Dear Shareholder:
- --------------------------------------------------------------------------------
We are pleased to submit our annual report for the period ended December 31,
1995.
The Lexington Convertible Securities Fund participated in the financial
markets' gains in 1995. Comparative total return performance measurements for
the periods ended December 31, 1995 are:
1 Year 5 Years
------ -------
Lexington Convertible Securities Fund ............... +18.63%* +109.52%*
Lipper Convertible Fund Average ..................... +20.81% +105.01%
Standard & Poor's 500 Stock Price Index (unmanaged) . +37.53% +115.17%
Lehman Gov./Corp. Bond Index ........................ +19.24% + 59.63%
The Fund's positive performance was somewhat constrained because its
portfolio was defensively invested in deference to an above average level of
risk in the stock market. This investment posture is in keeping with the
strategy of conservation of shareholder's capital during higher risk market
periods.
As 1996 begins, we see an environment unfolding that could prove very
beneficial to our portfolio strategy. The economy has clearly decelerated, and
the risk of inflationary pressures has subsided. This has materially reduced the
chance of upward pressure on interest rates that, in turn, is resulting in
moderately bullish readings in the important group of monetary and economic
factors influencing the financial markets. They are, to a great degree,
offsetting the negative readings of valuation, sentiment and portfolio liquidity
indicator categories.
As the economy continues to show sub-par growth, we expect corporate
earnings, in general to be lackluster with many disappointments for those
companies whose earnings are cyclically dependent on the general economy. This
should lead initially to some consolidation in the stock market gains in the
first part of the year. A consolidation would have the beneficial impact of
relieving many of the negative readings now apparent in a variety of
non-monetary indicators. The end result would be to materially reduce overall
market risk.
Just as important would be a shift in investor's emphasis towards allocating
portfolios to companies that have a unique and strategic advantage giving them
superior growth potential and whose earnings grow relatively independent of the
economy overall. These companies often have one or more of the following
characteristics:
1. Pricing control that often is indicative of a dominant market share;
2. A recurring revenue stream; or,
3. A sustainable rapidly growing market for their products or services,
that is not overly dependent on the growth of the general economy.
It is these types of high quality niche growth companies that we are
emphasizing in the Fund's portfolio.
1
<PAGE>
We appreciate your continued support and welcome the opportunity to discuss
any questions you may have about your investment.
Sincerely,
Robert M. DeMichele Richard B. Russell
Chairman of the Board President and Portfolio Manager
January, 1996 January, 1996
____________________________________________________________________________
GRAPH
Paper version of this shareholder report contains a graph comparing the
changes in value of a $10,000 investment in
Lexington Convertible Securities Fund,
the unmanaged Standard & Poor's 500 Stock Price Index and
the unmanaged Lehman Brothers Government/Corporate Bond Index
____________________________________________________________________________
*18.63%, 15.94% and 11.11% are the one and five year and since commencement
(1/20/88) average annual standard total returns, respectively, for the period
ended December 31, 1995. Investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more or
less than at their original cost. Total return represents past performance.
2
<PAGE>
Lexington Convertible Securities Fund
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995
Left Col.
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 41.5%
Computer Software & Services: 9.3%
$ 875,000 Automatic Data Processing Services, Inc.
