DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The Lexington International Fund fell 10.7%* during the fourth quarter and
returned 1.6%* for 1997. According to Lipper Analytical Services, Inc. the
average international fund declined 7.7% for the quarter and appreciated 5.5%
for the year. The unmanaged Morgan Stanley Capital International EAFE Index saw
a 7.8% drop during the fourth quarter. The unmanaged EAFE Index advanced 1.8%
for all of 1997.
The Fund underperformed due to sharp declines in international markets in
the fourth quarter. Asian turmoil impacted cyclical shares of which the Fund had
a relatively high concentration. Given the long term nature and seriousness of
the Asian meltdown cyclical positions were dramatically reduced. On a positive
note, sharp corrections in Japanese and other Asian equities were largely
avoided due to the Fund's low weighting in this region.
The current investment environment is quite volatile. The Asian contagion
has not been resolved and the situation remains very serious, with many
economies in the region likely to experience a severe negative GDP growth 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 were to devalue its currency, a new round of
competitive devaluations could be set in motion.
The Fund continues to favor European equities. European companies should
enjoy high productivity levels for years to come as companies restructure.
Rising productivity will drive strong earnings growth even within a modest
economic growth scenario. Within Europe, cyclical shares are now a small
proportion of the Fund as we fear that the Asian economic weakness will
particularly hurt cyclical business in Europe and throughout the world. Favored
stocks are those in defensive sectors--food and beverage, utilities, and
pharmaceuticals.
Japanese stocks now provide outstanding value, although the outlook for
the Japanese economy remains poor. However, sentiment in Japan, already very
negative, is discounted in current stock prices. Retail and housing stocks are
especially cheap. Many have net cash on their balance sheets and trade at steep
discounts to book value. If the government announces additional fiscal stimulus
measures, these stocks will be re-rated sharply higher. Emerging markets remain
unattractive with the exception of Asia. Obviously, given the collapse of Asian
stock and currency markets, opportunities are now available. Positions in export
and cash rich companies will be added in this region. Latin America will suffer
as falling commodity prices weaken government budgets and foreign trade
accounts. Vulnerable currencies and high interest rates will slow economic
activity in Latin America, and earnings disappointments will be a major risk to
equities.
1
<PAGE>
In conclusion, 1997 was a tale of two regions, strong returns in the west
and sharp declines in the east. Although the outlook for western markets remains
positive, returns cannot be expected to follow the strong path of the past few
years. Asian problems will become the world's, and this will limit returns in
Europe and the Americas. However, given the enormous declines in Asia, investors
have an opportunity to reap high returns in this region over the next few years
and your fund will selectively build positions in this area while maintaining a
more defensive stance in the emerging markets, concentrating on those companies
and industries that will benefit from corporate restructuring themes.
Sincerely,
/s/ Richard T. Saler /s/ Robert M. DeMichele
- --------------------------- -----------------------
Richard T. Saler Robert M. DeMichele
Portfolio Manager President
February, 1998 February, 1998
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
LEXINGTON INTERNATIONAL FUND, INC. AND
THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAO (EAFE) INDEX
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED REPORT]
Lexington
Year International EAFE
Fund
======================================================
1/3/94 $10,000 $10,000
12/31/94 $10,587 $10,778
12/31/95 $11,198 $11,986
12/31/96 $12,717 $12,711
12/31/97 $12,922 $12,937
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/97
FUND/INDEX 1 YEAR SINCE INCEPTION
1/3/94
- ---------- ------ ---------------
Lexington International
Fund 1.61% 6.63%
MSCI-(EAFE) Index 1.78% 6.65%
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Morgan Stanley Capital
International (EAFE) Index. Results for the FUnd and the Morgan Stanley Capital
International (EAFE) Index include the reinvestment of all dividend and capital
gain distributions. The FUnd commenced operations on 1/3/94. Investment return
and principal value of an investment will fluctuate so that an investor's shares
when redeemed may be worth more or less than at their original cost. Total
return represents past performance and it is not predictive of future market
results.
- --------------------------------------------------------------------------------
*1.61% and 6.63% are the one year and since commencement (1/3/94) average annual
standard total returns, respectively, for the period ended December 31, 1997.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed, may be worth more or less than at their
original cost. Total return represents past performance and is not predictive of
future results.
