LEXINGTON INTERNATIONAL FUND INC
N-30D, 2000-02-28
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[GRAPHIC]
Annual Report
December 31, 1999
     
     
Lexington Global and Domestic No-Load Mutual Funds
     
[GRAPHIC] LEXINGTON
  INTERNATIONAL
  FUND, INC.  
 
 
  Investment Objective: Long-Term Growth
of Capital		  
     
     
     
Lexington Funds
    
Providing Global SolutionSM
[LOGO] LEXINGTONSM
 

 

 
Dear Shareholders:
 
           We are pleased to report that the Lexington International Fund performed well on both an absolute and relative basis during 1999. The Lexington International Fund returned 47.85%* in 1999 while the average international fund, according to Lipper, Inc., advanced 40.80%. The unmanaged Morgan Stanley Capital International (EAFE) Index appreciated a strong 27.30% for the year. During the fourth quarter Lexington International Fund gained 27.01%* against a group average of 25.73% according to Lipper, Inc. The EAFE Index rose 16.99% due to the strong performance of large companies.
 
            Absolute performance was strong for the Lexington International Fund as well as most other international funds. Several countries and sectors provided spectacular returns. Led by Nokia, Finland gained 153% for the year. Other particularly large returns came from Sweden with an 80% gain, Japan at 62% and Hong Kong at 60%. The most important variable to investment success in 1999 was sector selection. Globally, stock performance was extremely narrow which explains the huge variation in performance among global funds. The strongest gains came from telecoms and electronics with a yearly return of 45% and 116% respectively. Conversely, utilities declined 13% and consumer goods fell 2%. The Lexington International Fund performed very well compared to other international funds. The primary reasons for the Fund’s strong performance was due to gains from technology and telecom holdings. Strong contributors to the portfolio came from stocks such as Nokia, Yahoo Japan, and Aegis, as well as many others. The Fund’s high exposure to strong performing markets such as Japan also played an important role in enhancing returns.
 
            Global economic activity is on the rise after being depressed by the Asian economic crisis. The U.S. economy continued to grow at a rapid rate of around 4%. European economies are also showing signs of life as a weak Euro and a strong U.S. economy has ignited manufacturing exports. European unemployment is on the decline while consumer confidence remains at healthy levels. The European region will probably enjoy growth in the 3% range for this year. The Asian economies are also on the mend although Japan is still struggling. The Japanese economy is saddled by huge government debt and rising unemployment, which continues to depress consumer spending. Rising global growth provides a good backdrop for corporate profits. In Europe, profits will be further enhanced by a weak currency and corporate restructuring. Japanese profitability should also be on the rise as cost cutting is gaining greater acceptance by Japanese managements. Technology is also playing a key role in expanding productivity. The internet is changing the way most, if not all, companies do business. Investment in technology and the internet in particular, is contributing to stronger growth and productivity in most economies. Opportunities for investment in Europe and Japan are particularly exciting for several reasons. First, as previously mentioned, the outlook for profit growth is positive. In Europe, the Euro has been quite weak and investors have an opportunity to buy a cheap currency through European equity investments. Restructuring in both Europe and Japan is leading to industry consolidation as well as a rising return on capital. Finally, an equity investment culture is only now taking hold. The Japanese hold the bulk of the world’s savings, which have been out of Japanese stocks for years. As Japan’s society ages and government debt piles up, individuals will have a greater need to provide for retirement. It is likely that more savings will be earmarked for equity investment in Japan particularly if Japanese managements continue to improve profits. The savings story is similar in Europe where equities have been under represented in individual portfolios. The long term outlook for global equities is very attractive. However, there are always important risk factors to consider.
 
