DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
We are pleased to report that the Lexington International Fund performed
well on both an absolute and relative basis during 1998. The Lexington
International Fund returned 19.02%* in 1998 while the average international
fund, according to Lipper, Inc., advanced 13.0%. The unmanaged Morgan Stanley
Capital International EAFE Index appreciated a strong 20.3% for the year.
During the fourth quarter Lexington International Fund gained 17.1%* against a
group average of 16.4% according to Lipper, Inc. The EAFE Index rose 20.7% due
to the strong performance of large companies.
The bulk of relative performance occurred in the third quarter as losses
were minimized due to the Fund's high exposure to defensive sectors such as
tobacco and pharmaceuticals. Avoiding hard hit sectors such as banks also
proved instrumental to strong performance. As stocks fell to more attractive
levels, additions to telecoms and banks allowed the Fund to maintain its lead
in the strong fourth quarter recovery.
The hyper bull market in Europe and the United States continues to astound
even the most optimistic bulls. For example, Finnish stocks led by Nokia led
European equities with a gain of 122%. Belgium stocks advanced 68% while
Italian equities rose 53%. The world's economic problems have not been solved,
risk continues to remain on the downside. However, led by a wave of interest
rate cuts in the United States and Europe, investors piled back into equity
markets.
The U.S. economy remains the key to the global markets. U.S. growth
remains surprisingly strong with little inflation. Consumers have been the
driving force for strong U.S. GDP growth. There are signs that the consumer is
contributing to the building financial bubble as indicated by the stock
valuations in some sectors of the U.S. market. We all know that at some point
this is unsustainable. The risk of an economic slowdown and resulting profit
disappointment could lead to a lower U.S. stock market.
On the European front, Europe is already experiencing an economic slowdown
despite falling interest rates. The manufacturing sector is in recession in the
U.K., while unemployment levels still remain high on the continent. Japanese
economic growth continues to be negative. It remains problematical as to when
the Japanese economy begins to improve and the banking industry addresses its
bad loan problems. At the same time there are bright spots, such as an
improvement in Korea and Thailand.
Liquidity driven markets can last longer than most expect, but the end
will probably be painful. The challenge is to participate in rising markets
while also staying defensive to protect against the likelihood of the declines
from these over valued levels. Therefore, we have focused your Fund in areas
that allow us to maintain a well-diversified portfolio with a healthy respect
for risk.
The strategy remains to maintain a diversified portfolio with a healthy
respect for risk. Defensive sectors such as food, tobacco and pharmaceuticals
continue to be favored. Given a weakening global economic environment, earnings
risk remains high. Europe remains a long-term opportunity in which the Fund is
well represented.
On January 1, 1999 the Euro was born. Eleven European nations have formed
one currency with the UK, Denmark and Sweden opting out. The Euro will be the
first challenge to the dollar since World War II. There are many potential
ramifications to the Euro and its impact on equity prices. However, the markets
have had years to adjust and in fact have benefitted by sharp falls in interest
rates. One single currency will allow companies to be more efficient and plan
with greater certainty. Conversely, pricing will be more transparent which
could pressure profit margins in certain industries.
1
<PAGE>
Our job is to monitor events in Europe and select companies that can
benefit under the new currency. Japan is still struggling, but there are small
signs that there is the potential for better times ahead if corporate Japan
begins to get serious about enhancing shareholder value.
Sincerely,
/s/ Richard T. Saler /s/ Richard T. Saler
- -------------------------- ------------------------------
Richard T. Saler Richard T. Saler
Portfolio Manager President
February, 1999 February, 1999
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
LEXINGTON INTERNATIONAL FUND, INC. AND
THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (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
12/31/98 $15,380 $15,567
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/98
FUND/INDEX 1 YEAR SINCE INCEPTION
1/3/94
- ---------- ------ ---------------
Lexington International
Fund 19.02% 9.00%
MSCI-(EAFE) Index 20.33% 9.25%
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.
