As filed with the Securities and Exchange Commission on March 26, 1999
Registration No. 33-26116
811-5710
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 11 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 12 X
(Check appropriate box or boxes.)
LEXINGTON NATURAL RESOURCES TRUST
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(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Natural Resources Trust
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
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(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue, New York, New York 10022
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It is proposed that this filing will become effective 60 days after
filing pursuant to Paragraph (a) of Rule 485.
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The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, pursuant to Section 24(f) of the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal year ended
December 31, 1998 was filed on March 26, 1999.
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- --------------- ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 2
4. General Description of Registrant 3
5. Management of the Fund 5
6. Capital Stock and Other Securities 8
7. Purchase of Securities Being Offered 6
8. Redemption or Repurchase 6
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ----------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 8 (Part A)
13. Investment Objectives and Policies 2
14. Management of the Registrant 7
15. Control Persons and Principal Holders 3
of Securities
16. Investment Advisory and Other Services 3
17. Brokerage Allocation and Other Practices 4
18. Capital Stock and Other Securities 8 (Part A)
19. Purchase, Redemption and Pricing of 6 (Part A)
securities being offered
20. Tax Status 6
21. Underwriters 5 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 10
PART C
- ------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS
_____________, 1999
Lexington NATURAL RESOURCES Trust
P.O. Box 1515 / Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
201-845-7300
The Fund is intended to be the funding vehicle for variable
annuity contracts and variable life insurance policies to be offered
by the separate account of certain life insurance companies
("Participation Life Insurance Companies")
Individual variable annuity contract holders and variable life
insurance policy holders are not "shareholders" of the Fund. The
Participating Insurance Companies and their separate accounts are the
shareholders or investors, although such companies may pass through
voting rights to their variable annuity contract or variable life
insurance policy. Shares of the Fund are not offered directly to the
general public.
The Securities and Exchange Commission has not approved nor disapproved
the shares of Lexington Natural Resources Trust. The Securities and
Exchange Commission also has not determined whether this Prospectus is
accurate or complete. Any person who tells you that the Securities and
Exchange Commission has made such an approval or determination is
committing a crime.
Risk/Return Summary
Investment Objective
The Lexington Natural Resources Trust's investment objective is to
seek long-term growth of capital through investment primarily in common
stocks of companies that own or develop natural resources and other
basic commodities, or supply goods and services to such companies.
Current income will not be a factor. Total return will consist primarily
of capital appreciation.
Investment Strategies
The Lexington Natural Resources Trust (the "Fund") normally invests
at least 65% of its total assets in companies with substantial natural
resource assets. Natural resource assets are materials derived from
natural resources which have economic value. The Fund seeks to identify
securities of companies that it believes to be undervalued relative to
the value of the natural resource assets they hold. This identification
process will take into account current and anticipated economic and
financial conditions.
The remaining 35% of the Fund's total assets may be invested in
common stock of companies that are not natural resource companies and in
debt securities of natural resource companies as well as other companies.
The Fund may invest up to 25% of its total assets in securities
principally traded in markets outside the United States.
Principal Risks
Through stock investments, the Fund may expose you to common stock
risks which may cause you to lose money if there is a sudden decline in
the share price of one of the companies in the Fund's portfolio. Due to
the inherent effects of the stock market, the value of the Fund will
fluctuate with the movement of the market as well as in response to the
activities of individual companies in the Fund's portfolio.
In addition, the Fund's investments in foreign securities may
involve risks greater than those attendant to investments in securities
of U.S. issuers.
Because the Fund will invest a substantial portion of its portfolio
in the securities of companies with natural resource assets, it should
be considered as a vehicle for diversification and not as a balanced
investment program.
More About Our Investment Strategies and Related Risks
Additional Investment Strategies
At any time management deems it advisable for temporary defensive
or liquidity purposes, the Fund may hold all its assets in cash or cash
equivalents and invest in, or hold unlimited amounts of, debt obligations
of the United States Government or its political subdivisions, and money
market instruments including repurchase agreements with maturities of
seven days or less and Certificates of Deposit.
Related Risks
Risks of Investing
The following risks are common to all mutual funds and, therefore, apply
to the Fund:
- Market Risk. The market value of a security may go up or down,
sometimes rapidly and unpredictably. A decline in market value
may cause a security to be worth less than it was at the time
of purchase. Market risk applies to individual securities, a
particular sector or the entire economy.
- Manager Risk. Fund management affects Fund performance. A
Fund may lose money if the Fund manager's investment strategy
does not achieve the Fund's objective or the manager does not
implement the strategy properly.
- Year 2000 Risk. The Fund or its service providers could be
disrupted by problems in their computer systems related to the
Year 2000.
Risk of Investing in Foreign Securities
The following risks apply to all mutual funds that invest in foreign
securities including the Fund:
- Legal System and Regulation Risk. Foreign countries have
different legal systems and different regulations concerning
financial disclosure, accounting and auditing standards.
Corporate financial information that would be disclosed under
U.S. law may not be available. Foreign accounting and
auditing standards may render a foreign corporate balance
sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Additionally, government
oversight of foreign stock exchanges and brokerage industries
may be less stringent than in the U.S.
- Currency Risk. Most foreign stocks are denominated in the
currency of the stock exchange where they are traded. The
Fund's Net Asset Value is denominated in U.S. dollars. The
exchange rate between the U.S. dollar and most foreign
currencies fluctuates; therefore, the Net Asset Value of the
Fund will be affected by a change in the exchange rate between
the U.S. dollar and the currencies in which the Fund's stocks
are denominated. The Fund may also incur transaction costs
associated with exchanging foreign currencies into U.S.
dollars.
- Stock Exchange and Market Risk. Foreign stock exchanges
generally have less volume than U.S. stock exchanges.
Therefore, it may be more difficult to buy or sell shares of
foreign securities, which increases the volatility of share
prices on such markets. Additionally, trading on foreign
stock markets may involve longer settlement periods and higher
transaction costs.
- Expropriation Risk. Foreign governments may expropriate the
Fund's investments either directly by restricting the Fund's
ability to sell a security or by imposing exchange controls
that restrict the sale of a currency or by taxing the Fund's
investments at such high levels as to constitute confiscation
of the security. There may be limitations on the ability of
the Fund to pursue and collect a legal judgment against a
foreign government.
The Fund may trade in certain foreign securities markets which are
less developed than comparable U.S. markets. The risks associated with
trading in such markets include:
- limited product lines;
- limited markets or financial or managerial resources;
- their securities may be more susceptible to losses and risks
of bankruptcy;
- their securities may trade less frequently and with lower
volume, leading to greater price fluctuations; and,
- their securities are subject to increased volatility and
reduced liquidity due to limited market making and arbitrage
activities.
