================================================================================
LEXINGTON
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================================================================================
LEXINGTON
CROSBY
SMALL CAP
ASIA GROWTH
FUND, INC.
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Seeks long-term capital
appreciation through investment
in companies domiciled in the Asia
Region with a market capitalization
of less than $1 billion.
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997
The Lexington Group
of No Load
Investment Companies
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<PAGE>
DEAR SHAREHOLDERS:
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Lexington Crosby Small Cap Asia Growth Fund appreciated by 15.89%* for the
six month period ended June 30, 1997 as compared to the unmanaged Morgan Stanley
Capital International All Country Far East ex-Japan Index over the same period
which increased by 3.14%. The average Asia fund, as reported by Lipper
Analytical Services, Inc., increased by 6.02% for the same period.
The performance of the regional bourses was mixed during the quarter. Hong
Kong rose 21.2% despite a brief correction in June on the back of fears of
excessive mainland Chinese control over asset injections into red chip
companies. Hong Kong `H' shares rose 5.2% and Shanghai `B' shares increased
10.8%. In contrast, the Shenzhen `B' stock market fell 10.8%, as the Chinese
government moved to dampen speculation in the bourse. Taiwan gained 12.8% on a
stronger economy and a recovery in the electronics industry, and Korea recovered
10.0% on improved liquidity. Indonesia was also 9.4% higher.
Elsewhere, Malaysia fell 10.5% and Singapore lost 4.1%. However, some
small and medium capitalization shares in Singapore substantially outperformed
the major blue chip listed companies, underpinned by their positive earnings
momentum. Shares in Thailand lost a further 25.3%, while the Philippines shed
12.8%, as investors became concerned that a Thai-style financial crisis and
devaluation would take place in the country.
During the quarter, the Fund's weightings in Hong Kong, China, and
Singapore were increased. Investments in Indonesia, Malaysia and the Philippines
were trimmed, while positions in Korea and Thailand were sold.
ECONOMIC OUTLOOK AND STRATEGY
In the absence of inflationary pressures at either the production or the
retail level, and with consumer spending having eased over the past few months,
the Federal Reserve Board decided in June to maintain the federal funds rate at
5.5%. While there is a possibility of an interest rate increase later this year,
as manufacturing activity, industrial production and capacity utilization remain
at high levels, and there is a likelihood that consumer spending will rebound in
the third quarter, we maintain our view that the upward adjustment in rates is
likely to be mild, since the USgovernment remains cautious of moves which will
significantly interrupt or reverse the economy's steady pace of growth. This,
coupled with the healthy flow of funds, should continue to provide a favorable
environment for equity investment.
Overseas investors have been worried that Asia's economic miracle is at
risk of significantly decelerating in view of the problems experienced by
certain economies in the region. In addition, the financial and property crisis
in Thailand has caused fears regarding the dominance of property in Asia. These
factors, together with the sluggish export performance, has meant that many
investors have increased their exposure to other global emerging stock markets.
We remain optimistic on Asia's long term economic growth prospects. While
growth in some Asian economies are facing a cyclical deceleration, others, such
as China, Hong Kong, Indonesia, Taiwan and India, are expected to experience
accelerating GDPgrowth over the next two years. The Asian region's growth
continues to be underpinned by solid dynamics, including economic liberalization
which targets pro-growth policies, economic liberty, that is low taxation, no
welfare state burden and minimal bureaucracy, savings rates which average at
least 30% and favorable demographics, as evident in the region's young-to-old
ratio of 6:1. In addition, foreign direct investment inflows have remained
strong. Asia is also now less dependent on the developed countries, with
intra-regional trade rising significantly from 25% in 1985 to more than 50%.
1
<PAGE>
Property currently accounts for a significant proportion of Asia's
economic growth, corporate earnings and net wealth. Demand for housing, which is
a basic consumer product in a region which has developed rapidly, has been
fueled by Asia's economic and population growth, changing cultural attitudes, a
firmly entrenched property owning psychology and demand-supply imbalances. While
these factors are expected to continue supporting demand, we expect property to
be less dominant in the future as this sector matures and pent-up demand is
fulfilled.
