FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One) |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-26868
Lexington Global Asset Managers, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 22-3395036
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
PARK 80 WEST PLAZA TWO
SADDLE BROOK, NJ 07663
(Address of principal executive offices) (Zip code)
(201) 845-7300
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The number of shares outstanding of the registrant's voting Common Stock
and the aggregate market value of such Common Stock held by non-affiliates on
March 12, 1998 was as follows:
Common Stock-$.01 Par Value Per Share
Authorized 15,000,000 Shares
5,174,887 Shares Outstanding
Aggregate Market Value $22,169,596
Document Incorporated by Reference.
Registrant's Proxy Statement for Annual Meeting of Stockholders to be held May
13, 1998 is incorporated by reference into Part III of this Filing.
PART I
The statements contained in the Annual Report on Form 10-K ("Annual
Report") which are not historical facts, including, but not limited to,
statements found in Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, are forward-looking statements that involve
a number of risks and uncertainties. The actual results of the future events
described in such forward-looking statements in this Annual Report could differ
materially from those stated in such forward-looking statements. Among the
factors that could cause actual results to differ materially are risks and
uncertainties set forth below under the heading Risk Factors and other risks and
uncertainties discussed in this Annual Report and set forth from time to time in
the registrant's other public reports and filings and public statements.
Item 1. Business
HISTORY AND BUSINESS OF LEXINGTON GLOBAL ASSET MANAGERS, INC.
Lexington Global Asset Managers, Inc. (the "Company") was incorporated in
Delaware in September 1995 as a holding company that offers, through its
subsidiaries, a variety of asset management and related services to retail
investors, institutions and high net worth individuals.
Prior to the spin-off of the Company on December 13, 1995 (the
"Spin-off"), the Company was a wholly-owned subsidiary of Piedmont Management
Company Inc. ("Piedmont"), a Delaware corporation. Pursuant to the Spin-off,
Piedmont contributed to the Company all of its subsidiaries engaged in the asset
management business and distributed to each Piedmont stockholder one share of
Common Stock of the Company for each share of Piedmont common stock held by such
stockholder. The Spin-off resulted in 100% of the Common Stock of the Company
being distributed to Piedmont stockholders.
The Company manages portfolios of equity, balanced, fixed income,
mortgage-backed and money market investments, which are designed to meet a broad
range of investment objectives.
At December 31, 1997 total assets under management amounted to $3.5
billion, with $1.9 billion in mutual funds, $1.1 billion in institutional
accounts and $0.5 billion in private client accounts. The Company's client base
consists of approximately 180,000 mutual fund shareholder accounts,
approximately 20 institutional accounts, and approximately 620 private client
accounts. The tables below set forth the Company's total assets under management
in each of its three major markets at the dates indicated and the Company's
total assets under management by type of investment.
Asset Composition By Market (1)
(Dollars in Thousands)
December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
Mutual Funds $1,896,293 $1,797,238 $1,517,260 $1,501,668 $1,309,267
Institutional 1,109,339 1,047,244 1,134,080 1,472,122 1,549,777
Private Clients 467,072 360,226 428,434 421,204 460,756
-----------------------------------------------------------------
Total $3,472,704 $3,204,708 $3,079,774 $3,394,994 $3,319,800
=================================================================
Revenue Composition by Market
(Dollars in Thousands)
December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
Mutual Funds $11,223 $10,724 $9,789 $10,092 $5,890
Institutional 3,634 3,520 4,254 4,518 4,500
Private Clients 3,410 2,953 4,774 5,123 4,916
-----------------------------------------------------------------
Total $18,267 $17,197 $18,817 $19,733 $15,306
=================================================================
Asset Composition By Type of Investment
(Dollars in Thousands)
December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
Domestic Equity $1,704,426 $1,329,087 $1,172,710 $1,096,988 $1,274,390
Foreign Equity 850,274 807,962 699,842 696,882 578,008
-----------------------------------------------------------------
Subtotal (2) 2,554,700 2,137,049 1,872,552 1,793,870 1,852,398
Precious Metals (3) 118,416 201,295 273,411 347,023 277,573
Fixed Income 634,029 668,841 712,830 976,104 977,396
Money Market Funds 165,559 196,212 220,981 277,997 212,433
-----------------------------------------------------------------
Total $3,472,704 $3,203,397 $3,079,774 $3,394,994 $3,319,800
=================================================================
- ----------------------
(1) Included in the institutional assets under management are invested assets
of members of the Richardson Family (defined below, see "Risk
Factors---Substantial Stockholders"), principal stockholders of the
Company, and certain other related persons, which assets at December 31,
1997 were valued at approximately $842 million. The fees charged for the
management of such assets are based upon standard fee schedules and are
comparable with the fees charged to unaffiliated accounts.
(2) Excludes precious metal equities.
(3) Precious Metals includes precious metals and precious metal equities.
The following illustrates the structure of the Company as of December 31, 1997.
Lexington Global Asset Managers, Inc.
Lexington Management Corporation (100%)
Lexington Funds Distributor, Inc. (100%)
Market Systems Research Advisors, Inc. (65%)
Market Systems Research, Inc. (100% owned
by Market Systems Research Advisors, Inc.)
Piedmont Asset Advisors, Inc. (51%)
The subsidiaries of the Company can be divided into its core business
(Lexington Management Corporation ("LMC") and Lexington Funds Distributor, Inc.
("LFD"), the "Core Business"), which business generates most of the Company's
revenues and profits, and its other subsidiaries, which generate the remainder
of the Company's revenues and profits. On September 30, 1996, the Company sold
four subsidiaries, LCM Financial Services Inc. ("LFSI"), Lexington Capital
Management Associates, Inc. ("LCMA"), Lexington Plan Administrators ("LPA"), and
LCMI Insurance Services ("LCMII") to Berkeley (USA) Holdings Limited, a company
formed by the CEO of these subsidiaries and the U.S. unit of London Pacific
Group Limited. The Company recorded a one-time gain of $0.5 million on the sale.
On December 31, 1996, another subsidiary, Lexington Capital Management Inc.
("LCM") was merged into LMC.
The revenues of the Company consist primarily of management fees based on
the value of assets under management and commissions associated with the direct
sales of mutual fund products.
The tables below set forth the Company's assets under management in and
revenues from each of these two segments:
Assets Under Management
(Dollars in Thousands)
December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
LMC and LFD (1) $3,327,774 $2,720,094 $2,556,750 $2,874,412 $2,751,602
Other Subsidiaries (2) 144,930 483,303 523,024 520,582 568,198
------------------------------------------------------------------------
Total $3,472,704 $3,203,397 $3,079,774 $3,394,994 $3,319,800
========================================================================
Revenues
(Dollars in Thousands)
December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
LMC and LFD (1) $17,976 $14,384 $14,178 $14,796 $10,549
Other Subsidiaries 1,001 6,427 7,108 7,883 7,521
------------------------------------------------------------------------
Total $18,977 $20,811 $21,286 $22,679 $18,070
========================================================================
(1) Lexington Management Corporation and Lexington Funds Distributor, Inc.
(2) These subsidiaries include Lexington Capital Management, Inc., LCM
Financial Services, Inc., Lexington Capital Management Associates, Inc.,
Lexington Plan Administrators, Inc., Market Systems Research Advisors,
Inc., Market Systems Research, Inc. and Piedmont Asset Advisors L.L.C..
LCM was merged into LMC on December 31, 1996. LFSI, LCMA, and LPA were
divested on September 30, 1996.
Primary Markets and Strategy for Growth
Markets
The Company's business strategy is targeted at three large market segments:
Mutual Funds--The Company, through its subsidiaries, markets,
promotes, and distributes the Lexington family of 17 mutual funds (the
"Lexington Funds") providing a variety of investment choices for the retail
investor,
financial planner and intermediary, and the defined benefit and defined
contribution marketplace, including the rapidly growing 401(k) market. In
addition, the Company, through its subsidiaries, acts as a subadvisor and
/or administrator to four mutual funds.
Institutional Market--The institutional market for investment
management services includes corporate, government and multi-employee (Taft
Hartley) pension plans, charitable endowments and foundations, insurance
company general accounts and defined contribution and 401(k) plans.
Lexington has secured both domestic and international assignments,
utilizing investments in domestic and foreign equity securities, precious
metal equities, fixed income and its family of mutual funds.
Private Clients--The Company offers equity, fixed income and balanced
fund alternatives, tailored to the individual investment objectives of its
private clients.
In each of these areas, management's overall objective is to execute
specific business strategies (see following discussions) to profitably maximize
assets under management and provide clients with investment performance that
meets their objectives.
The Company derives its revenues primarily from fees for its investment
advisory services provided to retail investors, institutions and private
clients.
Mutual Funds
Background. The mutual fund industry has expanded rapidly in the last
several years. According to the Investment Company Institute, the trade
association for investment companies, total assets of U.S. mutual funds have
increased from $3.5 trillion at December 31, 1996 to $4.5 trillion at December
31, 1997, a growth rate of approximately 27% for the year.
In the mutual fund industry, mutual funds may be sold to investors with a
sales charge or a commission (a "load" fund) or without a sales charge or a
commission (a "no-load" fund). Of the seventeen Lexington Funds, fifteen are
no-load funds and two are load funds. In addition, all four of the funds to
which the Company acts as a subadvisor and/or administrator are load funds.
Mutual funds may also be either closed-end or open-end. Generally, closed-end
funds raise money from stockholders only once, unlike an open-end fund which
issues and redeems shares of the fund on a continuous basis. In addition, unlike
open-end mutual funds, closed-end funds do not stand ready to redeem their
shares at net asset value. Instead, stockholders wishing to sell their shares
must do so by trading them on a national securities exchange or in the
over-the-counter market, at a price determined by the market, which may be
higher or lower than the fund's net asset value. All of the Company's mutual
funds are open-end funds.
The mutual fund industry is highly competitive and is currently
characterized by a high degree of fragmentation and a large and rapidly
increasing number of product offerings. The Company believes that the mutual
fund industry is becoming similar to the consumer products business, where
marketing strategies, product development, business development, sales expertise
and servicing are increasingly important.
Investment Products and Services. The Company has developed the Lexington
family of 17 mutual funds which are managed, marketed and distributed under the
Lexington name through Lexington Management Corporation and Lexington Funds
Distributor, Inc. The Lexington Funds are designed to provide a variety of
investment options for retail investors, financial planners and intermediaries,
and for the defined benefit and defined contribution marketplace, including the
401(k) market. These funds have been selected for inclusion in various no fee
transaction broker programs, such as the Charles Schwab Mutual Fund OneSource(R)
program.
Each of the Company's global/international equity funds may invest their
assets in any country approved by the fund's Board of Directors provided such
assets are custodied with an eligible custodian under Rule 17f-5 of the
Investment Company Act of 1940, as amended. Currently, Chase Manhattan Bank is
acting as master custodian of assets for each of the Lexington Funds.
Except for the Lexington Strategic Investments Fund, Inc., which has a
significant portion of its assets under management invested in South Africa, the
Lexington Goldfund, Inc., which has a significant portion of its assets under
management invested in Australia, Canada and South Africa, the Lexington Crosby
Small Cap Asia Growth Fund, which has a significant portion of its assets under
management invested in Asia, and the Lexington Troika Dialog Russia Fund, which
has a significant portion of its assets under management invested in Russia, the
Company believes that, in general, the assets under management in its
global/international and precious metal equities funds are invested in a
geographically diversified manner.
The Company, through its subsidiaries, offers subadvisory and/or
administration services to other mutual funds. Such services, which are
currently used by four unaffiliated mutual funds with total assets under
management of $340.4 million at December 31, 1997, include investment management
and mutual fund administration services. Mutual fund administration services
provided by the Company are principally in the areas of accounting, pricing,
compliance and marketing support.
Strategy. The Company's current strategies in the mutual fund market are
to: (i) identify emerging trends in order to develop new investment products;
(ii) strengthen the "brand name" awareness of the Lexington Funds both at the
broker-dealer level and the retail investor level; (iii) broaden its efforts to
offer subadvisory and administration services to other mutual funds; (iv) expand
into other distribution channels; and, (v) evaluate and pursue acquisition
opportunities.
The Company believes that with focused market research efforts it can
identify demographic and industry trends relevant to the growth of the mutual
fund business and thereby develop products to meet emerging needs and
opportunities. For example, the Company launched the Lexington Global Fund, Inc.
in March 1987 after the Company's research indicated that international
investing was an emerging investment trend which offered the potential for
reduced risk and higher expected returns through global diversification.
