As filed with the Securities and Exchange Commission on March 3, 1997
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. 14 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 14 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, Kamin & Frankel
919 Third Avenue, New York, New York 10022
------------------------------------------
It is proposed that this filing will become effective 60 days
after filing pursuant to Paragraph (a) 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, 1996 was filed on February 26, 1997.
<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- ------------ ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 14
4. General Description of Registrant 4
5. Management of the Fund 42
6. Capital Stock and Other Securities 61
7. Purchase of Securities Being Offered 51
8. Redemption or Repurchase 54
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 61 (Part A)
13. Investment Objectives and Policies 20 (Part A)
14. Management of the Registrant 11
15. Control Persons and Principal Holders 2
of Securities
16. Investment Advisory and Other Services 2
17. Brokerage Allocation and Other Practices 5
18. Capital Stock and Other Securities 61 (Part A)
19. Purchase, Redemption and Pricing of 51, 54 (Part A)
securities being offered
20. Tax Status 6
21. Underwriters 2 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 14
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>
THE LEXINGTON FUNDS
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663
Shareholder Services--1-800-526-0056
1-201-845-7300
Institutional/Financial Adviser Services--1-800-367-9160
24 Hour Account Information--1-800-526-0052
PROSPECTUS
___________, 1997
The following twelve mutual funds (each a "Fund," and collectively the
"Funds") are offered in this Prospectus:
Fund Name Nasdaq Symbol
Lexington Convertible Securities Fund CNCVX
Lexington Crosby Small Cap Asia Growth Fund, Inc. LXCAX
Lexington Global Fund, Inc. LXGLX
Lexington GNMA Income Fund, Inc. LEXNX
Lexington Goldfund, Inc. LEXMX
Lexington Growth and Income Fund, Inc. LEXRX
Lexington International Fund, Inc. LEXIX
Lexington Money Market Trust LMMXX
Lexington Ramirez Global Income Fund LEBDX
Lexington SmallCap Value Fund, Inc. LESVX
Lexington Troika Dialog Russia Fund, Inc. LETRX
Lexington Worldwide Emerging Markets Fund, Inc. LEXGX
Each Fund's shares offered in this Prospectus are sold at net asset value
with no sales load, no commissions and (except for certain redemptions of the
Lexington Troika Dialog Russia Fund) no redemption or exchange fees. The minimum
initial investment in each Fund is $1000 ($5,000 for the Lexington Troika Dialog
Russia Fund), and subsequent investments must be at least $50. See "How to
Invest in the Funds."
Each Fund is an open-end management investment company and managed by
Lexington Management Corporation (the "Manager"), an affiliate of Lexington
Funds Distributor (the "Distributor"). Each Fund has its own investment
objective and policies designed to meet different investment goals. The
Lexington Convertible Securities and Lexington Ramirez Global Income Funds may
invest without limitation in lower rated debt securities commonly referred to as
"junk bonds." Investments of this type are subject to greater risk of loss of
principal and interest. As with all mutual funds, there is no guarantee a Fund
will achieve its objective.
<PAGE>
Please read this Prospectus before investing and retain it for future
reference. A Statement of Additional Information dated __________,1997, has been
filed with the Securities and Exchange Commission, is incorporated to this
Prospectus by reference and is available without charge by calling the
appropriate telephone number above or writing to the address listed above.
Information about the Lexington Funds is available on the internet at
http:\\www.sec.gov.
AN INVESTMENT IN THE FUNDS IN NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE LEXINGTON MONEY MARKET TRUST WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.
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.
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.
TABLE OF CONTENTS
The Lexington Funds ............................................. 3
Fees and Expenses of the Funds .................................. 5
Financial Highlights ............................................ 8
The Funds' Investment Objectives
and Policies .................................................. 20
Other Investment Practices ...................................... 33
Risk Considerations ............................................. 36
Management of the Funds ......................................... 42
How to Contact the Funds ........................................ 51
How to Invest in the Funds ...................................... 51
How to Redeem an Investment
in the Funds .................................................. 54
Exchange Privileges and
Restrictions .................................................. 56
How Net Asset Value is Determined
Dividends and Distributions ..................................... 57
Taxation ........................................................ 59
General Information ............................................. 61
Backup Withholding .............................................. 63
Glossary ........................................................ 64
2
<PAGE>
THE LEXINGTON FUNDS
The Funds' investment objectives are summarized below. See "The Funds'
Investment Objectives and Policies" beginning on page __, "Portfolio Securities"
beginning on page __, "Other Investment Practices" beginning on page ___ and
"Risk Considerations" beginning on page __ for more detailed information.
International Funds
Lexington Crosby Small Cap Asia Growth Fund, Inc.
The Lexington Crosby Small Cap Asia Growth Fund's investment objective is
to seek long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
Lexington Global Fund, Inc.
The Lexington Global Fund's investment objective is to seek 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.
The Lexington International Fund's investment objective is to seek
long-term growth of capital through investment in common stocks and equivalents
of companies domiciled in foreign countries.
Lexington Ramirez Global Income Fund
The Lexington Ramirez Global Income Fund's investment objective is to seek
high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests in a combination of foreign and
domestic high-yield, lower rated debt securities, commonly known as "junk
bonds."
Lexington Troika Dialog Russia Fund, Inc.
The Lexington Troika Dialog Russian Fund's investment objective is to seek
long-term capital appreciation through investment primarily in the equity
securities of Russian companies.
Lexington Worldwide Emerging Markets Fund, Inc.
The Lexington Worldwide Emerging Markets Fund's investment objective is to
seek long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in emerging countries
and emerging markets.
3
<PAGE>
Domestic Equity Funds
Lexington Convertible Securities Fund
The Lexington Convertible Securities Fund's investment objective is total
return which it seeks to achieve by providing capital appreciation, current
income and conservation of the shareholders capital.
Lexington Growth and Income Fund, Inc.
The Lexington Growth and Income Fund's principal investment objective is
long term appreciation of capital. Income is a secondary objective.
Lexington SmallCap Value Fund, Inc.
The Lexington SmallCap Value Fund's principal investment objective is long
term capital appreciation. The Lexington SmallCap Value Fund will seek to obtain
its objective through investment in common stocks and equivalents of companies
domiciled in the United States with a market capitalization of less than $1
billion.
Precious Metals Funds
Lexington Goldfund, Inc.
The Lexington Goldfund's investment objective is to attain capital
appreciation and such hedge against loss of buying power as may be obtained
through investment in gold securities of companies engaged in mining or
processing gold throughout the world.
Domestic Fixed-Income Funds
Lexington GNMA Income Fund, Inc.
The Lexington GNMA Income Fund's investment objective is to seek a high
level of current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
Money Market Funds
Lexington Money Market Trust
The Lexington Money Market Trust's investment objective is to seek as high
a level of current income from short-term investments as is consistent with the
preservation of capital and liquidity. The Lexington Money Market Trust seeks to
maintain a stable net asset value of $1 per share.
4
<PAGE>
Fees and Expenses of the Funds
Shareholder Transaction Expenses
An investor would pay the following charges when buying or redeeming shares
of a Fund:
- --------------------------------------------------------------------------------
Maximum
Maximum Sales
Sales Load Imposed Deferred Sales Redemption
Load Imposed on Reinvested Load Fees+ Exchange Fees
on Purchases Dividends
- --------------------------------------------------------------------------------
None None None None None
- --------------------------------------------------------------------------------
+ Shareholders effecting redemptions via wire transfer may be required to pay
fees, including the wire fee and other fees, that will be directly deducted
from redemption proceeds. LEXINGTON TROIKA DIALOG RUSSIA FUND ONLY: You
will pay a redemption fee of 2% for shares you redeem within 365 days after
you have purchased them. See "How to Redeem an Investment in the Funds."
5
<PAGE>
Annual Fund Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
Total Fund
Management Rule 12b-1 Other Operating
Fees Fees Fees Expenses
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Funds
Lexington Crosby SmallCap Asia Growth Fund 1.25 1.17 2.42*
Lexington Global Fund 1.00 0.90 1.90
Lexington International Fund 1.00 0.25 1.20 2.45
Lexington Ramirez Global Income Fund 1.00 0.25 0.25 1.50*
Lexington Troika Dialog Russia Fund 1.25 0.25 1.50 2.65*
Lexington Worldwide Emerging Markets Fund 1.00 0.76 1.76
- ---------------------------------------------------------------------------------------------------------------------------
Domestic Equity Funds
Lexington Convertible Securities Fund 1.00 0.25 1.14 2.39
Lexington Growth and Income Fund 0.68 0.25 0.20 1.13
Lexington SmallCap Value Fund 1.00 0.25 1.23 2.48*
- ---------------------------------------------------------------------------------------------------------------------------
Precious Metals Funds
Lexington Goldfund 0.84 0.25 0.51 1.60
- ---------------------------------------------------------------------------------------------------------------------------
Domestic Fixed-Income Funds
Lexington GNMA Income Fund 0.60 0.45 1.05
- ---------------------------------------------------------------------------------------------------------------------------
Money Market Funds
Lexington Money Market Trust 0.50 0.50 1.00*
</TABLE>
* Net of reimbursement
This table is intended to assist the investor in understanding the various
expenses of each Fund. Operating expenses are paid out of a Fund's assets and
are factored into the Fund's share price. Each Fund estimates that it will have
the expenses listed (expressed as a percentage of average net assets) for the
current fiscal year.
6
<PAGE>
Example of Expenses for the Funds
Assuming, hypothetically, that each fund's annual return is 5% and that its
operating expenses are as set forth above, an investor buying $1,000 of a fund's
shares would have paid the following total expenses upon redeeming such shares:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lexington Crosby SmallCap Asia Growth Fund 24.51 75.45 129.05 275.63
Lexington Global Fund 19.29 59.70 102.64 222.21
Lexington International Fund 24.81 76.35 130.55 278.62
Lexington Ramirez Global Income Fund 15.26 47.41 81.84 179.05
Lexington Troika Dialog Russia Fund 54.11 103.01 174.55 363.98
Lexington Worldwide Emerging Markets Fund 17.89 55.41 95.41 207.31
Lexington Convertible Securities Fund 24.21 74.55 127.55 272.63
Lexington Growth and Income Fund 11.52 35.91 62.23 137.46
Lexington SmallCap Value Fund 25.11 77.25 132.05 281.60
Lexington Goldfund 16.27 50.49 87.08 190.01
Lexington GNMA Income Fund 10.71 33.41 57.94 128.26
Lexington Money Market Trust 10.20 31.84 55.25 122.46
</TABLE>
This example is to show the effect of expenses. This example does not
represent past or future expenses or returns; actual expenses and returns may
vary.
7
<PAGE>
FINANCIAL HIGHLIGHTS
Selected Per Share Data and Ratios
The following financial information for the periods ended December 31,
1991, through December 31, 1996, was audited by KPMG Peat Marwick LLP, whose
report, dated December 31, 1996, appears in the 1996 Annual Reports of the
Funds.
<TABLE>
<CAPTION>
Lexington Crosby Small Cap Asia Growth Fund
1996 1995
---- ----
<S> <C> <C>
Net asset value, beginning of period $ 9.76 $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.05) 0.02
Net realized and unrealized gain (loss) on investments 2.54 (0.24)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations 2.49 (0.22)
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (0.01) (0.02)
Distributions in excess of net investment income (0.01) --
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.24 $ 9.76
- ----------------------------------------------------------------------------------------------------------------------
Total return 25.50% (4.39)%*
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
Expenses, before reimbursement or waiver 2.64% 3.51%
- ----------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.42% 1.75%
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (0.86)% (1.24)%
- ----------------------------------------------------------------------------------------------------------------------
Net investment loss (0.64)% 0.52%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 176.49% 40.22%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 23,796 $ 8,936
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Annualized
The average commission paid on equity security transactions for the period ended
December 31, 1996 is less than $0.005 per share of securities purchased and
sold. In accordance with recent SEC disclosure guidelines, average commissions
were calculated for the current period and not for prior periods.
8
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Global Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 11.32 $ 11.17 $ 13.51 $ 11.09 $ 11.57
- ----------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.01 0.09 0.02 0.06 0.06
Net realized and unrealized gain (loss)
on investments 1.84 1.10 0.23 3.47 (0.47)
- ----------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.85 1.19 0.25 3.53 (0.41)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.16) (0.29) -- (0.06) (0.07)
Distributions in excess of net investments
income (temporary book-tax difference) -- -- (0.13) -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (1.73) (0.62) (2.46) (1.05)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- (0.13) -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (1.89) (1.04) (2.59) (1.11) (0.07)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.28 $ 11.32 $ 11.17 $ 13.51 $ 11.09
- ----------------------------------------------------------------------------------------------------------------
Total return 16.43% 10.69% 1.84% 31.88% (3.55%)
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Expenses 1.90% 1.67% 1.61% 1.49% 1.52%
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.11% 0.48% 0.14% 0.52% 0.55%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 128.05% 166.35% 83.40% 84.61% 81.38%
- ----------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions** $ 0.03 -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 37,223 $ 53,614 $ 67,392 $ 87,313 $ 50,298
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
Net asset value, beginning of period $ 10.26 $ 12.83 $ 10.89 $ 9.89 $ 9.50
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income (loss) from investment operations:
Net investment income 0.09 0.11 0.01 0.02 0.01
Net realized and unrealized gain (loss)
on investments 1.50 (2.25) 2.72 1.56 0.38
Total income (loss)
from investment operations 1.59 (2.14) 2.73 1.58 0.39
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.08) (0.11) (0.02) (0.02) --
Distributions in excess of net investments
income (temporary book-tax difference) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Distributions from net realized capital gains (0.20) (0.32) (0.77) (0.56) --
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Total distributions (0.28) (0.43) (0.79) (0.58) --
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.57 $ 10.26 $ 12.83 $ 10.89 $ 9.89
- ----------------------------------------------------------------------------------------------------------------
Total return 15.55% (16.75%) 25.10% 15.99% 5.47%*
- ----------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Expenses 1.57% 1.59% 1.64% 1.80% 1.20%*
- ----------------------------------------------------------------------------------------------------------------
Net investment income 0.79% 0.99% 0.13% 0.12% 0.19%*
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 75.71% 81.88% 113.58% 96.90% 95.66%*
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 53,886 $ 50,501 $ 57,008 $ 38,150 $ 31,250
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** In accordance with recent SEC disclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
9
<PAGE>
FINANCIAL HIGHLIGHTS Lexington International Fund
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net asset value, beginning of period $ 10.60 $ 10.37 $ 10.00
Income (loss) from investment operations:
Net investment loss (.02) (.01) (.08)
Net realized and unrealized gain on investments 1.45 .61 .67
- ------------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations 1.43 .60 .59
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (.20) -- --
Dividends in excess of net investment income
(temporary book-tax difference) -- (.35) --
Distributions from net realized capital gains (.97) (.02) (.10)
Distributions in excess of net realized capital
gains (temporary book-tax difference) -- -- (.12)
----- ----- -----
Total distributions (1.17) (.37) (.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.86 $ 10.60 $ 10.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total return 13.57% 5.77% 5.87%
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses 2.45% 2.46% 2.39%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.39%) (.12%) (.94%)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 113.55% 137.72% 100.10%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions* $ 0.03 ------ ------
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 18,891 $ 17,855 $ 17,843
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
10
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Ramirez Global Income Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.75 $ 9.80 $ 10.95 $ 10.39 $ 10.35
Income (loss) from investment operations:
Net investment income 1.01 0.96 0.46 0.53 0.61
Net realized and unrealized gain (loss)
on investments 0.36 0.95 (1.16) (0.58) (0.04)
- -----------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.37 1.91 (0.70) 1.11 0.65
- -----------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.86) (0.96) (0.45) (0.55) (0.61)
Distributions from net realized gains (0.04) -- -- -- --
---- ---- ---- ---- ----
Total Distributions (0.90) (0.96) (0.45) (0.55) (0.61)
- -----------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.22 $ 10.75 $ 9.80 $ 10.95 $ 10.39
- -----------------------------------------------------------------------------------------------------------
Total return 13.33% 20.10% (6.52%) 10.90% 6.51%
- -----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 2.33% 3.07% 1.80% 1.44% 1.54%
- -----------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.50% 2.75% 1.50% 1.44% 1.50%
- -----------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 9.49% 9.48% 4.18% 4.83% 5.88%
- -----------------------------------------------------------------------------------------------------------
Net investment income 10.32% 9.80% 4.48% 4.83% 5.92%
- -----------------------------------------------------------------------------------------------------------
Portfolio turnover 71.83% 164.72% 10.20% 31.06% 31.24%
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 29,110 $ 12,255 $ 10,351 $ 14,576 $ 13,085
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.05 $ 10.12 $ 10.03 $ 9.67 $ 10.55
Income (loss) from investment operations:
Net investment income 0.67 0.73 0.63 0.63 0.78
Net realized and unrealized gain (loss)
on investments 0.30 (0.09) 0.09 0.36 (0.86)
- ----------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.97 0.64 0.72 0.99 (0.08)
- ----------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.67) (0.71) (0.63) (0.63) (0.80)
Distributions from net realized gains -- -- -- -- --
---- ---- ---- ---- ----
(0.67) (0.71) (0.63) (0.63) (0.80)
- ----------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 10.35 $ 10.05 $ 10.12 $ 10.03 $ 9.67
- ----------------------------------------------------------------------------------------------------------------
Total return 10.03% 6.62% 7.40% 10.54% (0.21%)
- ----------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ----------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 1.65% 1.61% 1.72% 1.50% 1.97%
- ----------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 1.12% 1.08% 1.20% 1.33% --
- ----------------------------------------------------------------------------------------------------------------
Net investment income, before
reimbursement or waiver 6.11% 6.67% 5.70% 6.16% 5.98%
- ----------------------------------------------------------------------------------------------------------------
Net investment income 6.64% 7.20% 6.22% 6.33% 7.95%
- ----------------------------------------------------------------------------------------------------------------
Portfolio turnover 29.45% 44.50% 46.60% 67.11% 66.77%
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 12,252 $ 10,707 $ 12,739 $ 13,139 $ 11,049
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
11
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Troika Dialog Russia Fund
<TABLE>
<CAPTION>
1996
----------
<S> <C>
Net asset value, beginning of period $ 12.12
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) (0.05)
Net realized and unrealized gain (loss) on investments (0.51)
------
Total income (loss) from investment operations (0.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income
Distributions from net realized capital gains (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.24
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (9.01)%*
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement or waivers 5.07%
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waivers 2.65%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income, before reimbursement or waivers (3.69)%
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (1.26%)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 115.55%*
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions paid
on equity security transactions --***
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 13,846
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Annualized
** The Fund's commencement of operations was June 3, 1996 with the investment
of its initial capital. The Fund's registration statement with the
Securities and Exchange Commission became effective on July 3, 1996.
Financial results prior to the effective date of the Fund's registration
statement are not presented in this Financial Highlights Table.
*** The average commission paid on equity security transactions for the period
ended December 31, 1996 is less than $0.005 per share of securities
purchased and sold.
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Worldwide Emerging Markets Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.70 $ 11.47 $ 13.96 $ 8.66 $ 9.03
- ------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ------------------------------------------------------------------------------------------------------------------
Net investment income -- 0.08 (0.01) 0.05 0.07
- ------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
- ------------------------------------------------------------------------------------------------------------------
on investments 0.79 (0.76) (1.92) 5.43 0.27
- ------------------------------------------------------------------------------------------------------------------
Total income (loss)
- ------------------------------------------------------------------------------------------------------------------
from investment operations 0.79 (0.68) (1.93) 5.48 0.34
- ------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- (0.08) -- (0.01) (0.11)
- ------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
- ------------------------------------------------------------------------------------------------------------------
income (temporary book-tax difference) -- (0.01) -- -- --
- ------------------------------------------------------------------------------------------------------------------
Distributions from capital gains -- -- (0.47) (0.17) (0.60)
- ------------------------------------------------------------------------------------------------------------------
Distributions in excess of capital gains
- ------------------------------------------------------------------------------------------------------------------
(temporary book-tax difference) -- -- (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.09) (0.56) (0.18) (0.71)
- ------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 11.49 $ 10.70 $ 11.47 $ 13.96 $ 8.66
- ------------------------------------------------------------------------------------------------------------------
Total return 7.38% (5.93%) (13.81%) 63.37% 3.77%
- ------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.76% 1.88% 1.65% 1.64% 1.89%
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.01)% 0.70% (0.06)% 0.21% 0.75%
- ------------------------------------------------------------------------------------------------------------------
Portfolio turnover 86.26% 92.85% 75.56% 38.35% 91.27%
- ------------------------------------------------------------------------------------------------------------------
Average commission paid
equity security transactions* -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 254,673 $ 265,544 $ 288,581 $ 230,473 $ 30,021
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987 1986
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.56 $ 10.79 $ 8.72 $ 8.01 $ 11.80 $ 9.96
- ---------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income 0.09 0.25 0.13 0.12 0.14 0.16
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
- ---------------------------------------------------------------------------------------------------------------------------------
on investments 1.97 (1.891) 2.32 0.71 0.12 1.88
- ---------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
- ---------------------------------------------------------------------------------------------------------------------------------
from investment operations 2.06 (1.56) 2.45 0.83 0.26 2.04
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.11) (0.24) (0.21) (0.12) (0.38) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment
- ---------------------------------------------------------------------------------------------------------------------------------
income (temporary book-tax difference) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital gains (1.48) 0.43) (0.17) -- (3.67) --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of capital gains
- ---------------------------------------------------------------------------------------------------------------------------------
(temporary book-tax difference) -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.59) (0.67) (0.38) (0.12) (4.05) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 9.03 $ 8.56 $ 10.79 $ 8.72 $ 8.01 $ 11.80
- ---------------------------------------------------------------------------------------------------------------------------------
Total return 24.19% (14.44%) 28.11% 10.36% 0.35% 20.73%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses 1.97% 1.42% 1.36% 1.33% 1.34% 1.32%
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.79% 2.52% 1.18% 1.27% 1.26% 1.24%
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover 112.03% 52.48% 59.07% 47.63% 83.21% 54.20%
- ---------------------------------------------------------------------------------------------------------------------------------
Average commission paid
on equity security transactions* -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 25,060 $ 22,192 $ 29,126 $ 26,389 $ 25,579 $ 29,862
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* The average commission paid on equity security transactions for the year ended
December 31, 1996 is less than $0.005 per share of securities purchased and
sold. In accordance with recent SEC disclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
13
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Convertible Securities Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.66 $ 11.84 $ 14.10 $ 13.80
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.11 0.15 0.08 --
Net realized and unrealized gain (loss)
on investments 0.55 2.04 0.10 0.89
- ---------------------------------------------------------------------------------------------------
Total income (loss) from operations 0.66 2.19 0.18 0.89
- ---------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.11) (0.15) (0.07) --
Dividends from net realized capital gains (0.55) (0.22) (2.32) (0.59)
Distribution in excess of capital gains
(temporary book-tax difference) -- -- (0.05) --
- ---------------------------------------------------------------------------------------------------
Total distributions (0.66) (0.37) (2.44) (0.59)
- ---------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.66 $ 13.66 $ 11.84 $ 14.10
- ---------------------------------------------------------------------------------------------------
Total return 4.89% 18.63% 1.30% 6.53%
- ---------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------
Expenses, before reimbursement of waiver 2.39% 2.52% 2.81% 2.76%
- ---------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.39% 2.52% 2.75% 2.76%
- ---------------------------------------------------------------------------------------------------
Net investment income (loss), before
- ---------------------------------------------------------------------------------------------------
reimbursement or waiver 0.77% 1.24% 0.50% (0.04%)
- ---------------------------------------------------------------------------------------------------
Net investment income 0.77% 1.24% 0.56% (0.04%)
- ---------------------------------------------------------------------------------------------------
Portfolio turnover 18.45% 11.23% 38.14% 6.53%
- ---------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions* 0.04 -- -- --
- ---------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 11,208 $ 11,641 $ 8,117 $ 8,319
- ---------------------------------------------------------------------------------------------------
<CAPTION>
1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 12.41 $ 8.74 $ 9.55 $ 9.51 $ 9.35
- ---------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.18 0.22 0.50 0.64 0.42
Net realized and unrealized gain (loss)
on investments 1.39 3.68 (0.81) 0.04 0.19
- ---------------------------------------------------------------------------------------------------------------
Total income (loss) from operations 1.57 3.90 (0.31) 0.68 0.61
- ---------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.18) (0.23) (0.50) (0.64) (0.42)
Dividends from net realized capital gains -- -- -- -- (0.03)
Distribution in excess of capital gains
(temporary book-tax difference) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Total distributions (0.18) (0.23) (0.50) (0.64) (0.45)
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 13.80 $ 12.41 $ 8.74 $ 9.55 $ 9.51
- ---------------------------------------------------------------------------------------------------------------
Total return 12.82% 45.06% (3.39%) 7.16% 6.96%
- ---------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement of waiver 3.02% 3.42% 4.51% 2.64% 4.12%
- ---------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.32% 2.50% 2.68% 2.13% 2.00%
- ---------------------------------------------------------------------------------------------------------------
Net investment income (loss), before
- ---------------------------------------------------------------------------------------------------------------
reimbursement or waiver 0.70% 1.14% 3.09% 5.74% 3.43%
- ---------------------------------------------------------------------------------------------------------------
Net investment income 1.40% 2.06% 4.92% 6.25% 5.55%
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover 12.58% 29.46% 25.58% 34.23% 39.70%
- ---------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions* -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 7,180 $ 6,599 $ 4,744 $ 5,986 $ 6,930
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
14
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Growth and Income Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 15.71 $ 14.36 $ 16.16 $ 16.25 $ 16.39
Income from investment operations:
Net investment income 0.07 0.22 0.17 0.21 0.23
Net realized and unrealized gain (loss)
on investments 4.08 3.00 (0.68) 1.94 1.79
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 4.15 3.22 (0.51) 2.15 2.02
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.13) (0.22) (0.16) (0.21) (0.32)
Distributions from net realized capital gains (1.17) (1.65) (0.91) (2.03) (1.84)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- (0.22) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.30) (1.87) (1.29) (2.24) (2.16)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 18.56 $ 15.71 $ 14.36 $ 16.16 $ 16.25
- ---------------------------------------------------------------------------------------------------------------------
Total return 26.46% 22.57% (3.11%) 13.22% 12.36%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.13% 1.09% 1.15% 1.29% 1.20%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.43% 1.38% 1.06% 1.20% 2.57%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 101.12% 159.94% 63.04% 93.90% 88.13%
- ---------------------------------------------------------------------------------------------------------------------
Average commissions paid on
equity security transactions* $ 0.07 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 200,309 $ 138,901 $ 124,289 $ 134,508 $ 126,241
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 14.24 $ 16.19 $ 14.39 $ 13.58 $ 19.16
Income from investment operations:
Net investment income 0.35 0.60 0.50 0.46 0.43
Net realized and unrealized gain (loss)
on investments 3.17 (2.25) 3.44 0.80 0.02
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 3.52 (1.65) 3.94 1.26 0.45
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.35) (0.30) (0.60) (0.45) (0.51)
Distributions from net realized capital gains (1.02) -- (1.54) -- (5.52)
Distributions in excess of net realized
gains (temporary book-tax difference) -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (1.37) (0.30) (2.14) (0.45) (6.03)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.39 $ 14.24 $ 16.19 $ 14.39 $ 13.58
- ---------------------------------------------------------------------------------------------------------------------
Total return 24.87% (10.27%) 27.56% 9.38% 0.15%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.13% 1.04% 1.02% 1.10% 0.96%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 2.19% 3.91% 2.82% 3.20% 2.37%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 80.33% 67.39% 64.00% 81.10% 95.28%
- ---------------------------------------------------------------------------------------------------------------------
Average commission paid on
equity security transactions -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 121,263 $ 104,664 $ 128,329 $ 111,117 $ 112,780
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
15
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Small Cap
Value Fund
1996
---------
Net asset value, beginning of period $ 10.00
Income (loss) from investment operations:
Net investment income (loss) (0.18)
Net realized and unrealized gain (loss) on investments 1.94
- --------------------------------------------------------------------------------
Total income (loss) from investment operations 1.76
- --------------------------------------------------------------------------------
Less distributions:
Distributions from net realized capital gains (0.03)
- --------------------------------------------------------------------------------
Net asset value, end of period $ 11.73
- --------------------------------------------------------------------------------
Total return 17.50%
- --------------------------------------------------------------------------------
Ratios to average net asset of:
- --------------------------------------------------------------------------------
Expenses, before reimbursement or waiver 3.04%
- --------------------------------------------------------------------------------
Expenses, net of reimbursement or waiver 2.48%
- --------------------------------------------------------------------------------
Net investment loss, before reimbursement or waiver (2.34)%
- --------------------------------------------------------------------------------
Net investment loss (1.78)%
- --------------------------------------------------------------------------------
Portfolio turnover 60.92%
- --------------------------------------------------------------------------------
Average commissions paid on equity security transactions $ 0.03
- --------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 8,061
- --------------------------------------------------------------------------------
16
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Goldfund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 6.24 $ 6.37 $ 6.90 $ 3.70 $ 4.68
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.02 -- 0.03 0.01 0.02
Net realized and unrealized gain (loss)
on investments 0.50 (0.12) (0.53) 3.21 (0.98)
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.52 (0.12) (0.50) 3.22 (0.96)
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.79) (0.01) (0.03) (0.02) (0.02)
Distributions from net realized
capital gains -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (0.79) (0.01) (0.03) (0.02) (0.02)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.97 $ 6.24 $ 6.37 $ 6.90 $ 3.70
- ---------------------------------------------------------------------------------------------------------------------
Total return 7.84% (1.89%) (7.28%) 89.96% (20.51%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.60% 1.70% 1.54% 1.63% 1.69%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.32)% 0.07% 0.50% 0.25% 0.58%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 31.04% 40.41% 23.77% 28.41% 13.18%
- ---------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity
security transactions* $ 0.02 -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 109,287 $ 135,779 $ 159,435 $ 159,479 $ 71,856
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 5.03 $ 6.39 $ 5.21 $ 6.20 $ 4.49
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income 0.04 0.04 0.05 0.04 0.01
Net realized and unrealized gain (loss)
on investments (0.35) (1.36) 1.18 (0.98) 2.07
- ---------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations (0.31) (1.32) 1.23 (0.94) 2.08
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.04) (0.04) (0.05) (0.05) (0.05)
Distributions from net realized
capital gains -- -- -- -- (0.32)
- ---------------------------------------------------------------------------------------------------------------------
Total distributions (0.04) (0.04) (0.05) (0.05) (0.37)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20
- ---------------------------------------------------------------------------------------------------------------------
Total return (6.14%) (20.35%) 23.62% (15.18%) 46.56%
- ---------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses 1.43% 1.36% 1.42% 1.61% 1.29%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 0.81% 0.69% 1.14% 0.78% 0.57%
- ---------------------------------------------------------------------------------------------------------------------
Portfolio turnover 22.14% 12.43% 15.98% 20.45% 13.78%
- ---------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity
security transactions* -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 96,316 $ 106,074 $ 154,484 $ 92,782 $ 104,842
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
* In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the current period, but not for prior periods.
