Dear Shareholders:
The story for 1996 was energy. The Lexington Natural Resources Trust appreciated
by 26.9%* for the year ending December 31, 1996, outperforming the broad based
unmanaged Standard and Poor's 500 Stock Price Index which was up 22.9%.
The key driving force behind the performance in 1996 was the strength of the
oil service, natural gas, international oil, and the domestic oil sectors. The
oil service sector was positively influenced by the increased day rates for
drilling rigs. Consequently, with the increase in the price of crude oil that
broke $25 a barrel in 1996, more rigs were utilized. Companies such as BJ
Services, Diamond Offshore Drilling, Tidewater and Transocean Offshore, all
benefitted from the heavy demand for their offshore rigs.
Natural gas price increases positively impacted the portfolio with gas
distribution companies such as Columbia Gas Systems and pipelines, such as
Williams Companies all outperforming the market. In summary, the energy sector
had the greatest impact on the Trust. It was a "demand" related domination, not
one caused by tightness in supply, inflation or world crisis.
Also contributing to the success of the Trust, was the agricultural related
resource companies such as Pioneer Hi-Bred and DeKalb Genetics. The other
natural resource sectors, such as precious metals, metals, forest products and
environmental lagged the market.
Our outlook for 1997 is positive on the natural resource sectors. We expect
continued strong demand to positively affect the energy sectors, while a
stronger economy and signs that inventory shortages in basic metals such as
aluminum should help the portfolio in 1997. Forest products and the precious
metals sectors appear to be bottoming out, represent good value and should
perform better in 1997. Traditionally, natural resources are very sensitive to
economic trends. We are optimistic about the upcoming year, especially if GDP
growth increases 3 to 3.5% and the energy sectors continue to perform well. Our
portfolio should perform well in that environment.
Results of Annual Meeting of Shareholders held November 5, 1996 (unaudited)
Total Outstanding Shares as of September 10, 1996: 2,236,323
1. Trustees Elected: S.M.S. Chadha, Robert M. DeMichele, Beverley C. Duer,
Barbara R. Evans, Lawrence Kantor, Jerard F. Maher, Andrew M. McCosh, Donald
B. Miller, John G. Preston, Margaret W. Russell and Phillip C. Smith
For All Nominees: 1,914,620 Withheld Authority: 22,510
1
<PAGE>
Votes Votes
Votes For Against Abstained
--------- ------- ---------
2. Selection of KPMG Peat Marwick LLP as
Independent Auditors ...................... 1,902,850 27,940 6,341
Sincerely,
Robert M. DeMichele Frank A. Peluso
Portfolio Manager and President Portfolio Manager
February, 1997 February, 1997
CHART/BEGIN
Printed version of this shareholder report contains a
graphic chart indicating the comparison of change in
value of a $10,000 investment in Lexington Natural
Resources Trust and the unmanaged Standard & Poor's
500 Stock Price Index from 10/14/91 through 12/31/96
CHART/END
*26.89%, 9.94% and 5.63% are the one and five year and since commencement
(8/1/89) average annual standard total returns, respectively, for the period
ended December 31, 1996. 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. Lexington Natural
Resources Trust Statement of Net Assets (Including the Portfolio of
Investments) December 31, 1996
2
<PAGE>
Lexington Natural Resources Trust
Statement of Net Asssets
(Including the Portfolio of Investments)
December 31, 1996
(left column)
Number of Value
Shares Security (Note 1)
- ------------------------------------------------------------
COMMON STOCKS: 93.4%
AGRICULTURE: 5.0%
24,000 Dekalb Genetics Corporation ....... $ 1,221,000
10,000 Pioneer Hi-Bred International, Inc. 700,000
-----------
1,921,000
-----------
CHEMICAL PRODUCTS: 6.2%
21,000 Avery-Dennison Corporation ........ 742,875
23,500 Monsanto Company .................. 913,562
15,000 Praxair, Inc. ..................... 691,875
-----------
2,348,312
-----------
ENERGY SOURCES: 69.7%
11,000 Anadarko Petroleum Corporation .... 712,250
21,000 Apache Corporation ................ 742,875
14,500 B.J. Services Company1 ............ 739,500
5,600 British Petroleum Company Plc ..... 791,700
15,000 Burlington Resources, Inc. ........ 755,625
9,000 Chevron Corporation ............... 585,000
15,400 Coastal Corporation ............... 752,675
13,800 Columbia Gas System, Inc. ......... 878,025
12,000 Consolidated Natural Gas Company .. 663,000
26,000 Cross Timbers Oil Company ......... 653,250
11,000 Diamond Offshore Drilling, Inc.1 .. 627,000
16,200 Elf Aquitaine S.A. (ADR) .......... 733,050
7,500 Exxon Corporation ................. 735,000
6,000 Halliburton Company ............... 361,500
18,400 Noble Affiliates, Inc. ............ 880,900
17,000 Nuevo Energy Company1 ............. 884,000
35,000 Oryx Energy Company ............... 866,250
16,000 Parker & Parsley Petroleum Company. 588,000
12,500 Pennzoil Company .................. 706,250
16,500 Pogo Producing Company ............ 779,625
4,300 Royal Dutch Petroleum Company ..... 734,225
10,000 Schlumberger, Ltd. ................ 998,750
10,000 Seacor Holdings1 .................. 630,000
42,000 Snyder Oil Corporation ............ 729,750