2
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31,1997
NUMBER VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
COMMON STOCK: 84.1%
AUSTRALIA: 4.1%
322,400 Foster's Brewing Group, Ltd..$ 613,389
47,406 QBE Insurance Group, Ltd. ... 213,344
------------
826,733
------------
AUSTRIA: 3.3%
2,900 Boehler - Uddeholm AG ....... 169,748
2,550 Wienerberger
Baustoffindustrie AG ...... 488,801
------------
658,549
------------
BELGIUM: 2.1%
1,790 Electrabel S.A. ............. 414,044
------------
CANADA: 7.1%
10,100 Bombardier, Inc. "B" ........ 207,502
10,700 Hudson's Bay Company ........ 238,148
24,600 Imax Corporation2 ........... 535,050
19,500 Tarragon Oil & Gas, Ltd.2 ... 152,619
57,600 Yogen Fruz World-Wide, Inc.2. 283,770
------------
1,417,089
------------
FRANCE: 5.6%
2,080 Alcatel Alsthom ............. 264,501
2,800 Axa-UAP ..................... 216,754
5,300 Elf Aquitaine S.A. (ADR) .... 310,713
1,930 Sidel S.A. .................. 128,007
13,500 Usinor ...................... 195,009
------------
1,114,984
------------
GERMANY: 5.9%
1,900 Allianz AG .................. 492,424
7,400 Deutsche Bank AG ............ 522,679
2,100 Hoechst AG .................. 73,580
7,500 Rofin - Sinar Technologies,
Inc.2 ..................... 90,938
------------
1,179,621
------------
HONG KONG: 0.6%
280,000 JCG Holdings, Ltd. .......... 120,156
------------
HUNGARY: 0.2%
1,000 Zalakeramia Rt. ............. 46,421
------------
INDONESIA: 1.3%
67,000 PT Hanjaya Mandala Sampoerna. 50,602
200,500 PT Tambang Timah ............ 215,284
------------
265,886
------------
IRELAND: 4.1%
26,300 Allied Irish Banks Plc ...... 254,906
7,800 Elan Corporation Plc (ADR)2 . 399,263
34,000 Ryanair Holdings Plc2 ....... 161,376
------------
815,545
------------
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
ITALY: 0.9%
27,300 Telecom Italia SpA ..........$ 174,733
------------
JAPAN: 7.1%
4,700 Acom Company, Ltd. .......... 260,265
5,800 Amway Japan, Ltd. ........... 111,520
4,000 Doutor Coffee Company, Ltd. . 103,060
2,200 Maruco Company, Ltd. ........ 12,013
16,000 Mitsubishi Estate Company, .. 174,741
21,000 Mitsui Fudosan Company, Ltd.. 203,505
99,000 Nippon Steel Corporation .... 146,953
2,100 Sony Corporation ............ 187,354
2,100 Tiemco, Ltd. ................ 21,320
18,000 Toshiba Corporation ......... 75,172
19,000 Yamato Kogyo Company, Ltd. .. 114,712
------------
1,410,615
------------
MALAYSIA: 0.8%
46,000 Highlands and Lowlands Bhd .. 47,036
44,000 Kuala Lumpur Kepong Bhd ..... 94,390
46,000 Magnum Corporation Bhd ...... 27,653
------------
169,079
------------
NETHERLANDS: 0.2%
1,200 Koninklijke Ahrend Groep NV . 37,707
------------
NEW ZEALAND: 1.8%
274,800 Brierley Investments, Ltd. .. 196,263
81,300 Fletcher Challenge Building . 166,169
------------
362,432
------------
NORWAY: 2.0%
22,600 Saga Petroleum AS ........... 389,328
------------
PHILIPPINES: 0.5%
836,300 C & P Homes, Inc. ........... 49,467
107,500 Ionics Circuit, Inc. ........ 44,456
------------
93,923
------------
POLAND: 0.2%
752 Wedel S.A. .................. 38,614
------------
SINGAPORE: 0.5%
35,000 Keppels Fels Limited ........ 97,630
------------
SPAIN: 2.8%
5,500 Adolfo Dominguez S.A.2 ...... 159,679
3,200 Banco Popular Espanol ....... 223,599
2,200 Tele Pizza S.A. (2) ......... 177,541
------------
560,819
------------
3
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31,1997 (continued)
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
SWEDEN: 6.6%
24,900 Castellum AB2 ..................$ 247,922
45,600 Fastighets AB Hufvudstaden ..... 175,288
26,000 Industrial & Financial Systems,
IFS AB1,2 .................... 180,229
10,200 Skandinaviska Enskilda Banken .. 129,198
8,400 SKF AB ......................... 178,918
124,000 Swedish Match AB ............... 414,148
------------
1,325,703
------------
SWITZERLAND: 6.3%
175 Nestle AG ...................... 262,641
290 Novartis AG .................... 471,221
340 Rentenanstalt- Societe Suisse
Assurances Vie ............... 267,375
350 Saurer AG2 ..................... 254,362
------------
1,255,599
------------
UNITED KINGDOM: 20.1%
127,900 Aegis Group Plc ................ 144,156
17,700 Beazer Group Plc ............... 47,035
25,400 Capita Group Plc ............... 154,217
23,600 D.F.S. Furniture Company Plc ... 200,370
130,500 George Wimpey Plc .............. 227,608
18,100 Glaxo Welcome Plc .............. 428,261
18,300 Harvey Nichols Plc ............. 57,963
8,000 Oriflame International S.A. .... 58,576
19,800 PizzaExpress Plc ............... 244,342
62,800 Polypipe Plc ................... 181,346
23,100 Provident Financial Plc ........ 302,930