Temporary Defensive Position
When the Fund anticipates unusual market or other conditions, it may
temporarily depart from its goal and invest substantially in high-quality
short-term investments. This could help the Fund avoid losses but may
mean lost opportunities.
Interests of the Holders of Variable Insurance Contracts and Policies
The Fund is intended to be the funding vehicle for variable annuity
contracts and variable life insurance policies to be offered by the
separate accounts of certain life insurance companies ("Participating
Insurance Companies"). The Fund currently does not foresee any
disadvantages to the holders of variable annuity contracts and variable
life insurance policies arising from the fact that the interests of the
holders of such contracts and policies may differ. Nevertheless, the
Fund's Trustees intend to monitor events in order to identify any
material irreconcilable conflicts which may possibly arise and to
determine what action, if any, should be taken in response thereto. If
a conflict were to occur, an insurance company separate account might be
required to withdraw its investments in the Fund and the Fund might be
forced to sell securities at disadvantageous prices. The variable
annuity contracts and variable life insurance policies are described in
the separate prospectuses issued by the Participating Insurance
Companies. The Fund assumes no responsibility for such prospectuses.
Management of the Fund
The business affairs of the Fund are managed under the direction of
its Board of Trustees. There are currently twelve Trustees (of whom
seven are non-affiliated persons) who meet five times each year. The
Statement of Additional Information contains additional information
regarding the Trustees and officers of the Fund.
Investment Adviser
Lexington Management Corporation (LMC), a wholly-owned subsidiary
of Lexington Global Asset Managers, Inc. ("LGAM"), is the investment
adviser to the Fund. LMC and its predecessor companies, registered
investment advisers under the Investment Advisers Act of 1940, as
amended, were established in 1938. LMC is located at P.O. Box 1515, Park
80 West Plaza Two, Saddle Brook, New Jersey 07663. Descendants of
Lunsford Richardson, Sr., their spouses, trusts and other related
entities have a controlling interest in Lexington Global Asset Managers,
Inc., a Delaware corporation. LMC advises private clients as well as the
Fund. LMC supervises and assists in the overall management of the Funds,
subject to the oversight by the Board of Directors or Trustees.
Lexington Funds Distributor, Inc. is a registered broker-dealer and is
the distributor of shares of the Fund.
The Investment Adviser has entered into a sub-advisory management
contract with Market Systems Research Advisors, Inc., 80 Maiden Lane, New
York, New York 10038, a registered investment adviser, under which the
Sub-Adviser will provide the Fund with certain investment management and
administrative services. The Sub-Adviser serves as investment adviser
to private and institutional accounts.
The Investment Adviser is paid an investment advisory fee at the
annual rate of 1.00% of the net assets of the Fund, which is higher than
that paid by most other investment companies. This fee is computed on the
basis of the Fund's average daily net assets and is payable on the last
business day of each month.
Portfolio Manager
The Fund is managed by an investment management team. Frank A.
Peluso, Robert M. DeMichele and Robert W. Radsch are the lead managers.
Frank A. Peluso has 35 years investment experience. Mr. Peluso is
President and Chief Executive Officer of Market Systems Research
Advisors, Inc., the sub-adviser to the Fund. Mr. Peluso utilizes a
proprietary analytical system to identify securities with performance
potential which he believes to be exceptional. In addition, Mr. Peluso's
proprietary data is used by professional money managers, insurance
companies, brokerage firms, banks, mutual fund companies and pension
funds. Mr. Peluso graduated from Princeton University and completed a
year of post-graduate study at Columbia University, and two years of
post-graduate study at Princeton University with a Fellowship in
Mathematics.
Robert M. DeMichele is Chairman and Chief Executive Officer of
Lexington Management Corporation. He is also the Chairman of the
Investment Strategy Group. In addition, he is President of Lexington
Global Asset Managers, Inc., LMC's parent company. He holds similar
offices in other companies owned by Lexington Global Asset Managers,
Inc., as well as, the Lexington Funds.
Prior to joining LMC in 1981, Mr. DeMichele was a Vice President at
A.G. Becker, Inc. the securities division of Warburg, Paribus, Becker,
an international investment banking firm. From 1973 to 1981, Mr.
DeMichele held several positions, the most recent managing A.G. Becker's
Funds Evaluation and Consulting Group for both the East and West coasts.
Mr. DeMichele is a graduate of Union College with a B.A. Degree in
Economics and an M.B.A. in Finance from Cornell University.
Robert W. Radsch, is a Vice President of Lexington Management
Corporation. Prior to joining Lexington in July, 1994, he was Senior Vice
President, Portfolio Manager and Chief Economist for the Bull & Bear
Group. He has extensive experience managing gold, silver and platinum on
an international basis, having managed precious metals and international
funds for more than 15 years.
Mr. Radsch is a graduate of Yale University with a B.A. Degree and
holds an M.B.A. in Finance from Columbia University.
How to Purchase and Redeem Shares
With the exception of shares held in connection with initial capital
of the Fund, shares of the Fund are currently available for purchase
solely by participating insurance companies for the purpose of funding
variable annuity contracts and variable life insurance policies. Shares
of the Fund are purchased and redeemed at net asset value next calculated
after a purchase or redemption order is received by the Fund in good
order. There are no minimum investment requirements. Payment for shares
redeemed will be made as soon as possible, but in any event within three
business days after the order for redemption is received by the Fund.
However, payment may be postponed under unusual circumstances, such as
when normal trading is not taking place on the New York Stock Exchange.
Shareholder Servicing Agreements
The Fund may enter into Shareholder Servicing Agreements with
insurance companies or other financial institutions ("Shareholder
Servicing Agents") that provide administrative services for the Fund or
that provide to contract holders and policyholders other services
relating to the Fund. These services may include: sub-accounting
services, answering inquiries of contract holders and policyholders
regarding the Fund, transmitting, on behalf of the Fund, proxy
statements, annual reports, updated prospectuses and other communications
to contract holders and policyholders regarding the Fund, and such other
related services as the Fund or a contractholder or policyholder may
request. The fees paid by the Fund for these services to Shareholder
Servicing Agents will not exceed 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 additional cost to the Fund, may pay to
Shareholder Servicing Agents additional amounts from its past profits.
A Shareholder Servicing Agent may, from time to time, choose not to
receive all of the fees payable to it.