Furthermore, the Company believes that its smaller relative size in the mutual
fund industry provides it with a competitive advantage by enabling the Company
to capitalize upon trends more quickly than its competitors. As another example,
in 1996, the Company launched the Lexington Troika Dialog Russia Fund, the first
open-end fund in the United States devoted to Russian equities. In 1997, this
fund grew almost ten fold in assets to become one of the Company's largest
mutual funds under management.
To achieve greater "brand name" awareness, the Company has used media
relations consultants to assist in building relationships with the media. The
Company's portfolio managers, analysts and management have appeared in national
print publications as well as on television and radio. This program, combined
with the Company's internal promotion staff that communicates directly with
financial planners, is designed to enhance the "brand name" awareness of
Lexington and its investment products.
The Company continuously markets to insurance companies, financial planners,
consultants, bank trust departments and other financial intermediaries to sell
its subadvisory and fund administration services and secure new distribution
channels for its investment products.
The Company utilizes a formalized screening and valuation process to
identify potential acquisition candidates or strategic partners in order to
expand its business. In addition to the Company's management contacts in the
mutual fund and investment management industry, an outside consultant has been
used in the past to complement management's efforts in this area.
Management believes that the integration of financial products with targeted
services will also allow it to better pursue opportunities in various markets.
For example, the Company has developed funds for the specific purpose of funding
variable annuity and variable life insurance policies issued by insurance
companies. Currently, two such funds are being sold by six insurance companies
and the Company provides subadvisory services for two additional insurance
company funds.
Institutional Market
Background. The market for institutional clients includes corporate,
government and multi-employee (Taft Hartley) pension plans, charitable
endowments and foundations, insurance company general accounts, and defined
contribution and 401(k) plans. According to the 1997 Money Market Directory of
Pension Funds (including 401(k) plans), the institutional market represented
over $4.7 trillion in total assets under management, including defined benefit
plan assets, endowments and foundations.
The institutional market is extremely competitive with long lead times
between initial contact and acquisition of an account. Institutional investors
increasingly rely upon a competitive review process when selecting investment
advisory firms. The process often includes the assistance of independent
investment consultants, who analyze, rank and recommend advisors as well as
conduct searches for advisors on behalf of clients. Consultants typically
classify firms according to their investment style and place heavy emphasis upon
a demonstrated record of investment performance within a particular style. These
consultants often control access to prospective clients.
Investment Products and Services. The products the Company offers to the
institutional market include investments in domestic and foreign equity
securities, precious metal equities, fixed income securities and a family of
mutual funds to be utilized in a client's pension, defined contribution or
401(k) plan.
The Company, through its subsidiaries, acts as subadvisor under several
variable annuity contracts and variable life insurance policies, including
contracts and policies with Security Benefit Life Insurance Company and London
Pacific Life & Annuity Company. The Company also makes certain of its mutual
funds available to selected insurance companies as funding vehicles for variable
annuity contracts and variable life insurance policies, including Aetna
Insurance Company of America, SafeCo Life Insurance Company, Kemper Investors
Life Insurance Company, Transamerica Occidental Life Insurance Company,
Great-West Life & Annuity Insurance Company, and Fortis Benefits Insurance
Company.
Strategy. The Company's strategy in the institutional market is to target
specialized segments such as: (i) Taft Hartley and charitable foundations and
endowments, (ii) public retirement accounts, (iii) insurance company general
accounts and, (iv) broker wrap accounts. In addition, the Company has formed
joint management arrangements with other investment advisory companies which
offer specialized products or services.
By targeting specialized segments, management believes that it can market
directly to these segments and leverage upon the integrated financial products
and services that it offers. The Company believes the strategy will allow better
penetration of the institutional market.
The Company believes that the 401(k) market is of key interest. According
to Pensions and Investments, assets in the 401(k) market, where investment
decisions are made by the individual, will surpass the assets in the private
pension system. The 401(k) market, according to Bernstein Research, is expected
to grow at an average annual rate of 15% over the next several years. The
Company is targeting the 401(k) market as a key growth market by participating
in administrative alliances and various discount broker programs which target
the defined contribution and 401(k) market.
The Company has formed joint management arrangements with investment
advisory firms to expand investment product offerings. The Company develops
investment products in consultation with these firms which usually have a
specialization in evaluating and investing in specific market segments such as
convertible securities, specific geographic regions and global fixed income.
These products are subsequently distributed utilizing Lexington's distribution
channels and are jointly managed by the Company and the investment advisory
firm. These joint management arrangements are subject to the approval of the
shareholders of the fund utilizing these services and the annual approval of the
Board of Directors of the fund. Firms with which the Company has developed joint
management arrangements include Ariston Capital Management Corporation
(convertible securities), Crosby Asset Management (US), Inc. (Asia), MFR
Advisors, Inc. (Maria Fiorini Ramirez) (global fixed income), Capital
Technology, Inc. (small cap), and, Troika Dialog Asset Management, ZAO (Russia).
Each of these firms is a registered investment advisor.
The Lexington Crosby Small Cap Asia Growth Fund has a joint management
arrangement with Crosby Asset Management (US), Inc., a wholly-owned subsidiary
of the Crosby group. The Crosby group is an independent merchant bank in Asia
founded in 1984 which provides a variety of financial services including
investment management, stock brokerage, research, and corporate finance. The
Crosby group, headquartered in Hong Kong, employs over 500 people in Asia and
has 18 offices in 11 countries throughout the region, as well as in New York and
London.
The Lexington Ramirez Global Income Fund has a joint management arrangement
with MFR Advisors, Inc., a subsidiary of Maria Fiorini Ramirez Inc. MFR
Advisors, Inc. was established in 1992 by the economist Maria Fiorini Ramirez to
provide global economic consulting, investment advisory and broker-dealer
services.
The Lexington Convertible Securities Fund has a joint management arrangement
with Ariston Capital Management Corporation, a corporation established in 1977.
Ariston Capital Management Corporation's president, Richard B. Russell, has over
20 years of experience in conducting research in the use of convertible
securities and market forecasting in portfolio management.
The Lexington SmallCap Value Fund, Inc. has a joint management arrangement
with Capital Technology, Inc., which has been managing small cap stock
portfolios since 1977. Management utilizes computer-based technology in
combination with analytical research to identify companies for the portfolio.
The Lexington Troika Dialog Russia Fund, Inc. has a joint management
arrangement with Troika Dialog Asset Management, ZAO, a Russian Closed Joint
Stock Company, established in 1991. Troika Dialog Asset Management, a pioneer in
the development of Russia's securities markets, is a subsidiary of the largest
brokerage firm in Russia.
Private Clients
Background. With the changing demographics of the United States, the aging
of the "baby boomer" generation and the accumulation of assets in retirement
accounts, the private client sector is a growing segment of the investment
advisory industry. The Company believes that the principal needs for private
clients are investment advice and asset management services because these
clients, as they near retirement, have a large amount of accumulated assets and
require sophisticated estate planning advice. According to a September 1996
Bernstein Research report, there are approximately 2.0 million households in the
United States that have discretionary assets exceeding $1 million. This
represents approximately 2.0% of all U.S. households and total assets for this
market segment exceed $4.4 trillion.
Investment Products and Services. The Company offers equity, fixed income
and balanced fund investment options to its high net worth clients through
portfolios which are tailored to the client's individual investment objectives.
The average account size of the Company's private clients is $753,000. With
approximately 620 private clients, the Company's clients are generally heads of
households in their mid-40s to 60s with a high proportion of their wealth in
liquid assets.
Strategy. The Company's strategies in the private client sector are to: (i)
integrate the products and services offered to these clients by the Company's
various subsidiaries, (ii) design an integrated set of financial products and
services to meet the financial service needs of these individuals and (iii)
excel in customer service through utilization of the most current and
sophisticated investment planning, management and reporting techniques.
The Company offers products and services to its private clients through
LMC's private client group. Currently, marketing of investment products and
services to high net worth prospects is primarily conducted by LMC through
direct sales and referral sales by retail stockbrokers, CPAs and lawyer
networks.
LMC and LFD
LMC and LFD, both located in Saddle Brook, New Jersey, form the core
business of the Company generating approximately 95% of revenues in 1997. LMC
and its predecessors have been active in the investment management business
since 1938. LMC provides products and services for institutional clients
including corporate, government and Taft Hartley pension plans, charitable
endowments and foundations, insurance company general and separate accounts and
defined contribution and 401(k) plans. The Company's private client business is
also conducted primarily through LMC. LMC targets accounts in this market with
up to $5 million to invest, which accounts typically include wealthy individuals
and smaller institutional accounts, including foundations, not-for-profit
corporations, pension plans and employee benefit plans.
LMC and LFD are responsible for managing, servicing, marketing and
distributing the Lexington Funds to financial intermediaries and the retail
market. The Lexington Funds are designed to provide a variety of investment
options for retail investors, financial planners and intermediaries, and for the
defined benefit and defined contribution marketplace, including the 401(k)
market. The Lexington Funds include equity, balanced, fixed income,
mortgage-backed and money market funds. The geographical orientation of the
Lexington Funds range from domestic to international to global.
Certain funds specialize in specific industries or sectors, such as
precious metals and natural resources, but most are broadly diversified.
Currently, the Lexington Funds have approximately 180,000 shareholders. Of the
seventeen Lexington Funds, two are load funds and fifteen are no-load funds.
Investment advisory services, as well as management research and statistical
services, are provided to each fund by LMC and LFD. As compensation for such
services, the mutual funds pay a fee which is based upon average net assets
under management. These fees are limited by certain statutory limitations on
fund expenses.
LMC also acts as a sub-advisor and/or administrator to four open-end mutual
funds, all of which are load funds.
The following table sets forth the assets for each of the five years ended
December 31, 1997 of each of the Lexington Funds and for each fund to which LMC
and LFD provides subadvisory and/or administration services.
Fund Assets (1)
(Dollars in Thousands)
December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
Domestic Equity*
Lexington Growth & Income Fund $228,058 $200,231 $138,840 $124,292 $134,494
Lexington Corporate Leaders Trust Fund 476,405 384,990 247,560 152,990 142,798
London Pacific Corporate Leaders 3,506 1,311 - - -
Lexington Natural Resources Trust 65,320 37,896 16,962 13,620 5,272
Lexington SmallCap Value Fund, Inc. 9,578 8,056 - - -
----------------------------------------------------------
Total Domestic Equity $782,867 $632,484 $403,362 $290,902 $282,564
----------------------------------------------------------
Fixed Income*
Lexington Money Market Trust $94,349 $97,680 $88,961 $110,811 $94,790
Lexington Short-Intermediate Government
Securities Fund, Inc. (2) - - - 5,799 7,718
Lexington GNMA Income Fund, Inc. 157,608 133,660 130,735 132,362 149,951
Lexington Ramirez Global Income Fund (3) 23,569 28,992 10,754 10,578 14,573
Lexington Tax Free Money Fund, Inc. (4) - 26,528 28,203 37,531 41,187
Lexington Convertible Securities Fund 10,350 11,208 11,634 8,021 8,317
SBL Fund Series K (5) (6) (7) 14,445 11,755 5,684 - -
Security Income Fund-Global Aggressive
Bond Series (5) (6) (7) 6,269 4,915 4,409 - -
----------------------------------------------------------
Total Fixed Income $306,590 $314,738 $280,380 $305,102 $316,536
----------------------------------------------------------
Global International Equity *
Lexington Worldwide Emerging Markets Fund, Inc. (8) $137,988 $256,532 $260,423 $288,511 $227,464
Lexington Global Fund, Inc. 35,088 37,216 53,635 67,353 87,044
Lexington Emerging Markets Fund, Inc. 24,061 21,581 7,840 4,598 -
Lexington International Fund, Inc. 19,950 18,891 17,855 17,811 -
Lexington Crosby Small Cap Asia Growth Fund 13,986 25,246 8,900 - -
SBL Fund Series D (5) (6) (7) 285,864 246,908 177,935 147,028 97,863
Parkstone Advantage International Discovery Fund (7) - - 11,649 9,501 6,325
Security Equity Fund-Global Series (5) (6) (7) 33,834 28,543 21,870 23,839 13,898
Lexington Troika Dialog Russia Fund (9) 137,649 13,804 - - -
----------------------------------------------------------
Total Global/International Equity $688,420 $648,721 $560,107 $558,641 $432,594
----------------------------------------------------------
Precious Metal Equity*
Lexington Goldfund, Inc. $53,945 $109,215 $136,361 $158,846 $159,483
Lexington Strategic Investments Fund, Inc. (7) 20,760 43,702 76,280 138,164 84,465
Lexington Strategic Silver Fund, Inc. (7) 43,711 48,378 60,770 50,013 33,625
----------------------------------------------------------
Total Precious Metal Equity $118,416 $201,295 $273,411 $347,023 $277,573
----------------------------------------------------------
Total Funds $1,896,293 $1,797,238 $1,517,260 $1,501,668 $1,309,267
==========================================================
- --------------------------------------------------------
(1) Each of the funds listed is an open-end fund. Unless otherwise indicated,
each of the funds is a no-load fund.
