DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The Lexington SmallCap Value Fund had a total return of by 10.47%* for the
year ended December 31, 1997. The unmanaged Russell 2000 Index of domestic small
capitalization companies (the "Index") rose 22.4% for 1997. The average small
company growth fund, according to Lipper Analytical Services, Inc., rose 20.6%
during the year.
While a double-digit "absolute" total rate of return in a low inflation
environment is acceptable during most years, our "relative" performance last
year was very disappointing. Once again, smaller capitalization stocks in
general lagged behind large companies for the year as witnessed by the unmanaged
Standard & Poor's 500 Composite Stock Price Index gain of over 33% versus 22%
for our benchmark. However, the reasons for the Fund's underperformance are more
complex and are outlined in the narrative which follows.
DISCUSSION OF PERFORMANCE
The Fund's fourth quarter performance in 1997 was especially poor compared
to our benchmark and had a major negative impact on the entire year.
Specifically, the Fund declined 11.4%* versus only 3.4% for the Index. While our
investing style has historically tended to lag the market late in the year, the
magnitude of the recent performance merits further discussion of the two major
factors we have identified.
The first is the Fund's relative under exposure to the financial sector of
the unmanaged Russell 2000 Index, a sector of the market that has been one of
the market leaders for the past several years. The reason our portfolio was
light in this sector is straightforward - these stocks are not cheap by our
disciplined standards. Looking at price valuation on a book and revenue basis,
the financial sector seems to be richly valued. With many banks being purchased
for multiples of book value in the 4 to 5 times range, we believe this area has
become quite speculative and is being priced based on the potential for
acquisition - not ongoing operations.
Our investment discipline has kept us out of financial issues for the last
two years. While financials have been one of the leaders in the market, we had
been able to offset our under weighting in these issues through savvy stock
picking in other areas. In late 1997, the monies that were not invested in the
financial sector were redeployed in technology. With the onset of the "Asian
Flu" in the fourth quarter, even our small technology stocks with limited
exposure to Asia caught a cold. Coupling their poor performance with an
underweighting in the financials proved to be a damaging combination in the
short term.
Another reason for our underperformance in the fourth quarter is tax-loss
selling. Most of the stocks that we own have a high degree of inside (taxable)
ownership and limited institutional (tax-exempt) ownership. With the
introduction of a new more favorable capital gains tax rate, there appeared to
be a significant amount of money that was realized in capital gains this year.
Given the ability to offset some of these gains through the use of losses, our
types of stocks that are selling at depressed prices with limited liquidity tend
to experience downsize price pressure.
OUTLOOK AND STRATEGY
We have no plans to change our strategy in response to this sudden
downturn in performance. With the tax-loss selling phenomenon behind us, there
may be a silver-lining, that is, stocks that come under the most pressure late
in the year tend to fare well in the current quarter in what is called the
"January Effect". While we have suffered from our lack of exposure to the
financial sector, we still firmly believe that this sector is over valued and
does not offer high return potential looking forward. As in the past, we will
attempt to sell our non-performing stocks into the strength provided by any
January Effect, and reinvest in higher potential, more undervalued issues.
1
<PAGE>
We would expect that the continuing turmoil in Asia would weigh more
heavily on the larger multinational companies than the small, domestic issues in
which we invest. When coupled with the reduction in long-term capital gains
rates, the outlook for small companies is favorable.
We appreciate your continued support and patience as we weather this
challenging environment and, as always, welcome the opportunity to discuss any
questions you may have about your investment.
Sincerely,
/s/ Robb W. Rowe, CFA /s/ Dennis J. Hamilton, CFA /s/ Robert M. DeMichele
- --------------------- --------------------------- -----------------------
Robb W. Rowe, CFA Dennis J. Hamilton, CFA Robert M. DeMichele
Portfolio Manager Portfolio Manager President
February, 1998 February, 1998 February, 1998
Comparison of change in value of a $10,000 investment in
Lexington SmallCap Value Func, Inc. and
the unmanaged Russell 2000 Index
[The following table represents a line chart in the printed report.]
Lexington Russell
Year Small Cap 2000 Index
==================================
1/2/96 $10,000 $10,000
6/30/96 $10,910 $11,036
12/31/96 $11,757 $11,649
6/30/97 $12,970 $12,837
12/31/97 $12,988 $14,253
Average Annual Standard Total Returns
for the Period Ended 12/31/97
- --------------------------------------------------------------------------------
Fund/Index 1 Yr Since Inception 1/2/96
Annualized
- --------------------------------------------------------------------------------
Lexington SmallCap Value Fund 10.47% 13.99%
Russell 2000 22.36% 19.39%
-------------------------------------------------------------------------------
*10.47% and 13.99% are the one year and since commencement (1/2/96) average
annual standard total returns, respectively, for the period ended December 31,
1997. Investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than at
their original cost. Total return represents past performance and is not
predictive of future results.
