As filed with the Securities and Exchange Commission on April 28, 1995
Registration No. 33-10543
811-4925
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 12 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 X
(Check appropriate box or boxes.)
LEXINGTON CONVERTIBLE SECURITIES FUND
----------------------------------------------------
(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
------------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Convertible Securities Fund
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
-----------------------------------------
(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue, New York, New York 10022
----------------------------------------
It is proposed that this filing will become effective May 1, 1995
pursuant to Paragraph (b) of Rule 485.
----------------------------------------
The Registrant has registered an indefinite number of shares
under the Securities Act of 1933, pursuant to Section 24(f) of
the Investment Company Act of 1940. A Rule 24f-2 Notice for the
Registrant's fiscal year ended December 31, 1994 was filed on
February 24, 1995.
<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Page Number
of Form N-1A Prospectus Caption Cover Page
- --------------- ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 2
4. General Description of Registrant 3
5. Management of the Fund 7
6. Capital Stock and Other Securities 14
7. Purchase of Securities Being Offered 8
8. Redemption or Repurchase 9
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
------ ----------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 14 (Part A)
13. Investment Objectives and Policies 3
14. Management of the Registrant 17
15. Control Persons and Principal Holders 3
of Securities
16. Investment Advisory and Other Services 3
17. Brokerage Allocation and Other Practices 7
18. Capital Stock and Other Securities 14 (Part A)
19. Purchase, Redemption and Pricing of 8, 9 (Part A)
securities being offered
20. Tax Status 8
21. Underwriters 7 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements Exhibit
PART C
- ------
Information required to be included in Part C is set forth under
the appropriate item, so numbered, in Part C to this Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS
May 1, 1995
Lexington Convertible Securities Fund
P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Shareholder Services-1-800-526-0056
24 Hour Account Information:-1-800-526-0052
A NO-LOAD FUND WHOSE PRINCIPAL INVESTMENT OBJECTIVE IS TOTAL RETURN WHICH IT
SEEKS TO ACHIEVE BY PROVIDING CAPITAL APPRECIATION, CURRENT INCOME AND
CONSERVATION OF CAPITAL.
- --------------------------------------------------------------------------------
Lexington Convertible Securities Fund (the "Fund") is an open-end
diversified management investment company. Shareholders may invest,
reinvest and redeem shares at any time without charge or penalty.
The Fund invests primarily in a diversified portfolio of
securities convertible into shares of common stock. The Fund may
invest without limitation in securities rated Ba and B by Moody's
Investors Service, Inc. Such lower rated securities are commonly
referred to as "junk bonds." Investments of this type are subject to
greater risk of loss of principal and interest. Purchasers should
carefully assess the risks associated with an investment in the Fund.
A more detailed discussion of securities rated Ba and B can be found
in the section "High Yield Debt Securities" in the Prospectus and
Statement of Additional Information.
This Prospectus concisely sets forth information about the Fund
that you should know before investing. It should be read and retained
for future reference.
A Statement of Additional Information dated May 1, 1995, which
provides a further discussion of certain areas in this Prospectus and
other matters that may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call the appropriate telephone
number above or write to the address listed above.
The Distributor of Shares of the Fund is Lexington Funds
Distributor, Inc.
Mutual fund shares are not deposits or obligations of (or endorsed
or guaranteed by) any bank, nor are they federally insured or
otherwise protected by the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board or any other agency. Investing in
mutual funds involves investment risks, including the possible loss of
principal, and their value and return will fluctuate.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
Annual Fund Operating Expenses:
(as a percentage of average net assets), (net of reimbursement):
Management fees ..................................................... 1.00%
12b-1 fees .......................................................... 0.25%
Other fees .......................................................... 1.50%
-----
Total Fund Operating Expenses ................................... 2.75%
=====
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following
expenses on a $1,000 investment,
assuming (1) 5% annual return
and (2) redemption at the end of
each period ......................... $27.81 $85.32 $145.45 $308.01
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
indirectly. (For more complete descriptions of the various costs and expenses,
see "How to Purchase Shares" and "Investment Adviser and Distributor" below).
The Expenses and Example (except the 12b-1 fees) appearing in the table above
are based on the Fund's expenses for the period from January 1, 1994 to December
31, 1994 absent expense reimbursements, total Fund operating expenses would have
been 2.81% of the Fund's average net assets. The 12b-1 fees shown in the table
reflect the maximum amount which may be paid under the Distribution Plan. See
"Distribution Plan." The Example shown in the table above should not be
considered a representation of past or future expenses and actual expenses may
be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Financial Highlights Information for the years ended December
31, 1994, 1993 and 1992 have been audited by KPMG Peat Marwick LLP, Independent
Auditors, whose report thereon appears in the Statement of Additional
Information. Financial Highlights Information for the years ended December 31,
1991 and 1990 were audited by other auditors whose report thereon expressed an
unqualified opinion, and by KPMG Peat Marwick LLP, independent auditors for the
year ended December 31, 1989 and the period from January 20, 1988 (commencement
of operations) to December 31, 1988. This information should be read in
conjunction with the financial statements and related notes thereto included in
the Statement of Additional Information. The Fund's annual report, which
contains additional performance information, is available upon request and
without charge.
- --------------------------------------------------------------------------------
Selected Per Share Data for a share outstanding throughout the period
<TABLE>
<CAPTION>
Period from
January 20, 1988
(commencement of
Year Ended December 31, operations)
------------------------------------------------------ to December 31,
1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ................... $14.10 $13.80 $12.41 $ 8.74 $9.55 $9.51 $9.35
------ ------ ------ ------ ----- ----- -----
Income from investment operations:
Net investment income ................................. 0.08 - 0.18 0.22 0.50 0.64 0.42
Net realized and unrealized gain (loss)
on investments ....................................... 0.10 0.89 1.39 3.68 (0.81) 0.04 0.19
------ ------ ------ ------ ----- ----- -----
Total income from operations ........................... 0.18 0.89 1.57 3.90 (0.31) 0.68 0.61
------ ------ ------ ------ ----- ----- -----
Less distributions:
Dividends from net investment income .................. (0.07) - (0.18) (0.23) (0.50) (0.64) (0.42)
Dividends from net realized capital gains ............. (2.32) (0.59) - - - - (0.03)
Distributions in excess of capital
gains (book-tax temporary difference) ................ (0.05) - - - - - -
------ ------ ------ ------ ----- ----- -----
Total distributions ................................... (2.44) (0.59) (0.18) (0.23) (0.50) (0.64) 0.45
------ ------ ------ ------ ----- ----- -----
Net asset value, end of period ......................... $11.84 $14.10 $13.80 $12.41 $8.74 $9.55 $9.51
------ ------ ------ ------ ----- ----- -----
Total return ........................................... 1.30% 6.53% 12.82% 45.06% (3.39%) 7.16% 6.96%
Ratio to average net assets:
Expenses, before reimbursement or waiver .............. 2.81% 2.76% 3.02% 3.42% 4.51% 2.64% 4.12%*
Expenses, net of reimbursement or waiver .............. 2.75% 2.76% 2.32% 2.50% 2.68% 2.13% 2.00%*
Net investment income (loss), before
reimbursement or waiver .............................. 0.50% (0.04%) 0.70% 1.14% 3.09% 5.74% 3.43%*
Net investment income ................................. 0.56% (0.04%) 1.40% 2.06% 4.92% 6.25% 5.55%*
Portfolio turnover ..................................... 38.14% 6.53% 12.58% 29.46% 25.58% 34.23% 39.70%*
Net assets, end of period (000's omitted) ............. $8,117 $8,319 $7,180 $6,599 $4,744 $5,986 $6,930
</TABLE>
*Annualized
2
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DESCRIPTION OF THE FUND
The Fund is an open-end diversified management investment company commonly
known as a mutual fund. It was organized as a business trust under the laws of
the Commonwealth of Massachusetts on August 19, 1986. It adopted its present
name on November 10, 1992. Fund shares are continually sold to the public. The
Fund then uses the proceeds to buy securities as described under "Investment
Objectives and Policies." The Fund's Board of Trustees provides broad
supervision over the affairs of the Fund. Lexington Management Corporation
("LMC") is the Investment Advisor and Ariston Capital Management Corporation
("Ariston") is the sub-adviser to the Fund. LMC and Ariston are responsible for
the management of the Fund's assets and the officers of the Fund are responsible
for its operations. LMC and Ariston manage the Fund from day-to-day in
accordance with the Fund's investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is total return which it seeks to achieve by
providing capital appreciation, current income and conservation of the
shareholders capital. The Fund's investment objective, which is described below,
cannot be changed without the affirmative vote of a majority (as defined in the
Investment Company Act of 1940) of the outstanding voting shares of the Fund.
It is intended that the Fund will invest at least 65% of its total assets
(except when maintaining a temporary defensive position) in a diversified
portfolio of convertible securities as described below. Common stock received
upon conversion or exchange of such securities will either be sold in an orderly
manner or held by the Fund as described below.
It is intended that not more than 35% of the Fund's total assets be invested
in other securities which, in the aggregate, are considered by LMC and Ariston
to be consistent with the Fund's investment objectives. Such other investments
may consist of dividend and non-dividend paying nonconvertible common stocks,
corporate bonds rated B or higher as described below, covered call options and
put options, stock index options, securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, repurchase agreements and money
market securities. In addition, the Fund may invest up to 10% of its total
assets in securities which may be restricted as to resale.
The convertible securities acquired by the Fund may include, as rated by
Moody's Investors Service, Inc., Aaa, Aa, A, Baa, Ba, B and non-rated debt
securities. The Fund will not invest in any security which has lower than a B
rating (see Appendix for "Summary of Ratings"). However, the Fund may invest in
non-rated convertible securities if based upon the opinion of the adviser and
sub-adviser it is believed that such securities are of comparable quality to the
securities described above. Securities which are rated Ba (BB) or B are
considered speculative and thus pose a greater risk of default than investment
grade securities. See "High Yield Debt Securities" on page 5 for a more detailed
discussion of securities rated Ba and B. Such lower rated securities are
commonly referred to as "junk bonds." Investments of this type are subject to
greater risk of loss of principal and interest.
If in the opinion of LMC and Ariston, and market conditions indicate, the
Fund may, for temporary defensive purposes, invest without limit, in U.S.
Government securities, commercial paper (short-term debt securities of large
corporations), certificates of deposit, bankers acceptances and repurchase
agreements.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
adviser may consider sales of shares of the Fund as a factor in the selection of
dealers to enter into portfolio transactions with the Fund.
There can be no assurance that the Fund will achieve its investment
objective. The net asset value of the Fund will fluctuate as the value of its
securities fluctuates.
3
<PAGE>
DESCRIPTION AND RISKS OF CONVERTIBLE SECURITIES
Convertible securities are securities that may be exchanged or converted
into a predetermined number of the issuer's underlying common shares, the common
shares of another company or that are indexed to an unmanaged market index at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, stock purchase warrants, zero-coupon bonds or liquid-yield option
notes, Eurodollar convertible securities, convertible securities of foreign
issuers, stock index notes, or a combination of the features of these
securities. Convertible securities are considered by the Adviser and Sub-Adviser
to be an attractive investment vehicle for the Fund because they combine the
benefits of higher and more stable income than the common stock generally
provides with the potential of profiting from an appreciation in the value of
the underlying security. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities and provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and conversely, increase as interest rates decline. While convertible
securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality, they do enable the investor
to benefit from the increase in the market price of the underlying common stock.
When the market price of a common stock underlying a convertible security
increases, the price of the convertible security increasingly reflects the value
of the underlying common stock and may rise accordingly. As the market price of
the underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities are ranked senior to common
stock on an issuer's capital structure and they are consequently of higher
quality and entail less risk than the issuer's common stock, although the extent
to which risk is reduced depends in large measure to the degree to which
convertible securities sell above their value as fixed income securities.
Warrants
The Portfolio may invest up to 5% of its total assets at the time of
purchase in warrants (not including those acquired in units or attached to other
securities). A warrant is a right to purchase common stock at a specific price
during a specified period of time. The value of a warrant does not necessarily
change with the value of the underlying security. Warrants do not represent any
rights to the assets of the issuing company. A warrant becomes worthless unless
it is exercised or sold before expiration. Warrants have no voting rights and
pay no dividends.
Options
The Fund may sell (write) listed covered call options on stock and stock
indices in order to earn additional income and to hedge the Fund's portfolio and
reduce investment risk. By writing a covered call option, the Fund generates
additional income from securities in its portfolio, and may also give up some
control over when the securities subject to the call may be sold. The payment
received by the Fund for writing the call option (known as the option premium)
may provide partial protection from a decline in the value of the underlying
securities. Hedging strategies are defensive in nature and some capital gain
potential is forsaken in advancing markets in order to reduce risk in declining
markets. The Fund may also purchase put or call options provided that the value
of put or call options purchased will not exceed 5% of the Fund's total assets.
Purchased put or call options become worthless unless they are exercised or sold
before expiration. The Fund is restricted in using only options that are traded
on national securities exchanges.
Collateralized Short Sales
The Fund may make short sales of common stocks, provided they are "against
the box," i.e., the Fund owns an equal amount of such securities or owns
securities that are convertible or exchangeable without payment of further
consideration into an equal or greater amount of such a common stock. The Fund
may make a short sale when the Fund manager believes the price of the stock may
decline and for tax or other reasons, the Fund manager does not want to sell
4
<PAGE>
currently the stock or convertible security it owns. In such case, any decline
in the value of the Portfolio would be reduced by a gain in the short sale
transaction. Conversely, any increase in the value of the portfolio would be
reduced by a loss in the short sale transaction. The Fund may not make short
sales or maintain a short position unless at all times when a short position is
open, not more than 10% of its total assets (taken at current value) is held as
collateral for such sales at any one time. Short sales against the box are used
to defer recognition of capital gains and losses, although the short-term or
long-term nature of such gains or losses could be altered by certain provisions
of the Internal Revenue Code.
High Yield Debt Securities
High yield debt securities in which the Fund may invest (rated Ba or B) are
commonly referred to as "junk bonds." See Appendix. The economy and interest
rates affect high yield securities differently from other securities. The prices
of high yield securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual corporate developments. Also, during an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations to meet projected
business goals, and to obtain additional financing. If the issuer of a security
defaulted, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of high yield securities and the Fund's
net asset value. To the extent that there is no established retail secondary
market, there may be thin trading of high yield securities, and this may have an
impact on the adviser and sub-adviser's ability to accurately value high yield
securities and on the Fund's ability to dispose of the securities. Adverse
publicity and investor perceptions, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield securities,
especially in a thinly traded market.
