DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The Lexington Crosby Small Cap Asia Growth Fund increased 23.43%* during
the fourth quarter but had a decline of 19.41%* for the full year of 1998.
According to Lipper, Inc. the average Asia fund increased 26.11% during the
quarter and decreased 9.05% for the year. The unmanaged Morgan Stanley Capital
International All Country Far East Ex-Japan Index declined by 4.83% for the
year. The Fund is committed to Asia. It focuses not only on Asia as a region
but more specifically on small cap companies within the region. As such, it has
more exposure to small cap companies than most other Asia funds tracked by
Lipper. Given this emphasis on smaller growth companies, the Fund has tended to
lead during rallies and lag during corrections. We believe the Fund is
positioned to do well as more favorable conditions for equity markets develop
throughout the year.
The return of overseas liquidity and the appreciation of regional
currencies boosted the stock markets in the region during the last quarter of
1998. Korea registered the largest gain of 81.3%, bolstered by the government's
continued efforts in corporate restructuring and strengthening in the Won. The
Philippines and Malaysian bourses were also strong, rising 56.3% and 56.9%
respectively, while Singapore rose 48.2%, buoyed by several rounds of interest
rate cuts. Thailand and Indonesia rebounded by 40.2% and 44.1%, respectively.
Lower interest rates and signs of renewed strength in the property market
bolstered the Hong Kong Hang Seng Index by 27.5%. Bourses in Australia and New
Zealand also participated in the liquidity-driven rally, showing increases of
8.8% and 19.5%, respectively.
Meanwhile, the Chinese stock markets were weak, as investors were confused
by the impact of the authorities' renewed efforts to separate the government
from the commercial entities. The Shanghai 'B' sharemarket lost 14.3% and the
Shenzen 'B' sharemarkets shed 20.2%. Benefiting from the Hang Seng Index's
increase, the more liquid Hong Kong 'H' shares, which represent Chinese
enterprises listed in Hong Kong, rose 7.3%. Across the strait, the Taiwanese
bourse closed 6.1% lower, as the result of tighter credit and concerns with
regard to a slowing in the economy.
ECONOMIC OUTLOOK AND STRATEGY
The regional stock markets have made meaningful gains in the last quarter
of 1998. While there is likely to be some consolidation in the short term, we
expect this to be temporary. The long term trend continues to be favorable for
equities as regional economies emerge from their financial woes. Our view is
predicated on the following factors:
(1) Continued solid domestic demand in the U.S. and Europe, coupled with the
determination of the G7 countries to adopt a more accommodating monetary
policy, should stimulate export growth in the Asian region;
(2) The recent improvement in liquidity in the Asian markets should be
sustainable, given the build-up in current account surpluses, weak
demand for funds, and the expected decline in the U.S. Fed Funds rate.
This may lead to a revival in intra-regional trade as countries in the
region are now starting to reflate their economies. In addition,
interest rates are being reduced, trade finance has gradually resumed
and inventory adjustment will soon come to an end.
Some positive signs have already been seen, for example, with Korea
recording a 1.4% year-on-year gain in exports in November, a sharp
turnaround from the 13% fall in October and the first growth in seven
months. The financial sectors in the crisis economies in Asia appear to
have stabilized and trade finance opportunities are beginning to emerge.
All these factors point toward a possible rebound in trade performance in
the region;
1
<PAGE>
(3) With the exception of Indonesia, risk premiums in Asia have fallen sharply
in recent months. Thailand's risk premium has fallen to 3.9%, while
those of Hong Kong, Malaysia and the Philippines have dropped to 1.9%,
2.4% and 9%, respectively; and
(4) The current earnings estimates for the Asian stockmarkets are generally
very cautious, providing room for positive surprises on the back of
further interest rate reductions and economic recovery into 1999.
CHINA
Despite fears of a Renminbi devaluation, a weakening economy, and
deflationary concerns, there are increasing signs that China's economy has
turned the corner. Industrial output continued to strengthen in October with
value-added industrial production rising 10.6%, up from 10.2% in September and
7.9% in August. This is significant as domestic demand, instead of exports, is
the key factor driving overall GDP growth. Fears of deflation are now receding
with inflation figures continuing to improve. Both the Retail Price Index and
the Consumer Price Index have recently recorded lower declines.
KOREA
Despite the fact that the Korean bourse has registered significant gains
in the last quarter of 1998, we remain positive on this equity market in 1999.
