<PAGE>
Lexington
Natural Resources Trust
Investment Adviser
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PILGRIM INVESTMENTS, INC.
40 North Central Avenue
Suite 1200
Phoenix, Arizona 85004-4408
Sub-Adviser
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MARKET SYSTEMS RESEARCH ADVISORS, INC.
Wall Street Tower
20 Exchange Place
52nd Floor
New York, New York 10004
Distributor
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PILGRIM SECURITIES, INC.
40 North Central Avenue
Phoenix, Arizona 85004-4408
Transfer Agent
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Lexington Funds
c/o DST Systems, Inc.
P.O. Box 219368
Kansas City, Missouri 64121-6368
www.lexingtonfunds.com
This report has been prepared for the information of the contractholders 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.
LEX269-SAR6/00
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LEXINGTON
NATURAL
RESOURCES
TRUST
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Investment Objective:
Long-term Growth of Capital
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Semi-Annual Report
June 30, 2000
(unaudited)
Pilgrim Mutual Funds
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<PAGE>
Chairman's Message
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Dear Contractholders:
Welcome to the Pilgrim Mutual Funds family. We are pleased to present the
Semi-Annual Report for Lexington Natural Resources Trust.
On July 26, 2000, ReliaStar Financial Corp. ("ReliaStar") acquired Lexington
Management Corporation and all of its subsidiaries. In conjunction with the
acquisition, Pilgrim Investments, Inc., a subsidiary of ReliaStar, was
appointed to the role of Investment Adviser to the Trust. As a shareholder in
the Pilgrim family of funds, you now have access to more funds with varying
investment objectives. As a Lexington Trust contractholder as of July 26th,
you can now exchange into any Pilgrim Fund A shares without paying a sales
load.
Our fund family has 41 varying types of mutual funds which provide more core
investment choices for the serious investor. We believe that the key to
success is matching quality core investments to the individual needs of
investors. Core investments are the foundation of every portfolio and the
basis of other important investment decisions. Pilgrim prides itself on
providing a family of core investments designed to help you reach your
financial goals. Our goal is for every investor to have a successful
investment experienceSM.
If you have any questions regarding your account, or any other Pilgrim Fund
you can access, please call us at 800-992-0180 or visit our website at
www.pilgrimfunds.com.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
August, 2000
<PAGE>
Dear Contractholders:
-------------------------------------------------------------------------------
Lexington Natural Resources Trust gained 1.08% in the quarter which
compares to the average natural resources fund monitored by Lipper Analytical
Services, Inc. ("Lipper") which gained 3.89%. For the first six months of the
year, the Fund is up 4.72% versus 13.34% for the Lipper Average.
The first six months was an excellent period for natural resources funds,
if the funds were heavily committed to the international oil, natural gas, oil
service and refinery sectors. These were the top performing sectors in the
natural resource category reflecting a $30 a barrel oil price and over $3.00
per million cubic foot for natural gas. Understandably, at these price levels
earnings growth has accelerated for these companies and when combined with
cost cutting and the consolidation/merger activities occurring in the
marketplace, stock prices have moved higher. As we discussed in our last
shareholder letter, we were going to increase our exposure to the oil and
natural gas sectors, because of our positive outlook on pricing and supply. In
retrospect, we should have been even more aggressive in moving up our
exposure.
Diversification into other natural resource sectors, such as paper and
forest products, commodity metals, precious metals, environmental stocks and
basic chemicals did noting but detract from the energy sector's performance.
In fact, for many of these sectors, returns have been negative reflecting the
weakness in commodity pricing around the world.
Outlook
Unfortunately, we underperformed the natural resource benchmark in the first
six months of the year 2000, for the reasons addressed above.
We are optimistic about performance in the second half of the year, and have
diversified further into the energy sector by trimming some of our larger non-
energy holdings and adding more to the mid and smaller capitalization energy
related stocks. These mid-size and smaller stocks are most highly leveraged to
the increase in the price of oil and natural gas. By increasing our exposure
in this area it brings us closer to the "energy oriented" natural resources
funds. We are firm believers that oil prices will stay above $25 and natural
gas will remain in tight supply for the foreseeable future. (A cold winter
would be a real plus for our natural gas holdings.)