There are risks involved in applying credit ratings as a method for
evaluating high yield securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value of high yield
securities. Also, since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, the Fund (in conjunction with its
investment adviser and sub-adviser) will continuously monitor the issuer of high
yield securities in the Fund to determine if the issuer will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the securities' liquidity.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. United States Government agency
and instrumentality obligations are debt securities issued by United States
Government-sponsored enterprises and Federal agencies. Some obligations of
agencies and instrumentalities of the United States Government are supported by
the full faith and credit of the United States or United States Treasury
guarantees, such as securities of the Government National Mortgage Association
and the Federal Housing Authority; others, by the right of the issuer to borrow
from the United States Treasury, such as securities of the Federal Home Loan
Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Home Loan Banks.
Repurchase Agreements
The Fund may enter into repurchase agreements with commercial banks and
dealers in U.S. Government securities. A repurchase agreement involves the
acquisition by a Fund of an investment contract from a bank or a dealer in U.S.
Government securities which contract is secured by U.S. Government obligations
whose value at all times is equal to or greater than the value of the repurchase
agreement including the agreed upon interest. The agreement provides that the
institution will repurchase the underlying securities at an agreed upon time and
price. The total amount received on repurchase would exceed the price paid by
the Fund, reflecting an agreed upon rate of interest for the period from the
date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the
5
<PAGE>
underlying securities. The difference between the total amount to be received
upon the repurchase of the securities and the price paid by the Fund upon their
acquisition is accrued daily as interest. If the institution defaults on the
repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral by the Fund may be delayed or limited
and the Fund may incur additional costs. In such case, the Fund will be subject
to risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to transactions
believed by LMC and Ariston to present minimal credit risk. LMC and Ariston will
monitor the collateral on an ongoing basis to ensure that the value of the
collateral will at all times equal or exceed the repurchase price and will also
monitor the credit worthiness of banks and dealers that the Fund enters into
repurchase agreements with. The above criteria may be altered by the Board of
Trustees of the Fund. Repurchase agreements are considered collateralized loans
by the Fund under the Investment Company Act of 1940.
PORTFOLIO TURNOVER
Portfolio changes will be made without regard to the length of time
particular investments may have been held. The Fund is expected to incur
brokerage costs. The Fund anticipates that its annual turnover rate will
generally not exceed 100%.
For the years ended December 31, 1994, 1993 and 1992, the portfolio turnover
rate for the Fund was 38.14%, 6.53%, and 12.58%, respectively.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of investment restrictions which may not be
changed without shareholder approval. These are set forth under "Investment
Restrictions" in the Statement of Additional Information. Some of these
restrictions provide that the Fund shall not:
* concentrate its investments in a particular industry to an extent greater
than 25% of the value of its total assets at the time of purchase provided that
such limitations shall not apply to securities issued or guaranteed by the U.S.
Government, or its agencies and instrumentalities;
* invest more than 5% of its total assets in the securities of any one
issuer (except securities issued or guaranteed by the U.S. Government, or its
agencies and instrumentalities) except that such restriction will not apply with
respect to 25% of the Fund's assets;
* purchase any securities if such purchase would cause the Fund to own at
the time of purchase more than 10% of the outstanding voting securities of one
issuer;
* borrow money; except that the Fund may borrow from a bank as a temporary
measure for extraordinary purposes or to meet redemptions in amounts not
exceeding 10% (taken at market value) of its total assets and pledge its assets
to secure such borrowings. The Fund may not purchase additional securities when
money borrowed exceeds 5% of the Fund's total assets;
* purchase any security restricted as to disposition under Federal
securities laws or securities that are not readily marketable or purchase any
securities if such purchase would cause the Fund to own at the time such
purchase, illiquid securities, including repurchase agreements with an agreed
upon repurchase date in excess of seven days from the date of acquisition by the
Fund, having an aggregate market value in excess of 10% of the value of the
Fund's total assets.
YIELD AND TOTAL RETURN
From time to time the Fund advertises its yield and total return. Both yield
and total return are based on historical earning and are not intended to
indicate future performance. The "total return" of the Fund refers to the
average annual
6
<PAGE>
compounded rates of return over one, five and ten year periods or over the life
of the Fund (which periods will be stated in the advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividend and distributions, including all recurring fees
that are charged to all shareholder accounts and a deduction of all nonrecurring
charges deducted at the end of each period. The "yield" of the Fund is computed
by dividing the net investment income per share earned during the period stated
in the advertisement by the maximum offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The calculation includes among expenses of the Fund, for the purpose of
determining net investment income, all recurring fees that are charged to all
shareholder accounts and any nonrecurring charges for the period stated. The
yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of the six month period. The Fund may cite a 30-day yield (annualized)
as well as a 90-day yield (annualized) in advertisements and sales materials.
Advertisements and communications may compare the Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time, the
performance of the Fund may be compared to various investment indices.
Quotations of historical total returns and yields are not indicative of future
dividend income or total return, but are an indication of the return to
shareholders only for the limited historical period used. The Fund's yield and
total return will depend on the particular investments in its portfolio, its
total operating expenses and other conditions. For further information,
including the formula and examples of the yield and total return calculations,
see the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Trustees of the Fund are responsible under the terms of its Declaration
of Trust, which is governed by Massachusetts law for overseeing the conduct of
the Fund's business. There are currently six trustees (of whom three are
non-interested persons under the Investment Company Act of 1940) who meet four
times each year. The Statement of Additional Information contains more data
regarding the trustees and officers of the Fund.
PORTFOLIO MANAGER
Richard B. Russell is President of Ariston Capital Management Corporation,
the Fund's sub-adviser, located in Bellevue, Washington. He is a graduate of the
School of Business at the University of Washington and has completed additional
training at the New York Institute of Finance. He is a recognized authority on
portfolio management, particularly through the use of convertible securities and
market forecasting. He has spent his entire professional career as an
independent money manager, dating from 1972. Before founding Ariston in 1977, he
was a full-time manager of private family assets. Mr. Russell has conducted
extensive research on investment topics.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663 is the investment adviser to the Fund and 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. LMC
has entered into a sub-advisory contract with Ariston Capital Management
Corporation ("Ariston"), 40 Lake Bellevue Drive, Suite 220, Bellevue, Washington
98005 under which Ariston will provide the Fund with certain investment
management and administrative services. Ariston also serves as investment
adviser to private and institutional investment accounts. Such accounts own a
significant number of shares of the Fund as part of their investment program.
Lexington Funds Distributor, Inc. is the Fund's distributor.
LMC, established in 1938, currently manages over $3.8 billion in assets. LMC
serves as investment adviser to other investment companies and private and
institutional investment accounts. Included among these clients are persons and
organizations which own significant amounts of capital stock of LMC's parent.
The clients pay fees which LMC considers comparable to the fees paid by
similarly served clients.
7
<PAGE>
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC and LFD are wholly-owned subsidiaries of Piedmont Management Company
Inc., a Delaware corporation with offices at 80 Maiden Lane, New York, New York
10038. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities have a majority voting control of outstanding shares of
Piedmont Management Company Inc. See "Investment Adviser and Distributor" in the
Statement of Additional Information.
LMC as owner of the registered service mark "Lexington" will sublicense the
Fund to include the word "Lexington" as part of its name subject to revocation
by LMC in the event that the Fund ceases to engage LMC or its affiliate as
investment advisor or distributor. In that event the Fund will be required upon
demand of LMC to change its name to delete the word "Lexington" therefrom.
As compensation for its services, the Fund pays LMC a monthly management fee
at the annual rate of 1.00% of the average daily net assets which is higher than
that paid by most other investment companies. In connection with providing
investment management services, LMC has entered into a sub-advisory agreement
with Ariston under which Ariston will provide the Fund with certain investment
management and administrative services. Pursuant to the terms of the
sub-advisory agreement between LMC and Ariston, LMC will pay Ariston a monthly
sub-advisory fee at the annual rate of 0.75% of the average daily net assets of
Fund up to $7 million and 0.50% of such assets in excess of $7 million. For the
year ending December 31, 1994, the Fund paid net advisory fees to LMC of $77,962
of which LMC paid $53,143 to Ariston pursuant to the sub-advisory agreement.
HOW TO PURCHASE SHARES
Initial investment-Minimum $1,000. By Mail: Send a check payable to Lexington
Convertible Securities Fund, along with a completed New Account Application to
State Street Bank and Trust Company (the "Agent"). See the back cover of this
prospectus for the agent's address.
Subsequent Investments-Minimum $50. By Mail: Send a check payable to the Agent,
accompanied by either the detachable form which is part of the confirmation of a
prior transaction or a letter indicating the dollar amount of the investment and
identifying the Fund, account number and registration.
Broker-dealers: You may invest in shares of the Fund through broker-dealers who
are members of the National Association of Securities Dealers, Inc., and other
financial institutions and who have selling agreements with LFD. Broker-dealers
and financial institutions who process such purchase and sale transactions for
their customers may charge a transaction fee for these services. The fee may be
avoided by purchasing shares directly from the Fund.
The Open Account: By investing in the Fund, a shareholder appoints the Agent, as
his agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares (see "Dividend, Distribution and Reinvestment
Policy"). Stock certificates will be issued for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check or
federal funds wire, certificates will not be issued for 30 days. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund).
Automatic Investing Plan with "Lex-O-Matic". A shareholder may arrange to
make additional purchase of shares automatically on a monthly or quarterly
basis. The investments of $500 or more are automatically deducted from a
checking account on or about the 15th day of each month. The institution must be
an Automated Clearing House (ACH)
8
<PAGE>
member. Should an order to purchase shares of a fund be cancelled because your
automated transfer does not clear, you will be responsible for any resulting
loss incurred by that fund. The shareholder reserves the right to discontinue
the Lex-O-Matic program provided written notice is given ten days prior to the
scheduled investment date. Further information regarding this service can be
obtained from Lexington by calling 1-800-526-0056.
On payroll deduction accounts administered by an employer and on payments
into qualified pension or profit sharing plans and other continuing purchase
programs, there are no minimum purchase requirements.
Determination of Net Asset Value: The net asset value of the Fund for the
purposes of pricing orders is determined daily at the close of regular trading
on the New York Stock Exchange on each Fund "business day" (which is any day on
which the New York Stock Exchange is open for business). It is expected that the
Exchange will be closed on Saturdays, Sundays, New Year's day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value of the Fund is determined by dividing the total value of
the investments and other assets of the Fund, less any liabilities, by the total
outstanding shares of the Fund.
Debt securities are normally valued at the mean between the current bid and
asked price for those securities. 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. In determining net asset
value, equity portfolio 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. For
over-the-counter securities the mean of the latest bid and asked prices is used.
Securities for which market quotations are not readily available and other
securities are valued at fair value as determined by Managment and approved by
the Board of Trustees. Short term securities having a maturity of 60 days or
less are valued at cost, which approximates market value.
Terms of Offering: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss the Fund reserves the right to
redeem shares owned by the purchaser, seek reimbursement directly from the
purchaser and may prohibit or restrict the purchaser in placing future orders in
any of the Lexington Funds.
The Fund reserves the right to reject any order, and to waive or lower the
investment minimums with respect to any person or class of persons, including
shareholders of the Fund's special investment programs. An order to purchase
shares is not binding on the Fund until it has been confirmed by the Agent.
Account Statements: The Agent will send shareholders either purchasing or
redeeming shares of the Fund, a confirmation of the transaction indicating the
date the purchase or redemption was accepted, the number of shares purchased or
redeemed, the purchase or redemption price per share, and the amount purchased
or redemption proceeds. A statement is also sent to shareholders whenever a
distribution is paid, or when a change in the registration, address, or dividend
option occurs. Shareholders are urged to retain their account statements for tax
purposes.
HOW TO REDEEM SHARES
By Mail: Send to the Agent (see the back cover of this prospectus for the
Agent's address): (1) a written request for redemption, signed by each
registered owner exactly as the shares are registered including the name of the
Fund, account number and exact registration; (2) stock certificates for any
shares to be redeemed which are held by the shareholder; (3) signature
guarantees, when required, and (4) the additional documents required for
redemptions by corporations, executors, administrators, trustees, and guardians.
Redemptions by mail will not become effective until all documents in proper form
have been received by the Agent. If a shareholder has any questions regarding
the requirements for redeeming shares, he should call the Fund at the toll free
number on the back cover prior to
9
<PAGE>
submitting a redemption request. If a redemption request is sent to the Fund in
New Jersey, it will be forwarded to the Agent and the effective date of
redemption will be the date when received by the Agent.
Checks for redemption proceeds will normally be mailed within seven days,
but will not be mailed until all checks in payment for the shares to be redeemed
have been cleared.
Signature Guarantee: Signature guarantees are required in connection with (a)
redemptions by mail involving $10,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) changes in instructions as to where the
proceeds of redemptions are to be sent, and (d) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. Notary
publics are not acceptable guarantors.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") specifying the total number
of shares to be redeemed, or (c) on all stock certificates tendered for
redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power.
Redemption Price: The redemption price will be the net asset value per share of
the Fund next determined after receipt by the Agent of a redemption request in
proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information).
The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) and mail the proceeds to the shareholder. Shareholders
will be notified before these redemptions are to be made and will have 30 days
to make an additional investment to bring their account up to the required
minimum.
SHAREHOLDER SERVICES
Transfer: Shares of the Fund may be transferred to another owner. A signature
guarantee of the registered owner is required on the letter of instruction or
accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect cash in fixed amounts from
their accounts at regular intervals. The minimum investment to establish a
Systematic Withdrawal Plan is $10,000. If the proceeds are to be mailed to
someone other than the registered owner, a signature guarantee is required.
Group Sub-Accounting: To minimize recordkeeping by fiduciaries, corporations,
and certain other investors, the minimum initial investment may be waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, without sales charge,
at the time of the exchange. In the event shares of one or more of these funds
being exchanged by a single investor have a value in excess of $500,000, the
shares of the Fund will not be purchased until the fifth business day following
the redemption of the shares being exchanged in order to enable the redeeming
fund to
10
<PAGE>
utilize normal securities settlement procedures in transferring the proceeds of
the redemption to the Fund. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
The Lexington Funds currently available for exchange are:
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)/Seeks long-term growth of
capital primarily through investment in common stocks of companies domiciled in
foreign countries and the United States.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity securities of
companies domiciled in, or doing business in, emerging countries.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)/Seeks long term growth
of capital through investment in common stocks of companies domiciled in foreign
countries. Shares of the Fund are not presently available for sale in Vermont.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)/Seeks long term
capital growth and income through investment in an equal number of shares of the
common stocks of a fixed list of American blue chip corporations.