The restructuring proposals announced by the Financial Supervisory Commission
are credible, with a meaningful sanction, that is the removal of credit lines
for non-compliance. This is a fundamental shift from what we have seen before.
The bourse's PE multiple is expected to expand as the credibility of the
restructuring process increases. Liquidity is also improving with the call rate
dropping from a high of more than 25% early in the year to around 7.5% by the
end of 1998. There is still room for further rate declines, as trade surpluses
continue to be generated in 1999 and foreign exchange is accumulated. The
impact on the cashflow and earnings for corporations will be enormous, given
the generally high current debt levels.
SINGAPORE
Singapore has gained substantial credibility since the start of the
regional economic and currency turmoil. This is primarily because the
authorities are seen to be dealing with the crisis in a pro-active manner. For
example, they have continued to push forward with the deregulation of, in
particular, the country's financial industry. Overall, tax rates, business
operating costs and charges such as airport, shipping and container handling,
have been lowered. In general, Singapore has become more attractive to
corporations establishing their headquarters in the region.
THAILAND
In Thailand, key economic indicators are signaling a bottoming in the pace
of economic contraction and that Thailand is finally responding to the tough
policies that have thus far been implemented. A combination of a strengthening
Baht, increasing capital inflows, improved money market liquidity, falling
interest rates and a lower inflation outlook is expected to underpin the
country's impending recovery. The economy has swung into a current account
surplus in excess of USD 1 billion a month, which has resulted in lower
interest rates. Interest rates are expected to continue their downtrend and the
minimum lending rate should reach single-digit rates in the middle of this
year, and are likely to trend towards a historic low of 8.0-8.5% by the end of
the 1999. The economy is projected to grow 2.4% in 1999, compared with
contractions of 7.1% in 1998 and 0.6% in 1997.
2
<PAGE>
The restructuring in the banking system and the rise in foreign investment
suggest that Thailand has turned the corner, but several concerns remain. These
include the recapitalization of the banking system, an export recovery and
further signs of a stronger manufacturing sector, and continued reforms in the
foreclosure law and foreign land ownership. A further risk is political
instability, although the general consensus that the policies adopted by the
Chuan government are practical has added credibility to the current
administration, which is generally expected to remain fairly stable.
Sincerely,
/s/ Christina Lam /s/ Robert M. DeMichele
---------------------- -----------------------
Christina Lam Robert M. DeMichele
Portfolio Manager President
February, 1999 February, 1999
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND,
THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (EAFE) INDEX AND
THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL ALL COUNTRY
FAR EAST EX-JAPAN INDEX
[The following table represents a chart in the printed report]
Year Lexington Crosby Small Cap
Asia Growth Fund MSCI EAFE
EX JAPAN
- ---- ---------------- ---- ----
06/30/95 $10,000 $10,000 $10,000
12/31/95 $ 9,781 $ 9,838 $10,839
06/30/96 $11,264 $10,884 $11,328
12/31/96 $12,274 $10,819 $11,494
06/30/97 $14,220 $11,270 $12,782
12/31/97 $ 7,080 $ 6,392 $11,698
06/30/98 $ 5,014 $ 4,931 $13,562
12/31/98 $ 5,706 $ 6,083 $14,077
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/98
Fund/Index 1 Year Since Inception
(7/3/95)
Lexington Crosby Small Cap Asia Growth (19.41%) (14.82%)
Fund
MSCI All Country Far East ex-Japan Index (4.83%) (13.21%)
Morgan Stanley Capital International
(EAFE) Index 20.33% 10.24%
The graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Morgan Stanley Capital
International (EAFE) Index and the Morgan Stanley Capital International All
Country Far East ex-Japan Index. Results for the Fund, the Morgan Stanley
Capital International (EAFE) Index and the Morgan Stanley Capital International
All Country Far East ex-Japan Index include the reinvestment of all dividend and
capital gain distributions. 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.
- --------------------------------------------------------------------------------
*-19.41%, -14.82% are the one year and since commencement (7/1/95) average
annual standard total returns, respectively, for the period ended December 31,
1998. 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.
