Dear Shareholder:
--------------------------------------------------------------------------------
The Lexington Convertible Securities Funds' performance has lagged so far in
1995. However, performance for the twelve month period is comparable to other
convertible securities funds.
Comparative total return performance measurements for the period ended June
30, 1995 are:
6 Months 12 Months
-------- ---------
Lexington Convertible Securities ....... + 5.16%* +12.68%*
Lipper Convertible Fund Average ........ +11.38% +11.95%
S & P 500 Index ........................ +20.21% +26.03%
Lehman Gov./Corp. Bond Index ........... +11.80% +12.76%
Since the start of 1994, our comprehensive asset allocation model has been
measuring excessive levels of risk in the stock market. Accordingly, we have
kept the Fund's portfolio defensively invested for this period. This is in
accordance with the Fund's investment objective of total return that is partly
achieved by conservation of shareholder's capital during high risk market
periods. This defensive posture was quite beneficial for the 1994 year, but has
clearly impacted performance so far in 1995.
Our assessment of market risk is that it continues to be excessive. One of
two economic scenarios is likely to play out in the coming months. The economy
will either stall altogether and slip into a recession, or more probably, the
economy will rebound after several months of slow growth. The first scenario
would negatively impact most companies' earnings, and the second scenario would
revive cyclical inflationary pressures producing higher interest rates. Both
scenarios would likely have a negative impact on stock prices.
We must stress that our cautionary outlook is cyclical (several months) in
duration. We are actually quite optimistic on the secular (several years)
outlook for both the economy and the financial markets.
We appreciate your continued support. We welcome the opportunity to discuss
any question you may have about your investment.
Sincerely,
Robert M. DeMichele Richard B. Russell
Chairman of the Board President and Portfolio Manager
July, 1995 July, 1995
*12.68%, 10.99% and 10.10% are the one and five year and since commencement
(1/20/88) average annual standard total returns, respectively, for the period
ended June 30, 1995. 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 at their original cost. Total return represents past performance.
1
<PAGE>
Left Col.
Lexington Convertible Securities Fund
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1995 (unaudited)
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
-------------------------------------------------------------------------------
CONVERTIBLE BONDS: 34.1%
Computer Software & Services: 8.3%
$ 875,000 Automatic Data Processing Services, Inc.
0.00%*, due 02/20/2012 ........................ $ 387,188
300,000 Sterling Software, Inc.,
5.75%, due 02/01/2003 ......................... 408,000
---------
795,188
---------
Consumer Products: 3.8%
400,000 McKesson Corporation
(Armor All Products),
4.50%, due 03/01/2004 ........................... 366,000
---------
Electronics: 4.5%
370,000 Avnet Inc., 6.00%, due 04/15/2012 ................ 424,575
---------
Financial Services Industry: 4.5%
325,000 First Financial Management Corporation,
5.00%, due 12/15/1999 ........................... 422,000
---------
Industrial Services: 4.1%
365,000 Olsten Corporation,
4.875%, due 05/15/2003 ......................... 386,900
---------
Machinery: 4.7%
240,000 Thermo Electron Corporation (Eurobond),
4.625%, due 08/01/1997 ......................... 450,600
---------
Toys: 4.2%
1,205,000 Time Warner, Inc. (Hasbro),
0.00%*, due 12/17/2012 ......................... 404,434
---------
TOTAL CONVERTIBLE BONDS
(cost $2,851,725) .............................. 3,269,697
---------
COMMON STOCKS: 14.7%
Medical Services: 3.2%
8,392 Salick Health Care Inc. .......................... 307,357
---------
Mobile Homes: 11.5%
37,494 Clayton Homes, Inc.** ............................ 614,030
18,997 Oakwood Homes Corporation ........................ 489,173
---------
1,103,203
---------
TOTAL COMMON STOCKS
(cost $433,949) ................................ 1,410,560
---------
TOTAL LONG-TERM INVESTMENTS ...................... 4,680,257
---------
The Notes to Financial Statements are an integral part of this statement.
