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LEXINGTON
================================================================================
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TROIKA
DIALOG
RUSSIA
FUND, INC.
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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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We are pleased to report that, for the six months ended June 30,1997, the
Lexington Troika Dialog Russia Fund generated a total return of 77.85%*, making
it the number two fund in the Lipper Overall Equity Fund Universe (4,924 funds)
for the period. The Fund was number 1 of 128 funds in the Lipper Emerging Market
Universe for the same period. Stellar blue-chip performance was matched by
strong performance in smaller capitalization stocks such as regional telephone
companies, oil and gas service companies and regional electric utilities. The
Russian market, as measured by the unmanaged Russian Trading System Index (the
"Index"), rose 110% over the first six months of 1997. The Fund maintains a
fixed income position to provide more liquidity and stability in contrast to the
Index, which has no fixed income component. The Fund therefore did not rise in
tandem with the Index.
Since the beginning of 1997, conditions in the Russian equity market, now
valued at over $100 billion, have been superb. On the political front, a strong
and decisive Boris Yeltsin has returned to a very active leadership role, aided
by his two top lieutenants, Anotoly Chubais and Boris Nemstov. Together, they
have begun to address the country's most pressing political and economic
problems. Public pension arrears were paid off by June 30, 1997 with military
and other public sector wage arrearages expected to be paid in full by the end
of the year. A comprehensive, coherent and greatly simplified tax code--a
necessary prerequisite to greater foreign and domestic direct investment--has
passed a first reading of the Duma and is expected to be in place by the end of
1997. Production sharing agreements, a necessary prerequisite to foreign direct
investment in the natural resource extraction sector, are finally beginning to
receive Duma support. The Duma has not been as cooperative in containing
government expenditures. Nevertheless, the government has been able to cut a
large amount of popular expenses in order to maintain budgetary discipline. As a
result of these and other actions, the IMF has resumed loaning money to Russia;
the World Bank announced new loan facilities for structural and social reforms
including alleviating the transition process for the country's poorest
individuals; and, foreign direct investment grew 150% in the first quarter of
1997 from the comparable prior year period.
Because of the government's strong commitment to reform, the economy now
appears poised for growth. GDP is expected to bottom out this year and grow by
as much as two percent next year; inflation, from a high of 2,500% in 1991, is
expected to decline this year to approximately 12--14%. Interest rates have
dropped below 20% this year from over 200%, and the ruble has remained well
within the corridor established by the Central Bank. The Central Bank's ability
to continue to stabilize the ruble has been enhanced by Russia's continued trade
surpluses and the government's reserves surpassing $23 billion. Finally, the
government has tightly controlled its own spending in order to maintain budget
deficits at or below 3.5%.
There are, however, still considerable risks in the Russian market.
Relations between the government and the Duma continue to be strained on certain
issues, including government spending, tax code revision, and the like. Although
the economy is poised for growth, a great deal of investment capital is
necessary to fuel that growth. A large nonpayment gridlock exacerbates the need
for capital. Finally, corruption is seemingly pervasive, and this can greatly
undermine confidence in the reform effort.
1
<PAGE>
Despite these risks, our outlook for the second half of 1997 and beyond
remains positive. First, the government has begun attending to issues of
corporate governance. The large gas and electrical monopolies are being
restructured to ease nonpayments and to make these sectors more competitive. The
recent privatization of Sviazinvest appears to have been "fair" in the sense
that the highest bidder won, greatly helping state coffers in the process. The
government has also established a high-ranking commission to ensure the
protection of shareholder rights. Second, we are now beginning to see evidence
of regional GDP growth. Third, net capital outflows from the country finally
appear to be reversing. Capital availability will also be enhanced by an
expected improvement in Russia's sovereign credit rating as early as this fall.
We will be carefully monitoring the government's ability to fulfill promised
wage payments and maintain tax collections at current rates. We will also
carefully monitor the further consideration of the new tax code and the extent
of cooperation between the Duma and the government.