The continuing liberalization of the Asian economies inevitably brings new
challenges, which are forcing the region's corporates to re-examine their long
term business strategies to cater more effectively towards changing consumption
patterns and demands. In addition, improving education systems and a greater
emphasis on innovation are undoubtedly expected to enhance corporate
profitability and result in a broader selection of stocks available for
investment in the longer term. This process is already underway, and we believe
that our disciplined, research-based, active growth with value stock picking
approach, which focuses on key investment criteria, will provide us with the
necessary tool to identify those companies which are sufficiently dynamic to
survive within an increasingly competitive business environment.
While many investors are worried about Asia's current sluggish export
performance, we prefer to focus upon the opportunities which are being created
within Asia as the result of its rapid long term growth. This is evident in
Asia's increasing intra-regional trade. While China and the other less developed
countries within Asia are expected to provide the main engine to the region's
growth into the 21st century, the more advanced countries are likely to continue
providing valuable skills, technical assistance and investment, hence resulting
in greater regional economic and corporate co-operation. The significant
population within Asia should ensure strong growth in consumer demand and a
plentiful labor supply without creating undue upward cost pressures.
We continue to favor investment in Hong Kong, China and Singapore. Hong
Kong is benefitting from the removal of handover uncertainty and the inflow of
liquidity, especially from China. Corporate earnings growth momentum should
accelerate, on the back of a stronger global economy and improved business
opportunities within China, as Hong Kong corporations begin reaping the benefits
of cultivating closer ties, over the past few years, with the Chinese
authorities. Investing in China continues to be attractive in view of its
accelerating economic and corporate earnings growth, falling interest rates and
an improving quality of financial information.
The Fund's significant overweight position will be maintained in
Singapore, where the outlook for companies which have established earnings bases
in the Asian region remains positive.
Meanwhile, significant underweight positions will be retained in Malaysia
and the Philippines, where there is currently a lack of attractive investment
opportunities. In addition, the macro-economic outlook for Malaysia is uncertain
in view of overheating concerns.
The Fund's exposure to Indonesia is expected to increase over the next
quarter. With an expected annual depreciation of around 5% for the Indonesian
Rupiah and Bank Indonesia's recent decision to widen its currency intervention
band to 12%, we do not believe that the currency requires significant
depreciation from current levels. The country is expected to enjoy accelerating
GDPgrowth and lower interest rates over the next twelve to eighteen months.
A recovery in the Taiwan economy is expected in 1997, without creating
excessive inflationary pressures. Liquidity is being relaxed further, with the
series of four successive reserve requirement cuts by the Central Bank. There
has been some improvement in the level of practical co-operation across the
Taiwan Straits, such as the agreement on direct shipping links with China.
2
<PAGE>
The Korean stock market has recovered from its lows. However, we believe
that the country is still plagued by various structural economic problems.
Domestic demand is likely to weaken further and exports have yet to show any
real signs of recovery. Micro-economic risks exist, especially in the financial
sector. On the positive side, bond yields are softening and inflation is
receding, which will allow for greater monetary flexibility.
Attractive PERValuations in India, lower interest rates and improved
settlement procedures have resulted in the Indian stock market rising 16.4% in
the second quarter of 1997 and 26.6% so far this year. GDPgrowth is forecast to
accelerate this year and next, at 6.0% and 7.1%, respectively, and the Rupee is
expected to undergo annual depreciation of around 4% to 5%.
HONG KONG
At the stroke of midnight on June 30, Hong Kong embarked on a new era of
"One country, Two systems". In the swearing-in ceremonies for the Chief
Executive, senior officials, the Judiciary and the provisional legislature,
President Jiang Zemin reiterated China's commitment to the Joint Declaration and
the Basic Law. He emphasized that the central government "will not and should
not be allowed to intervene in matters which ought to be handled by the Hong
Kong Special Administrative Region ... as called for by the Basic Law." His
comments were further stressed in Chief Executive Tung Chee-hwa's inaugural
speech.
While the success of the "One country, Two systems" formula has yet to be
seen, Hong Kong has already enjoyed strong liquidity inflows form China. Sources
have estimated that mainland capital flows to Hong Kong will reach US$75bn in
1997, compared to US$60bn in 1996 and US$57bn in 1995. Investor confidence
should also continue improving after the handover. The People's Bank of China
has pledged to support Hong Kong, backed by its US$115 billion in foreign
exchange reserves.
We will focus on companies which have close working relationships with, or
have equity investments by, Chinese parties. We believe that the investor
interest in red chips reflects both the strength in the Chinese economy and a
predilection in China for holding Hong Kong assets at a time when Hong Kong
affairs are becoming more prominent in the country. We expect this to continue
and the Fund's investments will be concentrated in those companies which have
sound fundamentals and which meet our stringent investment criteria.