Determination of Net Asset Value
How and when we calculate the Fund's price or net asset value (NAV)
determines the price at which insurance companies buy or sell shares. The
net asset value of the Fund is determined once daily as of 4:00 p.m., New
York time, on each day that the NYSE is open for trading. Per share net
asset value is calculated by dividing the value of the Fund's total net
assets by the total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either
the last reported sales price or, in the case of securities for which
there is no reported last sale and fixed-income securities, the mean
between the closing bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at
their fair values as determined in good faith under the supervision of
the Fund's officers, and by the Manager and the Board of Trustees, in
accordance with methods that are specifically authorized by the Board of
Trustees. Short-term obligations with maturities of 60 days or less are
valued at amortized cost as reflecting fair value.
Foreign Funds. The Fund may invest in securities denominated in foreign
currencies and traded on foreign exchanges. To determine their value,
we convert their foreign-currency price into U.S. dollars by using the
exchange rate last quoted by a major bank. Exchange rates fluctuate
frequently and may affect the U.S. dollar value of foreign-denominated
securities, even if their market prices do not change. In addition, some
foreign exchanges are open for trading when the U.S. market is closed.
As a result, the Fund's foreign securities - and their prices-may
fluctuate during periods when Fund shares cannot be bought, sold or
exchanged.
The value of securities denominated in foreign currencies and traded
on foreign exchanges or in foreign markets will be translated into U.S.
dollars at the last price of their respective currency denomination
against U.S. dollars quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established in good faith by the Board of Trustees. Because the value
of securities denominated in foreign currencies must be translated into
U.S. dollars, fluctuations in the value of such currencies in relation
to the U.S. dollar may affect the net asset value of Fund shares even
without any change in the foreign-currency denominated values of such
securities.
Because foreign securities markets may close before the Fund
determines its net asset value, events affecting the value of portfolio
securities occurring between the time prices are determined and the time
the Fund calculates its net asset value may not be reflected unless the
Manager, under supervision of the Board of Trustees, determines that a
particular event would materially affect the Fund's net asset value.
Dividends and Capital Gains Distributions
The Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.
- - Distributions are not guaranteed.
- - The Board of Directors has discretion in determining the amount and
frequency of the distributions.
- - All dividends and other distributions will be reinvested
automatically in additional shares and credited to the shareholders'
account.
Tax Matters (To Be Reviewed by the Tax Department)
The Fund. 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 the
diversification of assets, distribution of income, and sources of income.
As a regulated investment company, the Fund will not be subject to
federal income tax on its income distributed in accordance with the
timing requirements of the Code. If, however, for any taxable year the
Fund does not qualify as a regulated investment company, then all of its
taxable income will be subject to tax at regular corporate rates (without
any deduction for distributions to the separate accounts of the
Participating Insurance Companies (the "Accounts")), and such
distributions may be taxable to the recipients to the extent that the
Fund has current and accumulated earnings and profits.
Fund Distributions. Under current tax law, an insurance company is
not subject to tax on income of a qualifying separate account that is
properly allocable to the value of eligible variable annuity contracts
or variable life insurance policies. Therefore, generally fund
distributions will not be currently taxable to either the Accounts or to
the contract holders or policyholders.
Share Redemptions. Redemptions of the shares held by the Accounts
generally will not result in gain or loss for the Accounts and will not
result in gain or loss for the variable annuity contract holders or
variable life insurance policy holders.
Summary . 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. The foregoing discussion also assumes that the
Accounts are the owners of the shares and that the policies or contracts
qualify as life insurance policies or annuities, respectively, under the
Code. If the foregoing requirements are not met then the variable annuity
contract holders or variable life insurance policy holders will be
treated as recognizing income (from distributions or otherwise) related
to the ownership of Fund shares. The foregoing discussion is for general
information only; a more detailed discussion of federal income tax
considerations is contained in the Statement of Additional Information.
Variable annuity contract holders or variable life insurance policy
holders must consult the prospectuses of their respective contracts or
policies for information concerning the federal income tax consequences
of owning such contracts or policies.
[Back Cover Page]
Statement of Additional Information. The Statement of Additional
Information provides a more complete discussion about the Fund and is
incorporated by reference into this prospectus, which means that it is
considered a part of this prospectus.
A Statement of Additional Information dated ________, 1999, 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 (the "SEC") and is
incorporated herein by reference.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about the Fund's investments,
including a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal
year.
To Review or Obtain this Information: The Statement of Additional
Information and annual and semi-annual reports are available without
charge upon your request by calling Lexington Natural Resources Trust at
(800) 526-0056 Attn: Shareholder Services. This information may be
reviewed at the Public Reference Room of the Securities and Exchange
Commission or by visiting the SEC's World Wide Web site at www.sec.gov.
In addition, this information may be obtained for a fee by writing or
calling the Public Reference Room of the Securities and Exchange
Commission, Washington, D.C. 20549-6009, telephone (800) SEC-0330.
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement of Additional Information, which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Natural
Resources Trust (the "Fund"), dated April 30, 1998, 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 number:
201-845-7300
TABLE OF CONTENTS
Page
General Information and History ........................................... 2
Investment Objectives and Policies ........................................ 2
Investment Restrictions ................................................... 2
Investment Adviser, Sub-Adviser, Distributor and Administrator ............ 3
Portfolio Transactions and Brokerage Commissions .......................... 4
Performance Calculation ................................................... 5
Dividend, Distribution and Reinvestment Policy ............................ 6
Tax Matters ............................................................... 6
Custodians, Transfer Agent and Dividend Disbursing Agent .................. 6
Management of the Fund .................................................... 7
Other Information ......................................................... 9
Financial Statements ...................................................... 10
<PAGE>
GENERAL INFORMATION AND HISTORY
The Fund was formerly named "Lexington Gold Trust". At a meeting held on
September 30, 1991, the shareholders of the Fund approved a change in the Fund's
fundamental investment objective and policies. In connection with the change of
investment objective and policies, the Fund also changed its name to "Lexington
Natural Resources Trust."
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek long-term growth of capital
through investment primarily in common stocks of companies which own, or develop
natural resources and other basic commodities, or supply goods and services to
such companies. Current income will not be a factor. Total return will consist
primarily of capital appreciation.
