SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934 (Amendment No.__)
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
LEXINGTON SMALLCAP VALUE FUND, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
1) Title of each class of securities to which transaction applies:
_________________________________________________________________________
2) Aggregate number of securities to which transaction applies:
_________________________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
__________________________________________________________________________
4) Proposed maximum aggregate value of transaction:
__________________________________________________________________________
5) Total fee paid:
__________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
__________________________
2) Form, Schedule or Registration Statement No.:
__________________________
3) Filing Party:
__________________________
4) Date Filed:
__________________________
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663
(800) 526-0056
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
March 27, 1998
Notice is hereby given that a special meeting of the shareholders
(the "Meeting") of the Lexington SmallCap Value Fund, Inc. (the "Fund"),
a Maryland corporation, will be held on March 27, 1998 at 10:00 a.m.
Eastern time, at the offices of the Fund, Park 80 West, Plaza Two, Saddle
Brook, New Jersey, for the following purposes:
1. To elect twelve (12) Directors to hold office until the
election and qualification of their successors;
2. To consider and act upon a proposal to approve a new investment
sub-advisory agreement between Lexington Management Corporation
and Market Systems Research Advisors, Inc. (conducting business
as "MSR Advisors") with respect to the Fund;
3. To consider and act upon a proposal to ratify or reject the
selection of KPMG Peat Marwick LLP as independent certified
public accountants for the Fund for the fiscal year ending
December 31, 1998; and
4. To transact such other business as may properly come before the
Meeting.
Shareholders of record at the close of business on February 12, 1998
are entitled to notice of, and to vote at, the Meeting or any
adjournment(s) thereof.
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN,
SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD IN THE POSTAGE PAID
RETURN ENVELOPE ENCLOSED, SO THAT A QUORUM WILL BE PRESENT AND A MAXIMUM
NUMBER OF SHARES MAY BE VOTED. IT IS MOST IMPORTANT AND IN YOUR INTEREST
FOR YOU TO SIGN YOUR PROXY CARD AND RETURN IT. THE PROXY IS REVOCABLE AT
ANY TIME PRIOR TO ITS USE.
By Order of the Board of Directors,
Lisa A. Curcio, Secretary
Dated: March 15, 1998
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, New Jersey 07663
(800) 526-0056
PROXY STATEMENT
Dated March 15, 1998
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD
March 27, 1998
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of the Lexington SmallCap Value Fund,
Inc. (the "Fund"), a Maryland corporation, for use at a special meeting of
shareholders (the "Meeting") to be held on March 27, 1998, at 10:00 a.m.
Eastern time, at the offices of the Fund, Park 80 West, Plaza Two, Saddle
Brook, New Jersey, and at any adjournments thereof, and was first mailed
to shareholders on or about March 15, 1998. Even if you sign and return
the accompanying proxy, you may revoke it by giving written notice of such
revocation to the Secretary of the Fund prior to the Meeting or by
delivering a subsequently dated proxy or by attending and voting at the
Meeting in person. Management expects to solicit proxies principally by
mail, but Management, or agents appointed by Management, may also solicit
proxies by telephone, telegraph or personal interview. The costs of
solicitation will be borne by Lexington Management Corporation.
The following are the Proposals for the Meeting:
1. Shareholders will be asked to elect twelve (12) Directors to
hold office until the election and qualification of their
successors;
2. Shareholders will be asked to approve a new investment
sub-advisory agreement (the "Sub-Advisory Agreement") between
Lexington Management Corporation (the "Adviser") and Market
Systems Research Advisors, Inc. (conducting business as "MSR
Advisors") with respect to the Fund;
3. To consider and act upon a proposal to ratify or reject the
selection of KPMG Peat Marwick LLP as independent certified
public accountants for the Fund for the fiscal year ending
December 31, 1998; and
4. Shareholders will be asked to transact such other business as
may properly come before the Meeting.
The Board of Directors has fixed the close of business on February
12, 1998 as the record date for the determination of the shareholders
entitled to notice of and to vote at the Meeting or any adjournment
thereof. As of that date, there were approximately 800,442 outstanding
shares of the Fund, each share being entitled to one vote on each matter
to come before the Meeting. As of February 12, 1998, the Directors and
executive officers of the Fund as a group beneficially owned less than 1%
of all issued and outstanding shares of the Fund. As of February 12, 1998,
the following shareholders each beneficially owned 5% or more of a Fund's
shares:
Number of Percentage of
Name and Address Shares Owned Fund Outstanding
----------------- ------------ ----------------
Smith Richardson Foundation* 570,171 71%
701 Green Valley Road
Greensboro, N.C. 27401
State Street Bank & Trust Company 43,704 5%
FBO IRA A/C William G. Hillegass
3739 Duval Drive
Jacksonville Beach, FL 32250
____________
*Smith Richardson Foundation (the "Foundation") may be considered to
control the Fund and to be an "affiliated person" of the Adviser.