The recent imposition of guidelines by both the Hong Kong and Chinese
regulatory authorities regarding the restructuring and listing of red chips, as
well as asset injections into these companies, has both formalized the
procedures for future corporate maneuvers and enhanced the transparency of these
companies. This action has illustrated the commitment of the authorities towards
ensuring the development of a healthy and sustainable stock market. The current
price consolidation amongst the red chips offers opportunities to pick up
well-managed China-affiliated companies at reasonable prices. We continue to
believe that the red chips with strong backing from their parents and balanced
business portfolios will provide attractive returns in the long term.
CHINA
Recently announced economic data suggest the need for further monetary
easing in China. In May, the retail price index slowed to 0.8% year-on-year,
averaging 2.0% in the first five months of 1997, down
3
<PAGE>
from 6.1% in 1996, 14.7% in 1995 and 21.7% in 1994. Import growth has remained
subdued and industrial production has been far behind expectations. Credit
growth has also been slow and banks have been both unwilling and unable to meet
the demand of the productive sectors for funds. We believe that reductions in
interest rates and reserve requirements are imminent. This outlook of easing
monetary conditions and an improving economy render investment in China
attractive and we will focus on the Chinese companies which have sound
fundamentals and good management, particularly in the consumer and machinery
sectors.
SINGAPORE
Investors have remained disappointed with Singapore as the result of a
lack of a strong recovery in the country's non-oil domestic exports ("NODE"),
particularly the electronics industry. This is attributable to the demand-supply
conditions within the global industry and is further compounded by increasing
competition from lower cost manufacturing countries. Singapore should be able to
continue exploiting its comparative advantage in the high-technology exports
sector, which registered a 5.6% growth in 1996, more than twice the growth in
NODE. The country's high-technology exports, however, already account for 65% of
NODE, implying that Singapore's domestic economy, especially its services
sector, has to be developed further to enable it to reduce its vulnerability to
economic growth and demand in the industrialized countries.
While domestic consumption remains weak and Singapore will undoubtedly
continue developing its financial and business sectors in the long term as a
sub-regional hub within Asia, we remain positive on the long term prospects of
selected well-managed companies which have successfully diversified their
earnings bases throughout the Asian region.
We will continue to focus of these "growth" companies which provide
superior but sustainable long term earnings growth prospects. We have also
positioned the Fund to take advantage of the growth in the demand for
electronics products through companies involved in the support industries within
the electronics sector.
Sincerely,
/s/ Nigel Webber /s/ Christina Lam /s/ Robert M. DeMichele
- ---------------- ----------------- -----------------------
Nigel Webber Christina Lam Robert M. DeMichele
Portfolio Manager Portfolio Manager President
August, 1997 August, 1997 August, 1997
*26.24% and 19.30% are the one year and since commencement (7/3/95) average
annual standard total returns, respectively, for the period ended June 30, 1997.
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. Total return represents past performance and is not predictive of
future results.
4
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited)
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
COMMON STOCK: 88.0%
CHINA: 10.9%
320,000 Hainan Airlines1 ............................. $ 174,720
900,000 Inner Mongolia Erdos Cashmere Products
Company, Ltd. .............................. 756,000
3,900,000 Nanjing Panda Electronics Company, Ltd. ...... 815,512
850,000 Shandong Chenming Paper1 ..................... 830,549
1,799,680 Shanghai Diesel Engine Company, Ltd.1 ........ 611,891
579,960 Shenzhen Fangda Company1 ..................... 842,173
1,700,000 Tientsin Marine Shipping
Company, Ltd.1 ............................. 972,400
-----------
5,003,245
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HONG KONG: 42.8%
1,456,000 Beijing Datang Power Generation
Company, Ltd.1 .............................. 671,874
1,300,000 BZW China Steel Warrants1 .................... 396,500
93,000 Cheung Kong (Holdings), Ltd. ................. 918,322
428,000 China Everbright--IHD
Holdings, Ltd.1 ............................ 1,278,926
368,000 China Resources Enterprise ................... 1,805,020
1,950,000 Citybus Group, Ltd.1 ......................... 987,927
216,000 Dah Sing Financial Group1 .................... 1,196,084
2,724,000 Dongfang Electrical Machinery
Company, Ltd. .............................. 879,018
4,000,000 Elegance International
Holdings, Ltd.1 ............................ 640,225
1,824,000 Founder Hong Kong, Ltd. ...................... 1,236,047
800,000 Guangdong Investments ........................ 1,203,003
800,000 Guangdong Kelon Electrical
Holdings Company, Ltd. ..................... 764,139
630,000 Guangnan Holdings, Ltd. ...................... 983,958
75,000 Hang Seng Bank, Ltd.1 ........................ 1,069,730
95,000 Henderson Land Development
Company, Ltd. .............................. 843,038
720,000 Lai Sun Development Company, Ltd. ............ 808,542
1,820,000 Midland Realty Holdings, Ltd. ................ 933,812
153,000 New World Development
Company, Ltd. .............................. 912,398
518,000 Peregrine Investment
Holdings, Ltd.1 ............................ 1,066,452
162,000 Shanghai Industrial Holdings, Ltd. ........... 1,007,889
