PROSPECTUS
May 1, 1995
Lexington Global Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service - 1-800-526-0056
24 Hour Account Information - 1-800-526-0052
A NO-LOAD MUTUAL FUND WHOSE INVESTMENT OBJECTIVE IS LONG-TERM GROWTH
OF CAPITAL THROUGH INVESTMENT IN COMPANIES DOMICILED IN FOREIGN
COUNTRIES AND THE UNITED STATES.
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Lexington Global Fund, Inc. (the "Fund") is a no-load open-end
diversified management investment company. The 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 Management Corporation ("LMC") is the Fund's investment
adviser. Lexington Funds Distributor, Inc. ("LFD") is the distributor
of Fund shares.
This Prospectus sets forth information about the Fund you should
know before investing. It should be read and retained for future
reference.
A Statement of Additional Information dated May 1, 1995, which
provides a further discussion of certain matters in this Prospectus
and other matters that may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call the appropriate telephone
number above or write to the address listed above.
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.
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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.
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Investors Should Read and Retain this Prospectus for Future Reference
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FEE TABLE
Annual Fund Operating Expenses: (as a percentage of average net assets):
Management fees..................................................... 1.00%
Other fees.......................................................... 0.61%
-----
Total Fund Operating Expenses................................... 1.61%
=====
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption
at the end of each period............... $16.37 $50.80 $87.61 $191.10
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear directly
and indirectly. Shareholder Servicing Agents acting as agents for their
customers may provide administrative and recordkeeping services on behalf of the
Fund. For these services, each Shareholder Servicing Agent receives fees, which
may be paid periodically, provided that such fees will not exceed, on an annual
basis, 0.25% of the average daily net assets of the Fund represented by shares
owned during the period for which payment is made. Each Shareholder Servicing
Agent may, from time to time, voluntarily waive all or a portion of the fees
payable to it. (For more complete descriptions of the various costs and
expenses, see "Management of the Fund" below.) The Expenses and Example
appearing in the table above are based on the Fund's expenses for the period
from January 1, 1994 to December 31, 1994. The Example shown in the table above
should not be considered a representation of past or future expenses and actual
expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Per Share Income and Capital Changes Information for each of
the years in the five year period ended December 31, 1994 has been audited by
KPMG Peat Marwick LLP, Independent Auditors, whose report thereon appears in the
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes thereto included in
the Statement of Additional Information. The Fund's annual report, which
contains additional performance information, is available upon request and
without charge.
<TABLE>
<CAPTION>
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Period from
Selected Per Share Data for a share outstanding throughout the period March 27, 1987
(commencement
Year ended December 31, of operations) to
---------------------------------------------------------------------- December 31,
1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period...... $13.51 $11.09 $11.57 $10.26 $12.83 $10.89 $ 9.89 $ 9.50
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income................... 0.02 0.06 0.06 0.09 0.11 0.01 0.02 0.01
Net realized and unrealized gain (loss)
on investments........................ 0.23 3.47 (0.47) 1.50 (2.25) 2.72 1.56 0.38
------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations................... 0.25 3.53 (0.41) 1.59 (2.14) 2.73 1.58 0.39
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income.... - (0.06) (0.07) (0.08) (0.11) (0.02) (0.02) -
Distributions from net realized
capital gains......................... (2.46) (1.05) - (0.20) (0.32) (0.77) (0.56) -
Distributions in excess of
net realized capital gains
(Temporary book-tax difference)....... (0.13) - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------
Total distributions....................... (2.59) (1.11) (0.07) (0.28) (0.43) (0.79) (0.58) -
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period............ $11.17 $13.51 $11.09 $11.57 $10.26 $12.83 $10.89 $ 9.89
------ ------ ------ ------ ------ ------ ------ ------
Total return.............................. 1.84% 31.88% (3.55%) 15.55% (16.75%) 25.10% 15.99% 5.47%*
Ratio to average net assets:
Expenses................................ 1.61% 1.49% 1.52% 1.57% 1.59% 1.64% 1.80% 1.20%*
Net investment income................... 0.14% 0.52% 0.55% 0.79% 0.99% 0.13% 0.12% 0.19%*
Portfolio turnover........................ 83.40% 84.61% 81.38% 75.71% 81.88% 113.58% 96.90% 95.66%*
Net assets, end of period (000's omitted). $67,392 $87,313 $50,298 $53,886 $50,501 $57,008 $38,150 $31,250
*Annualized
</TABLE>
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INVESTMENT OBJECTIVE AND POLICIES
Lexington Global Fund, Inc., (the "Fund"), a Maryland corporation, is an
open-end, diversified management investment company. The Fund's investment
objective is to seek long-term growth of capital primarily through investment in
common stocks and equivalents of companies domiciled in foreign countries and
the United States.
The Fund will seek to achieve its objective through investment in a
diversified portfolio of securities that will consist primarily of all types of
common stocks and equivalents (the following constitute equivalents: convertible
debt securities, warrants and options). The Fund may also invest in preferred
stocks, bonds and other debt obligations, which consist of money market
instruments of foreign and domestic companies and U.S. government and foreign
governments, governmental agencies and international organizations. There can be
no assurance that the Fund will be able to achieve its investment objective.
The Fund will at all times invest at least 65% or more of its assets in at
least three countries, one of which may be the United States. The Fund is not
required to maintain any particular geographic or currency mix of its
investments, nor is it required to maintain any particular proportion of stocks,
bonds or other securities in its portfolio. The Fund may, however, invest
substantially or 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.
Because the market value of debt obligations can be expected to vary 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. A defensive position would exist when in the judgment of Lexington
Management Corporation conditions in the securities market would make pursuing
the Fund's basic investment strategy inconsistent with the best interests of the
shareholders. At such time, the Fund may temporarily invest up to 100% of its
assets in debt obligations, which consist of repurchase agreements, money market
instruments of foreign or domestic companies and U.S. Government and foreign
governments, governmental and international organizations.
The Fund intends to provide investors with the opportunity to invest in a
portfolio of securities of companies and governments located throughout the
world. In making the allocation of assets among the various countries and
geographic regions, LMC ordinarily considers such factors as prospects for
relative economic growth between the U.S. and other countries; expected levels
of inflation and interest rates; government policies influencing business
conditions; the range of investment opportunities available to international
investors; and other pertinent financial, tax, social, political and national
factors-all in relation to the prevailing prices of the securities in each
country or region.
Investments may be made in companies based in (or governments of or within)
the Pacific Basin (mainly Japan, Australia, Singapore, Malaysia and Hong Kong)
and Western Europe (mainly the United Kingdom, West Germany, Switzerland, the
Netherlands, France, Sweden, Spain, Italy, Belgium, Norway and Denmark), as well
as the United States, Canada and such other areas and countries as LMC may
determine from time to time. The Fund may invest in companies located in
developing countries without limitation. Such 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
for gain, as well as loss, than exchanges in developed countries. While the Fund
invests only in countries that it considers as having relatively stable and
friendly governments it is possible that certain Fund investments could be
subject to foreign expropriation or exchange control restrictions. See "Risk
Considerations" on Page 5.
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, the Fund's investments may be changed whenever the adviser
deems it appropriate to do so, without regard to the length of time a particular
security has been held. It is expected that the Fund will have an annual
portfolio turnover rate that will generally not exceed 100%. A 100% turnover
rate would occur if all the Fund's portfolio investments were sold and either
repurchased or replaced within a year. For the period ending December 31, 1994,
the portfolio turnover rate for the Fund was 83.40%.
Certain Investment Methods: The Fund may from time to time engage in the
following investment practices:
Settlement Transactions-The Fund may, for a fixed amount of United States
dollars, enter into a forward foreign exchange contract for the purchase or sale
of the amount of foreign currency involved in the underlying securities
transaction. In so doing, the Fund will
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attempt to insulate itself against possible losses and gains resulting from a
change in the relationship between the United States dollar and the foreign
currency during the period between the date a security is purchased or sold and
the date on which payment is made or received. This process is known as
"transaction hedging".
To effect the translation of the amount of foreign currencies involved in
the purchase and sale of foreign securities and to effect the "transaction
hedging" described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e. cash) basis or on a forward basis whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the time of the
contract, for receipt of delivery at a specified date which may be any fixed
number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign currency when foreign securities are
purchased or sold for settlement beyond customary settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.
Portfolio Hedging-When, in the opinion of LMC, it is desirable to limit or
reduce exposure in a foreign currency in order to moderate potential changes in
the United States dollar value of the portfolio, the Fund may enter into a
forward foreign currency exchange contract by which the United States dollar
value of the underlying foreign portfolio securities can be approximately
matched by an equivalent United States dollar liability. The Fund may also enter
into forward currency exchange contracts to increase its exposure to a foreign
currency that LMC expects to increase in value relative to the United States
dollar. The Fund will not attempt to hedge all of its portfolio positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by the investment adviser. Hedging against a decline in the value of currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such securities decline. The Fund will not enter into
forward foreign currency exchange transactions for speculative purposes. The
Fund intends to limit such transactions to not more than 70% of total Fund
assets.
Forward Commitments-The Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as the Fund, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets. Although the Fund will enter into such contracts with the
intention of acquiring the securities, the Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments.
Covered Call Options-The Fund may seek to preserve capital by writing covered
call options on securities which it owns. Such an option on an underlying
security would obligate the Fund to sell, and give the purchaser of the option
the right to buy, that security at a stated exercise price at any time until a
stated expiration date of the option. The premium paid by the purchaser of an
option will be income to the Fund.
Repurchase Agreements-A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than 7
days) subject to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). Although the Fund may enter into repurchase agreements with
respect to any portfolio securities which it may acquire consistent with its
investment policies and restrictions, it is the Fund's present intention to
enter into repurchase agreements only with respect to obligations of the United
States government or its agencies or instrumentalities to meet anticipated
redemptions or pending investments or reinvestment of Fund assets in portfolio
securities. The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in United States
government securities. Repurchase agreements will be fully collateralized
including interest earned thereon during the entire term of the agreement. If
the institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. In addition if bankruptcy proceedings
are commenced with respect to the seller, realization on the collateral by the
Fund may be delayed or limited and the Fund may incur additional costs. In such
case the Fund will be subject to risks associated with changes in market value
of the collateral securities. The Fund intends to limit repurchase agreements to
institutions believed by LMC to present minimal credit risk. The Fund will not
enter into repurchase agreements maturing in more than seven days if the
aggregate
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of such repurchase agreements and all other illiquid securities when taken
together would exceed 15% of the total assets of the Fund.
Except as otherwise specifically noted, the Fund's investment objective and
its investment restrictions are fundamental and may not be changed without the
approval of a majority of the outstanding voting securities of the Fund. The
Statement of Additional Information contains a complete description of the
Fund's restrictions and additional information on policies relating to the
investment of its assets and its activities.
Portfolio Transactions
The primary consideration in placing security transactions is execution at
the most favorable prices, consistent with best execution. See the Statement of
Additional Information for a further discussion of brokerage allocation. For the
period ending December 31, 1994, the Fund paid $523,335 in brokerage
commissions.
Risk Considerations
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally are
denominated and pay interest or dividends in foreign currencies, the value of
the assets of the Fund as measured in United States dollars will be affected
favorably or unfavorably by changes in the relationship of the United States
dollar and other currency rates. The Fund may incur costs in connection with the
conversion or transfer of foreign currencies. In addition, there may be less
publicly available information about foreign companies than United States
companies. Foreign companies may not be subject to accounting, auditing, and
financial reporting standards, practices and requirements comparable to those
applicable to United States companies. Foreign securities markets, while growing
in volume, have for the most part substantially less volume than United States
securities markets and securities of foreign companies are generally less liquid
and at times their prices may be more volatile than securities of comparable
United States companies. Foreign stock exchanges, brokers and listed companies
are generally subject to less government supervision and regulation than in the
United States. The customary settlement time for foreign securities may be
longer than the 5 day customary settlement time for United States securities.
