Dear Shareholders:
- --------------------------------------------------------------------------------
The Lexington Global Fund, Inc., appreciated by 16.4%* in 1996 versus 16.5%
for the average global fund, according to Lipper Analytical Services, Inc. The
unmanaged Morgan Stanley Capital International World Index** advanced 13.5% for
the year.
The fourth quarter saw strong advances in most major markets except Japan.
The Fund, underperformed in the fourth quarter due to the portfolio's "value"
tilt. Holdings in European cyclicals and emerging markets where better value
existed did not perform as well as European growth and financial stocks. The
Fund's underweighting in U.S. equities which gained 8.1% during the fourth
quarter also negatively affected performance. For the year, the Fund benefitted
from an underweighting of Japan which declined 15.5% in U.S. dollar terms on the
unmanaged Morgan Stanley Capital International Japan Index**. Sweden and Finland
were the standout markets in 1996 with dollar returns of 37.2% and 33.9%
respectively on the unmanaged Morgan Stanley World Index**. Holdings in Eastern
Europe also provided strong gains. Falling inflation, budget cutting and
corporate restructuring led to sharp rises in equities. The Fund had small
positions in these markets as interest rates fell more than anticipated.
The unmanaged Morgan Stanley Capital International European Index**
appreciated 21.1% in 1996 while U.S. equities rose 23.2%. European equities were
propelled by falling interest rates and corporate restructuring. As Europe moves
toward a single currency, interest rates in Finland, Sweden, and Spain fell
dramatically. These markets responded with stocks rising 35-40%. Surprisingly,
Italian interest rates fell almost 4% yet equities only gained 12.6%. The
outlook for European equities remains favorable. Growth will continue to be
muted by high unemployment levels. However, interest rates are likely to stay
low due to budget cutting measures and low inflation. European companies are
finally addressing shareholder concerns regarding competitiveness and
profitability. Companies which have demonstrated a commitment to enhancing
shareholder value through cost cutting, divestitures and share buy backs have
been rewarded with higher share prices. This trend should continue over the next
several years. Growth in Europe is likely to surprise on the upside in Germany
and Switzerland as their weak currencies are stimulating exports. Cyclical
stocks offer good value in these markets.
U.S. markets continued to power ahead with a gain of 23.2% for the unmanaged
Morgan Stanley Capital International U.S. Index** in 1996. Inflation remained
subdued in 1996 allowing the Federal Reserve to maintain low interest rates.
Corporate profits continued to surprise positively as profit margins continue to
expand from already high levels. Market psychology is very positive and
dangerous as U.S. investors seem convinced equities can only go higher. On a
relative basis U.S. equities continue to look unattractive. Profit growth should
be greater in Europe, Southeast Asia and Latin America. U.S. stocks are also
historically expensive by most valuation measures. Equities remain vulnerable to
either rising interest rates or disappointing profit growth.
Japanese equities continued to underperform the world. In dollar terms
Japanese stocks lost 15.5% in 1996. Most of the decline came in the fourth
quarter as austere budget measures heightened fears of slow growth and weak
profits for 1997. Japanese equities remain unattractive as both the public and
private sector has been slow to restructure. A further sharp fall in equities
could provide an opportunity as pressure would increase for restructuring to
accelerate. The Japanese market has only rewarded investors who own "Nifty
Fifty" stocks. These stocks are well known companies such as Sony, Canon, and
Toyota which are competitive on a global basis. The portfolio has concentrated
holdings in these stocks.
Emerging markets saw great divergence in 1997 as winners included Poland up
57%, Hungary 104% and Brazil 38%. However, on the negative side, Thailand fell
38% and Korea declined 38%. Currently, most emerging markets look very
attractive as they have underperformed developed markets for three years. Latin
America is enjoying accelerating economic activity which will positively impact
profits. Asian markets generally remain attractive due to expected declines in
interest rates and attractive valuation levels.