           The greatest risk to global equities is the imbalance of the U.S. economy. U.S. economic growth is unsustainably strong. Inflation has been remarkably subdued due to several factors. A strong dollar has kept import prices down. Equally, the Asian economic crisis produced excess global capacity in many goods as demand slumped. Commodity prices, until recently, have been at depressed levels. Clearly technology has played an important role in advancing productivity, resulting in tame inflation. However, it is unlikely that technology alone explains such a low inflation rate at this point in the economic cycle. Some of the underpinning causes are now reversing. Global demand is accelerating, as are commodity prices. Inflation is a lagging indicator, so it may take more time to see a convincing rise in inflation. U.S. growth is being funded by foreign capital at an unprecedented rate. The trade and current account deficits are being funded by over $300 billion in foreign capital per year. These deficits are likely to persist if equity prices in the U.S. continue to rise. Consumers are feeling very confident as their stock holdings appreciate and they continue to spend. This spending requires more and more foreign capital to support. To keep foreign capital coming real interest may continue to rise to compete against other global investments. The U.S. dollar is also vulnerable, as a sharp fall would be one way the market could correct part of the trade deficit. However, a falling dollar could lead to higher inflation and a foreign exodus of U.S. assets. Interest rates have been rising globally. The U.S. Federal Reserve has increased short-term rates 75 basis points and another 25 basis point hike is expected in February 2000. Long rates have climbed even more sharply as the 30 year U.S. Treasury Bond now yields over 6.5%. Until consumer spending slows, the economy is likely to remain very strong. Unemployment is now at only 4.1%. It is at a dangerous level as it portends wage pressure. Interest rates are likely to rise until the U.S. economy slows. The economy isn’t likely to slow until the stock market suffers a sharp correction.
 
           A falling U.S. stock market will put downward pressure on European and Asian equities as well. European returns will likely be protected to a certain degree by a rising Euro. The growth sectors particularly telecoms and technology are likely to suffer the greatest declines in a correction due to excessive valuation in those sectors.
 
           The Lexington International Fund remains well diversified. Some growth stocks with huge gains have already been pared or sold outright to reduce the portfolios risk level. Recent additions have focused on some forgotten sectors such as utilities and cyclicals. Certainly, a sharp market correction will result in a decline in the Fund’s value. However, by rotating into unloved sectors, declines should be less than average for the category. Technology remains an exciting theme for the long-term and a healthy technology weighting will remain to avoid market timing mistakes. A sharp correction may create a great opportunity to add to technology at much reduced prices.
 
           We appreciate the support of our shareholders and would be happy to respond to any questions or comments you may have. Please feel free to call us at 1-800-526-0056 or visit our website at www.lexingtonfunds.com.
 
Sincerely,
 
/s/ RICHARD T. SALER
Richard T. Saler
Portfolio Manager
February, 2000
/s/ ROBERT DEMICHELE
 
Robert M. DeMichele
President
February, 2000
 
 

            Comparison of change in value of a $10,000 investment in
                     Lexington International Fund, Inc. and
        the unmanaged Morgan Stanley Capital International (EAFE) Index

                                  [LINE GRAPH]

------------------------------------------------------
                 Lexington          Morgan Stanley
               International     Capital International
Date              Fund              (EAFE) Index
------------------------------------------------------
  1/3/94            $10,000           $10,000
12/31/94            $10,587           $10,806
12/31/95            $11,198           $12,054
12/31/96            $12,717           $12,821
12/31/97            $12,922           $13,085
12/31/98            $15,380           $15,745
12/31/99            $22,739           $20,043
------------------------------------------------------

                     Average Annual Standard Total Returns
                         for the Period Ending 12/31/99

-----------------------------------------------------------------
                            Lexington          Morgan Stanley
                          International     Capital International
Annualized Returns           Fund              (EAFE) Index
-----------------------------------------------------------------
1 YR                        47.85%                27.30%
5 YR                        16.52%                13.15%
Since Inception 1/3/94      14.69%                12.30%

This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the unmanaged Morgan Stanley
Capital Investment (EAFE) Index. Results for the Fund and the Morgan Stanley
Capital International (EAFE) Index include the reinvestment of all dividend and
capital gain distributions. Investment return and principal value of an
investment will fluctuate so that an investor's shares when redeemed may be
worth more or less than at their original cost. Total return represents past
performance and it is not predictive of future results.
 
 *
47.85%, 16.52% and 14.69% are the one, five and since commencement (01/03/94) average annual standard total returns, respectively, for the period ended December 31, 1999. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Total return represents past performance and is not predictive of future results. International investing has special risks, including currency fluctuation and political instability. There is no guarantee that the Fund can achieve its objective.
 
All country and regional returns are from the corresponding Morgan Stanley Capital International Indices. Returns are dollar based with all dividends reinvested.
 