(2) Fund liquidated in December 1995.
(3) Fund changed objective from tax-exempt bond fund to global income fund on
January 3, 1995.
(4) Fund liquidated in August 1997.
(5) Fund sponsored by Security Benefit Life Insurance Company.
(6) Fund to which the Company, through its subsidiaries, provides subadvisory
and administration services.
(7) Load fund.
(8) Fund changed objective from
growth fund to emerging markets growth fund in June 1991.
(9) Fund commenced operations in June 1996.
* Of each of the Company's four market segments, Domestic Equity, Fixed
Income, Global/International Equity and Precious Metal Equity, invested
assets held by the Richardson Family constituted 33.2%, 22.8%, 10.8% and
0%, respectively, of the total assets under management with respect to
each segment.
Other Subsidiaries
At December 31, 1997, the Company had 2 subsidiaries in addition to LMC and LFD:
Market Systems Research Advisors, Inc. ("MSR") and Piedmont Asset Advisors
L.L.C. ("PAA").
MSR, MSRI--New York, New York.
MSR provides professional portfolio management services to investors
through the use of proprietary quantitative price momentum stock selectivity
models. MSR offers investment advisory services to accounts within the Lexington
organization and to other clients. MSR publishes a monthly research report
through a subsidiary company, Market Systems Research, Inc. ("MSRI"), which is
marketed to other investment advisory companies. MSR is owned 65% by the Company
and 35% by Frank A. Peluso, a principal employee who also serves as President
and a Director of the Company.
PAA--New York, New York.
The Company owns 51% of PAA, an entity formed in 1994 which served as a
general partner of a limited investment partnership engaged in the asset
management business. (PAA's activities in the limited partnership were
terminated in the third quarter of 1996.) The remainder of PAA is owned by
R.V.Consultants, Inc. a company which is owned by Messrs. Stuart S. Richardson,
Robert M. DeMichele and Richard M. Hisey, all of whom are principal employees of
the Company.
Marketing and Distribution
Traditionally, load mutual funds were principally sold by registered
representatives of broker-dealers, who received sales commissions as
compensation for fund sales. No-load mutual funds were sold directly to the
investing public without the assistance of a registered representative and
therefore no sales commission was imposed on the purchase.
The Company's products and services are marketed and distributed through a
variety of captive and non-captive distribution channels which are listed below.
The approximate percentage of assets under management distributed through each
of the Company's distribution channels listed below is provided in the
parenthetical immediately prior to the description of such distribution channel.
(43%) The Lexington Family of No Load Mutual Funds are sold through
direct sales and marketing efforts utilizing print, radio and television
advertising.
(33%) The Company also has shareholder servicing arrangements with
discount brokers, including Charles Schwab Mutual Fund OneSource(R) , Fidelity
Funds Network(R), Jack White & Company No Transaction Fee Mutual Fund Service,
Waterhouse Mutual Fund Connection and First Trust Corporation. The Company also
has a number of its funds included in strategic alliances and "wrap" programs,
which will offer greater distribution opportunities in the future. At December
31, 1997, approximately $642 million, or 33%, of LMC's total mutual fund assets
have been generated through these named shareholder servicing arrangements.
Under these shareholder servicing arrangements, the discount broker, which
sells, markets and distributes many mutual funds other than the Lexington Funds
is paid a fee for recordkeeping, shareholder communications and other services
provided by the discount broker to investors purchasing shares of the Lexington
Funds through the discount broker's programs. This fee is typically based on the
average daily value of the investments in each Lexington Fund made by the
discount broker on behalf of investors participating in the discount broker's
program. While the Company has no reason to believe that such shareholder
servicing arrangements will be terminated, no assurances can be given that these
arrangements will continue or that they will continue to generate a substantial
portion of the Company's total mutual fund assets. The loss of any one or more
of these shareholder servicing arrangements may materially adversely affect the
Company's results of operations. The Company's ability to gain and maintain
access to these distribution channels is largely dependent on the investment
performance of the Company's products, the development of new investment
products, marketing and pricing strategies that serve the needs of investors and
discount brokers and the level of service provided by the Company. Although the
Company historically has been successful in these aspects of its business, there
can be no assurance that the Company can continue to maintain such access for
its products.
(4%) The Lexington Strategic Funds, which are precious metal stock
funds, as well as funds sponsored by Security Benefit Life Insurance Company are
sold with a sales charge through broker-dealers and directly by LFD.
(20%) The Lexington Funds are also sold through banks and insurance
companies.
Although the Company does not control all of its distribution channels, the
Company believes that the use of multiple distribution channels, including
competing non-captive distribution channels, stabilizes and increases the
distribution of its products.
Regulation
LMC and MSR are registered as investment advisors under the Investment
Advisers Act of 1940, as amended (the "Advisory Act"), and all applicable state
securities laws. LFD is registered as a broker/dealer under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and all applicable state
securities laws. Accordingly, this company is subject to regulation by the
Securities and Exchange Commission (the "SEC") and state securities commissions
and is required to furnish periodic reports and to observe restrictions on
certain activities. Each Lexington Fund is registered with the SEC under the
Investment Company Act of 1940, as amended (the "1940 Act"), and is qualified
for sale throughout the United States. The 1940 Act imposes restrictions on
certain transactions between the Lexington Funds and LMC.
All aspects of the Company's business are subject to the laws and
regulations of the countries and states in which Lexington, its subsidiaries and
affiliates conduct business. These laws and regulations are primarily intended
to benefit clients and shareholders and, in some instances may impose minimum
capital requirements. These laws and regulations generally grant supervisory
agencies broad administrative powers, including the power to limit or restrict
Lexington's business and impose sanctions, to suspend individual employees, to
limit the Company from engaging in business for specific periods, to revoke
LMC's registration as an investment advisor and LFD's registration as a
broker-dealer and to censure and levy fines. Applicable United States Federal
laws also include the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the Securities Act of 1933, as amended (the "Securities
Act").
Competition
The asset management business is highly competitive. The Company competes
with a large number of other domestic and foreign asset management firms,
commercial banks, insurance companies, broker-dealers and others, although as a
practical matter the Company typically competes with other firms offering
comparable investment services and objectives. In December 1997, there were
approximately 10,400 asset management firms nationwide that compete in some or
all of the Company's markets. According to The Money Market, Directory of
Pension Funds and their Investment Managers, the Company ranked among the top
380 largest of investment counsel firms, as measured by total assets under
management at December 1997. As a result, some of the financial services
companies with which the Company competes have substantially greater resources
and assets under management than the Company and offer a wider variety of
products and services.
The Company believes factors which affect its competition for clients
include investment performance records, the range of products offered, the
abilities and reputations of its portfolio managers, management fees and the
development of new investment strategies and marketing, although the importance
of these factors can vary depending on the type of asset management service
involved. Client service is also an important competitive factor. The Company's
ability to increase or retain client assets could be adversely affected if
client accounts underperform the market or if portfolio managers leave the
Company. The ability of the Company to compete with other asset management firms
is also dependent, in part, on the relative attractiveness of its investment
philosophies and strategies under prevailing market conditions. There are
relatively few barriers to entry by new asset management firms which could
increase competitive pressure in the industry.
Selection of advisors by investors often is subject to a competitive review
process relying heavily upon historical performance.
A large number of mutual funds are sold to the public by asset management
firms, broker-dealers, insurance companies and banks in competition with the
Company's mutual funds. Many competitors apply substantial resources to
advertising and marketing their mutual funds which may adversely affect the
ability of the Company's mutual funds to attract new clients and to retain
assets under management.
Personnel
At December 31, 1997, the Company employed approximately 97 people.
Approximately 90, 3, 1, and 3 were located in Saddle Brook, New Jersey; Gold
River, California; Dallas, Texas; and New York, New York, respectively. None of
the Company's employees are represented by a labor union and the Company
believes that its relations with its employees are good.
RISK FACTORS
Dependence upon Performance Record
The market for providing investment management services is highly competitive
with investors generally favoring investment advisors with a sustained
successful investment performance record. The performance record of the Company
may be affected by factors over which the Company has little or no control,
including general economic conditions, other factors influencing the capital
markets, the net sales of mutual fund shares generally, and interest rate
fluctuations.
Concentration of Distribution Channels and Reliance on Certain Distributors
While the Company over time has used a variety of distribution channels,
currently a substantial percentage of the Company's investment product sales are
through non-captive distribution channels, including no transaction fee
programs. Such non-captive distribution channels generally offer competing
internally and externally sponsored or managed investment products and access to
these distribution channels is limited. The Company's ability to gain and
maintain access to these distribution channels is largely dependent on the
investment performance of the Company's products, the development of new
investment products, marketing and pricing strategies that serve the needs of
investors and the non-captive distribution channels and the level of service
provided by the Company. Although the Company historically has been successful
in these aspects of its business, there can be no assurance that the Company can
continue to maintain such access for its products.
As of December 31, 1997, approximately $642 million, or 33% , of the
Company's total mutual fund assets have been generated through shareholder
servicing arrangements with five discount brokers; Charles Schwab Mutual Fund
OneSource(R) , Fidelity Funds Network(R), Jack White & Company No Transaction
Fee Mutual Fund Service, Waterhouse Mutual Fund Connection, and First Trust
Corporation. While the Company has no reason to believe that such shareholder
servicing arrangements will be terminated, no assurances can be given that these
arrangements will continue or that they will continue to generate a substantial
portion of the Company's total mutual fund assets under management. The loss of
any one or more of these arrangements could materially adversely affect the
Company's results of operations.
Changes in Market Conditions; Retention of Assets Under Management
The Company derives the major portion of its revenues from asset management
contracts with clients. Under these contracts, the asset management fee paid to
the Company is typically based on the market value from time to time of assets
under management. Accordingly, fluctuations in securities prices could
materially adversely affect the Company's results of operations.
In addition, institutional asset management contracts are generally
terminable upon 30 days' notice. Mutual fund and unit trust investors may
generally withdraw their funds at any time without prior notice. Institutional
clients may elect to terminate their relationship with the Company, or reduce
the aggregate amount of assets under management, and individual clients may
elect to close their accounts or redeem their shares in the Company's mutual
funds or unit trusts, or shift their funds to other types of accounts with
different rate structures, for any of a number of reasons, including investment
conditions or changes in prevailing interest rates or financial market
conditions. Fees vary with the aggregate amount of assets under management by
the Company and with the type of asset being managed, with higher fees earned on
actively managed equity and balanced accounts and lower fees earned on fixed
income and stable return accounts.
Global/International and Precious Metal Equity Mutual Fund Holdings
At December 31, 1997, approximately $1.0 billion, or 27.9%, of the Company's
total assets under management were invested in global/international and precious
metal equities. Many foreign markets, especially emerging markets and markets
where precious metals are mined, may be characterized by volatile economic,
political and social conditions. Many of these countries have also experienced
significant exchange rate fluctuations between the local currencies and the U.S.
dollar which may subject the U.S. dollar value of the Company's assets under
management in global/international and precious metal equities to currency
translation risk, which could materially adversely affect the Company's results
of operations. The markets in such countries may also be less liquid and less
efficient than domestic markets. While the Company believes international
investing offers the potential for reduced risk and higher expected returns
through global diversification, fluctuations in foreign markets may have a
material adverse effect on the value of the assets under management in the
Company's global/international and precious metal equities.
