As filed with the Securities and Exchange Commission on October 28, 1996
Registration No. 2-93307
811-4111
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 26 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 26 X
(Check appropriate box or boxes.)
LEXINGTON STRATEGIC SILVER FUND, INC.
-------------------------------------
(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
----------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Strategic Silver Fund, Inc.
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
---------------------------------------
(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue, New York, New York 10019
--------------------------------------------
It is proposed that this filing will become effective October 28, 1996
pursuant to Paragraph (b) of Rule 485.
--------------------------------------------
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, pursuant to Section 24(f) of the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal year ended June
30, 1996 was filed on August 16, 1996.
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- ------------ ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Financial Highlights 2
4. General Description of Registrant 3
5. Management of the Fund 7
6. Capital Stock and Other Securities 17
7. Purchase of Securities Being Offered 8
8. Redemption or Repurchase 11
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ---------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 17 (Part A)
13. Investment Objectives and Policies 3 (Part A)
14. Management of the Registrant 13
15. Control Persons and Principal Holders 13
of Securities
16. Investment Advisory and Other Services 3
17. Brokerage Allocation and Other Practices 4
18. Capital Stock and Other Securities 17 (Part A)
19. Purchase, Redemption and Pricing of 8, 11 (Part A)
securities being offered
20. Tax Status 6
21. Underwriters 3
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 14
PART C
- ------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS
October 28, 1996
Lexington Strategic Silver Fund, Inc.
P.O. Box 1515, Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Sales-1-800-367-9160
1-201-845-7300
Service-1-800-526-0056
24-Hour Account Information 1-800-526-0052
- --------------------------------------------------------------------------------
Lexington Strategic Silver Fund, Inc. (the "Fund") is an open-end
non-diversified management investment company. The Fund's investment objective
is to maximize total return on its assets from long-term growth of capital and
income principally through investment in a portfolio of securities which are
engaged in the exploration, mining, processing, fabrication or distribution of
silver and in silver bullion ("silver related companies").
Lexington Management Corporation ("LMC") is the Fund's investment adviser.
Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
Shares of the Fund are being offered at a price equal to the net asset value
per share plus a sales charge of 5.75% of the offering price (6.10% of the net
amount invested) subject to reductions on purchases in single transactions of
$10,000 or more.
This Prospectus sets forth information about the Fund you should know before
investing. It should be read and retained for future reference.
A Statement of Additional Information dated October 28, 1996 which provides
a further discussion of certain matters in this Prospectus and other matters
which may be of interest to some investors, has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. For a free
copy, call the appropriate telephone number above or write to the address listed
above.
Mutual fund shares are not deposits or obligations of (or endorsed or
guaranteed by) any bank, nor are they federally insured or otherwise protected
by the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve Board
or any other agency. Investing in mutual funds involves investment risks,
including the possible loss of principal, and their value and return will
fluctuate.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>
FEE TABLE
Shareholder Transaction Expenses (as a percentage of the offering price)
Maximum sales charge imposed on purchases ................................ 5.75%
----
Annual Fund Operating Expenses (as a percentage of average net assets):
Management fees ...................................................... 0.85%
----
Other expenses ....................................................... 0.88%
----
Total Fund Operating Expenses .................................... 1.73%
====
<TABLE>
<CAPTION>
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end
of each period ............................................... $74.07 $108.86 $145.96 $249.86
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
indirectly. Shareholder Servicing Agents acting as agents for their customers
may provide administrative and recordkeeping services on behalf of the Fund. For
these services, each Shareholder Servicing Agent receives fees, which may be
paid periodically, provided that such fees will not exceed, on an annual basis,
0.25% of the average daily net assets of the Fund represented by shares owned
during the period for which payment is made. Each shareholder Servicing Agent
may, from time to time, voluntarily waive all or a portion of the fees payable
to it. (For more complete descriptions of the various costs and expenses, see
"Investment Adviser, Distributor and Administrator" and "How to Purchase Shares"
below.) The Expenses and Example appearing in the table above are based on the
Fund's expenses for the period from July 1, 1995 to June 30, 1996. The Example
shown in the table above should not be considered a representation of past or
future expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The Fund was originally organized as a Texas corporation on August 30, 1984
under the name Strategic Silver Fund, Inc. The Fund was re-organized as a
Maryland corporation under its present name on June 8, 1992. Lexington
Management Corporation became the Fund's investment adviser on December 13,
1991.
The table below includes certain financial highlights of the Fund's
investment results for periods prior to the Fund's re-organization during which
the Fund was managed by a different investment adviser.
The following Financial Highlights Table for the five years ended June 30,
1996 has been audited by KPMG Peat Marwick, LLP Independent Auditors, whose
report thereon appears in the Statement of Additional Information. This
information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information. The
Fund's annual report which contains additional performance information is
available upon request and without charge.
2
<PAGE>
Selected Per Share Data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended June 30,
--------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $4.00 $3.92 $3.52 $2.78 $3.64 $4.52 $3.81 $4.52 $5.47 $3.71
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment loss ....................... (.03) (.03) (.02) (.04) (.09) (.06) (.05) (.02) (.03) (.03)
Net realized and unrealized gain
(loss) on investments ................... .51 .11 .42 .78 (.77) (.82) .76 (.69) (.92) 1.79
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total income (loss) from investment
operations ................................ .48 .08 .40 .74 (.86) (.88) .71 (.71) (.95) 1.76
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Distributions in excess of net
investment income ....................... (.02) - - - - - - - - -
Net asset value, end of period .............. $4.46 $4.00 $3.92 $3.52 $2.78 $3.64 $4.52 $3.81 $4.52 $5.47
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return* ............................... 12.02% 2.04% 11.36% 26.62% (23.63%)(19.47%) 18.64% (15.71%) (17.37%) 47.44%
Ratios to average net assets:
Expenses, before reimbursement ............ 1.73% 1.82% 1.84% 3.48% 2.70% 1.85% 1.67% 1.66% 1.45% 1.48%
Expenses, net of reimbursement ............ 1.73% 1.82% 1.84% 2.60% 2.50% 1.83% 1.53% 1.49% 1.45% 1.48%
Net investment income (loss),
before reimbursement .................... (0.72%) (0.83%) (0.82%) (2.48%) (2.15%) (1.25%) (0.94%) (0.29%) 0% 0%
Net investment income (loss),
including reimbursement ................. (0.72%) (0.83%) (0.82%) (1.60%) (1.95%) (1.23%) (0.80%) (0.12%) 0% 0%
Portfolio turnover .......................... 44.30% 44.22% 5.28% 18.58% 45.20% 0.58% 11.49% 0% 32.90% 51.91%
Average commissions paid on equity
security transactions** ................... $0.02 - - - - - - - - -
Net assets at end of period (000's
omitted) .................................. $73,945 $65,517 $49,499 $15,032 $10,687 $15,983 $22,186 $22,133 $31,206 $36,560
</TABLE>
*Sales load is not reflected in total return.
**In accordance with recent SEC disclosure guidelines, average commissions are
calculated for the current period and not for prior periods.
DESCRIPTION OF THE FUND
The Fund, a Maryland corporation (formerly, Strategic Silver Fund, Inc.), is
an open-end, non-diversified management investment company.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek to maximize total return from
long-term growth of capital and income principally by investing in a portfolio
at least 80% of which will be invested in the securities of established
silver-related companies throughout the world.
The Fund will seek to achieve its objective through investment in common
stocks of established silver-related companies and silver bullion which have the
potential for long-term growth of capital or income, or both. The Fund intends
to invest primarily in common stocks of silver-related companies which may or
may not be paying dividends. The Fund may also invest in other types of
securities of silver-related companies including convertible securities,
preferred stocks, bonds, notes, warrants and silver bullion. When LMC believes
that the return on debt securities will equal or exceed the return on common
stocks, the Fund may, in pursuing its objective of maximizing total return,
substantially increase its holding in debt securities.
The securities in which the Fund invests include issues of established
silver-related companies domiciled in the United States, Canada and Mexico as
well as other silver producing countries throughout the world. At least 80% of
the Fund's assets will be invested in established silver-related companies which
have been in business more than three
3
<PAGE>
years. The Fund will not invest more than 5% of its total assets in the
securities of unseasoned silver-related companies which have been in business
less than three years. Such investments are more speculative. At the time of
investment, no more than 15% (which includes 5% in unseasoned silver-related
companies) of the value of the Fund's total assets will be invested in the
aggregate in securities with legal or contractual restrictions on resale
(restricted securities), illiquid securities, securities on which market
quotations are not readily available and repurchase agreements which mature in
more than seven days. (See "Risk Considerations").
At any time, if management deems it advisable for temporary defensive or
liquidity purposes, the Fund may hold all its assets in cash or cash
equivalents, and invest in, or hold unlimited amounts of debt obligations of the
United States government or its political subdivisions, and money market
instruments including repurchase agreements with maturities of seven days or
less and Certificates of Deposit.
The Fund's investment portfolio may include repurchase agreements ("repos")
with banks and dealers in U.S. Government securities. A repurchase agreement
involves the purchase by the Fund of an investment contract from a bank or a
dealer in U.S. Government securities which contract is secured by debt
securities whose value is equal to or greater than the value of the repurchase
agreement including the agreed rate of return and calls for resale of the
securities at a specified time and price. The total amount received on
repurchase would exceed the price paid by the Fund, reflecting an agreed upon
rate of interest for the period from the date of the repurchase agreement to the
settlement date, and would not be related to the interest rate on the underlying
securities. The difference between the total amount to be received upon the
repurchase of the securities and the price paid by the Fund upon their
acquisition is accrued daily as interest. If the institution defaults on the
repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral by the Fund may be delayed or limited
and the Fund may incur additional costs. In such case the Fund will be subject
to risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to transactions with
institutions believed by LMC to present minimal credit risk.
Portfolio Hedging-When, in the opinion of LMC, it is desirable to limit or
reduce exposure in a foreign currency in order to moderate potential changes in
the United States dollar value of the portfolio, the Fund may enter into a
forward foreign currency exchange contract by which the United States dollar
value of the underlying foreign portfolio securities can be approximately
matched by an equivalent United States dollar liability. Hedging against a
decline in the value of currency does not eliminate fluctuations in the prices
of portfolio securities or prevent loss if the prices of such securities
decline.
Although management will attempt to achieve the Fund's objectives, there can
be no assurance that they will be achieved.
The Fund's investment objectives and policies as discussed above are
fundamental and may not be changed without a vote of the majority of the
outstanding voting securities of the Fund, as defined in the Investment Company
Act of 1940,as amended (the "1940 Act").
The Fund's classification as a "non-diversified" investment company means
that the proportion of the Fund's assets that may be invested in the securities
of a single issuer is not limited by the 1940 Act. However, the Fund intends to
conduct its operations so as to qualify as a "regulated investment company" for
purposes of the Internal Revenue Code, which requires that, at the end of each
quarter of the taxable year, (i) at least 50% of the market value of the Fund's
assets be invested in cash, U.S. Government securities, the securities of other
regulated investment companies and other securities, with such other securities
of any one issuer counted for the purposes of this calculation only if the value
thereof is not greater than 5% of the value of the Fund's total assets, and (ii)
not more than 25% of the value of its total
4
<PAGE>
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, the Fund's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
The Fund does not intend to seek short-term trading profits, although
securities or bullion may be sold whenever management believes it advisable,
regardless of the length of time any particular asset may have been held. The
Fund anticipates that its annual portfolio turnover rate will generally not
exceed 100%. A 100% turnover rate would occur if all of the Fund's portfolio
investments were sold and either repurchased or replaced within one year. High
turnover may result in increased transaction costs to the Fund; however, the
rate of turnover will not be a limiting factor when the Fund deems it desirable
to purchase or sell portfolio investments. Therefore, depending on market
conditions, the Fund's annual portfolio turnover rate may exceed 100% in a
particular year. For the fiscal year ended June 30, 1994, June 30, 1995 and June
30, 1996, the portfolio turnover rate was 5.28%, 44.22% and 44.30%,
respectively.
Silver Market Fluctuations
The price of silver has been subject to substantial price fluctuations over
short periods of time. The price of silver may be affected by unpredictable
international monetary and political policies such as currency devaluations or
revaluations, economic and social conditions within an individual country, trade
imbalances or trade or currency restrictions between countries. Frequently, the
price of silver mining shares fluctuates even more dramatically than the price
of silver bullion itself. Silver bullion is frequently viewed by individuals as
a unit of monetary reserve such as gold and, therefore, fluctuations in the
price of gold may cause fluctuations in the price of silver. Fluctuations in the
price of silver will usually impact on the price of securities of silver-related
companies.