                       Lexington International Fund, Inc.
                   Portfolio Summary as of December 31, 1999

                                  [PIE CHART]

Asset Allocation

Common Stocks                                                    90.6%
Cash & Cash Equivalents                                           5.6%
Government Obligations                                            3.0%
Preferred Stocks                                                  0.8%

                                  [BAR GRAPH]

Top Country Holdings

Japan                                                            18.5%
United Kingdom                                                   13.4%
France                                                           11.6%
Germany                                                           7.6%
Switzerland                                                       6.7%
Lexington International Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1999
 
 
    
Number of
Shares		      Security      Value
(Note 1)
       COMMON STOCKS: 90.6%
 
       Australia: 1.8%
19,800      Broken Hill Proprietary
    Company, Ltd.		      $  259,131
63,900      Foster’s Brewing Group, Ltd.       182,719
           
            441,850
           
 
 
       Austria: 2.0%
6,300      Boehler -  Uddeholm AG      289,204
2,900      Cybertron Telekom AG 1      223,814
           
            513,018
           
 
 
       Canada: 1.9%
15,900      Canada Life Financial
    Corporation 1,2 		     244,856
8,900      Imax Corporation 1      243,916
           
            488,772
           
 
 
       Denmark: 2.5%
2,600      Novo Nordisk A/S “B ”      343,196
3,800      Tele Danmark A/S      280,995
           
            624,191
           
 
 
       Finland: 2.3%
3,200      Nokia Oyj      577,325
           
 
       France: 11.6%
2,030      Axa      281,598
1,400      Cap Gemini SA      353,612
1,000      FI System 1      302,695
1,000      France Telecom SA      131,602
2,400      Rexel SA      212,889
7,200      Schlumberger, Ltd. -  NY Shares      405,000
1,300      Sidel SA      133,557
920      Societe Generale 1      213,009
3,344      Total Fina SA      231,572
1,394      Transocean Sedco Forex, Inc. 1      46,958
7,000      Usinor Sacilor SA      130,850
5,440      Vivendi      488,818
           
            2,932,160
           
 
       Germany: 5.9%
3,451      Aventis SA      199,227
1,700      CE Consumer Electronic AG      218,101
5,400      Commerbank AG      197,283
4,511      Deutsche Bank AG      379,118
5,200      Dresdner Bank AG      281,446
940      Mannesmann AG      227,061
           
            1,502,236
           
 
 
    
Number of
Shares		      Security    Value
(Note 1)
 
       Hong Kong: 2.4%
226,000      Mandarin Oriental
    International, Ltd. 		    $  158,200
1,000,000      Moulin International Holding, Ltd.    96,481
410,000      South China Morning Post
    (Holdings), Ltd. 		    353,379
          
          608,060
          
       Ireland: 2.9%
182,500      Jefferson Smurfit Group           548,760
17,050      Ryanair Holdings plc 1    181,146
          
          729,906
          
 
 
       Israel: 0.8%
2,900      Teva Pharmaceutical Industries, Ltd.
    (ADR)		    207,622
          
 
       Italy: 3.2%
31,000      Banca Fideuram Spa    365,399
50,000      Enel Spa 1    208,479
17,000      Mediolanum Spa    221,508
          
          795,386
          
 
 
       Japan: 18.5%
1,430      Aucnet, Inc.    85,642
68,000      Bunka Shutter Company, Ltd.      146,158
3,900      CAC Corporation    158,126
45,000      Daifuku Company, Ltd.      259,391
29,000      Daiwa House Industry
    Company, Ltd. 		    215,329
4,000      Hoya Corporation    314,591
2,000      Internet Initiative Japan, Inc. (ADR) 1    194,250
1,000      Jafco Company, Ltd.      356,602
70      Japan Telecom Company, Ltd.      280,397
28,000      Maeda Corporation    82,341
10,000      NEC Corporation    237,897
130      Nippon Telegraph & Telephone
    Corporation		    222,265
4,800      Nissin Company, Ltd.      196,961
90      NTT Mobile Communications
    Network, Inc. 		    345,562
4,000      Pasona Softbank, Inc.      317,327
9,200      Rinnai Corporation    170,778
2,100      Sony Corporation    621,660
19,000      The Fuji Bank, Ltd.      184,329
31,000      Toto, Ltd.      187,172
25,000      Yamato Kogyo Company, Ltd.      112,598
          
            4,689,376
          
 
 
Lexington International Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1999 (continued)
 
 
    

    Number of
Shares		      Security    Value
(Note 1)
          COMMON STOCKS (continued):
 
       Mexico: 0.5%
1,200      Telefonos de Mexico (ADR)    $     135,000
          
 
 
