Dear Shareholder:
- --------------------------------------------------------------------------------
During 1995 silver bullion prices showed a modest gain of 4.9%, slightly
greater than the 1.0% price gain for gold bullion. This modest gain over the
course of the year, however, masks a dramatic 42% price gain from early March to
early May and another significant move in August as the market began to
anticipate the strong fundamentals underlying the silver market.
We are pleased that during the course of 1995, Lexington Strategic Silver
Fund produced a total return of 12.37%* compared with a return of 1.68% shown by
the average of the 47 gold funds monitored by Lipper Analytical Services, Inc.
Helping the Fund's performance, in addition to the better performance of silver
versus gold bullion, was a significant investment in Mexican mining shares which
benefited from that country's devaluation because the companies' revenues
reflect world commodity prices while their costs are denominated in the
country's devaluated currency. In addition, not being exposed to the
disappointing South African resource shares also helped.
The fundamental outlook for silver bullion prices continues to be good. A
decline in prices from over $40 an ounce in 1980 to under $4 an ounce in 1993
had its effect on production. Primary silver production plummeted from a high of
114.9 million ounces in 1989 to 66.6 million ounces in 1994 as silver mining
became unprofitable. Meanwhile, by-product silver production from zinc, lead,
copper and gold mines showed only a modest gain from 243.6 million ounces to
257.3 million ounces in 1994. On the other hand, industrial demand was
stimulated by the lower prices and began an inexorable rise from 356.4 million
troy ounces in 1983 to 665.4 in 1994 thereby creating an ever-growing deficit
beginning in 1990 and drawing down the surplus holdings of silver that had built
up during the 1980s. It is believed that these surplus holdings have now been
substantially drawn down. Future growth in production will be dampened on the
one hand by lack of primary silver exploration and on the other by only modest
growth in production of those metals that have silver as a by-product. However,
industrial demand, especially in the Far East, should show continued growth. It
is, therefore, expected that the substantial deficits will remain for some time
with positive implications for silver bullion prices.
Primary silver producers are hard to find since low prices have made this
business unprofitable. By-product silver producers, on the other hand, do not
provide a pure participation in higher silver prices. We have, therefore,
increased the Fund's sensitivity to silver prices by having a significant
holding of silver bullion. This significant holding of silver bullion has
allowed further silver sensitivity by allowing a greater concentration of silver
producers among the remaining shares we own. This should allow the Fund to
participate even more fully in higher silver prices.
1
<PAGE>
We appreciate your continued support and would welcome the opportunity to
discuss any questions you may have about your investment.
Sincerely,
Robert W. Radsch Robert M. DeMichele
Portfolio Manager President
February, 1996 February, 1996
*5.82% and 11.05% are the one year and since commencement (1/2/92) average
annual standard total returns, respectively, for the period ended December 31,
1995. Prior to January, 1992 the Fund was managed by a different investment
adviser. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than at
their original cost. These calculations include the maximum 5.75% initial sales
charge and assume reinvestment of dividends and capital gains at net asset
value. Total return represents past performance.