17
<PAGE>
FINANCIAL HIGHLIGHTS Lexington GNMA Income Fund
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 8.19 $ 7.60 $ 8.32 $ 8.26 $ 8.45
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.53 0.58 0.55 0.59 0.61
Net realized and unrealized gain (loss)
on investments (0.08) 0.59 (0.72) 0.06 (0.19)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 0.45 1.17 (0.17) 0.65 0.42
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.52) (0.58) (0.55) (0.59) (0.61)
Distributions from net realized
capital gains -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.58) (0.55) (0.59) (0.61)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.12 $ 8.19 $ 7.60 $ 8.32 $ 8.26
- ----------------------------------------------------------------------------------------------------------------------
Total return 5.71% 15.91% (2.07%) 8.06% 5.19%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ----------------------------------------------------------------------------------------------------------------------
Expenses 1.05% 1.01% 0.98% 1.02% 1.01%
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 6.56% 7.10% 6.90% 6.96% 7.31%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 128.76% 30.69% 37.15% 52.34% 180.11%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 133,777 $ 130,681 $ 132,108 $ 149,961 $ 132,048
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 7.90 $ 7.88 $ 7.45 $ 7.58 $ 8.22
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.64 0.65 0.69 0.64 0.71
Net realized and unrealized gain (loss)
on investments 0.55 0.03 0.42 (0.13) (0.59)
- ----------------------------------------------------------------------------------------------------------------------
Total income (loss)
from investment operations 1.19 0.68 1.11 0.51 0.12
- ----------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.64) (0.66) (0.68) (0.64) (0.73)
Distributions from net realized
capital gains -- -- -- (0.03) --
- ----------------------------------------------------------------------------------------------------------------------
Total distributions (0.64) (0.66) (0.68) (0.64) (0.76)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.45 $ 7.90 $ 7.88 $ 7.45 $ 7.58
- ----------------------------------------------------------------------------------------------------------------------
Total return 15.75% 9.23% 15.60% 6.90% 1.62%
- ----------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
- ----------------------------------------------------------------------------------------------------------------------
Expenses 1.02% 1.04% 1.03% 1.07% 0.98%
- ----------------------------------------------------------------------------------------------------------------------
Net investment income 7.97% 8.43% 8.88% 8.31% 8.49%
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover 138.71% 112.55% 102.66% 233.48% 89.40%
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 122,191 $ 98,011 $ 96,465 $ 97,185 $ 109,793
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
FINANCIAL HIGHLIGHTS Lexington Money Market Trust
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0441 0.0495 0.0330 0.0230 0.0299
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0441) (0.0495) (0.0330) (0.0230) (0.0299)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total return 4.50% 5.06% 3.35% 2.32% 3.03%
- ---------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.04% 1.08% 1.02% 1.00% 1.03%
- ---------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income, before
---------------------------------------------------------------------------------------------------------------------
reimbursement 4.37% 4.87% 3.30% 2.30% 2.99%
---------------------------------------------------------------------------------------------------------------------
Net investment income, net of
---------------------------------------------------------------------------------------------------------------------
reimbursement 4.41% 4.95% 3.32% 2.30% 3.02%
N---------------------------------------------------------------------------------------------------------------------
et assets, end of period (000's omitted) $ 97,526 $ 88,786 $ 111,805 $ 94,718 $ 111,453
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
1991 1990 1989 1988 1987
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.0532 0.0732 0.0828 0.0678 0.0610
- ---------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.0532) (0.0732) (0.0828) (0.0678) (0.0610)
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Total return 5.45% 7.56% 8.60% 7.00% 6.29%
- ---------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ---------------------------------------------------------------------------------------------------------------------
Expenses, before reimbursement 1.02% 0.97% 0.99% 0.97% 0.80%
- ---------------------------------------------------------------------------------------------------------------------
Expenses, net of reimbursement 1.00% 0.97% 0.99% 0.97% 0.80%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income, before
- ---------------------------------------------------------------------------------------------------------------------
reimbursement 5.35% 7.32% 8.29% 6.74% 6.13%
- ---------------------------------------------------------------------------------------------------------------------
Net investment income, net of
- ---------------------------------------------------------------------------------------------------------------------
reimbursement 5.37% 7.32% 8.29% 6.74% 6.13%
- ---------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 143,137 $ 176,127 $ 182,703 $ 192,079 $ 212,487
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
The Funds' Investment Objectives and Policies
The investment objective and general investment policies of each Fund are
described below. Specific portfolio securities that may be purchased by the
Funds are described in "Portfolio Securities" beginning on page __. Specific
investment practices that may be employed by the Funds are described in "Other
Investment Practices" beginning on page __. Certain risks associated with
investments in the Funds are described in those sections as well as in "Risk
Considerations" beginning on page __. CERTAIN TERMS USED IN THE PROSPECTUS ARE
DEFINED IN THE GLOSSARY BEGINNING ON PAGE __.
Summary Comparison of Funds
Under normal market conditions, the Funds will invest their assets as follows:
<TABLE>
<CAPTION>
Typical Market
Anticipated Anticipated Capitalizatioin
Equity Debt of Portfolio
Fund Name Exposure Exposure Focus Campanies
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
International Lexington Crosby 100% 0% Asia Small-Cap Less than
Funds Small Cap Asia $1 billion
Growth Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Global 100% 0% Foreign Growth Any size
Fund
----------------------------------------------------------------------------------------------------------------------
Lexington 100% 0% Foreign Growth Any size
International Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Ramirez 0% 100% Global Income Any size
Global Income Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Troika 85% 15% Russian Growth Any size
Dialog Russia Fund
----------------------------------------------------------------------------------------------------------------------
Lexington Worldwide 100% 0% Foreign Emerging Any size
Emer0ging Markets Growth
Fund
====================================================================================================================================
Domestic Lexington Convertible 0-35% 100% Convertible Any size
Equity Securities Fund Securities
Funds ----------------------------------------------------------------------------------------------------------------------
Lexington Growth 0-100% 0-100% Capital and Income Any size
and Income Fund
----------------------------------------------------------------------------------------------------------------------
Lexington SmallCap 100% 0% U.S. Small-Cap Between
Value Fund $20 million
and $1 billion
====================================================================================================================================
Precious Lexington Goldfund 100% 0% Gold and Gold Any size
Metals Companies
====================================================================================================================================
Domestic Lexington GNMA 0% 100% Income N/A
Fixed- Income Fund
Income
Funds
====================================================================================================================================
Money Lexington Money 0% 100% Income N/A
Market Market Trust
Funds
====================================================================================================================================
</TABLE>
20
<PAGE>
Lexington Crosby Small Cap Asia Growth Fund, Inc.
The investment objective of the Lexington Crosby Small Cap Asia Growth Fund
is long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
The Lexington Crosby Small Cap Asia Growth Fund will invest principally in
companies listed on stock exchanges in the Asia Region consisting of Bangladesh,
China, Hong Kong, India, Indonesia, Korea, Malaysia, Pakistan, The Philippines,
Singapore, Sri Lanka, Taiwan, Thailand, and Vietnam ("the Asia Region"). The
Lexington Crosby Small Cap Asia Growth Fund will invest at least 65% of its
total assets in securities of companies (1) that are organized under the laws of
the above countries, (2) whose principal securities trading market is located in
those countries, and (3) that derive at least 50% of their revenues or profits
from those countries. The Lexington Crosby Small Cap Asia Growth Fund also
intends to invest in Australia and New Zealand. The Lexington Crosby Small Cap
Asia Growth Fund may also invest in unlisted securities. Under normal market
conditions, the Lexington Crosby Small Cap Asia Growth Fund will invest
substantially all of its assets in three or more countries in the Asia Region.
The Lexington Crosby Small Cap Asia Growth Fund will invest at least 65% of
its total assets in growth companies in the Asia Region which have market
capitalizations of less than $1 billion. Approximately 13,000 companies are
listed on recognized exchanges in the Asia Region. Approximately 300 companies
in the Asia Region are capitalized over $1 billion. These companies form the
principal components of their respective market indices and consequently attract
the majority of foreign investment in the region. Approximately 3,000 companies,
which are considered small capitalization companies, will be the primary focus
for the Lexington Crosby Small Cap Asia Growth Fund's investments. These
companies are frequently under-researched by international investors and
undervalued by their markets. The companies in which the Lexington Crosby Small
Cap Asia Growth Fund intends to invest will generally have the following
characteristics: a market capitalization of less than $1 billion; part of a
strong growth industry; proven management; under-researched; and undervalued.
The Lexington Crosby Small Cap Asia Growth Fund intends to select
securities which can have enhanced growth prospects and may provide investment
returns superior to the Asian market as a whole. The market value of small
capitalization companies in the Asia Region tends to be volatile, and in the
past has offered greater potential for gain as well as loss than securities of
companies traded in developed countries. It is possible that certain Lexington
Crosby Small Cap Asia Growth Fund investments
21
<PAGE>
could be subject to foreign expropriation or exchange control restrictions. See
"Risk Considerations."
The Lexington Crosby Small Cap Asia Growth Fund may invest in all types of
common stocks and equivalents (the following constitute equivalents: convertible
debt securities, warrants and options). The Lexington Crosby Small Cap Asia
Growth Fund may also invest in preferred stocks, bonds and other debt
obligations and money market instruments, including cash and cash deposits,
which will be denominated in U.S. Dollars or currencies related thereto.
----------
Lexington Global Fund, Inc.
The investment objective of the Lexington Global Fund is to seek long-term
growth of capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States. The Lexington Global Fund
will invest at least 65% of its total assets in at least three countries, one of
which may be the United States. The Lexington Global Fund will invest primarily
in the common stocks and common stock equivalents. The following constitute
common stock equivalents: convertible debt securities, warrants and options. The
Lexington Global Fund may also invest in preferred stocks, bonds and other debt
obligations, including money market instruments of foreign and domestic
companies and foreign and domestic government securities. The Lexington Global
Fund is not required to maintain any particular geographic or currency mix of
its investments. The Lexington Global Fund is not required to maintain any
particular proportion of stocks, bonds or other securities in its portfolio.
The Lexington Global Fund may invest primarily in foreign debt securities
when it appears that the capital appreciation available from investments in such
securities will equal or exceed the capital appreciation available from
investments in equity securities. The market value of debt securities varies
inversely to changes in prevailing interest rates. Investing in debt obligations
may provide an opportunity for capital appreciation when interest rates are
expected to decline.
The Lexington Global Fund may invest in securities of companies in the
following regions and the governments of those regions: the Pacific Basin,
Africa; Western Europe and North America; and such other areas and countries as
the Manager may determine from time to time. The Lexington Global Fund may
invest in companies located in developing countries without limitation.
Developing countries may have relatively unstable governments, economies based
on only a few industries, and securities markets which trade a small number of
companies. Prices on these
22
<PAGE>
exchanges tend to be volatile and in the past these exchanges have offered
greater potential for gain, as well as loss, than exchanges in developed
countries. While the Lexington Global Fund invests only in countries that it
considers as having relatively stable and friendly governments it is possible
that certain Lexington Global Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
----------
Lexington International Fund, Inc.
The investment objective of the Lexington International Fund is to seek
long-term growth of capital through investment in common stocks and equivalents
of companies domiciled in foreign countries. The Lexington International Fund
will invest at least 65% of its total assets in at least three foreign
countries. The Lexington International Fund will invest primarily in common
stocks and common stock equivalents. The following constitute common stock
equivalents: convertible debt securities, warrants and options. The Lexington
International Fund may also invest in preferred stocks, bonds and other debt
obligations, including money market instruments of foreign and domestic
companies and foreign and domestic government securities. The Lexington
International Fund is not required to maintain any particular geographic or
currency mix of its investments. The Lexington International Fund is not
required to maintain any particular proportion of stocks, bonds or other
securities in its portfolio.
The Lexington International Fund may invest primarily in foreign debt
securities when it appears that the capital appreciation available from
investments in such securities will equal or exceed the capital appreciation
available from investments in equity securities. The market value of debt
securities varies inversely to changes in prevailing interest rates. Investing
in debt obligations may provide an opportunity for capital appreciation when
interest rates are expected to decline. The Lexington International Fund will
invest in investment grade obligations and non-rated obligations of comparable
quality.
The Lexington International Fund may invest in securities of companies in
the following regions and the governments of those regions: the Pacific Basin;
Africa; North America; Western Europe; and such other areas and countries as the
Manager may determine from time to time. The Lexington International Fund may
invest in companies located in developing countries without limitation.
Developing countries may have relatively unstable governments, economies based
on only a few industries, and securities markets which trade a small number of
companies. Prices on these exchanges tend to be volatile and in the past these
exchanges have offered greater potential
23
<PAGE>
for gain, as well as loss, than exchanges in developed countries. While the
Lexington International Fund invests only in countries that it considers as
having relatively stable and friendly governments it is possible that certain
Lexington International Fund investments could be subject to foreign
expropriation or exchange control restrictions. See "Risk Considerations."
----------
Lexington Ramirez Global Income Fund
The investment objective of the Lexington Ramirez Global Income Fund is to
seek high current income. Capital appreciation is a secondary objective. The
Lexington Ramirez Global Income Fund invests primarily in lower rated and
unrated foreign debt securities whose credit quality is generally considered
equal to U.S. corporate debt securities known as "junk bonds." Junk bonds and
similarly rated foreign debt securities involve a high degree of risk and are
predominantly speculative. See "Portfolio Securities" and "Risk Considerations."
The Lexington Ramirez Global Income Fund, under normal conditions, invests
substantially all of its assets in debt securities of domestic companies,
companies of developed foreign countries, and companies in emerging markets. The
debt securities in which the Lexington Ramirez Global Income Fund invests
consist of bonds, notes, debentures and other similar instruments. The Lexington
Ramirez Global Income Fund may invest in debt securities issued by governments,
their agencies and instrumentalities, central banks, commercial banks and other
corporate entities. The Lexington Ramirez Global Income Fund may invest up to
100% of its total assets in domestic and foreign debt securities that are rated
below investment grade. The Lexington Ramirez Global Income Fund may also invest
in securities that are in default as to payment of principal and/or interest,
and bank loan participations and assignments.
The Lexington Ramirez Global Income Fund's investments in emerging markets
will primarily consist of the following: foreign "junk bonds," "Brady Bonds,"
and sovereign debt securities issued by emerging market governments. The
Lexington Ramirez Global Income Fund may invest in debt securities of emerging
market issuers without regard to ratings. Many emerging market debt securities
are not rated by United States rating agencies. The Lexington Ramirez Global
Income Fund's ability to achieve its investment objectives is thus more
dependent on the Manager's credit analysis than would be the case if the
Lexington Ramirez Global Income Fund were to invest in higher quality bonds.
Currently, most emerging market debt securities are considered to have a credit
quality below investment grade.
----------
24
<PAGE>
Lexington Troika Dialog Russia Fund, Inc.
The investment objective of the Lexington Troika Dialog Russia Fund is to
seek long-term capital appreciation through investment primarily in the equity
securities of Russian companies. Under normal conditions, the Lexington Troika
Dialog Russia Fund seeks to achieve its objective by investing at least 65% of
its total assets in the securities of Russian Companies. The securities in which
the Lexington Troika Dialog Russia Fund may invest are common stock, preferred
stock, convertible preferred stock, bonds, notes or debentures convertible into
common or preferred stock, direct investments in Russian companies, stock
purchase warrants or rights, and American Depository Receipts or Global
Depository Receipts. The Lexington Troika Dialog Russia Fund may invest the
remaining 35% of its total assets in debt securities issued by Russian
Companies, debt securities issued or guaranteed by the Russian Government or a
Russian governmental entity, debt securities of corporate and government issuers
outside Russia, equity securities of issuers outside Russia which Lexington
Troika Dialog believes will experience growth in revenue and profits from
participation in the development of the economies of the Commonwealth of
Independent States, and Short-Term and Medium-Term Debt Securities.
The Lexington Troika Dialog Russia Fund intends to invest its assets in
Russian Companies in a broad array of industries, including the following: oil
and gas, energy generation and distribution, communications, mineral extraction,
trade, financial and business services, transportation, manufacturing, real
estate, textiles, food processing and construction. The Lexington Troika Dialog
Russia Fund is not permitted to invest more than 25% of the value of its total
assets in any one industry. It may, however, invest an unrestricted amount of
its assets in the oil and gas industry. The Lexington Troika Dialog Russia
Fund's investments will include investments in Russian Companies that have
characteristics and business relationships common to companies outside of
Russia. As a result, outside economic forces may cause fluctuations in the value
of securities held by the Lexington Troika Dialog Russia Fund.
Under current conditions, the Lexington Troika Dialog Russia Fund expects
to invest at least 20% of its total assets in very liquid assets to maintain
liquidity and provide stability. As the Russian equity markets develop, however,
and the liquidity of Russian securities becomes less problematic, the Lexington
Troika Dialog Russia Fund will invest a greater percentage of its assets in
Russian equity securities.
----------
25
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
The investment objective of the Lexington Worldwide Emerging Markets Fund
is to seek long-term growth of capital primarily through investment in equity
securities and equivalents of companies domiciled in, or doing business in,
emerging countries and emerging markets. Under normal conditions, the Lexington
Worldwide Emerging Markets Fund seeks to achieve its objective by investing at
least 65% of its total assets in the equity securities and equivalents of
emerging market companies. Under normal conditions, the Lexington Worldwide
Emerging Markets Fund invests in emerging country and emerging market securities
of at least three countries outside of the United States. In the opinion of the
Manager, emerging market countries include, but are not limited to, the
following: Algeria, Argentina, Bangladesh, Bolivia, Botswana, Brazil, Chile,
China, Colombia, Costa Rica, Cyprus, Czech Republic, Dominican Republic,
Ecuador, Egypt, Finland, Ghana, Greece, Hong Kong, Hungary, India, Indonesia,
Israel, Ivory Coast, Jamaica, Jordan, Kenya, Malaysia, Mauritius, Mexico,
Morocco, Nicaragua, Nigeria, Pakistan, Panama, Peru, Philippines, Poland,
Portugal, Russia, Singapore, Slovakia, South Africa, South Korea, Sri Lanka,
Taiwan, Thailand, Trinidad & Tobago, Tunisia, Turkey, Uruguay, Venezuela,
Zambia, Zimbabwe.
The Lexington Worldwide Emerging Markets Fund may also invest in equity
securities and equivalents of companies that derive 50% or more of their total
revenue from either goods or services produced in emerging market countries or
sales made in those countries. The Lexington Worldwide Emerging Markets Fund's
investments in emerging country equity securities are not subject to any maximum
limit, and the Lexington Worldwide Emerging Markets Fund intends to invest
substantially all of its assets in emerging country and emerging market equity
securities. The Lexington Worldwide Emerging Markets Fund may invest the
remaining 35% of its total assets in equity securities without regard to whether
they qualify as emerging country or emerging market equity securities, debt
securities denominated in the currency of an emerging market or issued or
guaranteed by an emerging market company or the government of an emerging
country, and Short-Term and Medium-Term Debt Securities.
----------
Lexington Convertible Securities Fund
The investment objective of the Lexington Convertible Securities Fund is
total return which it seeks to achieve by providing capital appreciation,
current income and conservation of shareholders capital. Under normal
conditions, the Lexington Convertible Securities Fund seeks to achieve its
objective by investing at least 65% of its total assets in debt securities
convertible into shares of common stock ("convertible securities"). The
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<PAGE>
Lexington Convertible Securities Fund may invest without limitation in
high-yield debt securities rated below investment grade. Such lower rated
securities are commonly referred to as "junk bonds." Junk bonds are considered
speculative and pose a greater risk of loss of principal and interest than
investment grade securities. See "Portfolio Securities" and "Risk
Considerations." Common stock received upon the conversion or sale of
convertible securities held by the Lexington Convertible Securities Fund will
either continue to be held by the Lexington Convertible Securities Fund or be
sold.
The convertible securities held by the Lexington Convertible Securities
Fund may consist of securities rated in the six highest rating categories by a
major rating service and non-rated debt securities. The Lexington Convertible
Securities Fund will not invest in any security which has been rated lower than
"B" by S&P or Moody's, which are both major rating services, or non-rated
securities of comparable quality.
No more than 35% of the Lexington Convertible Securities Fund's total
assets will be invested in securities other than convertible securities. The
Lexington Convertible Securities Fund may invest in dividend and non-dividend
paying non-convertible common stocks, corporate bonds, covered call options and
put options, stock index options, U.S. Government securities, repurchase
agreements and money market securities.
----------
Lexington Growth and Income Fund
The Lexington Growth and Income Fund's principal investment objective is
long-term capital appreciation. Income is a secondary objective. Generally, the
Lexington Growth and Income Fund invests its assets in publicly traded common
stocks and senior securities convertible into common stocks of domestic and
foreign companies.
----------
Lexington SmallCap Value Fund
The investment objective of the Lexington SmallCap Value Fund is to seek
long-term capital appreciation. Under normal conditions, the Lexington SmallCap
Value Fund seeks its objective by investing in common stocks and equivalents of
domestic companies with a market capitalization under $1 billion. Warrants,
options and convertible debt securities are common stock equivalents in which
the Lexington SmallCap Value Fund may invest. The Lexington SmallCap Value Fund
will invest at least 90% of its assets in domestic companies which have market
capitalizations between $20 million and $1 billion at the time of investment.
The remainder of its
27
<PAGE>
assets may be invested in securities of companies with market capitalizations
below $20 million, above $1 billion, foreign companies with dollar denominated
shares traded in the United States, American Depository Shares or Receipts, real
estate investment trusts, and cash.
The Lexington SmallCap Value Fund will invest it assets primarily in the
equity securities of domestic companies listed on stock exchanges or traded over
the counter. The Lexington SmallCap Value Fund may invest in foreign companies
whose shares are traded in U.S. dollar denominated markets.
The companies in which the Lexington SmallCap Value Fund intends to invest
will generally have the following characteristics: a market capitalization of
less than $1 billion; high relative ratio of revenue per share to stock price; a
low relative ratio of price to book value per share; a positive cash flow and
other measures of financial stability; and a low stock price relative to
historical levels.
----------
Lexington Goldfund
The Lexington Goldfund's principal investment objective is to attain
capital appreciation and such hedge against loss of buying power as may be
obtained through investment in gold and equity securities of companies engaged
in mining or processing gold throughout the world. Under normal conditions, at
least 65% of the value of the total assets of the Lexington Goldfund will be
invested in gold and the securities of companies engaged in mining or processing
gold ("gold-related securities"). The Lexington Goldfund may also invest in
other precious metals, including platinum, palladium and silver. The Lexington
Goldfund intends to invest less than half of the value of its assets in gold and
other precious metals and more than half of the value of its assets in
gold-related securities, including securities of foreign issuers.
The Lexington Goldfund is designed to provide investors with a means to
protect against declines in the value of the U.S. dollar against world
currencies. To the extent that the Lexington Goldfund's investments in
gold-related securities appreciate in value relative to the U.S. dollar, the
Lexington Goldfund's investments may serve to offset declines in the buying
power of the U.S. dollar. Management believes that, over the long term,
investing in gold will protect capital from adverse monetary and political
developments. Investments in gold may provide more of a hedge against a decline
in the buying power of the dollar, devaluation and inflation than other types of
investments. The value of gold-related debt securities, however, will generally
not react to fluctuations in the price of gold. The market value of debt
securities of companies engaged in mining or processing gold can be expected to
fluctuate inversely with prevailing interest rates.
----------
28
<PAGE>
Lexington GNMA Income Fund
The investment objective of the Lexington GNMA Income Fund is to seek a
high level of current income, consistent with liquidity and safety of principal.
Under normal market conditions, the Lexington GNMA Income Fund will invest at
least 80% of the value of its total assets in Government National Mortgage
Association ("GNMA") mortgage-backed securities (also known as "GNMA
Certificates"). Lexington GNMA Certificates represent part ownership of a pool
of mortgage loans. The timely payment of interest and principal on each
certificate is guaranteed by the full faith and credit of the United States
Government. The principal on Lexington GNMA Certificates is scheduled to be paid
back by the borrower over the length of the loan. The Lexington GNMA Income Fund
will invest the remaining 20% of its total assets in other securities issued or
guaranteed by the U.S. Government, including U.S. Treasury securities.
The Lexington GNMA Income Fund will purchase "modified pass through" type
GNMA Certificates. "Modified pass through" GNMA Certificates entitle the holder
to receive all interest and principal payments owed by the borrower even if the
borrower has not made payment. The Lexington GNMA Income Fund intends to use the
proceeds from principal payments to purchase additional GNMA Certificates or
other U.S. Government guaranteed securities.
----------
Lexington Money Market Trust
The investment objective of the Lexington Money Market Trust is to seek as
high a level of current income as is consistent with the preservation of capital
and liquidity by investing in short-term money market instruments. The following
are the money market instruments in which the Lexington Money Market Trust will
invest: U.S. Government securities, time deposits, certificates of deposit,
bankers' acceptances, commercial paper, repurchase agreements and other money
market instruments. The Lexington Money Market Trust seeks to maintain a stable
net asset value of $1 per share.
The Lexington Money Market Trust will invest in money market instruments
that have been rated in one of the two highest rating categories by both S&P and
Moody's, both major rating agencies. A "Tier 1" security is one that has been
rated by either S&P or Moody's in the highest rating category, or, if unrated,
is of comparable quality. A "Tier 2" security is one that has been rated in the
second highest category by either S&P or Moody's, or, if unrated, is of
comparable quality. Up to 5% of the total assets of the Lexington Money Market
Trust may be invested in a single Tier 1 security (other than U.S. Government
securities). In addition, the Lexington Money Market Trust may not invest more
than 5% of its total assets in Tier 2 securities, and may not invest more than
1% of its total assets in any single Tier 2 security.
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<PAGE>
The Lexington Money Market Trust may only invest in money market
instruments with a remaining maturity of 397 days or less, provided that the
Fund's average weighted maturity does not exceed 90 days.
PORTFOLIO SECURITIES
Equity Securities
The Lexington Convertible Securities Fund, Lexington Goldfund and Lexington
Growth and Income Fund may purchase common stocks. The Lexington Crosby SmallCap
Asia Growth Fund, Lexington Global Fund, Lexington International Fund, Lexington
SmallCap Value Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide
Emerging Markets Fund emphasize investments in common stock and common stock
equivalents. The following constitute common stock equivalents: warrants,
options and convertible debt securities. Common stock equivalents may be
converted into or provide the holder with the right to common stock. These funds
may also invest in other types of equity securities, including preferred stocks,
and equity derivative securities. The Lexington Troika Dialog Russia Fund may
invest directly in Russian companies.
Debt Securities
Debt securities will constitute at least 65% of the Lexington Convertible
Securities Fund's and up to 100% of the Lexington Ramirez Global Income Fund's
total assets, and the GNMA Income Fund will have substantially all of its assets
invested in GNMA Certificates and U.S. Government securities. The debt
securities in which the Lexington Funds may invest include bond, notes,
debentures and other similar instruments. The debt securities acquired by the
Lexington Convertible Securities Fund may include high yield, lower-rated debt
securities known as "junk bonds," and the Lexington Ramirez Global Income Fund
may invest 100% of its total assets in junk bonds. The Lexington Ramirez Global
Income Fund may invest in securities that are in default as to payment of
principal and/or interest. The Lexington Ramirez Global Income Fund may also
invest in "Brady Bonds" and sovereign debt securities issued by emerging market
governments.
