As filed with the Securities and Exchange Commission on April 28, 2000
Registration No. 33-26116
811-5710
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 12 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 13 X
(Check appropriate box or boxes.)
LEXINGTON NATURAL RESOURCES TRUST
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(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Natural Resources Trust
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
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(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue, New York, New York 10022
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It is proposed that this filing will become effective May 1, 2000
pursuant to Paragraph (b) of Rule 485.
------------------------------------------------
The Registrant has registered an indefinite number of shares pursuant
to Section 24(f) of the Investment Company Act of 1940. A Rule
24f-2 Notice for the Registrant's fiscal year ending December 31,
1999 was filed on March 31, 2000.
<PAGE>
PROSPECTUS
May 1, 2000
Lexington Natural Resources Trust
P.O. Box 1515 / Park 80 West Plaza Two Saddle Brook, New Jersey 07663 201-845-
7300
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The Fund is intended to be the funding vehicle for
variable annuity contracts and variable life insurance
policies to be offered by the separate accounts of certain
life insurance companies ("Participating Insurance
Companies").
Individual variable annuity contract holders and variable
life insurance policy holders are not "shareholders" of the
Fund. The Participating Insurance Companies and their
separate accounts are the shareholders or investors,
although such companies may pass through voting rights to
their variable annuity contract or variable life insurance
policyholders. Shares of the Fund are not offered directly
to the general public.
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The Securities and Exchange Commission has not approved nor disapproved the
shares of Lexington Natural Resources Trust. The Securities and Exchange
Commission also has not determined whether this prospectus is accurate or
complete. Any person who tells you that the Securities and Exchange Commission
has made such an approval or determination is committing a crime.
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<PAGE>
Risk/Return Summary
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INVESTMENT OBJECTIVE
The Lexington Natural Resources Trust's investment objective is to seek
long-term growth of capital through investment primarily in common stocks of
companies that own or develop natural resources and other basic commodities,
or supply goods and services to such companies. Current income will not be a
factor. Total return will consist primarily of capital appreciation.
The investment objective may not be changed without shareholder approval.
INVESTMENT STRATEGY
The Lexington Natural Resources Trust (the "Fund") normally invests at least
65% of its total assets in companies with substantial natural resource assets.
Natural resource assets are materials derived from natural resources which
have economic value. The Fund seeks to identify securities of companies that
it believes to be undervalued relative to the value of the natural resource
assets they hold. This identification process will take into account current
and anticipated economic and financial conditions.
The remaining 35% of the Fund's total assets may be invested in common stock
of companies that are not natural resource companies and in debt securities of
natural resource companies as well as other companies.
The Fund may invest up to 25% of its total assets in securities principally
traded in markets outside the United States.
PRINCIPAL RISKS
Through stock investments, the Fund may expose you to common stock risks
which may cause you to lose money if there is a sharp or sudden decline in the
share price of one of the companies in the Fund's portfolio. Due to the
inherent effects of the stock market, the value of the Fund will fluctuate
with the movement of the market as well as in response to the activities of
individual companies in the Fund's portfolio.
In addition, the Fund's investments in foreign securities may involve risks
greater than those attendant to investments in securities of U.S. issuers.
Some foreign stock markets tend to be more volatile than U.S. markets due to
economic and political instability and regulatory conditions in those
countries. In addition, many foreign securities are denominated in foreign
currencies, whose values may decline against the U.S. dollar. See "Risk of
Investing in Foreign Securities" on page 4.
Because the Fund will invest a substantial portion of its portfolio in the
securities of companies with natural resource assets, it should be considered
as a vehicle for diversification and not as a balanced investment program.
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from 1990 through 1999. The
table shows how the average annual return compares with the most commonly used
index for its market segment for 1, 5 and 10 years (or since inception). You
should remember that past performance is not an indication of future
performance.
*Prior to October 14, 1991, the Fund operated under a different name and
investment objective. Fund performance figures in this bar chart do not
reflect separate account fees charged by the insurance company, otherwise
performance figures would be lower.
Past Fund Performance The chart at the left below shows the risk of
investing in the Fund and how the Fund's total return has varied from year-to-
year. The chart at the right compares the Fund's performance with the most
commonly used index for its market segment. Of course, past performance is no
guarantee of future results.
2
<PAGE>
Average Annual Returns Through 12/31/99
Past Fund Performance The chart at the left below shows the risk of investing
in the Fund and how the Fund's total return has varied from year-to-year. The
chart at the right compares the Fund's performance with the most commonly used
index for its market segment. Of course, past performance is no guarantee of
future results.
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- -14.85% -4.95% 3.22% 10.99% -5.38% 16.87% 26.89% 7.15% -19.62% 14.09%
Average Annual Returns Through 12/31/99
Lexington Natural
Resources Trust 14.09% 7.82% 2.48%
Standard & Poor's 500
Stock Price Index 21.04% 28.56% 18.21%
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1 Year 5 Year 10 Year
- -------------------------------------------------------------------------
During the six year period shown in the above graph chart, the Fund's highest
quarterly return was 19.27% for the third quarter in 1997 and the Fund's
lowest quarterly return was -15.11% for the third quarter in 1998.
MORE ABOUT OUR INVESTMENT STRATEGIES AND RELATED RISKS
Additional Investment Strategies
At any time management deems it advisable for temporary defensive or
liquidity purposes, the Fund may hold all its assets in cash or cash
equivalents and invest in, or hold unlimited amounts of, debt obligations of
the United States Government or its political subdivisions, and money market
instruments including repurchase agreements with maturities of seven days or
less and Certificates of Deposit.