1
<PAGE>
Global equities look attractive under current conditions. The Fund remains
overweight in emerging markets such as Malaysia, Philippines, and Chile due to
expectations of falling interest rates, strong profit growth and attractive
stock prices. European equities are also overweighted with a focus on value
cyclicals and restructuring companies. U.S. equities continue to be
underweighted due to better risk-reward opportunities elsewhere. Given a
relatively anemic outlook for U.S. corporate profits we think the upside is
limited while risk remains high. Finally, the Fund remains underweighted in
Japanese equities with positions primarily in large world class companies.
Further sharp falls could lead to opportunities in domestic cyclicals
particularly if private and public sector restructuring emerges from the ruins.
Sincerely,
Richard T. Saler Alan H. Wapnick Robert M. DeMichele
Portfolio Manager Portfolio Manager President
February, 1997 February, 1997 February, 1997
CHART/BEGIN
Printed version of this shareholder report contains a
graphic chart indicating the comparison of change in
value of a $10,000 investment in Lexington Global Fund
Inc., and the unmanaged Morgan Stanley Capital
International World Index from 3/27/87 through 12/31/96.
CHART/END
*16.43%, 10.80% and 9.51% are the one and five year and since commencement
(3/27/87) average annual standard total returns, respectively, for the period
ended December 31, 1996. Investment return and principal value of an
investment will fluctuate so that an investor's shares, when redeemed, may be
worth more or less than at their original cost. Total return represents past
performance and is not predictive of future results.
**All country and regional returns are from the corresponding Morgan Stanley
Capital International Indices. Returns are dollar based with net dividends
reinvested.
2
<PAGE>
(left column)
Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 97.7%
Australia: 1.1%
77,875 QBE Insurance Group, Ltd. ............................ $ 410,082
----------
Austria: 2.0%
7,100 Bank Austria AG (Preferred shares) ................... 275,104
2,400 Wienerberger Baustoffindustrie AG .................... 464,964
----------
740,068
----------
Belgium: 1.0%
1,400 Credit Communal Holding/Dexia2 ....................... 127,595
2,700 Credit Communal Holding/Dexia1,2 ..................... 246,077
----------
373,672
----------
Brazil: 0.8%
36,000 Aracruz Celulose S.A. (ADR) .......................... 297,000
----------
Canada: 1.4%
13,100 Jetform Corporation2 ................................. 237,438
42,600 Noranda Forest, Inc. ................................. 289,045
----------
526,483
----------
Chile: 2.2%
36,700 Antofagasta Holdings Plc ............................. 213,536
24,400 Banco Santander (ADR) ................................ 366,000
18,100 Maderas y Sinteticos Sociedad
Anonima S.A. (ADR) ................................. 253,400
----------
832,936
----------
Finland: 1.0%
21,500 Valmet Corporation ................................... 375,048
----------
France: 5.7%
4,880 Alcatel Alsthom ...................................... 391,246
8,500 Elf Aquitaine S.A. (ADR) ............................. 384,625
9,300 Lafarge .............................................. 556,883
3,190 SGS-Thomson Microelectronics N.V.2 ................... 225,195
4,830 Sidel ................................................ 331,679
2,240 Societe Generale de Surveillance
Holding S.A. "B" ................................... 241,720
----------
2,131,348
----------
Germany: 4.5%
13,900 Continental AG ....................................... 249,840
4,600 Daimler-Benz AG2 ..................................... 316,396
7,800 Deutsche Bank AG ..................................... 363,907
7,000 Hoechst AG ........................................... 330,217
854 Sto AG (Preferred shares) ............................ 401,756
----------
1,662,116
----------
Greece: 1.4%
4,200 Ergo Bank S.A. ....................................... 212,885
17,900 Hellenic Tellecommunication
Organization S.A. .................................. 305,818
----------
518,703
----------
(right column)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
Hong Kong: 4.1%
66,000 Citic Pacific, Ltd. .................................. $ 383,116
576,000 Guangdong Investments ................................ 554,777
396,000 National Mutual Asia, Ltd. ........................... 376,290
132,000 Peregrine Investment Holdings, Ltd. .................. 226,115
----------
1,540,298
----------
Hungary: 0.6%
3,900 Pick Szeged Rt. ...................................... 230,888
----------
Indonesia: 1.1%
62,000 PT Semen Cibinong .................................... 174,518
122,000 PT Tambang Timah ..................................... 222,053
----------
396,571
----------
Ireland: 2.8%
45,800 Allied Irish Banks Plc ............................... 306,968