       Netherlands: 4.3%
8,500      ABN AMRO Holding NV    211,285
3,100      Koninklijke (Royal)
    Philips Electronics NV		    419,463
2,200      Randstad Holding NV    105,402
8,400      Unique International NV    172,596
5,200      Versatel Telecom
    International NV 1 		   182,419
          
           1,091,165
          
 
 
       Norway: 1.1%
2,800      NetCom ASA    139,353
8,300      Petroleum Geo-Services ASA 1    147,676
          
          287,029
          
 
 
       Portugal: 1.5%
13,501      EDP-Electricidade de
    Portugal S.A.		           234,511
12,000      Portugal Telecom S.A.    130,981
          
          365,492
          
 
 
       Spain: 1.4%
6,271      Mapfre Vida Seguros    143,936
3,200      Sogecable S.A. 1    203,347
          
          347,283
          
 
 
       Sweden: 4.2%
2,600      Adera AB 1    193,257
9,600      Europolitan Holdings AB    168,558
2,300      Framtidsfabriken AB 1    414,607
82,762      Swedish Match AB    287,724
          
          1,064,146
          
 
 
       Switzerland: 6.7%
1,150      Charles Voegele Holding AG 1    205,468
168      ESEC Holding AG 1    311,707
186      Nestle AG    338,946
341      Novartis AG    498,058
17      Roche Holding AG    200,721
540      UBS AG    145,059
          
          1,699,959
          
 
 
 
Number of
Shares or
Principal
Amount		    Security    Value
(Note 1)
       
 
     Turkey: 1.7%
14,432,000    Akbank T.A.S.      $       425,888
          
 
 
     United Kingdom: 13.4%     
142,100    Aegis Group plc    515,301
5,200    Barclays plc    149,346
11,500    British Telecommunications plc    280,428
36,000    Cadbury Schweppes plc    216,999
12,600    Capita Group plc 1    229,474
5,100    Colt Telecom Group plc 1    260,481
117,000    Corus Group plc    303,596
4,700    Energis plc 1    225,280
7,500    Glaxo Wellcome plc    211,536
11,700    Lloyds TSB Group plc    146,047
13,200    PizzaExpress plc    154,984
16,700    Provident Financial plc    188,408
37,300    Regent Inns plc    93,782
12,560    Rio Tinto plc    302,632
18,700    Thus plc 1    116,938
         
        3,395,232
         
 
     TOTAL COMMON STOCKS
    (cost $17,952,198)		     22,921,096
           
 
 
        PREFERRED STOCK: 0.8%   
 
        Germany: 0.8%
5,730    Rhoen-Klinikum AG
    (cost $198,042)		    203,309
           
          
 
 
        GOVERNMENT OBLIGATIONS: 3.0%
 
        Germany: 1.7%
492,000*    Bundesbank Deutschland Republic
    Bond,
    3.75% due 01/04/09		    438,789
         
        United States: 1.3%
$1,479,000    U.S. Strip Bond,
    0.00%, due 05/15/23		    314,283
         
        TOTAL GOVERNMENT
    OBLIGATIONS
    (cost $945,202)		    753,072
         
 
 
5
Lexington International Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1999 (continued)
 
    
Principal
Amount		    Security    Value
(Note 1)		                                                                  
       SHORT-TERM INVESTMENT: 7.7%     
       U.S. GOVERNMENT
    OBLIGATION: 7.7%		     
$2,000,000      U.S. Treasury Bills, 5.57%, due
    06/22/00 (cost $1,948,580)		    $  1,948,035           
          
                 
          TOTAL INVESTMENTS: 102.1%
    (cost $21,044,022†) (Note 1)		     25,825,512           
          Liabilities in excess of other assets:
    (2.1)%		    (521,314 )         
          
                 
          TOTAL NET ASSETS: 100.0%
    (equivalent to $13.45 per share
    on 1,881,175 shares
    outstanding)		    $25,304,198           
          
                 
 
*
 Principal amount represents local currency.
 
1
 Non-income producing security.
 
2
 Illiquid and restricted security (Note 7).
 
ADR - American Depository Receipt.
 
†
Aggregate cost for Federal income tax purposes is $21,061,832.
 