0.00%1, due 02/20/2012 ............................ $ 427,656
300,000 Sterling Software, Inc.,
5.75%, due 02/01/2003 ............................. 660,045
----------
1,087,701
----------
Consumer Products: 3.2%
400,000 McKesson Corporation
(Armor All Products),
4.50%, due 03/01/2004 ............................. 375,000
----------
Diversified Companies: 5.0%
240,000 Thermo Electron Corporation,
4.625%, due 08/01/1997 ............................ 580,469
----------
Financial Services Industry: 4.5%
325,000 First Financial Management Corporation,
(First Data Corporation), 5.00%,
due 12/15/1999 .................................... 530,969
----------
Industrial Services: 3.6%
365,000 Olsten Corporation,
4.875%, due 05/15/03 .............................. 423,400
----------
Machinery: 4.2%
350,000 Raymond Corporation,
6.50%, due 12/15/03 ............................... 484,750
----------
Retail Stores (Specialty line): 4.1%
500,000 Pep Boys Corporation,
4.00%, due 09/01/1999 ............................. 480,000
----------
Telecommunications Service: 4.0%
1,300,000 United States Cellular Corporation,
0.00%1, due 06/15/15 .............................. 463,125
----------
Toys: 3.6%
1,205,000 Time Warner, Inc. (Hasbro),
0.00%1, due 12/17/2012 ............................ 415,725
----------
TOTAL CONVERTIBLE BONDS
(cost $3,917,712) ................................. 4,841,139
----------
(Right Column)
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 20.9%
Electronics: 3.3%
8,604 Avnet, Inc. ......................................... $ 385,029
----------
Medical Services: 2.7%
8,392 Salick Health Care, Inc. ............................ 312,602
----------
Mobile Homes: 14.9%
46,872 Clayton Homes, Inc. ................................. 1,001,900
18,997 Oakwood Homes Corporation ........................... 729,009
----------
1,730,909
----------
TOTAL COMMON STOCKS
(cost $773,401) .................................... 2,428,540
TOTAL LONG-TERM INVESTMENTS ......................... 7,269,679
SHORT-TERM INVESTMENTS: 37.6%
U.S. Government Obligations
$ 500,000 U.S. Treasury Bills
5.28%, due 01/04/96 ............................... 499,780
1,400,000 U.S. Treasury Bills
5.33% due 01/04/96 ................................ 1,399,378
100,000 U.S. Treasury Bills
5.29% due 02/08/96 ................................ 99,442
900,000 U.S. Treasury Bills
5.33% due 02/29/96 ................................ 892,138
700,000 U.S. Treasury Bills
4.29% due 03/14/96 ................................ 693,016
400,000 U.S. Treasury Bills
5.23% due 03/14/96 ................................ 395,836
400,000 U.S. Treasury Bills
5.295% due 05/09/96 ............................... 392,621
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,371,923) ................................. 4,372,211
----------
TOTAL INVESTMENTS: 100.0%
(cost $9,063,036+) (Note 1) ......................... 11,641,890
Liabilities in excess of other assets ................ (1,329)
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $13.66 per share
on 852,134 shares outstanding) .................. $11,640,561
===========
1Zero Coupon Bonds.
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
Lexington Convertible Securities Fund
Statement of Assets and Liabilities
December 31, 1995 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $9,063,036) (Note 1) .............................................. $11,641,890
Cash .......................................................................................... 43,758
Receivable for shares sold .................................................................... 5,750
Dividends and interest receivable ............................................................. 30,960
-----------
Total Assets .......................................................................... 11,722,358
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) .............................................. 9,240
Payable for shares redeemed ................................................................... 3,822
Accrued expenses .............................................................................. 41,518
Distribution payable .......................................................................... 27,217
-----------
Total Liabilities ..................................................................... 81,797
-----------
Net Assets (equivalent to $13.66 per share on 852,134 shares outstanding) (Note 5) ............ $11,640,561
===========
Net Assets consist of:
Capital stock-unlimited number of shares of beneficial interest; $.10 par value per share ..... $ 85,213
Additional paid-in capital (Note 1) ........................................................... 8,972,198
Undistributed net investment income ........................................................... 4,296
Net unrealized appreciation of investments .................................................... 2,578,854
-----------
NET ASSETS ............................................................................ $11,640,561
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
Left Col.
Lexington Convertible Securities Fund
Statement of Operations
Year ended December 31, 1995
Investment Income
Income
Dividends ........................ $ 12,534
Interest ......................... 357,879
---------
Total investment income ........ $ 370,413
Expenses
Investment advisory fee
(Note 2) ....................... 98,554
Accounting and shareholder
expenses (Note 2) .............. 17,035
Custodian and transfer agent
expenses ....................... 18,003
Printing and mailing ............. 24,075
Directors' fees and expenses ..... 10,656
Audit and legal .................. 18,515
Registration fees ................ 18,450
Distribution fees (Note 3) ....... 24,638
Computer processing fees ......... 7,741
Other expenses ................... 10,554
---------
Total expenses ................. 248,221
----------
Net investment income ........ 122,192
Realized and Unrealized Gain
on Investments (Note 4)
Net realized gain on
investments .................... 214,468
Net change in unrealized
appreciation on
investments .................. 1,367,719
----------
Net realized and unrealized
gain on investments ........ 1,582,187
----------
Increase in Net Assets Resulting
from Operations .................. $1,704,379
==========
The Notes to Financial Statements are an integral part of these statements.
