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LEXINGTON
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LEXINGTON
NATURAL
RESOURCES
TRUST
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SEMI-ANNUAL REPORT
JUNE 30, 1997
The Lexington Group
of NO LOAD
Investment Companies
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<PAGE>
DEAR SHAREHOLDERS:
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Lexington Natural Resources Trust rebounded strongly in the quarter ending
June 30, 1997, with a total return of 9.71%*. For the six month period ending
June 30, 1997, the Fund is up 3.57%* and for the one year period the Fund is up
19.28%*.
It has been an interesting six months. The oil service and the
international oil sectors that performed extremely well in 1996, sold off in the
first quarter of 1997 for no apparent reason other than profit taking, following
the stocks strong 12 month performance. The wave of selling ended in about
mid-April and the sectors once again began performing well as strong profit
gains were recorded by companies such as Diamond Offshore Drilling, Halliburton
and Ensco. The international oils, such as RoyalDutch Petroleum and British
Petroleum, also rebounded nicely, reflecting their strong fundamental position
in the global oil markets.
The big factor--INFLATION--which is often the "icing on the cake" for the
natural resource companies continues to be dormant. The companies in our
portfolio are not being helped by inflation or exceptionally tight supply/demand
characteristics.They are, however, recording strong earnings growth by managing
costs, planning effectively and utilizing lean management teams to achieve their
targeted investment returns. These good companies can't afford to wait for
inflation, supply disruption or world crisis. They must run their businesses in
a very competitive resource environment. Fortunately, the management of the
companies in your portfolio is doing that well.
Looking forward, we recently began to build new positions in the forest
products area which we believe will contribute to the Fund's performance as both
supply/demand conditions and pricing appears to be improving in the paper and
forest product markets. We also continue to hold a small position in gold stocks
which appear to be bottoming out, and anticipate better performance in the
second half as gold bullion prices stabilize.
Natural resources has been a difficult sector to invest in for the first
six months of 1997. We believe the second half of the year is going to be more
favorable for contractholders in the Fund.
Sincerely,
/s/Robert M. DeMichele
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Robert M. DeMichele
Portfolio Manager and President
August, 1997
* 19.28%, 10.89% and 5.74% are the one year, five year and since commencement
(8/1/89) average annual standard total returns, respectively, for the period
ended June 30, 1997. Prior to September 1991, the Fund operated under a
different name and investment objective. Investment return and principal value
of an investment will fluctuate so that an investor's shares, when redeemed,
may be worth more or less than at their original cost. Total return represents
past performance and is not predictive of future results.
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited)
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
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COMMON STOCK: 97.2%
AGRICULTURE: 3.4%
29,000 Dekalb Genetics Corporation ................ $2,187,687
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CHEMICAL PRODUCTS: 6.1%
18,900 Betzdearborn, Inc. ......................... 1,247,400
27,700 Monsanto Company ........................... 1,192,831
26,000 Praxair, Inc. .............................. 1,456,000
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3,896,231
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ENERGY SOURCES: 61.3%
26,000 Anadarko Petrol Corporation ................ 1,560,000
21,200 Atwood Oceanics, Inc. ...................... 1,417,750
19,200 British Petroleum Company Plc .............. 1,437,600
31,000 Calenergy, Inc. ............................ 1,178,000
55,000 Canadian Natural Resources, Ltd.1 .......... 1,429,262
22,000 Diamond Offshore Drilling, Inc.1 ........... 1,718,750
23,200 Elf Aquitaine S.A. (ADR) ................... 1,262,950
25,000 ENSCO International, Inc. .................. 1,318,750
26,600 Exxon Corporation .......................... 1,635,900
49,000 Global Marine, Inc. ........................ 1,139,250
20,000 Halliburton Company ........................ 1,585,000
31,400 Noble Affiliates, Inc. ..................... 1,214,787
20,000 Norsk Hydro AS (ADR) ....................... 1,083,750
37,000 Parker & Parsley Petroleum
Company ................................. 1,308,875
25,500 Pennzoil Company ........................... 1,957,125
35,800 Rogers Corporation ......................... 1,261,950
29,200 Royal Dutch Petroleum ...................... 1,587,750
30,500 Smith International, Inc. .................. 1,852,875
75,000 Snyder Oil Corporation ..................... 1,378,125
13,600 Texaco, Inc. ............................... 1,479,000
59,900 Tosco Corporation .......................... 1,793,256
64,300 Trizec Hahn Corporation .................... 1,374,413
30,000 Unocal Corporation ......................... 1,164,375
45,000 USX-Marathon Group ......................... 1,299,375
42,000 Valero Energy Corporation .................. 1,522,500
35,400 Williams Companies, Inc. ................... 1,548,750
56 000 YPF Sociedad Anonima (ADR) ................. 1,722,000
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39,232,118
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ENVIRONMENTAL TECHNOLOGY: 4.9%
35,600 Cooper Cameron Corporation .................. 1,664,300
38,400 USA Waste Services, Inc.1 ................... 1,483,200
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3,147,500
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FERROUS METALS: 4.1%
52,000 Minerals & Resources
Corporation, Ltd. ....................... 1,204,125
20,000 Reynolds Metals Company .................... 1,425,000
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2,629,125
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PAPER AND FOREST PRODUCTS: 10.7%
55,000 Aracruz Celulose S.A. (ADR) ................ 1,120,625
19,100 Georgia Pacific Corporation ................ 1,630,663