While continuing to increase our exposure in the energy area, we are keeping
our high quality natural resource value names in the paper and forest products
and commodity areas that are selling at a deep discount to intrinsic value,
have strong balance sheets, good earnings and excellent management. We do not
believe that the factors that have worked against these categories, i.e. no
pricing power, over supply of commodity raw materials and no inflation, will
continue. As the second half of the year 2000 unfolds, we expect inflation to
pick up and potentially enhance pricing power for the commodity-related
companies.
As you are aware, Lexington Global Asset Managers, Inc., the parent company
of Lexington Management Corporation and Market Systems Research Advisors,
Inc., was acquired by ReliaStar Financial Corp. (NYSE:RLR) the parent company
of Pilgrim Investments, Inc., an investment management and mutual fund company
with $17 billion of assets under management.
1
<PAGE>
On May 1, ReliaStar announced that it agreed to be acquired by ING Groep N.V.
(ING Group") in a transaction that, subject to certain approvals, is expected
to close in the third quarter of this year. ING Group is a global financial
institution that is active in the field of insurance, banking, and asset
management in more than 60 countries.
We wish to thank you for your continued support.
Sincerely,
/s/ Robert M. DeMichelle /s/ Frank A. Peluso
Robert M. DeMichele Frank A. Peluso
Portfolio Manager Portfolio Manager
August, 2000 August, 2000
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* 1.68%, 7.27%, and 4.47% are the one, five, and ten year average annual
standard total returns, respectively, for the period ended June 30, 2000. Prior
to September 1991, the Trust 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. There is no guarantee that the Trust can
achieve its objective.
2
<PAGE>
Lexington Natural Resources Trust
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
--------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS: 98.9%
Basic Materials: 3.5%
26,000 Martin Marietta Materials, Inc. ....................... $ 1,051,375
-----------
Capital Equipment: 11.0%
8,000 Cooper Cameron Corporation............................. 528,000
40,000 Hanover Compressor Company............................. 1,520,000
10,700 Millipore Corporation.................................. 806,513
20,000 Varco International.................................... 465,000
-----------
3,319,513
-----------
Chemicals: 1.8%
18,000 Dow Chemical Company................................... 543,375
-----------
Energy Sources: 77.5%
20,000 Anadarko Petrol Corporation............................ 986,250
15,000 Apache Corporation..................................... 882,187
11,000 Atwood Oceanics, Inc. ................................. 488,125
33,000 Avatar Holdings, Inc. ................................. 761,063
15,000 Baker Hughes, Inc. .................................... 480,000
10,000 Barrett Resources Corporation.......................... 304,375
10,000 BJ Services Company.................................... 625,000
15,000 BP Amoco plc........................................... 848,437
20,000 Burlington Resources, Inc. ............................ 765,000
13,000 Diamond Offshore Drilling, Inc. ....................... 456,625
13,000 Enron Corporation...................................... 838,500
20,000 Enron Oil and Gas Company.............................. 670,000
20,000 ENSCO International, Inc. ............................. 716,250
10,100 Exxon Mobil Corporation................................ 792,850
32,000 Global Marine, Inc. ................................... 902,000
20,000 Halliburton Company.................................... 943,750
18,000 Nabors Industries, Inc. ............................... 748,125
16,300 Newfield Exploration Company........................... 637,737
16,500 Noble Affiliates, Inc. ................................ 614,625
20,000 Pogo Producing Company................................. 442,500
20,000 Pride International, Inc. ............................. 495,000
12,000 Royal Dutch Petroleum Company--NY Shares/1/ ........... 738,750
15,000 Schlumberger, Ltd. .................................... 1,119,375
8,200 Smith International, Inc. ............................. 597,063
24,000 The AES Corporation/1/ ................................ 1,095,000
30,000 Tom Brown, Inc. ....................................... 692,812
20,000 Tosco Corporation...................................... 566,250
15,000 Total Fina S.A. (ADR).................................. 1,152,188
12,000 Transocean Sedco Forex, Inc./1/ ....................... 641,250
20,000 Triton Energy, Ltd. Class A............................ 786,250
10,000 Valero Energy Corporation.............................. 317,500
10,000 Vastar Resources, Inc. ................................ 821,250
20,000 Vintage Petroleum, Inc. ............................... 451,250
-----------
23,377,337
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
-------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued):
Ferous Metals: 5.1%
23,400 Alcoa, Inc. .......................................... $ 678,600
13,500 Rio Tinto plc......................................... 880,875
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1,559,475
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TOTAL INVESTMENTS: 98.9%
(cost $26,759,161+)(Note 1)........................... 29,851,075
Other assets in excess of Liabilities: 1.1%........... 318,469
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $13.10 per share on 2,302,878 shares