Silver is a major industrial metal because of its wide use in many
industries. Although the photographic industry consumes large quantities of
silver, the electrical conductive properties of silver and its noncorrosiveness
make it an important industrial metal in all electronic manufacturing. The
industrial demand for silver may exceed annual production of silver. In
addition, 75% of silver is mined as a co-product of other metals (primarily
copper, lead and zinc), therefore, demand and production of other metals may
also influence the production and supplies of silver. This can result in large
price movement of silver bullion depending upon the amount of silver recovery
activities (coin melt, silverware melt, scrap purchases) which, in turn, is a
reflection of the price of bullion. Increasing prices of silver bullion also
prompt additional mine openings resulting in more silver coming into the market
to satisfy the demand. This continually changing industrial supply and demand
ratio for silver bullion will frequently cause similar price fluctuations in the
prices of the securities of silver-related companies.
Fluctuations in the market price of silver may produce corresponding
fluctuations in the value of securities of silver-related companies and,
therefore, in the net asset value of the Fund.
Risk Considerations
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally are
denominated and pay interest or dividends in foreign currencies, the value of
the assets of the Fund as measured in United States dollars will be affected
favorably or unfavorably by changes in the relationship of the United States
dollar and other currency rates. The Fund may incur costs in connection with the
conversion or transfer of foreign currencies. In addition, there may be less
publicly available information about foreign companies than in United States
companies. Foreign companies may not be subject to accounting, auditing, and
financial reporting
5
<PAGE>
standards, practices and requirements comparable to those applicable to United
States companies. Foreign securities markets, while growing in volume, have for
the most part substantially less volume than United States securities markets
and securities of foreign companies are generally less liquid and at times their
prices may be more volatile than securities of comparable United States
companies. Foreign stock exchanges, brokers and listed companies are generally
subject to less government supervision and regulation than in the United States.
The customary settlement time for foreign securities may be longer than 5 day
customary settlement time for United States securities. Although the Fund will
try to invest in companies and governments of countries having stable political
environments, there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization or foreign restrictions or other adverse
political, social or diplomatic developments that could affect investment in
these nations.
Unlike certain more traditional investment vehicles such as savings
deposits and stocks and bonds, which may produce interest or dividend income,
silver bullion earns no income return. Appreciation in the market price of
silver is the sole manner in which the Fund will be able to realize gains on its
investment in silver bullion. Furthermore, the Fund may encounter storage and
transaction costs in connection with its ownership of silver bullion which may
be higher than those attendant to the purchase, holding and disposition of more
traditional types of investments.
The Fund's transactions in silver may, under some circumstances, preclude
its qualifying for the special tax treatment available to investment companies
meeting the requirements of Subchapter M of the Internal Revenue Code. However,
the Fund may make investment decisions without regard to the effect on its
ability to qualify under Subchapter M of the Internal Revenue Code, if deemed
appropriate by LMC (see "Tax Matters"). In addition, changes in the tax or
currency laws of the U.S. (including, for example, reinstatement of an interest
equalization tax as was previously in effect) and of foreign countries may
inhibit the Fund's ability to pursue or may increase the cost of pursuing its
investment program.
Income from foreign securities held by the Fund may, and in some cases will
be reduced by a withholding tax at the source or other foreign taxes. A
shareholder of the Fund will, subject to certain restrictions, be entitled to
claim a credit or deduction for United States Federal income tax purposes for
the shareholder's pro rata share of such foreign taxes paid by the Fund. (See
"Dividends Distribution and Reinvestment Policy")
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in certain types of securities or engaging in
certain transactions. The most significant of these restrictions provide that:
(1) The Fund will not invest in commodity contracts, except that the Fund
may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related
options, may engage in transactions on a when-issued or forward
commitment basis, and may enter into forward currency contracts.
Transactions in which silver bullion is taken in payment of principal,
interest or both or a debt instrument and where the Fund disposes of the
silver bullion for cash will not be subject to this restriction.
(2) The Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase transactions and (c) lend portfolio securities
provided that the value of such loaned securities does not exceed
one-third of the Fund's total assets.
6
<PAGE>
(3) The Fund will not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) the Fund may pledge its silver or portfolio securities or
receivables or transfer or assign or otherwise encumber them in an
amount not exceeding one-third of the value of its total assets; and (e)
for purposes of leveraging, the Fund may borrow money from banks
(including its custodian bank), only if, immediately after such
borrowing, the value of the Fund's assets, including the amount
borrowed, less its liabilities, is equal to at least 300% of the amount
borrowed, plus all outstanding borrowings. If at any time, the value of
the Fund's assets fails to meet the 300% asset coverage requirement
relative only to leveraging, the Fund will, within three days (not
including Sundays and holidays), reduce its borrowings to the extent
necessary to meet the 300% test.
The foregoing investment restrictions (as well as certain others set forth
in the Statement of Additional Information) are matters of fundamental policy
which may not be changed without the affirmative vote of the majority of the
shareholders of the Fund.
The investment policies described below are non-fundamental; therefore,
changes to such policies may be made in the future by the Board of Directors
without the approval of the shareholders of the Fund:
(1) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days. Securities
that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
(2) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
The Statement of Additional Information contains a complete description of the
Fund's restrictions and additional information on policies relating to the
investment of its assets and its activities.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Directors. There are currently eleven directors (eight of whom are
non-affiliated persons) who meet five times each year. The Statement of
Additional Information contains additional information regarding the directors
and officers of the Fund.
Portfolio Manager
Robert W. Radsch, CFA, is Vice President and Portfolio Manager of the Fund.
He is also Vice President of Lexington Management Corporation. Prior to joining
Lexington in July 1994, he was Senior Vice President, Portfolio Manager and
7
<PAGE>
Chief Economist for the Bull & Bear Group. He has extensive experience managing
gold, silver and platinum on an international basis having managed precious
metals and international funds for more than 14 years. Mr. Radsch is a graduate
of Yale University with a B.A. degree and holds an M.B.A. in Finance from
Columbia University.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515/Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663,
is the investment adviser to the Fund, and, as such, advises and makes
recommendations to the Fund with respect to its investments and investment
policies. LFD is the distributor of shares of the Fund.
LMC is paid an investment advisory fee at the annual rate of 1.00% of the
first $30 million of the daily net assets of the Fund and 0.75% on the daily net
assets of the Fund in excess of the first $30 million. In the fiscal year ended
June 30, 1996, LMC earned $630,181 in management fees from the Fund which
represents 0.85% of the average daily net assets of the Fund for that period.
This fee is computed on the basis of the Fund's average daily net assets and is
payable on the last business day of each month.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC, established in 1938, currently manages over $3.3 billion in assets. LMC
serves as investment adviser to other investment companies and private and
institutional investment accounts. Included among these clients are persons and
organizations which own significant amounts of capital stock of LMC's parent.
The clients pay fees which LMC considers comparable to the fees paid by
similarly served clients.
LMC and LFD are wholly-owned subsidiaries of Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West Plaza Two,
Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities have a majority voting control of
outstanding shares of Lexington Global Asset Managers, Inc. common stock. See
"Investment Adviser, Distributor and Administrator" in the Statement of
Additional Information.
HOW TO PURCHASE SHARES
The minimum initial investment for a shareholder is $1,000 and minimum
subsequent investments are $50. Please make your check(s) payable to the
Lexington Strategic Silver Fund, Inc. The Fund will not accept third-party
checks, that is, checks made payable to someone other than the Fund. Third-party
checks include any checks endorsed on the back of the check by a party other
than the Fund. The public offering price of shares of the Fund is their net
asset value per share next determined after receipt and acceptance of the
purchase order at the office of LMC, plus the applicable sales charge, if any.
Lower sales charges are applicable to larger transactions as shown in the
following table:
<TABLE>
<CAPTION>
Sales Charge As Sales Charge As Dealer Concessions
Percentage of the Percentage of Net as a Percentage of
Amount of Purchase Offering Amount Invested the Offering Price
- ------------------ ----------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $10,000 .................. 5.75% 6.10% 5.00%
$10,000 but less than $25,000 ...... 5.50% 5.82% 5.00%
$25,000 but less than $100,000 .... 4.75% 4.99% 4.25%
$100,000 but less than $250,000 .... 3.75% 3.90% 3.25%
$250,000 but less than $500,000 .... 2.50% 2.60% 2.00%
$500,000 but less than $1,000,000 .. 2.00% 2.04% 1.50%
Over $1,000,000 ................... negotiable
</TABLE>
8
<PAGE>
Commissions are paid to securities dealers who have selling agreements with
LFD and are members of the National Association of Securities Dealers, Inc. From
time to time, LFD may reallow the entire sales commission to selected dealers
who sell or are expected to sell significant amounts of shares during specified
time periods. During periods when 90% or more of the sales commission is
reallowed, such dealers may be deemed to be underwriters as that term is defined
in the Securities Act of 1933.
The sales commission, as set forth in the table above, will be applicable to
purchases made at one time by an individual or an individual and spouse and
their children under the age of 21, or a trustee or fiduciary purchasing
securities for a single trust, estate or a single fiduciary account, even though
more than one beneficiary is involved. This, however, does not include a group
of individuals whose funds are combined, directly or indirectly, for the
purchase of shares of the Fund jointly or through a trustee, agent, custodian or
other representative of such group of individuals. The sales charges will also
be applicable to purchases made at one time by employees of tax exempt
organizations enumerated in Sections 501(c)(3) or (13) of the Internal Revenue
Code and the employee benefit plans qualified under Section 401 of the Internal
Revenue Code and also to employee benefit plans not qualified under Section 401,
provided employees' contributions are made by means of periodic payroll
deductions or otherwise in such manner that the total amount to be invested by
all individuals in the group at one time is remitted in one sum to the Fund
together with a tabulation indicating the amounts to be applied to the benefit
of each such individual.
Shares of the Fund may be purchased at any time at net asset value without a
sales charge by the following: (a) Officers, Directors and employees of the
Fund, the Investment Adviser, the Distributor, broker-dealers who have currently
effective sales agreements with the Distributor and affiliates of such companies
including their spouses and children; (b) any trust, pension or profit sharing
or other benefit plan for the persons described in item (a), above; (c) any
employee benefit plan subject to minimum requirements with respect to number of
employees or amount of contribution which may be established by LFD; (d)
accounts advised or managed by LMC and its affiliates; (e) trust companies and
bank trust departments for funds over which they exercise discretionary
investment authority and which are held in a fiduciary, agency, advisory,
custodial or similar capacity; (f) registered investment advisors; (g)
organizations that provide administrative services to (e) and (f) above; (h)
broker-dealers who maintain omnibus accounts with the Fund. (Broker-dealers who
process such orders for their customers may charge a fee for these services);
and (i) persons who have redeemed their Fund shares within the previous 45 days.
The amount which may be so reinvested is limited to an amount up to, but not
exceeding, the redemption proceeds. In order to exercise this privilege, an
order for the purchase of shares must be received by the Fund or LFD within 45
days after redemption: (j) persons who have previously paid a sales charge and
exchanged their shares into another eligible Lexington Fund. The amount which
may be so reinvested is limited to an amount up to, but not exceeding, the
exchange proceeds. If the shareholder has realized a gain on the redemption or
exchanges, the transaction is taxable as a sale of Fund shares and reinvestment
will not alter any Federal tax payable. Net asset value purchases under item
(a)-(g) above are made upon the written assurance that the purchase is made for
investment purposes and the shares purchased may not be resold except through
redemption by the Fund.
LFD, P.O. Box 1515, Park 80 West, Plaza Two, Saddle Brook, New Jersey, is
the distributor of the Fund. Messrs. DeMichele, Kantor, Hisey, Lavery and
Corniotes and Ms. Curcio, each a director and/or officer of the Fund, are
affiliated persons of LFD.
Net Asset Value: The net asset value of the shares of the Fund is computed as of
the close of trading on each day the New York Stock Exchange is open, by
dividing the value of the Fund's securities plus any cash and other assets
(including accrued dividends and interest) less all liabilities (including
accrued expenses) by the number of shares outstanding, the result being adjusted
to the nearest whole cent. A security listed or traded on a recognized stock
exchange is valued at its last sale price prior to the time when assets are
valued on the principal exchange on which the security is traded. If no sale is
reported at that time, the mean between the current bid and asked price will be
used. However, when LMC deems it appropriate, prices for the day of valuation
from a third party pricing service will be used. All other securities for which
9
<PAGE>
over-the-counter market quotations are readily available are valued at the mean
between the last current bid and asked price. Short-term securities having
maturity of 60 days or less are valued at amortized cost. 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.
Generally, trading in foreign securities, as well as United States
Government securities, money market instruments and repurchase agreements, is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of the shares of the Fund are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods, events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the Directors.
For purposes of determining the net asset value per share of the Fund all
assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars using the foreign exchange rates as
described above.
