DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
News of Warren Buffet's purchase of 130 million ounces of silver sent
silver prices to a high of $7.80 an ounce in February 1998 compared to $6.00
per ounce where it began the year. Nevertheless, despite the fact that Buffet's
purchase represented 20% of annual silver supply, prices were unable to sustain
these levels and fell to a low of $4.67 in August 1998. While silver rallied
back to $5.40 at the end of the third quarter, it ended the year at $5.04 per
ounce. Demand continued to grow in 1998 in spite of the slowdown in global
economic activity. Total consumption grew 2.6% to 886 million ounces.
Industrial demand was essentially flat with the year earlier, but use by
photography, jewelry and silverware more than offset the slower industrial
demand. On the supply side, mine production grew over 5% to 528.5 million
ounces, but clearly this fell short of the amount needed to satisfy demand. The
balance was provided by increased scrap sales and implied disinvestment. The
offshoot of the latter was a dramatic decline in Comex inventories which ended
the year at less than 80 million ounces which represent about one month's
supply. In 1989, Comex inventories were 1.5 billion ounces, about 25 months of
demand.
Silver related equities generally performed in line with the underlying
metal. After reaching a peak in the February/March time frame the shares fell
to low levels in August. However, as the price of silver recovered from its
August low, the shares failed to participate. Most silver is produced as a
by-product of other base metal mining activities and as prices of copper, lead
and zinc fell reflecting lower global demand, the shares remained at their lows
through the end of December.
The Lexington Strategic Silver Fund produced a negative return of 29.64%*
for the year. This return was worse than the negative 10.9% return by competing
gold oriented funds as compiled by Lipper, Inc. The Fund's disappointing
performance reflected significant bullion holdings. Also the equity holdings
were negatively impacted by the lower production of gold and base metals.
The outlook for silver remains attractive based on the positive underlying
fundamentals. Demand for silver continues to grow and mine production is not
capable of satisfying demand. Furthermore, as inventories have been depleted to
extremely low levels, this source cannot be relied upon to make up the
difference looking ahead. As a result, we believe the price of silver is poised
to post higher levels as worldwide economic activity begins to recover possibly
later in 1999. As prices improve, profit levels for the mining shares held by
the Fund are expected to expand dramatically producing higher stock prices.
Sincerely,
/s/ James A. Vail /s/ Robert M. DeMichele
- ----------------------- ---------------------------
James A. Vail Robert M. DeMichele
Portfolio Manager President
February, 1999 February, 1999
1
<PAGE>
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
LEXINGTON STRATEGIC SILVER FUND, INC. AND
THE S & P 500 and Silver Bullion (London (U.S. Dollars))
[THE FOLLOWING TABLE REPRESENTS A CHART IN THE PRINTED REPORT]
Lexington
Year Strategic Silver S & P 500 Silver
Fund Bullion
===================================================================
01/02/92 $ 9,418 $10,000 $10,000
12/31/92 $ 8,364 $10,754 $ 9,258
12/31/93 $14,764 $11,836 $12,905
12/31/94 $13,527 $11,991 $12,236
12/31/95 $15,200 $16,497 $12,973
12/31/96 $15,562 $20,286 $12,104
12/31/97 $14,310 $27,056 $15,125
12/31/98 $10,068 $34,827 $12,627
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/98
FUND/INDEX 1 YEAR 5 YEAR SINCE INCEPTION
- ---------- ------ --------------- ------------------
Lexington Strategic
Silver Fund (33.74%) (8.47%) 0.10%
S & P 500 28.72% 24.09% 19.51%
Silver Bullion (16.51%) (0.43%) 3.39%
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 December, 1991 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 performance.
- --------------------------------------------------------------------------------
*-33.74%, -8.47% and 0.10% are the one year, five year and since commencement
(1/2/92) average annual standard total returns, respectively, for the period
ended December 31, 1998. 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 and
is not predictive of future results.
