PROSPECTUS
April 29, 1996
Lexington Natural Resources Trust
P.O. Box 1515 / Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
201-845-7300
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Lexington Natural Resources Trust (the "Fund"), is a no load open-end
non-diversified management investment company. The Fund's investment objective
is to seek long-term growth of capital through investment primarily in common
stocks of companies which own, or develop natural resources and other basic
commodities, or supply goods and services to such companies. Current income will
not be a factor. Total return will consist primarily of capital appreciation.
For a description of the types of securities in which the Fund will invest, see
"Investment Objectives and Policies" on page 3.
Shares of the Fund may be purchased only by insurance companies for the
purpose of funding variable annuity contracts and variable life insurance
policies.
This Prospectus concisely sets forth information about the Fund that you
should know before investing. It should be read and retained for future
reference.
A Statement of Additional Information ("SAI") dated April 29, 1996, has been
filed with the Securities and Exchange Commission and is incorporated herein by
reference. The SAI further discusses certain areas in this Prospectus and other
matters which may be of interest to some investors. For a free copy, call the
telephone number above or write to the address listed above.
Lexington Management Corporation (the "Investment Adviser") is the
Investment Adviser of the Fund. Lexington Funds Distributor, Inc. (the
"Distributor") is the Distributor of shares of the Fund. Market Systems Research
Advisors, Inc. (the "Sub-Adviser") is the Sub-Adviser to the Fund.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<PAGE>
FINANCIAL HIGHLIGHTS
The following Per Share and Capital Changes Information for each of the
years in the five year period ended December 31, 1995 has been audited by KPMG
Peat Marwick LLP, Independent Auditors, whose report thereon appears in the
Statement of Additional Information. This information should be read in
conjunction with the financial statements and related notes thereto included in
the Statement of Additional Information. The Fund's annual report, which
contains additional performance information, is available upon request and
without charge.
<TABLE>
<CAPTION>
Selected per share data for a share outstanding throughout the period:
Period from
August 1, 1989
(Commencement of
Year Ended December 31, Operations) to
--------------------------------------------------- December 31,
1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ......................... $ 9.71 $10.30 $ 9.30 $9.01 $9.50 $11.49 $10.00
Income (loss) from investment
operations:
Net investment income (loss) ... 0.06 0.04 - - 0.02 (0.01) 0.01
Net realized and unrealized gain
(loss) on investments .......... 1.58 (0.59) 1.01 0.29 (0.49) (1.70) 1.48
Total income (loss) from
investment operations .......... 1.64 (0.55) 1.01 0.29 (0.47) (1.71) 1.49
Less distributions:
Dividends from net
investment income ............ (0.05) (0.04) (0.01) - (0.02) - -
Dividends from capital gains ..... - - - - - (0.28) -
Net asset value, end of period ... $11.30 $ 9.71 $10.30 $9.30 $9.01 $ 9.50 $11.49
Total return ..................... 16.87% (5.38%) 10.90% 3.22% (4.95%) (14.85%) 40.98%*
Ratio to average net assets:
Expenses, before
reimbursement .................. 1.47% 1.55% 2.26% 2.31% 2.97% 4.55% 19.76%*
Expenses, net of reimbursement ... 1.47% 1.55% 2.26% 2.31% 1.60% 1.54% 0.39%*
Net investment income (loss),
before reimbursement ........... 0.56% 0.49% 0.08% 0.02% (1.10%) (3.06%) (19.16%)*
Net investment income (loss) ..... 0.56% 0.49% 0.08% 0.02% 0.27% (0.05%) 0.22%*
Portfolio turnover ............... 149.18% 87.40% 114.44% 65.50% 100.94% 50.43% 0.00%*
Net assets, end of period (000's
omitted) ....................... $16,955 $13,627 $5,325 $1,926 $1,393 $ 916 $ 280
<FN>
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*Annualized
</FN>
</TABLE>
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DESCRIPTION OF THE FUND
Lexington Natural Resources Trust is a no-load open-end non-diversified
management investment company organized as a business trust under the laws of
Massachusetts. The Fund is intended to be the funding vehicle for variable
annuity contracts and variable life insurance policies to be offered by the
separate accounts of certain life insurance companies ("participating insurance
companies"). The Fund currently does not foresee any disadvantages to the
holders of variable annuity contracts and variable life insurance policies
arising from the fact that the interests of the holders of such contracts and
policies may differ. Nevertheless, the Fund's Trustees intend to monitor events
in order to identify any material irreconcilable conflicts which may possibly
arise and to determine what action, if any, should be taken in response thereto.
If a conflict were to occur, an insurance company separate account might be
required to withdraw its investments in the Fund and the Fund might be forced to
sell securities at disadvantageous prices. The variable annuity contracts and
variable life insurance policies are described in the separate prospectuses
issued by the Participating Insurance Companies. The Fund assumes no
responsibility for such prospectuses.
Individual variable annuity contract holders and variable life insurance
policy holders are not "shareholders" of the Fund. The Participating Insurance
Companies and their separate accounts are the shareholders or investors,
although such companies may pass through voting rights to their variable annuity
contract or variable life insurance policy. Shares of the Fund are not offered
directly to the general public.
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek long-term growth of capital
through investment primarily in common stocks of companies that own or develop
natural resources and other basic commodities, or supply goods and services to
such companies. Current income will not be a factor. Total return will consist
primarily of capital appreciation.
Management attempts to achieve the investment objective of the Fund by
seeking to identify securities of companies that, in its opinion, are
undervalued relative to the value of natural resource holdings of such companies
in light of current and anticipated economic or financial conditions. Natural
resource assets are materials derived from natural sources which have economic
value. The Fund will consider a company to have substantial natural resource
assets when, in management's opinion, the company's holdings of the assets are
of such magnitude, when compared to the capitalization, revenues or operating
profits of the company, that changes in the economic value of the assets will
affect the market price of the equity securities of such company. Generally, a
company has substantial natural resource assets when at least 50% of the
non-current assets, capitalization, gross revenues or operating profits of the
company in the most recent or current fiscal year are involved in or result
from, directly or indirectly through subsidiaries, exploring, mining, refining,
processing, fabricating, dealing in or owning natural resource assets. Examples
of natural resource assets include: companies that specialize in energy sources
(e.g., coal, geothermal power, natural gas and oil), environmental technology
(e.g., pollution control and waste recycling), forest products, agricultural
products, chemical products, ferrous and non-ferrous metals (e.g., iron,
aluminum and copper), strategic metals (e.g., uranium and titanium), precious
metals (e.g., gold, silver and platinum), and other basic commodities. The Fund
presently does not intend to invest directly in natural resource assets or
related contracts. The Fund may invest up to 25% of its total assets in
securities principally traded in markets outside the United States.
Management of the Fund believes that, based upon past performance, the
securities of specific companies that hold different types of substantial
natural resource assets may move relatively independently of one another during
different stages of inflationary cycles due to different degrees of demand for,
or market values of, their respective natural resource holdings during
particular portions of such inflationary cycles. The Fund's fully-managed
investment approach enables it to switch its emphasis among various industry
groups depending upon management's outlook with respect to prevailing trends and
developments. The investment objective and policies of the Fund described in the
first two paragraphs of this section are fundamental policies of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended.
Except for defensive or liquidity purposes, at least 65% of the total assets
of the Fund will be invested in companies with substantial natural resource
assets. The remaining assets to the extent not invested in the common stocks of
natural resource
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companies may be invested in companies other than the natural resource companies
and in debt securities of natural resource companies as well as other companies.
At any time management deems it advisable for temporary defensive or liquidity
purposes, the Fund may hold all its assets in cash or cash equivalents and
invest in, or hold unlimited amounts of, debt obligations of the United States
government or its political subdivisions, and money market instruments including
repurchase agreements with maturities of seven days or less and Certificates of
Deposit.
The Fund's investment portfolio may include repurchase agreements with banks
and dealers in U.S. Government securities. A repurchase agreement involves the
purchase by the Fund of an investment contract from a bank or a dealer in U.S.
