DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The price of silver bullion began the Fund's fiscal year on July 1, 1997 at
$4.64 an ounce. During the year it hit a high of $7.64 an ounce before profit
taking and reduced demand for silver caused by the economic slowdown around the
world took the price down to $5.31 an ounce on June 30, 1998. The price remains
at this level currently. The Lexington Strategic Silver Fund finished the fiscal
year ending June 30, 1998 with a decline of 17.32%*. This was far better than
the 34.97% decline for the average gold fund as measured by Lipper Analytical
Services, Inc. For the six-month period ending June 30, 1998 the Fund was down
15.98%*. The steady fall of the price of gold helped pull down the price of
silver as well.
As the most recent quarter ended, a change was made in the portfolio
management team. Robert Radsch, the Portfolio Manager, and member of the natural
resources team, left Lexington. The Fund will continue to be managed by other
members of that team which includes Robert M. DeMichele, President and James
Vail.
We believe the fundamentals for silver remain positive as silver demand
continues to exceed mine production and scrap recycling. That gap continues to
be met through the draw down of silver bullion inventories. The largest growth
in silver demand came from the industrial sector driven mostly by development of
new technologies and products that rely on silver's properties of superior
electrical and thermal conductivity. Silver is also used extensively in jewelry,
silverware and photography.
The Fund is well positioned to benefit from the increased demand for silver
that an improving worldwide economic climate will bring.
Sincerely,
/s/Robert M. DeMichele
----------------------
Robert M. DeMichele
President
August, 1998
1
<PAGE>
[The following table represents a chart in the printed report.]
Comparison of change in value of a $10,000 investment in
Lexington Strategic Silver Fund, Inc.,
the S&P 500 and Silver Bullion (London(U.S. Dollars))
Average Annual Total Returns For The Period Ended 6/30/98
Since Inception 6/30/98
Fund/Index One Year Five Year (1/2/92)* Value
- --------------------------------------------------------------------------------
Lexington Strategic (22.05)% (2.38)% 2.88% $12,023
Silver Fund
- --------------------------------------------------------------------------------
Silver Bullion 13.63% 3.67% 4.75% $13,516
- --------------------------------------------------------------------------------
S&P 500 30.07% 23.81% 20.07% $31,717
- --------------------------------------------------------------------------------
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund, including the maximum sales charge (5.75%) made at its
inception, with a similar investment in the Standard & Poor's 500 Stock Index
("S&P 500"), and a direct investment in silver bullion. Results for the Fund and
the S&P 500 include the reinvestment of all dividend and capital gains
distributions. The price of silver is subject to substantial price fluctuations
over short periods of time and may be affected by unpredictable international
monetary and political policies.* The original inception date for the Fund was
August 30, 1984. Prior to January, 1992 the Fund was managed by a different
investment advisor. Investment results for periods prior to that date are not
shown in the graph. The Per Share Income and Capital Changes Table in the Fund's
prospectus contains performance data that relates to prior periods. 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 their original cost. Total
return represents past performance and is not predictive of future results.
* -22.05%, -2.38% and 2.88% are the one year, five year and since commencement
(1/2/92) average annual standard total returns, respectively, for the period
ended June 30, 1998. Prior to January, 1992, the Fund was managed by a
different investment advisor. 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 and is not predictive of future results.
