Dear Shareholders:
- --------------------------------------------------------------------------------
We are pleased to report that the Lexington Natural Resources Trust had a
good first half of 1996, returning 10.2%* in comparison with the broad market
index, the unmanaged Standard and Poor's 500 Stock Price Index, which returned
10.1%.
Investors continue to have a love/hate relationship with the natural
resources sector. Once again, there appears to be no identifiable trend in this
sector as investors wait for:
* sustainable tightness of supply in raw materials (has not happened yet)
* a sharply higher rate of inflation (not currently an issue)
* the OPEC oil cartel substantially cutting production to raise prices (does
not seem likely)
* the price of gold bullion to break through the $400 level and establish a
new $425 to $450 per ounce trading range (every gold investor's wish)
Despite the lack of sustainable trends the energy sector, particularly
natural gas and natural gas pipelines, have been strong performers in the second
quarter. Noble Affiliates, Apache, Coastal and Columbia Gas, were strong
positive contributors to performance.
In addition, the oil service sector has heated up as drilling activity and
rig count has reached levels not seen for a number of years. This has been very
beneficial to companies such as Schlumberger, Halliburton and Tidewater whose
business depend directly on drilling activity and exploration trends.
Our optimism remains high that the natural resource sector offers the best
value in a somewhat overpriced U.S. domestic stock market. Inflation is not dead
and the prospects for Europe and Japan emerging from recession could provide the
stimulus needed to enhance profit margins for the commodity-based, natural
resource sector.
Also, many of the natural resource components can be viewed as good
defensive plays. In particular, natural gas and pipeline companies should
continue to do well based upon favorable supply factors that could sustain these
companies in a slowly expanding economy. GDP growth has accelerated in the first
half, but it is our expectation that it will fall back toward the 1.5% to 2.0%
level, with or without the help or hindrance of the Federal Reserve, in the
second half of the year. Although, in a natural resources fund one ideally would
desire a stronger, more vibrant economy, the prospects for no recession in the
U.S. and a turnaround overseas, could be a strong catalyst to drive natural
resource stock prices.
Sincerely,
Robert M. DeMichele
Portfolio Manager and President
July, 1996
*19.87%, 6.32% and 3.91% are the one and five year and since commencement
(8/1/89) average annual standard total returns, respectively, for the period
ended June 30, 1996. Investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth more
or less than at their original cost. Total return represents past performance.
1
<PAGE>
Left Col.
Lexington
Natural Resources Trust Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 93.5%
AGRICULTURE: 1.9%
19,000 Dekalb Genetics Corporation ........................ $ 489,250
----------
CHEMICAL PRODUCTS: 17.0%
10,100 Avery-Dennison Corporation ......................... 554,237
6,800 Dow Chemical Company ............................... 516,800
6,000 du Pont (E.I.) de Nemours, Inc. .................... 474,750
7,400 Grace, (W.R.) & Company ............................ 524,475
15,800 Inco, Ltd. ......................................... 509,550
22,500 Monsanto Company ................................... 731,250
6,700 Olin Corporation ................................... 597,975
13,000 Praxair, Inc. ...................................... 549,250
----------
4,458,287
----------
ENERGY SOURCES: 50.6%
6,300 Amoco Corporation .................................. 455,963
10,300 Anadarko Petroleum Corporation ..................... 597,400
18,000 Apache Corporation ................................. 591,750
3,400 B.J. Services Company .............................. 119,425
5,600 British Petroleum Company Plc ...................... 598,500
13,400 Coastal Corporation ................................ 559,450
9,800 Columbia Gas System, Inc. .......................... 510,825
11,000 Diamond Offshore Drilling, Inc. .................... 629,750
20,000 Ensco International, Inc. .......................... 650,000
6,300 Exxon Corporation .................................. 547,312
11,000 Halliburton Company ................................ 610,500
37,000 Horsham Corporation ................................ 520,313
5,000 Mobil Corporation .................................. 560,625
17,400 Noble Affiliates, Inc. ............................. 656,850
16,000 Panhandle Eastern Corporation ...................... 526,000
14,500 Pogo Producing Company ............................. 552,812
3,300 Royal Dutch Petroleum Company ...................... 507,375
9,000 Schlumberger, Ltd. ................................. 758,250
6,600 Texaco, Inc. ....................................... 553,575
14,000 Tidewater, Inc. .................................... 614,250
12,200 Tosco Corporation .................................. 613,050
8,300 Triton Energy, Ltd. Class "A" ...................... 403,587
15,500 Ultramar Corporation ............................... 449,500
13,600 Williams Companies, Inc. ........................... 673,200
----------
13,260,262
----------
ENVIRONMENTAL TECHNOLOGY: 9.6%
11,000 Ionics, Inc. ....................................... 517,000
17,500 Lydall, Inc. ....................................... 385,000
12,000 Sanifill, Inc.1 .................................... 591,000
16,250 Thermo Instrument Systems, Inc.1 ................... 524,063
15,000 WMX Technologies, Inc. ............................. 491,250
----------
2,508,313
----------
Right Col.
