DEAR CONTRACTHOLDER:
Lexington Natural Resources Trust had an outstanding second quarter if one
views relative performance in comparison to other natural resource funds. The
Fund lost 4.7%* in the quarter which compares to the average natural resources
fund monitored by Lipper Analytical Services, Inc. ("Lipper") which lost 10.5%.
For the first six months of the year, the Fund is down 3.1%* versus -7.3% for
the Lipper Average. In other words, we are performing very well against the
other funds, but natural resources as a category, is underperforming, relative
to other sectors of the economy.
Natural resource stocks continued to be buffeted by the Asian situation,
where those countries which are heavily natural resource oriented, are putting
pressure on raw material prices around the globe. In addition, the absence of
inflation and the temporary supply glut in oil has put pressure on the oil
sector which accounts for over 50% of the Fund.
One reason why an investor would diversify into a natural resources fund
is that often those stocks are not correlated with the overall direction of the
market. As part of an investor's investment strategy, it increases the total
expected return for an investor, while reducing risk.
So what is the outlook for natural resources? We think we are near the
bottom in pricing pressure on most raw materials, i.e. oil, copper, forest
products, and gold. We do not fall in the camp that expects deflation to emerge
as the dominant worldwide theme. There is no doubt that Asia is casting a
deflationary pall over the world economies, but in general, we believe that we
will begin to see wage cost pressures and labor demands starting to manifest
themselves in the United States and other European countries, perhaps carrying
over into world markets. Countries must reflate in order to maintain economic
growth. Pressures on Japan to loosen its monetary controls and grow its way out
of its economic recession has potential inflationary implications around the
world. Inflation and economic growth are strong stimuli for natural resource
usage.
We continue to maintain heavy exposure to the oil sector. Despite recent
price pressure, the overall fundamentals look attractive. We believe we will be
rewarded by those stocks that are beneficiaries of committed exploration
budgets. In our opinion, profit taking, rather than fundamentals, have impacted
this sector. We invest in high quality companies with outstanding management
teams that have the financial capacity and strategic insight to grow their way
through a difficult period. Your portfolio reflects those characteristics.
Sincerely,
/s/Robert M.DeMichele
-------------------------------
Robert M.DeMichele
Portfolio Manager and President
August, 1998
*0.27%, 7.33% and 5.11% are the one year, five year and since commencement
(8/1/89) average annual standard total returns, respectively, for the period
ended June 30, 1998. 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.
1
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998 (unaudited)
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 93.2%
BASIC MATERIALS: 4.0%
46,000 Martin Marietta Materials, Inc. .............. $2,070,000
-----------
CHEMICAL PRODUCTS: 16.0%
25,000 Avery Dennison Corporation ................... 1,343,750
14,000 Dow Chemical Company ......................... 1,353,625
25,000 Imperial Chemical
Industries plc (ADR) ....................... 1,612,500
25,000 Monsanto Company ............................. 1,396,875
20,000 Olin Corporation ............................. 833,750
39,000 Pioneer Hi-Bred International, Inc. .......... 1,613,625
-----------
8,154,125
-----------
ENERGY SOURCES: 60.0%
21,000 Anadarko Petrol Corporation .................. 1,410,937
30,000 Aquarion Company ............................. 1,025,625
11,600 Atlantic Richfield Company ................... 906,250
42,400 Atwood Oceanics, Inc.1 ....................... 1,688,050
53,000 Avatar Holdings, Inc. ........................ 1,477,375
17,500 Chevron Corporation .......................... 1,453,594
30,000 Coflexip S.A. (ADR) .......................... 1,831,875
23,000 Columbia Energy Group ........................ 1,279,375
28,200 Elf Aquitaine S.A. (ADR) ..................... 2,002,200
26,600 Exxon Corporation ............................ 1,896,913
40,000 Halliburton Company .......................... 1,782,500
14,600 IPL Energy, Inc. ............................. 659,281
36,500 Noble Affiliates, Inc. ....................... 1,387,000
8,800 Piedmont Natural Gas
Company, Inc. .............................. 295,900
19,700 Rogers Corporation ........................... 650,100
32,500 Schlumberger, Ltd. ........................... 2,220,156
38,250 Stolt Comex Seaway, S.A. "A" (ADR)1 .......... 664,594
76,500 Stolt Comex Seaway, S.A. (ADR)1 .............. 1,477,406
64,000 The Williams Companies, Inc. ................. 2,160,000
20,000 Total S.A. (ADR) ............................. 1,307,500
40,000 USX-Marathon Group ........................... 1,372,500