236,200 Jefferson Smurfit Group .............................. 717,590
----------
1,024,558
----------
Italy: 2.6%
10,000 Bulgari S.p.A ........................................ 202,565
43,800 Istituto Mobiliare Italiano S.p.A. ................... 372,754
85,900 Stet Societa' Finanziara Tlefonica
S.p.A. ............................................. 389,417
----------
964,736
----------
Japan: 8.5%
5,980 Amway Japan, Ltd. .................................... 191,657
11,000 Canon, Inc. .......................................... 242,612
28,000 Citizen Watch Company, Ltd. .......................... 200,224
300 H.I.S. Company, Ltd. ................................. 14,474
3,300 Maruco Company, Ltd. ................................. 110,597
18,000 Matsushita Electric Industrial
Company, Ltd. ...................................... 293,099
13,000 Nitto Denko Corporation .............................. 190,402
18,000 Nomura Securities Company, Ltd. ...................... 269,837
110 NTT Data Communications Systems
Corporation ........................................ 321,272
22,000 Sodick2 .............................................. 181,959
6,100 Sony Corporation ..................................... 398,889
8,000 Tokyo Electron, Ltd. ................................. 244,680
11,000 Toyota Motor Corporation ............................. 315,585
21,000 Yamato Kogyo Company, Ltd. ........................... 193,590
----------
3,168,877
----------
Malaysia: 4.6%
42,000 Arab Malaysian Finance Bhd ........................... 234,488
4,000 Berjaya Sports Toto Bhd .............................. 19,956
41,000 Hong Kong Credit Bhd ................................. 258,126
140,000 Magnum Corporation Bhd ............................... 271,629
161,000 MBF Capital Bhd ...................................... 261,373
49,000 Sime Darby Bhd ....................................... 193,050
32,000 Sime Darby Bhd1 ...................................... 126,074
89,000 Tanjong Plc .......................................... 355,929
----------
1,720,625
----------
3
<PAGE>
(left column)
Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
Mexico: 1.0%
23,600 Tubos De Acero De Mexico S.A. (ADR)2 ................. $ 374,650
----------
Netherlands: 0.7%
6,120 Philips Electronics N.V. ............................. 247,668
----------
New Zealand: 3.2%
300,900 Brierley Investments, Ltd. ........................... 278,501
129,200 Carter Holt Harvey, Ltd. ............................. 293,023
62,100 Fisher & Paykel Industries, Ltd. ..................... 243,511
127,200 Fletcher Challenge Building .......................... 390,940
----------
1,205,975
----------
Norway: 2.0%
55,600 Fokus Banken AS2 ..................................... 381,384
21,200 Saga Petroleum AS .................................... 355,249
----------
736,633
----------
Philippines: 2.1%
635,500 C & P Homes, Inc. .................................... 326,207
414,500 Filinvest Land, Inc.2 ................................ 129,236
38,000 Manila Electric Company "B" .......................... 310,646
----------
766,089
----------
Poland: 1.9%
7,550 Debica S.A.2 ......................................... 168,921
16,411 Elektrim Towarzystwo Handlowe S.A. ................... 149,164
6,436 Wedel S.A. ........................................... 317,242
1,649 Zaklady Piwowarski w Zywcu S.A. ...................... 76,670
----------
711,997
----------
Portugal: 0.8%
4,700 Telecel-Communicacaoes Pessoais,
S.A.2 .............................................. 299,710
----------
Russia: 1.0%
7,700 LUKoil Holdings of Russia (ADR) ...................... 358,666
----------
Singapore: 4.1%
34,000 City Develoments, Ltd. ............................... 306,258
70,300 Clipsal Industries, Ltd. ............................. 255,892
84,000 DBS Land, Ltd. ....................................... 309,261
65,000 Inchcape Bhd ......................................... 225,833
69,000 Jardine Strategic Holdings, Ltd. ..................... 249,780
63,000 Want Want Holdings2 .................................. 165,690
----------
1,512,714
----------
Spain: 2.7%
1,600 Banco Popular Espanol S.A. ........................... 313,665
5,800 Banco Santander S.A. ................................. 370,540
8,800 Repsol S.A. .......................................... 336,913
----------
1,021,118
----------
(right column)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
Sweden: 1.6%
3,400 Astra AB ............................................. $ 167,808
25,200 Skandinaviska Enskilda Banken ........................ 258,347
6,400 Svenska Handelsbanken ................................ 183,713
----------
609,868
----------
Switzerland: 3.8%
240 ABB AG ............................................... 297,605
380 Nestle S.A. .......................................... 406,682
58 Roche Holdings AG .................................... 449,885