Number of
Shares
or Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
FERROUS METALS: 1.9%
8,600 Aluminum Company of America ......................... $ 493,425
----------
PAPER AND FOREST PRODUCTS: 3.9%
9,600 Boise Cascade Corporation1 .......................... 351,600
5,300 Bowater, Inc. ....................................... 199,412
16,000 Westvaco Corporation ................................ 478,000
----------
1,029,012
----------
PRECIOUS METALS: 8.6%
18,500 Freeport McMoran Copper &
Gold "A" .......................................... 552,688
10,200 Newmont Gold Company ................................ 513,825
9,000 Newmont Mining Corporation .......................... 444,375
15,000 Placer Dome, Inc. ................................... 358,125
50,000 Vaal Reefs Exploration
and Mining Company, Ltd. (ADR) .................... 398,438
----------
2,267,451
----------
TOTAL COMMON STOCKS:
(cost $22,461,050) ................................. 24,506,000
----------
SHORT-TERM INVESTMENTS: 6.8%
$100,000 U.S. Treasury Bill
4.90%, due 07/11/96 ................................ $ 99,864
700,000 U.S. Treasury Bill
5.02%, due 08/15/96 ................................ 695,651
500,000 U.S. Treasury Bill
5.08%, due 09/12/96 ................................ 494,850
500,000 U.S. Treasury Bill
5.10%, due 09/19/96 ................................ 494,333
----------
TOTAL SHORT-TERM INVESTMENTS:
(cost $1,784,698) .................................. 1,784,698
----------
TOTAL INVESTMENTS: 100.3%
(cost $24,245,748+) ................................ 26,290,698
Liabilities in excess of other assets:
(0.3)% ............................................. (67,020)
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $12.45 per share
on 2,105,593 shares outstanding) ................... $26,223,678
===========
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.
2
<PAGE>
<TABLE>
Lexington Natural Resources Trust
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
<C> <C>
Assets
Investments, at value (cost $24,245,748) (Note 1) ........................................ $26,290,698
Cash ..................................................................................... 36,623
Receivable for shares sold ............................................................... 58,336
Interest and dividends receivable ........................................................ 29,989
-----------
Total Assets ..................................................................... 26,415,646
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ......................................... 20,289
Payable for shares redeemed .............................................................. 27,780
Payable for investment securities purchased .............................................. 120,122
Accrued expenses ......................................................................... 23,777
-----------
Total Liabilities ................................................................ 191,968
-----------
Net Assets (equivalent to $12.45 per share on 2,105,593 shares outstanding) (Note 3) ..... $26,223,678
===========
Net Assets consist of:
Paid-in capital-unlimited authorized shares of beneficial interest
at no par value ........................................................................ $22,856,134
Undistributed net investment income ...................................................... 59,710
Accumulated net realized gain on investments ............................................. 1,262,884
Net unrealized appreciation of investments (Note 4) ...................................... 2,044,950
-----------
Net Assets ....................................................................... $26,223,678
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
<TABLE>
Lexington Natural Resources Trust
Statement of Operations
Six months ended June 30, 1996 (unaudited)
<S> <C> <C>
Investment Income
Interest Income ............................................................... $ 30,221
Dividend income ............................................................... 175,983
---------
206,204
Less: Foreign tax expense ..................................................... 4,563
---------
Total investment income ................................................. $ 201,641
Expenses
Investment advisory fee (Note 2) ............................................ 106,532
Accounting expense (Note 2) ................................................. 14,385
Printing and mailing expenses ............................................... 11,600
Professional fees ........................................................... 7,331
Directors' fees ............................................................. 3,756
Custodian fees .............................................................. 3,220
Registration fees ........................................................... 974
Other expenses .............................................................. 5,760
---------
Total expenses ............................................................ 153,558
----------
Net investment income ................................................. 48,083
Realized and Unrealized Gain on Investments (Note 4)
Net realized gain on
Investments ............................................................... 1,382,843
Net change in unrealized appreciation on
investments ............................................................... 384,514
----------
Net realized and unrealized gain on investments ....................... 1,767,357
----------
Increase in Net Assets Resulting from Operations .............................. $1,815,440
==========
</TABLE>
<TABLE>
<CAPTION>
Lexington Natural Resources Trust
Statements of Changes in Net Assets
Six months Year
ended ended
June 30, 1996 December 31,
(unaudited) 1995
----------- -----------
<S> <C> <C>
Net investment income ......................................................... $ 48,083 $ 82,852
Net realized gain from investment transactions ................................ 1,382,843 513,678
Increase in unrealized appreciation of investments ............................ 384,514 1,735,936
----------- -----------
Net increase in net assets resulting from operations .................. 1,815,440 2,332,466
Distributions to shareholders from net investment income ...................... - (71,225)
Increase in net assets from capital share transactions (Note 3) ............... 7,452,991 1,067,096
----------- -----------
Net increase in net assets ............................................ 9,268,431 3,328,337
Net Assets:
Beginning of period ......................................................... 16,955,247 13,626,910
----------- -----------
End of period (including undistributed net investment income of $59,710
and $11,627, respectively.) ............................................... $26,223,678 $16,955,247
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995
Note 1-Significant Accounting Policies
Lexington Natural Resources Trust (the "Trust") is an open-end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Trust'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 and variable life insurance policies 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. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market are
valued at the mean between the last current bid and asked price. Short-term
securities having maturity of 60 days or less are stated at amortized cost,
which approximates market value. Securities for which market quotations are not
readily available and other assets are valued by management in good faith under
the direction of the Trust's Board of Trustees. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income, adjusted for amortization of premiums and accretion of discounts, is
accrued as earned.