Management attempts to achieve the investment objective of the Fund by
seeking to identify securities of companies that, in its opinion, are
undervalued relative to the value of natural resource holdings of such companies
in light of current and anticipated economic or financial conditions. Natural
resource assets are materials derived from natural sources which have economic
value. The Fund will consider a company to have substantial natural resource
assets when, in management's opinion, the company's holdings of the assets are
of such magnitude, when compared to the capitalization, revenues or operating
profits of the company, that changes in the economic value of the assets will
affect the market price of the equity securities of such company. Generally, a
company has substantial natural resource assets when at least 50% of the
non-current assets, capitalization, gross revenues or operating profits of the
company in the most recent or current fiscal year are involved in or result
from, directly or indirectly through subsidiaries, exploring, mining, refining,
processing, fabricating, dealing in or owning natural resource assets. Examples
of natural resource assets include: companies that specialize in energy sources
(e.g., coal, geothermal power, natural gas and oil), environmental technology
(e.g., pollution control and waste recycling), forest products, agricultural
products, chemical products, ferrous and non-ferrous metals (e.g., iron,
aluminum and copper), strategic metals (e.g., uranium and titanium), precious
metals (e.g., gold, silver and platinum), and other basic commodities. The Fund
presently does not intend to invest directly in natural resource assets or
related contracts. The Fund may invest up to 25% of its total assets in
securities principally traded in markets outside the United States.
Management of the Fund believes that, based upon past performance, the
securities of specific companies that hold different types of substantial
natural resource assets may move relatively independently of one another during
different stages of inflationary cycles due to different degrees of demand for,
or market values of, their respective natural resource holdings during
particular portions of such inflationary cycles. The Fund's fully managed
investment approach enables it to switch its emphasis among various industry
groups depending upon management's outlook with respect to prevailing trends and
developments. The investment objective and policies of the Fund described in the
first two paragraphs of this section are fundamental policies of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "Investment Policy,"
and the following investment restrictions are matters of 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 shareholder's 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. The Fund is a non-diversified
management investment company and
1. with respect to 50% of its assets, the Fund will not at the time of
purchase invest more than 5% of its total assets, at market value, in
the securities of one issuer (except the securities of the United
States Government);
2. with respect to the other 50% of its assets, the Fund will not invest
at the time of purchase more than 25% of the market value of its total
assets in any single issuer.
These two restrictions, hypothetically, could give rise to a portfolio
with as few as fourteen issues.
In addition, the Fund will not:
1. Purchase more than 10% of the voting securities or more than 10% of any
class of securities of any issuer. (For this purpose all outstanding
debt securities of an issuer are considered as one class, and all
preferred stocks of an issuer are considered as one class.)
2. Purchase any security restricted as to disposition under Federal
Securities laws or securities that are not readily marketable or
purchase any securities if such a purchase would cause the Fund to own
at the time of such purchase, illiquid securities, including repurchase
agreements with an agreed upon repurchase date in excess
2
<PAGE>
of seven days from the date of acquisition by the Fund, having
aggregate market value in excess of 10% of the value of the Fund's
total assets.
3. Make short sales of securities or purchase any securities on margin,
except for such short term credits as are necessary for the clearance
of transactions.
4. Write, purchase or sell puts, calls or combinations thereof. However,
the Fund may invest up to 15% of the value of its assets in warrants.
The holder of a warrant has the right to purchase a given number of
shares of a particular company at a specified price until expiration.
Such investments generally can provide a greater potential for profit -
or loss - than investment of an equivalent amount in the underlying
common stock. The prices of warrants do not necessarily move parallel
to the prices of the underlying securities. If the holder does not sell
the warrant, he risks the loss of his entire investment if the market
price of the underlying stock does not, before the expiration date,
exceed the exercise price of the warrant plus the cost thereof. It
should be understood that investment in warrants is a speculative
activity. Warrants pay no dividends and confer no rights (other than
the right to purchase the underlying stock) with respect to the assets
of the corporation issuing them. In addition, the sale of warrants held
more than one year generally results in a long term capital gain or
loss to the holder, and the sale of warrants held for less than such
period generally results in a short term capital gain or loss. The
holding period for securities acquired upon exercise of warrants,
however, begins on the day after the date of exercise, regardless of
how long the warrant was held. This restriction on the purchase of
warrants does not apply to warrants attached to, or otherwise included
in, a unit with other securities.
5. Invest in any commodities or commodities futures contracts, including
futures contracts relating to gold.
6. Invest in real estate.
7. Invest more than 5% of the value of its total assets in securities of
issuers which, with their predecessors, have a record of less than
three years continuous operation.
8. Purchase or retain the securities of any issuer if the officers or
Trustees of the Fund, or its Investment Adviser, or Sub-Adviser who own
individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer.
9. Lend money or securities, provided that the making of time or demand
deposits with domestic banks and the purchase of debt securities such
as bonds, debentures, commercial paper, repurchase agreements and short
term obligations in accordance with the Fund's objective and policies,
are not prohibited.
10. Borrow money, except for temporary emergency purposes, and in no event
more than 5% of its net assets at value or cost, whichever is less; or
pledge its gold or portfolio securities or receivables or transfer or
assign or otherwise encumber them in an amount exceeding 10% of the
value of its total assets.
11. Underwrite securities issued by others.
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
13. Invest for the purpose of exercising control or management of another
company.
14. Participate on a joint or a joint and several basis in any trading
account in securities.
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 a change in values or net
assets.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663, is the investment adviser to the Fund, and,
as such, advises and makes recommendations to the Fund with respect to its
investments and investment policies.
LMC has entered into a sub-advisory management contract with Market Systems
Research Advisors, Inc. ("MSR"), 80 Maiden Lane, New York, New York 10038, a
registered investment advisor, under which the MSR will provide the Fund with
certain investment management and administrative services.
Under the terms of the investment management agreement, LMC also pays the
Fund's expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll expense of
officers and Trustees of the Fund who are employees of LMC or its affiliates in
carrying out its duties under the investment management agreement. The Fund pays
all its other expenses, including custodian and transfer agent fees, legal and
registration fees, audit fees, printing of prospectuses, shareholder reports and
communications required for
3
<PAGE>
regulatory purposes or for distribution to existing shareholders, computation of
net asset value, mailing of shareholder reports and communications, portfolio
brokerage, taxes and independent Trustees' fees.
LMC has agreed to reduce its management fee if necessary to keep total
operating expenses at or below 2.50% of the Fund's average daily net assets.
Total annual operating expenses may also be subject to state blue sky
regulations. LMC may terminate this voluntarily reduction at any time.