- --------------------------------------------------------------------------------
* 19.02% and 9.00% are the one year and since commencement (1/3/94) average
annual standard total returns, respectively, for the period ended December
31, 1998. 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, 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
==========================================================================================
<S> <C> <C>
COMMON STOCKS: 91.1%
AUSTRALIA: 2.1%
127,900 Foster's Brewing Group, Ltd. .................... $ 346,743
6,200 OzEmail, Ltd. (ADR) ............................. 137,369
---------
484,112
---------
CANADA: 2.9%
19,400 Imax Corporation2 ............................... 614,738
25,280 Yogen Fruz World-Wide, Inc.2 .................... 86,410
---------
701,148
---------
DENMARK: 1.1%
2,010 Tele Danmark A/S ................................ 271,291
---------
FINLAND: 1.7%
3,300 Nokia Oyj "Class A" ............................. 404,085
---------
FRANCE: 11.5%
2,040 Alcatel ......................................... 249,796
5,420 Axa-UAP ......................................... 785,928
6,800 Elf Aquitaine S.A. (ADR) ........................ 385,050
5,300 Schlumberger, Ltd. - NY Shares .................. 244,462
7,800 SEITA ........................................... 488,721
2,370 Vivendi ......................................... 615,198
---------
2,769,155
---------
GERMANY: 2.2%
11,100 Dresdner Bank AG ................................ 466,520
800 Kamps AG ........................................ 51,876
---------
518,396
---------
HONG KONG: 1.2%
280,000 JCG Holdings, Ltd. .............................. 90,357
312,000 Mandarin Oriental International, Ltd. ........... 196,560
---------
286,917
---------
HUNGARY: 1.2%
9,300 Magyar Tavkozlesi RT. (ADR) ..................... 277,256
---------
IRELAND: 0.9%
2,400 ICON plc (ADR)2 ................................. 79,950
20,150 Ryanair Holdings plc2 ........................... 144,209
---------
224,159
---------
ISRAEL: 2.4%
14,300 Teva Pharmaceutical Industries, Ltd.
(ADR) ........................................... 583,172
---------
ITALY: 2.2%
71,000 Istituto Nazionale delle Assicurazioni .......... 188,212
40,900 Telecom Italia SpA .............................. 348,975
---------
537,187
---------
JAPAN: 13.2%
8,000 Able, Inc.2 ..................................... 248,234
36,000 Asahi Diamond Industries Company,
Ltd.3 .......................................... 179,367
6,300 Doutor Coffee Company, Ltd.3 .................... 209,448
7,000 Ito-Yokado Company, Ltd.3 ....................... 490,263
46,000 National House Industrial Company,
Ltd.3 ........................................... 391,909
2,900 Oriental Land Company, Ltd.3 .................... 132,149
3,100 Paris Miki, Inc. ................................ 71,456
7,400 Rinnai Corporation .............................. 129,635
37,000 Seino Transportation Company, Ltd. .............. 211,903
4,700 Softbank Corporation ............................ 283,342
21,000 Sumitomo Forestry Company, Ltd. ................. 150,802
13,000 Tostem Corporation .............................. 258,164
4 Yahoo Japan Corporation2 ........................ 301,073
20,000 Yamato Kogyo Company, Ltd. ...................... 115,961
---------
3,173,706
---------
NETHERLANDS: 7.1%
11,000 ABN-AMRO Holding NV ............................. 231,527
1,800 Equant NV - NY Shares2 .......................... 122,062
17,700 Koninklijke Ahold NV ............................ 654,554
5,400 Koninklijke KPN NV .............................. 270,479
8,900 Koninklijke Numico NV ........................... 424,449
---------
1,703,071
---------
NEW ZEALAND: 3.3%
83,200 Carter Holt Harvey, Ltd. ........................ 74,717
37,000 Sky City, Ltd. .................................. 140,728
107,900 Tranz Rail Holdings, Ltd. ....................... 247,946
46,800 Tranz Rail Holdings, Ltd. (ADR) ................. 318,825
---------
782,216
---------
NORWAY: 2.7%
29,900 Saga Petroleum AS ............................... 272,754
49,310 Storebrand ASA2 ................................. 372,150
---------
644,904
---------
SPAIN: 5.2%
3,771 Mapfre Vida Seguros ............................. 141,587
22,900 Tabacalera S.A. ................................. 587,485
11,730 Telefonica S.A. ................................. 522,377
---------
1,251,449
---------
SWEDEN: 3.3%
217,062 Swedish Match AB ................................ 789,994
---------
SWITZERLAND: 7.8%
113 Nestle AG ....................................... 245,995
294 Novartis AG ..................................... 577,947
376 Rentenanstalt-Societe Suisse
Assurances Vie .................................. 279,232
45 Roche Holding AG ................................ 549,115
</TABLE>
3
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
=========== ==================================== =============
COMMON STOCKS (CONTINUED):
SWITZERLAND (CONTINUED):
730 UBS AG ............................. $ 224,291
-----------
1,876,580
-----------
UNITED KINGDOM: 19.1%