470 Winterthur Scheizerische
Versicherungs-Gesellschaft ......................... 270,927
----------
1,425,099
----------
Thailand: 0.4%
15,000 BEC World Public Company, Ltd.2 ...................... 135,725
13,600 Property Perfect Public Company,
Ltd. ............................................... 14,056
----------
149,781
----------
United Kingdom: 8.1%
285,300 Aegis Group Plc2 ..................................... 297,823
47,800 British Telecommunications Plc ....................... 322,702
33,600 D.F.S. Furniture Company Plc ......................... 347,010
107,400 Grand Metropolitan Plc ............................... 843,613
15,300 RTZ Corporation Plc .................................. 245,203
141,900 Tomkins Plc .......................................... 652,008
71,100 Vodafone Group Plc ................................... 299,925
----------
3,008,284
----------
United States: 18.9%
2,700 Abbott Laboratories .................................. 137,025
2,100 Ace, Ltd. ............................................ 126,262
2,600 AlliedSignal, Inc. ................................... 174,200
1,600 American International Group ......................... 173,200
2,400 Aon Corporation ...................................... 149,100
3,800 Avery-Dennison Corporation ........................... 134,425
4,200 Becton, Dickinson & Company .......................... 182,175
1,900 Boeing Company ....................................... 202,113
4,300 Borders Group, Inc.2 ................................. 154,262
8,300 Calpine Corporation2 ................................. 166,000
1,300 Citicorp ............................................. 133,900
2,250 Computer Associates International,
Inc. ............................................... 111,938
4,400 Conseco, Inc. ........................................ 280,500
1,800 CPC International, Inc. .............................. 139,500
3,000 Crown Cork & Seal Company, Inc. ...................... 163,125
2,600 Diamond Offshore Drilling, Inc.2 ..................... 148,200
4
<PAGE>
(left column)
Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
United States (continued)
3,400 Dover Corporation .................................... $ 170,850
3,600 Ecolab, Inc. ......................................... 135,450
3,700 Federal National Mortgage
Association ........................................ 137,825
5,700 Gap, Inc. ............................................ 171,712
3,400 Hasbro, Inc. ......................................... 132,175
4,200 Hershey Foods Corporation ............................ 183,750
3,000 Honeywell, Inc. ...................................... 197,250
3,400 Ingersoll-Rand Company ............................... 151,300
2,800 Johnson & Johnson .................................... 139,300
2,000 Lockheed Martin Corporation .......................... 183,000
1,300 Mobil Corporation .................................... 158,925
4,400 Monsanto Company ..................................... 171,050
3,600 NAC Re Corporation ................................... 121,950
1,900 NationsBank Corporation .............................. 185,725
3,300 Newmont Gold Company ................................. 144,375
2,800 Nike, Inc. ........................................... 167,300
3,500 Norwest Corporation .................................. 152,250
800 PacifiCare Health Systems, Inc.2 ..................... 68,100
2,600 Parker Hannifin Corporation .......................... 100,750
1,600 Procter & Gamble Company ............................. 172,000
5,400 Safeway, Inc.2 ....................................... 230,850
1,800 Schlumberger, Ltd. ................................... 179,775
5,400 Service Corporation International .................... 151,200
2,300 Union Pacific Corporation ............................ 138,288
5,047 Union Pacific Resources Group, Inc. .................. 147,625
1,900 United Healthcare Corporation ........................ 85,500
3,000 Warner-Lambert Company ............................... 225,000
3,000 Williams Companies, Inc. ............................. 112,500
4,000 WMX Technologies, Inc. ............................... 130,500
-----------
7,022,200
-----------
Total Common Stocks
(cost $32,521,014) ................................. $36,364,461
-----------
(right column)
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
Foreign Government Obligation: 1.7%
Germany: 1.7%
$1,000,000 German Treasury Bill, due 04/18/97
(cost $642,250) .................................... $ 643,036
-----------
Total Investments: 99.4%
(cost $33,163,264+) (Note 1) ....................... 37,007,497
Other assets in excess of liabilites:
0.6% ............................................... 215,986
-----------
Total Net Assets: 100.0%
(equivalent to $11.28 per share on
3,299,680 shares outstanding) ...................... $37,223,483
===========
1Restricted securities (Note 7).