LMC's services are provided and its investment advisory fee is paid
pursuant to an investment management agreement, dated August 20, 1991 which will
automatically terminate if assigned and which may be terminated by either party
upon 60 days' notice. The terms of the agreement and any renewal thereof must be
approved annually by a majority of the Fund's Board of Trustees, including a
majority of Trustees who are not parties to the agreement or "interested
persons" of such parties, as such term is defined under the Investment Company
Act of 1940, as amended. For the year ended December 31, 1997 LMC received
$635,819 in investment advisory fees from the Fund and paid MSR $317,919.
LMC serves as investment adviser to other investment companies and private
and institutional investment accounts. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's
parent. These clients pay fees which LMC considers comparable to the fee levels
for similarly served clients. LMC's accounts are managed independently with
reference to the applicable investment objectives and current security holdings
but on occasion more than one fund or counsel account may seek to engage in
transactions in the same security at the same time. To the extent practicable,
such transactions will be effected on a pro-rata basis in proportion to the
respective amounts of securities to be bought and sold for a fund, and the
allocated transactions will be averaged as to price. While this procedure may
adversely affect the price or volume of a given Fund transaction, LMC believes
that the ability of the Fund to participate in combined transactions may
generally produce better execution overall.
MSR, the Sub-Adviser serves as investment adviser to private and
institutional accounts.
LMC also acts as administrator to the Fund pursuant to an Administration
Services Agreement dated February 28, 1995 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.
Lexington Funds Distributor, Inc. ("LFD") serves as distributor for Fund
shares under a distribution agreement which is subject to annual approval by a
majority of the Fund's Board of Trustees, including a majority of Trustees who
are not "interested persons."
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. Lexington Global Asset Managers,
Inc., holds a controlling interest in MSR. Descendants of Lunsford Richardson,
Sr., their spouses, trusts and other related entities have a majority voting
control of outstanding shares of Lexington Global Asset Managers, Inc.,
Of the Trustees, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor and Lavery and Mmes.
Carnicelli, Carr-Waldron, Curcio, DiFalco, Gilfillan, Lederer and Mosca (see
"Management of the Fund"), may also be deemed affiliates of LMC by virtue of
being officers, trustees or employees thereof. As of March 31, 1998, all
officers and Trustees 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
As a general matter, purchases and sales of portfolio securities by the
Fund are placed by LMC or MSR with brokers and dealers who in their opinion will
provide the Fund with the best combination of price (inclusive of brokerage
commissions) and execution for its orders. 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 at a
fee higher than that charged by another broker-dealer which does not furnish
research services or which furnishes research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange Act
of 1934, as amended are met. Section 28(e) was adopted in 1975 and specifies
that a person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person has
caused the account to pay a higher commission than the lowest available under
certain circumstances, provided that the person so exercising investment
discretion makes a good faith determination that the commissions paid are
"reasonable in 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."
4
<PAGE>
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services ("soft dollars") might
exceed commissions that would be payable for execution services alone. Nor
generally can the value of research services to the Fund be measured. Research
services furnished might be useful and of value to LMC or MSR and its
affiliates, in serving other clients as well as the Fund. On the other hand, any
research services obtained by LMC or MSR or its affiliates from the placement of
portfolio brokerage of other clients might be useful and of value to LMC or MSR
in carrying out its obligations to the Fund.
As a general matter, it is the Fund's policy to execute in the U.S. all
transactions with respect to securities traded in the U.S. except when better
price and execution can, in the judgment of management of the Fund, be obtained
elsewhere. Over-the-counter purchases and sales are normally made with principal
market makers, except where, in the opinion of management, the best executions
are available elsewhere.
In addition, the Fund may from time to time allocate brokerage commissions
to firms which furnish research and statistical information to LMC or MSR or
which render to the Fund services which LMC or MSR is not required to provide.
The supplementary research supplied by such firms is useful in varying degrees
and is of indeterminable value. No formula has been established for the
allocation of business to such brokers. For the fiscal year ended December 31,
1995, the portfolio turnover rate for the Fund was 149.18%, and the Fund paid
$100,622 in brokerage commissions. For the fiscal year ended December 31, 1996,
the portfolio turnover rate for the Fund was 102.76% and the Fund paid $118,713
in brokerage commissions and of that amount, $40,567 was paid for with soft
dollars. For the fiscal year ended December 31, 1997, the portfolio turnover
rate for the Fund was 114.16% and the Fund paid $258,001 in brokerage
commissions and of that amount, $106,488 was paid for with soft dollars.
Advisory fees paid to LMC and expense reimbursements paid to the Fund are
as follows:
PERIOD ADVISORY FEE SUB ADVISORY FEE EXPENSE REIMBURSEMENT
------ ------------ ---------------- --------------------
1/1/95 to 12/31/95 $148,634 $ 74,304 $0
1/1/96 to 12/31/96 260,014 130,009 0
1/1/97 to 12/31/97 635,819 317,919 0
PERFORMANCE CALCULATION
For purposes of quoting and comparing the performance of the Fund to that
of other mutual funds and to other relevant market indices in advertisements or
in reports to shareholders, rules promulgated by the Securities and Exchange
Commission ("SEC"), a fund's advertising performance must include total return
quotations calculated according to the following formula:
P(1 + T)n = 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 period, at the end of such
period (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
1,5 and 10 year periods of the Fund's existence or such shorter period dating
from the effectiveness of the Fund's Registration Statement. In calculating the
ending redeemable value, the maximum sales load is deducted from the initial
$1,000 payment and 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, the
Fund calculates its aggregate total return for the specified periods of time by
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 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. Such alternative
5
<PAGE>
total return information will be given no greater prominence in advertising than
the information prescribed under Item 21 of Form N-1A.
The Fund's performance may be compared in advertising to the performance of
other mutual funds in general, or of particular types of mutual funds,
especially those with similar objectives. Such performance data may be prepared
by Lipper Analytical Services, Inc. and other independent services which monitor
the performance of mutual funds. The Fund may also advertise mutual fund
performance rankings which have been assigned to it by such monitoring services.
Pursuant to the SEC calculation, the Fund's average total rate of return
for the one and five year and since commencement (8/1/89) period ended December
31, 1997 was 7.15%, 10.77% and 5.81%.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to declare or distribute a dividend from its net
investment income and/or net capital gain income to shareholders annually or
more frequently if necessary in order to comply with distribution requirements
of the Internal Revenue Code of 1986, as amended ("the Code"), and to avoid the
imposition of regular Federal income tax and, if applicable, a 4% excise tax.
Any dividends and distribution payments will be reinvested at net asset
value, in additional full and fractional shares of the Fund.