The Adviser is a wholly-owned subsidiary of Lexington Global
Managers, Inc., a Delaware corporation. Descendants of Lundsford
Richardson, Sr., their spouses, trusts, a corporation in which they
have interests and charitable organizations established by such
descendants (the "Richardson Family") have a controlling interest in
Lexington Global Managers, Inc. Two controlling shareholders of the
Richardson Family are Trustees of the Foundation. The Adviser serves
as the investment adviser for assets of the Foundation and intends
to vote the Foundation's shares in favor of all proposals.
A copy of the Fund's annual report and most recent semi-annual report
succeeding the annual report may be received, free of charge, by calling
the Fund, toll free, at 1-800-526-0056.
The favorable vote of the holders of a simple majority of the shares
represented at the Meeting is required for the election of Directors
(Proposal 1, below) and the ratification of the selection of KPMG Peat
Marwick LLP as independent certified public accountants (Proposal 3,
below). The favorable vote of the holders of a majority of the outstanding
voting securities of the Fund, as defined in the Investment Company Act of
1940, as amended (the "1940 Act"), is required to approve the Sub-Advisory
Agreement (Proposal 2, below).
In addition to the solicitation of proxies by mail, the Fund may
utilize the services of officers and employees of the Fund, the Adviser,
and Lexington Funds Distributor, Inc., the Fund's distributor, none of whom
receive any compensation therefor, to solicit proxies by telephone,
telegraph and personal interview, and may also provide shareholders with
a procedure for recording their votes by telegraph, facsimile, telephone
or other electronic means. The estimated costs of solicitation of proxies
are expected to be approximately $5,000 in the aggregate for the Fund and
will be borne by the Adviser. The Fund may request brokers, custodians,
nominees and fiduciaries to forward proxy material to the beneficial owners
of shares of record. Persons holding shares as nominees will, upon
request, be reimbursed for their reasonable expenses incurred in sending
soliciting material to their principals.
If a proxy represents a broker "non-vote" (that is, a proxy from a
broker or nominee indicating that such person has not received instructions
from the beneficial owner or other person entitled to vote shares on a
particular matter with respect to which the broker or nominee does not have
discretionary power) or marked with an abstention (collectively, "absten-
tions"), the shares represented thereby will be considered to be present
at the meeting for purposes of determining the existence of a quorum for
the transaction of business and will have the effect of a vote against the
proposal.
At the Meeting, the presence in person or by proxy of shareholders
of one-third of the outstanding shares entitled to vote at the Meeting
shall be necessary and sufficient to constitute a quorum for the
transaction of business. In the event that a quorum of shareholders is not
represented at the Meeting, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have the power to adjourn
the Meeting to be held within a period not exceeding 120 days after the
date originally set for the Meeting, without notice other than announcement
at the Meeting, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted at the meeting as originally notified.
THE PERSONS NAMED IN THE ACCOMPANYING PROXY WILL VOTE THE NUMBER OF
SHARES REPRESENTED THEREBY AS DIRECTED BY THE PROXY OR, IN THE ABSENCE OF
SUCH DIRECTION, FOR APPROVAL OF EACH OF THE ABOVE PROPOSALS.
PROPOSAL 1
ELECTION OF DIRECTORS
Twelve directors are to be elected at the Meeting as the entire Board
of Directors, to hold office until the next meeting and until their
successors shall have been elected and shall have qualified. If authority
is granted on the accompanying proxy to vote in the election of Directors,
it is the intention of the persons named in the proxy to vote at the
Meeting for the election of the nominees named below, each of whom has
consented to serve if elected. If any of the nominees is unavailable to
serve for any reason, the persons named as proxies will vote for such other
nominee or nominees selected by the Board of Directors or the Board may
reduce the number of Directors as provided in the Fund's By-Laws. The Fund
currently knows of no reason why any of the nominees listed below will be
unable to serve if elected.
Year First Shares Owned
Nominee's Name Principal Occupation Became a Beneficially
and Age for Past 5 Years Director Feb. 12, 1998**
- -------------- -------------------- --------- -------------
S.M.S. Chadha Director. Secretary, 1996 0
(60) Ministry of External Affairs,
New Delhi, India; Head of
Foreign Service Institute,
New Delhi, India; Special
Envoy of the Government of
India; Director, Special Unit
for Technical Cooperation
among Developing Countries,
United Nations Development
Program, New York.
Allen M. Stowe Director. President, Shelter 1997 0
(60) Service Company, Inc.;
President, Dartmouth
Co-Operative Society Co., Inc.