3
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- ------------ ------------------------------------------ --------------
<S> <C> <C>
COMMON STOCKS: 88.7%
AUSTRALIA: 2.0%
205,000 National Foods, Ltd. ..................... $ 364,643
-----------
CHINA: 7.5%
4,000,000 China Shipping Development Company,
Ltd.1 .................................... 345,939
638,600 Shandong Chenming Paper Holdings,
Ltd. ..................................... 197,012
3,200,000 Shanghai Petrochemical Company, Ltd. 289,143
1,592,000 Shenzhen Expressway Company, Ltd. ........ 369,897
360,000 Shenzhen Fangda Company, Ltd. ............ 175,655
-----------
1,377,646
-----------
HONG KONG: 26.5%
62,000 Cheung Kong (Holdings), Ltd. ............. 446,171
200,000 Cheung Kong Infrastructure Holdings ...... 446,623
610,000 China Merchants Holdings International
Company, Ltd. ............................ 393,700
180,000 Citic Pacific, Ltd. ...................... 388,020
95,000 Henderson Land Development ............... 491,737
20,000 HSBC Holdings Plc ........................ 498,256
1,000,000 Huaneng Power International, Inc. ........ 354,975
67,000 Hutchison Whampoa, Ltd. .................. 473,504
540,000 Kerry Properties, Ltd. ................... 435,651
200,000 New World Development Company, Ltd. 503,419
610,000 Tianjin Development Holdings, Ltd. ....... 409,448
-----------
4,841,504
-----------
SINGAPORE: 26.3%
56,000 Cycle & Carriage, Ltd. ................... 191,762
525,000 DBS Land, Ltd. ........................... 773,201
156,000 Fraser and Neave, Ltd. ................... 455,721
268,000 Keppel Corporation ....................... 717,933
111,000 Oversea-Chinese Banking Corporation ...... 753,474
280,000 Parkway Holdings, Ltd. ................... 498,922
210,000 Sembcorp Industries, Ltd.1 ............... 239,279
66,997 Singapore Press Holdings, Ltd. ........... 730,895
53,000 Singapore Telecommunications, Ltd. ....... 80,948
55,000 United Overseas Bank, Ltd. ............... 353,342
-----------
4,795,477
-----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- ------------ ------------------------------------------ --------------
<S> <C> <C>
SOUTH KOREA: 12.4%
34,953 Medison Company, Ltd. .................... $ 406,949
7,200 Nong Shim Company, Ltd. .................. 414,349
1,460 Samsung Fire & Marine Insurance
Company .................................. 546,378
445 Samsung Fire & Marine Insurance
Company (Rights)1 ........................ -
26,120 Suheung Capsule .......................... 452,905
16,800 Youngone Corporation ..................... 451,273
-----------
2,271,854
-----------
TAIWAN: 6.3%
98,000 Cathay Life Insurance Company, Ltd. ...... 316,359
140,000 Compal Electronics, Inc. ................. 456,287
280 Compal Electronics, Inc. (Rights)1 ....... 695
210,000 Siliconware Precision
Industries Company1 ...................... 371,548
-----------
1,144,889
-----------
THAILAND: 7.7%
748,000 National Petrochemical Public
Company, Ltd.1 ........................... 344,829
417,500 Thai Farmers Bank Public
Company, Ltd. ............................ 735,401
207,500 Tipco Asphalt Public Company, Ltd. ....... 334,089
-----------
1,414,319
-----------
TOTAL INVESTMENTS: 88.7%
(cost $15,401,907+)(Note 1)............... 16,210,332
Other assets in excess
of liabilities: 11.3% .................... 2,067,359
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $5.69 per share on
3,214,009 shares outstanding) ............ $18,277,691
=============
</TABLE>
1 Non-income producing security.
+ Aggregate cost for Federal income tax purposes is $15,649,640.