outstanding)......................................... $30,169,544
===========
</TABLE>
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/1/Non-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
June 30, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $26,759,161) (Note 1)................ $29,851,075
Cash............................................................. 282,379
Receivable for fund shares sold.................................. 236,727
Dividends and interest receivable................................ 31,569
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Total Assets.................................................. 30,401,750
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Liabilities
Due to Lexington Management Corporation (Note 2)................. 24,944
Payable for fund shares redeemed................................. 130,903
Accrued expenses................................................. 76,359
-----------
Total Liabilities............................................. 232,206
-----------
Net Assets (equivalent to $13.10 per share on 2,302,878 shares
outstanding) (Note 3)........................................... $30,169,544
===========
Net Assets consist of:
Additional paid-in-capital....................................... $28,579,110
Undistributed net investment income.............................. 89,470
Accumulated net realized loss on investments and foreign currency
transactions.................................................... (1,590,950)
Unrealized appreciation of investments and foreign currency
translations of other assets and liabilities.................... 3,091,914
-----------
Total Net Assets.............................................. $30,169,544
===========
</TABLE>
Lexington Natural Resources Trust
Statement of Operations
Six months ended June 30, 2000 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends............................................. $ 218,379
Interest.............................................. 11,384
----------
229,763
Less: foreign tax expense............................. 6,082
----------
Total investment income............................... $ 223,681
Expenses
Investment advisory fee (Note 2)...................... 149,157
Directors' fees and expenses.......................... 48,102
Accounting expenses (Note 2).......................... 13,313
Audit fees............................................ 7,352
Professional fees..................................... 7,051
Printing and mailing expenses......................... 5,799
Computer processing fees.............................. 5,008
Transfer agent........................................ 4,320
Custodian expenses.................................... 2,074
Registration fees..................................... 737
Other expenses........................................ 4,821
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Total expenses........................................ 247,734
----------
Net investment loss................................... (24,053)
Realized and Unrealized Gain (Loss) on Investments
(Note 4)
Net realized loss on investments....................... (402,991)
Net change in unrealized appreciation on investments... 1,774,829
----------
Net realized and unrealized gain....................... 1,371,838
----------
Increase in Net Assets resulting from Operations....... $1,347,785
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Lexington Natural Resources Trust
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended
June 30, 2000 Year ended
(unaudited) December 31, 1999
---------------- -----------------
<S> <C> <C>
Operations:
Net investment income (loss)................. $ (24,053) $ 113,591
Net realized gain (loss) from investments and
foreign currency transactions............... (402,991) 1,242,484
Net change in unrealized appreciation of
investments and foreign currency
translation................................. 1,774,829 2,883,412
------------ ------------
Net increase in net assets resulting from
operations................................ 1,347,785 4,239,487
------------ ------------
Distributions to Shareholders: (Note 1)
Distributions to shareholders from net
investment income........................... -- (201,233)
------------ ------------
Capital Share Transactions: (Note 3)
Proceeds from sale of shares................. 7,891,949 11,201,809
Reinvested dividends and distributions....... -- 201,233
Cost of shares repurchased................... (10,807,327) (19,122,133)
------------ ------------
Net decrease from capital share
transactions............................... (2,915,378) (7,719,091)
------------ ------------
Net decrease in net assets................... (1,567,593) (3,680,837)
Net Assets:
Beginning of period.......................... 31,737,137 35,417,974
------------ ------------
End of period (including undistributed net
investment income of $89,470 and $113,523 in
2000 and 1999, respectively)................ $ 30,169,544 $ 31,737,137
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
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Lexington Natural Resources Trust
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999
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:
5
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
1. Significant Accounting Policies (continued)
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, 1999, 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 paid 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 had 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. For 2000, the 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, 2000.