*Robert M. President and Chairman of the 1996 0
DeMichele Board. Chairman of the Board
(53) and Chief Executive Officer,
Lexington Management
Corporation; President and
Director, Lexington Global
Asset Managers, Inc.;
Chairman and Chief Executive
Officer, Lexington Funds
Distributor, Inc.; Chairman
of the Board, Market Systems
Research, Inc. and Market
Systems Research Advisors,
Inc. (registered investment
advisors); Director,
Chartwell Re Corporation;
Director, Claredon National
Insurance Company; Director,
Unione Italiana Reinsurance;
Director, Continental
National Corporation;
Director, The Navigator's
Group, Inc.; Director,
Vanguard Cellular Systems,
Inc.; Director, Weeden & Co.;
Trustee, Smith Richardson
Foundation.
Beverley C. Duer Director. Private Investor; 1996 0
(68) Formerly, Manager of
Operations Research
Department, CPC
International, Inc.
*Barbara R. Evans Director. Private Investor; 1996 0
(37) Formerly, Assistant Vice
President and Securities
Analyst, Lexington Management
Corporation.
*Richard M. Hisey Vice President, Treasurer and 1996 0
(39) Director. Managing Director,
Director and Chief Financial
Officer, Lexington Management
Corporation; Chief Financial
Officer, Vice President and
Director, Lexington Funds
Distributor, Inc.; Chief
Financial Officer, Market
Systems Research Advisers,
Inc.; Executive Vice
President and Chief Financial
Officer, Lexington Global
Asset Managers, Inc.
*Lawrence Kantor Vice President and Director. 1996 0
(51) Managing Director, Executive
Vice President and Director,
Lexington Management
Corporation; Executive Vice
President and Director,
Lexington Funds Distributor,
Inc.; Executive Vice
President and General Manager
- Mutual Funds, Lexington
Global Asset Managers, Inc.
Jerard F. Maher Director. General Counsel, 1996 0
(51) Federal Business Centers;
Counsel, Ribis, Graham &
Curtis.
Andrew M. McCosh Director. Professor of the 1996 0
(57) Organisation of Industry and
Commerce, Department of
Business Studies, The
University of Edinburgh,
Scotland.
Donald B. Miller Director. Chairman, Horizon 1996 2,638
(71) Media, Inc.; Trustee, Galaxy
Funds (registered investment
companies); Director, Maguire
Group of Connecticut.
John G. Preston Director. Associate 1996 0
(65) Professor of Finance, Boston
College.
Margaret W. Russell Director. Private Investor. 1996 0
(77)
____________
*An "interested person" as defined in Section 2(a)(19) of the 1940
Act.
**Beneficial ownership is defined in accordance with the rules of the
Securities and Exchange Commission and means generally the power to
vote or dispose of shares, regardless of any economic interest
therein.
All of the Directors hold similar offices with some or all of the
other registered investment companies advised and/or whose shares are
distributed by the Adviser and Lexington Funds Distributor, Inc.
There are no standing audit, nominating or compensation committees
of the Board of Directors, or any committees performing similar functions.
The Board of Directors met four times during the twelve months ended
December 31, 1997, and each of the Directors attended at least 75% of those
meetings.
Senior Officers of the Fund
Year First Shares Owned
Principal Occupation; Became a Beneficially
Name and Age Other Associations Officer Feb. 12, 1998**
- -------------- -------------------- --------- -------------
Robert M. DeMichele* President and Chairman 1996 0
(53) of the Board (see page 4).
Richard M. Hisey* Vice President, Treasurer 1996 0
(39) and Director (see page 5).
Lawrence Kantor* Vice President and Director 1996 0
(51) (see page 5).
Lisa Curcio* Vice President and Secretary. 1996 0
Senior Vice President and
Secretary, Lexington
Management Corporation;
Vice President and
Secretary, Lexington Funds
Distributor, Inc.; Secretary,
Lexington Global Asset
Managers, Inc.
Richard Lavery* Vice President. Senior 1996 0
(43) Vice President, Lexington
Management Corporation;
Vice President, Lexington
Funds Distributor, Inc.
Janice Carnicelli* Vice President. 1996 0
(38)
Frank A. Peluso Vice President and Portfolio 1998 0
(60) Manager. President, Director
and Shareholder, MSR Advisors,
Inc.; President, Director and
Shareholder, Market Systems
Research, Inc.
Alan Wapnick* Vice President and Portfolio 1998 0
(51) Manager. Senior Vice President,
Director of Domestic Equity
Investment Strategy.
___________
*Messrs. DeMichele, Hisey, Kantor, Lavery, Wapnick and Mmes. Curcio
and Carnicelli hold similar offices with some or all of the other
registered investment companies advised and/or whose shares are
distributed by the Adviser and Lexington Funds Distributor, Inc.
**Beneficial ownership is defined in accordance with the rules of the
Securities and Exchange Commission and means generally the power to
vote or dispose of shares, regardless of any economic interest
therein.
Remuneration of Directors and Certain Executive Officers
Each Director is reimbursed for expenses incurred in attending each
meeting of the Board of Directors or any committee thereof up to a maximum
of $9,000 per year for Directors living outside the U.S., and $6,000 per
year for Directors living within the U.S. Each Director who is not an
affiliate of the Adviser is compensated for his or her services according
to a fee schedule which recognizes the fact that each Director also serves
as a Director (or trustee) of other investment companies advised by the
Adviser. Each Director receives a fee, allocated among all investment
companies for which the Director serves. Each Director received an
annualized compensation of $24,000.