40,000 James River Corporation of Virginia ........ 1,480,000
22,200 Temple Inland, Inc. ........................ 1,198,800
20,000 Willamette Industries, Inc. ................ 1,400,000
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6,830,088
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PRECIOUS METALS: 6.7%
79,000 Cambior, Inc. .............................. 893,688
30,000 Newmont Gold Company ........................ 1,198,125
19,500 Rio Tinto Plc ............................... 1,382,063
150,000 TVX Gold, Inc. .............................. 796,875
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4,270,751
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TOTAL INVESTMENTS: 97.2%
(cost $54,943,066+) ...................... 62,193,500
Other assets in excess of liabilities:
2.8% ..................................... 1,777,617
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TOTAL NET ASSETS: 100.0%
(equivalent to $14.80 per share
on 4,320,986 shares outstanding) .......... $63,971,117
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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
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LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
ASSETS
Investments, at value (cost $54,943,066) (Note 1) ............. $62,193,500
Cash .......................................................... 1,240,747
Receivable for shares sold .................................... 560,095
Dividends and interest receivable ............................. 60,404
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Total Assets ........................................ 64,054,746
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LIABILITIES
Due to Lexington Management Corporation (Note 2) .............. 52,484
Payable for shares redeemed ................................... 1,276
Accrued expenses .............................................. 29,869
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Total Liabilities ................................... 83,629
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NET ASSETS (equivalent to $14.80 per share on
4,320,986 share outstanding) (Note 4) ....................... $63,971,117
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NET ASSETS consist of:
Paid-in capital--unlimited shares of beneficial
interest at no par value .................................. $54,625,532
Undistributed net investment income (Note 1) .................. 266,846
Accumulated net realized gains on investments (Note 1) ........ 1,828,305
Unrealized appreciation on investments (Note 1) ............... 7,250,434
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Total Net Assets .................................... $63,971,117
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The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends ........................................................................ $ 564,000
Interest ......................................................................... 65,018
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629,018
Less: foreign tax expense ........................................................ 15,044
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Total investment income ................................................ $ 613,974
EXPENSES
Investment advisory fee (Note 2) .............................................. 283,540
Accounting expenses (Note 2) .................................................. 19,828
Printing and mailing expenses ................................................. 16,492
Professional fees ............................................................. 7,240
Directors' fees and expenses .................................................. 5,866
Computer processing fees ...................................................... 5,451
Custodian expense ............................................................. 5,015
Registration fees ............................................................. 1,486
Other expenses ................................................................ 2,210
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Total expenses ............................................................. 347,128
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Net investment income .................................................. 266,846
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS (NOTE 4)
Net realized loss on investments .............................................. (74,365)
Net change in unrealized appreciation on investments .......................... 1,517,991
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Net realized and unrealized gain ....................................... 1,443,626
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INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................................. $1,710,472
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</TABLE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31,
(UNAUDITED) 1996
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<S> <C> <C>
Net investment income ............................................................ $ 266,846 $ 102,985
Net realized gain (loss) from investments and foreign currency
transactions .................................................................. (74,365) 2,033,892
Net change in unrealized appreciation ............................................ 1,517,991 4,072,007
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Increase in net assets resulting from operations ......................... 1,710,472 6,208,884
Distribution to shareholders from net investment income -- (125,875)
Increase from capital share transactions (Note 3) ................................ 24,326,709 14,895,680
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Net increase in net assets ............................................... 26,037,181 20,978,689
NET ASSETS:
Beginning of period ......................................................... 37,933,936 16,955,247
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End of period (including undistributed net investment income
of $266,846 and $0, respectively) ........................................ $63,971,117 $37,933,936
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</TABLE>
The Notes to Financial Statements are an integral part of this statement.