Although the Fund will try to invest in companies and governments of countries
having stable political environments, there is the possibility of expropriation
or confiscatory taxation, seizure or nationalization or foreign government
restrictions or other adverse political, social or diplomatic developments that
could affect investment in these nations.
Income from foreign securities held by the Fund may, and in some cases will
be reduced by a withholding tax at the source or other foreign taxes. A
shareholder of the Fund will, subject to certain restrictions, be entitled to
claim a credit or deduction for United States Federal income tax purposes for
the shareholder's pro rata share of such foreign taxes paid by the Fund. (See
Tax Matters.)
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in certain types of securities or engaging in
certain transactions. The most significant of these restrictions provide that:
(1) The Fund will not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) the Fund may pledge its portfolio securities or receivables or
transfer or assign or otherwise encumber them in an amount not exceeding
one-third of the value of its total assets; and (e) for purposes of
leveraging, the Fund may borrow money from banks (including its
custodian bank), only if, immediately after such borrowing, the value of
the Fund's assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all outstanding
borrowings. If at any time, the value of the Fund's assets fails to meet
the 300% asset coverage requirement relative only to leveraging, the
Fund will, within three days (not including Sundays and holidays),
reduce its borrowings to the extent necessary to meet the 300% test.
(2) The Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase
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transactions and (c) lend portfolio securities provided that the value
of such loaned securities does not exceed one-third of the Fund's total
assets.
(3) The Fund will not concentrate its investments in any one industry,
except that the Fund may invest up to 25% of its total assets in
securities issued by companies principally engaged in any one industry.
The Fund considers securities of individual foreign governments,
companies and supranational organizations to be industries. This
limitation, however, will not apply to securities issued or guaranteed
by the U.S. Government, its agencies and instrumentalities.
(4) The Fund will not purchase securities of an issuer, if (a) more than 5%
of the Fund's total assets taken at market value would at the time be
invested in the securities of such issuer, except that such restriction
shall not apply to securities issued or guaranteed by the United States
government or its agencies or instrumentalities or, with respect to 25%
of the Fund's total assets, to securities issued or guaranteed by the
government of any country other than the United States which is a member
of the Organization for Economic Cooperation and Development ("OECD").
The member countries of OECD are at present: Australia, Austria,
Belgium, Canada, Denmark, Germany, Finland, France, Greece, Iceland,
Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the
United States; or (b) such purchases would at the time result in more
than 10% of the outstanding voting securities of such issuer being held
by the Fund.
The foregoing investment restrictions (as well as certain others set forth
in the Statement of Additional Information) are matters of fundamental policy
which may not be changed without the affirmative vote of the majority of the
shareholders of the Fund.
The investment policies described below are non-fundamental, therefore,
changes to such policies may be made in the future by the Board of Directors
without the approval of the shareholders of the Fund:
(1) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
(2) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days. Securities
that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
MANAGEMENT OF THE FUND
The Fund has a Board of Directors which establishes the Fund's policies and
supervises and reviews the operations and management of the Fund. Lexington
Management Corporation ("LMC"), P.O. Box 1515 Park 80 West Plaza Two, Saddle
Brook, New Jersey 07663, is the investment adviser of shares of the Fund. For
its investment management services to the Fund, LMC will receive a monthly fee
at the annual rate of 1% of the Fund's average daily net assets which is higher
than that paid by most other investment companies. However, it is not
necessarily greater than the management fee of other investment companies with
objectives and policies similar to this Fund. For the period ending December 31,
1994, LMC earned $798,119 in management fees from the Fund. Lexington Funds
Distributor, Inc. ("LFD"), a registered broker-dealer, is the Fund's
distributor. 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
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facilities for such services. The Fund shall reimburse LMC for its actual cost
in providing such services, facilies and expenses. The operating expenses of the
Fund can be expected to be higher than that of an investment company investing
exclusively in United States securities.
LMC was established in 1938 and currently manages over $3.8 billion in
assets. LMC serves as investment adviser to other investment companies and
private and institutional investment accounts. Included among these clients are
persons and organizations that own significant amounts of capital stock of LMC's
parent, Piedmont Management Company Inc. The clients pay fees that LMC considers
comparable to the fees paid by similarly served clients.
LMC and LFD are wholly-owned subsidiaries of Piedmont Management Company
Inc., a Delaware corporation with offices at 80 Maiden Lane, New York, New York
10038. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities are the beneficial owners of a majority of the shares of
Piedmont Management Company Inc. common stock. See "Investment Adviser and
Distributor" in the Statement of Additional Information.
PORTFOLIO MANAGERS
The Fund is managed by Richard T. Saler and Alan H. Wapnick. Richard T.
Saler is Senior Vice President, Director of International Investment Strategy at
LMC. Mr. Saler is responsible for international investment analysis and
portfolio management at LMC. He has nine years of investment experience. Mr.
Saler has focused on international markets since first joining LMC in 1986.
Prior to that time he was a specialist's assistant on the American Stock
Exchange. Most recently he was a strategist with Nomura Securities and rejoined
LMC 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.
Mr. Wapnick is a Senior Vice President of LMC and Director of Domestic
Investment Equity Strategy at LMC. Mr. Wapnick is responsible for domestic
investent analysis and portfolio management. He has 25 years investment
experience. Prior to joining LMC in 1986, Mr. Wapnick was an equity analyst with
Merrill Lynch, J. & W. Seligman, Dean Witter and most recently Union Carbide
Corporation. Mr. Wapnick is a graduate of Dartmouth College and received a
Master's Degree in Business Administration from Columbia University.
HOW TO PURCHASE SHARES
Initial Investment-Minimum $1,000. By Mail: Send a check payable to Lexington
Global Fund, Inc., along with a completed New Account Application to State
Street Bank and Trust Company (the "Agent").
Subsequent Investments-Minimum $50. By Mail: Send a check payable to Lexington
Global Fund, Inc., to the Agent, accompanied by either the detachable form which
is part of the confirmation of a prior transaction or a letter indicating the
dollar amount of the investment and identifying the Fund, account number and
registration.
Broker-Dealers: You may invest in shares of the Fund through broker-dealers who
are members of the National Association of Securities Dealers, Inc., and other
financial institutions and who have selling agreements with LFD. Broker-dealers
and financial institutions who process such purchase and sale transactions for
their customers may charge a transaction fee for these services. The fee may be
avoided by purchasing shares directly from the Fund.
The Open Account: By investing in the Fund, a shareholder appoints the Agent, as
his agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares. Stock certificates will be issued for full shares
only when requested in writing. Unless payment for shares is made by certified
or cashier's check or federal funds wire, certificates will not be issued for 30
days. In order to facilitate redemptions and transfers, most shareholders elect
not to receive certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund).
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On payroll deduction accounts administered by an employer and on payments
into qualified pension or profit sharing plans and other continuing purchase
programs, there are no minimum purchase requirements.
Determination of Net Asset Value: The net asset value of the shares of the Fund
is computed as of the close of trading on each day the New York Stock Exchange
is open, by dividing the value of the Fund's securities plus any cash and other
assets (including accrued dividends and interest) less all liabilities
(including accrued expenses) by the number of shares outstanding, the result
being adjusted to the nearest whole cent. A security listed or traded on a
recognized stock exchange is valued at its last sale price prior to the time
when assets are valued on the principal exchange on which the security is
traded. If no sale is reported at that time, the mean between the current bid
and asked price will be used. All other securities for which the
over-the-counter market quotations are readily available are valued at the mean
between the last current bid and asked price. Short-term securities having
maturity of 60 days or less are valued at cost when it is determined by the
Fund's Board of Directors that amortized cost reflects the fair value of such
securities. Securities for which market quotations are not readily available and
other assets are valued at fair value as determined by the management and
approved in good faith by the Board of Directors.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities used in computing the net asset value of the shares
of the Fund are determined as of the earlier of such market close or the closing
time of the New York Stock Exchange (the "Exchange"). Foreign currency exchange
rates are also generally determined prior to the close of the Exchange.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the Exchange, which will not be reflected in the computation of net asset value.
If during such periods, events occur which materially affect the value of such
securities, the securities will be valued at their fair market value as
determined by LMC and approved in good faith by the Directors.
For purposes of determining the net asset value per share of the Fund all
assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean between the bid and offer
prices of such currencies against United States dollars quoted by any major
bank.
Terms of Offering: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss the Fund reserves the right to
redeem shares owned by the purchaser, seek reimbursement directly from the
purchaser and may prohibit or restrict the purchaser in placing future orders in
any of the Lexington Funds.
The Fund reserves the right to reject any order, and to waive or lower the
investment minimums with respect to any person or class of persons, including
shareholders of the Fund's special investment programs. An order to purchase
shares is not binding on the Fund until it has been confirmed by the Agent.
Shareholder Servicing Agents: The Fund may enter into Shareholder Servicing
Agreements with one or more Shareholder Servicing Agents. The Shareholder
Servicing Agent may, as agent for its customers, among other things: answer
customer inquiries regarding account status, account history and purchase and
redemption procedures; assist shareholders in designating and changing dividend
options, account designations and addresses; provide necessary personnel and
facilities to establish and maintain shareholder accounts and records; assist in
processing purchase and redemption transactions; arrange for the wiring of
funds; transmit and receive funds in connection with customer orders to purchase
or redeem shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish monthly and year-end statements and confirmations of purchases and
redemptions; transmit, on behalf of the Fund, proxy statements, annual reports,
updated prospectuses and other communications to shareholders of the Fund;
receive, tabulate and transmit to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; and provide such other related
services as the Fund or a shareholder may request. For these services, each
Shareholder Servicing Agent receives fees, which may be paid periodically,
provided that such fees will not exceed, on an annual basis, 0.25% of the
average daily net assets of the Fund represented by shares owned during the
period for which payment is made. LMC, at no cost to the Fund, may pay
additional amounts from its past profits to Shareholder Servicing Agents for
administrative services. Each Shareholder Servicing Agent may, from time to
time, voluntarily waive all or a portion of the fees payable to it.
8
<PAGE>
Account Statements: The Agent will send shareholders either purchasing or
redeeming shares of the Fund, a confirmation of the transaction indicating the
date the purchase or redemption was accepted, the number of shares purchased or
redeemed, the purchase or redemption price per share, and the amount purchased
or redemption proceeds. A statement is also sent to shareholders whenever a
distribution is paid, or when a change in the registration, address, or dividend
option occurs. Shareholders are urged to retain their account statements for tax
purposes.
HOW TO REDEEM SHARES
By Mail: Send to the Agent: (1) a written request for redemption, signed by each
registered owner exactly as the shares are registered including the name of the
Fund, account number and exact registration; (2) stock certificates for any
shares to be redeemed which are held by the shareholder; (3) signature
guarantees, when required, and (4) the additional documents required for
redemptions by corporations, executors, administrators, trustees, and guardians.
Redemptions by mail will not become effective until all documents in proper form
have been received by the Agent. If a shareholder has any questions regarding
the requirements for redeeming shares, he should call the Fund at the toll free
number on the back cover prior to submitting a redemption request. If a
redemption request is sent to the Fund in New Jersey, it will be forwarded to
the Agent and the effective date of redemption will be the date received by the
Agent.
Checks for redemption proceeds will normally be mailed within seven days,
but will not be mailed until all checks in payment for the shares to be redeemed
have been cleared.
Signature Guarantee: Signature guarantees are required in connection with (a)
redemptions by mail involving $10,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) changes in instructions as to where the
proceeds of redemptions are to be sent, and (d) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. A notary
public is not an acceptable guarantor.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") specifying the total number
of shares to be redeemed, or (c) on all stock certificates tendered for
redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power.
