As filed with the Securities and Exchange Commission on March 1, 1999
Registration No. 33-72226
811-8172
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. 6 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 8
X
(Check appropriate box or boxes.)
LEXINGTON INTERNATIONAL FUND, INC.
----------------------------------
(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
-------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington International Fund
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
----------------------------
(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue, New York, NY 10022
-----------------------------
It is proposed that this filing will become effective
60 days after fililng pursuant to Paragraph (a) of Rule 485.
-----------------------------
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 Registrant's fiscal year
ended December 31, 1998 will be filed by March 31, 1999.
<PAGE>
LEXINGTON INTERNATIONAL FUND
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 10
4. General Description of Registration 3
5. Management of the Fund 42
6. Capital Stock and Other Securities 61
7. Purchase of Securities Being Offered 51
8. Redemption or Repurchase 54
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
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 61 (Part A)
13. Investment Objectives and Policies 2
14. Management of the Registrant 6
15. Control Persons and Principal Holders 9
of Securities
16. Investment Advisory and Other Services 9
17. Brokerage Allocation and Other Practices 10
18. Capital Stock and Other Securities 61 (Part A)
19. Purchase, Redemption and Pricing of 51, 54 (Part A)
securities being offered
20. Tax Status 12
21. Underwriters 9 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 19
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]
THE LEXINGTON FUNDS
Domestic Equity Lexington SmalllCap Fixed-Income Precious Metals
Funds Fund, Inc. Funds and Money Funds
Market Funds
Lexington Growth International and Lexington GNMA Lexington Goldfund,
and Income Fund, Global Funds Income Fund, Inc. Inc.
Inc.
Lexington Silver
Lexington Crosby Lexington Global Fund, Inc.
Small Cap Asia Income Fund
Growth Fund, Inc.
Lexington Global Lexington Money
Corporate Leaders Market Trust
Fund, Inc.
Lexington
International Fund
Inc.
Lexington
Worldwide
Emerging Markets
Fund, Inc.
Lexington Troika
Dialog Russia Fund,
Inc.
The Securities and Exchange Commission has not approved nor disapproved the
shares of any of the Funds. 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.
<PAGE>
Table of Contents
[Insert if needed]
2
<PAGE>
Table of Contents
[Insert if needed]
3
<PAGE>
DOMESTIC EQUITY FUNDS
Lexington Growth and Income Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Growth and Income Fund's principal investment objective is
long-term capital appreciation. Income is a secondary objective.
Investment Strategy
The Lexington Growth and Income Fund, Inc. ("the Fund") will invest at least 65%
of its total assets in common stocks of U.S. companies, which may include senior
securities convertible into shares of common stock. The Fund seeks to invest in
long-term investments in large, ably managed and well financed companies.
The Fund may invest the remaining 35% of its assets in foreign securities and
smaller capitalization companies.
Principal Risks
Through stock investment, 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 or more 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.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
27.56% -10.27% 24.87% 12.36% 13.22% -3.11% 22.57% 26.46% 30.36% 21.42%
</TABLE>
Average Annual Returns Through 12/31/98
Growth & Income Fund 21.42% 18.90% 15.76%
S & P 500 28.72% 24.09% 19.22%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 21.95% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -14.87% for the third quarter in 1990.
- --------------------------------------------------------------------------------
4
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
Shareholder Fees (Paid directly from your investment)
<S> <C>
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 0.63%
Rule 12b-1 Fees 0.25%
Other Fees 0.28%
Total Fund Operating Expenses 1.16%
</TABLE>
Example of Expenses:
This example is intended to help you compare the cost of investing in Lexington
Growth and Income Fund with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. It
also assumes that your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$118.23 $368.48 $638.31 $1,408.96
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
Lexington SmallCap Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington SmallCap Fund's principal investment objective is long-term
capital appreciation. The Lexington SmallCap Fund will seek to obtain its
objective through investment in equity securities and equivalents primarily of
domestic companies having market capitalizations of less than $1 billion.
5
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1996 1997 1998
---- ---- ----
17.50% 10.47% 6.73%
Average Annual Returns Through 12/31/98
Small Cap Fund 6.73% 11.51%
Russell 2000 Index -2.55% 11.56%
- --------------------------------------------------------------------------------
1 Year Since Inception
(1/2/96)
- --------------------------------------------------------------------------------
During the three year period shown in the above bar graph chart, the fund's
highest quarterly return was 15.04% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -11.43% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------
Investment Strategy
The Lexington SmallCap Fund, Inc. (the "Fund") will invest at least 90% of its
assets in domestic companies having market capitalizations between $20 million
and $1 billion at the time of investment. The Fund may invest the remaining 10%
of its assets in a similar manner, or in securities of companies with market
capitalizations below $20 million, above $1 billion, foreign companies with
dollar denominated shares traded in the United States, American Depository
Shares or Receipts, real estate investment trusts and cash. The Fund will invest
primarily in listed securities or those traded over-the-counter.
In selecting investments for the Fund, Lexington Management Corporation ("the
Manager") and the sub-adviser have established a universe of small
capitalization stocks that are screened using the sub-adviser's proprietary
stock selectivity model. Once the stocks are evaluated and ranked by expected
future relative price performance, the adviser and sub-adviser establish both
sector and diversification allocations in building the portfolio.
Principal Risks
Through stock investment, 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 or more 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. Also, the Fund's focus on small cap stocks
may expose investors to additional risks. Smaller companies typically have more
limited product lines, markets and financial resources than larger companies,
and their securities may trade less frequently and in more limited volume than
those of larger, more mature companies. As a result, small cap stocks, and
therefore the Fund, may fluctuate significantly more in value than larger cap
stocks and funds that focus on them.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual returns compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
6
<PAGE>
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 1.67%
Total Fund Operating Expenses 2.92%
</TABLE>
* In 1998, 0.33% of the management fee was voluntarily waived by the Adviser,
and as a result, net expenses were actually 2.59%.
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$295.04 $903.65 $1,537.84 $3,242.41
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
INTERNATIONAL FUNDS
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Crosby Small Cap Asia Growth Fund's investment objective is to
seek long-term capital appreciation primarily by investing in equity securities
and equivalents of companies in the Asia Region having market capitalizations of
less than $1 billion.
Investment Strategy
The Lexington Crosby Small Cap Asia Growth Fund (the "Fund") will normally
invest at least 65% of its total assets in equity securities of smaller
companies in the Asia Region. The Fund will primarily invest in listed
securities but may also invest in unlisted securities.
7
<PAGE>
The Fund intends to invest primarily in companies which:
o have proven management;
o are undervalued and under-researched by the investment community;
o are within industry sectors with strong growth prospects; and
o which have potential investment returns that are superior to the Asian
market as a whole.
The Fund may invest 35% of its total assets in:
o companies with market capitalizations of $1 billion or more;
o companies outside the Asia Region (e.g. Australia or New Zealand);
o debt securities; and
o other investments.
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1995 1996 1997 1998
---- ---- ---- ----
-4.39% 25.50% -42.32% -19.41%
Average Annual Returns Through 12/31/98
Crosby Small Cap Asia Growth Fund -19.41% -14.82%
MSCI All Country Far East ex-Japan -4.83% -13.21%
EAFE 20.33% 10.24%
- --------------------------------------------------------------------------------
1 Year Since Inception
(7/3/95)
- --------------------------------------------------------------------------------
During the four year period shown in the above bar graph chart, the fund's
highest quarterly return was 23.43% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -41.41% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------
The Fund considers the following countries to be in the Asia Region:(1)
Bangladesh India Malaysia Singapore Taiwan
China Indonesia Pakistan Sri Lanka Thailand
Hong Kong Korea The Philippines Vietnam
The Fund will normally invest in at least three different countries. The Fund
does not intend to invest in Japanese securities.
Principal Risks
Through stock investment, 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 in
one of the companies in the Fund's portfolio. The Fund's volatility may be
increased by its heavy concentration in emerging Asia markets as
8
<PAGE>
they tend to be much more volatile than the U.S. market due to their relative
immaturity and instability. The economies of emerging countries may be
predominately based on only a few industries or on revenue from particular
commodities, international aid and other assistance. Some emerging Asian
countries, such as Malaysia in 1998, have restricted the flow or money into or
out of the country. Emerging markets also tend to be less liquid and offer less
regulatory protection for investors. Since mid-1997 Asia has faced serious
economic problems and disruptions, causing substantial losses for some
investors. Also, most of the securities in which the Fund invests are
denominated in foreign currencies, whose values may decline against the U.S.
dollar.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
<S> <C>
Annual Fund Operating Expenses (Paid from Fund assets)*
Management Fees 1.25%
Rule 12b-1 Fees None
Other Fees 1.61%
Total Fund Operating Expenses 2.86%
</TABLE>
*In 1998, 0.36% of the management fee was voluntarily waived by the Adviser, as
a result net expenses were actually 2.50%.
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- ---------
$289.06 $885.87 $1,508.50 $3,185.46
9
<PAGE>
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
Lexington Global Corporate Leaders Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Global Corporate Leaders Fund's investment objective is to seek
long-term growth of capital through investment in equity securities and
equivalents of foreign and U.S. companies.
Investment Strategy
The Lexington Global Corporate Leaders Fund, Inc. (the "Fund") normally invests
at least 65% of its total assets in a diversified portfolio of blue chip
securities that the Manager believes represent "corporate leaders" in their
respective industries.
The Fund may invest in the securities of companies and governments of the
following regions:
o Asia Region (including Japan);
o Europe;
o Latin America;
o Africa;
o North America (including U.S. and Canada); and,
o Other areas and countries as the Manager may decide from time to time.
The Fund will normally invest in at least three different countries. The Fund
intends to select the countries, currencies and companies that provide the
greatest potential for long-term growth.
The Fund may invest 35% of its total assets in:
o securities of smaller capitalization companies;
o debt securities; and
o other investments.
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
18.88% -16.75% 15.55% -3.55% 31.88% 1.84% 10.69% 16.43% 6.90% 19.06%
</TABLE>
Average Annual Returns Through 12/31/98
Global Corporate Leaders Fund 19.06% 10.81% 9.84%
MSCI-World Index 24.80% 15.77% 10.70%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year
- --------------------------------------------------------------------------------
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 16.76% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -18.32% for the third quarter in 1990.
- --------------------------------------------------------------------------------
10
<PAGE>
Principal Risks
Through stock investment, 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
stock markets, the value of the Fund will fluctuate with the movements as well
as in response to the activities of individual companies in the Fund's
portfolio. By investing in foreign stocks, the Fund exposes shareholders to
additional risks. Some foreign stock markets tend to be more volatile than the
U.S. market due to economic and political instability and regulatory conditions
in these countries. In addition, most of the foreign securities in which the
Fund invests are denominated in foreign currencies, whose values may decline
against the U.S. dollar.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees None
Other Fees 1.12%
Total Fund Operating Expenses 2.12%
</TABLE>
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$215.05 $663.92 $1,139.01 $2,451.76
11
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
5.87% 5.77% 13.57% 1.61% 19.02%
Average Annual Returns Through 12/31/98
International Fund 19.02% 9.00%
EAFE 20.33% 9.25%
- --------------------------------------------------------------------------------
1 Year 5 Year
- --------------------------------------------------------------------------------
During the five year period shown in the above bar graph chart, the fund's
highest quarterly return was 17.09% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -10.65% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
Lexington International Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington International Fund's investment objective is to seek long-term
growth of capital through investment in equity securities and equivalents of
companies outside of the U.S.
Investment Strategy
The Lexington International Fund, Inc. (the "Fund") will invest at least 65% of
its total assets in securities and equivalents of companies outside of the U.S.
The Fund generally invests the remaining 35% of its total assets in a similar
manner, but may invest those assets in companies in the United States, in debt
securities or other investments.
The Fund does not anticipate concentrating its investments in any particular
region.
Principal Risks
Through stock investment, 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 or more of the companies in the Fund's portfolio. Due to the inherent
effects of stock markets, the value of the Fund will fluctuate with the movement
of the markets as well as in response to the activities of individual companies
in the Fund's portfolio. By investing in foreign stocks, the Fund exposes
shareholders to additional risks. Foreign stock markets tend to be more volatile
than the U.S. market due to economic and political instability and regulatory
conditions in some countries. In addition, most of the foreign securities in
which the Fund invests are denominated in foreign currencies, whose values may
decline against the U.S. dollar.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
12
<PAGE>
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable)Exchange Fee None
30-Day Redemption/Exchange Fe None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 0.50%
Total Fund Operating Expenses 2.25%
</TABLE>
*In 1998, 0.50% of the management fee was voluntarily waived by the Adviser, and
as a result, net expenses were actually 1.75%.
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$228.09 $703.27 $1,204.94 $2,584.93
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
13
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1996 1997 1998
---- ---- ----
-9.01% 67.50% -82.99%
Average Annual Returns Through 12/31/98
Troika Dialog Russia Fund -82.99% -40.63%
Moscow Times Index -79.62% -30.08%
Russian Trading System Index -85.15% -41.79%
- --------------------------------------------------------------------------------
1 Year Since Inception
(7/3/96)
- --------------------------------------------------------------------------------
During the three year period shown in the above bar graph chart, the fund's
highest quarterly return was 46.00% for the first quarter in 1997 and the fund's
lowest quarterly return was -64.89% for the third quarter in 1998.
- --------------------------------------------------------------------------------
Lexington Troika Dialog Russia Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Troika Dialog Russia Fund's investment objective is to seek
long-term capital appreciation through investment primarily in equity securities
of Russian companies.
Investment Strategy
The Lexington Troika Dialog Russia Fund, Inc. (the "Fund") seeks to achieve its
objective by investing at least 65% of its total assets in equity securities of
Russian companies. The Fund may invest the other 35% of its total assets in debt
securities issued by Russian companies and debt securities issued or guaranteed
by the Russian government. The Fund may also invest in the equity securities of
issuers outside of Russia which the Fund believes will experience growth in
revenue and profits from participation in the development of the economics of
the former Soviet Union.
Principal Risks
The Fund's investments will include investments in Russian companies that have
characteristics and business relationships common to companies outside of
Russia, and as a result, outside economic forces may cause fluctuations in the
value of securities held by the Fund.
Additional risks associated with investing in securities of Russian issuers
include:
o The lack of available reliable financial information which has been
prepared and audited in accordance with U.S. or Western European generally
accepted accounting principles and auditing standards;
o The extremely volatile and often illiquid nature of the secondary market
for Russian securities;
o A cumbersome share registration system for recording ownership of Russian
Securities which may adversely affect a person's ability to prove ownership.
14
<PAGE>
o The potential for unfavorable action such as expropriation, dilution,
devaluation, default or excessive taxation by the Russian government or any of
its agencies or political subdivisions with respect to investments in Russian
securities by or for the benefit of foreign entities.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) 2.00%
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 1.25%
Rule 12b-1 Fees 0.25%
Other Fees 1.14%
Total Fund Operating Expenses 2.64%
</TABLE>
*In 1998, expenses were reduced by 0.80% as a result of redemption fee proceeds
and a voluntary waiver of a portion of the management fee by the Adviser. Net
expenses were actually 1.84%.
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$471.84 $1,034.90 $1,624.86 $3.225.98
You would pay the following expenses if you did not redeem your shares:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$267.12 $820.41 $1,400.12 $2,973.44
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
15
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Worldwide Emerging Markets Fund's investment objective is to seek
long-term growth of capital primarily through investment in equity securities
and equivalents of emerging market companies.