4
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LEXINGTON NATURAL RESOURCES TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
Lexington Natural Resources Trust (the "Trust") is an open-end
non-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 price is used. Securities traded on the over-the-counter market are valued
at the mean between the last current bid and asked price. Short-term securities
having a maturity of 60 days or less are stated at amortized cost, which
approximates market value. Securities for which market quotations are not
readily available and other assets are valued by 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 policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
DISTRIBUTIONS Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Trust may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1996,
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.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
NOTE 2 -- INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Trust pays an investment advisory fee to Lexington Management
Corporation ("LMC") at an 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
5
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LEXINGTON NATURAL RESOURCES TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996 (continued)
NOTE 2 -- INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS
WITH AFFILIATE (continued)
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. For 1997, the investment advisor has
voluntarily agreed to reimburse the Trust if total annual expenses (including
management fees, but excluding interest, taxes, brokerage commissions and
extraordinary expenses) exceed 2.50% of the Trust's average daily net assets. No
reimbursement was required for the six months ended June 30, 1997.
The Trust reimbursed LMC for certain expenses, including accounting costs
of $19,828, which are incurred by the Trust, but paid by LMC.
NOTE 3 -- CAPITAL STOCK
Transactions (at $1.00 per share) in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended Year ended
June 30, 1997 (unaudited) December 31, 1996
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Shares Amount Shares Amount
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares sold ............................... 2,606,568 $37,498,600 1,945,915 $25,001,397
Shares issued on
reinvestment of dividends ............... -- -- 8,844 125,875
--------- ----------- --------- -----------
2,606,568 37,498,600 1,954,759 25,127,272
Shares redeemed ........................... (939,472) (13,171,891) (801,456) (10,231,592)
--------- ----------- --------- -----------
Net increase ............................ 1,667,096 $24,326,709 1,153,303 $14,895,680
========= =========== ========= ===========
</TABLE>
NOTE 4 -- PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of investments for the six
months ended June 30, 1997, excluding short-term securities, were $63,852,304
and $38,292,022, respectively.
At June 30,1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$8,530,702 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,280,268.
NOTE 5 -- INVESTMENT AND CONCENTRATION RISKS
The Trust makes 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, all of which could affect the market and/or
credit risk of the investments.
6
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LEXINGTON NATURAL RESOURCES TRUST
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended
June 30,
1997 Year ended December 31,
(unaudited) 1996 1995 1994 1993
----------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $14.29 $11.30 $ 9.71 $10.30 $ 9.30
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income .................. 0.06 0.05 0.06 0.04 --
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions ..................... 0.45 2.99 1.58 (0.59) 1.01
------ ------ ------ ------ ------
Total income (loss) from investment
operations ............................. 0.51 3.04 1.64 (0.55) 1.01
------ ------ ------ ------ ------
Less distributions:
Distributions from net investment
income ............................... -- (0.05) (0.05) (0.04) (0.01)
------ ------ ------ ------ ------
Net asset value, end of period ............ $14.80 $14.29 $11.30 $9.71 $10.30
====== ====== ====== ====== ======
Total return .............................. 7.33%* 26.89% 16.87% (5.38%) 10.90%
Ratio to average net assets:
Expenses ............................... 1.22%* 1.42% 1.47% 1.55% 2.26%
Net investment income .................. 0.94%* 0.40% 0.56% 0.49% 0.08%
Portfolio turnover rate ................... 142.94%* 102.76% 149.18% 87.40% 114.44%
Average commission paid on equity
security transactions** ................ $ 0.07 $ 0.07 -- -- --
Net assets, end of period (OOO's omitted) . $63,971 $37,934 $16,955 $13,627 $5,325
</TABLE>
* Annualized.
** In accordance with SEC disclosure guidelines, the average commissions are
calculated for the period beginning with the year ended December 31, 1996,
but not for prior periods.
7
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LEXINGTON
NATURAL RESOURCES TRUST
INVESTMENT ADVISER
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LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
SUB-ADVISOR
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MARKET SYSTEMS RESEARCH ADVISORS, INC.
80 Maiden Lane
New York, New York 10038
DISTRIBUTOR
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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.
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