Redemption Price: The redemption price will be the net asset value per share of
the Fund next determined after receipt by the Agent of a redemption request in
proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information).
The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) for reasons other than market fluctuations and mail
the proceeds to the shareholder. Shareholders will be notified before these
redemptions are to be made and will have 30 days to make an additional
investment to bring their accounts up to the required minimum.
SHAREHOLDER SERVICES
Transfer: Shares of the Fund may be transferred to another owner. A signature
guarantee of the registered owner is required on the letter of instruction or
accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect to withdraw cash in fixed
amounts from their accounts at regular intervals. The minimum investment to
establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required.
9
<PAGE>
Group Sub-Accounting: To minimize recordkeeping by fiduciaries, corporations and
certain other investors, the minimum initial investment may be waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, next determined at the
time of the exchange. In the event shares of one or more of these funds being
exchanged by a single investor have a value in excess of $500,000, the shares of
the Fund will not be purchased until the fifth business day following the
redemption of the shares being exchanged in order to enable the redeeming fund
to utilize normal securities settlement procedures in transferring the proceeds
of the redemption to the Fund. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
The Lexington Funds currently available for exchange are:
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)/Seeks long-term growth of
capital primarily through investment in common stocks of companies domiciled in
foreign countries and the United States.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity securities of
companies domiciled in, or doing business in, emerging countries.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)/Seeks long term growth
of capital through investment in common stocks of companies domiciled in foreign
countries. Shares of the Fund are not presently available for sale in Vermont,
Missouri or Wisconsin.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income. Capital appreciation is a secondary objective.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)/Seeks long-term
capital growth and income through investment in an equal number of shares of the
common stocks of a fixed list of American blue chip corporations.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)/Seeks long-term
capital appreciation through investments in stocks of large, ably managed and
well financed companies. Income is a secondary objective.
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through investment in
gold bullion and equity securities of companies engaged in mining or processing
gold throughout the world. Shares are not presently available for sale in
Wisconsin.
LEXINGTON CONVERTIBLE SECURITIES FUND (NASDAQ Symbol: CNCVX)/Seeks total return
by providing capital appreciation, current income and conservation of capital
through investments in a diversified portfolio of securities convertible into
shares of common stock. Shares of the Fund are not presently available for sale
in Vermont.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal, through
investment primarily in mortgage-backed GNMA Certificates.
LEXINGTON SHORT-INTERMEDIATE GOVERNMENT SECURITIES FUND, INC. (NASDAQ Symbol:
LSGXX)/Seeks current income as is consistent with preservation of capital by
investing in a portfolio of U.S. Government securities.
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity through
investments in interest bearing short term money market instruments.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)/Seeks current income
exempt from Federal income taxes while maintaining liquidity and stability of
principal through investment in short term municipal securities.
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund
10
<PAGE>
with a different investment objective when the shareholder believes that a shift
between funds is an appropriate investment decision. Shareholders contemplating
an exchange should obtain and review the prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and a
new account has to be established, the dollar amount exchanged must meet the
minimum initial investment of the fund being purchased. If, however, an account
already exists in the fund being bought, there is a $500 minimum exchange
required. Shareholders must provide the account number of the existing account.
Any exchange between mutual funds is, in effect, a redemption of shares in one
fund and a purchase in the other fund. Shareholders should consider the possible
tax effects of an exchange.
TELEPHONE EXCHANGE PROVISIONS-Exchange instructions may be given in writing or
by telephone. Telephone exchanges may only be made if a Telephone Authorization
form has been previously executed and filed with LFD. Telephone exchanges are
permitted only after a minimum of 7 days have elapsed from the date of a
previous exchange. Exchanges may not be made until all checks in payment for the
shares to be exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at the Agent;
shares held in certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for these
services. Any new account established with the same registration will also have
the privilege of exchange by telephone in the Lexington Funds. All accounts
involved in a telephonic exchange must have the same registration and dividend
option as the account from which the shares were transferred and will also have
the privilege of exchange by telephone in the Lexington Funds in which these
services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD, distributor of
the Lexington Group of Mutual Funds, as the true and lawful attorney to
surrender for redemption or exchange any and all non-certificate shares held by
the Agent in account(s) designated, or in any other account with the Lexington
Funds, present or future which has the identical registration, with full power
of substitution in the premises, authorizes and directs LFD to act upon any
instruction from any person by telephone for exchange of shares held in any of
these accounts, to purchase shares of any other Lexington Fund that is
available, provided the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed, and
agrees that neither LFD, the Agent, or the Fund(s) will be liable for any loss,
expense or cost arising out of any requests effected in accordance with this
authorization which would include requests effected by imposters or persons
otherwise unauthorized to act on behalf of the account. LFD, the Agent and the
Fund, will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine and if they do not employ reasonable
procedures they may be liable for any losses due to unauthorized or fraudulent
instructions. The following identification procedures may include, but are not
limited to, the following: account number, registration and address, taxpayer
identification number and other information particular to the account. In
addition, all exchange transactions will take place on recorded telephone lines
and each transaction will be confirmed in writing by the Fund. LFD reserves the
right to cease to act as agent subject to the above appointment upon thirty (30)
days written notice to the address of record. If the shareholder is an entity
other than an individual, such entity may be required to certify that certain
persons have been duly elected and are now legally holding the titles given and
that the said corporation, trust, unincorporated association, etc. is duly
organized and existing and has the power to take action called for by this
continuing authorization.
Exchange Authorization forms, Telephone Authorization forms and prospectuses
of the other funds may be obtained from LFD.
This exchange offer is available only in states where shares of the Fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Salary Reduction
Plans, Section 457 Deferred Compensation Plans and 403(b)(7) Plans. Plan support
services are available through the Shareholder Services Department of LMC. For
further information call 1-800-526-0056. (See "Tax Sheltered Retirement Plans"
in the Statement of Additional Information.)
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<PAGE>
PERFORMANCE CALCULATION
The Fund will calculate performance on a total return basis for various
periods. The total return basis combines changes in principal and dividends for
the periods shown. Principal changes are based on the difference between the
beginning and closing net asset value for the period and assumes reinvestment of
dividends paid by the Fund. Dividends are comprised of net investment income and
net realized capital gains, respectively.
Performance will vary from time to time and past results are not necessarily
representative of future results. A shareholder should remember that performance
is a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses.
Comparative performance information may be used from time to time in
advertising or marketing of the Fund's shares, including data from Lipper
Analytical Services, Inc. or major market indices such as the Dow Jones
Industrial Average Index, Standard & Poor's 500 Composite Stock Price Index and
Morgan Stanley Capital International World Index. Such comparative performance
information will be stated in the same terms in which the comparative data and
indices are stated. Further information about the Fund's performance is
contained in the annual report, which may be obtained without charge.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay dividends annually from investment income if earned
and as declared by its Board of Directors.
The Fund intends to declare or distribute a dividend from its net investment
income and/or net capital gain income in December.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing that he
wants to receive his payments in cash. This request must be received by the
Agent at least seven days before the dividend record date. Upon receipt by the
Agent of such written notice, all further payments will be made in cash until
written notice to the contrary is received. An account of such shares owned by
each shareholder will be maintained by the Agent. Shareholders whose accounts
are maintained by the Agent will have the same rights as other shareholders with
respect to shares so registered (see "How to Purchase Shares-The Open Account").
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
Distributions by the Fund of its net investment income (which includes
certain foreign currency gains and losses) and the excess, if any, of its net
short-term capital gain over its net long-term capital loss are taxable to
shareholders as ordinary income. These distributions are treated as dividends
for federal income tax purposes, but in any year only a portion thereof (which
cannot exceed the aggregate amount of qualifying dividends from domestic
corporations received by the Fund during the year) may qualify for the 70%
dividends-received deduction for corporate shareholders. Because the Fund's
investment income will include dividends from foreign corporations and the Fund
may have interest income and short-term capital gains, substantially less than
100% of the ordinary income dividends paid by the Fund may qualify for the
dividends-received deduction. Distributions by the Fund of the excess, if any,
of its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder held
his shares.
Under certain circumstances, the Fund may elect to "pass-through" to its
shareholders the income or other taxes paid by the Fund to foreign governments
during a year. Each shareholder will be required to include his pro rata portion
of these foreign taxes in his gross income, but will be able to deduct or
(subject to various limitations) claim a foreign tax credit for such amount.
12
<PAGE>
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made or deemed made
during the year, including any amount of foreign taxes "passed-through", will be
sent to shareholders promptly after the end of each year. Shareholders
purchasing shares of the Fund just prior to the ex-dividend date will be taxed
on the entire amount of the dividend received, even though the net asset value
per share on the date of such purchase reflected the amount of such dividend.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as long-term capital loss to the
extent of any capital gain dividends received on such shares. All or a portion
of any loss realized upon a taxable disposition of shares of the Fund may be
disallowed if other shares of the Fund are purchased within 30 days before or
after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends,
capital gain dividends and redemption payments made by the Fund. In order to
avoid this back-up withholding, a shareholder must provide the Fund with a
correct taxpayer identification number (which for most individuals is their
Social Security number) or certify that it is a corporation or otherwise exempt
from or not subject to back-up withholding. The new account application included
with this Prospectus provides for shareholder compliance with these
certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Fund is an open-end, diversified management investment company organized
as a corporation under the laws of the State of Maryland on March 24, 1987, and
has authorized capital of 1,000,000,000 shares of a single class of common
stock, par value $.001. Each share of common stock has one vote and shares
equally in dividends and distributions when and if declared by the Fund and in
the Fund's net assets upon liquidation. All shares, when issued, are fully paid
and non-assessable. There are no preemptive, conversion or exchange rights. Fund
shares do not have cumulative voting rights and, as such, holders of at least
50% of the shares voting for Directors can elect all Directors and the remaining
shareholders would not be able to elect any Directors.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate not
less than 25% of the outstanding shares, such request specifying the purposes
for which such meeting is to be called. In addition, the Directors will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director when requested to do so in writing by the recordholders
of not less than 10% of the Fund's outstanding shares. The Fund will assist
shareholders in any such communication between shareholders and Directors.
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 custodian for the Fund's portfolio securities
including those to be held by foreign banks and foreign securities depositories
that qualify as eligible foreign custodians under the rules adopted by the SEC
and for the Fund's domestic securities and other assets. State Street Bank and
Trust Company, 225 Franklin Street, Boston, Massachusetts 02110, has been
retained to act as the transfer agent and dividend disbursing agent for the
Fund. State Street Bank and Trust Company and Chase Manhattan Bank, N.A. have no
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.
13
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022 will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus. KPMG Peat Marwick LLP, 345 Park
Avenue, New York, New York 10154, has been selected as independent auditors for
the Fund for the fiscal year ending December 31, 1995.
OTHER INFORMATION
This prospectus omits certain information contained in the registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. The Statement of Additional
Information included in such registration statement may be obtained without
charge from the Fund.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus, and information or
representations not herein contained, if given or made, must not be relied upon
as having been authorized by the Fund. This Prospectus does not constitute an
offer or solicitation in any jurisdiction in which such offering may not
lawfully be made.
14
<PAGE>
-----------------
L E X I N G T O N
-----------------
-----------------
LEXINGTON
GLOBAL
FUND, INC.