2
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997
Number
of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCK: 97.9%
AUTOMOTIVE FINANCE: 2.3%
18,000 Arcadia Financial, Ltd.1 ........................... $ 133,875
16,940 National Auto Credit, Inc.1 ........................ 89,994
---------
223,869
---------
BANKING: 1.7%
12,500 Aames Financial Corporation ........................ 161,719
---------
BUILDING MATERIALS: 0.6%
3,000 ABT Building Products1 ............................. 54,000
---------
CAPITAL EQUIPMENT: 3.3%
3,700 Detroit Diesel Corporation1 ........................ 87,875
8,000 Watts Industries, Inc. ............................. 226,500
---------
314,375
---------
CONSTRUCTION & HOUSING: 4.0%
10,000 Granite Construction, Inc. ......................... 230,000
20,000 INSITUFORM TECHNOLOGIES1 ........................ 155,000
---------
385,000
---------
CONSUMER DURABLE GOODS: 4.5%
13,500 Ampco-Pittsburgh Corporation ....................... 264,094
6,500 Bio-Rad Laboratiories, Inc. "A"1 ................... 169,812
---------
433,906
---------
CONSUMER NONDURABLE GOODS: 3.3%
3,900 Canandaigua Brands, Inc.1 .......................... 216,450
7,700 Paragon Trade Brands, Inc.1 ........................ 99,137
---------
315,587
---------
ELECTRICAL & ELECTRONICS: 15.9%
26,000 American Software, Inc.1 ........................... 243,750
22,000 Asante Technologies, Inc.1 ......................... 79,750
45,000 Dataware Techologies, Inc.1 ........................ 123,750
18,500 Intergraph Corporation1 ............................ 186,156
16,300 Interphase Corporation1 ............................ 95,253
18,000 Mylex Corporation1 ................................. 164,250
5,700 Progress Software Corporation1 ..................... 123,262
9,000 Sequent Computer Systems1 .......................... 180,562
8,200 Telxon Corporation ................................. 196,800
5,000 Watkins-Johnson Company ............................ 129,687
---------
1,523,220
---------
ENERGY SOURCES: 5.7%
10,000 Benton Oil and Gas Company1 ........................ 129,375
24,700 Patina Oil & Gas Corporation ....................... 189,881
10,000 Western Gas Resorces, Inc. ......................... 221,250
---------
540,506
---------
FINANCIAL SERVICES: 3.8%
6,700 John Alden Financial ............................... 160,800
12,000 Life USA Holding, Inc.1 ............................ 204,000
---------
364,800
---------
3
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997
Number
of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
HEALTH & PERSONAL CARE: 8.7%
8,000 Alpharma, Inc. ..................................... $174,000
6,206 Laboratory Corporation of
America Holdings (Preferred shares) ................ 287,028
76,300 Laboratory Corporation of
America Holdings1 .................................. 128,756
12,400 Roberts Pharmaceutical
Corporation1 ....................................... 118,575
55,800 Staff Builders, Inc. "A"1 .......................... 119,447
---------
827,806
---------
HEALTH EQUIPMENT & SERVICES: 5.5%
22,000 NovaCare, Inc.1 .................................... 287,375
12,200 OEC Medical Systems, Inc.1 ......................... 243,238
---------
530,613
---------
HEALTHCARE-MISCELLANEOUS: 4.9%
14,800 Carter-Wallace, Inc. ............................... 249,750
7,000 Integrated Health Services, Inc. ................... 218,313
---------
468,063
---------
MANUFACTURED HOUSING: 1.9%
6,500 Skyline Corporation ................................ 178,750
---------
MATERIALS: 2.6%
6,400 ACX Technologies, Inc.1 ............................ 156,400
9,800 COEUR D'ALENE MINES1 ............................ 88,200
---------
244,600
---------
MERCHANDISING: 8.3%
13,900 Cyrk International, Inc.1 .......................... 137,263
10,000 Fingerhut Companies, Inc. .......................... 213,750
32,000 Handleman Company1 ................................. 222,000
25,000 Value City Department Stores, Inc.1 ................ 221,875
---------
794,888
---------
REAL ESTATE: 1.8%
16,000 Horizon Group, Inc. ................................ 175,000
---------
SERVICES: 4.5%
41,200 Interface Systems, Inc.1 ........................... 110,081
25,000 OHM Corporation1 ................................... 190,625
18,000 Spelling Entertainment Group, Inc.1 ................ 126,000
---------
426,706
---------
TELECOMMUNICATIONS: 4.6%
12,600 California Microwave, Inc.1 ........................ 246,488
10,000 Cidco, Inc.1 ....................................... 190,625
---------
437,113
---------
4
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997
Number
of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT: 1.1%
16,000 Picturetel Corporation1 ............................ $105,000
----------
Transportation: 3.8%
2,600 Alaska Air Group, Inc.1 ............................ 100,750
14,000 America West Airlines, Inc.1 ....................... 260,750
----------
361,500
----------
UTILITIES: 5.1%
13,500 Forest Oil Corporation1 ............................ 222,750
52,000 Kaneb Services, Inc.1 .............................. 269,750
----------
492,500
----------
TOTAL INVESTMENTS: 97.9%
(cost $8,701,522+)(Note 1) ......................... 9,359,521
Other assets in excess of liabilities: 2.1% ....... 205,252
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $11.39 per share on 839,719
shares outstanding) ........................ $9,564,773
==========
1Non-income producing security.