By and large, current market valuations for Russian equities remain modest
in our opinion, especially in comparison to other emerging markets. One still
finds companies where market capitalization is lower than annual earnings. We
believe foreign investors will continue to increase their Russian weighting as
confidence in Russia rises. In November, the investable IFC Index debuts, which
is expected to trigger additional commitments to Russia.
Within this environment, the Fund expects to maintain its over-weighting
in smaller capitalization stocks with core holdings in some of the larger blue
chip companies. In our view, these smaller cap stocks (often referred to as 2nd
Tier stocks) offer undervalued companies whose prospects are brightening as the
Russian economy gains strength. We are also broadening our industry exposure to
include transportation, electrical equipment, auto and truck manufacturers,
chemicals, and retail. We remain confident in the long-term prospects for Russia
and for the Fund.
We appreciate the support of our shareholders and are happy to respond to
your questions and comments. Please feel free to call us at 1-800-526-0056.
Sincerely,
/s/ Gavin Rankin /s/ Nancy Herring /s/ Robert M. DeMichele
- ---------------------- ---------------------- -----------------------
Gavin Rankin Nancy Herring Robert M. DeMichele
Portfolio Manager Portfolio Manager President
August, 1997 August, 1997 August, 1997
* 70.18% is the since commencement (7/3/96) average annual standard total return
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.
2
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited)
Number of Value
Shares Security (Note 1)
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COMMON & PREFERRED STOCK: 69.8%
AEROSPACE & DEFENSE: 0.1%
60,000 Aviastar2 .................................... $ 100,800
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AIRLINES: 0.6%
3,700 Aeroflot1,2 .................................. 518,000
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AUTO TRUCKS & PARTS: 1.0%
9,700 Gorkovsky Auto Plant2 ........................ 756,600
30,000 Kamaz2 ....................................... 64,500
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821,100
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BUILDING MATERIALS: 1.0%
38,000 Alfa Cement1,2 ............................... 855,000
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FOOD WHOLESALERS: 0.7%
26,360 Krasny Oktyabr2 .............................. 620,778
-----------
MACHINERY: 1.7%
45,000 Electrosila2 ................................. 326,250
18,000 Izhorskie Zavody2 ............................ 1,066,500
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1,392,750
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MERCHANDISING: 0.2%
1,000 Trade House GUM .............................. 40,500
120,000 Tsum Jsc Torgovy2 ............................ 94,200
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134,700
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OIL & GAS HOLDING COMPANIES: 18.8%
COMMON STOCK
124,500 Lukoil Holdings of Russia2 ................... 2,443,935
24,500 Lukoil Holdings of Russia (ADR)2 ............. 1,904,875
6,200,000 Sibneft1,2 ................................... 3,596,000
100,000 Sidanko Group1,2 ............................. 950,000
1,650,000 Slavneft1,2 .................................. 1,072,500
78,000 Surgutneftegaz (ADR) ......................... 4,192,500
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14,159,810
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PREFERRED STOCK
142,000 Lukoil Holdings of Russia2 ................... 1,789,200
-----------
TOTAL OIL & GAS HOLDING COMPANIES ........... 15,949,010
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3
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited) (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
OIL & GAS PRODUCING COMPANIES: 7.9%
COMMON STOCK
105,000 Megionneftegaz2 .............................. $ 756,000
80,000 Orenburgneft2 ................................ 552,000
220,000 Purneftegaz2 ................................. 1,243,000
19,300 Tatneft (ADR)2 ............................... 2,065,100
65,000 Tomskneft2 ................................... 910,000
9,000 Udmurtneft1,2 ................................ 517,500
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6,043,600
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PREFERRED STOCK
20,000 Megionneftegaz2 .............................. 75,000
10,000 Nizhnevartovskneftegaz1,2 .................... 54,000
28,000 Tomskneft2 ................................... 198,800
9,000 Udmurtneft1,2 ................................ 337,500
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665,300
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TOTAL OIL &GAS PRODUCING COMPANIES ......... 6,708,900