Letter of Intent: Any person may sign a letter indicating his intention to
invest a certain amount in shares of the Fund within a period of 13 months. All
purchases made during this period are then at the reduced sales charge
applicable to the total amount of the intended investment. A price readjustment
will be made on shares previously purchased within 90 days of signing a Letter
of Intent if requested by the shareholder. If a shareholder (including spouse
and children under the age of 21) already owns shares of the Fund, the reduced
sales charge applicable to all purchases under the Letter of Intent is the
charge which would apply to a single purchase of such amount plus the net asset
value of shares of the Fund already owned.
Dividends and distributions of capital gains paid in shares of the Fund at
net asset value will not apply towards the completion of the Letter of Intent.
The signing of a Letter of Intent does not bind the investor to purchase the
full amount indicated, but the investor must complete the intended purchase to
obtain the reduced sales charge. The Letter of Intent provides that the transfer
agent will hold in escrow, shares valued at 5% of the amount of the intended
purchase to assure payment of additional sales charges if the intended purchase
amount is not made. The shareholder is required to remit to LFD the amount of
the additional sales charges applicable to shares already purchased because of
such reduced investment. If the shareholder does not pay such difference within
20 days after receipt of a written request, the transfer agent will redeem the
number of escrowed shares necessary to realize such difference in sales charges
and the balance, if any, of the escrow shares will then be released. A form of
Letter of Intent is included in the purchase application.
Shareholder Servicing Agents: The Fund may enter into Shareholder Servicing
Agreements with one or more Shareholder Servicing Agents. The Shareholder
Servicing Agent may, as agent for its customers, among other things: answer
customer inquiries regarding account history and purchase and redemption
procedures; assist shareholders in designating and changing dividend options,
account designations and addresses; provide necessary personnel and facilities
to establish and maintain shareholder accounts and records; assist in processing
purchase and redemption transactions; arrange for the wiring of funds; transmit
and receive funds in connection with customer orders to purchase or redeem
shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish monthly and year-end statements and confirmations of purchases and
redemptions; transmit, on behalf of the Fund, proxy statements, annual reports,
updated prospectuses and other communications to shareholders of the Fund;
receive, tabulate and transmit to the Fund proxies executed by
10
<PAGE>
shareholders with respect to meetings of shareholders of the Fund; and provide
such other related services as the Fund or a shareholder may request. For these
services, each Shareholder Servicing Agent receives fees, which may be paid
periodically, provided that such fees will not exceed, on an annual basis, 0.25%
of the average daily net assets of the Fund represented by shares owned during
the period for which payment is made. Each Shareholder Servicing Agent may, from
time to time, voluntarily waive all or a portion of the fees payable to it.
Accumulation Privilege: In determining the applicable sales charge, the amount
of a shareholder's investment will be considered as the amount of the purchase
plus the total net asset value of all shares of the Fund already owned by the
shareholder (including spouse and children under the age of 21). The reduced
sales charge applies to the total amount of money then being invested and not
just to the portion of such amount which exceeds the break point above which a
reduced sales charge applies. It is the responsibility of the shareholder to
notify the transfer agent or LFD in writing that a purchase qualifies for a
reduced sales charge.
The Open Account: By investing in the Fund, shareholders appoint State Street
Bank and Trust Company (the "Agent") as their representative, to establish an
Open Account to which all shares purchased will be credited, together with any
dividends and capital gain distributions which are paid, in additional shares.
Please make your check(s) payable to the Lexington Strategic Silver Fund, Inc.
The Fund will not accept third-party checks, that is, checks made payable to
someone other than the Fund. Third-party checks include any checks endorsed on
the back of the check by a party other than the Fund. Stock certificates will be
issued for full shares and only when requested in writing. Unless payment for
shares is made by Federal funds wire, certificates will not be issued for 30
days. In order to facilitate redemptions and transfers, most shareholders elect
not to receive certificates.
Automatic Investing Plan with "Lex-O-Matic". A shareholder may arrange to make
additional purchases of shares automatically on a monthly or quarterly basis.
The investments of $50 or more are automatically deducted from a checking
account on or about the 15th day of each month. The institution must be an
Automated Clearing House (ACH) member. Should an order to purchase shares of a
fund be cancelled because your automated transfer does not clear, you will be
responsible for any resulting loss incurred by that fund. The shareholder
reserves the right to discontinue the Lex-O-Matic program provided written
notice is given ten days prior to the scheduled investment date. Further
information regarding this service can be obtained from Lexington by calling
1-800-526-0056.
Terms of Offering: The Fund reserves the right to reject any order, and to waive
or lower the investment minimums with respect to any person or class of persons,
including shareholders of the Fund's retirement plan programs. An order to
purchase shares is not binding on the Fund until it has been confirmed by the
Agent. If an order to purchase shares is canceled because the investor's check
does not clear, the purchaser will be responsible for any loss incurred by the
Fund. To recover any such loss, the Fund reserves the right to redeem shares
owned by the purchaser, and may prohibit or restrict the purchaser in placing
future orders in the Fund.
Account Statements: The Agent will send shareholders who are either purchasing
or redeeming shares of the Fund a confirmation of the transaction indicating the
date the purchase or redemption was accepted, the number of shares purchased or
redeemed, the purchase or redemption price per share and the total amount
purchased or redemption proceeds. A statement is also sent to shareholders
whenever a distribution is paid, or when a change in the registration, address
or dividend option occurs. Shareholders are urged to retain their account
statement for tax purposes.
HOW TO REDEEM SHARES
By Mail: Send to the Agent (1) a written request for redemption, signed by each
registered owner exactly as the shares are registered including the name of the
Fund, account number and exact registration; (2) stock certificates for any
11
<PAGE>
shares to be redeemed which are held by shareholders; (3) signature guarantees,
when required; and (4) the additional documents required for redemptions by
corporations, executors, administrators, trustees, and guardians. Redemptions by
mail will not become effective until all documents in proper form have been
received by the Agent. The Agent's address can be found on the back cover of
this prospectus. The redemption price will be the net asset value per share of
the Fund next determined after receipt by the Agent of a redemption request in
proper form. Shareholders who have questions regarding the requirements for
redeeming shares may call the Fund at the toll-free number on the front cover of
this prospectus prior to submitting a redemption request. The redemption price
may be more or less than the shareholder's cost depending on the market value of
the securities held by the Fund at the time of redemption.
Checks for redemption proceeds will be mailed within seven days of receipt
of all required documents in proper form but will not be mailed until checks in
payment for the shares to be redeemed have been cleared which may take up to 15
days.
By Telephone: The telephone redemption privilege is established by checking the
box on your account application. Shareholders who have previously established
accounts and wish to have the telephone redemption privilege may call our
Shareholder Services Department at 1-800-526-0056 between 9:00 A.M. and 5:00
P.M. Eastern Time and request a Telephone Authorization Form.
Shareholders redeeming at least $1,000 worth of shares (for which
certificates have not been issued) may effect a telephone redemption by calling
our Shareholder Services Department at 1-800-526-0056 Monday-Friday between 9
A.M. and 4 P.M. Eastern Time. A telephone redemption in good order will be
processed at the net asset value of the Fund next determined. There is a maximum
telephone redemption limit of $25,000.
The redemption proceeds will be made payable to the registered
shareholder(s) and forwarded to the address of record. The Transfer Agent will
restrict the mailing of telephone redemption proceeds to a shareholder's address
of record within 30 days of such address being changed, unless the shareholder
provides a signature guaranteed letter of instruction. (See "Telephone
Exchange/Redemption Provisions").
Signature Guarantee: Signature guarantees are required in connection with (a)
redemptions by mail involving $25,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; and (c) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a federally or state chartered credit
union, a member firm of a domestic stock exchange, or a foreign branch of any of
the foregoing. Notary publics are not acceptable guarantors.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption; (b) on
a separate instrument of assignment ("stock power") which should be completed
and specify the total number of shares to be redeemed; or (c) on all stock
certificates tendered for redemption and, if shares held by the Agent are also
being redeemed, on the letter or stock power.
The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC" or "Commission") determines that trading on the Exchange is restricted;
(b) when there is an emergency as determined by the SEC as a result of which it
is not reasonably practicable for the Fund to dispose of securities owned by it
or to determine fairly the value of its net assets; or (c) for such other period
as the SEC may by order permit for the protection of shareholders of the Fund.
Due to the proportionately high cost of maintaining smaller accounts, the Fund
reserves the right to redeem all shares in an account with a value of less
12
<PAGE>
than $500 other than as a result of a change in net asset value and mail the
proceeds to the shareholder. Shareholders will be notified before these
redemptions are to be made and will have thirty (30) days to make an additional
investment to bring their accounts up to the required minimum.
SHAREHOLDER SERVICES
Exchange Privilege
Shares of the Fund may be exchanged for shares of Lexington Money Market
Trust on the basis of relative net asset value per share, without sales charge,
at the time of the exchange. Shares purchased at the public offering price
(including shares purchased at net asset value) that were exchanged into
Lexington Money Market Trust may be exchanged back into the Fund at net asset
value. In the event shares of Lexington Strategic Silver Fund being exchanged by
a single investor have a value in excess of $500,000, the shares of the Fund
will not be purchased until the third business day following the redemption of
the shares being exchanged in order to enable the redeeming fund to utilize
normal securities settlement procedures in transferring the proceeds of the
redemption to the Fund.
Shareholders may exchange all or part of their shares subject to the
conditions described herein. The Exchange Privilege enables a shareholder to
acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired. If an exchange involves investing in a
Lexington Fund not already owned, and a new account has to be established, the
dollar amount exchanged must meet the minimum initial investment of the fund
being purchased. If, however, an account already exists in the fund being
bought, there is a $500 minimum exchange requirement. Shareholders must provide
the account number of the existing account. Any exchange between funds is, in
effect, a redemption of shares in one fund and a purchase in the other fund.
Shareholders should consider the possible tax effects of an exchange. The
transfer agent currently imposes a $10 charge for exchange transactions.
Telephone Exchange/Redemption Provisions-Exchange or redemption instructions may
be given in writing or by telephone. Telephone exchanges/redemptions may only be
made if a Telephone Authorization form has been previously executed and filed
with LFD. This privilege is not available on retirement accounts. Telephone
exchanges/redemptions are permitted only after a minimum of 7 days have elapsed
from the date of a previous telephone exchange/redemption. However, written
redemption requests are not subject to this restriction. (See "How to Redeem
Shares-By Mail").
Telephonic exchanges/redemptions can only involve shares held on deposit at
the Agent; shares held in certificate form by the shareholder cannot be
included. However, outstanding certificates can be returned to the Agent and
qualify for these services. Any new account established with the same
registration will also have the privilege of exchange/redemption by telephone in
the Lexington Funds. All accounts involved in a telephone exchange must have the
same registration and dividend option as the account from which the shares were
transferred, and will also have the privilege of exchange by telephone in the
Lexington Funds in which these services are available.
By accepting the telephone exchange and telephone redemption privilege as
signed for on the new account application you appoint LFD, distributor of the
Lexington Group of Mutual Funds, as the true and lawful attorney to surrender
for redemption or exchange any and all non-certificate shares held by the Agent
in account(s) designated, or in any other account with the Lexington Funds,
present or future which has the identical registration, authorize and direct LFD
to act upon any instructions from any person by telephone for exchange or
redemption of shares held in any of these
13
<PAGE>
accounts, to purchase shares of any other Lexington Fund that is available,
provided the registration and mailing address of the shares to be purchased are
identical to the registration of the shares being redeemed, and agree that
neither LFD, the Agent, or the Fund(s) will be liable for any loss, expense or
cost arising out of any requests effected in accordance with this authorization
which would include requests effected by impostors or persons otherwise
unauthorized to act on behalf of the account subject to the procedures outlined
below. LFD, the Agent and the Fund, will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine and if they do not
employ reasonable procedures they may be liable for any losses due to
unauthorized or fraudulent instructions. The following identification procedures
may include, but are not limited to, the following: account number, registration
and address, taxpayer identification number and other information particular to
the account. In addition, all telephone exchange and redemption transactions
will take place on recorded telephone lines and each transaction will be
confirmed in writing by the Fund. LFD reserves the right to cease to act as
attorney subject to the above appointment upon thirty (30) days written notice
to the address of record. If the Shareholder is an entity other than an
individual, such entity may be required to certify that certain persons have
been duly elected and are now legally holding the titles given and that the said
corporation, trust, unincorporated association, etc. is duly organized and
existing and has the power to take action called for by this continuing
authorization.
Telephone Authorization forms and prospectuses of the other Funds may be
obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund or shares of one of the other Lexington
Funds at net asset value as described above. Under this procedure, the dealer
must agree to indemnify LFD and the Funds from any loss or liability that any of
them might incur as a result of the acceptance of such telephone exchange
orders. A properly executed Telephone Authorization form must be received by LFD
within 5 days of the exchange request. LFD reserves the right to reject any
telephone exchange request. Any telephone exchange orders so rejected may be
processed by mail.