The Lexington Global Fund, Lexington Goldfund, Lexington International
Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging
Markets Fund may invest primarily in debt securities when the Manager believes
that debt securities will provide capital appreciation through favorable changes
in relative foreign exchange rates, in relative interest rate levels or in the
creditworthiness of issuers.
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<PAGE>
It is likely that many of the debt securities in which the Lexington Troika
Dialog Russia Fund and Lexington Worldwide Emerging Markets Fund invest will be
unrated and may have speculative characteristics. The Lexington Crosby Small Cap
Asia Growth Fund and Lexington International Fund will only invest in investment
grade debt obligations.
Junk Bonds. The Lexington Convertible Securities Fund and Lexington Ramirez
Global Income Fund may invest in high yield, lower rated debt securities known
as "junk bonds." Junk bonds are debt obligations rated below investment grade
and non-rated securities of comparable quality. Junk bonds are considered
speculative and thus pose a greater risk of default than investment grade
securities. Investments of this type are subject to greater risk of loss of
principal and interest, but in general provide higher yields than higher rated
debt obligations. Bonds issued by companies domiciled in emerging markets are
usually rated below investment grade.
Zero Coupon Bonds. The Lexington Ramirez Global Fixed Income Fund may
invest in zero coupon bonds. Zero coupon bond prices are highly sensitive to
changes in market interest rates. The original issue discount on the zero coupon
bonds must be included ratably in the income of the Lexington Ramirez Global
Fixed Income Fund as the income accrues even though payment has not been
received. The Lexington Ramirez Global Fixed Income Fund nevertheless intend to
distribute an amount of cash equal to the currently accrued original issue
discount, and this may require liquidating securities at times they might not
otherwise do so and may result in capital loss. See "Tax Information" in the
Statement of Additional Information.
Loan Participation and Assignments. The Lexington Ramirez Global Income
Fund may invest in loans arranged through private negotiations between a foreign
entity and one or more lenders. The majority of the Lexington Ramirez Global
Fixed Income's investments in loans in emerging markets is expected to be in the
form of participation in loans ("Participations") and assignments of portions of
loans from third parties ("Assignments"). Participations typically will result
in the Lexington Ramirez Global Fixed Income having a contractual relationship
only with the Lender, not with the borrower. The Lexington Ramirez Global Fixed
Income will have the right to receive payments of principal, interest and any
fees to which it is entitled only from the Lender selling the Participation and
only upon receipt by the Lender of the payments from the borrower. As a result,
the Lexington Ramirez Global Fixed Income will assume the credit risk of both
the borrower and the Lender that is selling the Participation. When the
Lexington Ramirez Global Fixed Income purchases Assignments from Lenders, the
Lexington Ramirez Global Fixed Income will acquire direct rights against the
borrower
31
<PAGE>
on the Loan. The Lexington Ramirez Global Fixed Income may have difficulty
disposing of Assignments and Participation. The liquidity of such securities is
limited and the Lexington Ramirez Global Fixed Income anticipates that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities.
Short-Term and Medium-Term Debt Securities. The Lexington Troika Dialog
Russia Fund and Lexington Worldwide Emerging Markets Fund may, under normal
conditions, invest up to 35% of their total assets in Short-Term and Medium-Term
Debt Securities. The Short-Term and Medium-Term Debt Securities in which the
Funds may invest are foreign and domestic money market securities, including
short-term (less than twelve months to maturity) and medium-term (not greater
than five years to maturity) high-quality obligations issued by the U.S.
Government, foreign governments, foreign and domestic corporations and banks,
and repurchase agreements.
Brady Bonds. The Lexington Ramirez Global Income Fund may invest in "Brady
Bonds." Brady Bonds are securities created through the exchange of existing
commercial bank loans for new bonds in developing countries. Brady Bonds issued
by Brazil, Mexico and Venezuela currently are rated below investment grade.
Brady Bonds have been issued only recently and do not have a long payment
history.
Depositary Receipts
The Lexington SmallCap Value and Lexington Troika Dialog Russia Funds may
invest in American Depositary Receipts ("ADRs") and similar securities. ADRs are
securities traded in the U.S. that are backed by securities of foreign issuers.
Investment Companies
Each Lexington Fund (except the Lexington Money Market Trust) may invest up
to 10% of its total assets in shares of other investment companies that invest
in securities in which it may otherwise invest.
U.S. Government Securities
All Lexington Funds may invest in fixed-rate and floating- or variable-rate
U.S. government securities. The U.S. Government guarantees payments of interest
and principal of U.S. Treasury bills, notes and bonds, mortgage-related
securities of the GNMA, and other securities issued by the U.S. government.
Other securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of the agency or instrumentality,
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<PAGE>
for example those issued by the Federal Home Loan Bank, whereas others, such as
those issued by the FNMA, Farm Credit System and Student Loan Marketing
Association, have an additional line of credit with the U.S. Treasury.
Short-term U.S. government securities generally are considered to be among
the safest short-term investments. However, the U.S. government does not
guarantee the net asset value of the Funds' shares. With respect to U.S.
government securities supported only by the credit of the issuing agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S. government will provide support to such agencies
or instrumentalities. Accordingly, such U.S. government securities may involve
risk of loss of principal and interest.
OTHER INVESTMENT PRACTICES
The following table and sections summarize certain investment practices of
the Funds. These practices may involve risks. The Glossary section at the end of
this Prospectus briefly describes each of the investment techniques summarized
below. The Statement of Additional Information, under the heading "Investment
Objectives and Policies of the Funds," contains more detailed information about
certain of these practices.
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Lexington Lexington Lexington Lexington
Crosby Ramirez Troika Worldwide Lexington
Small Cap Lexington Lexington Global Dialog Emerging Convertible
Asia Growth Global International Income Russia Markets Securities
Fund Fund Fund Fund Fund Fund Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Repurchase agreements1 X X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions2
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X X X X X
one-third of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions X
- ------------------------------------------------------------------------------------------------------------------------------------
Leverage X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed X X X X X
one-third of total fund assets
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and forward X X X X X X
commitment securities
- ------------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts2 X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies3 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities X X X
and indices3
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered call options3 X X X X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Write covered put options3 X X X
- ------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts4 X
- ------------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options X X X X X X
on futures4
- ------------------------------------------------------------------------------------------------------------------------------------
Equity swap
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
5% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X
10% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X X X X X X
15% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Lexington Lexington Lexington
Growth and SmallCap Lexington Money
Income Value Lexington GNMA Income Market
Fund Fund Goldfund Fund Trust
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Repurchase agreements1 X X X X X
- ------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions2
- ------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed X X
one-third of total fund assets
- ------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement X X
- ------------------------------------------------------------------------------------------------------------------
Dollar roll transactions
- ------------------------------------------------------------------------------------------------------------------
Leverage X
- ------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets
- ------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed X X
one-third of total fund assets
- ------------------------------------------------------------------------------------------------------------------
When-issued and forward X X X
commitment securities
- ------------------------------------------------------------------------------------------------------------------
Forward currency contracts2 X
- ------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies3
- ------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and indices3
- ------------------------------------------------------------------------------------------------------------------
Write covered call options3 X
- ------------------------------------------------------------------------------------------------------------------
Write covered put options3
- ------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts4
- ------------------------------------------------------------------------------------------------------------------
Futures and swaps and options X
on futures4
- ------------------------------------------------------------------------------------------------------------------
Equity swap
- ------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X
5% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to
10% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to X X
15% of fund's net assets
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
1 Under the Investment Company Act, repurchase agreements and reverse dollar
roll transactions are considered to be loans by a fund and must be fully
collateralized by collateral assets. If the seller defaults on its
obligations to repurchase the underlying security, a fund may experience
delay or difficulty in exercising it rights to realize upon the security,
may incur a loss if the value of the security declines and may incur
disposition costs in liquidating the security.
2 A fund that may invest in forward currency contracts may not invest more
than 70% of its assets in such contracts.
3 A fund will not enter into options on securities, securities indices or
currencies or related options (including options on futures) if the sum of
initial margin deposits and premiums paid for any such option or options
would exceed 5% of its total assets, and it will not enter into options
with respect to more than 25% of its total assets.
4 A Fund may purchase and sell futures contracts and related options under
the following conditions: (a) the then-current aggregate futures market
prices of financial instruments required to be delivered and purchased
under open futures contracts shall not exceed 30% of the Fund's total
assets, at market value; and (b) no more than 5% of the assets, at market
value at the time of entering into a contract, shall be committed to margin
deposits in relation to futures contracts.
Borrowing
Funds may borrow up to 5% of their total assets for temporary or emergency
purposes.
Defensive Investments and Portfolio Turnover
Each Lexington Fund may invest up to 100% of its total assets in cash or
high-quality debt obligations for temporary defensive purposes.
The "portfolio turnover rate" is the frequency a Fund buys and sells
securities. Frequent transactions involve added expense. The following funds
expect a portfolio turnover rate of greater than 100%:
Hedging and Risk Management Practices
The Lexington Funds (other than the Money Market Trust) may "hedge" against
changes in financial markets, currency rates and interest rates. A typical hedge
is designed to offset a decline that could hurt the value of the Fund's
securities. The Lexington Funds may hedge with "derivatives." Derivatives are
instruments whose value is linked to, or derived from, another instrument, like
an index or a commodity. Some Lexington Funds (see chart) may invest in options
and futures contracts.
Hedging transactions involve certain risks. Although a Fund may benefit
from hedging, unanticipated changes in interest rates or securities prices may
result in greater losses for a Fund than if it did not hedge. If a Fund does not
correctly predict a hedge, it may lose money. In addition, a Fund pays
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commissions and other costs in connection with such investments. Hedging
transactions may not exist is some countries.
Investment Restrictions
The investment objective of each Lexington Fund is fundamental and may not
be changed without shareholder approval but, unless otherwise stated, each
Fund's other investment policies may be changed by its Board. If a Fund changes
its investment objective or policies, you should consider whether that Fund is
right for you. The Lexington Funds are subject to additional investment policies
and restrictions described in the Statement of Additional Information, some of
which are fundamental.
RISK CONSIDERATIONS
Small Companies
The Lexington Crosby Small Cap Asia Growth Fund and Lexington Small Cap
Value Fund emphasize investments in smaller companies that may benefit from the
development of new products and services. Such smaller companies may present
greater opportunities for capital appreciation but may involve greater risk than
larger, more mature issuers. Such smaller companies may have limited product
lines, markets or financial resources, and their securities may trade less
frequently and in more limited volume than those of larger, more mature
companies. As a result, the prices of their securities may fluctuate more than
those of larger issuers.
Many companies traded on securities markets in many foreign countries are
smaller, newer and less seasoned than companies whose securities are traded on
securities markets in the United States. Investments in smaller companies
involve greater risk than is customarily associated with investing in larger
companies. Smaller companies may have limited product lines, markets or
financial or managerial resources and may be more susceptible to losses and
risks of bankruptcy. Additionally, market making and arbitrage activities are
generally less extensive in such markets and with respect to such companies,
which may contribute to increased volatility and reduced liquidity of such
markets or such securities. Accordingly, each of these markets and companies may
be subject to greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of securities, than is
usual in the United States. To the extent that any of these countries
experiences rapid increases in its money supply and investment in equity
securities for speculative purposes, the equity securities traded in any such
country may trade at price-earning multiples higher than those of comparable
companies trading on securities
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markets in the United States, which may not be sustainable. In addition, risks
due to the lack of modern technology, the lack of a sufficient capital base to
expand business operations, the possibility of permanent or temporary
termination of trading, and greater spreads between bid and ask prices may exist
in such markets.
Foreign Securities
The Lexington Crosby Small Cap Asia Growth Fund, Lexington Global Fund,
Lexington Goldfund, Lexington Growth and Income Fund, Lexington International
Fund, Lexington Ramirez Global Income Fund, Lexington Troika Dialog Russia Fund
and Lexington Worldwide Emerging Markets Fund have the right to purchase
securities in foreign countries. Accordingly, shareholders should consider
carefully the substantial risks involved in investing in securities issued by
companies and governments of foreign nations, which are in addition to the usual
risks of loss inherent in domestic investments. The Lexington Crosby Small Cap
Asia Growth Fund and Lexington Global Fund, and particularly the Lexington
Ramirez Global Income Fund, Lexington Troika Dialog Russia Fund and Lexington
Worldwide Emerging Markets Fund, may invest in securities of companies domiciled
in, and in markets of, so-called emerging market countries. These investments
may be subject to higher risks than investments in more developed countries.
Foreign investments involve the possibility of expropriation,
nationalization or confiscatory taxation, taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends) or
other taxes imposed with respect to investments in foreign nations, foreign
exchange controls (which may include suspension of the ability to transfer
currency from a given country and repatriation of investments), default in
foreign government securities, and political or social instability or diplomatic
developments that could adversely affect investments. In addition, there is
often less publicly available information about foreign issuers than those in
the U.S. Foreign companies are often not subject to uniform accounting, auditing
and financial reporting standards. Further, these funds may encounter
difficulties in pursuing legal remedies or in obtaining judgments in foreign
courts. Additional risk factors, including use of domestic and foreign custodian
banks and depositories, are described elsewhere in this Prospectus and in the
Statement of Additional Information.
Brokerage commissions, fees for custodial services and other costs relating
to investments in other countries are generally greater than in the U.S. Foreign
markets have different clearance and settlement procedures from those in the
U.S., and certain markets have experienced times when
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settlements did not keep pace with the volume of securities transactions. The
inability of a fund to make intended security purchases due to settlement
difficulties could cause it to miss attractive investment opportunities.
Inability to sell a portfolio security due to settlement problems could result
in loss to the fund if the value of the portfolio security declined or result in
claims against the fund. In certain countries, there is less government
supervision and regulation of business and industry practices, stock exchanges,
brokers, and listed companies than in the U.S. The securities markets of many of
the countries in which these funds may invest may also be smaller, less liquid,
and subject to greater price volatility than those in the U.S.
Because certain foreign securities may be denominated in foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control regulations, and costs will be incurred
in connection with conversions between currencies. A change in the value of a
foreign currency against the U.S. dollar results in a corresponding change in
the U.S. dollar value of a fund's securities denominated in the currency. Such
changes also affect the fund's income and distributions to shareholders. A fund
may be affected either favorably or unfavorably by changes in the relative rates
of exchange between the currencies of different nations, and a fund may
therefore engage in foreign currency hedging strategies. Such strategies,
however, involve certain transaction costs and investment risks, including
dependence upon the Manager's ability to predict movements in exchange rates.
Some countries in which one of these funds may invest also may have fixed
or managed currencies that are not freely convertible at market rates into the
U.S dollar. Certain currencies may not be internationally traded. A number of
these currencies have experienced steady devaluation relative to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact on
the fund. Many countries in which a fund may invest have experienced
substantial, and in some periods extremely high, rates of inflation for many
years. Inflation and rapid fluctuation in inflation rates may have negative
effects on certain economies and securities markets. Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available to foreign investors such as the fund. The fund may pay a "foreign
premium" to establish an investment position which it cannot later recoup
because of changes in that country's foreign investment laws.
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Lower-Quality Debt
The Lexington Convertible Securities, Lexington Troika Dialog Russia and
Lexington Ramirez Global Income Funds are authorized to invest high-yield,
lower-rated debt securities. Lower-rated debt securities are considered highly
speculative and changes in economic conditions or other circumstances are more
likely to lead to a weakened capacity to make principal and interest payments
than with higher-grade debt securities.
Concentration in Securities of Russian Companies
The Lexington Troika Dialog Russia Fund concentrates its investment in
companies that have their principal activities in Russia. Consequently, the
Lexington Troika Dialog Russian Fund's share value may be more volatile than
that of investment companies not sharing this geographic concentration. Since
the breakup of the Soviet Union at the end of 1991, Russia has experienced
dramatic political and social change. The political system in Russia is emerging
from a long history of extensive state involvement in economic affairs. The
country is undergoing a rapid transition from a centrally-controlled command
system to a market-oriented, democratic model. The Lexington Troika Dialog
Russia Fund may be affected unfavorably by political or diplomatic developments,
social instability, changes in government policies, taxation and interest rates,
currency repatriation restrictions and other political and economic developments
in the law or regulations in Russia and, in particular, the risks of
expropriation, nationalization and confiscation of assets and changes in
legislation relating to foreign ownership. See "Russia" and "Russian Company" in
the Glossary.
The political environment in Russia in 1997 is more stable than in 1993 and
earlier when clashes between reformers and reactionaries were continuous,
setting the stage for an attempted coup d'etat in October 1993. Nevertheless,
there is still a great deal of uncertainty surrounding the political future of
the country. The civil war in Chechnya has highlighted the political tensions
that exist between the central government in Moscow and some of the regions
within the Russian Federation and has contributed to political instability by
weakening confidence domestically and internationally in the government. The
risk exists that armed conflict in Chechnya will continue, which could deter
foreign investment and international aid and further weaken the reformist
government's control. A continuing trend away from reformers toward
conservatives could further deter foreign investment if foreign policy
initiatives contrary to western interests (Iran, Iraq) lead to a deterioration
in relations between the Russian Federation and the West. The risk also exists
that the political tensions associated with the war in Chechnya will lead to
attempts for independence in other regions within the
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Russian Federation. The war in Chechnya and other inflammatory issues may also
lead to greater tensions and divisions between the President and the
legislature.
The military could have a negative impact on Russia's political and
economic future. The declining stature of Russia as a world power has led to a
widespread sentiment among Russians for a return to Russia's status as a
superpower. Demobilization of troops, cuts in the military budget, the growth of
significant gaps in living standards between the military and civilian sectors,
and the perception of an external threat from NATO could lead to further
political unrest.
Moreover, it is uncertain whether Russia's privatization process will
continue. Although government officials have publicly pledged their continued
support for the reform process. It is also unclear whether the reforms intended
to liberalize prevailing economic structures based on free market principles
will be successful, particularly in terms of foreign ownership of Russian
companies.
The planned economy of the former Soviet Union was run with qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian businesses do not have any recent history of operating within a
market-oriented economy. In general, relative to companies operating in Western
economies, companies in Russia are characterized by a lack of: (i) management
with experience of operating in a market economy; (ii) modern technology; and,
(iii) a sufficient capital base with which to develop and expand their
operations. It is unclear what will be the future effect on Russian companies,
if any, of Russia's continued attempts to move toward a more market-oriented
economy.
Russia's economy has experienced severe economic recession, if not
depression, since 1990 during which time the economy has been characterized by
high rates of inflation, high rates of unemployment, declining gross domestic
product, deficit government spending, and a devaluing currency. The economic
reform program has involved major disruptions and dislocations in various
sectors of the economy. The economic problems have been exacerbated by a growing
liquidity crisis which culminated in a bank liquidity crisis in August 1995. The
taxation system has had numerous attempts at reform, but a failure to collect
taxes is an ongoing major problem.
Russia presently receives significant financial assistance from a number of
countries through various programs. To the extent these programs are reduced or
eliminated in the future, Russian economic development may be adversely
impacted.
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The Russian securities markets are substantially smaller, less liquid and
significantly more volatile than the securities markets in the United States. In
addition, there is little historical data on these securities markets because
they are of recent origin. A substantial proportion of securities transactions
in Russia are privately negotiated outside of stock exchanges and
over-the-counter markets. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Some issuers may be exposed to center-regional conflicts in jurisdiction in the
areas of taxation and overall corporate governance which could put the Fund's
investments at risk. In addition, because the Russian securities markets are
smaller and less liquid than in the United States, obtaining prices on portfolio
securities from independent sources may be more difficult than in other markets.
Although evolving rapidly, even the largest of Russia's stock exchanges are
not well developed compared to Western stock exchanges. The actual volume of
exchange-based trading in Russia is low and active on-market trading generally
occurs only in the shares of a few private companies. Most secondary market
trading of equity securities occurs through over-the-counter trading facilitated
by a growing number of licensed brokers. Shares are traded on the
over-the-counter market primarily by the management of enterprises, investment
funds, short-term speculators and foreign investors.
Interest Rates
The market value of debt securities that are interest rate sensitive is
inversely related to changes in interest rates. That is, an interest rate
decline produces an increase in a security's market value, and an interest rate
increase produces a decrease in value. The longer the remaining maturity of a
security, the more sensitive that security is to changes in interest rates.
Changes in the ability of an issuer to make payments of interest and principal
and in the market's perception of the issuer's creditworthiness also affect the
market value of that issuer's debt securities.
Prepayments of principal of mortgage-related securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a fund's portfolio. Mortgage prepayments are affected by the level of
interest rates and other factors, including general economic conditions and the
underlying location and age of the mortgage. In periods of rising interest
rates, the prepayment rate tends to decrease, lengthening the average life of a
pool of mortgage-related securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the average life of a pool.
Because prepayments of principal generally occur when interest rates are
declining, it is likely that the Lexington GNMA Income Fund may have to reinvest
the proceeds of prepayments at lower interest rates
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than those of their previous investments. If this occurs, a fund's yield will
decline correspondingly. Thus, mortgage-related securities may have less
potential for capital appreciation in periods of falling interest rates than
other fixed-income securities of comparable duration, although they have a
comparable risk of decline in market value in periods of rising interest rates.
To the extent that the Lexington GNMA Income Fund purchases mortgage-related
securities at a premium, unscheduled prepayments, which are made at par, result
in a loss equal to any unamortized premium. Duration is one of the fundamental
tools used by the Manager in managing interest rate risks including prepayment
risks. See "Duration" in the Glossary.
Non-diversified Portfolio. The Lexington Goldfund and Lexington Troika
Dialog Russia Fund are "non-diversified" investment companies under the
Investment Company Act. This means that the Lexington Goldfund and Lexington
Troika Dialog Russia Fund are not limited in the proportion of their total
assets that may be invested in a single company. The Lexington Goldfund and
Lexington Troika Dialog Russia Fund may invest a greater portion of their assets
in fewer companies than "diversified" funds, and thus may be subject to greater
risk. The Lexington Goldfund and Lexington Troika Dialog Russia Fund, however,
intend to comply with the diversification requirements of federal tax laws to
qualify as a regulated investment company.
MANAGEMENT OF THE FUNDS
Board of Directors/Trustee
Each Lexington Fund has either a Board of Directors or a Board of Trustees
that establishes its policies and supervises and reviews its management.
Day-to-day operations of the Lexington Funds are administered by the officers of
the Lexington Funds and by the Manager and Sub-Advisers pursuant to the terms of
an investment management agreement with each fund and investment sub-advisory
agreements between the Manager and the Sub-Advisers.
Board of Advisers
The Lexington Troika Dialog Russia Fund's Board of Directors will receive
oversight assistance from a Board of Advisers which will be composed of experts
in Russian political and economic affairs. The Board of Advisers will be
responsible for providing the Board of Directors with periodic updates on
political and macroeconomic conditions and trends in Russia, and their potential
implication for the overall investment environment in
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Russia. This will enhance the Board of Directors' ability to oversee and
safeguard the assets of the Lexington Troika Dialog Russia Fund.
Investment Adviser
Lexington Management Corporation is the Manager of the Lexington Funds. The
Manager was formed in 1938 and is an investment adviser registered as such with
the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended. The Manager advises private clients as well as the Lexington
Funds. The Manager is a wholly-owned subsidiary of Lexington Global Asset
Managers, Inc., a Delaware corporation. Descendants of Lunsford Richardson, Sr.,
their spouses, trusts and other related entities have a controlling interest in
Lexington Global Asset Managers, Inc.
THE SUB-ADVISERS
Lexington Convertible Securities Fund
The Manager has entered into a Sub-Advisory Agreement with Ariston Capital
Management Corporation ("Ariston"). Under the Sub-Advisory Agreement, Ariston
will provide the Lexington Convertible Securities Fund with 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 Lexington Convertible Securities Fund as
part of their investment program. Ariston was founded in 1977 and provides
investment management to individuals, corporations, pension and profit sharing
plans, and other qualified retirement plan accounts. Ariston is recognized for
its expertise in portfolio management, specializing in convertible securities
and market forecasting.
Lexington Crosby Small Cap Asia Growth Fund
The Manager has entered into a Sub-Advisory Agreement with Crosby Asset
Management (US) Inc. ("Crosby"). Under the Sub-Advisory Agreement, Crosby will
provide the Lexington Crosby Small Cap Asia Growth Fund with investment
management services. Crosby was established on October 4, 1990 in the British
Virgin Islands. Crosby manages assets and provides investment advice for
investment company and institutional private accounts around the world. It is a
subsidiary of the Crosby Group.
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Lexington Ramirez Global Income Fund
The Manager has entered into a Sub-Advisory Agreement with MFR Advisors,
Inc. ("MFR"). Under the Sub-Advisory Agreement, MFR will provide the Lexington
Ramirez Global Income Fund with investment and economic research services. MFR
does not manage any assets for investment companies, but is an institutional
manager for private clients. MFR is a subsidiary of Maria Fiorini Ramirez, Inc.
Lexington SmallCap Value Fund
The Manager has entered into a Sub-Advisory Agreement with Capital
Technology Inc. ("CTI"). Under the Sub-Advisory Agreement, CTI will provide the
Lexington SmallCap Value Fund with investment advice and management of the
Fund's investment program. CTI was founded in Charlotte, North Carolina in 1977
and invests exclusively in domestic smaller capitalization stocks. CTI currently
manages assets both small and mid cap growth and value styles for primarily
institutional clients.
Lexington Troika Dialog Russia Fund
The Manager has entered into a Sub-Advisory Agreement with Troika Dialog
Asset Management ("TDAM"). Under the Sub-Advisory Agreement, TDAM will provide
the Lexington Troika Dialog Russia Fund with investment advice and management of
the Fund's investment program. TDAM is a wholly owned subsidiary of Troika
Dialog which was founded in Moscow, Russia in 1991 by Dialog Bank and Troika
Capital Corporation.
The Manager as owner of the registered service mark "Lexington" will
sublicense the Sub-Advised Funds to include the word "Lexington" as part of
their names subject to revocation by the Manager in the event that the Funds
cease to engage the Manager or its affiliates as investment manager or
distributor. Crosby has authorized the Lexington Crosby Small Cap Asia Growth
Fund to include the word "Crosby" as part of its corporate name subject to
revocation by Crosby in the event the Lexington Crosby Small Cap Asia Growth
Fund ceases to engage Crosby as Sub-Adviser. In that event the Funds will be
required upon demand of the Manager (or with regard to the Lexington Crosby
Small Cap Asia Growth Fund, Crosby) to change their respective names to delete
the word "Lexington" (or with regard to the Lexington Crosby Small Cap Asia
Growth Fund, "Crosby") therefrom.
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PORTFOLIO MANAGERS
Lexington Convertible Securities Fund
Richard B. Russell manages the Lexington Convertible Securities Fund. Mr.
Russell is President of Ariston Capital Management Corporation, the Lexington
Convertible Securities Fund's Sub-Adviser. 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.
Lexington Crosby Small Cap Asia Growth Fund
Christina Lam is a lead manager (Nigel Webber is the other lead manager) on
a portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Ms. Lam is Vice President and Portfolio Manager of the Lexington
Crosby Small Cap Asia Growth Fund. Ms. Lam joined Crosby Asset Management in
1991. She is responsible for the investment management of the listed equity
portfolios under the management of Crosby Asset Management which include a major
Asian small capitalization account. After graduating with a Law Degree with
Honors from Warwick University, she qualified as a Barrister from Lincoln's Inn
in London. She moved to Hong Kong in 1987 where she joined Schroder Securities
Limited in Hong Kong as an investment analyst, where her coverage included the
utilities, industrials and retail sectors and conglomerates.
Nigel Webber is a lead manager (Ms. Lam is the other lead manager) on a
portfolio management team that manages the Lexington Crosby Small Cap Asia
Growth Fund. Mr. Webber is Vice President and Portfolio Manager of the Lexington
Crosby Small Cap Asia Growth Fund. Mr. Webber is responsible for the Fund's
overall investment strategy. Mr. Webber was appointed a Managing Director of
Crosby Asset Management in October 1993 with primary responsibility for business
development. He joined Crosby Asset Management after being a partner in Causeway
Capital Limited, a leading independent U.K. investment management firm
specializing in private equity investment and smaller listed companies. He
started his career at KPMG Peat Marwick, followed by five years at Citicorp
International Bank Limited in London and New York and three years with
Mercantile House Holdings PLC a leading financial services group. In 1987, he
joined as Managing Director, an investment company specializing in the
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financial sector where he first became associated with the Crosby Group. He was
a Director and member of the investment committee of The Thai Development
Capital Fund Limited and The China Investment Company Ltd., two funds managed by
Crosby Asset Management from their launch until September 1993.