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through investment in
gold bullion and equity securities of companies engaged in mining or processing
gold throughout the world. Shares are not presently available for sale in
Wisconsin.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)/Seeks capital
appreciation over the long term through investments in stocks of large, ably
managed and well financed companies.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal, through
investment primarily in mortgage-backed GNMA Certificates.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income by investing in a combination of foreign and domestic high-yield, lower
rated debt securities. Capital appreciation is a secondary objective.
LEXINGTON SHORT-TERM INTERMEDIATE GOVERNMENT SECURITIES FUND, INC. (NASDAQ
Symbol: LSGXX)/Seeks current income as is consistent with preservation of
capital by investing in a portfolio of U.S. Government securities.
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity through
investments in interest bearing short term municipal securities.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)/Seeks current income
exempt from Federal income taxes while maintaining liquidity and stability of
principal through investment in short-term municipal securities.
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
minimum initial investment of the fund being purchased. If, however, an account
already exists in the fund being bought, there is a $500 minimum exchange
required. Shareholders must
11
<PAGE>
provide the account number of the existing account. Any exchange between funds
is, in effect, a redemption of shares in one fund and a purchase in the other
fund. Shareholders should consider the possible tax effects of an exchange.
TELEPHONE EXCHANGE PROVISIONS-Exchange instructions may be given in writing or
by telephone. Telephone exchanges may only be made if a Telephone Authorization
form has been previously executed and filed with LFD. Telephone exchanges are
permitted only after a minimum of 7 days have elapsed from the date of a
previous exchange. Exchanges may not be made until all checks in payment for the
shares to be exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at the Agent;
shares held in certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for these
services. Any new account established with the same registration will also have
the privilege of exchange by telephone in the Lexington Funds. All accounts
involved in a telephonic exchange must have the same registration and dividend
option as the account from which the shares were transferred and will also have
the privilege of exchange by telephone in the Lexington Funds in which these
services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD, distributor of
the Lexington Group of Mutual Funds, as the true and lawful attorney to
surrender for redemption or exchange any and all non-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, authorizes and
directs LFD to act upon and instruction from any person by telephone for
exchange of shares held in any of these accounts, to purchase shares of any
other Lexington Fund that is available, provided the registration and mailing
address of the shares to be purchased are identical to the registration of the
shares being redeemed, and agrees that neither LFD, the Agent, 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 exchange transactions will take place on recorded
telephone lines and each transaction will be confirmed in writing by the Fund.
LFD reserves the right to cease to act as agent subject to the above appointment
upon thirty (30) days written notice to the address of record. If the
shareholder is an entity other than an individual, such entity may be required
to certify that certain persons have been duly elected and are now legally
holding the titles given and that the said corporation, trust, unincorporated
association, etc. is duly organized and existing and has the power to take
action called for by this continuing authorization.
Exchange Authorization forms, Telephone Authorization forms and prospectus
of the other funds may be obtained from LFD.
The Distributor has made arrangements with certain dealers to accept
instructions by telephone to exchange shares of the Fund 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. 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.
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<PAGE>
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Salary Reduction
Plans, Section 457 Deferred Compensation Plans and 403(b)(7) Plans. Plan support
services are available through the Shareholder Services Department of LMC. For
further information call 1-800-526-0056.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay quarterly dividends from investment income after the
close of each quarter, if earned and as declared by its Board of Trustees.
Distributions of net capital gains, if any, realized on sales of investments
will be paid annually.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing requesting
payments in cash. This request must be received by the Agent at least seven days
before the dividend record date. Upon receipt by the Agent of such written
notice, all further payments will be made in cash until written notice to the
contrary is received. An account of such shares owned by each shareholder will
be maintained by the agent. Shareholders whose accounts are maintained by the
Agent will have the same rights as other shareholders with respect to shares so
registered (see "How to Purchase Shares-The Open Account").
DISTRIBUTION PLAN
The Board of Trustees of the Fund has adopted a Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940,
after having concluded that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan provides that the Fund may pay
distribution fees, including payments to the Distributor, at an annual rate not
to exceed 0.25% of its average daily net assets for distribution services.
Distribution payments will be made as follows: The Fund either directly or
through the adviser, may make payments periodically (i) to the Distributor or to
any broker-dealer (a "Broker") who is registered under the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and who has entered into a Selected Dealer Agreement
with the Distributor, (ii) to other persons or organizations ("Servicing
Agents") who have entered into shareholder processing and service agreements
with the Adviser or with the Distributor, with respect to Fund shares owned by
shareholders for which such Broker is the dealer or holder of record or such
servicing agent has a servicing relationship, or (iii) for expenses associated
with distribution of Fund shares, including the compensation of the sales
personnel of the Distributor; payments of no more than an effective annual rate
of 0.25%, or such lesser amounts as the Distributor determines appropriate.
Payments may also be made for any advertising and promotional expenses relating
to selling efforts, including but not limited to the incremental costs of
printing, prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to persons who are not shareholders of
the Fund; the costs of preparing and distributing any other supplemental sales
literature; costs of radio, television, newspaper and other advertising;
telecommunications expenses, including the cost of telephones, telephone lines
and other communications equipment, incurred by or for the Distributor in
carrying out its obligations under the Distribution Agreement. LMC, at no
additional cost to the Fund, may pay to Shareholder Servicing Agents, additional
amounts from past profits for administrative services.
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
13
<PAGE>
Distributions by the Fund of its net investment income and the excess, if
any, of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but in any year only a portion
thereof (which cannot exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund during the year) should qualify for
the 70% dividends-received deduction for corporate shareholders. Because the the
Fund's investment income may include interest and dividends from foreign
corporations and the Fund may have short-term capital gains, less than 100% of
the ordinary income dividends paid by the Fund may qualify for the
dividends-received deduction. Distributions by the Fund of the excess, if any,
of its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder held
his shares.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the fiscal year will be sent to shareholders promptly after the end of
each year.
Shareholders purchasing shares of the Fund just prior to the ex-dividend
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase reflected the amount
of such dividend.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. In order to avoid this back-up withholding, a
shareholder must provide the Fund with a correct taxpayer identification number
(which for most individuals is their Social Security number) and certify that it
is a corporation or otherwise exempt from or not subject to back-up withholding.
The new account application included with this Prospectus provides for
shareholder compliance with these certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036, has been retained to act as the Custodian for the Funds' portfolio
securities including those to be held by foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the SEC and for the Fund's domestic securities and other assets.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, is the transfer agent and dividend disbursing agent for the Fund. Neither
Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company have any part
in determining the investment policies of the Fund or in determining which
portfolio securities are to be purchased or sold by the Fund or in the
declaration of dividends and distributions.
14
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022 will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1995.
OTHER INFORMATION
The Fund was organized as a business trust under the laws of the
Commonwealth of Massachusetts on August 19, 1986 under the name Concord Income
Trust. It adopted its present name on November 11, 1992.
The Fund has an unlimited number of authorized shares, entitled Shares of
Beneficial Interest (.10 par value). The Fund presently has one series of shares
and has reserved the right to create and issue additional series of shares, in
which case the shares of each series would participate equally in the earnings,
dividends and assets of the particular series. Shareholders are entitled to one
vote for each share held to approve investment advisory agreements or changes in
investment policy, in the election or selection of Trustees, principal
underwriters and accountants and on any material amendment to the Trust's
Declaration of Trust. The Fund does not intend to hold annual shareholder
meetings. Instead, meetings of shareholders will be held only: (1) for the
election of trustees; (2) for the approval of any new or amended advisory
agreements; (3) ratification of the selection of independent public accountants
or (4) approval of the distribution agreement. Meetings of the shareholders may
be called at any time by any Trustee upon the written request of shareholders
holding in the aggregate not less than 10% of the outstanding shares, such
request specifying the purposes for which such meeting is to be called, which
may include a proposal to remove some or all of the trustees. The Fund will
assist shareholders in any such communication between shareholders and Trustees.
each share of the Fund represents an equal proportionate interest in the
Portfolio with each other share. Shares have no preemptive or conversion rights.
Shares are fully paid and non-assessable, except as set forth below. Upon
liquidation of the Fund, its shareholders are entitled to share pro rata in its
net assets available for distribution to shareholders. Shares will remain on
deposit with the Agent and certificates will not be issued unless requested.
Certificates for fractional shares are not issued in any case.
The Trust is an entity of the type commonly known as a "Massachusetts
Business Trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances be held personally liable for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself is
unable to meet its obligations.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the Securities and Exchange
Commission (herein called the "Commission"), Washington, D.C. under the
Securities Act of 1933, as amended. A "Statement of Additional Information," to
which reference is made in this Prospectus, provides a further discussion of
certain matters in the Prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and Statement of Additional Information omit certain information
contained in the Registration Statement which has been filed with the
Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
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<PAGE>
APPENDIX
SUMMARY OF RATINGS
Corporate and Municipal Debt Securities Ratings
Moody's Standard & Poor's
Investor Service Corporation
- ---------------- -----------------
Aaa AAA Highest quality
Aa AA High quality
A A Upper medium grade
Baa BBB Medium grade
Ba BB Speculative
- B More speculative
- CCC, CC, C Highly speculative
- CI Income bond, no interest
interest paid cur-
rently
Caa, Ca, C - Probably in default
- D In default
Not rated Not rated
16
<PAGE>
Right Side
L E X I N G T O N
LEXINGTON
CONVERTIBLE
SECURITIES
FUND
No Sales Charge
No Redemption Fee
Free Telephone
Exchange Privilege
The Lexington Group
of No Load
Investment Companies
P R O S P E C T U S
MAY 1, 1995
-----------
Left Side
Investment Adviser
- -----------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 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, N.J. 07663
All shareholder requests for services of any kind should be
sent to:
Transfer Agent
- -----------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service: 1-800-526-0056
Table of Contents Page
- -----------------------------------------------------------
Fee Table ............................................. 2
Financial Highlights .................................. 2
Description of the Fund ............................... 3
Investment Objective and Policies ..................... 3
Description and Risks of Convertible Securities ....... 4
Portfolio Turnover .................................... 6
Investment Restrictions ............................... 6
Yield and Total Return ................................ 6
Management of the Fund ................................ 7
Portfolio Manager ..................................... 7
Investment Adviser, Distributor and Administrator ..... 7
How to Purchase Shares ................................ 8
How to Redeem Shares .................................. 9
Shareholder Services .................................. 10
Exchange Privilege .................................... 10
Tax-Sheltered Retirement Plans ........................ 13
Dividend, Distribution and Reinvestment Policy ........ 13
Distribution Plan ..................................... 13
Tax Matters ........................................... 13
Custodian, Transfer Agent and Dividend Disbursing Agent 14
Counsel and Independent Auditors ...................... 15
Other Information ..................................... 15
Appendix .............................................. 16
<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This statement of additional information which is not a prospectus,
should be read in conjunction with the current prospectus of Lexington
Convertible Securities Fund (the "Fund") dated May 1, 1995, 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
24 Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's
investment adviser and Ariston Capital Management Corporation ("ACMC") act
as sub-adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's
distributor.
TABLE OF CONTENTS
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Adviser, Sub-Adviser, Distributor and Administrator . . . . 3
Tax-Sheltered Retirement Plans . . . . . . . . . . . . . . . . . . . . 5
Portfolio Transactions and Brokerage Commissions . . . . . . . . . . . 6
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Performance Calculation. . . . . . . . . . . . . . . . . . . . . . . .13
Custodian, Transfer Agent and Dividend Disbursing Agent. . . . . . . .14
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . .14
High Yield Debt Securities . . . . . . . . . . . . . . . . . . . . . .17
Shareholder Reports. . . . . . . . . . . . . . . . . . . . . . . . . .18
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . .18
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . .18
1
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment objectives, 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 may not: (i) issue senior securities; (ii) borrow money,
except that the Fund may borrow from a bank as a temporary measure for
extraordinary or emergency purposes or to meet redemptions in amounts not
exceeding 10% (taken at market value) of its total assets and pledge its
assets to secure such borrowings; the Fund may not purchase additional
securities when money borrowed exceeds 5% of the Fund's assets; (iii)
underwrite securities of other issuers; (iv) 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 or
instrumentalities; (v) purchase or sell real estate, real estate limited
partnerships, commodity contracts or commodities (however, the Fund may
purchase municipal bonds secured by real estate or interest therein and may
purchase interests in mortgage-backed securities); (vi) make loans to other
persons except (a) through the purchase of a portion or portions of an issue
or issues of securities issued or guaranteed by the U.S. Government or its
agencies or (b) through investments in illiquid securities including
"repurchase agreements" (which are arrangements under which the Fund
acquires a debt security subject to an obligation of the seller to
repurchase it at a fixed price within a short period) provided that no more
than 10% of the Fund's assets may be invested in such securities which
mature in more than seven days; (vii) purchase the securities of another
investment company or investment trust except in the open market where no
profit results to a sponsor or dealer, other than the customary broker's
commission or by merger or other reorganization; (viii) purchase any
security on margin (except that the Fund may obtain such short-term credit
as may be necessary for the clearance of purchase and sales of portfolio
securities) or effect a non-collateralized short sale of a security; (ix)
buy securities from or sell securities (other than securities issued by the
Fund) to any of its officers, Trustees or LMC, or ACMC as principal; (x)
contract to sell any security or evidence of interest therein, except to the
extent that the same shall be owned by the Fund; (xi) purchase or retain
securities of an issuer when one or more of the officers and Trustees of the
Fund or of the officers and Directors of the LMC or ACMC or a person owning
more than 10% of the stock of either, owning more than 1/2 of 1% of such
securities together own beneficially more than 5% of the securities of such
issuer; (xii) invest more than 5% of its total assets in the securities of
any one issuer (except securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities), except that such
restriction shall not apply to 25% of the Fund's assets; (xiii) purchase any
securities if such purchase would cause the Fund to own at the time of
purchase more than 10% of the outstanding voting securities of any one
issuer; (xiv) purchase any security restricted as to disposition under
Federal securities laws; or securities that are not readily marketable; or
purchase any securities if such purchase would cause the Fund to own at the
time of purchase, illiquid securities, including repurchase agreements with
an agreed upon repurchase date in excess of seven days from the date of
acquisition by the Fund, having an aggregate market value in excess of 10%
of the value of the Fund's total assets; (xv) invest in interests in oil,
gas, mineral leases or other mineral exploration or development programs and
(xvi) invest more than 5% of the value of its total assets in warrants.