2
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SILVER BULLION: 18.9%
2,215,210 fine ounces2
(Cost $12,037,514) ............................................................. $11,408,331
-----------
COMMON STOCKS: 76.3%
AUSTRALIA: 5.6%
1,650,000 Aurora Gold, Ltd.2 ............................................................... 2,058,210
1,100,000 Pasminco, Ltd.2 .................................................................. 1,347,637
-----------
3,405,847
-----------
MEXICO: 17.9%
651,056 Corporacion Industrial San Luis S.A. ............................................. 3,348,530
734,016 Grupo Mexico S.A. de C.V. ........................................................ 3,125,303
1,045,000 Industras Penoles S.A. ........................................................... 4,326,952
-----------
10,800,785
-----------
NORTH AMERICA: 51.7%
100,000 Adrian Resources, Ltd.2 .......................................................... 366,703
97,100 Agnico-Eagle Mines, Ltd. ......................................................... 1,219,536
42,800 ASARCO, Inc. ..................................................................... 1,369,600
49,420 Barrick Gold Corporation ......................................................... 1,303,453
125,000 Battle Mountain Gold Company ..................................................... 1,046,875
149,100 Cambior, Inc. .................................................................... 1,626,595
335,000 Campbell Resources, Inc. ......................................................... 324,312
140,000 Carson Gold Corporation .......................................................... 148,882
175,000 Carson Gold Corporation (Warrants)2 .............................................. 1,750
73,100 Coeur D'Alene Mines Corporation .................................................. 1,251,838
328,000 Dayton Mining Corporation2 ....................................................... 1,383,205
50,000 Eldorado Corporation, Ltd.2 ...................................................... 155,849
28,500 Euro Nevada Mining Corporation, Ltd. ............................................. 1,039,879
50,000 Falconbridge, Ltd. ............................................................... 1,063,440
17,500 Franco Nevada Mining Corporation, Ltd. ........................................... 1,023,561
99,000 Freeport McMoran Copper & Gold (Preferred shares) ................................ 2,091,375
34,700 Golden Knight Resources, Inc. .................................................... 200,413
135,000 Golden Star Resources, Ltd. ...................................................... 691,875
30,000 Golden Star Resources, Ltd.1 ..................................................... 153,750
30,000 Golden Star Resources, Ltd. (Warrants)1,2 ........................................ 300
84,400 Hecla Mining Company ............................................................. 580,250
205,000 International Gold Resources Corporation ......................................... 541,254
188,000 Kinross Gold Corporation ......................................................... 1,464,980
242,000 MIM Holdings, Ltd. (ADR) ......................................................... 667,920
29,281 Newmont Mining Corporation ....................................................... 1,324,965
</TABLE>
3
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (unaudited) (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NORTH AMERICA: 51.7% (continued)
60,000 Pan American Minerals Corporation2................................................ $ 407,041
190,000 Pan American Minerals Corporation (Special Warrants)1,2 .......................... 1,288,962
90,000 Pegasus Gold, Inc. ............................................................... 1,248,750
30,000 Placer Dome, Inc. ................................................................ 723,750
310,000 Prime Resource Group, Inc. ....................................................... 2,131,463
59,900 Romarco Minerals, Inc.2 .......................................................... 83,469
350,000 Santa Elina Gold Corporation2 .................................................... 397,873
150,000 Silver Standard Resources, Inc. (Special Warrants)1,2 ............................ 618,812
50,000 Teck Corporation "B" ............................................................. 976,348
350,000 Tiomin Resources, Inc. (Special Warrants)1,2 ..................................... 564,722
250,000 TVX Gold, Inc. ................................................................... 1,781,250
-----------
31,265,000
-----------
PERU: 1.1%
101,473 Cia De Minas Buenaventura "C" .................................................... 655,943
-----------
TOTAL COMMON STOCKS
(Cost $41,551,185) ............................................................. 46,127,575
-----------
SHORT-TERM INVESTMENTS: 5.9%
$3,600,000 Federal Home Loan Mortgage Corporation 5.50%, due 1/02/96 (Cost $3,599,450) ...... 3,599,450
-----------
TOTAL INVESTMENTS: 101.1%
(Cost $57,188,149+) (Note 1) ................................................... 61,135,356
Liabilities in excess of other assets: (1.1%) .................................... (647,900)
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $4.18 per share on 14,474,717 shares outstanding) ............... $60,487,456
===========
</TABLE>
Notes to Statement of Net Assets
1The following securities were purchased under Rule 144A of the securities Act
of 1933 and, unless registered under the Act or exempted from registration, may
be sold only to qualified institutional investors.
<TABLE>
<CAPTION>
Average Percentage
Acquisition Cost Per Share/ Market of Net
Issuer Date Principal Unit Value Assets
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Golden Star Resources, Ltd. ............................. 03/20/95 6.125 1,153,750 0.25%
Golden Star Resources, Ltd. (Warrants) .................. 03/20/95 0.000 1,153,300 0.00%
Pan American Minerals Corporation (Special Warrants) .... 07/17/95 5.216 1,288,962 2.13%
Silver Standard Resources, Inc. (Special Warrants) ...... 09/06/95 2.981 1,618,812 1.02%
Tiomin Resources, Inc. (Special Warrants) ............... 09/28/95 1.453 1,564,722 0.93%
---------- -----
$2,626,546 4.33%
========== =====
<FN>
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%.