Set forth below is information regarding compensation paid or accrued
for the fiscal year ended December 31, 1997 for each Director:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of Directorships
Name of Director Compensation from Fund Fund and Fund Complex in Fund Complex
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $1,712 $26,821 15
- -----------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 16
- -----------------------------------------------------------------------------------------------------
Beverley C. Duer $1,712 $29,521 16
- -----------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- -----------------------------------------------------------------------------------------------------
Richard M. Hisey 0 0 4
- -----------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- -----------------------------------------------------------------------------------------------------
Jerard F. Maher $1,712 $29,521 16
- -----------------------------------------------------------------------------------------------------
Andrew M. McCosh $1,600 $25,029 15
- -----------------------------------------------------------------------------------------------------
Donald B. Miller $1,712 $26,821 15
- -----------------------------------------------------------------------------------------------------
Francis Olmsted* $1,085 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
John G. Preston $1,712 $26,821 15
- -----------------------------------------------------------------------------------------------------
Margaret W. Russell $1,712 $27,045 15
- -----------------------------------------------------------------------------------------------------
Philip C. Smith* $1,200 $19,200 N/A
- -----------------------------------------------------------------------------------------------------
Allen M. Stowe 0 $2,574 5
- -----------------------------------------------------------------------------------------------------
Francis A. Sunderland* $1,085 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>
*Retired
Retirement Plan for Eligible Directors
Under the Retirement Plan for Eligible Directors (the "Plan"), each
Director who is not an employee of the Adviser, any of the funds managed
by the Adviser, the Fund's administrator, Lexington Funds Distributor,
Inc., or any of their affiliates may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement
date is the date on which the eligible Director has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with
one or more of the investment companies advised by the Adviser (or its
affiliates) (collectively, the "Covered Funds"). Each eligible Director
is entitled to receive from the Covered Fund an annual benefit commencing
on the first day of the calendar quarter coincident with or next following
his date of retirement equal to 5% of his compensation multiplied by the
number of such Director's years of service (not in excess of 15 years)
completed with respect to any of the Covered Funds. Such benefit is
payable to each eligible Director in quarterly installments for ten years
following the date of retirement or the life of the Director. The Plan
establishes age 72 as a mandatory retirement age for Directors; however,
Directors who were serving the Covered Funds as of September 12, 1995 are
not subject to such mandatory retirement. Directors who were serving the
Covered Funds as of September 12, 1995 who elected retirement under the
Plan prior to September 12, 1996 receive an annual retirement benefit at
any increased compensation level if compensation is increased prior to
September 12, 1997 and receive spousal benefits (i.e., in the event the
Director dies prior to receiving full benefits under the Plan, the
Director's spouse (if any) will be entitled to receive the retirement
benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors
for one year after retirement and will be entitled to be reimbursed for
travel expenses to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits
payable to an eligible Director upon retirement assuming various
compensation and years of service classifications. As of December 31,
1997, the estimated credited years of service for Directors Chadha, Duer,
Maher, McCosh, Miller, Preston and Russell are 2, 19, 2, 2, 23, 19 and 16,
respectively. The following table refers to retirement compensation for
the trustees and directors of the entire Lexington Fund Complex (the
investment companies managed by the Adviser):
Highest Annual Compensation Paid by All Funds
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
Years of
Service Estimated Annual Benefit Upon Retirement
------- ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
PROPOSAL 2
APPROVAL OF SUB-ADVISORY AGREEMENT
Introduction. The Fund has entered into an investment advisory
agreement with the Adviser, under which the Adviser provides investment
advice and in general conducts the management and investment program of the
Fund under the supervision and control of the Directors of the Fund. The
Adviser has entered into an investment sub-advisory agreement (the
"Existing Sub-Advisory Agreement") with Capital Technology, Inc. ("CTI"),
under which CTI provides the Fund with investment advice and management of
the Fund's investment program by emphasizing value stocks. The Existing
Sub-Advisory Agreement will soon be terminated, in part, to de-emphasize
value stocks and also consider growth stocks.
The Adviser has proposed to enter into a Sub-Advisory Agreement with
Market Systems Research Advisors, Inc. (conducting business as "MSR
Advisors") ("MSR"). Under the proposed Sub-Advisory Agreement, MSR will
provide the Fund with investment advice and management of the Fund's
investment program. MSR is 65% owned by Lexington Global Asset Managers,
Inc. and 35% owned by Frank A. Peluso, MSR's President and Chief Executive
Officer, and MSR is an affiliate of the Adviser. MSR manages $231 million
of assets, which is divided between equity of 73% and fixed income of 27%.
MSR also serves as subadviser to Lexington Natural Resource Trust.