Government securities which contract is secured by debt securities whose value
is equal to or greater than the value of the repurchase agreement including the
agreed upon interest. The agreement provides that the institution will
repurchase the underlying securities at an agreed upon time and price. The total
amount received on repurchase would exceed the price paid by the Fund,
reflecting an agreed upon rate of interest for the period from the date of the
repurchase agreement to the settlement date, and would not be related to the
interest rate on the underlying securities. The difference between the total
amount to be received upon the repurchase of the securities and the price paid
by the Fund upon their acquisition is accrued daily as interest. If the
institution defaults on the repurchase agreement, the Fund will retain
possession of the underlying securities. In addition, if bankruptcy proceedings
are commenced with respect to the seller, realization on the collateral by the
Fund may be delayed or limited and the Fund may incur additional costs. In such
case the Fund will be subject to risks associated with changes in the market
value of collateral securities. The Fund intends to limit repurchase agreements
to transactions with institutions believed by the Investment Adviser and
Sub-Adviser to present minimal credit risk.
Although the Fund's Board of Trustees present policy prohibits investments
in speculative securities trading at extremely low prices and in relatively
illiquid markets, investments in such securities can be made when and if the
Board determines such investments to be in the best interests of the Fund and
its shareholders. The policies set forth in this paragraph are subject to change
by the Board of Trustees of the Fund, in its sole discretion (see "Special
Considerations and Risks" and "Dividend, Distribution and Reinvestment Policy").
The Fund anticipates that its annual portfolio turnover rate will generally
not exceed 150%. A 100% turnover rate would occur if all of the Fund's portfolio
investments were sold and either repurchased or replaced within one year. High
turnover may result in increased transaction costs to the Fund; however, the
rate of turnover will not be a limiting factor when the Fund deems it desirable
to purchase or sell portfolio investments. For the fiscal year ended December
31, 1995, the portfolio turnover rate was 149.18%.
Generally, the primary consideration in placing portfolio securities
transactions with broker-dealers for execution is to obtain, and maintain the
availability of, execution at the best net price available and in the most
effective manner possible. The Fund's brokerage allocation policy may permit the
Fund to pay a broker-dealer which furnishes research services a higher
commission than that which might be charged by another broker-dealer which does
not furnish research services, provided that such commission is deemed
reasonable in relation to the value of the services provided by such
broker-dealer. For a complete discussion of portfolio transactions and brokerage
allocation, see "Portfolio Transactions and Brokerage Commissions" in the
Statement of Additional Information.
SPECIAL CONSIDERATION AND RISKS
Because the Fund will invest a substantial portion of its portfolio in the
securities of companies with natural resources assets, the Fund should be
considered as a vehicle for diversification and not as a balanced investment
program. In addition, investments in foreign securities may involve risks and
considerations not present in domestic investments.
Investments in Foreign Securities
A portion of the Fund's security investments will be in the securities of
foreign issuers. Investments in foreign securities may involve risks greater
than those attendant to investments in securities of U.S. issuers. Publicly
available information concerning issuers located outside the U.S. may not be
comparable in scope or depth of analysis to that generally available for
publicly held U.S. corporations. Accounting and auditing practices and financial
reporting requirements vary significantly from country to country and generally
are not comparable to those applicable to publicly held U.S. corporations.
Government supervision and regulation of
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foreign securities exchanges and markets, securities listed on such exchanges or
traded in such markets and brokers, dealers, banks and other financial
institutions who trade the securities in which the Fund may invest is generally
less extensive than in the U.S., and trading customs and practices may differ
substantially from those prevailing in the U.S. The Fund may trade in certain
foreign securities markets which are less developed than comparable U.S.
markets, which may result in reduced liquidity of securities traded in such
markets. Investments in foreign securities are also subject to currency
fluctuations. For example, when the Fund's assets are invested primarily in
securities denominated in foreign currencies, an investor can expect that the
Fund's net asset value per share will tend to increase when the value of U.S.
dollars is decreasing as against such currencies. Conversely, a tendency toward
decline in net asset value can be expected when the value of U.S. dollars is
increasing as against such currencies. Changes in net asset value per share as a
result of foreign exchange rate fluctuations will be determined by the
composition of the Fund's portfolio at any given time. Further, it is not
possible to avoid altogether the risks of expropriation, burdensome or
confiscatory taxation, moratoriums, exchange and investment controls or
political or diplomatic events which might adversely affect the Fund's
investments in foreign securities or restrict the Fund's ability to dispose of
such investments.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of investment restrictions which may not be
changed without shareholder approval. These are set forth under "Investment
Restrictions" in the Statement of Additional Information. Some of these
restrictions provide that the Fund shall not:
*Invest more than 5% of its total assets in the securities of any one issuer
with respect to 50% of its total assets (except securities issued or guaranteed
by the U.S. Government, or its agencies and instrumentalities);
*Purchase any securities if such purchase would cause the Fund to own at the
time of purchase more than 10% of the outstanding voting securities of one
issuer;
*Borrow money; except that the Fund may borrow from a bank as a temporary
measure for extraordinary purposes or to meet redemptions in amounts not
exceeding 10% (taken at market value) of its total assets and pledge its assets
to secure such borrowings. The Fund may not purchase additional securities when
money borrowed exceeds 5% of the Fund's total assets;
*Purchase any security restricted as to disposition under Federal securities
laws or securities that are not readily marketable or purchase any securities if
such a purchase would cause the Fund to own at the time of such purchase,
illiquid-securities, including repurchase agreements with an agreed upon
repurchase date in excess of seven days from the date of acquisition by the
Fund, having aggregate market value in excess of 10% of the value of the Fund's
total assets.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Trustees. There are currently seven Trustees (of whom four are
non-affiliated persons) who meet four times each year. The Statement of
Additional Information contains additional information regarding the Trustees
and officers of the Fund.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, New Jersey 07663, is the investment adviser to the Fund, and, as
such, advises and makes recommendations to the Fund with respect to its
investments and investment policies. Lexington Funds Distributor, Inc. is a
registered broker-dealer and is the distributor of shares of the Fund.
The Investment Adviser has entered into a sub-advisory management contract
with Market Systems Research Advisors, Inc., 80 Maiden Lane, New York, New York
10038, a registered investment adviser, under which the Sub-Adviser will provide
the Fund with certain investment management and administrative services. The
Sub-Adviser serves as investment adviser to private and institutional accounts.
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<PAGE>
The Investment Adviser is paid an investment advisory fee at the annual rate
of 1.00% of the net assets of the Fund which is higher than that paid by most
other investment companies. This fee is computed on the basis of the Fund's
average daily net assets and is payable on the last business day of each month.
For the year ended December 31, 1995, the Investment Adviser received $148,634
in investment advisory fees from the Fund and paid the Sub-Adviser $74,304.
From time to time, the Investment Adviser may pay amounts from its past
profits to participating insurance companies or insurance companies or other
financial institutions that provide administrative services for the Fund or that
provide to contract holders other services relating to the Fund. These services
may include, among other things, sub-accounting services, answering inquiries of
contract holders regarding the Fund, transmitting, on behalf of the Fund, proxy
statements, annual reports, updated prospectus and other communications to
contract holders regarding the Fund, and such other related services as the Fund
or a contract holder may request. The Investment Adviser will not pay more than
0.25% of the average daily net assets of the Fund represented by shares of the
Fund held in the separate account of any participating insurance company.
Payment of such amounts by the Investment Adviser will not increase the fees
paid by the Fund or its shareholders.
The Investment Adviser serves as investment adviser to other investment
companies and private institutional investment accounts. Included among these
clients are persons and organizations which own significant amounts of capital
stock of the Investment Adviser's parent. The clients pay fees which the
Investment Adviser considers comparable to the fee levels for similarly served
clients.
The Investment Adviser also acts as administrator to the Fund and performs
certain administrative and internal accounting services, including but not
limited to, maintaining general ledger accounts, regulatory compliance,
preparation of financial information for semiannual and annual reports,
preparing registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and provides
facilities for such services. The Fund shall reimburse the Aministrator for its
actual cost in providing such services, facilities and expenses.
The Investment Adviser and the Distributor are wholly-owned subsidiaries of
Lexington Global Asset Managers, Inc., a Delaware corporation with offices at
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663. Lexington Global Asset
Managers, Inc., holds a controlling interest in the Sub-Adviser. Descendants of
Lunsford Richardson, Sr., their spouses, trusts and other related entities have
a majority voting control of outstanding shares of Lexington Global Asset
Managers, Inc., common stock. See "Investment Adviser and Distributor" in the
Statement of Additional Information.
PORTFOLIO MANAGERS
The Fund is managed by an investment management team. Frank A. Peluso,
Robert M. DeMichele and Robert W. Radsch are the lead managers.
