DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The Lexington Global Fund declined 8.1%* during the fourth quarter and
posted a 6.9%* gain for the full year. The average global fund, according to
Lipper Analytical Services, Inc., fell 5.1% during the quarter and advanced
12.9% for the year. The unmanaged Morgan Stanley Capital International World
Index dropped only 2.5% in the fourth quarter and gained 15.8% for the year.
The Fund underperformed due to its relatively light weighting of 22% in the
U.S. stock market. In hindsight our expectation that the stretched valuation of
the U.S. stock market would cause sub-par returns in 1997 was wrong. The
unmanaged Morgan Stanley Capital International U.S. lndex appreciated 33.4% for
the year and posted a positive return of 3.4% during the fourth quarter. The
Fund has maintained an overweight European equity position in lieu of U.S.
stocks. Our European stocks also performed extremely well, however, a strong
dollar muted the gains, causing returns to lag those in the U.S. Financial
turmoil in Asia had a particularly damaging impact on cyclical stocks, of which
the Fund had a relatively high percentage. This also contributed to lagging
performance. On a positive note, low weightings in Japan and emerging markets
prevented the Fund from suffering sharp losses.
The current investment environment is quite volatile. The Asian contagion
has not abated and the situation remains very serious, with many economies in
the region likely to experience a depression in 1998. Compounding the problem is
a weak Japanese economy, which is bordering on slipping into a recession. China
will also prove very important. A relatively strong currency and shrinking
export markets will cause a sharp slowdown in China's economy. If China was to
devalue its currency, a new round of competitive devaluations could result.
Devaluation of Asian currencies has been particularly painful due to the
huge amount of foreign denominated debt. As currencies have fallen over 50%,
this debt can no longer be serviced, particularly as local economic activity
dramatically weakens. Thus, sharp falls can be expected in private fixed
investment and domestic demand. Unemployment will rise rapidly in the region,
possibly leading to political and social unrest. Southeast Asian stock markets
have been ravaged. For example, Indonesian stocks fell 74% while Thai stocks
declined 77% in 1997. Exports and foreign investment, along with debt
restructuring, will be the tools used to repair these damaged economies.
The risks to global markets elsewhere have increased. Emerging markets
around the world are now suffering from high real interest rates. This alone
will slow these economies. Euphoria seems to continue unabated in the U.S. as
the Asian crisis is considered positive by many since bond yields will head
lower and the Federal Reserve will not raise interest rates. The U.S. economy is
likely to slow due to several factors in 1998. The traded goods sector which
represents over 20% of the economy, will slow as U.S. exports weaken due to the
decrease in Asian demand and increase in competition. Conversely, foreign
exports can be expected to flood the U.S., particularly since the U.S. dollar
and consumer demand remain strong. The U.S. could become the sponge for global
excess capacity, leading to a dramatically higher trade deficit and probably
greater talk of protectionism in the U.S. Congress if U.S. jobs are at risk.
U.S. profits are likely to disappoint as the economy slows and competition
accelerates.
Both Europe and Japan will also be hurt by the Asian collapse. Japan may be
forced to reverse a tight fiscal policy or face the risk of entering a
recession. Pain is increasing in Japan and more reform is likely to take hold.
Economies in Europe will also slow in 1998. However, the weakness in European
currencies versus the dollar, will give companies in the region an advantage
over the U.S. counterparts in the trade sector. In addition, restructuring will
continue to be a positive theme for European equities during 1998.
The Fund remains underweight in U.S. equities as valuations are high and
earnings are likely to disappoint. Europe remains attractive due to
restructuring by the corporate sector, which will drive earnings even if sales
growth is weak. However, European equities will also be vulnerable to any sharp
fall in U.S. equities. Sector selection will be very important this year. The
Fund currently has a low cyclical weighting, believing world growth will slow,
leading to profit downgrades. Favored industries are more defensive--utilities,
food and pharmaceuticals. The economic outlook for Asia remains poor and the
news is likely to get worse, at least in the short term. However, there are many
cheap stocks in Asia, with large gains likely to come from this region during
the next few years. Japanese stocks with strong balance sheets and trading at
steep
1
<PAGE>
discounts to book value look compelling. Therefore, weightings are likely to be
increased in Japan and the rest of Asia over the next several months.