Except for the Lexington Strategic Investments Fund, Inc., which has a
significant portion of its assets under management invested in South Africa, the
Lexington Goldfund, Inc., which has a significant portion of its assets under
management invested in Australia, Canada and South Africa, the Lexington Crosby
Small Cap Asia Growth Fund, which has a significant portion of its assets under
management invested in Asia, and the Lexington Troika Dialog Russia Fund, Inc.,
which has a significant portion of its assets under management invested in
Russia, the Company believes that in general, the assets under management in its
global/international and precious metal equities funds are invested in a
geographically diversified manner.
Competition
The asset management business is highly competitive. The Company competes
with a large number of other domestic and foreign asset management firms,
commercial banks, insurance companies, broker-dealers and others, although as a
practical matter the Company typically competes with other firms offering
comparable investment services and objectives. Many of the financial services
companies with which the Company competes have substantially greater resources
and assets under management than the Company and offer a wider variety of
products and services.
The Company believes factors which affect its competition for clients
include investment performance records, the range of products offered, the
abilities and reputations of its portfolio managers, management fees and the
development of new investment strategies and marketing, although the importance
of these factors can vary depending on the type of asset management service
involved. Client service is also an important competitive factor. The Company's
ability to increase or retain client assets could be adversely affected if
client accounts underperform the market or if portfolio managers leave the
Company. The ability of the Company to compete with other asset management firms
is also dependent, in part, on the relative attractiveness of its investment
philosophies and strategies under prevailing market conditions. There are
relatively few barriers to entry by new asset management firms which could
increase competitive pressure in the industry.
Reliance on Key Personnel
The Company's business is managed by key executive officers, the loss of
whom could have a material adverse effect on the Company. The Company believes
that its continued success will depend in large part on its ability to attract
and retain highly skilled and qualified personnel. In the event that any
officers or directors of the Company cease to be associated with the Company,
the Company will seek to find a qualified person or persons to fill their
positions with the Company. There can, however, be no assurance that such
individuals could be engaged by the Company.
The Company has reserved 750,000 shares of common stock for issuance to key
employees under the Long Term Incentive Plan established in 1995. The plan
provides for the granting of stock options, stock appreciation rights and other
stock-based performance awards to employees.
Dividends and Dividend Policy
The decision whether to apply legally available funds to the payment of
dividends on the Common Stock will be made by the Board of Directors from time
to time in the exercise of its business judgment, taking into account, among
other things, the Company's results of operations and financial condition and
any then existing or proposed commitments for the use by the Company of
available funds.
The Company may in the future issue debt securities or preferred stock or
enter into loan or other agreements that restrict the payment of dividends on
and repurchases of the Company's capital stock.
Company Buy-Back Program
On March 7, 1997, the Company announced a share repurchase program of up to
750,000 shares of its common stock. Repurchases are to be made from time to time
in the open market or through privately negotiated transactions at market
prices. The stock repurchase plan has a term of three years. During 1997, the
Company repurchased 313,000 shares of its common stock for an aggregate purchase
price of $2,280,375.
Substantial Stockholders
Descendants of Lunsford Richardson, Sr., their spouses, trusts, a
corporation in which they have interests and charitable organizations
established by such descendants (the "Richardson Family") some of whom are
directors of the Company, beneficially own shares of Common Stock representing
over 50% of the voting power of all the Company's outstanding voting securities.
Accordingly, the Richardson Family has the ability to elect a majority of the
Board of Directors and, in general, exert significant influence over the outcome
of any other matters submitted to the Company's stockholders for approval,
including mergers, consolidations or the sale of all or substantially all of the
Company's assets, and to prevent or cause a change in control of the Company.
At December 31, 1997 the Company also managed approximately $842 million in
invested assets of the Richardson Family and certain other related persons which
represent approximately 24.3% of the Company's total assets under management at
such date. The fees charged for the management of such assets are based upon
standard fee schedules and are comparable with the fees charged to unaffiliated
accounts. While the Company believes that it will continue to manage these
assets, no assurance can be given with respect to the continued management of
these assets. The loss of such assets would materially adversely affect the
Company's results of operations.
Item 2. Properties
Neither the Company nor its subsidiaries and majority owned companies own
real estate. The principal offices of the Company and its subsidiaries are
leased from unaffiliated third parties, which leases expire at various dates up
until the year 2003. The Company and its subsidiaries LMC and LFD are located in
Saddle Brook, New Jersey, occupying approximately 28,000 square feet of office
space at an annual rental of approximately $578,000 under a lease expiring in
2003.
MSR leases approximately 2,100 square feet of office space in New York, New
York, at an annual rental rate of approximately $42,000 under a lease expiring
in 1999.
Substantially all of the leases referred to above provide for the payment
of tax, escalation, maintenance, insurance and certain other operating expenses
applicable to the leased premises.
In addition to the above leases, the Company leases equipment on a long-term
or month-to-month basis, which rental expense was $112,123 in 1997.
Additional information concerning leases is provided in Note 6 of the
Notes to Consolidated Financial Statements, and such information is incorporated
in this item by reference.
Item 3. Legal Proceedings
As part of the normal course of its operations, the Company and certain of
its subsidiaries and majority owned companies are named as defendants in various
legal actions seeking monetary damages. Management does not expect any material
adverse judgments to be rendered against the Company or its subsidiaries as a
result of pending legal actions.
Item 4. Submission of Matters to a Vote of Security Holders
(a) Date of Meeting: May 15, 1997 Annual Meeting of Stockholders
(b) Matters voted on and number of affirmative/negative votes:
1. Election of Directors:
William R. Miller, L. Richardson Preyer, Lunsford Richardson, Jr.
For All Directors: 5,279,658 Withheld Authority: 51,943
2. Other Directors whose term of office as a director
continued after the May 15, 1997 meeting:
Sion A. Boney, III, Robert M. DeMichele, Haynes G. Griffin,
Peter L. Richardson, Stuart Smith Richardson
Carl H. Tiedemann, Marion A. Woodbury
3. Ratification of the selection of KPMG Peat Marwick LLP as the independent
auditors for the current calendar year.
Votes: For Against Abstain
5,325,409 1,464 4,728
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded in the NASDAQ National Market System
under the symbol LGAM. The quarterly range of prices of the Company's Common
Stock as reported by the NASDAQ National Market System were as follows:
1997 1996
High Low High Low
First $ 7.125 $ 5.875 $ 4.906 $ 3.625
Second $ 7.000 $ 5.875 $ 6.500 $ 4.375
Third $ 9.500 $ 6.875 $ 5.500 $ 4.250
Fourth $ 10.125 $ 8.000 $ 7.313 $ 5.000
On March 7, 1997, the Company announced a share repurchase program of up to
750,000 shares of its common stock. Repurchases are to be made from time to time
in the open market or through privately negotiated transactions at market
prices. The stock repurchase plan has a term of three years. During the year the
Company repurchased 313,000 shares of its stock for a total of $2,280,375.
The payment of any dividends will depend, among other things, upon the
Company's earnings, assets and general financial condition, and upon other
relevant factors.
As of December 31, 1997, there were 641 holders of record of Common
Stock.
Item 6. Selected Financial Data
Year Ended December 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
(000's omitted except per share data)
(Unaudited)
Results of Operation:
Total revenues (1) $18,977 $20,811 $21,286 $22,680 $18,070
Total expenses 15,312 17,684 18,965 17,576 15,963
Provision for taxes 1,208 1,270 700 2,059 977
Net income 2,397 2,475 1,579 2,990 1,145
Per Share Data:
Basic per share $0.45 $0.45 $0.29 $0.55 $0.21
Diluted Earnings per share $0.45 $0.45 $0.29 $0.55 $0.21
Financial Position:
Total assets $17,433 $16,078 $14,774 $13,646 $10,867
Total liabilities 6,938 5,911 6,994 16,201 15,012
Total stockholders" equity (deficit) 10,090 9,822 7,347 (2,908) (4,346)
(1) Decrease in revenue from 1996 is attributable to the sale of four
subsidiaries, LFSI, LCMA, LPA, LCMII to Berkeley USA Holdings Limited and
U.S. unit of London Pacific Group on September 30, 1996.
(a) Exhibits. (27) Financial Data Schedule for the twelve months ended December
31, 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The consolidated net income in 1997 was $2.4 million, $0.45 per share,
compared to net income of $2.5 million, $0.45 per share in 1996. Included in the
1996 results is a one-time pre-tax gain of $0.5 million ($0.09 per share) from
the sale of four of the Company's West Coast subsidiaries. On September 30,
1996, the Company sold four of the California subsidiaries: LCMA, LFSI, LPA, and
LCMII, to a company formed by the CEO of the subsidiaries and the U.S. unit of
London Pacific Group Limited, Berkeley (USA) Holdings Limited. On December 31,
1996, LCM was merged into LMC.
A further discussion and analysis of results of operations follows.
1997 Compared with 1996
The consolidated net income in 1997 was $2.4 million, $0.45 per share, compared
to net income of $2.5 million, $0.45 per share in 1996. Included in the 1996
results is a one-time pre-tax gain of $0.5 million ($0.09 per share) from the
sale of four of the Company's West Coast subsidiaries. On September 30, 1996,
the Company sold four of the California subsidiaries: Lexington Capital
Management Associates ("LCMA"), etc. On December 31, 1996, the remaining West
Coast subsidiary, Lexington Capital Management ("LCM") was merged into Lexington
Management Corporation ("LMC"), the Company's principal operating subsidiary.
Total assets under management at December 31, 1997 were $3.5 billion compared to
$3.2 billion at December 31, 1996. Each of the Company's three primary served
markets, (Mutual Funds, Private Client, and Institutional), contributed $0.1
billion to the growth in assets. Both the Private Client and Institutional
segments, which are primarily invested in the U.S. bond and equity markets,
experienced growth in assets through superior performance results associated
with the relatively strong U.S. capital markets in 1997. Mutual fund assets
under management grew primarily through net cash inflows of $0.2 billion. One of
the Company's newer products, the Lexington Troika Dialog Russia Fund,
experienced net cash inflows of approximately $150 million in 1997 due to
superior investment performance (ranked number one among emerging markets funds
tracked by Lipper Analytical Services, Inc. and as the number four fund in the
Overall Lipper Equity Fund Universe (4,883 funds)); one of the Company's older
products, the Lexington Corporate Leaders Trust Fund contributed over $100
million in net positive cash flow due primarily to its superior long term track
record and the U.S. equity markets. Although not as significant from a cash flow
standpoint, the Company enjoyed superior investment performance from a number of
its other products, including the Lexington GNMA Income Fund (number one fund
among GNMA Funds tracked by Lipper Analytical Services, Inc.) and the Lexington
Natural Resources Trust (which was the number one natural resources fund in the
variable insurance products category according to Lipper Analytical Services,
Inc.). In contrast, the Lexington Worldwide Emerging Markets Fund experienced
net cash outflows of approximately $100 million in 1997 due to lower quartile
performance and a disaffection with emerging markets on the part of investors
due to turmoil in the Asian economies and capital markets. The Asian "contagion"
significantly affected performance in a number of the Company's mutual funds and
was a contributing factor to net depreciation of $0.1 billion for the mutual
fund group as a whole. In short, mutual fund asset growth amounted to $0.1
billion and was comprised of net cash inflow of $0.2 billion partially offset by
net depreciation of $0.1 billion.
Total revenues of $19.0 million are 8.7% below 1996 when the Company recorded
revenues of $20.8 million. Revenues from the West Coast operations which were
reorganized and partially disposed of in 1996, amounted to $3.4 million in 1997
and $5.6 million in 1996. Excluding the West Coast operations, total revenues of
$15.5 million were $0.3 million above the $15.2 million recorded in 1996.
Net mutual fund management fees, the Company's largest revenue source, increased
$0.5 million to $11.2 million in 1997 compared to $10.7 million in 1996. These
revenues increased as a result of the growth in mutual fund assets under
management. However, underlying the growth in assets under management is a shift
in assets under management from some of the Company's higher priced products
(emerging markets and precious metals) to some of the lower priced products
(domestic equity and fixed income) and to products with shared revenue
arrangements (sub-advisory relationships). This shift occurred as a result of
relative investment performance and changing investor preferences which toward
the end of the year favored U.S. capital markets over some of the foreign
markets, particularly the emerging markets.
Mutual fund commissions of $63 thousand were less than the $216 thousand
recorded in 1996 because sales of the Company's two products with sales loads
decreased as a result of declining investor interest in precious metals mutual
funds.