------------------------------
At December 31, 1998, the composition of the Fund's net assets by industry
concentration was as follows:
<TABLE>
<S> <C> <C> <C>
Banking ........................... 12.8% Materials ................... 9.8%
Capital Equipment ................. 6.4 Multi-Industry .............. 2.1
Construction & Housing ............ 2.5 Real Estate ................. 14.5
Consumer Durable Goods ............ 1.1 Services .................... 7.6
Consumer Nondurable Goods ......... 8.9 Telecommunications .......... 0.5
Electrical & Electronics .......... 2.0 Transportation .............. 3.9
Financial Services ................ 7.3 Utilities ................... 1.9
Health & Personal Care ............ 7.4 Other assets ................ 11.3
-----
Total Net Assets ........... 100.0%
=====
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $15,401,907) (Note 1)......................................... $ 16,210,332
Cash ..................................................................................... 2,019,503
Foreign currency (cost $5,530)............................................................ 5,565
Receivable for shares sold ............................................................... 130,712
Dividends and interest receivable ........................................................ 19,808
Deferred organization costs, net (Note 1) ................................................ 23,360
-------------
Total Assets ......................................................................... 18,409,280
-------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ......................................... 8,248
Payable for investment securities purchased .............................................. 695
Payable for shares redeemed .............................................................. 81,738
Accrued expenses ......................................................................... 40,908
-------------
Total Liabilities .................................................................... 131,589
-------------
NET ASSETS (equivalent to $5.69 per share on 3,214,009 shares outstanding) (Note 3)....... $ 18,277,691
=============
NET ASSETS consist of:
Capital stock-authorized 1,000,000,000 shares,
$.001 par value per share................................................................ $ 3,214
Additional paid-in-capital (Note 1) ...................................................... 31,201,194
Accumulated net investment loss (Note 1) ................................................. (45,666)
Accumulated net realized loss on investments and foreign currency transactions (Notes 1 (13,689,511)
and 6)
Unrealized appreciation of investments and foreign currency translation of other assets 808,460
-------------
and liabilities
TOTAL NET ASSETS ..................................................................... $ 18,277,691
=============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
LEXINGTON CROSBY SMALL CAP
ASIA GROWTH FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends .................................. $ 273,580
Interest ................................... 91,299
-------------
364,879
Less: foreign tax expense .................. 24,942
-------------
Total investment income ................. $ 339,937
EXPENSES
Investment advisory fee (Note 2) ......... 185,265
Transfer agent and shareholder
servicing expense (Note 2) .............. 50,426
Custodian expense ........................ 39,722
Printing and mailing expenses ............ 33,200
Professional fees ........................ 28,710
Registration fees ........................ 22,733
Directors' fees and expenses ............. 18,957
Accounting expenses (Note 2) ............. 11,974
Amortization of deferred
organization costs (Note 1) ............. 11,585
Computer processing fees ................. 7,294
Other expenses ........................... 14,605
-------------
Total expenses ......................... 424,471
Less: expenses recovered
under contract with
investment adviser
(Note 2) ............................. 53,928 370,543
------------- -------------
Net investment loss .................... (30,606)
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 4)
Net realized gain (loss) on:
Investments .............................. (11,201,991)
Futures contracts ....................... 132,535
Foreign currency transactions ........... (98,908)
-------------
Net realized loss ...................... (11,168,364)
Net change in unrealized depreciation of:
Investments .............................. 8,154,555
Foreign currency translation of
other assets and liabilities ............ 404
-------------
Net change in unrealized
depreciation ........................... 8,154,959
-------------
Net realized and
unrealized loss ....................... (3,013,405)
-------------
DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS ................. $ (3,044,011)
=============
</TABLE>
LEXINGTON CROSBY SMALL CAP
ASIA GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Net investment loss ......................... $ (30,606) (103,305)
Net realized loss from investments
and foreign currency transactions .......... (11,168,364) (2,260,494)
Net change in unrealized
appreciation (depreciation) of
investments ................................ 8,154,959 (11,521,491)
------------- -----------
Decrease in net assets
resulting from operations .. .......... (3,044,011) (13,885,290)
Increase in net assets from capital
share transactions (Note 3) ................ 7,454,840 3,955,680
------------- -----------
Net increase (decrease) in
net assets ............................ 4,410,829 (9,929,610)
NET ASSETS:
Beginning of period ........................ 13,866,862 23,796,472
------------- -----------
End of period (including
accumulated net investment
loss of $45,666 and $57,394 in
1988 and 1997, respectively)
(Note 1) ............................... $ 18,277,691 $13,866,862
============= ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 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 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 were no forward foreign currency
contracts outstanding at December 31, 1998.
FINANCIAL FUTURES The Fund may invest in financial futures contracts in
order to gain exposure to or protect against market fluctuation. The Fund is
exposed to market risk as a result of changes in the value of the underlying
financial instruments. Investments in financial futures require the Fund to
"mark to market" on a daily basis, which reflects the change in the market
value of the contract at the close of each day's trading. Typically, variation
margin payments are received or made to reflect daily unrealized gains or
losses. When the contracts are closed, the Fund recognizes a realized gain or
loss. These investments require initial margin deposits with a broker, which
consist of cash or cash equivalents, up to approximately 10% of the contract
amount. The amount of these deposits is determined by the exchange or Board of
Trade on which the contract is traded and is subject to change. At December 31,
1998, there were no financial futures contracts outstanding.