In conclusion, it has been a difficult environment to invest. Our concern
about the value of U.S. equities hurt performance in 1997. However, markets can
get overbought as well as oversold. Europe, Asia, and Latin America offer
greater relative opportunity in 1998 than the U.S. market that has been "priced
to perfection". Any slowdown in profit growth for U.S. companies will place
downward price pressure on U.S. stocks. We believe our higher weighting in
non-U.S. stocks will be rewarded this year.
Sincerely,
/s/ Richard T. Saler /s/ Alan H. Wapnick /s/ Robert M. DeMichele
- -------------------- ------------------- -----------------------
Richard T. Saler Alan H. Wapnick Robert M. DeMichele
Portfolio Manager Portfolio Manager President
February, 1998 February, 1998 February, 1998
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
LEXINGTON GLOBAL FUND, INC. AND
THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL WORLD INDEX
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED REPORT]
Year Lexington MSCI
Global
===========================================
12/31/87 $10,000 $10,000
12/31/88 $11,634 $12,329
12/31/89 $14,555 $14,376
12/31/90 $12,118 $11,933
12/31/91 $14,001 $14,116
12/31/92 $13,505 $13,385
12/31/93 $17,810 $16,391
12/31/94 $18,138 $17,222
12/31/95 $20,077 $20,790
12/31/96 $23,377 $23,593
12/31/97 $24,989 $27,312
The graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Morgan Stanley Capital
International World Index ("MSCI-World Index"). Results for the Fund and the
MSCI-World Index include the reinvestment of all dividend and capital gain
distributions. The Fund commenced operations of 3/27/87. 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.
- --------------------------------------------------------------------------------
Average Annual Standard Total Returns
for the Period Ended 12/31/97
-------------------------------------
FUND/INDEX 1 YEAR 5 YEAR 10 YEAR
---------- ------ ------ -------
Lexington Global Fund 6.90% 13.10% 9.59%
MSCI-World Index 15.76% 15.33% 10.57%
- --------------------------------------------------------------------------------
**6.90%, 13.10% and 9.59% are the one, five and ten year average annual standard
total returns, respectively, for the period ended December 31, 1997.
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.
2
<PAGE>
LEXINGTON GLOBAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997
NUMBER
OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
COMMON STOCK: 88.3%
AUSTRALIA: 4.3%
417,000 Foster's Brewing Group, Ltd. .... $ 793,373
71,093 QBE Insurance Group, Ltd. ....... 319,945
187,000 Telstra Corporation, Ltd.2 ...... 394,770
--------------
1,508,088
--------------
AUSTRIA: 1.6%
3,900 Boehler - Uddeholm AG ........... 228,281
1,800 Wienerberger Baustoffindustrie AG 345,036
-------------
573,317
-------------
BELGIUM: 1.6%
2,480 Electrabel S.A. ................. 573,648
-------------
CANADA: 5.6%
13,900 Bombardier, Inc. "B" ............ 285,573
15,100 Hudson's Bay Company ............ 336,079
33,200 Imax Corporation2 ............... 722,100
27,500 Tarragon Oil & Gas, Ltd.2 ....... 215,231
80,200 Yogen Fruz World-Wide, Inc.2 .... 395,110
--------------
1,954,093
--------------
FRANCE: 4.0%
2,880 Alcatel Alsthom ................. 366,232
3,900 Axa-UAP ......................... 301,907
9,300 Elf Aquitaine S.A.(ADR) ......... 545,213
3,130 Sidel S.A. ...................... 207,596
--------------
1,420,948
--------------
GERMANY: 4.9%
2,700 Allianz AG ...................... 699,761
10,200 Deutsche Bank AG ................ 720,450
3,500 Hoechst AG ...................... 122,633
13,100 Rofin - Sinar Technologies, Inc.2 158,838
--------------
1,701,682