Related Risks
Risks of Investing
The following risks are generally common to all managed mutual funds and,
therefore, apply to the Fund:
. Market Risk. The market value of a security may go up or down, sometimes
rapidly and unpredictably. A decline in market value may cause a security
to be worth less than it was at the time of purchase. Market risk applies
to individual securities, a particular sector or the entire economy.
. Manager Risk. Fund management affects Fund performance. The Fund may lose
money if the Fund manager's investment strategy does not achieve the
Fund's objective or the manager does not implement the strategy properly.
Risk of Investing in Foreign Securities
The following risks apply to all mutual funds that invest in foreign
securities including the Fund:
. Legal System and Regulation Risk. Foreign countries have different legal
systems and different regulations concerning financial disclosure,
accounting and auditing standards. Corporate financial information that
would be disclosed under U.S. law may not be available. Foreign
accounting and auditing standards may render a foreign corporate balance
sheet more difficult to understand and interpret than one subject to U.S.
law and standards. Additionally, government oversight of foreign stock
exchanges and brokerage industries may be less stringent than in the U.S.
. Currency Risk. Most foreign stocks are denominated in the currency of the
stock exchange where they are traded. The Fund's net asset value is
denominated in U.S. dollars. The exchange rate between the U.S. dollar
and most foreign currencies fluctuates; therefore, the net asset value of
the Fund will be affected by a change in the
3
<PAGE>
exchange rate between the U.S. dollar and the currencies in which the
Fund's stocks are denominated. The Fund may also incur transaction costs
associated with exchanging foreign currencies into U.S. dollars.
. Stock Exchange and Market Risk. Foreign stock exchanges generally have
less volume than U.S. stock exchanges. Therefore, it may be more
difficult to buy or sell shares of foreign securities, which increases
the volatility of share prices on such markets. Additionally, trading on
foreign stock markets may involve longer settlement periods and higher
transaction costs.
. Expropriation Risk. Foreign governments may expropriate the Fund's
investments either directly by restricting the Fund's ability to sell a
security or by imposing exchange controls that restrict the sale of a
currency or by taxing the Fund's investments at such high levels as to
constitute confiscation of the security. There may be limitations on the
ability of the Fund to pursue and collect a legal judgment against a
foreign government.
The Fund may trade in certain foreign securities markets which are less
developed than comparable U.S. markets. The risks associated with trading in
such markets include:
. limited product lines of companies that own or develop natural resources
or other basic commodities;
. limited markets or financial or managerial resources;
. their securities may be more susceptible to losses and risks of
bankruptcy;
. their securities may trade less frequently and with lower volume, leading
to greater price fluctuations; and,
. their securities are subject to increased volatility and reduced
liquidity due to limited market making and arbitrage activities.
Non-diversified Portfolio
The Fund is a non-diversified investment company. Non-diversified investment
companies may invest an unlimited proportion of their total assets in a single
company, which increases risk. The Fund intends to comply with diversification
requirements of the federal tax law to qualify as a regulated investment
company. For more detailed information on the federal tax law diversification
requirement, see the tax section of the Statement of Additional Information.
Portfolio Turnover
The Fund intends to buy and hold securities for long term growth of capital,
however, annual portfolio turnover could exceed 100%. A 100% turnover rate
occurs if all of the Fund's investments were sold and either repurchased or
replaced in a year. A higher portfolio turnover rate results in higher
transaction costs which are borne by the Fund.
Temporary Defensive Position
When the Fund anticipates unusual market or other conditions, it may
temporarily depart from its goal and invest substantially in high-quality
short-term investments. This could help the Fund avoid losses but may mean
lost opportunities.
Interests of the Holders of Variable Insurance Contracts and Policies
The Fund is intended to be the funding vehicle for variable annuity
contracts and variable life insurance policies to be offered by the separate
accounts of certain life insurance companies ("Participating Insurance
Companies"). The Fund currently does not foresee any disadvantages to the
holders of variable annuity contracts and variable life insurance policies
arising from the fact that the interests of the holders of such contracts and
policies may differ. Nevertheless, the Fund's Trustees intend to monitor
events in order to identify any material irreconcilable conflicts which may
possibly arise and to determine what action, if any, should be taken in
response thereto. If a conflict were to occur, an insurance company separate
account might be required to withdraw its investments in the Fund and the Fund
might be forced to sell securities at disadvantageous prices. The variable
annuity contracts and variable life insurance policies are described in the
separate prospectuses issued by the Participating Insurance Companies. The
Fund assumes no responsibility for such prospectuses.
4
<PAGE>
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Trustees. There are currently nine Trustees (of whom six are non-
affiliated persons) who meet five times each year. The Statement of Additional
Information contains additional information regarding the Trustees and
officers of the Fund.
INVESTMENT ADVISER
Lexington Management Corporation ("LMC"), a wholly-owned subsidiary of
Lexington Global Asset Managers, Inc. ("LGAM"), is the investment adviser to
the Fund. LMC and its predecessor companies, registered investment advisers
under the Investment Advisers Act of 1940, as amended, were established in
1938. LMC is located at P.O. Box 1515, Park 80 West Plaza Two, Saddle Brook,
New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and other related entities have a controlling interest in Lexington
Global Asset Managers, Inc., a Delaware corporation. LGAM has entered into an
agreement with ReliaStar Financial Corporation ("ReliaStar") for ReliaStar to
acquire LGAM. ReliaStar is a Minneapolis-based holding company whose
subsidiaries offer individuals and institutions life insurance and annuities,
employee benefit products and services, life and health reinsurance,
retirement plans, mutual funds, bank products and personal finance education.