Lexington Global Fund
Richard Saler is part of an investment management team that manages the
Lexington Global Fund. Mr. Saler is Senior Vice President, Director of
International Investment Strategy of the Manager. Mr. Saler is responsible for
international investment analysis and portfolio management at the Manager. He
has ten years of investment experience. Mr. Saler has focused on international
markets since first joining the Manager in 1986. In 1991 he was a strategist
with Nomura Securities and rejoined the Manager in 1992. Mr. Saler is a graduate
of New York University with a B.S. Degree in Marketing and an M.B.A. in Finance
from New York University's Graduate School of Business Administration.
Phillip A. Schwartz is part of an investment management team that manages
the Lexington Global Fund. Mr. Schwartz is a Vice President of the Manager,
Chartered Financial Analyst and member of the New York Security Analysts
Association. He is responsible for international investment analysis and
portfolio management at the Manager, and has eight years investment experience.
Prior to joining Lexington in 1993, Mr. Schwartz was Vice President of European
Research Sales with Cheuvreux Devirieu in Paris and New York, serving the
institutional market. Prior to Cheuvreux, he was affiliated with Olde and Co.
and Kidder, Peabody as a stockbroker. Mr. Schwartz earned his B.A. and M.A.
degrees from Boston University.
Alan Wapnick is part of an investment management team that manages the
Lexington Global Fund. Mr. Wapnick is Senior Vice President, Director of
Domestic Investment Equity Strategy at the Manager. Mr. Wapnick is responsible
for domestic investment analysis and portfolio management at LMC. He has 26
years investment experience. Prior to joining the Manager in 1986, Mr. Wapnick
was an equity analyst with Merrill Lynch, J.&W. Seligman, Dean Witter and most
recently Union Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth
College and received a Master's Degree in Business Administration from Columbia
University.
Lexington GNMA Income Fund
Denis P. Jamison manages the Lexington GNMA Income Fund. Mr. Jamison is
Senior Vice President and Director Fixed Income Strategy of Lexington Management
Corporation. Mr. Jamison is responsible for fixed-
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income portfolio management. He is a member of the New York Society of Security
Analysts. Prior to joining the Manager in 1981, Mr. Jamison had spent nine years
at Arnold Bernhard & Company, an investment counseling and financial services
organization. At Bernhard, he was a Vice President supervising the security
analyst staff and managing investment portfolios. He is a specialist in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics.
Lexington Goldfund
Robert W. Radsch, CFA, is portfolio manager of the Lexington Goldfund. Mr.
Radsch is a Vice President of the Manager. Prior to joining Lexington in July
1994, he was Senior Vice President, Portfolio Manager and Chief Economist for
the Bull & Bear Group. He has extensive experience managing gold, silver and
platinum on an international basis having managed precious metals and
international funds for more than 13 years. Mr. Radsch is a graduate of Yale
University with a B.A. degree and holds an M.B.A. in Finance from Columbia
University.
Lexington Growth and Income Fund
Mr. Wapnick is portfolio manager of the Lexington Growth and Income Fund.
Lexington International Fund
Mr. Saler and Mr. Schwartz manage the Lexington International Fund as an
investment management team. Mr. Saler is the lead manager and Mr. Schwartz is
the co-manager.
Lexington Money Market Trust
Mr. Jamison is portfolio manager of the Lexington Money Market Trust.
Lexington Ramirez Global Income Fund
Maria Fiorini Ramirez, President and Chief Executive Officer of MFR
Advisors Inc., began her career as a credit analyst with American Express
International Banking Corporation in 1968. In 1972, she moved to Banco Nazionale
De Lavoro in New York. The following year, she started a ten year association
with Merrill Lynch, serving as Vice President and Senior Money Market Economist.
She joined Becker Paribas in 1984 as Vice President and Senior Money Market
Economist before joining Drexel Burnham Lambert that same year as First Vice
President and Money Market Economist. She was promoted to Managing Director of
Drexel in 1986. From April, 1990 to
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August 1992, Ms. Ramirez was the President and Chief Executive Officer of Maria
Ramirez Capital Consultants, Inc., a subsidiary of John Hancock Freedom
Securities Corporation. Ms. Ramirez established MFR in August, 1992, MFR is
Sub-Adviser to the Lexington Ramirez Global Income Fund. Ms. Ramirez holds a
B.A. in Business Administration and Economics from Pace University.
Lexington Small Cap Value Fund
Dennis Hamilton is one of two lead managers (Robb W. Rowe is the other lead
manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund. Mr. Hamilton is Vice President and Portfolio Manager of CTI. He is
responsible for issue selection and the day to day investment activities of the
SmallCap Value Fund. Mr. Hamilton joined CTI in 1994 after being a principal at
Mercer Investment Consulting, Inc. He has also served as Director of Pension
Investment for several multi-billion dollar corporate pension funds and was
President and Chief Investment Officer of Western Reserve Capital Management,
Inc., an SEC registered investment advisor. He is an Honors graduate of Colgate
University and earned an MBA from Harvard Business School in 1971.
Robb W. Rowe is one of two lead managers (Mr. Hamilton is the other lead
manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund. Mr. Rowe is President and principal shareholder of CTI. He is
responsible for the SmallCap Value Fund's overall investment strategy. Mr. Rowe
joined CTI in 1982 after being Vice President and Regional Manager of AG Becker
Co. He is a graduate of Ripon College and receive an MBA from the University of
Chicago in 1971.
Lexington Troika Dialog Russia Fund
Peter Derby is a manager on a portfolio management team (the other members
of the portfolio management team include Gavin Rankin and Ruben Vardanian) that
manages the Lexington Troika Dialog Russia Fund. Mr. Derby is the Chairman of
the Board of TDAM and is the President, Chief Executive Officer and founder of
Troika Dialog and is the President and Chief Executive Officer of Dialog Bank, a
position he has held since 1991. Mr. Derby participated in the drafting of
corporate, banking and securities legislation in Russia and is currently a
member of the Expert Council of Russia's Federal Securities Exchange Commission.
Mr. Derby holds numerous director positions in Russian enterprises and
charities; he is a founding and current Member of the Board of the Moscow
International Currency Exchange, and is a Member of the Board of Directors of
the American Chamber of Commerce in Russia.
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Mr. Derby is Treasurer and Member of the Board of Junior Achievement in Russia.
He is a founding Member of the Russian-American Professional Club in New York
City.
Gavin Rankin is is the lead manager of a portfolio management team (the
other members of the portfolio management team include Mr. Peter Derby and Mr.
Ruben Vardanian) that manages the Lexington Troika Dialog Russia Fund. Mr.
Rankin Head of Research for TDAM and Troika Dialog. He is responsible, along
with other members of the portfolio management team, for the Fund's overall
investment strategy. Before joining Troika Dialog, he was the Founder and Chief
Executive Officer of Lonpra A.S., an investment banking firm in Czechoslovakia
in 1991. Mr. Rankin received a degree in law (L.L.B.) from the University of
Buckingham in England and also qualified as a Chartered Accountant with Price
Waterhouse. Mr. Rankin has extensive experience in East European equity research
and management.
Ruben Vardanian is a manager on a portfolio management team (the other
members of the portfolio management team include Mr. Peter Derby and Mr. Gavin
Rankin) that manages the Lexington Troika Dialog Russia Fund. Mr. Vardanian is
President of TDAM and Executive Director of Troika Dialog. Mr. Vardanian, a
Russian national, is a sitting member of the Moscow Times Index Composition
Committee. He is a Director and former Chairman of the Board of Directors of the
Depository Clearing Company. He is also Chairman of the Board of Directors of
the Russian capital markets self-regulatory organization (PAUFOR). Mr. Vardanian
received a Masters Degree with Distinction from the Finance Department of Moscow
State University. He received post-graduate training with Banca CRT in Italy and
the Emerging Markets Division of Merrill Lynch in New York.
Lexington Worldwide Emerging Markets Fund
Mr. Saler is the lead manager of an investment management team that manages
the Lexington Worldwide Emerging Markets Fund.
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HOW TO DO BUSINESS WITH THE FUNDS
How to Contact the Funds .................................................... 51
How to Invest in the Funds .................................................. 51
How to Redeem an Investment in the Funds .................................... 54
Exchange Privileges and Restrictions ........................................ 56
FUND INFORMATION
How Net Asset Value Is Determined ........................................... 57
Dividends and Distributions ................................................. 58
Taxation .................................................................... 60
General Information ......................................................... 61
Backup Withholding .......................................................... 63
Glossary .................................................................... 64
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HOW TO CONTACT THE FUNDS
Call a Lexington shareholder service representative for information on the
Funds or your account, at:
(800) 526-0056 or
(201) 845-7300 for Service
(800) 526-0052 for 24 Hour
Account Information
Mail your completed application, any checks, investment or redemption
instructions and correspondence to the Transfer Agent:
Transfer Agent:
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
How to Invest in the Funds
The Funds' shares are offered directly to the public, with no sales load,
at their nextdetermined net asset value after receipt of an order with payment.
The Funds' shares are offered for sale by State Street Bank and Trust Company
(the "Transfer Agent") and through selected securities brokers and dealers.
If an order, together with payment in proper form, is received by the
Transfer Agent by 4:00 p.m., New York time, on any day that the New York Stock
Exchange ("NYSE") is open for trading, fund shares will be purchased at the
fund's next-determined net asset value. Orders for fund shares received after
the Funds' cutoff times will be purchased at the next-determined net asset value
after receipt of the order.
The minimum investment in each fund is described in this section. The
Manager or the Distributor, in its discretion, may waive these minimums. The
Funds do not accept third-party checks or cash investments. Checks must be in
U.S. dollars and, to avoid fees and delays, drawn only on banks located in the
U.S. See the Statement of Additional Information for further details.
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Initial Investments
Minimum Initial Investment (except Lexington
Troika Dialog Russia Fund): $1,000
Minimum Initial Investment for the Lexington Troika
Dialog Russia Fund: $5,000
Initial Investments by Check
o Complete the New Account Application. Tell us in which fund(s) you
want to invest and make your check payable to The Lexington Funds.
o Mail the New Account Application and check to the Transfer Agent at
the address given above.
o A charge may be imposed on checks that do not clear.
o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
Initial Investments by Wire
o Shares of the following Funds may be purchased by wire: Lexington
Crosby SmallCap Asia Growth Fund and Lexington Money Market Trust.
o Telephone the Funds toll-free at 1-800-526-0056. Provide the Transfer
Agent with your name, dollar amount to be invested and fund(s) in
which you want to invest. They will provide you with further
instructions to complete your purchase. Complete information regarding
your account must be included in all wire instructions to ensure
accurate handling of your investment.
o Request your bank to transmit immediately available funds by wire for
purchase of shares in your name to the following:
State Street Bank and Trust Company
Attention: Mutual Funds Dept.
Account # 99043713
For Credit to: (shareholder(s) name)
Shareholder Account Number: (shareholder(s) account number)
Name of Fund: (Lexington Fund name)
o A completed New Account Application must then be forwarded to the Fund
at the address on the Application.
o Your bank may charge a fee for any wire transfers.
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o The Funds and the Distributor each reserve the right to reject any
purchase order in whole or in part.
Minimum Subsequent Investment: $50
Subsequent Investments by Check
o Make your check payable to The Lexington Funds. Enclose the detachable
form which accompanies the Transfer Agent's confirmation of a prior
transaction with your check. If you do not have the detachable form,
mail your check with written instructions indicating the fund name and
account number to which your investment should be credited.
o A charge may be imposed on checks that do not clear.
Subsequent Investments by Wire
o You do not need to contact the Transfer Agent prior to making
subsequent investments by wire. Instruct your bank to wire funds to
the Transfer Agent using the bank wire information under "Initial
Investments by Wire" above.
"Lex-O-Matic" the Automatic Investment Plan
o A shareholder may make additional purchases of shares automatically on
a monthly or quarterly basis with the automatic investing plan,
"Lex-O-Matic."
o "Lex-O-Matic" will be established on existing accounts only. You may
not use an "Lex-O-Matic" investment to open a new account. The minimum
automatic investment amount is $50.
o Your bank must be a member of the Automated Clearing House.
o To establish Lex-O-Matic, attach a voided check (checking account) or
preprinted deposit slip (savings account) from your bank account to
your Lexington Account Application or your letter of instruction.
Investments will automatically be transferred into your Lexington
Account from your checking or savings account.
o Investments may be transferred either monthly or quarterly on or about
the 15th day of the month.
o You should allow 20 business days for this service to become
effective.
o You may cancel your Lex-O-Matic at any time provided that a letter is
sent to the Transfer Agent ten days prior to the scheduled investment
date. Your request will be processed upon receipt.
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By investing in the Lexington Funds, you appoint the Transfer Agent as your
agent to establish an open account to which all shares purchased will be
credited, along with any dividends and capital gain distributions which are paid
in additional shares (see "Dividends and Distributions"). Stock certificates
will be issued, upon written request, for full shares of Lexington Funds.
Certificates will not be issued for 30 days unless payment is made by certified
check, cashier's check or federal funds wire. In order to facilitate redemptions
and transfers, most shareholders elect not to receive certificates
You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders for customers may charge a fee
for their services. The fee may be avoided by purchasing shares directly from
the Lexington Funds.
HOW TO REDEEM AN INVESTMENT IN THE FUNDS
The Funds will redeem all or any portion of an investors outstanding shares
upon request. Redemptions can be made on any day that the NYSE is open for
trading. The redemption price is the net asset value per share next determined
after the shares are validly tendered for redemption and such request is
received by the Transfer Agent. Payment of redemption proceeds is made promptly
regardless of when redemption occurs and normally within three days after
receipt of all documents in proper form, including a written redemption order
with appropriate signature guarantee. Redemption proceeds will be mailed or
wired in accordance with the shareholders instructions. The Funds may suspend
the right of redemption under certain extraordinary circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been notified that the monies used for the purchase have been
collected, which may take up to 15 days from the purchase date. Shares tendered
for redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below.
A 2% redemption fee will be charged on the redemption of shares of the
Troika Dialog Russia Fund held less than 365 days. The redemption fee will not
apply to shares representing the reinvestment of dividends and capital gains
distributions. The redemption fee will be applied on a share by share basis
using the "first shares in, first shares out" (FIFO) method. Therefore, the
oldest shares are considered to have been sold first.
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Redeeming by Written Instruction
o Write a letter giving your name, account number, the name of the fund
from which you wish to redeem and the dollar amount or number of
shares you wish to redeem.
o Signature-guarantee your letter if you want the redemption proceeds to
go to a party other than the account owner(s), your predesignated bank
account or if the dollar amount of the redemption exceeds $25,000.
Signature guarantees may be provided by an eligible guarantor
institution such as a commercial bank, an NASD member firm such as a
stock broker, a savings association or national securities exchange.
Contact the Transfer Agent for more information.
o If a redemption request is sent to the Fund in New Jersey, it will be
forwarded to the Transfer Agent and the effective date of redemption
will be the date received by the Transfer Agent.
o Checks for redemption proceeds will normally be mailed within three
business days, but will not be mailed until all checks in payment for
the shares to be redeemed have been cleared. Shareholders who redeem
all their shares will receive a check representing the value of the
shares redeemed plus the accrued dividends through the date of
redemption. Where shareholders redeem only a portion of their shares,
all dividends declared but unpaid will be distribute on the next
dividend payment date.
Redeeming by Telephone
o Shares of the Money Market Trust may redeemed by telephone. Call the
Fund toll free at 1-800-526-0056.
o A redemption authorization and signature guarantee must be given
before a shareholder may redeem by telephone. A redemption
authorization form is contained in the New Account Application and
authorization forms may be obtained by calling the Funds.
o Shareholders may elect on the redemption authorization form to have
redemption proceeds, in any amount of $200 or more, either mailed to
the registered address, wired to a bank account or mailed to any other
designated person. A new form must be completed whenever these
instructions are revised.
o Telephone redemption privileges may be cancelled by instructing the
Transfer Agent in writing. Your request will be processed upon
receipt.
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o Exchange by telephone, see below "Exchange Privileges and Restrictions."
Redeeming by Check
o Checkwriting is available on the Money Market Trust.
o The minimum amount per check is $100 or more up to $500,000 at no
charge. Checks for less than $100 or over $500,000 will not be
honored.
o All checks require only one signature unless otherwise indicated.
o Checks will be returned to you at the end of each month.
o Redemption checks are free, but a charge of $15.00 may be imposed for
any stop payments requested.
o Redemption checks should not be used to close your account.
o Procedures for redemptions by telephone, at no charge, or check may
only be used for shares for which share certificates have not been
issued, and may not be used to redeem shares purchased by check which
have been on the books of the Fund for less than 15 days.
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature guarantee is required. The minimum payment amount is $100 from each
fund account. Payments may be made either monthly or quarterly on the 1st of
each month. Depending on the form of payment requested, shares will be redeemed
up to five business days before the redemption proceeds are scheduled to be
received by the shareholder. The redemption may result in the recognition of
gain or loss for income tax purposes.
EXCHANGE PRIVILEGES AND RESTRICTIONS
Shares of the Lexington Funds may be exchanged for shares of equivalent
value of any Lexington Fund. If an exchange involves investing in a Lexington
Fund not already owned, the dollar amount of the exchange must meet the minimum
initial investment amount. An exchange may result, in a recognized gain or loss
for income tax purposes. Exchanges of over $500,000 will take three days to
complete. See the discussion of fund telephone procedures and limitations of
liability under "Telephone Transactions" above.
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Purchasing and Redeeming Shares by Exchange
o You may make exchange requests in writing or by telephone. Telephone
exchanges may only be made if you have completed a Telephone
Authorization form. Telephone exchanges may not be made within 7 days
of a previous exchange.
o The minimum exchange required is $500.
o Telephone exchanges may only involve shares held on deposit by the
Transfer Agent, not shares held in certificate form by the
shareholder.
o Any new account established by a shareholder will also have the
privilege of exchange by telephone in the Lexington Funds. All
accounts involved in a telephonic exchange must have the same dividend
option as the account from which the shares are transferred.
HOW NET ASSET VALUE IS DETERMINED
The net asset value of each Fund is determined once daily as of 4:00 p.m.,
New York time, on each day that the NYSE is open for trading. Per share net
asset value is calculated by dividing the value of each fund's total net assets
by the total number of that fund's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either the last
reported sales price or, in the case of securities for which there is no
reported last sale and fixed-income securities, the mean between the closing bid
and asked price. Securities traded over-the-counter are valued at the mean
between the last current bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at their
fair values as determined in good faith under the supervision of the Funds'
officers, and by the Manager and the Boards, in accordance with methods that
are specifically authorized by the Boards. Short-term obligations with
maturities of 60 days or less are valued at amortized cost as reflecting fair
value. When Fund management deems it appropriate prices obtained for the day of
valuation from a third party pricing service will be used for the Lexington
Troika Dialog Russia Fund.
The value of securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be translated into U.S. dollars at
the last price of their respective currency denomination against U.S. dollars
quoted by a major bank or, if no such quotation is available, at the rate of
exchange determined in accordance with policies established in good faith by the
Boards. Because the value of securities denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation to the U.S. dollar may affect the net asset value of fund shares even
without any change in the foreign-currency denominated values of such
securities.
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Because foreign securities markets may close before the Funds determine
their net asset values, events affecting the value of portfolio securities
occurring between the time prices are determined and the time the Funds
calculate their net asset values may not be reflected unless the Manager, under
supervision of the Board, determines that a particular event would materially
affect a fund's net asset value.
DISTRIBUTION PLAN
The Lexington Convertible Securities Fund, Lexington Goldfund, Lexington
Growth and Lexington Income Fund, Lexington International Fund, Lexington
Ramirez Global Income Fund, Lexington SmallCap Value Fund and Lexington Troika
Dialog Russia Fund have each adopted a Distribution Plan. The Distribution Plan
provides that the Funds may pay distribution fees up to 0.25% of their average
daily net assets for distribution services.
SHAREHOLDER SERVICE AGREEMENTS
The Lexington Crosby Small Cap Asia Growth Fund, Lexington Global Fund,
Lexington GNMA Income Fund and Lexington Worldwide Emerging Markets Fund may
enter into Shareholder Servicing Agreements with one or more Shareholder
Servicing Agents. The Shareholder Servicing Agents provide various services to
shareholders. For these services, each Shareholder Servicing Agent receives fees
up to 0.25% of the average daily net assets of the Fund represented by shares
owned during the period for which payment is made. The Manager, at no additional
cost to the Funds, may pay to Shareholder Servicing Agents additional amounts
from its past profits. Each Shareholder Servicing Agent may, from time to time,
voluntarily waive all or a portion of the fees payable to it.
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DIVIDENDS AND DISTRIBUTIONS
Each fund distributes substantially all of its net investment income and
net capital gains to shareholders each year. The amount and frequency of fund
distributions are not guaranteed and are at the discretion of the Board.
Currently, the Lexington Funds intend to distribute according to the following
schedule:
<TABLE>
<CAPTION>
Income Dividends Capital Gains
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lexington Convertible Declared and paid quarterly Declared and paid annually
Securities
Lexington Growth and Income
Lexington Ramirez Global
Income
- ---------------------------------------------------------------------------------------------------------------------------
Lexington GNMA Income Declared and paid monthly Declared and paid annually
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Crosby SmallCap Declared and paid annually Declared and paid annually
Asia Growth
Lexington International
Lexington SmallCap Value
Lexington Troika Dialog
Russia
Lexington Global
Lexington Worldwide
Emerging Markets
- ---------------------------------------------------------------------------------------------------------------------------
Lexington Goldfund Declared daily and paid Declared and paid in
semi-annually annually
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Unless investors request cash distributions in writing, all dividends and
other distributions will be reinvested automatically in additional shares of the
applicable fund and credited to the shareholders account at the closing net
asset value on the reinvestment date.
Distributions Affect a Fund's Net Asset Value
Distributions are paid to you as of the record date of a distribution of a
fund, regardless of how long you have held the shares. Dividends and capital
gains awaiting distribution are included in each fund's daily net asset value.
The share price of a fund drops by the amount of the distribution, net of any
subsequent market fluctuations. For example, assume that on December 31, the
Growth and Income Fund declared a dividend in the amount of $0.50 per share. If
the Growth and Income Fund's share price was $10.00 on December 30, the Fund's
share price on December 31 would be $9.50, barring market fluctuations.
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"Buying a Dividend"
If you buy shares of a fund just before a distribution, you will pay the
full price for the shares and receive a portion of the purchase price back as a
taxable distribution. This is called "buying a dividend." In the example above,
if you bought shares on December 30, you would have paid $10.00 per share. On
December 31, the Fund would pay you $0.50 per share as a dividend and your
shares would now be worth $9.50 per share. Unless your account is a tax-deferred
account, dividends paid to you would be included in your gross income for tax
purposes even though you may not have participated in the increase of net asset
value of the Fund, regardless of whether you reinvested the dividends.
TAXATION
Each of the funds has elected and intends to continue to qualify to be
treated as a regulated investment company under Subchapter M of the Code, by
distributing substantially all of its net investment income and net capital
gains to its shareholders and meeting other requirements of the Code relating to
the sources of its income and diversification of assets. Accordingly, the Funds
generally will not be liable for federal income tax or excise tax based on net
income except to the extent their earnings are not distributed or are
distributed in a manner that does not satisfy the requirements of the Code. If a
fund is unable to meet certain Code requirements, it may be subject to taxation
as a corporation. Funds investing in foreign securities also may incur tax
liability to the extent they invest in "passive foreign investment companies."
See "Portfolio Securities" and the Statement of Additional Information.
For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term capital gain over net long-term capital
loss that investors (other than certain tax-exempt organizations that have not
borrowed to purchase fund shares) receive from the Funds are considered ordinary
income. Part of the distributions paid by the Funds may be eligible for the
dividends-received deduction allowed to corporate shareholders under the Code.
Distributions of the excess of net long-term capital gain over net short-term
capital loss from transactions of a fund are treated by shareholders as
long-term capital gains regardless of the length of time the fund's shares have
been owned. Distributions of income and capital gains are taxed in the manner
described above, whether they are taken in cash or are reinvested in additional
shares of the Funds.
Each fund will inform its investors of the source of their dividends and
distributions at the time they are paid, and will promptly after the close of
each calendar year advise investors of the tax status of those distributions
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and dividends. Investors (including tax exempt and foreign investors) are
advised to consult their own tax advisers regarding the particular tax
consequences to them of an investment in shares of the Funds. Additional
information on tax matters relating to the Funds and their shareholders is
included in the Statement of Additional Information.
GENERAL INFORMATION
The Funds
The Lexington Convertible Securities Fund, Lexington Money Market Trust and
Lexington Ramirez Global Income Fund are business trusts organized under the
laws of Massachusetts. The Lexington Crosby Small Cap Asia Growth Fund,
Lexington Global Fund, Lexington GNMA Income Fund, Lexington Growth and
Lexington Income Fund, Lexington International Fund, Lexington SmallCap Value
Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging
Markets Fund are Maryland corporations. The assets and liabilities of each
business trust and corporation are separate and distinct from each other
business trust or corporation.
The Funds offer other classes of shares to eligible investors and may in
the future designate other classes of shares for specific purposes.
Shareholder Rights
Shares issued by the Funds have no preemptive, conversion or subscription
rights. Each whole share is entitled to one vote as to any matter on which it is
entitled to vote and each fractional share is entitled to a proportionate
fractional vote. Shareholders have equal and exclusive rights as to dividends
and distributions as declared by each fund and to the net assets of each fund
upon liquidation or dissolution. Each fund votes separately on matters affecting
only that fund (e.g., approval of the Investment Management Agreement). Voting
rights are not cumulative, so the holders of more than 50% of the shares voting
in any election of Trustees or Directors can, if they so choose, elect all of
the Trustees or Directors of that Fund. Although the Funds are not required, and
do not intend, to hold annual meetings of shareholders, such meetings may be
called by each Fund's Board at its discretion, or upon demand by the holders of
10% or more of the outstanding shares of the Fund for the purpose of electing or
removing Trustees or Directors. Shareholders may receive assistance in
communicating with other shareholders in connection with the election or removal
of Trustees or Directors pursuant to the provisions of Section 16(c) of the
Investment Company Act.
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Performance Information
From time to time, the Funds may publish their total return, and, in the
case of certain funds, current yield and tax equivalent yield in advertisements
and communications to investors. Total return information generally will include
a fund's average annual compounded rate of return over the most recent four
calendar quarters and over the period from the fund's inception of operations. A
fund may also advertise aggregate and average total return information over
different periods of time. Each fund's average annual compounded rate of return
is determined by reference to a hypothetical $1,000 investment that includes
capital appreciation and depreciation for the stated period according to a
specific formula. Aggregate total return is calculated in a similar manner,
except that the results are not annualized. Total return figures will reflect
all recurring charges against each fund's income.
Current yield as prescribed by the SEC is an annualized percentage rate
that reflects the change in value of a hypothetical account based on the income
received from the fund during a 30-day period. It is computed by determining the
net change, excluding capital changes, in the value of a hypothetical
preexisting account having a balance of one share at the beginning of the
period. A hypothetical charge reflecting deductions from shareholder accounts
for management fees or shareholder services fees, for example, is subtracted
from the value of the account at the end of the period, and the difference is
divided by the value of the account at the beginning of the base period to
obtain the base period return. The result is then annualized. See "Performance
Information" in the Statement of Additional Information. Investment results of
the Funds will fluctuate over time, and any presentation of the Funds' total
return or current yield for any prior period should not be considered as a
representation of what an investors total return or current yield may be in any
future period. The Funds' Annual Report contains additional performance
information and is available upon request and without charge by calling (800)
526-0056.
Legal Opinion
The validity of shares offered by this Prospectus will be passed on by
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022.
Shareholder Reports and Inquiries
During the year, the Funds will send you the following information:
o Confirmation statements are mailed after every transaction that
affects your account balance, except for most money market
transactions
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(monthly) and preauthorized automatic investment, exchange and
redemption services (quarterly).
o Annual and semiannual reports are mailed approximately 60 days after
December 31 and June 30.
o 1099 tax form(s) are mailed by January 31.
Unless otherwise requested, only one copy of each shareholder report or
other material sent to shareholders will be mailed to each household with
accounts under common ownership and the same address regardless of the number of
shareholders or accounts at that household or address. Any questions should be
directed to The Lexington Funds at (800) 526-0056.
BACKUP WITHHOLDING
Tax-payer identification number (TIN)
Be sure to complete the Tax-Payer Identification Number section of the
fund's application when you open an account. Federal tax law requires the fund
to withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange proceeds from accounts (other than those of certain exempt payees)
without a certified Social Security or tax-payer identification number and
certain other certified information or upon notification from the IRS or a
broker that withholding is required.
A shareholder who does not have a TIN should apply for one immediately by
contacting the local office of the Social Security Administration or the IRS.
Backup withholding could apply to payments made to a shareholders account while
awaiting receipt of a TIN. Special rules apply for certain entities. For
example, for an account established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished. If a shareholder has been notified by the
IRS that he or she is subject to backup withholding because he or she failed to
report all interest and dividend income on his or her tax return and the
shareholder has not been notified by the IRS that such withholding will cease,
the shareholder should cross out the appropriate item in the Account
Application. Dividends paid to a foreign shareholders account by a fund may be
subject to up to 30% withholding instead of backup withholding.
