Dear Shareholder:
- --------------------------------------------------------------------------------
Silver bullion enjoyed a modest rise for the first six months of 1995 from
$4.90 an ounce to $5.07 an ounce, an increase of 3.47%. However, during the
interim the price advanced sharply from a low of $4.32 an ounce on March 3,
1995, to $6.15 an ounce on May 4, 1995, producing a truly spectacular increase
of 42% in little more than two months. Although this kind of increase proved
unsustainable in the short term, it nonetheless pointed to the dynamic potential
inherent in a market with a large deficit of production compared with physical
demand. During the period, the Lexington Strategic Silver Fund produced a total
return of 9.14%* compared with an average total return of 2.84% for the average
gold fund as monitored by Lipper Analytical Services. For the past twelve
months, the Lexington Strategic Silver Fund also outpaced the average gold
fund's return of 0.98% with a total return of 3.57%.*
While we are pleased to have outperformed the average gold fund, we feel
that recent shareholder approval to include silver bullion investments in the
portfolio will allow the Fund to participate more fully in the attractive
fundamentals inherent in the outlook for silver. Since more than 80% of silver
is produced in by-product form, there are relatively few listed stocks that
provide significant exposure to silver so that silver bullion itself makes an
excellent addition to the portfolio.
Two major studies of the silver market that have been published this year
both conclude that a steadily widening gap between demand and new supply has
existed since 1990. These four years of deficit markets have seen a substantial
decline in above ground market stockpiles, and this trend has been confirmed by
a major decline in reported COMEX silver inventories this year. Furthermore, the
deficit is expected to persist since silver prices have been too low to induce
any exploration activity and by-product silver production is not expected to
show rapid growth either. We feel that the outlook for silver bullion prices is
attractive and that the Lexington Strategic Silver Fund offers an excellent way
to participate in silver's potential.
Also included in this annual report to shareholders is a summary of the
results of the shareholder meeting held on April 19, 1995. All of the proposals
were approved by a majority of shareholders.
We appreciate your continued support and would welcome the opportunity to
discuss any questions you may have about your investment.
Sincerely,
Robert W. Radsch Robert M. DeMichele
Portfolio Manager President
July, 1995 July, 1995
1
<PAGE>
*-3.85% and 11.31% are the one year and since commencement (1/2/92) average
annual standard total returns, respectively, for the period ended June 30, 1995.
Prior to January, 1992 the Fund was managed by a different investment adviser.
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. These calculations include the maximum 5.75% initial sales charge
and assume reinvestment of dividends and capital gains at net asset value. Total
return represents past performance.
2
<PAGE>
Results of Annual Meeting of Shareholders held April 19, 1995 (unaudited)
Total Outstanding Shares as of February 1, 1995: 12,473,389
<TABLE>
1. Directors Elected: Robert M. DeMichele, Beverley C. Duer, Barbara R. Evans, Lawrence Kantor, Donald B.
Miller, Francis Olmsted, John G. Preston, Margaret W. Russell, Philip C. Smith and Francis A. Sunderland
<CAPTION>
Votes Votes
Votes For Against Abstained
--------- ------- ---------
<S> <C> <C> <C>
2. Selection of KPMG Peat Marwick LLP as Independent Auditors .............. 5,175,978 704,310 619,735
3. Elimination of fundamental restriction concerning securities of
issuers in operation less than three (3) years .......................... 4,772,631 589,626 619,766
4. Elimination of fundamental restriction concerning restricted and
illiquid securities ..................................................... 4,466,773 900,669 614,581
5. Elimination of fundamental restriction concerning investment for
control ................................................................. 4,622,817 707,947 651,259
6. Amendment to fundamental restriction concerning real estate 4,538,995 802,793 640,236
7. Amendment to fundamental restriction concerning
commodities ............................................................. 4,530,875 804,835 646,312
8. Amendment to fundamental restriction concerning lending ................. 4,386,651 945,764 649,613
9. Elimination of fundamental restriction concerning consideration
other than cash ......................................................... 4,426,565 901,083 654,375
10. Amendment to fundamental restriction concerning borrowing and
senior securities ....................................................... 4,463,637 836,371 682,016
11. Elimination of fundamental restriction concerning securities of
other investment companies .............................................. 4,619,832 679,118 683,073
12. Elimination of fundamental restriction concerning securities of
affiliates .............................................................. 4,541,427 771,114 669,482
