Dear Shareholders:
- --------------------------------------------------------------------------------
We are pleased to report our inaugural semi-annual results for the
Lexington SmallCap Value Fund. The Fund appreciated by 4.9%* during the second
quarter. Since inception, the Fund has appreciated 9.1%*. The unmanaged Russell
2000 Index, a widely-followed measure of the smaller capitalization domestic
market segment, was up 5.0% for the quarter and 10.4% for the first half of
1996. The average small cap fund, according to Lipper Analytical Services, Inc.
rose 7.9% during the quarter and was up 15.1% for the six month period through
June 30, 1996.
The environment was extremely favorable for small company investing after
January, and the Fund participated in the rally, earning strong absolute returns
over the remainder of the first half. However, relative to its peer group, the
Fund underperformed. This underperformance can be attributed to several factors.
Our strict adherence to a disciplined "value" strategy of investing was somewhat
out-of-favor compared to an earnings "growth" emphasis. The Fund was not as
heavily weighted in higher price/earnings multiple technology stocks as were
other funds, nor does it make short-term investments in "hot" issues such as
Initial Public Offerings (IPO's). Consequently, the Fund did not fully benefit
from the resurgence of these market niches. While the Russell 2000 Index was up
10.4% in the half as mentioned, the unmanaged Russell 2000 Value component
lagged at an 8.7% pace which reflects these internal market dynamics.
Reaching a fully invested position from initial start-up also had a negative
impact on the Fund's performance. However, as of June 30, 1996, the Fund held
3.1% cash.
Looking toward the second half of 1996, we expect the Fund to remain fully
invested and widely diversified by industry and market sector classification.
While the small cap market segment may remain subject to wide swings, we believe
the whole year will represent one in which smaller companies outperform their
larger brethren as has been the historical tendency. The absence of a recession
in the economy and stabilization of interest rates should provide an environment
in which issue selectivity and stock picking capability will be rewarded. Should
earnings momentum slow or growth plays become too greatly overvalued by
exuberant investors, our value stocks should be well-positioned for superior
performance. We forsee no changes to our continued emphasis on extremely
undervalued securities as defined by comparing revenues and book value to market
capitalization.
We appreciate your continued support and would welcome the opportunity to
discuss any questions you may have about your investment.
Sincerely,
Robb W. Rowe, CFA Dennis J. Hamilton, CFA
Portfolio Manager Portfolio Manager
July, 1996 July, 1996
*19.11% is the from commencement (1/2/96) average annual standard total return,
respectively, for the period ended June 30, 1996. Investment return and
principal value of an investment will fluctuate so that an investor's shares,
when redeemed, may be worth more or less than at their original cost. Total
return represents past performance.
1
<PAGE>
Lexington SmallCap Value Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited)
Number
of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
Common Stocks: 97.3%
Capital Equipment: 4.7%
3,900 Banyan Systems, Inc.1 ................................ $ 28,031
9,200 Detroit Diesel Corporation1 .......................... 178,250
13,300 Information Resources, Inc.1 ......................... 161,263
----------
367,544
----------
Consumer-Durable Goods: 10.7%
11,900 Ampco-Pittsburgh Corporation ......................... 138,338
5,850 Bio-Rad Laboratiories, Inc. "A"1 ..................... 209,869
8,700 Commercial Intertech Corporation ..................... 224,025
8,600 Douglas & Lomason Company ............................ 124,700
19,700 O'Sullivan Industries Holdings, Inc.1 ................ 145,288
----------
842,220
----------
Consumer-Non Durable Goods: 4.2%
6,100 Canandaigua Wine Company, Inc. "A"1 .................. 183,763
6,700 Paragon Trade Brands, Inc.1 .......................... 144,050
----------
327,813
----------
Electrical and Electronics: 16.4%
14,500 Acclaim Entertainment, Inc.1 ......................... 140,469
19,000 Alliance Semiconductor Corporation1 .................. 157,938
26,000 American Software, Inc.1 ............................. 120,250
22,000 Asante Technologies, Inc.1 ........................... 147,125
8,000 Avid Technology, Inc.1 ............................... 147,500
1,000 Dynatech Corporation1 ................................ 32,625
12,000 Sequent Computer Systems, Inc.1 ...................... 161,250
12,000 Telxon Corporation ................................... 143,250
5,600 Verifone, Inc.1 ...................................... 236,600
----------
1,287,007
----------
Energy Sources: 0.2%
2,000 Patina Oil & Gas Corporation1 ........................ 14,250
----------
Financial Services: 3.8%