At a meeting held on February 12, 1998, the Fund's Board of
Directors, including a majority of the Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund (the "Disinterested
Directors"), approved the proposed Sub-Advisory Agreement between the
Adviser and MSR. The Board also directed that the proposed Sub-Advisory
Agreement be submitted to shareholders for approval at this meeting.
Shareholders are being asked to approve this transaction.
The Adviser and MSR will establish a universe of small capitalization
stocks that are screened using MSR's proprietary stock selectivity model.
Once the stocks are evaluated and ranked by expected future relative price
performance, the Adviser and MSR will establish both sector and
diversification allocations in building the portfolio. In addition, the
quality of each company and the risk/reward prospects for each security
will be reviewed and analyzed. This approach takes into account both value
and growth stocks rather than being limited to only a value criteria. The
Adviser believes that this multi-faceted process will enhance investment
performance and will improve the consistency of portfolio results over
time.
Based upon the recommendations of the Adviser, the Board of Directors
determined that the proposed Sub-Advisory Agreement was in the best
interests of shareholders.
The Board of Directors also approved a proposal to amend the Fund's
non-fundamental investment policy. Currently, the Fund achieves its
investment objective of capital appreciation primarily by considering only
value stocks. If shareholders approve the proposed Sub-Advisory Agreement,
the Fund will seek to achieve its investment objective by considering both
value and growth stocks. The Adviser believes, and the Board of Directors
concurs, that the new investment policy will better achieve the Fund's
investment objective. The Adviser does not expect this change to have a
material effect on the overall management of the Fund. To be in accordance
with this change in the Fund's investment policy, the Board also approved
the change in the Fund's name to Lexington SmallCap Fund from Lexington
SmallCap Value Fund.
The Sub-Advisory Agreement. The proposed Sub-Advisory Agreement is
materially the same as the Existing Sub-Advisory Agreement and does not
provide for any increase in the investment advisory fees paid by the Fund.
The Adviser is a wholly-owned subsidiary of Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West, Plaza
Two, Saddle Brook, New Jersey 07663. The investment advisory agreement and
the Existing Sub-Advisory Agreement of the Fund were approved by the Fund's
Board of Directors on September 14, 1995. If the proposed Sub-Advisory
Agreement is approved, the Adviser will continue to serve as investment
adviser to the Fund and MSR will serve as the new investment subadviser to
the Fund.
The Fund will be managed by a portfolio management team consisting
of investment professionals from both the Adviser and MSR. The lead
managers will be Robert M. DeMichele, Frank A. Peluso and Alan Wapnick.
Mr. DeMichele is Chairman and Chief Executive Officer of the Adviser.
He is also Chairman of the Investment Strategy Group. In addition, he is
President of Lexington Global Asset Managers, Inc., the Adviser's parent
company. He holds similar offices in other companies owned by Lexington
Global Asset Managers, Inc., as well as the Lexington Funds. Prior to
joining the Adviser in 1981, Mr. DeMichele was a Vice President at A.G.
Becker, Inc., the securities division of Warburg, Paribas, Becker, an
international investment banking firm. From 1973 to 1981, Mr. DeMichele
held several positions, the most recent managing A.G. Becker's Funds
Evaluation and Consulting Group for both the East and West coasts. Mr.
DeMichele is a graduate of Union College with a B.A. in Economics and an
M.B.A. in Finance from Cornell University.
Mr. Peluso is President and Chief Executive Officer of Market Systems
Research Advisors, Inc. Mr. Peluso utilizes a proprietary analytical
system to identify securities with performance potential which he believes
to be exceptional. In addition, Mr. Peluso's proprietary data is used by
professional money managers, insurance companies, brokerage firms, banks,
mutual fund companies and pension funds. Mr. Peluso is a graduate of
Princeton University and has completed a year of post-graduate study at
Columbia University.
Mr. Wapnick is Senior Vice President, Director of Domestic Investment
Equity Strategy of the Adviser. Mr. Wapnick is responsible for domestic
investment analysis and portfolio management with the Adviser. He has 27
years of experience. Prior to joining the Adviser in 1986, Mr. Wapnick was
an equity analyst with Merrill Lynch, J&W Seligman, Dean Witter and most
recently Union Carbide Corporation. Mr. Wapnick is a graduate of Dartmouth
College and received a Masters Degree in Business Administration from
Columbia University.
The following persons are directors and/or senior officers of MSR:
Robert M. DeMichele, Chairman of the Board; Frank A. Peluso, President and
Chief Executive Officer; David S. Zocchi, Vice President and Director of
Marketing; Margaret Inoue, Vice President. The business address of Mr.
DeMichele, Mr. Zocchi and Mr. Wapnick is Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663 and the business address for Mr. Peluso and Ms.
Inoue is 80 Maiden Lane, New York, New York, 10038.