150,900 Aegis Group plc .................... 220,311
71,000 Aegis Group plc1 ................... 103,659
63,600 British Steel plc .................. 94,178
30,100 British Telecommunications plc ..... 453,478
19,400 Cadbury Schweppes plc .............. 330,846
72,600 D.F.S. Furniture Company plc ....... 227,693
37,700 Devro plc .......................... 107,574
35,800 Diageo plc ......................... 407,418
100,500 George Wimpey plc .................. 181,425
14,400 Glaxo Welcome plc .................. 495,466
127,000 Inchcape plc ....................... 271,524
95,700 Polypipe plc ....................... 181,517
72,700 Regent Inns plc .................... 122,773
37,600 Rentokil Initial plc ............... 283,392
21,260 Rio Tinto plc ...................... 247,253
40,700 SmithKline Beecham plc ............. 568,820
18,000 Vodafone Group plc ................. 292,296
-----------
4,589,623
-----------
TOTAL COMMON STOCKS
(cost $19,316,758).................. 21,868,421
-----------
NUMBER OF SHARES
OR VALUE
PRINCIPAL AMOUNT SECURITY (NOTE 1)
================== ========================================== =============
PREFERRED STOCKS: 2.2%
GERMANY: 2.2%
4,310 Rhoen-Klinikum AG ........................ $ 439,921
386 Sto AG ................................... 90,386
-----------
TOTAL PREFERRED STOCKS
(cost $632,692) .......................... 530,307
-----------
U.S. GOVERNMENT OBLIGATION: 2.2%
$2,018,000 U.S. Strip Bond, 0.00%, due
05/15/23 (cost $480,841).................. 534,286
-----------
SHORT-TERM INVESTMENT: 4.2%
U.S. GOVERNMENT AGENCY OBLIGATION
1,000,000 Federal Home Loan Mortgage
Corporation, 4.50%, due 01/04/99
(cost $999,646)........................... 999,646
-----------
TOTAL INVESTMENTS: 99.7%
(cost $21,429,937+) (Note 1).............. 23,932,660
Other assets in excess of liabilities:
0.3% ..................................... 67,055
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $11.61 per share on
2,067,783 shares outstanding) ............ $23,999,715
===========
1 Restricted Security (Note 8).
2 Non-income producing security.
3 Some or all of this security is segregated for forward foreign currency
contracts (Notes 1 and 7).
ADR - American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $21,459,304.
--------------------
At December 31, 1998, the composition of the Fund's net assets by industry was
as follows:
Banking ............................ 3.8%
Capital Equipment .................. 3.3
Construction & Housing ............. 2.4
Consumer Durable Goods ............. 0.5
Consumer Non-durable Goods ......... 17.7
Electrical & Electronics ........... 2.2
Energy Sources ..................... 2.7
Financial Services ................. 7.7%
Health & Personal Care ............. 13.4
Materials .......................... 5.5
Merchandising ...................... 4.9
Real Estate ........................ 1.9
Services ........................... 9.9
Telecommunications ................. 12.4
Trade .............................. 1.1%
Transportation ..................... 3.9
U.S. Government Agency &
Obligations .................... 6.4
Other Assets ....................... 0.3
-----
Total Net Assets .................. 100.0%
=====
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS
Investments, at value (cost $21,429,937)
(Note 1) ....................................... $23,932,660
Cash ............................................. 458,577
Receivable for investment securities sold ........ 21
Dividends and interest receivable ................ 11,600
Foreign taxes recoverable ........................ 16,955
-----------
Total Assets ................................. 24,419,813
-----------
LIABILITIES
Due to Lexington Management Corporation
(Note 2) ....................................... 39,335
Payable for investment securities purchased ...... 64,200
Distributions payable ............................ 115,108
Accrued expenses ................................. 36,703
Unrealized loss on open forward contracts
(Note 7) ....................................... 164,752
-----------
Total Liabilities ............................ 420,098
-----------
NET ASSETS (equivalent to $11.61 per share on
2,067,783 shares outstanding) (Note 4) ......... $23,999,715
===========
NET ASSETS consist of:
Capital stock - authorized 500,000,000
shares, $.001 par value per share .............. $ 2,068
Additional paid-in capital (Note 1) .............. 21,128,423
Undistributed net investment income (Note 1) ..... 154,188
Accumulated net realized gain on investments
and foreign currency transactions (Note 1) ..... 376,139
Unrealized appreciation of investments and
foreign currency translation of other assets
and liabilities ................................ 2,338,897
-----------
TOTAL NET ASSETS ............................. $23,999,715
===========
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998
INVESTMENT INCOME
Dividends ............................ $ 412,745
Interest ............................. 101,131
---------
513,876
Less: foreign tax expense ............ 56,705
---------