Right Col.
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
-------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 50.7%
U.S. Government Obligations
$ 800,000 U.S. Treasury Bills
5.65%, due 07/06/95 ........................... $ 799,372
1,500,000 U.S. Treasury Bills
5.86%, due 08/10/95 ........................... 1,490,233
1,000,000 U.S. Treasury Bills
5.68%, due 08/17/95 ........................... 992,584
300,000 U.S. Treasury Bills
5.915%, due 08/24/95 .......................... 297,338
600,000 U.S. Treasury Bills
5.33%, due 08/31/95 ........................... 594,581
300,000 U.S. Treasury Bills
5.69%, due 08/31/95 ........................... 297,108
400,000 U.S. Treasury Bills
5.41%, due 09/14/95 ........................... 395,492
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,866,708) ............................ 4,866,708
-----------
TOTAL INVESTMENTS: 99.5%
(cost $8,152,382(D)) (Note 1) ................. 9,546,965
Other assets in excess of liabilities: 0.5% ..... 47,242
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $12.39 per share
on 774,348 shares outstanding) ............... $9,594,207
==========
* Zero Coupon Bonds.
** Non-income producing security.
(D)Aggregate cost for Federal income tax purposes is identical.
2
<PAGE>
Lexington Convertible Securities Fund
Statement of Assets and Liabilities
June 30, 1995 (unaudited)
<TABLE>
<CAPTION>
<S> <C>
Assets
Investments, at value (cost $8,152,382) (Note 1) .................................................... $9,546,965
Cash .................................................................................................. 34,218
Receivable for shares sold ............................................................................ 13,898
Dividends and interest receivable ..................................................................... 35,608
----------
Total Assets .................................................................................... 630,689
----------
Liabilities
Due to Lexington
Management Corporation (Note 2) ....................................................................... 8,338
Accrued expenses ...................................................................................... 28,144
----------
Total Liabilities ............................................................................... 36,482
----------
Net Assets (equivalent to $12.39 per share on 774,348 shares outstanding) (Note 5) ................... $9,594,207
==========
Net Assets consist of:
Capital stock-unlimited number of shares of beneficial interest; $.10 par value per share ........... $ 77,435
Additional paid-in capital ............................................................................ 7,914,107
Undistributed net investment income ................................................................... 24,271
Accumulated net realized gain on investments ......................................................... 183,811
Net unrealized appreciation of investments ........................................................... 1,394,583
----------
$9,594,207
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
Left Col.
Lexington Convertible Securities Fund
Statement of Operations
Six months ended June 30, 1995 (unaudited)
Investment Income
Income
Dividends ............................ $ 2,260
Interest ............................. 182,302
---------
Total investment income $ 184,562
Expenses
Investment advisory fee
(Note2) ............................ 46,050
Accounting and shareholder
expenses (Note 2) .................. 7,815
Custodian and transfer agent
expenses ........................... 9,255
Printing and mailing ................. 10,935
Directors' fees and expenses ......... 3,591
Audit and legal ...................... 7,140
Registration fees .................... 13,425
Distribution fees (Note 3) ........... 11,512
Computer processing fees ............. 3,261
Other expenses ....................... 4,050
---------
Total expenses 117,034
----------
Net investment income 67,528
Realized and Unrealized Gain
on Investments (Note 4)
Realized gain on investments
(excluding short-term securities):
Proceeds from sales .................. 575,602
Cost of securities sold .............. 361,236
---------
Net realized gain 214,366
Unrealized appreciation of investments
End of period ........................ 1,394,583
Beginning of period .................. 1,211,135
---------
Change during period 183,448
----------
Net realized and unrealized
gain on investments 397,814
----------
Increase in Net Assets Resulting
from Operations $ 465,342
==========
The Notes to Financial Statements are an integral part of these statements.
Right Col.