Warrants which are not listed on the New York Stock Exchange or on the
American Stock Exchange shall not exceed 2% of the Fund's total assets.
This restriction on the purchase of warrants does not apply to warrants
attached to or otherwise included in a unit with other securities. Although
the Fund has the right to pledge, mortgage or hypothecate its assets, the
Fund will not, as a matter of operating policy, pledge, mortgage or
hypothecate its portfolio securities to the extent that at any time the
percentage of pledged securities will exceed 10% of the Fund's net assets.
2
<PAGE>
Other Restrictions
The Fund may not invest in securities of an issuer which, together
with any predecessor, has been in operation for less than three years if,
as a result, more than 5% of the value of the total assets of the Fund then
would be invested in such securities.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, N.J. 07663, is the investment adviser to the Fund and
provides investment advise and in general conducts the management and
investment program of the Fund under the general supervision and control of
the Trustees of the Fund. LMC has entered into a sub-advisory contract with
Ariston Capital Management Corporation, a registered investment adviser
under which Ariston will provide the Fund with certain investment management
and administrative services. Lexington Funds Distributor, Inc. is the
Fund's distributor.
Piedmont Management Company Inc. is a publicly traded financial
services company. LMC and LFD are wholly-owned subsidiaries of Piedmont
Management Company Inc. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and related entities have a majority voting control of
outstanding shares of Piedmont Management Company Inc.
As compensation for its services, the Fund pays LMC a monthly
management fee at the annual rate of 1.00% of the average daily net assets.
In connection with providing investment advisory services, LMC has entered
into a sub-advisory agreement between LMC and ACMC. LMC will pay ACMC a
monthly sub-advisory fee at the annual rate of 0.75% of the average daily
net assets of the Fund up to $7 million or 0.50% above $7 million.
LMC serves as investment adviser to other investment companies and
private and institutional investment accounts. LMC from time to time may
voluntarily waive the management fee to which it would otherwise be entitled
and may voluntarily assume certain expenses while retaining the ability to
be reimbursed by the Fund for such amounts prior to the end of the fiscal
year.
LMC, as owner of the registered service mark "Lexington", will
sublicense the Fund to include the word "Lexington" as part of its corporate
name, subject to revocation by LMC in the event that the Fund ceases to
engage LMC or its affiliates as investment adviser, sub-adviser or
distributor. In that event, the Fund will be required upon demand of LMC
to change its corporate name to delete the word "Lexington" therefrom.
LMC's investment advisory fee will be reduced for any fiscal year by
any amount necessary to prevent Fund expenses from exceeding the most
restrictive expense limitation imposed by the securities laws or regulations
of those states or jurisdictions in which the Fund's shares are registered
or qualified for sale. Currently, the most restrictive of such expense
limitation would require LMC to reduce its fee so that ordinary expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) for any fiscal year do not exceed 2.5% of the first $30 million
of the Fund's average daily net assets, plus 2.0% of the next $70 million,
plus 1.5% of the Fund's average daily net assets in excess of $100 million.
Any expense reduction will be estimated and accrued daily and will be
subject to readjustment during the year. The amount of any such reduction
shall be deducted from the monthly advisory fee, or if such amount exceeds
the monthly fee otherwise payable, LMC will repay such excess promptly.
3
<PAGE>
Under the terms of the Investment Advisory Agreement, LMC pays the
Fund's expenses for office rent, utilities, telephone, furniture and
supplies utilized for the Fund's principal office and the
salaries and payroll expense of officers and Trustees of the Fund who are
employees of LMC or its affiliates in carrying out its duties under the
investment advisory agreement. The Fund pays all its other expenses
including custodian and transfer agent fees, legal fees and other expenses
for registration of the Fund's shares in accordance with Federal or state
securities laws, audit fees, printing of prospectuses, shareholder reports
and communications required for regulatory purposes or for distribution to
existing shareholders, computation of net asset value, mailing of
shareholder reports and communications, portfolio brokerage, taxes and non-
interested Trustees' fees and expenses.
LMC serves as investment adviser to other investment companies and
private and institutional investment accounts. Included among these clients
are persons and organizations which own significant amounts of capital stock
of LMC's parent. LMC's accounts are managed independently with reference
to the applicable investment objectives and current security holdings, but
on occasion more than one fund or counsel account may seek to engage in
transactions in the same security at the same time. To the extent
practicable, such transactions will be effected on a pro-rata basis in
proportion to the respective amounts of securities to be bought and sold for
each portfolio, and the allocated transactions will be averaged as to price.
While this procedure may adversely affect the price or volume of a given
Fund transaction, LMC believes that the ability of the Fund to participate
in combined transactions may generally produce better executions overall.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited
to, maintaining general ledger accounts, regulatory compliance, preparation
of financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and provides
facilities for such services. The Fund shall reimburse LMC for its actual
cost in providing such services, facilities and expenses.
LFD serves as distributor for Fund shares under a Distribution
Agreement between the Fund and LFD pursuant to which LFD acts as the
principal selling representative for the Fund. LFD pays the advertising and
sales expenses of the continuous offering of Fund shares, including the cost
of printing prospectuses, proxies and shareholder reports for persons other
than existing shareholders. The Fund furnishes LFD, at printer's overrun
cost paid by LFD, such copies of its prospectus and annual, semi-annual and
other reports and shareholder communications as may reasonably be required
for sales purposes.
The Advisory Agreement, Sub-Advisory Agreement, the Distribution
Agreement and the Administrative Services Agreement are subject to annual
approval by the Fund's Board of Trustees and by the affirmative vote, cast
in person at a meeting called for such purpose, of a majority of the
Trustees who are not parties either to the Advisory Agreement, Sub-Advisory
Agreement or the Distribution Agreement, as the case may be, or "interested
persons" of any such party. Either the Fund, LMC, ACMC, or LFD may
terminate either the Advisory agreement, Sub-Advisory Agreement or the
Distribution Agreement on 60 days' written notice without penalty. The
Advisory Agreement terminates automatically in the event of assignment, as
defined in the Investment Company Act of 1940.
Of the Trustees, executive officers and employees ("affiliated
persons") of the Trust, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor,
Lavery, Luehs and Petruski and Mmes. Carnicelli, Carr, Curcio, Gilfillan and
Mosca (see "Management of the Fund") may also be deemed affiliates of LMC
by virtue of being officers, Trustees or employees thereof. As of April 3,
1995, all officers and Trustees of the Fund as a group, were beneficial
owners of less than 1% of the shares of the Fund.
4
<PAGE>
Neither LMC, ACMC, nor LFD shall not be liable to the Fund or its
shareholders for any act or omission by LMC, ACMC, nor LFD its officers,
shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Fund Advisory Fee Paid to LMC and the amount paid by LMC to ACMC
pursuant to the Sub-Advisory Agreement:
Fiscal Year
Ended ARISTON LMC
----------- ------- ---
1992 $19,998 -0-
1993 54,744 $19,744
1994 53,143 77,962
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit
Sharing Plans including a 401(k) Salary Reduction Plan and a 403(b)(7) Plan.
Plan services are available by contacting the Shareholder Services
Department of the Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): Individuals may make tax
deductible contributions to their own Individual Retirement Accounts
established under Section 408 of the Internal Revenue Code (the "Code").
Married investors filing a joint return neither of whom is an active
participant in an employer sponsored retirement plan, or who have an
adjusted gross income of $40,000 or less ($25,000 or less for single
taxpayers) may continue to make a $2,000 ($2,250 for spousal IRA's) annual
deductible IRA contribution. For adjusted gross incomes over $40,000
($25,000 for single taxpayers), the IRA deduction limit is generally phased
out ratably over the next $10,000 of adjusted gross income, subject to a
minimum $200 deductible contribution. Investors who are not able to deduct
a full $2,000 ($2,250 spousal) IRA contribution because of the limitations
may make a non-deductible contribution to their IRA to the extent a
deductible contribution is not allowed. Federal income tax on accumulations
earned on non-deductible contributions is deferred until such time as these
amounts are deemed distributed to an investor. Rollovers are also permitted
under the Plan. The Disclosure statement required by the Internal Revenue
Service ("IRS") is provided by the Fund.
The minimum initial investment to establish a tax-sheltered plan
through the Fund is $250 for both Keogh Plans and IRA Plans. Subsequent
investments are subject to a minimum of $50 for each account.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may
make tax deductible contributions to a prototype defined contribution
pension plan or profit sharing plan. There are, however, a number of
special rules which apply when self-employed individuals participate in such
plans. Currently purchase payments under a self-employed plan are
deductible only to the extent of the lesser of (i) $30,000 or (ii) 25% of
the individuals earned annual income (as defined in the Code) and in
applying these limitations not more than $200,000 of "earned income" may be
taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available
a Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing
Plan.
5
<PAGE>
All purchases and redemptions of Fund shares pursuant to any one of
the Fund's tax sheltered plans must be carried out in accordance with the
provisions of the Plan. Accordingly, all plan documents should be reviewed
carefully before adopting or enrolling in the plan. Investors should
especially note that a penalty tax of 10% may be imposed by the IRS on early
withdrawals under corporate, Keogh or IRA Plans. It is recommended by the
IRS that an investor consult a tax adviser before investing in the Fund
through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund and may terminate the Plan with
the Fund at any time. Except for expenses of sales and promotion, executive
and administrative personnel, and certain services which are furnished by
LMC, the cost of the plans generally is borne by the Fund; however, each IRA
Plan is subject to an annual maintenance fee of $12.00 charged by the Agent.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund's transactions in convertible securities and most other types
of securities in which it may invest occur primarily with issuers,
underwriters or major dealers acting as principals. Such transactions are
normally on a net basis which do not involve payment of brokerage
commissions. Premiums are paid with respect to options purchased by the
Fund. The cost of securities purchased from an underwriter usually includes
a commission paid by the issuer to the underwriters; transactions with
dealers normally reflect the spread between bid and asked prices. The Fund
may also execute transactions through broker-dealers on a commission basis.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including
brokerage commissions. This policy governs the selection of brokers and
dealers and the market in which a transaction is executed. Consistent with
this policy, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and such other policies as the Trustees may
determine, LMC or ACMC may consider sales of shares of the Fund and of the
other Lexington Funds as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions. However, pursuant to the Fund's
investment management agreement, management consideration may be given in
the selection of broker-dealers to research provided and payment may be made
of a commission higher than that charged by another broker-dealer which does
not furnish research services or which furnishes research services deemed
to be of a lesser value, so long as the criteria of Section 28(e) of the
Securities Exchange Act of 1934 are met. Section 28(e) of the Securities
Exchange Act of 1934 was adopted in 1975 and specifies that a person with
investment discretion shall not be "deemed to have acted unlawfully or to
have breached a fiduciary duty" solely because such person has caused the
account to pay a higher commission than the lowest available under certain
circumstances, provided that the person so exercising investment discretion
makes a good faith determination that the commissions paid are "reasonable
in the relation to the value of the brokerage and research services provided
... viewed in terms of either that particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion."
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for research services might
exceed commissions that would be payable for execution services alone. Nor
generally can the value of research services to the Fund be measured.
Research services furnished might be useful and of value to LMC or ACMC and
its affiliates in serving other clients as well as the Fund. On the other
hand, any research services obtained by LMC or ACMC or its affiliates from
the placement of portfolio brokerage of other clients might be useful and
of value to LMC or ACMC in carrying out its obligations to the Fund.
6
<PAGE>
For fiscal years ended December 31, 1992 and 1993, all portfolio
transactions were effected on a net basis through dealers acting as
principal and, accordingly, no brokerage commissions were payable. For the
fiscal year ended December 31, 1994, the Fund paid brokerage commissions of
$1,496. The Fund's portfolio turnover rate for the fiscal years ending
December 31, 1992, 1993 and 1994 were respectively, 12.58%, 6.53% and
38.14%.
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 LMC may make payments periodically (i) to LFD 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 LMC or with LFD 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 LFD; payments of no more than an
effective annual rate of 0.25%, or such lesser amounts as LFD 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 LFD 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 Trustees 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 remain in effect for one year from its adoption date
and may be continued thereafter if this Plan and all related agreements are
approved at least annually a majority vote of the Trustees of the Fund,
including a majority of the Qualified Trustees 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 Trustees of the
Fund, and of the Qualified Trustees (as hereinafter defined), cast in person
at a meeting called for the purpose of voting thereon.
The Plan may be terminated at any time by a majority vote of the
Trustees 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 Trustees") 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.
7
<PAGE>
While this Plan shall be in effect, the selection and nomination of
the "non-interested" Trustees of the Fund shall be committed to the
discretion of the Qualified Trustees then in office.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains
over capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e., net
investment income and the excess of net short-term capital gain over net
long-term capital loss) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by the Fund made during the taxable year or,
under specified circumstances, within twelve months after the close of the
taxable year, will be considered distributions of income and gains of the
taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive
of certain gains on designated hedging transactions that are offset by
realized or unrealized losses on offsetting positions) from the sale or
other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the Fund
may have to limit the sale of appreciated securities that it has held for
less than three months. However, the Short-Short Gain Test will not prevent
the Fund from disposing of investments at a loss, since the recognition of
a loss before the expiration of the three-month holding period is
disregarded for this purpose. Interest (including original issue discount)
received by the Fund at maturity or upon the disposition of a security held
for less than three months will not be treated as gross income derived from
the sale or other disposition of such security within the meaning of the
Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
8
<PAGE>
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
addition, under the rules of Code Section 988, gain or loss recognized on
the disposition of a debt obligation denominated in a foreign currency or
an option with respect thereto (but only to the extent attributable to
changes in foreign currency exchange rates), and gain or loss recognized on
the disposition of a foreign currency forward contract, futures contract,
option or similar financial instrument, or of foreign currency itself,
except for regulated futures contracts or non-equity options subject to Code
Section 1256 (unless the Fund elects otherwise), will generally be treated
as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or short-
term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset
so used, (2) the asset is otherwise held by the Fund as part of a "straddle"
(which term generally excludes a situation where the asset is stock and the
Fund grants a qualified covered call option (which, among other things, must
not be deep-in-the-money) with respect thereto) or (3) the asset is stock
and the Fund grants an in-the-money qualified covered call option with
respect thereto. However, for purposes of the Short-Short Gain Test, the
holding period of the asset disposed of may be reduced only in the case of
clause (1) above. 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.