A shareholder who is an exempt recipient should furnish a TIN and check the
appropriate box. Exempt recipients include certain corporations, certain
tax-exempt entities, tax-exempt pension plans and IRAs, governmental agencies,
financial institutions, registered securities and commodities dealers and
others. For further information, see Section 3406 of the Code and consult a tax
adviser.
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----------
This Prospectus is not an offering of the securities herein described in
any state in which the offering is unauthorized. No salesperson dealer or other
person is authorized to give any information or make any representation other
than those contained in this Prospectus, the Statement of Additional
Information, or in the Funds' official sales literature.
----------
GLOSSARY
o Cash equivalents. Cash equivalents are short-term, interest-bearing
instruments or deposits and may include, for example, commercial paper,
certificates of deposit, repurchase agreements, bankers' acceptances, U.S.
Treasury Bills, bank money market deposit accounts, master demand notes and
money market mutual funds. These consist of high-quality debt obligations,
certificates of deposit and bankers' acceptances rated at least A-1 by S&P
or Prime1 by Moody's, or the issuer has an outstanding issue of debt
securities rated at least A by S&P or Moody's, or are of comparable quality
in the opinion of the Manager.
o Collateral assets. Collateral assets include cash, letters of credit, U.S.
government securities or other high-grade liquid debt or equity securities
(except that instruments collateralizing loans by the Money Market Funds
must be debt securities rated in the highest grade). Collateral assets are
separately identified and rendered unavailable for
o Convertible security. A convertible security is a fixed-income security (a
bond or preferred stock) that may be converted at a stated price within a
specified period of time into a certain quantity of the common stock of the
same or a different issuer. Convertible securities are senior to common
stock in a corporation's capital structure but are usually subordinated to
similar non-convertible securities. The price of a convertible security is
influenced by the market value of the underlying common stock.
o Covered call option. A call option is "covered" if the fund owns the
underlying securities, has the right to acquire such securities without
additional consideration, has collateral assets sufficient to meet its
obligations under the option or owns an off setting call option.
o Covered put option. A put option is "covered" if the fund has collateral
assets with a value not less than the exercise price of the option or holds
a put option on the underlying security.
o Depositary receipts. Depositary receipts include American depositary
receipts ("ADRs"), European depositary receipts ("EDRs"), global depositary
receipts ("GDRs") and other similar instruments. Depositary receipts
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are receipts typically issued in connection with a U.S. or foreign bank or
trust company and evidence ownership of underlying securities issued by a
foreign corporation.
o Derivatives. Derivatives include forward currency exchange contracts, stock
options, currency options, stock and stock index options, futures contracts
and swaps and options on futures contracts on U.S. government and foreign
government securities and currencies.
o Dollar roll transaction. A dollar roll transaction is similar to a reverse
repurchase agreement except it requires a fund to repurchase a similar
rather than the same security.
o Duration. Traditionally, a debt security's "term to maturity" characterizes
a security's sensitivity to changes in interest rates. "Term to maturity,"
however, measures only the time until a debt security provides its final
payment, taking no account of prematurity payments. Most debt securities
provide interest ("coupon") payments in addition to a final ("par") payment
at maturity, and some securities have call provisions allowing the issuer
to repay the instrument in full before maturity date, each of which affect
the security's response to interest rate changes. "Duration" is considered
a more precise measure of interest rate risk than "term to maturity."
Determining duration may involve the Manager's estimates of future economic
parameters, which may vary from actual future values. Fixed income
securities with effective durations of three years are more responsive to
interest rate fluctuations than those with effective durations of one year.
For example, if interest rates rise by 1%, the value of securities having
an effective duration of three years will generally decrease by
approximately 3%.
o Emerging market companies. A company is considered to be an emerging market
company if its securities are principally traded in the capital market of
an emerging market country; it derives at least 50% of its total revenue
from either goods produced or services rendered in emerging market
countries or from sales made in such emerging market countries, regardless
of where the securities of such companies are principally traded; or it is
organized under the laws of, and with a principal office in, an emerging
market country. An emerging market country is one having an economy and
market that are or would be considered by the World Bank or the United
Nations to be emerging or developing.
o Equity derivative securities. These include, among other things, options on
equity securities, warrants and future contracts on equity securities.
o Equity swaps. Equity swaps allow the parties to exchange the dividend
income or other components of return on an equity investment (e.g., a group
of equity securities or an index) for a component of return on
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another non-equity or equity investment Equity swaps transitions may be
volatile and may present the fund with counterparty risks.
o FHLMC. The Federal Home Loan Mortgage Corporation.
o FNMA. The Federal National Mortgage Association.
o Forward currency contracts. A forward currency contract is a contract
individually negotiated and privately traded by currency traders and their
customers and creates an obligation to purchase or sell a specific currency
for an agreed-upon price at a future date. The Funds generally do not enter
into forward contracts with terms greater than one year. A fund generally
enters into forward contracts only under two circumstances. First, if a
fund enters into a contract for the purchase or sale of a security
denominated in a foreign currency, it may desire to "lock in" the U.S.
dollar price of the security by entering into a forward contract to buy the
amount of a foreign currency needed to settle the transaction. Second, if
the Manager believes that the currency of a particular foreign country will
substantially rise or fall against the U.S. dollar, it may enter into a
forward contract to buy or sell the currency approximating the value of
some or all of a fund's portfolio securities denominated in such currency.
A fund will not enter into a forward contract if, as a result, it would
have more than one-third of total assets committed to such contracts
(unless it owns the currency that it is obligated to deliver or has caused
its custodian to segregate segregable assets having a value sufficient to
cover its obligations). Although forward contracts are used primarily to
protect a fund from adverse currency movements, they involve the risk that
currency movements will not be accurately predicted.
o Futures and options on futures. An interest rate futures contract is an
agreement to purchase or sell debt securities, usually U.S. government
securities, at a specified date and price. For example, a fund may sell
interest rate futures contracts (i.e., enter into a futures contract to
sell the underlying debt security) in an attempt to hedge against an
anticipated increase in interest rates and a corresponding decline in debt
securities it owns. Each fund will have collateral assets equal to the
purchase price of the portfolio securities represented by the underlying
interest rate futures contracts it has an obligation to purchase.
o GNMA. The Government National Mortgage Association.
o Highly rated debt securities. Debt securities rated within the three
highest grades by Standard & Poor's Corporation ("S&P") (AAA to A), Moodys
Investors Services, Inc. ("Moody's") (Aaa to A) or Fitch Investor Services,
Inc. ("Fitch") (AAA to A), or in unrated debt securities deemed to be of
comparable quality by the Manager using guidelines approved by the Board of
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Trustees. See the Appendix to the Statement of Additional Information for a
description of these ratings.
o Illiquid securities. The Funds treat any securities subject to restrictions
on repatriation for more than seven days, and securities issued in
connection with foreign debt conversion programs that are restricted as to
remittance of invested capital or profit, as illiquid. The Funds also treat
repurchase agreements with maturities in excess of seven days as illiquid.
Illiquid securities do not include securities that are restricted from
trading on formal markets for some period of time but for which an active
informal market exists, or securities that meet the requirements of Rule
144A under the Securities Act of 1933 and that, subject to the review by
the Board and guidelines adopted by the Board, the Manager has determined
to be liquid.
o Investment grade. Investment grade debt securities are those rated within
the four highest grades by S&P (at least BBB), Moody's (at least Baa) or
Fitch (at least Baa) or in unrated debt securities deemed to be of
comparable quality by the Manager using guidelines approved by the Board of
Trustees.
o Leverage. Some funds may use leverage in an effort to increase return.
Although leverage creates an opportunity for increased income and gain, it
also creates special risk considerations. Leveraging also creates interest
expenses that can exceed the income from the assets retained.
o Municipal securities. Municipal securities are obligations issued by, or on
behalf of, states, territories and possessions of the U.S. and the District
of Columbia, and their political subdivisions, agencies, authorities and
instrumentalities, including It industrial development bonds, as well as
obligations of certain agencies and instrumentalities of the U.S.
government. Municipal securities eve classified as general obligation
bonds, revenue bonds and notes. General obligation bonds are secured by the
issuer's pledge of its faith, credit and taxing power for the payment of
principal and interest. Revenue bonds are payable from revenue derived from
a particular facility, class of facilities or the proceeds of a special
excise or other specific revenue source, but not from the issuer's general
taxing power. Private activity bonds and industrial revenue bonds, in most
cases, are revenue bonds that do not carry the pledge of the credit of the
issuing municipality but generally are guaranteed by the corporate entity
on whose behalf they are issued. Notes short-term instruments that are
obligations of the issuing municipalities or agencies sold in anticipation
of a bond sale, collection of taxes or other receipt of revenues.
o Options on securities, securities indices and currencies. A fund may
purchase call options on securities that it intends to purchase (or on
currencies
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in which those securities are denominated) in order to limit the risk of a
substantial increase in the market price of such security (or an adverse
movement in the applicable currency). A fund may purchase put options on
particular securities (or on currencies in which those securities are
denominated) in order to protect against a decline in the market value of
the underlying security below the exercise price less the premium paid for
the option (or an adverse movement in the applicable currency relative to
the U.S. dollar). Prior to expiration, most options are expected to be sold
in a closing sale transaction. Profit or loss from the sale depends upon
whether the amount received is more or less than the premium paid plus
transaction costs. A fund may purchase put and call options on stock
indices in order to hedge against risks of stock market or industry wide
stock price fluctuations.
o Participation interests. Participation interests are issued by financial
institutions and represent undivided interests in municipal securities.
Participation interests may have fixed, floating or variable rates of
interest. Some participation interests are subject to a "nonappropriation"
or "abatement" feature by which, under certain conditions, the issuer of
the underlying municipal security, without penalty, may terminate its
payment obligation. In such event, the Funds must look to the underlying
collateral.
o Repurchase agreement. With a repurchase agreement, a fund acquires a U.S.
government security or other high-grade liquid debt instrument (for the
Money Market Funds, the instrument must be rated in the highest grade) from
a financial institution that simultaneously agrees to repurchase the same
security at a specified time and price.
o Reverse dollar roll transactions. When a fund engages in a reverse dollar
roll, it purchases a security from a financial institution and concurrently
agrees to resell a similar security to that institution at a later date at
an agreed-upon price.
o Reverse repurchase agreement. In a reverse repurchase agreement, a fund
sells to a financial institution a security that it holds and agrees to
repurchase the same security at an agreed-upon price and date.
o Russia. "Russia" refers to the Russian Federation, which does not include
other countries that formerly comprised the Soviet Union.
o Russian Company. "Russian Company" means a legal entity (i) that is
organized under the laws of, or with a principal office and domicile in,
Russia, (ii) for which the principal equity securities trading market is in
Russia, or (iii) that derives at least 50% of its revenues or profits from
goods produced or sold, investments made, or services performed, in Russia
or that has at least 50% of its assets situated in Russia.
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o Securities lending. A fund may lend securities to brokers, dealers and
other financial organizations. Each securities loan is collateralized with
collateral assets in an amount at least equal to the current market value
of the loaned securities, plus accrued interest. There is a risk of delay
in receiving collateral or in recovering the securities loaned or even a
loss of rights in collateral should the borrower fail financially.
o S&P 500. Standard & Poor's 500 Composite Stock Price Index.
o U.S. government securities. These include U.S. Treasury bills, notes, bonds
and other obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
o Warrant. A warrant typically is a long-term option that permits the holder
to buy a specified number of shares of the issuer's underlying common stock
at a specified exercise price by a particular expiration date. A warrant
not exercised or disposed of by its expiration date expires worthless.
o When-issued and forward commitment securities. The Funds may purchase U.S.
government or other securities on a "when-issued" basis and may purchase or
sell securities on a "forward commitment" or "delayed delivery" basis. The
price is fixed at the time the commitment is made, but delivery and payment
for the securities take place at a later date. When-issued securities and
forward commitments may be sold prior to the settlement date, but a fund
will enter into when-issued and forward commitments only with the intention
of actually receiving or delivering the securities. No income accrues on
securities that have been purchased pursuant to a forward commitment or on
a when-issued basis prior to delivery to a fund. At the time a fund enters
into a transaction on a when-issued or forward commitment basis, it
supports its obligation with collateral assets equal to the value of the
when-issued or forward commitment securities and causes the collateral
assets to be marked to market daily. There is a risk that the securities
may not be delivered and that the fund may incur a loss.
o Zero coupon bonds. Zero coupon bonds are debt obligations that do not pay
current interest and are consequently issued at a significant discount from
face value. The discount approximates the total interest the bonds will
accrue and compound over the period to maturity or the first
interest-payment date at a rate of interest reflecting the market rate of
interest at the time of issuance.
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Investment Manager
Lexington Management Corporation
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, N.J. 07663
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 shall be sent to:
Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
Custodian
Chase Manhattan Bank, N.A.
1211 Avenue of the Americas
New York, New York 10022
Legal Counsel
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
Auditors
KMPG Peat Marwick LLP
345 Park Avenue
New York, New York 10154
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<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1997
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 April 30, 1997, as it may be revised from
time to time. To obtain a copy of the Fund's prospectus at no charge, please
write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle Brook, New
Jersey 07663 or call the following toll-free numbers:
Shareholder Services:-1-800-526-0056
Institutional/Financial Adviser Services:-1-800-367-9160
24 Hour Account Information:-1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's investment
adviser and Ariston Capital Management Corporation ("ACMC") act as sub-adviser.
Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
Page
Investment Restrictions .................................................. 2
Investment Adviser, Sub-Adviser, Distributor and Administrator ........... 2
Tax-Sheltered Retirement Plans ........................................... 4
Portfolio Transactions and Brokerage Commissions ......................... 5
Distribution Plan ........................................................ 5
Tax Matters .............................................................. 6
Performance Calculation .................................................. 10
Custodian, Transfer Agent and Dividend Disbursing Agent .................. 10
Management of the Fund ................................................... 11
High Yield Debt Securities ............................................... 12
Shareholder Reports ...................................................... 13
Other Information ........................................................ 13
Financial Statements ..................................................... 14
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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.
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.
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Lexington Global Asset Managers, Inc. is a publicly traded financial
services company. LMC and LFD are wholly-owned subsidiaries of Lexington Global
Asset Managers, Inc. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and related entities have a majority voting control of outstanding shares
of Lexington Global Asset Managers, 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.
Ariston was founded in 1977 and provides investment management to client
portfolios that include individuals, corporations, pension and profit sharing
plans and other qualified retirement plan accounts. Ariston is recognized for
its expertise in portfolio management, specializing in convertible securities
and market forecasting.
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.
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.
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<PAGE>
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 and Luehs
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 February 28, 1997, all officers and
Trustees of the Fund as a group, were beneficial owners of less than 1% of the
shares of the Fund.
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
----------- ------- -----
1994 $53,143 $24,819
1995 66,777 31,777
1996 71,818 36,818
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.
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
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<PAGE>
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.
For fiscal year ended December 31, 1994, 1995 and 1996, the Fund paid
brokerage commissions of $1,496, $-0- and $1,029, respectively. The Fund's
portfolio turnover rate for the fiscal years ending December 31, 1994, 1995 and
1996 were respectively, 38.14%, 11.23% and 18.45%.
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.
5
<PAGE>
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.
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.
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
6
<PAGE>
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.
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
7
<PAGE>
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.
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 limitations 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
8
<PAGE>
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."
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.
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.
9
<PAGE>
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:
P(1 + T)n = 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, 1996 is a
follows:
Average Annual
Period Total Return
------ --------------
1 year ended December 31, 1996 ................... 4.89%
5 years ended December 31, 1996 .................. 8.66%
Since inception period ended December 31, 1996 ... 10.39%
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.
10
<PAGE>
MANAGEMENT OF THE FUND
The Fund's trustees and executive officers and their principal occupations
are:
*+ROBERT M. DEMICHELE (52), President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc.; Director, Chartwell Re Corporation, Claredon
National Insurance Company, The Navigator's Group, Inc., Unione Italiana
Reinsurance, Vanguard Cellular Systems, Inc. and Weeden & Co.; Vice Chairman
of the Board of Trustees, Union College and Trustee, Smith Richardson
Foundation.
+BEVERLEY C. DUER (67), Trustee, 340 East 72nd Street, New York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research Department, CPC
International, Inc.
JERARD F. MAHER (5), 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 (49), 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.; Executive Vice President and General Manager-Mutual
Funds, Lexington Global Asset Managers, Inc.
*+LISA CURCIO (37), 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.; Secretary,
Lexington Global Asset Managers, Inc.
*+RICHARD M. HISEY (38), 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.; Executive Vice
President and Chief Financial Officer, Lexington Global Asset Managers, Inc.
*+RICHARD J. LAVERY, CLU ChFC (43), 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 (37), Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR (29), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS (35), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November, 1993, Supervisor Investment Accounting, Alliance
Capital Management, Inc.
*+SHERI MOSCA (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+PETER CORNIOTES (35), 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 (36), 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 and Luehs 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. During the fiscal
year ended December 31, 1996, the aggregate remuneration paid by the Fund to
three such Trustees not employed by the Fund's affiliates was $10,615.
11
<PAGE>
- --------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in
Fund Fund Complex
- --------------------------------------------------------------------------------
Robert M. DeMichele $0 $0 17
- --------------------------------------------------------------------------------
Beverley C. Duer 1,712 29,110 17
- --------------------------------------------------------------------------------
Jerard Maher 2,856 16,046 17
- --------------------------------------------------------------------------------
Richard Russell 0 0 1
- --------------------------------------------------------------------------------
Allen Stowe 0 0 1
- --------------------------------------------------------------------------------
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
12
<PAGE>
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.
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 February 20, 1997, 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, 10% and Joseph B. Mohr, 2157 La
Paz Way, Palm Springs, CA 92264, 8%.
13
<PAGE>
Lexington Convertible Securities Fund
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996
(left column)
Principal Value
Amount Security Description (Note 1)
- -------------------------------------------------------------------------------
CONVERTIBLE BONDS: 42.4%
Computer Software & Services: 4.3%
$ 875,000 Automatic Data Processing Services, Inc.
0.00%*, due 02/20/2012 ............................. $ 487,812
----------
Consumer Products: 3.2%
400,000 McKesson Corporation
(Armor All Products),
4.50%, due 03/01/2004 ............................... 354,500
----------
Diversified Company: 4.6%
420,000 Thermo Electron Corporation,
4.25%, due 01/01/2003 .............................. 516,600
----------
Financial Services: 5.0%
325,000 First Financial Management Corporation,
(First Data Corporation), 5.00%,
due 12/15/1999 ................................... 560,625
----------
Machinery: 3.4%
350,000 Raymond Corporation,
6.50%, due 12/15/2003 .............................. 379,313
----------
Retail Stores (Specialty line): 8.4%
450,000 Home Depot, Inc.,
3.25%, due 10/01/2001 .............................. 440,437
----------
500,000 Pep Boys Corporation,
4.00%, due 09/09/1999 .............................. 506,250
----------
946,687
----------
Semiconductor: 5.6%
450,000 Analog Devices, Inc.,
3.50%, due 12/01/2000 .............................. 625,500
----------
Telecommunications Service: 3.9%
1,300,000 United States Cellular Corporation,
0.00%*, due 06/15/2015 ............................. 432,250
----------
Toys: 4.0%
1,205,000 Time Warner, Inc. (Hasbro),
0.00%*, due 12/17/2012 ............................. 451,875
----------
TOTAL CONVERTIBLE BONDS
(cost $4,383,105) .................................. 4,755,162
----------
(right column)
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
- -------------------------------------------------------------------------------
COMMON STOCKS: 26.1%
Computer Software & Services: 8.3%
16,852 Sterling Commerce, Inc. .............................. $ 594,033
10,582 Sterling Software, Inc. .............................. 334,656
-----------
928,689
-----------
Manufactured Housing: 14.8%
58,590 Clayton Homes, Inc. .................................. 790,965
37,994 Oakwood Homes Corporation ............................ 869,113
-----------
1,660,078
-----------
Medical Services: 3.0%
8,392 Salick Health Care, Inc. ............................. 334,631
-----------
TOTAL COMMON STOCKS
(cost $745,610) .................................... 2,923,398
-----------
TOTAL LONG-TERM INVESTMENTS .......................... 7,678,560
-----------
SHORT-TERM INVESTMENTS: 31.8%
U.S. Government Obligations
$2,100,000 U.S. Treasury Bills
5.13%, due 02/06/97 ................................ 2,089,143
300,000 U.S. Treasury Bills
5.03% due 02/20/97 ................................. 297,870
900,000 U.S. Treasury Bills
5.07% due 05/15/97 ................................. 882,846
300,000 U.S. Treasury Bills
5.36% due 08/21/97 ................................. 290,076
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,560,434) .................................. 3,559,935
-----------
TOTAL INVESTMENTS: 100.3%
(cost $8,689,149+) (Note 1) ........................ 11,238,495
Liabilities in excess of other assets: (0.3%) ........ (30,050)
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $13.66 per share
on 820,660 shares outstanding) ..................... $11,208,445
===========
*Zero Coupon Bonds.
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
14
<PAGE>
Lexington Convertible Securities Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
Assets
<S> <C>
Investments, at value (cost $8,689,149) (Note 1) .......................................... $11,238,495
Cash ...................................................................................... 13,118
Receivable for shares sold ................................................................ 5,000
Dividends and interest receivable ......................................................... 28,532
-----------
Total Assets .................................................................... 11,285,145
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) .......................................... 9,218
Distributions payable ..................................................................... 18,613
Accrued expenses .......................................................................... 48,869
-----------
Total Liabilities 76,700
-----------
Net Assets (equivalent to $13.66 per share on 820,660 shares outstanding) (Note 4) ........ $11,208,445
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.10 par value per share ................... $ 82,066
Additional paid-in capital (Note 1) ....................................................... 8,581,372
Distribution in excess of net investment income (Note 1) .................................. (2,355)
Accumulated net realized loss on investments (Note 1) ..................................... (1,984)
Unrealized appreciation on investments .................................................... 2,549,346
-----------
NET ASSETS ...................................................................... $11,208,445
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
15
<PAGE>
(left column)
Lexington Convertible Securities Fund
Statement of Operations
Year ended December 31, 1996
Investment Income
Income
Dividends ......................... $ 13,260
Interest .......................... 329,361
---------
Total investment income ......... $ 342,621
Expenses
Investment advisory fee
(Note 2) ........................ 108,636
Printing and mailing expenses ..... 31,225
Distribution fees (Note 3) ........ 27,159
Transfer agent and shareholder
servicing expense (Note 2) ...... 19,952
Registration fees ................. 17,877
Professional fees ................. 14,178
Accounting expenses (Note 2) ...... 12,685
Directors' fees and expenses ...... 10,615
Computer processing fees .......... 5,807
Custodian expense ................. 1,070
Other expenses .................... 10,065
---------
Total expenses .................. 259,269
----------
Net investment income ......... 83,352
Realized and Unrealized Gain
(Loss) on Investments (Note 5)
Net realized gain on
investments ..................... 433,015
Net change in unrealized
appreciation on
investments ..................... (29,508)
----------
Net realized and unrealized
gain .......................... 403,507
----------
Increase in Net Assets Resulting
from Operations ................... $ 486,859
==========
(right column)
Lexington Convertible Securities Fund
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995
1996 1995
---- ----
Net investment income ..................... $ 83,352 $ 122,192
Net realized gain from security
transactions ............................ 433,015 214,468
Net change in unrealized
appreciation on
investments ............................. (29,508) 1,367,719
----------- -----------
Increase in net assets
resulting from operations ........... 486,859 1,704,379
Distributions to shareholders
from net investment income .............. (87,725) (122,375)
Distributions to shareholders
from net realized gains from
security transactions ................... (432,556) (187,645)
Increase (decrease) in net assets
from capital share transactions
(Note 4) ................................ (398,694) 2,128,812
----------- -----------
Net increase (decrease)
in net assets ....................... (432,116) 3,523,171
Net Assets
Beginning of period ..................... 11,640,561 8,117,390
----------- -----------
End of period (including
distributions in excess of net
investment income of $2,355
and undistributed net
investment income of
$4,296, respectively) ................. $11,208,445 $11,640,561
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
16
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1996 and 1995
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 shareholder's 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. Securities traded
on the over-the-counter market are valued at the mean of the last current bid
and asked price. Short-term securities having a maturity of 60 days or less are
valued at amortized cost, which approximates market value. Securities for which
market quotations are not readily available and other securities are valued by
Fund management in good faith under the direction of the Fund's Board of
Trustees.
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 comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
Distributions Dividends from net investment income are normally declared and
paid quarterly and dividends from net realized capital gains are normally
declared and paid annually. However, the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code. The character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. At December 31, 1996, reclassifications were
made to the Fund's capital accounts to reflect permanent book/tax differences
and income and gains available for distributions under income tax regulations.
Net investment income, net realized gains and net assets were not affected by
this change.
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with the Fund's former advisor, Ariston Capital Management
17
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1996 and 1995 (continued)
2. Investment Advisory Fee and Other Transactions with Affiliate (continued)
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 0.75% of the Fund's average daily net assets up to $7 million and 0.50% of
the Fund's average daily net assets in excess of $7 million.
The investment advisory contract provides that the total annual expenses of the
Fund (including management 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, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $22,125, which were 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 Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1996 were $27,159 and are set forth in the statement of operations.
4. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
------------------- -------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold .................................... 171,179 $2,414,604 343,017 $4,367,587
Shares issued on reinvestment of dividends ..... 36,510 497,981 20,620 276,053
-------- ---------- ------- ----------
207,689 2,912,585 363,637 4,643,640
Shares redeemed ................................ (239,163) (3,311,279) (197,366) (2,514,828)
-------- ---------- ------- ----------
Net increase (decrease) ........................ (31,474) ($ 398,694) 166,271 $2,128,812
======== ========== ======= ==========
</TABLE>
5. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1996, excluding short-term securities, were $1,393,677 and
$1,435,002, respectively.
At December 31, 1996, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $2,731,924 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $182,578.
18
<PAGE>
Lexington Convertible Securities Fund
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $13.66 $11.84 $14.10 $13.80 $12.41
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ........................... 0.11 0.15 0.08 - 0.18
Net realized and unrealized gain on
investments ................................... 0.55 2.04 0.10 0.89 1.39
------ ------ ------ ------ ------
Total income from investment operations ........... 0.66 2.19 0.18 0.89 1.57
------ ------ ------ ------ ------
Less distributions:
Distributions from net investment income ........ (0.11) (0.15) (0.07) - (0.18)
Distributions in excess of net investment
income (temporary book-tax difference) ........ - - (.05) - -
Distributions from net realized gains ........... (0.55) (0.22) (2.32) (0.59) -
------ ------ ------ ------ ------
Total distributions ............................... (0.66) (0.37) (2.44) (0.59) (0.18)
====== ====== ====== ====== ======
Net asset value, end of period .................... $13.66 $13.66 $11.84 $14.10 $13.80
Total return ...................................... 4.89% 18.63% 1.30% 6.53% 12.82%
Ratio to average net assets:
Expenses, before reimbursement or waivers ....... 2.39% 2.52% 2.81% 2.76% 3.02%
Expenses, net of reimbursement or waivers ....... 2.39% 2.52% 2.75% 2.76% 2.32%
Net investment income, before
reimbursement or waivers ...................... 0.77% 1.24% 0.50% (0.04%) 0.70%
Net investment income ........................... 0.77% 1.24% 0.56% (0.04%) 1.40%
Portfolio turnover rate ........................... 18.45% 11.23% 38.14% 6.53% 12.58%
Average commission paid on equity
security transactions* .......................... 0.04 - - - -
Net assets at end of period (000's omitted) ...... $11,208 $11,641 $8,117 $8,319 $7,180
</TABLE>
*In accordance with recent SEC disclosure guidelines, the average commission
is calculated for the current period, but not for prior periods.
19
<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, 1996, 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, 1996, by correspondence with the custodian. 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, 1996, 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
February 14, 1997
20
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits - List
The Annual Report for the year ending December 31, 1996 was filed
electronically on February 27, 1997 (as form type N-30D). Financial
Statements from this 1996 Annual Report have been included in the
Statement of Additional Information.
Page in the Statement
Financial statements: of Additional Information
--------------------- -------------------------
Report of Independent Auditors 20
dated February 14, 1997
Statement of Net Assets (Including
the Portfolio of Investments) at
December 31, 1996 (1) 13-14
Statement of Assets and Liabilities
at December 31, 1996 15
Statement of Operations for the year the
ended December 31, 1996 (2) 16
Statements of Changes in Net Assets for
years ended December 31, 1996
and 1995 16
Notes to Financial Statements 17-19
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 -- Filed electronically
2. By-Laws -- Filed electronically
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 electronically 4/29/96
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. -- Filed electronically
7. Not Applicable
8a. Form of Custodian Agreement between Registrant
and Chase Manhattan Bank, N.A.- Filed electronically
4/28/95 - Incorporated by reference
8b. Transfer Agency Agreements between Registrant
and State Street Bank and Trust Company --
Incorporated by reference - Filed electronically 4/29/96
9. Form of Administrative Services Agreement between
Registrant and Lexington Management Corporation - Filed
electronically 4/28/95 - Incorporated by reference
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. Retirement Plans - Filed electronically 4/29/96
15. Form of Distribution Plan under Rule 12b-1 and
related agreements -- Filed electronically
16. Performance Calculation -- Incorporated by reference -
Filed 4/30/91
17. Financial Data Schedule Filed electronically
<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 February 14, 1997:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of beneficial interest 282
($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 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.