2
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------
SILVER BULLION: 32.9%
2,073,857 fine ounces (cost $11,557,282)2 ...... $11,478,796
-----------
COMMON STOCKS: 51.7%
AUSTRALIA: 4.0%
1,000,000 Aurora Gold, Ltd.2 ........................... 749,289
1,020,000 MIM Holdings, Ltd. ........................... 492,673
192,857 Pasminco, Ltd. ................................. 146,894
-----------
1,388,856
-----------
MEXICO: 16.0%
290,056 Corporacion Industrial San Luis S.A. ......... 1,129,749
534,016 Grupo Mexico S.A. de C.V. ..................... 1,458,941
945,000 Industrias Penoles S.A. ........................ 2,997,151
-----------
5,585,841
-----------
NORTH AMERICA: 28.3%
100,000 Adrian Resources, Ltd.2 ........................ 27,201
45,000 Apex Silver Mines, Ltd.2 ..................... 435,938
167,000 Atna Resources, Ltd.2 ........................ 107,885
83,500 Atna Resources, Ltd. (Warrants)1,2 ............ -
90,000 Campbell Resources, Inc. (Warrants)1,2 ......... -
108,100 Coeur D'Alene Mines Corporation2 ............... 729,675
77,000 Eldorado Corporation, Ltd.1,2 .................. 44,507
239,400 Hecla Mining Company2 ........................ 1,271,812
60,000 Minefinders Corporation, Ltd.1,2 ............... 70,178
285,000 Pan American Silver Corporation1,2 ............ 2,577,621
60,000 Pan American Silver Corporation 2 ............ 542,657
275,000 Prime Resource Group, Inc. ..................... 1,926,161
159,600 Romarco Minerals, Inc.2 ........................ 206,210
50,000 Silver Standard Resources, Inc.2 ............... 126,563
300,000 Silver Standard Resources, Inc.1,2 ............ 765,024
525,000 Sunshine Mining and Refining, Inc.2 ............ 492,187
350,000 Tiomin Resources, Inc.1,2 ..................... 142,804
262,500 Tiomin Resources, Inc. (Warrants)1,2 ......... -
50,000 TVX Gold, Inc.2 .............................. 153,125
75,000 Western Copper Holdings, Ltd.2 ............... 260,108
-----------
9,879,656
-----------
PERU: 2.9%
157,009 Compania de Minas Buenaventura S.A. "B" ...... 1,028,201
-----------
3
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998 (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR VALUE
PRINCIPAL AMOUNT SECURITY (NOTE 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
POLAND: 0.5%
21,000 KGHM Polska Miedz S.A. (GDR) .......................................... $ 169,575
-----------
TOTAL COMMON STOCKS:
(cost $21,447,288) ................................................... 18,052,129
-----------
PREFERRED STOCK: 4.7%
NORTH AMERICA: 4.7%
99,000 Freeport McMoran Copper & Gold
(cost $2,081,958)...................................................... 1,670,625
-----------
SHORT-TERM INVESTMENT: 8.6%
U.S. GOVERNMENT AGENCY OBLIGATION
$3,000,000 Federal Home Loan Bank, 5.40%, due 07/01/98
(cost $3,000,000)...................................................... 3,000,000
-----------
TOTAL INVESTMENTS: 97.9%
(cost $38,086,528+) (Note 1) .......................................... 34,201,550
Other assets in excess of liabilities: 2.1% ........................... 719,376
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $3.26 per share on 10,720,535 shares outstanding) ...... $34,920,926
===========
</TABLE>
1 Restricted security (Note 6).
2 Non-income producing security.
GDR-Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $38,278,333.
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $38,086,528) (Note 1) ........................ $ 34,201,550
Cash ..................................................................... 765,852
Receivable for shares sold ............................................. 16,429
Dividends and interest receivable ....................................... 24,821
------------
Total Assets ......................................................... 35,008,652
------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ........................ 27,925
Payable for shares redeemed ............................................. 6,852
Accrued expenses ......................................................... 52,949
------------
Total Liabilities ................................................... 87,726
------------
NET ASSETS: (equivalent to $3.26 per share on
10,720,535 shares outstanding) (Note 3) ................................. $ 34,920,926
============
NET ASSETS consist of:
Capital stock - authorized 1,000,000,000 shares, $.001 par value per share $ 10,721
Additional paid-in capital (Notes 1 and 7) .............................. 51,891,810
Distributions in excess of net investment income (Note 1) ............... (191,805)
Accumulated net realized loss on investments and foreign currency
transactions (Notes 1 and 7) .......................................... (12,904,829)
Unrealized depreciation on investments and foreign currency transactions (3,884,971)
------------
TOTAL NET ASSETS ...................................................... $ 34,920,926
============
NET ASSET VALUE, REDEMPTION PRICE PER SHARE .............................. $3.26
=====
OFFERING PRICE PER SHARE (100/94.25 of $3.26 adjusted to the nearest cent) $3.46
=====
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF OPERATIONS
Year ended June 30, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends .............................. $ 413,939
Interest .............................. 163,819
------------
577,758
Less: foreign tax expense ............ 6,902
------------