Total investment income ............. $ 457,171
EXPENSES
Investment advisory fee (Note 2)...... 217,864
Custodian expenses ................... 72,018
Transfer agent and shareholder
servicing expenses (Note 2) ....... 33,014
Professional fees .................... 32,314
Printing and mailing expenses ........ 30,805
Distribution expenses (Note 3) ....... 19,670
Directors' fees and expenses ......... 17,886
Accounting expenses (Note 2) ......... 17,775
Registration fees .................... 17,006
Amortization of deferred
organization costs (Note 1) ....... 12,213
Computer processing fees ............. 7,474
Other expenses ....................... 13,007
---------
Total expenses ...................... 491,046
Less: expenses recovered
under contract with
investment adviser (Note 2) ...... 109,634 381,412
--------- ----------
Net investment income ............... 75,759
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 5)
Net realized gain on:
Investments .......................... 1,294,568
Foreign currency transactions ....... 80,197
---------
Net realized gain .................. 1,374,765
Net change in unrealized
appreciation (depreciation) on:
Investments ......................... 2,399,709
Foreign currency translation of
other assets and liabilities ..... (254,033)
---------
Net change in unrealized
appreciation (depreciation)...... 2,145,676
----------
Net realized and
unrealized gain ................ 3,520,441
----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................... $3,596,200
==========
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Net investment income ....................................................... $ 75,759 $ 111,647
Net realized gain from investments and foreign currency transactions ........ 1,374,765 1,524,350
Net change in unrealized appreciation (depreciation) of investments
and foreign currency translation ........................................... 2,145,676 (1,346,297)
----------- ------------
Net increase in net assets resulting from operations ...................... 3,596,200 289,700
Distributions to shareholders from net investment income (Note 1) ........... (116,960) (245,229)
Distributions to shareholders from net realized gains from
security transactions (Note 1) ............................................. (695,462) (1,451,487)
Increase in net assets from capital share transactions (Note 4) ............. 1,266,820 2,465,165
----------- ------------
Net increase in net assets ................................................ 4,050,598 1,058,149
NET ASSETS:
Beginning of period ........................................................ 19,949,117 18,890,968
----------- ------------
End of period (including undistributed net investment income of $154,188
and distributions in excess of net investment income of $81,791 in
1998 and 1997, respectively) .............................................. $23,999,715 $ 19,949,117
=========== ============
</TABLE>
.
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 Securities 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 prices is used. Securities traded on the over-the-counter market are
valued at the mean between the last current bid and asked prices. 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.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges.
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, 1998,
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.
7
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
DEFERRED ORGANIZATION COSTS Organization costs aggregating $48,067 have
been fully amortized as of December 31, 1998.
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 and disclosure of contingent 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
1998, 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 $109,634 for the year
ended December 31, 1998, and is set forth in the statement of operations.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $39,838 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,
1998, were $19,670 and are set forth in the statement of operations.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1997
-------------------------------- -------------------------------
Shares Amount Shares Amount
------------- ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 1,005,127 $ 11,440,387 305,117 $ 3,577,373
Shares issued on reinvestment of dividends ......... 58,468 669,485 149,918 1,506,676
--------- ------------- ------- ------------
1,063,595 12,109,872 455,035 5,084,049
Shares redeemed .................................... (970,855) (10,843,052) (218,983) (2,618,884)
--------- ------------- -------- ------------
Net increase ....................................... 92,740 $ 1,266,820 236,052 $ 2,465,165
========= ============= ======== ============
</TABLE>
5. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1998, excluding short-term securities, were $31,555,131 and
$29,396,736 respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$3,726,861 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,253,505.