<PAGE>
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").
<PAGE>
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Tax Free Money Fund, Inc.
Lexington Growth and Income 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.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Value Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.<PAGE>
29 (b)
<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 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 President
Lawrence Kantor* Executive Vice President Trustee & Vice President
and 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 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, 1004 Baltimore, 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.
The Registrant will hold a meeting of its public
shareholders, if requested to do so by the holders of at
least 10 percent of the Registrant's outstanding shares, to
call a meeting of shareholders for the purpose of voting
upon the question of removal of a director or directors and
to assist in communications with other shareholders.
<PAGE>
Registration No. 33-10543
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON CONVERTIBLE SECURITIES FUND
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to
this filing:
Form of Declaration of Trust
Form of By-Laws
Form of Distribution Agreement
Consent of Kramer, Levin, Kamin & Frankel
Consent of independent auditors for the inclusion of their report herein
Form of 12b-1 Distribution Plan
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 has duly caused
this Registration statement 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 28th day of February, 1997.
LEXINGTON CONVERTIBLE SECURITIES FUND
/s/ Robert M. DeMichele
-------------------------------
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele
- ----------------------- Chairman of the Board February 28, 1997
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
- ----------------------- Principal Financial February 28, 1997
Richard M. Hisey and Accounting Officer
/s/ Lisa Curcio
- ----------------------- Principal Compliance February 28, 1997
Lisa Curcio Officer
*Beverley C. Duer, P.E. Trustee February 28, 1997
- -----------------------
Beverley C. Duer, P.E.
*Jerard Maher Trustee February 28, 1997
- -----------------------
Jerard Maher
<PAGE>
Signature Title Date
*Richard B. Russell Trustee February 28, 1997
- ----------------------
Richard B. Russell
*Allen Stowe Trustee February 28, 1997
- ----------------------
Allen Stowe
/s/ Lisa Curcio
*By:---------------------
Lisa Curcio
Attorney-in-Fact
CERTIFICATE OF AMENDMENT
TO THE
DECLARATION OF TRUST
OF
CONCORD INCOME TRUST
WHEREAS, Section 11.3 of Article XI of the Declaration of Trust
dated December 15, 1986 (the Declaration of Trust ) of Concord Income
Trust (the Trust ), a copy of which is on file in the Office of the
Secretary of the Commonwealth of Massachusetts, authorized the Trustees
to amend the Declaration of Trust, by an instrument in recordable form
signed by a majority of the Trustees, provided that the holders of not
less than a majority of the Shares (as defined in the Declaration of
Trust), have consented to such amendment;
WHEREAS, at a meeting of shareholders of the Trust duly held on
August 31, 1992, a majority of Shares approved a proposal to amend
Section I of Article I of the Declaration to change the name of the
Trust to Lexington Convertible Securities Fund;
NOW THEREFORE, the undersigned duly appointed and serving
Trustees, constituting a majority of all the Trustees of the Trust, do
hereby certify that a majority of shareholders of the Trust have
authorized the following amendment to the Declaration of Trust:
Section I of Article I of the Declaration of Trust is hereby
amended to read as follows:
This Fund shall be known as Lexington Convertible Securities
Fund and the Trustees shall conduct the business of the Fund
under that name or any other name as they may from time to time
determine. Any name change shall become effective upon the
execution by a majority of the then Trustees of an instrument
setting forth the new name. Any such instrument shall have the
status of an amendment to this Declaration of Trust.
The foregoing amendment shall become effective as of the close of
business on October 20, 1992.
Dated: October 20, 1992
/s/ Jerard F. Maher /s/ Robert M. DeMichele
______________________________ ______________________________
Jerard F. Maher Robert M. DeMichele
/s/ Richard B. Russell /s/ Lawrence Kantor
______________________________ ______________________________
Richard B. Russell Lawrence Kantor
/s/ Allen H. Stowe /s/ Leon M. Stern
______________________________ ______________________________
Allen H. Stowe Leon M. Stern
******************************************************************************
DECLARATION OF TRUST
OF
CONCORD INCOME TRUST
THE DECLARATION OF TRUST of Concord Income Trust is made the
day of November, 1986 by the parties signatory hereto, as trustees (such
persons, so long as they shall continue in office in accordance with the
terms of this Declaration of Trust, and all other persons who at the time
in question have been duly elected or appointed as trustees in accordance
with the provisions of this Declaration of Trust and are then in office,
being hereinafter called the Trustees ).
W I T N E S S E T H :
WHEREAS, the Trustees desire to form a trust fund under the law of
Massachusetts for the investment and reinvestment of funds contributed
thereto; and
WHEREAS, it is proposed that the beneficial interest in the trust
assets be divided into transferable shares of beneficial interest as
hereinafter provided;
NOW, THEREFORE, the Trustees hereby declare that they will hold in
trust all money and property contributed to the trust fund to manage and
dispose of the same for the benefit of the holders from time to time of
the shares of beneficial interest issued hereunder and subject to the
provisions hereof, to wit:
ARTICLE I
The Trust
1.1. Name. The name of the trust created hereby (the Trust ) shall
be Concord Income Trust , and so far as may be practicable the Trustees
shall conduct the Trust s activities, execute all documents and sue or be
sued under that name, which name (and the word Trust wherever hereinafter
used) shall refer to the Trustees as Trustees, and not individually, and
shall not refer to the officers, agents, employees or Shareholders of the
Trust. However, should the Trustees determine that the use of the name of
the Trust is not advisable, they may select such other name for the Trust
as they deem proper and the Trust may hold its property and conduct its
activities under such other name. Any name change shall become effective
upon the execution by a majority of the then Trustees of an instrument
setting forth the new name. Any such instrument shall have the status of
an amendment to this Declaration.
1.2. Definitions. As used in this Declaration, the following terms
shall have the following meanings:
The terms Affiliated Person , Assignment , Commission , Interested
Person , Majority Shareholder Vote (the 67% or more than 50% requirement
of the third sentence of Section 2(a)(42) of the 1940 Act, whichever may
be applicable) and Principal Underwriter shall have the meanings given
them in the 1940 Act, as amended from time to time.
Declaration shall mean this Declaration of Trust as amended from
time to time. References in this Declaration to Declaration , hereof ,
herein and hereunder shall be deemed to refer to the Declaration rather
than the article or section in which such words appear.
Fundamental Policies shall mean the investment restrictions set
forth in the Prospectus and designated as fundamental policies therein.
Person shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities,
whether or not legal entities, and governments and agencies and political
subdivisions thereof.
Prospectus shall mean the currently effective Prospectus of the
Trust under the Securities Act of 1933, as amended.
Shareholders shall mean as of any particular time all holders of
record of outstanding Shares at such time.
Shares shall mean the equal proportionate transferable units of
interest into which the beneficial interest in the Trust shall be divided
from time to time and includes fractions of Shares as well as whole
Shares.
Trustees shall mean the signatories to this Declaration of Trust,
so long as they shall continue in office in accordance with the terms
hereof, and all other persons who at the time in question have been duly
elected or appointed and have qualified as trustees in accordance with the
provisions hereof and are then in office, are herein referred to as the
Trustees , and reference in this Declaration of Trust to a Trustee or
Trustees shall refer to such person or persons in their capacity as
trustees hereunder.
Trust Property shall mean as of any particular time any and all
property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The 1940 Act refers to the Investment Company Act of 1940, as
amended from time to time.
ARTICLE II
Trustees
2.1. Number and Qualification. The number of Trustees shall be
fixed from time to time by written instrument signed by a majority of the
Trustees then in office, provided, however, that the number of Trustees
shall in no event be less than three or more than fifteen (except prior to
the first public offering of Shares of the Trust). Any vacancy created by
an increase in Trustees may be filled by the appointment of an individual
having the qualifications described in this Article made by a written
instrument signed by a majority of the Trustees then in office. Any such
appointment shall not become effective, however, until the individual
named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of
this Declaration of Trust. No reduction in the number of Trustees shall
have the effect of removing any Trustee from office prior to the
expiration of his term. Whenever a vacancy in the number of Trustees
shall occur, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees in office, regardless of their number, shall have all
the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration of Trust. A Trustee shall
be an individual at least 21 years of age who is not under legal
disability.
2.2. Term and Election. Each Trustee named herein, or elected or
appointed prior to the first meeting of Shareholders, shall (except in the
event of resignations or removals or vacancies pursuant to Section 2.3 or
2.4 hereof) hold office until his successor has been elected at such
meeting and has qualified to serve as Trustee, as required under the 1940
Act. Beginning with the Trustees elected at the first meeting of
Shareholders, each Trustee shall hold office during the lifetime of this
Trust and until its termination as hereinafter provided unless such
Trustee resigns or is removed as provided in Section 2.3 below. Trustees
need not own Shares.
2.3. Resignation and Removal. Any Trustee may resign his trust
(without need for prior or subsequent accounting) by an instrument in
writing signed by him and delivered or mailed to the Chairman, if any, the
President or the Secretary and such resignation shall be effective upon
such delivery, or at a later date according to the terms of the
instrument. Any of the Trustees may be removed by the affirmative vote of
the holders of two-thirds (2/3) of the Shares or (provided the aggregate
number of Trustees after such removal shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of
the remaining Trustees. Upon the resignation or removal of a Trustee, or
his otherwise ceasing to be a Trustee, he shall execute and deliver such
documents as the remaining Trustees shall require for the purpose of
conveying to the Trust or the remaining Trustees any Trust Property held
in the name of the resigning or removed Trustee. Upon the incapacity or
death of any Trustee, his legal representative shall execute and deliver
on his behalf such documents as the remaining Trustees shall require as
provided in the preceding sentence.
2.4. Vacancies. The term of office of a Trustee shall terminate
and a vacancy shall occur in the event of the death, resignation,
bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office, or removal, of a Trustee. No such vacancy shall
operate to annul this Declaration of Trust or to revoke any existing
agency created pursuant to the terms of this Declaration of Trust. In the
case of a vacancy the holders of at least a majority of the Shares
entitled to vote, acting at any meeting of Shareholders held in accordance
with Section 10.1 hereof, or, to the extend permitted by the 1940 Act, a
majority of the Trustees continuing in office acting by written instrument
or instruments, may fill such vacancy, and any Trustee so elected by the
Trustees shall hold office as provided in this Declaration.
2.5. Meetings. Meetings of the Trustees shall be held from time to
time upon the call of the Chairman, if any, the President, the Secretary,
an Assistant Secretary or any two Trustees. Regular meetings of the
Trustees may be held without call or notice at a time and place fixed by
the By-Laws or by resolution of the Trustees. Notice of any other meeting
shall be mailed or otherwise given not less than 24 hours before the
meeting but may be waived in writing by any Trustee either before or after
such meeting. The attendance of a Trustee at a meeting shall constitute
a waiver of notice of such meeting except where a Trustee attends a
meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting has not been lawfully called or
convened. The Trustees may act with or without a meeting. A quorum for
all meetings of the Trustees shall be a majority of the Trustees. Unless
provided otherwise in this Declaration of Trust, any action of the
Trustees may be taken at a meeting by vote of a majority of the Trustees
present (a quorum being present) or without a meeting by written consents
of a majority of the Trustees.
Any committee of the Trustees, including an executive committee, if
any, may act with or without a meeting. A quorum for all meetings of any
such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee
may be taken at a meeting by vote of a majority of the members present (a
quorum being present) or without a meeting by written consent of a
majority of the members.
With respect to actions of the Trustees and any committee of the
Trustees, Trustees who are Interested Persons of the Trust within the
meaning of Section 1.2 hereof or otherwise interested in any action to be
taken may be counted for quorum purposes under this Section and shall be
entitled to vote to the extent permitted by the 1940 Act.
All or any one or more Trustees may participate in a meeting of the
Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all persons
participating in the meeting can hear each other and participation in a
meeting pursuant to such communications system shall constitute presence
in person at such meeting.
2.6. Officers. The Trustees shall annually elect a President, a
Secretary and a Treasurer and may elect a Chairman. The Trustees may
elect or appoint or authorize the Chairman, if any, or President to
appoint such other officers or agents with such powers as the Trustees may
deem to be advisable. The Chairman and President shall be and the
Secretary and Treasurer may, but need not, be a Trustee.
2.7. By-Laws. The Trustees may adopt and from time to time amend
or repeal the By-Laws for the conduct of the business of the Trust.
ARTICLE III
Powers of Trustees
3.1. General. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the
same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may
be permitted by this Declaration. The Trustees may perform such acts as
in their sole discretion are proper for conducting the business of the
Trust. The enumeration of any specific power herein shall not be
construed as limiting the aforesaid power. Such powers of the Trustees
may be exercised without order of or resort to any court.
3.2. Investments. The Trustees shall have power, subject to the
Fundamental Policies, to:
(a) conduct, operate and carry on the business of an
investment company;
(b) subscribe for, invest in, reinvest in, purchase or
otherwise acquire, hold, pledge, sell, assign, transfer, exchange,
distribute or otherwise deal in or dispose of securities including
common and preferred stock, warrants, bonds, debentures, time notes
and all other evidences of indebtedness, negotiable or non-
negotiable instruments, obligations, certificates of deposit or
indebtedness, commercial paper, repurchase agreements, reverse
repurchase agreements, convertible securities, forward contracts,
options and other securities, including, without limitation, those
issued, guaranteed or sponsored by any state, territory or
possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, or by
the United States Government or its agencies or instrumentalities,
or international instrumentalities, or by any bank, savings
institution, corporation or other business entity organized under
the laws of the United States and, to the extent provided in the
Prospectus and not prohibited by the Fundamental Policies, organized
under foreign law; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such
investments of every kind and description, including, without
limitation, the right to consent and otherwise act with respect
thereto, with power to designate one or more persons, firms,
associations, or corporations to exercise any of said rights, powers
and privileges in respect of any of said instruments; and the
Trustees shall be deemed to have the foregoing powers with respect
to any additional securities in which the Trust may invest should
the investment policies set forth in the Prospectus or the
Fundamental Policies be amended.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the
Trustees be limited by any law limiting the investments which may be made
by fiduciaries.
3.3. Legal Title. Legal Title to all the Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall
have the power to cause legal title to any Trust Property to be held by or
in the name of one or more of the Trustees, or in the name of the Trust,
or in the name of any other Person as nominee, on such terms as the
Trustees may determine, provided that the interest of the Trust herein is
appropriately protected.
The right, title and interest of the Trustees in the Trust Property
shall vest automatically in each person who may hereafter become a Trustee
upon his due election and qualification. Upon the resignation, removal or
death of a Trustee he shall automatically cease to have any right, title
or interest in any of the Trust Property, and the right, title and
interest of such Trustee in the Trust property shall vest automatically in
the remaining trustees. Such vesting and cessation of title shall be
effective whether or not conveyancing documents have been executed and
delivered.
3.4. Issuance and Repurchase of Securities. The Trustees shall
have the power to issue, sell, repurchase, redeem, retire, cancel,
acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in, Shares, including shares in fractional denominations, and, subject to
the more detailed provisions set forth in Articles VIII and IX, to apply
to any such repurchase, redemption, retirement, cancellation or
acquisition of Shares any funds or property of the Trust whether capital
or surplus or otherwise, to the full extent now or hereafter permitted by
the laws of the Commonwealth of Massachusetts governing business
corporations.
3.5. Borrow Money. Subject to the Fundamental Policies, the
Trustees shall have power to borrow money or otherwise obtain credit and
to secure the same by mortgaging, pledging or otherwise subjecting as
security the assets of the Trust, including the lending of portfolio
securities, and to endorse, guarantee, or undertake the performance of any
obligation, contract or engagement of any other person, firm, association
or corporation.
3.6. Delegation; Committees. The Trustees shall have power,
consistent with their continuing exclusive authority over the management
of the Trust and the Trust Property, to delegate from time to time to such
of their number or to officers, employees or agents of the Trust the doing
of such things and the execution of such instruments either in the name of
the Trust or the names of the Trustees or otherwise as the Trustees may
deem expedient, to the same extent as such delegation is permitted to
directors of a Massachusetts business corporation and is permitted by the
1940 Act.
3.7. Collection and Payment. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including
taxes, against the Trust Property; to prosecute, defend, compromise or
abandon any claims relating to the Trust Property; to foreclose any
security interest securing any obligations, by virtue of which any
property is owed to the Trust; and to enter into releases, agreements and
other instruments.
3.8. Expenses. The Trustees shall have power to incur and pay any
expenses which in the opinion of the Trustees are necessary or incidental
to carry out any of the purposes of this Declaration of Trust, and to pay
reasonable compensation from the funds of the Trust to themselves as
Trustees. The Trustees shall fix the compensation of all officers,
employees and Trustees. The Trustees may pay themselves such compensation
for special services, including legal, underwriting, syndicating and
brokerage services, as they in good faith may deem reasonable, and
reimbursement for expenses reasonably incurred by themselves on behalf of
the Trust.
3.9. Miscellaneous Powers. The Trustees shall have the power to:
(a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust and terminate
such employees or contractual relationships as they consider appropriate;
(b) enter into joint ventures, partnerships and any other combinations or
associations; (c) purchase, and pay for out of Trust Property, insurance
policies insuring the Shareholders, Trustees, officers, employees, agents,
investment advisers, distributors, selected dealers or independent
contractors of the Trust against all claims arising by reason of holding
any such position or by reason of any action taken or omitted by any such
Person in such capacity, whether or not constituting negligence, or
whether or not the Trust would have the power to indemnify such Person
against such liability; (d) establish pension, profit-sharing, share
purchase, and other retirement, incentive and benefit plans for any
Trustees, officers, employees and agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious,
educational, scientific, civic or similar purposes; (f) to the extent
permitted by law, indemnify any Person with whom the Trust has dealings,
including the Investment Adviser, Distributor and selected dealers, to
such extent as the Trustees shall determine; (g) guarantee indebtedness or
contractual obligations of others; (h) determine and change the fiscal
year of the Trust and the method in which its accounts shall be kept; and
(i) adopt a seal for the Trust, but the absence of such seal shall not
impair the validity of any instrument executed on behalf of the Trust.
3.10. Further Powers. The Trustees shall have power to conduct the
business of the Trust and carry on its operations in any and all of its
branches and maintain offices both within and without the Commonwealth of
Massachusetts, in any and all states of the United States of America, in
the District of Columbia, and in any and all commonwealths, territories,
dependencies, colonies, possessions, agencies or instrumentalities of the
United States of America and of foreign governments, and to do all such
other things and execute all such instruments as they deem necessary,
proper or desirable in order to promote the interests of the Trust
although such things are not herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the
Trustees in good faith shall be conclusive. In construing the provisions
of this Declaration, the presumption shall be in favor of a grant of power
to the Trustees. The Trustees will not be required to obtain any court
order to deal with Trust Property.
ARTICLE IV
Management and Distribution Arrangements
4.1. Management Arrangements. Subject to a Majority Shareholder
vote, the Trustees may in their discretion from time to time enter into
advisory, administration or management contracts whereby the other party
to such contract shall undertake to furnish the Trustees such advisory,
administrative and management services as the Trustees shall from time to
time consider desirable and all upon such terms and conditions as the
Trustees may in their discretion determine. Notwithstanding any
provisions of this Declaration of Trust, the Trustees may authorize any
advisor, administrator or manager (subject to such general or specific
instructions as the Trustees may from time to time adopt) to effect
purchases, sales, loans or exchanges of portfolio securities of the Trust
on behalf of the Trustees or may authorize any officer, employee or
Trustee to effect such purchases, sales, loans or exchanges pursuant to
recommendations of any such advisor, administrator or manager (and all
without further action by the Trustees). Any such purchases, sales, loans
and exchanges shall be deemed to have been authorized by all of the
Trustees.
4.2. Distribution Arrangements. The Trustees may in their
discretion from time to time enter into a contract, providing for the sale
of the Shares of the Trust to net the Trust not less than the par value
per share, whereby the Trust may either agree to sell the Shares to the
other party to the contract or appoint such other party its sales agent
for such Shares. In either case, the contract shall be on such terms and
conditions as the Trustees may in their discretion determine not
inconsistent with the provisions of this Article IV or the By-Laws; and
such contract may also provide for the repurchase or sale of Shares by
such other party as principal or as agent of the Trust and may provide
that such other party may enter into selected dealer agreements with
registered securities dealers to further the purpose of the distribution
or repurchase of the Shares.
4.3. Parties to Contract. Any contract of the character described
in Sections 4.1. and 4.2 of this Article IV or in Article VII hereof may
be entered into with any corporation, firm, trust or association, although
one or more of the Trustees or officers of the Trust may be an officer,
director, Trustee, shareholder, or member of such other party to the
contract, and no such contract shall be invalidated or rendered voidable
by reason of the existence of any such relationship, nor shall any person
holding such relationship be liable merely by reason of such relationship
for any loss or expense to the Trust under or by reason of said contract
or accountable for any profit realized directly or indirectly therefrom,
provided that the contract when entered into was reasonable and fair and
not inconsistent with the provisions of this Article IV or the By-Laws.
The same person (including a firm, corporation, trust, or association) may
be the other party to contracts entered into pursuant to Sections 4.1 and
4.2 above or Article VII, and any individual may be financially interested
or otherwise affiliated with persons who are parties to any or all of the
contracts mentioned in this Section 4.3.
4.4. Provisions and Amendments. Any contract entered into pursuant
to Sections 4.1 and 4.2 of this Article IV shall be consistent with and
subject to the requirements of Section 15 of the 1940 Act with respect to
its continuance in effect, its termination, and the method of
authorization and approval of such contract or renewal thereof, and no
amendment to any contract entered into pursuant to Section 4.1 shall be
effective unless assented to by a Majority Shareholder Vote.
ARTICLE V
Limitations of Liability of Shareholders,
Trustees and Others
5.1. No Personal Liability of Shareholders, Trustees, etc. No
Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or
affairs of the Trust. No Trustee, officer, employee or agent of the Trust
shall be subject to any personal liability whatsoever to any Person, other
than the Trust or its Shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from his bad faith,
willful misfeasance, gross negligence or reckless disregard of his duty to
such Person; and all such Persons shall look solely to the Trust Property
for satisfaction of claims of any nature arising in connection with the
affairs of the Trust. If any Shareholder, Trustee, officer, employee, or
agent, as such, of the Trust, is made a party to any suit or proceeding to
enforce any such liability, he shall not on account thereof be held to any
personal liability. The Trust shall indemnify and hold each Shareholder
harmless from and against all claims and liabilities, to which such
Shareholder may become subject by reason of his being or having been a
Shareholder, and shall reimburse such Shareholder for all legal and other
expenses reasonably incurred by him in connection with any such claim or
liability. The rights accruing to a Shareholder under this Section 5.1
shall not exclude any other right to which such Shareholder may be
lawfully entitled, nor shall anything herein contained restrict the right
of the Trust to indemnify or reimburse a Shareholder in any appropriate
situation even though not specifically provided herein.
5.2. Non-Liability of Trustees, etc. No Trustee, officer, employee
or agent of the Trust shall be liable to the Trust, its Shareholders, or
to any Shareholder, Trustee, officer, employee, or agent thereof for any
action or failure to act (including, without limitation, the failure to
compel in any way any former or acting Trustee to redress any breach of
trust) except for his own bad faith, willful misfeasance, gross negligence
or reckless disregard of his duties.
5.3. Mandatory Indemnification. The Trust shall indemnify each of
its Trustees, officers, employees, and agents (including persons 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 judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or
criminal, in which he may be involved or with which he may be threatened,
while in office of thereafter, by reason of his 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,
willful misfeasance, gross negligence of reckless disregard of his duties;
provided, however, that as to any matter disposed of by a compromise
payment by such person, 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 legal counsel approved by the Trustees to the effect that if
either the matter of willful misfeasance, gross negligence or reckless
disregard of duty, or the matter of good faith and reasonable belief as to
the best interests of the Trust, had been adjudicated, it would have been
adjudicated in favor of such person. The rights accruing to any Person
under these provisions shall not exclude any other right to which he may
be lawfully entitled; provided that no Person may satisfy any right of
indemnity or reimbursement granted herein or in Section 5.1 or to which he
may be otherwise entitled except out of the property of the Trust, 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 this Section
5.3, provided that the indemnified person shall have given a written
undertaking to reimburse the Trust in the event it is subsequently
determined that he is not entitled to such indemnification.
5.4. No Bond Required of Trustees. No Trustee shall, as such, be
obligated to give any bond or surety or other security for the performance
of any of his duties hereunder.
5.5. No Duty of Investigation; Notice in Trust Instruments, etc.
No purchaser, lender, transfer agent or other person dealing with the
Trustees or any officer, employee or agent of the Trust shall be bound to
make any inquiry concerning the validity of any transaction purporting to
be made by the Trustees or by said officer, employee or agent or be liable
for the application of money or property paid, loaned, or delivered to or
on the order of the Trustees or of said officer, employee or agent. Every
obligation, contract, instrument, certificate, Share, other securities of
the Trust or undertaking, and every other act or thing whatsoever executed
in connection with the Trust shall be conclusively taken to have been
executed or done by the executors thereof only in their capacity as
officers, employees or agents of the Trust. Every written obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking made or issued by the Trustees or by any officers, employees
or agents of the Trust, in their capacity as such, shall contain an
appropriate recital to the effect that the Shareholders, Trustees,
officers, employees and agents of the Trust shall not personally be bound
by or liable thereunder, nor shall resort be had to their private property
for the satisfaction of any obligation or claim thereunder, and
appropriate references shall be made therein to the Declaration of Trust,
and may contain any further recital which they may deem appropriate, but
the omission of such recital shall not operate to impose personal
liability on any of the Trustees, Shareholders, officers, employees or
agents of the Trust. The Trustees may maintain insurance for the
protection of the Trust Property, its Shareholders, Trustees, officers,
employees and agents in such amount as the Trustees shall deem adequate to
cover possible tort liability, and such other insurance as the Trustees in
their sole judgment shall deem advisable.
5.6. Reliance on Experts, etc. Each Trustee and officer or
employee of the Trust shall, in the performance of his duties, be fully
and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of
account or other records of the Trust, upon an opinion of counsel, or upon
reports made to the Trust by any of its officers or employees or by any
investment adviser, distributor, selected dealers, accountants, appraisers
or other experts or consultants selected with reasonable care by the
Trustees, officers or employees of the Trust, regardless of whether such
counsel or expert may also be a Trustee.
ARTICLE VI
Shares of Beneficial Interest
6.1. Beneficial Interest. The interest of the beneficiaries
hereunder shall be divided into transferable shares of beneficial
interest, all of one class, with par value $.10 per share. The number of
such shares of beneficial interest authorized hereunder is unlimited. All
Shares issued hereunder, including, without limitation, Shares issued in
connection with a dividend in Shares or a split of Shares, shall be fully
paid and nonassessable.
6.2. Rights of Shareholders. The ownership of the Trust Property
of every description and the right to conduct any business hereinbefore
described are vested exclusively in the Trustees, and the Shareholders
shall have no interest therein other than the beneficial interest
conferred by their Shares, and they shall have no right to call for any
partition or division of any property, profits, rights or interests of the
Trust nor can they be called upon to share or assume any losses of the
Trust or suffer an assessment of any kind by virtue of their ownership of
Shares. The Shares shall be personal property giving only the rights in
this Declaration specifically set forth. The Shares shall not entitle the
holder to preference, preemptive, appraisal, conversion or exchange rights
(except for rights of appraisal specified in Section 11.4 and as the
Trustees may determine with respect to any series of Shares).
6.3. Trust Only. It is the intention of the Trustees to create
only the relationship of Trustee and beneficiary between the Trustees and
each Shareholder from time to time. It is not the intention of the
Trustees to create a general partnership, limited partnership, joint stock
association, corporation, bailment or any form of legal relationship other
than a trust. Nothing in this Declaration of Trust shall be construed to
make the Shareholders, either by themselves or with the Trustees, partners
or members of a joint stock association.
6.4. Issuance of Shares. The Trustees, in their discretion, may
from time to time without a vote of the Shareholders issue Shares, in
addition to the then issued and outstanding Shares and Shares held in the
treasury, to such party or parties and for such amount not less than par
value and type of consideration, including cash or property, at such time
or times (including, without limitation, each business day in accordance
with the maintenance of a constant net asset value per share as set forth
in Section 9.3 hereof), and on such terms as the Trustees may deem best,
and may in such manner acquire other assets (including the acquisition of
assets subject to, and in connection with the assumption of, liabilities)
and businesses. In connection with any issuance of Shares, the Trustees
may issue fractional Shares. The Trustees may from time to time divide or
combine the Shares into a greater or lesser number without thereby
changing the proportionate beneficial interests in the Trust. Reductions
in the number of outstanding Shares may be made pursuant to the constant
net asset value per share formula set forth in Section 9.3. Contributions
to the Trust may be accepted for, and Shares shall be redeemed as, whole
Shares and/or 1/1,000ths of a Share or multiples thereof.