-----------------
Worlwide
diversification
Free telephone
exchange privilege
No sales charge
No redemption fee
-----------------
The Lexington Group
of
No-Load
Investment Companies
P R O S P E C T U S
MAY 1, 1995
-----------
Investment Adviser
- -----------------------------------------------------------
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 should be
sent to:
Transfer Agent
- -----------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Table of Contents Page
- -----------------------------------------------------------
Fee Table .............................................. 2
Financial Highlights ................................... 2
Investment Objective and Policies ...................... 3
Investment Restrictions ................................ 5
Management of the Fund ................................. 6
Portfolio Managers ..................................... 7
How to Purchase Shares ................................. 7
How to Redeem Shares ................................... 9
Shareholder Services ................................... 9
Exchange Privilege ..................................... 10
Tax-Sheltered Retirement Plans ......................... 11
Performance Calculation ................................ 12
Dividend, Distribution and Reinvestment Policy ......... 12
Tax Matters ............................................ 12
Organization and Description of Common Stock ........... 13
Custodian, Transfer Agent and Dividend Disbursing Agent 13
Counsel and Independent Auditors ....................... 14
Other Information ...................................... 14
<PAGE>
LEXINGTON GLOBAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This Statement of Additional Information which is not a prospectus,
should be read in conjunction with the current prospectus of Lexington
Global Fund, Inc. (the "Fund"), dated May 1, 1995, and 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 Service Information: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Lexington Management Corporation is the Fund's investment adviser.
Lexington Funds Distributor, Inc. is the Fund's distributor.
TABLE OF CONTENTS
Investment Objective and Policies . . . . . . . . . . . . . . . . . 2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . 3
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . 6
Investment Adviser, Distributor and Administrator . . . . . . . . . 8
Portfolio Transactions and Brokerage Commissions . . . . . . . . . . 9
Determination of Net Asset Value . . . . . . . . . . . . . . . . . .10
Telephone Exchange Provisions. . . . . . . . . . . . . . . . . . . .10
Tax Sheltered Retirement Plans . . . . . . . . . . . . . . . . . . .11
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Performance Calculation. . . . . . . . . . . . . . . . . . . . . . .19
Shareholder Reports. . . . . . . . . . . . . . . . . . . . . . . . .20
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . .20
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .21
-1-
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
For a full description of the Fund's investment objective and
policies, see the Prospectus under "Investment Objective and Policies".
CERTAIN INVESTMENT METHODS
Settlement Transactions - When the Fund enters into contracts for purchase
or sale of a portfolio security denominated in a foreign currency, it may
be required to settle a purchase transaction in the relevant foreign
currency or receive the proceeds of a sale in that currency. In either
event, the Fund will be obligated to acquire or dispose of such foreign
currency as is represented by the transaction by selling or buying an
equivalent amount of United States dollars. Furthermore, the Fund may wish
to "lock in" the United States dollar value of the transaction at or near
the time of a purchase or sale of portfolio securities at the exchange rate
or rates then prevailing between the United States dollar and the currency
in which the foreign security is denominated. Therefore, the Fund may, for
a fixed amount of United States dollars, enter into a forward foreign
exchange contract for the purchase or sale of the amount of foreign
currency involved in the underlying securities transaction. In so doing,
the Fund will attempt to insulate itself against possible losses and gains
resulting from a change in the relationship between the United States
dollar and the foreign currency during the period between the date a
security is purchased or sold and the date on which payment is made or
received. This process is known as "transaction hedging".
To effect the translation of the amount of foreign currencies
involved in the purchase and sale of foreign securities and to effect the
"transaction hedging" described above, the Fund may purchase or sell
foreign currencies on a "spot" (i.e. cash) basis or on a forward basis
whereby the Fund purchases or sells a specific amount of foreign currency,
at a price set at the time of the contract, for receipt of delivery at a
specified date which may be any fixed number of days in the future.
Such spot and forward foreign exchange transactions may also be
utilized to reduce the risk inherent in fluctuations in the exchange rate
between the United States dollar and the relevant foreign dollar and the
relevant foreign currency when foreign securities are purchased or sold for
settlement beyond customary settlement time (as described below). Neither
type of foreign currency transaction will eliminate fluctuations in the
prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.
Portfolio Hedging - Some or all of the Fund's portfolio will be denominated
in foreign currencies. As a result, in addition to the risk of change in
the market value of portfolio securities, the value of the portfolio in
United States dollars is subject to fluctuations in the exchange rate
between such foreign currencies and the United States dollar. When, in the
opinion of LMC, it is desirable to limit or reduce exposure in a foreign
currency in order to moderate potential changes in the United States dollar
value of the portfolio, the Fund may enter into a forward foreign currency
exchange contract by which the United States dollar value of the underlying
foreign portfolio securities can be approximately matched by an equivalent
United States dollar liability. This technique is known as "portfolio
hedging" and moderates or reduces the risk of change in the United States
dollar value of the Fund's portfolio only during the period before the
maturity of the forward contract (which will not be in excess of one year).
The Fund will not attempt to hedge all of its foreign portfolio positions
and will enter into such transactions only to the extent, if any, deemed
appropriate by the investment adviser. Hedging against a decline in the
value of currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such securities
decline. The Fund will not enter into forward foreign currency exchange
transactions for speculative purposes. The Fund intends to limit
transactions as described in this paragraph to not more than 70% of the
total Fund assets.
-2-
<PAGE>
Forward Commitments - The Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time
("forward commitments") because new issues of securities are typically
offered to investors, such as the Fund, on that basis. Forward commitments
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. This risk is in addition to the risk
of decline in value of the Fund's other assets. Although the Fund will
enter into such contracts with the intention of acquiring the securities,
the Fund may dispose of a commitment prior to settlement if the investment
adviser deems it appropriate to do so. The Fund may realize short-term
profits or losses upon the sale of forward commitments.
Covered Call Options - Call options may also be used as a means of
participating in an anticipated price increase of a security on a more
limited basis than would be possible if the security itself were purchased.
The Fund may write only covered call options. Since it can be expected that
a call option will be exercised if the market value of the underlying
security increases to a level greater than the exercise price, this
strategy will generally be used when the investment adviser believes that
the call premium received by the Fund plus anticipated appreciation in the
price of the underlying security, up to the exercise price of the call,
will be greater than the appreciation in the price of the security. The
Fund intends to limit transactions as described in this paragraph to less
than 5% of total Fund assets. The Fund will not purchase put and call
options written by others. Also, the Fund will not write any put options.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "investment
policy" and the following investment restrictions are matters or
fundamental policy which may not be changed without the affirmative vote
of the lesser of (a) 67% or more of the shares of the Fund present at a
shareholders' meeting at which more than 50% of the outstanding shares are
present or represented by proxy or (b) more than 50% of the outstanding
shares. Under these investment restrictions:
(1) The Fund will not issue any senior security (as defined in the
1940 Act), except that (a) the Fund may enter into commitments
to purchase securities in accordance with the Fund's investment
program, including reverse repurchase agreements, foreign
exchange contracts, delayed delivery and when-issued
securities, which may be considered the issuance of senior
securities; (b) the Fund may engage in transactions that may
result in the issuance of a senior security to the extent
permitted under applicable regulations, interpretation of the
1940 Act or an exemptive order; (c) the Fund may engage in
short sales of securities to the extent permitted in its
investment program and other restrictions; (d) the purchase or
sale of futures contracts and related options shall not be
considered to involve the issuance of senior securities; and
(e) subject to fundamental restrictions, the Fund may borrow
money as authorized by the 1940 Act.
(2) The Fund will not borrow money, except that (a) the Fund may
enter into certain futures contracts and options related
thereto; (b) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program,
including delayed delivery and when-issued securities and
reverse repurchase agreements; (c) for temporary emergency
purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan
is made; (d) the Fund may pledge its portfolio securities or
receivables or transfer or assign or otherwise encumber them
in an amount not exceeding one-third of the value of its total
assets; and (e) for purposes of leveraging, the Fund may borrow
money from banks (including its custodian bank), only if,
immediately after such borrowing, the value of the Fund's
assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all
outstanding borrowings. If at any time, the value of the
Fund's assets fails to meet the 300% asset coverage requirement
relative only to leveraging, the Fund will, within three days
(not including Sundays and holidays), reduce its borrowings to
the extent necessary to meet the 300% test. The Fund will only
invest in reverse repurchase agreements up to 5% of the Fund s
total assets.
-3-
<PAGE>
(3) The Fund will not act as an underwriter of securities except
to the extent that, in connection with the disposition of
portfolio securities by the Fund, the Fund may be deemed to be
an underwriter under the provisions of the 1933 Act.
(4) The Fund will not purchase real estate, interests in real
estate or real estate limited partnership interests except
that, to the extent appropriate under its investment program,
the Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate
investment trusts, which deal in real estate or interests
therein.
(5) The Fund will not make loans, except that, to the extent
appropriate under its investment program, the Fund may (a)
purchase bonds, debentures or other debt securities, including
short-term obligations, (b) enter into repurchase transactions
and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Fund's
total assets.
(6) The Fund will not invest in commodity contracts, except that
the Fund may, to the extent appropriate under its investment
program, purchase securities of companies engaged in such
activities, may enter into transactions in financial and index
futures contracts and related options, may engage in
transactions on a when-issued or forward commitment basis, and
may enter into forward currency contracts.
(7) The Fund will not concentrate its investments in any one
industry, except that the Fund may invest up to 25% of its
total assets in securities issued by companies principally
engaged in any one industry. The Fund considers securities of
individual foreign governments, companies and supranational
organizations to be industries. This limitation, however, will
not apply to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
(8) The Fund will not purchase securities of an issuer, if (a)
more than 5% of the Fund's total assets taken at market value
would at the time be invested in the securities of such issuer,
except that such restriction shall not apply to securities
issued or guaranteed by the United States government or its
agencies or instrumentalities or, with respect to 25% of the
Fund's total assets, to securities issued or guaranteed by the
government of any country other than the United States which
is a member of the Organization for Economic Cooperation and
Development ("OECD"). The member countries of OECD are at
present: Australia, Austria, Belgium, Canada, Denmark,
Germany, Finland, France, Greece, Iceland, Ireland, Italy,
Japan, Luxembourg, the Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey, the United
Kingdom and the United States; or (b) such purchases would at
the time result in more than 10% of the outstanding voting
securities of such issuer being held by the Fund.
In addition to the above fundamental restrictions, the Fund has undertaken
the following non fundamental restrictions, which may be changed in the
future by the Board of Directors, without a vote of the shareholders of the
Fund:
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<PAGE>
(1) The Fund will not participate on a joint or joint-and-several
basis in any securities trading account. The "bunching" of
orders for the sale or purchase of marketable portfolio
securities with other accounts under the management of the
investment adviser to save commissions or to average prices
among them is not deemed to result in a securities trading
account.
(2) The Fund may purchase and sell futures contracts and related
options under the following conditions: (a) the then-current
aggregate futures market prices of financial instruments
required to be delivered and purchased under open futures
contracts shall not exceed 30% of the Fund's total assets, at
market value; and (b) no more than 5% of the assets, at market
value at the time of entering into a contract, shall be
committed to margin deposits in relation to futures contracts.
(3) The Fund will not make short sales of securities, other than
short sales "against the box," or purchase securities on margin
except for short-term credits necessary for clearance of
portfolio transactions, provided that this restriction will not
be applied to limit the use of options, futures contracts and
related options, in the manner otherwise permitted by the
investment restrictions, policies and investment programs of
the Fund.
(4) The Fund will not purchase securities of an issuer if to the
Fund's knowledge, one or more of the Directors or officers of
the Fund or LMC individually owns beneficially more than 0.5%
and together own beneficially more than 5% of the securities
of such issuer nor will the Fund hold the securities of such
issuer.
(5) The Fund will not purchase the securities of any other
investment company, except as permitted under the 1940 Act.
(6) The Fund will not, except for investments which, in the
aggregate, do not exceed 5% of the Fund's total assets taken
at market value, purchase securities unless the issuer thereof
or any company on whose credit the purchase was based has a
record of at least three years continuous operations prior to
the purchase.