46,800 Regent Inns Plc ................ 253,731
19,700 Royal Bank of Scotland Group Plc 252,184
13,360 RTZ Corporation Plc ............ 164,649
67,000 Tomkins Plc .................... 313,087
16,200 United Utilities Plc ........... 209,246
45,800 Vodafone Group Plc ............. 334,219
29,500 Whitbread Plc .................. 428,845
------------
4,002,765
------------
TOTAL COMMON STOCK
(cost $16,628,933) ............. 16,777,975
------------
NUMBER OF SHARES
OR VALUE
PRINCIPAL AMOUNT SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
PREFERRED STOCK: 1.2%
CHILE: 0.6%
8,300 Banco Santander (ADR) .......... $ 117,238
------------
GERMANY: 0.6%
346 Sto AG ......................... 125,080
------------
TOTAL PREFERRED STOCK
(cost $288,346) ................ 242,318
------------
SHORT-TERM INVESTMENT: 15.0%
U.S. GOVERNMENT AGENCY
OBLIGATION
$3,000,000 Federal Home Loan Mortgage
Corp., 4.75%, due 1/2/98
(cost $2,999,604) ............ 2,999,604
------------
TOTAL INVESTMENTS: 100.3%
(cost $19,916,883+) (Note 1) ... 20,019,897
Liabilities in excess of other
assets: (.3%) ................ (70,780)
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $10.10 per
share on 1,975,043 shares
outstanding) ................. $ 19,949,117
============
1 Restricted Security (Note 8).
2 Non-income producing security.
ADR - American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $20,015,669.
----------------------
At December 31, 1997, the composition of the Fund's net assets by industry was
as follows:
Banking ............................ 7.5%
Capital Equipment .................. 5.8
Construction & Housing ............. 1.6
Consumer Durable Goods ............. 1.1
Consumer Non-durable Goods ......... 11.6
Electrical & Electronics ........... 1.5
Energy Sources ............... 4.3
Financial Services ................. 9.4%
Health &Personal Care .............. 6.8
Materials .......................... 10.4
Merchandising ...................... 5.4
Multi-Industry ..................... 2.7
Real Estate ........................ 4.0
Services ........................... 5.4
Telecommunications ................. 3.9%
Transportation ..................... 0.8
U.S. Government
Agency Obligation ................ 15.0
Utilities .......................... 3.1
Other Liabilities .................. (0.3)
-----
Total Net Assets ................. 100.0%
=====
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
<S> <C>
Investments, at value (cost $19,916,883) (Note 1) .................................. $ 20,019,897
Cash ............................................................................... 33,198
Receivable for investment securities sold .......................................... 89,795
Receivable for shares sold ......................................................... 2,125
Dividends and interest receivable .................................................. 22,645
Foreign taxes recoverable .......................................................... 17,124
Unrealized gain on open forward contracts (Note 7) ................................. 93,458
Deferred organization expense, net (Note 1) ........................................ 12,213
------------
Total Assets ................................................................ 20,290,455
------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ................................... 36,125
Payable for investment securities purchased ........................................ 75,867
Payable for shares redeemed ........................................................ 2,906
Distributions payable .............................................................. 190,060
Accrued expenses ................................................................... 36,380
------------
Total Liabilities ........................................................... 341,338
------------
NET ASSETS (equivalent to $10.10 per share on 1,975,043 shares outstanding) (Note 4) $ 19,949,117
============
NET ASSETS consist of:
Capital stock -- authorized 500,000,000 shares,
$.001 par value per share ......................................................... $ 1,975
Additional paid in capital (Note 1) ................................................ 19,980,314
Distributions in excess of net investment income (Note 1) .......................... (81,791)
Accumulated net realized loss on investments and foreign currency holdings (Note 1) (144,602)
Unrealized appreciation on investments and foreign currency holdings ............... 193,221
------------
TOTAL NET ASSETS ............................................................ $ 19,949,117
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C>