5
Right Col.
Lexington Convertible Securities Fund
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
1995 1994
----------- ----------
Net investment income ....................... $ 122,192 $ 43,322
Net realized gain from investment
transactions .............................. 214,468 1,345,654
Increase (decrease) in unrealized
appreciation of investments ............... 1,367,719 (1,290,437)
----------- ----------
Net increase in net assets
resulting from operations ........... 1,704,379 98,539
Distributions to shareholders
from net investment income ................ (122,375) (38,843)
Distributions to shareholders
from net realized gains on
security transactions ..................... (187,645) (1,345,654)
Distributions to shareholders
in excess of net realized gains
on security transactions
(Note 1) .................................. - (30,554)
Increase in net assets from capital
share transactions (Note 5) ............... 2,128,812 1,115,202
----------- ----------
Net increase (decrease)
in net assets ......................... 3,523,171 (201,310)
Net Assets
Beginning of period ....................... 8,117,390 8,318,700
----------- ----------
End of period (including
undistributed net investment
income of $4,296 and
$4,479, respectively) .................. $11,640,561 $8,117,390
=========== ==========
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1995 and 1994
1. Significant Accounting Policies
Lexington Convertible Securities Fund (the "Fund") is an open end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The 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 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 an 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 In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of December 31,
1995, book and tax basis differences amounting to $3,731 have been reclassified
from distributions in excess of net realized gains on investments to additional
paid-in capital. As of December 31, 1994, book and tax 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 Excise Tax distribution
requirements and associated post-October Loss deferral 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.
6
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
2. Investment Advisory Fee and Other Transactions with Affiliate (continued)
The investment advisory contract provides that the total annual expenses of the
Fund (including managment fees, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) will not exceed the level of expenses
which the Fund is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are offered for
sale. No reimbursement was required for the year ended December 31, 1995.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the
Fund but paid by LMC.
3. Distribution Plan
The Fund has a distribution plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Fund Distributors, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1995 were $24,638 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, 1995, excluding short-term securities, were $1,856,988 and
$575,602, respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$2,613,684 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $34,830.
5. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1994
------------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 343,017 $4,367,587 98,659 $1,371,098
Shares issued on reinvestment of dividends ....... 20,620 276,053 107,920 1,275,408
------- ---------- ------ ----------
363,637 4,643,640 206,579 2,646,506
Shares redeemed .................................. (197,366) (2,514,828) (110,489) (1,531,304)
------- ---------- ------ ----------
Net increase ..................................... 166,271 $2,128,812 96,090 $1,115,202
======= ========== ====== ==========
</TABLE>
7
<PAGE>
Lexington Convertible Securities Fund
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $11.84 $14.10 $13.80 $12.41 $ 8.74
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ........................... 0.15 0.08 - 0.18 0.22
Net realized and unrealized gain on
investment .................................... 2.04 0.10 0.89 1.39 3.68
------ ------ ------ ------ ------
Total income from investment operations ........... 2.19 0.18 0.89 1.57 3.90
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ............ (0.15) (0.07) - (0.18) (0.23)
Distributions from capital gains ................ (0.22) (2.32) (0.59) - -
Distributions in excess of capital gains
(temporary book-tax difference) ............... - (.05) - - -
------ ------ ------ ------ ------
Total distributions ............................... (0.37) (2.44) (0.59) (0.18) (0.23)
------ ------ ------ ------ ------
Net asset value, end of period .................... $13.66 $11.84 $14.10 $13.80 $12.41
====== ====== ====== ====== ======
Total return ...................................... 18.63% 1.30% 6.53% 12.82% 45.06%
Ratio to average net assets:
Expenses, before reimbursement .................. 2.52% 2.81% 2.76% 3.02% 3.42%
Expenses, net of reimbursement .................. 2.52% 2.75% 2.76% 2.32% 2.50%
Net investment income (loss), before
reimbursement ................................. 1.24% 0.50% (0.04%) 0.70% 1.14%
Net investment income (loss) ...................... 1.24% 0.56% (0.04%) 1.40% 2.06%
Portfolio turnover ................................ 11.23% 38.14% 6.53% 12.58% 29.46%
Net assets at end of period (000's omitted) ...... $11,641 $8,117 $8,319 $7,180 $6,599
</TABLE>
8
<PAGE>
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, 1995, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for the
four-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 the year 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, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lexington Convertible Securities Fund as of December 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
the four-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 29, 1996
9
<PAGE>
Right Col.