8,600 Texaco, Inc. ...................... 843,875
16,000 Tidewater, Inc. ................... 724,000
9,200 Tosco Corporation ................. 727,950
12,000 Transocean Offshore, Inc. ......... 751,500
37,500 Trizec Hahn Corporation ........... 825,000
20,500 Ultramar Diamond Shamrock
Corporation ..................... 648,312
23,000 Union Pacific Resources Group, Inc. 672,750
25,000 Union Texas Petroleum Holdings,Inc. 559,375
18,500 United Meridian Corporation1 ...... 957,375
17,000 Unocal Corporation ................ 690,625
20,400 Williams Companies, Inc. .......... 765,000
30,000 YPF Sociedad Anonima (ADR) ........ 757,500
-----------
26,451,462
-----------
(right column)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------
ENVIRONMENTAL TECHNOLOGY: 3.5%
14,000 Ionics, Inc.1 ................... $ 672,000
20,400 USA Waste Services, Inc.1 ......... 650,250
-----------
1,322,250
-----------
FERROUS METALS: 1.8%
10,600 Aluminum Company of America ....... 675,750
-----------
PRECIOUS METALS: 7.2%
78,000 Battle Mountain Gold Company ...... 536,250
47,000 Cambior, Inc. ..................... 687,375
23,500 Freeport McMoran Copper &
Gold "A" ........................ 660,938
19,200 Newmont Gold Company .............. 840,000
-----------
2,724,563
-----------
TOTAL COMMON STOCKS:
(cost $29,710,894) .............. 35,443,337
-----------
SHORT-TERM INVESTMENTS: 6.2%
Other U.S. Government Obligations: 3.4%
$1,300,000 Federal Home Mortgage,
5.40%, due 01/02/97 ............. 1,299,805
-----------
U.S. Government Obligations: 2.8%
100,000 Treasury Bills,
5.00%, due 02/06/97 ............. 99,500
800,000 Treasury Bills,
5.175%, due 12/11/97 ............ 760,440
100,000 Treasury Bills,
5.20%, due 12/11/97 ............. 95,031
100,000 Treasury Bills,
5.585%, due 08/21/97 ............ 96,401
-----------
1,051,372
-----------
TOTAL SHORT-TERM INVESTMENTS:
(cost $2,351,177) ............... 2,351,177
-----------
TOTAL INVESTMENTS: 99.6%
(cost $32,062,071+) ............. 37,794,514
Other assets in excess of liabilities:
0.4% ............................ 139,422
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $14.29 per share
on 2,653,910 shares outstanding). $37,933,936
===========
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.
3
<PAGE>
Lexington Natural Resources Trust
Statement of Assets and Liabilities
December 31, 1996
Assets
Investments, at value (cost $32,062,071) (Note 1) .................. $37,794,514
Cash ............................................................... 61,958
Receivable for shares sold ......................................... 117,560
Dividends and interest receivable .................................. 26,210
-----------
Total Assets .................................................. 38,000,242
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) ................... 30,233
Payable for shares redeemed ........................................ 484
Accrued expenses ................................................... 35,589
-----------
Total Liabilities ............................................. 66,306
-----------
Net Assets (equivalent to $14.29 per share on
2,653,910 shares outstanding) (Note 3) ........................... $37,933,936
===========
Net Assets consist of:
Paid-in capital-unlimited authorized shares of beneficial interest
at no par value .................................................. $30,298,823
Accumulated net realized gain on investments (Note 1) .............. 1,902,670
Net unrealized appreciation of investments ......................... 5,732,443
-----------
Total Net Assets .............................................. $37,933,936
===========
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
Lexington Natural Resources Trust
Statement of Operations
Year ended December 31, 1996
Investment Income
Dividends .............................................. $ 406,922
Interest ............................................... 75,232
---------
482,154
Less: Foreign tax expense .............................. 9,421
---------
Total investment income ................................ $ 472,733
Expenses
Investment advisory fee (Note 2) ..................... 260,014
Printing and mailing expenses ........................ 48,200
Accounting expense (Note 2) .......................... 21,645
Directors' fees and expenses ......................... 11,816
Professional fees .................................... 10,315
Computer processing fees ............................. 7,420
Custodian expense .................................... 5,560
Registration fees .................................... 1,738
Other expenses ....................................... 3,040
---------
Total expenses ..................................... 369,748
----------
Net investment income .......................... 102,985
Realized and Unrealized Gain on Investments (Note 4)
Net realized gain on investments ..................... 2,033,892
Net change in unrealized appreciation on investments . 4,072,007
---------
Net realized and unrealized gain on investments 6,105,899
----------
Increase in Net Assets Resulting from Operations ....... $6,208,884
==========
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Lexington Natural Resources Trust