Advisory Fees. As compensation for its services as investment
adviser, the Fund pays the Adviser a monthly advisory fee at the annual
rate of 1.00% of the average daily net assets of the Fund. The Adviser
will pay MSR an annual investment sub-advisory fee of 0.50% of the Fund's
average daily net assets. The investment sub-advisory fee is paid by the
Adviser, not the Fund. For the fiscal year ended December 31, 1997, the
Fund paid the Adviser $91,862. The investment sub-advisory fee under the
proposed Sub-Advisory Agreement will remain 0.50%, and will be paid by the
Adviser.
Differences between the Existing and proposed Sub-Advisory
Agreements. The Existing Sub-Advisory Agreement and the proposed Sub-Advisory
Agreement are the same in all material respects.
Board Considerations. In considering whether to recommend that the
proposed Sub-Advisory Agreement be approved by shareholders, the Board of
Directors considered, among other things, the qualifications of MSR's
professional staff, and information related to MSR's performance over the
past 30 years. In addition, the Board requested and evaluated other
information from MSR which the Board deemed to be relevant. Moreover, the
Board noted that the sub-advisory fees would remain the same and that the
proposed Sub-Advisory Agreement would be materially the same as the
Existing Sub-Advisory Agreement. Finally, the Board also considered various
alternatives, including internalization of management, having the Adviser
more fully assume the sub-advisory function or retaining another
subadviser.
Based on these considerations and the recommendation of the Adviser,
the Board, including a majority of the Disinterested Directors, unanimously
approved the proposed Sub-Advisory Agreement at the meeting held on
February 12, 1998.
Required Vote and Board Recommendation. Approval of the proposed
Sub-Advisory Agreement will require the affirmative vote of a "majority of
the outstanding voting securities" of the Fund, which, for this purpose,
means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of the Fund, or (2) 67% or more of the shares of the
Fund present at the Meeting, if more than 50% of the outstanding shares of
the Fund are represented at the Meeting in person or by proxy. If the
shareholders of the Fund do not approve the proposed Sub-Advisory
Agreement, the Board will take such further action as it may deem to be in
the best interests of the Fund's shareholders.
The Board of Directors recommends that you vote FOR approval of the
proposed Sub-Advisory Agreement between the Adviser and MSR with respect
to the Fund.
PROPOSAL 3
RATIFICATION OR REJECTION OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors, including a majority of the Disinterested
Directors, unanimously appointed KPMG Peat Marwick LLP as independent
certified public accountants to examine and to report on the financial
statements of the Fund for the fiscal year ending December 31, 1998. Such
appointment was expressly conditioned upon the right of the Fund by a vote
of the majority of the outstanding voting securities at any meeting called
for the purpose to terminate such employment. Such firm has no direct or
indirect interest in the Fund.
Representatives of KPMG Peat Marwick LLP are not expected to be
present at the Meeting.
The Board of Directors recommends that you vote FOR the ratification
of the selection of KPMG Peat Marwick LLP as independent certified public
accountants to examine and to report on the financial statements of the
Fund for the fiscal year ending December 31, 1998.
PROPOSAL 4
OTHER MATTERS
The Directors do not know of any matters to be presented at the
Meeting other than those set forth in this proxy statement. If any other
business should come before the meeting, the persons named in the
accompanying proxy will vote thereon in accordance with their best
judgment.
ADDITIONAL INFORMATION
The Principal Underwriter. Lexington Funds Distributor, Inc. is the
principal underwriter of the Fund. The Adviser and Lexington Funds
Distributor, Inc. are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc. Lexington Funds Distributor, Inc. has its principal offices
at Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663.
The Administrator. Lexington Management Corporation also acts as
administrator to the Fund and performs certain administrative and internal
accounting services, including but not limited to, maintaining general
ledger accounts, regulating compliance preparation of financial information
for semi-annual and annual reports, preparing registration statements,
calculating net asset values, communicating with shareholders, supervising
the custodian and providing facilities for such services.
Submission of Proposals for the Next Annual Meeting of the Fund.
Under the Fund's Articles of Incorporation and By-Laws, annual meetings of
shareholders are not required to be held unless necessary under the 1940
Act (for example, when fewer than a majority of the Directors have been
elected by shareholders). Therefore, the Fund does not hold shareholder
meetings on an annual basis. A shareholder proposal intended to be
presented at any meeting hereafter called should be sent to the Fund at
P.O. Box 1515, Saddle Brook, New Jersey 07663, and must be received by the
Fund within a reasonable time before the solicitation relating thereto is
made in order to be included in the notice or proxy statement related to
such meeting. The submission by a shareholder of a proposal for inclusion
in a proxy statement does not guarantee that it will be included.
Shareholder proposals are subject to certain regulations under federal
securities law.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. IF YOU DO NOT EXPECT
TO ATTEND THE MEETING, PLEASE SIGN YOUR PROXY CARD PROMPTLY AND RETURN IT
IN THE ENCLOSED ENVELOPE TO AVOID UNNECESSARY EXPENSE AND DELAY. NO
POSTAGE IS NECESSARY.