+Aggregate cost for Federal income tax purposes is $8,701,737.
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
ASSETS
Investments, at value
(cost $8,701,522) (Note1) ................................... $9,359,521
Cash ........................................................... 194,940
Receivable for investment
securities sold ............................................. 25,687
Receivable for shares sold ..................................... 34
Dividends and interest receivable .............................. 11,289
Deferred organization expense,
net (Note 1) ................................................ 31,681
----------
Total Assets ..................................... 9,623,152
----------
LIABILITIES
Due to Lexington Management
Corporation (Note 2) ........................................ 8,134
Payable for shares redeemed .................................... 13,501
Distributions payable .......................................... 2,117
Accrued expenses ............................................... 34,627
----------
Total Liabilities ................................ 58,379
----------
Net Assets (equivalent to $11.39
per share on 839,719 shares
outstanding) (Note 4) ....................................... $9,564,773
==========
NET ASSETS consist of:
Capital stock -- authorized
1,000,000,000 shares,
$.001 par value per share ................................... $ 840
Additional paid-in capital (Note 1) ............................ 8,808,618
Accumulated deficit (Note 1) ................................... (18,112)
Accumulated net realized gain
on investments (Note 1) . ................................... 115,428
Unrealized appreciation
on investments .............................................. 657,999
----------
TOTAL NET ASSETS ............................................. $9,564,773
==========
LEXINGTON SMALLCAP VALUE FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1997
INVESTMENT INCOME
Dividends ............................................ $59,051
Interest ............................................. 13,221
------
$ 72,272
Expenses
Investment advisory fee
(Note 2). ........................................ 91,862
Printing and mailing
expenses ......................................... 33,027
Transfer agent and
shareholder servicing
expense (Note 2) ................................. 20,102
Registration fees. ................................... 17,723
Directors' fees and
expenses ......................................... 15,858
Accounting expenses
(Note 2) ......................................... 13,313
Professional fees .................................... 11,243
Amortization of organization
costs (Note 1) ................................... 10,592
Distribution expense
(Note 3) ......................................... 6,705
Computer processing fees ............................. 5,696
Custodian expense .................................... 3,914
Other expenses ....................................... 5,996
------
Total expenses ..................................... 236,031
--------
Net investment loss ................................ (163,759)
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 5)
Net realized gain on
investments. ..................................... 1,320,930
Net change in unrealized
appreciation on
investments ...................................... (330,019)
--------
Net realized and
unrealized gain ................................. 990,911
--------
INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS ....................................... $ 827,152
========
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON SMALLCAP VALUE FUND, INC.
STATEMENTS OF CHANGES INNET ASSETS
JANUAY 2, 1996
(COMMENCEMENT
YEAR ENDED OF OPERATIONS) TO
DECEMBER 31, DECEMBER 31,
1997 1996
--------- -------------
<S> <C> <C>
NET INVESTMENT LOSS ........................................................... $ (163,759) $ (122,418)
Net realized gain from security transactions .................................. 1,320,930 241,416
Net change in unrealized appreciation of investments .......................... (330,019) 988,018
--------- ---------
Increase in net assets resulting from operations .......................... 827,152 1,107,016
Distributions to shareholders from net realized gains from
security transactions ....................................................... (1,160,092) (18,761)
Increase in net assets from capital share transactions (Note 4) ............... 1,836,489 6,972,969
--------- ---------
Net increase in net assets ...................................... 1,503,549 8,061,224
NET ASSETS:
Beginning of period .......................................................... 8,061,224 --
--------- ---------
End of period (including accumulated deficit of $18,112 and
$9,044, 1997 and 1996 respectively) ........................................ $9,564,773 $8,061,224
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
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 commenced operations on January 2, 1996. The Fund's
investment objective is to seek long-term capital appreciation. 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 price 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 a maturity of 60 days or less are stated at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available and other assets are valued by Fund management in good faith
under the direction of the Fund's Board of Directors. 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.