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19,602,904
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INDONESIA: 4.7%
1,686,000 PT Bank Danamon Indonesia .................... 884,084
784,000 Pt Putra Surya Multidana1 .................... 1,249,434
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2,133,518
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MALAYSIA: 8.6%
455,000 Cold Storage (Malaysia) Bhd .................. 666,996
198,000 Eastern Oxygen Bhd1 .......................... 1,074,721
71,000 Hock Seng Lee Bhd ............................ 991,579
460,000 Malaysia International Shipping Bhd .......... 1,193,738
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3,927,034
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PHILIPPINES: 1.9%
3,354,000 Asian Terminals, Inc.1 ....................... 610,373
8,567,200 Mabuhay Vinyl Corporation1 ................... 230,615
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840,988
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SINGAPORE: 19.1%
650,000 Advanced Systems Automation, Ltd.1 ........... 1,227,401
1,750,000 Datapulse Technology, Ltd.1 .................. 862,853
780,000 Delifrance Asia, Ltd.1 ....................... 872,819
87,000 Development Bank of Singapore, Ltd. .......... 1,095,220
898,000 Informatics Holdings, Ltd.1 .................. 536,972
578,000 Lindeteves-Jacoberg, Ltd.1 ................... 901,451
592,000 Osprey Maritime, Ltd. ........................ 774,235
592,000 Osprey Maritime, Ltd. (Rights)1 .............. 774,235
582,000 ST Capital, Ltd. ............................. 691,961
304,800 Want Want Holdings1 .......................... 1,011,936
-----------
8,749,083
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TOTAL INVESTMENTS: 88.0%
(cost $34,118,762+) (Note 1) ............... 40,256,772
Other assets in excess of
liabilities: 12.0% ......................... 5,508,822
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TOTAL NET ASSETS: 100.0%
(equivalent to $14.18 per share on
3,226,909 shares outstanding) .............. $45,765,594
===========
1 Non-income producing security.
+Aggregate cost for Federal income tax purposes is identical.
5
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited) (continued)
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At June 30, 1997, the composition of the Fund's net assets by industry
concentration was as follows:
Banking .......................................................... 6.7%
CapitalEquipment ................................................. 11.9
Construction & Housing ........................................... 2.2
Consumer Durable ................................................. 3.3
Consumer Nondurable .............................................. 9.2
Electrical & Electronics ......................................... 3.7
Energy Sources ................................................... 2.3
Financial Services ............................................... 11.8
Materials ........................................................ 3.6
Merchandising .................................................... 2.8
Multi-industry ................................................... 0.5
Real Estate ...................................................... 13.6
Services ......................................................... 4.7
Trade ............................................................ 2.1
Transportation ................................................... 8.1
Utilities ........................................................ 1.5
Other Assets ..................................................... 12.0
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Total Net Assets ............................................. 100.0%
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LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
ASSETS
Investments at value (cost $34,118,762) (Note 1) .................. $40,256,772
Cash .............................................................. 5,983,541
Receivable for investment securities sold ......................... 26,184
Receivable for shares sold ........................................ 574,862
Dividends and interest receivable ................................. 108,570
Deferred organization expenses, net (Note 1) ...................... 40,785
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Total Assets ........................................... 46,990,714
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LIABILITIES
Due to Lexington Management Corporation (Note 2) .................. 82,673
Payable for investment securities purchased ....................... 1,010,366
Payable for shares redeemed ....................................... 78,720
Accrued expenses .................................................. 53,361
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Total Liabilities ...................................... 1,225,120
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NET ASSETS (equivalent to $14.18 per share
on 3,226,909 shares outstanding) (Note 4) ....................... $45,765,594
===========
NET ASSETS consist of:
Capital stock--authorized 1,000,000,000 shares,
$.001 par value per share ....................................... $ 3,227
Additional paid-in capital (Note 1) ............................... 37,532,527
Undistributed net investment income (Note 1) ...................... 53,112
Accumulated net realized gain on investments
and foreign currency holdings (Note 1) ........................... 2,036,840
Unrealized appreciation of investments and
foreign currency holdings ........................................ 6,139,888
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Total Net Assets ....................................... $45,765,594
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The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
LEXINGTON CROSBY SMALL CAP
ASIA GROWTH FUND, INC.