At December 31, 1999, the composition of the Fund’s net assets by industry concentration was as follows:
 
Aerospace/Engineering    1.0%  
Banking    8.1
Capital Equipment    2.7
Construction & Housing    1.1
Consumer Durable Goods    5.0
Consumer Non-durable Goods    4.1
Electrical & Electronics    9.8
Energy Sources    4.5
Financial Services    9.1
Health & Personal Care    7.0
Materials    9.2 %
Merchandising    0.3  
Multi-Industry    0.8  
Services    15.7  
Telecommunications    12.3  
Transportation    0.7  
Government Obligations    10.7  
Other liabilities    (2.1 )
    
  
     Total Net Assets    100.0 %
    
  
 
 
The Notes to Financial Statements are an integral part of this statement.
 
 
 
Lexington International Fund, Inc.
Statement of Assets and Liabilities
December 31, 1999
 
Assets
 
Investments, at value (cost $21,044,022)
    (Note 1)		      $25,825,512
 
Cash      660,759
 
Receivable for shares sold      62,953
 
Dividends and interest receivable      39,999
     
                  Total Assets      26,589,223
     
Liabilities
 
Due to Lexington Management Corporation
    (Note 2)		      20,975
 
Payable for shares redeemed      48,035
 
Distributions payable      1,139,620
 
Accrued expenses      76,395
     
                  Total Liabilities      1,285,025
     
 
Net Assets (equivalent to $13.45 per share on
    1,881,175 shares outstanding) (Note 4)		      $25,304,198
     
 
Net Assets consist of:
 
Capital stock — authorized 1,000,000,000
    shares, $.001 par value per share		      $           1,881
 
Additional paid-in capital (Note 1)      18,699,865
 
Undistributed net investment income (Note 1)      220,248
 
Accumulated net realized gain on investments
    and foreign currency transactions (Note 1)		      1,602,590
 
Unrealized appreciation of investments and
    foreign currency translation of other assets and
    liabilities		      4,779,614
     
                  Total Net Assets      $25,304,198
     
 
Lexington International Fund, Inc.
Statement of Operations
Year ended December 31, 1999
 
Investment Income
 
     Dividends    $     351,390     
     Interest    86,308     
    
          
             437,698     
     Less: foreign tax expense    40,343     
    
          
         Total investment income              $     397,355  
 
Expenses
 
     Investment advisory fee (Note 2)    224,416     
     Custodian expenses    39,061     
     Transfer agent and shareholder
        servicing expenses (Note 2)		    32,485     
     Professional fees    30,200     
     Distribution expenses (Note 3)    17,424     
     Printing and mailing expenses    25,911     
     Directors’ fees and expenses    17,379     
     Accounting expenses (Note 2)    19,567     
     Registration fees    11,513     
     Computer processing fees    9,917     
     Other expenses    16,382     
    
          
         Total expenses              444,255  
            
  
         Net investment loss              (46,900 )
 
Realized and Unrealized Gain (Loss)
    on Investments (Note 5)
Net realized gain (loss) on:
         Investments    6,827,590     
         Foreign currency transactions    (107,950 )   
    
          
             Net realized gain              6,719,640  
Net change in unrealized
    appreciation of:
         Investments     2,278,767     
         Foreign currency translation of
             other assets and liabilities		    161,950     
    
          
             Net change in unrealized
                 appreciation		              2,440,717  
            
  
Net realized and unrealized gain              9,160,357  
            
  
Increase in Net Assets Resulting
    from Operations		              $9,113,457  
            
  
 
The Notes to Financial Statements are an integral part of these statements.
7
Lexington International Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1999 and 1998
 
 
       1999
      1998
Operations:          
Net investment income (loss)      $     (46,900 )      $         75,759  
Net realized gain from investments and foreign currency transactions      6,719,640        1,374,765  
Net change in unrealized appreciation of investments and foreign currency
     translation		      2,440,717        2,145,676  
     
     
  
           Net increase in net assets resulting from operations      9,113,457        3,596,200  
     
     
  
 
Distributions to Shareholders: (Note 1)          
Distributions to shareholders from net investment income      (46,770 )      (116,960 )
Distributions to shareholders from net realized gains from security
     transactions		      (5,598,256 )      (695,462 )
     
     
  
           Decrease in net assets from distributions      (5,645,026 )      (812,422 )
     
     
  
 
Capital Share Transactions: (Note 4)          
Proceeds from sale of shares      5,619,698        11,440,387  
Reinvested dividends      4,382,040        669,485  
Cost of shares redeemed       (12,165,686 )       (10,843,052 )
     
     
  