The Trust also reimbursed LMC for certain expenses, including accounting costs
of $13,313, which were incurred by the Trust, but paid by LMC.
6
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
3.Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 2000 Year ended
(unaudited) December 31, 1999
---------------------- ------------------------
Shares Amount Shares Amount
-------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares sold................. 620,110 $ 7,891,949 902,368 $ 11,201,809
Shares issued on
reinvestment of dividends.. -- -- 15,895 201,233
-------- ------------ ---------- ------------
620,110 7,891,949 918,263 11,403,042
Shares redeemed............. (853,343) (10,807,327) (1,593,749) (19,122,133)
-------- ------------ ---------- ------------
Net decrease................ (233,233) $ (2,915,378) (675,486) $ (7,719,091)
======== ============ ========== ============
</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, 2000, excluding short-term securities, were $15,039,119
and $16,012,740, respectively.
At June 30, 2000, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$4,163,249 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,071,335.
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. Subsequent Events
Effective on July 26, 2000, Lexington Global Asset Managers Inc. was acquired
by ReliaStar Financial Corp. ("ReliaStar"). In conjunction with the
acquisition and following approval by the Trust's Board of Trustees and
contractholders, Pilgrim Investments, Inc., an indirect, wholly owned
subsidiary of ReliaStar, was appointed to the role of investment adviser to
the Trust effective July 26, 2000. Pilgrim Securities, Inc., also an indirect,
wholly owned subsidiary of ReliaStar, was appointed distributor to the Trust
on that date as well.
On May 1, 2000, ReliaStar Financial Corp. (NYSE:RLR), the indirect parent
company of Pilgrim Investments, Inc., Adviser to the Funds, and Pilgrim
Securities, Inc., Distributor to the Funds, entered into an agreement under
which it will be acquired by ING Groep N.V. (NYSE:ING). ING Groep N.V. is a
global financial institution active in the field of insurance, banking, and
asset management in more than 60 countries, with almost 90,000 employees.
Completion of the acquisition is contingent upon, among other things, approval
by the Directors/Trustees of the Pilgrim Funds and certain shareholder and
regulatory approvals. The closing of the acquisition is expected to occur
during the third quarter of 2000.
7
<PAGE>
Lexington Natural Resources Trust
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------
Six months ended
June 30, 2000
(unaudited) 1999 1998 1997 1996
---------------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period..... $12.51 $11.03 $14.91 $14.29 $11.30
------- ------- -------- ------- -------
Income from investment
operations:
Net investment income
(loss)................. (0.01) 0.06 0.08 0.06 0.05
Net realized and
unrealized gain (loss)
on investments and
foreign currencies..... 0.60 1.50 (2.98) 1.00 2.99
------- ------- -------- ------- -------
Total income (loss) from
investment operations... 0.59 1.56 (2.90) 1.06 3.04
------- ------- -------- ------- -------
Less distributions:
Dividends from net
investment income...... -- (0.08) (0.08) -- (0.05)
Distributions from net
realized gains......... -- -- (0.90) (0.44) --
------- ------- -------- ------- -------
Total distributions...... -- (0.08) (0.98) (0.44) (0.05)
------- ------- -------- ------- -------
Net asset value, end of
period.................. $13.10 $12.51 $11.03 $14.91 $14.29
======= ======= ======== ======= =======
Total return............. 9.71%* 14.09% (19.62)% 7.15% 26.89%
Ratio to average net
assets:
Expenses................ 1.66%* 1.33% 1.29% 1.25% 1.42%
Net investment income
(loss)................. (0.16)%* 0.34% 0.42% 0.39% 0.40%
Portfolio turnover rate.. 101.71%* 41.94% 74.36% 114.16% 102.76%
Net assets, end of period
(000's omitted)......... $30,170 $31,737 $35,418 $65,263 $37,934
</TABLE>
--------
* Annualized.
8