Frank A. Peluso is a Portfolio Manager of the Fund. He has 33 years
investment experience. Mr. Peluso is President and Chief Executive Officer of
Market Systems Research Advisors, Inc. (MSR), the sub-adviser to the Fund. Mr.
Peluso utilizes a proprietary analytical system to identify securities with
performance potential which he believes to be exceptional. In addition, Mr.
Peluso's proprietary data is used by professional money managers, insurance
companies, brokerage firms, banks, mutual fund companies and pension funds.
Mr. Peluso is a graduate of Princeton University and has completed a year of
post-graduate study at Columbia University.
Robert M. DeMichele is Chairman and Chief Executive Officer of Lexington
Management Corporation. He is also the Chairman of the Investment Strategy
Group. In addition, he is President of Lexington Global Asset Managers, Inc.,
LMC's parent company. He holds similar offices in other companies owned by
Lexington Global Asset Managers, Inc., as well as, the Lexington Funds.
Prior to joining LMC in 1981, Mr. DeMichele was a Vice President at A.G.
Becker, Inc. the securities division of Warburg, Paribus, Becker, an
international investment banking firm. From 1973 to 1981, Mr. DeMichele held
several positions, the most recent managing A.G. Becker's Funds Evaluation and
Consulting Group for both the East and West coasts.
Mr. DeMichele is a graduate of Union College with a B.A. Degree in Economics
and an M.B.A. in Finance from Cornell University.
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<PAGE>
Robert W. Radsch, CFA, is a Portfolio Manager of the Fund and is a Vice
President of Lexington Management Corporation. Prior to joining Lexington in
July, 1994, he was Senior Vice President, Portfolio Manager and Chief Economist
for the Bull & Bear Group. He has extensive experience managing gold, silver and
platinum on an international basis, having managed precious metals and
international funds for more than 13 years.
Mr. Radsch is a graduate of Yale University with a B.A. Degree and holds an
M.B.A. in Finance from Columbia University.
HOW TO PURCHASE AND REDEEM SHARES
With the exception of shares held in connection with initial capital of the
Fund, shares of the Fund are currently available for purchase solely by
participating insurance companies for the purpose of funding variable annuity
contracts and variable life insurance policies. Shares of the Fund are purchased
and redeemed at net asset value next calculated after a purchase or redemption
order is received by the Fund in good order. There are no minimum investment
requirements. Payment for shares redeemed will be made as soon as possible, but
in any event within three business days after the order for redemption is
received by the Fund. However, payment may be postponed under unusual
circumstances, such as when normal trading is not taking place on the New York
Stock Exchange.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined as of the close
of trading on each day the New York Stock Exchange is open, by dividing the
value of the Fund's securities plus any cash and other assets (including accrued
dividends and interest) less all liabilities (including accrued expenses) by the
number of shares outstanding, the result being adjusted to the nearest whole
cent. A security listed or traded on a recognized stock exchange is valued at
the last sale price prior to the time when assets are valued on the principal
exchange on which the security is traded. If no sale is reported at that time,
the mean between the current bid and asked price will be used. However, when LMC
deems it appropriate, prices obtained for the day of valuation from a third
party pricing service will be used. For over-the-counter securities the mean
between the bid and asked prices is used. All other securities for which the
over-the-counter market quotations are readily available are valued at the mean
between the last current bid and asked price. Short-term securities having
maturity of 60 days or less are valued at cost when it is determined by the
Fund's Board of Trustees that amortized cost reflects the fair value of such
securities. Securities for which market quotations are not readily available and
other assets shall be valued by Fund management in good faith under the
direction of the Fund's Board of Trustees.
Generally, trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities used in computing the net asset value of the shares
of the Fund are determined as of the earlier of such market close or the closing
time of the New York Stock Exchange (the "Exchange"). Foreign currency exchange
rates are also generally determined prior to the close of the Exchange.
Occasionally, events affecting the value of such securities and such exchange
rates may occur between the times at which they are determined and the close of
the Exchange, which will not be reflected in the computation of net asset value.
If during such periods, events occur which materially affect the value of such
securities, the securities will be valued at their fair market value as
determined by the investment adviser and approved in good faith by the Trustees.
In order to determine net asset value per share, the aggregate value of
portfolio securities is added to the value of the Fund's other assets, such as
cash and receivables; the total of the assets thus obtained, less liabilities,
is then divided by the number of shares outstanding.
PERFORMANCE CALCULATION
Advertisements and communications with shareholders and others may cite the
Fund's performance calculated on a total return basis. All such advertisements
and communications will portray the value of an assumed initial investment of
$1,000 at the end of one, five and ten year periods. These values will be
calculated by multiplying the compounded average annual total return for each
time period by the amount of the assumed initial investment and will reflect all
recurring charges against Fund income.
Advertisements and communications may compare the Fund's performance to
major market indices. Quotations of historical total returns are not indicative
of future dividend income or total return, but are an indication of the return
to shareholders only for the
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limited historical period used. The Fund's total return will depend on the
particular investments in its portfolio, its total operating expenses and other
conditions. For further information, including the formula and an example of the
total return calculation, see the Statement of Additional Information.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to declare or distribute a dividend from its net investment
income and/or net capital gain income to shareholders annually or more
frequently if necessary in order to comply with distribution requirements of the
Code to avoid the imposition of regular Federal income tax, and if applicable, a
4% excise tax.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund. Dividend and capital gain distributions are generally not currently
taxable to owners of variable contracts.
TAX MATTERS
The Fund. The Fund intends to qualify as a regulated investment company by
satisfying the requirements under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), concerning the diversification of assets,
distribution of income, and sources of income. When the Fund qualifies as a
regulated investment company and all of its taxable income is distributed in
accordance with the timing requirements imposed by the Code, the Fund will not
be subject to federal income tax. If, however, for any taxable year the Fund
does not qualify as a regulated investment company, then all of its income will
be subject to tax at regular corporate rates (without any deduction for
distributions to the separate accounts of the Participating Insurance Companies
(the "Accounts")), and the receipt of such distributions will be taxable to the
extent that the Fund has current and accumulated earnings and profits.
Fund distributions. Distributions by the Fund are taxable, if at all, to the
Accounts, and not to variable annuity contract holders or variable life
insurance policy holders. An Account will include distributions in its taxable
income in the year in which they are received (whether paid in cash or
reinvested).
Share redemptions. Redemptions of the shares held by the Accounts generally
will not result in gain or loss for the Accounts and will not result in gain or
loss for the variable annuity contract holders or variable life insurance policy
holders.
Summary. The foregoing discussion of federal income tax consequences is
based on tax laws and regulations in effect on the date of this Prospectus, and
is subject to change by legislative or administrative action. The foregoing
discussion also assumes that the Accounts are the owners of the shares and that
the policies or contracts qualify as life insurance policies or annuities,
respectively, under the Code. If the foregoing requirements are not met then the
variable annuity contract holders or variable life insurance policy holders will
be treated as recognizing income (from distributions or otherwise) related to
the ownership of Fund shares. The foregoing discussion is for general
information only; a more detailed discussion of federal income tax
considerations is contained in the Statement of Additional Information. Variable
annuity contract holders or variable life insurance policy holders must consult
the prospectuses of their respective contracts or policies for information
concerning the federal income tax consequences of owning such contracts or
policies.
GENERAL INFORMATION
The Fund was organized as a Massachusetts business trust on October 7, 1988
under the name Lexington Gold Trust. At a meeting held on September 30, 1991,
the shareholders of the Fund approved a change in the Fund's fundamental
investment objective and policies. In connection with the change of investment
objective and policies, the Fund also changed its name to "Lexington Natural
Resources Trust." The capitalization of the Fund consists solely of an unlimited
number of shares of beneficial interest, no par value. When issued, shares of
the Fund are fully paid, non-assessable and freely transferable.
Unlike the stockholder of a corporation, shareholders could under certain
circumstances be held personally liable for the obligations of the Fund.
However, the Declaration of Trust disclaims liability of the shareholders,
Trustees, or officers of the Fund for
8
<PAGE>
acts or obligations of the Fund, which are binding only on the assets and
property of the Fund. The Declaration of Trust provides for indemnification out
of Fund property for all loss and expense of any shareholder held personally
liable for the obligations of the Fund. The risk of a shareholder incurring
financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself would be unable to meet its obligations and thus should
be considered remote.
Voting Rights
Shareholders of the Fund are given certain voting rights. Each share of the
Fund will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium for
variable life insurance or annuity contracts. Participating insurance companies
provide variable annuity Contract Holders and Participants the right to direct
the voting of Fund shares at shareholder meetings to the extent required by law.