March 15, 1998
By Order of the Board of Directors,
Lisa A. Curcio, Secretary
<PAGE>
EXHIBIT A
FORM OF
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made this ______ day of ______1998 by and
between LEXINGTON MANAGEMENT CORPORATION, a Delaware corporation (the
"Adviser"), and MARKET SYSTEMS RESEARCH ADVISORS, INC., a Delaware
corporation (the "Sub-Adviser"), with respect to the following recital of
fact:
RECITAL
WHEREAS, Lexington SmallCap Fund, Inc. (the "Fund") is
registered as an open-end, diversified management investment company under
the Investment Company Act of 1940, as amended (the "1940 Act"), and the
rules and regulations promulgated thereunder; and
WHEREAS, the Adviser is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Sub-Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and engages in the
business of acting as an investment advisor; and
WHEREAS, the Fund is authorized to issue shares of common stock
$.001 par value; and
WHEREAS, the Fund and the Adviser have entered into an
agreement of even date herewith to provide for management services for the
Fund on the terms and conditions set forth therein (the "Investment
Advisory Agreement"); and
WHEREAS, the Sub-Adviser proposes to render investment
management services to the Adviser in connection with the Adviser's
responsibilities to the Fund on the terms and conditions hereinafter set
forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Duties. The Sub-Adviser shall:
(a) Provide the Adviser with such economic research and
securities analysis as the Adviser may from time to time
consider necessary.
(b) Obtain and evaluate pertinent information about
significant developments and economic, statistical and
financial data, domestic, foreign or otherwise, whether
affecting the economy generally or the Fund.
2. Broker-Dealer Relationships.
a. Portfolio Trades. The Adviser and Sub-Adviser at their own
expense, shall place all orders for the purchase and sale of portfolio
securities for the Fund with brokers or dealers selected by the Adviser and
Sub-Adviser which may include brokers or dealers affiliated with the
Adviser or Sub-Adviser. The Adviser and Sub-Adviser shall use their best
efforts to seek to execute portfolio transactions at prices that are
advantageous to the Fund and at commission rates that are reasonable in
relation to the benefits received.
b. Selection of Broker-Dealers. In selecting broker-dealers
qualified to execute a particular transaction, brokers or dealers may be
selected who also provide brokerage and research services (as those terms
are defined in Section 28(e) of the Securities Exchange Act of 1934, as
amended) to the Fund and/or the other accounts which the Adviser, Sub-Adviser
or its affiliates exercise investment discretion. The Adviser and
Sub-Adviser are authorized to pay a broker or dealer who provides such
brokerage and research services a commission for executing a portfolio
transaction for the Fund that is in excess of the amount of commission
another broker or dealer would have charged for effecting that transaction
if the Adviser determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed in
terms of either that particular transaction or the overall responsibilities
that the Adviser and its affiliates have with respect to accounts over
which they exercise investment discretion. The Board shall periodically
review the commissions paid by the Fund to determine if the commissions
paid over representative periods of time were reasonable in relation to the
benefits received.
3. Control by Board of Directors. Any investment program
undertaken by the Sub-Adviser pursuant to this Agreement, as well as any
other activities undertaken by the Sub-Adviser on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of the
Board of Directors of the Fund.
4. Compliance with Applicable Requirements. In carrying out its
obligations under this Agreement, the Sub-Adviser shall at all times
conform to:
(a) all applicable provisions of the 1940 Act; and
(b) the provisions of the Registration Statement of the Fund under
the Securities Act of 1933 and the 1940 Act; and
(c) the provisions of the Fund's Investment Advisory Agreement and
Articles of Incorporation; and
(d) the provisions of the By-Laws of the Fund; and
(e) any other applicable provisions of state, federal, and foreign
law.
5. Expenses. The expenses connected with the Fund shall be borne
by the Sub-Adviser as follows:
(a) The Sub-Adviser shall pay the salaries and payroll expenses of
persons serving as officers or Directors of the Fund who are also employees
of the Sub-Adviser or any of its affiliates.
6. Delegation of Responsibilities. Upon request of the Adviser
and with the approval of the Fund's Board of Directors the Sub-Adviser may
perform services on behalf of the Fund which are not required by this
Agreement. Such services will be performed on behalf of the Fund and the
Sub-Adviser's cost in rendering such services may be billed monthly to the
Adviser, subject to examination by the Adviser's independent accountants.
Payment or assumption by the Sub-Adviser of any Fund expense that the
Sub-Adviser is not required to pay or assume under this Agreement shall not
relieve the Adviser or the Sub-Adviser of any of their obligations to the
Fund or obligate the Sub-Adviser to pay or assume any similar Fund expense
on any subsequent occasions.