--------------
HONG KONG: 0.5%
376,000 JCG Holdings, Ltd. .............. 161,352
--------------
HUNGARY: 0.2%
1,800 Zalakeramia Rt. ................. 83,557
--------------
INDONESIA: 1.0%
88,000 PT Hanjaya Mandala Sampoerna .... 66,462
263,000 PT Tambang Timah ................ 282,392
--------------
348,854
--------------
IRELAND: 3.1%
34,700 Allied Irish Banks Plc .......... $ 336,321
10,800 Elan Corporation Plc (ADR)2 ..... 552,825
43,200 Ryanair Holdings Plc2 ........... 205,042
--------------
1,094,188
--------------
ITALY: 1.0%
52,900 Telecom Italia SpA .............. 338,584
--------------
JAPAN: 4.8%
5,700 Acom Company, Ltd. .............. 315,641
7,500 Amway Japan, Ltd. ............... 144,207
7,200 Doutor Coffee Company, Ltd. ..... 185,508
3,300 Maruco Company, Ltd. ............ 18,020
22,000 Mitsubishi Estate Company ....... 240,269
29,000 Mitsui Fudosan Company, Ltd. .... 281,031
65,000 Nippon Steel Corporation ........ 96,484
2,600 Sony Corporation ................ 231,962
3,700 Tiemco, Ltd. .................... 37,563
21,000 Yamato Kogyo Company, Ltd. ...... 126,787
--------------
1,677,472
--------------
MALAYSIA: 0.8%
79,000 Highlands and Lowlands Bhd ...... 80,779
76,000 Kuala Lumpur Kepong Bhd ......... 163,037
79,000 Magnum Corporation Bhd .......... 47,493
-------------
291,309
-------------
NETHERLANDS: 0.6%
1,600 Koninklijke Ahrend Groep NV ..... 50,276
2,800 Unilever NV ..................... 174,825
-------------
225,101
-------------
NEW ZEALAND: 1.4%
398,900 Brierley Investments, Ltd. ...... 284,896
99,200 Fletcher Challenge Building ..... 202,755
-------------
487,651
-------------
NORWAY: 1.6%
31,700 Saga Petroleum AS ............... 546,093
-------------
PHILIPPINES: 0.5%
1,459,500 C & P Homes, Inc. ............... 86,329
179,400 Ionics Circuit, Inc. ............ 74,190
-------------
160,519
-------------
POLAND: 0.2%
1,619 Wedel S.A. ...................... 83,134
-------------
3
<PAGE>
LEXINGTON GLOBAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997 (continued)
NUMBER
OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
SINGAPORE: 0.4%
49,000 Keppel Fels Limited ............... $ 136,682
--------------
SPAIN: 2.2%
8,100 Adolfo Dominguez S.A. 2............ 235,163
3,600 Banco Popular Espanol ............. 251,549
3,500 Tele Pizza, S.A.2 ................. 282,452
--------------
769,164
--------------
SWEDEN: 4.7%
34,400 Castellum AB 2..................... 342,510
62,800 Fastighets AB Hufvudstaden ........ 241,405
45,400 Industrial & Financial
Systems, IFS AB 1,2 ............. 314,707
12,900 Skandinaviska Enskilda Banken ..... 163,397
172,000 Swedish Match AB .................. 574,463
--------------
1,636,482
--------------
SWITZERLAND: 5.0%
250 Nestle AG ......................... 375,201
400 Novartis AG ....................... 649,960
470 Rentenanstalt- Societe Suisse
Assurances Vie .................. 369,607
490 Saurer AG2 ........................ 356,107
--------------
1,750,875
--------------
UNITED KINGDOM: 15.6%
244,000 Aegis Group Plc ................... 275,012
24,400 Beazer Group Plc .................. 64,839
43,700 Capita Group Plc .................. 265,325
35,500 D.F.S. Furniture Company Plc ...... 301,404
154,900 George Wimpey Plc ................. 270,165
24,900 Glaxo Welcome Plc ................. 589,155
28,500 Harvey Nichols Plc ................ 90,271
14,000 Oriflame International S.A. ....... 102,508
29,100 PizzaExpress Plc .................. 359,109
88,000 Polypipe Plc ...................... 254,116
33,700 Provident Financial Plc ........... 441,936
64,200 Regent Inns Plc ................... 348,066
27,000 Royal Bank of Scotland Group Plc 345,633
15,300 RTZ Corporation Plc ............... 188,558