For purposes of the Short-Short Gain Test, the holding period of an option
written by the Fund will commence on the date it is written and end on the
date it lapses or the date a closing transaction is entered into.
Accordingly, the Fund may be limited in its ability to write options which
expire within three months and to enter into closing transactions at a gain
within three months of the writing of options.
Transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are
sold for their fair market value on the last business day of the taxable
year, even though a taxpayer's obligations (or rights) under such contracts
have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as
a consequence of the year-end deemed disposition of Section 1256 contracts
is taken into account for that year together with any other gain or loss
that was previously recognized upon the termination of Section 1256
contracts during the year. Any capital gain or loss for the taxable year
with respect to Section 1256 contracts (including any capital gain or loss
arising as a consequence of the year-end deemed sale of such contracts) is
generally treated as 60% long-term capital gain or loss and 40% short-term
capital gain or loss. The Fund, however, may elect not to have this special
tax treatment apply to Section 1256 contracts that are part of a "mixed
straddle" with other investments of the Fund that are not Section 1256
contracts. The IRS has held in several private rulings (and Treasury
Regulations now provide) that gains arising from Section 1256 contracts as
a result of a constructive sale under Code Section 1256 will be treated for
purposes of the Short-Short Gain Test as being derived from securities held
for not less than three months.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) for any taxable year, to elect (unless it has made a taxable year
election for excise tax purposes as discussed below) to treat all or any
part of any net capital loss, any net long-term capital loss or any net
foreign currency loss incurred after October 31 as if it had been incurred
in the succeeding year.
9
<PAGE>
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each quarter
of the Fund's taxable year, at least 50% of the value of the Fund's assets
must consist of cash and cash items, U.S. Government securities, securities
of other regulated investment companies, and securities of other issuers (as
to which the Fund has not invested more than 5% of the value of its total
assets in securities of such issuer and as to which the Fund does not hold
more than 10% of the outstanding voting securities of such issuer), and no
more than 25% of the value of its total assets may be invested in the
securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are engaged in the same or similar
trades or businesses. Generally, an option (a call or a put) with respect
to a security is treated as issued by the issuer of the security not the
issuer of the option.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will be
taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends-received deduction in the case
of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to
98% of ordinary taxable income for the calendar year and 98% of capital gain
net income for the one-year period ended on October 31 of such calendar year
(or, at the election of a regulated investment company having a taxable year
ending November 30 or December 31, for its taxable year (a "taxable year
election")). The balance of such income must be distributed during the next
calendar year. For the foregoing purposes, a regulated investment company
is treated as having distributed any amount on which it is subject to income
tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise
tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will qualify for the 70% dividends-
received deduction for corporate shareholders only to the extent discussed
below.
10
<PAGE>
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to
distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to shareholders
as long-term capital gain, regardless of the length of time the shareholder
has held his shares or whether such gain was recognized by the Fund prior
to the date on which the shareholder acquired his shares.
Conversely, if the Fund elects to retain its net capital gain, the
Fund will be taxed thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If the Fund elects to
retain its net capital gain, it is expected that the Fund also will elect
to have shareholders of record on the last day of its taxable year treated
as if each received a distribution of his pro rata share of such gain, with
the result that each shareholder will be required to report his pro rata
share of such gain on his tax return as long-term capital gain, will receive
a refundable tax credit for his pro rata share of tax paid by the Fund on
the gain, and will increase the tax basis for his shares by an amount equal
to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations, such as S corporations,
which are not eligible for the deduction) to the extent of the amount of
qualifying dividends received by the Fund from domestic corporations for the
taxable year. The dividends-received deduction for a corporate shareholder
may be disallowed or reduced pursuant to the limitatins of section 246 of
the Code.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source.
The United States has entered into tax treaties with many foreign countries
which entitle the Fund to a reduced rate of, or exemption from, taxes on
such income. It is impossible to determine the effective rate of foreign
tax in advance since the amount of the Fund's assets to be invested in
various countries is not known.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital
to the extent of (and in reduction of) the shareholder's tax basis in his
shares; any excess will be treated as gain realized from a sale of the
shares, as discussed below.
Distributions by the Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another fund).
Shareholders receiving a distribution in the form of additional shares will
be treated as receiving a distribution in an amount equal to the fair market
value of the shares received, determined as of the reinvestment date. In
addition, if the net asset value at the time a shareholder purchases shares
of the Fund reflects realized but undistributed income or gain, or
unrealized appreciation in the value of assets held be the Fund,
distributions of such amounts to the shareholder will be taxable in the
manner described above, although economically they constitute a return of
capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which they are made. However, dividends
declared in October, November or December of any year and payable to
shareholders of record on a specified date in such 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) during the year.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of distributions and the proceeds of redemption of
shares, paid to any shareholder (1) who has provided either an incorrect tax
identification number or no number at all, (2) who is subject to backup
withholding by the IRS for failure to report the receipt of interest or
dividend income properly, or (3) who has failed to certify to the Fund that
it is not subject to backup withholding or that it is a corporation or other
"exempt recipient."
11
<PAGE>
Sale or Redemption of Shares
A shareholder will recognize gain or loss on a sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds
of the sale or redemption and the shareholder's adjusted tax basis in the
shares. All or a portion of any loss so recognized may be disallowed if the
shareholder purchases other shares of the Fund within 30 days before or
after the sale or redemption. In general, any gain or loss arising from (or
treated as arising from) the sale or redemption of shares of the Fund will
be considered capital gain or loss and will be long-term capital gain or
loss if the shares were held for longer than one year. However, any capital
loss arising from the sale or redemption of shares held for six months or
less will be treated as a long-term capital loss to the extent of the amount
of capital gain dividends received on such shares. For this purpose, the
special holding period rules of Code Section 246(c)(3) and (4) generally
will apply in determining the holding period of shares. Long-term capital
gains of noncorporate taxpayers are currently taxed at a maximum rate 11.6%
lower than the maximum rate applicable to ordinary income. Capital losses
in any year are deductible only to the extent of capital gains plus, in the
case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation,
or foreign partnership ("foreign shareholder"), depends on whether the
income from the Fund is "effectively connected" with a U.S. trade or
business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding
tax at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. A foreign shareholder would generally be exempt from U.S. federal
income tax on gains realized on a sale of shares of the Fund, capital gain
dividends and amounts retained by the Fund that are designated as
undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade
or business carried on by a foreign shareholder, then ordinary income and
capital gain dividends, and any gains realized upon a sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to
U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable at
a reduced treaty rate) unless the shareholder furnishes the Fund with proper
notification of its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may 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.
12
<PAGE>
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and any
such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged
to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting an 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 return. Under the rules of the Securities and Exchange
Commission ("SEC rules"), funds advertising performance must include total
return quotes calculated according to the following formula:
n
P(1 + T) = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the 1, 5 and 10 year periods (or
fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover one, five, and ten year periods or a shorter period dating from
the effectiveness of the Fund's Registration Statement. In calculating the
ending redeemable value, all dividends and distributions by the Fund are
assumed to have been reinvested at the net asset value as described in the
Prospectus on the reinvestment dates during the period. The total return,
or "T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the ending
redeemable value. Any recurring account charges that might in the future
be imposed by the Fund would be included at that time. Lexington
Convertible Securities Fund's total return for the one and five year and
since inception (1/20/88) December 31, 1994 is a follows:
Average Annual
Period Total Return
------ ------------
1 year ended December 31, 1994 1.30%
5 years ended December 31, 1994 11.28%
83 month period ended December 31, 1994 10.06%
The Fund may also, from time to time, include in such advertising a
total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the Fund
with other measures of investment return. For example, in comparing the
Fund's total return with data published by Lipper Analytical Services, Inc.,
or with the performance of the Standard & Poor's 500 Composite Stock Price
Index or the Dow Jones Industrial Average, the Fund calculates its aggregate
total return for the specified periods of time by assuming the reinvestment
of each dividend or other distribution at net asset value on the
reinvestment date. Percentage increases are determined by subtracting the
initial value of the investment from the ending value and by dividing the
remainder by the beginning value.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New
York 10036 has been retained to act as the Custodian for the Fund's
portfolio securities. 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.
MANAGEMENT OF THE FUND
The Fund's trustees and executive officers and their principal
occupations are:
*+ ROBERT M. DEMICHELE, Chairman. P.O. Box 1515 Saddle Brook, N.J. 07663.
Chairman and and Chief Executive Officer, Lexington Management
Corporation; Chairman and Chief Executive Officer, Lexington Funds
Distributor, Inc., President and Director, Piedmont Management Company
Inc.; Director, Reinsurance Corporation of New York; Director, Unione
Italiana Reinsurance; Vice Chairman of the Board of Trustees, Union
College; Director, Continental National Corporation; Director, The
Navigator s Group, Inc.; Lexington Capital Management, Inc.; Chairman,
LCM Financial Services, Inc.; Director, Vanguard Cellular Systems, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc. (registered investment advisers).
+ BEVERLEY C. DUER, Trustee, 340 East 72nd Street, New York, N.Y.
10021. Investment/Engineering Economics Consultant; formerly,
Manager of Operations Research Department, CPC International, Inc.
JERARD F. MAHER, Trustee. 300 Raritan Center Parkway, Edison, New Jersey
08818. General Counsel, Federal Business Center.
* RICHARD B. RUSSELL, Trustee and President. 40 Lake Bellevue Drive,
Suite 220, Bellevue, Washington 98005. President, ACMC Capital
Management Corporation (investment adviser).
ALLAN H. STOWE, Trustee. 3674 Fifth and Ocean Avenues, Normandy Beach,
New Jersey 08739. President, Shelter Service Company, Inc.; President,
Dartmouth Co-operative Society Co., Inc.; Director, Manchester Trust
Bank.
*+ LAWRENCE KANTOR, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc.
14
<PAGE>
*+ LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook,
New Jersey 07663. Senior Vice President and Secretary, Lexington
Management Corporation; Secretary, Lexington Group of Investment
Companies; Vice President and Secretary, Lexington Funds Distributor,
Inc.
*+ RICHARD M. HISEY, Vice President and Chief Financial Officer. P.O. Box
1515, Saddle Brook, N.J. 07663. Chief Financial Officer, Managing
Director and Director, Lexington Management Corporation; Chief Financial
Officer, Vice President and Director, Lexington Funds Distributor, Inc.;
Chief Financial Officer, Market Systems Research Advisors, Inc.
*+ RICHARD J. LAVERY, CLU ChFC, Vice President, P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Lexington Management
Corporation; Vice President, Lexington Funds Distributor, Inc.
*+ JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
* DAVID TSUJIMOTO, Vice President. 40 Lake Bellevue Drive, Suite 220,
Bellevue, Washington 98005. Vice President, Ariston Capital Management
Corporation.
*+ CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+ SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663.
*+ THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November, 1993, Supervisor Investment Accounting,
Alliance Capital Management, Inc.
*+ SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to September 1990, Fund Accounting Manager, Lexington
Group of Investment Companies.
*+ ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to May 1994, Supervising Senior Accountant, NY Life
Securities. Prior to December 1990, Senior Accountant, Dreyfus
Corporation.
*+ PETER CORNIOTES, Assistant Secretary, P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Secretary, Lexington Management Corporation.
Assistant Secretary, Lexington Funds Distributor, Inc.
*+ ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to March 1994, Blue Sky Compliance Coordinator,
Lexington Group of Investment Companies.
* "Interested person" and/or "Affiliated person" of LMC or ACMC as
defined in the Investment Company Act of 1940, as amended.
+ Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery,
Luehs, Petruski and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca hold
similar offices with some or all of the other registered investment
companies advised and/or distributed by LMC and LFD.
Trustees of the Fund not employed by the Fund or its affiliates
receive an annual fee of $600 and a fee of $150 for each meeting attended
plus reimbursement of expenses for attendance at regular meetings.
15
<PAGE>
During the fiscal year ended December 31, 1994, the aggregate remuneration
paid by the Fund to three such Trustees not employed by the Fund's affiliates
was $7,635.
Aggregate Total Compensation Number of
Compensation From Fund and Directorships in
Name of Director From Fund Fund Complex Fund Complex
- ---------------- ------------ ------------------ ----------------
Robert M. DeMichele $0 $0 15
Beverley C. Duer 350 17,800 15
Jerard Maher 2,350 2,350 1
Richard Russell 0 0 1
Allen Stowe 2,350 2,350 1
16
<PAGE>
HIGH YIELD DEBT SECURITIES
Additional Risks
The widespread expansion of government, consumer and corporate debt
within our economy has made the corporate sector, especially cyclically
sensitive industries, more vulnerable to economic downturns or increased
interest rates. An economic downturn could severely disrupt the market for
high yield securities and adversely affect the value of outstanding
securities and the ability of the issuers to repay principal and interest.
The prices of high yield securities have been found to be less
sensitive to interest rate changes than higher-rated investments, but more
sensitive to adverse economic changes or individual corporate developments.
Also, during an economic downturn or substantial period of rising interest
rates, highly leveraged issuers may experience financial stress which would
adversely affect their ability to service their principal and interest
payment obligations, to meet projected business goals, and to obtain
additional financing. If the issuer of a security owned by the Fund
defaulted, the Fund could incur additional expenses to seek recovery. In
addition, periods of economic uncertainty and changes can be expected to
result in increased volatility of market prices of high yield securities and
the Fund's net asset value. Furthermore, in the case of high yield
securities structured as zero coupon or pay-in-kind securities, their market
prices are affected to a greater extent by interest rate changes and thereby
tend to be more volatile than securities which pay interest periodically and
in cash. High yield securities also present risks based on payment
expectations. For example, high yield securities may contain redemption of
call provisions. If an issuer exercises these provisions in a declining
interest rate market, the Fund would have to replace the security with a
lower yielding security, resulting in a decreased return for investors.
Conversely, a high yield securities value will decrease in a rising interest
rate market, as will the value of the Fund's assets. If the Fund
experiences unexpected net redemption, this may force it to sell its high
yield securities without regard to their investment merits, thereby
decreasing the asset based upon which the Fund's expenses can be spread and
possibly reducing the Fund's rate of return.
In addition, to the extent that there is no established retail
secondary market, there may be thin trading of high yield securities, and
this may have an impact on LMC's and ACMC's ability to accurately value high
yield securities and the Fund's assets and on the Fund's ability to dispose
of the securities. Adverse publicity and investor perception, whether or
not based on fundamental analysis, may decrease the values and liquidity of
high yield securities especially in a thinly traded market.