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STEEL & IRON: 2.3%~
99,000 PERVOURALSKY NOVOTRUBNY FACTORY2 ............. 613,800
17,354 Seversky Tube Works2 ......................... 49,459
61,000 Sinarsky Trubny2 ............................. 581,025
2,750,000 Taganrogaky Metallurgical Plant1,2 ........... 687,500
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1,931,784
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TELECOMMUNICATIONS: 21.0%
COMMON STOCK
150,000 Bashinformsvyaz1,2 ........................... 337,500
4,110 Chelyabinsksvyazinform2 ...................... 228,105
310,000 Irkutskelectrosvyaz2 ......................... 465,000
6,500 Lensvyaz2 .................................... 392,275
23,400 Moscow Intercity International Telephone1,2 .. 351,000
600,000 Moscow Telephone Systems2 .................... 1,164,000
55,000 Murmanskelectrosvyaz2 ........................ 156,750
321,000 Nizhnovsvyazinform2 .......................... 1,593,765
50,000 Novosibirskelectrosvyaz2 ..................... 420,000
838,000 Rostelecom2 .................................. 3,251,440
4,500 Samarasvyazinform2 ........................... 652,500
50,000 Smolensksvyazinform1,2 ....................... 325,000
40,000 St. Petersburg Intercity International
Telephone1,2 ............................... 120,600
310,000 St. Petersburg Telecommunication2 ............ 509,950
35,000 Tumentelecom2 ................................ 134,750
4,500,000 Uralsvyazinform2 ............................. 216,000
10,000 Uraltelecom2 ................................. 335,000
67,700 Volgogradelectrosvyaz1,2 ..................... 352,040
25,000 Yartelecom1,2 ................................ 262,500
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11,268,175
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4
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited) (continued)
Number of Value
Shares Security (Note 1)
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TELECOMMUNICATIONS (CONTINUED):
PREFERRED STOCK
4,000 Chelyabinsksvyazinform2 ...................... $ 134,400
150,000 Irkutskelectrosvyaz2 ......................... 105,375
45,000 Krasnoyarskelectrosvyaz2 ..................... 290,250
7,000 Lensvyaz2 .................................... 229,950
550,000 Moscow Telephone Systems ..................... 488,125
125,000 Murmanskelectrosvyaz1,2 ...................... 175,000
200,000 Nizhnovsvyazinform2 .......................... 554,000
40,000 Novosibirskelectrosvyaz2 ..................... 169,400
610,000 Rostelecom2 .................................. 1,512,800
11,500 Samarasvyazinform2 ........................... 966,000
230,000 St. Petersburg Telecommunication2 ............ 202,400
279,099 Tumentelecom2 ................................ 530,288
22,000 Uraltelecom2 ................................. 356,400
125,000 Volgogradelectrosvyaz1,2 ..................... 375,000
45,000 Yartelecom1,2 ................................ 382,500
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6,471,888
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TOTAL TELECOMMUNICATIONS ................... 17,740,063
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UTILITIES: 14.5%
COMMON STOCK
950,000 Bashkirenergo2 ............................... 465,500
800,000 Chelyabenergo2 ............................... 442,400
2,650,000 Irkutskenergo2 ............................... 901,000
1,100,000 Krasnoyarskenergo2 ........................... 440,000
1,470,000 Mosenergo2 ................................... 2,055,060
3,000 Mosenergo (ADR)2 ............................. 126,000
21,500 Novosibirskenergo2 ........................... 279,500
19,200 Permenergo2 .................................. 864,000
1,250,000 Samaraenergo2 ................................ 690,625
885,000 Sverdlovskenergo2 ............................ 703,575
6,550,000 Unified Energy Systems2 ...................... 2,358,000
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9,325,660
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PREFERRED STOCK
800,000 Chelyabenergo2 ............................... 239,760
850,000 Krasnoyarskenergo2 ........................... 165,750
72,000 Novosibirskenergo2 ........................... 540,000
8,100 Permenergo2 .................................. 226,800
200,000 Samaraenergo2 ................................ 67,500
1,106,000 Sverdlovskenergo2 ............................ 355,579
6,200,000 Unified Energy Systems2 ...................... 1,385,700
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2,981,089
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TOTAL UTILITIES ............................ 12,306,749
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TOTAL COMMON & PREFERRED STOCK
(Cost $44,606,348) ........................... $59,079,634