TAX MATTERS
The following is only a summary of certain additional tax considerations as
a RIC, that are not described in the Prospectus and generally affect each Fund
and its shareholders. 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 intends to qualify to be treated as a "regulated investment
company" ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund will not itself be subject to federal income tax on its
investment company taxable income and net capital gains to the extent that such
investment company taxable income and net capital gains are distributed in each
taxable year to the separate accounts of the Participating Insurance Companies.
In addition, if the Fund distributes annually to the separate accounts its
ordinary income and capital gain net income, in the manner prescribed in the
Code, it will not be subject to the 4% federal excise tax otherwise applicable
to the undistributed income or gain of a RIC. Distributions of net investment
income and net short-term capital gains will be treated as ordinary income and
distributions of net long-term capital gains will be treated as long-term
capital gain in the hands of the Participating Insurance Companies. Under
existing tax law, capital gains or dividends from the Fund are not currently
taxable when left to accumulate within a variable annuity or variable life
insurance contract.
SEGREGATED ASSET ACCOUNTS. Shares in the Fund are offered only to
segregated asset accounts, which are insurance company separate accounts that
fund variable annuity or variable life insurance accounts.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified," in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of the
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, such
RIC will not be treated as a single investment for these purposes, but rather
the segregated asset account will be treated as owning its proportionate share
of each of the assets of the RIC. The Fund plans to satisfy these conditions at
all times so that each segregated asset account of a Participating Insurance
Company investing in the Fund will be treated as adequately diversified under
the Code and Regulations.
For information concerning the federal income tax consequences to the
holders of variable annuity contracts and variable rate insurance policies, such
holders should consult the prospectuses used in connection with the issuance of
their particular contracts or policies.
CUSTODIANS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as the Custodian for the Fund. In addition, the
Fund and Chase Manhattan Bank, N.A., may appoint foreign banks and foreign
securities depositories which qualify as eligible foreign sub-custodians under
rules adopted by the Securities and
6
<PAGE>
Exchange Commission. State Street Bank and Trust Company, N.A., 225 Franklin
Street, Boston, Massachusetts 02110 has been retained to act as the Transfer
Agent and Dividend Disbursing Agent for the Fund.
The custodians and transfer agent 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.
MANAGEMENT OF THE FUND
The Fund's Trustees and executive officers and their principal occupations
and former affiliations are:
+ S.M.S. CHADHA (60), TRUSTEE. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.
*+ ROBERT M. DEMICHELE (53), PRESIDENT AND CHAIRMAN. P.O. Box 1515, Saddle
Brook, N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc.; Director, Chartwell Re Corporation, Claredon
National Insurance Company, The Navigator's Group, Inc., Unione Italiana
Reinsurance, Vanguard Cellular Systems, Inc. and Weeden &Co.; Vice Chairman
of the Board of Trustees, Union College and Trustee, Smith Richardson
Foundation.
*+ BEVERLEY C. DUER, P.E. (68), TRUSTEE. 340 East 72nd Street, New York, N.Y.
10021. Private Investor. Formerly Manager, Operations Research Department,
CPC International Inc.
*+ BARBARA R. EVANS (37), TRUSTEE. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor, formerly, Assistant Vice President and Securities Analyst,
Lexington Management Corporation.
*+ RICHARD M. HISEY (39), TRUSTEE, VICE PRESIDENT AND TREASURER. P.O. Box 1515,
Saddle Brook, N.J. 07663. Managing Director, Chief Financial Officer and
Director, Lexington Management Corporation; Chief Financial Officer, Vice
President and Director, Lexington Funds Distributor, Inc; Chief Financial
Officer, Market Systems Research Advisers, Inc.; Executive Vice President and
Chief Financial Officer, Lexington Global Asset Managers, Inc.
*+ LAWRENCE KANTOR (51), VICE PRESIDENT AND TRUSTEE. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Executive Vice President and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc.; Executive Vice President and General
Manager -- Mutual Funds, Lexington Global Asset Managers, Inc.,
+ JERARD F. MAHER (51), TRUSTEE. 300 Raritan Center Parkway, Edison, N.J.
08818. General Counsel, Federal Business Center; Counsel, Ribis, Graham
&Curtin.
+ ANDREW M. MCCOSH (57), TRUSTEE. 12 Wyvern Park, Edinburgh EH92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland..
*+ DONALD B. MILLER (71), TRUSTEE. 10725 Quail Covey Drive, Boynton Beach,
Florida 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.
*+ JOHN G. PRESTON (65), TRUSTEE. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston, Massachusetts.
+ MARGARET W. RUSSELL (77), TRUSTEE. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor, formerly Community Affairs Director, Union Camp
Corporation.
*+ ALLEN H. STOWE (60), TRUSTEE. 3674 Fifth and Ocean Avenues, Normandy Beach,
New Jersey 08739. President, Dartmouth Co-operative Society Co., Inc.
*+ LISA CURCIO (38), 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.;
Secretary, Lexington Global Asset Managers, Inc.
*+ RICHARD J. LAVERY, CLU, CHFC (43), VICE PRESIDENT. P. O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Lexington Management Corporation;
Vice President, Lexington Funds Distributor, Inc.
7
<PAGE>
*+ JANICE A. CARNICELLI (38), VICE PRESIDENT. P. O. Box 1515, Saddle Brook, N.J.
07663.
*+ CHRISTIE CARR-WALDRON (30), ASSISTANT TREASURER, P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+ CATHERINE DIFALCO (29), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, New
Jersey 07663. Prior to October 1997, Manager, Fund Accounting.
*+ SIOBHAN GILFILLAN (34), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook,
N.J. 07663.
*+ JOAN K. LEDERER (31), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1997, Director of Investment Accounting, Diversified
Investment Advisors, Inc. Prior to April 1996, Assistant Vice President,
PIMCO.
*+ SHERI MOSCA (34), ASSISTANT TREASURER. P. O. Box 1515, Saddle Brook, N.J.
07663.
*+ PETER CORNIOTES (36), ASSISTANT SECRETARY. P. O. Box 1515, Saddle Brook, N.J.
07663. Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ ENRIQUE FAUST (37), ASSISTANT SECRETARY, P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Vice President, Lexington Management Corporation. Prior to
March 1994, Blue Sky Compliance Coordinator, Lexington Group of Investment
Companies.
*"Interested person" and/or "affiliated person" as defined in the Investment
Company Act of 1940, as amended.