This exchange offer is available only in states where shares of the Fund
being acquired may legally be sold and may be modified or terminated at any time
of the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
Transfer: Shares of the Fund may be transferred to another owner. A signature
guarantee is required on the letter of instruction or accompanying completed
stock power.
Systematic Withdrawal Plan: Shareholders may elect to withdraw cash in fixed
amounts from their accounts at regular intervals. The minimum investment to
establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required. Systematic withdrawals occur on the 28th of each month. If the 28th
falls on a weekend or a holiday, the withdrawal will occur on the preceding
business day.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Plans and
403(b)(7) Plans. Plan support services are available through the Shareholder
Services Department of LMC. For further information call 1-800-526-0056.
14
<PAGE>
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay dividends semi-annually from net investment income
and net capital gain income annually (December) if earned and as declared by its
Board of Directors.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing that he
wants to receive his payments in cash. This request must be received by the
Agent at least seven days before the dividend record date. Upon receipt by the
Agent of such written notice, all further payments will be made in cash until
written notice to the contrary is received. An account of such shares owned by
each shareholder will be maintained by the Agent. Shareholders whose accounts
are maintained by the Agent will have the same rights as other shareholders with
respect to shares so registered (see "How to Purchase Shares-The Open Account").
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax on any of its income.
Distributions by the Fund of its net investment income and the excess, if
any, of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but in any year only a portion
thereof (which cannot exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund during the year) may qualify for the
70% dividends-received deduction for corporate shareholders. Dividends from
foreign corporations, interest income, and short-term capital gains, do not
qualify for the dividends-received deduction. Distributions by the Fund of the
excess, if any, of its net long-term capital gain over its net short-term
capital loss are designated as capital gain dividends and are taxable to
shareholders as long-term capital gains, regardless of the length of time a
shareholder has held his shares.
Under certain circumstances, the Fund may elect to "pass-through" to its
shareholders income taxes or any other creditable taxes paid by the Fund to
foreign governments during the year. Each shareholder will be required to
include his pro rata portion of these foreign taxes in his gross income, but
will be able to deduct or (subject to certain limitations) claim a foreign tax
credit for such amount.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders in December of the preceding year. A statement setting forth
the federal income tax status of all distributions made or deemed made during
the year, including any amount of creditable foreign taxes "passed through",
will be sent to shareholders promptly after the end of each year.
Under the back-up withholding rules of the Code, certain shareholders do not
address the treatment of foreign shareholders, and may be subject to 31%
withholding of federal income tax on ordinary income dividends, capital gain
dividends and redemption payments made by the Fund. In order to avoid this
back-up withholding, a shareholder must
15
<PAGE>
provide the Fund with a correct taxpayer identification number (which for most
individuals is their Social Security number) or certify that it is a corporation
or otherwise exempt from or not subject to back-up withholding. The new account
application included with this Prospectus provides for shareholder compliance
with these certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion in the Statement of Additional Information of federal
income tax considerations relevant to an investment in the Fund. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of his investment in the Fund, including any state and local
taxes which may apply to him.
PERFORMANCE CALCULATION
The Fund will calculate performance on a total return basis for various
periods. The total return basis combines principal and dividend income changes
for the periods shown. Principal changes are based on the difference between the
beginning and closing net asset values for the period and assume reinvestment of
dividends paid by the Fund. Dividends are comprised of net realized capital
gains and net investment income.
Performance will vary from time to time and past results are not necessarily
representative of future results. It should be remembered that performance is a
function of portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses.
Comparative performance information may be used from time to time in
advertising or marketing of the Fund's shares, including data from Lipper
Analytical Services, Inc. or major market indices such as the Dow Jones
Industrial Average Index and Standard & Poor's 500 Composite Stock Price Index.
Such comparative performance information will be stated in the same terms in
which the comparative data and indices are stated. Further information about the
Fund's performance is contained in the annual report, which may be obtained
without charge.
CUSTODIANS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036, has been retained to act as the Custodian for the Fund's investments and
assets. In addition, Chase Manhattan Bank, N.A. may appoint foreign banks and
securities depositories to act as sub-custodians for the Fund's portfolio
securities subject to their qualification as eligible foreign custodians under
the rules adopted by the SEC.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, is the transfer agent and dividend disbursing agent for the
Fund.
Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company
have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York
10022, will pass upon legal matters for the Fund in connection with the shares
offered by this Prospectus.
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<PAGE>
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending June
30, 1997.
OTHER INFORMATION
The Fund is an open-end non-diversified management investment company. The
Fund was originally incorporated as a Texas corporation under the name of
Strategic Silver Fund, Inc. on August 30, 1984 with 100,000,000 no par value
shares authorized. The Fund was re-organized as a corporation under the laws of
the State of Maryland on June 8, 1992. The Fund has authorized capital of
1,000,000,000 shares of common stock $.001 par value.
Each share of common stock has one vote and shares equally in dividends and
distributions when and if declared by the Fund and in the Fund's net assets upon
liquidation. All shares, when issued, are fully paid and non-assessable. There
are no preemptive, conversion or exchange rights. Fund shares do not have
cumulative voting rights and, as such, holders of at least 50% of the shares
voting for Directors can elect all Directors and the remaining shareholders
would not be able to elect any Directors.
The Code of Ethics adopted by the Adviser and the Fund prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Fund's planned portfolio
transactions. The objective of each Code of Ethics is that the operations of the
Adviser and Fund be carried out for the exclusive benefit of the Fund's
shareholders. Both the Adviser and the Fund maintain careful monitoring of
compliance with the Code of Ethics.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the 1940 Act. However, meetings
of shareholders may be called at any time by the Secretary upon the written
request of shareholders holding in the aggregate not less than 25% of the
outstanding shares, such request specifying the purposes for which such meeting
is to be called. In addition, the Directors will promptly call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Director when requested to do so in writing by the recordholders of not less
than 10% of the Fund's outstanding shares. The Fund will assist shareholders in
any such communication between shareholders and Directors.
A Registration Statement (the "Registration Statement"), of which this
Prospectus is a part, has been filed with the Commission, Washington, D.C.,
under the Securities Act of 1933, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made. "A Statement of Additional Information", to
which reference is made in this Prospectus, provides further discussion of
certain areas in the prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and the Statement of Additional Information omit certain information
contained in the Registration Statement, to which reference is made, filed with
the Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
17
<PAGE>
(left column)
Investment Adviser
- ------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Distributor
- ------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 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
Lexington Funds
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
----------------------------------------------
Table of Contents Page
- ------------------------------------------------------------
Fee Table .............................................. 2
Financial Highlights ................................... 2
Description of the Fund ................................ 3
Investment Objective and Policies ...................... 3
Silver Market Fluctuations ........................... 5
Risk Considerations .................................. 5
Investment Restrictions ................................ 6
Management of the Fund ................................. 7
Portfolio Manager .................................... 7
Investment Adviser, Distributor and Administrator ...... 8
How to Purchase Shares ................................. 8
How to Redeem Shares ................................... 11
Shareholder Services ................................... 13
Exchange Privilege ................................... 13
Tax-Sheltered Retirement Plans ......................... 14
Dividend, Distribution and Reinvestment Policy ......... 15
Tax Matters ............................................ 15
Performance Calculation ................................ 16
Custodians, Transfer Agent and
Dividend Disbursing Agent ............................ 16
Counsel and Independent Auditors ....................... 16
Other Information ...................................... 17
(right column)
-----------------------
L E X I N G T O N
-----------------------
-----------------------
LEXINGTON
STRATEGIC
SILVER
FUND, INC.
(filled box)
(filled box)Silver Related
Companies
(filled box)Silver Bullion
(filled box)International
diversification
(filled box)No redemption charge
(filled box)
The Lexington Strategic Group
of
Investment Companies
P R O S P E C T U S
OCTOBER 28, 1996
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 28, 1996
This Statement of Additional Information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Strategic Silver
Fund, Inc. (the "Fund"), dated October 28, 1996, and as it may be revised from
time to time. To obtain a copy of the Fund's prospectus at no charge, please
write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle Brook, New
Jersey 07663 or call the following toll-free numbers:
Shareholder Services Information: 1-800-526-0056
Sales Information: 1-800-367-9160
24-Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") is the Fund's investment adviser.
Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
PAGE
Investment Restrictions .................................................... 2
Investment Adviser, Distributor and Administrator .......................... 3
Portfolio Turnover and Brokerage Commissions ............................... 4
Tax Sheltered Retirement Plans ............................................. 5
Dividends, Distribution and Reinvestment Policy ............................ 5
Tax Matters ................................................................ 6
Performance Calculation .................................................... 10
Independent Auditors ....................................................... 10
Custodians, Transfer Agent and Dividend Disbursing Agent ................... 10
Management of the Fund ..................................................... 10
Financial Statements ....................................................... 14
1
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "Investment Objective
and Policies" in the Fund's prospectus, and the following investment
restrictions are matters or fundamental policy which may not be changed without
the affirmative vote of the lesser of (a) 67% or more of the shares of the Fund
present at a shareholders' meeting at which more than 50% of the outstanding
shares are present or represented by proxy or (b) more than 50% of the
outstanding shares. Under these investment restrictions:
(1) At least 80% of the Fund's assets will be invested in established
silver-related companies which have been in business for more than three
years.
(2) At the end of each quarter of the taxable year, (i) at least 50% of
the market value of the Fund(acute accent)Is assets be invested in cash,
U.S. Government securities, the securities of other regulated investment
companies and other securities, with such other securities of any one issuer
counted for the purposes of this calculation only if the value of thereof is
not greater than 5% of the value of the Fund(acute accent)Is total assets,
and (ii) not more than 25% of its total assets be invested insecurities of
any one issuer (other than U.S. Government securities or the securities of
other regulated investment companies).
(3) The Fund will not purchase real estate, interests in real estate or
real estate limited partnership interests except that, to the extent
appropriate under its investment program, the Fund may invest in securities
secured by real estate or interests therein or issued by companies,
including real estate investment trusts, which deal in real estate or
interests therein.
(4) The Fund will not invest in commodity contracts, except that the
Fund may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related options,
may engage in transactions on a when-issued or forward commitment basis, and
may enter into forward currency contracts. Transactions in which silver
bullion is taken in payment of principal, interest or both or a debt
instrument and where the Fund disposes of the silver bullion for cash will
not be subject to this restriction.
(5) The Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds, debentures or
other debt securities, including short-term obligations, (b) enter into
repurchase transactions and (c) lend portfolio securities or bullion
provided that the value of such loaned securities does not exceed one-third
of the Fund's total assets.
(6) The Fund will not borrow money, except that (a) the Fund may enter
into certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the Fund's
investment program, including delayed delivery and when-issued securities
and reverse repurchase agreements; (c) for temporary emergency purposes, the
Fund may borrow money in amounts not exceeding 5% of the value of its total
assets at the time when the loan is made; (d) the Fund may pledge its silver
or portfolio securities or receivables or transfer or assign or otherwise
encumber them in an amount not exceeding one-third of the value of its total
assets; and (e) for purposes of leveraging, the Fund may borrow money from
banks (including its custodian bank), only if, immediately after such
borrowing, the value of the Fund's assets, including the amount borrowed,
less its liabilities, is equal to at least 300% of the amount borrowed, plus
all outstanding borrowings. If at any time, the value of the Fund's assets
fails to meet the 300% asset coverage requirement relative only to
leveraging, the Fund will, within three days (no including Sundays and
holidays), reduce its borrowings to the extent necessary to meet the 300%
test.
(7) The Fund will not issue any senior security (as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"), except that (a)
the Fund may enter into commitments to purchase securities in accordance
with the Fund's investment program, including reverse repurchase agreements,
foreign exchange contracts, delayed delivery and when-issued securities,
which may be considered the issuance of senior securities; (b) the Fund may
engage in transactions that may result in the issuance of a senior security
to the extent permitted under applicable regulations, interpretations of the
1940 Act or an exemptive order; (c) the Fund may engage in short sales of
securities to the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of futures contracts and related
options shall not be considered to involve the issuance of senior
securities; and (e) subject to fundamental restrictions, the Fund may borrow
money as authorized by the 1940 Act.
(8) The Fund will not act as an underwriter of securities except to the
extent that, in connection with the disposition of portfolio securities by
the Fund, the Fund may be deemed to be an underwriter under the provisions
of the Securities Act of 1933, as amended (the "1933 Act").