Total investment income ............ $ 570,856
EXPENSES
Investment advisory fee
(Note 2) ........................ 388,784
Transfer agent and shareholder
servicing expenses (Note 2) . 141,868
Custodian expenses .................. 91,984
Printing and mailing expenses ...... 65,680
Accounting expenses (Note 2) ...... 43,054
Professional fees .................. 22,738
Directors' fees and expenses ...... 18,532
Registration fees .................. 14,347
Computer processing fees ............ 9,172
Other expenses ..................... 603
------------
Total expenses ..................... 796,762
------------
Net investment loss ............... (225,906)
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 4)
Net realized gain (loss) on:
Investments ........................ (2,592,685)
Foreign currency
transactions ..................... 2,010
------------
Net realized loss ............... (2,590,675)
Net change in unrealized
appreciation on:
Investments ..................... (5,393,001)
Foreign currency translation
of other assets and
liabilities .................... (10)
------------
Net change in unrealized
appreciation ..................... (5,393,011)
------------
Net realized and
unrealized loss ............... (7,983,686)
------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................... $ (8,209,592)
============
</TABLE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ----------------
<S> <C> <C>
Net investment loss ............... $ (225,906) $ (404,378)
Net realized loss from
investment and foreign
currency transactions ............ (2,590,675) (989,734)
Net change in unrealized
appreciation of
investments and foreign
currency translation ............ (5,393,011) (4,550,358)
----------- -------------
Decrease in net assets
resulting from operations ...... (8,209,592) (5,944,470)
Distributions to shareholders
in excess of net investment
income (Note 1) .................. (81,929) (373,424)
Increase (decrease) in net assets
from capital share
transactions (Note 3) ............ 1,177,232 (25,591,713)
----------- -------------
Net decrease in net assets ...... (7,114,289) (31,909,607)
NET ASSETS:
Beginning of period ............... 42,035,215 73,944,822
----------- -------------
End of period (including
distributions in excess of
net investment income of
$191,805 and $1,792, 1998
and 1997, respectively) ......... $34,920,926 $ 42,035,215
=========== =============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 and 1997
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. The Fund will
seek to achieve its objective by investing at least 80% of its portfolio in
securities of established silver-related companies and silver bullion. The
following is a summary of significant accounting policies followed by the Fund
in the preparation of its financial statements:
INVESTMENTS Securities 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
prices. 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, 1998.
FEDERAL INCOME TAXES It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
DISTRIBUTIONS Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At June 30, 1998,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
7
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 and 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 and
disclosure of contingent 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.
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. For 1998, LMC has agreed
to voluntarily limit the total expenses of the Fund (including management fees,
but excluding interest, taxes, brokerage commissions and extraordinary expenses)
to an annual rate of 2.50% of the Fund's average daily net assets. No
reimbursement was required for the year ended June 30, 1998. The Fund reimburses
LMC for certain expenses, including accounting and shareholder servicing costs
of $83,046, which are incurred by the Fund, but paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
June 30, 1998 June 30, 1997
----------------------------- -----------------------------
Shares Amount Shares Amount
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Shares sold .................................... 8,598,402 $ 33,307,344 6,348,384 $ 27,981,547
Shares issued on reinvestment of dividends ...... 18,656 73,693 74,245 313,964
--------- ------------- --------- -------------
8,617,058 33,381,037 6,422,629 28,295,511
Shares redeemed ................................. (8,546,967) (32,203,805) (12,351,927) (53,887,224)
---------- ------------- ----------- -------------
Net increase (decrease) ........................ 70,091 $ 1,177,232 (5,929,298) $ (25,591,713)
========== ============= =========== =============
</TABLE>
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year ended
June 30, 1998, excluding short-term securities, were $11,146,223 and
$13,114,171, respectively.
At June 30, 1998, the aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $2,514,707 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $6,591,490.
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
8
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 and 1997 (continued)
5. INVESTMENT AND CONCENTRATION RISKS (continued)
foreign exchange or other foreign governmental restrictions or laws, all of
which could affect the market and/or credit risk of the investments.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the inability of counterparties to meet the
terms of their contracts.