2Non-income producing securities.
ADR - American Depository Receipt.
+Aggregate cost for Federal income tax purposes is $33,259,775.
At December 31, 1996, the composition of the Fund's net assets by industry was
as follows:
(col. 1)
Banking ......................... 11.0%
Capital Equipment ............... 6.5%
Chemicals ....................... 0.5%
Construction & Housing .......... 0.9%
Consumer durable ................ 7.5%
Consumer non-durable ............ 8.1%
Electrical & Electronics ........ 4.1%
(col. 2)
Energy Sources .................. 5.4%
Financial Services .............. 12.3%
Foreign Government Obligation ... 1.7%
Health & Personal Care .......... 3.9%
Materials ....................... 14.0%
Merchandising ................... 2.5%
(col. 3)
Multi-industry .................. 7.5%
Real Estate ..................... 2.0%
Services ........................ 5.5%
Telecommunications .............. 4.4%
Trade ........................... 0.4%
Transportation .................. 0.4%
Utilities ....................... 0.8%
Other Assets .................... 0.6%
-----
100.0%
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Lexington Global Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<S> <C>
Assets
Investments, at value (cost $33,163,264) (Note 1) ....................................... $37,007,497
Cash .................................................................................... 917,219
Receivable for investment securities sold ............................................... 856,537
Receivable for shares sold .............................................................. 5,500
Dividends and interest receivable ....................................................... 28,933
Foreign taxes recoverable ............................................................... 21,816
-----------
Total Assets ....................................................................... 38,837,502
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ........................................ 30,354
Payable for investment securities purchased ............................................. 1,195,188
Payable for shares redeemed ............................................................. 6,827
Distributions payable ................................................................... 311,800
Accrued expenses ........................................................................ 51,507
Unrealized loss on open forward contracts (Note 6) ...................................... 18,343
-----------
Total Liabilities .................................................................. 1,614,019
-----------
Net Assets (equivalent to $11.28 per share on 3,299,680 shares outstanding) (Note 3) .... $37,223,483
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
$.001 par value per share ............................................................. $ 3,300
Additional paid-in capital (Note 1) ..................................................... 33,683,879
Distributions in excess of net investment income (Note 1) ............................... (14,783)
Accumulated net realized loss on investments and foreign currency transactions (Note 1) . (273,232)
Unrealized appreciation of investments and foreign currency transactions ................ 3,824,319
-----------
Total Net Assets ................................................................... $37,223,483
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
Lexington Global Fund, Inc.