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5
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited) (continued)
Number of Value
Shares Security (Note 1)
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GOVERNMENT OBLIGATIONS: 4.8%
$2,000,000 City of Moscow
9.50%, due 05/31/00 .......................... $ 2,028,750
2,000,000 Russian Ministry of Finance
9.25%, due 11/27/01 .......................... 2,015,000
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TOTAL GOVERNMENT OBLIGATIONS
(Cost $3,981,182) ............................ 4,043,750
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SHORT-TERM INVESTMENTS: 14.7%
3,000,000 Federal Home Loan Bank 5.42%, due 07/14/97 ... 2,994,128
4,000,000 Federal National Mortgage Association
5.40%, due 08/11/97 ........................ 3,975,400
1,600,000 United States Treasury Bills
5.16%, due 12/11/97 ........................ 1,562,528
4,000,000 United States Treasury Bills
5.36%, due 08/21/97 ........................ 3,970,640
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TOTAL SHORT-TERM INVESTMENTS
(Cost $12,501,945) ........................... 12,502,696
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TOTAL INVESTMENTS: 89.3%
(Cost $61,089,475+)(Note 1) .................. 75,626,080
Other assets in excess of liabilities: 10.7% . 9,042,659
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TOTAL NET ASSETS: 100.0%
(equivalent to $19.99 per share on 4,234,923
shares outstanding) ........................ $84,668,739
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1Restricted Security (Note 8).
2Non-income producing security.
ADR--American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $61,144,558.
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
ASSETS
Investment, at value (cost $61,089,475) (Note 1) ............. $ 75,626,080
Cash ......................................................... 9,569,977
Receivable for investment securities sold .................... 2,542,075
Receivable for shares sold ................................... 5,319,675
Dividends and interest receivable ............................ 67,956
Deferred organization expense, net (Note 1) .................. 83,939
Other receivable ............................................. 7,373
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Total Assets ............................. 93,217,075
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LIABILITIES
Due to Lexington Management Corporation (Note 2) ............. 122,715
Payable for investment securities purchased .................. 8,013,350
Payable for shares redeemed .................................. 62,932
Accrued expenses ............................................. 242,321
Other liabilities ............................................ 107,018
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Total Liabilities ........................ 8,548,336
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NET ASSETS (equivalent to $19.99 per share
on 4,234,923 shares outstanding) (Note 5) .................. $ 84,668,739
============
NET ASSETS consist of:
Capital stock--authorized 1,000,000,000 shares,
$.001 par value per share .................................. $ 4,235
Additional paid-in capital (Note 1) .......................... 65,151,612
Accumulated deficit (Note 1) ................................. (40,944)
Accumulated net realized gain on investments (Note 1) ........ 5,017,231
Unrealized appreciation on investments ....................... 14,536,605
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Total Net Assets ......................... $ 84,668,739
============
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
The Note
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................... $ 37,540
Interest .................................................... 339,460
------------
377,000
Less: Foreign tax expense ................................... 2,066
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Total investment income ............................... $ 374,934
EXPENSES
Investment advisory fee (Note 2) ............................ 251,133
Custodian expense ........................................... 178,730
Distribution expense (Note 3) ............................... 50,226
Transfer agent and shareholder servicing expense (Note 2) ... 26,059
Printing and mailing expenses ............................... 20,886
Directors' fees and expenses ................................ 20,783
Registration fees ........................................... 19,267
Professional fees ........................................... 16,411
Accounting expenses (Note 2) ................................ 12,963
Amortization of deferred organization costs (Note 1) ........ 10,594
Computer processing fees .................................... 4,485