DISTRIBUTIONS Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principals. At December 31, 1997,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
DEFERRED ORGANIZATION EXPENSES Organization expenses aggregating $52,837
have been deferred and are being amortized on a straight line basis over five
years.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operatons during the reporting period. Actual
results could differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at 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 Technologies 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
8
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE (CONTINUED)
daily net assets. The sub-advisory fee will be paid by LMC, not the Fund. For
1997, LMC has agreed to voluntarily limit the total expenses of the Fund
(excluding interest, taxes, brokerage, 12b-1 fees and extraordinary expenses but
including the management fee and operating expenses) to an annual rate of 2.50%
of the Fund's average daily net assets. No reimbursement was required for the
year ended December 31, 1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $22,749, which were incurred by the Fund, but
paid by LMC.
3. DISTRIBUTION PLAN
The Fund has a Distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1997 were $6,705 and are set forth in the statement of operations.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
January 2, 1996
(commencement of
Year ended operations) to
December 31, 1997 December 31, 1996
---------------------- ------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
------ ------- ------- -------
Shares sold ............................................ 242,768 $3,149,748 806,989 $8,267,408
Shares issued on reinvestment
of dividends ......................................... 101,424 1,157,337 1,594 18,670
------- -------- ------- ---------
344,192 4,307,085 808,583 8,286,078
Shares redeemed ........................................ (191,705) (2,470,596) (121,351) (1,313,109)
------- --------- ------- ---------
Net increase ......................................... 152,487 $1,836,489 687,232 $6,972,969
======= ========= ======= =========
</TABLE>
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1997, excluding short-term securities, were $3,897,129 and
$3,458,777, respectively.
At December 31, 1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$1,782,414 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,124,630.
6. TAX INFORMATION (UNAUDITED)
The percentage of investment company taxable income eligible for the dividends
received deduction available to certain corporate shareholders with respect to
the year ended December 31, 1997, is 11.8%. Capital gain distributions paid to
shareholders by the Fund during the year ended December 31, 1997, whether taken
in shares or cash:
$37,860 are designated as 28 percent long-term capital gains.
9
<PAGE>
LEXINGTON SMALLCAP VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
January 2, 1996
(commencement
Year ended of operations) to
December 31, December 31,
------------ -----------------
1997 1996
----------- -------------
<S> <C> <C>
Net asset value, beginning of period ......................................... $11.73 $10.00
------ ------
Income (loss) from investment operations:
Net investment loss ....................................................... (0.19) (0.18)
Net realized and unrealized gain on investments ........................... 1.41 1.94
------ ------
Total income from investment operations ...................................... 1.22 1.76
------ ------
Less distributions:
Distributions from net realized gains ..................................... (1.56) (0.03)
------ ------
Net asset value, end of period ............................................... $11.39 $11.73
====== ======
Total return ................................................................. 10.47% 17.50%
Ratio to average net assets:
Expenses, before reimbursement or waivers ................................. 2.57% 3.04%
Expenses, net of reimbursement or waivers ................................. 2.57% 2.48%
Net investment loss, before reimbursement or waivers ...................... (1.78%) (2.34%)
Net investment loss ....................................................... (1.78%) (1.78%)
Portfolio turnover rate ...................................................... 39.09% 60.92%
Average commission paid on equity security transactions ...................... $ 0.04 $ 0.03
Net assets, end of period (000's omitted) .................................... $9,565 $8,061
</TABLE>
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington SmallCap Value Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington SmallCap Value
Fund, Inc. as of December 31, 1997, the related statements of operations for the
year then ended, the statement of changes in net assets and the financial
highlights for the year then ended and for the period from January 2, 1996
(commencement of operations) to December 31, 1996. These financial statements
and financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodian. As to securities sold
but not yet delivered, we performed other appropriate auditing procedures. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington SmallCap Value Fund, Inc. as of December 31, 1997, the results of its
operations for the year then ended, and changes in its net assets and the
financial highlights for the year then ended and for the period from January 2,
1996 (commencement of operations) to December 31, 1996, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 12, 1998
11
<PAGE>
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 permits 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.
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 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 TROIKA DIALOG RUSSIA FUND, INC.--Seeks long-term capital appreciation
through investments primarily in the equity securities of Russian companies.
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.
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
1-800-526-0057. Read the prospectus carefully before you invest or send money.
*Redemptions on shares of Lexington Troika Dialog Russia Fund, Inc. held less
than 365 days are subject to a redemption fee of 2% of the redemption proceeds.
12
<PAGE>
LEXINGTON
SMALLCAP VALUE FUND, INC.
INVESTMENT ADVISER
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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
- --------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield o Account Balances o Exchanges o
Last Transactions o Total Return o 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.
LEXINGTON
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.
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ANNUAL REPORT
DECEMBER 31, 1997
The Lexington Group
of No Load
Investment Companies