76,300 Tomkins Plc ....................... 356,545
22,500 United Utilities Plc .............. 290,618
47,000 Vodafone Group Plc ................ 342,975
41,000 Whitbread Plc ..................... 596,021
--------------
5,482,256
--------------
UNITED STATES: 22.7%
2,100 Ace, Ltd. ......................... 202,650
4,800 AlliedSignal, Inc. ................ 186,900
2,700 Allstate Corporation .............. 245,363
2,400 BJ Services Company 2.............. 172,650
5,000 Borders Group, Inc. 2.............. $ 156,563
2,000 Bristol-Myers Squibb Company ...... 189,250
3,000 Cardinal Health, Inc. ............. 225,375
3,400 Computer Associates International Inc. 179,775
3,100 Conseco, Inc. ..................... 140,856
5,000 Costco Companies, Inc. 2 .......... 222,969
4,600 Cymer, Inc. 2...................... 69,144
2,400 Diamond Offshore Drilling, Inc. ... 115,500
4,400 Dover Corporation ................. 158,950
3,100 Ecolab, Inc. ...................... 171,856
2,900 Eli Lilly & Company ............... 201,913
6,800 EMC Corporation2 .................. 186,575
3,700 Federal National Mortgage Association 211,131
4,100 Fort James Corporation ............ 156,825
5,100 Gap, Inc. ......................... 180,731
9,200 Global Industries, Ltd. 2 ......... 156,687
3,450 Ingersoll-Rand Company ............ 139,725
3,400 Medtronic, Inc. ................... 177,863
2,600 Mobil Corporation ................. 187,688
4,000 NAC Re Corporation ................ 195,250
3,100 NationsBank Corporation ........... 188,519
7,000 Norwest Corporation ............... 270,375
4,100 PepsiCo, Inc. ..................... 149,394
2,300 Pfizer, Inc. ...................... 171,494
2,700 Praxair, Inc. ..................... 121,500
2,200 Procter & Gamble Company .......... 175,588
3,300 Rite Aid Corporaton ............... 193,669
2,800 Safeway, Inc. 2 ................... 177,100
3,600 Sealed Air Corporation 2 .......... 222,300
5,000 Sungard Data Systems, Inc. 2 ...... 155,000
2,500 Texaco, Inc. ...................... 135,938
2,500 The Home Depot, Inc. .............. 147,187
3,400 The TJX Companies, Inc. ........... 116,875
2,000 The Walt Disney Company ........... 198,125
4,200 The Williams Companies, Inc. ...... 119,175
5,100 Tosco Corporation ................. 192,844
5,400 Tyco International, Ltd. .......... 243,338
3,000 Union Planters Corporation ........ 203,813
3,600 United Healthcare Corporation ..... 178,875
4,700 UNUM Corporation .................. 255,563
900 Warner-Lambert Company ............ 111,600
---------------
7,960,461
---------------
TOTAL COMMON STOCK
(cost $28,688,612) .............. 30,965,510
---------------
4
<PAGE>
LEXINGTON GLOBAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997 (continued)
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
PREFERRED STOCK: 1.4%
CHILE: 0.5%
13,100 Banco Santander (ADR) ........... $ 185,038
---------------
GERMANY: 0.9%
854 Sto AG .......................... 308,725
---------------
TOTAL PREFERRED STOCK
(cost $563,250) ............... 493,763
---------------
PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 10.0%
U.S. GOVERNMENT AGENCY
OBLIGATION
$3,500,000 Federal Home Loan Mortgage
Corp., 4.75%, due 1/2/98
(cost $3,499,538) .............. $ 3,499,538
--------------
TOTAL INVESTMENTS: 99.7%
(cost $32,751,400+) (Note 1) .. 34,958,811
Other assets in excess of
liabilities: .3% .............. 126,484
--------------
TOTAL NET ASSETS: 100.0%
(equivalent to $10.59 on 3,314,579
shares outstanding) ............ $ 35,085,295
==============
1 Restricted Security (Note 7).
2 Non-income producing security.
ADR - American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $32,908,083.