Other expenses .............................................. 3,079
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Total expenses .............................................. 614,616
Less:Redemption fee proceeds (Note 4) ....................... 198,738 415,878
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Net investment loss ........................... (40,944)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 6)
Net realized gain on investments ............................ 4,998,106
Net change in unrealized appreciation on investments ........ 13,622,048
------------
Net realized and unrealized gain on investments 18,620,154
------------
Increase in Net Assets Resulting from Operations ................... $ 18,579,210
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
8
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
June 3, 1996
Six months (commencement
ended of operations)to
June 30, 1997 December 31,
(unaudited) 1996
----------- -----------
<S> <C> <C>
Net investment loss ........................................... $ (40,944) $ (58,025)
Net realized gain from security transactions .................. 4,998,106 457,898
Net change in unrealized appreciation of investments .......... 13,622,048 914,557
------------ ------------
Net increase in net assets resulting from operations .... 18,579,210 1,314,430
Distributions to shareholders from net realized gains from
security transactions ................................... -- (380,748)
Increase in net assets from capital share transactions (Note 5) 52,243,073 12,912,774
------------ ------------
Net increase in net assets .................... 70,822,283 13,846,456
NET ASSETS:
Beginning of period ........................................... 13,846,456 --
------------ ------------
End of period (including accumulated deficit of $40,944
and $0, respectively) ................................... $ 84,668,739 $ 13,846,456
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
9
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited)and December 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Lexington Troika Dialog Russia 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
long-term capital appreciation through investments primarily in the equity
securities of Russian companies. The Fund commenced operations on June 3, 1996.
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. However, when Fund
management deems it appropriate, prices obtained for the day of valuation from a
third party pricing service will be used. 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 is recorded on the
ex-dividend date. Occasionally dividend information on foreign securities is
received after the ex-dividend date and the income is recorded as soon as the
information is available to the Fund. Interest income, adjusted for amortization
of premiums and accretion of discounts, is accrued on a straight line basis 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 a 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 currency 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
10
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited)and December 31, 1996 (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 distribution 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 $107,018
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 an annual rate of 1.25% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with Troika Dialog Asset Management, ZAO ("Troika") under
which Troika provides the Fund with investment management services. Pursuant to
the terms of the sub-advisory contract between LMC and Troika, LMC pays Troika 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, 12b-1 fees and operating
expenses) to an annual rate of 3.35% of the Fund's average net assets. No
reimbursement was required for the six months ended June 30, 1997.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $27,047 which are incurred by the Fund, but paid
by LMC.
3. DISTRIBUTION PLAN
The Fund has a distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the six months ended June 30,
1997 were $50,226 and are set forth in the statement of operations.
4. REDEMPTION FEE
A fee is charged on the redemption of shares equal to 2% of the redemption price
of shares of the Fund held less than 365 days that are being redeemed.
Redemption fee proceeds will be applied to the Fund's aggregate expenses
allocable to providing custody and redemption services, including transfer agent
fees, postage, printing, telephone costs and employment costs relating to the
handling and processing of redemptions. Any excess fee proceeds will be added to
the Fund's capital. Total redemption fee proceeds for the six months ended June
30, 1997 were $198,738 and are set forth in the statement of operations.