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.
Distributions: The character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At December 30,1995, reclassifications
were made to the Trust's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change.
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 1.00% 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 0.50% of 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 six months ended June 30, 1996.
The Trust also reimburses LMC for certain expenses, including accounting
costs of $14,385, which are incurred by the Trust, but paid by LMC.
5
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995 (continued)
<TABLE>
<CAPTION>
Note 3-Capital Stock
Transactions in capital stock were as follows:
Six months ended
June 30, 1996 Year ended
(unaudited) December 31, 1995
---------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ................................ 824,330 $10,105,974 559,893 $5,848,911
Shares issued on reinvestment of
distributions from net investment
income ................................... - - 6,325 71,225
------- ----------- ------- ----------
824,330 10,105,974 566,218 5,920,136
Shares redeemed ............................ (219,344) (2,652,983) (468,861) (4,853,040)
------- ----------- ------- ----------
Net increase ............................... 604,986 $ 7,452,991 97,357 $1,067,096
======= =========== ====== ==========
</TABLE>
Note 4-Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments for the six
months ended June 30, 1996, excluding short-term securities, were $18,651,193
and $10,760,003, respectively.
At June 30, 1996, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$2,679,013 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $634,063.
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
of 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, all of which could affect the market and/or
credit risk at the investments.
6
<PAGE>
<TABLE>
<CAPTION>
Lexington Natural Resources Trust
Financial Highlights
Selected per share data for a share outstanding throughout the period:
Six months
ended
June 30, Year ended December 31,
1996 ---------------------------------------
(unaudited) 1995 1994 1993 1992
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $11.30 $ 9.71 $10.30 $ 9.30 $9.01
------ ------ ------ ------ -----
Income (loss) from investment operations:
Net investment income ............................. 0.02 0.06 0.04 - -
Net realized and unrealized gain (loss)
on investment ................................... 1.13 1.58 (0.59) 1.01 0.29
------ ------ ------ ------ -----
Total income (loss) from investment
operations ........................................ 1.15 1.64 (0.55) 1.01 0.29
------ ------ ------ ------ -----
Less distributions:
Dividends from net investment income .............. - (0.05) (0.04) (0.01) -
------ ------ ------ ------ -----
Net asset value, end of period ...................... $12.45 $11.30 $ 9.71 $10.30 $9.30
====== ====== ====== ====== =====
Total return ........................................ 21.58%* 16.87% (5.38%) 10.90% 3.22%
Ratios to average net assets:
Expenses .......................................... 1.44%* 1.47% 1.55% 2.26% 2.31%
Net investment income ............................. 0.45%* 0.56% 0.49% 0.08% 0.02%
Portfolio turnover .................................. 105.25%* 149.18% 87.40% 114.44% 65.50%
Average commissions paid on equity
security transactions ............................. $ 0.07 - - - -
Net assets at end of period (000's omitted) ......... $26,224 $16,955 $13,627 $5,325 $1,926
<FN>
*Annualized
</FN>
</TABLE>
7
<PAGE>
Left Col.
Lexington
Natural Resources Trust
Investment Adviser
- -----------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Advisor
- -----------------------------------------------------------
MARKET SYSTEMS RESEARCH ADVISORS, INC.
80 Maiden Lane
New York, New York 10038
Distributor
- -----------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
This report has been prepared for the information of
the shareholders of Lexington Natural Resources Trust
and is authorized for distribution to the public only if
it is accompanied or preceded by a currently effective
prospectus which sets forth expenses and other
material information.
Right Col.
------------------------------------
LEXINGTON
LEXINGTON
NATURAL
RESOURCES
TRUST
-------------------
SEMI-ANNUAL REPORT
JUNE 30, 1996
The Lexington Group
of No Load
Investment Companies
-------------------------------------