---------------------------------------
At December 31, 1997, the composition of the Fund's net assets by industry was
as follows:
Banking ..................................... 6.3%
Capital Equipment ........................... 5.7
Construction & Housing ...................... 1.2
Consumer-Durable Goods ...................... 1.7
Consumer-Non durable
Goods ..................................... 10.4
Electrical & Electronics .................... 1.1
Energy Sources .............................. 6.4
Financial Services .......................... 12.3
Health & Personal Care ...................... 9.0
Materials ................................... 7.2
Merchandising ............................... 7.6
Multi-Industry .............................. 3.2
Real Estate ................................. 3.2
Services .................................... 7.2
Telecommunications .......................... 4.1
Transportation .............................. 0.6
U.S. Government Agency
Obligation ................................ 10.0
Utilities ................................... 2.5
Other Assets ................................ 0.3
-----
Total Net Assets ............................ 100.0%
=====
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GLOBAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<S> <C>
ASSETS
Investments, at value (cost $32,751,400) (Note 1) .................................. $ 34,958,811
Cash ............................................................................... 215,916
Receivable for investment securities sold .......................................... 156,872
Dividends and interest receivable .................................................. 24,700
Foreign taxes recoverable .......................................................... 24,072
Unrealized gain on open forward contracts (Note 6) ................................. 125,435
------------
Total Assets ................................................................. 35,505,806
------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ................................... 29,659
Payable for investment securities purchased ........................................ 141,181
Payable for shares redeemed ........................................................ 2,572
Distributions payable .............................................................. 193,780
Accrued expenses ................................................................... 53,319
------------
Total Liabilities ............................................................ 420,511
------------
NET ASSETS (equivalent to $10.59 per share on 3,314,579 shares outstanding) (Note 3) $ 35,085,295
============
NET ASSETS consist of:
Capital stock--authorized 1,000,000,000
shares, $.001 par value per share ............................................... $ 3,314
Additional paid-in capital (Note 1) ................................................ 33,160,834
Distributions in excess of net investment income (Note 1) .......................... (38,192)
Accumulated net realized loss on investments and foreign currency holdings (Note 1) (372,549)
Unrealized appreciation on investments and foreign currency holdings ............... 2,331,888
------------
TOTAL NET ASSETS ............................................................. $ 35,085,295
============
</TABLE>
6
The Notes to Financial Statements are an integral part of this statement.
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GLOBAL FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1997
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................................ $ 702,001
Interest ............................................................. 122,309
----------
..................................................................... 824,310
Less: foreign tax expense ............................................ 74,150
----------
Investment income .................................................... $ 750,160
EXPENSES
Investment advisory fee (Note 2) ..................................... 378,573
Custodian expense .................................................... 84,857
Transfer agent and shareholder servicing expenses (Note 2) ........... 54,738
Accounting expenses (Note 2) ......................................... 34,574
Printing and mailing expenses ........................................ 26,669
Professional fees .................................................... 23,930
Registration fees .................................................... 19,145
Directors' fees and expenses ......................................... 17,237
Computer processing fees ............................................. 10,311
Other expenses ....................................................... 13,225
----------
Total expenses ....................................................... 663,259
----------
Net investment income ................................................ 86,901
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 4)
Net realized gain on:
Investments ........................................................ 3,912,960
Foreign currency transactions ...................................... 151,351
----------
Net realized gain ................................................ 4,064,311
Net change in unrealized appreciation on:
Investments ........................................................ (1,636,822)
Foreign currency translation of other assets and liabilities ....... 144,391
----------
Net change in unrealized appreciation ............................. (1,492,431)
----------
Net realized and unrealized gain ..................................... 2,571,880
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ..................... $2,658,781
==========
</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, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Net investment income .............................................. $ 86,901 $ 43,248
Net realized gain from investments and foreign currency transactions 4,064,311 6,036,296
Net change in unrealized appreciation of investments and
foreign currency translation ..................................... (1,492,431) (84,524)
------------ ------------
Increase in net assets resulting from operations ............. 2,658,781 5,995,020
Distributions to shareholders from net investment income ........... (262,905) (457,395)
Distributions to shareholders from net realized gains from
security transactions ............................................ (4,011,033) (4,924,188)
Decrease in net assets from capital share transactions (Note 3) .... (523,031) (17,004,160)
------------ ------------
Net decrease in net assets ................................... (2,138,188) (16,390,723)
NET ASSETS:
Beginning of period .............................................. 37,223,483 53,614,206
------------ ------------
End of period (including distributions in excess of net investment
income of $38,192 and $14,783, 1997 and 1996, respectively) .... $ 35,085,295 $ 37,223,483
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
8
<PAGE>
LEXINGTON GLOBAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
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, 1997,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
9
<PAGE>
LEXINGTON GLOBAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
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. For
1997, LMC has voluntarily agreed to limit the total expenses of the Fund
(including management fees, but excluding interest, taxes, brokerage commissions
and extraordinary expenses) to an annual rate of 2.50% of the Fund's average
daily net assets. No reimbursement was required for the year ended December 31,
1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $55,480 which are incurred by the Fund, but paid
by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
---------------------------- ---------------------------
Shares Amount Shares Amount
---------- ------------- ---------- ------------
<S> <C> <C> <C> <C>
Shares sold ....................................... 216,204 $ 2,635,131 639,550 $ 7,983,790
Shares issued on reinvestment of dividends ........ 388,677 4,071,820 452,255 5,069,783
------- ----------- --------- -------------
604,881 6,706,951 1,091,805 13,053,573
Shares redeemed ................................... (589,982) (7,229,982) (2,526,528) (30,057,733)
------- ----------- --------- -------------
Net increase (decrease) ........................... 14,899 $ (523,031) (1,434,723) $ (17,004,160)
======= =========== ========= =============
</TABLE>
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year
ended December 31, 1997, excluding short-term securities, were $41,257,640 and
$48,422,094 respectively.