13. Amendment to fundamental restriction concerning underwriting ............ 4,642,542 671,867 667,614
14. Elimination of fundamental restriction concerning margin, short
sales, puts and calls ................................................... 4,436,932 873,506 671,585
15. Elimination of fundamental restriction concerning warrants .............. 4,573,060 767,638 641,326
16. Elimination of fundamental restriction concerning investment in
oil, gas or minerals .................................................... 4,608,363 752,142 621,519
</TABLE>
3
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1995
<TABLE>
<CAPTION>
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
SILVER BULLION: 14.3%
1,849,069 fine ounces*
(Cost $10,039,298) ................................................. $ 9,356,288
-----------
COMMON STOCKS: 81.0%
AUSTRALIA: 2.7%
750,000 Aurora Gold Ltd.* .................................................... 889,400
242,000 MIM Holdings Ltd. (ADR) .............................................. 602,580
300,000 Pasminco Ltd.* ....................................................... 289,721
-----------
1,781,701
-----------
MEXICO: 15.7%
834,016 Grupo Mexico S.A. De C.V. ............................................ 4,006,482
1,145,000 Industrias Penoles S.A. .............................................. 3,439,584
130,176 San Luis CPO ......................................................... 2,876,587
-----------
10,322,653
-----------
NORTH AMERICA: 62.1%
100,000 Adrian Resources Ltd.* ................................................ 331,512
142,100 Agnico-Eagle Mines, Ltd. ............................................. 1,902,432
87,800 ASARCO, Inc. ......................................................... 2,677,900
89,420 Barrick Gold Corporation ............................................. 2,257,855
150,000 Battle Mountain Gold Company ......................................... 1,443,750
149,100 Cambior, Inc. ........................................................ 1,846,776
140,000 Carson Gold Corporation1 ............................................. 183,606
175,000 Carson Gold Corporation (Warrants)1* ................................. 1,750
118,100 Coeur D'Alene Mines Corporation ...................................... 2,051,987
328,000 Dayton Mining Corporation* ........................................... 1,123,206
50,000 Eldorado Corporation Ltd.* ........................................... 218,579
74,000 Euro Nevada Mining Corporation Ltd. .................................. 2,264,481
50,000 Falconbridge Ltd. .................................................... 892,532
20,000 Franco Nevada Mining Corporation Ltd. ................................ 1,041,894
99,000 Freeport McMoran Copper & Gold (Preferred Shares) .................... 1,930,500
34,700 Golden Knight Resources* ............................................. 221,220
135,000 Golden Star Resources Ltd. ........................................... 945,000
30,000 Golden Star Resources Ltd.1 .......................................... 210,000
30,000 Golden Star Resources Ltd. (Warrants)1* .............................. 300
33,000 Guyanor Resources S.A.* .............................................. 74,536
184,400 Hecla Mining Company ................................................. 1,913,150
450,000 International Gold Resources Corporation ............................. 1,573,770
473,000 Kinross Gold Corporation ............................................. 3,532,423
</TABLE>
4
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1995 (continued)
<TABLE>
<CAPTION>
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
NORTH AMERICA: 62.1% (continued)
52,281 Newmont Mining Corporation ........................................... $ 2,189,267
125,000 Pan American Minerals Corporation* .................................... 671,676
90,000 Pegasus Gold, Inc. ................................................... 911,250
70,000 Placer Dome, Inc. .................................................... 1,828,750
350,000 Prime Resources Group, Inc. .......................................... 2,422,587
350,000 Santa Elina Gold Corporation1* ....................................... 484,517
50,000 Teck Corporation "B" ................................................. 988,160
350,000 TVX Gold Inc. ........................................................ 2,537,500
-----------
40,672,866
-----------
PERU: 0.5%
56,473 Cia De Minas Buenaventura "C" ........................................ 325,317
-----------
TOTAL COMMON STOCKS (Cost $47,885,490) ............................... 53,102,537
-----------
SHORT-TERM INVESTMENTS: 0.6%
$400,000 U.S. Treasury Bills 5.71%, due 7/20/95 (Cost $398,795) ............... 398,795
-----------
TOTAL INVESTMENTS: 95.9% (Cost $58,323,583\'86) (Note 1) ............. 62,857,620
Other assets in excess of liabilities: 4.1% .......................... 2,659,491
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $4.00 per share on 16,390,573 shares outstanding) ... $65,517,111
===========
<FN>
ADR-American Depository Receipt.
*Non-income producing securities.
1Restricted security.
(D)Aggregate cost for Federal income tax purposes is identical.