Other management fees of $7.0 million are down $0.4 million from $7.4 million in
1996. The disposed West Coast operations account for all of this decline.
Similarly, commissions income declined to $0.2 million in 1997 from $1.7 million
in 1996 as a result of the disposal of the West Coast operations. Other income
of $0.5 million is $0.2 million below the 1996 figure of $0.7 million due to the
weaker performance of some of the Company's investments in the Lexington Funds
which were adversely affected by the turmoil in the Asian markets. Total
expenses of $15.3 million are $2.4 million below total expenses of $17.7 million
in 1996. Virtually all of the decline is attributable to the disposed and
reorganized West Coast operations which recorded total expenses of $2.3 million
in 1997 compared to $5.3 million in the prior year period.
Total personnel costs of $9.0 million are $2.2 million lower than the $11.2
million recorded in 1996. A $2.8 million decline in West Coast personnel
expenses was partially offset by a $0.6 million increase in LMC's personnel
costs; LMC added personnel to support and service its remaining West Coast
revenue stream. In addition, the Company recognized approximately $150,000 of
expense associated with the issuance of restricted stock to certain key
executive employees. Finally, employee benefits increased approximately $0.1
million as a result of higher medical insurance premiums despite the Company's
switch to a different provider.
Selling and promotional costs of $1.3 million are $0.1 million above the $1.2
million in such costs in the year earlier, reflecting LMC's greater advertising
support behind several mutual funds with superior performance results. In
particular, the Lexington Troika Dialog Russia Fund received significant support
in the second half of 1997 as its performance placed the Fund in the top five of
the entire equity fund universe followed by Lipper Analytical Services.
General and administrative costs of $5.0 million are $0.2 million less than the
prior year's figure of $5.2 million. The decrease is primarily attributable to
the disposed West Coast operations. In addition, the Company benefited from the
absence of certain legal and audit fees associated with the Company's
reorganization which impacted the prior year results. Partially offsetting these
decreases were higher administrative costs related to assets generated from its
West Coast operations and one-time costs related to the termination of the
Company's former portfolio management system. The Company's new system is fully
state-of-the-art which includes compliance with the year 2000 data requirements.
Pre-tax income amounted to $3.7 million for 1997 and 1996. The provision for
state and federal taxes remained relatively unchanged due to the comparable
profit performance in 1997 and 1996. The Company used approximately $3.8 million
of net operating loss carryforwards (NOLs) in 1997 and has remaining NOLs of
approximately $2.1 million which are available to offset future taxable income
which expire over the period 2003 through 2012. Overall, net income amounted to
$2.4 million or $0.45 per share in 1997 compared to $2.5 million, $0.45 per
share in 1996.
1996 Compared with 1995
Total revenues of $20.8 million are 2.4% less than the $21.3 million recorded in
1995.
The revenue decrease primarily reflected the sale of four of the Company's West
Coast subsidiaries on September 30, 1996. These subsidiaries would have
contributed approximately $1.5 million in additional revenue for the fourth
quarter. Partially offsetting the effect of the sale is a 9.5% increase in
mutual fund management fees. This reflects the strong mutual fund asset growth
at the Company's Core Business (LMC/LFD). This business delivered $14.4 million
in revenues in 1996 versus $14.2 million in 1995, reflecting the $300 million,
18.4% increase in mutual fund assets under management. Asset growth was
strongest in domestic equity ($0.2 billion) and international equity ($0.1
billion), partially offset by precious metals which were down $0.1 billion. The
largest increase in mutual fund assets under management was in Lexington
Corporate Leaders Trust which increased by 56% or $137 million in assets under
management. In general, stronger investor demand and performance in a number of
the Lexington funds drove the increase in assets under management. Mutual fund
management fees increased from $9.8 million in 1995 to $10.7 million in 1996. In
particular, management fees associated with the Lexington Corporate Leaders
Trust Fund, SBL Fund Series D, and Lexington Growth & Income Fund, Inc. grew
significantly due to the asset increases noted above.
Other management fees experienced a $1.7 million decline from $9.1 million in
1995 to $7.4 million. This income primarily reflects private client management
fees at the West Coast operations, which, as mentioned above, were sold at the
end of the third quarter and contributed $1.2 million in other management fees
in the fourth quarter of 1995. This revenue line also includes LMC's
institutional asset management fees which declined by $0.8 million from 1995 due
to client terminations.
Commissions income of $1.7 million were even with 1995.
Other income of $0.7 million is $0.2 million above 1995, and is attributable to
higher investment income.
Expenses of $17.7 million decreased $1.3 million from $19.0 million in 1995. The
Company's Core Business incurred total expenses of $10.9 million which are $1.1
million below the $12.0 million for 1995, when the Company incurred one-time
reorganization expenses of $2.2 million due to the Spin-off. The Company's other
subsidiaries incurred expenses of $6.8 million for 1996 versus $7.0 million for
1995.
Total salaries and other compensation increased $0.7 million to $11.2 million
from $10.5 million as a result of : 1) the addition of investment and other
personnel; 2) higher commissions associated with increased revenues in the
Company's West Coast operations; and, 3) the fact that the prior year expenses
benefited from an employee benefit refund associated with a good experience
rating. Selling and promotional expenses of $1.2 million are down $0.7 million.
This is primarily due to the Company re-targeting its marketing efforts and
making greater use of public relations. Administrative and general expenses of
$5.2 million are $1.4 million lower than $6.6 million in 1995. The decrease
reflects $2.2 million in various professional fees incurred in 1995 associated
with the Spin-off and internal reorganization of the Company. Partially
offsetting the $2.2 million decline are the additional costs associated with the
Company's public reporting responsibilities.
The Company recorded a $0.5 million gain on the sale of LFSI, LPA, LCMA, and
LCMII which occurred on September 30, 1996. Pre-tax income grew to $3.7 million
in 1996 from $2.3 million in 1995, an increase of 60.9% or $1.4 million.
Provision for state and federal taxes increased 88.7% from $0.7 million in 1995
to $1.3 million in 1996, due to higher profits.
Overall, net income increased 56.3% from $1.6 million in 1995 to $2.5 million in
1996. Earnings per share were $0.45 in 1996 compared to $0.29 in 1995.
Effects of Inflation
The Company does not believe that inflation has had a significant impact on the
operations of the Company to date. The Company's assets consist primarily of
cash and investments which are monetary in nature. However, to the extent
inflation results in rising interest rates with the attendant adverse effects on
the securities markets and on the values of investments held in the Company's
accounts, inflation may adversely affect the Company's financial position and
results of operations. Inflation also may result in increased operating expenses
(primarily personnel-related costs) that may not be readily recoverable in the
fees charged by the Company.
Liquidity and Financial Condition
The Company's business typically does not require substantial capital
expenditures. The most significant investments are in technology, including
computer equipment and telephones.
Historically, the Company has been cash self-sufficient. Cash flows from
operations have ranged between $1.5 million and $3.7 million over the past three
years primarily as a result of the Company's net income.
Net cash from investing activities have ranged between inflows of $0.5 million
and outflows of $0.5 million over the past three years. The primary use of cash
in 1997 were the purchase of computer equipment.
Cash flows from financing activities consistently have been negative over the
past three years. The most significant outflow was the payment of a regular
quarterly dividend to Piedmont, the Company's former parent which ended in 1995.
On March 7, 1997, the Company announced a 750,000 share repurchase program under
which the Company may repurchase its stock from time to time in the open market
or through privately negotiated transactions at market prices. The stock
repurchase plan has a term of three years. During the year the Company
repurchased 313,000 shares of its stock for a total of $2,280,375. The Company
may in the future issue debt securities or preferred stock or enter into loan or
other agreements that restrict the payment of dividends on and repurchase of the
Company's capital stock.
Historically, the Company has maintained a substantial amount of liquidity for
purposes of meeting regulatory requirements and potential business demands. At
December 31, 1997 the Company has $8.7 million of cash and cash equivalents.
Management believes the Company's cash resources, plus cash provided by
operations, are sufficient to meet the Company's foreseeable capital and
liquidity requirements. As a result of the holding company structure, the
Company's cash flows will depend primarily on dividends or other permissible
payments from its subsidiaries. The Company has no standby lines-of-credit or
other similar arrangements.
LFD, as a registered broker-dealer, has federal and state net capital
requirements at December 31, 1997 of $25,000. The aggregate net capital of LFD
was $0.3 million at December 31, 1997. LMC, MSR, and MSRI, as registered
investment advisors, must meet net capital requirements imposed at the Federal
and state levels.
Stockholders' equity on December 31, 1997 increased to $10.1 million from $9.8
million a year earlier primarily as a result of the Company's net income.
Management believes that the Company's liquid assets and its net cash provided
by operations will enable it to meet any foreseeable cash requirements. The
Company's overall financial condition remains strong.
Year 2000
The Company, like most commercial and financial institutions, is working to
ensure that its operating and processing systems will, along with those of its
service providers, continue to function when the year 2000 arrives. The Company
has developed and implemented a comprehensive plan to complete all internal
system conversions by the end of 1998. A significant part of the plan involves
upgrading current software to newer versions which are fully Year 2000
compliant. To date, most of the Company's current software systems are fully
compliant. Based on this plan, it is estimated that incremental expenses to the
Company for the Year 2000 project will be nominal. In addition, the Company is
keeping apprised of the progress of outside vendors' plans to become Year 2000
compliant. Based on their progress, we feel confident that the outside vendors
will achieve compliance in 1998.
Item 8. Financial Statements
The following are included and filed under this item:
Report of Independent Accountants
LEXINGTON GLOBAL ASSET MANAGERS, INC.
Consolidated Statements of Financial Condition--
December 31, 1997 and 1996
Consolidated Statements of Operations--Years Ended
December 31, 1997, 1996 and 1995 .
Consolidated Statements of Changes in Stockholders
Equity (Deficit)--Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows--Years Ended
December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lexington Global Asset Managers, Inc. :
We have audited the consolidated statement of financial condition of
Lexington Global Asset Managers, Inc. and Subsidiaries ("the Company") as of
December 31, 1997, and the related consolidated statements of operations,
changes in stockholders' equity (deficit), and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The accompanying consolidated statement of
financial condition of Lexington Global Asset Managers, Inc. as of December 31,
1996, and the related consolidated statements of operations, changes in
stockholders' equity (deficit), and cash flows for the years ended December 31,
1996 and 1995, were audited by other auditors whose report thereon, dated
February 19, 1997, expressed an unqualified opinion on these financial
statements.