At December 31, 1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$4,641,710 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,590,982.
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.
10
<PAGE>
LEXINGTON GLOBAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
6. FORWARD FOREIGN EXCHANGE CONTRACTS
At December 31, 1997, the Fund was committed to sell foreign currencies
under the following forward foreign exchange contracts:
<TABLE>
<CAPTION>
Contract
Amount Unrealized
Settlement (Local In Exchange Gain at
Contract Date Currency) For Value 12/31/97
------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
New Zealand Dollar .................... 04/06/98 825,138 $ 526,314 $ 475,519 $ 50,795
Australian Dollar ..................... 05/04/98 1,340,587 942,500 875,778 66,722
Canadian Dollar ....................... 06/01/98 1,532,374 1,084,099 1,076,181 7,918
--------
$125,435
========
</TABLE>
7. RESTRICTED SECURITIES
The following security was 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.
<TABLE>
<CAPTION>
Acquisition Average Cost Market % of Net
Security Date Per Share Value Assets
------- ---- -------- ----- ------
<S> <C> <C> <C> <C>
Industrial and Financial Systems, IFSAB 6/12/97 $ 4.88 $ 314,707 0.90%
========= =====
</TABLE>
Pursuant to guidelines adopted by the Fund's Board of Directors, this
unregistered security has been deemed to be illiquid. The Fund currently limits
investment in illiquid securities to 15% of the Fund's net assets, at market
value.
8. TAX INFORMATION (UNAUDITED)
The percentage of investment company taxable income eligible for the
dividends received deduction available to certain corporate shareholders with
respect to the year ended, December 31, 1997, is 3.38%.
Capital gain distributions paid to shareholders by the Fund during the year
ended December 31, 1997, whether taken in shares or cash:
$1,123,077 are designated as 28 percent long-term capital gains.
$1,146,486 are designated as 20 percent long-term capital gains.
11
<PAGE>
LEXINGTON GLOBAL FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Selected per share data for a share outstanding throughout the period:
Year ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ....................... $ 11.28 $ 11.32 $ 11.17 $ 13.51 $ 11.09
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income ..................... 0.03 0.01 0.09 0.02 0.06
Net realized and unrealized gain
on investments and foreign
currency transactions ................... 0.73 1.84 1.10 0.23 3.47
-------- -------- -------- -------- --------
Total income from
investment operations ................... 0.76 1.85 1.19 0.25 3.53
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment
income .................................. (0.09) (0.16) (0.29) -- (0.06)
Distributions in excess of
net investment income
(temporary book-tax
difference) ............................. -- -- (0.13) -- --
Distributions from net realized
gains ................................... (1.36) (1.73) (0.62) (2.46) (1.05)
Distributions in excess of net
realized gains (temporary
book-tax difference) .................... -- -- -- (0.13) --
-------- -------- -------- -------- --------
Total distributions ................. (1.45) (1.89) (1.04) (2.59) (1.11)
-------- -------- -------- -------- --------
Net asset value, end of period .............. $ 10.59 $ 11.28 $ 11.32 $ 11.17 $ 13.51
======== ======== ======== ======== ========
Total return ................................ 6.90% 16.43% 10.69% 1.84% 31.88%
Ratio to average net assets:
Expenses .................................. 1.75% 1.90% 1.67% 1.61% 1.49%
Net investment income ..................... 0.23% 0.11% 0.48% 0.14% 0.52%
Portfolio turnover rate ..................... 117.48% 128.05% 166.35% 83.40% 84.61%
Average commission paid on equity
security transactions** ................... $0.01 $0.03 -- -- --
Net assets, end of period
(000's omitted) ........................... $ 35,085 $ 37,223 $ 53,614 $ 67,392 $ 87,313
</TABLE>
** In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but 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, 1997, and the related statements of operations for the
year ended, the statement 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, 1997 by correspondence with the custodian. As to securities
purchased or sold, but not yet 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, 1997, the result 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 4, 1998
13
<PAGE>
LEXINGTON
INVESTOR SERVICES
- --------------------------------------------------------------------------------
AS A LEXINGTON SHAREHOLDER, YOU SHOULD BE AWARE OF THE MANY SERVICES AVAILABLE
TO YOU.