Investment Strategy
The Lexington Worldwide Emerging Markets Fund (the "Fund") will invest at least
65% of its total assets according to its investment objective. The Fund's
definition of emerging markets includes, but is not limited to, the following:
o Africa: Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco,
Namibia, South Africa, Swaziland, Tunisia, Zambia and Zimbabwe;
o Asia: Bahrain, Bangladesh, China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand;
o Europe: Croatia, Cyprus, Czech Republic, Estonia, Finland, Greece,
Hungary, Latvia, Lithuania, Poland, Portugal, Romania, Russia, Slovakia and
Slovenia;
o The Middle East: Israel, Jordan, Lebanon, Oman and Turkey;
o Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador,
Mexico, Nicaragua, Peru and Venezuela.
The Manager of the Fund considers an emerging markets company to be any company
domiciled in a country emerging market, or any company that derives 50% or more
of its total revenue from either goods or services produced or sold in countries
with emerging markets.
The Fund may invest the remaining 35% of its assets in equity securities without
regard to whether the issuer qualifies as an emerging market company, debt
securities denominated in the currency of an emerging market country or issued
or guaranteed by an emerging market company or the government of an emerging
market country, short-term or medium-term debt securities or other types of
securities.
Principal Risks
Through stock investment, 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. In addition, the risks of
investing in emerging markets are considerable. Emerging stock markets tend to
be more volatile than the U.S. market due to the relative immaturity, and
occasional instability, of their political and economic systems. In the past
many emerging markets restricted the flow of money into or out of their stock
markets, and some continue to impose restrictions on foreign investors. These
markets tend to be less liquid and offer less regulatory protection for
investors. The economies of emerging countries may be predominately based on
only a few industries or on revenue from particular commodities, international
aid and other assistance. In addition, most of the foreign securities in which
the Fund invests are denominated in foreign currencies, whose values may decline
against the U.S. dollar.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
16
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ----
1.73% 3.77% 63.37% -13.81% -5.93% 7.38% -11.40% -29.06%
Average Annual Returns Through 12/31/98
Worldwide Emerging Markets -29.06% -11.36% -0.76%
MSCI Emerging Markets Free -25.34% -9.27% 4.69%
EAFE 20.33% 9.25% 9.67%
- --------------------------------------------------------------------------------
1 Year 5 Year Since
Inception
(6/17/91)
- --------------------------------------------------------------------------------
During the eight year period shown in the above bar graph chart, the fund's
highest quarterly return was 31.81% for the fourth quarter in 1993 and the
fund's lowest quarterly return was -26.18% for the third quarter in 1998.
- --------------------------------------------------------------------------------
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees None
Other Fees 0.85%
Total Fund Operating Expenses 1.85%
</TABLE>
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remaining the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
17
<PAGE>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$187.91 $581.69 $1,000.66 $2,169.16
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15.60% 9.23% 15.75% 5.19% 8.06% -2.07% 15.91% 5.71% 10.20% 7.52%
</TABLE>
Average Annual Returns Through 12/31/98
GNMA Income Fund 7.52% 7.29% 8.98%
Lehman Brothers Mortgage
Backed Securities Index 6.96% 7.23% 9.13%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 8.88% for the second quarter in 1989 and the fund's
lowest quarterly return was -2.42% for the first quarter in 1994.
- --------------------------------------------------------------------------------
18
<PAGE>
FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
Lexington GNMA Income Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington GNMA Income Fund's investment objective is to seek 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.
Investment Strategies
Under normal conditions, the Lexington GNMA Income Fund (the "Fund") will invest
at least 80% of the value of its total assets in Government National Mortgage
Association ("GNMA") mortgage-backed securities (also known as "GNMA
Certificates").2 The remaining assets of the Fund will be invested in other
securities issued or guaranteed by the U.S.
Government, including U.S. Treasury securities.
Principal Risks
Through investment in GNMA securities, the Fund may expose you to certain risks
which may cause you to lose money. Mortgage prepayments are affected by the
level of interest rates and other factors, including general economic conditions
and the underlying location and age of the mortgage. In periods of rising
interest rates, the prepayment rate tends to decrease, lengthening the average
life of a pool of GNMA securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the life of a pool. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that the Fund may have to reinvest the proceeds of prepayments at
lower interest rates than those of their previous investments. If this occurs,
the Fund's yields will decline correspondingly.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
Shareholder Fees (Paid directly from your investment)
<S> <C>
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 0.57%
Rule 12b-1 Fees None
Other Fees 0.44%
Total Fund Operating Expenses 1.01%
</TABLE>
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$103.01 $321.54 $557.85 $1,236.24
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
Lexington Global Income Fund
Risk/Return Summary
Investment Objective
The Lexington Global Income Fund's investment objective is to seek high current
income. Capital appreciation is a secondary objective. The Lexington Global
Income Fund invests in a combination of foreign and domestic high-yield, lower
rated or unrated debt securities.
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1995 1996 1997 1998
---- ---- ---- ----
20.10% 13.33% 5.00% 8.21%
Average Annual Returns Through 12/31/98
Global Income Fund 8.21% 11.51%
Lehman Brothers Global Bond Index 15.33% 10.22%
- --------------------------------------------------------------------------------
1 Year Since Inception
(1/3/95)
- --------------------------------------------------------------------------------
During the four year period shown in the above bar graph chart, the fund's
highest quarterly return was 8.76% for the second quarter in 1995 and the fund's
lowest quarterly return was -1.41% for the fourth quarter in 1998.
- --------------------------------------------------------------------------------
20
<PAGE>
Investment Strategy
The Lexington Global Income Fund (the "Fund") invests in a variety of foreign
and domestic high yield, lower rated or unrated debt securities.
The Fund, under normal conditions, invests substantially all of its assets in
lower rated or unrated debt securities of domestic companies, companies of
developed foreign countries, and companies in countries with emerging markets.
The credit quality of the foreign debt securities which the Fund intends to buy
is generally equal to U.S. corporate debt securities known as "junk bonds". The
debt securities in which the Fund invests consist of bonds, notes, debentures
and other similar instruments. The Fund may invest in debt securities issued by
foreign governments, their agencies and instrumentalities, central banks,
commercial banks and other corporate entities. The Fund may invest up to 100% of
its total assets in domestic and foreign debt securities that are rated below
investment grade or are of comparable quality. The Fund may also invest in
securities that are in default as to payment of principal and/or interest, and
bank loan participations and assignments.
Principal Risks
Through investment in bonds, the Fund may expose you to certain risks which may
cause you to lose money. Junk bonds have a higher risk of default, tend to be
less liquid, and may be more difficult to value. The Fund could lose money
because of foreign government actions, political instability, or lack of
adequate and accurate information. Currency and investment risks tend to be
higher in emerging markets.
For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
Shareholder Fees (Paid directly from your investment)
<S> <C>
Maximum Sales Charges (Load) Imposed on Purchases (as % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*3
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 0.64%
Total Fund Operating Expenses 1.89%
</TABLE>
*In 1998, 0.39% of the management fee was voluntarily waived by the Adviser, and
as a result, net expenses were actually 1.50%.
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
21
<PAGE>
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$191.94 $593.91 $1,021.27 $2,211.54
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
MONEY MARKET FUNDS
Lexington Money Market Trust
Risk/Return Summary
Investment Objective
The Lexington Money Market Trust's investment objective is to seek as high a
level of current income from short-term investments as is consistent with the
preservation of capital and liquidity. The Lexington Money Market Trust seeks to
maintain a stable net asset value of $1 per share.
Investment Strategy
The Lexington Money Market Trust (the "Fund") will invest in short-term money
market instruments that have been rated in one of the two highest rating
categories by both S&P and Moody's, both major rating agencies. The Fund invests
in short-term money market instruments (those with a remaining maturity of 397
days or less) that offer attractive yields and are considered to be undervalued
relative to issues of similar credit quality and interest rate sensitivity.
The Fund will also insure that its money market instruments average weighted
maturities do not exceed 90 days.
Principal Risks
An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.
Mutual Fund Chart and Performance Table
For information on the Fund's 7-day yield please call the Fund at
1-800-526-0056. You should remember that past performance is not an indication
of future performance.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 0.50%
Rule 12b-1 Fees None
Other Fees 0.55%
Total Fund Operating Expenses 1.05%
</TABLE>
*In 1998, 0.05% of the management fee was voluntarily waived by the Adviser, and
as a result, net expenses were actually 1.00%.
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$102.00 $318.40 $552.46 $1,224.62
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23.62% -20.65% -6.14% -20.51% 86.96% -7.28% -1.89% 7.84% -42.98% -6.39%
</TABLE>
- --------------------------------------------------------------------------------
Average Annual Returns Through 12/31/98
Goldfund -6.39% -12.14% -3.28%
Gold Bullion -0.83% -6.02% -3.50%
S&P 500 28.72% 24.09% 19.22%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year
During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 34.36% for the second quarter in 1993 and the
fund's lowest quarterly return was -29.07% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------
23
<PAGE>
PRECIOUS METAL FUNDS
Lexington Goldfund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Goldfund's investment objective is to attain capital appreciation
and such hedge against the loss of buying power as may be obtained through
investment in gold and securities of companies engaged in mining or processing
gold throughout the world.
Investment Strategy
Under normal conditions the Lexington Goldfund, Inc. (the "Fund") will invest at
least 65% of the value of its total assets in gold and the equity securities of
companies engaged in mining or processing gold ("gold-related securities"). The
Fund may also invest in other precious metals, including platinum, palladium and
silver. The Fund intends to invest less than half of the value of its assets in
gold and other precious metals. Gold-related securities may include securities
of foreign issuers.
Principal Risks
Through stock investment, 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 in
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 focus on precious metals and precious
metal stocks may expose the investor to additional risks. The market for gold or
other precious metals is concentrated in countries that have the potential for
instability and the market for gold and other precious metals is widely
unregulated. As a result, the price of precious gold and precious metal stocks,
and therefore the Fund, may fluctuate significantly.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
Shareholder Fees (Paid directly from your investment)
<S> <C>
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 0.92%
Rule 12b-1 Fees 0.25%
Other Fees 0.57%
Total Fund Operating Expenses 1.74%
</TABLE>
24
<PAGE>
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$176.84 $547.99 $943.74 $2,051.67
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
Lexington Silver Fund, Inc.
Risk/Return Summary
Investment Objective
The investment objective of the Lexington Silver Fund, Inc. is to maximize total
return on its assets from long-term growth of capital and income principally
through investment in a portfolio of securities which are engaged in the
exploration, mining, processing, fabrication or distribution of silver
("silver-related companies")and in silver bullion .
Investment Strategies
Lexington Silver Fund, Inc. (the "Fund") will seek to achieve its objective
through investment in common stocks of established silver-related companies and
in silver bullion which have the potential for long-term growth of capital or
income, or both. The common stocks of silver-related companies in which the Fund
intends to invest may or may not pay dividends. The Fund may also invest in
other types of securities of silver-related companies including convertible
securities, preferred stocks, bonds, notes and warrants. When the Manager
believes that the return on debt securities will equal or exceed the return on
common stocks, the Fund may, in pursuing its objective of maximizing growth and
income, substantially increase its holding in debt securities.
The securities in which the Fund invests include issues of established
silver-related companies domiciled in the United States, Canada and Mexico as
well as other silver producing countries throughout the world. At least 80% of
the Fund's assets will be invested in established silver-related companies which
have been in business more than three years.
25
<PAGE>
- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------
[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
-19.01% 76.52% -8.37% 12.37% 2.38% -8.05% -29.64%
Average Annual Returns Through 12/31/98
Silver Fund -29.64% -7.37% 0.96%
S & P 500 28.72% 24.09% 19.51%
Silver Bullion -16.51% -0.43% 3.39%
- --------------------------------------------------------------------------------
1 Year 5 Year Since
Inception
(1/2/92)
During the seven year period shown in the above bar graph chart, the fund's
highest quarterly return was 28.47% for the second quarter in 1993 and the
fund's lowest quarterly return was -18.60% for the fourth quarter in 1994.
- --------------------------------------------------------------------------------
Principal Risks
Through stock investment, 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 in
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 focus on precious metals and precious
metal stocks may expose the investor to additional risks. The market for silver
is relatively limited, the sources of silver are concentrated in countries that
have the potential for instability and the market for silver is widely
unregulated. As a result, the price of silver, and therefore the Fund, may
fluctuate significantly.
Bar Chart and Performance Table
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual returns compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.
Fees and Expenses
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.00%
Other Fees 1.37%
Total Fund Operating Expenses 2.37%
</TABLE>
Example of Expenses:
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$240.12 $739.46 $1,265.42 $2,706.22
See "Management of the Fund" for more complete descriptions of such costs and
expenses.
RISKS OF INVESTING
Risks of Investing in Mutual Funds
The following risks are common to all mutual funds and, therefore, apply to the
Funds:
o 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.
o 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.
o Year 2000 Risk. The Fund or its service providers could be disrupted by
problems in their computer systems related to the Year 2000.
Risks of Investing in Securities of Small Companies
The following risks apply to all mutual funds that invest in securities of small
companies (market value of less than U.S. $1 billion) including Lexington
SmallCap Fund, Lexington Crosby Small Cap Asia Growth Fund and Lexington Troika
Dialog Russia Fund.
Investing in small companies generally involve greater risk than investing in
larger companies for the following reasons, among others:
o limited product lines;
o limited markets or financial or managerial resources;
o their securities may be more susceptible to losses and risks of
bankruptcy;
o their securities may trade less frequently and with lower volume, leading
to greater price fluctuations; and,
o their securities are subject to increased volatility and reduced
liquidity due to limited market making and arbitrage activities.
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Risks of Investing in Foreign Securities
The following risks apply to all mutual funds that invest in foreign securities
including Lexington Crosby Small Cap Asia Growth Fund, Lexington Goldfund,
Lexington Growth and Income Fund, Lexington International Fund, Lexington Global
Income Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide
Emerging Markets Fund.
o 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.
o 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.
o 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.
o 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.
Risks of Investing in Lower-Quality Debt Securities
The following risks apply to all mutual funds that invest in lower-quality debt
securities commonly referred to as "junk bonds" including Lexington Global
Income Fund and Lexington Troika Dialog Russia Fund.
Junk bonds are highly speculative. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of issuers of their
securities to make principal and interest payments than with higher-grade debt
securities.
Risks of Investing in Securities of Russian Companies
The following risks apply to all mutual funds that invest in securities of
Russian companies including Lexington Troika Dialog Russia Fund.
Non-diversified Portfolio
The following risks apply to all mutual funds that are non-diversified
investment companies including Lexington Goldfund, Lexington Silver Fund,
Lexington Global Income Fund and Lexington Troika Dialog Russia Fund.
These Funds may invest an unlimited proportion of their total assets in a single
company, which increases risk. However, these Funds intend to comply with
diversification requirements of the federal tax law to qualify as regulated
investment companies. For more detailed information on the federal tax law
diversification requirement, see the tax section of the Fund's Statement of
Additional Information.
Precious Metals
The following risks apply to all mutual funds that invest in precious metals
including Lexington
28
<PAGE>
Goldfund and Lexington Strategic Silver Fund.
Precious metal investments have the following characteristics:
o earn no income;
o transaction and storage costs may be higher; and
o the Fund will realize gain only with an increase in the market price.
Temporary Defensive Position
When the Funds anticipate unusual market or other conditions, they may
temporarily depart from their goal and invest substantially in high-quality
short-term investments. This could help the Fund avoid losses but may mean lost
opportunities.