7,600 John Alden Financial Corporation ..................... 168,150
11,640 National Auto Credit, Inc. ........................... 132,405
----------
300,555
----------
Food Wholesalers: 1.4%
11,400 Super Food Services, Inc. ............................ 108,300
----------
2
<PAGE>
Lexington SmallCap Value Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
Number
of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
Health & Personal Care: 7.6%
12,400 Medex, Inc. .......................................... $ 161,975
15,700 NBTY, Inc.1 .......................................... 157,000
37,800 Staff Builders, Inc. "A"1 ............................ 126,394
4,784 Steris Corporation1 .................................. 152,789
----------
598,158
----------
Health Care Diversified: 2.0%
11,300 Sun Healthcare Group, Inc.1 .......................... 161,025
----------
Health Equipment And Services: 4.7%
29,000 NovaCare, Inc.1 ...................................... 221,125
11,000 OEC Medical Systems, Inc.1 ........................... 149,875
----------
371,000
----------
Healthcare Miscellaneous: 8.8%
13,100 Carter-Wallace, Inc. ................................. 191,587
4,300 Coherent, Inc.1 ...................................... 225,212
8,800 Foxmeyer Health Corporation1 ......................... 130,900
6,000 Integrated Health Services, Inc.1 .................... 142,500
----------
690,199
----------
Manufacturing-Diversified Industries: 1.7%
22,400 United Industrial Corporation ........................ 137,200
----------
Materials: 9.1%
9,900 ACX Technologies, Inc.1 .............................. 196,762
7,800 Coeur D'Alene Mines Corporation ...................... 143,325
6,200 Dexter Corporation ................................... 184,450
15,100 Phillips-Van Heusen1 ................................. 192,525
----------
717,062
----------
Merchandising: 4.2%
11,000 Cyrk International, Inc.1 ............................ 147,812
27,000 Handleman Company .................................... 185,625
----------
333,437
----------
Retail: 2.0%
24,500 Cash America International, Inc. ..................... 159,250
----------
3
<PAGE>
Lexington SmallCap Value Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
Number
of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
Services: 5.7%
15,100 Community Psychiatric Centers1 ....................... $ 143,450
46,000 International Technology Corporation1 ................ 126,500
23,000 Spelling Entertainment Group, Inc.1 .................. 175,375
----------
445,325
----------
Telecommunications: 4.1%
9,800 California Microwave, Inc.1 .......................... 150,675
20,000 InterDigital Communications Corporation1 ............. 170,000
----------
320,675
----------
Transportation: 2.2%
6,200 Alaska Air Group, Inc.1 .............................. 169,725
----------
Utilities: 3.8%
11,100 Forest Oil Corporation1 .............................. 150,543
45,000 Kaneb Services, Inc.1 ................................ 146,250
----------
296,793
----------
Total Investments: 97.3%
(cost $7,091,375+)(Note 1) ........................... 7,647,538
Other assets in excess of liabilities: 2.7% .......... 213,267
----------
Total Net Assets: 100.0%
(equivalent to $10.91 per share on 720,644
shares outstanding) ............................... $7,860,805
==========
1Non-income producing securities.
+Aggregate cost for Federal Income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
Lexington SmallCap Value Fund, Inc.
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
Assets
Investments, at value (cost $7,091,375) (Note 1) ................. $7,647,538
Cash ............................................................. 249,611
Receivable for investment securities sold ........................ 8,116
Receivable for shares sold ....................................... 6
Dividends and interest receivable ................................ 4,338
Deferred organizational expenses, net (Note 1) ................... 43,522
----------
Total Assets 7,953,131
----------
Liabilities
Due to Lexington Management Corporation (Note 2) ................. 5,773
Payable for investment securities purchased ...................... 17,442
Payable for shares redeemed ...................................... 195
Accrued expenses ................................................. 68,916
----------
Total Liabilities 92,326
----------
Net Assets (equivalent to $10.91 per share
on 720,644 shares outstanding) (Note 3) ........................ $7,860,805
==========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
$.001 par value per share ...................................... $ 721
Additional paid-in capital ....................................... 7,331,635
Accumulated deficit .............................................. (28,493)
Accumulated net realized gain on investments ..................... 779
Net unrealized appreciation of investments (Note 4) .............. 556,163
----------
$7,860,805
==========
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Lexington SmallCap Value Fund, Inc.