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (unaudited)
INVESTMENT INCOME
Dividends .................................. $ 403,729
Interest ................................... 64,724
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468,453
Less: foreign tax expense .................. 25,079
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Total investment income ............. $ 443,374
EXPENSES
Investment advisory fee (Note 2) ........ 202,087
Transfer agent and shareholder
servicing expense (Note 2) ............ 43,127
Custodian expenses ...................... 42,292
Printing and mailing expenses ........... 24,637
Registration fees ....................... 19,632
Accounting expenses (Note 2) ............ 10,008
Amortization of organization costs
(Note 1) .............................. 7,661
Directors' fees and expenses ............ 7,488
Professional fees ....................... 6,869
Computer processing fees ................ 3,570
Other expenses .......................... 586
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Total expenses ........................ 367,957
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NET INVESTMENT INCOME ................. 75,417
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 5)
Net realized gain (loss) on:
Investments ......................... 2,596,592
Foreign currency transactions ....... (42,261)
----------
Net realized gain ................. 2,554,331
Net change in unrealized
appreciation on:
Investments ........................... 1,962,799
Foreign currency translation of
other assets and liabilities ........ 2,096
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Net change in unrealized
appreciation ...................... 1,964,895
----------
Net realized and
unrealized gain ................. 4,519,226
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INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ......................... $4,594,643
==========
LEXINGTON CROSBY SMALL CAP
ASIA GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
------------ -----------
Net investment income (loss) .............. $ 75,417 $ (106,176)
Net realized gain (loss) from
investment and foreign
currency transactions .................. 2,554,331 (334,704)
Net change in unrealized
appreciation of investments and
foreign currency translations .......... 1,964,895 4,045,291
------------- ------------
Increase in net assets
resulting from
operations ....................... 4,594,643 3,604,411
Distributions to shareholders
in excess of net investment
income (Note 1) ........................ -- (14,172)
Increase in net assets from capital
share transactions (Note 4) ............ 17,374,479 11,270,269
------------ ------------
Net increase in net assets ......... 21,969,122 14,860,508
NET ASSETS:
Beginning of period .................... 23,796,472 8,935,964
------------ ------------
End of period (including
undistributed net investment
income of $53,112 and
distributions in excess of net
investment income of
$22,305, respectively.) ............... $45,765,594 $23,796,472
============ ============
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington Crosby Small Cap Asia Growth Fund, Inc. (the "Fund") is an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended. The Fund's investment objective is
to seek long-term capital appreciation through investment in common stocks and
equivalents of companies domiciled in the Asia region with a market
capitalization of less than $1 billion. The Fund commenced operations on July 3,
1995. 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 price is used. Securities traded on the over-the-counter market 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 forward
foreign exchange contracts outstanding at June 30, 1997.
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
8
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accounting principles. At December 31, 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 ORGANIZATION EXPENSES Organization expenses aggregating $67,351
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.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management
Corporation ("LMC") at the rate of 1.25% of average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with Crosby Asset Management (U.S.), Inc. ("Crosby") under
which Crosby provides the Fund with investment management services. Pursuant to
the terms of the sub-advisory contract between LMC and Crosby, LMC pays Crosby a
monthly sub-advisory fee at the annual rate of 0.625% of the Fund's average
daily net assets. For 1997, LMC has agreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses but including management fee and operating expenses) to
an annual rate of 2.50% of the Fund's average net assets. No reimbursement was
required for the six months ended June 30, 1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $25,374 which were incurred by the Fund, but paid
by LMC.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1997 Year Ended
(unaudited) December 31, 1996
----------------------------- ----------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
------ ------- ------ -------
Shares sold ................................. 4,073,274 $ 53,214,053 2,376,604 $ 26,361,583
Shares issued on reinvestment of
dividends ................................. -- -- 1,043 11,526
---------- ------------ --------- -----------
4,073,274 53,214,053 2,377,647 26,373,109
Shares redeemed ............................. (2,789,849) (35,839,574) (1,349,951) (15,102,840)
---------- ------------ --------- -----------
Net increase ................................ 1,283,425 $ 17,374,479 1,027,696 $ 11,270,269
========== ============ ========== ============
</TABLE>
9
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996 (continued)
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the six
months ended June 30, 1997, excluding short-term securities, were $35,057,460
and $23,052,871, respectively.