New laws and proposed new laws may have an impact on the market for
high yield securities. For example, new legislation requiring federally-
insured savings and loan associations to divest their investments in high
yield securities and pending proposals designed to limit the use, or tax and
other advantages of high yield securities which, if enacted, could have a
material effect on the Fund's net asset value and investment practices.
There are also special tax considerations associated with investing
in high yield securities structured as zero coupon or pay-in-kind
securities. For example, the Fund reports the interest on these securities
as income even though it receives no cash interest until the security's
maturity or payment date. Also, the shareholders are taxed on this interest
event if the Fund does not distribute cash to them. Therefore, in order to
pay taxes on this interest, shareholders may have to redeem some of their
shares to pay the tax or the Fund may sell some of its assets to distribute
cash to shareholders. These actions are likely to reduce the Fund's assets
and may thereby increase its expense ratio and decrease its rate of return.
Finally, there are risks involved in applying credit ratings as a
method for evaluating high yield securities. For example, credit ratings
evaluate the safety of principal and interest payments, not market value
risk of high yield securities. Also, since credit rating agencies may fail
to timely change the credit ratings to reflect subsequent events, the Fund
(in conjunction with its investment adviser) will continuously monitor the
issuers of high yield securities to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments, and to assure the securities liquidity so the Fund can meet
redemption requests.
17
<PAGE>
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the
Fund's holding and other information. In addition, shareholder reports
received on an annual basis will include financial statements audited by
KPMG Peat Marwick LLP Fund's independent auditors.
OTHER INFORMATION
As of April 3 1995, the following persons were known by the Fund
management to have owned beneficially, directly or indirectly, five percent
or more of the outstanding shares of the Lexington Convertible Securities
Fund: Louis Baroh, 2200 6th Avenue, Seattle, WA 98121, 9% and Joseph B.
Mohr, 2157 La Paz Way, Palm Springs, CA 92264, 7%.
18
<PAGE>
PART C. OTHER INFORMATION
- -----------------------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
Page in the Financial
(a) Financial statements: Statements Exhibit
---------------------
Report of Independent Auditors 1
dated January 30, 1995
Statement of Net Assets (Including 2
the Portfolio of Investments) at
December 31, 1994 (1)
Statement of Assets and Liabilities 3
at December 31, 1994
Statement of Operations for the year 4
ended December 31, 1994 (2)
Statements of Changes in Net Assets for 4
the years ended December 31, 1994
and 1993
Notes to Financial Statements 5
Schedules II-VII and other Financial Statements, for
which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission, are
omitted because they are not required under the related
instructions, they are inapplicable, or the required information is
presented in the financial statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Declaration of Trust -- Incorporated by reference -
Filed 11/29/86
2. By-Laws -- Incorporated by reference - Filed 11/29/86
3. Not Applicable
4. Stock Certificate Specimen -- Incorporated by reference -
Filed 3/17/93
5a. Investment Advisory Agreement between Registrant and
Lexington Management Corporation --
Incorporated by reference - Filed 3/17/93
5b. Sub-Advisory Investment Management Agreement between
Registrant and Ariston Capital Management, Inc. --
Incorporated by reference - Filed 3/17/93
6. Distribution Agreement between Registrant and Lexington
Funds Distributor, Inc. -- Incorporated by reference -
Filed 3/17/93
7. Not Applicable
8a. Form of Custodian Agreement between Registrant Filed electronically
and Chase Manhattan Bank, N.A.
8b. Transfer Agency Agreements between Registrant
and State Street Bank and Trust Company --
Incorporated by reference - Filed 3/17/93
9. Form of Administrative Services Agreement between Filed electronically
Registrant and Lexington Management Corporation
10. Opinion of Counsel as to Legality of Securities being
registered -- Incorporated by reference - Filed 11/29/86
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Form of Distribution Plan under Rule 12b-1 and
related agreements -- Incorporated by reference -
Filed 3/17/93
16. Performance Calculation -- Incorporated by reference -
Filed 4/30/91
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each
such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, (2) the percentage of voting
securities owned or other basis of control by the person, if any,
immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders
of each class of securities of the Registrant.
The following information is given as of April 3, 1995:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of beneficial interest 279
($0.10 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own protection.
Under the terms of the General Laws of the State of Massachusetts and
the Trust's Restated Declaration of Trust, the Trust shall indemnify each of
its Trustees to receive such indemnification (including those who serve at
its request as directors, officers or trustees of another organization in
which it has any interest as a shareholder, creditor or otherwise), against
all liabilities and expenses, including amounts paid in satisfaction of
judgements, in compromise of fines and penalties, and counsel fees,
reasonably incurred by him in connection with the defense or disposition of
any action, suit or other proceeding by the Trust or any other person,
whether civil or criminal, in which he may be involved or with which he may
be threatened, while in office or thereafter, by reason of this being or
having been such a Trustee, officer, employee or agent, except with respect
to any matter as to which he shall have been adjudicated to have acted in bad
faith or with willful misfeasance or reckless disregard of duties or gross
negligence; provided, however, that as to any matter disposed of by a
compromise payment by such Trustee, officer, employee or agent, pursuant to a
consent, decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless the Trust shall have received
a written opinion from independent counsel approved by the Trustee to the
effect that if the foregoing matter had been adjudicated they would likely
<PAGE>
have been adjudicated in favor of such Trustee, officer, employee or agent.
The rights accruing to any Trustee, officer, employee or agent under these
provisions shall not exclude any other right to which he may lawfully be
titled; provided, however, that no Trustee, officer, employee or agent may
satisfy any right of indemnity or reimbursement granted herein or to which he
may otherwise be entitled except out of Trust Property, and no Shareholder
shall be personally liable to any Person with respect to any claim for
indemnity or reimbursement or otherwise. The Trustees may make advance
payments in connection with indemnification under the Declaration of Trust,
provided that the indemnified Trustee, officer, employee or agent shall have
given a written undertaking to reimburse the Trust in the event it is
subsequently determined that he is entitled to such indemnification.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been,
at any time during the past two fiscal years, engaged for his own account or
in the capacity of director, officer, employee, partner or trustee.
See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Tax Free Money Fund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington Short-Intermediate Government Securities Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Ramirez Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Natural Resources Trust
Lexington Corporate Leaders Trust Fund
Lexington Convertible Securities Fund
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa A. Curcio* Vice President and Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer Chief Financial
and Director Officer & Vice Pres.
Lawrence Kantor* Executive Vice President, Trustee & Vice Pres.
General Manager & Director
Richard Lavery* Vice President Vice President
Janice Violette* Assistant Treasurer None
(c)
Not Applicable.
- ---------------
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270, 31a-1
to 31a-3) promulgated thereunder, furnish the name and address of each person
maintaining physical possession of each such account, book or other document.
The Registrant, Lexington Convertible Securities Fund, Park 80 West -
Plaza Two, Saddle Brook, New Jersey 07663 will maintain physical possession
of such of each such account, book or other document of the Company, except
for those maintained by the Registrant's Custodian, Chase Manhattan Bank,
N.A., 1211 Avenue of the Americas, New York New York 10036, or Transfer Agent,
State Street Bank and Trust Company, c/o National Financial Data Services,
City Center Square, 1100 Main, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B
of this Form (because the contract was not believed to be
material to a purchaser of securities of the Registrant) under
which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom for
the last three fiscal years.
None.
Item 32. Undertakings -
------------
The Registrant, Lexington Convertible Securities Fund,
undertakes to furnish a copy of the Fund s latest
annual report, upon request and without charge, to
every person to whom a prospectus is delivered.
<PAGE>
Registration No. 33-10543
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON CONVERTIBLE SECURITIES FUND
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Financial Statements for the period ending December 31, 1994
Form of Custodian Agreement
Form of Administrative Services Agreement
Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
Consent of independent auditors for the inclusion of their report herein
Article 6 Financial Data Schedule
Cover
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of
the requirements for effectiveness of this amendment to the Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this amendment to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the City of Saddle Brook and State of New
Jersey, on the 25th day of April, 1995.
LEXINGTON CONVERTIBLE SECURITIES FUND
Robert M. DeMichele
________________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
Robert M. DeMichele
__________________________ Chairman of the Board April 25, 1995
Robert M. DeMichele Principal Executive
Officer
Richard M. Hisey
__________________________ Principal Financial April 25, 1995
Richard M. Hisey and Accounting Officer
Lisa Curcio
__________________________ Principal Compliance April 25, 1995
Lisa Curcio Officer
*Beverley C. Duer, P.E. Director April 25, 1995
- --------------------------
Beverley C. Duer, P.E.
*Barbara M. Evans Director April 25, 1995
- --------------------------
Barbara M. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director April 25, 1995
- --------------------------
Lawrence Kantor
*Donald B. Miller Director April 25, 1995
- --------------------------
Donald B. Miller
*Francis Olmsted Director April 25, 1995
- --------------------------
Francis Olmsted
*John G. Preston Director April 25, 1995
- --------------------------
John G. Preston
*Margaret W. Russell Director April 25, 1995
- --------------------------
Margaret W. Russell
*Philip C. Smith Director April 25, 1995
- --------------------------
Philip C. Smith
*Francis A. Sunderland Director April 25, 1995
- --------------------------
Francis A. Sunderland
Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
Independent Auditors' Report
The Board of Trustees and Shareholders
Lexington Convertible Securities Fund:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Convertible
Securities Fund as of December 31, 1994, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for the
three-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. The financial highlights for each of the years in the
two-year period ended December 31, 1991 were audited by other auditors whose
reports thereon, dated January 18, 1992, expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994, 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 Convertible Securities Fund as of December 31, 1994, 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
the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 30, 1995
1
<PAGE>
Lexington Convertible Securities Fund
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (unaudited)
Left Column
Number of
Shares or
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------
CONVERTIBLE BONDS: 38.1%
Computer Software & Services: 8.9%
$750,000 Automatic Data Processing Services, Inc.
0.00%*, due 02/20/2012 ........................... $ 311,250
300,000 Sterling Software, Inc.,
5.75%, due 02/01/2003 ............................ 411,000
----------
722,250
----------
Consumer Products: 3.5%
300,000 McKesson Corporation
(Armor All Products),
4.50%, due 03/01/2004 ............................ 282,000
----------
Electronics: 2.9%
235,000 Avnet Inc., 6.00%, due 04/15/2012 .................. 236,175
Financial Services Industry: 3.8%
300,000 First Financial Management Corporation,
5.00%, due 12/15/1999 ............................ 311,250
----------
Industrial Services: 3.9%
310,000 Olsten Corporation,
4.875%, due 05/15/2003 ........................... 318,525
----------
Machinery: 4.3%
240,000 Thermo Electron Corporation, (Eurobond),
4.625%, due 08/01/1997 ........................... 343,800
----------
Medical Services: 7.1%
235,000 Salick Health Care Inc.,
7.25%, due 02/01/2001 ............................ 578,062
----------
Toys: 3.7%
985,000 Time Warner, Inc. (Hasbro),
0.00%*, due 12/17/2012 ........................... 302,277
----------
TOTAL CONVERTIBLE BONDS
(cost $2,620,966) ................................ 3,094,339
----------
Right Column
Number of
Shares or
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------
COMMON STOCKS: 16.1%
Alternate Energy: 3.1%
$ 6,666 Magma Power Company ................................ $ 250,836
Mobile Homes: 13.0%
37,498 Clayton Homes, Inc.** .............................. 590,594
18,997 Oakwood Homes Corporation .......................... 463,052
----------
1,053,646
----------
TOTAL COMMON STOCKS
(cost $566,720) .................................. 1,304,482
----------
TOTAL LONG-TERM INVESTMENTS ........................ 4,398,821
----------
SHORT-TERM INVESTMENTS: 44.0%
U.S. Government Obligations
$700,000 U.S. Treasury Bills
4.85%, due 01/05/95 .............................. 699,622
900,000 U.S. Treasury Bills
5.18%, due 02/09/95 .............................. 894,950
400,000 U.S. Treasury Bills
5.54%, due 03/02/95 .............................. 396,307
1,600,000 U.S. Treasury Bills
5.63%, due 03/16/95 .............................. 1,581,484
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,572,363) ................................ 3,572,363
----------
TOTAL INVESTMENTS: 98.2%
(cost $6,760,049(D)) (Note 1) .................... 7,971,184
Other assets in excess of liabilities: 1.8% ........ 146,206
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $11.84 per share
on 685,863 shares outstanding) ................... $8,117,390
==========
*Zero Coupon Bonds.
**Non-income producing security.
(D)Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
2
<PAGE>
Left Column
Lexington Convertible Securities Fund
Portfolio Changes
Six months ended December 31, 1994 (unaudited)
Additions
Automatic Data Processing Services, Inc,
0.00%, due 02/20/2012
First Financial Management Corporation,
5.00%, due 12/15/1999
McKesson Corporation, (Armor All Products)
4.50%, due 03/01/2004
Deletions
Interface Inc.,
8.00%, due 09/15/2013
Right Column
Lexington Convertible Securities Fund
Statement of Assets and Liabilities
December 31, 1994
Assets
Investments, at value
(cost $6,760,049) (Note 1) ...................................... $7,971,184
Cash .............................................................. 318,118
Receivable for shares sold ........................................ 11,000
Dividends and interest receivable ................................. 33,395
----------
Total Assets ................................................ 8,333,697
----------
Liabilities
Due to Lexington
Management Corporation (Note 2) ................................. 6,528
Payable for shares redeemed ....................................... 38,344
Distributions payable ............................................. 137,168
Accrued expenses .................................................. 34,267
----------
Total Liabilities ........................................... 216,307
----------
Net Assets (equivalent to $11.84 per
share on 685,863 shares outstanding)
(Note 5) ........................................................ $8,117,390
==========
Net Assets consist of:
Capital stock-unlimited number of
shares of beneficial interest; $.10 par
value per share ................................................. $ 68,586
Additional paid-in capital (Note 1) ............................... 6,863,744
Undistributed net investment income (Note 1) ...................... 4,479
Distributions in excess of net realized
gains on investments (Note 1) ................................... (30,554)
Net unrealized appreciation of
investments ..................................................... 1,211,135
----------
$8,117,390
==========
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
Left Column
Lexington Convertible Securities Fund
Statement of Operations
Year ended December 31, 1994
Investment Income
Income
Dividends ...................................... $ 2,270
Interest ....................................... 255,450
----------
Total investment income ...................... $ 257,720
Expenses
Investment advisory fee
(Note 2) ..................................... 77,962
Accounting and shareholder
expenses (Note 2) ............................ 14,475
Custodian and transfer agent
expenses ..................................... 22,044
Printing and mailing ........................... 22,767
Directors' fees and expenses ................... 7,635
Audit and legal ................................ 12,457
Registration fees .............................. 22,024
Distribution expenses (Note 3) ................. 19,491
Computer processing fees ....................... 9,398
Other expenses ................................. 10,779
----------
Total expenses ............................... 219,032
Less expenses recovered under
contract with investment
adviser (Note 2) ............................... 4,634 214,398
---------- ----------
Net investment income ............................ 43,322
----------
Realized and Unrealized Gain
on Investments (Note 4)
Realized gain on investments
(excluding short-term securities):
Proceeds from sales ............................ 2,774,451
Cost of securities sold ........................ 1,428,797
----------
Net realized gain ............................ 1,345,654
Unrealized appreciation of investments
End of period .................................. 1,211,135
Beginning of period ............................ 2,501,572
----------
Change during period ......................... (1,290,437)
----------
Net realized and unrealized gain on investments 55,217
----------
Increase in Net Assets Resulting
from Operations ................................ $ 98,539
==========
Right Column
Lexington Convertible Securities Fund
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
1994 1993
---------- ----------
Net investment income (loss) ..................... $ 43,322 $ (3,046)
Net realized gain from
investment transactions ........................ 1,345,654 559,211
Decrease in unrealized
appreciation of investments .................... (1,290,437) (61,690)
---------- ----------
Net increase in net assets
resulting from operations .................. 98,539 494,475
Distributions to shareholders
from net investment income ..................... (38,843) -
Distributions to shareholders
from net realized gains on
security transactions (Note 1) ................. (1,345,654) (335,437)
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) .................... 1,115,202 979,163
---------- ----------
Net increase (decrease)
in net assets .............................. (201,310) 1,138,201
Net Assets
Beginning of period ............................ 8,318,700 7,180,499
---------- ----------
End of period (including
undistributed net investment
income of $4,479 and $0,
respectively) ................................ $8,117,390 $8,318,700
========== ==========
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1994 and 1993
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
December 31, 1994 and 1993 (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.