Completion of the acquisition is subject to customary conditions, including
regulatory approvals and approval by LGAM shareholders. Subject to approval by
the Fund's Trustees and shareholders, the Fund will enter into a new
investment advisory agreement with Pilgrim Investments, Inc., a subsidiary of
ReliaStar. LMC advises private clients as well as the Fund. LMC supervises and
assists in the overall management of the Funds, subject to the oversight by
the Board of Trustees. Lexington Funds Distributor, Inc. is a registered
broker-dealer and is the distributor of shares of the Fund.
The Investment Adviser has entered into a sub-advisory management contract
with Market Systems Research Advisors, Inc., 80 Maiden Lane, New York, New
York 10038, a registered investment adviser, under which the Sub-Adviser will
provide the Fund with certain investment management and administrative
services. The Sub-Adviser serves as investment adviser to private and
institutional accounts.
The Investment Adviser is paid an investment advisory fee at the annual rate
of 1.00% of the average daily net assets of the Fund, which is higher than
that paid by most other investment companies. This fee is computed on the
basis of the Fund's average daily net assets and is payable on the last
business day of each month.
PORTFOLIO MANAGER
The Fund is managed by an investment management team. Frank A. Peluso and
Robert M. DeMichele are the lead managers.
Frank A. Peluso has 37 years investment experience. Mr. Peluso is President
and Chief Executive Officer of Market Systems Research Advisors, Inc. ("MSR"),
the sub-adviser to the Fund. Mr. Peluso utilizes a proprietary analytical
system to identify securities with performance potential which he believes to
be exceptional. In addition, Mr. Peluso's proprietary data is used by
professional money managers, insurance companies, brokerage firms, banks,
mutual fund companies and pension funds. In 1976, he established Marketiming,
Inc. (currently named Market Systems Research, Inc., a fully-owned subsidiary
of MSR.) He was with MSR since its inception in 1986. Mr. Peluso graduated
from Princeton University and completed a year of post-graduate study at
Columbia University, and two years of post-graduate study at Princeton
University with a Fellowship in Mathematics.
Robert M. DeMichele is Chairman and Chief Executive Officer of Lexington
Management Corporation. He is also the Chairman of the Investment Strategy
Group. In addition, he is President of Lexington Global Asset Managers, Inc.,
LMC's parent company. He holds similar offices in other companies owned by
Lexington Global Asset Managers, Inc., as well as, the Lexington Funds.
Prior to joining LMC in 1981, Mr. DeMichele was a Vice President at A.G.
Becker, Inc. the securities division of Warburg, Paribus, Becker, an
international investment banking firm. From 1973 to 1981, Mr. DeMichele held
several positions, the most recent managing A.G. Becker's Funds Evaluation and
Consulting Group for both the East and West coasts.
Mr. DeMichele is a graduate of Union College with a B.A. Degree in Economics
and an M.B.A. in Finance from Cornell University.
5
<PAGE>
HOW TO PURCHASE AND REDEEM SHARES
With the exception of shares held in connection with initial capital of the
Fund, shares of the Fund are currently available for purchase solely by
participating insurance companies for the purpose of funding variable annuity
contracts and variable life insurance policies. Shares of the Fund are
purchased and redeemed at net asset value next calculated after a purchase or
redemption order is received by the Fund in good order. There are no minimum
investment requirements. Payment for shares redeemed will be made as soon as
possible, but in any event within three business days after the order for
redemption is received by the Fund. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange.
SHAREHOLDER SERVICING AGREEMENTS
The Fund may enter into Shareholder Servicing Agreements with insurance
companies or other financial institutions ("Shareholder Servicing Agents")
that provide administrative services for the Fund or that provide to contract
holders and policyholders other services relating to the Fund. These services
may include: sub-accounting services, answering inquiries of contract holders
and policyholders regarding the Fund, transmitting, on behalf of the Fund,
proxy statements, annual reports, updated prospectuses and other
communications to contract holders and policyholders regarding the Fund, and
such other related services as the Fund or a contractholder or policyholder
may request. The fees paid by the Fund for these services to Shareholder
Servicing Agents will not exceed 0.25% of the average daily net assets of the
Fund represented by shares owned during the period for which payment is made.
LMC, at no additional cost to the Fund, may pay to Shareholder Servicing
Agents additional amounts from its past profits. A Shareholder Servicing Agent
may, from time to time, choose not to receive all of the fees payable to it.
DETERMINATION OF NET ASSET VALUE
How and when we calculate the Fund's price or net asset value (NAV)
determines the price at which insurance companies buy or sell shares. The net
asset value of the Fund is determined once daily as of 4:00 p.m., New York
time, on each day that the NYSE is open for trading. Per share net asset value
is calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either the
last reported sales price or, in the case of securities for which there is no
reported last sale and fixed-income securities, the mean between the closing
bid and asked price. Securities for which market quotations are not readily
available or which are illiquid are valued at their fair values as determined
in good faith under the supervision of the Fund's officers, and by the
Investment Adviser and the Board of Trustees, in accordance with methods that
are specifically authorized by the Board of Trustees. Short-term obligations
with maturities of 60 days or less are valued at amortized cost as reflecting
fair value.
Foreign Funds. The Fund may invest in securities denominated in foreign
currencies and traded on foreign exchanges. To determine their value, we
convert their foreign-currency price into U.S. dollars by using the exchange
rate last quoted by a major bank. Exchange rates fluctuate frequently and may
affect the U.S. dollar value of foreign-denominated securities, even if their
market prices do not change. In addition, some foreign exchanges are open for
trading when the U.S. market is closed. As a result, the Fund's foreign
securities--and their prices--may fluctuate during periods when Fund shares
cannot be bought, sold or exchanged.