In addition to the above fundamental restrictions, the Fund has undertaken
the following non fundamental restrictions, which may be changed in the future
by the Board of Directors, without a vote of the shareholders of the Fund:
2
<PAGE>
(1) The Fund will not, except for investments which, in the aggregate,
do not exceed 5% of the Fund's total assets taken at market value, purchase
securities unless the issuer thereof or any company on whose credit the
purchase was based has a record of at least three years continuous
operations prior to the purchase.
(2) The Fund will not invest more than 15% of its total assets in
illiquid securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in the
usual course of business without taking a materially reduced price. Such
securities include, but are not limited to, time deposits and repurchase
agreements with maturities longer than seven days. Securities that may be
resold under Rule 144A or securities offered pursuant to Section 4(2) of the
1933 Act, as amended, shall not be deemed illiquid solely by reason of being
unregistered. The Investment Adviser shall determine whether a particular
security is deemed to be liquid based on the trading markets for the
specific security and other factors.
(3) The Fund will not invest for the purpose of exercising control over
management of any company.
(4) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the Fund's
total assets, at market value; and (b) no more than 5% of the assets, at
market value at the time of entering into a contract, shall be committed to
margin deposits in relation to futures contracts.
(5) The Fund will not issue its securities for any considerations other
than cash or securities except as a dividend or distribution in connection
with a reorganization.
(6) The Fund will not purchase the securities of any other investment
company, except as permitted under the 1940 Act.
(7) The Fund will not purchase securities of an issuer if to the Fund's
knowledge, one or more of the Directors or officers of the Fund or LMC
individually owns beneficially more than 0.5% and together own beneficially
more than 5% of the securities of such issuer nor will the Fund hold the
securities of such issuer.
(8) The Fund will not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment programs
of the Fund. The Fund will not write, purchase or sell puts, calls or
combinations thereof. However, the Fund may invest up to 15% of the value of
its assets in warrants. This restriction on the purchase of warrants does
not apply to warrants attached to, or otherwise included in, a unit with
other securities.
(9) The Fund will not purchase interests in oil, gas, mineral leases or
other exploration programs; however, this policy will not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas or other materials.
The percentage restrictions referred to above are to be adhered to at the
time of investment and are not applicable to a later increase or decrease in
percentage beyond the specified limit resulting from change in values or net
assets.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515/Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663,
is the investment adviser to the Fund, and, as such, advises and makes
recommendations to the Fund with respect to its investments and investment
policies.
Under the terms of the investment advisory agreement, LMC also pays the
Fund's expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll expenses
of officers and directors of the Fund who are employees of LMC or its affiliates
in carrying out its duties under the investment advisory agreement. The Fund
pays all its other expenses, including custodian and transfer agent fees, legal
and registration fees, audit fees, printing of prospectuses, shareholder reports
and communications required for regulatory purposes or for distribution to
existing shareholders, computation of net asset value, mailing of shareholder
reports and communications, portfolio brokerage, taxes and independent
directors' fees, and furnishes LFD at printers overrun cost, such copies of its
prospectus, annual, semi-annual and other reports and shareholder communications
as may be reasonably required for sales purposes.
LMC is paid an investment advisory fee at the annual rate of 1.00% of the
first $30 million of the daily net assets of the Fund and 0.75% of the daily net
assets of the Fund in excess of the first $30 million. LMC's investment advisory
fee will be reduced for any fiscal year by any amount necessary to prevent Fund
expenses from exceeding the most
3
<PAGE>
restrictive expense limitations imposed by the securities laws or regulations of
those states or jurisdictions in which the Fund's shares are registered or
qualified for sale. Brokerage fees and commissions, taxes, interest and
extraordinary expenses are not deemed to be expenses of the Fund for such
reimbursement. Currently, the most restrictive of such expense limitation would
require LMC to reduce its fee so that ordinary expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses) for any fiscal year do
not exceed 2.5% of the first $30 million of the Fund's average daily net assets,
plus 2.0% of the next $70 million, plus 1.5% of the Fund's average daily net
assets in excess of $100 million.
LMC's services are provided and its fee is paid pursuant to an investment
advisory agreement, dated December 13, 1991 which will automatically terminate
if assigned and which may be terminated by either party upon 60 days notice. The
terms of the agreement and any renewal thereof must be approved annually by a
majority of the Fund's Board of Directors, including a majority of directors who
are not parties to the agreement or "interested persons" of such parties, as
such term is defined under the 1940 Act.
For the fiscal years ended June 30, 1996, 1995 and 1994, LMC earned
investment advisory fees of $630,181, $479,211 and $341,696, respectively, after
fee reductions of $0, $0 and $0, respectively.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LFD serves as distributor for Fund shares under a distribution agreement
which is subject to annual approval by a majority of the Fund's Board of
Directors, including a majority of directors who are not "interested persons."
For the Fund's fiscal years ended June 30, 1996, 1995, and 1994, LFD earned (in
thousands) $1,213.9, $374.2 and $681.0, respectively, in underwriting
commissions, and retained (in thousands) $188.7, $126.9 and $146.9,
respectively. During the fiscal year ended June 30, 1996, LFD received no other
commissions or compensation from the Fund either directly or indirectly.
LMC is a wholly owned subsidiary of Lexington Global Asset Managers, Inc., a
publicly traded corporation. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities have a majority voting control of
outstanding shares of Lexington Global Asset Managers, Inc.
Of the directors, officers or employees ("affiliates persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs, Petruski and
Radsch and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca (see "Management
of the Fund"), may also be deemed affiliates of LMC by virtue of being officers,
directors or employees thereof. As of September 30, 1996, all officers and
directors of the Fund as a group owned of record and beneficially less than 1%
of the outstanding shares of the Fund.
PORTFOLIO TURNOVER AND BROKERAGE COMMISSIONS
As a general matter, purchases and sales of portfolio securities by the Fund
are placed by LMC with brokers and dealers who in its opinion will provide the
Fund with the best combination of price (inclusive of brokerage commissions) and
execution for its orders. However, pursuant to the Fund's investment advisory
agreement, management consideration may be given in the selection of
broker-dealers to research provided and payment may be made of a commission
higher than that charged by another broker-dealer which does not furnish
research services or which furnishes research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities and Exchange
Act of 1934 are met. Section 28(e) of the Securities and Exchange Act of 1934
was adopted in 1975 and specifies that a person with investment discretion shall
not be "deemed to have acted unlawfully or to have breached a fiduciary duty"
solely because such person has caused the account to pay a higher commission
than the lowest available under certain circumstances, provided that the person
so exercising investment discretion makes a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided...viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services might exceed commissions
that would be payable for execution services alone. Nor generally can the value
of research services to the Fund be measured. Research services furnished might
be useful and of value to LMC and its affiliates, in serving other clients as
well as the Fund. On the other hand, any research services obtained by LMC or
its affiliates from the placement of portfolio brokerage of other clients might
be useful and of value to LMC in carrying out its obligations to the Fund.
As a general matter, it is the Fund's policy to execute in the U.S. all
transactions with respect to securities traded in the U.S. Over-the-counter
purchases and sales are normally made with principal market makers, except
where, in the opinion of management, the best executions are available
elsewhere.
4
<PAGE>
In addition, the Fund may from time to time allocate brokerage commissions
to firms which furnish research and statistical information to LMC or which
render to the Fund services which LMC is not required to provide. The
supplementary research supplied by such firms is useful in varying degrees and
is of indeterminable value. No formula has been established for the allocation
of business to such brokers.
The brokerage commissions paid and portfolio turnover rates are as follows:
Fiscal Year Ended Total Brokerage Portfolio Turnover
June 30 Commission Paid Rate
----------------- --------------- ------------------
1994 $152,133 5.28%
1995 212,407 44.22%
1996 145,681 44.30%
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit Sharing
Plans including a 401(k) Salary Reduction Plan and a 403(b)(7) Plan. Plan
support services are available by contacting the Shareholder Services Department
of LMC at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): Individuals who have earned income may
make tax deductible contributions to their own Individual Retirement Accounts
established under Section 408 of the Internal Revenue Code. Married investors
filing a joint return neither of whom is an active participant in an employer
sponsored retirement plan, or who have an adjusted gross income of $40,000 or
less ($25,000 or less for single taxpayers) may continue to make a $2,000
($2,250 for spousal IRAs) annual deductible IRA contribution. For adjusted gross
income above $40,000 ($25,000 for single taxpayers), the IRA deduction limit is
generally phased out ratably over the next $10,000 of adjusted gross income,
subject to a minimum $200 deductible contribution. Investors who are not able to
deduct a full $2,000 ($2,250 spousal) IRA contribution because of the
limitations may make a nondeductible contribution to their IRA to the extent a
deductible contribution is not allowed. Federal income tax on accumulations
earned on nondeductible contributions is deferred until such time as these
amounts are deemed distributed to an investor. Rollovers are also permitted
under the Plan. The disclosure statement required by the Internal Revenue
Service to be furnished to individuals who are considering adopting an IRA may
be obtained from the Fund.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make
tax deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are, however, a number of special rules which apply
when self-employed individuals participate in such plans. Currently purchase
payments under a self-employed plan are deductible only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the individuals earned annual income (as
defined in the Code) and in applying these limitations not more than $200,000 of
"earned income" may be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available a
Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the Plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund and may terminate the plan with the
Fund at any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan account
is subject to an annual maintenance fee of $12.00 charged by State Street Bank
and Trust Company (the "Agent").
DIVIDENDS, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay dividends semi-annually from investment income also
if earned and as declared by its Board of Directors. The Fund intends to declare
or distribute a dividend from capital gain income if any, in December in order
to comply with distribution requirements of the 1986 Tax Reform Act to avoid the
imposition of a 4% excise tax.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing requesting
payments in cash. This request must be received by the Agent at least seven days
before the dividend record date. Upon receipt by
5
<PAGE>
the Agent of such written notice, all further payments will be made in cash
until written notice to the contrary is received. A record of shares owned by
each shareholder will be maintained by the Agent. These accounts will have the
rights of other shareholders with respect to shares so registered (see "How to
Purchase Shares - The Open Account" in the Prospectus).
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year that satisfy the Distribution Requirement.
If the Fund has a net capital loss (i.e., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such later years. As of June 30, 1995, the Fund has capital
loss carryforwards of approximately $13,086,556 which expire through 2003. Under
Code Sections 382 and 383, if the Fund has an "ownership change" (as defined),
then the Fund's use of its capital loss carryforwards in any years following the
ownership change will be limited to an amount equal to the net asset value of
the Fund immediately prior to the ownership change multiplied by the long-term
tax-exempt rate (which is published monthly by the Internal Revenue Service (the
"IRS")) in effect for the month in which the ownership change occurs (the rate
for October 1995 is 5.75 percent). The Fund will use its best efforts to avoid
having an ownership change. However, because of circumstances which may be
beyond the control or knowledge of the Fund, there can be no assurance that the
Fund will not have, or has not already had, an ownership change. If the Fund has
or has had an ownership change, then any capital gain net income for any year
following the ownership change in excess of the annual limitation on the capital
loss carryforwards will have to be distributed by the Fund and will be taxable
to shareholders as described under "Fund Distributions" below.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are netted against realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, are not in any event
characterized as Short-Short Gains if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, the Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
(However, the Short-Short Gain Test will not prevent the Fund from disposing of
investments at a loss.) Interest (including original issue discount) received by
the Fund at maturity or upon the disposition of a security held for less than
three months will not be treated as Short-Short Gain. However, income that is
attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for purposes of the Short-Short
Gain Test.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price less than its principal amount) will be treated as
ordinary income to the extent of the portion of the market discount which
6
<PAGE>
accrued while the Fund held the debt obligation. In addition, under the rules of
Code Section 988, gain or loss recognized on the disposition of a debt
obligation denominated in a foreign currency or an option with respect thereto
(but only to the extent attributable to changes in foreign currency exchange
rates), and gain or loss recognized on the disposition of a foreign currency
forward contract, futures contract, option or similar financial instrument, or
of foreign currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256, will generally be treated as ordinary
income or loss.
Certain transactions in which the Fund may engage (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are "marked-to-market" and treated as if they
were sold for their fair market value on the last business day of the taxable
year, even if they have not been in fact terminated (by delivery, exercise,
entering into a closing transaction or otherwise) as of such date. Any gain or
loss recognized as a consequence of this year-end marking-to-market is taken
into account together with any other gain or loss actually realized upon the
termination of Section 1256 contracts during the taxable year. Gain or loss with
respect to Section 1256 contracts (including gain or loss arising as a
consequence of the year-end deemed sale of such contracts) is generally treated
as 60% long-term and 40% short-term capital gain or loss. The Fund, however, may
elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. Gains arising from Section 1256 contracts are not
taken into account for purposes of the Short-Short Gain Test under the
constructive sale rule of Section 1256.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the its total assets in securities of
such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If the Fund failed to qualify as a regulated investment company for any
taxable, all of its taxable income (including its net capital gain) would be
subject to tax at regular corporate income tax rates without any deduction for
distributions to shareholders, and such distributions would be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions would generally be eligible
for the dividends-received deduction in the case of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of its
ordinary taxable income for the calendar year and 98% of its capital gain net
income for the one-year period ended on October 31 of such year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the following calendar year.