           Net increase (decrease) in net assets from capital share transactions      (2,163,948 )      1,266,820  
     
     
  
 
Net increase in net assets      1,304,483        4,050,598  
 
Net Assets:          
Beginning of period      23,999,715        19,949,117  
     
     
  
End of period (including undistributed net investment income of $220,248
     and $154,188 in 1999 and 1998, respectively) (Note 1)		      $25,304,198        $23,999,715  
     
     
  
 
The Notes to Financial Statements are an integral part of these statements.
8
 
Lexington International Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
 
1. Significant Accounting Policies
 
Lexington International Fund, Inc. (the “Fund”) is an open-end diversified management investment company registered under the Investment Company Act of 1940, as amended. The Fund’s investment objective is to seek long-term growth of capital through investment in common stocks and equivalents of companies domiciled in foreign countries. The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements:
 
            Investments     Securities transactions are accounted for on a trade date basis. Realized gains and losses from investment transactions are reported on the identified cost basis. Securities traded on a recognized stock exchange are valued at the last sales price reported by the exchange on which the securities are traded. If no sales price is recorded, the mean between the last bid and asked prices is used. Securities traded on the over-the-counter market are valued at the mean between the last current bid and asked prices. Short-term securities having a maturity of 60 days or less are stated at amortized cost, which approximates market value. Securities for which market quotations are not readily available and other assets are valued by Fund management in good faith under the direction of the Fund’s Board of Directors. All investments quoted in foreign currencies are valued in U.S. dollars on the basis of the foreign currency exchange rates prevailing at the close of business. Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income, adjusted for amortization of premiums and accretion of discounts, is accrued as earned.
 
            Foreign Currency Transactions    Foreign currencies (and receivables and payables denominated in foreign currencies) are translated into U.S. dollar amounts at current exchange rates. Translation gains or losses resulting from changes in exchange rates and realized gains and losses on the settlement of foreign currency transactions are reported in the statement of operations. In addition, the Fund may enter into forward foreign exchange contracts in order to hedge against foreign currency risk in the purchase or sale of securities denominated in foreign currency. The Fund may also enter into such contracts to hedge against changes in foreign currency exchange rates on portfolio positions. These contracts are marked to market daily, by recognizing the difference between the contract exchange rate and the current market rate as unrealized gains or losses. Realized gains or losses are recognized when contracts are closed and are reported in the statement of operations.
 
The Fund authorizes its custodian to place and maintain equity securities in a segregated account of the Fund having a value equal to the aggregate amount of the Fund’s commitments under forward foreign currency contracts entered into with respect to position hedges.
 
            Federal Income Taxes    It is the Fund ’s policy to comply with the requirements of the Internal Revenue Code applicable to “regulated investment companies” and to distribute all of its taxable income to its shareholders. Therefore, no provision for Federal income taxes is required.
 
            Distributions    Dividends from net investment income and net realized capital gains are normally declared and paid annually, but the Fund may make distributions on a more frequent basis to comply with the distribution requirements of the Internal Revenue Code. The character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. At December 31, 1999, reclassifications were made to the Fund’s capital accounts to reflect permanent book/tax differences and income and gains available for distribution under income tax regulations. Net investment income, net realized gains and net assets were not affected by this change.
 
            Use of Estimates    The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates.
 
2. Investment Advisory Fee and Other Transactions with Affiliate
 
The Fund pays an investment advisory fee to Lexington Management Corporation (“LMC”) at an annual rate of 1.00% of the Fund’s average daily net assets. For 1999, LMC has voluntarily agreed to limit the total expenses of the Fund (excluding interest, taxes, brokerage commissions, 12b-1 fees, and extraordinary expenses but including management fees and operating expenses) to an annual rate of 2.50% of the Fund’s average daily net assets. No reimbursement was required for the year ended December 31, 1999.
Lexington International Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998 (continued)
 
 
2. Investment Advisory Fee and Other Transactions with Affiliate (continued)
 
The Fund reimburses LMC for certain expenses, including accounting and shareholder servicing costs of $40,919 which are incurred by the Fund, but paid by LMC.
 
3. Distribution Plan
 
The Fund has a Distribution Plan (the “Plan”) which allows payments to finance activities associated with the distribution of the Fund ’s shares. The Plan provides that the Fund may pay distribution fees on a reimbursement basis, including payments to Lexington Funds Distributor, Inc. (“LFD”), the Fund’s distributor, in amounts not exceeding 0.25% per annum of the Fund’s average daily net assets. Total distribution expenses for the year ended December 31, 1999, were $17,424 and are set forth in the statement of operations.
 