(7) The Fund will not invest for the purpose of exercising control
over or management of any company.
(8) The Fund will not purchase warrants except in units with other
securities in original issuance thereof or attached to other
securities, if at the time of the purchase, the Fund's
investment in warrants, valued at the lower of cost or market,
would exceed 5% of the Fund's total assets. Warrants which are
not listed on a United States securities exchange shall not
exceed 2% of the Fund's net assets. For these purposes,
warrants attached to units or other securities shall be deemed
to be without value.
(9) The Fund will not invest more than 15% of its total assets in
illiquid securities. Illiquid securities are securities that
are not readily marketable or cannot be disposed of promptly
within seven days and in the usual course of business without
taking a materially reduced price. Such securities include,
but are not limited to, time deposits and repurchase agreements
with maturities longer than seven days. Securities that may
be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall
not be deemed illiquid solely by reason of being unregistered.
The Investment Adviser shall determine whether a particular
security is deemed to be liquid based on the trading markets
for the specific security and other factors.
-5-
<PAGE>
(10) The Fund will not purchase interests in oil, gas, mineral
leases or other exploration programs; however, this policy will
not prohibit the acquisition of securities of companies engaged
in the production or transmission of oil, gas or other
materials.
The percentage restrictions referred to above are to be adhered to at the
time of investment and are not applicable to a later increase or decrease
in percentage beyond the specified limit resulting from change in values
or net assets.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
*+ROBERT M. DEMICHELE, Director. P.O. Box 1515, Saddle Brook, N.J. 07663.
Chairman and Chief Executive Officer, Lexington Management
Corporation; Chairman and Chief Executive Officer, Lexington Funds
Distributor, Inc.; President and Director, Piedmont Management
Company, Inc.; Director, Reinsurance Corporation of New York;
Director, Unione Italiana Reinsurance; Vice Chariman of the Board of
Trustees, Union College; Director, Continental National Corporation;
Director, The Navigator's Group, Inc.; Chairman, Lexington Capital
Management, Inc.; Chairman, LCM Financial Services, Inc.; Director,
Vanguard Cellular Systems, Inc.; Chairman of the Board, Market System
Research, Inc. and Market Systems Research Advisors, Inc. (registered
investment advisers). Trustee, Smith Richardson Foundation.
+BEVERLEY C. DUER, Director, 340 East 72nd Street, New York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research
Department, CPC International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May, 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation; prior to March 1987, Vice
President - Institutional Equity Sales, L.F. Rothschild, Unterberg,
Towbin.
*+LAWRENCE KANTOR, Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, General Manager and
Director, Lexington Management Corporation; Executive Vice President
and Director, Lexington Funds Distributor, Inc.
+DONALD B. MILLER, Director. 10725 Quail Covey Road, Boynton Beach, FL
33436. Chairman, Horizon Media, Inc.; Trustee Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President,
Director and C.E.O., Media General Broadcast Services (advertising
firm).
+FRANCIS OLMSTED, Director. 50 Van Hooten Court, San Anselmo, CA 94960.
Private Investor; formerly, Manager - Commercial Development (West
Coast) Essex Chemical Corporation, Clifton, New Jersey (chemical
manufacturers).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Massachusetts.
+MARGARET RUSSELL. Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor; formerly, Community Affairs Director, Union
Camp Corporation.
+PHILIP C. SMITH, Director. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor; Director, Southwest Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc., Investors Cash
Reserve and Plimony Fund, Inc.(registered investment companies).
+FRANCIS A. SUNDERLAND, Director. 309 Quito Place, Castle Pines, Castle
Rock, Colorado 80104. Private Investor.
*+RICHARD T. SALER, Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director of
International Equity Investment Strategy, Lexington Management
Corporation. Prior to July 1992, Securities Analyst, Nomura
Securities, Inc. Prior to November 1991, Vice President, Lexington
Management Corporation.
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<PAGE>
*+LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds
Distributor, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Director and Chief Financial
Officer, Lexington Management Corporation; Chief Financial Officer,
Vice President and Director, Lexington Funds Distributor, Inc.; Chief
Financial Officer, Market Systems Research Advisors, Inc.
*+RICHARD LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation;
Vice President, Lexington Funds Distributor, Inc.
*+JANICE CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November, 1993, Supervisor Investment Accounting,
Alliance Capital Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to September 1990, Fund Accounting Manager, Lexington
Group of Investment Companies.
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to May 1994, Supervising Senior Accountant, NY Life
Securities. Prior to December 1990, Senior Accountant, Dreyfus
Corporation.
*+PETER CORNIOTES, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Secretary, Lexington Management Corporation.
Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator,
Lexington Group of Investment Companies.
* "Interested person" and/or "Affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
+ Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery, Luehs,
Miller, Olmsted, Petruski, Preston, Saler, Smith, Sunderland and Wapnick
and Mmes. Carnicelli, Carr, Curcio, Evans, Gilfillan, Mosca, and Russell
hold similar officers with some or all of the other investment companies
advised and/or distributed by LMC and LFD.
Directors 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 ending December 31, 1994, an aggregate of $11,522 in fees and
expenses was paid to seven Directors not employed by the Fund's affiliates.
The Board of Directors held five meetings in the past fiscal year. The
Board does not have any audit, nominating or compensation committees.
-7-
<PAGE>
Aggregate Total Compensation Number of
Name of Director Compensation From From Fund Directorships in
Fund and Fund Complex Fund Complex
- --------------- ----------------- ------------------ ----------------
Robert M. DeMichele 0 0 15
Beverley C. Duer $1350 $20,250 15
Barbara R. Evans 0 0 14
Lawrence Kantor 0 0 15
Donald B. Miller $1350 $20,250 14
Francis Olmsted $1350 $18,900 13
John G. Preston $1350 $20,250 14
Margaret Russell $1350 $18,900 13
Philip C. Smith $1350 $20,250 14
Francis A. Sunderland $1200 $16,800 13
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle
Brook, New Jersey 07663 is the investment adviser to the Fund pursuant to
an Investment Management Agreement dated February 24, 1987, (the "Advisory
Agreement"). Lexington Funds Distributor, Inc. ("LFD") is the distributor
of Fund shares pursuant to a Distribution Agreement dated August 21, 1990
(the "Distribution Agreement"). Both of these agreements were approved by
the Fund's Board of Directors (including a majority of the Directors who
were not parties to either the Advisory Agreement or the Distribution
Agreement or "interested persons" of any such party) on December 5, 1994.
LMC makes recommendations to the Fund with respect to its investments and
investment policies.
LMC's fee will be reduced for any fiscal year by any amount necessary
to prevent Fund expenses from exceeding the most restrictive expense
limitations 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. 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.
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.
-8-
<PAGE>
The Advisory Agreement, the Distribution Agreement and the
Administrtive Services Agreement are subject to annual approval by the
Fund's Board of Directors and by the affirmative vote, cast in person at
a meeting called for such purpose, of a majority of the Directors who are
not parties either to the Advisory Agreement or the Distribution Agreement,
as the case may be, or "interested persons" of any such party. Either the
Fund or LMC may terminate the Advisory Agreement and the Fund or LFD may
terminate 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. LMC is paid
an investment advisory fee at the annual rate of 1.00% of the Fund's
average daily net assets. For the year ended December 31, 1994, LMC earned
$798,119 in management fees from the Fund; for the year ended December 31,
1993, LMC earned $746,613 in management fees from the Fund and for the year
ended December 31, 1992, LMC earned $521,335 in management fees from the
Fund.
LMC shall not be liable to the Fund or its shareholders for any act
or omission by LMC, its officers, directors or employees or any loss
sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty.
LMC and LFD are wholly owned subsidiaries of Piedmont Management
Company Inc., a publicly traded corporation. Descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities have a
majority voting control of outstanding shares of Piedmont Management
Company Inc.
Of the directors, officers or employees ("affiliated persons") of the
Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs,
Petruski, Radsch, Saler and Wapnick and Mmes. Carnicelli, Carr, Curcio,
Gilfillan and Mosca (see "Management of the Fund"), may also be deemed
affiliates of LMC and LFD by virtue of being officers, directors or
employees thereof. As of February 23, 1995, all officers and directors of
the Fund as a group owned of record and beneficially less than 1% of the
outstanding shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
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 Directors may
determine, LMC 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 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 higher commission than the lowest available
under certain circumstances, provided that the person so exercising
investment discretion makes a good faith determination that the person so
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."
-9-
<PAGE>
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 executions 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 and its
affiliates, in serving other clients as well as the Fund. On the other
hand, any research services obtained by LMC or its affiliates from the
placement of portfolio brokerage of other clients might be useful and of
value to LMC in carrying out its obligations to the Fund.
The Fund anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States
will normally be conducted on the principal stock exchanges of those
countries. Fixed commissions of foreign stock exchange transactions are
generally higher than the negotiated commission rates available in the
United States. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the United
States. For the year ended December 31, 1994, the Fund paid $523,335 in
brokerage commissions; for the year ended December 31, 1993, the Fund paid
$534,774 in brokerage commissions and for the year ended December 31, 1992,
the Fund paid $277,503 in brokerage commissions. For the year ended
December 31, 1994, the Fund s portfolio turnover rate was 83.40%; for the
year ended December 31, 1992, the Fund's portfolio turnover rate was
84.61%; for the year ended December 31, 1992, the Fund's portfolio turnover
rate was 81.38%.
DETERMINATION OF NET ASSET VALUE
The Fund calculates net asset value as of the close of normal trading
on the NYSE (currently 4:00 p.m. Eastern time, unless weather, equipment
failure or other factors contribute to an earlier closing time) each
business day. It is expected that the New York Stock Exchange will be
closed on Saturdays and Sundays and on New Year's day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. See the Prospectus for the further discussion of net
asset value.
TELEPHONE EXCHANGE PROVISIONS
Exchange instructions may be given in writing or by telephone.
Telephone exchanges may only be made if a Telephone Authorization form has
been previously executed and filed with LFD. Telephone exchanges are
permitted only after a minimum of seven (7) days have elapsed from the date
of a previous exchange. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at State
Street Bank and Trust Company (the "Agent"); shares held in certificate
form by the shareholder cannot be included. However, outstanding
certificates can be returned to the Agent and qualify for these services.
Any new account established with the same registration will also have the
privilege of exchange by telephone in the Lexington Funds. All accounts
involved in a telephonic exchange must have the same registration and
dividend option as the account from which the shares were transferred and
will also have the privilege of exchange by telephone in the Lexington
Funds in which these services are available.
-10-
<PAGE>
By checking the box on the New Account Application authorizing
telephone exchange services, a shareholder constitutes and appoints LFD,
distributor of the Lexington Group of Mutual Funds, as the true and lawful
attorney to surrender for redemption or exchange any and all non-
certificate shares held by the Agent in account(s) designated, or in any
other account with the Lexington Funds, present or future which has the
identical registration, with full power of substitution in the premises,
authorizes and directs LFD to act upon any instruction from any person by
telephone for exchange of shares held in any of these accounts, to purchase
shares of any other Lexington Fund that is available, provided the
registration and mailing address of the shares to be purchased are
identical to the registration of the shares being redeemed, and agrees that
neither LFD, the Agent, or the Fund(s) will be liable for any loss, expense
or cost arising out of any requests effected in accordance with this
authorization which would include requests effected by impostors or persons
otherwise unauthorized to act on behalf of the account. LFD reserves the
right to cease to act as agent subject to the above appointment upon thirty
(30) days written notice to the address of record. If the shareholder is
an entity other than an individual, such entity may be required to certify
that certain persons have been duly elected and are now legally holding the
titles given and that the said corporation, trust, unincorporated
association, etc. is duly organized and existing and has the power to take
action called for by this continuing authorization.