11
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited)and December 31, 1996 (continued)
5. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
June 3, 1996
Six months ended (commencement of
June 30, 1997 operations) to
(unaudited) December 31, 1996
--------------------- --------------------
Shares Amount Shares Amount
------ ------- ------ -------
<S> <C> <C> <C> <C>
Shares sold .............................. 3,626,718 $ 62,486,029 1,211,091 $ 12,667,903
Shares issued on reinvestment of dividends -- -- 33,799 376,183
------------ ------------ ------------ ------------
3,626,718 62,486,029 1,244,890 13,044,086
Shares redeemed .......................... (623,918) (10,242,956) (12,767) (131,312)
------------ ------------ ------------ ------------
Net increase ............................. 3,002,800 $ 52,243,073 1,232,123 $ 12,912,774
============ ============ ============ ============
</TABLE>
6. 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 $44,332,307 and
$12,334,575, 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
$15,146,010 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $609,405.
7. INVESTMENT AND CONCENTRATION RISKS
The Fund's investments are concentrated in Russian securities and are therefore
exposed to the risks associated with that country. These risks, which may not be
present in domestic investments or in other developed countries, include:
MARKET, CONCENTRATION, AND LIQUIDITY RISKS The Russian securities markets
are substantially smaller, less liquid, and significantly more volatile than the
securities markets in the United States. A limited number of issuers represent a
disproportionately large percentage of market capitalization and trading volume.
Due to these factors, obtaining prices on portfolio securities from independent
sources may be more difficult than in other markets. In addition, despite the
Fund's policies and procedures addressing liquidity, it may be difficult for the
Fund to obtain or dispose of some investment securities because of poor
liquidity.
SETTLEMENT AND CUSTODY RISKS Because of the recent formation of the
securities markets as well as the underdeveloped state of the banking and
telecommunications systems, settlement, clearing, and registration are subject
to significant risks not normally associated with investments in the United
States and more developed markets. Ownership of shares is defined according to
entries in the company's share register (maintained by third party registrars)
and normally evidenced by extracts from the register. These registrars are not
necessarily subject to effective state supervision, and it is possible for the
Fund to lose its registration through fraud, negligence, or even mere oversight.
In addition, the extracts have no legal enforceability, and it is possible that
subsequent illegal amendment or other fraudulent acts may deprive the Fund of
its ownership rights. Uncertainty in settlement results from the time necessary
for buyers and sellers to
12
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited)and December 31, 1996 (continued)
7. INVESTMENT AND CONCENTRATION RISKS (continued)
physically deliver documents to the registrars which may be located in remote
areas. In the case of purchases, payment is not made until the custodian has
physically received the extract. For sales, the client may be forced to remit
securities before payment is received.
FOREIGN CURRENCY AND EXCHANGE RISK The Fund's assets are invested in
securities denominated in rubles, which are not yet freely convertible into
other currencies outside Russia. The value of the assets of the Fund and its
income, as measured in U.S. dollars, may suffer significant declines due to
disruptions in the ruble market, or be otherwise adversely affected by exchange
control regulations.
POLITICAL AND ECONOMIC RISK Since the breakup of the Soviet Union at the
end of 1991, Russia has experienced dramatic political and social change. The
political system in Russia is emerging from a long history of extensive state
involvement in economic affairs. The country is undergoing a rapid transition
from a centrally-controlled command system to a market-oriented, democratic
model. The Fund may be affected unfavorably by political or diplomatic
developments, social instability, changes in government policies, taxation and
interest rates, currency repatriation restrictions and other political and
economic developments in the law or regulations in Russia and, in particular,
the risk of expropriation, nationalization and confiscation of assets and
changes in legislation relating to foreign ownership.
In addition to the risks described above, risks may arise from forward
foreign currency contracts as a result of the potential inability of
counterparties to meet the terms of their contracts.
8. RESTRICTED SECURITIES
Pursuant to guidelines adopted by the Fund's Board of Directors, the following
securities have been deemed to be illiquid. The Fund currently limits investment
in illiquid securities to 15% of the Fund's net assets, at market value, at the
time of purchase.