Statement of Operations
Six months ended June 30, 1996 (unaudited)
Investment Income
Income
Dividends ........................................... $ 16,474
Interest ............................................. 10,786
--------
Total investment income $ 27,260
Expenses
Investment advisory fee (Note 2) ..................... 30,909
Professional fees .................................... 9,604
Printing and mailing expenses ........................ 8,540
Distribution expenses (Note 5) ....................... 7,703
Directors' fees ...................................... 5,852
Transfer agent fees .................................. 5,036
Amortization of organizational costs (Note 1) ........ 4,815
Registration fees .................................... 4,340
Computer processing fees ............................. 3,428
Custodian fees ....................................... 644
Other expenses ....................................... 3,964
--------
Total expenses .................................... 84,835
Less: expenses recovered under contract with
investment adviser (Note 2) ................... 29,082 55,753
-------- --------
Net investment loss ........................... (28,493)
Realized and Unrealized Gain on Investments (Note 4)
Net realized gain on investments ..................... 779
Net change in unrealized appreciation of investments . 556,163
--------
Net realized and unrealized gain on investments ... 556,942
--------
Increase in Net Assets Resulting from Operations ........ $528,449
========
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
Lexington SmallCap Value Fund, Inc.
Statement of Changes in Net Assets
Six months ended June 30, 1996 (unaudited)
Net investment loss ................................................ $ (28,493)
Net realized gain from investment transactions ..................... 779
Increase in unrealized appreciation of investments ................. 556,163
----------
Increase in net assets resulting from operations ................ 528,449
Increase in net assets from capital share transactions (Note 3) .... 7,332,356
----------
Increase in net assets .......................................... 7,860,805
Net Assets
Beginning of period ................................................ -
----------
End of period ...................................................... $7,860,805
==========
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
Lexington SmallCap Value Fund, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited)
1. Significant Accounting Policies
Lexington SmallCap Value Fund, Inc. (the "Fund") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is to seek long-term capital
appreciation. The Fund commenced operations on January 2, 1996. The following is
a summary of significant accounting policies followed by the Fund in the
preparation of its financial statements:
Investments Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market are
valued at the mean between the last current bid and asked price. Short-term
securities having maturity of 60 days or less are stated at amortized cost,
which approximates market value. Securities for which market quotations are not
readily available and other assets are valued by Fund management in good faith
under the direction of the Fund's Board of Directors. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income, adjusted for amortization of premiums and accretion of discounts, is
accrued as earned.
Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
Deferred Organization Expenses Organization expenses aggregating $48,337
have been deferred and are being amortized on a straight line basis over five
years.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at the annual rate of 1.00% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with Capital Technology, Inc. ("CTI") under which CTI
provides the Fund with investment management services. Pursuant to the terms of
the sub-advisory contract between LMC and CTI, LMC pays CTI a monthly
sub-advisory fee at the annual rate of 0.50% of the Fund's average daily net
assets. The sub-advisory fee will be paid by LMC, not the Fund. LMC has agreed
to voluntarily limit the total expenses of the Fund (excluding interest, taxes,
brokerage, and extraordinary expenses but including the management fee and
operating expenses) to an annual rate of 1.75% of the Fund's average daily net
assets through April 30, 1996. Effective May 1, 1996 the total annual expenses
of the Fund (excluding interest, taxes, brokerage, and extraordinary expenses
but including the management fee and operating expenses) will not exceed the
level of expenses which the Fund is permitted to bear under the most restrictive
expense limitation imposed by any state in which shares of the Fund are offered
for sale. The investment advisory fee and expense reimbursement are set forth in
the statement of operations.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
8
<PAGE>
Lexington SmallCap Value Fund, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited) (continued)
3. Capital Stock
Transactions in capital stock were as follows:
January 2, 1996
(commencement of
operations)
to June 30, 1996
-------------------
Shares Amount
------ ------
Shares sold ........................................... 747,944 $7,626,315
Shares redeemed ....................................... (27,300) (293,959)
------- ---------
Net increase ....................................... 720,644 $7,332,356
======= =========
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for January 2, 1996
(commencement of operations) to June 30, 1996, excluding short-term securities,
were $7,388,846 and $298,250 respectively.
At June 30, 1996, the aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $872,150 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $315,987.
5. Distribution Plan
The Fund has a distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the six months ended June 30,
1996 were $7,703 and are set forth in the statement of operations.
9
<PAGE>
Lexington SmallCap Value Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
January 2, 1996 (commencement of operations) to June 30, 1996
Net asset value, beginning of period .............................. $10.00
------
Income (loss) from investment operations:
Net investment loss ............................................ (0.04)
Net realized and unrealized gain on investments ................ 0.95
------
Total income from investment operations ........................... 0.91
------
Net asset value, end of period .................................... $10.91
======
Total return ...................................................... 19.19%*
Ratio to average net assets:
Expenses, before reimbursement ................................. 2.75%*
Expenses, net of reimbursement ................................. 1.81%*
Net investment loss, before reimbursement ...................... (1.87%)*
Net investment loss ............................................ (0.93%)*
Portfolio turnover ................................................ 10.88%*
Average commissions paid on equity security transactions .......... $ 0.03
Net assets at end of period (000's omitted) ....................... $7,861
- -----------
*Annualized
10
<PAGE>
(LEFT COLUMN)
LEXINGTON
INVESTOR SERVICES
- --------------------------------------------------------------------------------
As a Lexington shareholder, you should be aware of the many services available
to you.