The value of securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be translated into U.S. dollars
at the last price of their respective currency denomination against U.S.
dollars quoted by a major bank or, if no such quotation is available, at the
rate of exchange determined in accordance with policies established in good
faith by the Board of Trustees. Because the value of securities denominated in
foreign currencies must be translated into U.S. dollars, fluctuations in the
value of such currencies in relation to the U.S. dollar may affect the net
asset value of Fund shares even without any change in the foreign-currency
denominated values of such securities.
6
<PAGE>
Because foreign securities markets may close before the Fund determines its
net asset value, events affecting the value of portfolio securities occurring
between the time prices are determined and the time the Fund calculates its
net asset value may not be reflected unless the Manager, under supervision of
the Board of Trustees, determines that a particular event would materially
affect the Fund's net asset value.
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.
. Distributions are not guaranteed.
. The Board of Trustees has discretion in determining the amount and
frequency of any distributions.
. All dividends and other distributions will be reinvested automatically in
additional shares and credited to the shareholders' account.
TAX MATTERS
The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will not be subject to federal income tax on its earnings
and capital gains that are distributed to its shareholders. In addition, the
Fund intends to comply with the diversification requirements of the Code and
Treasury Regulations in order to maintain the tax-deferred status of the
separate accounts of the Participating Insurance Companies.
Shares of the Fund must be purchased through variable life insurance
policies (the "Policies") or variable annuity contracts (the "Contracts"). As
a result, it is anticipated that any dividend or capital gains distribution
from the Fund and any proceeds from the redemption of the shares of the Fund
will be exempt from current taxation if left to accumulate within a Policy or
Contract. Withdrawals from Policies or Contracts may be subject to ordinary
income tax plus a 10% penalty tax if made before age 59 1/2.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject
to change by legislative, administrative or judicial action. As the foregoing
discussion is for general information only, a prospective investor also should
review the more detailed discussion of federal income tax considerations that
is contained in the Statement of Additional Information. In addition, each
prospective investor should consult with his own tax adviser as to the tax
consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF
YOUR POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE POLICY
OR CONTRACT PROSPECTUS.
Statement of Additional Information. The Statement of Additional Information
provides a more complete discussion about the Fund and is incorporated by
reference into this prospectus, which means that it is considered a part of
this prospectus.
A Statement of Additional Information dated May 1, 2000, which provides a
further discussion of certain matters in this Prospectus and other matters
that may be of interest to some investors, has been filed with the Securities
and Exchange Commission (the "SEC") and is incorporated herein by reference.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about the Fund's investments,
including a discussion of the market conditions and investment strategies that
significantly affected the Fund's performance during its last fiscal year.
To Review or Obtain this Information: The Statement of Additional Information
and annual and semi-annual reports are available without charge upon your
request by calling Lexington Natural Resources Trust at (800) 526-0056 Attn:
Shareholder Services. This information may be reviewed at the Public Reference
Room of the Securities and Exchange Commission or by visiting the SEC's World
Wide Web site at www.sec.gov. In addition, this information may be obtained
for a fee by writing or calling the Public Reference Room of the Securities
and Exchange Commission, Washington, D.C. 20549-6009, telephone (800) SEC-
0330.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand
the Fund's financial performance for the past 5 years. Certain information
reflects financial highlights for a single share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 11.03 $ 14.91 $ 14.29 $ 11.30 $ 9.71
------- ------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income........... 0.06 0.08 0.06 0.05 0.06
Net realized and unrealized gain
(loss) on investments.......... 1.50 (2.98) 1.00 2.99 1.58
------- ------- ------- ------- -------
Total income (loss) from
investment operations....... 1.56 (2.90) 1.06 3.04 1.64
------- ------- ------- ------- -------
Less distributions:
Distributions from net
investment income.............. (0.08) (0.08) -- (0.05) (0.05)
Distributions from net realized
gains.......................... -- (0.90) (0.44) -- --
------- ------- ------- ------- -------
Total distributions.......... (0.08) (0.98) (0.44) (0.05) (0.05)
------- ------- ------- ------- -------
Net asset value, end of period... $ 12.51 $ 11.03 $ 14.91 $ 14.29 $ 11.30
======= ======= ======= ======= =======
Total return.................... 14.09% (19.62)% 7.15% 26.89% 16.87%
Net assets, end of period (000's
omitted)........................ $31,737 $35,418 $65,263 $37,934 $16,955
Ratio to average net assets:
Expenses........................ 1.33% 1.29 % 1.25% 1.42% 1.47%
Net investment income........... 0.34% 0.42 % 0.39% 0.40% 0.56%
Portfolio turnover rate.......... 41.74% 74.36 % 114.16% 102.76% 149.18%
</TABLE>
8
<PAGE>
Investment Adviser
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LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
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MARKET SYSTEMS RESEARCH ADVISORS, INC.