Exchange Authorizations forms, Telephone Authorization forms and
prospectuses of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions
by telephone to exchange shares of the Fund or shares of one of the other
Lexington Funds at net asset value as described above. Under this
procedure, the dealer must agree to indemnify LFD and the funds from any
loss or liability that any of them might incur as a result of the
acceptance of such telephone exchange orders. A properly signed Exchange
Authorization must be received by LFD within 5 days of the exchange
request. LFD reserves the right to reject any telephone exchange request.
In each such exchange, the registration of the shares of the Fund being
acquired must be identical to the registration of the shares of the Fund
being exchanged. Any telephone exchange orders so rejected may be
processed by mail.
This exchange offer is available only in states where shares of the
Fund being acquired may legally be sold and may be modified or terminated
at any time by the Fund. Broker-dealers who process exchange orders on
behalf of their customers may charge a fee for their services. Such fee
may be avoided by making requests for exchange directly to the Fund or
Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit
Sharing plans including a 401(k) Salary Reduction Plan and a 403(b)(7)
Plan. Plan services are available by contacting the Shareholder Services
Department of the Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"): Individuals may make tax
deductible contributions to their own Individual Retirement Accounts
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 of less ($25,000 or less for single
taxpayers) may continue to make a $2,000 ($2,500 for spousal IRAs) annual
deductible IRA contribution. For adjusted gross incomes above $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 nondeductible contribution to their IRA to the extent a
deductible contribution is not allowed. Federal income tax on accumulations
earned on nondeductible 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.
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<PAGE>
The minimum initial investment to establish a tax-sheltered plan is
$250. 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 administrative personnel, and certain services which are
furnished by LMC, the cost of the plans generally is borne by the Fund;
however, each IRA Plan account is subject to an annual maintenance fee to
$12.00 charged by the Agent.
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.
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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 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.
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<PAGE>
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.
The Fund may purchase securities of certain foreign investment funds
or trusts which constitute passive foreign investment companies ("PFICs")
for federal income tax purposes. If the Fund invests in a PFIC, it may
elect to treat the PFIC as a qualifying electing fund (a "QEF") in which
event the Fund will each year have ordinary income equal to its pro rata
share of the PFIC's ordinary earnings for the year and long-term capital
gain equal to its pro rata share of the PFIC's net capital gain for the
year, regardless of whether the Fund receives distributions of any such
ordinary earning or capital gain from the PFIC. If the Fund does not
(because it is unable to, chooses not to or otherwise) elect to treat the
PFIC as a QEF, then in general (1) any gain recognized by the Fund upon
sale or other disposition of its interest in the PFIC or any excess
distribution received by the Fund from the PFIC will be allocated ratably
over the Fund's holding period of its interest in the PFIC, (2) the portion
of such gain or excess distribution so allocated to the year in which the
gain is recognized or the excess distribution is received shall be included
in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable
as an ordinary income dividend, but such portion will not be subject to tax
at the Fund level), (3) the Fund shall be liable for tax on the portions
of such gain or excess distribution so allocated to prior years in an
amount equal to, for each such prior year, (i) the amount of gain or excess
distribution allocated to such prior year multiplied by the highest tax
rate (individual or corporate) in effect for such prior year plus (ii)
interest on the amount determined under clause (i) for the period from the
due date for filing a return for such prior year until the date for filing
a return for the year in which the gain is recognized or the excess
distribution is received at the rates and methods applicable to
underpayments of tax for such period, and (4) the distribution by the Fund
to shareholders of the portions of such gain or excess distribution so
allocated to prior years (net of the tax payable by the Fund thereon) will
again be taxable to the shareholders as an ordinary income dividend.
Under recently proposed Treasury Regulations the Fund can elect to
recognize as gain the excess, as of the last day of its taxable year, of
the fair market value of each share of PFIC stock over the Fund's adjusted
tax basis in that share ("mark to market gain"). Such mark to market gain
will be included by the Fund as ordinary income, such gain will not be
subject to the Short-Short Gain Test, and the Fund's holding period with
respect to such PFIC stock commences on the first day of the next taxable
year. If the Fund makes such election in the first taxable year it holds
PFIC stock, the Fund will include ordinary income from any mark to market
gain, if any, and will not incur the tax described in the previous
paragraph.
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 the Fund's 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 (call or put)
with respect to a security is treated as issued by the issuer of the
security not the issuer of the option. However, with regard to forward
currency contracts, there does not appear to be any formal or informal
authority which identifies the issuer of such instrument.
-14-
<PAGE>
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will
be taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends-received deduction in the case
of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to
98% of ordinary taxable income for the calendar year and 98% of capital
gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having
a taxable year ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a regulated
investment company is treated as having distributed any amount on which it
is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise
tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will qualify for the 70% dividends-
received deduction for corporate shareholders only to the extent discussed
below.
-15-
<PAGE>
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to
distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to shareholders
as long-term capital gain, regardless of the length of time the shareholder
has held his shares or whether such gain was recognized by the Fund prior
to the date on which the shareholder acquired his shares. The Code
provides, however, that under certain conditions only 50% of the capital
gain recognized upon the Fund's disposition of domestic "small business"
stock will be subject to tax.
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 because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the
extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. A dividend received by the
Fund will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding
for this purpose under the rules of Code Section 246(c)(3) and (4): (i)
any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any
period during which the Fund has an option to sell, is under a contractual
obligation to sell, has made and not closed a short sale of, is the grantor
of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that
the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar
or related property; or (3) to the extent the stock on which the dividend
is paid is treated as debt-financed under the rules of Code Section 246A.
Moreover, the dividends-received deduction for a corporate shareholder may
be disallowed or reduced (1) if the corporate shareholder fails to satisfy
the foregoing requirements with respect to its shares of the Fund or (2)
by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain
other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only
to the extent it exceeds, the regular tax and is computed at a maximum
marginal rate of 28% for noncorporate taxpayers and 20% for corporate
taxpayers on the excess of the taxpayer's alternative minimum taxable
income ("AMTI") over an exemption amount. In addition, under the Superfund
Amendments and Reauthorization Act of 1986, a tax is imposed for taxable
years beginning after 1986 and before 1996 at the rate of 0.12% on the
excess of a corporate taxpayer's AMTI (determined without regard to the
deduction for this tax and the AMT net operating loss deduction) over $2
million. For purposes of the corporate AMT and the environmental superfund
tax (which are discussed above), the corporate dividends-received deduction
is not itself an item of tax preference that must be added back to taxable
income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e.,
75% of the excess of a corporate taxpayer's adjusted current earnings over
its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
-16-
<PAGE>
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. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consist of the stock
or securities of foreign corporations, the Fund may elect to "pass through"
to the Fund's shareholders the amount of foreign taxes paid by the Fund.
If the Fund so elects, each shareholder would be required to include in
gross income, even though not actually received, his pro rata share of the
foreign taxes paid by the Fund, but would be treated as having paid his pro
rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject
to various Code limitations) as a foreign tax credit against federal income
tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income
his pro rata share of such foreign taxes plus the portion of dividends
received from the Fund representing income derived from foreign sources.
No deduction for foreign taxes could be claimed by an individual
shareholder who does not itemize deductions. Each shareholder should
consult his own tax adviser regarding the potential application of foreign
tax credits.
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 from the sale of his shares, as
discussed below.
Distributions by the Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another fund).
Shareholders receiving a distribution in the form of additional shares will
be treated as receiving a distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment
date. In addition, if the net asset value at the time a shareholder
purchases shares of the Fund reflects undistributed net investment income
or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be
taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which the distributions 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 if 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 ordinary income dividends and capital gain
dividends, 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."
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<PAGE>
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's adjusted tax basis
in the shares. All or a portion of any loss so recognized may be
disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares
of the Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of shares
held for six months or less will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (discussed above in connection with the dividends-
received deduction for corporations) 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. Furthermore, such a foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) on the gross
income resulting from the Fund's election to treat any foreign taxes paid
by it as paid by its shareholders, but may not be allowed a deduction
against this gross income or a credit against this U.S. withholding tax for
the foreign shareholder's pro rata share of such foreign taxes which it is
treated as having paid. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the 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
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. 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 such shareholders furnish 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.
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<PAGE>
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect
to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends,
exempt-interest dividends 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 investment in the Fund.
PERFORMANCE CALCULATION
For the purpose of quoting and comparing the performance of the Fund
to that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in
terms of total return. Under the rules of the Securities and Exchange
Commission ("SEC rules"), funds advertising performance must include total
return quotes calculated according to the following formula:
n
P(l+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods or at the end of the
1, 5 or 10 year periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising
will be based on rolling calendar quarters, updated to the last day of the
most recent quarter prior to submission of the advertising for publication,
and will cover one, five and ten year periods or a shorter period dating
from the effectiveness of the Fund's Registration Statement. In calculating
the ending redeemable value, all dividends and distributions by the Fund
are assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. Total return, or
"T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the
ending redeemable value. Any recurring account charges that might in the
future be imposed by the Fund would be included at that time.
The Fund may also from time to time include in such advertising
a total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the Fund
with other measures of investment return. For example, in comparing the
Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Standard and Poor's 500 Stock Index
or the Dow Jones Industrial Average, the Fund calculates its aggregate
total return for the specified periods of time assuming the investment of
$10,000 in Fund shares and assuming the reinvestment of each dividend or
other distribution at net asset value on the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment
from the ending value and by dividing the remainder by the beginning value.
The Lexington Global Fund, Inc.'s total return for the 1 and 5 year and 69
month period ended December 31, 1994 was as follows:
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Average Annual
Period Total Return
------ ---------------
1 year ended December 31, 1994 1.84%
5 years ended December 31, 1994 4.50%
4 month period ended December 31, 1994 8.50%
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing
the Fund's holdings and other information. In addition, shareholders will
receive annual financial statements audited by KPMG Peat Marwick LLP, the
Fund's independent auditors.
OTHER INFORMATION
As of February 23,1995, the following persons were known by Fund
management to have owned beneficially, directly or indirectly, 5% or more
of the outstanding shares of the Lexington Global Fund, Inc.: Piedmont
Associates, P.O. 20124, Greensboro, NC 27420, 31%; Center for Creative
Leadership, One Leadership Place, Greensboro, NC 27438-6300, 8% and
Randolph Foundation Trust, Suite 230, 255 E. 49th St., New York, NY 10017,
6%.