</FN>
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Assets and Liabilities
June 30, 1995
Assets
<TABLE>
<S> <C>
Investments, at value (cost $58,323,583) (Note 1) ........................................... $62,857,620
Cash ........................................................................................ 2,907,032
Receivable for shares sold .................................................................. 86,616
Interest receivable ......................................................................... 5,461
Deferred reorganization expenses, net (Note 1) .............................................. 19,626
-----------
Total Assets ........................................................................ 65,876,355
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ............................................ 48,260
Payable for shares redeemed ................................................................. 220,420
Accrued expenses ............................................................................ 90,564
-----------
Total Liabilities ................................................................... 359,244
-----------
Net Assets (equivalent to $4.00 per share on 16,390,573 shares outstanding) (Note 3) ........ $65,517,111
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.001 par value per share .................... 16,391
Additional paid-in capital (Note 1) ......................................................... 74,053,239
Accumulated net realized loss on investments (Note 6) ....................................... (13,086,556)
Net unrealized appreciation of investments .................................................. 4,534,037
-----------
$65,517,111
===========
Net Asset Value,
Redemption price per share ................................................................ $4.00
=====
Offering price per share (100/94.25 of $4.00 adjusted to nearest cent) ...................... $4.24
=====
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
(Left column)
Lexington Strategic Silver Fund, Inc.
Statement of Operations
Year ended June 30, 1995
Investment Income
Income
Dividends........................................ $ 402,493
Interest......................................... 163,394
-----------
565,887
Less: Foreign tax expense........................ 30,861
-----------
Total investment income....................... $ 535,026
Expenses
Investment advisory fee
(Note 2)....................................... 479,211
Accounting and shareholder
services expense (Note 2)...................... 85,112
Custodian and transfer agent
expenses....................................... 169,652
Printing and mailing............................. 98,791
Directors' fees and expenses..................... 12,262
Legal............................................ 12,833
Audit............................................ 8,821
Registration fees................................ 60,065
Computer processing fees......................... 11,992
Amortization of deferred
reorganization expenses
(Note 1)....................................... 13,103
Other expenses................................... 31,723
-----------
Total expenses................................. 983,565
---------
Net investment loss.......................... (448,539)
Realized and Unrealized Gain (Loss) on
Investments (Note 4)
Realized loss on investments
(excluding short-term securities):
Proceeds from sales.............................. 22,634,495
Cost of securities sold.......................... 23,961,854
-----------
Net realized loss.............................. (1,327,359)
Unrealized appreciation of investments:
End of period.................................... 4,534,037
Beginning of period.............................. 2,094,623
-----------
Change during period........................... 2,439,414
---------
Net realized and unrealized
gain on investments.......................... 1,112,055
---------
Increase in Net Assets Resulting
from Operations.................................. $ 663,516
=========
(Right column)
Lexington Strategic Silver Fund, Inc.
Statements of Changes in Net Assets
Years ended June 30, 1995 and 1994
1995 1994
---- ----
Net investment loss.......................... $ (448,539) $ (291,199)
Net realized gain (loss) from
security transactions...................... (1,327,359) 336,123
Increase in unrealized
appreciation of investments................ 2,439,414 380,039
----------- -----------
Net increase in
net assets resulting
from operations........................ 663,516 424,963
Increase in net assets from
capital share transactions
(Note 3)................................... 15,354,704 34,041,995
----------- -----------
Net increase in net assets............... 16,018,220 34,466,958
Net Assets
Beginning of period........................ 49,498,891 15,031,933
----------- -----------
End of period.............................. $65,517,111 $49,498,891
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
June 30, 1995 and 1994
1. Significant Accounting Policies
Lexington Strategic Silver Fund, Inc. (the "Fund") is an open end
non-diversified management investment company registered under the Investment
Company Act of 1940, as amended. 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 national securities exchange are
valued at the closing price or, in the absence of a recorded sale, at the mean
between the last reported bid and asked price. Securities traded on the
over-the-counter market and silver bullion are valued at the mean between the
last reported bid and asked price. Short-term securities are stated at amortized
cost, which approximates market value. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by management and approved in good faith by the Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
settled and are reported in the statement of operations. There were no foreign
currency exchange contracts outstanding at June 30, 1995.
Distributions Effective January 1, 1993, the Fund adopted Statement of
Position 93-2: Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As of June 30, 1995, book and tax basis differences amounting to
$448,413 have been reclassified from undistributed net investment income to
additional paid-in capital. In addition, foreign exchange gains of $126 were
reclassified from accumulated net realized losses to undistributed net
investment income.