80 Maiden Lane
New York, N.Y. 10038
Distributor
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LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Transfer Agent
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Finance Data Services
1004 Baltimore
Kansas City, Missouri 64105
<TABLE>
Table of
Contents Page
- -------- ----
<S> <C>
Investment Objective........................................................ 2
Investment Strategies....................................................... 2
Principal Risks............................................................. 2
Bar Chart and Performance Table............................................. 2
More About Our Investment Strategies and Related Risks...................... 3
Management of the Fund...................................................... 5
Investment Adviser.......................................................... 5
Portfolio Manager........................................................... 5
How to Purchase and Redeem Shares........................................... 6
Shareholder Servicing Agreements............................................ 6
Determination of Net Asset Value............................................ 6
Dividends and Capital Gain Distributions.................................... 7
Tax Matters................................................................. 7
Financial Highlights........................................................ 8
</TABLE>
LEXINGTON
NATURAL
RESOURCES
TRUST
-------------------------
Investment Objective:
Long-term Growth of Capital
-------------------------
Prospectus
May 1, 2000
The Lexington Group
of No-Load
Investment Companies
LEXINGTON/SM/
<PAGE>
LEXINGTON NATURAL RESOURCES TRUST
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information is not a prospectus. You should
read it in conjunction with the current prospectus of Lexington Natural
Resources Trust (the "Fund"), dated May 1, 2000, and any revisions to the
prospectus which might occur from time to time. To obtain a copy of the Fund's
prospectus at no charge, please write to the Fund at P.O. Box 1515/Park 80
West-Plaza Two, Saddle Brook, New Jersey 07663 or call the following number:
201-845-7300.
Lexington Management Corporation is the Fund's investment adviser. Lexington
Funds Distributor, Inc. is the Fund's distributor.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
General Information and History............................................ 1
Investment Objectives and Policies......................................... 1
Certain Investments Methods................................................ 1
Investment Restrictions.................................................... 2
Management of the Fund..................................................... 3
Portfolio Transactions and Brokerage Commissions........................... 9
Capital Stock Structure.................................................... 10
Tax Matters................................................................ 11
Performance Calculation.................................................... 11
Other Information.......................................................... 12
Transfer Agent............................................................. 12
Custodian.................................................................. 12
Counsel and Independent Auditors........................................... 13
Financial Statements....................................................... 14
</TABLE>
<PAGE>
GENERAL INFORMATION AND HISTORY
The Fund is a non-diversified, open-end management investment company
organized on November 15, 1988 as a business trust under the laws of the
Commonwealth of Massachusetts. The Fund was formerly named "Lexington Gold
Trust". At a meeting held on September 30, 1991, the shareholders of the Fund
approved a change in the Fund's fundamental investment objective and policies.
In connection with the change of investment objective and policies, the Fund
also changed its name to "Lexington Natural Resources Trust".
INVESTMENT OBJECTIVES AND POLICIES
The Fund's investment objective is to seek long-term growth of capital
through investment primarily in common stocks of companies which own, or
develop natural resources and other basic commodities, or supply goods and
services to such companies. Current income will not be a factor. Total return
will consist primarily of capital appreciation.
CERTAIN INVESTMENT METHODS
Generally, a company has substantial natural resource assets when at least
50% of the non-current assets, capitalization, gross revenues or operating
profits of the company in the most recent or current fiscal year are involved
in or result from, directly or indirectly through subsidiaries, exploring,
mining, refining, processing, fabricating, dealing in or owning natural
resource assets. Examples of natural resource assets include: companies that
specialize in energy sources (e.g., coal, geothermal power, natural gas and
oil), environmental technology (e.g., pollution control and waste recycling),
forest products, agricultural products, chemical products, ferrous and non-
ferrous metals (e.g., iron, aluminum and copper), strategic metals (e.g.,
uranium and titanium), precious metals (e.g., gold, silver and platinum), and
other basic commodities.
Management attempts to achieve the investment objective of the Fund by
seeking to identify securities of companies that, in its opinion, are
undervalued relative to the value of natural resource holdings of such
companies in light of current and anticipated economic or financial
conditions. Natural resource assets are materials derived from natural sources
which have economic value. The Fund will consider a company to have
substantial natural resource assets when, in management's opinion, the
company's holdings of the assets are of such magnitude, when compared to the
capitalization, revenues or operating profits of the company, that changes in
the economic value of the assets will affect the market price of the equity
securities of such company. The Fund presently does not intend to invest
directly in natural resource assets or related contracts. The Fund may invest
up to 25% of its total assets in securities principally traded in markets
outside the United States.
Management of the Fund believes that, based upon past performance, the
securities of specific companies that hold different types of substantial
natural resource assets may move relatively independently of one another
during different stages of inflationary cycles due to different degrees of
demand for, or market values of, their respective natural resource holdings
during particular portions of such inflationary cycles. The Fund's fully
managed investment approach enables it to switch its emphasis among various
industry groups depending upon management's outlook with respect to prevailing
trends and developments. The investment objective and policies of the Fund
described in the first two paragraphs of this section are fundamental policies
of the Fund and may not be changed without the approval of the holders of a
majority of the Fund's outstanding voting securities, as defined in the
Investment Company Act of 1940, as amended.
1
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment objective and the following investment restrictions
are matters of fundamental policy which may not be changed without the
affirmative vote of the lesser of (a) 67% or more of the shares of the Fund
present at a shareholder's meeting at which more than 50% of the outstanding
shares are present or represented by proxy or (b) more than 50% of the
outstanding shares. The Fund is a non-diversified management investment
company and
1. with respect to 50% of its assets, the Fund will not at the time of
purchase invest more than 5% of its total assets, at market value, in
the securities of one issuer (except the securities of the United
States Government);
2. with respect to the other 50% of its assets, the Fund will not invest
at the time of purchase more than 25% of the market value of its total
assets in any single issuer.
These two restrictions, hypothetically, could give rise to a portfolio with
as few as fourteen issues.