Management of The Funds
Investment Adviser
Lexington Management Corporation (LMC), a wholly-owned subsidiary of Lexington
Global Asset Managers, Inc. ("LGAM"), is the investment adviser to the Lexington
Funds. 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
Lexington Funds. LMC supervises and assists in the overall management of the
Funds, subject to the oversight by the Board of Directors or Trustees.
Sub- Advisers
Lexington SmallCap Fund. Market Systems Research Advisors, Inc. ("MSR Advisors")
is the sub-adviser of Lexington SmallCap Fund. MSR Advisors is located at 80
Maiden Lane, New York, NY 10038. MSR Advisors provides investment advice and
management to Lexington SmallCap Fund. MSR is 65% owned by LGAM and 35% owned by
Frank A. Peluso, The President and C.E.O. of MSR Advisors. Lexington Crosby
Small Cap Asia Growth Fund. Crosby Asset Management (US) Inc. (Crosby) is the
sub-adviser of the Lexington Crosby Small Cap Asia Growth Fund. Crosby is
located at [52/R] Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road,
Hong Kong. [Crosby is a subsidiary of Crosby Group, Hong Kong.] Crosby manages
assets and provides day-to-day investment advice to the Lexington Crosby Small
Cap Asia Growth Fund, subject to oversight by the Board of Directors.
Lexington Troika Dialog Russia Fund. Troika Dialog Asset Management (TDAM) is
the sub-adviser of Lexington Troika Dialog Russia Fund. TDAM is located at
Romanov Pereulok #4, 103875 Moscow, Russia. TDAM provides investment advice and
management to Lexington Troika Dialog Russia Fund. [TDAM is a majority owned
subsidiary of The Bank of Moscow.]
Lexington Worldwide Emerging Markets Fund. Stratos Advisors, Inc. (Stratos) is
the sub-adviser of Lexington Worldwide Emerging Markets Fund. Stratos is located
at 20 Exchange Place, 52nd Floor, New York, NY 10005. Stratos provides
investment advice and management to Lexington Worldwide Emerging Markets Fund.
Portfolio Managers
Lexington Growth and Income Fund
Alan H. Wapnick. Please see biography under Lexington Global Corporate Leaders
Fund.
Lexington SmallCap Fund
Robert M. DeMichele. Mr. DeMichele is one of three lead managers of a portfolio
management team that manages the Lexington SmallCap Fund. Mr. DeMichele is
Chairman and Chief Executive Officer of LMC. He is also the Chairman of the
Investment Strategy Group. In addition, he is President
29
<PAGE>
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 graduated from Union College with a B.A. Degree in Economics and from
Cornell University with an M.B.A. in Finance.
Alan H. Wapnick. Please see biography under Lexington Global Corporate Leaders
Fund.
Frank A. Peluso. Mr. Peluso is the third of three lead managers of a portfolio
management team that manages the Lexington SmallCap Fund. He has 35 years
investment experience. Mr. Peluso is President and Chief Executive Officer of
MSR, 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.
Lexington Crosby Small Cap Asia Growth Fund
Christina Lam. Ms. Lam is the lead manager on a portfolio management team that
manages the Lexington Crosby Small Cap Asia Growth Fund. Ms. Lam is Vice
President and Portfolio Manager of the Lexington Crosby Small Cap Asia Growth
Fund. Ms. Lam joined Crosby Asset Management in 1991. She is responsible for the
investment management of the listed equity portfolios under the management of
Crosby Asset Management. After graduating with a Law Degree with Honors from
Warwick University, she qualified as a Barrister from Lincoln's Inn in London.
In 1987 she joined Schroder Securities Limited in Hong Kong as an investment
analyst, where her coverage included the utilities, industrials and retail
sectors and conglomerates.
Lexington Global Corporate Leaders Fund
Richard T. Saler. Mr. Saler is a member of an investment management team that
manages the Lexington Global Corporate Leaders Fund and Lexington Worldwide
Emerging Markets Fund. He is the lead manager of an investment management team
for Lexington International Fund. Mr. Saler is Senior Vice President, Director
of International Investment Strategy of LMC. Mr. Saler is responsible for
international investment analysis and portfolio management at LMC. He has twelve
years of investment experience. Mr. Saler has focused on international markets
since first joining LMC in 1986. In 1991 he was a strategist with Nomura
Securities and rejoined LMC in 1992. Mr. Saler graduated from New York
University with a B.S. Degree in Marketing and from New York University's
Graduate School of Business Administration with an M.B.A. in Finance.
Philip A. Schwartz, CFA. Mr. Schwartz is also a member of an investment
management team that manages the Lexington Global Corporate Leaders Fund and
Lexington International Fund. Mr. Schwartz is a Vice President at LMC, a
Chartered Financial Analyst and a member of the New York Society of Security
Analysts. He is responsible for international investment analysis and portfolio
management at LMC, and has nine years of investment experience. Prior to joining
LMC in 1993, Mr. Schwartz was Vice President of European Research Sales with
Cheuvreux De Virieu in Paris and New York, serving the institutional market.
Prior to Cheuvreux, he was affiliated with Olde and Co. and Kidder, Peabody as a
stockbroker. Mr. Schwartz earned his B.A. and M.A. Degrees from Boston
University.
Alan H. Wapnick. Mr. Wapnick is a member of an investment management team that
manages the Lexington Global Corporate Leaders Fund, Inc. and Lexington SmallCap
Fund. Mr. Wapnick is the lead manager for Lexington Growth and Income Fund. Mr.
Wapnick is Senior Vice President, Director
30
<PAGE>
of Domestic Investment Equity Strategy of LMC. Prior to joining LMC in 1986, Mr.
Wapnick was an equity analyst with Merrill Lynch, J.& W. Seligman, Dean Witter
and most recently Union Carbide Corporation. Mr. Wapnick graduated from
Dartmouth College and received a Master's Degree in Business Administration from
Columbia University.
Lexington International Fund
Richard T. Saler. Please see biography under Lexington Global Corporate Leaders
Fund.
Phillip A. Schwartz, CFA. Please see biography under Lexington Global Corporate
Leaders Fund.
Lexington Worldwide Emerging Markets Fund
Richard T. Saler. Please see biography under Lexington Global Corporate Leaders
Fund.
Alfredo M. Viegas. Mr. Viegas is a member of the portfolio management team for
Lexington Worldwide Emerging Markets Fund. Mr. Viegas is Chief Executive Officer
and Senior Portfolio Manager of Stratos. In 1995, Mr. Viegas established VZB
Partners LLC ("VZB"), an offshore investment manager. Mr. Viegas is responsible
for corporate analysis and bottom-up research. He has concentrated on analyzing
equity opportunities not only in emerging markets but also in newly developing
or frontier markets where the quality of public available information is scarce
and direct research is imperative. Prior to VZB, Mr. Viegas was Vice President
and Latin American Equity Strategist for emerging markets with Salomon Brothers
from 1993 to 1995. From 1991 to 1993, he was a research analyst with Morgan
Stanley. Mr. Viegas is a graduate of Wesleyan University with a B.A. in Classics
and Medieval History.
Mohammed Zaidi. Mr. Zaidi is a member of the Portfolio Management team for the
Lexington Worldwide Emerging Markets Fund. Mr. Zaidi is a Portfolio Manager at
Stratos. Mr. Zaidi is responsible for fundamental corporate analysis with a
particular focus on Asian and Middle Eastern markets as well as the Risk Control
Officer. Mr. Zaidi has been a Portfolio Manager at VZB since 1997. Mr. Zaidi was
Chief Financial Officer and a Partner at Paradigm Software, Inc. from 1992 to
1995. Mr. Zaidi is a graduate of the University of Pennsylvania with a B.S. in
Economics from the Wharton School. Mr. Zaidi also holds an M.B.A. in Finance
from M.I.T. Sloan School of Management.
Lexington Troika Dialog Russia Fund
Richard M. Hisey, C.F.A. Mr. Hisey is Managing Director and Chief Financial
Officer of Lexington Management Corporation. He is also the Treasurer and a
member of the Board of Directors of the Lexington Family of Mutual Funds. Mr.
Hisey is Executive Vice President and Chief Financial Officer of Lexington
Global Assets Managers, Inc., the parent company of Lexington Management
Corporation. He sits on the Investment Company Institute's
Accounting/Treasurers, International and Tax Committees. Mr. Hisey is a
portfolio manager and investment strategist for the Lexington Troika Dialog
Russia Fund. He is a Chartered Financial Analyst and is a member of the New York
Society of Security Analysts. Prior to joining Lexington in 1986, Mr. Hisey was
a Senior Financial Analyst for Richardson Vicks, Inc. Mr. Hisey is a graduate
with Distinction of the University of Connecticut with a Bachelor of Arts in
Soviet and eastern European Studies. His undergraduate work included studies at
Middlebury College and at Leningrad State University in the former Soviet Union.
He also holds an M.B.A. from the University of Connecticut.
Pavel Teplukhin. Dr. Teplukhin is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. He is the President of TDAM,
sub-adviser to the Fund. Dr. Teplukhin received a diploma in Economics and a
Doctorate in Economic Analysis and Statistics from Moscow State University. He
also received a Master of Science in Economics/Macroeconomics from the London
School of Economics. From 1993 to 1996, Dr. Teplukhin was Economic Adviser to
the First Deputy Prime Minister at the Ministry of Finance of the Russian
Federation.
Ruben Vardanian. Mr. Vardanian is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. Mr. Vardanian is Chairman of
the Board of TDAM. He is Vice
31
<PAGE>
Chairman of the Board of Directors of the Depository Clearing Company. He is a
member of the Expert Council of the Federal Securities Commission of Russia and
a Director of the Russian Trading System (RTS). He is also Chairman of the Board
of Directors of the Russian capital markets self-regulatory organization
(NAUFOR). Mr. Vardanian received a Masters Degree with Distinction from the
Finance Department of Moscow State University. He received post-graduate
training with Banca CRT in Italy and with the Emerging Markets Division of
Merrill Lynch in New York.
Board of Advisers. The Board of Advisers to the Lexington Troika Dialog Russia
Fund is composed of experts in Russian political and economic affairs. The Board
of Advisers provides LMC and the Board of Directors with periodic updates on
political and macroeconomic conditions and trends in Russia, and their political
implication for the overall investment environment in Russia. As a result, LMC
and the Board of Directors will be better able to oversee and safeguard the
assets of Lexington Troika Dialog Russia Fund.
Lexington GNMA Income Fund
Denis P. Jamison, CFA. Mr. Jamison manages the Lexington GNMA Income Fund,
Lexington Money Market Trust and Lexington Global Income Fund. Mr. Jamison is
Senior Vice President and Director of Fixed Income Strategy of LMC. Mr. Jamison
is responsible for fixed-income portfolio management. He is a member of the New
York Society of Security Analysts. Prior to joining LMC in 1981, Mr. Jamison
spent nine years at Arnold Bernhard & Company, an investment counseling and
financial services organization. At Bernhard, he was a Vice President
supervising the security analyst staff and managing investment portfolios. He is
a specialist in government, corporate and municipal bonds. Mr. Jamison graduated
from the City College of New York with a B.A. in Economics.
Lexington Global Income Fund
Denis P. Jamison, CFA. Please see biography under Lexington GNMA Income Fund.
Lexington Money Market Trust
Denis P. Jamison, CFA. Please see biography under Lexington GNMA Income Fund.
RoseAnn McCarthy. Ms. McCarthy is a co-manager of the Lexington Money Market
Trust. Ms. McCarthy is an Assistant Vice President of LMC. Prior to joining the
Fixed Income Department in 1997, she was Mutual Fund Marketing and Research
Coordinator. Prior to 1995, Ms. McCarthy was Fund Statistician and a Shareholder
Service Representative for the Lexington Funds. Ms. McCarthy is a graduate of
Hofstra University with a B.B.A. in Marketing and has an M.B.A. in Finance from
Seton Hall University.
Lexington Goldfund
James A. Vail, CFA. Mr. Vail manages the Lexington Goldfund and the Lexington
Silver Fund. Mr. Vail is a Vice President of LMC and is responsible for precious
metals analysis and portfolio management at LMC. He is a Chartered Financial
Analyst, a member of the New York Society of Security Analysts and has 25 years
of investment experience. Prior to joining LMC in 1991, Mr. Vail held investment
research positions with Chemical Bank, Oppenheimer & Co., Robert Fleming Inc.
and most recently, Beacon Trust Company, where he was a Senior Investment
Analyst. Mr. Vail is a graduate of St. Peter's College with a B.S. and holds an
M.B.A. in Finance from Seton Hall University.
Lexington Silver Fund
James A. Vail, CFA. Please see biography under Lexington Goldfund.
32
<PAGE>
SHAREHOLDER INFORMATION
Investment Options
ice is still under construction and will be available soon.
o Buy, sell or exchange shares by mail.
Mail buy/sell order(s), investment or redemption instructions and any
required payment by check:
By regular mail:
State Street Bank and Trust Company
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
o Buy shares by wiring funds.
To: State Street Bank and Trust Company
ABA #011000028
Attention: The Lexington Funds
For credit to: [shareholder(s) name]
Shareholder account number:
[shareholder(s) account number]
Name of Fund: [Lexington Fund name]
@(except Lexington Troika Dialog Russia Fund) is $1,000, and the minimum
subsequent investment is $50. The minimum initial investment for Lexington
Troika Dialog Russia Fund is $5,000. The minimum initial investment for IRAs is
$250. Under certain conditions we may waive these minimums. If you buy shares
through a broker or investment advisor, they may apply different requirements.
All investments must be made in U.S. dollars. We must receive payment from you
within three business days of your purchase. In addition, we reserve the right
to reject any purchase.
Becoming a Lexington Shareholder
To open a new account:
o By Mail. Send your completed application, with a check payable to The
Lexington Funds, to the appropriate address. Your check must be in U.S. dollars
and drawn only on a bank located in the United States. We do not accept
third-party checks, "starter" checks, credit-card checks, instant-loan checks or
cash investments. We may impose a charge on checks that do not clear. Note that
if you are investing in a Fixed-Income or Money Market Fund, dividends will not
begin to accrue on your account until your check clears.
o By Wire. Call us at 800-526-0056 to let us know that you intend to make your
initial investment by wire. Tell us your name and the amount you want to invest.
We will give you further instructions and a fax number to which you should send
your completed New Account application. To ensure that we handle your investment
accurately, include complete account information in all wire instructions.
Then request your bank to wire money from your account to the attention of:
To: State Street Bank and Trust Company
ABA #011000028
Attention: The Lexington Funds
For credit to: [shareholder(s) name]
Shareholder account number:
33
<PAGE>
[shareholder(s) account number]
Name of Fund: [Lexington Fund name]
Please note that your bank may charge a wire transfer fee.
o By Phone. To make an initial investment by phone, you must have been a current
Lexington shareholder in another fund for at least 30 days. Shares for
Individual Retirement Accounts (IRAs) may not be purchased by phone. Your
purchase of a new Fund must meet its investment minimum and is limited to the
total value of your existing accounts or $10,000, whichever is greater. To
complete the transaction, we must receive payment within three business days. We
reserve the right to collect any losses from your account if we do not receive
payment within that time.
Buying Additional Shares
o By Mail. Complete the form at the bottom of any Lexington statement and
mail it with your check payable to The Lexington Funds. Or mail the check
with a signed letter noting the name of the Fund in which you want to
invest, your account number and telephone number.
o "Lex-O-Matic" the Automatic Investment Plan:
A shareholder may make additional purchases of shares automatically on a
monthly or quarterly basis with the automatic investing plan,
"Lex-O-Matic."