Lexington Convertible Securities Fund
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
Six months
ended Year
June 30, ended
1995 December 31,
(unaudited) 1994
----------- ----------
Net investment income ......................... $ 67,528 $ 43,322
Net realized gain from
investment transactions ..................... 214,366 1,345,654
Increase (decrease) in unrealized
appreciation of investments ................. 183,448 (1,290,437)
---------- ----------
Net increase in net assets
resulting from operations ............... 465,342 98,539
Distributions to shareholders
from net investment income .................. (47,735) (38,843)
Distributions to shareholders
from net realized gains on
security transactions (Note 1) .............. - (1,345,654)
Distributions to shareholders in
excess of net realized gains
on security transactions
(Note 1) .................................... - (30,554)
Increase in net assets from capital
share transactions (Note 5) ................. 1,059,210 1,115,202
---------- ----------
Net increase (decrease)
in net assets ........................... 1,476,817 (201,310)
Net Assets
Beginning of period ......................... 8,117,390 8,318,700
---------- ----------
End of period (including
undistributed net investment
Income of $24,271 and
$4,479, respectively) ..................... $9,594,207 $8,117,390
========== ==========
4
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
June 30, 1995 (unaudited) and December 31, 1994
1. Significant Accounting Policies
Lexington Convertible Securities Fund (the "Fund") is an open end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements:
Investments As authorized by the Trustees, securities are valued on the
basis of valuations furnished by a pricing service which determines valuations
based upon market transactions for normal institutional-size trading units of
such securities. Debt securities are valued at the mean between the current bid
and asked price. Equity securities listed on a national securities exchange are
valued at the last reported sales price; if no sales price is reported for that
day the mean between the current bid and asked price is used. Over-the-counter
securities are valued at the mean of the latest bid and asked prices. Securities
for which market quotations are not readily available and other securities are
valued at fair value as determined by management and approved in good faith by
the Board of Trustees. Short-term securities having a maturity of 60 days or
less are valued at amortized cost, which approximates market value.
Security transactions are accounted for on the trade date. The Fund records
interest income on the accrual basis. In computing net investment income, the
Fund amortizes premiums and does not accrue discounts on convertible fixed
income securities in the portfolio. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Federal Income Taxes It is the Fund's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes has been made.
Distributions Effective January 1, 1993, the Fund adopted Statement of
Position 93-2: Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As of December 31, 1994, book and tax basis differences amounting to
$5,732 have been reclassified from distributions in excess of net realized gains
on investments and undistributed net investment income to additional paid-in
capital. Distributions in excess of net realized gains reflect temporary
book-tax differences arising from Internal Revenue Code ("IRC") Excise Tax
distribution requirements and associated post-October Loss deferal provisions,
which effectively allow the deferral of net realized capital losses to the next
tax year.
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% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with the Fund's former advisor, Ariston Capital Management
Corporation ("Ariston"), under which Ariston provides the Fund with investment
management services. Pursuant to the terms of the sub-advisory contract between
LMC and Ariston, LMC pays Ariston a monthly sub-advisory fee at the annual rate
of .75% of the Fund's average daily net assets up to $7 million and .50% of the
Fund's average daily net assets in excess of $7 million.
5
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
June 30, 1995 (unaudited) and December 31, 1994 (continued)
The investment advisory contract provides that the total annual expenses of the
Fund (including managment fees, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) will not exceed the level of expenses
which the Fund is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are offered for
sale. No reimbursement was required for the six months ended June 30, 1995.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the
Fund but paid by LMC.
3. Distribution Plan
The Fund has a distribution plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Fund Distributors, Inc. ("LFD"), the Fund's
distributor in amounts not exceeding .25% per annum of the Fund's average daily
net assets. Total distribution expenses for the six months ended June 30, 1995
were $11,512 which are set forth in the statement of operations. 4. Purchases
and Sales of Investments
The cost of purchases and proceeds from sales of investments for the six months
ended June 30, 1995, excluding short-term securities, were $456,113 and
$575,602, respectively. At June 30, 1995, aggregate gross unrealized
appreciation for all investments in which there is an excess of value over tax
cost amounted to $1,433,895 and aggregate gross unrealized depreciation for all
investments in which there is an excess of tax cost over value amounted to
$39,312.
5. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
For the six
months ended
June 30, 1995 Year ended
(unaudited) December 31, 1994
--------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ................................ 192,094 $2,322,773 98,659 $1,371,098
Shares issued on reinvestment of dividends . 3,574 43,613 107,920 1,275,408
------- ---------- ------- ----------
195,668 2,366,386 206,579 2,646,506
Shares redeemed ............................ (107,183) (1,307,176) (110,489) (1,531,304)
------- ---------- ------- ----------
Net increase ............................... 88,485 $1,059,210 96,090 $1,115,202
======= ========== ======= ==========
</TABLE>
6
<PAGE>
Lexington Convertible Securities Fund
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended
June 30, Year Ended December 31,
1995 --------------------------------------
(unaudited) 1994 1993 1992 1991
--------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $11.84 $14.10 $13.80 $12.41 $ 8.74
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ............................ 0.24 0.08 - 0.18 0.22
Net realized and unrealized gain on
investment ..................................... 0.37 0.10 0.89 1.39 3.68
------ ------ ------ ------ ------
Total income from investment operations ........... 0.61 0.18 0.89 1.57 3.90
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ............. (0.06) (0.07) - (0.18) (0.23)
Distributions from capital gains ................. - (2.32) (0.59) - -
Distributions in excess of capital gains
(Book-tax temporary difference) ................ - (.05) - - -
------ ------ ------ ------ ------
Total distributions ................................ (0.06) (2.44) (0.59) (0.18) (0.23)
------ ------ ------ ------ ------
Net asset value, end of period ..................... $12.39 $11.84 $14.10 $13.80 $12.41
====== ====== ====== ====== ======
Total return ....................................... 10.63%* 1.30% 6.53% 12.82% 45.06%
Ratio to average net assets:
Expenses, before reimbursement ................... 2.54%* 2.81% 2.76% 3.02% 3.42%
Expenses, net of reimbursement ................... 2.54%* 2.75% 2.76% 2.32% 2.50%
Net investment income (loss), before
reimbursement .................................. 1.47%* 0.50% (0.04%) 0.70% 1.14%
Net investment income (loss) ..................... 1.47%* 0.56% (0.04%) 1.40% 2.06%
Portfolio turnover ................................. 20.13%* 38.14% 6.53% 12.58% 29.46%
Net assets at end of period (000's omitted) ....... $9,594 $8,117 $8,319 $7,180 $6,599
<FN>
------------
From January 1, 1989 to July 31, 1989, LMC was the Fund's administrator. From
August 1, 1989 to August 31, 1992 Ariston was the Fund's investment adviser.
Effective September 1, 1992, LMC became the Fund's investment adviser and
administrator and Ariston became the Fund's sub-adviser.
*Annualized.
</FN>
</TABLE>
7
<PAGE>
Left Col.
Lexington Convertible Securities Fund
Investment Adviser
--------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
--------------------------------------------------------------------------------
ARISTON CAPITAL MANAGEMENT CORPORATION
40 Lake Bellevue Drive-Suite 220
Bellevue, Washington 98005
Distributor
--------------------------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
----------------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
----------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Balitmore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
----------------------------------------------
--------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield*Account Balances*Exchanges*
Last Transactions*Total Return*Duplicate Statements
--------------------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Convertible Securities Fund and is authorized for distribution to the
public only if it is accompanied or preceded by a currently effective prospectus
which sets forth expenses and other material information.
Right Col.
LEXINGTON>
--------------------------------------------------------------------------------
LEXINGTON
CONVERTIBLE
SECURITIES
FUND
(filled box)
The Fund's investment
objective is total return,
which it seeks to achieve
by providing current income,
capital appreciation and
conservation of capital.
(filled box)
SEMI-ANNUAL REPORT
JUNE 30, 1995
The Lexington Group of
No Load
Investment Companies
--------------------------------------------------------------------------------