In addition, the Fund will not:
1. Purchase more than 10% of the voting securities or more than 10% of
any class of securities of any issuer. (For this purpose all
outstanding debt securities of an issuer are considered as one class,
and all preferred stocks of an issuer are considered as one class.)
2. Purchase any security restricted as to disposition under Federal
Securities laws or securities that are not readily marketable or
purchase any securities if such a purchase would cause the Fund to own
at the time of such purchase, illiquid securities, including
repurchase agreements with an agreed upon repurchase date in excess of
seven days from the date of acquisition by the Fund, having aggregate
market value in excess of 10% of the value of the Fund's total assets.
3. Make short sales of securities or purchase any securities on margin,
except for such short term credits as are necessary for the clearance
of transactions.
4. Write, purchase or sell puts, calls or combinations thereof. However,
the Fund may invest up to 15% of the value of its assets in warrants.
The holder of a warrant has the right to purchase a given number of
shares of a particular company at a specified price until expiration.
Such investments generally can provide a greater potential for
profit--or loss--than investment of an equivalent amount in the
underlying common stock. The prices of warrants do not necessarily
move parallel to the prices of the underlying securities. If the
holder does not sell the warrant, he risks the loss of his entire
investment if the market price of the underlying stock does not,
before the expiration date, exceed the exercise price of the warrant
plus the cost thereof. It should be understood that investment in
warrants is a speculative activity. Warrants pay no dividends and
confer no rights (other than the right to purchase the underlying
stock) with respect to the assets of the corporation issuing them. In
addition, the sale of warrants held more than one year generally
results in a long term capital gain or loss to the holder, and the
sale of warrants held for less than such period generally results in a
short term capital gain or loss. The holding period for securities
acquired upon exercise of warrants, however, begins on the day after
the date of exercise, regardless of how long the warrant was held.
This restriction on the purchase of warrants does not apply to
warrants attached to, or otherwise included in, a unit with other
securities.
5. Invest in any commodities or commodities futures contracts, including
futures contracts relating to gold.
6. Invest in real estate.
2
<PAGE>
7. Invest more than 5% of the value of its total assets in securities of
issuers which, with their predecessors, have a record of less than
three years continuous operation.
8. Purchase or retain the securities of any issuer if the officers or
Trustees of the Fund, or its Investment Adviser, or Sub-Adviser who
own individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer.
9. Lend money or securities, provided that the making of time or demand
deposits with domestic banks and the purchase of debt securities such
as bonds, debentures, commercial paper, repurchase agreements and
short term obligations in accordance with the Fund's objective and
policies, are not prohibited.
10. Borrow money, except for temporary emergency purposes, and in no event
more than 5% of its net assets at value or cost, whichever is less; or
pledge its gold or portfolio securities or receivables or transfer or
assign or otherwise encumber them in an amount exceeding 10% of the
value of its total assets.
11. Underwrite securities issued by others.
12. Purchase securities of other investment companies, except in
connection with a merger, consolidation, reorganization or acquisition
of assets.
13. Invest for the purpose of exercising control or management of another
company.
14. Participate on a joint or a joint and several basis in any trading
account in securities.
The percentage restrictions referred to above are to be adhered to at the
time of investment, and are not applicable to a later increase or decrease in
percentage beyond the specified limit resulting from a change in values or net
assets.
MANAGEMENT OF THE FUND
Investment Adviser, Sub-Adviser, Distributor and Administrator
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle Brook, New
Jersey 07663 is the investment adviser to the Fund pursuant to an Investment
Advisory Agreement dated August 21, 1991, (the "Advisory Agreement").
Lexington Funds Distributor, Inc. ("LFD") is the distributor of Fund shares
pursuant to a Distribution Agreement dated September 21, 1991 (the
"Distribution Agreement"). Both of these agreements were approved by the
Fund's Board of Directors (including a majority of the Directors who were not
parties to either the Advisory Agreement or the Distribution Agreement or
"interested persons" of any such party) on November 29, 1999 and were last
approved by the Board of Directors who are not interested directors on
November 29, 1999. LMC makes recommendations to the Fund with respect to its
investments and investment policies.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semi-annual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and provides
facilities for such services. The Fund reimburses LMC for its actual cost in
providing such services, facilities and expenses.
3
<PAGE>
For its investment management services to the Fund, under its Advisory
Agreement, LMC will receive a monthly fee at the annual rate of 1.00% of the
Fund's average daily net assets. Advisory fees paid to LMC and expense
reimbursements paid to the Fund are as follows:
<TABLE>
<CAPTION>
Advisory Sub Advisory Expense
Period Fee Fee Reimbursement
------ -------- ------------ -------------
<S> <C> <C> <C>
1/1/97 to 12/31/97 $635,819 $317,919 $ 0
1/1/98 to 12/31/98 $480,891 $240,442 $ 0
1/1/99 to 12/31/99 $338,700 $169,353 $ 0
</TABLE>
LMC has agreed to reduce its management fee if necessary to keep total
operating expenses at or below 2.50% of the Fund's average daily net assets.
LMC may terminate this voluntary reduction at any time. Brokerage fees and
commissions, taxes, interest and extraordinary expenses are not deemed to be
expenses of the Fund for such reimbursement. LFD pays the advertising and
sales expenses of the continuous offering of Fund shares, including the cost
of printing prospectuses, proxies and shareholder reports for persons other
than existing shareholders. The Fund furnishes LFD, at printer's overrun cost
paid by LFD, such copies of its prospectus and annual, semi-annual and other
reports and shareholder communications as may reasonably be required for sales
purposes.