"Lex-O-Matic" will be established on existing accounts only. You may not
use a "Lex-O-Matic" investment to open a new account. The minimum automatic
investment amount is $50.
Your bank must be a member of the Automated Clearing House.
To establish Lex-O-Matic, attach a voided check (checking account) or
preprint ed deposit slip (savings account) from your bank account to your
Lexington Account Application or your letter of instruction.
Investments will automatically be transferred into your Lexington Account
from your checking or savings account.
Investments may be transferred either monthly or quarterly on or about the
15th day of the month.
You should allow 20 business days for this service to become effective.
You may cancel your Lex-O-Matic at any time provided that a letter is sent
to the Transfer Agent ten days prior to the scheduled investment date. Your
request will be processed upon receipt.
By investing in the Lexington Funds, you appoint the Transfer Agent as your
agent to establish an open account to which all shares purchased will be
credited, along with any dividends and capital gain distributions which are paid
in additional shares (see "Dividends and Distributions"). Stock certificates
will be issued, upon written request, for full shares of Lexington Funds.
Certificates will not be issued for 30 days unless payment is made by certified
check, cashier's check or federal funds wire. In order to facilitate redemptions
and transfers, most shareholders elect not to receive certificates
You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders
34
<PAGE>
for customers may charge a fee for their services. The fee may be avoided by
purchasing shares directly from the Lexington Funds.
Exchanging Shares
Shares of the Lexington Funds may be exchanged for shares of equivalent value of
any Lexington Fund. If an exchange involves investing in a Lexington Fund not
already owned, the dollar amount of the exchange must meet the minimum initial
investment amount. An exchange will result in a recognized gain or loss for
income tax purposes. Exchanges of over $500,000 will take three days to
complete.
You may make exchange requests in writing or by telephone. Telephone exchanges
may only be made if you have completed a Telephone Authorization form. Telephone
exchanges may not be made within 7 days of a previous exchange.
The minimum exchange required is $500 unless a new account is being established.
Telephone exchanges may only involve shares held on deposit by the Transfer
Agent, not shares held in certificate form by the shareholder.
Any new account established by a shareholder will also have the privilege of
exchange by telephone in the Lexington Funds. All accounts involved in a
telephonic exchange must have the same dividend option as the account from which
the shares are transferred.
Minimum Account Balances
Due to the costs of maintaining small accounts, we require a minimum combined
account balance of [$1,000]. If your account balance falls below that amount for
any reason other than market fluctuations, we will ask you to add to your
account. If your account balance is not brought up to the minimum or you do not
send us other instructions, we will redeem your shares and send you the
proceeds. We believe that this policy is in the best interests of all our
shareholders.
Redeeming Your Shares
The Funds will redeem all or any portion of your outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent. Payment of redemption proceeds is made promptly regardless of
when redemption occurs and normally within three days after receipt of all
documents in proper form, including a written redemption order with appropriate
signature guarantee. Redemption proceeds will be mailed or wired in accordance
with the shareholder's instructions. The Funds may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
rules of the SEC. In the case of shares purchased by check and redeemed shortly
after the purchase, the Transfer Agent will not mail redemption proceeds until
it has been notified that the monies used for the purchase have been collected,
which may take up to 15 days from the purchase date. Shares tendered for
redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below.
A 2% redemption fee will be charged on the redemption of shares of the Lexington
Troika Dialog Russia Fund held less than 365 days. The redemption fee will not
apply to shares representing the reinvestment of dividends and capital gains
distributions. The redemption fee will be applied on a share by share basis
using the "first shares in, first shares out" (FIFO) method. Therefore, the
oldest shares are sold first.
35
<PAGE>
Redeeming by Written Instruction
Write a letter giving your name, account number, the name of the fund from which
you wish to redeem and the dollar amount or number of shares you wish to redeem.
Signature-guarantee your letter if you want the redemption proceeds to go to a
party other than the account owner(s), your predesignated bank account or if the
dollar amount of the redemption exceeds $25,000. Signature guarantees may be
provided by an eligible guarantor institution such as a commercial bank, an NASD
member firm such as a stockbroker, a savings association or national securities
exchange. Contact the Transfer Agent for more information.
If a redemption request is sent to the Fund in New Jersey, it will be
forwarded to the Transfer Agent and the effective date of redemption will be the
date received by the Transfer Agent. Checks for redemption proceeds will
normally be mailed within three business days. Shareholders who redeem all their
shares will receive a check representing the value of the shares redeemed plus
the accrued dividends through the date of redemption. Where shareholders redeem
only a portion of their shares, all dividends declared but unpaid will be
distributed on the next dividend payment date.
Redeeming by Telephone
o Shares of the Fund may be redeemed by telephone. Call the Fund toll free at
1-800-526-0056.
o [A redemption authorization and signature guarantee must be given before a
shareholder may redeem by telephone. A redemption authorization form is
contained in the New Account Application and authorization forms may be
obtained by calling the Funds.]
o Telephone redemption privileges may be cancelled by instructing the
Transfer Agent in writing. Your request will be processed upon receipt.
o Exchange by telephone.
Redeeming by Check
o Check writing is available on the Money Market Trust at no charge.
o The minimum amount per check is $100 or more up to $500,000. Checks for
less than $100 or over $500,000 will not be honored.
o All checks require only one signature unless otherwise indicated. Checks
will be returned to you at the end of each month.
o Redemption checks are free, but a charge of $15.00 may be imposed for any
stop payments requested.
o Redemption checks should not be used to close your account.
o Redemption by check are available for shares for which share certificates
have not been issued, and may not be used to redeem shares purchased by
check which have been on the books of the Fund for less than 15 days.
36
<PAGE>
Systematic Withdrawal Plan
Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature guarantee is required. The minimum payment amount is $100 from each
fund account. Payments may be made either monthly or quarterly on the 1st of
each month. Depending on the form of payment requested, shares will be redeemed
up to five business days before the redemption proceeds are scheduled to be
received by the shareholder. The redemption will result in the recognition of
gain or loss for income tax purposes.
How Fund Shares Are Priced
How and when we calculate the Funds' price or net asset value (NAV) determines
the price at which you will buy or sell shares. The net asset value of each 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 each fund's total net assets by the total number of that 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 Funds' officers, and by the Manager and the Boards, in
accordance with methods that are specifically authorized by the Boards.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost as reflecting fair value.
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 Boards.
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 Funds determine their
net asset values, events affecting the value of portfolio securities occurring
between the time prices are determined and the time the Funds calculate their
net asset values may not be reflected unless the Manager, under supervision of
the Board, determines that a particular event would materially affect a fund's
net asset value.
Money Market Funds. The price of Money Market Funds is determined at 12 noon
Eastern time on most business days. If we receive your order by that time, your
shares will priced at the NAV calculated at noon that day. If we receive your
order after 12 noon Eastern time, you will pay the next price we determined
after receiving your order.
Foreign Funds. Several of our Funds 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. dollars 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, a Fund's foreign securities - and
its price -may fluctuate during periods when you can't buy, sell or exchange
shares in the Fund.
37
<PAGE>
Bank Holidays. On bank holidays we will not calculate the price of the
Fixed-Income and Money Market Funds, even if the NYSE is open that day. Shares
in these Funds will be sold at the next NAV we determine after receipt of your
order.
Dividends and Capital Gains Distributions
Each Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.
o You are not guaranteed any distributions.
o The Board of Directors has discretion in determining the amount and
frequency of the dis tributions.
o Unless you request cash distributions in writing, all dividends and other
distributions will be reinvested automatically in additional shares and
credited to the shareholders' account.
Distributions Affect NAV.
o The Funds will pay distributions as of the record date.
o Dividends and capital gains waiting distribution are included in each
Fund's daily NAV.
Buying a Dividend. If you buy shares of a Fund just before a distribution, you
will pay the full price for the shares and receive a portion of the purchase
price back as a taxable distribution when the distribution is made.
Taxes
Each Fund intends to qualify as a regulated investment company, which means
that it pays no federal income tax on the earnings or capital gains it
distributes to its shareholders. The following statements apply with respect to
each Fund:
o Ordinary dividends from the Fund are taxable as ordinary income and
dividends from the Fund's long-term capital gains are taxable as capital
gain.
o Dividends are treated in the same manner for federal income tax purposes
whether you receive them in the form of cash or additional shares. They may
also be subject to state and local taxes.
o Dividends from the Lexington GNMA Income Fund, Inc. that are attributable
to interest on certain U.S. Government obligations may be exempt from
certain state and local income taxes. the extent to which ordinary
dividends are attributable to U.S. Government obligations will be provided
on the tax tax statements you receive from the Fund.
o Certain dividends paid to you in January will be taxable as if they had
been paid the previous December.
o We will mail you tax statements annually showing the amounts and tax status
of the distributions you received.
o When you sell (redeem) or exchange shares of a Fund, you must recognize any
gain or loss. However, as long as Lexington Money Market Trust's NAV per
share does not deviate from $1.00, there will be no gain or loss.
o Under certain circumstances, a Fund may be in a position to "pass-through"
to you the right to a
38
<PAGE>
credit or deduction for foreign taxes paid by the Fund.
oBecause your tax treatment depends on your purchase price and tax position, you
should keep your regular account statements for use in determining your tax.
oYou should review the more detailed discussion of federal income tax
considerations in the Statement of Additional Information, which is available
for free by calling 1-800-526-0056.
***We provide this tax information for your general information. You should
consult your own tax adviser about the tax consequences of investing in a
Fund.***
DISTRIBUTION OF FUND'S SHARES
Distribution Plan. The following Funds have adopted a plan under Rule 12b-1 for
the sale and distribution of shares:
o Lexington Goldfund;
o Lexington Growth and Income Fund;
o Lexington International Fund;
o Lexington Global Income Fund;
o Lexington SmallCap Fund;
o Lexington Troika Dialog Russia Fund; and
o Lexington Worldwide Emerging Markets Fund.
Under the distribution plan, the Funds may pay fees up to 0.25% of their average
daily net assets for distribution services.
Shareholder Servicing Agreements. The Funds may enter into Shareholder Servicing
Agreements with one or more Shareholder Servicing Agents to provide various
services to shareholders as follows:
o Each Agent receives fees up to 0.25% of the average daily net assets of the
Fund.
o LMC may pay additional fees from its past profits, at no additional costs
to the Funds.
o Each Agent may waive all or a portion of the fees.
o If a Fund has a distribution plan, the Agents will receive fees of up to
0.25% of the average daily assets from the distribution plan in addition to
amounts received for shareholder ser vicing.
39
<PAGE>
<TABLE>
<CAPTION>
DOMESTIC EQUITY FUNDS
========================================================================
Growth and Income Fund
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $20.27 $18.56 $15.71 $14.36 $16.16
Net investment income (loss) 0.01 0.05 0.07 0.22 0.17
Net realized and unrealized gain (loss) from investment
operations 4.29 5.46 4.08 3.00 (0.68)
Total income (loss) from investment operations 4.30 5.51 4.15 3.22 (0.51)
Less distributions:
Distributions from net investment income (0.07) (0.13) (0.22) (0.16)
Distribution in excess of net investment income -- -- -- -- --
Distributions from net realized gains (2.66) (3.73) (1.17) (1.65) (0.91)
Distribution in excess of net realized gains -- -- -- -- (0.22)
Total distributions (2.66) (3.80) (1.30) (1.87) (1.29)
Net asset value, end of period $21.91 $20.27 $18.56 $15.71 $14.36
Total return 21.42% 30.36% 26.46% 22.57% (3.11)%
Ratios/Supplemental Data
Net asset, end of period (thousands) $245,790 $228,037 $200,309 $138,901 $124,829
Ratio of expenses to average net assets, before
reimbursement or waiver 1.16% 1.17% 1.13% 1.09% 1.15%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.16% 1.17% 1.13% 1.09% 1.15%
Ratio of net investment income to average net assets,
before reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Portfolio Turnover Rate 63.20% 88.15% 101.12% 159.94% 63.04%
<CAPTION>
===========================================
SmallCap Fund
--------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996(a)
--------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.39 $11.73 $10.00
Net investment income (loss) (0.02) (0.19) (0.18)
Net realized and unrealized gain (loss) from investment
operations 0.75 1.41 1.94
Total income (loss) from investment operations 0.73 1.22 1.76
Less distributions:
Distributions from net investment income -- -- --
Distribution in excess of net investment income -- -- --
Distributions from net realized gains (0.22) -- --
Distribution in excess of net realized gains -- -- --
Total distributions (0.22) (1.56) (0.03)
Net asset value, end of period $11.56 $11.39 $11.73
Total return 6.73% 10.47% 17.50%
Ratios/Supplemental Data
Net asset, end of period (thousands) $8,172 $9,565 $8,061
Ratio of expenses to average net assets, before
reimbursement or waiver 2.92% 2.57% 3.04%
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.59% 2.57% 2.48%
Ratio of net investment income to average net assets,
before reimbursement or waiver (2.00)% (1.78)% (2.34)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver (1.67)% (1.78)% (1.78)%
Portfolio Turnover Rate 145.94% 39.09% 60.92%
<CAPTION>
GLOBAL AND INTERNATIONAL FUND
===========================================================
Small Cap Asia Growth Fund
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995(b)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $7.06 $12.24 $9.76 $10.00
Net investment income (loss) -- (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) from investment
operations (1.37) (5.13) (2.54) (0.24)
Total income (loss) from investment operations (1.37) (5.18) 2.49 (0.22)
Less distributions:
Distributions from net investment income -- -- -- (0.02)
Distribution in excess of net investment income -- -- (0.01) --
Distributions from net realized gains -- -- -- --
Distribution in excess of net realized gains -- -- -- --
Total distributions -- -- (0.01) (0.02)
Net asset value, end of period $5.69 $7.06 $12.24 $9.76
Total return (19.41)% (42.32)% 25.50% (4.39)%*
Ratios/Supplemental Data
Net asset, end of period (thousands) $18,278 $13,867 $23,796 $8,936
Ratio of expenses to average net assets, before
reimbursement or waiver 2.86% 2.30% 2.64% 3.51%*
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.50% 2.30% 2.42% 1.75%*
Ratio of net investment income to average net assets,
before reimbursement or waiver (0.57)% (0.32)% (0.86)% (1.24)%*