56,000 YPF Sociedad Anonima (ADR) ................... 1,683,500
-----------
30,632,631
-----------
ENVIRONMENTAL TECHNOLOGY: 1.6%
15,600 Cooper Cameron Corporation1 .................. 795,600
-----------
NUMBER OF
SHARES
OR PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
- --------------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS: 9.9%
60,000 Fort James Corporation ....................... $ 2,670,000
35,000 International Paper Company .................. 1,505,000
18,000 Union Camp Corporation ....................... 893,250
-----------
5,068,250
-----------
PRECIOUS METALS: 1.7%
35,000 Newmont Gold Company ......................... 864,063
-----------
TOTAL COMMON STOCKS
(cost $44,014,158) ......................... 47,584,669
-----------
SHORT-TERM INVESTMENTS:
U.S. GOVERNMENT OBLIGATIONS: 5.8%
$1,500,000 U.S. Treasury Bills, 5.16%, due 11/19/1998 ... 1,470,435
1,500,000 U.S. Treasury Bills, 5.17%, due 11/12/1998 .. 1,471,845
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,941,814) .......................... 2,942,280
-----------
TOTAL INVESTMENTS: 99.0%
(cost $46,955,972+) ........................ 50,526,949
Other assets in excess
of liabilities: 1.0% ....................... 512,362
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $14.45 per share on
3,532,142 shares outstanding) .............. $51,039,311
===========
ADR--American Depository Receipt.
1Non-income producing security.
+Aggregate cost for Federal income tax purposes is $47,099,537.
The Notes to Financial Statements are an integral part of this statement.
2
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
ASSETS
Investments, at value (cost $46,955,972) (Note1) ................. $50,526,949
Cash ............................................................. 292,354
Receivable for investment securities sold ........................ 385,268
Receivable for shares sold ....................................... 31,316
Dividends and interest receivable ................................ 90,283
-----------
Total Assets ........................................... 51,326,170
-----------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ................. 42,372
Payable for investment securities purchased ...................... 83,488
Payable for shares redeemed ...................................... 109,446
Accrued expenses ................................................. 51,553
-----------
Total Liabilities ...................................... 286,859
-----------
NET ASSETS (equivalent to $14.45 per share on
3,532,142 shares outstanding) (Note 3) ........................ $51,039,311
===========
NET ASSETS consist of:
Paid-in capital--unlimited shares of beneficial
interest at no par value ....................................... $43,491,957
Undistributed net investment income .............................. 377,284
Accumulated net realized gains on investments .................... 3,599,093
Unrealized appreciation on investments ........................... 3,570,977
-----------
Total Net Assets ....................................... $51,039,311
===========
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, 1998 (unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends ................................................. $ 475,033
Interest .................................................. 35,328
-----------
510,361
Less: foreign tax expense ................................. 15,481
-----------
Total investment income ......................... $ 494,880
EXPENSES
Investment advisory fee (Note 2) ....................... 284,577
Printing and mailing expenses .......................... 19,146
Accounting expenses (Note 2) ........................... 21,992
Directors' fees and expenses ........................... 8,688
Professional fees ...................................... 10,898
Computer processing fees ............................... 6,426
Custodian expenses ..................................... 5,828
Registration fees ...................................... 905
Other expenses ......................................... 5,068
-----------
Total expenses .................................. 363,528
-----------
Net investment income ........................... 131,352
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 4)
Net realized gain on investments ........................ 899,805
Net change in unrealized appreciation on investments .... (2,930,133)
-----------
Net realized and unrealized loss ................ (2,030,328)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS .......... $(1,898,976)
===========
LEXINGTON NATURAL RESOURCES TRUST
STATEMENTS OF CHANGES IN NET ASSETS
Six months
ended Year ended
June 30, 1998 December 31,
(unaudited) 1997
------------- -------------
Net investment income ..................................... $ 131,352 $ 245,932
Net realized gain from investments ........................ 899,805 2,699,440
Net change in unrealized appreciation of investments ...... (2,930,133) 768,667
----------- -----------
Increase (decrease) in net assets