Dividends ........................................................... $ 434,624
Interest ............................................................ 100,643
---------
535,267
Less: foreign tax expense ........................................... 54,249
---------
Total investment income .................................... $ 481,018
EXPENSES
Investment advisory fee (Note 2) ................................. 210,897
Custodian expense ................................................ 73,087
Transfer agent and shareholder servicing expense (Note 2) ........ 29,663
Printing and mailing expenses .................................... 28,778
Accounting expenses (Note 2) ..................................... 22,987
Registration fees ................................................ 18,553
Distribution expense (Note 3) .................................... 15,399
Directors' fees and expenses ..................................... 15,271
Professional fees ................................................ 13,960
Amortization of organization costs (Note 1) ...................... 9,635
Computer processing fees ......................................... 6,550
Other expenses ................................................... 9,684
---------
Total expenses ................................................ 454,464
Less: expenses recovered under contract with
investment adviser (Note 2) ................................ 85,093 369,371
--------- ----------
Net investment income ......................................... 111,647
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 5)
Net realized gain on:
Investments ................................................... 1,415,864
Foreign currency transactions ................................. 108,486
---------
Net realized gain .......................................... 1,524,350
Net change in unrealized appreciation on:
Investments ................................................... (1,451,348)
Foreign currency translation of other assets and liabilities .. 105,051
---------
Net change in unrealized appreciation ...................... (1,346,297)
----------
Net realized and unrealized gain ......................... 178,053
----------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .................... $ 289,700
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1997 and 1996
1997 1996
------------ ------------
<S> <C> <C>
Net investment income (loss) ................................................... $ 111,647 $ (73,734)
Net realized gain from investments and foreign currency transactions ........... 1,524,350 2,161,800
Net change in unrealized appreciation of investments
and foreign currency translation ............................................ (1,346,297) 377,550
------------ ------------
Net increase in net assets resulting from operations ..................... 289,700 2,465,616
Distributions to shareholders from net investment income ....................... (245,229) (319,185)
Distributions to shareholders from net realized gains from
security transactions (Note 1) ................................................. (1,451,487) (1,538,614)
Increase in net assets from capital share transactions (Note 4) ................ 2,465,165 428,512
------------ ------------
Net increase in net assets ............................................... 1,058,149 1,036,329
NET ASSETS:
Beginning of period ......................................................... 18,890,968 17,854,639
------------ ------------
End of period (including distributions in excess of net investment
income of $81,791 and $56,485, 1997 and 1996, respectively) ................. $ 19,949,117 $ 18,890,968
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington International 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 through investment in common stocks and equivalents of companies
domiciled in foreign countries. 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.
DEFERRED ORGANIZATION EXPENSES Organization expenses aggregating $48,067
have been deferred and are being amortized on a straight-line basis over five
years.
8
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets. 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 1.75% of the Fund's average
daily net assets. Total reimbursement was $85,093 for the year ended December
31, 1997, and is set forth in the statement of operations.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $37,887 which are incurred by the Fund, but paid
by LMC.
3. DISTRIBUTION PLAN
The Fund has a Distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1997 were $15,399 and are set forth in the statement of operations.