Ratio of net investment income to average net assets,
net of reimbursement or waiver (0.21)% (0.32)% (0.64)% 0.52%*
Portfolio Turnover Rate 193.48% 187.41% 176.49% 40.22%*
</TABLE>
* Annualized
(a) Small Cap Fund commenced operations on January 2, 1996
(b) Small Cap Asia Growth Fund commenced operations on July 3, 1995
40 41
<PAGE>
<TABLE>
<CAPTION>
======================================================================
Global Corporate Leaders Fund
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.59 $11.28 $11.32 $11.17 $13.51
Net investment income (loss) 0.99 0.03 0.01 0.09 0.02
Net realized and unrealized gain (loss) from investment
operations 1.02 0.73 1.84 1.10 0.23
Total income (loss) from investment operations 2.01 0.76 1.85 1.19 0.25
Less distributions:
Distributions from net investment income (0.80) (0.09) (0.16) (0.29) --
Distributions in excess of net investment income -- -- -- (0.13) --
Distributions from net realized gains (2.34) (1.36) (1.73) (0.62) (2.46)
Distributions in excess of net realized gains -- -- -- -- (0.13)
Total distributions (3.14) (1.45) (1.89) (1.04) (2.59)
Net asset value, end of period $9.46 $10.59 $11.28 $11.32 $11.17
Total return $19.06% 6.90% 16.43% 10.69% 1.84%
Ratios/Supplemental Data
Net assets, end of period (thousands) $17.803 $35,085 $37,223 $53,614 $67,392
Ratio of expenses to average net assets, before
reimbursement or waiver 2.12% 1.75% 1.90% 1.67% 1.61%
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.12% 1.75% 1.90% 1.67% 1.61%
Ratio of net investment income to average net assets,
before reimbursement or waiver (0.06)% 0.23% 0.11% 0.48% 0.14%
Ratio of net investment income to average net assets,
net of reimbursement or waiver (0.06)% 0.23% 0.11% 0.48% 0.14%
Portfolio Turnover Rate 137.33% 177.48% 128.05% 166.35% 83.40%
<CAPTION>
=======================================================================
International Fund
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 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 $10.000
Net investment income (loss) 0.17 0.07 (0.02) (0.01) (0.08)
Net realized and unrealized gain (loss) from investment
operations 174 0.10 1.45 0.61 0.67
Total income (loss) 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 -- -- -- (0.35) --
Distributions from net realized gains (0.34) (0.80) (0.97) (0.02) (0.10)
Distributions in excess of net realized gains -- -- -- -- (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%
Ratios/Supplemental Data
Net assets, end of period (thousands) $24,000 $19,949 $18,891 $17,855 $17,843
Ratio of expenses to average net assets, before
reimbursement or waiver 2.25% 2.15% 2.45% 2.46% 2.39%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.75% 1.75% 2.45% 2.46% 2.39%
Ratio of net investment income to average net assets,
before reimbursement or waiver (0.16)% 0.13% (0.39)% (0.12)% (0.94)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.35% 0.53% (0.39)% (0.12)% (0.94)%
Portfolio Turnover Rate 143,67% 122.56% 113.55% 137.72% 100.10%
</TABLE>
42 43
<PAGE>
<TABLE>
<CAPTION>
=======================================================================
Global Income Fund
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.58 $11.22 $10.75 $9.80 $10.95
Net investment income (loss) 0.90 1.04 1.01 0.96 0.46
Net realized and unrealized gain (loss) from investment
operations (0.07) (0.50) 0.36 0.95 (1.16)
Total income (loss) from investment operations (0.83) 0.54 1.37 1.91 (0.70)
Less distributions:
Distributions from net investment income (0.87) (0.91) (0.86) (0.96) (0.45)
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains (0.18) (0.27) (0.04) -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions (1.05) (1.18) (0.90) (0.96) (0.45)
Net asset value, end of period $10.36 $10.58 $11.22 $10.75 $9.80
Total return 8.21% 5.00% 13.33% 20.10% (6.52)%
Ratios/Supplemental Data
Net assets, end of period (thousands) $36,407 $23,668 $29,110 $12,255 $10,351
Ratio of expenses to average net assets, before
reimbursement or waiver 1.89% 2.17% 2.33% 3.07% 1.80%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.50% 1.50% 1.50% 2.75% 1.50%
Ratio of net investment income to average net assets,
before reimbursement or waiver 10.99% 8.99% 9.49% 9.48% 4.18%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 11.38% 9.66% 10.32% 9.80% 4.48%
Portfolio Turnover Rate 45.26% 117.94% 71.84% 164.72% 10.20%
<CAPTION>
===========================================
Russia Fund
-------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996(c)
-------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $17.50 $11.24 $12.12
Net investment income (loss) 0.15 (0.01) (0.05)
Net realized and unrealized gain (loss) from investment
operations (14.70) 7.57 (0.51)
Total income (loss) from investment operations (14.55) 7.56 (0.56)
Less distributions:
Distributions from net investment income (0.07) -- --
Distributions in excess of net investment income -- -- --
Distributions from net realized gains (0.24) (1.30) (0.32)
Distributions in excess of net realized gains -- -- --
Total distributions (0.31) (1.30) (0.32)
Net asset value, end of period $2.64% $17.50 $11.24
Total return (82.99%) 67.50% (9.01)%*
Ratios/Supplemental Data
Net assets, end of period (thousands) $19.147 $137,873 $13,846
Ratio of expenses to average net assets, before
reimbursement or waiver 2.64% 2.89%# 5.07%*#
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.84% 1.85%# 2.65%*#
Ratio of net investment income to average net assets,
before reimbursement or waiver 0.57% (1.14)%# (3.69)%*#
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.36% (0.11)%# (1.27)%*#
Portfolio Turnover Rate 65.76% 66.84% 115.55%
<CAPTION>
==========================================================
Worldwide Emerging Markets Fund
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.49 $10.70 $11.47 $13.96
Net investment income (loss) 0.01 -- 0.08 (0.01)
Net realized and unrealized gain (loss) from investment
operations (1.32) 0.79 (0.76) (1.92)
Total income (loss) from investment operations (1.31) 0.79 (0.68) (1.93)
Less distributions:
Distributions from net investment income -- -- (0.08) --
Distributions in excess of net investment income -- -- (0.01) --
Distributions from net realized gains -- -- -- (0.47)
Distributions in excess of net realized gains -- -- -- (0.09)
Total distributions -- -- (0.09) (0.56)
Net asset value, end of period $10.18 $11.49 $10.70 $11.47
Total return (11.40)% 7.38% (5.93)% (13.81)%
Ratios/Supplemental Data
Net assets, end of period (thousands) $137,686 $254,673 $265,544 $288,581
Ratio of expenses to average net assets, before
reimbursement or waiver 1.82% 1.76% 1.88% 1.65%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.82% 1.76% 1.88% 1.65%
Ratio of net investment income to average net assets,
before reimbursement or waiver 0.09% (0.01)% 0.70% (0.06)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.09% (0.01)% 0.70% (0.06)%
Portfolio Turnover Rate 112.05% 86.26% 92.85% 79.56%
</TABLE>
* Annualized
# (before, or net of) reinbursement or waiver or redemption fee proceeds.
(c) The Fund's commencement of operations was June 3, 1996 with the investment
of its initial capital. The Fund's registration statement with the
Securities and Exchange Commission became effective on July 3, 1996.
Financial results prior to the effective date of the Fund's registration
statement are not presented in this Financial Highlights Table.
44 45
<PAGE>
<TABLE>
<CAPTION>
PRECIOUS METALS FUNDS
====================================================================
Goldfund
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.24 $5.97 $6.24 $6.37 $6.90
Net investment income (loss) -- -- 0.02 -- 0.03
Net realized and unrealized gain (loss) from investment
operations (0.21) (2.52) 0.50 (0.12) (0.53)
Total income (loss) from investment operations (0.21) (2.52) 0.52 (0.12) (0.50)
Less distributions:
Distributions from net investment income -- (0.21) (0.79) (0.01) (0.03)
Distributions in excess of net investment income -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions
Net asset value, end of period 3.03 $3.24 $5.97 $6.24 $6.37
Total return (6.39)% (42.98)% 7.84% (1.89)% 7.28%
Ratios/Supplemental Data
Net assets, end of period (thousands) 50.841 $53,707 $109,287 $135,779 $159,435
Ratio of expenses to average net assets,
before reimbursement or waiver 1.74% 1.65% 1.60% 1.70% 1.54%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.74% 1.65% 1.60% 1.70% 1.54%
Ratio of net investment income to average net assets
, before reimbursement or waiver 0.08% 0.17% (0.32)% 0.07% 0.50%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.08% 0.17% (0.32)% 0.07% 0.50%
Portfolio Turnover Rate 28.93% 38.32% 31.04% 40.41% 23.77%
<CAPTION>
PRECIOUS METALS FUNDS
=======================================================================
Silver Fund
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998(d) 1998(e) 1997(e) 1996(e) 1995(e) 1994(e)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.26 $3.95 $4.46 $4.00 $3.92 $3.52
Net investment income (loss) (0.01) (0.02) (0.04) (0.03) (0.03) (0.02)
Net realized and unrealized gain (loss) from investment
operations (0.52) (0.66) (0.43) 0.51 0.11 0.42
Total income (loss) from investment operations (0.53) (0.68) (0.47) 0.48 0.08 0.04
Less distributions:
Distributions from net investment income -- -- -- -- -- --
Distributions in excess of net investment income -- (0.01) (0.04) (0.02) -- --
Distributions from net realized gains -- -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- -- --
Total distributions
Net asset value, end of period $2.73 $3.26 $3.95 $4.46 $4.00 $3.92
Total return (16.26)%* (17.32)% (10.76)% 12.02% 2.04% 11.36%
Ratios/Supplemental Data
Net assets, end of period (thousands) $25,560 $34,921 $42,035 $73,945 $65,517 $49,499
Ratio of expenses to average net assets,
before reimbursement or waiver 2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
Ratio of expenses to average net assets,
net of reimbursement or waiver 2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
Ratio of net investment income to average net assets
, before reimbursement or waiver (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Portfolio Turnover Rate 5.68%* 28.78% 18.76% 44.30% 44.22% 5.28%
</TABLE>
* Annualized
(d) Six month period ended December 31, 1998. The Fund changed its fiscal
year-end from June 30th to December 31st.
(e) Fiscal year-end June 30th.
46 47
<PAGE>
<TABLE>
<CAPTION>
FIXED INCOME FUNDS AND
======================================================================
GNMA Income Fund
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.40 $8.12 $8.19 $7.60 $8.32
Net investment income (loss) 0.48 0.51 0.53 0.58 0.55
Net realized and unrealized gain (loss) from investment
operations 0.13 0.29 (0.08) 0.59 (0.72)
Total income (loss) from investment operations 0.61 0.80 0.45 1.17 (0.17)
Less distributions:
Distributions from net investment income (0.48) (0.52) (0.52) (0.58) (0.55)
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions (0.48) (0.52) (0.52) (0.58) (0.55)
Net asset value, end of period $8.53 $8.40 $8.12 $8.19 $7.60
Total return 7.52% 10.20% 5.71% 15.91% (2.07)%
Ratios/Supplemental Data
Net assets, end of period (thousands) $273.591 $158,071 $133,777 $130,681 $132,108
Ratio of expenses to average net assets,
before reimbursement or waiver 1.01% 1.01% 1.05% 1.01% 0.98%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.01% 1.01% 1.05% 1.01% 0.98%
Ratio of net investment income to average net assets,
before reimbursement or waiver 5.85% 6.28% 6.56% 7.10% 6.90%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 5.85% 6.28% 6.56% 7.10% 6.90%
Portfolio Turnover Rate 54.47% 134.28% 128.76% 30.69% 37.15%
<CAPTION>
MONEY MARKET FUNDS
======================================================================
Money Market Trust
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $100 $1.00 $1.00 $1.00 $1.00
Net investment income (loss) 0.0455 0.0458 0.0441 0.0495 0.0330
Net realized and unrealized gain (loss) from investment
operations -- -- -- -- --
Total income (loss) from investment operations 0.0455 0.0458 0.0441 0.0495 0.0330
Less distributions:
Distributions from net investment income 0.455 0.0458 0.0441 0.0495 0.0330
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions 0.0455 0.0458 0.0441 0.0495 0.0330
Net asset value, end of period $100 $1.00 $1.00 $1.00 $1.00
Total return 4.65% 4.68% 4.50% 5.06% 3.35%
Ratios/Supplemental Data
Net assets, end of period (thousands) $87,488 $95,149 $97,526 $88,786 $111,805
Ratio of expenses to average net assets,
before reimbursement or waiver 1.05% 1.04% 1.04% 1.08% 1.02%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net assets,
before reimbursement or waiver 4.51% 4.55% 4.37% 4.87% 3.30%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 4.56% 4.58% 4.41% 4.95% 3.32%
Portfolio Turnover Rate -- -- -- -- --
</TABLE>
48 49
<PAGE>
Statement of Additional Information
The Statement of Additional Information (SAI) provides a more complete
discussion about the Lexington Funds and is incorporated by reference, which
means that it is considered a part of this prospectus.
Annual and Semi-Annual Reports
The annual and semi-annual reports to shareholders have more information about
each Lexington Fund's investments, including a discussion about the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.
Reviewing or Obtaining Additional Information You may obtain a copy of the SAI
and the annual and semi-annual reports (free of charge) by contacting a
broker-dealer or other financial intermediaries that sell the Fund's shares or
by writing or calling:
THE LEXINGTON FUNDS
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Attn: Shareholder Services
Tel: (800) 526-0056 or (201) 845-7300.
You may also obtain a copy of the SAI and the annual and semi-annual reports
(for a fee) by contacting the Public Reference Room of the Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., telephone
800-SEC-0330. You may also obtain this information by visiting the SEC's
Worldwide Website at http://www.sec.gov.
Investment Company Act File No. 811-_______.
50
<PAGE>
<PAGE>
LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington International
Fund, Inc. (the "Fund"), dated May 1, 1999, and 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 toll-free numbers:
Shareholder Services Information:-1-800-526-0056
Institutional/Financial Adviser Services:-1-800-367-9160
24 Hour Account Information:-1-800-526-0052
Lexington Management Corporation is the Fund's investment adviser. Lexington
Funds Distributor, Inc. is the Fund's distributor.
TABLE OF CONTENTS
Page
Investment Objective and Policies 2
Risk Considerations 3
Investment Restrictions 4
Management of the Fund 6
Investment Adviser, Distributor and Administrator 9
Portfolio Transactions and Brokerage Commissions 10
Determination of Net Asset Value 10
Distribution Plan 11
Telephone Exchange Provisions 11
Tax-Sheltered Retirement Plans 12
Tax Matters 14
Performance Calculation 18
Shareholder Reports 19
Other Information 19
Financial Statements 20
1
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
For a full description of the Fund's investment objective and policies, see
the Prospectus under "Investment Objective and Policies".
CERTAIN INVESTMENT METHODS
Settlement Transactions-When the Fund enters into contracts for purchase or sale
of a portfolio security denominated in a foreign currency, it may be required to
settle a purchase transaction in the relevant foreign currency or receive the
proceeds of a sale in that currency. In either event, the Fund will be obligated
to acquire or dispose of such foreign currency as is represented by the
transaction by selling or buying an equivalent amount of United States dollars.
Furthermore, the Fund may wish to "lock in" the United States dollar value of
the transaction at or near the time of a purchase or sale of portfolio
securities at the exchange rate or rates the prevailing between the United
States dollar and the currency in which the foreign security is denominated.
Therefore, the Fund may, for a fixed amount of United States dollars, enter into
a forward foreign exchange contract for the purchase or sale of the amount of
foreign currency involved in the underlying securities transaction. In so doing,
the Fund will attempt to insulate itself against possible losses and gains
resulting from a change in the relationship between the United States dollar and
the foreign currency during the period between the date a security is purchased
or sold and the date on which payment is made or received. This process is known
as "transaction hedging".
To effect the translation of the amount of foreign currencies involved in
the purchase and sale of foreign securities and to effect the "transaction
hedging" described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e. cash) basis or on a forward basis whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the time of the
contract, for receipt of delivery at a specified date which may be any fixed
number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign dollar and the relevant foreign currency
when foreign securities are purchased or sold for settlement beyond customary
settlement time (as described below). Neither type of foreign currency
transaction will eliminate fluctuations in the prices of the Fund's portfolio or
securities or prevent loss if the price of such securities should decline.