+ Messrs. Chadha, Corniotes, DeMichele, Duer, Hisey, Faust, Kantor, Lavery,
Maher, McCosh, Miller, Preston and Stowe and Mmes. Carnicelli, Carr-Waldron,
Curcio, DiFalco, Evans, Gilfillan, Lederer, Mosca and Russell hold similar
offices with some or all of the other registered investment companies advised
and/or distributed by Lexington Management Corporation or Lexington Funds
Distributor, Inc. or Market Systems Research Advisers, Inc.
The Board of Trustees met 5 times during the twelve months ended December
31, 1997, and each of the Trustees attended at least 75% of those meetings.
REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof up to a maximum of $9,000 per
year for Trustees living outside the U.S. and $6,000 per year for Trustees
living within the U.S. Each Trustee who is not an affiliate of the advisor is
compensated for his or her services according to a fee schedule which recognizes
the fact that each Trustee also serves as a Trustee of other investment
companies advised by LMC. Each Trustee receives a fee, allocated among
all investment companies for which the Trustee serves. Effective September 12,
1995, each Trustee receives annual compensation of $24,000. Prior to September
12, 1995, the trustees who were not employed by the Fund or its affiliates
received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued
during the period January 1, 1997 to December 31, 1997 for each Trustee:
- -------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION NUMBER OF
NAME OF DIRECTOR COMPENSATION FROM FROM FUND AND DIRECTORSHIPS IN
FUND FUND COMPLEX FUND COMPLEX
- --------------------------------------------------------------------------------
S.M.S. Chadha $1,712 $26,821 15
- --------------------------------------------------------------------------------
Robert M. DeMichele 0 0 16
- --------------------------------------------------------------------------------
Beverley C. Duer $1,712 $29,521 16
- --------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- --------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- --------------------------------------------------------------------------------
Jerard F. Maher $1,712 $29,521 16
- --------------------------------------------------------------------------------
Andrew M. McCosh $1,600 $25,029 15
- --------------------------------------------------------------------------------
Donald B. Miller $1,712 $26,821 15
- --------------------------------------------------------------------------------
John G. Preston $1,712 $26,821 15
- --------------------------------------------------------------------------------
Margaret W. Russell $1,936 $27,045 15
- --------------------------------------------------------------------------------
Philip C. Smith* $1,220 $19,200 N/A
- --------------------------------------------------------------------------------
*Retired
8
<PAGE>
RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Effective September 12, 1995, the Trustees instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Trustee in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Trustees will be eligible to serve as Honorary Trustees for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to
an eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of December 31, 1997, the estimated credited years
of service for Trustees Chadha, Duer, Maher, McCosh, Miller, Preston and Russell
are 2, 19, 2, 2, 23, 19 and 16, respectively.
HIGHEST ANNUAL COMPENSATION PAID BY ALL FUNDS
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
YEARS OF
SERVICE ESTIMATED ANNUAL BENEFIT UPON RETIREMENT
------ ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
OTHER INFORMATION
As of February 19, 1998, Lexington Management Corporation, P. O. Box
1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663 owned beneficially
10,454 shares of the Fund (0.2% of the Fund's outstanding shares). The balance
of the outstanding shares of the Fund (99.8%) are owned by Aetna Life Insurance
and Annuity Company, Kemper Investors Life Insurance Company and Safeco Life and
Annuity Company and allocated to a separate account used for funding variable
annuity contracts and variable life insurance policies.
9
[1998 Audited Financial Statements and Auditor's Report to be inserted here.]
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1998 was filed
electronically on March 1, 1999 (as form type N-30D). Financial statements
from this 1998 Annual Report have been included in the Statement
of Additional Information.
Page in the Statement
(a) Financial statements: of Additional Information
--------------------- -------------------------
Report of Independent Auditors 10
dated February 8, 1999
Statement of Net Assets (Including 11
the Portfolio of Investments) at
December 31, 1998 (1)
Statement of Assets and Liabilities 12
at December 31, 1998
Statement of Operations for the year 13
ended December 31, 1998 (2)
Statements of Changes in Net Assets for 14
the years ended December 31, 1997
and 1998
Notes to Financial Statements 15
Schedules II-VII and other Financial Statements, for which
provisions are made in the applicable accounting regulations of
the Securities and Exchange Commission, are omitted because
they are not required under the related instructions, they are
inapplicable, or the required information is presented in the
financial statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Declaration of Trust - Filed electronically on 4/10/97 -
Incorporated by reference
2. By-Laws - Filed electronically on 4/10/97 -
Incorporated by reference
3. Not Applicable
4. Rights of Holders - Filed electronically on 4/24/98 -
Incorporated by reference
5. Investment Advisory Agreement between Registrant
and Lexington Management Corporation - Filed Electronically
on April 29, 1996 - Incorporated by reference
5a. Sub-Advisory Investment Management Agreement between
Registrant & Market Systems Research Advisors, Inc.- Filed
electronically on April 29, 1996 - Incorporated by reference
6. Distribution Agreement between Registrant
and Lexington Funds Distributor, Inc. - Filed electronically
on 4/10/97 - Incorporated by reference
7. Retirement Plan for Eligible Trustees - Filed electronically
On 4/24/98 - Incorporated by reference
8a. Form of Custodian Agreement between
Registrant and Chase Manhattan Bank, N.A. -
Filed electronically on 4/28/95 -
Incorporated by reference
8b. Transfer Agency Agreements between Registrant
and State Street Bank and Trust Company - Filed Electronically
on April 29, 1996 - Incorporated by reference
9. Form of Administrative Services Agreement between
Registrant and Lexington Management Corporation -
Filed electronically on 4/28/95 -
Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered - Filed electronically on 4/24/98 - Incorporated
by reference
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Performance Calculation - Filed electronically on 4/24/98 -
Incorporated by reference
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each
such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, (2) the percentage of voting
securities owned or other basis of control by the person, if any,
immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of February 19, 1999:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of beneficial interest 14
(no par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by
any director, officer, affiliated person or underwriter for their own
protection.