See the Separate Account Prospectus for the Variable Contract for more
information regarding the pass-through of these voting rights.
Massachusetts business trust law does not require the Fund to hold annual
shareholder meetings, although special meetings may be called for the Fund, for
purposes such as electing or removing Trustees, changing fundamental policies or
approving an investment management contract. A shareholders' meeting will be
held after the Fund begins operations for the purpose of electing the initial
Board of Trustees. In addition, the Fund will be required to hold a meeting to
elect Trustees to fill any existing vacancies on the Board if, at any time,
fewer than a majority of the Trustees have been elected by the shareholders of
the Fund. In addition, the holders of not less than two-thirds of the
outstanding shares or other voting interests of the Fund may remove a person
serving as Trustee either by declaration in writing or at a meeting called for
such purpose. The Trustees are required to call a meeting for the purpose of
considering the removal of a person serving as trustee, if requested in writing
to do so by the holders of not less than 10% of the outstanding shares of other
voting interests of the Fund. The Fund is required to assist in shareholders'
communications. In accordance with current laws, an insurance company issuing a
variable life insurance or annuity contract that participates in the Fund will
request voting instructions from Contract Holders and will vote shares or other
voting interests in the Separate Account in proportion to the voting
instructions received.
Counsel and Independent Auditors
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel will pass upon legal
matters for the Fund in connection with the shares offered by this Prospectus.
KPMG Peat Marwick LLP, New York, New York has been selected as independent
auditors for the Fund for the fiscal year ending December 31, 1996.
Custodians, Transfer Agent and Dividend Disbursing Agent
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York,
10036 has been retained to act as the Custodian for the Fund's investments and
assets. In addition, Chase Manhattan Bank, N.A. may appoint foreign banks and
securities depositories to act as sub-custodians for the Fund's portfolio
securities subject to their qualification as eligible foreign custodians under
the rules adopted by the SEC. State Street Bank & Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 has been retained to act as the Transfer
Agent and Dividend Disbursing Agent for the Fund. Neither Chase Manhattan Bank,
N.A. nor State Street Bank and Trust Company have any part in determining the
investment policies of the Fund or in determining which portfolio securities are
to be purchased or sold by the Fund or in the declaration of dividends and
distributions.
9
<PAGE>
(Left Column)
Investment Adviser
- -----------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Sub-Adviser
- -----------------------------------------------------------------
MARKET SYSTEMS RESEARCH ADVISORS, INC.
80 Maiden Lane
New York, N.Y. 10038
Distributor
- -----------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Transfer Agent
- -----------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
Table of Contents Page
- -----------------------------------------------------------------
Financial Highlights .......................................... 2
Description of the Fund ....................................... 3
Investment Objectives and Policies ............................ 3
Special Considerations and Risks .............................. 4
Investment Restrictions ....................................... 5
Management of the Fund ........................................ 5
Investment Adviser, Sub-Adviser, Distributor and Administrator. 5
Portfolio Managers ............................................ 6
How to Purchase and Redeem Shares ............................. 7
Determination of Net Asset Value .............................. 7
Performance Calculation ....................................... 7
Dividend, Distribution and Reinvestment Policy ................ 8
Tax Matters ................................................... 8
General Information ........................................... 8
(Right Column)
-----------------
L E X I N G T O N
-----------------
----------------------
LEXINGTON
NATURAL
RESOURCES
TRUST
(filled box)
(filled box)International
diversification
(filled box)Free telephone
exchange privilege
(filled box)No sales charge
(filled box)No redemption fee
(filled box)
The Lexington Group
of
No-Load
Investment Companies
----------------------
P R O S P E C T U S
APRIL 29, 1996
==============
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF ADDITIONAL INFORMATION
April 29, 1996
This Statement of Additional Information, which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Natural
Resources Trust (the "Fund"), dated April 29, 1996, as it may be revised from
time to time. To obtain a copy of the Fund's prospectus at no charge, please
write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle Brook, New
Jersey 07663 or call the following number:
201-845-7300
TABLE OF CONTENTS
Page
General Information and History ............................................. 2
Investment Objectives and Policies .......................................... 2
Investment Restrictions ..................................................... 2
Investment Adviser, Sub-Adviser, Distributor and Administrator .............. 3
Portfolio Transactions and Brokerage Commissions ............................ 4
Performance Calculation ..................................................... 5
Dividend, Distribution and Reinvestment Policy .............................. 6
Tax Matters ................................................................. 6
Custodians, Transfer Agent and Dividend Disbursing Agent .................... 6
Management of the Fund ...................................................... 7
Other Information ........................................................... 9
Financial Statements ........................................................ 10
1
<PAGE>
GENERAL INFORMATION AND HISTORY
The Fund was formerly named "Lexington Gold Trust". At a meeting held on
September 30, 1991, the shareholders of the Fund approved a change in the Fund's
fundamental investment objective and policies. In connection with the change of
investment objective and policies, the Fund also changed its name to "Lexington
Natural Resources Trust."
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek long-term growth of capital
through investment primarily in common stocks of companies which own, or develop
natural resources and other basic commodities, or supply goods and services to
such companies. Current income will not be a factor. Total return will consist
primarily of capital appreciation.
Management attempts to achieve the investment objective of the Fund by
seeking to identify securities of companies that, in its opinion, are
undervalued relative to the value of natural resource holdings of such companies
in light of current and anticipated economic or financial conditions. Natural
resource assets are materials derived from natural sources which have economic
value. The Fund will consider a company to have substantial natural resource
assets when, in management's opinion, the company's holdings of the assets are
of such magnitude, when compared to the capitalization, revenues or operating
profits of the company, that changes in the economic value of the assets will
affect the market price of the equity securities of such company. Generally, a
company has substantial natural resource assets when at least 50% of the
non-current assets, capitalization, gross revenues or operating profits of the
company in the most recent or current fiscal year are involved in or result
from, directly or indirectly through subsidiaries, exploring, mining, refining,
processing, fabricating, dealing in or owning natural resource assets. Examples
of natural resource assets include: companies that specialize in energy sources
(e.g. coal, geothermal power, natural gas and oil), environmental technology
(e.g. pollution control and waste recycling), forest products, agricultural
products, chemical products, ferrous and nonferrous metals (e.g. iron, aluminum
and copper), strategic metals (e.g. uranium and titanium), precious metals (e.g.
gold, silver and platinum), and other basic commodities. The Fund presently does
not intend to invest directly in natural resource assets or related contracts.
The Fund may invest up to 25% of its total assets in securities principally
traded in markets outside the United States.
Management of the Fund believes that, based upon past performance, the
securities of specific companies that hold different types of substantial
natural resource assets may move relatively independently of one another during
different stages of inflationary cycles due to different degrees of demand for,
or market values of, their respective natural resource holdings during
particular portions of such inflationary cycles. The Fund's fully managed
investment approach enables it to switch its emphasis among various industry
groups depending upon management's outlook with respect to prevailing trends and
developments. The investment objective and policies of the Fund described in the
first two paragraphs of this section are fundamental policies of the Fund and
may not be changed without the approval of the holders of a majority of the
Fund's outstanding voting securities, as defined in the Investment Company Act
of 1940, as amended.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "Investment Policy," and
the following investment restrictions are matters of fundamental policy which
may not be changed without the affirmative vote of the lesser of (a) 67% or more
of the shares of the Fund present at a shareholder's meeting at which more than
50% of the outstanding shares are present or represented by proxy or (b) more
than 50% of the outstanding shares. The Fund is a non-diversified management
investment company and
1. with respect to 50% of its assets, the Fund will not at the time of
purchase invest more than 5% of its total assets, at market value, in the
securities of one issuer (except the securities of the United States
Government);
2. with respect to the other 50% of its assets, the Fund will not invest at
the time of purchase more than 25% of the market value of its total assets in
any single issuer.
These two restrictions, hypothetically, could give rise to a portfolio with
as few as fourteen issues.
In addition, the Fund will not:
1. Purchase more than 10% of the voting securities or more than 10% of any
class of securities of any issuer. (For this purpose all outstanding debt
securities of an issuer are considered as one class, and all preferred stocks of
an issuer are considered as one class.)