At June 30, 1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$8,285,630 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,145,742.
6. INVESTMENT AND CONCENTRATION RISKS
The Fund's investments in foreign securities may involve risks not present
in domestic investments. Since foreign securities may be denominated in a
foreign currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, 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 the result of the potential inability of
counterparties to meet the terms of their contracts.
7. OPTION CONTRACTS
Premiums paid when call options are purchased by the Fund, represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transactions are
greater or less than the premiums paid for the option. When the Fund exercises a
call option, the cost of the security which the Fund purchases upon exercise
will be increased by the premium originally paid.
The following call option transactions occurred during the six months
ended June 30, 1997:
Call Options
-------------------------------
Number of
Cost Shares Optioned
---- ---------------
Outstanding at December 31, 1996 ............ $ 206,830 43,000
Options purchased ........................... -- --
Options closed .............................. (206,830) (43,000)
--------- ------
Outstanding at June 30, 1997 ................ $ -- --
========= ======
10
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
July 3, 1995
Six months (Commencement
ended of
June 30, Year ended operations) to
1997 December 31, December 31,
(unaudited) 1996 1995
---------- ----------- -------------
<S> <C> <C> <C>
Net asset value, beginning of period ........................... $ 12.24 $ 9.76 $10.00
-------- ------- ------
Income (loss) from investment operations:
Net investment income (loss) ............................... 0.03 (0.05) 0.02
Net realized and unrealized gain (loss) on
investments and foreign currency transactions .......... 1.91 2.54 (0.24)
-------- ------- ------
Total income (loss) from investment operations ............. 1.94 2.49 (0.22)
-------- ------- ------
Less distributions:
Distributions from net investment income ................... -- -- (0.02)
Distributions in excess of net investment income
(temporary book-tax difference) ........................ -- (0.01) --
-------- ------- ------
Net asset value, end of period ................................. $ 14.18 $ 12.24 $ 9.76
======== ======= ======
Total return ................................................... 34.54%* 25.50% (4.39%)*
Ratio to average net assets:
Expenses, before reimbursement or waivers .................. 2.28%* 2.64% 3.51%*
Expenses, net of reimbursement or waivers .................. 2.28%* 2.42% 1.75%*
Net investment income (loss), before
reimbursement or waivers ............................... 0.47%* (0.86%) (1.24)%*
Net investment income (loss) ............................... 0.47%* (0.64%) 0.52%*
Portfolio turnover rate ........................................ 154.85%* 176.49% 40.22%*
Average commissions paid on equity security
transactions** ............................................. $ 0.005 -- ----
Net assets at end of period (000's omitted) .................... $ 45,766 $23,796 $8,936
</TABLE>
* Annualized
** The average commission paid on equity security transactions for the year
ended December 31, 1996 was less than $0.005 per share of securities
purchased and sold. In accordance with SEC disclosure guidelines, the
average commission paid on equity security transactions was calculated for
the periods beginning with the year ended December 31, 1996, but not for
prior periods.
11
<PAGE>
LEXINGTON
CROSBY SMALL CAP ASIA GROWTH FUND, INC.
INVESTMENT ADVISER
- -------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
SUB-ADVISER
- -------------------------------------------------------------------------------
CROSBY ASSET MANAGEMENT (US), INC.
c/o Crosby Asset Management (Hong Kong) Limited
32/F Asia Pacific Finance Tower
Citibank Plaza
3 Garden Road, Central
Hong Kong
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
================================================================================
- -------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield o Account Balances o Exchanges o
Last Transactions o Total Return o Duplicate Statements
- -------------------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Crosby Small Cap Asia Growth 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.