8
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (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 CONTRACT
At December 31, 1998, the Fund was committed to sell foreign currency under the
following forward foreign exchange contract:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Settlement Amount Amount Loss at
Contract Date (Local Currency) (U.S. Dollar) Value December 31, 1998
- ---------------------- ------------ ------------------ --------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Japanese Yen ......... 03/15/99 137,199,721 $1,050,373 $1,215,125 $ (164,752)
==========
</TABLE>
8. RESTRICTED SECURITY
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 Percent of
Security Date Shares Per Share Value Net Assets
- ------------------------- ------------- -------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Aegis Group plc ......... 04/27/98 71,000 $ 1.36 $103,659 0.43%
======== ====
</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)
The following tax information represents the designation of various tax
benefits relating to the year ended December 31, 1998:
The percentage of ordinary income distributions paid by the Fund derived from
agency and direct obligations of the United States government were as follows:
U.S. Treasury.................................. 0.63%
Federal Home Loan Bank......................... 1.53
Federal Home Loan Mortgage Corporation......... 1.93
Federal National Mortgage Association.......... 0.06
The Fund designates $695,462, whether taken in shares or cash, as 20% long-term
capital gain distributions.
9
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
January 3, 1994
(commencement of
Year ended December 31, operations) to
----------------------------------------------------- December 31,
1998 1997 1996 1995 1994
------------- ----------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $ 10.10 $ 10.86 $ 10.60 $ 10.37 $ 10.00
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) ...................... 0.17 0.07 (0.02) (0.01) (0.08)
Net realized and unrealized gain
on investments and foreign
currency transactions ........................... 1.74 0.10 1.45 0.61 0.67
------- ------- ------- ------- -------
Total income from investment operations ............ 1.91 0.17 1.43 0.60 0.59
------- ------- ------- ------- -------
Less distributions:
Distributions from net investment income .......... (0.06) (0.13) (0.20) -- --
Distributions in excess of net investment income
(temporary book-tax difference) .................. -- -- -- (0.35) --
Distributions from net realized gains ............. (0.34) (0.80) (0.97) (0.02) (0.10)
Distributions in excess of net realized gains
(temporary book-tax difference) .................. -- -- -- -- (0.12)
------- ------- ------- ------- -------
Total distributions ................................ (0.40) (0.93) (1.17) (0.37) (0.22)
------- ------- ------- ------- -------
Net asset value, end of period ..................... $ 11.61 $ 10.10 $ 10.86 $ 10.60 $ 10.37
======= ======== ======= ======== ========
Total return ....................................... 19.02% 1.61% 13.57% 5.77% 5.87%
Ratio to average net assets:
Expenses, before reimbursement or waivers ......... 2.25% 2.15% 2.45% 2.46% 2.39%
Expenses, net of reimbursement or waivers ......... 1.75% 1.75% 2.45% 2.46% 2.39%
Net investment income (loss), before reimbursement
or waivers ....................................... (0.16)% 0.13% (0.39)% (0.12)% (0.94)%
Net investment income (loss) ...................... 0.35% 0.53% (0.39)% (0.12)% (0.94)%
Portfolio turnover rate ............................ 143.67% 122.56% 113.55% 137.72% 100.10%
Net assets, end of period (000's omitted) .......... $24,000 $19,949 $18,891 $17,855 $17,843
</TABLE>
10
<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, 1998, and the related statement of operations for
the year ended, the statements of changes in net assets for each of the years
in the two-year period then ended, and the financial highlights for each of the
years in the four-year period then ended and for the period from January 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington International Fund, Inc. as of December 31, 1998, 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 four-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 LLP
New York, New York
February 8, 1999
11
<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
-----------------------------------------
[GRAPHIC OMITTED]
LEXINGTON
INTERNATIONAL
FUND, INC.
-----------------------------------------
Seeks long-term growth of capital,
primarily through investment in
common stocks of companies
domiciled in foreign countries
and the United States.
-----------------------------------------
ANNUAL REPORT
DECEMBER 31, 1998
The Lexington Group
of NO LOAD
Investment Companies