7. Compensation. For the services to be rendered and the
facilities furnished hereunder, the Adviser shall pay the Sub-Adviser
monthly compensation of the sum of the amount determined by applying the
following annual rate to the Fund's average daily net assets net of
reimbursement: 0.50% of the Fund's annual average daily net assets, net
of reimbursement and applicable shareholder servicing fees. Compensation
under this Agreement shall be paid monthly. If this Agreement becomes
effective subsequent to the first day of the month or shall terminate
before the last day of the month, compensation for that part of the month
this Agreement is in effect shall be prorated in a manner consistent with
the calculation for the preceding month and shall be made as promptly as
possible after the end of each month.
8. Term. This Agreement shall become effective at the close of
business on the date hereof and shall remain in force and effect, subject
to Section 11 hereof for two years from the date hereof.
9. Renewal. Following the expiration of its initial two year
term, this Agreement shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least annually.
(a) (i) by the Fund's Board of Directors or (ii) by the vote of a
majority of the Fund's outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Directors who are
not parties of this Agreement or interested persons of a party to the
Agreement (other than as a Director of the Fund), by votes cast in person
at a meeting specifically called for such purposes.
10. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by vote of the Fund's Board of
Directors or by vote of a majority of the Fund's outstanding voting
securities or by the Sub-Adviser on sixty (60) days' written notice to the
other party. This Agreement shall automatically terminate in the event of
its assignment, the term "assignment" for the purposes having the meaning
defined in Section 2(a)(42) of the Act.
11. Liability of the Sub-Adviser. In the absence of willful
misfeasance, bad faith, gross negligence on the part of the Sub-Adviser or
its officers, directors or employees, or reckless disregard by the
Sub-Adviser of its duties under this Agreement, the Sub-Adviser shall not be
liable to the Adviser, the Fund or to any shareholder of the Fund for any
act or omission in the course of, or connected with, rendering services
hereunder or for any losses that may be sustained in the purchase, holding
or sale of any security, provided the Sub-Adviser has acted in good faith.
12. Notices. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at such
address as such other party may designate for the receipt of such notice.
Until further notice to the other party, it is agreed that the address of
the Adviser shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey
07663, and that of the Sub-Adviser for this purpose shall be MARKET SYSTEMS
RESEARCH ADVISORS, INC., 80 Maiden Lane, New York, New York, 10038, with
a copy to the Adviser.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on the
day and year first above written.
LEXINGTON MANAGEMENT CORPORATION
Attest: By_________________________________
Executive Vice President
__________________________
MARKET SYSTEMS RESEARCH ADVISORS, INC.
Attest: By_________________________________
President
__________________________
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS of the Lexington
SmallCap Value Fund, Inc. (the "Fund"), for use at a Special Meeting of
Shareholders to be held at the offices of the Fund, Park 80 West, Plaza
Two, Saddle Brook, New Jersey, on March 27, 1998 at 10 a.m. Eastern time.
The undersigned hereby appoints Peter Corniotes and Richard J.
Lavery, and each of them, with full power of substitution, as proxies of
the undersigned to vote at the above-stated Special Meeting, and at all
adjournments thereof, all shares of beneficial interest of the Fund that
are held of record by the undersigned on the record date for the Special
Meeting, upon the following matters:
Please mark box in blue or black ink.
ITEM 1. Votes on Proposal to elect directors to serve as members of the
Board of Directors of the Fund, the nominees are: S.M.S. Chadha,
Allen M. Stowe, Robert M. DeMichele, Beverley C. Duer, Barbara R.
Evans, Richard M. Hisey, Lawrence Kantor, Jerard F. Maher, Andrew
M. McCosh, Donald B. Miller, John G. Preston, and Margaret W.
Russell.
FOR ALL
FOR WITHHOLD EXCEPT
[ ] [ ] [ ] TO WITHHOLD
AUTHORITY TO VOTE
FOR ANY INDIVIDUAL
NOMINEE, MARK THE
"FOR ALL EXCEPT"
BOX, AND STRIKE A
LINE THROUGH THE
NOMINEE'S NAME IN
THE LIST ABOVE.
ITEM 2. Vote on Proposal to approve an investment sub-advisory agreement
between Lexington Management Corporation and Market Systems
Research Advisors, Inc. (conducting business as "MSR Advisors")
for the Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 3. Vote on Proposal to ratify the selection of KPMG Peat Marwick as
independent certified public accountants to the Fund.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
ITEM 4. Vote on the transaction of such other business as may be properly
brought before the meeting.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Every properly signed proxy will be voted in the manner specified
thereon and, in the absence of specification, will be treated as
GRANTING authority to vote FOR all of the above items.
Receipt of Notice of Special Meeting is hereby acknowledged.
PLEASE SIGN, DATE AND RETURN PROMPTLY.
__________________________________________
Sign here exactly as name(s)
appears hereon
__________________________________________
Dated:________________________________,1998
IMPORTANT: Joint owners must EACH sign.
When signing as attorney, executor,
administrator, trustee, guardian or
corporate officer, please give your
full title as such.