2
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
===================================================================
SILVER BULLION: 20.7%
1,051,945 fine ounces (cost
$5,887,507)2............................ $5,296,542
----------
COMMON STOCKS: 60.7%
AUSTRALIA: 5.8%
1,100,000 Aurora Gold, Ltd.2 ..................... 877,105
1,020,000 MIM Holdings, Ltd. ..................... 450,452
192,857 Pasminco, Ltd. ......................... 146,680
----------
1,474,237
----------
MEXICO: 17.7%
290,056 Corporacion Industrial San Luis
S.A. ................................... 419,406
554,016 Grupo Mexico S.A. de C.V. .............. 1,232,428
945,000 Industrias Penoles S.A. ................ 2,866,616
----------
4,518,450
----------
NORTH AMERICA: 32.9%
100,000 Adrian Resources, Ltd.2 ................ 19,532
45,000 Apex Silver Mines, Ltd.2 ............... 371,250
167,000 Atna Resources, Ltd.2 .................. 72,848
83,500 Atna Resources, Ltd.
(Warrants)1,2 .......................... -
90,000 Campbell Resources, Inc.
(Warrants)1,2 .......................... -
108,100 Coeur D'Alene Mines Corporation2 499,962
77,000 Eldorado Corporation, Ltd.1,2 .......... 20,053
239,400 Hecla Mining Company2 .................. 867,825
203,500 Homestake Mining Company ............... 1,869,656
60,000 Minefinders Corporation, Ltd.1,2 ....... 46,877
285,000 Pan American Silver Corporation1,2 1,438,043
60,000 Pan American Silver Corporation2........ 302,746
159,600 Romarco Minerals, Inc.2 ................ 155,865
300,000 Silver Standard Resources, Inc.1,2...... 234,384
50,000 Silver Standard Resources, Inc.2 ....... 39,844
47,000 Stillwater Mining Company2 ............. 1,927,000
525,000 Sunshine Mining and Refining, Inc.2 262,500
350,000 Tiomin Resources, Inc.1,2 .............. 72,919
262,500 Tiomin Resources, Inc.