2Non-income producing securities.
ADR-American Depository Receipt.
+Aggregate cost for Federal income tax purposes is identical.
</FN>
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
Lexington Strategic Silver Fund, Inc.
Statement of Assets and Liabilities
December 31, 1995 (unaudited)
<TABLE>
Assets
<S> <C>
Investments, at value (cost $57,188,149) (Note 1) ....................................... $61,135,356
Cash .................................................................................... 6,373
Receivable for shares sold .............................................................. 100,429
Interest receivable ..................................................................... 295
Deferred reorganization expenses, net (Note 1) .......................................... 13,049
-----------
Total Assets .................................................................... 61,255,502
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ........................................ 42,953
Payable for shares redeemed ............................................................. 540,562
Payable for investment securities purchased ............................................. 81,290
Accrued expenses ........................................................................ 103,241
-----------
Total Liabilities ............................................................... 768,046
-----------
Net Assets (equivalent to $4.18 per share on 14,474,717 shares outstanding) (Note 3) .... $60,487,456
===========
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.001 par value per share ................ $ 14,475
Additional paid-in capital .............................................................. 66,372,087
Accumulated deficit ..................................................................... (346,843)
Accumulated net realized loss on investments ............................................ (9,499,470)
Net unrealized appreciation of investments .............................................. 3,947,207
-----------
$60,487,456
===========
Net Asset Value, redemption price per share ............................................. $4.18
=====
Offering price per share (100/94.25 of $4.18 adjusted to nearest cent) .................. $4.44
=====
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Left Col.
Lexington Strategic Silver Fund, Inc.
Statement of Operations
Six months ended December 31, 1995 (unaudited)
Investment Income
Income
Dividends .............................. $129,269
Interest ............................... 99,220
--------
228,489
Less: foreign tax expense .............. 6,728
--------
Total investment income .............. $ 221,761
Expenses
Investment advisory fees
(Note 2) ............................. 285,562
Accounting and shareholder
services expenses (Note 2) ........... 52,172
Custodian and transfer agent
expenses ............................. 121,605
Printing and mailing ................... 33,498
Directors' fees and expenses ........... 6,387
Audit and legal ........................ 13,469
Registration fees ...................... 20,672
Computer processing fees ............... 8,211
Amortization of deferred
reorganization expenses
(Note 1) ............................. 6,577
Other expenses ......................... 20,451
--------
Total expenses ....................... 568,604
----------
Net investment loss ................ (346,843)
Realized and Unrealized Gain (loss)
on Investments (Note 4)
Net realized gain (loss) on:
Investments .......................... 3,588,089
Foreign currency
transactions ....................... (1,003)
--------
Net realized gain ................ 3,587,086
Net change in unrealized
depreciation on
Investments .......................... (586,830)
----------
Net realized and
unrealized gain .................. 3,000,256
----------
Increase in Net Assets Resulting
from Operations ........................ $2,653,413
==========
Right Col.
Lexington Strategic Silver Fund, Inc.
Statements of Changes in Net Assets
Six months
ended Year
December 31, ended
1995 June 30,
(unaudited) 1995
----------- -----------
Net investment loss ....................... $ (346,843) $ (448,539)
Net realized gain (loss) from
security transactions ................... 3,587,086 (1,327,359)
Increase (decrease) in unrealized
appreciation (depreciation)
of investments ......................... (586,830) 2,439,414
----------- -----------
Net increase in net assets
resulting from operations ........... 2,653,413 663,516
Increase (decrease) in net assets
from capital share
transactions (Note 3) ................... (7,683,068) 15,354,704
----------- -----------
Net increase (decrease) in
net assets ........................ (5,029,655) 16,018,220
Net Assets
Beginning of period ..................... 65,517,111 49,498,891
----------- -----------
End of period ........................... $60,487,456 $65,517,111
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
December 31, 1995 (unaudited) and June 30, 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 national securities exchange are
valued at the closing price or, in the absence of a recorded sale, at the mean
between the last reported bid and asked price. Securities traded on the
over-the-counter market and silver bullion are valued at the mean between the
last reported bid and asked price. Short-term securities are stated at amortized
cost, which approximates market value. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by management and approved in good faith by the Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
settled and are reported in the statement of operations. There were no foreign
currency exchange contracts outstanding at December 31, 1995.