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. The Fund may in certain
circumstances have to liquidate portfolio investments to make sufficient
distributions to avoid excise tax liability.
Fund Distributions
The Fund intends to distribute substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
7
<PAGE>
The Fund also intends to distribute to shareholders its net capital gain for
each taxable year. When distributed and designated as a capital gain dividend,
such gain will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares and including any such
gain recognized by the Fund before the shareholder acquired his shares.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than S corporations, which are not eligible for the
deduction, and other than for purposes of the accumulated earnings tax and the
personal holding company tax) to the extent of the amount of "qualifying
dividends" received by the Fund from domestic corporations. A dividend received
by the Fund will not be treated as a qualifying dividend (1) if it was received
with respect to stock that the Fund held for less than 46 days (91 days in the
case of certain preferred stock), excluding for this purpose certain holding
periods under the rules of Code Sections 246(c) (3) and (4); (2) to the extent
that the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar or
related property; or (3) to the extent that the stock on which the dividend is
paid is treated as debt-financed under the rules of Code Section 246A. Moreover,
the dividends-received deduction for a corporate shareholder may be disallowed
or reduced (i) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund, or (ii) by application of
Code Section 246(b), which in general limits the dividends-received deduction to
70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items). The Fund will notify its
shareholders for each taxable year what portion of the ordinary income dividends
for that year are qualifying dividends.
Investment income that may be received by the Fund from sources outside the
U.S. may be subject to foreign taxes withheld at source. The United States has
entered into tax treaties with many foreign countries which entitle the Fund to
a reduced rate of, or exemption from, taxes on such income. It is impossible to
determine the effective rate of foreign tax in advance since the amount of the
Fund's assets to be invested in various countries is not known. If more than 50%
of the value of the Fund's total assets at the close of its taxable year consist
of stock or securities of foreign corporations, the Fund may elect to "pass
through" to its shareholders the amount of foreign taxes paid by the Fund. If
the Fund so elects, each shareholder will be required to include in gross
income, his pro rata share of the foreign taxes paid by the Fund, but will be
treated as having paid his pro rate share of such foreign taxes and will
therefore be allowed either to deduct such amount in computing his taxable
income or use it (subject to certain limitations) as a foreign tax credit
against federal income tax (but not both). A deduction for foreign taxes may not
be claimed by an individual shareholder who does not itemize deductions. Each
shareholder should consult his own tax adviser regarding the potential
application of foreign tax credits in his particular circumstances.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain from the sale of his shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
whether such distributions are paid in cash or reinvested in additional shares
of the Fund (or of another fund). Shareholders receiving a distribution in the
form of additional shares will be treated as receiving a distribution in an
amount equal to the fair market value of the shares received, determined as of
the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of the Fund reflects realized or unrealized
undistributed income or gain, subsequent distributions of such amounts will be
taxable to the shareholder in the manner described above, although economically
they constitute a return of capital to him.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which they are made. However, dividends declared in
October, November or December of any calendar year and payable to shareholders
of record on a specified date in such a month will be deemed to have been
received by the shareholders (and made by the Fund) on December 31 of such year
if such dividends are actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends, capital gain dividends, and the
proceeds of redemption of shares paid to any shareholder who (1) has provided
either an incorrect tax identification number or no number at all, (2) is
subject to backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to the
Fund that it is not subject to backup withholding or that it is a corporation or
other "exempt recipient."
8
<PAGE>
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption of
shares of the Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered a capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of any capital gain dividends received on such
shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) (referred to above in connection with the dividends-received
deduction for corporations) will generally apply in determining the holding
period of shares. Long-term capital gains of noncorporate taxpayers are
currently taxed at a maximum rate 11.6% lower than the maximum rate applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of
ordinary income.
If a shareholder (i) incurs a sales load in acquiring shares of the Fund,
(ii) disposes of such shares less than 91 days after they are acquired, and
(iii) subsequently acquires shares of the Fund or another fund at a reduced
sales load on account of the shares disposed of, then the original sales load
(to the extent of the reduction in the sales load on the shares subsequently
acquired) shall not be taken into account in determining gain or loss on the
shares disposed of but shall be treated as incurred on the acquisition of the
shares subsequently acquired.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends will
be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate)
upon the gross amount of the dividend. Furthermore, such a foreign shareholder
may be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate)
on the gross income resulting from the Fund's election to treat any foreign
taxes paid by it as paid by its shareholders, but may not be allowed a deduction
against this gross income, or a credit against the U.S. withholding tax, for its
pro rata share of such foreign taxes which it is treated as having paid. Such a
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on a sale or redemption of shares of the Fund or on capital gain
dividends.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income and capital
gain dividends, and any gains realized upon the sale of shares of the Fund will
be subject to U.S.
federal income tax at the rates applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate) unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and Treasury Regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and capital
gain dividends from regulated investment companies often differ from the rules
for U.S. federal income taxation described above. Shareholders are urged to
consult their tax advisers as to the consequences of these and other state,
local, and foreign tax rules affecting their investment in the Fund.
9
<PAGE>
PERFORMANCE CALCULATION
For the purpose of quoting and comparing the performance of the Fund to that
of other mutual funds and to other relevant market indices in advertisements or
in reports to shareholders, performance may be stated in terms of total return.
Under the rules of the Securities and Exchange Commission ("SEC rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
(1+T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods or at the end of the 1, 5 or
10 year periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's Registration Statement. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5 or 10
year periods (or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value. Any recurring account charges
that might in the future be imposed by the Fund would be included at that time.
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., or with the performance of
the Standard and Poor's 500 Stock Index or the Dow Jones Industrial Average, the
Fund calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Fund shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value.
Prior to January 1992, the Fund was managed by a different investment
adviser. The total return for the one year and since commencement (1/2/92)
period ended June 30, 1996 is as follows:
Average Annual
Period Total Return
------ --------------
1 year ended June 30, 1996 ................. 12.02%
54 month period ended June 30, 1996 ........ 12.97%
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending June
30, 1997.
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank N.A., 1211 Avenue of the Americas, New York, New York
10036, has been retained to act as Custodian for the Fund's investments and
assets. In addition, the Fund and Chase Manhattan Bank, N.A. may appoint foreign
banks and foreign securities depositories which qualify as eligible foreign
sub-custodians under the rules adopted by the Securities and Exchange
Commission.
State Street Bank and Trust Company 225 Franklin Street, Boston,
Massachusetts 02110 has also been retained to act as the transfer agent and
dividend disbursing agent for the Fund.
Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company
have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
10
<PAGE>
+S.M.S. CHADHA (59), Director. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, 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.
*+ROBERT M. DEMICHELE (51), President and Chairman of the Board. P.O. Box 1515,
Saddle Brook, N.J. 07663. Chairman and Chief Executive Officer, Lexington
Management Corporation; Chairman and Chief Executive Officer, Lexington
Funds Distributor, Inc.; President and Director, Lexington Global Asset
Managers, Inc.; Director, Chartwell Re Corporation; Director, Unione
Italiana Reinsurance; Vice Chairman of the Board of Trustees, Union
College; Director, The Navigator's Insurance Group, Inc.; Chairman,
Lexington Capital Management, Inc.; Chairman LCM Financial Services, Inc.;
Director, Vanguard Cellular Systems, Inc.; Chairman of the Board, Market
Systems Research, Inc. and Market Systems Research Advisors, Inc.
(registered investment advisers); Trustee, Smith Richardson Foundation.
+BEVERLEY C. DUER (67), Director. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research Department, CPC
International, Inc.
*+BARBARA R. EVANS (36), Director. 5 Fernwood Road Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation.
*+LAWRENCE KANTOR (49), Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and
Director, Lexington Management Corporation; Executive Vice President and
Director, Lexington Funds Distributor, Inc.; Executive Vice
President-Mutual Funds.
+JERARD F. MAHER (50), Director. 300 Raritan Center Parkway, Edison, NJ
08818-7815. General Counsel, Federal Business Centers; Counsel, Ribis,
Graham & Curtin; Trustee, Lexington Convertible Fund since 1986.
+ANDREW M. McCOSH (56), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland.
+DONALD B. MILLER (70), Director. 10725 Quail Covey Road, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President, Director
and C.E.O., Media General Broadcast Services (advertising firm).
+JOHN G. PRESTON (64), Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts.
+MARGARET RUSSELL (76), Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor. Formerly, Community Affairs Director, Union Camp
Corporation.
+PHILIP C. SMITH (84), Director. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor. Director, Southwest Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc.; Investors Cash Reserve
and Plimony Fund, Inc. (registered in investment companies).
*+ROBERT W. RADSCH (53), C.F.A., Vice President and Portfolio Manager. P.O. Box
1515, Saddle Brook, N.J. 07663. Vice President, Lexington Management
Corporation. Prior to July 1994, Senior Vice President, Portfolio Manager
and Chief Economist, Bull & Bear Group.
*+LISA CURCIO (37), Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor,
Inc.; Secretary, Lexington Global Asset Managers, Inc.
*+RICHARD M. HISEY (38), Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. 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 Advisors, Inc.; Executive Vice President and Chief
Financial Officer, Lexington Global Asset Managers, Inc.
*+RICHARD J. LAVERY (43), CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI (37), Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR (29), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November,1993, Supervisor Investment Accounting, Alliance
Capital Management, Inc.
*+SHERI MOSCA (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to September 1990, Fund Accounting Manager, Lexington Group of
Investment Companies.
11
<PAGE>
*+ANDREW PETRUSKI (29), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to May 1994, Supervising Senior Accountant, NY Life
Securities. Prior to December 1990, Senior Accountant, Dreyfus Corporation.
*+PETER CORNIOTES (34), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Secretary, Lexington Management Corporation. Assistant
Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST (36), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington
Management Corporation.
*"Interested person" and/or "Affiliated person" of LMC as defined in the
1940 Act.
+Messrs. Chadha, Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery,
Luehs, Maher, McCosh, Miller, Petruski, Preston, Radsch and Smith and Mmes.
Carnicelli, Carr, Curcio, Evans, Gilfillan, Mosca and Russell hold similar
offices with some or all of the other investment companies advised and/or
distributed by LMC and LFD.
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. Each Director who is not an
affiliate of LMC 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 LMC. Each Director
receives a fee, allocated among all investment companies for which the Director
serves. Effective September 12, 1995 each Director receives annual compensation
of $24,000. Prior to September 12, 1995, the Directors who were not employed by
the Fund or its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued for
the fiscal year ended June 30, 1996 for each Director:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Aggregate Pension or Retirement Number of
Compensation Benefits Accrued as Total Compensation From Directorships
Name of Director from Fund Part of Fund Expenses Fund and Fund Complex in Fund Complex
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Robert M.DeMichele 0 0 0 17
- -------------------------------------------------------------------------------------------------------------
Beverley C. Duer $1600 0 $25,888 17
- -------------------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 0 16
- -------------------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 0 16
- -------------------------------------------------------------------------------------------------------------
Donald B.Miller $1600 0 $23,888 16
- -------------------------------------------------------------------------------------------------------------
Francis Olmsted* $856 $8,400 $11,760 15
- -------------------------------------------------------------------------------------------------------------
John G. Preston $1600 0 $23,888 16
- -------------------------------------------------------------------------------------------------------------
Margaret Russell $1600 0 $22,888 16
- -------------------------------------------------------------------------------------------------------------
Philip C. Smith $1600 0 $23,888 16
- -------------------------------------------------------------------------------------------------------------
Francis A. Sunderland* $1600 $0 $22,888 15
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*Retired
Retirement Plan for Eligible Directors
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors (the "Plan") pursuant to which each Director (who is not an
employee of any of the funds managed by LMC, LMC, the administrator or LFD 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 LMC (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 serving the Covered Funds as of September 12, 1995 are not subject to
such mandatory retirement. Directors serving the Covered Funds as of September
12, 1995 who elect retirement under the
12
<PAGE>
Plan prior to September 12, 1996 will 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, 1995, the estimated credited years
of service for Directors Duer, Miller, Olmsted, Preston, Russell, Smith and
Sunderland are 18, 22, 37, 18, 15, 26 and 36, respectively. The following table
refers to retirement compensation for the trustees and directors of the entire
Lexington fund complex (the investment companies managed by LMC):
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
13
<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, 1996, 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 five-year period then ended. 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, 1996 by correspondence with the custodian. As to securities purchased and
sold but not received or 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 Strategic Silver Fund, Inc. as of June 30, 1996, the results of its
operations for the year then ended, the changes in its 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 five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
August 1, 1996
14
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996
Number of Value
Shares Security (Note 1)
- -------------------------------------------------------------------------------
SILVER BULLION: 21.8%
3,207,366 fine ounces2
(Cost $17,751,216) .......................... $16,133,052
-----------
COMMON STOCKS: 71.1%
AUSTRALIA: 8.3%
1,650,000 Aurora Gold, Ltd.2 ............................ 2,789,399
920,000 MIM Holdings, Ltd. ............................ 1,186,369
242,000 MIM Holdings, Ltd. (ADR) ...................... 624,360
1,100,000 Pasminco, Ltd. ................................ 1,548,225
-----------
6,148,353
-----------
GHANA: 1.0%
35,875 Ashanti Goldfields Company, Ltd. .............. 708,531
-----------
MEXICO: 14.9%
651,056 Corporacion Industrial San Luis S.A. .......... 3,999,896
734,016 Grupo Mexico S.A. de C.V.2 .................... 2,196,726
1,045,000 Industras Penoles S.A. ........................ 4,780,685
-----------
10,977,307
-----------
NORTH AMERICA: 44.9%
100,000 Adrian Resources, Ltd.2 ....................... 384,982
87,100 Agnico-Eagle Mines, Ltd. ...................... 1,421,115
200,000 Argosy Mining Corporation
(Special warrants)1,2 ....................... 395,982
67,800 ASARCO, Inc. .................................. 1,872,975
167,000 Atna Resources, Ltd. (Special warrants)1,2 .... 489,844
34,420 Barrick Gold Corporation ...................... 933,643
125,000 Battle Mountain Gold Company .................. 906,250
149,100 Cambior, Inc. ................................. 1,973,495
335,000 Campbell Resources, Inc.2 ..................... 380,765
180,000 Campbell Resources, Inc. (Units)1,2 ........... 204,590
140,000 Carson Gold Corporation1,2 .................... 172,472
73,100 Coeur D'Alene Mines Corporation ............... 1,343,213
278,000 Dayton Mining Corporation ..................... 1,671,629
150,000 Eldorado Corporation, Ltd.2 ................... 824,962
140,000 Eldorado Corporation, Ltd.