Under the terms of the investment management agreement, LMC also pays the
Fund's expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll expense
of officers and Trustees of the Fund who are employees of LMC or its
affiliates in carrying out its duties under the investment management
agreement. The Fund pays all its other expenses, including custodian and
transfer agent fees, legal and registration fees, audit fees, printing of
prospectuses, shareholder reports and communications required for regulatory
purposes or for distribution to existing shareholders, computation of net
asset value, mailing of shareholder reports and communications, portfolio
brokerage, taxes and independent Trustees' fees.
LMC has agreed to reduce its management fee if necessary to keep total
operating expenses at or below 2.50% of the Fund's average daily net assets.
Total annual operating expenses may also be subject to state blue sky
regulations. LMC may terminate this voluntarily reduction at any time.
LMC has entered into a sub-advisory management contract with Market Systems
Research Advisors, Inc. ("MSR"), 80 Maiden Lane, New York, New York 10038, a
registered investment advisor, under which the MSR will provide the Fund with
certain investment management and administrative services. MSR serves as
investment adviser to private and institutional accounts.
The Advisory Agreement, the Sub-Advisory Agreement and the Distribution
Agreement are subject to annual approval by affirmative vote of the Fund's
Board of Directors cast in person at a meeting called for such purpose, and a
majority of the Directors who are not parties either to the Advisory
Agreement, the Sub-Advisory Agreement or the Distribution Agreement, as the
case may be, or "interested persons" of any such party. Either the Fund or LMC
may terminate the Advisory Agreement on 60 days written notice without
penalty. Also, either the Fund or MSR may terminate the Sub-Advisory Agreement
and the Fund or LFD may terminate the Distribution Agreement on 60 days'
written notice without penalty. In addition, both the Advisory Agreement and
the Sub-Advisory Agreement may be terminated by vote of a majority of the
outstanding voting securities of the Fund on not more than 60 days notice. All
of the agreements mentioned above will terminate automatically in the event of
assignment, as defined in the Investment Company Act of 1940.
LMC is not liable to the Fund or its shareholders for any act or omission by
LMC, its officers, directors or employees or any loss sustained by the Fund or
its shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
4
<PAGE>
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. Descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities have a
majority voting control of outstanding shares of Lexington Global Asset
Managers, Inc. Of the directors, officers or employees ("affiliated persons")
of the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey and Lavery and Mmes.
Carnicelli, Carr-Waldron, Curcio, DiFalco, Gilfillan and Mosca (see
"Management of the Fund"), may also be deemed affiliates of LMC and LFD by
virtue of being officers, directors or employees thereof.
Trustees and Officers of the Fund
The Fund's Trustees and executive officers, their ages as of the Fund's most
recent fiscal year- end, their principal occupations and former affiliations
are set forth below:
<TABLE>
<CAPTION>
Name Title Experience Over Past 5 Years
---- ----- ----------------------------
<C> <C> <C> <S>
+ S.M.S. CHADHA (62) TRUSTEE Secretary, Ministry of External
3/16 Shanti Niketan, Affairs, New Delhi, India; Head
New Delhi 21, India of Foreign Service Institute, New
Delhi, India; Special Envoy of
the Government of India;
Director, Special Unit for
Technical Cooperation among
Developing countries, United
Nations Development Program, New
York
*+ ROBERT M. DEMICHELE (55) CHAIRMAN & Chairman and Chief Executive
P.O. BOX 1515 PRESIDENT Officer, Lexington Management
Saddle Brook, NJ 07663 Corporation; President and
Director, Lexington Global Asset
Managers, Inc.; Chairman of the
Board, Market Systems Research,
Inc. and Market Systems Research
Advisors, Inc.; Director,
Chartwell Re Corporation,
Claredon National Insurance
Company, The Navigator's Group,
Inc., Unione Italiana
Reinsurance, Vanguard Cellular
Systems, Inc. and Weeden & Co.;
Vice Chairman of the Board of
Trustees, Union College and
Trustee, Smith Richardson
Foundation
+ BEVERLEY C. DUER (70) TRUSTEE Private Investor. Formerly
340 East 72nd Street Manager, Operations Research
New York, NY 10021 Department, CPC International
Inc.
*+ BARBARA R. EVANS (39) TRUSTEE Private Investor, formerly
5 Fernwood Road Assistant Vice President and
Summit, NJ 07901 Securities Analyst, Lexington
Management Corporation.
*+ RICHARD M. HISEY (41) TRUSTEE & Executive Vice President (Mutual
P.O. Box 1515 VICE PRES. Funds), Chief Financial Officer,
Saddle Brook, NJ 07663 Managing Director and Director,
Lexington Management Corporation;
Chief Financial Officer, Vice
President and Director, Lexington
Funds Distributor, Inc.; Chief
Financial Officer, Market Systems
Research Advisors, Inc.;
Executive Vice President (Mutual
Funds) and Chief Financial
Officer, Lexington Global Asset
Managers, Inc.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Name Title Experience Over Past 5 Years
---- ----- ----------------------------
<C> <C> <C> <S>
+ JERARD F. MAHER (54) TRUSTEE General Counsel, Federal
300 Raritan Center Parkway Business Center; Counsel, Ribis,
Edison, NJ 08818 Graham & Curtin.
+ ANDREW M. MCCOSH (59) TRUSTEE Professor of the Organisation of
12 Wyvern Park Industry and Commerce,
Edinburgh EH92JY, Scotland Department of Business Studies,
U.K. The University of Edinburgh,
Scotland.