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net investment income ............................................. $ 102,985 $ 82,852
Net realized gain from investments ................................ 2,033,892 513,678
Net change in unrealized appreciation on investments .............. 4,072,007 1,735,936
----------- -----------
Increase in net assets resulting from operations ............ 6,208,884 2,332,466
Distribution to shareholders from net investment income ........... (125,875) (71,225)
Increase in net assets from capital share transactions (Note 3) ... 14,895,680 1,067,096
----------- -----------
Net increase in net assets ................................... 20,987,689 3,328,337
Net Assets:
Beginning of period ............................................. 16,955,247 13,626,910
----------- -----------
End of period (including undistributed net investment income of
$0 and $11,627, respectively) ................................. $37,933,936 $16,955,247
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1996 and 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 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 may 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
which MSR will provide the Trust with certain investment management and
administrative services. Pursuant to the terms
7
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1996 and 1995 (continued)
Note 2-Investment Advisory Fee and Other Transactions with Affiliate (continued)
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. The
investment advisory contract provides that the total annual expenses of the
Trust (including management fees, but excluding interest, taxes, brokerage
commission and extraordinary expenses) will not exceed the level of expenses
which the Trust is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Trust are offered for
sale. No reimbursement was required for the year ended December 31, 1996.
The Trust also reimbursed LMC for certain expenses, including accounting
costs of $21,645, which are incurred by the Trust, but paid by LMC.
Note 3-Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1996 December 31, 1995
------------------------ ----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 1,945,915 $25,001,397 559,893 $5,848,911
Shares issued on reinvestment
of dividends ................................... 8,844 125,875 6,325 71,225
--------- ----------- -------- ----------
1,954,759 25,127,272 566,218 5,920,136
Shares redeemed .................................. (801,456) (10,231,592) (468,861) (4,853,040)
--------- ----------- -------- ----------
Net increase ..................................... 1,153,303 $14,895,680 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 year
ended December 31, 1996, excluding short-term securities, were $43,123,114 and
$25,472,156, respectively.
At December 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$5,951,309 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $218,866.
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 may affect the market and/or
credit risk of the investments.
8
<PAGE>
Lexington Natural Resources Trust
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
------------------------------------------------
1996 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 ......................... 0.05 0.06 0.04 - -
Net realized and unrealized gain (loss)
on investments .............................. 2.99 1.58 (0.59) 1.01 0.29
------ ------ ------ ------ -----
Total income (loss) from investment
operations .................................... 3.04 1.64 (0.55) 1.01 0.29
------ ------ ------ ------ -----
Less distributions:
Dividends from net investment income .......... (0.05) (0.05) (0.04) (0.01) -
------ ------ ------ ------ -----
Net asset value, end of period .................. $14.29 $11.30 $ 9.71 $10.30 $9.30
====== ====== ====== ====== =====
Total return .................................... 26.89% 16.87% (5.38%) 10.90% 3.22%
Ratios to average net assets:
Expenses ...................................... 1.42% 1.47% 1.55% 2.26% 2.31%
Net investment income ......................... 0.40% 0.56% 0.49% 0.08% 0.02%
Portfolio turnover rate ......................... 102.76% 149.18% 87.40% 114.44% 65.50%
Average commissions paid on equity secu-
rity transactions* ......................... $ 0.07 - - - -
Net assets at end of period (000's omitted) ..... $37,934 $16,955 $13,627 $5,325 $1,926
<FN>
*In accordance with recent SEC disclosure guidelines, the average commissions are calculated for the current period but not
for prior periods.
</FN>
</TABLE>
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, 1996, 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, 1996 by correspondence with the custodian. 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, 1996, 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
February 10, 1997
10
<PAGE>
(left column)
- -----------------------------------------------------------------
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 column)
------------------------
LEXINGTON
------------------------
------------------------
LEXINGTON
NATURAL
RESOURCES
TRUST
(filled box)
ANNUAL REPORT
DECEMBER 31, 1996
The Lexington Group
of No Load
Investment Companies
------------------------