2. Purchase any security restricted as to disposition under Federal
Securities laws or securities that are not readily marketable or purchase any
securities if such a purchase would cause the Fund to own at the time of
2
<PAGE>
such purchase, illiquid securities, including repurchase agreements with an
agreed upon repurchase date in excess of seven days from the date of acquisition
by the Fund, having aggregate market value in excess of 10% of the value of the
Fund's total assets.
3. Make short sales of securities or purchase any securities on margin,
except for such short term credits as are necessary for the clearance of
transactions.
4. Write, purchase or sell puts, calls or combinations thereof. However,
the Fund may invest up to 15% of the value of its assets in warrants. The holder
of a warrant has the right to purchase a given number of shares of a particular
company at a specified price until expiration. Such investments generally can
provide a greater potential for profit - or loss - than investment of an
equivalent amount in the underlying common stock. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities. If the
holder does not sell the warrant, he risks the loss of his entire investment if
the market price of the underlying stock does not, before the expiration date,
exceed the exercise price of the warrant plus the cost thereof. It should be
understood that investment in warrants is a speculative activity. Warrants pay
no dividends and confer no rights (other than the right to purchase the
underlying stock) with respect to the assets of the corporation issuing them. In
addition, the sale of warrants held more than one year generally results in a
long term capital gain or loss to the holder, and the sale of warrants held for
less than such period generally results in a short term capital gain or loss.
The holding period for securities acquired upon exercise of warrants, however,
begins on the day after the date of exercise, regardless of how long the warrant
was held. This restriction on the purchase of warrants does not apply to
warrants attached to, or otherwise included in, a unit with other securities.
5. Invest in any commodities or commodities futures contracts, including
futures contracts relating to gold.
6. Invest in real estate.
7. Invest more than 5% of the value of its total assets in securities of
issuers which, with their predecessors, have a record of less than three years
continuous operation.
8. Purchase or retain the securities of any issuer if the officers or
Trustees of the Fund, or its Investment Adviser, or Sub-Adviser who own
individually more than 1/2 of 1% of the securities of such issuer together own
more than 5% of the securities of such issuer.
9. Lend money or securities, provided that the making of time or demand
deposits with domestic banks and the purchase of debt securities such as bonds,
debentures, commercial paper, repurchase agreements and short term obligations
in accordance with the Fund's objective and policies, are not prohibited.
10. Borrow money, except for temporary emergency purposes, and in no event
more than 5% of its net assets at value or cost, whichever is less; or pledge
its gold or portfolio securities or receivables or transfer or assign or
otherwise encumber them in an amount exceeding 10% of the value of its total
assets.
11. Underwrite securities issued by others.
12. Purchase securities of other investment companies, except in connection
with a merger, consolidation, reorganization or acquisition of assets.
13. Invest for the purpose of exercising control or management of another
company.
14. Participate on a joint or a joint and several basis in any trading
account in securities.
The percentage restrictions referred to above are to be adhered to at the
time of investment, and are not applicable to a later increase or decrease in
percentage beyond the specified limit resulting from a change in values or net
assets.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663, is the investment adviser to the Fund, and,
as such, advises and makes recommendations to the Fund with respect to its
investments and investment policies.
LMC has entered into a sub-advisory management contract with Market Systems
Research Advisors, Inc. ("MSR"), 80 Maiden Lane, New York, New York 10038, a
registered investment advisor, under which the MSR will provide the Fund with
certain investment management and administrative services.
Under the terms of the investment management agreement, LMC also pays the
Fund's expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll expense of
3
<PAGE>
officers and Trustees of the Fund who are employees of LMC or its affiliates in
carrying out its duties under the investment management agreement. The Fund pays
all its other expenses, including custodian and transfer agent fees, legal and
registration fees, audit fees, printing of prospectuses, shareholder reports and
communications required for regulatory purposes or for distribution to existing
shareholders, computation of net asset value, mailing of shareholder reports and
communications, portfolio brokerage, taxes and independent Trustees' fees.
LMC shall reimburse the Fund in any fiscal year for the amount by which the
Fund's aggregate expenses exceed the most restrictive expense limits imposed by
any statute or regulatory authority of any jurisdiction in which shares of the
Fund are offered for sale during such year. Brokerage fees and commissions,
taxes, interest and extraordinary expenses are not deemed to be expenses of the
Fund for such reimbursement.
LMC's services are provided and its investment advisory fee is paid pursuant
to an investment management agreement, dated August 20, 1991 which will
automatically terminate if assigned and which may be terminated by either party
upon 60 days' notice. The terms of the agreement and any renewal thereof must be
approved annually by a majority
of the Fund's Board of Trustees, including a majority of Trustees who are not
parties to the agreement or "interested persons" of such parties, as such term
is defined under the Investment Company Act of 1940, as amended. For the year
ended December 31, 1995 LMC received $148,634 in investment advisory fees from
the Fund and paid MSR $74,304.
LMC serves as investment adviser to other investment companies and private
and institutional investment accounts. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's
parent. These clients pay fees which LMC considers comparable to the fee levels
for similarly served clients. LMC's accounts are managed independently with
reference to the applicable investment objectives and current security holdings
but on occasion more than one fund or counsel account may seek to engage in
transactions in the same security at the same time. To the extent practicable,
such transactions will be effected on a pro-rata basis in proportion to the
respective amounts of securities to be bought and sold for a fund, and the
allocated transactions will be averaged as to price. While this procedure may
adversely affect the price or volume of a given Fund transaction, LMC believes
that the ability of the Fund to participate in combined transactions may
generally produce better execution overall.
MSR, the Sub-Adviser serves as investment adviser to private and
institutional accounts.
LMC also acts as administrator to the Fund pursuant to an Administration
Services Agreement dated February 28, 1995 and performs certain administrative
and internal accounting services, including but not limited to, maintaining
general ledger accounts, regulatory compliance, preparation of financial
information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
Lexington Funds Distributor, Inc. ("LFD") serves as distributor for Fund
shares under a distribution agreement which is subject to annual approval by a
majority of the Fund's Board of Trustees, including a majority of Trustees who
are not "interested persons."
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. Lexington Global Asset Managers,
Inc., holds a controlling interest in MSR. Descendants of Lunsford Richardson,
Sr., their spouses, trusts and other related entities have a majority voting
control of outstanding shares of Lexington Global Asset Managers, Inc.,
Of the Trustees, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Petruski and Mmes.
Carnicelli, Carr, Curcio, Gilfillan and Mosca (see "Management of the Fund"),
may also be deemed affiliates of LMC by virtue of being officers, trustees or
employees thereof.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
As a general matter, purchases and sales of portfolio securities by the Fund
are placed by LMC or MSR with brokers and dealers who in its opinion will
provide the Fund with the best combination of price (inclusive of brokerage
commissions) and execution for its orders. However, pursuant to the Fund's
investment management agreement, management consideration may be given in the
selection of broker-dealers to research provided and payment may be made at a
fee higher than that charged by another broker-dealer which does not furnish
research services or which furnishes research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange Act
of 1934, as amended are met. Section 28(e) was adopted in 1975 and specifies
that a person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person has
caused the account to pay a higher commission than the lowest available under
certain circumstances, provided that the person so exercising investment
discretion makes a good faith determination that the commissions
4
<PAGE>
paid are "reasonable in relation to the value of the brokerage and research
services provided . . . viewed in terms of either that particular transaction or
his overall responsibilities with respect to the accounts as to which he
exercises investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services might exceed commissions
that would be payable for execution services alone. Nor generally can the value
of research services to the Fund be measured. Research services furnished might
be useful and of value to LMC or MSR and its affiliates, in serving other
clients as well as the Fund. On the other hand, any research services obtained
by LMC or MSR or its affiliates from the placement of portfolio brokerage of
other clients might be useful and of value to LMC or MSR in carrying out its
obligations to the Fund.
As a general matter, it is the Fund's policy to execute in the U.S. all
transactions with respect to securities traded in the U.S. except when better
price and execution can, in the judgment of management of the Fund, be obtained
elsewhere. Over-the-counter purchases and sales are normally made with principal
market makers, except where, in the opinion of management, the best executions
are available elsewhere.
In addition, the Fund may from time to time allocate brokerage commissions
to firms which furnish research and statistical information to LMC or MSR or
which render to the Fund services which LMC or MSR is not required to provide.