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<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Global Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Global Fund,
Inc. as of December 31, 1994, the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for each of the years
in the five-year period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Global Fund, Inc. as of December 31, 1994, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 6, 1995
21
<PAGE>
Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994
(LEFT COLUMN)
Number of Value
Shares Security (Note 1)
________________________________________________________________________________
Argentina: 0.6%
17,700 *YPF Sociedad Anonima (ADR) ........................ $ 378,338
-----------
Australia: 2.0%
59,500 Mayne Nickless Ltd. ............................... 304,342
133,400 *Tabcorp Holdings, Ltd. ............................ 242,955
44,200 *Tabcorp Holdings, Ltd. (ADR)1 ..................... 806,650
-----------
1,353,947
-----------
Belgium: 0.7%
6,400 *Union Miniere .................................... 496,794
-----------
Canada 1.6%
30,800 Inco, Ltd. ....................................... 881,650
147,200 *Markborough Properties, Inc. ..................... 225,815
-----------
1,107,465
-----------
Chile: 0.4%
23,000 Banco Osorno (ADR) ............................... 247,250
-----------
France: 5.2%
8,500 Assurances Generale de France .................... 337,706
22,400 Banque National de Paribas ....................... 1,030,585
3,230 Cetelem .......................................... 578,083
8,000 Compagnie de Suez ................................ 367,316
1,600 Elf Aquitaine .................................... 112,714
7,900 Societe Generale ................................. 830,566
9,500 Union De Assurance de Paris ...................... 245,333
-----------
3,502,303
-----------
Germany: 1.9%
1,250 Deutsche Bank AG ................................. 580,833
6,200 *Pfaff GM AG ...................................... 688,222
-----------
1,269,055
-----------
Hong Kong: 0.9%
347,500 Semi-Tech Global Company, Ltd. ................... 586,128
-----------
Hungary: 0.1%
6,800 *Fotex RT (ADR) ................................... 107,100
-----------
Indonesia: 0.3%
227,000 Argha Karya Prima Industries ..................... 237,642
-----------
Ireland: 2.7%
73,800 Jefferson Smurfit Group .......................... 425,831
1,558,000 *Waterford Glass/Wedgewood Holdings Plc ........... 1,382,118
-----------
1,807,949
-----------
Israel: 0.4%
27,400 *First Israel Fund, Inc. .......................... 274,000
-----------
(RIGHT COLUMN)
Number of Value
Shares Security (Note 1)
________________________________________________________________________________
Italy: 0.6%
121,000 Finanza & Futuro Holdings SPA .................... $ 425,938
-----------
Japan: 33.1%
14,000 Chubu Steel Plate Company, Ltd. .................. 92,116
199,000 Chuetsu Pulp & Paper Company, Ltd. ............... 1,097,793
103,000 Daicel Chemical Industries, Ltd. ................. 580,602
67,000 *Denki Kagaku Kogyo K.K. .......................... 276,871
35,000 Honda Motor Company, Ltd. ........................ 621,364
125,000 Ichikoh Industries, Ltd. ......................... 570,461
68,000 Japan Vilene Company, Ltd. ....................... 476,750
43,000 Joshin Denki Company, Ltd. ....................... 608,124
102,000 Kankaku Securities, Ltd. ......................... 509,488
11,000 Kanto Auto Works, Ltd. ........................... 79,438
188,000 *Kobe Steel Company, Ltd. ......................... 586,439
121,000 Komatsu Forklift Company, Ltd. ................... 946,640
60,000 *Makino Milling Company, Ltd. ..................... 540,421
40,000 Matsushita Electric Industrial Company, Ltd. ..... 657,974
101,000 Matsushita Refrigeration Company, Ltd. ........... 892,488
42,000 Matsuzakaya Company, Ltd. ........................ 547,643
52,000 Minebea Company, Ltd. ............................ 438,114
142,100 Mitsubishi Chemical Corporation .................. 781,051
7,000 Mori Seiki Company, Ltd. ......................... 167,803
109,000 Nippon Chemi-Con Corporation ..................... 694,233
41,000 Nippon Steel Chemical Company, Ltd. .............. 156,269
76,000 Nippon Steel Corporation ......................... 285,858
102,000 *Nippon Yakin Kogyo Company, Ltd. ................. 603,611
3,000 Nissan Diesel Motor Company, Ltd. ................ 16,730
100,000 NKK Corporation .................................. 276,831
71,000 NOK Corporation .................................. 676,530
22,000 Nomura Securities Company, Ltd. .................. 456,770
79,000 NTN Toyo Bearing Company, Ltd. ................... 591,906
58,000 Okasan Securities, Ltd. .......................... 383,952
33,000 Royal Company, Ltd. .............................. 506,419
42,000 Sakai Chemical Industry Company, Ltd. ............ 304,995
60,000 Sansui Electric Company, Ltd. .................... 168,506
57,000 Seino Transportation Company, Ltd. ............... 1,040,522
109,000 Settsu Corporation ............................... 440,592
34,000 Shinobu Foods Product Company, Ltd. .............. 388,766
75,000 Showa Denko Corporation .......................... 262,538
17,000 Sony Corporation ................................. 963,390
73,000 Stanley Electric Company, Ltd. ................... 550,612
22,000 Tokai Pulp Company, Ltd. ......................... 211,394
196,000 *Tosoh Corporation ................................ 790,291
64,000 Ube Industries, Ltd. ............................. 247,141
141,000 Yamaichi Securities Company, Ltd. ................ 1,066,339
18,000 Yamanouchi Pharmaceutical Company, Ltd. .......... 370,110
36,000 Yamato Kogyo Company, Ltd. ....................... 368,305
-----------
22,294,190
-----------
22
<PAGE>
Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
(LEFT COLUMN)
Number of Value
Shares Security (Note 1)
________________________________________________________________________________
Malaysia: 0.5%
62,000 Resorts World Bhd ................................ $ 364,420
-----------
Mexico: 0.5%
68,000 *Grupo Financiero Banamex "C" ..................... 192,555
140,000 Grupo Financiero Bancomer "C" .................... 80,951
8,400 Tubos de Acero de Mexico S.A. (ADR) .............. 39,375
-----------
312,881
-----------
Netherlands: 2.3%
12,200 Boskalis Westminster Certificates ................ 249,023
46,000 Elsevier N.V. .................................... 480,078
7,800 Royal Dutch Petroleum Company .................... 850,026
-----------
1,579,127
-----------
New Zealand: 2.1%
581,500 Brierley Investments, Ltd. ....................... 420,409
62,700 Ceramco Corporation, Ltd. ........................ 136,393
185,800 Fisher & Paykel Industries, Ltd. ................. 540,880
103,100 Independent Newspaper, Ltd. ...................... 346,308
-----------
1,443,990
-----------
Norway: 0.4%
13,200 *Petroleum Geo Services (ADR) ..................... 245,850
-----------
South Africa: 3.0%
22,900 Johannesburg Consolidated Investments, Ltd.(ADR) . 587,245
27,800 Rustenburg Platinum Holdings, Ltd. (ADR) ......... 764,064
46,000 Samancor, Ltd. (ADR) ............................. 643,425
-----------
1,994,734
-----------
Spain: 2.1%
6,808 Corporacion Mapfre ............................... 293,729
6,808 *Corporacion Mapfre Vida .......................... 284,421
56,600 Iberdrola Nuevas ................................. 349,102
17,300 Repsol S.A. ...................................... 469,130
-----------
1,396,382
-----------
Switzerland: 1.4%
324 Bobst A.G. (Bearer) .............................. 373,894
1,000 Schweizerischer Bankverein ....................... 276,653
320 Union Bank of Switzerland ........................ 265,586
-----------
916,133
-----------
United Kingdom: 4.2%
155,000 Antofagasta Holdings Plc ......................... 764,600
159,800 Body Shop International Plc ...................... 482,976
410,000 *Queens Moat Houses Plc1 .......................... 6,421
39,600 Rio Tinto Zinc Corporation Plc ................... 512,852
(RIGHT COLUMN)
Number of Value
Shares Security (Note 1)
________________________________________________________________________________
United Kingdom (continued)
126,100 Takare Plc ....................................... $ 434,440
27,000 Takare Plc1 ...................................... 93,020
148,700 Tomkins Plc ...................................... 512,301
-----------
2,806,610
-----------
United States: 22.7%
8,100 Anadarko Petroleum Corporation ................... 311,850
15,400 Atlantic Richfield Company ....................... 402,325
16,700 Barnes & Noble Inc. .............................. 521,875
9,600 Burlington Resources Inc. ........................ 336,000
12,900 CPC International Inc. ........................... 686,925
13,100 Chevron Corporation .............................. 584,587
7,700 Colgate Palmolive Company ........................ 487,988
7,700 Dow Chemical Company ............................. 517,825
11,700 Fluor Corporation ................................ 504,563
7,100 General Electric Company ......................... 362,100
7,700 Illinois Tool Works Inc. ......................... 336,875
17,900 Ingersoll-Rand Company ........................... 563,850
7,600 International Paper Company ...................... 572,850
8,000 Kellogg Company .................................. 465,000
5,000 Marriott International Inc. ...................... 140,625
12,300 Parker Hannifin Corporation ...................... 559,650
24,000 Pepsico, Inc. .................................... 870,000
11,200 Phelps Dodge Corporation ......................... 693,000
15,700 Pitney Bowes, Inc. ............................... 498,475
5,500 Proctor & Gamble Company ......................... 341,000
10,200 Reynolds Metals Company .......................... 499,800
10,500 Schlumberger Ltd. ................................ 528,937
52 *Shawmut National Corporation Warrants ........... 117
15,700 Signet Banking Corporation ....................... 449,413
9,000 Texaco Inc. ...................................... 538,875
16,100 Toys"R" Us, Inc. ................................. 491,050
16,500 Travelers, Inc. .................................. 536,250
14,400 Trinity Industries Inc. .......................... 453,600
16,700 Union Camp Corporation ........................... 786,987
13,700 USX Corporation-U.S. Steel Group ................. 486,350
16,400 Walt Disney Company .............................. 756,450
700 Whirlpool Corporation ............................ 35,175
-----------
15,320,367
-----------
TOTAL INVESTMENTS: 89.7%
(cost $58,468,197\'86) (Note 1) ................ 60,468,593
Other assets in excess of liabilities:
10.3% .......................................... 6,923,656
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $11. 17 per share on
6,035,230 shares outstanding) .................. $67,392,249
===========
23
<PAGE>
Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
At December 31, 1994, the composition of the Fund's net assets by industry
concentration was as follows:
(Left Column)
Banking ................... 6.4%
Capital Equipment ......... 12.0
Consumer Durable .......... 9.5
Consumer Nondurable ....... 6.2
Electrical and Electronics 0.8
Energy .................... 3.3
(Middle Column)
Energy Sources ............ 4.0%
Financial Services ........ 7.6
Healthcare ................ 0.5
Materials ................. 22.4
Merchandising ............. 3.4
Multi-Industry ............ 3.6
(Right Column)
Services .................. 8.0%
Transportation ............ 1.5
Utilities ................. 0.5
Other net assets .......... 10.3
-----
Total Net Assets ........ 100.0%
=====
ADR-American Depository Receipt.
*Non-income producing securities.
1Restricted security.
(D)Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
Lexington Global Fund, Inc.
Portfolio Changes
Six months ended December 31, 1994 (unaudited)
(Left Column)
Additions
Anadarko Petroleum Corporation
Assurances Generale de France
Atlantic Richfield Company
Banco Osorno (ADR)
Bobst A.G. (Bearer)
Body Shop International Plc
Burlington Resources Inc.
Ceramco Corporation, Ltd.
Chevron Corporation
Chubu Steel Plate Company, Ltd.
Colgate Palmolive Company
Compagnie de Suez
Corporacion Mapfre Vida
CPC International Inc.
Daicel Chemical Industries, Ltd.
Denki Kagaku Kogyo K.K.
Finanza & Futuro Holdings SPA
General Electric Company
Inco, Ltd.
Kellogg Company
Kobe Steel Company, Ltd.
Markborough Properties, Inc.
Mitsubishi Chemical Corporation
Nippon Steel Chemical Company, Ltd.
Nippon Steel Corporation
Nissan Diesel Motor Company, Ltd.
NKK Corporation
Okasan Securities, Ltd.
Proctor & Gamble Company
Sakai Chemical Industry Company, Ltd.
Sansui Electric Company, Ltd.
Semi-Tech Global Company, Ltd.
Showa Denko Corporation
Signet Banking Corporation
Tabcorp Holdings, Ltd.
Tabcorp Holdings, Ltd. (ADR)
Texaco Inc.
Tokai Pulp Company, Ltd.
Tomkins Plc
Toys"R" Us, Inc.
Travelers, Inc.
Tubos de Acero de Mexico S.A. (ADR)
Ube Industries, Ltd.
Union De Assurance de Paris
Whirlpool Corporation
Yamaichi Securities Company Ltd.
Yamanouchi Pharmaceutical Company, Ltd.
(Middle Column)
Increases in Holdings
Argha Karya Prima Industries
Banque National de Paribas
Deutsche Bank AG
Elsevier N.V.
Kankaku Securities, Ltd.