Statement of Operations
Year ended December 31, 1996
<TABLE>
Investment Income
<S> <C> <C>
Dividends .......................................................... $ 716,467
Interest ........................................................... 155,261
---------
871,728
Less: Foreign tax expense .......................................... 81,330
---------
Total Investment income $ 790,398
Expenses
Investment advisory fee (Note 2) ................................. 393,512
Custodian fees ................................................... 112,967
Transfer agent and shareholder servicing expense (Note 2) ........ 63,772
Printing and mailing expenses .................................... 50,648
Accounting expenses (Note 2) ..................................... 36,753
Professional fees ................................................ 24,715
Registration fees ................................................ 20,694
Directors' fees and expenses ..................................... 15,769
Computer processing fees ......................................... 10,524
Other expenses ................................................... 17,796
---------
Total expenses ................................................ 747,150
----------
Net investment income .................................... 43,248
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Net realized gain on:
Investments ................................................... 4,838,386
Foreign currency transactions ................................. 1,197,910
---------
Net realized gain ........................................... 6,036,296
Net change in unrealized appreciation on:
Investments ................................................. (86,094)
Foreign currency translations of other assets and liabilities 1,570
---------
Net change in unrealized appreciation ....................... (84,524)
----------
Net realized and unrealized gain .......................... 5,951,772
----------
Increase in Net Assets Resulting from Operations ................... $5,995,020
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
Lexington Global Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net investment income ...................................................................... $ 43,248 $ 280,577
Net realized gain from investments and foreign currency transactions ....................... 6,036,296 3,775,954
Net change in unrealized appreciation of investments and foreign
currency translations ................................................................... (84,524) 1,614,187
----------- -----------
Increase in net assets resulting from operations ..................................... 5,995,020 5,670,718
Distributions to shareholders from net investment income ................................... (457,395) (1,284,116)
Distributions to shareholders in excess of net investment income (Note 1) .................. - (576,895)
Distributions to shareholders from net realized gains from security transactions ........... (4,924,188) (2,751,490)
----------- -----------
Total distributions .................................................................. (5,381,583) (4,612,501)
----------- -----------
Decrease in net assets from capital share transactions (Note 3) ............................ (17,004,160) (14,836,260)
----------- -----------
Net decrease in net assets ........................................................... (16,390,723) (13,778,043)
Net Assets:
Beginning of period ...................................................................... 53,614,206 67,392,249
----------- -----------
End of period (including distributions in excess of net investment income of $14,783
and $534,709, respectively) ................................................................ $37,223,483 $53,614,206
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
8
<PAGE>
Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995
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 Fund's investment objective is to seek long-term growth of
capital primarily through investment in common stock of companies domiciled in
foreign countries and the United States. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements:
Investments Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked price is used. Securities traded on the over-the-counter market are valued
at the mean between the last current bid and asked price. Short-term securities
having a maturity of 60 days or less are stated at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available and other assets are valued by Fund management in good faith
under the direction of the Fund's 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. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income, adjusted for amortization of premiums and accretion of discounts, 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
closed and are reported in the statement of operations.
Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
Distributions Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1996,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
9
<PAGE>
Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995 (continued)
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results may differ from those estimates.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets. The
investment advisory contract provides that the total annual expenses of the Fund
(including management fees, but excluding interest, taxes, brokerage commissions
and extraordinary expenses) will not exceed the level of expenses which the Fund
is permitted to bear under the most restrictive expense limitation imposed by
any state in which shares of the Fund are offered for sale. No reimbursement was
required for the year ended December 31, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $74,809 which were incurred by the Fund, but paid
by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
Year ended Year ended
December 31, 1996 December 31, 1995
------------------------ ------------------------
Shares Amount Shares Amount
---------- ------------ ---------- ------------
Shares sold ............... 639,550 $ 7,983,790 357,460 $ 4,001,451
Shares issued to shareholders on
reinvestment of dividends 452,255 5,069,783 326,079 3,690,927
---------- ------------ ---------- ------------
1,091,805 13,053,573 683,539 7,692,378
Shares redeemed ........... (2,526,528) (30,057,733) (1,984,366) (22,528,638)
---------- ------------ ---------- ------------
Net decrease .............. (1,434,723) $(17,004,160) (1,300,827) $(14,836,260)
========== ============ ========== ============
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year
ended December 31, 1996, excluding short-term securities, were $46,860,395 and
$68,465,916 respectively.
At December 31, 1996, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$4,543,992 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $816,184.
10
<PAGE>
Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995 (continued)
5. Investment and Concentration 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 a result of the potential inability of
counterparties to meet the terms of their contracts.