No Load-The Lexington Funds are no load funds. That is, investments and
redemptions are made without any sales charges, commissions or redemption fees.
----------
Free Telephone Exchange-Investments in the Lexington Funds may be exchanged for
shares of a different Lexington Fund at any time.
----------
Check Writing Privileges-Lexington Money Market Trust and Lexington Tax Free
Money Fund permit investors immediate access to their funds with check writing
for withdrawals from their account.
----------
Tax Sheltered Plans-IRA, Keogh, Pension, and Profit Sharing Prototype Plans are
available to qualified individuals. These plans offer investment flexibility
through the Share Exchange Service, simplified record keeping, convenience and
investment supervision.
----------
Custodial Accounts for Minors-Investments may be made on behalf of minors under
the Uniform Gifts to Minors Act currently in effect in all states.
----------
Systematic Withdrawal Plan-An investor may elect to receive a fixed amount from
his or her account each month or quarter, subject to certain minimums.
----------
Complete Record Keeping-A statement is provided for every transaction in
addition to a year-end statement with tax information.
(RIGHT COLUMN)
The Lexington Group of
No Load Investment Companies
Lexington Worldwide Emerging Markets Fund, Inc.-Seeks long-term growth of
capital primarily through investment in equity securities of companies domiciled
in, or doing business in, emerging countries and emerging markets.
Lexington Troika Dialog Russia Fund, Inc.-Seeks long term capital appreciation
through investments primarily in equity securities of Russian companies.
Lexington Global Fund, Inc.-Seeks long-term growth of capital primarily through
investment in common stocks of companies domiciled in foreign countries and the
United States.
Lexington International Fund, Inc.-Seeks long-term growth of capital through
investment in companies domiciled in foreign countries.
Lexington Crosby Small Cap Asia Growth Fund, Inc.-Seeks long-term capital
appreciation through investment in companies domiciled in the Asia Region with a
market capitalization of less than $1 billion.
Lexington Ramirez Global Income Fund-Seeks high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated debt securities.
Lexington Goldfund, Inc.-Seeks capital appreciation through investment in gold
bullion and shares of gold mining companies.
Lexington Growth and Income Fund, Inc.-Seeks capital appreciation over the
long-term through investments in the stocks of large, ably managed and well
financed companies.
Lexington Corporate Leaders Trust Fund-Seeks capital growth and reasonable
income through investment in an equal number of shares of an established list of
American blue chip corporations.
Lexington SmallCap Value Fund, Inc.-Seeks long-term capital appreciation through
investment in common stocks of companies domiciled in the United States with a
market capitalization of less than $1 billion.
Lexington Convertible Securities Fund-Seeks total return by providing capital
appreciation, current income and conservation of capital through investments in
a diversified portfolio of securities convertible into shares of common stock.
Lexington GNMA Income Fund, Inc.-Seeks to achieve a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae") certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
Lexington Money Market Trust-Seeks a high level of current income consistent
with preservation of capital and liquidity through investments in interest
bearing short-term money market instruments.
Lexington Tax Free Money Fund, Inc.-Seeks current income exempt from Federal
income taxes while maintaining stability of principal, liquidity and
preservation of capital.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
11
<PAGE>
Left Column
Lexington
SmallCap Value Fund, Inc.
Investment Adviser
- -----------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
Capital Technology, Inc.
McMullen Creek Office Center
P.O. Box 472428
Charlotte, North Carolina 28247
Distributor
- -----------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
-----------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
-----------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
------------------------------------------
- -----------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield * Account Balances * Exchanges *
Last Transactions * Total Return * Duplicate Statements
- -----------------------------------------------------------
This report has been prepared for the information of the
shareholders of Lexington SmallCap Value Fund, Inc. and is
authorized for distribution to the public only if it is
accompanied or preceded by a currently effective prospectus
which sets forth expenses and other material information.
Right Column
-------------
LEXINGTON
-------------
------------------------------------
LEXINGTON
SMALLCAP
VALUE
FUND, INC.
(filled box)
Seeks long-term capital
appreciation through investment in
common stocks or companies
domiciled in the United States
with a market capitalization
of less than $1 billion.
(filled box)
SEMI-ANNUAL REPORT
JUNE 30, 1996
The Lexington Group
of No Load
Investment Companies
------------------------------------