<TABLE>
<CAPTION>
AVERAGE
ACQUISITION COST PER MARKET % OF NET
SECURITY SHARES DATE SHARE VALUE ASSETS
------- ------ ---------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Aeroflot ............................................... 3,700 06/16/97 $139.08 $ 518,000 0.61%
Alpha Cement ........................................... 38,000 03/25/97 18.20 855,000 1.01
Bashinformsvyaz ........................................ 150,000 06/09/97 1.47 337,500 0.40
Moscow Intercity International Telephone ............... 23,400 05/27/97 15.00 351,000 0.42
Murmanskelectrosvyaz (Preferred shares) ................ 125,000 04/09/97 1.35 175,000 0.21
Nizhnevartovskneftegaz (Preferred shares) .............. 10,000 11/01/96 3.30 54,000 0.06
Sibneft ................................................ 6,200,000 04/18/97 0.55 3,596,000 4.25
Sidanko Group .......................................... 100,000 04/11/97 5.60 950,000 1.12
Slavneft ............................................... 1,650,000 05/06/97 0.58 1,072,500 1.27
Smolensksvyazinform .................................... 50,000 06/20/97 6.40 325,000 0.38
St. Petersburg Intercity International Telephone ....... 40,000 05/27/97 2.60 120,600 0.14
Taganrogaky Metallurgical Plant ........................ 2,750,000 04/24/97 0.17 687,500 0.81
Udmurtneft ............................................. 9,000 12/08/97 67.00 517,500 0.61
Udmurtneft (Preferred Shares) .......................... 9,000 01/20/97 56.33 337,500 0.40
Volgogradelectrosvyaz .................................. 67,700 04/21/97 3.66 352,040 0.42
Volgogradelectrosvyaz (Preferred Shares) ............... 125,000 02/28/97 2.50 375,000 0.44
Yartelecom ............................................. 25,000 04/14/97 6.31 262,500 0.31
Yartelecom (Preferred Shares) .......................... 45,000 04/14/97 4.26 382,500 0.45
----------- -----
$11,269,140 13.31%
=========== =====
</TABLE>
13
<PAGE>
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
July 3, 1996
Six months (effective SEC
ended registration date)
June 30, 1997 to December 31,
(unaudited) 1996**
----------- ------------------
<S> <C> <C>
Net asset value, beginning of period ..................................... $11.24 $12.12
------- -------
Income (loss) from investment operations:
Net investment loss ................................................ (0.01) (0.05)
Net realized and unrealized gain (loss) on investments ............. 8.76 (0.51)
------- -------
Total income (loss) from investment operations ........................... 8.75 (0.56)
Less distributions:
Distributions from net realized gains .............................. -- (0.32)
------- -------
Net asset value, end of period ........................................... $19.99 $11.24
======= =======
Total return ............................................................. 219.33%* (9.01%)*
Ratio to average net assets:
Expenses, before reimbursement or redemption fee proceeds ............. 3.06%* 5.07%*
Expenses, net of reimbursement or redemption fee proceeds ............. 2.07%* 2.65%*
Net investment loss, before reimbursement or
redemption fee proceeds .......................................... (1.19%) * (3.69%)*
Net investment loss ................................................ (0.20%)* (1.27%)*
Portfolio turnover rate .................................................. 72.55%* 115.55%*
Average commission paid on equity security transactions*** -- --
Net assets, end of period (000's omitted) ................................ $84,669 $13,846
======= =======
</TABLE>
* Annualized
** The Fund's commencement of operations was June 3, 1996 with the investment
of its initial capital. The Fund's registration statement with the
Securities and Exchange Commission became effective on July 3, 1996.
Financial results prior to the effective date of the Fund's registration
statement are not presented in this Financial Highlights Table.
*** The average commission paid on equity security transactions for the
six months ended June 30, 1997, and for the period ended December 31,
1996 was less than $0.005 per share of securities purchased and sold.