Portfolio Hedging-Some or all of the Fund's portfolio will be denominated in
foreign currencies. As a result, in addition to the risk of change in the market
value of portfolio securities, the value of the portfolio in United States
dollars is subject to fluctuations in the exchange rate between such foreign
currencies and the United States dollar. When, in the opinion of LMC, it is
desirable to limit or reduce exposure in a foreign currency in order to moderate
potential changes in the United States dollar value of the portfolio, the Fund
may enter into a forward foreign currency exchange contract by which the United
States dollar value of the underlying foreign portfolio securities can be
approximately matched by an equivalent United States dollar liability. This
technique is known as "portfolio hedging" and moderates or reduces the risk of
change in the United States dollar value of the Fund's portfolio only during the
period before the maturity of the forward contract (which will not be in excess
of one year). The Fund, for hedging purposes only, may also enter into forward
foreign currency exchange contracts to increase its exposure to a foreign
currency that the Fund's investment adviser expects to increase in value
relative to the United States dollar. The Fund will not attempt to hedge all of
its foreign portfolio positions and will enter into such transactions only to
the extent, if any, deemed appropriate by the investment adviser. Hedging
against a decline in the value of currency does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. The Fund will not enter into forward foreign currency
exchange transactions for speculative purposes. The Fund intends to limit
transactions as described in this paragraph to not more than 70% of the total
Fund assets.
Forward Commitments-The Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as the Fund, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets. Although the Fund will enter into such contracts with the
intention of acquiring the securities, the Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments.
2
<PAGE>
Covered Call Options-Call options may also be used as a means of participating
in an anticipated price increase of a security on a more limited basis than
would be possible if the security itself were purchased. The Fund may write only
covered call options. Since it can be expected that a call option will be
exercised if the market value of the underlying security increases to a level
greater than the exercise price, this strategy will generally be used when the
investment adviser believes that the call premium received by the Fund plus
anticipated appreciation in the price of the underlying security, up to the
exercise price of the call, will be greater than the appreciation in the price
of the security. The Fund intends to limit transactions as described in this
paragraph to less than 5% of total Fund assets. The Fund will not purchase put
and call options written by others. Also, the Fund will not write any put
options.
Repurchase Agreements-A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than 7
days) subject to the obligations of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). Although the Fund may enter into repurchase agreements with
respect to any portfolio securities which it may acquire consistent with its
investment policies and restrictions, it is the Fund's present intention to
enter into repurchase agreements only with respect to obligations of the United
States government or its agencies or instrumentalities to meet anticipated
redemptions or pending investments or reinvestment of Fund assets in portfolio
securities. The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in United States
government securities. In addition if bankruptcy proceedings are commenced with
respect to the seller, be subject to risks associated with changes in market
value of the collateral securities. The Fund intends to limit repurchase
agreements to institutions believed by LMC to present minimal credit risk. The
Fund will not enter into repurchase agreements maturing in more than seven days
if the aggregate of such repurchase agreements and all other illiquid securities
when taken together would exceed 15% of the total assets of the Fund.
Except as otherwise specifically noted, the Fund's investment objective and
its investment restrictions are fundamental and may not be changed without the
approval of a majority of the outstanding voting securities of the Fund. The
Statement of Additional Information contains a complete description of the
Fund's restrictions and additional information on policies relating to the
investment of its assets and its activities.
RISK CONSIDERATIONS
Investors should recognize that investing in securities of foreign companies
and in particular securities of companies domiciled in or doing business in
emerging markets and emerging countries involves certain risk considerations,
including those set forth below, which are not typically associated with
investing in securities of U.S. companies.
Foreign Currency Considerations
The Fund's assets will be invested in securities of foreign companies and
substantially all income will be received by the Fund in foreign currencies.
However, the Fund will compute and distribute its income in dollars, and the
computation of income will be made on the date of its receipt by the Fund at the
foreign exchange rate in effect on that date. Therefore, if the value of the
foreign currencies in which the Fund receives its income falls relative to the
dollar between receipt of the income and the making of Fund distributions, the
Fund will be required to liquidate securities in order to make distributions if
the Fund has insufficient cash in dollars to meet distribution requirements.
The value of the assets of the Fund as measured in dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer. The
Fund will conduct its foreign currency exchange transactions either on a spot
(i.e., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward or futures contracts to purchase or
sell foreign currencies.
Investment and Repatriation Restrictions
Some foreign countries may have laws and regulations which currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed and
traded on the stock exchanges in these countries is permitted by certain foreign
countries through investment funds which have been specifically authorized. The
Fund may invest in these investment funds subject to the provisions of the 1940
Act as discussed below under "Investment Restrictions". If the Fund invests in
such investment funds, the Fund's
3
<PAGE>
shareholders will bear not only their proportionate share of the expenses of the
Fund (including operating expenses and the fees of the Investment Manager), but
also will bear indirectly similar expenses of the underlying investment funds.
In addition to the foregoing investment restrictions, prior governmental
approval for foreign investments may be required under certain circumstances in
some foreign countries, while the extent of foreign investment in domestic
companies may be subject to limitation in other foreign countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in foreign countries to prevent, among other concerns, violation of
foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
foreign countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental approval for such repatriation.
Foreign Securities Markets
Trading volume on foreign country stock exchanges is substantially less than
that on the New York Stock Exchange. Further, securities of some foreign
companies are less liquid and more volatile than securities of comparable U.S.
companies. Similarly, volume and liquidity in most foreign bond markets is
substantially less than in the U.S. and, consequently, volatility of price can
be greater than in the U.S. Fixed commissions on foreign exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund
endeavors to achieve the most favorable net results on its portfolio
transactions and may be able to purchase the securities in which the Fund may
invest on other stock exchanges where commissions are negotiable.
Companies in foreign countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about a foreign company than
about a U.S. company. Further, there is generally less governmental supervision
and regulation of foreign stock exchanges, brokers and listed companies than in
the U.S. Further, these Funds may encounter difficulties or be unable to pursue
legal remedies and obtain judgments in foreign courts.
Economic and Political Risks
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Further, the economies of foreign countries
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the Fund's
investments in those countries. In addition, it may be more difficult to obtain
a judgement in a court outside of the United States.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "investment policy" and
the following investment restrictions are matters or 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 shareholders' 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. Under these investment restrictions:
(1) the Fund will not issue any senior security (as defined in the 1940
Act), except that (a) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program, including
reverse repurchase agreements, foreign exchange contracts, delayed
delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) the Fund may engage in transactions
that may result in the issuance of a senior security to the extent
permitted under applicable regulations, interpretation of the 1940 Act
or an exemptive order; (c) the Fund may engage in short sales of
securities to the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of futures contracts and related
options shall not be considered to involve the issuance of senior
securities; and (e) subject to fundamental restrictions, the Fund may
borrow money as authorized by the 1940 Act.
4
<PAGE>
(2) The Fund will not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) The Fund may pledge its portfolio securities or receivables or
transfer or assign or otherwise encumber them in an amount not exceeding
one-third of the value of its total assets; and (e) for purposes of
leveraging, the Fund may borrow money from banks (including its
custodian bank), only if, immediately after such borrowing, the value of
the Fund's assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all outstanding
borrowings. If at any time, the value of the Fund's assets fails to meet
the 300% asset coverage requirement relative only to leveraging, the
Fund will, within three days (not including Sundays and holidays),
reduce its borrowings to the extent necessary to meet the 300% test.
(3) The Fund will not act as an underwriter of securities except to the
extent that, in connection with the disposition of portfolio securities
by the Fund, the Fund may be deemed to be an underwriter under the
provisions of the 1933 Act.
(4) The Fund will not purchase real estate, interests in real estate or real
estate limited partnership interests except that, to the extent
appropriate under its investment program, the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which deal in real
estate or interests therein.
(5) The Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase transactions and (c) lend portfolio securities
provided that the value of such loaned securities does not exceed
one-third of the Fund's total assets.
(6) The Fund will not invest in commodity contracts, except that the Fund
may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related
options, may engage in transactions on a when-issued or forward
commitment basis, and may enter into forward currency contracts.
(7) The Fund will not concentrate its investments in any one industry,
except that the Fund may invest up to 25% of its total assets in
securities issued by companies principally engaged in any one industry.
The Fund considers foreign government securities and supranational
organizations to be industries. This limitation, however, will not apply
to securities issued or guaranteed by the U.S. Government, its agencies
and instrumentalities.
(8) The Fund will not purchase securities of an issuer, if (a) more than 5%
of the Fund's total assets taken at market value would at the time be
invested in the securities of such issuer, except that such restriction
shall not apply to securities issued or guaranteed by the United States
government or its agencies or instrumentalities or, with respect to 25%
of the Fund's total assets, to securities issued or guaranteed by the
government of any country other than the United States which is a member
of the Organization for Economic Cooperation and Development ("OECD").
The member countries of OECD are at present: Australia, Austria,
Belgium, Canada, Denmark, Germany, Finland, France, Greece, Iceland,
Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,
Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the
United States; or (b) such purchases would at the time result in more
than 10% of the outstanding voting securities of such issuer being held
by the Fund.
In addition to the above fundamental restrictions, the Fund has undertaken
the following non fundamental restrictions, which may be changed in the future
by the Board of Directors, without a vote of the shareholders of the Fund:
(1) The Fund will not participate on a joint or joint-and-several basis in
any securities trading account. The "bunching" of orders for the sale or
purchase of marketable portfolio securities with other accounts under
the management of the investment adviser to save commissions or to
average prices among them is not deemed to result in a securities
trading account.
5
<PAGE>
(2) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
(3) The Fund will not make short sales of securities, other than short sales
"against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment
programs of the Fund.
(4) The Fund will not purchase the securities of any other investment
company, except as permitted under the 1940 Act.
(5) The Fund will not invest for the purpose of exercising control over or
management of any company.
(6) The Fund will not purchase warrants except in units with other
securities in original issuance thereof or attached to other securities,
if at the time of the purchase, the Fund's investment in warrants,
valued at the lower of cost or market, would exceed 5% of the Fund's
total assets. For these purposes, warrants attached to units or other
securities shall be deemed to be without value.
(7) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days. Securities
that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
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 change in values or net
assets.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund, their ages as of the
Fund's most recent fiscal year-end and their principal occupations are set forth
below:
+S.M.S. CHADHA (60), Director. 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.
(D)BEVERLEY C. DUER (63), Director, 340 East 72nd Street, New York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research Department - CPC
International, Inc.
*(D)BARBARA R. EVANS (37), Director. 5 Fernwood Road, Summit, N.J. 07901.
Private Investor. Prior to May,1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation.
*(D)LAWRENCE KANTOR (50), Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President, Lexington Global
Asset Managers, Inc.; Executive Vice President and Director, Lexington Funds
Distributor, Inc.
6
<PAGE>
+JERARD F. MAHER (52), Director. 300 Raritan Center Parkway, Edison, N.J. 08818.
General Counsel, Federal Business Center; Counsel, Ribis, Graham & Curtin.
+ANDREW M. McCOSH (57), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland.
(D)DONALD B. MILLER (71), Director. 10725 Quail Covey Road, Boynton Beach, FL
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maquire Group of Connecticut; prior to January 1989, President, Director and
C.E.O., Media General Broadcast Services (advertising firm).
(D)JOHN G. PRESTON (65), Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts.
*(D)RICHARD T. SALER (36), Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, NJ 07663. Senior Vice President, Director of International
Investment Strategy. Lexington Management Corporation. Prior to July 1992,
Securities Analyst, Nomura Securities, Inc. Prior to November 1991, Vice
President, Lexington Management Corporation.
*(D)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.
*(D)RICHARD M. HISEY (39), Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. Chief Financial Officer, Managing Director and Director,
Lexington Management Corporation; Chief Financial Officer, Vice President
and Director, Lexington Funds Distributor, Inc.; Chief Financial Officer,
Market Systems Research Advisors, Inc.; Executive Vice President, General
Manager - Mutual Funds and Chief Financial Officer, Lexington Global Asset
Managers, Inc.
*(D)RICHARD LAVERY (44), CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*(D)JANICE CARNICELLI (38), Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*(D)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.
*(D)CATHERINE DiFALCO (28), Assistant Treasurer. P.O. Box 1515, Saddle Brook,
New Jersey 07663. Prior to October 1997, Manager, Fund Accounting.
*(D)SIOBHAN GILFILLAN (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663.
*(D)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.
*(D)SHERI MOSCA (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*(D)PETER CORNIOTES (35), 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.
*(D)ENRIQUE J. FAUST (37), Assistant Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington
Management Corporation.
*"Interested person" and/or "Affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
(D) Messrs. Chadha, Corniotes, DeMichele, Duer, Faust, Hisey, Kantor,
Lavery, Maher, McCosh, Miller, Preston, Saler and Stowe and Mmes.
Carnicelli, Carr, Curcio, DiFalco, Evans, Gilfillan, Lederer, and Mosca
hold similar offices with some or all of the other registered investment
investment companies advised and/or distributed by Lexington Management
Corporation and Lexington Funds Distributor, Inc.
The Board of Directors met 5 times during the twelve months ended December
31, 1998, and each of the Directors attended at least 75% of those meetings.
7
<PAGE>
Remuneration of Directors and Certain Executive Officers:
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof up to a maximum of $9,000 per
year for Directors living outside the U.S. and $6,000 per year for Directors
living within the U.S. Each Director 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 Director also serves as a Director of other investment
companies advised by LMC. Each Director receives a fee, allocated among all
investment companies for which the Director serves. Effective September 12, 1995
each Director receives annual compensation of $24,000. Prior to September 12,
1995, the Directors 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, 1998 to December 31, 1998 for each Director:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of Directorships
Name of Director Compensation from Fund Fund and Fund Complex in Fund Complex
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $1,712 $27,068 15
- -----------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 16
- -----------------------------------------------------------------------------------------------------
Beverley C. Duer $2,045 $35,518 16
- -----------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- -----------------------------------------------------------------------------------------------------
Richard M. Hisey 0 0 5
- -----------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- -----------------------------------------------------------------------------------------------------
Jerard F. Maher $1,712 $30,518 16
- -----------------------------------------------------------------------------------------------------
Andrew M. McCosh $1,712 $27,818 15
- -----------------------------------------------------------------------------------------------------
Donald B. Miller $1,712 $27,818 15
- -----------------------------------------------------------------------------------------------------
Francis Olmsted* $1,400 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
John G. Preston $1,712 $27,818 15
- -----------------------------------------------------------------------------------------------------
Margaret W. Russell* $1,456 $23,228 15
- -----------------------------------------------------------------------------------------------------
Philip C. Smith* $1,280 $19,200 N/A
- -----------------------------------------------------------------------------------------------------
Francis A. Sunderland* $1,200 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Retired
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors 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 Director 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 Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
8
<PAGE>
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, 1998, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCosh, Miller and Preston are 3,
20, 3, 3, 24 and 20, 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
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle Brook, New
Jersey 07663 is the investment adviser to the Fund pursuant to an Investment
Management Agreement dated December 7, 1993, (the "Advisory Agreement").
Lexington Funds Distributor, Inc. ("LFD") is the distributor of Fund shares
pursuant to a Distribution Agreement dated December 7, 1993, (the "Distribution
Agreement"). Both of these agreements were approved by the Fund's Board of
Directors (including a majority of the Directors who were not parties to either
the Advisory Agreement or the Distribution Agreement or "interested persons" of
any such party) on November 30, 1998. LMC makes recommendations to the Fund with
respect to its investments and investment policies.