We conducted our audit 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Lexington
Global Asset Managers, Inc. and Subsidiaries as of December 31, 1997, and the
results of their operations and their cash flows for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
February 18, 1998
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
1997 1996
Assets:
Cash and cash equivalents:
Cash $ 193,383 $ 1,631,249
Money market accounts 8,511,915 5,898,575
--------------- ---------------
8,705,298 7,529,824
--------------- ---------------
Receivables:
Investment advisory and management fees 1,233,377 1,161,473
Due from funds and other 596,333 868,649
--------------- ---------------
1,829,710 2,030,122
--------------- ---------------
Marketable securities 1,524,788 1,205,350
Prepaid expenses 1,708,122 367,159
Prepaid taxes 6,203 11,900
Fixed Assets (net of accumulated depreciation and
amortization) 1,384,772 1,347,324
Intangible assets (net of accumulated amortization) 194,676 210,875
Deferred income taxes 1,938,213 3,131,842
Other assets 141,491 243,120
--------------- ---------------
Total assets $ 17,433,273 $ 16,077,516
=============== ===============
Liabilities:
Accounts payable and accrued expenses $ 926,177 $ 1,027,123
Accrued compensation 1,530,100 1,480,337
Accrued employee benefits 1,981,308 1,183,866
Deferred income 1,626,123 1,197,576
Federal income taxes payable 863,667 1,015,351
Other liabilities 10,579 6,681
--------------- ---------------
Total liabilities 6,937,954 5,910,934
--------------- ---------------
Minority interest 405,058 344,909
Stockholders' Equity:
Common stock, $.01 par value; 15,000,000 authorized shares;
5,487,887 issued 54,879 54,879
Additional paid-in capital 21,708,142 21,501,517
Accumulated deficit (9,345,918) (11,734,723)
Deferred compensation (1,654,342) -
Treasury stock at cost (672,500) -
--------------- ---------------
Total stockholders' equity 10,090,261 9,821,673
--------------- ---------------
Total liabilities and stockholders' equity $ 17,433,273 $ 16,077,516
=============== ===============
See accompanying notes to the consolidated financial statements.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
1997 1996 1995
Revenues:
Investment advisory:
Mutual fund management fees (including
approximately $521,000, $430,000,
$452,000, from related parties) $ 11,223,251 $ 10,723,805 $ 9,789,003
Mutual fund commissions 62,838 215,656 175,434
Other management fees (including approximately
$2,695,000 $2,102,000 $2,443,000
from related parties) 7,044,356 7,395,337 9,107,863
Commissions income 151,334 1,734,411 1,692,261
Other income 495,175 742,092 521,556
-------------- ------------- -------------
Total revenues 18,976,954 20,811,301 21,286,117
-------------- ------------- -------------
Expenses:
Salaries and other compensation 9,015,128 11,241,242 10,492,925
Selling and promotional 1,299,742 1,231,927 1,893,083
Administrative and general 4,997,322 5,210,413 6,578,621
-------------- ------------- -------------
Total expenses 15,312,192 17,683,582 18,964,629
-------------- ------------- -------------
Income before income taxes, gain on sale of
subsidiaries, and minority interest 3,664,762 3,127,719 2,321,488
Gain on sale of subsidiaries - 529,881 -
Provision for income taxes
Current 13,929 1,353,734 1,285,843
Deferred 1,193,629 (83,559) (586,027)
-------------- ------------- -------------
Total provision 1,207,558 1,270,175 699,816
-------------- ------------- -------------
Income before minority interest 2,457,204 2,387,425 1,621,672
Minority interest 60,149 (87,227) 43,015
-------------- ------------- -------------
Net income $ 2,397,055 $ 2,474,652 $ 1,578,657
============== ============= =============
Earnings per share (Note 12):
Basic earnings per share $0.45 $0.45 $0.29
============== ============= =============
Diluted earnings per share $0.45 $0.45 $0.29
============== ============= =============
Average shares outstanding during the period 5,322,172 5,487,887 5,487,887
============== ============= =============
See accompanying notes to the consolidated financial
statements.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) Years Ended
December 31, 1997, 1996, and 1995
Common Stock Total
Shares Additional Accumulated Deferred Treasury Stockholders'
Issued Amounts Paid-In Capital Deficit Compensation Shares Equity (Deficit)
--------- -------- -------------- --------- --------- --------- -----------
Balance at December 31, 1994 5,487,887 $54,879 $11,325,665 ($14,288,032) - - ($2,907,488)
Net income - - - 1,578,657 - - 1,578,657
Dividends - - - (1,500,000) - - (1,500,000)
Capital contributions - - 76,000 - - - 76,000
Conversion of debt to equity - - 10,099,852 - - - 10,099,852
--------- -------- --------- ---------- ---------- ----------- -----------
Balance at December 31, 1995 5,487,887 54,879 21,501,517 (14,209,375) - - 7,347,021
Net income - - - 2,474,652 - - 2,474,652
--------- -------- --------- ---------- ---------- ----------- -----------
Balance at December 31, 1996 5,487,887 54,879 21,501,517 (11,734,723) - - 9,821,673
Net income - - - 2,397,055 - - 2,397,055
Purchase of treasury shares at cost - - - (8,250) - (2,280,375) (2,288,625)
Issuance of restricted stock awards - - 206,625 - - 1,607,875 1,814,500
Deferred compensation - - - - (1,654,342) - (1,654,342)
--------- -------- --------- ---------- ---------- ----------- -----------
Balance at December 31, 1997 5,487,887 $54,879 21,708,142 (9,345,918) ($1,654,342) ($672,500) 10,090,261
========= ======== ========== ========== ========== =========== ===========
See accompanying notes to the consolidated financial statements.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1997 1996 1995
Cash flows from operating activities:
Net income $ 2,397,055 $ 2,474,652 $ 1,578,657
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 319,267 389,090 392,923
Amortization of deferred costs 9,220 36,884 36,884
Gain on sale of subsidiaries - (529,881) -
Deferred income taxes 1,193,629 (83,559) (586,027)
Minority interest 60,149 (87,227) 43,015
Compensation expense - stock options 151,908 - -
Change in assets and liabilities
Receivables 200,412 754,372 (779,783)
Trading securities (319,438) (273,068) (157,399)
Prepaid expenses (1,340,043) (17,391) (190,697)
Prepaid taxes 5,697 30,465 (4,969)
Accounts payable and accrued expenses 746,259 (566,869) 1,092,218
Federal income taxes payable (151,684) 36,167 445,799
Deferred income 428,547 (394,955) (224,309)
Other 45,432 48,823 (114,493)
Net assets of subsidiaries sold - (286,425) -
------------- ------------- -------------
Net cash provided by operating activities 3,746,410 1,531,078 1,531,819
Cash flows from investing activities:
Purchases of furniture, equipment and leasehold
improvements (340,515) (425,803) (504,648)
Purchases of intangibles - (7,225) -
Sale of furniture and equipment - 157,470 -
Net proceeds from sale of subsidiaries 49,954 816,306 -
------------- ------------- -------------
Net cash (used in) provided by investing activities (290,561) 540,748 (504,648)
Cash flows from financing activities:
Principal payments under capital lease obligations - (157,019) (135,764)
Dividends - - (1,500,000)
Capital contributions - - 76,000
Purchase of treasury stock (2,280,375) - -
------------- ------------- -------------
Net cash used in financing activities (2,280,375) (157,019) (1,559,764)
------------- ------------- -------------
Net increase / (decrease) in cash and cash equivalents 1,175,474 1,914,807 (532,593)
Cash and cash equivalents, beginning of year 7,529,824 5,615,017 6,147,610
------------- ------------- -------------
Cash and cash equivalents, end of year $ 8,705,298 $ 7,529,824 $ 5,615,017
============= ============= =============
Supplemental cash flow disclosure
Income taxes paid $ 472,910 $ 1,665,849 $ 917,679
Interest paid $ - $ - $ 108,530
Supplemental schedule of non-cash investing activities
Conversion of debt to equity $ - $ - $ 10,099,852
See accompanying notes to the consolidated financial statements.
LEXINGTON GLOBAL ASSET MANAGERS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
Lexington Global Asset Managers, Inc. (the "Company") serves as a holding
company for the following asset management subsidiaries (collectively referred
to as the "Subsidiaries"): Lexington Management Corporation (100% owned),
Lexington Funds Distributor Inc. (100% owned), MSR Advisors Inc. (65% owned) and
Piedmont Asset Advisors (51% owned). The Subsidiaries are engaged in the
management, distribution, and administrative services for the Lexington Family
of Funds ("Funds") and for its institutional and private clients. Lexington
Management Corporation ("LMC") and MSR Advisors Inc., ("MSR") are registered
investment advisors under the Investment Advisers Act of 1940, as amended.
Lexington Funds Distributor ("LFD") is a registered broker/dealer under the
Securities Exchange Act of 1934, is a member of the National Association of
Securities Dealers, Inc. ("NASD"), and is therefore subject to various NASD
regulations, including net capital requirements.
On September 30, 1996, the Company sold four of its California subsidiaries:
Lexington Capital Management Associates, Inc. ("LCMA"), LCM Financial Services
Inc. ("LFSI"), Lexington Plan Administrators ("LPA"), and LCMI Insurance
Services ("LCMII"), to a company formed by the CEO of the subsidiaries and the
U.S. unit of London Pacific Group Limited, Berkeley (USA) Holdings Limited. On
December 31, 1996, Lexington Capital Management ("LCM") was merged into LMC.
2. Basis of Presentation and Summary of Significant Accounting Policies
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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and the Subsidiaries. All material intercompany transactions and
accounts have been eliminated.
Cash Equivalents
Cash equivalents consist of highly liquid investments. At December 31, 1997
and 1996 cash equivalents consist primarily of investments in Lexington Money
Market Trust, recorded at market value (which approximates cost).
Trading Securities
The Company designates all marketable equity securities as held for trading
purposes.
Marketable equity securities (including funds that are advised by the
Company) are carried at value. The value of marketable equity securities
(excluding funds that are advised by the Company) is generally based on quoted
market prices. The value of the Funds that are advised by the Company is
determined by multiplying the number of shares held in each Fund by its
respective net asset value.
Realized gains and losses are calculated on the specific identification
method and are included in other income. Unrealized appreciation (depreciation)
arises from the difference between the cost and value of securities and is
recognized in other income.
Revenue Recognition
Investment management and advisory fees are recorded as income for the
period in which the services are performed. Commissions related to security
transactions are recorded on trade date.
Segment Reporting
The Company considers themselves to operate in one line of business.
Depreciation and Amortization
Furniture and equipment are depreciated on a straight-line basis over their
estimated useful lives. Leasehold improvements are amortized on a straight-line
basis over the shorter of the lease term or the estimated useful life.
Intangible Assets
The Company assesses the recoverability of its intangible assets whenever
significant events or changes occur which may impair recovery of recorded costs.
Based on its most recent analysis, the Company believes that no material
impairment of its intangible assets exists at December 31, 1997.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," effective for financial statements for fiscal years beginning
after December 15, 1995. SFAS No. 123 required the Company to adopt, at its
election, either 1) the provisions in SFAS No. 123 which require the recognition
of compensation expense for employee stock-based compensation plans or 2) the
provisions in SFAS No. 123 which require the pro forma disclosure of net income
and earnings per share as if the recognition provisions of SFAS No. 123 had been
adopted. SFAS No. 123 explicitly provides that employers may continue to account
for their employee stock-based compensation plans using the accounting
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25). The Company adopted the disclosure
requirements of SFAS No. 123 effective January 1, 1996 and continues to account
for its employee stock-based compensation plans under APB No. 25.
Employee and Retiree Benefit Plans
Certain subsidiaries sponsor various benefit plans including a 401(k) savings
plan and a defined benefit pension plan covering substantially all employees.
The Subsidiaries also provide retired employees the option of continuing health
and life insurance benefits through various welfare benefit plans in which the
retiree shares in the cost.
Income Taxes
The Company and its wholly owned subsidiaries are included in the
consolidated federal income tax return filed by the Company. Partially owned
subsidiaries filed their own federal income tax returns.
The Company accounts for income taxes under the asset and liability
method. Deferred income tax assets and liabilities are computed for the
differences between the financial statement and tax bases of assets and
liabilities based on enacted tax laws and rates applicable to the periods in
which the differences are expected to reverse.
Financial Instruments
The fair value of cash and cash equivalents, receivables, accounts payable
and accrued expenses approximates cost because of the immediate or short term
maturity of these financial instruments. The fair value of trading securities
has been disclosed in the accompanying consolidated financial statements and
notes.
Securities Transactions
Purchases and sales of fund shares through the underwriting activities of
LFD are recorded on a trade date basis. All customer funds and securities in
connection with its investment management and advisory services are maintained
by independent custodians.
Financial Statement Presentation
Certain prior year amounts have been reclassified to conform with the
current year presentation.
3. Fixed Assets
Fixed assets at December 31, 1997 and 1996 consisted of the following:
1997 1996
Furniture, fixtures and equipment $3,074,485 $2,733,968
Leasehold improvements 155,521 155,521
------------- -------------
Depreciable fixed assets 3,230,006 2,889,489
Less accumulated depreciation and amortization 1,845,234 1,542,165
------------- -------------
Fixed assets, net $1,384,772 $1,347,324
============= =============
Depreciation and amortization charged to operations were $319,267, $389,090, and
$392,923 for the years ended December 31, 1997, 1996 and 1995, respectively.
These amounts include amortization of goodwill of approximately $16,200.
Depreciation and amortization is provided using the straight-line method over
the following estimated lives:
Asset Estimated Life
Furniture and fixtures 12 years
Office equipment 5 years
Leasehold improvements term of lease
4. Trading Securities
At December 31, 1997 and 1996, trading securities consisted of the following:
1997 1996
Funds advised by the Company $1,272,519 $1,205,350
Equity Securities 252,269 -
---------- ----------
Total trading securities $1,524,788 $1,205,350
========== ==========
5. Deferred Income and Prepaid Expenses
Certain clients pay investment advisory fees to LMC annually in advance. These
fees are recorded as deferred income and recognized as income over the periods
the services are performed. At December 31, 1997, the balance in the deferred
income account was $1,626,123 and was recorded as a liability in the
consolidated statement of financial condition.