The supplementary research supplied by such firms is useful in varying degrees
and is of indeterminable value. No formula has been established for the
allocation of business to such brokers. For the fiscal year ended December 31,
1993, the portfolio turnover rate for the Fund was 114.44% and the Fund paid
$25,556 in brokerage commissions. For the fiscal year ended December 31, 1994,
the portfolio turnover rate for the Fund was 87.40%, and the Fund paid $66,168
in brokerage commissions. For the fiscal year ended December 31, 1995 the
portfolio turnover rate for the fund was 149.18%, and the fund paid $100,622 in
brokerage commissions.
Advisory fees paid to LMC and expense reimbursements paid to the Fund are as
follows:
Period Advisory Fee Sub Advisory Fee Expense Reimbursement
------ ------------ ---------------- ---------------------
1/1/93 to 12/31/93 30,699 $15,350 $0
1/1/94 to 12/31/94 107,760 53,880 0
1/1/95 to 12/31/95 148,634 74,304 0
PERFORMANCE CALCULATION
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, rules promulgated by the Securities and Exchange
Commission ("SEC"), a fund's advertising performance must include total return
quotations calculated according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000,
T = average annual total return,
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment,
made at the beginning of the 1, 5 or 10 year period, at the
end of such period (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
1,5 and 10 year periods of the Fund's existence or such shorter period dating
from the effectiveness of the Fund's Registration Statement. In calculating the
ending redeemable value, the maximum sales load is deducted from the initial
$1,000 payment and all dividends and distributions by the Fund are assumed to
have been reinvested at net asset value as described in the Prospectus on the
reinvestment dates during the period. Total return, or "T" in the formula above,
is computed by finding the average annual compounded rates of return over the 1,
5 and 10 year periods (or fractional portion thereof) that would equate the
initial amount invested to the ending redeemable value. Any recurring account
charges that might in the future be imposed by the Fund would be included at
that time.
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing the Fund's total return, the
Fund calculates its aggregate total return for
5
<PAGE>
the specified periods of time by assuming the investment of $10,000 in Fund
shares and assuming the reinvestment of each dividend or other distribution at
net asset value on the reinvestment of each dividend or other distribution at
net asset value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. Such alternative total return
information will be given no greater prominence in advertising than the
information prescribed under Item 21 of Form N-1A.
The Fund's performance may be compared in advertising to the performance of
other mutual funds in general, or of particular types of mutual funds,
especially those with similar objectives. Such performance data may be prepared
by Lipper Analytical Services, Inc. and other independent services which monitor
the performance of mutual funds. The Fund may also advertise mutual fund
performance rankings which have been assigned to it by such monitoring services.
Pursuant to the SEC calculation, the Fund's average total rate of return for
the one and five year and since commencement (8/1/89) period ended December 31,
1995 was 16.87%, 3.77% and 2.66%.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to declare or distribute a dividend from its net capital
gain income to shareholders annually or more frequently if necessary in order to
comply with distribution requirements of the Internal Revenue Code of 1986, as
amended ("Code"), and to avoid the imposition of regular Federal income tax, and
if applicable, a 4% excise tax.
Any dividends and distribution payments will be reinvested at net asset
value, in additional full and fractional shares of the Fund.
TAX MATTERS
The following is only a summary of certain additional tax considerations
that are not described in the Prospectus and generally affect each Fund and its
shareholders. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
Qualifications as a Regulated Investment Company
The Fund intends to qualify to be treated as a "regulated investment
company" ("RIC") under the Internal Revenue Code of 1986, as amended (the
"Code"). If so qualified, the Fund will not be subject to federal income tax on
its investment company taxable income and net capital gains to the extent that
such investment company taxable income and net capital gains are distributed in
each taxable year to the separate accounts of the Participating Insurance
Companies. In addition, if the Fund distributes annually to the separate
accounts its ordinary income and capital gain net income, in the manner
prescribed in the Code, it will also not be subject to the 4% federal excise tax
otherwise applicable to the undistributed income or gain of a RIC. Distributions
of net investment income and net short-term capital gains will be treated as
ordinary income and distributions of net long-term capital gains will be treated
as long-term capital gain in the hands of the Participating Insurance Companies.
Under current tax law, capital gains or dividends from the Fund are not
currently taxable when left to accumulate within a variable annuity or variable
life insurance contract.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified," in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of the
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, that
RIC will not be treated as a single investment for these purposes, but rather
the segregated asset account will be treated as owning its proportionate share
of each of the assets of the RIC. The Fund plans to satisfy these conditions at
all times so that each segregated asset account of a Participating Insurance
Company investing in the Fund will be treated as adequately diversified under
the Code and Regulations.
For information concerning the federal income tax consequences to the
holders of variable annuity contracts and variable rate insurance policies, such
holders should consult the prospectuses used in connection with the issuance of
their particular contracts or policies.
CUSTODIANS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as the Custodian for the Fund. In addition, the
Fund and Chase Manhattan Bank, N.A., may appoint foreign banks and
6
<PAGE>
foreign securities depositories which qualify as eligible foreign sub-custodians
under rules adopted by the Securities and Exchange Commission. State Street Bank
and Trust Company, N.A., 225 Franklin Street, Boston, Massachusetts 02110 has
been retained to act as the Transfer Agent and Dividend Disbursing Agent for the
Fund.
The custodians and transfer agent have no part in determining the
investment policies of the Fund or in determining which portfolio securities are
to be purchased or sold by the Fund or in the declaration of dividends and
distributions.
MANAGEMENT OF THE FUND
The Fund's Trustees and executive officers and their principal occupations
and former affiliations are:
*+ROBERT M. DeMICHELE, Chairman and President. P.O. Box 1515, Saddle Brook, N.J.
07663. Chief Executive Officer and Chairman, Lexington Management Corporation;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
President and Director, Lexington Global Asset Managers, Inc., Director,
Unione Italiana Reinsurance; Vice Chairman of the Board of Trustees, Union
College; Director, Navigator's Group, Inc.; Chairman, Lexington Capital
Management; Chairman, LCM Financial Services, Inc.; Director, Vanguard
Cellular Systems, Inc.; Chairman, Market Systems Research, Inc. and Market
Systems Research Advisors, Inc. (registered investment advisers); Trustee,
Smith Richardson Foundation.
*+BEVERLEY C. DUER, P.E., Trustee. 340 East 72nd Street, New York, N.Y. Private
Investor. Formerly Manager, Operations Research Department, CPC International
Inc.
*+BARBARA R. EVANS, Trustee. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities Analyst,
Lexington Management Corporation; prior to March 1987, Vice
President-Institutional Sales, L.F. Rothschild, Unterberg, Towbin.
*+LAWRENCE KANTOR, Vice President and Trustee. P.O. Box 1515, Saddle Brook, N.J.
07663. Managing Director, Executive Vice President and Director, Lexington
Management Corporation; Executive Vice President and Director, Lexington Funds
Distributor, Inc.; Executive Vice President and General Manager-Mutual Funds,
Lexington Global Asset Managers, Inc.,
*+DONALD B. MILLER, Trustee. 10725 Quail Covey Drive, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director, Maguire
Group of Connecticut; prior to January 1989, President, Director and C.E.O.,
Media General Broadcast Services.
*+JOHN G. PRESTON, Trustee. 3 Woodfield Road, Wellesley, Massachusetts.
Associate Professor of Finance, Boston College, Boston, Massachusetts.
*+PHILIP C. SMITH, Trustee. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor. Director, Southwest Investors Income Fund, Inc., Government
Income Fund, Inc., U.S. Trend Fund, Inc., Investors Cash Reserve and Plimony
Fund, Inc. (registered investment companies).
*+LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Senior Vice President and Secretary, Lexington Management Corporation;
Vice President and Secretary, Lexington Funds Distributor, Inc.; Secretary,
Lexington Global Asset Managers, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663. Managing Director, Chief Financial Officer and Director, Lexington
Management Corporation; Chief Financial Officer, Vice President and Director,
Lexington Funds Distributor, Inc; Chief Financial Officer, Market Systems
Research Advisers, Inc.; Executive Vice President and Chief Financial Officer,
Lexington Global Asset Managers, Inc.
*+RICHARD J. LAVERY, CLU, ChFC, Vice President. P. O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, Vice President. P. O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR, Assistant Treasurer, P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer, P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to November 1993, Supervisor Investment Accounting, Alliance Capital
Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P. O. Box 1515, Saddle Brook, N.J. 07663.
7
<PAGE>
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to May 1994, Supervising Senior Accountant, NY Life Securities. Prior to
December 1990, Senior Accountant, Dreyfus Corporation.
*+PETER CORNIOTES, Assistant Secretary. P. O. Box 1515, Saddle Brook, N.J.