6.5. Register of Shares. A register shall be kept at the Trust or
a transfer agent duly appointed by the Trustees under the direction of the
Trustees which shall contain the names and addresses of the Shareholders
and the number of Shares held by them respectively and a record of all
transfers thereof. Such register shall be conclusive as to who are the
holders of the Shares and who shall be entitled to receive dividends or
distributions or otherwise to exercise or enjoy the rights of
Shareholders. No Shareholder shall be entitled to receive payment of any
dividend or distribution, nor to have notice given to him as herein
provided, until he has given his address to a transfer agent or such other
officer or agent of the Trustees as shall keep the said register for entry
thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the
issuance of share certificates and promulgate appropriate rules and
regulations as to their use.
6.6. Transfer Agent and Registrar. The Trustees shall have power
to employ a transfer agent or transfer agents, and a registrar or
registrars. The transfer agent or transfer agents may keep the said
register and record therein the original issues and transfers, if any, of
the said Shares. Any such transfer agent and registrars shall perform the
duties usually performed by transfer agents and registrars of certificates
of stock in a corporation, except as modified by the Trustees.
6.7. Transfer of Shares. Shares shall be transferable on the
records of the Trust only by the record holder thereof or by his agent
thereto duly authorized in writing, upon delivery to the Trustees or a
transfer agent of the Trust of a duly executed instrument of transfer,
together with such evidence of the genuineness of each such execution and
authorization and of other matters as may reasonably be required. Upon
such delivery the transfer shall be recorded on the register of the Trust.
Until such record is made, the Shareholder of record shall be deemed to be
the holder of such Shares for all purposes hereof and neither the Trustees
nor any transfer agent or registrar nor any officer, employee or agent of
the Trust shall be affected by any notice of the proposed transfer.
Any person becoming entitled to any Shares in consequence of the
death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the register of Shares as the
holder of such Shares upon production of the proper evidence thereof to
the Trustees or a transfer agent of the Trust, but until such record is
made, the Shareholder of record shall be deemed to be the holder of such
Shares for all purposes hereof and neither the Trustees nor any transfer
agent or registrar nor any officer or agent of the Trust shall be affected
by any notice of such death, bankruptcy or incompetence, or other
operation of law.
6.8. Treasury Shares. Shares held in the treasury shall, until
reissued, not confer any voting rights on the Trustees, nor shall such
Shares be entitled to any dividends or other distributions declared with
respect to the Shares.
6.9 Series Designation. The Trustees, in their discretion, may
authorize the division of Shares into two or more Series, each series
relating to a separate portfolio of investments. The different Series
shall be established and designated, the variations in the relative rights
and preferences as between the different series shall be fixed and
determined, by the Trustees; provided, that all Shares shall be identical
except that there may be variations so fixed and determined between
different series as to investment objective, purchase price, right of
redemption, special and relative rights as to dividends and on liquidation
conversion rights, and conditions under which the several series shall
have separate voting rights. All references to Shares in the Declaration
shall be deemed to be shares of any or all series as the context may
require.
If the Trustees shall divide the Shares of the Trust into two or
more Series, the following provisions shall be applicable:
(a) The number of authorized Shares and the number of Shares
of each Series that may be issued shall be unlimited. The Trustees may
classify or reclassify any unissued Shares or any Shares previously issued
and reacquired of any series into one or more Series that may be
established and designated from time to time. The Trustees may hold as
treasury shares (of the same or some other Series), reissue for such
consideration and on such terms as they may determine, or cancel any
Shares of any Series reacquired by the Trust at their discretion from time
to time.
(b) All consideration received by the Trust for the issue or
sale of Shares of a particular Series, together with all assets in which
such consideration is invested or reinvested, all income, earnings,
profits, and proceeds thereof, including any proceeds derived from the
sale, exchange or liquidation of such assets, and any funds or payments
derived from any reinvestment of such proceeds in whatever form the same
may be, shall irrevocably belong to that Series for all purposes, subject
only to the rights of creditors and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of
the Trust. In the event that there are any assets, income, earnings,
profits, and proceeds thereof, funds, or payments which are not readily
identifiable as belonging to any particular Series, the Trustees shall
allocate them among any one or more of the Series established and
designated from time to time in such manner and on such basis as they, in
their sole discretion, deem fair and equitable. Each such allocation by
the Trustees shall be conclusive and binding upon the shareholders of all
series for all purposes.
(c) The assets belonging to each particular Series shall be
charged with the liabilities of the Trust in respect of that Series and
all expenses, costs, charges and reserves attributable to that series, and
any general liabilities, expenses, costs, charges or reserves of the Trust
which are not readily identifiable as belonging to any particular Series
shall be allocated and charged by the Trustees to and among any one or
more of the series established and designated from time to time in such
manner and on such basis as the Trustees in their sole discretion deem
fair and equitable. Each allocation of liabilities, expenses, costs,
charges and reserves by the Trustees shall be conclusive and binding upon
the holders of all Series for all purposes. The Trustees shall have full
discretion, to the extent not inconsistent with the 1940 Act, to determine
which terms are capital; and each such determination and allocation shall
be conclusive and binding upon the Shareholders.
(d) The power of the Trustees to pay dividends and make
distributions with respect to any one or more Series shall be governed by
Section 9.2 of this Trust. Dividends and distributions on Shares of a
particular Series may be paid with such frequency as the Trustees may
determine, which may be daily or otherwise, pursuant to a standing
resolution or resolutions adopted only once or with such frequency as the
Trustees may determine, to the holders of Shares of that Series, from such
of the income and capital gains, accrued or realized, from the assets
belonging to that Series, as the Trustees may determine, after providing
for actual and accrued liabilities belonging to that Series. All
dividends and distributions on Shares of a particular Series shall be
distributed pro rata to the holders of that Series in proportion to the
number of Shares of that Series held by such holders at the date and time
of record established for the payment of such dividends or distributions.
The establishment and designation of any Series of Shares shall be
effective upon the execution by a majority of the then Trustees of an
instrument setting forth such establishment and designation and the
relative rights and preference of such series, or as otherwise provided in
such instrument. At any time that there are no Shares outstanding of any
particular Series previously established and designated, the Trustees may
by an instrument executed by a majority of their number abolish that
Series and the establishment and designation thereof. Each instrument
referred to in this paragraph shall have the status of an amendment to
this Declaration.
6.10. Notices. Any and all notices to which any Shareholder
hereunder may be entitled and any and all communications shall be deemed
duly served or given if mailed, postage prepaid, addressed to any
Shareholder of record at this last known address as recorded on the
register of the Trust.
ARTICLE VII
Custodian
7.1. Appointment and Duties. The Trustees shall at all times
employ a custodian or custodians, meeting the qualifications for
custodians contained in the 1940 Act, as custodian with authority as its
agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the By-Laws of the Trust and
the 1940 Act:
(1) to hold the securities owned by the Trust, and deliver
the same upon written order;
(2) to receive and receipt for any moneys due to the Trust,
and deposit the same in its own banking department or
elsewhere as the Trustees may direct;
(3) to disburse such funds upon orders or vouchers;
(4) if authorized by the Trustees, to keep the books and
accounts of the Trust, and furnish clerical and
accounting services; and
(5) if authorized to do so by the Trustees, to compute the
net income of the Trust;
all upon such basis of compensation as may be agreed upon between the
Trustees and the custodian. If so directed by a Majority Shareholder
Vote, the custodian shall deliver and pay over all property of the Trust
held by it as specified in such vote.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services
of the custodian and upon such terms and conditions, as may be agreed upon
between the custodian and such sub-custodian and approved by the Trustees,
provided that in every case such sub-custodian shall meet the
qualifications for custodians contained in the 1940 Act.
7.2. Central Certificate System. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may
direct the custodian to deposit all or any part of the securities owned by
the Trust in a system for the central handling of securities established
by a national securities exchange or a national securities association
registered with the Commission under the Securities Exchange Act of 1934,
or such other person as may be permitted by the Commission, or otherwise
in accordance with the 1940 Act, pursuant to which system all securities
of any particular class or series of any issuer deposited within the
system are treated as fungible and may be transferred or pledged by
bookkeeping entry without physical delivery of such securities, provided
that all such deposits shall be subject to withdrawal only upon the order
of the Trust.
ARTICLE VIII
Redemption
8.1. Redemptions. All outstanding Shares may be redeemed at the
option of the holders thereof, upon and subject to the terms and
conditions provided in this Article VIII. The Trust shall, upon
application of any Shareholder or pursuant to authorization from any
Shareholder, redeem or repurchase from such Shareholder outstanding Shares
for an amount per share determined by the application of a formula adopted
for such purpose by resolution of the Trustees (which formula shall be
consistent with the 1940 Act, and the rules and regulations promulgated
thereunder); provided that (a) such amount per share shall not exceed the
cash equivalent of the proportionate interest of each share in the assets
of the Trust at the time of the purchase or redemption and (b) if so
authorized by the Trustees, the Trust may, at any time and from time to
time, charge fees for effecting such redemption, at such rates as the
Trustees may establish, as and to the extent permitted under the 1940 Act,
and the rules and regulations promulgated thereunder, and may, at any time
and from time to time, pursuant to such Act and such rules and
regulations, suspend such right of redemption. The procedures for
effecting redemption shall be as set forth in the Prospectus from time to
time.
8.2. Redemption of Shares; Disclosure of Holding. If the Trustees
shall, at any time and in good faith, be of the opinion that direct or
indirect ownership of Shares or other securities of the Trust has or may
become concentrated in any person to an extent which would disqualify the
Trust as a regulated investment company under the Internal Revenue Code,
then the Trustees shall have the power by lot or other means deemed
equitable by them (i) to call for redemption a number, or principal
amount, of Shares or other securities of the Trust sufficient, in the
opinion of the Trustees, to maintain or bring the direct or indirect
ownership of Shares or other securities of the Trust into conformity with
the requirements for such qualification and (ii) to refuse to transfer or
issue Shares or other securities of the Trust to any Person whose
acquisition of the Shares or other securities of the Trust in question
would in the opinion of the Trustees result in such disqualification. The
redemption shall be effected at a redemption price determined in
accordance with Section 8.1.
The holders of Shares or other securities of the Trust shall upon
demand disclose to the Trustees in writing such information with respect
to direct and indirect ownership of Shares or other securities of the
Trust as the Trustees deem necessary to comply with the provisions of the
Internal Revenue Code, or to comply with the requirements of any other
taxing authority.
8.3. Redemptions Pursuant to Constant Net Asset Value Formula. The
Trust may also reduce the number of outstanding Shares pursuant to the
provisions of Section 9.3.
8.4. Redemptions of Accounts of Less than $50,000. Due to the
relatively high cost of maintaining investment accounts of less than
$50,000, the Trustees shall have the power to redeem shares at a
redemption price determined in accordance with Section 8.1 if at any time
the total investment in such account does not have a value of at least
$50,000, or such lower amount as the Board of Trustees may determine;
provided, however, that the Trustees may not exercise such power with
respect to Shares if the Prospectus does not describe such power. In the
event the Trustees determine to exercise their power to redeem Shares
provided in this Section 8.4., shareholders shall be notified that the
value of their account is less than $50,000 and allowed 30 days to make an
additional investment before redemption is processed.
ARTICLE IX
Determination of Net Asset Value,
Net Income and Distributions
9.1. Net Asset Value. The net asset value of each outstanding
Share of the Trust shall be determined at such time or times on such days
as the Trustees may determine, in accordance with the 1940 Act. The
method of determination of net asset value shall be determined by the
Trustees and shall be as set forth in the Prospectus. The power and duty
to make the daily calculations may be delegated by the Trustees to the
adviser, administrator, manager, custodian, transfer agent or such other
person as the Trustees may determine. The Trustees may suspend the daily
determination of net asset value to the extent permitted by the 1940 Act.
9.2. Distributions to Shareholders. The Trustees shall from time
to time distribute ratably among the Shareholders such proportion of the
net profits, surplus (including paid-in surplus), capital, or assets held
by the Trustees as they may deem proper. Such distribution may be made in
cash or property (including without limitation any type of obligations of
the Trust or any assets thereof), and the Trustees may distribute ratably
among the Shareholders additional Shares issuable hereunder in such
manner, at such times, and on such terms as the Trustees may deem proper.
Such distributions may be among the Shareholders of record at the time of
declaring a distribution or among the Shareholders of record at such later
date as the Trustees shall determine. The Trustees may always retain from
the net profits such amount as they may deem necessary to pay the debts or
expenses of the Trust or to meet obligations of the Trust, or as they may
deem desirable to use in the conduct of its affairs or to retain for
future requirements or extensions of the business. The Trustees may adopt
and offer to Shareholders such dividend reinvestment plan, cash dividend
payout plans or related plans as the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for Federal
income tax purposes may vary from the computation thereof on the books,
the above provisions shall be interpreted to give the Trustees the power
in their discretion to distribute for any fiscal year as ordinary
dividends and as capital gains distributions, respectively, additional
amounts sufficient to enable the Trust to avoid or reduce liability for
taxes.
9.3. Constant Net Asset Value; Reduction of Outstanding Shares.
The Trustees shall have the power to determine the net income of the Trust
once on each day the net asset value is determined as provided in Section
9.1 and at each such determination to declare such net income as dividends
with the result that the net asset value per share shall remain at a
constant dollar value. The determination of net income and the resultant
declaration of dividends shall be as set forth in the Prospectus. In the
event the Trustees determine net asset value as described herein,
fluctuations in value of shares will be reflected in the number of
outstanding Shares in each shareholder s account. It is expected that the
Trust will have a positive net income at the time of each determination.
If for any reason the net income is a negative amount, the Trust may
offset such amount against dividends accrued in the account of each
shareholder. If and to the extent such negative amount exceeds such
accrued dividends, the Trustees shall have authority to reduce the number
of outstanding Shares. Such reduction will be effected by having each
Shareholder proportionately contribute to the Trust s capital the
necessary Shares that represent the amount of the excess upon such
determination. Each Shareholder will be deemed to have agreed to such
contribution in these circumstances by his investment in the Trust. This
procedure will permit the net asset value per share to be maintained at a
constant dollar value per share.
The Trustees, by resolution, may discontinue or amend the practice
of maintaining the net asset value per share at a constant dollar amount
at any time and such modification shall be evidenced by appropriate
changes in the Prospectus.
9.4. Power to Modify Foregoing Procedures. Notwithstanding any of
the foregoing provisions of this Article IX, the Trustees may prescribe,
in their absolute discretion, such other bases and times for determining
the per share net asset value of the Trust s Shares or net income, or the
declaration and payment of dividends and distributions as they may deem
necessary or desirable or to enable the Trust to comply with any provision
of the 1940 Act, or any rule or regulation thereunder, including any rule
or regulation adopted pursuant to Section 22 of the 1940 Act by the
Commission or any securities association registered under the Securities
Exchange Act of 1934, or any order of exemption issued by said Commission,
all as in effect now or hereafter amended or modified.
ARTICLE X
Shareholders
10.1. Meetings of Shareholders. Meetings of the Shareholders may be
called at any time by a majority of the Trustees and shall be called by
any Trustee upon written request of Shareholders holding in the aggregate
not less than 10% of the outstanding Shares having voting rights, such
request specifying the purpose or purposes for which such meeting is to be
called. Any such meeting shall be held within or without the Commonwealth
of Massachusetts on such day and at such time as the Trustees shall
designate. The holders of one-third of the outstanding Shares present in
person or by proxy shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act or other
applicable law or by this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, the affirmative vote of a majority of the
Shares represented at the meeting constitutes the action of the
Shareholders, unless the 1940 Act, other applicable law, this Declaration
or the By-Laws of the Trust requires a greater number of affirmative
votes.
10.2. Notice of Meetings. Notice of all meetings of the
Shareholders, stating the time, place and purposes of the meeting, shall
be given by the Trustees by mail to each Shareholder at his registered
address, mailed at least 10 days and not more than 60 days before the
meeting. Only the business stated in the notice of the meeting shall be
considered at such meeting. Any adjourned meeting may be held as
adjourned without further notice.
10.3. Record Date for Meetings. For the purpose of determining the
Shareholders who are entitled to notice of and to vote at any meeting, or
to participate in any distribution, or for the purpose of any other
action, the Trustees may from time to time close the transfer books for
such period, not exceeding 30 days, as the Trustees may determine; or
without closing the transfer books the Trustees may fix a date not more
than 60 days prior to the date of any meeting of Shareholders or daily
dividends or other action as a record date for the determination of the
Persons to be treated as Shareholders of record for such purposes, except
for dividend payments which shall be governed by Section 9.2 hereof.
10.4. Proxies, etc. At any meeting of Shareholders, any holder of
Shares entitled to vote therat may vote by proxy, provided that no proxy
shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as
the Secretary may direct, for verification prior to the time at which such
vote shall be taken. Pursuant to a resolution of a majority of the
Trustees, proxies may be solicited in the name of one or more Trustees or
one or more of the officers of the Trust. Only Shareholders of record
shall be entitled to vote. Each full Share shall be entitled to one vote
and fractional Shares shall be entitled to a vote of such fraction. When
any Share is held jointly by several persons, any one of them may vote at
any meeting in person or by proxy in respect of such Share, but if more
than one of them shall be present at such meeting in person or by proxy,
and such joint owners or their proxies so present disagree as to any vote
to be cast, such vote shall not be received in respect of such Share. A
proxy purporting to be executed by or on behalf of a Shareholder shall be
deemed valid unless challenged at or prior to its exercise, and the burden
of proving invalidity shall rest on the challenger. If the holder of any
such Share is a minor or a person of unsound mind, and subject to
guardianship or to the legal control of any other person as regards the
charge of management of such Share, he may vote by his guardian or such
other person appointed or having such control, and such vote may be given
in person or by proxy.
10.5. Reports. The Trustees shall cause to be prepared at least
annually a report of operations containing a balance sheet and statement
of income and undistributed income of the Trust prepared in conformity
with generally accepted accounting principles and an opinion of an
independent public accountant on such financial statements. Copies of
such reports shall be mailed to all Shareholders of record within the time
required by the 1940 Act. The Trustees shall, in addition, furnish to the
Shareholders at least semi-annually interim reports containing an
unaudited balance sheet of the Trust as of the end of such period and an
unaudited statement of income and surplus for the period from the
beginning of the current fiscal year to the end of such period.
10.6. Inspection of Records. The records of the Trust shall be open
to inspection by Shareholders to the same extent as is permitted
shareholders of a Massachusetts business corporation.
10.7. Shareholder Action by Written Consent. Any action which may
be taken by Shareholders may be taken without a meeting if a majority of
Shareholders entitled to vote on the matter (or such larger proportion
thereof as shall be required by any express provision of this Declaration)
consent to the action in writing and the written consents are filed with
the records of the meetings of Shareholders. Such consent shall be
treated for all purposes as a vote taken at a meeting of Shareholders.
10.8. Voting. Each shareholder shall be entitled to vote on any
matter required to be submitted to shareholders by the provisions of this
Declaration, the 1940 Act, the laws of the Commonwealth of Massachusetts
or otherwise.
ARTICLE XI
Duration; Termination of Trust;
Amendment; Mergers; Etc.
11.1. Duration. Subject to possible termination in accordance with
the provisions of Section 11.2 hereof, the Trust created hereby shall
continue indefinitely.
11.2. Termination of Trust.
(a) The Trust may be terminated by the affirmative vote of
the holders of not less than two-thirds of the Shares at any meeting of
Shareholders or by an instrument in writing, without a meeting, signed by
a majority of the Trustees and consented to by the holders of not less
than two-thirds of such Shares. Upon any such termination,
(i) The Trust shall carry on no business except for
the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs
of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust shall
have been wound up, including the power to fulfill or discharge the
contracts of the Trust, collect is assets, sell, convey, assign,
exchange, transfer or otherwise dispose of all or any part of the
remaining Trust Property to one or more persons at public or
private sale for consideration which may consist in whole or in part
of cash, securities or other property of any kind, discharge or pay
its liabilities, and do all other acts appropriate to liquidate its
business; provided that any sale, conveyance, assignment, exchange,
transfer or other disposition of all or substantially all the Trust
Property shall require approval of the principal terms of the
transaction and the nature and amount of the consideration by vote
or consent of the holders of a majority of the Shares entitled to
vote.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agreements, as they deem necessary for
their protection, the Trustees may distribute the remaining Trust
Property of any Series, in cash or in kind or partly each, among the
Shareholders according to their respective rights.
(b) Upon termination of the Trust, and distribution to the
Shareholders as herein provided, a majority of the Trustees shall execute
and lodge among the records of the Trust an instrument in writing setting
forth the fact of such termination. The Trustees shall thereupon be
discharged from all further liabilities and duties hereunder, and the
rights and interests of all Shareholders shall thereupon cease.
11.3. Amendment Procedure.
(a) This Declaration may be amended by the affirmative vote
of the holders of not less than a majority of the Shares, by an instrument
in writing, without a meeting, signed by a majority of the Trustees and
consented to by the holders of not less than a majority of such Shares.
The Trustees may also amend this Declaration without the vote or consent
of Shareholders if they deem it necessary to conform this Declaration to
the requirements of applicable federal laws or regulations or the
requirements of the regulated investment company provisions of the
Internal Revenue Code, but the Trustees shall not be liable for failing so
to do.
(b) No amendment may be made, under Section 11.3(a) above,
which would change any rights with respect to any Shares of the Trust by
reducing the amount payable thereon upon liquidation of the Trust or by
diminishing or eliminating any voting rights pertaining thereto, except
with the vote or consent of the holders of two-thirds of the Shares.
Nothing contained in this Declaration shall permit the amendment of this
Declaration to impair the exemption from personal liability of the
Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certification in recordable form signed by a majority
of the Trustees setting forth an amendment and reciting that it was duly
adopted by the Shareholders or by the Trustees as aforesaid or a copy of
the Declaration, as amended, in recordable form, and executed by a
majority of the Trustees, shall be conclusive evidence of such amendment
when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as a
Registration Statement under the Securities Act of 1933, as amended,
covering the first public offering of Shares of the Trust shall have
become effective, this Declaration of Trust may be terminated or amended
in any respect by the affirmative vote of a majority of the Trustees or by
an instrument signed by a majority of the Trustees.
11.4. Merger, Consolidation and Sale of Assets. The Trust may merge
or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of
its property, including its good will, upon such terms and conditions and
for such consideration when and as authorized at any meeting of
Shareholders called for the purpose by the affirmative vote of the holders
of not less than two-thirds of the Shares, or by an instrument or
instruments in writing without a meeting, consented to by the holders of
not less than two-thirds of such shares, and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to
have been accomplished under and pursuant to the statutes of the
Commonwealth of Massachusetts. In respect of any such merger,
consolidation, sale or exchange of assets, any Shareholder shall be
entitled to rights of appraisal of his Shares to the same extent as a
shareholder of a Massachusetts business corporation in respect of a
merger, consolidation, sale or exchange of assets of a Massachusetts
business corporation, and such rights shall be his exclusive remedy in
respect of his dissent from any such action.
11.5. Incorporation. With the approval of the holders of a majority
of the Shares, the Trustees may cause to be organized or assist in
organizing a corporation or corporations under the laws of any
jurisdiction or any other trust, partnership, association or other
organization to take over all of the Trust Property or to carry on any
business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, association or organization in exchange for the Shares
or securities thereof or otherwise, and to lend money to, subscribe for
the Shares or securities of, and enter into any contracts with any such
corporation, trust, partnership, association or organization, or any
corporation, partnership, trust, association or organization in which the
Trust holds or its about to acquire shares or any other interest. The
Trustees may also cause a merger or consolidation between the Trust or any
successor thereto and any such corporation, trust, partnership,
association or other organization if and to the extent permitted by law,
as provided under the law then in effect. Nothing contained herein shall
be construed as requiring approval of Shareholders for the Trustees to
organize or assist in organizing one or more corporations, trusts,
partnerships, associations or other organizations and selling, conveying
or transferring a portion of the Trust Property to such organizations or
entities.
ARTICLE XII
Miscellaneous
12.1 Filing. This Declaration and any amendment hereto shall be
filed in the office of the Secretary of the Commonwealth of Massachusetts
and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as
the Trustees deem appropriate. Each amendment so filed shall be
accompanied by a certificate signed and acknowledged by a Trustee stating
that such action was duly taken in a manner provided herein, and unless
such amendment or such certificate sets forth some later time for the
effectiveness of such amendment, such amendment shall be effective upon
its filing. A restated Declaration, containing the original Declaration
and all amendments theretofore made, may be executed from time to time by
a majority of the Trustees and shall, upon filing with the Secretary of
the Commonwealth of Massachusetts, be conclusive evidence of all
amendments contained therein and may thereafter be referred to in lieu of
the original Declaration and the various amendments thereto.
12.2. Resident Agent. The Trust shall maintain a resident agent in
the Commonwealth of Massachusetts, which agent shall initially be
. The Trustees may designate a
successor resident agent, provided, however, that such appointment shall
not become effective until written notice thereof is delivered to the
office of the Secretary of the Commonwealth.
12.3. Governing Law. This Declaration is executed by the Trustees
and delivered in the Commonwealth of Massachusetts and with reference to
the laws thereof, and the rights of all parties and the validity and
construction of every provision hereof shall be subject to and construed
according to the laws of said State and reference shall be specifically
made to the business corporation law of the Commonwealth of Massachusetts
as to the construction of matters not specifically covered herein or as to
which an ambiguity exists.
12.4. Counterparts. This Declaration may be simultaneously executed
in several counterparts, each of which shall be deemed to be an original,
and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any such original
counterpart.
12.5. Reliance by Third Parties. Any certificate executed by an
individual who, according to the records of the Trust, or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument
or writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders
present at any meeting or executing any written instrument satisfies the
requirements of this Declaration, (e) the form of any By-Laws adopted by
or the identity of any officers elected by the Trustees, or (f) the
existence of any fact or facts which in any manner relate to the affairs
of the Trust, shall be conclusive evidence as to the matters so certified
in favor of any person dealing with the Trustees and their successors.
12.6. Provisions in Conflict With Law or Regulations.
(a) The provisions of this Declaration are severable, and if
the Trustees shall determine, with the advice of counsel, that any of such
provisions is in conflict with the 1940 Act, the regulated investment
company provisions of the Internal Revenue Code or with other applicable
laws and regulations, the conflicting provision shall be deemed never to
have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted
prior to such determination.
(b) If any provision of this Declaration shall be held
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction
and shall not in any manner affect such provision in any other
jurisdiction or any other provision of this Declaration in any
jurisdiction.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
/s/ Lawrence Kantor
____________________________________
Lawrence Kantor
/s/ John T. Feeney
____________________________________
John T. Feeney
/s/ John J. Cranley, Jr.
____________________________________
John J. Cranley, Jr.
/s/ Allen H. Stowe
____________________________________
Allen H. Stowe
BY-LAWS
OF
LEXINGTON CONVERTIBLE SECURITIES FUND
(formerly known as "CONCORD INCOME TRUST"; name change
effective August 31, 1992)
These By-Laws are made and adopted pursuant to Section 2.7 of the
Declaration of Trust establishing CONCORD INCOME TRUST, dated
November ______, 1986, as from time to time amended (hereinafter called
the "Declaration"). All words and terms capitalized in these By-Laws
shall have the meaning or meanings set forth for such words or terms in
the Declaration.
ARTICLE I
Shareholders Meetings
Section 1.1. Chairman. The Chairman, if any, shall act as
chairman at all meetings of the Shareholders; in his absence, the
President shall act as chairman; and in the absence of the Chairman and
the President, the Trustee or Trustees present at each meeting may elect
a temporary chairman for the meeting, who may be one of themselves.
Section 1.2. Proxies; Voting. Shareholders may vote either in
person or by duly executed proxy and each full share represented at the
meeting shall have one vote, all as provided in Article X of the
Declaration. No proxy shall be valid after eleven (11) months from the
date of its execution, unless a longer period is expressly stated in such
proxy.
Section 1.3. Closing of Transfer Books and Fixing Record Dates.
For the purpose of determining the Shareholders who are entitled to notice
of or to vote or act at a meeting, including any adjournment thereof, or
who are entitled to participate in any dividends, or for any other proper
purpose, the Trustees may from time to time close the transfer books or
fix a record date in the manner provided in Section 10.3 of the
Declaration. If the Trustees do not, prior to any meeting of
Shareholders, so fix a record date or close the transfer books, then the
date of mailing notice of the meeting or the date upon which the dividend
resolution is adopted, as the case may be, shall be the record date.