Komatsu Forklift Company, Ltd.
Matsuzakaya Company, Ltd.
Seino Transportation Company, Ltd.
Societe Generale
Sony Corporation
Tosoh Corporation
Walt Disney Company
Waterford Glass/Wedgewood Holdings Plc
Deletions
Amp Inc.
Aokam Perdana Bhd
Bilspedition "B" Free
Cimentas
Commercial Del Plata
Conrail, Inc.
Cooper Industries Inc.
CRH Plc
CSX Corporation
Dana Corporation
Dexter Corporation
Eaton Corporation
Gannett Company, Inc.
Gardner Denver Machinery
Goulds Pumps Inc.
Grands Magasins Jelmoli Sa Warrants
Grupo Casa Autrey, S.A. de C.V. (ADR)
Halliburton Company
Hino Motors Company, Ltd.
Intel Corporation
Izmir Demir Celik
Knight-Ridder, Inc.
Morton International Inc.
Nippon Paint Corporation
Saint Gobain
Sampoerna
Standard Chartered Bank Plc
TAT Konservecili
Telefonos de Mexico S.A. (ADR)
Tjiwi Kimia
Tolmex, S.A. de C.V.
Western Mining Corporation
Wilson & Horton Ltd.
York International Corporation
(Right Column)
Decreases in Holdings
Antofagasta Holdings Plc
Boskalis Westminster Certificates
Brierley Investments Ltd.
Cetelem
Chuetsu Pulp & Paper Company, Ltd.
Dow Chemical Company
Fisher & Paykel Industries, Ltd.
Fluor Corporation
Grupo Financiero Banamex "C"
Grupo Financiero Bancomer "C"
Honda Motor Company, Ltd.
Iberdrola Nuevas
Illinois Tool Works Inc.
Independent Newspaper, Ltd.
Ingersoll-Rand Company
International Paper Company
Jefferson Smurft Group
Johannesburg Consolidated Investments, Ltd. (ADR)
Joshin Denki Company, Ltd.
Makino Milling Company, Ltd.
Matsushita Electric Industrial Company, Ltd.
Matsushita Refrigeration Company, Ltd.
Mayne Nickless Ltd.
Minebea Company, Ltd.
Mori Seiki Company, Ltd.
NOK Corporation
NTN Toyo Bearing Company, Ltd.
Parker Hannifin Corporation
Phelps Dodge Corporation
Pitney Bowes, Inc.
Repsol S.A.
Reynolds Metals Company
Rio Tinto Zinc Corporation Plc
Royal Company, Ltd.
Rustenburg Platinum Holdings, Ltd. (ADR)
Samancor Ltd. (ADR)
Schlumberger Ltd.
Stanley Electric Company, Ltd.
Takare Plc
Trinity Industries Inc.
Union Bank of Switzerland
USX Corporation-U.S. Steel Group
Yamato Kogyo Company, Ltd.
YPF Sociedad Anonima (ADR)
Purchased & Sold Same Period
Telewest Communications Inc.
Novell Inc.
Western Mining Rights
24
<PAGE>
Lexington Global Fund, Inc.
Statement of Assets and Liabilities
December 31, 1994
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost $58,468,197) (Note 1) .............................. $60,468,593
Cash ......................................................................................... 6,928,871
Receivable for investment securities sold .................................................... 403,000
Receivable for shares sold ................................................................... 343,530
Dividends and interest receivable ............................................................ 84,328
Foreign taxes recoverable .................................................................... 119,634
Unrealized gain on open forward contracts (Note 6) ........................................... 292,449
-----------
Total Assets ......................................................................... 68,640,405
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ............................................. 57,328
Payable for investment securities purchased .................................................. 38,348
Payable for shares redeemed .................................................................. 565,182
Distributions payable ........................................................................ 487,028
Accrued expenses ............................................................................. 100,270
-----------
Total Liabilities .................................................................... 1,248,156
-----------
Net Assets (equivalent to $11.17 per share on 6,035,230 shares outstanding) (Note 3) ......... $67,392,249
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
$.001 par value per share .................................................................. $ 6,035
Additional paid-in capital (Note 1) .......................................................... 65,429,478
Distributions in excess of net realized gain on investments and foreign currency holdings
(Note 1) ................................................................................... (337,920)
Net unrealized appreciation of investments and foreign currency
holdings ................................................................................... 2,294,656
-----------
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
25
<PAGE>
(Left Column)
Lexington Global Fund, Inc.
Statement of Operations
Year ended December 31, 1994
Investment Income
Dividends ........................................... $ 1,426,739
Interest ............................................ 97,626
-----------
1,524,365
Less: foreign tax expense ........................... 126,978
-----------
Investment income ............................. 1,397,387
----------
Expenses
Investment advisory fee (Note 2) .................. 798,119
Accounting and shareholder services
expenses (Note 2) ............................... 118,672
Custodian and transfer agent expenses ............. 223,868
Printing and mailing .............................. 32,849
Directors' fees and expenses ...................... 11,522
Audit and legal ................................... 28,728
Registration fees ................................. 29,382
Computer expense .................................. 19,930
Other expenses .................................... 25,099
-----------
Total expenses .................................. 1,288,169
----------
Net investment income ....................... 109,218
Realized and Unrealized Gain (Loss)
on Investments (Note 4)
Realized gain on investments and foreign currency
transactions (excluding short-term securities):
Proceeds from sales ........................... 92,274,177
Cost of securities sold ....................... 80,070,969
-----------
Net realized gain ........................... 12,203,208
Unrealized appreciation of investments
and foreign currency holdings:
End of period ................................... 2,294,656
Beginning of period ............................. 13,380,316
-----------
Change during period .......................... (11,085,660)
----------
Net realized and unrealized gain
on investments and foreign
currency holdings ......................... 1,117,548
----------
Increase in Net Assets Resulting
from Operations ................................. $1,226,766
==========
(Right Column)
Lexington Global Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
1994 1993
----------- -----------
Net investment income .......................... $ 109,218 $ 388,478
Net realized gain from investments
and foreign currency transactions ............ 12,203,208 7,392,226
Increase (decrease) in unrealized
appreciation of investments and
foreign currency holdings .................... (11,085,660) 11,499,354
----------- -----------
Net increase in net assets
resulting from operations ............ 1,226,766 19,280,058
Distributions to shareholders from net
investment income ............................ - (354,082)
Distributions to shareholders from
net realized gains ........................... (12,203,208) (6,331,316)
Distributions to shareholders in
excess of net realized gains (Note 1) ........ (645,274) -
Increase (decrease) in net assets from
capital share transactions (Note 3) .......... (8,299,468) 24,421,130
----------- -----------
Net increase (decrease) in net
assets ............................... (19,921,184) 37,015,790
Net Assets:
Beginning of period .......................... 87,313,433 50,297,643
----------- -----------
End of period ................................ $67,392,249 $87,313,433
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
26
<PAGE>
Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Significant Accounting Policies
Lexington Global Fund, Inc. (the "Fund") is an open end diversified management
investment company registered under the Investment Company Act of 1940, as
amended. The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements:
Securities Security transactions are accounted for on a trade date basis.
Realized gains and losses from security transactions are reported on the
identified cost basis. Investments are stated at market value based on closing
prices reported by the exchange on which the securities are traded on the last
business day of the period or, for over-the-counter securities, at the average
between bid and asked prices, except for short-term securities which are stated
at amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued at fair value
as determined by management and approved in good faith by the Board of
Directors. All investments quoted in foreign currencies are valued in U.S.
dollars on the basis of the foreign currency exchange rates prevailing at the
close of business. Dividends and distributions to shareholders are recorded on
the ex-dividend date. Interest income is accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the Statement of Operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
settled and are reported in the Statement of Operations.
Distributions Effective January 1, 1993, the Fund adopted Statement of
Positon 93-2: Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As of December 31, 1994, book and tax basis differences amounting to
$14,279 have been reclassified from additional paid-in capital to accumulated
realized gains on investments. In addition, $158,473 was reclassified from
undistributed net investment income to accumulated net realized gain on
investments. Distributions in excess of net realized gain on investments and
foreign currency holdings reflect temporary book-tax differences arising from
losses resulting from wash sales and the tax treatment of unrealized gains on
forward foreign exchange contracts.
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 has been made.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at the rate of 1% of average daily net assets. 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, 1994.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
27
<PAGE>
Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993 (continued)
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1994 December 31, 1993
--------------------------- --------------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold ....................................... 2,384,324 $33,526,089 4,149,229 $54,389,943
Shares issued to shareholders on rein-
vestment of dividends and distributions ......... 1,105,090 12,355,393 471,978 6,348,102
--------- ----------- --------- -----------
3,489,414 45,881,482 4,621,207 60,738,045
Shares redeemed ................................... (3,916,491) (54,180,950) (2,695,255) (36,316,915)
--------- ----------- --------- -----------
Net increase (decrease) ........................... (427,077) $(8,299,468) 1,925,952 $24,421,130
========= =========== ========= ===========
</TABLE>
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1994, excluding short term securities, were $64,143,733 and
$92,274,177, respectively. At December 31, 1994, aggregate gross unrealized
appreciation for all securities and foreign currency holdings (including foreign
currency receivables and payables) in which there is an excess of value over tax
cost amounted to $5,681,859 and aggregate gross unrealized depreciation for all
securities and foreign currency holdings in which there is an excess of tax cost
over value amounted to $3,387,203.
5. Investment Risks
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since foreign securities may be denominated in a foreign
currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/or credit risk
of the investments. In addition to the risks described above, risks may arise
from forward foreign currency contracts as the result of the potential inability
of counterparties to meet the terms of their contracts.
6. Forward Foreign Exchange Contracts
At December 31, 1994, the Fund was committed to sell foreign currencies under
the following forward foreign exchange contracts:
<TABLE>
<CAPTION>
Unrealized
Settlement Contract Contract Current Gain at
Currency Date Amount Rate Rate 12/3194
-------- ---------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Japanese Yen ........ 2/21/95 $2,273,416 98.9700 99.70 $ 16,646
Japanese Yen ........ 5/15/95 3,186,000 96.0550 99.70 116,479
Japanese Yen ........ 5/25/95 3,588,975 96.6850 99.70 108,533
Japanese Yen ........ 6/06/95 3,779,000 98.3600 99.70 50,791
--------
$292,449
========
</TABLE>
28
<PAGE>
Lexington Global Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ........................... $13.51 $11.09 $11.57 $10.26 $12.83
------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income ....................... .02 .06 .06 .09 .11
Net realized and unrealized gain
(loss) on investments ..................... .23 3.47 (.47) 1.50 (2.25)
------ ------ ------ ------ ------
Total income (loss) from
investment operations ..................... .25 3.53 (0.41) 1.59 (2.14)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income ...................................... - (.06) (.07) (.08) (.11)
Distributions from net realized
capital gains ............................... (2.46) (1.05) - (.20) (.32)
Distributions in excess of
net realized capital gains
(Temporary book-tax
difference) ................................. (.13) - - - -
------ ------ ------ ------ ------
Total distributions ..................... (2.59) (1.11) (.07) (.28) (.43)
------ ------ ------ ------ ------
Net asset value, end of period .................. $11.17 $13.51 $11.09 $11.57 $10.26
====== ====== ====== ====== ======
Total return .................................... 1.84% 31.88% (3.55%) 15.55% 16.75%)
Ratio to average net assets:
Expenses ...................................... 1.61% 1.49% 1.52% 1.57% 1.59%
Net investment income ......................... .14% .52% .55% .79% .99%
Portfolio turnover .............................. 83.40% 84.61% 81.38% 75.71% 81.88%
Net assets at end of period
(000's omitted) ...............................$67,392 $87,313 $50,298 $53,886 $50,501
<FN>
*Annualized
</FN>
</TABLE>
29