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>
Average
Acquisition Cost Per Market Percent of
Security Date Shares Share Value Net Assets
-------- ------------- -------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C>
Atna Resources, Ltd. (Warrants) 10/14/96 83,500 $0.00 $ -- 0.00%
Campbell Resources, Inc. (Warrants) 10/25/96 90,000 0.00 -- 0.00
Eldorado Corporation, Ltd. 02/22/96 77,000 5.37 44,507 0.13
Minefinders Corporation, Ltd. 03/11/97 60,000 3.66 70,178 0.20
Pan American Silver Corporation 07/17/95 285,000 5.44 2,577,621 7.38
Silver Standard Resources, Inc. 09/06/95 300,000 3.14 765,024 2.19
Tiomin Resources, Inc. 09/28/95 350,000 1.44 142,804 0.41
Tiomin Resources, Inc. (Warrants) 10/31/96 262,500 0.00 - 0.00
---------- -----
$3,600,134 10.31%
========== =====
</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.
7. FEDERAL INCOME TAXES - CAPITAL LOSS CARRYFORWARDS
As of June 30, 1998, $1,093,937 of capital loss carryforwards have expired and
have been reclassified to additional paid-in capital. Capital loss
carryforwards1 available for Federal income tax purposes as of June 30, 1998
are:
$1,254,382 expiring in 1999;
3,106,844 expiring in 2000;
954,860 expiring in 2001;
1,911,797 expiring in 2002;
1,327,486 expiring in 2003;
1,756,775 expiring in 2005; and,
479,351 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
1 Temporary book-tax differences of $2,113,334 are the result of deferred post
October losses.
9
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 and 1997 (continued)
8. TAX INFORMATION (UNAUDITED)
The percentage of investment company taxable income eligible for the dividends
received deduction available to certain corporate shareholders with respect to
the fiscal year ended June 30, 1998 is 6.88%.
For the fiscal year ended June 30, 1998, 3.81% of the Fund's dividends paid from
net investment income were derived from interest on obligations of the United
States government.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculations of income and capital gains for Securities and
Exchange Commission (financial reporting) purposes and Internal Revenue Service
(tax) purposes.
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended June 30,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .................. $ 3.95 $ 4.46 $ 4.00 $ 3.92 $ 3.52
-------- -------- ------- ------- -------
Income (loss) from investment operations:
Net investment loss .................................... (0.02) (0.04) (0.03) (0.03) (0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions ......... (0.66) (0.43) 0.51 0.11 0.42
-------- -------- ------- ------- -------
Total income (loss) from investment operations ......... (0.68) (0.47) 0.48 0.08 0.40
-------- -------- ------- ------- -------
Less distributions:
Distributions in excess of net investment income ...... (0.01) (0.04) (0.02) -- --
-------- -------- ------- ------- -------
Net asset value, end of period ........................ $ 3.26 $ 3.95 $ 4.46 $ 4.00 $ 3.92
======== ======== ======= ======= =======
Total return* .......................................... (17.32)% (10.76)% 12.02% 2.04% 11.36%
Ratio to average net assets:
Expenses ............................................. 1.90% 1.96% 1.73% 1.82% 1.84%
Net investment loss .................................... (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Portfolio turnover rate ................................. 28.78% 18.76% 44.30% 44.22% 5.28%
Average commission paid on equity
security transactions** .............................. $ 0.02 $ 0.03 $ 0.02 -- --
Net assets, end of period (000's omitted) ............... $ 34,921 $ 42,035 $73,945 $65,517 $49,499
</TABLE>
* Sales load is not reflected in total return.
** In accordance with SEC disclosure guidelines, the average commissions are
calculated for the years beginning with June 1996, but not for prior periods.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Strategic Silver Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Strategic
Silver Fund, Inc. as of June 30, 1998, and the related statements of operations
for the year then ended, 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, 1998 by correspondence with the custodian. 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, 1998, 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 3, 1998
11
<PAGE>
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.
-------------------
LEXINGTON
-------------------
[GRAPHIC]
LEXINGTON
STRATEGIC
SILVER
FUND, INC.
-------------------
Seeks long-term
growth of capital
through investment
in established silver
related companies.
-------------------
ANNUAL REPORT
JUNE 30, 1998