resulting from operations ....................... (1,898,976) 3,714,039
Distributions to shareholders from net
realized gains from security transactions ............... -- (1,902,822)
Increase (decrease) in net assets from
capital share transactions (Note 3) ..................... (12,324,575) 25,517,709
----------- -----------
Net increase (decrease) in net assets ............. (14,223,551) 27,328,926
NET ASSETS:
Beginning of period .................................. 65,262,862 37,933,936
----------- -----------
End of period (including undistributed
net investment income of $377,284 and
$245,932, 1998 and 1997, respectively) ............ $51,039,311 $65,262,862
=========== ===========
</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, 1998 (unaudited) and December 31, 1997
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 Securities 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 prices. 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, 1997,
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 and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The 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 of the sub-advisory contract
between LMC and MSR, LMC pays MSR a monthly sub-advisory fee of 0.50% of
5
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997 (continued)
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE (CONTINUED)
the Trust's average daily net assets. For 1998, the investment advisor has
voluntarily agreed to reimburse the Trust if total annual expenses (including
management fees, but excluding interest, taxes, brokerage commission and
extraordinary expenses) exceed 2.50% of the Trust's average net assets. No
reimbursement was required for the six months ended June 30, 1998.
The Trust reimburses LMC for certain expenses, including accounting costs
of $21,992, which are incurred by the Trust, but paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1998 Year ended
(unaudited) December 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares sold .............................. 450,309 $ 6,634,807 3,601,366 $53,536,615
Shares issued on
reinvestment of dividends ........... -- -- 116,969 1,902,821
--------- ----------- --------- -----------
450,309 6,634,807 3,718,335 55,439,436
Shares redeemed .......................... (1,294,020) (18,959,382) (1,996,391) (29,921,727)
--------- ----------- --------- -----------
Net increase (decrease) .................. (843,711) $(12,324,575) 1,721,944 $25,517,709
========= ============ ========= ===========
</TABLE>
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of investments for the six
months ended June 30, 1998, excluding short-term securities, were $23,641,263
and $37,590,876, respectively.
At June 30, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$5,511,326 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,083,914.
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
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended
June 30,
1998 Year ended December 31,
------------------------------------------------------
(unaudited) 1997 1996 1995 1994
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............... $14.91 $14.29 $11.30 $ 9.71 $10.30
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ........................... 0.09 0.06 0.05 0.06 0.04
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ............................ (0.55) 1.00 2.99 1.58 (0.59)
------ ------ ------ ------ ------
Total income (loss) from investment
operations ..................................... (0.46) 1.06 3.04 1.64 (0.55)
------ ------ ------ ------ ------
Less distributions:
Distributions from net investment income ....... -- -- (0.05) (0.05) (0.04)
Distributions from net realized gains .......... -- (0.44) -- -- --
------ ------ ------ ------ ------
Total distributions ................................ -- (0.44) (0.05) (0.05) (0.04)
------ ------ ------ ------ ------
Net asset value, end of period ..................... $14.45 $14.91 $14.29 $11.30 $ 9.71
====== ====== ====== ====== ======
Total return ....................................... (6.12)%* 7.15% 26.89% 16.87% (5.38)%
Ratio to average net assets:
Expenses ........................................ 1.28%* 1.25% 1.42% 1.47% 1.55%
Net investment income ........................... 0.46%* 0.39% 0.40% 0.56% 0.49%
Portfolio turnover rate ............................ 85.34%* 114.16% 102.76% 149.18% 87.40%
Average commissions paid on equity security
transactions** .................................. $0.06 $0.07 $0.07 -- --
Net assets, end of period (000's omitted) .......... $51,039 $65,263 $37,934 $16,955 $13,627
</TABLE>
* Annualized.
** In accordance with recent SEC disclosure guidelines, the average commissions
are calculated for the period beginning with December 1996, but not for prior
periods.
<PAGE>
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.
LEXINGTON
LEXINGTON
NATURAL
RESOURCES
TRUST
----------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
The Lexington Group
of NO LOAD
Investment Companies
----------------------
7