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 year ended December 31, 1994
were $19,491 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 year ended
December 31, 1994, excluding short-term securities, were $1,504,835 and
$2,774,451, respectively.
At December 31, 1994, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$1,264,827 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $53,692.
5. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1994 December 31, 1993
--------------------- ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ........................................ 98,659 $1,371,098 122,015 $1,712,438
Shares issued on reinvestment of dividends ......... 107,920 1,275,408 20,946 291,466
------- ---------- ------- ----------
206,579 2,646,506 142,961 2,003,904
Shares redeemed .................................... (110,489) (1,531,304) (73,418) (1,024,741)
------- ---------- ------- ----------
Net increase ....................................... 96,090 $1,115,202 69,543 $ 979,163
======= ========== ======= ==========
</TABLE>
6
<PAGE>
Lexington Convertible Securities Fund
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............ $14.10 $13.80 $12.41 $ 8.74 $9.55
------ ------ ------ ------ -----
Income from investment operations:
Net investment income ......................... 0.08 - 0.18 0.22 0.50
Net realized and unrealized gain (loss) on
investment .................................. 0.10 0.89 1.39 3.68 (0.81)
------ ------ ------ ------ -----
Total income (loss) from investment operations .. 0.18 0.89 1.57 3.90 (0.31)
------ ------ ------ ------ -----
Less distributions:
Dividends from net investment income .......... (0.07) - (0.18) (0.23) (0.50)
Distributions from capital gains .............. (2.32) (0.59) - - -
Distributions in excess of capital gains ...... (.05) - - - -
------ ------ ------ ------ -----
Total distributions ............................. (2.44) (0.59) (0.18) (0.23) (0.50)
------ ------ ------ ------ -----
Net asset value, end of period .................. $11.84 $14.10 $13.80 $12.41 $8.74
====== ====== ====== ====== =====
Total return .................................... 1.30% 6.53% 12.82% 45.06% (3.39%)
Ratio to average net assets:
Expenses, before reimbursement ................ 2.81% 2.76% 3.02% 3.42% 4.51%
Expenses, net of reimbursement ................ 2.75% 2.76% 2.32% 2.50% 2.68%
Net investment income (loss), before
reimbursement ............................... 0.50% (0.04%) 0.70% 1.14% 3.09%
Net investment income (loss) .................. 0.56% (0.04%) 1.40% 2.06% 4.92%
Portfolio turnover .............................. 38.14% 6.53% 12.58% 29.46% 25.58%
Net assets at end of period (000's omitted) .... $8,117 $8,319 $7,180 $6,599 $4,744
</TABLE>
7
GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective __________, 19__, and is between THE CHASE
MANHATTAN BANK, N.A. (the "Bank") and LEXINGTON CONVERTIBLE SECURITIES FUND
(the "Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account")
for any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated
or uncertificated as may be received by the Bank or its Subcustodian (as
defined in Section 3) for the account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account")
for any and all cash in any currency received by the Bank or its Subcustodian
for the account of the Customer, which cash shall not be subject to
withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. The Bank may deliver
securities of the same class in place of those deposited in the Custody
Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and the Bank can comply with
such Instructions, the Bank is authorized to maintain cash balances on
deposit for the Customer with itself or one of its affiliates at such
reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as the Customer may direct, if
acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized by
a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and Subcustodians
are authorized to hold any of the Securities in their account with any
securities depository in which they participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of
any amendment to Schedule A. Upon request by the Customer, the Bank will
identify the name, address and principal place of business of any
Subcustodian of the Customer's Assets and the name and address of the
governmental agency or other regulatory authority that supervises or
regulates such Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify such Assets on its books as belonging to
the Customer.
(b) A Subcustodian will hold such Assets together with assets
belonging to other customers of the Bank in accounts identified on such
Subcustodian's books as special custody accounts for the exclusive benefit of
customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only
to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for
holding its customer's assets shall provide that such assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe custody or administration, and
that the beneficial ownership of such assets will be freely transferable
without the payment of money or value other than for safe custody or
administration. The foregoing shall not apply to the extent of any special
agreement or arrangement made by the Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required
by the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed
a loan payable on demand, bearing interest at the rate customarily charged by
the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due, the
Customer will promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the collection
of such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the
Bank or its Subcustodian upon receipt by the Bank of Instructions which
include all information required by the Bank. Settlement and payment for
Securities received for, and delivery of Securities out of, the Custody
Account may be made in accordance with the customary or established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivery of Securities to a purchaser, dealer or their agents
against a receipt with the expectation of receiving later payment and free
delivery. Delivery of Securities out of the Custody Account may also be made
in any manner specifically required by Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on
a contractual settlement date with cash or Securities with respect to any
sale, exchange or purchase of Securities. Otherwise, such transactions will
be credited or debited to the Accounts on the date cash or Securities are
actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts
in its discretion if the related transaction fails to settle
within a reasonable period, determined by the Bank in its
discretion, after the contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the
credits and debits of the particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the
Bank will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer sends the Bank a written exception or objection
to any Bank statement within sixty (60) days of receipt, the Customer shall
be deemed to have approved such statement. In such event, or where the
Customer has otherwise approved any such statement, the Bank shall, to the
extent permitted by law, be released, relieved and discharged with respect to
all matters set forth in such statement or reasonably implied therefrom as
though it had been settled by the decree of a court of competent jurisdiction
in an action where the Customer and all persons having or claiming an
interest in the Customer or the Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay
in the actual receipt of notice by the Bank or by its Subcustodians of any
payment, redemption or other transaction regarding Securities in the Custody
Account in respect of which the Bank has agreed to take any action under this
Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities
(other than a proxy), such as subscription rights, bonus issues, stock
repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Customer notice of such Corporate Actions to the extent
that the Bank's central corporate actions department has actual knowledge of
a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person, but if Instructions
are not received in time for the Bank to take timely action, or actual notice
of such Corporate Action was received too late to seek Instructions, the Bank
is authorized to sell such rights entitlement or fractional interest and to
credit the Deposit Account with the proceeds or take any other action it
deems, in good faith, to be appropriate in which case it shall be held
harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing.
Such proxies shall be executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of such nominee but
without indicating the manner in which such proxies are to be voted; and
where bearer Securities are involved, proxies will be delivered in accordance
with Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may without notice to the Customer
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer. In the event that
any Securities registered in a nominee name are called for partial redemption
by the issuer, the Bank may allot the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to
be fair and equitable. The Customer agrees to hold the Bank, Subcustodians,
and their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank believes in good faith to have
been given by Authorized Persons or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the Bank may
specify. Unless otherwise expressly provided, all Instructions shall
continue in full force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but the
Customer will hold the Bank harmless for the failure of an Authorized Person
to send such confirmation in writing, the failure of such confirmation to
conform to the telephone instructions received or the Bank's failure to
produce such confirmation at any subsequent time. The Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. The Customer
shall be responsible for safeguarding any testkeys, identification codes or
other security devices which the Bank shall make available to the Customer or
its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this Agreement as
follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Assets.
The Bank shall be liable to the Customer for any loss which shall
occur as the result of the failure of a Subcustodian to exercise
reasonable care with respect to the safekeeping of such Assets to
the same extent that the Bank would be liable to the Customer if
the Bank were holding such Assets in New York. In the event of
any loss to the Customer by reason of the failure of the Bank or
its Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's
direct damages, to be determined based on the market value of the
property which is the subject of the loss at the date of
discovery of such loss and without reference to any special
conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it or a
Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether
pursuant to Instructions or otherwise within the scope of this
Agreement if such act or omission was in good faith, without
negligence. In performing its obligations under this Agreement,
the Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and any
related expenses with respect to income from or Assets in the
Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for the Customer) on all
matters and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii) Without limiting the foregoing, the Bank shall not be
liable for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or
affect the value of Assets.
(viii) Neither party shall be liable to the other for any
loss due to forces beyond their control including, but not
limited to strikes or work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation,
or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty
or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other
than as provided in Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made
pursuant to this Agreement;
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in
Section 10) issuing Instructions shall bear any responsibility to
review such confirmations against Instructions issued to and
statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have
a material interest in a transaction, or circumstances are such that the Bank
may have a potential conflict of duty or interest including the fact that the
Bank or any of its affiliates may provide brokerage services to other
customers, act as financial advisor to the issuer of Securities, act as a
lender to the issuer of Securities, act in the same transaction as agent for
more than one customer, have a material interest in the issue of Securities,
or earn profits from any of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with the
Bank's reasonable out-of-pocket or incidental expenses, including, but not
limited to, legal fees. The Bank shall have a lien on and is authorized to
charge any Accounts of the Customer for any amount owing to the Bank under
any provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration
of the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the then current
foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply
to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it
is a resident of the United States and agrees to notify the Bank of any
changes in residency. The Bank may rely upon this certification or the
certification of such other facts as may be required to administer the Bank's
obligations under this Agreement. The Customer will indemnify the Bank
against all losses, liability, claims or demands arising directly or
indirectly from any such certifications.
(c) Access to Records. The Bank shall allow the Customer's
independent public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their examination of
books and records pertaining to the Customer's affairs. Subject to
restrictions under applicable law, the Bank shall also obtain an undertaking
to permit the Customer's independent public accountants reasonable access to
the records of any Subcustodian which has physical possession of any Assets
as may be required in connection with the examination of the Customer's books
and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that
the Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
X Mutual Fund assets subject to certain Securities and Exchange
Commission ("SEC") rules and regulations;
Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, Exhibits I - _______ and the following Rider(s) [Check
applicable rider(s)]:
ERISA
X MUTUAL FUND
X SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of such provision or provisions under other
circumstances or in other jurisdictions and of the remaining provisions will
not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or partial
exercise of any power or right preclude any other or further exercise, or the
exercise of any other power or right. No waiver by a party of any provision
of this Agreement, or waiver of any breach or default, is effective unless in
writing and signed by the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective
when actually received. Any notices or other communications which may be
required under this Agreement are to be sent to the parties at the following
addresses or such other addresses as may subsequently be given to the other
party in writing:
Bank: The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
Customer: Richard Hisey
Lexington Management Corp.
Park 80 West, Plaza Two
Saddlebrook, NJ 07663
or telex:
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is
given by the Bank, the Customer shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions specifying the names
of the persons to whom the Bank shall deliver the Assets. In either case the
Bank will deliver the Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to it under
Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver
the Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and disposed
of pursuant to the provisions of this Agreement, or to Authorized Persons, or
may continue to hold the Assets until Instructions are provided to the Bank.
LEXINGTON CONVERTIBLE SECURITIES FUND
By:____________________________________________
Title
THE CHASE MANHATTAN BANK, N.A.
By:____________________________________________
Title
STATE OF )
: ss.
COUNTY OF )
On this day of , 19 , before me personally came
, to me known, who being by me duly sworn, did
depose and say that he/she resides in at
;
that he/she is of
, the entity described in and which executed the
foregoing instrument; that he/she knows the seal of said entity, that the
seal affixed to said instrument is such seal, that it was so affixed by order
of said entity, and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 19 .
Notary
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of ,19 ,
before me personally came , to me known, who being by
me duly sworn, did depose and say that he/she resides in
at
; that he/she is a Vice
President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the
Board of Directors of said corporation, and that he/she signed his/her name
thereto by like order.
Sworn to before me this
day of , 19 .
Notary
Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
Lexington Convertible Securities Fund
effective __________, 19__
Customer represents that the Assets being placed in the Bank's custody
are subject to the Investment Company Act of 1940 (the Act), as the same may
be amended from time to time.
Except to the extent that the Bank has specifically agreed to comply
with a condition of a rule, regulation, interpretation promulgated by or
under the authority of the SEC or the Exemptive Order applicable to accounts
of this nature issued to the Bank (Investment Company Act of 1940, Release
No. 12053, November 20, 1981), as amended, or unless the Bank has otherwise
specifically agreed, the Customer shall be solely responsible to assure that
the maintenance of Assets under this Agreement complies with such rules,
regulations, interpretations or exemptive order promulgated by or under the
authority of the Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this
Agreement shall mean a branch of a qualified U.S. bank, an eligible
foreign custodian or an eligible foreign securities depository, which
are further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined
in Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution
or trust company incorporated or organized under the laws of a country
other than the United States that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereof)
(iii) a banking institution or trust company incorporated or organized
under the laws of a country other than the United States or a majority
owned direct or indirect subsidiary of a qualified U.S. bank or bank
holding company that is incorporated or organized under the laws of a
country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
the Bank; or (iv) any other entity that shall have been so qualified by
exemptive order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book-entries in
that country, or (ii) a transnational system for the central handling
of securities or equivalent book-entries.