LMC also acts as administrator to the Fund and performs certain
administrative and 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.
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 voluntary reduction at any time. LFD pays
the advertising and sales expenses of the continuous offering of Fund shares,
including the cost of printing prospectuses, proxies and shareholder reports for
persons other than existing shareholders. The Fund furnishes LFD, at printer's
overrun cost paid by LFD, such copies of its prospectus and annual, semi-annual
and other reports and shareholder communications as may reasonably be required
for sales purposes.
The Advisory Agreement, the Distribution Agreement and the Administrative
Services Agreement are subject to annual approval by the Fund's Board of
Directors and by the affirmative vote, cast in person at a meeting called for
such purpose, of a majority of the Directors who are not parties either to the
Advisory Agreement or the Distribution Agreement, as the case may be, or
"interested persons" of any such party. Either the Fund or LMC may terminate the
Advisory Agreement and the Fund or LFD may terminate the Distribution Agreement
on 60 days' written notice without penalty. The Advisory Agreement terminates
automatically in the event of assignment, as defined in the Investment Company
Act of 1940. LMC is paid an investment advisory fee at the annual rate of 1.00%
of the Fund's average daily net assets. For the year ended December 31, 1998,
the Fund paid LMC $217,864 in investment advisory fees and LMC reimbursed the
Fund $109,634. For the year ended December 31, 1997, the Fund paid LMC $210,897
in investment advisory fees; and for the year ended December 31, 1996, the
Fund paid LMC $190,486 in investment advisory fees.
LMC shall not be liable to the Fund or its shareholders for any act or
omission by LMC, its officers, directors or employees or any loss sustained by
the Fund or its shareholders except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
9
<PAGE>
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. 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 directors, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery and Saler and Mmes.
Carnicelli, Carr-Waldron, Curcio, DiFalco, Gilfillan, Lederer and Mosca (see
"Management of the Fund"), may also be deemed affiliates of LMC and LFD by
virtue of being officers, directors or employees thereof.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with this policy, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the Directors may determine, LMC may consider sales of shares of the
Fund and of the other Lexington Funds as a factor in the selection of brokers
and dealers and the market in which a transaction is executed. Consistent with
this policy, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and such other policies as the Directors may
determine, LMC may consider sales of shares of the Fund and of the other
Lexington Funds as a factor in the selection of broker-dealers to execute the
Fund's portfolio transactions. 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 of a commission
higher than that charged by another broker-dealer which does not furnish
research services or which furnishes research services deemed to be a lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange Act
of 1934 are met. Section 28(e) of the Securities Exchange Act of 1934 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 higher commission than the
lowest available under certain circumstances, provided that the person so
exercising investment discretion makes a good faith determination that the
person so commissions paid are "reasonable in the 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."
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 executions 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 and its affiliates, in
serving other clients as well as the Fund. On the other hand, any research
services obtained by LMC or its affiliates from the placement of portfolio
brokerage of other clients might be useful and of value to LMC in carrying out
its obligations to the Fund.
The Fund anticipates that its brokerage transactions involving securities of
companies domiciled in countries other than the United States will normally be
conducted on the principal stock exchanges of those countries. Fixed commissions
of foreign stock exchange transactions are generally higher than the negotiated
commission rates available in the United States. There is generally less
government supervision and regulation of foreign stock exchanges and
broker-dealers than in the United States.
The Fund paid brokerage commissions and portfolio turnover rates are as
follows:
Total Brokerage Soft Dollar Portfolio Turnover
Commissions Paid Commissions Paid Rate
----------------- ---------------- ------------------
1996 $180,719 16,748 113.55%
1997 177,179 20,613 122.56%
1998 $172,910 143.67%
DETERMINATION OF NET ASSET VALUE
The Fund calculates net asset value as of the close of normal trading on the
New York Stock Exchange (currently 4:00 p.m., Eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing time) each
business day. It is expected that the New York Stock Exchange will be closed on
Saturdays and Sundays and on New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. See the Prospectus for the further discussion of net asset
value.
10
<PAGE>
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the Investment Company Act of 1940, which provides that the
Fund may pay distribution fees including payments to the Distributor, at an
annual rate not to exceed 0.25% of its average daily net assets for distribution
services.
Distribution payments will be made as follows: The Fund either directly or
through the adviser, may make payments periodically (i) to the Distributor or to
any broker-dealer (a "Broker") who is registered under the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and who has entered into a Selected Dealer Agreement
with the Distributor, (ii) to other persons or organizations ("Servicing
Agents") who have entered into shareholder processing and service agreements
with the Adviser or with the Distributor, with respect to Fund shares owned by
shareholders for which such Broker is the dealer or holder of record or such
servicing agent has a servicing relationship, or (iii) for expenses associated
with distribution of Fund shares, including but not limited to the incremental
costs of printing prospectuses, statements of additional information, annual
reports and other periodic reports for distribution to persons who are not
shareholders of the Fund; the costs of preparing and distributing any other
supplemental sales literature; costs of radio, television, newspaper and other
advertising; telecommunications expenses, including the cost of telephones,
telephone lines and other communications equipment, incurred by or for the
Distributor in carrying out its obligations under the Distribution Agreement.
Quarterly, in each year that this Plan remains in effect, the Fund's
Treasurer shall prepare and furnish to the Directors of the Fund a written
report, complying with the requirements of Rule 12b-1, setting forth the amounts
expended by the Fund under the Plan and purposes for which such expenditures
were made.
The Plan shall become effective upon approval of the Plan, the form of
Selected Dealer Agreement and the form of Shareholder Service Agreement, by the
majority votes of both (a) the Fund's Directors and the Qualified Directors (as
defined below), cast in person at a meeting called for the purpose of voting on
the Plan and (b) the outstanding voting securities of the Fund, as defined in
Section 2(a)(42) of the 1940 Act.
The Plan shall remain in effect for one year from its adoption date and may
be continued thereafter if this Plan and all related agreements are approved at
least annually a majority vote of the Directors of the Fund, including a
majority of the Qualified Directors cast in person at a meeting called for the
purpose of voting on such Plan and agreements. This Plan may not be amended in
order to increase materially the amount to be spent for distribution assistance
without shareholder approval. All material amendments to this Plan must be
approved by a vote of the Directors of the Fund, and of the Qualified Directors
(as hereinafter defined), cast in person at a meeting called for the purpose of
voting thereon.
The Plan may be terminated at any time by a majority vote of the Directors
who are not interested persons (as defined in Section 2(a)(19) of the 1940 Act)
of the Fund and have no direct or indirect financial interest in the operation
of the Plan or in any agreements related to the Plan (the "Qualified Directors")
or by vote of an majority of the outstanding voting securities of the Fund, as
defined in Section 2(a)(42) of the 1940 Act.
While this Plan shall be in effect, the selection and nomination of
the"non-interested" Directors of the Fund shall be committed to the discretion
of the Qualified Directors then in office.
TELEPHONE EXCHANGE PROVISIONS
Exchange instructions may be given in writing or by telephone. Telephone
exchanges may only be made if a Telephone Authorization form has been previously
executed and filed with LFD. Telephone exchanges are permitted only after a
minimum of seven (7) days have elapsed from the date of a previous exchange.
Exchanges may not be made until all checks in payment for the shares to be
exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at State Street
Bank and Trust Company (the "Agent"); shares held in certificate form by the
shareholder cannot be included. However, outstanding certificates can be
returned to the Agent and qualify for these services. Any new account
established with the same registration will also have the privilege of exchange
by telephone in the Lexington Funds. All accounts involved in a telephonic
exchange must have the same registration and dividend option as the account from
which the shares were transferred and will also have the privilege of exchange
by telephone in the Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD, distributor of
the Lexington Group of Mutual Funds, as the true and lawful attorney to
surrender for redemption or exchange any and all non-certificate shares held by
the Agent in account(s) designated, or in any other account with the Lexington
Funds, present or future which has the identical registration, with full power
of
11
<PAGE>
substitution in the premises, authorizes and directs LFD to act upon any
instruction from any person by telephone for exchange of shares held in any of
these accounts, to purchase shares of any other Lexington Fund that is
available, provided the registration and mailing address of the shares to be
purchased are identical to the registration of the shares being redeemed, and
agrees that neither LFD, the Agent, or the Fund(s) will be liable for any loss,
expense or cost arising out of any requests effected in accordance with this
authorization which would include requests effected by impostors or persons
otherwise unauthorized to act on behalf of the account. LFD reserves the right
to cease to act as agent subject to the above appointment upon thirty (30) days
written notice to the address of record. If the shareholder is an entity other
than an individual, such entity may be required to certify that certain persons
have been duly elected and are now legally holding the titles given and that the
said corporation, trust, unincorporated association, etc. is duly organized and
existing and has the power to take action called for by this continuing
authorization.
Exchange Authorizations forms, Telephone Authorization forms and
prospectuses of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund or shares of one of the other Lexington
Funds at net asset value as described above. Under this procedure, the dealer
must agree to indemnify LFD and the funds from any loss or liability that any of
them might incur as a result of the acceptance of such telephone exchange
orders. A properly signed Exchange Authorization must be received by LFD within
5 days of the exchange request. LFD reserves the right to reject any telephone
exchange request. In each such exchange, the registration of the shares of the
Fund being acquired must be identical to the registration of the shares of the
Fund being exchanged. Any telephone exchange orders so rejected may be processed
by mail.
This exchange offer is available only in states where shares of the Fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit Sharing
plans including a 401(k) Salary Reduction Plan and a 403(b)(7) Plan. Plan
services are available by contacting the Shareholder Services Department of the
Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT ("Traditional IRA and ROTH IRA")
What's the Difference between a Traditional IRA and a Roth IRA?
With a Traditional IRA, an individual can contribute up to $2,000 per year
and may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Non deductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59-1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.
With a Roth IRA, the contribution limits are essentially the same as
Traditional IRA's, but there is no tax deduction for contributions. All
dividends and investment growth in the account are tax-free. Most important with
a Roth IRA: there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Traditional IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70-1/2, and there's no requirement
that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a
Traditional IRA and a Roth IRA:
12
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Characteristics Traditional Roth
IRA IRA
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligibility * Individuals (and their spouses) * Individuals (and their spouses)
who receive compensation who receive compensation
* Individuals age 70-1/2 and over * Individuals age 70-1/2 may con-
may not contribute tribute
- -----------------------------------------------------------------------------------------------------------
Tax Treatment Contributions * Subject to limitations, contribu- * No deduction permitted for
tions are deductible amounts contributed
- -----------------------------------------------------------------------------------------------------------
Contribution Limits * Individuals may contribute up to * Individuals may generally con-
$2,000 annually (or 100% of tribute up to $2,000 (or 100% of
compensation if less) compensation, if less)
* Deductibility depends on income * Ability to contribute phases out
level for individuals who are at income levels of $95,000 to
active participants in an $110,000 (individual taxpayer)
employer-sponsored retirement and $150,000 to $160,000 (mar-
plan ried taxpayers)
* Overall limit for contributions to
all IRA's (Traditional and Roth
combined) is $2,000 annually (or
100% of compensation, if less)
- -----------------------------------------------------------------------------------------------------------
Earnings * Earnings and interest are not * Earnings and interest are not
taxed when received by your IRA taxed when received by your IRA
- -----------------------------------------------------------------------------------------------------------
Rollover/Conversions * Individual may rollover amounts * Rollovers from other Roth IRAs
held in employer-sponsored or Traditional IRAs only
retirement arrangements * Amounts rolled over (or con-
(401(k), SEP IRA, etc.) tax free verted) from another Traditional
to Traditional IRA IRA are subject to income tax in
the year rolled over or converted
* Tax on amounts rolled over or
converted in 1998 is spread over
four year period (1998-2001)
- -----------------------------------------------------------------------------------------------------------
Withdrawals * Total (principal + earnings) tax- * Not taxable as long as a qualified
able as income in year distribution - generally, account
withdrawn (except for any prior open for 5 years, and age 59-1/2
non-deductible contributions) * Minimum withdrawals not
* Minimum withdrawals must required after age 70-1/2
begin after age 70-1/2
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The minimum initial investment to establish a tax-sheltered plan is $250.
Subsequent investments are subject to a minimum of $50 for each account.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make tax
deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are, however, a number of special rules which apply
when self-employed individuals participate in such plans. Currently purchase
payments under a self-employed plan are deductible only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the individuals earned annual income (as
defined in the Code) and in applying these limitations not more than $150,000 of
"earned income" may be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available a Prototype
Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the Plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the Plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund and may terminate the Plan with the
Fund at any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan account
is subject to an annual maintenance fee of $12.00 charged by the Agent.
13
<PAGE>
TAX MATTERS
The following is only a summary of certain additional federal income tax
considerations generally affecting the Fund and its shareholders that are not
described in the Prospectus. 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 has elected to be taxed as a regulated investment company under
Subchapter M of the Code. As a regulated investment company, the Fund is not
subject to federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of expenses)
and capital gain net income (i.e., the excess of capital gains over capital
losses) that it distributes to shareholders, provided that it distributes at
least 90% of its investment company taxable income (i.e., net investment income
and the excess of net short-term capital gain over net long-term capital loss)
for the taxable year (the "Distribution Requirement"), and satisfies certain
other requirements of the Code that are described below. Distributions by the
Fund made during the taxable year or, under specified circumstances, within
twelve months after the close of the taxable year, will be considered
distributions of income and gains of the taxable year and will therefore count
toward satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including, but not limited to, gains from options, futures or forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "Income Requirement").
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
However, gain recognized on the disposition of a debt obligation purchased by
the Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation. In addition, under the rules of Code section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent attributable
to changes in foreign currency exchange rates), and gain or loss recognized on
the disposition of a foreign currency forward contract, futures contract, option
or similar financial instrument, or of foreign currency itself, except for
regulated futures contracts or non-equity options subject to Code section 1256
(unless the Fund elects otherwise), will generally be treated as ordinary income
or loss.
Further, the Code also treats as ordinary income a portion of the capital
gain attributable to a transaction where substantially all of the return
realized is attributable to the time value of a Fund's net investment in the
transaction and: (1) the transaction consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future; (2) the transaction is a straddle within the meaning of section
1092 of the Code; (3) the transaction is one that was marketed or sold to the
Fund on the basis that it would have the economic characteristics of a loan but
the interest-like return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position. Any gain recognized by the Fund on
the lapse of, or any gain or loss recognized by the Fund from a closing
transaction with respect to, an option written by the Fund will be treated as a
short-term capital gain or loss.
14
<PAGE>
Certain transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable year, even
though a taxpayer's obligations (or rights) under such contracts have not
terminated (by delivery, exercise, entering into a closing transaction or
otherwise) as of such date. Any gain or loss recognized as a consequence of the
year-end deemed disposition of Section 1256 contracts is taken into account for
that year together with any other gain or loss that was previously recognized
upon the termination of Section 1256 contracts during the year. Any capital gain
or loss for the taxable year with respect to Section 1256 contracts (including
any capital gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is generally treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The Fund, however, may elect not to have
this special tax treatment apply to Section 1256 contracts that are part of a
"mixed straddle" with other investments of the Fund that are not Section 1256
contracts.