6. Forward Foreign Exchange Contracts
At December 31, 1996, the Fund was committed to sell foreign currency under
the following forward foreign exchange contract:
Unrealized
Settlement Contract Contract Current Loss at
Security Date Amount Rate Rate 12/31/96
-------- --------- -------- -------- ------- --------
New Zealand Dollar ....... 04/01/97 $731,074 0.6859 0.7031 ($18,343)
--------
7. Restricted Securities
The following securities were purchased under Rule 144A of the Securities
Act of 1933 and, unless registered under the Act or exempted from registration,
may be sold only to qualified institutional investors.
Acquisition Average Cost Market % of Net
Security Date Shares Per Share Value Assets
- -------- ---- ------ --------- ----- ------
Credit Communal Holding/Dexia .... 11/20/96 2,700 $84.51 $246,077 0.66%
Sime Darby Bhd ................... 11/26/96 32,000 3.72 126,074 0.34%
-------- -----
$372,151 1.00%
-------- -----
Pursuant to guidelines adopted by the Fund's Board of Directors, these
unregistered securities have been deemed to be illiquid. The Fund currently
limits investment in illiquid securities to 15% of the Fund's net assets, at
market value, at the time of purchase.
11
<PAGE>
Lexington Global Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............... $11.32 $11.17 $13.51 $11.09 $11.57
------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income ............. 0.01 0.09 0.02 0.06 0.06
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .... 1.84 1.10 0.23 3.47 (0.47)
------ ------ ------ ------ ------
Total income (loss) from
investment operations ........... 1.85 1.19 0.25 3.53 (0.41)
------ ------ ------ ------ ------
Less distributions:
Distributions from net investment
income .......................... (0.16) (0.29) - (0.06) (0.07)
Distributions in excess of
net investment income
(temporary book-tax
difference) ..................... - (0.13) - - -
Distributions from net realized
gains ........................... (1.73) (0.62) (2.46) (1.05) -
Distributions in excess of
net realized gains
(temporary book-tax
difference) ..................... - - (0.13) - -
------ ------ ------ ------ ------
Total distributions ........ (1.89) (1.04) (2.59) (1.11) (.07)
------ ------ ------ ------ ------
Net asset value, end of period ...... $11.28 $11.32 $11.17 $13.51 $11.09
====== ====== ====== ====== ======
Total return ........................ 16.43% 10.69% 1.84% 31.88% (3.55%)
Ratio to average net assets:
Expenses .......................... 1.90% 1.67% 1.61% 1.49% 1.52%
Net investment income ............. 0.11% 0.48% 0.14% 0.52% 0.55%
Portfolio turnover rate .............128.05% 166.35% 83.40% 84.61% 81.38%
Average commision paid on
equity security transactions* ..... $ 0.03 - - - -
Net assets at end of period .........$37,223 $53,614 $67,392 $87,313 $50,298
</TABLE>
*In accordance with recent SEC disclosure guidelines, average commissions are
calculated for the current period and not for prior periods.
12
<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, 1996, the related statement of operations for the year
then ended, the statements of changes in net assets for each of the years in the
two-year period then ended, and the financial highlights for 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, 1996 by correspondence with the custodian. As to securities
purchased and sold but not received or delivered, we performed other appropriate
auditing procedures. 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, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
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 10, 1997
13
<PAGE>
Left Column
Lexington
Global Fund, Inc.
Investment Adviser
- ------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Distributor
- ------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
----------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
----------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
----------------------------------------
- ------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield * Account Balances * Exchanges *
Last Transactions * Total Return * Duplicate Statements
- ------------------------------------------------------
This report has been prepared for the information of
the shareholders of Lexington Global Fund, Inc. and is
authorized for distribution to the public only if it is
accompanied or preceded by a currently effective
prospectus which sets forth expenses and other material
information.
Right Column
------------------------------
LEXINGTON
------------------------------
LEXINGTON
GLOBAL
FUND, INC.
(filled box)
Seeks long-term growth of capital,
primarily through investment in
common stocks of companies
domiciled in foreign countries and
the United States.
(filled box)
ANNUAL REPORT
DECEMBER 31, 1996
The Lexington Group
of No Load
Investment Companies
------------------------------