The Lexington Group of
No Load Investment Companies
Lexington Worldwide Emerging Markets Fund, Inc.-Seeks long-term growth of
capital primarily through investment in equity securities of companies domiciled
in, or doing business in, emerging countries and emerging markets.
Lexington Global Fund, Inc.-Seeks long-term growth of capital primarily through
investment in common stocks of companies domiciled in foreign countries and the
United States. Lexington International Fund, Inc.-Seeks long-term growth of
capital through investment in companies domiciled in foreign countries.
Lexington Crosby Small Cap Asia Growth Fund, Inc.-Seeks long-term capital
appreciation through investment in companies domiciled in the Asia Region with a
market capitalization of less than $1 billion.
Lexington Ramirez Global Income Fund-Seeks high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated debt securities.
Lexington Goldfund, Inc.-Seeks capital appreciation through investment in gold
bullion and shares of gold mining companies.
Lexington Growth and Income Fund, Inc.-Seeks capital appreciation over the
long-term through investments in the stocks of large, ably managed and well
financed companies.
Lexington Corporate Leaders Trust Fund-Seeks capital growth and reasonable
income through investment in an equal number of shares of an established list of
American blue chip corporations.
Lexington SmallCap Value Fund, Inc.-Seeks long-term capital appreciation through
investment in common stocks of companies domiciled in the United States with a
market capitalization of less than $1 billion.
Lexington Convertible Securities Fund-Seeks total return by providing capital
appreciation, current income and conservation of capital through investments in
a diversified portfolio of securities convertible into shares of common stock.
Lexington GNMA Income Fund, Inc.-Seeks to achieve a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae") certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
Lexington Money Market Trust-Seeks a high level of current income consistent
with preservation of capital and liquidity through investments in interest
bearing short-term money market instruments.
Lexington Tax Free Money Fund, Inc.-Seeks current income exempt from Federal
income taxes while maintaining stability of principal, liquidity and
preservation of capital.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
10
Left Col.
LEXINGTON
INVESTOR SERVICES
- --------------------------------------------------------------------------------
As a Lexington shareholder, you should be aware of the many services available
to you.
No Load-The Lexington Funds are no load funds. That is, investments and
redemptions are made without any sales charges, commissions or redemption fees.
----------------
Free Telephone Exchange-Investments in the Lexington Funds may be exchanged for
shares of a different Lexington Fund at any time.
----------------
Check Writing Privileges-Lexington Money Market Trust and Lexington Tax Free
Money Fund permit investors immediate access to their funds with check writing
for withdrawals from their account.
----------------
Tax Sheltered Plans-IRA, Keogh, Pension, and Profit Sharing Prototype Plans are
available to qualified individuals. These plans offer investment flexibility
through the Share Exchange Service, simplified record keeping, convenience and
investment supervision.
----------------
Custodial Accounts for Minors-Investments may be made on behalf of minors under
the Uniform Gifts to Minors Act currently in effect in all states.
----------------
Systematic Withdrawal Plan-An investor may elect to receive a fixed amount from
his or her account each month or quarter, subject to certain minimums.
----------------
Complete Record Keeping-A statement is provided for every transaction in
addition to a year-end statement with tax information.
<PAGE>
Left Col.
Lexington Convertible Securities Fund
Investment Adviser
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
ARISTON CAPITAL MANAGEMENT CORPORATION
40 Lake Bellevue Drive-Suite 220
Bellevue, Washington 98005
Distributor
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
--------------------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
--------------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
--------------------------------------------------
- --------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield*Account Balances*Exchanges*
Last Transactions*Total Return*Duplicate Statements
- --------------------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Convertible Securities Fund and is authorized for distribution to the
public only if it is accompanied or preceded by a currently effective prospectus
which sets forth expenses and other material information.
Right Col.
LEXINGTON
LEXINGTON
CONVERTIBLE
SECURITIES
FUND
(filled box)
The Fund's investment
objective is total return,
which it seeks to achieve
by providing current income,
capital appreciation and
conservation of capital.
(filled box)
ANNUAL REPORT
DECEMBER 31, 1995
The Lexington Group of
No Load
Investment Companies