Under the terms of the General Laws of the State of Massachusetts and
the Trust's Restated Declaration of Trust, the Trust shall indemnify each
of its Trustees to receive such indemnification (including those who serve
at its request as directors, officers or trustees of another organization
in which it has any interest as a shareholder, creditor or otherwise),
against all liabilities and expenses, including amounts paid in
satisfaction of judgements, in compromise of fines and penalties, and
counsel fees, reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding by the Trust or any
other person, whether civil or criminal, in which he may be involved or
with which he may be threatened, while in office or thereafter, by reason
of this being or having been such a Trustee, officer, employee or agent,
except with respect to any matter as to which he shall have been
adjudicated to have acted in bad faith or with willful misfeasance or
reckless disregard of duties or gross negligence; provided, however, that
as to any matter disposed of by a compromise payment by such Trustee,
officer, employee or agent, pursuant to a consent, decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from
independent counsel approved by the Trustee to the effect that if the
foregoing matter had been adjudicated they would likely have been
adjudicated in favor of such Trustee, officer, employee or agent. The
rights accruing to any Trustee, officer, employee or agent under these
provisions shall not exclude any other right to which he may lawfully be
titled; provided, however, that no Trustee, officer, employee or agent may
satisfy any right of indemnity or reimbursement granted herein or to which
he may otherwise be entitled except out of Trust Property, and no
Shareholder shall be personally liable to any Person with respect to any
claim for indemnity or reimbursement or otherwise. The Trustees may make
advance payments in connection with indemnification under the Declaration
of Trust, provided that the indemnified Trustee, officer, employee or agent
shall have given a written undertaking to reimburse the Trust in the event
it is subsequently determined that he is entitled to such indemnification.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser of the Registrant, and
each director, officer or partner of any such investment adviser, is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee.
See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Corporate Leaders Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Silver Fund, Inc.
Lexington Convertible Securities Fund
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa Curcio* Vice President and Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President &
Vice President & Director Treasurer
Lawrence Kantor* Executive Vice President Trustee & Vice
and Director President
Richard Lavery* Vice President Vice President
Janice McInerney* Assistant Treasurer None
(c)
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to
be maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270,
31a-1 to 31a-3) promulgated thereunder, furnish the name and address of
each person maintaining physical possession of each such account, book or
other document.
The Registrant, Lexington Natural Resources Trust, Park 80 West
Plaza Two, Saddle Brook, New Jersey 07663 will maintain physical
possession of each such account, book or other document of the Company,
except for those maintained by the Registrant's Custodian, Chase Manhattan
Bank, N.A., 1211 Avenue of the Americas, New York, New York 10036, or
Transfer Agent, State Street Bank and Trust Company, c/o National Financial
Data Services, City Center Square, 1100 Main, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B of this
Form (because the contract was not believed to be material to a purchaser
of securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid
and by whom for the last three fiscal years.
None.
Item 32. Undertakings -
------------
The Registrant, Lexington Natural Resources Trust undertakes to
furnish a copy of the Fund's latest annual report, upon request
and without charge, to every person to whom a prospectus is
delivered.
The Registrant will hold a meeting of its public shareholders, if
requested to do so by the holders of at least 10 percent of the
Registrant's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of a
director or directors and to assist in communications with other
shareholders.
<PAGE>
Registration No. 33-26116
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON NATURAL RESOURCES TRUST
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Consent of Kramer, Levin, Naftalis & Frankel
Consent of independent auditors for the inclusion of their report herein
Article 6 Financial Data Schedule
Cover
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 the Registrant has duly caused this to
be signed on its behalf by the Undersigned, thereunto duly authorized, in the
City of Saddle Brook and State of New Jersey, on the 26th day of March, 1999.
LEXINGTON NATURAL RESOURCES TRUST
/s/ Robert M. DeMichele
________________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele
__________________________ Chairman of the Board March 26, 1999
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial March 26, 1999
Richard M. Hisey and Accounting Officer
and Trustee
/s/ Lisa Curcio
__________________________ Principal Compliance March 26, 1999
Lisa Curcio Officer
*SMS Chadha Trustee March 26, 1999
__________________________
SMS Chadha
*Beverley C. Duer, P.E. Trustee March 26, 1999
__________________________
Beverley C. Duer, P.E.
*Barbara M. Evans Trustee March 26, 1999
__________________________
Barbara M. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Trustee March 26, 1999
__________________________
Lawrence Kantor
*Jerard F. Maher Trustee March 26, 1999
__________________________
Jerard F. Maher
*Andrew M. McCosh Trustee March 26, 1999
__________________________
Andrew M. McCosh
*Donald B. Miller Trustee March 26, 1999
__________________________
Donald B. Miller
*John G. Preston Trustee March 26, 1999
__________________________
John G. Preston
*Allen H. Stowe Trustee March 26, 1999
__________________________
Allen H. Stowe
/s/ Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
Kramer, Levin, Naftalis & Frankel LLP
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT NUMBER
(212) 715-9100
March 26, 1999
Lexington Natural Resources Trust
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Re: Post-Effective Amendment No. 11 to Registration
Statement on Form N-1A File No.: 33-26116
Ladies and Gentlemen:
We hereby consent to the reference of our firm as counsel in this
Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel LLP
Independent Auditors' Consent
To the Board of Directors and Shareholders
Lexington Natural Resources Trust:
We consent to the use of our report dated February 4, 1998 included in
this Registration Statement on Form N-1A of the Lexington Natural
Resources Trust dated April 30, 1999 and to the reference to our firm
under the heading "Independent Auditors' Report" in the Statement of
Additional Information.
KPMG LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from annual audited
financial statements dated December 31, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 32,336,382
<INVESTMENTS-AT-VALUE> 17,36,519
<RECEIVABLES> 179,982
<ASSETS-OTHER> 107,956
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 17,654,457
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 180,798
<TOTAL-LIABILITIES> 180,798
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 67,851,514
<SHARES-COMMON-STOCK> 16,419,619
<SHARES-COMMON-PRIOR> 16,647,853
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (44,031)
<ACCUMULATED-NET-GAINS> (35,363,671)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (14,970,153)
<NET-ASSETS> 17,473,659
<DIVIDEND-INCOME> 283,666
<INTEREST-INCOME> 41,977
<OTHER-INCOME> (637)
<EXPENSES-NET> (253,329)
<NET-INVESTMENT-INCOME> 71,677
<REALIZED-GAINS-CURRENT> (4,143,766)
<APPREC-INCREASE-CURRENT> 4,518,709
<NET-CHANGE-FROM-OPS> 446,620
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (80,799)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,278,152
<NUMBER-OF-SHARES-REDEEMED> (15,324,145)
<SHARES-REINVESTED> 65,300
<NET-CHANGE-IN-ASSETS> (1,476,488)
<ACCUMULATED-NII-PRIOR> 28,800
<ACCUMULATED-GAINS-PRIOR> (42,996,141)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 101,329
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 300,329
<AVERAGE-NET-ASSETS> 20,103,666
<PER-SHARE-NAV-BEGIN> 1.08
<PER-SHARE-NII> 0.01
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.08
<EXPENSE-RATIO> 2.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