(Special warrants)1,2 ....................... 769,964
28,500 Euro Nevada Mining Corporation, Ltd. .......... 1,222,593
50,000 Falconbridge, Ltd. ............................ 1,088,949
17,500 Franco Nevada Mining Corporation, Ltd. ........ 1,110,031
34,700 Golden Knight Resources, Inc.2 ................ 215,014
15
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (continued)
Number of Value
Shares Security (Note 1)
- -------------------------------------------------------------------------------
NORTH AMERICA: 44.9% (continued)
30,000 Golden StarResources, Ltd. (Warrants)1,2 ...... $ 300
84,400 Hecla Mining Company2 ......................... 590,800
76,700 Indochina Goldfields, Ltd.1,2 ................. 660,867
188,000 Kinross Gold Corporation2 ..................... 1,419,960
130,000 Metallica Resources, Inc.
(Special warrants)1,2 ........................ 471,878
14,281 Newmont Mining Corporation .................... 705,125
100,000 Northern Crown Mines, Ltd. .................... 74,797
60,000 Pan American Silver Corporation2 .............. 439,979
190,000 Pan American Silver Corporation1 .............. 1,393,268
95,000 Pan American Silver Corporation (Warrants)1,2 . 70
70,000 Pegasus Gold, Inc.2 ........................... 857,500
45,000 Placer Dome, Inc. ............................. 1,074,375
310,000 Prime Resource Group, Inc.2 ................... 2,295,960
109,600 Romarco Minerals, Inc.2 ....................... 365,682
350,000 Santa Elina Gold Corporation1,2 ............... 532,558
150,000 Silver Standard Resources, Inc.1,2 ............ 676,468
150,000 Silver Standard Resources, Inc. (Warrants)1,2 . 1,468
50,000 Teck Corporation "B" .......................... 1,026,619
350,000 Tiomin Resources (Special warrants)1,2 ........ 667,302
200,000 TVX Gold, Inc.2 ............................... 1,450,000
10,000 Valerie Gold Resources, Ltd.
(Special warrants)1,2 ........................ 124,662
840,000 William Resources, Inc.2 ...................... 991,714
-----------
33,203,820
-----------
PERU: 2.0%
167,009 Cia De Minas Buenaventura "C" ................. 1,503,354
-----------
TOTAL COMMON STOCKS
(Cost $44,948,331) .......................... 52,541,365
-----------
PREFERRED STOCK: 2.9%
99,000 Freeport McMoran Copper & Gold
(Cost $2,081,958) ........................... 2,165,625
-----------
TOTAL INVESTMENTS: 95.8%
(Cost $64,781,505\'86) (Note 1) ............. 70,840,042
Other assets in excess of liabilities: 4.2% ... 3,104,780
-----------
TOTAL NET ASSETS: 100.0%
(Equivalent to $4.46 per share on
16,579,742 shares outstanding) .............. $73,944,822
===========
ADR-American Depository Receipt.
1Restricted security (Note 6).
2Non-Income producing securities.
+Aggregate cost for Federal income tax purposes is $65,271,688.
The Notes to Financial Statements are an integral part of this statement.
16
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Assets and Liabilities
June 30, 1996
Assets
Investments, at value (cost $64,781,505) (Note 1) .............. $70,840,042
Cash ........................................................... 1,558,264
Receivable for investment securities sold ...................... 2,193,144
Receivable for shares sold ..................................... 63,021
Dividends and interest receivable .............................. 533
Deferred reorganization expenses, net (Note 1) ................. 6,523
-----------
Total Assets ............................................. 74,661,527
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ............... 54,772
Payable for investment securities purchased .................... 101,836
Payable for shares redeemed .................................... 480,458
Accrued expenses ............................................... 79,639
-----------
Total Liabilities ........................................ 716,705
-----------
Net Assets (equivalent to $4.46 per share on 16,579,742
shares outstanding) (Note 3) ................................. $73,944,822
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
$.001 par value per share ................................... $ 16,580
Additional paid in capital (Note 1) ............................ 77,636,803
Distributions in excess of net investment income (Note 1) ...... (117,653)
Accumulated net realized loss on investments and foreign
currency holdings (Notes 1 and 7) ............................ (9,649,306)
Unrealized appreciation of investments and foreign
currency holdings ............................................ 6,058,398
-----------
Total Net Assets ......................................... $73,944,822
===========
Net Asset Value, redemption price per share .................... $4.46
=====
Offering price per share (100/94.25 of $4.46
adjusted to nearest cent) .................................... $4.73
=====
The Notes to Financial Statements are an integral part of this statement.
17
<PAGE>
LEFT COLUMN)
Lexington Strategic Silver Fund, Inc.
Statement of Operations
Year ended June 30, 1996
Investment Income
Income:
Dividends $ 554,170
Interest 215,490
----------
769,660
Less: foreign tax expense 17,630
----------
Total investment income $ 752,030
Expenses:
Investment advisory fees
(Note 2) 630,181
Transfer agent and shareholder
services expenses (Note2) 210,638
Custodian fees 156,467
Accounting expenses (Note2) 79,468
Printing and mailing expenses 69,512
Registration fees 29,144
Professional fees 22,877
Amortization of
reorganization costs (Note 1) 13,103
Directors' fees 12,772
Other expenses 56,877
----------
Total expenses 1,281,039
----------
Net investment loss (529,009)
Net Realized and Unrealized Gain (Loss)
on Investments (Note 4)
Net realized gain (loss) on:
Investments 4,714,633
Foreign currency
transactions (6,745)
----------
Net realized gain 4,707,888
Net change in unrealized
appreciation on:
Investments 1,524,500
Foreign currency
translations of other
assets and liabilities (139)
----------
Net change in
unrealized appreciation 1,524,361
----------
Net realized and
unrealized gain 6,232,249
----------
Increase in Net Assets Resulting
from Operations $5,703,240
==========
(RIGHT COLUMN)
Lexington Strategic Silver Fund, Inc.
Statements of Changes in Net Assets
Years ended June 30, 1996 and 1995
1996 1995
---------- ----------
Net investment loss (529,009) (448,539)
Net realized gain (loss) from
investments and foreign
currency transactions 4,707,888 (1,327,359)
Change in unrealized
net appreciation of
investments and foreign
currency translations 1,524,361 2,439,414
----------- -----------
Increase in net assets
resulting from operations 5,703,240 663,516
Distributions to shareholders
in excess of net investment
income (Note 1) (437,823) -
Increase in net assets
from capital share
transactions (Note 3) 3,162,294 15,354,704
----------- -----------
Increase in
net assets 8,427,711 16,018,220
Net Assets:
Beginning of period 65,517,111 49,498,891
----------- -----------
End of period $73,944,822 $65,517,111
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
18
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
June 30, 1996 and 1995
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 Fund's investment objective is to seek to
maximize total return from long-term growth of capital and income principally by
investing in a portfolio at least 80% of which will be invested in the
securities of established silver-related companies throughout the world. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements:
Investments Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market and
silver bullion 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.
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, adjusted for amortization of premiums and
accretion of discounts, 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
closed and are reported in the statement of operations. There were no foreign
currency exchange contracts outstanding at June 30, 1996.
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 The character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At June 30, 1996 reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change.
Deferred Reorganization Expenses Reorganization expenses aggregating $65,512
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 operations during the reporting period. Actual
results could differ from those estimates.
19
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
June 30, 1996 and 1995 (continued)
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 1.00% of the Fund's average daily net
assets up to $30 million and at an annual rate of 0.75% thereafter. The
investment advisory contract provides that the total annual expenses of the Fund
(including management fees, but excluding interest, taxes, brokerage commissions
and extraordinary expenses) will not exceed the level of expenses which the Fund
is permitted to bear under the most restrictive expense limitation imposed by
any state in which shares of the Fund are offered for sale. No reimbursement was
required for the year ended June 30, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $210,638, 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, 1996 June 30, 1995
------------------- ---------------------
Shares Amount Shares Amount
-------- ------ -------- ------
Shares sold ................ 15,352,920 $71,243,731 17,944,367 $70,752,502
Shares issued on
reinvestment of dividends . 59,629 294,570 - -
---------- ----------- ---------- -----------
15,412,549 71,538,301 17,944,367 70,752,502
Shares redeemed ............ (15,223,38) (68,376,007) (14,196,839) (55,397,798)
---------- ----------- ---------- -----------
Net increase ............... 189,169 $ 3,162,294 3,747,528 $15,354,704
========== =========== ========== ===========
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
June 30, 1996, excluding short-term securities, were $33,002,539 and
$30,860,899, respectively.
At June 30, 1996, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$11,323,596 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $5,755,242.
5. Investment and Concentration Risks
The Fund makes significant investments in foreign securities and has an
investment objective of investing in 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, all of
which could affect the market and/or credit risk of the investments.
20
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
June 30, 1996 and 1995 (continued)
6. Restricted Securities
The following securities were purchased under Rule 144A of the Securities Act of
1933 or issued in private placements and, unless registered under the Act or
exempted from registration, may be sold only to qualified institutional
investors.
<TABLE>
<CAPTION>
Acquisition Average Cost Market of Net
Security Date Shares Per Share Value Assets
-------- ------------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C>
Argosey Mining Corporation
(Special Warrants) ........................... 5/24/96 200,000 $12.50 $ 395,982 0.53%
Atna Resources Ltd. (Special Warrants) ......... 4/15/96 167,000 4.80 489,844 0.66%
Campbell Resources, Inc. (Units) ............... 10/25/95 180,000 1.25 204,590 0.28%
Carson Gold Corporation ........................ 12/13/93 140,000 3.20 172,472 0.23%
Eldorado Corporation, Ltd (Special Warrants) ... 2/22/96 140,000 5.37 769,964 1.04%
Golden Star Resources, Ltd. (Warrants) ......... 3/20/95 30,000 0.00 300 0.00%
Indochina Goldfields, Ltd. ..................... 6/13/96 76,700 10.97 660,867 0.89%
Metallica Resources, Inc. (Special Warrants) ... 3/20/96 130,000 3.68 471,878 0.64%
Pan American Corporation ....................... 3/21/96 190,000 5.17 1,393,268 1.88%
Pan American Corporation (Warrants) ............ 3/21/96 95,000 0.00 70 0.00%
Santa Elina Gold Corporation ................... 9/21/94 350,000 1.50 532,559 0.72%
Silver Standard Resources, Inc. ................ 9/06/95 150,000 2.99 676,468 0.91%
Silver Standard Resources, Inc. (Warrants) ..... 9/06/95 150,000 0.00 1,468 0.00%
Tiomin Resources, Inc. (Special Warrants) 9/28/95 350,000 1.44 667,302 0.90%
Valerie Gold Resources, Ltd.