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 Reorganization Expenses Reorganization expenses aggregating $65,512
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 an annual rate of 1% of the Fund's average daily net assets up to $30
million and at an annual rate of .75% thereafter. The investment advisory
contract provides that the total annual expenses of the Fund (including
management fees, but excluding interest, taxes, brokerage commission and
extraordinary expenses) will not exceed the level of
8
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
June 30, 1995 and 1994 (continued)
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. No reimbursement was required for the year ended June 30, 1995. The
investment advisory fee is set forth in the accompanying statement of
operations.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
Year ended Year ended
June 30, 1995 June 30, 1994
------------------------- -------------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
Shares sold........... 17,944,367 $70,752,502 21,646,208 $86,690,545
Shares redeemed....... (14,196,839) (55,397,798) (13,271,533) (52,648,550)
---------- ----------- ---------- -----------
Net increase.......... 3,747,528 $15,354,704 8,374,675 $34,041,995
========== =========== ========== ===========
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
June 30, 1995, excluding short term securities, were $38,658,450 and
$22,634,495, respectively.
At June 30, 1995, the aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $9,459,453 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $4,925,416.
5. Investment and Concentration Risks
The Fund makes significant investments in foreign securities and has an
investment objective of investing in silver bullion and the securities of
companies engaged in the exploration, mining, processing, fabrication and
distribution of silver. There are certain risks involved in investing in foreign
securities or concentrating in specific industries that are in addition to the
usual risks inherent in domestic investments. These risks include those
resulting from potentially adverse political and economic developments as well
as the possible imposition of foreign exchange or other foreign governmental
restrictions or laws.
6. Federal Income Taxes-Capital Loss Carryforwards
As of June 30, 1995, $316,337 of capital loss carryforwards have expired and
have been reclassified to additional paid-in capital. Capital loss carryforwards
available for Federal income tax purposes as of June 30, 1995 are approximately:
927,101 expiring in 1996;
1,610,302 expiring in 1997;
1,993,784 expiring in 1998;
1,254,382 expiring in 1999;
3,106,844 expiring in 2000;
954,861 expiring in 2001;
1,911,797 expiring in 2002; and,
1,327,485 expiring in 2003.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
9
<PAGE>
Lexington Strategic Silver Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended June 30,
---------------------------------------------------------
1995 1994 1993 1992 1991
----- ----- ----- ----- -----
S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........... $3.92 $3.52 $2.78 $3.64 $4.52
----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment loss.......................... (.03) (.02) (.04) (.09) (.06)
Net realized and unrealized gain (loss)
on investments............................. .11 .42 .78 (.77) (.82)
----- ----- ----- ----- -----
Total income (loss) from investment operations. .08 .40 .74 (.86) (.88)
----- ----- ----- ----- -----
Net asset value, end of period................. $4.00 $3.92 $3.52 $2.78 $3.64
===== ===== ===== ===== =====
Total return*.................................. 2.04% 11.36% 26.62% (23.63%) (19.47%)
Ratios to average net assets:
Expenses, before reimbursement............... 1.82% 1.84% 3.48% 2.70% 1.85%
Expenses, net of reimbursement............... 1.82% 1.84% 2.60% 2.50% 1.83%
Net investment loss, before reimbursement.... (.83%) (.82%) (2.48%) (2.15%) (1.25%)
Net investment loss, including reimbursement. (.83%) (.82%) (1.60%) (1.95%) (1.23%)
Portfolio turnover............................. 44.22% 5.28% 18.58% 45.20% 0.58%
Net assets at end of period (000's omitted).... $65,517 $49,499 $15,032 $10,687 $15,983
<FN>
*Sales load is not reflected in total return.
</FN>
</TABLE>
10
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Strategic Silver Fund, Inc.
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Strategic
Silver Fund, Inc. as of June 30, 1995, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for each
of the years in the four-year period then ended. The financial highlights for
the year ended June 30, 1991 was audited by other auditors whose report was
dated August 13, 1991. 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 June
30, 1995, by correspondence with the custodian and brokers. 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 Strategic Silver Fund, Inc. as of June 30, 1995 and the results of its
operations for the year then ended, changes in its net assets for each of the
years in the two-year period then ended, and financial highlights for each of
the years in the four-year period then ended, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
July 31, 1995
11
<PAGE>
(Left column)
Lexington Strategic Silver Fund, Inc.
Investment Adviser
- ----------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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
- ----------------------------------------
This report has been prepared for the
information of the shareholders of
Lexington Strategic Silver 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
STRATEGIC
SILVER
FUND, INC.
(filled box)
Seeks long-term
growth of capital
through investment
in established silver
related companies.
(filled box)
ANNUAL REPORT
JUNE 30, 1995