4. CAPITAL STOCK
<TABLE>
<CAPTION>
Transactions in capital stock were as follows:
Year ended Year ended
December 31, 1997 December 31, 1996
---------------------- -----------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Shares sold ............................................. 305,117 $3,577,373 317,658 $3,566,613
Shares issued on reinvestment of dividends .............. 149,918 1,506,676 149,131 1,605,600
-------- ---------- -------- ----------
455,035 5,084,049 466,789 5,172,213
Shares redeemed ......................................... (218,983) (2,618,884) (412,925) (4,743,701)
-------- ---------- -------- ----------
Net increase ............................................ 236,052 $2,465,165 53,864 $ 428,512
======== ========== ======== ==========
</TABLE>
5. 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 $23,395,126 and
$24,802,503 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
$1,908,024 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,903,796.
9
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
6. 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.
7. 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 Unrealized
Settlement Amount In Exchange Gain at
Contract Date (Local Currency) For Value December, 31 1997
------- --------- ------------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
New Zealand Dollar ...... 4/6/98 636,208 $ 405,805 $ 366,640 $ 39,165
Australian Dollar ....... 5/4/98 978,167 687,700 639,017 48,683
Canadian Dollar ......... 6/1/98 1,085,694 768,089 762,479 5,610
-----------
$ 93,458
===========
</TABLE>
8. 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> <C>
Industrial and Financial Systems, IFS AB ........... 6/12/97 $ 4.88 $ 180,229 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.
9. TAX INFORMATION (UNAUDITED)
Capital gain distributions paid to shareholders by the Fund during the year
ended December 31, 1997, whether taken in shares or cash:
$664,584 are designated as 28 percent long-term capital gains.
$265,996 are designated as 20 percent long-term capital gains.
10
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------------------------------------
1997 1996 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ....................... $ 10.86 $ 10.60 $ 10.37 $ 10.00
------------- ------------- ------------- -------------
Income (loss) from investment operations:
Net investment income (loss) ............................... 0.07 (0.02) (0.01) (0.08)
Net realized and unrealized gain
on investments and foreign
currency transactions .................................... 0.10 1.45 0.61 0.67
------------- ------------- ------------- -------------
Total income from investment operations .................... 0.17 1.43 0.60 0.59
------------- ------------- ------------- -------------
Less distributions:
Distributions from net investment income ................... (0.13) (0.20) -- --
Distributions in excess of net investment income
(temporary book-tax difference) .......................... -- -- (0.35) --
Distributions from net realized gains ...................... (0.80) (0.97) (0.02) (0.10)
Distributions in excess of net realized gains
(temporary book-tax difference) .......................... -- -- -- (0.12)
------------- ------------- ------------- -------------
Total distributions ........................................ (0.93) (1.17) (0.37) (0.22)
------------- ------------- ------------- -------------
Net asset value, end of period ............................. $ 10.10 $ 10.86 $ 10.60 $ 10.37
============= ============= ============= =============
Total return ............................................... 1.61% 13.57% 5.77% 5.87%
Ratio to average net assets:
Expenses, before reimbursement or waivers .................. 2.15% 2.45% 2.46% 2.39%
Expenses, after reimbursement or waivers ................... 1.75% 2.45% 2.46% 2.39%
Net investment income (loss), before reimbursement
or waivers ............................................... 0.13% (0.39%) (0.12%) (0.94%)
Net investment income (loss) ............................... 0.53% (0.39%) (0.12%) (0.94%)
Portfolio turnover rate .................................... 122.56% 113.55% 137.72% 100.10%
Average commission paid on equity
security transactions** .................................. $ 0.01 $ 0.03 -- --
Net assets, end of period (000's omitted) .................. $ 19,949 $ 18,891 $ 17,855 $ 17,843
</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.
11
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington International Fund, Inc.
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington International
Fund, Inc. as of December 31, 1997, and the related statements of operations for
the year then 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 three-year period then ended and for the period fromJanuary 3,
1994 (commencement of operations) to December 31, 1994. 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 and 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 International 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 three-year period then ended and for the period from
January 3, 1994 (commencement of operations) to December 31, 1994, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 4, 1998
12
<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.
13
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
LEXINGTON
INTERNATIONAL 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 International 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
INTERNATIONAL
FUND, INC.
- --------------------------------------------------------------------------------
Seeks long-term growth of capital,
primarily through investment in
common stocks of companies
domiciled in foreign countries.
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1997
The Lexington Group
of No Load
Investment Companies
================================================================================