NO LOAD--The Lexington Funds are no load funds. That is, investments and
redemptions are made without any sales charges, commissions or redemption fees.*
--------------------
FREE TELEPHONE EXCHANGE--Investments in the Lexington Funds may be exchanged for
shares of a different Lexington Fund at any time.
CHECK WRITING PRIVILEGES--Lexington Money Market Trust permits investors
immediate access to their funds with check writing for withdrawals from their
account.
--------------------
TAX SHELTERED PLANS--IRA, Keogh, Pension, and Profit Sharing Prototype Plans are
available to qualified individuals. These plans offer investment flexibility
through the Share Exchange Service, simplified record keeping, convenience and
investment supervision.
--------------------
CUSTODIAL ACCOUNTS FOR MINORS--Investments may be made on behalf of minors under
the Uniform Gifts to Minors Act currently in effect in all states.
--------------------
SYSTEMATIC WITHDRAWAL PLAN--An investor may elect to receive a fixed amount from
his or her account each month or quarter, subject to certain minimums.
--------------------
COMPLETE RECORD KEEPING--A statement is provided for every transaction in
addition to a year-end statement with tax information.
THE LEXINGTON GROUP OF
NO LOAD INVESTMENT COMPANIES
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.--Seeks long-term growth of
capital primarily through investment in equity securities of companies domiciled
in, or doing business in, emerging countries and emerging markets.
LEXINGTON GLOBAL FUND, INC.--Seeks long-term growth of capital primarily through
investment in common stocks of companies domiciled in foreign countries and the
United States.
LEXINGTON INTERNATIONAL FUND, INC.--Seeks long-term growth of capital through
investment in companies domiciled in foreign countries.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.--Seeks long-term capital appreciation
through investments primarily in the equity securities of Russian companies.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC. --Seeks long-term capital
appreciation through investment in companies domiciled in the Asia Region with a
market capitalization of less than $1 billion.
LEXINGTON RAMIREZ GLOBAL INCOME FUND--Seeks high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated debt securities.
LEXINGTON GOLDFUND, INC.--Seeks capital appreciation through investment in gold
bullion and shares of gold mining companies.
LEXINGTON GROWTH AND INCOME FUND, INC.--Seeks capital appreciation over the
long-term through investments in the stocks of large, ably managed and well
financed companies.
LEXINGTON CORPORATE LEADERS TRUST FUND--Seeks capital growth and reasonable
income through investment in an equal number of shares of an established list of
American blue chip corporations.
LEXINGTON SMALLCAP VALUE FUND, INC.--Seeks long-term capital appreciation
through investment in common stocks of companies domiciled in the United States
with a market capitalization of less than $1 billion.
LEXINGTON CONVERTIBLE SECURITIES FUND--Seeks total return by providing capital
appreciation, current income and conservation of capital through investments in
a diversified portfolio of securities convertible into shares of common stock.
LEXINGTON GNMA INCOME FUND, INC.--Seeks to achieve a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae") certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
LEXINGTON MONEY MARKET TRUST--Seeks a high level of current income consistent
with preservation of capital and liquidity through investments in interest
bearing short-term money market instruments.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
*Redemptions on shares of Lexington Troika Dialog Russia Fund, Inc. held less
than 365 days are subject to a redemption fee of 2% of the redemption proceeds.
14
<PAGE>
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 o Account Balances o Exchanges o
Last Transactions o Total Return o 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.
LEXINGTON
- --------------------------------------------------------------------------------
================================================================================
LEXINGTON
GLOBAL
FUND, INC.
- --------------------------------------------------------------------------------
Seeks long-term growth of capital,
primarily through investment in
common stocks of companies
domiciled in foreign countries
and the United States.
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMEBER 31, 1997
The Lexington Group
of No Load
Investment Companies
================================================================================