The Fund may purchase securities of certain foreign investment funds or
trusts which constitute passive foreign investment companies ("PFICs") for
federal income tax purposes. If the Fund invests in a PFIC, it has three
separate options. First, it may elect to treat the PFIC as a qualifying electing
fund (a "QEF"), in which case it will each year have ordinary income equal to
its pro rata share of the PFIC's ordinary earnings for the year and long-term
capital gain equal to its pro rata share of the PFIC's net capital gain for the
year, regardless of whether the Fund receives distributions of any such ordinary
earnings or capital gains from the PFIC. Second, for tax years beginning after
December 31, 1997, the Fund may make a mark-to-market election with respect to
its PFIC stock. Pursuant to such an election, the Fund will include as ordinary
income any excess of the fair market value of such stock at the close of any
taxable year over its adjusted tax basis in the stock. If the adjusted tax basis
of the PFIC stock exceeds the fair market value of such stock at the end of a
given taxable year, such excess will be deductible as ordinary loss in the
amount equal to the lesser of the amount of such excess or the net
mark-to-market gains on the stock that the Fund included in income in previous
years. The Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the following taxable year. If the
Fund makes the mark-to-market election in the first taxable year it holds PFIC
stock, it will not incur the tax described below under the third option.
Finally, if the Fund does not elect to treat the PFIC as a QEF and does not
make a mark-to-market election, then, in general, (1) any gain recognized by the
Fund upon a sale or other disposition of its interest in the PFIC or any "excess
distribution" (as defined) received by the Fund from the PFIC will be allocated
ratably over the Fund's holding period in the PFIC stock, (2) the portion of
such gain or excess distribution so allocated to the year in which the gain is
recognized or the excess distribution is received shall be included in the
Fund's gross income for such year as ordinary income (and the distribution of
such portion by the Fund to shareholders will be taxable as an ordinary income
dividend, but such portion will not be subject to tax at the Fund level), (3)
the Fund shall be liable for tax on the portions of such gain or excess
distribution so allocated to prior years in an amount equal to, for each such
prior year, (i) the amount of gain or excess distribution allocated to such
prior year multiplied by the highest tax rate (individual or corporate, as the
case may be) in effect for such prior year, plus (ii) interest on the amount
determined under clause (i) for the period from the due date for filing a return
for such prior year until the date for filing a return for the year in which the
gain is recognized or the excess distribution is received, at the rates and
methods applicable to underpayments of tax for such period, and (4) the
distribution by the Fund to shareholders of the portions of such gain or excess
distribution so allocated to prior years (net of the tax payable by the Fund
thereon) will again be taxable to the shareholders as an ordinary income
dividend.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss (including, to
the extent provided in Treasury Regulations, losses recognized pursuant to the
PFIC markto-market election) incurred after October 31 as if it had been
incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (a
call or a put) with respect to a security is treated as issued by the issuer of
the security not the issuer of the option.
15
<PAGE>
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of its
ordinary taxable income for the calendar year and 98% of its capital gain net
income for the one-year period ended on October 31 of such calendar year (or, at
the election of a regulated investment company having a taxable year ending
November 30 or December 31, for its taxable year (a "taxable year election")).
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses and ordinary gains or losses arising as a result of a
PFIC mark-to-market election (or upon an actual disposition of the PFIC stock
subject to such election) incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they generally should not qualify for the 70%
dividendsreceived deduction for corporate shareholders.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time a shareholder has held his shares or whether such gain was
recognized by the Fund prior to the date on which the shareholder acquired his
shares. The Code provides, however, that under certain conditions only 50% (58%
for alternative minimum tax purposes) of the capital gain recognized upon the
Fund's disposition of domestic "small business stock" will be subject to tax.
Conversely, if the Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each such shareholder
received a distribution of his pro rata share of such gain, with the result that
each shareholder will be required to report his pro rata share of such gain on
his tax return as long-term capital gain, will receive a refundable tax credit
for his pro rata share of tax paid by the Fund on the gain, and will increase
the tax basis for his shares by an amount equal to the deemed distribution less
the tax credit.
Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. For purposes of the corporate AMT, the corporate dividends-received
deduction is not itself an item of tax preference that must be added back to
taxable income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders generally will be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining their adjusted current earnings,
which are used in computing an additional corporate preference item (i.e., 75%
of the excess of a corporate taxpayer's adjusted current earnings over its AMTI
(determined without regard to this item and the AMT net operating loss
deduction)) includable in AMTI.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
16
<PAGE>
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known. If more than 50% of the value of the Fund's total assets at the close of
its taxable year consist of the stock or securities of foreign corporations, the
Fund may elect to "pass through" to the Fund's shareholders the amount of
foreign taxes paid by the Fund. If the Fund so elects, each shareholder would be
required to include in gross income, even though not actually received, his pro
rata share of the foreign taxes and would therefore be allowed to either deduct
such amount in computing taxable income or use such amount (subject to various
Code limitations) as a foreign tax credit against federal income tax (but not
both). For purposes of the foreign tax credit limitation rules of the Code, each
shareholder would treat as foreign source income his pro rata share of such
foreign taxes plus the portion of dividends received from the Fund representing
income derived from foreign sources. No deduction for foreign taxes could be
claimed by an individual shareholder who does not itemize deductions. Each
shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain realized from a sale of the shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects realized but
undistributed income or gain or unrealized appreciation in the value of assets
held by the Fund distributions of such amounts to the shareholder will be
taxable in the manner described above, although economically they constitute a
return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such month will be deemed to have been received by the
shareholders (and made by the Fund) on December 31 of such calendar year
provided such dividends are actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions and the proceeds of redemption of shares, paid to
any shareholder who (1) has failed to provide a correct taxpayer identification
number, (2) is subject to backup withholding for failure properly to report the
receipt of interest or dividend income, or (3) has failed to certify to the Fund
that it is not subject to backup withholding or that it is an "exempt recipient"
(such as a corporation).
Sale or Redemption of Shares
A shareholder will recognize gain or loss on a sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares. All
or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. Long-term capital gain recognized by an individual
shareholder will be taxed at the lowest rates applicable to capital gains if the
holder has held such shares for more than 18 months at the time of the sale.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) generally
will apply in determining the holding period of shares. Capital losses in any
year are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the dividend.
Furthermore, such foreign shareholder
17
<PAGE>
may be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) on the gross income resulting from the Fund's election to treat any
foreign taxes paid by it as paid by its shareholders, but may not be allowed a
deduction against this gross income or a credit against this U.S. withholding
tax for the foreign shareholder's pro rata share of such foreign taxes which it
is treated as having paid. A foreign shareholder generally would be exempt from
U.S. federal income tax on gains realized on a sale or redemption of shares of
the Fund, capital gain dividends and amounts retained by the Fund that are
designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income and capital
gain dividends, and any gains realized upon a sale of shares of the Fund will be
subject to U.S. federal income tax at the rates applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate) unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect.
Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies may differ from the rules for U.S.
federal income taxation described above. Shareholders are urged to consult their
tax advisers as to the consequences of these and other state and local tax rules
affecting an investment in the Fund.
PERFORMANCE CALCULATION
For the purpose 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, performance may be stated in terms of total return.
Under the rules of the Securities and Exchange Commission ("SEC rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
P(l+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 periods or at the end of the
1, 5 or 10 year periods (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
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's Registration Statement. In calculating the ending redeemable
value, 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 with
data published by Lipper Analytical Services, Inc., or with the performance of
the Standard and Poor's 500 Stock Index or the Dow Jones Industrial Average, the
Fund calculates its aggregate total return for the specified periods of timely
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
date.
18
<PAGE>
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. The Fund's average annual standard total return for the one year and
since commencement (1/3/94) periods ending December 31, 1998 were 19.02% and
9.00%.
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the Fund's
holdings and other information. In addition, shareholders will receive annual
financial statements audited by KPMG LLP, the Fund's independent auditors.
OTHER INFORMATION
As of February 19, 1999, the following persons are known by Fund management
to have owned beneficially, directly or indirectly, 5% or more of the
outstanding shares of Lexington International Fund, Inc.: Piedmont Associates,
Ltd., P.O. Box 20124, Greensboro, N.C. 27420, 31%; Smith Richardson Foundation,
P.O. Box 3265, Greensboro, N.C. 27402, 14%; Hillsdale Fund, c/o Piedmont
Financial Company, P.O. Box 20124, Greensboro, N.C. 27420, 14%; Raritan Bay
Health Services Corporation, 530 New Brunswick Avenue, Perth Amboy, N.J. 08861,
9% and Lexington Management Corporation Retirement Plan Trust c/o Bank of New
York Trust Company, One Wall Street, New York, NY 10005, 5%.
[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 February 26, 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 29
dated February 8, 1999
Statement of Net Assets (Including 18-21
the Portfolio of Investments) as of
December 31, 1998 (1)
Statement of Assets and Liabilities 22
as of December 31, 1998
Statement of Operations - for the 23
year ended December 31, 1998 (2)
Statements of Changes in Net Assets for the 24
years ended December 31, 1998 and 1997
Notes to Financial Statements 25-28
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. Articles of Incorporation - Incorporated by
reference - Filed electronically 4/19/96
2. By-Laws - Incorporated by reference - Filed
electronically - 3/3/97
3. Not Applicable
4. Rights of Holders - Filed electronically 3/2/98 -
Incorporated by reference
5. Investment Advisory Agreement between Registrant
and Lexington Management Corporation - Incorporated by
reference - Filed electronically 4/29/96
6. Distribution Agreement between Registrant and
Lexington Funds Distributor, Inc. -
Filed electronically 3/3/97 - Incorporated by reference
7. Retirement Plan for Eligible Directors - Filed electronically
3/2/98 - Incorporated by reference
8a. Custodian Agreement between Registrant and Chase
Manhattan Bank, N.A. - Incorporated by reference -
Filed electronically 4/29/96
8b. Transfer Agency Agreement between the Registrant
and State Street Bank and Trust Company - Incorporated
by reference - Filed electronically 4/29/96
9. Form of Administrative Services Agreement between
Registrant and Lexington Management Corporation - Filed
electronically 4/29/96 - Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered - Filed electronically 3/2/98 - 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. Retirement Plans - Incorporated by Reference -
Filed electronically 4/29/96
15. Form of Distribution Plan Under Rule 12b-1 and
Related Agreements - Filed electronically 3/3/97 -
Incorporated by reference
16. Performance Calculation - Filed electronically 3/2/98 -
Incorporated by reference
17. Financial Data Schedule Filed electronically
<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.
See "Management of the Fund" in the Prospectus and Statement of
Additional Information.
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
-------------- ------------------------
Capital Stock 205
($0.001 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 Maryland General Corporation Law and the
Company's By-Laws, the Company may indemnify any person who was or is a
director, officer or employee of the Company to the maximum extent
permitted by the Maryland General Corporation Law; provided, however,
that Company only as authorized in the specific case upon a
determination that indemnification of such persons is proper in the
circumstances. Such determination shall be made (i) by the Board of
Directors, by a majority vote of a quorum which consists of directors
who are neither "interested persons" of Company as defined in Section
2(a)(19) of the 1940 Act, nor parties to the proceeding, or (ii) if the
required quorum is not obtainable or if a quorum of such directors so
directs by independent legal counsel in a written opinion. No
indemnification will be provided by the Company to any director or
officer of the Company for any liability to the Company or Shareholders
to which he would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of duty.
<PAGE>
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 GNMA Income Fund, Inc.
Lexington Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Global Corporate Leaders Fund, Inc.
Lexington Goldfund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Convertible Securities Fund
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 Assistant Secretary
Lisa Curcio* Vice President and 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 and
Vice President & Director Treasurer
Lawrence Kantor* Executive Vice President Director & 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 International Fund, 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., 121 Sixth Avenue, New
York, New York 10036, or Transfer Agent, State Street Bank and Trust Company,
c/o National Financial Data Services, 1004 Baltimore, 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 International Fund, Inc., 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. 33-72226
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON INTERNATIONAL FUND
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Consent of Counsel
Consent of Independent Auditors
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
Registration statement 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 1st day of March, 1999.
LEXINGTON INTERNATIONAL FUND, INC.
/s/ Robert M. DeMichele
________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, the
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 1, 1999
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial March 1, 1999
Richard M. Hisey and Accounting Officer
/s/ Lisa Curcio
__________________________ Principal Compliance March 1, 1999
Lisa Curcio Officer
*SMS Chadha Director March 1, 1999
__________________________
SMS Chadha
*Beverley C. Duer, P.E. Director March 1, 1999
__________________________
Beverley C. Duer, P.E.
<PAGE>
Signature Title Date
*Barbara R. Evans Director March 1, 1999
__________________________
Barbara R. Evans
*Jerard F. Maher Director March 1, 1999
__________________________
Jerard F. Maher
*Andrew M. McCosh Director March 1, 1999
__________________________
Andrew M. McCosh
*Lawrence Kantor Director March 1, 1999
__________________________
Lawrence Kantor
*Donald B.Miller Director March 1, 1999
__________________________
Donald B. Miller
*John G. Preston Director March 1, 1999
__________________________
John G. Preston
/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 B 3852
(212) 715 B 9100
FACSIMILE
(212) 715-8000
______
WRITER'S
DIRECT NUMBER
(212) 715-9100
February 26, 1999
The Lexington Funds
Park 80 West Plaza Two
Saddlebrook, New Jersey 07662
Re: Lexington International Fund, Inc.
Registration No. 33-72226
to Registration Statement on Forum
N-1A
Dear Gentlemen:
We hereby consent to the reference of our firm as
counsel in Post-Effective Amendment No. 8 to the Registration
Statement on Form N-1A.
Very truly yours,
/s/ Kramer Levin Naftalis and Frankel LLP
Independent Auditors' Consent
To the Board of Directors and Shareholders
Lexington International Fund, Inc.:
We consent to the use of our report dated February 8, 1999 included in
this Registration Statement on Form N-1A of the Lexington International
Fund, Inc. dated March 1, 1999 and to the references to our firm under
the headings "Financial Highlights" in the Prospectus and "Shareholder
Reports" in the Statement of Additional Information.
KPMG LLP
New York, New York
March 1, 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> 21,429,937
<INVESTMENTS-AT-VALUE> 23,932,660
<RECEIVABLES> 11,621
<ASSETS-OTHER> 475,532
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 24,419,813
<PAYABLE-FOR-SECURITIES> 64,200
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 355,898
<TOTAL-LIABILITIES> 420,098
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,130,491
<SHARES-COMMON-STOCK> 2,067,783
<SHARES-COMMON-PRIOR> 1,975,043
<ACCUMULATED-NII-CURRENT> 154,188
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 376,139
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,338,897
<NET-ASSETS> 23,999,715
<DIVIDEND-INCOME> 412,745
<INTEREST-INCOME> 101,131
<OTHER-INCOME> (56,705)
<EXPENSES-NET> (381,412)
<NET-INVESTMENT-INCOME> 75,759
<REALIZED-GAINS-CURRENT> 1,374,765
<APPREC-INCREASE-CURRENT> 2,145,676
<NET-CHANGE-FROM-OPS> 3,596,200
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116,960)
<DISTRIBUTIONS-OF-GAINS> (695,462)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,005,127
<NUMBER-OF-SHARES-REDEEMED> (970,855)
<SHARES-REINVESTED> 58,468
<NET-CHANGE-IN-ASSETS> 1,266,820
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (144,602)
<OVERDISTRIB-NII-PRIOR> (81,791)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 217,864
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 491,046
<AVERAGE-NET-ASSETS> 21,786,459
<PER-SHARE-NAV-BEGIN> 10.10
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 1.74
<PER-SHARE-DIVIDEND> (0.06)
<PER-SHARE-DISTRIBUTIONS> (0.34)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.61
<EXPENSE-RATIO> 1.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