LMC has an agreement with SAI Capital Holdings, Inc. ("Select"), whereby Select
provides back office and other administrative services for these clients in
return for an administration fee. The administration fee ranges from 50% to 82%
of the investment advisory fee received from these clients. The fee is paid to
Select annually in advance and is recorded as a prepaid expense and amortized as
services are received. At December 31, 1997, the balance in prepaid expense for
administrative services was $1,255,175.
6. Regulatory Requirements
The broker/dealer subsidiary is subject to rules and regulations of the
Securities and Exchange Commission which require maintenance of minimum net
capital and reserve accounts. At December 31, 1997, the amount of net capital
required for the broker dealer subsidiary pursuant to such rules and regulations
was $25,000. The net capital of the broker/dealer subsidiary at December 31,
1997 amounted to $298,594.
7. Intangible Assets
Intangible assets represent the goodwill arising from the original acquisition
of the LMC business by Piedmont Management Company, Inc. ("Piedmont") in 1969.
The goodwill is the excess of the purchase price over the fair value of net
assets acquired and is amortized on a straight-line basis over forty years.
Accumulated amortization of goodwill amounted to approximately $469,000 and
$452,000 at December 31, 1997 and 1996, respectively.
8. Commitments and Contingencies
The Subsidiaries lease administrative offices under noncancellable operating
leases.
The future minimum lease payments are as follows:
1998.....................................$599,000
1999..................................... 624,000
2000..................................... 586,000
2001..................................... 578,000
2002..................................... 578,000
Later years.............................. 386,000
--------
$3,351,000
==========
Rent expense was approximately $626,000, $941,000, and $1,140,000, for the years
ended December 31, 1997, 1996, and 1995, respectively.
9. Common and Preferred Stock
On December 13, 1995, the Company was recapitalized by adoption of restated
articles of incorporation authorizing 15,000,000 shares of common stock.
Piedmont distributed all of the Company's outstanding common stock as a dividend
to the holders of Piedmont common stock, on a one-for-one basis for each
outstanding share of Piedmont common stock. The accompanying consolidated
financial statements of the Company have been retroactively reclassified to give
effect to the recapitalization.
The Company has 5,000,000 shares of preferred stock, $.01 par value authorized;
no shares are issued or outstanding.
10. Incentive Plan
The Company has reserved 750,000 shares of common stock for issuance to key
employees under the Long Term Incentive Plan established in 1995. The plan
provides for the granting of stock options, stock appreciation rights and other
stock-based performance awards to employees. In 1997, 131,000 stock options were
granted at an exercise price of $6.25 and 10,000 stock options were granted at
an exercise price of $8.00, the market values at the respective dates of grant.
During 1995, 180,000 stock options were granted, all at an exercise price of
$4.75, the market value at date of grant. No grants were made in 1996. No
options were exercised or expired in 1997 and 1996 although 90,000 were
exercisable at December 31, 1997.
The Company's Restricted Stock Award Plan provides for awards of common stock to
key employees, subject to forfeiture if employment terminates prior to the end
of the prescribed periods. The restrictions on the shares will be released over
a three year period as the employees provide service. The market value of shares
awarded under the plan is recorded as deferred compensation in stockholders'
equity. The unearned amounts are amortized to compensation expense over the
periods the employees provide services.
During the year ended December 31, 1997, the Company awarded restricted shares
out of Treasury Stock. The restricted shares awarded and the respective market
values at date of grant were as follows:
Shares Market
Awarded Value
February 3, 1997 33,000 $6.25
November 7, 1997 200,000 $8.00
For the year ended December 31, 1997, the Company recognized $151,908 of
compensation expense relating to the Restricted Stock Award Plan. At December
31, 1997, the Company has $1,654,342 of deferred compensation recorded as a
reduction of stockholders' equity.
Stock Option Plan
The Company has a fixed option plan which reserve shares of common stock for
issuance to key employees. The Company has adopted the disclosure-only
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for the stock options. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date for awards in 1997 and 1995 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the pro forma amounts indicated below:
(Dollars in thousands except for earnings per share information)
1997 1996 1995
Net earnings:
As reported $2,397 $2,475 $1,579
Pro forma $2,252 $2,399 $1,572
Basic earnings per share:
As reported $0.45 $0.45 $0.29
Pro forma $0.42 $0.44 $0.29
Diluted earnings per share:
As reported $0.45 $0.45 $0.29
Pro forma $0.42 $0.44 $0.29
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1995: dividend yield of 0%; expected
volatility of 35.0%; risk-free interest rate of 5.95% to 6.64%; and expected
lives of 10 years.
Under the plan approved by the stockholders on December 8, 1995, the total
number of shares of common stock that may be granted is 750,000. This plan
provides that shares granted come from the Company's authorized but unissued or
reacquired common stock. The price of the options granted pursuant to these
plans will not be less than 100 percent of the fair market value of the shares
on the date of grant. An option may not be exercised within one year from the
date of grant and no option will be exercisable after ten years from the date of
grant. Participants may exercise approximately one-fourth of the stock option
shares after the end of each year of the cycle.
Stock Option Plan
Information regarding this option plan for 1997, 1996 and 1995 is as follows:
1997 1996 1995
------------------------ ----------- -----------
Weighted-
Average
Exercise
Shares Price Shares Shares
Options outstanding, beginning of year 180,000 $4.75 180,000 -
Options exercised - - - -
Options granted 141,000 $6.3741 - 180,000
----------- ----------- -----------
Options outstanding, end of year 321,000 180,000 180,000
=========== =========== ===========
Option price range at end of year $6.25 $4.75
$8.00
Option price range for exercised shares -
Weighted-average fair value of options, granted during the year $6.3741
Weighted-average grant-date fair value of options, granted
during the year $3.8720 - $2.8028
The following table summarizes information about fixed-price
stock options outstanding at December 31, 1997:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted-
Average Weighted Weighted-
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
$4.75 180,000 8 $4.75 90,000 $4.75
$6.25 131,000 9 $6.25 - -
$8.00 10,000 10 $8.00 - -
----------- ----------- ----------- ----------- ----------
$4.75 to $8.00 321,000 90,000
=========== ===========
11. Common Stock Buy-Back Program
On March 7, 1997, the Board of Directors of the Company authorized a share
repurchase program of up to 750,000 shares. Repurchases are made from time to
time in the open market or through privately negotiated transactions at market
price. The stock repurchase plan has a term of three years. During the year
ended December 31, 1997, the Company repurchased 313,000 shares of stock for a
total of $2,280,375. Also, during the year 233,000 treasury shares were issued
under the Company's Restricted Stock Award Plan.
12. Earnings Per Share
At December 31, 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
which establishes standards for computing and presenting earnings per share
("EPS"). SFAS No. 128 replaces the presentation of primary EPS with basic EPS
and fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is
calculated by dividing income applicable to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to fully diluted EPS.
All periods presented have been restated to conform with SFAS No. 128.
Basic earnings per common share amounts were computed by dividing net income by
the weighted-average number of common shares outstanding during the year. The
average number of common shares outstanding was the average number of shares of
common stock outstanding adjusted for repurchased shares.
Diluted earnings per share amounts were calculated by dividing net income by the
weighted-average number of common shares and dilutive potential common shares
outstanding during the year.
Diluted earnings per share assumes the conversion into common stock of
outstanding stock options as computed under the treasury stock method, if
dilutive. Under the treasury stock method, the number of incremental shares is
determined by assuming the issuance of the outstanding stock options, reduced by
the number of shares assumed to be repurchased from the issuance proceeds, using
the averages market price for the year of the Company's common stock.
The following table sets forth the computation of basic and diluted earnings per
share for the years ended December 31, 1997, 1996 and 1995.
1997 1996 1995
Numerator:
Net income $2,397,055 $2,474,652 $1,578,657
============= ============= =============
Numerator for basic and diluted
earnings per share-income
available to common stockholders $2,397,055 $2,474,652 $1,578,657
============= ============= =============
Denominator:
Denominator for basic earnings
per share-weighted-average
shares outstanding 5,322,172 5,487,887 5,487,887
Effect of dilutive securities:
Employee stock options 59,613 10,957 55
------------- ------------- -------------
Dilutive potential common shares 59,613 10,957 55
Denominator for diluted earnings
share-adjusted weighted-average
shares after assumed conversions 5,381,785 5,498,844 5,487,942
============= ============= =============
Basic earnings per share $0.45 $0.45 $0.29
============= ============= =============
Diluted earnings per share $0.45 $0.45 $0.29
============= ============= =============
13. Employee and Retiree Benefit Plans
Effective with the December 13, 1995 Spin-off of 100% of the common stock of the
Company being distributed to Piedmont Management stockholders, LMC has assumed
the sponsorship of certain of Piedmont's employee benefit plans and their
related trusts and insurance contracts, and is solely responsible for all
liabilities and obligations under such plans. In addition, in exchange for
payment from Piedmont of approximately $740,000, LMC assumed certain of
Piedmont's obligations to provide continuing medical and dental coverage to
certain of Piedmont's and The Reinsurance Corporation of New York's ("RECO")
employees, and retirement and postretirement medical and life insurance to
former RECO employees.
Savings Plan
LMC's and MSR's employees participate in the 401(k) savings plan sponsored
by LMC. Employees are eligible to participate upon attaining age twenty-one and
completing six months of service. The savings plan provides for voluntary
participant contributions which may not exceed 10% of each participant's annual
salary. Additionally, for each participant's voluntary contribution not
exceeding 6% of the participant's annual salary, LMC and MSR contribute an
amount equal to 50% of the individual participant's contribution.
LMC's and MSR's contributions fully vest to employees at the end of five
years. The annual savings plan expense by LMC and MSR were $122,760, $114,409,
and $88,395 for the years ended December 31, 1997, 1996, and 1995, respectively.
Retirement Plan
LMC sponsors a defined benefit plan which is part of a master trust. An
employee becomes a participant in the plan after attaining age twenty-one and
completing one year of service. Full vesting in the accrued benefit occurs at
the earlier of completing five years of service after attaining age eighteen or
reaching early retirement age. The funding policy for the plan is to annually
contribute the statutory required minimum amount as actuarially determined. The
funded status and net pension liability for the Master Trust for the years ended
December 31, 1997 and 1996 is provided in the table below:
1997 1996
Actuarial present value of benefit obligations:
Vested $5,675,200 $4,851,900
Non-vested 149,600 127,600
--------------- --------------
Accumulated benefit obligation $5,824,800 $4,979,500
=============== ==============
Projected benefit obligation 6,573,300 5,603,100
Plan assets at fair value 5,158,200 4,848,000
--------------- --------------
Plan assets less than projected benefit obligations (1,415,100) (755,100)
Unrecognized prior service cost 256,500 60,600
Unrecognized net loss 573,200 191,300
Unrecognized transition asset (179,600) (216,100)
--------------- --------------
Net pension liability ($765,000) ($719,300)
=============== ==============
The development of the foregoing projected benefit obligations was based upon a
discount rate of 7.0% in 1997 and 7.5% in 1996; a 6% average rate of increase in
employee compensation was used for each year. The expected long-term rate of
return on assets was 10%. Plan assets are invested primarily in bonds, stocks,
short-term securities and cash equivalents.
Net periodic pension cost for the years ended December 31, 1997, 1996 and 1995
included the following components:
1997 1996 1995
Service cost - benefits earned during the period $239,200 $220,200 $129,800
Interest cost on projected benefit obligation 415,700 389,800 174,500
Actual return on plan assets (487,000) (485,600) (245,600)
Net amortization and deferral (600) 3,000 83,100
Extraordinary expense - - 27,800
------------ ------------ ------------
Net periodic pension cost $167,300 $127,400 $169,600
============ ============ ============
The straight line amortization method is used in calculating prior service cost.
Gains and losses are amortized only if they are outside of the 10% corridor of
the larger of projected benefit obligation or fair value of plan assets.
LMC also maintains non-qualified supplemental benefit plans for certain
employees. These plans replace the portion of benefits that exceed the
limitations established by the Internal Revenue Code for tax qualified benefit
plans. The amount charged to expense relating to these plans was approximately
$86,900, $116,600, and $51,600 for the years ended December 31, 1997, 1996, and
1995, respectively.