Section 1.4. Inspectors of Election. In advance of any meeting of
Shareholders, the Trustees may appoint Inspectors of Election to act at
the meeting or any adjournment thereof. If Inspectors of Election are not
so appointed, the Chairman, if any, of any meeting of Shareholders may,
and on the request of any Shareholder or his proxy shall, appoint
Inspectors of Election of the meeting. The number of Inspectors shall be
either one or three. If appointed at the meeting on the request of one or
more Shareholders or proxies, a majority of Shares present shall determine
whether one or three Inspectors are to be appointed, but failure to allow
such determination by the Shareholders shall not affect the validity of
the appointment of Inspectors of Election. In case any person appointed
as Inspector fails to appear or fails or refuses to act, the vacancy may
be filled by appointment made by the Trustees in advance of the convening
of the meeting or at the meeting by the person acting as chairman. The
Inspectors of Election shall determine the number of Shares outstanding,
the Shares represented at the meeting, the existence of a quorum, the
authenticity, validity and effect of proxies, shall receive votes, ballots
or consents, shall hear and determine all challenges and questions in any
way arising in connection with the right to vote, shall count and tabulate
all votes or consents, determine the results, and do such other acts as
may be proper to conduct the election or vote with fairness to all
Shareholders. If there are three Inspectors of Election, the decision,
act or certificate of a majority is effective in all respects as the
decision, act or certificate of all. On request of the Chairman, if any,
of the meeting, or of any Shareholder or his proxy, the Inspectors of
Election shall make a report in writing of any challenge or question or
matter determined by them and shall execute a certificate of any facts
found by them.
Section 1.5. Records at Shareholder Meetings. At each meeting of
the Shareholders there shall be open for inspection the minutes of the
last previous meeting of Shareholder of the Trust and a list of the
Shareholders of the Trust, certified to be true and correct by the
Secretary or other proper agent of the Trust, as of the record date of the
meeting or the date of closing of transfer books, as the case may be.
Such list of Shareholders shall contain the name of each Shareholder in
alphabetical order and the address and number of Shares owned by such
Shareholder. Shareholders shall have such other rights and procedures of
inspection of the books and records of the Trust as are granted to
shareholders of a Massachusetts business corporation.
ARTICLE II
Trustees
Section 2.1. Annual and Regular Meetings. The Trustees shall hold
an annual meeting for the election of officers and the transaction of
other business which may come before such meeting. Regular meetings of
the Trustees may be held without call or notice at such place or places
and times as the Trustees may by resolution provide from time to time.
Section 2.2. Special Meetings. Special Meetings of the Trustees
shall be held upon the call of the Chairman, if any, the President, the
Secretary or any two Trustees, at such time, on such day and at such
place, as shall be designated in the notice of the meeting.
Section 2.3. Notice. Notice of a meeting shall be given by mail
or by telegram (which term shall include a cablegram) or delivered
personally. If notice is given by mail, it shall be mailed not later than
48 hours preceding the meeting and if given by telegram or personally,
such telegram shall be sent or delivery made not later than 48 hours
preceding the meeting. Notice by telephone shall constitute personal
delivery for these purposes. Notice of a meeting of Trustees may be
waived before or after any meeting by signed written waiver. Neither the
business to be transacted at, nor the purpose of, any meeting of the Board
of Trustees need be stated in the notice or waiver of notice of such
meeting, and no notice need be given of action proposed to be taken by
unanimous written consent. The attendance of a Trustee at a meeting shall
constitute a waiver of notice of such meeting except where a Trustee
attends a meeting for the express purpose of objecting, at the
commencement of such meeting, to the transaction of any business on the
ground that the meeting has not been lawfully called or convened.
Section 2.4. Chairman; Records. The Chairman, if any, shall act
as chairman at all meetings of the Trustees; in his absence the President
shall act as chairman; and, in the absence of the Chairman and the
President, the Trustees present shall elect one of their number to act as
temporary chairman. The results of all actions taken at a meeting of the
Trustees, or by unanimous written consent of the Trustees, shall be
recorded by the Secretary.
ARTICLE III
Officers
Section 3.1. Officers of the Trust. The officers of the Trust
shall consist of a Chairman, if any, a President, a Secretary, a Treasurer
and such other officers or assistant officers, including Vice Presidents,
as may be elected by the Trustees. Any two or more of the offices may be
held by the same person, except that the same person may not be both
President and Secretary. The Trustees may designate a Vice President as
an Executive Vice President and may designate the order in which the other
Vice Presidents may act. The Chairman and the President shall be
Trustees, but no other officer of the Trust need be a Trustee.
Section 3.2. Election and Tenure. At the initial organization
meeting and thereafter at each annual meeting of the Trustees, the
Trustees shall elect the Chairman, if any, President, Secretary, Treasurer
and such other officers as the Trustees shall deem necessary or
appropriate in order to carry out the business of the Trust. Such
officers shall hold office until the next annual meeting of the Trustees
and until their successors have been duly elected and qualified. The
Trustees may fill any vacancy in office or add any additional officers at
any time.
Section 3.3. Removal of Officers. Any officer may be removed at
any time, with or without cause, by action of a majority of the Trustees.
This provision shall not prevent the making of a contract of employment
for a definite term with any officer and shall have no effect upon any
cause of action which any officer may have as a result of removal in
breach of a contract of employment. Any officer may resign at any time by
notice in writing signed by such officer and delivered or mailed to the
Chairman, if any, President, or Secretary, and such resignation shall take
effect immediately, or at a later date according to the terms of such
notice in writing.
Section 3.4. Bonds and Surety. Any officer may be required by the
Trustees to be bonded for the faithful performance of his duties in such
amount and with such sureties as the Trustees may determine.
Section 3.5. Chairman, President, and Vice-Presidents. The
Chairman, if any, shall, if present, preside at all meetings of the
Shareholders and of the Trustees and shall exercise and perform such other
powers and duties as may be from time to time assigned to him by the
Trustees. Subject to such supervisory powers, if any, as may be given by
the Trustees to the Chairman, if any, the President shall be the chief
executive officer of the Trust and, subject to the control of the
Trustees, shall have general supervision, direction and control of the
business of the Trust and of its employees and shall exercise such general
powers of management as are usually vested in the office of President of
a corporation. In the absence of the Chairman, if any, the President
shall preside at all meetings of the Shareholders and of the Trustees.
The President shall be, ex officio, a member of all standing committees.
Subject to direction of the Trustees, the Chairman, if any, and the
President shall each have power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds,
mortgages, and other instruments in writing, and to employ and discharge
employees and agents of the Trust. Unless otherwise directed by the
Trustees, the Chairman, if any, and the President shall each have full
authority and power, on behalf of all of the Trustees, to attend and to
act and to vote, on behalf of the Trust at any meetings of business
organizations in which the Trust holds an interest, or to confer such
powers upon any other persons, by executing any proxies duly authorizing
such persons. The Chairman, if any, and the President shall have such
further authorities and duties as the Trustees shall from time to time
determine. In the absence or disability of the President, the Vice
Presidents in order of their rank or the Vice President designated by the
Trustees, shall perform all of the duties of President, and when so acting
shall have all the powers of and be subject to all of the restrictions
upon the President. Subject to the direction of the President, each Vice
President shall have the power in the name and on behalf of the Trust to
execute any and all loan documents, contracts, agreements, deeds,
mortgages and other instruments in writing, and, in addition, shall have
such other duties and powers as shall be designated from time to time by
the Trustees or by the President.
Section 3.6. Secretary. The Secretary shall keep the minutes of
all meetings of, and record all votes of, Shareholders, Trustees and the
Executive Committee, if any. He shall be custodian of the seal of the
Trust, if any, and he (and any other person so authorized by the Trustees)
shall affix the seal or, if permitted, a facsimile thereof, to any
instrument executed by the Trust which would be sealed by a Massachusetts
corporation executing the same or a similar instrument and shall attest
the seal and the signature or signatures of the officer or officers
executing such instrument on behalf of the Trust. The Secretary shall
also perform any other duties commonly incident to such office in a
Massachusetts business corporation, and shall have such other authorities
and duties as the Trustees shall from time to time determine.
Section 3.7. Treasurer. Except as otherwise directed by the
Trustees, the Treasurer shall have the general supervision of the monies,
funds, securities, notes receivable and other valuable papers and
documents of the Trust, and shall have and exercise under the supervision
of the Trustees and of the President all powers and duties normally
incident to his office. He may endorse for deposit or collection all
notes, checks and other instruments payable to the Trust or to its order.
He shall deposit all funds of the Trust as may be ordered by the Trustees
or the President. He shall keep accurate account of the books of the
Trust's transactions which shall be the property of the Trust, and which
together with all other property of the Trust in his possession, shall be
subject at all times to the inspection and control of the Trustees.
Unless the Trustees shall otherwise determine, the Treasurer shall be the
principal accounting officer of the Trust and shall also be the principal
financial officer of the Trust. He shall have such other duties and
authorities as the Trustees shall from time to time determine.
Notwithstanding anything to the contrary herein contained, the Trustees
may authorize any adviser, administrator, manager or transfer agent to
maintain bank accounts and deposit and disburse funds on behalf of the
Trust.
Section 3.8. Other Officers and Duties. The Trustees may elect
such other officers and assistant officers as they shall from time to time
determine to be necessary or desirable in order to conduct the business of
the Trust. Assistant officers shall act generally in the absence of the
officer whom they assist and shall assist that officer in the duties of
his office. Each officer, employee and agent of the Trust shall have such
other duties and authority as may be conferred upon him by the Trustees or
delegated to him by the President.
ARTICLE IV
Miscellaneous
Section 4.1. Depositories. In accordance with Section l7.1 of the
Declaration, the funds of the Trust shall be deposited in such
depositories as the Trustees shall designate and shall be drawn out on
checks, drafts or other orders signed by such officer, officers, agent or
agents (including any adviser, administrator or manager), as the Trustees
may from time to time authorize.
Section 4.2. Signatures. All contracts and other instruments
shall be executed on behalf of the Trust by such officer, officers, agent
or agents, as provided in these By-Laws or as the Trustees may from time
to time by resolution provide.
Section 4.3. Seal. The seal of the Trust, if any, may be
affixed to any document, and the seal and its attestation may be
lithographed, engraved or otherwise printed on any document with the same
force and effect as if it had been imprinted and attested manually in the
same manner and with the same effect as if done by a Massachusetts
business corporation.
Section 4.4. Indemnification. Insofar as the conditional
advancing of indemnification monies under Section 5.3 of the Declaration
of Trust for actions based upon the Investment Company Act of 1940 may be
concerned, such payments will be made only on the following conditions;
(i) the advances must be limited to amounts used, or to be used, for the
preparation or presentation of a defense to the action, including costs
connected with the preparation of a settlement; (ii) advances may be made
only upon receipt of a written promise by, or on behalf of, the recipient
to repay that amount of the advance which exceeds that amount to which it
is ultimately determined that he is entitled to receive from the Trust by
reason of indemnification; and (iii) (a) such promise must be secured by
a surety bond, other suitable insurance or an equivalent form of security
which assures that any repayments may be obtained by the Trust without
delay or litigation, which bond, insurance or other form of security must
be provided by the recipient of the advance, or (b) a majority of a quorum
of the Trust's disinterested, non-party Trustees, or an independent legal
counsel in a written opinion, shall determine, based upon a review of
readily available facts, that the recipient of the advance ultimately will
be found entitled to indemnification.
ARTICLE V
Stock Certificates and Stock Transfers
Section 5.1. Stock Certificates. Certificates representing shares
of beneficial interest of the Trust ("Shares") shall not be issued unless
expressly requested by a shareholder.
Section 5.2. Transfers of Shares. Transfers of Shares shall be
made on the records of the Trust only upon delivery to the Trustees or a
transfer agent for the Trust of proper documentation as provided in
Section 6.7 of the Declaration. The Trust or any of its transfer agents
is authorized to refuse any transfer unless and until presentation of such
evidence as may be reasonably required to show that the requested transfer
is proper, is received. Except as otherwise provided by law, the Trust
shall be entitled to recognize the exclusive right of a person in whose
name any Share or Shares stand on the record of Shareholders as the owner
of such Share or Shares for all purposes, including, without limitation,
the rights to receive dividends or other distributions, and to vote as
such owner, and the Trust shall not be bound to recognize any equitable or
legal claim to or interest in any such Share or Shares on the part of any
other person.
Section 5.3. Regulations. The Trustees may make such additional
rules and regulations, not inconsistent with these By-Laws, as they may
deem expedient concerning the issue, transfer and registration of
certificates for Shares of the Trust. They may appoint, or authorize any
officer or officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all
certificates for Shares to bear the signature or signatures of any of
them.
Section 5.4. Transfer Agents, Registrars and the Like. As
provided in Section 6.6 of the Declaration, the Trustees shall have
authority to employ and compensate such transfer agents and registrars
with respect to the Shares of the Trust as the Trustees shall deem
necessary or desirable. In addition, the Trustees shall have power to
employ and compensate such dividend disbursing agents, warrant agents and
agents for the reinvestment of dividends as they shall deem necessary or
desirable. Any of such agents shall have such power and authority as is
delegated to any of them by the Trustee.
ARTICLE VI
Amendment of By-Laws
Section 6.1. Amendment and Repeal of By-Laws. In accordance with
Section l2.7 of the Declaration, the Trustees shall have the power to
alter, amend or repeal the By-Laws or adopt new By-Laws at any time.
Action by the Trustees with respect to the By-Laws shall be taken by an
affirmative vote of a majority of the Trustees. The Trustees shall in no
event adopt By-Laws which are in conflict with the Declaration, and any
apparent inconsistency shall be construed in favor of the related
provisions in the Declaration.
The Declaration of Trust establishing Concord Income Trust, dated
November , 1986, a copy of which, together with all amendments
thereto (the "Declaration"), is on file in the office of the Secretary of
the Commonwealth of Massachusetts, provides that the name Concord Income
Trust refers to the Trustees under the Declaration collectively as
Trustees, but not as individuals or personally; and no Trustee,
shareholder, officer, employee or agent of Concord Income Trust shall be
held to any personal liability, nor shall resort be had to their private
property for the satisfaction of any obligation or claim or otherwise in
connection with the affairs of said Concord Income Trust but the Trust
Property only shall be liable.
DISTRIBUTION AGREEMENT
between
LEXINGTON CONVERTIBLE SECURITIES FUND
and
LEXINGTON FUNDS DISTRIBUTOR, INC.
THIS AGREEMENT made this 31st day of August, 1992 by and between
LEXINGTON CONVERTIBLE SECURITIES FUND, a Massachusetts business trust
(hereinafter referred to as the "Fund"), and LEXINGTON FUNDS DISTRIBUTOR,
INC., a Delaware Corporation (hereinafter referred to as the "Distributor").
W I T N E S S E T H:
In consideration of the mutual covenants herein contained and other
good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
FIRST: The Fund hereby appoints the Distributor as its exclusive
underwriter to promote the sale and to arrange for the sale of shares of
common stock of the Fund in jurisdictions wherein shares may legally be
offered for sale.
The Fund agrees to sell and deliver its unissued shares, as from time
to time shall be effectively registered under the Securities Act of 1933,
upon the terms hereinafter set forth.
SECOND: The Fund hereby authorizes the Distributor, subject to law
and the Articles of Incorporation of the Fund, to accept, for the account
of the Fund, orders for the purchase of its shares, satisfactory to the
Distributor, as of the time of receipt of such orders or as otherwise
described in the then current prospectus of the Fund.
THIRD: The public offering price of such shares shall be based on
the net asset value per share (as determined by the Fund) of the
outstanding shares of the Fund. The net asset value shall be regularly
determined on every business day as of the time of closing of the New York
Stock Exchange. It is expected that the New York Stock Exchange will be
closed on Saturdays and Sundays and on New Year's Day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas. The public offering price shall become effective as set
forth from time to time in the Fund's current prospectus; such net asset
value shall also be regularly determined, and the public offering price
based thereon shall become effective, as of such other times for the
regular determination of net asset value as may be required or permitted
by rules of the National Association of Securities Dealers, Inc. or of the
Securities and Exchange Commission. The Fund shall furnish the
Distributor, with all possible promptness, a statement of each computation
of net asset value, and of the details entering into such computation.
The Distributor may, and when requested by the Fund shall, suspend
its efforts to effectuate sales of the shares of common stock at any time
when in the opinion of the Distributor or of the Fund no sales should be
made because of market or other economic considerations or abnormal
circumstances of any kind.
The Fund may withdraw the offering of its common stock (i) at any
time with the consent of the Distributor, or (ii) without such consent when
so required by the provisions of any statute or of any order, rule or
regulation of any governmental body or securities exchange having
jurisdiction. It is mutually understood and agreed that the Distributor
does not undertake to sell all or any specific portion of the shares of
common stock of the Fund.
FOURTH: The Distributor agrees that it will use its best efforts
with reasonable promptness to promote and sell shares of the Fund; but so
long as it does so, nothing herein contained shall prevent the Distributor
from entering into similar arrangements with other funds and to engage in
other activities. The Fund reserves the right to issue shares in
connection with any merger or consolidation of the Fund with any other
investment company or any personal holding company or in connection with
offers of exchange exempted from Section 11(a) of the Investment Company
Act of 1940.
FIFTH: Upon a receipt by the Fund at its principal place of business
or other place designated by the Fund of an order from the Distributor,
together with delivery instructions, the Fund shall, as promptly as
practicable, cause the shareholder's account or certificates for the shares
called for in such order to be credited or delivered in such amount and in
such names as shall be specified by the Distributor, against payment
therefor in such manner as may be acceptable to the Fund.
SIXTH: All sales literature and advertisements used by the
Distributor in connection with sales of the shares of the Fund shall be
subject to the approval of the Fund. The Fund authorizes the Distributor
in connection with the sale or arranging for the sales of its shares to
give only such information and to make only such statements or
representations as are contained in the current prospectus and statement
of additional information or in sales literature or advertisements approved
by the Fund or in such financial statements and reports as are furnished
to the Distributor pursuant to this Agreement. The Fund shall not be
responsible in any way for any information, statements or representatives
given or made by the Distributor or its representatives or agents other
than such information, statements or representations contained in the then
current prospectus and statement of additional information or other
financial statements of the Fund.
SEVENTH: The Distributor as agent of the Fund is authorized, subject
to the direction of the Fund, to accept shares for redemption at their net
asset value, determined as prescribed in the then current prospectus of the
Fund. The Fund shall reimburse the Distributor monthly for its out-of-pocket
expenses reasonably incurred for carrying out the foregoing authorization,
but the Distributor shall not be entitled to any commissions or other
compensation in respect to such redemptions.
EIGHTH: The Fund shall bear:
(A) the expenses of qualification of the shares for sale in
connection with such public offerings in such states as shall be selected
by the Distributor and of continuing the qualification continued; and
(B) all legal expenses in connection with the foregoing.
NINTH: The Distributor shall bear:
(A) the expenses of printing and distributing prospectuses and
statements of additional information (other than those prospectuses and
statements of additional information required by applicable laws and
regulations to be distributed to the Fund's shareholders by the Fund) and
any other promotional or sales literature which are used by the Distributor
or furnished by the Distributor to purchasers or dealers in connection with
the Distributor's activities pursuant to this Agreement;
(B) expenses of any advertising used by the Distributor in connection
with such public offering; and
(C) all legal expenses in connection with the foregoing.
TENTH: The Distributor will accept orders for shares of the Fund
only to the extent of purchase orders actually received and not in excess
of such orders, and it will not avail itself of any opportunity of making
a profit by expediting or withholding orders.
ELEVENTH: The Fund shall keep the Distributor fully informed with
regard to its affairs, shall furnish the Distributor with a certified copy
of all financial statements, and a signed copy of each report, prepared by
independent public accountants, and with such reasonable number of printed
copies of each semi-annual and annual report of the Fund as the Distributor
may request, and shall cooperate fully in the efforts of the Distributor
to sell and arrange for the sale of its shares and in the performance by
the Distributor of all its duties under the Agreement.
TWELFTH: The Fund agrees to register, from time to time as
necessary, additional shares with the Securities and Exchange Commission,
state and other regulatory bodies and to pay the related filing fees
therefor and to file such amendments, reports and other documents as may
be necessary in order that there may be no untrue statement of a material
fact in the Registration Statement or prospectus or necessary in order that
there may be no omission to state a material fact therein necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading. As used in this Agreement, the term
"Registration Statement" shall mean from time to time the Registration
Statement most recently filed by the Fund with the Securities and Exchange
Commission and effective under the Securities Act of 1933, as amended, as
such Registration Statement is amended at such time, and the terms
"Prospectus" shall mean for the purposes of this Agreement from time to
time the form of prospectus and statement of additional information
authorized by the Fund for use by Distributor and by dealers.
THIRTEENTH:
(A) The Fund and Distributor shall each comply with all applicable
provisions of the Investment Company Act of 1940, the Securities Act of
1933, and the rules and regulations of the National Association of
Securities Dealers, Inc. and of all other Federal and State laws, rules and
regulations governing the issuance and sale of shares of the Fund.
(B) In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder on the
part of the Distributor, the Fund agrees to indemnify the Distributor and
any controlling person of the Distributor against any and all claims,
demands, liabilities and expenses including reasonable costs of any alleged
litigation which the Distributor may incur under the Securities Act of
1933, or common law on otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in any registration
statement, statement of additional information or prospectus of the Fund,
or any omission to state a material fact therein, the omission of which
makes any statement contained therein misleading, unless such statement or
omission was made in reliance upon, and in conformity with written
information furnished to the Fund in connection with written information
furnished to the Fund in connection therewith by or on behalf of the
Distributor. The Distributor agrees to indemnify the Fund against any and
all claims, demands, liabilities and expenses which the Fund may incur
arising out of or based upon any act or deed of sales representatives of
the Distributor which is outside the scope of their authority under this
Agreement.
(C) The Distributor agrees to indemnify the Fund against any and all
claims, demands, liabilities and expenses which the Fund may incur under
the Securities Act of 1933, or common law or otherwise, arising out of or
based upon any alleged untrue statement of material fact contained in any
registration statement, statement of additional information or prospectus
of the Fund, relating to the Fund, or any omission to state a material fact
therein if such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Fund in connection
therewith by or on behalf of the Distributor.
FOURTEENTH: Nothing herein contained shall require the Fund to take
any action contrary to any provision of its Declaration of Trust or to any
applicable statute or regulation.
FIFTEENTH: This Agreement has been approved by the Trustees of the
Fund and shall become effective at the close of business on the date
hereof. This Agreement shall continue in force and effect for successive
annual periods, provided that such continuance is specifically approved at
least annually (a) (i) by the Board of Trustees of the Fund, or (ii) by
vote of a majority of the Fund's outstanding voting securities (as defined
in Section 2 (a) (42) of the Investment Company Act of 1940), and (b) by
vote of majority of the Fund's Trustees who are not interested persons (as
defined in Section 2 (a) (19) of the Investment Company Act of 1940) of the
Distributor by votes cast in person at a meeting called for such purposes.
SIXTEENTH: The Distributor, as the owner of the registered service
mark "Lexington" (registration number 836-088), hereby sublicenses and
authorizes the Fund to include the word "Lexington" as part of its
corporate name, subject, however, to revocation by the Distributor in the
event that the Fund ceases to engage the Distributor or affiliates of the
Distributor as investment advisor or distributor. The Fund agrees upon
demand of the Distributor to change its corporate name to delete the word
"Lexington" therefrom.
SEVENTEENTH:
(A) This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Board of Trustees of the Fund or
by vote of a majority of the outstanding voting securities of the Fund, or
by the Distributor, on sixty (60) days written notice of the other party.
(B) This Agreement shall automatically terminate in the event of its
assignment, the term "assignment" for this purpose having the meaning
defined in Section 2(a)(4) of the Investment Company Act of 1940.
EIGHTEENTH: Any notice 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
notices. Until further notice to the other party, it is agreed that the
address of the Fund shall be Park 80 West, Plaza Two, Saddle Brook, New
Jersey and Distributor shall be Park 80 West, Plaza Two, Saddle Brook,
New Jersey.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed in duplicate on the day and year first above written.
LEXINGTON CONVERTIBLE SECURITIES FUND
Attest: By
_________________________
_______________________
LEXINGTON FUNDS DISTRIBUTOR, INC.
Attest: By
_________________________
_______________________
Kramer, Levin, Naftalis & 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
February 26, 1997
Lexington Convertible Securities Fund
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Re: Lexington Convertible Securities Fund
Park 80 West Plaza Two
Saddle Brook, New Jersey 07662
Gentlemen:
We hereby consent to the reference to our firm as counsel in the
Post-Effective Amendment to the Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
To the Board of Trustees and Shareholders
Lexington Convertible Securities Fund
We consent to the use of our report dated February 14, 1997 included in
the Registration Statement on Form N-1A and to the references to our firm
under the headings "Financial Highlights" and "Auditors" in the Prospectus
and "Shareholder Reports" in the Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
February 28, 1997
LEXINGTON CONVERTIBLE SECURITIES FUND
DISTRIBUTION PLAN
Distribution Plan (the "Plan") of Lexington Convertible Securities
Fund, a Massachusetts Business Trust (the "Fund"), an open-end, management
investment company registered under the Investment Company Act of 1940, as
amended (the "Act"), adopted pursuant to Section 12(b) of the act and Rule
12b-1 promulgated thereunder ("Rule 12b-1").
1. Principal Underwriter and Investment Adviser. Lexington Funds
Distributor, Inc., a Delaware corporation ("the Distributor"), acts as the
principal underwriter of the Fund's shares pursuant to a Distribution
Agreement. Lexington Management Corporation, a Delaware corporation (the
"Adviser"), acts as the Fund's investment adviser pursuant to an Investment
Advisory Agreement.
2. Distribution Payments. (a) 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.
(b) The schedule of such fees and the basis upon which such
fees will be paid shall be determined from time to time by the Distributor
and the Adviser, subject to approval by the Trustees of the Fund.
(c) 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;
(d) The aggregate amount of all payments by the Fund in any fiscal
year, to Brokers, Servicing Agents and for advertising and promotional
expenses pursuant to paragraph (a), (b), (c) of this Section 2 shall not
exceed 0.25% of the average daily net asset value of the Fund on an annual
basis for such fiscal year. The Plan will only make payments for expenses
actually incurred by the Distributor. The amount of expenses incurred by the
Distributor in any twelve-month period may exceed the rate of reimbursement
set forth in the Plan. The unreimbursement amounts may be recovered by the
Distributor through future payments under the Plan. If the Plan is terminated
in accordance with its terms, the obligations of the Fund to make payments to
the Distributor pursuant to the Plan will cease and the Fund will not be
required to make any payments past the date the Plan terminates.
3. Reports. 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.
4. Approval of Plan. This Plan shall become effective upon
approval of the Plan, the form is Selected Dealer agreement and the form of
Shareholder Service Agreement, by the majority votes of both (a) the Fund's
Trustees and the Qualified Trustees (as defined in Section 6), cast in
person at a meeting called for the purpose of voting on the Plan and (b) the
outstanding voting securities of the Fund, as defined in Section 2(a)(42)
of the Act.
5. Term. This 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 by 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 in accordance with Section 4 hereof. 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.
6. Termination. This 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 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 Act.
7. Nomination of "Non-Interested" Trustees. 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 non-interested
Trustees then in office.
8. Miscellaneous. (a) Any termination or non-continuance of (i)
a Selected Dealer Agreement between the Distributor and a particular broker
or (ii) a Shareholder Service agreement between the adviser or the Fund and
a particular person or organization, shall have no effect on any similar
agreements between brokers or other persons and the Fund, the Adviser or the
Distributor pursuant to this Plan.
(b) The Distributor, the Adviser, or the Fund shall not be
under any obligation because of this Plan to execute any Selected Dealer
Agreement with any broker or any Shareholder Service Agreement with any
person or organization.
(c) All Agreements with any person or organization relating to
the implementation of this Plan shall be in writing and any agreement
related to this Plan shall be subject to termination, without penalty,
pursuant to the provisions of Section 6 hereof.
Dated: May 17, 1992
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from year-end
audited financial statements dated December 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 8,689,149
<INVESTMENTS-AT-VALUE> 11,238,495
<RECEIVABLES> 33,532
<ASSETS-OTHER> 13,118
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,285,145
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 76,700
<TOTAL-LIABILITIES> 76,700
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 8,663,438
<SHARES-COMMON-STOCK> 820,660
<SHARES-COMMON-PRIOR> 852,134
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (2,355)
<ACCUMULATED-NET-GAINS> (1,984)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,549,346
<NET-ASSETS> 11,208,445
<DIVIDEND-INCOME> 13,260
<INTEREST-INCOME> 329,361
<OTHER-INCOME> 0
<EXPENSES-NET> 259,269
<NET-INVESTMENT-INCOME> 83,352
<REALIZED-GAINS-CURRENT> 433,015
<APPREC-INCREASE-CURRENT> (29,508)
<NET-CHANGE-FROM-OPS> 486,859
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (87,725)
<DISTRIBUTIONS-OF-GAINS> (432,556)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 171,179
<NUMBER-OF-SHARES-REDEEMED> (239,163)
<SHARES-REINVESTED> 36,510
<NET-CHANGE-IN-ASSETS> (398,694)
<ACCUMULATED-NII-PRIOR> 4,296
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 108,636
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 259,269
<AVERAGE-NET-ASSETS> 10,863,473
<PER-SHARE-NAV-BEGIN> 13.66
<PER-SHARE-NII> .11
<PER-SHARE-GAIN-APPREC> .55
<PER-SHARE-DIVIDEND> (.11)
<PER-SHARE-DISTRIBUTIONS> (.55)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.66
<EXPENSE-RATIO> 2.39
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