07663. Assistant Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE FAUST, Assistant Secretary, P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to March 1994, Blue Sky Compliance Coordinator, Lexington Group of
Investment Companies.
*"Interested person" and/or "affiliated person" as defined in the Investment
Company Act of 1940, as amended.
+Messrs. Corniotes, DeMichele, Duer, Hisey, Faust, Kantor, Lavery, Luehs,
Miller, Petruski, Preston, and Smith and Mmes. Carnicelli, Carr, Curcio,
Evans, Gilfillan and Mosca hold similar offices with some or all of the other
registered investment companies advised and/or distributed by Lexington
Management Corporation or Lexington Funds Distributor, Inc. or Market Systems
Research Advisers, Inc.
The Board of Trustees met 5 times during the twelve months ended December
31, 1995, and each of the Trustees attended at least 75% of those meetings.
Remuneration of Trustees and Certain Executive Officers
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustees or any committee thereof. Each Trustee who is not an
affiliate of the advisor is compensated for his or her services according to a
fee schedule which recognizes the fact that each Trustee also serves as a
Trustee of other investment companies advised by LMC. Each Trustee receives a
fee, allocated among all investment companies for which the Trustee serves.
Effective September 12, 1995 each Trustee receives annual compensation of
$24,000. Prior to September 12, 1995, the trustees who were not employed by the
Fund or its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1995 to December 31, 1995 for each Trustee:
- --------------------------------------------------------------------------------
Aggregate Total Compensation Number of
Name of Trustee Compensation from From Fund and Directorships in
Fund Fund Complex Fund Complex
- --------------------------------------------------------------------------------
Robert M. DeMichele 0 0 15
- --------------------------------------------------------------------------------
Beverely C. Duer $1056 $22,616 15
- --------------------------------------------------------------------------------
Barbara R. Evans 0 0 14
- --------------------------------------------------------------------------------
Lawrence Kantor 0 0 14
- --------------------------------------------------------------------------------
Donald B. Miller $1056 $22,616 14
- --------------------------------------------------------------------------------
John G. Preston $1056 $22,616 14
- --------------------------------------------------------------------------------
Philip C. Smith $1056 $22,616 14
- --------------------------------------------------------------------------------
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Trustees instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Trustee in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of
8
<PAGE>
September 12, 1995 who elect retirement under the Plan prior to September 12,
1996 will receive an annual retirement benefit at any increased compensation
level if compensation is increased prior to September 12, 1997 and receive
spousal benefits (i.e., in the event the Director/Trustee dies prior to
receiving full benefits under the Plan, the Director/Trustee's spouse (if any)
will be entitled to receive the retirement benefit within the 10 year period.)
Retiring Trustees will be eligible to serve as Honorary Trustees for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of December 31, 1995, the estimated credited years
of service for Messrs. Duer, Miller, Preston, and Smith are 18, 22, 18 and 26
respectively.
Highest Annual Compensation Paid by All Funds
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
Years of
Service Estimated Annual Benefit Upon Retirement
------- ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
OTHER INFORMATION
As of March 8, 1996, Lexington Management Corporation, P. O. Box 1515/Park
80 West Plaza Two, Saddle Brook, New Jersey 07663 owned beneficially 10,418
shares of the Fund (0.6% of the Fund's outstanding shares). The balance of the
outstanding shares of the Fund (99.4%) are owned by Aetna Life Insurance and
Annuity Company and Kemper Investors Life Insurance Company and allocated to a
separate account used for funding variable annuity contracts.
9
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Lexington Natural Resources Trust:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Natural
Resources Trust as of December 31, 1995, the related statements 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 each
of the years in the five-year period then ended. These financial statements and
financial highlights are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995 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 Natural Resources Trust as of December 31, 1995, and the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 29, 1996
10
<PAGE>
(LEFT COLUMN)
Lexington Natural Resources Trust
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995
Number of
Shares Security Value
- ----------------------------------------------------------------------
COMMON STOCKS: 96.3%
AGRICULTURE: 4.4%
7,700 Dekalb Genetics Corporation ......... $ 347,463
7,100 Pioneer Hi-Bred International, Inc. . 394,938
----------
742,401
----------
CHEMICAL PRODUCTS: 15.5%
8,100 Avery-Dennison Corporation .......... 406,012
4,900 Great Lakes Chemical Corporation .... 352,800
6,800 Hercules, Inc. ...................... 383,350
9,000 IMC Global, Inc. .................... 367,875
3,500 Monsanto Company .................... 428,750
5,200 Olin Corporation .................... 386,100
8,000 Union Carbide Corporation ........... 300,000
----------
2,624,887
----------
ENERGY SOURCES: 41.0%
6,800 Anadarko Petroleum Corporation ...... 368,050
4,000 Atlantic Richfield Company .......... 443,000
3,600 British Petroleum Company Plc ....... 367,650
8,100 Burlington Resources, Inc. .......... 317,925
9,400 Coastal Corporation ................. 350,150
13,600 Devon Energy Corporation ............ 346,800
5,300 Exxon Corporation ................... 424,663
29,500 Horsham Corporation ................. 398,250
3,800 Mobil Corporation ................... 425,600
14,400 Noble Affiliates, Inc. .............. 430,200
12,000 Panhandle Eastern Corporation ....... 334,500
2,500 Royal Dutch Petroleum Company ....... 352,812
7,000 Schlumberger, Ltd. .................. 484,750
5,100 Texaco, Inc. ........................ 400,350
14,000 Tidewater, Inc. ..................... 441,000
9,200 Tosco Corporation ................... 350,750
15,000 Valero Energy Corporation ........... 367,500
8,100 Williams Companies, Inc. ............ 355,388
----------
6,959,338
----------
ENVIRONMENTAL TECHNOLOGY: 17.3%
17,200 Davis Water and Waste
Industries, Inc. ................. 249,400
17,000 IMCO Recycling, Inc. ................ 416,500
10,000 Ionics, Inc. ........................ 435,000
8 800 Millipore Corporation ............... 361,900
15,200 Pall Corporation .................... 408,500
18,500 Sevenson Environmental
Services, Inc. ................... 335,312
11,000 Thermo Instrument Systems, Inc.1 .... 371,250
11,600 WMX Technologies, Inc. .............. 346,550
----------
2,924,412
----------
(RIGHT COLUMN)
Number of
Shares
or Principal
Amounts Security (Note 1) Value
- --------------------------------------------------------------------------
FERROUS METALS: 5.4%
10,000 Alcan Aluminum, Ltd. ................ $ 311,250
4,700 Phelps Dodge Corporation ............ 292,575
12,000 Western Mining Holdings (ADR) ....... 313,500
-----------
917,325
-----------
FOREST PRODUCTS: 3.4%
10,000 Lydall, Inc.1 ....................... 227,500
7,100 Pentair, Inc. ....................... 355,000
-----------
582,500
-----------
PRECIOUS METALS: 9.3%
14,900 Barrick Gold Corporation ............ 392,987
16,500 Freeport McMoran Copper &
Gold "A" ......................... 462,000
7,200 Newmont Gold Company ................ 315,000
9,000 Newmont Mining Corporation .......... 407,250
-----------
1,577,237
-----------
TOTAL COMMON STOCKS
(cost $14,667,664) ................ 16,328,100
-----------
SHORT-TERM INVESTMENTS: 1.2%
$100,000 U.S. Treasury Bill
5.29%, due 02/08/96 ............... 99,442
100,000 U.S. Treasury Bill
5.295%, due 05/09/96 .............. 98,102
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $197,544) ................... 197,544
-----------
TOTAL INVESTMENTS: 97.5%
(cost $14,865,208+) ............... 16,525,644
Other assets in excess of liabilities:
2.5% .............................. 429,603
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $11.30 per share
on 1,500,607 shares outstanding) .. $16,955,247
===========
1Non-income producing security.
ADR-American Depository Receipt.