FEDERAL INCOME TAXES It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
7
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 December 31, 1998,
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 COSTS Organization costs aggregating $67,351 have
been deferred and are being amortized on a straight-line basis over five years.
At December 31, 1998, the amount remaining to be amortized was $23,360.
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 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 1998, 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. Total reimbursement
was $53,928 for the year ended December 31, 1998, and is set forth in the
statement of operations.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $27,151 are incurred by the Fund, but paid by
LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1997
================================== ==================================
Shares Amount Shares Amount
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 6,292,082 $ 37,640,881 6,779,615 $ 83,723,229
Shares issued on reinvestment of dividends ......... - - - -
--------- ------------- --------- -------------
6,292,082 37,640,881 6,779,615 83,723,229
Shares redeemed .................................... (5,043,321) (30,186,041) (6,757,851) (79,767,549)
---------- ------------- ---------- -------------
Net increase ....................................... 1,248,761 $ 7,454,840 21,764 $ 3,955,680
========== ============= ========== =============
</TABLE>
8
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1998, excluding short-term securities, were $30,273,390 and
$24,567,783, 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
$2,276,456 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,715,765.
5. 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.
6. FEDERAL INCOME TAXES-CAPITAL LOSS CARRYFORWARDS
Capital loss carryforwards1 available for Federal income tax purposes as of
December 31, 1998 are approximately:
$74,006 expiring in 2003,
$1,553,376 expiring in 2005; and
$9,829,479 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
may not be distributed to shareholders.
1Temporary book-tax differences of $2,232,650 are the result of deferred
post-October losses and wash sales.
9
<PAGE>
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
July 3, 1995
(commencement
of operations) to
December 31,
1998 1997 1996 1995
------------- ------------- ------------ ------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period ........................ $ 7.06 $ 12.24 $ 9.76 $ 10.00
-------- -------- ------- -------
Income (loss) from investment operations:
Net investment income (loss) ............................... - (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) on investments ..... (1.37) (5.13) 2.54 (0.24)
-------- -------- ------- -------
Total income (loss) from investment operations ............. (1.37) (5.18) 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 .............................. $ 5.69 $ 7.06 $ 12.24 $ 9.76
======== ======== ======= =======
Total return ................................................ (19.41)% (42.32)% 25.50% (4.39)%*
Ratio to average net assets:
Expenses, before reimbursement or waivers .................. 2.86% 2.30% 2.64% 3.51%*
Expenses, net of reimbursement or waivers .................. 2.50% 2.30% 2.42% 1.75%*
Net investment loss, before reimbursement
or waivers ................................................ (0.57)% ( 0.32)% (0.86)% (1.24)%*
Net investment income (loss) ............................... (0.21)% ( 0.32)% (0.64)% 0.52%*
Portfolio turnover rate ..................................... 193.48% 187.41% 176.49% 40.22%*
Net assets, end of period (000's omitted) ................... $ 18,278 $ 13,867 $23,796 $ 8,936
</TABLE>
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* Annualized
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Crosby Small Cap Asia Growth Fund, Inc.:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Crosby Small
Cap Asia Growth Fund, Inc. as of December 31, 1998, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended and the financial
highlights for the three-year period then ended and for the period from July 3,
1995 (commencement of operations) to December 31, 1995. 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 Crosby Small Cap Asia Growth Fund, Inc. as of December 31, 1998, the
results of its operations for the year then ended, and changes in its net
assets for the two-year period then ended and the financial highlights for the
three-year period then ended and for the period from July 3, 1995 (commencement
of operations) to December 31, 1995, in conformity with generally accepted
accounting principles.
KPMG LLP
New York, New York
February 8, 1999
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
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.
[LOGO]
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LEXINGTON
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[GRAPHIC]
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LEXINGTON
CROSBY
SMALL CAP
ASIA GROWTH
FUND, INC.
---------- o ----------
Seeks long-term capital
appreciation through investment
in companies domiciled in the Asia
Region with a market capitalization
of less than $1 billion.
---------- o ----------
ANNUAL REPORT
DECEMBER 31, 1998
The Lexington Group
of No Load
Investment Companies
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