Postretirement Employee Benefits
In addition to providing pension benefits, the Company, along with certain
affiliates, provides the option of life and medical insurance benefits for
retirees. Pensioners whose employment was terminated by retirement (age 55 and
10 years of service) become eligible for these benefits. The medical insurance
benefits are partially contributory in nature.
Postretirement benefit plans other than pensions are not funded.
As of January 1, 1992, the provisions of SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions," were adopted. The Company
elected the prospective transition approach and is amortizing the transaction
obligation over a 20-year period.
Net periodic postretirement benefit costs for the years ended December 31, 1997,
1996 and 1995 included the following components:
1997 1996 1995
Service cost $55,000 $76,000 $47,000
Interest cost 78,000 96,000 53,000
Amortization of transition obligation over 20 years 22,500 29,000 27,000
------------ ------------ ------------
Net periodic postretirement benefit cost $155,500 $201,000 $127,000
============ ============ ============
The accumulated unfunded postretirement benefit obligation and the accrued
estimated portion of the unfunded postretirement benefit obligation for the
Company at December 31, 1997 and 1996 are provided in the table below:
1997 1996
Retirees $624,000 $735,000
Eligible active participants 92,000 89,000
Other active participants 521,000 592,000
------------- -------------
Total Accumulated Postretirement Benefit Obligation 1,237,000 1,416,000
------------- -------------
Unrecognized cumulative gain 26,000 (200,000)
Unrecognized net transition amount (341,000) (366,000)
------------- -------------
Accrued Postretirement Benefit Cost $922,000 $850,000
============= =============
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.0% in 1997 and 7.5% in 1996. The assumed health care cost trend
rate was 7.5% in each year. If the assumptions used in developing the health
care cost trend rate in each of the last two years were increased by 1%, the
effect on the service and interest cost components of net periodic
postretirement benefit cost and on the accumulated postretirement benefit
obligation would be an increase of approximately 20%.
Deferred Compensation Program
The Company implemented a non-qualified deferred compensation program for
highly compensated employees in 1997. The program allows the employees to defer
a portion of their annual compensation.
14. Income Taxes
A reconciliation of income tax expense computed at the U.S. statutory rate to
the effective rate reflected in the consolidated financial statements for the
years ended December 31, 1997, 1996, and 1995 follows:
1997 1996 1995
Expected tax rate 34.00% 34.00% 34.00%
State and local taxes 6.70 6.50 (3.50)
Other (7.75) (5.78) 0.01
------------ ------------- -------------
Effective tax rate 32.95% 34.72% 30.51%
============ ============= =============
The tax effects of temporary differences that give rise to the net deferred
tax asset at December 31, 1997 and 1996 are as follows:
1997 1996
Deferred tax assets:
Net operating loss carryforwards $708,678 $2,203,641
Deferred compensation 647,256 565,587
Retirement and postretirement 648,001 500,880
Other 90,349 -
------------- -------------
Total deferred tax asset 2,094,284 3,270,108
------------- -------------
Deferred tax liabilities
Deferred state taxes (86,976) (93,302)
Other (69,095) (44,964)
------------- -------------
Total deferred tax liabilities (156,071) (138,266)
------------- -------------
Net deferred tax asset $1,938,213 $3,131,842
============= =============
Income tax expense attributable to income for the years ended December 31, 1997,
1996, and 1995 consists of:
Current Deferred Total
Year ended December 31, 1997:
U.S. Federal ($339,801) $1,175,028 $835,227
State and local 353,730 18,601 372,331
------------ ------------- -------------
$13,929 $1,193,629 $1,207,558
============ ============= =============
Current Deferred Total
Year ended December 31, 1996:
U.S. Federal $903,832 $5,859 $909,691
State and local 449,902 (89,418) 360,484
------------ ------------- -------------
$1,353,734 ($83,559) $1,270,175
============ ============= =============
Current Deferred Total
Year ended December 31, 1995:
U.S. Federal $992,530 ($401,031) $591,499
State and local 293,313 (184,996) 108,317
------------ ------------- -------------
$1,285,843 ($586,027) $699,816
============ ============= =============
The Company believes it is more likely than not that it will generate future
taxable income to realize the benefits of the net deferred tax asset.
Accordingly, the Company has not provided a valuation allowance. The amount
ultimately realized, however, could be reduced if actual amounts of future
taxable income are reduced.
The Company has net operating loss carryforwards of approximately $2,100,000
which are available to offset future taxable income which expire over the period
2003 through 2012.
15. Disclosures about Segments of an Enterprise and Related Information
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for the
way a public enterprise reports information about operating segments in its
annual and interim financial statements. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Generally, financial information will be required to be reported on
the basis used by management for evaluating segment performance and for deciding
how to allocate resources to segments. SFAS No. 131 is effective for fiscal
years beginning after December 31, 1997 and need not be applied to interim
reporting in the initial year of adoption. The Company intends to adopt the
provisions of SFAS No. 131 in its 1998 consolidated financial statements,
however, management of the Company has not yet determined what information, if
any, will be reported.
16. Quarterly Financial Data (Unaudited)
The unaudited quarterly financial data for the years ended December 31,
1997, 1996, and 1995 follows:
First Second Third Fourth
Quarter Quarter Quarter Quarter
1997
Results of operations:
Total revenues $4,623,365 $4,745,656 $5,022,686 $4,585,247
Total expenses 3,348,977 3,590,374 3,833,388 4,539,453
Provision for taxes 523,329 210,861 543,465 (70,097)
Net income 738,964 931,782 628,824 97,485
Basic earnings per share $0.13 $0.17 $0.12 $0.02
Diluted earnings per share $0.13 $0.17 $0.12 $0.02
Common stock price range
High $ 7.125 $ 7.000 $ 9.500 $ 10.125
Low $ 5.875 $ 5.875 $ 6.875 $ 8.000
1996
Results of operations:
Total revenues $5,717,300 $5,606,059 $5,565,017 $3,922,925
Total expenses 4,955,313 4,855,620 4,832,825 3,039,824
Provision for taxes 206,807 335,985 580,875 146,508
Net income 543,940 396,835 789,326 744,551
Basic earnings per share $ 0.10 $ 0.07 $ 0.14 $ 0.14
Diluted earnings per share $ 0.10 $ 0.07 $ 0.14 $ 0.14
Common stock price range:
High $ 4.906 $ 6.500 $ 5.500 $ 7.313
Low $ 3.625 $ 4.375 $ 4.250 $ 5.000
1995
Results of operations:
Total revenues $5,218,727 $5,347,927 $5,440,059 $5,279,403
Total expenses 4,261,104 4,513,279 4,890,031 5,300,215
Provision for taxes 447,094 311,691 122,234 (181,203)
Net income 510,528 519,104 404,651 144,374
Basic earnings per share $ 0.09 $ 0.10 $ 0.07 $ 0.03
Diluted earnings per share $ 0.09 $ 0.10 $ 0.07 $ 0.03
Common stock price range:
High N/A N/A N/A $ 5.000
Low N/A N/A N/A $ 4.625
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
The Company terminated its audit relationship with its former principal
accountant, Coopers & Lybrand L.L.P. ("C&L"), on March 6, 1997. On that same
day, KPMG Peat Marwick LLP was engaged as principal accountant for the Company.
C & L's report on the financial statements for the past two years did not
contain an adverse opinion or disclaimer of opinion, and was not qualified or
modified as to uncertainty, audit scope, or accounting principles.
The decision to change principal accountants was recommended by the Audit
Committee and approved by the Board of Directors of the Company.
During the Company's two most recent fiscal years and any subsequent interim
period preceding such termination, there were no disagreements with the former
accountant on any matter of accounting principles or practices, financial
statement disclosures, or auditing scope or procedure, which disagreement(s), if
not resolved to the satisfaction of the former accountant, would have caused it
to make reference to the subject matter of the disagreement(s) in connection
with its report.
There were no reportable events of the type described in Item 304 (a) (1)
(v) (A) through (D) of Regulation S-K.
PART III
Item 10. Directors and Executive Officers of the Registrant
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information as of December 31, 1997
with respect to the Company's executive officers.
Principal Occupation or Employment Office(s)
Name Age Year Elected Executive Officer
Stuart S. Richardson 51 Chairman (1995)
Robert M. DeMichele 53 President and Chief Executive Officer (1995)
Richard M. Hisey 39 Executive Vice President and Chief Financial
Officer (1995)
Lawrence Kantor 50 Executive Vice President and General
Manager - Mutual Funds (1995)
Other information required under this item is contained in the Registrant's
1998 definitive proxy statement which will be filed with the Commission within
120 days after the close of the fiscal year and is herein incorporated by
reference.
Item 11. Executive Compensation
Information required under this item is contained in the Registrant's 1998
definitive proxy statement which will be filed with the Commission within 120
days after the close of the fiscal year and is herein incorporated by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required under this item is contained in the Registrant's 1998
definitive proxy statement which will be filed with the Commission within 120
days after the close of the fiscal year and is herein incorporated by reference.
Item 13. Certain Relationships and Related Transactions
Information required under this item is contained in the Registrant's 1998
definitive proxy statement which will be filed with the Commission within 120
days after the close of the fiscal year and is herein incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following information is filed under this item:
(a) (1) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries are included in Item 8: Consolidated Statements of Financial
Condition-December 31, 1997 and 1996; Consolidated Statements of
Operations-Years Ended December 31, 1997, 1996, 1995; Consolidated Statements of
Stockholders' Equity (Deficit)-Years Ended December 31, 1997, 1996, 1995;
Consolidated Statements of Cash Flows-Years Ended December 31, 1997, 1996, 1995;
Notes to Consolidated Financial Statements.
(a) (2) Schedules
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or are adequately explained in the
financial statements and, therefore, have been omitted.
Financial statements of interests of 50% or less, which are accounted for
by the equity method, have been omitted because they do not, considered in the
aggregate as a single subsidiary, constitute a significant subsidiary.
(a)(3) Exhibits
13.1 Registrant's Annual Report to Stockholders for the year ended December
31, 1997.
99.1 Report of Independent Accountants from predecessor auditors
Exhibits specified by Item 601 of Regulation S-K, other than those listed above,
have been omitted since they are either not required or are not applicable.
(b) Report on Form 8-K
None filed during the fourth quarter of 1997
(c) Schedules described in item 14A (2) are excluded from the Registrant's
Annual Report to Stockholders.
(d) Items Incorporated by Reference
The Registrant's Definitive Proxy Statement for its 1998 Annual Stockholders'
meeting and its Annual Report to stockholders for the fiscal year ended December
31, 1997 are incorporated by reference herein. The Proxy Statement will be filed
with the Commission within 120 days after the close of the fiscal year, along
with a copy of the Registrant's Annual Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized:
LEXINGTON GLOBAL ASSET MANAGERS, INC.
By /s/ Richard M. Hisey
Richard M. Hisey, Executive Vice President
(Chief Financial Officer)
Date March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
/s/Stuart Smith Richardson
Stuart Smith Richardson, Chairman Date March 27, 1998
of the Board of Directors
/s/Robert M. DeMichele
Robert M. DeMichele, President & Director Date March 27, 1998
(Chief Executive Officer)
/s/Richard M. Hisey
Richard M. Hisey, Executive Vice President Date March 27, 1998
(Principal Financial and Accounting Officer)
/s/ Sion A. Boney
Sion A. Boney, III, Director Date March 27, 1998
/s/Haynes G. Griffin
Haynes G. Griffin, Director Date March 27, 1998
/s/William R. Miller
William R. Miller, Director Date March 27, 1998
/s/L. Richardson Preyer
L. Richardson Preyer, Director Date March 27, 1998
/s/Lunsford Richardson, Jr.
Lunsford Richardson, Jr., Director Date March 27, 1998
/s/Peter L. Richardson
Peter L. Richardson, Director Date March 27, 1998
/s/Carl H. Tiedemann
Carl H. Tiedemann, Director Date March 27, 1998
/s/ Marion A. Woodbury
Marion A. Woodbury, Director Date March 27, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Lexington Global Asset Managers, Inc.
We have audited the consolidated statement of financial condition of
Lexington Global Asset Managers, Inc. and Subsidiaries as of December 31, 1996
and the related consolidated statements of operations, changes in stockholders'
equity (deficit), and cash flows for each of the two years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Lexington Global Asset Managers, Inc. and Subsidiaries as of December 31, 1996,
and the consolidated results of their operations and their cash flows for each
of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
New York, New York
February 19, 1997