The Customer represents that its Board of Directors has approved each
of the Subcustodians listed in Schedule A to this Agreement and the terms of
the subcustody agreements between the Bank and each Subcustodian, which are
attached as Exhibits I through of Schedule A, and further represents
that its Board has determined that the use of each Subcustodian and the terms
of each subcustody agreement are consistent with the best interests of the
Fund(s) and its (their) shareholders. The Bank will supply the Customer with
any amendment to Schedule A for approval. The Customer has supplied or will
supply the Bank with certified copies of its Board of Directors resolution(s)
with respect to the foregoing prior to placing Assets with any Subcustodian
so approved.
Section 11. Instructions.
Add the following language to the end of Section 11:
Deposit Account Payments and Custody Account Transactions made pursuant
to Section 5 and 6 of this Agreement may be made only for the purposes
listed below. Instructions must specify the purpose for which any
transaction is to be made and Customer shall be solely responsible to
assure that Instructions are in accord with any limitations or
restrictions applicable to the Customer by law or as may be set forth
in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise
become payable;
(c) In exchange for or upon conversion into other securities alone or
other securities and cash pursuant to any plan or merger,
consolidation, reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory
fees, distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a
pledge of Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer;
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the
Bank, its Subcustodian or the Customer's transfer agent, such shares to
be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer
against delivery to the Bank, its Subcustodian or the Customer's
transfer agent of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement
among the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt
for the Securities which are to be held in escrow. Upon exercise of
the option, or at expiration, the Bank will receive from brokers the
Securities previously deposited. The Bank will act strictly in
accordance with Instructions in the delivery of Securities to be held
in escrow and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to make
proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions;
(n) For other proper purposes as may be specified in Instructions
issued by an officer of the Customer which shall include a statement of
the purpose for which the delivery or payment is to be made, the amount
of the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section
14(i).
Section 12. Standard of Care; Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion,
after due inquiry, the established procedures to be followed by each of
its branches, each branch of a qualified U.S. bank, each eligible
foreign custodian and each eligible foreign securities depository
holding the Customer's Securities pursuant to this Agreement afford
protection for such Securities at least equal to that afforded by the
Bank's established procedures with respect to similar securities held
by the Bank and its securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer, the Bank shall furnish the
Customer such reports (or portions thereof) of the Bank's system of
internal accounting controls applicable to the Bank's duties under this
Agreement. The Bank shall endeavor to obtain and furnish the Customer
with such similar reports as it may reasonably request with respect to
each Subcustodian and securities depository holding the Customer's
assets.
GLOBAL CUSTODY AGREEMENT
WITH: LEXINGTON CONVERTIBLE SECURITIES FUND
DATE: __________, 19__
SPECIAL TERMS AND CONDITIONS RIDER
The parties have agreed to the following modifications to the
Agreement:
Section 7
The last paragraph of Section 7 shall be reworded as follows:
"The collectibility of funds or other property paid or
distributed in respect of Securities, in the Custody Account
shall be made at the risk of the customer. Subject to the Bank's
of exercise of reasonable care the Bank shall have no liability
for any loss occasioned by delay in the acutal receipt of notice
by the Bank or by its Subcustodians of any payment, redemption or
other transaction regarding Securities in in the Custody Account
in respect of which the Bank has agreed to take any action under
this Agreement."
Section 12(b)(iii)
Following the words: "as provided in Section 5(c)" insert the words: "and
7(e)".
Section 13
Reword the last sentence as follows:
"Following invoice by the Bank, if any such amount is not paid by
the Customer (and rights with respect to such amount remains
disputed following good faith efforts to resolve such dispute),
the Bank shall have a lien on, and is authorized to charge any
accounts of the Customer for any amount owing to the Bank under
any provision of this Agreement.
FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made by and between LEXINGTON CONVERTIBLE SECURITIES
FUND, a Massachusetts Business Trust (the Fund ), and LEXINGTON MANAGEMENT
CORPORATION, A Delaware corporation (the Administrator ), with respect to
the following recital of facts:
RECITAL
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
1940 Act ), and the rules and regulations promulgated thereunder;
WHEREAS, the Administrator is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the Advisers Act ),
and engages in the business of acting as an investment adviser and an
administrator of investment companies;
WHEREAS, the Fund, and the Administrator desire to enter into an
agreement to provide for administrative services for the Fund on the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR
The Administrator is hereby appointed to serve as the Administrator
to the Fund, to provide the administrative services described herein and
assume the obligations set forth in Section II, subject to the terms of this
Agreement and the control of the Fund s Board of [Directors/Trustees] (the
Board ). The administrator shall, for all purposes herein, be deemed an
independent contractor and shall have, unless otherwise expressly provided
or authorized, no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
II. DUTIES OF THE ADMINISTRATOR
In carrying out the terms of this Agreement, the Administrator shall:
A. provide office space, equipment and facilities (which may be
the Administrator s or its affiliates ) for maintaining the
Fund s organization, for meetings of the Board and the
shareholders, and for performing administrative services
hereunder;
B. supervise and manage all aspects of the Fund s operations
(other than investment advisory activities), and supervise
relations with, and monitor the performance of, custodians,
depositories, transfer and pricing agents, accountants,
attorneys, underwriters, brokers and dealers, insurers and
other persons in any capacity deemed to be necessary and
desirable by the Board;
C. determine and arrange for the publication of the net asset
value of the Fund;
D. provide non-investment related statistical and research data
and such other reports, evaluations and information as the Fund
may request from time to time;
E. provide internal clerical, accounting and legal services, and
stationery and office supplies;
F. prepare, to the extent requested by the Fund, the Fund s
prospectus, statement of additional information, proxy
statements and annual and semi-annual reports to shareholders;
G. arrange for the printing and mailing (at the Fund s expense) of
proxy statements and other reports or other materials provided
to the Fund s shareholders;
H. prepare for execution and file all the Fund s federal and state
tax returns and required tax filings other than those required
to be made by the Fund s custodian and transfer agent;
I. prepare periodic reports to and filings with the Securities and
Exchange Commission (the SEC ) and state Blue Sky authorities
with the advice of the Fund s counsel;
J. maintain the Fund s existence, and during such times as the
shares of the Fund are publicly offered, maintain the
registration and qualification of the Fund s shares under the
federal and state law;
K. keep and maintain the financial accounts and records of the
Fund;
L. develop and implement, if appropriate, management and
shareholder services designed to enhance the value or
convenience of the Fund as an investment vehicle;
M. provide the Board on a regular basis with reports and analyses
of the Fund s operations and the operations of comparable
investment companies;
N. respond to inquiries from shareholders or participants of
employee benefit plans (for which the administrator or any
affiliate provides recordkeeping) relating to the Fund,
concerning, among other things, exchanges among Funds, or refer
any such inquiries to the Fund s officers or the Fund s
transfer agent;
O. provide participant recordkeeping services for participants in
employee benefit plans for which the Administrator or any
affiliate provides recordkeeping services; and
P. provide such information as may be reasonably requested by a
shareholder representative of or a participant in an employee
benefit plan to comply with applicable federal or state laws.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator hereby represents and warrants to the Fund as
follows:
1. Due Incorporation and Organization. The Administrator is
duly organized and is in good standing under the laws of the
State of Delaware and is fully authorized to enter into this
Agreement and carry out its duties and obligations hereunder.
2. Best Efforts. The Administrator at all times shall provide
its best judgment and effort to the Fund in carrying out its
obligations hereunder.
B. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE FUND
The Fund hereby represents and warrants to the Administrator as
follows:
1. Organization. The Fund has been duly organized as a
business trust under the laws of the State of Massachusetts and
it is authorized to enter into this Agreement and carry out its
terms.
2. Registration. The Fund is registered as an investment
company with the SEC under the 1940 Act and shares of the Fund
are registered or qualified for offer and sale to the public
under the Securities Act of 1933, as amended (the 1933 Act ),
and all applicable state securities laws. Such registrations
or qualifications will be kept in effect during the term of
this Agreement.
IV. CONTROL BY THE BOARD
Any activities undertaken by the administrator pursuant to this
Agreement on behalf of the Fund shall at all times be subject to any
directives of the Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the
Administrator shall at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund under
the 1933 Act and the 1940 Act;
C. the provisions of the Fund s chartering documents, as amended;
D. the provisions of the By-Laws of the Fund, as amended; and
E. any other applicable provisions of state and federal law.
VI. DELEGATION OF RESPONSIBILITIES
All services to be provided by the Administrator under this Agreement
may be furnished by any directors, officers or employees of the
Administrator or by any affiliates of the Administrator under the
Administrator s supervision.
VII. COMPENSATION
For the services to be rendered, the facilities furnished and the
expenses assumed by the administrator, the Fund shall pay to the
Administrator an annual fee, payable monthly, equal to the pro-rata portion
of the Administrator s actual cost in providing such services, facilities
and expenses.
VIII. NON-EXCLUSIVITY
The services of the Administrator to the Fund are not to be deemed to
be exclusive, and the Administrator shall be free to render administrative
or other services to others (including other investment companies) and to
engage in other activities, so long as its services under this agreement are
not impaired thereby. It is understood and agreed that officers and
directors of the Administrator may serve as officers or [directors/trustees]
of the Fund, and that officers of [directors/trustees] of the Fund may serve
as officers or directors of the Administrator to the extent permitted by
law; and that the officers and directors of the Administrator are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
companies.
IX. TERM
This Agreement shall become effective at the close of business on the
date hereof and shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Fund s [directors/trustees] who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party, or by
the vote of the holders of a majority (as so defined) of the outstanding
voting securities of the Fund and by such vote of the [directors/trustees].
X. TERMINATION
This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Fund s [directors/trustees] or by vote of a
majority of the Fund s outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or by the Administrator, on sixty (60) days
written notice to the other party.
XI. LIABILITY OF ADMINISTRATOR AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Administrator or its officers, directors
or employees, or reckless disregard by the Administrator of its duties
under this Agreement, the Administrator shall not be liable to the
Fund or to any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder or for any
looses that may be sustained in the purchase, holding or sale of any
security.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder
on the part of the Administrator or any officer, director or employee
of the Administrator, to the extent permitted by applicable law, the
Fund hereby agrees to indemnify and hold the Administrator harmless
from and against all claims, actions, suits and proceedings at law or
in equity, whether brought or asserted by a private party or a
governmental agency, instrumentality or entity of any kind, relating
to the sale, purchase, pledge of, advertisement of, or solicitation
of sales or purchases of any security (whether of the Fund or
otherwise) by the Fund, its officers, directors, employees or agents
in alleged violation of applicable federal, state or foreign laws,
rules or regulations.
XII. MATERIALS FOR DISTRIBUTION TO SHAREHOLDERS
During the term of this Agreement, the Fund shall furnish to the
Administrator at its principal office copies of all prospectuses, proxy
statements, reports to shareholders, sales literature and other material
referring to the Administrator that were prepared for distribution to
shareholders of the Fund and to participants in employee benefit plans
owning interests in the Fund (prior to the public distribution of such
materials). The Fund shall not use any such materials that refer to the
Administrator if the Administrator reasonably objects in writing within five
business days (or such other time as the parties may agree) after receipt
thereof, unless prior to such use the material is modified in a manner that
is satisfactory to the Administrator. Subsequent to the termination of this
Agreement, the Fund will continue to furnish to the Administrator copies of
such materials. The Fund shall also furnish or otherwise make available to
the Administrator other information relating to the business affairs of the
Fund as the Administrator reasonably requests from time to time.
XIII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the
Administrator and that of the Fund for this purpose shall be Park 80 West,
Plaza Two, Saddle Brook, New Jersey, 07663.
XIV. QUESTIONS OF INTERPRETATIONS
This Agreement shall be governed by the laws of the State of New
Jersey. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the SEC issued pursuant to
said Act. In addition, where the effect of a requirement of the 1940 Act
reflected in the provisions of this Agreement is revised by rule, regulation
or order of the SEC, such provisions shall be deemed to incorporate the
effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the ____ day of
_________________, 199__.
LEXINGTON CONVERTIBLE SECURITIES FUND
Attest: By: _______________________________
Name Title
________________________
LEXINGTON MANAGEMENT CORPORATION
Attest: By: ______________________________
Name Title
________________________
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT
NUMBER
(212) 715-9100
April 21, 1995
Lexington Convertible Securities Fund
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Re: Lexington Convertible Securities Fund
Registration No. 33-10543
Post-Effective Amendment to Registration
Statement on Form N-1A
Gentlemen:
We hereby consent to the reference of our firm as Counsel in the
Post-Effective Amendment No. 12 to the Registration Statement on Form N-1A of
Lexington Convertible Securities Fund.
Very truly yours,
Consent of Independent Auditors
The Board of Directors
Lexington Convertible Securities Fund:
We consent to the use of our report dated January 30, 1995, included in the
Registration Statement on Form N-1A and to the reference to our firm under
the heading "Financial Highlights" in the Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
April 26, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from year-
end audited financial statements dated December 31, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 6,760,049
<INVESTMENTS-AT-VALUE> 7,971,184
<RECEIVABLES> 44,395
<ASSETS-OTHER> 318,118
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,333,697
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 216,307
<TOTAL-LIABILITIES> 216,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,932,330
<SHARES-COMMON-STOCK> 685,863
<SHARES-COMMON-PRIOR> 589,773
<ACCUMULATED-NII-CURRENT> 4,479
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 30,554
<ACCUM-APPREC-OR-DEPREC> 1,211,135
<NET-ASSETS> 8,117,390
<DIVIDEND-INCOME> 2,270
<INTEREST-INCOME> 255,450
<OTHER-INCOME> 0
<EXPENSES-NET> 214,398
<NET-INVESTMENT-INCOME> 43,322
<REALIZED-GAINS-CURRENT> 1,345,654
<APPREC-INCREASE-CURRENT> (1,290,437)
<NET-CHANGE-FROM-OPS> 98,539
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 38,843
<DISTRIBUTIONS-OF-GAINS> 1,345,654
<DISTRIBUTIONS-OTHER> 30,554
<NUMBER-OF-SHARES-SOLD> 98,659
<NUMBER-OF-SHARES-REDEEMED> 110,489
<SHARES-REINVESTED> 107,920
<NET-CHANGE-IN-ASSETS> (201,310)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,962
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 219,032
<AVERAGE-NET-ASSETS> 7,796,226
<PER-SHARE-NAV-BEGIN> 14.10
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.10
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 2.37
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.84
<EXPENSE-RATIO> 2.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