(Special Warrants) ........................... 5/28/96 10,000 10.18 124,661 0.17%
---------- -----
$6,561,693 8.87%
---------- -----
</TABLE>
Pursuant to guidelines adopted by the Fund's Board of Directors, these
unregistered securities have been deemed to be illiquid. The Fund currently
limits investment in illiquid securities to 15% of the Fund's net assets, at
market value, at the time of purchase, but, pursuant to state regulations, the
Fund's investment in such securities is effectively limited to 10%.
7. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for
federal income tax purposes as of June 30, 1996 are approximately:
$1,093,937 expiring in 1998;
1,254,382 expiring in 1999;
3,106,844 expiring in 2000;
954,860 expiring in 2001;
1,911,797 expiring in 2002; and,
1,327,486 expiring in 2003.
To the extent any future capital gains are offset by these losses, such
gains would not be distributed to shareholders.
21
<PAGE>
Lexington Strategic Silver Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
Year ended June 30,
---------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Net asset value,
beginning of period $4.00 $3.92 $3.52 $2.78 $3.64
----- ----- ----- ----- -----
Income (loss) from investment
operations:
Net investment loss (.03) (.03) (.02) (.04) (.09)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions .51 .11 .42 .78 (.77)
----- ----- ----- ----- -----
Total income (loss) from investment
operations .48 .08 .40 .74 (.86)
----- ----- ----- ----- -----
Less distributions:
Distributions in excess of net
investment income (.02) - - - -
----- ----- ----- ----- -----
Net asset value, end of period $4.46 $4.00 $3.92 $3.52 $2.78
===== ===== ===== ===== =====
Total return* 12.02% 2.04% 11.36% 26.62% (23.63%)
Ratios to average net assets:
Expenses, before reimbursement 1.73% 1.82% 1.84% 3.48% 2.70%
Expenses, net of reimbursement 1.73% 1.82% 1.84% 2.60% 2.50%
Net investment loss, before
reimbursement (0.72%) (0.83%) (0.82%) (2.48%) (2.15%)
Net investment loss, including
reimbursement (0.72%) (0.83%) (0.82%) (1.60%) (1.95%)
Portfolio turnover 44.30% 44.22% 5.28% 18.58% 45.20%
Average commissions paid on
equity security transactions** $0.02 - - - -
Net assets at end of period
(000's omitted) $73,945 $65,517 $49,499 $15,032 $10,687
*Sales load is not reflected in total return.
**In accordance with recent SEC disclosure guidelines, average commissions
are calculated for the current period and not for prior periods.
22
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending June 30, 1996 was filed electronically
on August 20, 1996 (as form type N-30D). Financial Statements from this 1996
Annual Report have been included in the Statement of Additional Information.
Page in the
(a) Financial statements: Statement of Additional Information
-------------------- -----------------------------------
Report of Independent Auditors 14
dated August 1, 1996
Statement of Net Assets (Including 15-16
the Portfolio of Investments) as of
June 30, 1996 (1)
Statement of Assets and Liabilities 17
as of June 30, 1996
Statement of Operations for the year 18
ended June 30, 1996 (2)
Statements of Changes in Net Assets for 18
the years ended June 30, 1996 and 1995
Notes to Financial Statements 19-21
Schedules II-VII and other Financial Statements, for which
provisions are made in the applicable accounting regulations of
the Securities and Exchange Commission, are omitted because
they are not required under the related instructions, they are
inapplicable, or the required information is presented in the
financial statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Articles of Incorporation - Filed electronically
10/27/95 - Incorporated by reference
2. By-Laws - Filed electronically 10/27/95 - Incorporated
by reference
3. Not Applicable
4. Stock Certificate Specimen - Filed electronically
10/27/95 - Incorporated by reference
5. Investment Advisory Agreement between Registrant and
Lexington Management Corporation - Filed electronically
10/27/95 - Incorporated by reference
6. Distribution Agreement between Registrant and Lexington
Funds Distributor, Inc. - Filed electronically 10/27/95 -
Incorporated by reference
7. Not Applicable
8. Custodian Agreement between Registrant and Chase Manhattan
Bank, N. A. - Filed electronically 10/27/95 - Incorporated
by reference
9a. Transfer Agency Agreement between Registrant and State
Street Bank and Trust Company - Filed electronically 10/27/95
- Incorporated by reference
9b. Form of Administrative Services Agreement between Registrant
and Lexington Management Corporation -- Filed electronically
10/27/95 - Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered - Filed 4/8/92 - Incorporated by reference
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Model Retirement Plans - Filed electronically 10/27/95
- Incorporated by reference
15. Not Applicable
16. Performance Calculation - Filed 4/8/92 - Incorporated
by reference
17. Financial Data Schedule Filed electronically
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each such
person indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record holders
of each class of securities of the Registrant.
The following information is given as of October 11, 1995:
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 4,299
($0.001 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability which
may be incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own protection.
Under the terms of the Maryland General Corporation Law and the
Company's By-Laws, the Company may indemnify any person who was or is a
director, officer or employee of the Company to the maximum extent permitted
by the Maryland General Corporation Law; provided, however, that Company only
as authorized in the specific case upon a determination that indemnification
of such persons is proper in the circumstances. Such determination shall be
made (i) by the Board of Directors, by a majority vote of a quorum which
consists of directors who are neither "interested persons" of Company as
defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding, or
(ii) if the required quorum is not obtainable or if a quorum of such directors
so directs by independent legal counsel in a written opinion. No
indemnification will be provided by the Company to any director or officer of
the Company of any liability to the Company or Shareholders to which he would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser of the Registrant, and each
director, officer or partner of any such investment adviser, is or has been,
at any time during the past two fiscal years, engaged for his own account or
in the capacity of director, officer, employee, partner or trustee.
See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Tax Free Money Fund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Ramirez Global Income Fund
Lexington Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Convertible Securities Fund
Lexington Emerging Markets Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund,Inc.
Lexington SmallCap Value Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ---------------- --------------------- -------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa A. Curcio* Vice President and Vice President
Secretary and Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President and
Managing Director & Director Chief Financial Officer
Lawrence Kantor* Executive Vice President, Director &
Managing Director & Director Vice President
Richard Lavery* Vice President Vice President
Janice Violette* Assistant Treasurer None
(c)
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to
be maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270,
31a-1 to 31a-3) promulgated thereunder, furnish the name and address of each
person maintaining physical possession of each such account, book or other
document.
The Registrant, Lexington Strategic Silver Fund, Inc., Park 80
West - Plaza Two, Saddle Brook, New Jersey 07663 will maintain physical
possession of such of each such account, book or other document of the
Company, except for those maintained by the Registrant's Custodian, Chase
Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York 10036,
or Transfer Agent, State Street Bank and Trust Company, c/o National Financial
Data Services, City Center Square, 1100 Main, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any management-related
service contract not discussed in Part A or B of this Form (because the
contract was not believed to be material to a purchaser of securities of
the Registrant) under which services are provided to the Registrant,
indicating the parties to the contract, the total dollars paid and by whom for
the last three fiscal years.
None.
Item 32. Undertakings
------------
The Registrant, Lexington Strategic Silver Fund, Inc., undertakes
to furnish a copy of the Fund's latest annual report, upon request
and without charge, to every person to whom a prospectus is
delivered.
<PAGE>
Registration No. 2-93307
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON STRATEGIC SILVER FUND, INC.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
11a. Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel.
11b. Consent of independent auditors for the inclusion of their
report herein.
17. Article 6 Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets
all of the requirements for effectiveness of this Amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amendment to be signed on its behalf by
the Undersigned, thereunto duly authorized, in the City of Saddle Brook
and State of New Jersey, on the 28th day of October, 1996.
LEXINGTON STRATEGIC SILVER FUND, INC.
/s/ Robert M. DeMichele
________________________
By: Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele Chairman of the Board October 28, 1996
_______________________ Principal Executive Officer
Robert M. DeMichele
/s/ Richard M. Hisey Principal Financial October 28, 1996
________________________ and Accounting Officer
Richard M. Hisey
/s/ Lisa Curcio Principal Compliance October 28, 1996
_________________________ Officer
Lisa Curcio
*S.M.S. Chadha Director October 28, 1996
__________________________
S.M.S. Chadha
*Barbara R. Evans Director October 28, 1996
__________________________
Barbara R. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director October 28, 1996
__________________________
Lawrence Kantor
*Jerard F. Maher Director October 28, 1996
__________________________
Jerard F. Maher
*Andrew M. McCoshn Director October 28, 1996
__________________________
Andrew M. McCosh
*Donald B. Miller Director October 28, 1996
__________________________
Donald B. Miller
*John G. Preston Director October 28, 1996
__________________________
John G. Preston
*Margaret W. Russell Director October 28, 1996
___________________________
Margaret W. Russell
*Philip C. Smith Director October 28, 1996
__________________________
Philip C. Smith
*By: /s/ Lisa Curcio
______________________
Lisa Curcio
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a director of LEXINGTON
STRATEGIC SILVER FUND, INC., a Maryland corporation, to sign on his or
her or its behalf any and all Registration Statements (including any post-
effective amendments to Registration Statements) under the Securities Act
of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 16th day of October, 1996.
/s/ S.M.S. Chadha
_____________________________
S.M.S. Chadha
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a director of LEXINGTON
STRATEGIC SILVER FUND, INC., a Maryland corporation, to sign on his or
her or its behalf any and all Registration Statements (including any post-
effective amendments to Registration Statements) under the Securities Act
of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 16th day of October, 1996.
/s/ Jerard F. Maher
_____________________________
Jerard F. Maher
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a director of LEXINGTON
STRATEGIC SILVER FUND, INC., a Maryland corporation, to sign on his or
her or its behalf any and all Registration Statements (including any post-
effective amendments to Registration Statements) under the Securities Act
of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 16th day of October, 1996.
/s/ Andrew M. McCosh
_____________________________
Andrew M. McCosh
Kramer, Levin, Naftalis & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
_____
WRITER'S DIRECT NUMBER
(212) 715-9259
October 16, 1996
Lexington Strategic Silver Fund, Inc.
P.O. Box 1515
Park 80 West, Plaza Two
Saddle Brook, N. J. 07663
Re: Lexington Strategic Silver Fund, Inc.
Gentlemen:
We hereby consent to the reference to our firm as Counsel in the
Post-Effective Amendment to the Registration Statement of Lexington Strategic
Silver Fund, Inc. on Form N-1A.
Very truly yours,
Kramer, Levin, Naftalis & Frankel
KPMG Peat Marwick LLP
345 Park Avenue
New York, NY 10154
Independent Auditors' Consent
The Board of Directors and Shareholders
Lexington Strategic Silver Fund, Inc.:
We consent to the use of our report dated August 1, 1996, included in the
Registration Statement on form N-1A and to the references to our firm under
the headings Financial Highlights and Counsel and Independent Auditors in
the Prospectus.
KPMG Peat Marwick LLP
New York, New York
October 16, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from annual
audited financial statements dated June 30, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 64,781,505
<INVESTMENTS-AT-VALUE> 70,840,042
<RECEIVABLES> 2,256,698
<ASSETS-OTHER> 1,558,264
<OTHER-ITEMS-ASSETS> 6,523
<TOTAL-ASSETS> 74,661,527
<PAYABLE-FOR-SECURITIES> 101,836
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 614,869
<TOTAL-LIABILITIES> 716,705
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 77,653,383
<SHARES-COMMON-STOCK> 16,579,742
<SHARES-COMMON-PRIOR> 16,390,573
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (117,653)
<ACCUMULATED-NET-GAINS> (9,649,306)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,058,398
<NET-ASSETS> 73,944,822
<DIVIDEND-INCOME> 554,170
<INTEREST-INCOME> 215,490
<OTHER-INCOME> (17,630)
<EXPENSES-NET> 1,281,039
<NET-INVESTMENT-INCOME> (529,009)
<REALIZED-GAINS-CURRENT> 4,707,888
<APPREC-INCREASE-CURRENT> 1,524,361
<NET-CHANGE-FROM-OPS> 5,703,240
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> (437,823)
<NUMBER-OF-SHARES-SOLD> 15,352,920
<NUMBER-OF-SHARES-REDEEMED> 15,223,380
<SHARES-REINVESTED> 59,629
<NET-CHANGE-IN-ASSETS> 3,162,294
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (13,086,556)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 630,181
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,281,039
<AVERAGE-NET-ASSETS> 74,053,068
<PER-SHARE-NAV-BEGIN> 4.00
<PER-SHARE-NII> (.03)
<PER-SHARE-GAIN-APPREC> .51
<PER-SHARE-DIVIDEND> (.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 4.46
<EXPENSE-RATIO> 1.73
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