+Aggregate cost for federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
11
<PAGE>
Lexington Natural Resources Trust
Statement of Assets and Liabilities
December 31, 1995
Assets
Investments, at value (cost $14,865,208) (Note 1) ............. $16,525,644
Cash .......................................................... 468,743
Receivable for shares sold .................................... 5,888
Interest and dividends receivable ............................. 21,400
-----------
Total Assets .................................. 17,021,675
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) .............. 13,096
Payable for shares redeemed ................................... 28,806
Accrued expenses .............................................. 24,526
-----------
Total Liabilities ............................. 66,428
-----------
Net Assets (equivalent to $11.30 per share on
1,500,607 shares outstanding) (Note 3) ................... $16,955,247
===========
Net Assets consist of:
Paid-in capital-unlimited authorized shares of beneficial
interest at no par value (Note 1) ........................ $15,403,143
Undistributed net investment income (Note 1) .................. 11,627
Accumulated net realized loss on investments (Notes 1 and 6) .. (119,959)
Net unrealized appreciation of investments (Note 4) ........... 1,660,436
-----------
Net Assets ..................................... $16,955,247
===========
The Notes to Financial Statements are an integral part of this statement.
12
<PAGE>
Lexington Natural Resources Trust
Statement of Operations
Year ended December 31, 1995 (unaudited)
Investment Income
Interest Income .................................... $ 27,664
Dividend income .................................... 279,062
---------
306,726
Less: Foreign tax expense .......................... 5,921
---------
Total investment income ....................... $ 300,805
Expenses
Investment advisory fee (Note 2) ................. 148,634
Accounting expense (Note 2) ...................... 3,600
Custodian fees ................................... 6,915
Printing and mailing ............................. 24,626
Directors' fees .................................. 6,462
Professional fees ................................ 13,730
Registration fees ................................ 2,001
Computer processing fees ......................... 7,575
Other expenses ................................... 4,410
---------
Total expenses ................................. 217,953
----------
Net investment income 82,852
Realized and Unrealized Gain on Investments (Note 4)
Net realized gain on
investments .................................... 513,678
Net change in unrealized appreciation on
investments .................................... 1,735,936
----------
Net realized and unrealized gain on investments 2,249,614
----------
Increase in Net Assets Resulting from Operations ... $2,332,466
==========
The Notes to Financial Statements are an integral part of this statement.
13
<PAGE>
Lexington Natural Resources Trust
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
1995 1994
----------- -----------
Net investment income ............................. $ 82,852 $ 52,351
Net realized gain (loss) from investment
transactions .................................. 513,678 (490,471)
Increase (decrease) in unrealized
appreciation of investments ................... 1,735,936 (339,043)
----------- -----------
Net increase (decrease) in net
assets resulting from operations .... 2,332,466 (777,163)
Distributions to shareholders from net
investment income ............................. (71,225) (50,415)
Increase in net assets from capital
share transactions (Note 3) ................... 1,067,096 9,129,763
----------- -----------
Net increase in net assets ............ 3,328,337 8,302,185
Net Assets:
Beginning of period ............................. 13,626,910 5,324,725
----------- -----------
End of period (including undistributed
net investment income of $11,627 and
distributions in excess of net investment
income of $2,513, respectively.) .............. $16,955,247 $13,626,910
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
14
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1995 and 1994
Note 1 - Significant Accounting Policies
Lexington Natural Resources Trust (the "Trust") is an open-end diversified
investment company registered under the Investment Company Act of 1940, as
amended. The Fund's investment objective is to seek long-term growth of capital
through investment primarily in common stock of companies which own, or develop
natural resources and other basic commodities, or supply goods and services to
such companies. With the exception of shares held in connection with initial
capital of the Trust, shares of the Trust are currently being offered only to
participating insurance companies for allocation to certain of their separate
accounts established for the purpose of funding variable annuity contracts
issued by the participating insurance companies. The following is a summary of
significant accounting policies followed by the Trust 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. Investments in securities traded on a national securities
exchange are valued at the last sale price on such exchange as of the close of
business. Securities traded on the over-the-counter market are valued at the
mean between the last reported bid and asked price. Short-term securities are
stated at amortized cost, which appoximates market value. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income is accrued as earned.
Distributions: In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of December 31,
1995, $2,513 and $9,485 were reclassified from additional paid-in capital to
undistributed net investment income and accumulated net realized loss on
investments.
Federal Income Taxes: It is the Trust's intention 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 has been made.
Note 2 - Investment Advisory Fee and Other Transactions with Affiliate
The Trust pays an investment advisory fee to Lexington Management
Corporation ("LMC") at the annual rate of 1% of the Trust's average daily net
assets. LMC has entered into a sub-advisory management contract with Market
Systems Research Advisors, Inc. ("MSR"), a registered investment advisor, under
which MSR will provide the Trust with certain investment management and
administrative services. Pursuant to the terms of the sub-advisory contract
between LMC and MSR, LMC pays MSR a monthly sub-advisory fee of .50% the Trust's
average daily net assets. LMC shall reimburse the Trust in any fiscal year for
the amount by which the Trust's aggregate expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) exceed the most restrictive
expense limits imposed by any state or regulatory authority of any jurisdiction
in which shares of the Trust are offered for sale during any such year. No
reimbursement was required for the year ended December 31, 1995.
The Trust also reimburses LMC for certain expenses, including accounting
costs, which are incurred by the Trust, but paid by LMC.
15
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
Note 3 - Capital Stock
Transactions in capital stock were as follows:
Year ended Year ended
December 31, 1995 December 31, 1994
-------------------- --------------------
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold .................. 559,893 $5,848,911 1,309,826 $13,428,318
Shares issued on reinvestment
of distributions from net
investment income .......... 6,325 71,225 5,203 50,415
-------- ---------- --------- -----------
566,218 5,920,136 1,315,029 13,478,733
Shares redeemed .............. (468,861) (4,853,040) (428,676) (4,348,970)
-------- ---------- --------- -----------
Net increase ................. 97,357 $1,067,096 886,353 $ 9,129,763
======== ========== ========= ===========
Note 4 - Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments for the year
ended December 31, 1995, excluding short-term securities, were $22,867,932 and
$21,434,861, respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$1,801,223 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $140,787.
Note 5 - Investment and Concentration Risks
The Fund can make significant investments in foreign securities and has a
policy of investing in the securities of companies that own or develop natural
resources and other basic commodities, or supply goods and services to such
companies. There are certain risks involved in investing in foreign securities
or concentrating in specific industries such as natural resources that are in
addition to the usual risks inherent in domestic investments. These risks
include those resulting from future adverse political and economic developments,
as well as the possible imposition of foreign exchange or other foreign
governmental restrictions or laws.
Note 6 - Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for Federal income tax purposes as of
December 31, 1995 are approximately $119,959 expiring in 2002.
To the extent any future capital gains are offset by these losses, such
gains would not be distributed to shareholders.
Treasury regulations were issued in early 1990 which provide that capital
losses incurred after October 31 of a trust's taxable year can be deemed to have
occurred on the first day of the following taxable year (i.e., January 1). The
regulations indicate that a fund may elect to retroactively apply these rules
for purposes of computing taxable income. Accordingly, the capital loss
carryforwards for Lexington Natural Resources Trust have been adjusted to
reflect prior years' post-October losses in the next fiscal year.
16
<PAGE>
Lexington Natural Resources Trust
Financial Highlights
Selected per share data for a share outstanding throughout the period:
Year ended December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
--------------------------------------------------
Net asset value, beginning
of period .............. $ 9.71 $10.30 $ 9.30 $9.01 $9.50
------ ------ ------ ----- -----
Income (loss) from
investment operations:
Net investment income . 0.06 0.04 - - 0.02
Net realized and
unrealized gain (loss)
on investments ...... 1.58 (0.59) 1.01 0.29 (0.49)
------ ------ ------ ----- -----
Total income (loss) from
investment operations ... 1.64 (0.55) 1.01 0.29 (0.47)
------ ------ ------ ----- -----
Less distributions:
Dividends from net
investment income .... (0.05) (0.04) (0.01) - (0.02)
------ ------ ------ ----- -----
Net asset value, end
of period ............... $11.30 $ 9.71 $10.30 $9.30 $9.01
====== ====== ====== ===== =====
Total return ............. 16.87% (5.38%) 10.90% 3.22% (4.95%)
Ratios to average net assets:
Expenses, before
reimbursement ........ 1.47% 1.55% 2.26% 2.31% 2.97%
Expenses, net of
reimbursement ........ 1.47% 1.55% 2.26% 2.31% 1.60%
Net investment income
(loss), before
reimbursement ......... 0.56% 0.49% 0.08% 0.02% (1.10%)
Net investment income .. 0.56% 0.49% 0.08% 0.02% 0.27%
Portfolio turnover ..... 149.18% 87.40% 114.44% 65.50% 100.94%
Net assets at end
of period (000's
omitted) ............ $16,955 $13,627 $5,325 $1,926 $1,393
17