4. Capital Stock
 
Transactions in capital stock were as follows:
 
       Year ended
       December 31, 1999
      December 31, 1998
       Shares
      Amount
      Shares
      Amount
Shares sold    416,856      $  5,619,698      1,005,127      $11,440,387  
Shares issued on reinvestment of dividends    329,564      4,382,040      58,468      669,485  
     
     
     
     
  
     746,420      10,001,738      1,063,595      12,109,872  
Shares redeemed    (933,028 )     (12,165,686 )    (970,855 )     (10,843,052 )
     
     
     
     
  
Net increase (decrease)    (186,608 )    $  (2,163,948 )    92,740      $  1,266,820  
     
     
     
     
  
 
5. Investment Transactions
 
The cost of purchases and proceeds from sales of securities for the year ended December 31, 1999, excluding short-term securities, were $30,993,921 and $39,153,474 respectively.
 
At December 31, 1999, the aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost amounted to $5,936,761 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value amounted to $1,173,081.
 
6. Investment and Concentration Risks
 
The Fund’s investments in foreign securities may involve risks not present in domestic investments. Since foreign securities may be denominated in a foreign currency and involve settlement and pay interest or dividends in foreign currencies, changes in the relationship of these foreign currencies to the U.S. dollar can significantly affect the value of the investments and earnings of the Fund. Foreign investments may also subject the Fund to foreign government exchange restrictions, expropriation, taxation or other political, social or economic developments, all of which could affect the market and/or credit risk of the investments.
 
In addition to the risks described above, risks may arise from forward foreign currency contracts as a result of the potential inability of counterparties to meet the terms of their contracts.
 
7. Restricted Security
 
The following security was purchased under Rule 144A of the Securities Act of 1933 and unless registered under the Act or exempted from registration, may be sold only to qualified institutional investors. The Fund currently limits investment in restricted securities to 15% of the Fund ’s net assets, at market value at the time of purchase.
 
Security
      Acquisition
Date
      Shares
      Market
Value
      Percent of
Net Assets
Canada Life Financial Corporation      10/28/99      15,900      $244,856      0.97%
                 
  
Lexington International Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998 (continued)
 
 
8. Tax Information (unaudited)
 
The following tax information represents the designation of various tax benefits relating to the year ended December 31, 1999:
 
Net foreign source income received by the Fund from sources within foreign countries and possessions of the United States was $0.2102 per share (representing a total $329,832). The total amount of “qualifying” taxes paid by the Fund to such countries was $0.0257 per share (representing a total of $40,304).
 
The Fund designates $1,444,646, whether taken in shares or cash, as 20% long-term capital gain distributions.
 
The percentage of income distributions paid by the Fund derived from agency and direct obligations of the United States government were as follows:
 
U.S. Treasury      0.54%
Federal Home Loan Bank      0.02
Federal Home Loan Mortgage Corporation      0.07
 
Lexington International Fund, Inc.
Financial Highlights
 
Selected per share data for a share outstanding throughout the period:
 
       Year ended December 31,
       1999
      1998
      1997
      1996
      1995
Net asset value, beginning of period      $11.61        $10.10        $10.86        $10.60        $10.37  
     
       
       
       
       
  
Income from investment operations:                         
      Net investment income (loss)      (0.01 )      0.17        0.07        (0.02 )      (0.01 )
      Net realized and unrealized gain on
          investments and foreign currencies		      5.46        1.74        0.10        1.45        0.61  
     
       
       
       
       
  
Total income from investment operations      5.45        1.91        0.17        1.43        0.60  
     
       
       
       
       
  
 
Less distributions:                         
      Dividends from net investment income      (0.03 )      (0.06 )      (0.13 )      (0.20 )      —    
      Dividends in excess of net investment
          income (temporary book-tax difference)		      —         —         —         —          (0.35 )
      Distributions from net realized gains      (3.58 )      (0.34 )      (0.80 )      (0.97 )      (0.02 )
     
       
       
       
       
  
Total distributions      (3.61 )      (0.40 )      (0.93 )      (1.17 )      (0.37 )
     
       
       
       
       
  
 
Net asset value, end of period      $13.45        $11.61        $10.10        $10.86        $10.60  
     