(Warrants)1,2 .......................... -
50,000 TVX Gold, Inc.2 ........................ 90,625
75,000 Western Copper Holdings, Ltd.2 ......... 129,399
----------
8,421,328
----------
PERU: 3.7%
157,009 Compania de Minas Buenaventura
S.A. "B" ............................... 945,265
----------
NUMBER OF
SHARES
OR PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
===================================================================
POLAND: 0.6%
21,000 KGHM Polska Miedz S.A. (GDR) .......... $ 151,200
-----------
TOTAL COMMON STOCKS
(cost $22,978,399).................... 15,510,480
-----------
PREFERRED STOCK: 4.6%
NORTH AMERICA: 4.6%
99,000 Freeport McMoran Copper & Gold
(cost $2,081,958)..................... 1,163,250
-----------
SHORT-TERM INVESTMENT: 7.8%
U.S. GOVERNMENT AGENCY
OBLIGATION
$2,000,000 Federal Home Loan Mortgage
Corporation, 4.50%, due
01/04/99
(cost $1,999,250)..................... 1,999,250
-----------
TOTAL INVESTMENTS: 93.8%
(cost $32,947,114+) (Note 1).......... 23,969,522
Other assets in excess of
liabilities: 6.2% ..................... 1,590,623
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $2.73 per share
on 9,370,946 shares
outstanding) .......................... $25,560,145
===========
1 Restricted security (Note 6).
2 Non-income producing security.
GDR - Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $32,947,114) (Note 1) .............................. $ 23,969,522
Cash ........................................................................... 469,324
Receivable for investment securities sold ...................................... 1,385,379
Receivable for shares sold ..................................................... 39,786
Dividends and interest receivable .............................................. 3,267
-------------
Total Assets ................................................................ 25,867,278
-------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ............................... 22,783
Payable for shares redeemed .................................................... 223,165
Accrued expenses ............................................................... 61,185
-------------
Total Liabilities ........................................................... 307,133
-------------
NET ASSETS: (equivalent to $2.73 per share on
9,370,946 shares outstanding) (Note 3) ........................................ $ 25,560,145
=============
NET ASSETS consist of:
Capital stock - authorized 1,000,000,000 shares, $.001 par value per share...... $ 9,371
Additional paid-in capital (Notes 1 and 8) ..................................... 46,750,478
Accumulated net investment loss (Note 1) ....................................... (997)
Accumulated net realized loss on investments and foreign currency
transactions (Notes 1 and 8) .................................................. (12,221,115)
Unrealized depreciation of investments and foreign currency translation of other
assets and liabilities ........................................................ (8,977,592)
-------------
TOTAL NET ASSETS ............................................................ $ 25,560,145
=============
NET ASSET VALUE, REDEMPTION PRICE PER SHARE .................................... $ 2.73
=============
OFFERING PRICE PER SHARE (100/94.25 of $2.73 adjusted to the nearest cent) ..... $ 2.90
=============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENT OF OPERATIONS
Six month period ended December 31, 1998 (Note 7)
INVESTMENT INCOME
Dividends ............................. $ 199,491
Interest .............................. 66,345
-----------
265,836
Less: foreign tax expense ............. 1,555
-----------
Total investment income ........... $ 264,281
EXPENSES
Investment advisory fee
(Note 2) ......................... 150,258
Transfer agent and shareholder
servicing expenses (Note 2) ...... 57,679
Custodian expenses ................. 43,624
Printing and mailing expenses ...... 35,870
Professional fees .................. 21,597
Accounting expenses (Note 2) ....... 13,089
Registration fees .................. 12,560
Directors' fees and expenses ....... 7,594
Computer processing fees ........... 4,126
Other expenses ..................... 9,650
-----------
Total expenses .................... 356,047
------------
Net investment loss .............. (91,766)
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 4)
Net realized loss on:
Investments ....................... (570,668)
Foreign currency transactions ..... (898)
-----------
Net realized loss ................ (571,566)
Net change in unrealized
appreciation (depreciation) of:
Investments ...................... (5,092,614)
Foreign currency translation
of other assets and
liabilities ..................... (7)
--------------
Net change in unrealized
depreciation .................... (5,092,621)
------------
Net realized and
unrealized loss ................ (5,664,187)
------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ................... $ (5,755,953)
============
LEXINGTON STRATEGIC SILVER FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the six
month period
ended
December 31, Year ended
1998 June 30,
(Note 7) 1998
-------------- --------------
Net investment loss ................... $ (91,766) $ (225,906)
Net realized loss from
investment and foreign
currency transactions .............. (571,566) (2,590,675)
Net change in unrealized
appreciation (depreciation) of
investments and foreign
currency translation ............... (5,092,621) (5,393,011)
------------ ------------
Decrease in net assets
resulting from operations......... (5,755,953) (8,209,592)
Distributions to shareholders
in excess of net investment
income (Note 1) .................... - (81,929)
Increase (decrease) in net assets
from capital share
transactions (Note 3) .............. (3,604,828) 1,177,232
------------ ------------
Net decrease in net assets .......... (9,360,781) (7,114,289)
NET ASSETS:
Beginning of period .................. 34,920,926 42,035,215
------------ ------------
End of period (including
accumulated net investment
loss of $997 and distributions
in excess of net investment
income of $191,805 in
December 31, 1998 and June
30, 1998, respectively) .......... $ 25,560,145 $ 34,920,926
============ ============
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998
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 currency 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.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. There are no forward foreign currency
contracts outstanding at December 31, 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
6
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 31, 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.
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 period ended December 31, 1998.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $28,848, which are incurred by the Fund, but
paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
For the six
month
period ended Year ended
December 31, 1998 June 30, 1998
---------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 2,505,470 $ 7,289,065 8,598,402 $ 33,307,344
Shares issued on reinvestment of dividends ......... - - 18,656 73,693
--------- ------------- --------- -------------
2,505,470 7,289,065 8,617,058 33,381,037
Shares redeemed .................................... (3,855,059) (10,893,893) (8,546,967) (32,203,805)
---------- ------------- ---------- -------------
Net increase (decrease) ............................ (1,349,589) $ (3,604,828) 70,091 $ 1,177,232
========== ============= ========== =============
</TABLE>
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the period
ended December 31, 1998, excluding short-term securities, were $1,531,112 and
$5,099,107, respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$1,104,043 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $10,081,635.