14
<PAGE>
LEXINGTON
INVESTOR SERVICES
- --------------------------------------------------------------------------------
AS A LEXINGTON SHAREHOLDER, YOU SHOULD BE AWARE OF THE MANY SERVICES AVAILABLE
TO YOU.
NO LOAD--The Lexington Funds are no load funds. That is, investments and
redemptions are made without any sales charges, commissions or redemption fees.*
----------
FREE TELEPHONE EXCHANGE--Investments in the Lexington Funds may be exchanged for
shares of a different Lexington Fund at any time.
----------
CHECK WRITING PRIVILEGES--Lexington Money Market Trust permits investors
immediate access to their funds with check writing for withdrawals from their
account.
----------
TAX SHELTERED PLANS--IRA, Keogh, Pension, and Profit Sharing Prototype Plans are
available to qualified individuals. These plans offer investment flexibility
through the Share Exchange Service, simplified record keeping, convenience and
investment supervision.
----------
CUSTODIAL ACCOUNTS FOR MINORS--Investments may be made on behalf of minors under
the Uniform Gifts to Minors Act currently in effect in all states.
----------
SYSTEMATIC WITHDRAWAL PLAN--An investor may elect to receive a fixed amount from
his or her account each month or quarter, subject to certain minimums.
----------
COMPLETE RECORD KEEPING--A statement is provided for every transaction in
addition to a year-end statement with tax information.
THE LEXINGTON GROUP OF
NO LOAD INVESTMENT COMPANIES
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.--Seeks long-term growth of
capital primarily through investment in equity securities of companies domiciled
in, or doing business in, emerging countries and emerging markets.
LEXINGTON GLOBAL FUND, INC.--Seeks long-term growth of capital primarily
through investment in common stocks of companies domiciled in foreign countries
and the United States.
LEXINGTON INTERNATIONAL FUND, INC.--Seeks long-term growth of capital through
investment in companies domiciled in foreign countries.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.--Seeks long-term capital appreciation
through investments primarily in the equity securities of Russian companies.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.--Seeks long-term capital
appreciation through investment in companies domiciled in the Asia Region with a
market capitalization of less than $1 billion.
LEXINGTON RAMIREZ GLOBAL INCOME FUND--Seeks high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated debt securities.
LEXINGTON GOLDFUND, INC.--Seeks capital appreciation through investment in
gold bullion and shares of gold mining companies.
LEXINGTON GROWTH AND INCOME FUND, INC.--Seeks capital appreciation over the
long-term through investments in the stocks of large, ably managed and well
financed companies.
LEXINGTON CORPORATE LEADERS TRUST FUND--Seeks capital growth and reasonable
income through investment in an equal number of shares of an established list of
American blue chip corporations.
LEXINGTON SMALLCAP VALUE FUND, INC.--Seeks long-term capital appreciation
through investment in common stocks of companies domiciled in the United States
with a market capitalization of less than $1 billion.
LEXINGTON CONVERTIBLE SECURITIES FUND--Seeks total return by providing capital
appreciation, current income and conservation of capital through investments in
a diversified portfolio of securities convertible into shares of common stock.
LEXINGTON GNMA INCOME FUND, INC.--Seeks to achieve a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae") certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
LEXINGTON MONEY MARKET TRUST--Seeks a high level of current income consistent
with preservation of capital and liquidity through investments in interest
bearing short-term money market instruments.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
*Redemption on shares of Lexington Troika Dialog Russia Fund, Inc. held less
than 365 days are subject to a redemption fee of 2% of the redemption proceeds.
<PAGE>
LEXINGTON
TROIKA DIALOG RUSSIA FUND,INC.
Investment Adviser
- --------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
- -------------------------------------------------------------------------------
Troika Dialog Asset Management
6/3 1st Kolobovsky Per
Moscow, 103051 Russia
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 Troika Dialog Russia 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.