       
       
       
       
  
 
Total return      47.85%        19.02%        1.61%        13.57%        5.77%  
 
Ratio to average net assets:                         
      Expenses, before reimbursement      1.98%        2.25%        2.15%        2.45%        2.46%  
      Expenses, net of reimbursement      1.98%        1.75%        1.75%        2.45%        2.46%  
      Net investment income (loss), before
           reimbursement		      (0.21)%        (0.16)%        0.13%        (0.39)%        (0.12)%  
      Net investment income (loss)      (0.21)%        0.35%        0.53%        (0.39)%        (0.12)%  
Portfolio turnover rate      143.82%        143.67%        122.56%        113.55%        137.72%  
Net assets, end of period (000’s omitted)      $25,304        $24,000        $19,949        $18,891        $17,855  
 
Independent Auditors’ Report
 
The Board of Directors and Shareholders
Lexington International Fund, Inc.:
 
           We have audited the accompanying statement of net assets (including the portfolio of investments) and assets and liabilities of Lexington International Fund, Inc. as of December 31, 1999, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
 
           We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of December 31, 1999 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
           In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Lexington International Fund, Inc. as of December 31, 1999, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and its financial highlights for each of the years in the five-year period then ended, in conformity with generally accepted accounting principles.
 
KPMG LLP
 
New York, New York
February 7, 2000

Lexington®

 
   
Mutual Funds

Global • International

Lexington Global Corporate Leaders Fund seeks long-term growth of capital primarily through investment in a diversified portfolio of blue chip securities domiciled in foreign countries and the U.S. that represent "corporate leaders" in their respective industries.

Lexington International Fund seeks long- term growth of capital through investment in common stocks of companies domiciled in foreign countries.

Lexington Worldwide Emerging Markets Fund seeks long-term growth of capital primarily through investment in equity securities of companies domiciled in, or doing business in, emerging countries and emerging markets.

Lexington Troika Dialog Russia Fund seeks long-term capital appreciation through investment primarily in the equity securities of Russian companies.

   Lexington Small Cap Asia Growth Fund seeks long-term capital appreciation through investment in companies domiciled in the Asia Region with a market capitalization of less than $1 billion.

Lexington Global Technology Fund seeks long-term growth of capital. The Fund is designed to provide investors with a simple way to invest in technology and information infrastructure companies located throughout the world.

Lexington Global Income Fund seeks high current income. Capital appreciation is a secondary objective. The Fund invests in a combination of foreign and domestic high-yield, lower rated debt securities.

Domestic •

Lexington Corporate Leaders Trust Fund seeks long-term capital growth and income. Portfolio assets are invested primarily in an equal number of shares of an established list of American "blue- chip" corporations.		  

Lexington Growth and Income Fund seeks long-term appreciation of capital through investment in the common stocks of large, ably managed and well financed companies.

Lexington GNMA Income Fund seeks a high level of current monthly income through investment in mortgage-backed GNMACertificates that are guaranteed as to the timely payment of principal and interest by the U.S. Government.

Lexington Money Market Trust seeks current income from short-term investments as is consistent with preservation of capital and liquidity.

Precious Metals •

Lexington Goldfund seeks capital appreciation by providing a careful mix of gold bullion and gold mining shares with assets diversified throughout the world.

Lexington Silver Fund seeks long-term growth of capital by investing in established silver-related companies throughout the world.

Lexington website •
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LEXINGTON INTERNATIONAL FUND, INC.  
     
Investment Adviser
Lexington Management Corporation
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663

Distributor
Lexington Funds Distributor, Inc.
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663

www.lexingtonfunds.com 		All Shareholder requests for services of
any kind should be sent to:

Transfer Agent
State Street Bank and Trust Company
c/o National Financial Data Services
330 West Ninth Street
Kansas City, Missouri 64105

Or call Lexington Shareholder
Services at: 1-800-526-0056

LEXLINE 800-526-0052

24-hour toll-free telephone access
to your Lexington Fund account(s)
where you can obtain the
following:

  • Price/Yield
  • Account Balances
  • Exchanges
  • Last Transactions
  • Total Return
  • Duplicate Statements
This report has been prepared for the information of the shareholders of Lexington International Fund, Inc.and is authorized for distribution to the public only if it is accompanied or preceded by a currently effective prospectus which sets forth expenses and other material information. LEX284-AR12/99
The Lexington Funds
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
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