7
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998 (continued)
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.
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 Net
Security Date Shares Share Value 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 20,053 0.08
Minefinders Corporation, Ltd. 03/11/97 60,000 3.66 46,877 0.18
Pan American Silver Corporation 07/17/95 285,000 5.44 1,438,043 5.63
Silver Standard Resources, Inc. 09/06/95 300,000 3.14 234,384 0.92
Tiomin Resources, Inc. 09/28/95 350,000 1.44 72,919 0.28
Tiomin Resources, Inc. (Warrants) 10/31/96 262,500 0.00 - 0.00
---------- -----
$1,812,276 7.09%
========== =====
</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. CHANGE IN THE FUND'S YEAR-END
The Fund changed its fiscal year-end from June 30th to December 31st. This
change was done to facilitate the administration of the Fund.
8
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and June 30, 1998 (continued)
8. FEDERAL INCOME TAXES - CAPITAL LOSS CARRYFORWARDS
As of December 31, 1998, $1,254,382 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
December 31, 1998 are:
$3,106,844 expiring in 1999;
954,860 expiring in 2000;
1,911,797 expiring in 2001;
1,327,486 expiring in 2002;
1,756,775 expiring in 2004;
479,351 expiring in 2005; and,
2,130,561 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
1Temporary book-tax differences of $553,441 are the result of deferred
post-October losses.
9
<PAGE>
LEXINGTON STRATEGIC SILVER FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six month
period ended
December 31,
Year ended June 30,
1998 --------------------------------------------------------------------
(Note 7)
--------------- 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ................................. $ 3.26 $ 3.95 $ 4.46 $ 4.00 $ 3.92 $ 3.52
-------- -------- -------- --------- --------- --------
Income (loss) from investment
operations:
Net investment loss .................... (0.01) (0.02) (0.04) (0.03) (0.03) (0.02)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ......... (0.52) (0.66) (0.43) 0.51 0.11 0.42
--------- -------- -------- --------- --------- --------
Total income (loss) from investment
operations ............................. (0.53) (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 .......... $ 2.73 $ 3.26 $ 3.95 $ 4.46 $ 4.00 $ 3.92
========= ======== ======== ========= ========= ========
Total return** .......................... (16.26)% (17.32)% (10.76)% 12.02% 2.04% 11.36%
Ratio to average net assets:
Expenses ............................... 2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
Net investment loss .................... (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Portfolio turnover rate ................. 5.68% 28.78% 18.76% 44.30% 44.22% 5.28%
Net assets, end of period (000's
omitted) ............................... $ 25,560 $ 34,921 $ 42,035 $ 73,945 $ 65,517 $ 49,499
</TABLE>
* Annualized.
** Sales load is not reflected in total return.
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Strategic Silver Fund, Inc.:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Strategic
Silver Fund, Inc. as of December 31, 1998, and the related statement of
operations for the six month period then ended, the statements of changes in
net assets for the six month period ended December 31, 1998 and for the year
ended June 30, 1998 and the financial highlights for the periods indicated
herein. 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Strategic Silver Fund, Inc. as of December 31, 1998, the result of
its operations for the six month period then ended, the changes in its net
assets for the six month period ended December 31, 1998 and for the year ended
June 30, 1998, and the financial highlights for the periods indicated herein in
conformity with generally accepted accounting principles.
KMPG LLP
New York, New York
February 8, 1999
<PAGE>
11
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
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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.
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LEXINGTON
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[GRAPHIC OMITTED]
LEXINGTON
STRATEGICSILVER
FUND, INC.
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Seeks long-term
growth of capital
through investment
in established silver
related companies.
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ANNUAL REPORT
DECEMBER 31, 1998
