<S> <C> <C> <C> <C>
ABN-AMRO Mortgage Corporation,
Series 1998-1, Class B4,
6.7079%, due 04/25/28 ..................... 03/05/98 $ 564,778 $ 367,635 1.01%
BA Mortgage Securities, Inc.,
Series 1997-2, Class B4,
7.25%, due 10/25/27 ....................... 12/17/97 561,608 333,630 0.91
Compagnie De Radiocomunicaciones Moviles SA,
9.25%, due 05/08/08 ....................... 06/26/98 1,000,000 905,169 2.49
DLJ Mortgage Acceptance Corporation,
Series 1996-I, Class B4,
7.25%, due 09/25/11 ....................... 10/25/96 186,344 144,183 0.40
Norwest Asset Securities Corporation,
Series 1997-6, Class B4,
7.50%, due 05/25/27 ....................... 03/21/97 925,926 605,613 1.66
PNC Mortgage Securities Corporation,
Series 1997-5, Class B5,
7.25%, due 10/25/27 ....................... 09/11/97 692,808 452,274 1.24
PNC Mortgage Securities Corporation,
Series 1998-2, Class VB5,
6.625%, due 03/25/28 ...................... 03/30/98 694,774 424,464 1.16
PNC Mortgage Securities Corporation,
Series 1998-11, Class 1B6,
6.50%, due 11/25/28 ....................... 10/23/98 1,498,836 326,465 0.90
Residential Asset Securitization Trust,
Series 1997-A6, Class B4,
7.25%, due 09/25/12 ....................... 07/31/97 300,147 279,043 0.77
---------- -----
$3,838,476 10.54%
========== =====
</TABLE>
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
9. ILLIQUID SECURITIES
Pursuant to guidelines adopted by the Fund's Board of Directors, the following
securities are deemed to be illiquid. The Fund currently limits investment in
illiquid securities to 15% of the Fund's net assets, at market value.
<TABLE>
<CAPTION>
Acquisition Principal Market Percent of
Security Date Amount Value Net Assets
- -------------------------------------------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Compagnie De Radiocomunicaciones Moviles SA,
9.25%, due 05/08/08 ....................... 06/26/98 $1,000,000 $ 905,169 2.49%
DLJ Mortgage Acceptance Corporation,
Series 1996-I, Class B4,
7.25%, due 09/25/11 ....................... 10/25/96 186,344 144,183 0.40
Norwest Asset Securities Corporation,
Series 1997-6, Class B4,
7.50%, due 05/25/27 ....................... 03/21/97 925,926 605,613 1.66
PNC Mortgage Securities Corporation,
Series 1997-5, Class B5,
7.25%, due 10/25/27 ....................... 09/11/97 692,808 452,274 1.24
PNC Mortgage Securities Corporation,
Series 1998-2, Class VB5,
6.625%, due 03/25/28 ...................... 03/30/98 694,774 424,464 1.16
PNC Mortgage Securities Corporation,
Series 1998-11, Class 1B6,
6.50%, due 11/25/28 ....................... 10/23/98 1,498,836 326,465 0.90
Residential Asset Securitization Trust,
Series 1997-A6, Class B4,
7.25%, due 09/25/12 ....................... 07/31/97 300,147 279,043 0.77
---------- ----
$3,137,211 8.62%
========== ====
</TABLE>
10. TAX INFORMATION (UNAUDITED)
The following tax information represents the designation of various tax benefits
relating to the year ended December 31, 1998:
Net foreign source income received by the Fund from sources within foreign
countries and possessions of the United States was $.9552 per share
(representing a total of $3,225,699). The total amount of "qualifying" taxes
paid by the Fund to such countries was $.0356 per share (representing a total of
$120,105).
The percentage of ordinary income distributions paid by the Fund derived from
agency and direct obligations of the United States government were as follows:
U.S. Treasury............................................... 0.95%
Federal Home Loan Bank...................................... 0.09
Federal Home Loan Mortgage Corporation...................... 0.30
The Fund designates $398,626, whether taken in shares or cash, as 20% long-term
capital gain distributions.
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................... $ 10.58 $11.22 $10.75 $ 9.80 $ 10.95
------- ------ ------ ------ -------
Income (loss) from investment operations:
Net investment income ................................. 0.90 1.04 1.01 0.96 0.46
Net realized and unrealized gain (loss) from
investments and foreign currency
transactions ........................................ (0.07) (0.50) 0.36 0.95 (1.16)
------ ------- ------ ------ -------
Total income (loss) from investment operations ......... 0.83 0.54 1.37 1.91 (0.70)
------ ------- ------ ------ -------
Less distributions:
Distributions from net investment income .............. ( 0.87) (0.91) (0.86) (0.96) (0.45)
Distributions from net realized gains ................. ( 0.18) (0.27) (0.04) -- --
------ ------- ------ ------ ------
Total distributions .................................... ( 1.05) (1.18) (0.90) (0.96) (0.45)
------- ------- ------ ------ -------
Net asset value, end of period ......................... $ 10.36 $ 10.58 $11.22 $10.75 $ 9.80
======= ======= ====== ====== =======
Total return ........................................... 8.21% 5.00% 13.33% 20.10% (6.52)%
Ratio to average net assets:
Expenses, before reimbursement or waivers ............. 1.89% 2.17% 2.33% 3.07% 1.80%
Expenses, net of reimbursement or waivers ............. 1.50% 1.50% 1.50% 2.75% 1.50%
Net investment income,
before reimbursement or waivers ...................... 10.99% 8.99% 9.49% 9.48% 4.18%
Net investment income ................................. 11.38% 9.66% 10.32% 9.80% 4.48%
Portfolio turnover ..................................... 45.26% 117.94% 71.83% 164.72% 10.20%
Net assets, end of period (000's omitted) .............. $36,407 $ 23,668 $29,110 $ 12,255 $ 10,351
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Trustees and Shareholders
Lexington Ramirez Global Income Fund:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Ramirez Global
Income Fund as of December 31, 1998, and the related statement of operations for
the year ended, the statements of changes in net assets for each of the years in
the two-year period then ended and the financial highlights for each of the
years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements 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 Ramirez Global Income Fund as of December 31, 1998, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
New York, New York
February 8, 1999