Distributions In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of June 30, 1995,
book and tax basis differences amounting to $448,413 have been reclassified from
undistributed net investment income to additional paid-in capital. In addition,
foreign exchange gains of $126 were reclassified from accumulated net realized
losses to undistributed net investment income.
Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
7
<PAGE>
Lexington Strategic Silver Fund, Inc.
Notes to Financial Statements
December 31, 1995 (unaudited) and June 30, 1995 (continued)
1. Significant Accounting Policies (continued)
Deferred Reorganization Expenses Reorganization expenses aggregating $65,512
have been deferred and are being amortized on a straight line basis over five
years.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1% of the Fund's average daily net assets up to $30
million and at an annual rate of .75% thereafter. The investment advisory
contract provides that the total annual expenses of the Fund (including
management fees, but excluding interest, taxes, brokerage commission and
extraordinary expenses) will not exceed the level of 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 six months ended December 31, 1995. The investment advisory fee
is set forth in the accompanying statement of operations.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
December 31, 1995 Year ended
(unaudited) June 30, 1995
----------------------------- -----------------------------
Shares Amount Shares Amount
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Shares sold ................. 5,618,734 $23,987,025 17,944,367 $70,752,502
Shares redeemed ............. (7,534,590) (31,670,093) (14,196,839) (55,397,798)
----------- ------------ ------------ -----------
Net increase (decrease) ... (1,915,856) $23,987,025) 3,747,528 $15,354,704
=========== ============ ============ ===========
</TABLE>
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the six months
ended December 31, 1995, excluding short-term securities, were $6,577,212 and
$14,500,882, respectively.
At December 31, 1995, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$9,033,480 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $5,086,273.
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.
8
<PAGE>
Lexington Strategic Silver Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended
December 31, Year ended June 30,
1995 ----------------------------------
(unaudited) 1995 1994 1993 1992
---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $4.00 $3.92 $3.52 $2.78 $3.64
----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment loss .............................. (.02) (.03) (.02) (.04) (.09)
Net realized and unrealized gain (loss)
on investments ................................. .20 .11 .42 .78 (.77)
Total income (loss) from investment operations ..... .18 .08 .40 .74 (.86)
----- ----- ----- ----- -----
Net asset value, end of period ..................... $4.18 $4.00 $3.92 $3.52 $2.78
===== ===== ===== ===== =====
Total return** ..................................... 9.24%* 2.04% 11.36% 26.62% (23.63%)
Ratios to average net assets:
Expenses, before reimbursement ................... 1.72%* 1.82% 1.84% 3.48% 2.70%
Expenses, net of reimbursement ................... 1.72%* 1.82% 1.84% 2.60% 2.50%
Net investment loss, before reimbursement ........ (1.05%* (.83%) (.82%) (2.48%) (2.15%)
Net investment loss, including reimbursement ..... (1.05%)* (.83%) (.82%) (1.60%) (1.95%)
Portfolio turnover ................................. 21.31%* 44.22% 5.28% 18.58% 45.20%
Net assets at end of period (000's omitted) ........ $60,487 $65,517 $49,499 $15,032 $10,687
<FN>
*Annualized.
**Sales load is not reflected in total return.
</FN>
</TABLE>
9
<PAGE>
(Left Column)
Lexington Strategic Silver Fund, Inc.
Investment Adviser
- --------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Distributor
- --------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
------------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
------------------------------------------
This report has been prepared for the information of the
shareholders of Lexington Strategic Silver Fund, Inc.
and is authorized for distribution to the public only if
it is accompanied or preceded by a currently effective
prospectus which sets forth expenses and other material
information.
(Right Column)
L E X I N G T O N
- ---------------------
LEXINGTON
STRATEGIC
SILVER
FUND, INC.
(filled box)
Seeks long-term
growth of capital
through investment
in established silver
related companies.
(filled box)
SEMI-ANNUAL REPORT
DECEMBER 31, 1995
- ---------------------