+ DONALD B. MILLER (73) TRUSTEE Chairman, Horizon Media, Inc.;
10725 Quail Covey Drive Trustee, Galaxy Funds; Director,
Boynton Beach, Fl 33436 Maguire Group of Connecticut;
prior to January 1989,
President, Director and C.E.O.,
Media General Broadcast
Services.
+ ALLEN H. STOWE (62) TRUSTEE President, Dartmouth Co-
3674 Fifth & Ocean Aves. operative Society Co., Inc.
Normandy Beach, NJ 08739
*+ LISA CURCIO (40) VICE PRES. Senior Vice President and
P.O. BOX 1515 AND Secretary, Lexington Management
Saddle Brook, NJ 07663 SECRETARY Corporation; Vice President and
Secretary, Lexington Funds
Distributor, Inc.; Secretary,
Lexington Global Asset Managers,
Inc.
*+ RICHARD J. LAVERY, CLU, ChFC VICE Senior Vice President, Lexington
(46) PRESIDENT Management Corporation; Vice
P.O. BOX 1515 President, Lexington Funds
Saddle Brook, NJ 07663 Distributor, Inc.
*+ JANICE CARNICELLI (40) VICE Vice President, Lexington Funds
P.O. BOX 1515 PRESIDENT
Saddle Brook, NJ 07663
*+ CHRISTIE CARR-WALDRON (32) TREASURER Treasurer, Lexington Funds
P.O. BOX 1515
Saddle Brook, NJ 07663
*+ CATHERINE DiFALCO (30) ASSISTANT Assistant Treasurer, Lexington
P.O. BOX 1515 TREASURER Funds
Saddle Brook, NJ 07663
*+ SIOBHAN GILFILLAN (36) ASSISTANT Assistant Treasurer, Lexington
P.O. BOX 1515 TREASURER Funds
Saddle Brook, NJ 07663
*+ SHERI MOSCA (36) ASSISTANT Assistant Treasurer, Lexington
P.O. BOX 1515 TREASURER Funds
Saddle Brook, NJ 07663
*+ PETER CORNIOTES (37) ASSISTANT Vice President and Assistant
P.O. BOX 1515 SECRETARY Secretary, Lexington Management
Saddle Brook, NJ 07663 Corporation; Assistant
Secretary, Lexington Funds
Distributor, Inc.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Name Title Experience Over Past 5 Years
---- ----- ----------------------------
<C> <C> <C> <S>
*+ ENRIQUE FAUST (39) ASSISTANT Assistant Vice President,
P.O. BOX 1515 SECRETARY Lexington Management Corporation
Saddle Brook, NJ 07663
</TABLE>
- --------
* "Interested person" and/or "affiliated person" as defined in the Investment
Company Act of 1940, as amended.
* Messrs. Chadha, Corniotes, DeMichele, Duer, Faust, Hisey, Lavery, Maher,
McCosh, Miller and Stowe, and Mmes. Carnicelli, Carr-Waldron, Curcio,
DiFalco, Evans, Gilfillan and Mosca hold similar offices with some or all of
the other registered investment companies advised and/or distributed by
Lexington Management Corporation or Lexington Funds Distributor, Inc. or
Market Systems Research Advisors, Inc. The Board of Trustees met 5 times
during the twelve months ended December 31, 1999, and each of the Trustees
attended at least 75% of those meetings.
7
<PAGE>
Remuneration of Trustees and Certain Executive Officers:
Each Trustee is reimbursed for expenses incurred in attending each meeting
of the Board of Trustee or any committee thereof up to a maximum of $9,000 per
year for Trustees living outside the U.S. and $6,000 per year for Trustee
living within the U.S. Each Trustee who is not an affiliate of the advisor is
compensated for his or her services according to a fee schedule which
recognizes the fact that each Trustee also serves as a Trustee of other
investment companies advised by LMC. Each Trustee receives a fee, allocated
among all investment companies for which the Trustee serves.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1999 to December 31, 1999 for each Trustee:
- -----------------------------------------------------------------------------
Aggregate Total Compensation Number of
Compensation from from Fund and Directorships in
Name of Trustee Fund Fund Complex Fund Complex
- -----------------------------------------------------------------------------
S.M.S. Chadha $1,600 $24,006 15
Robert M. DeMichele 0 0 15
Beverly C. Duer $1,946 $29,656 15
Barbara R. Evans 0 0 15
Richard M. Hisey 0 0 8
Jerard F. Maher $1,488 $22,976 15
Andrew M. McCosh $1,600 $24,006 15
Donald B. Miller $1,600 $24,006 15
John G. Preston $1,600 $24,006 15
Margaret W. Russell* $1,243 $18,000 N/A
Philip C. Smith* $1,326 $19,200 N/A
Allen H. Stowe $1,600 $12,712 15
- -----------------------------------------------------------------------------
* Retired
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Trustees instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each
Director/Trustee (who is not an employee of any of the Funds, the Advisor,
Administrator or Distributor or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board. Pursuant to the Plan, the
normal retirement date is the date on which the eligible Director/Trustee has
attained age 65 and has completed at least ten years of continuous and non-
forfeited service with one or more of the investment companies advised by LMC
(or its affiliates) (collectively, the "Covered Funds"). Each eligible
Director/Trustee is entitled to receive from the Covered Fund an annual
benefit commencing on the first day of the calendar quarter coincident with or
next following his date of retirement equal to 5% of his compensation
multiplied by the number of such Director/Trustee's years of service (not in
excess of 15 years) completed with respect to any of the Covered Portfolios.
Such benefit is payable to each eligible Trustee in quarterly installments for
ten years
8
<PAGE>
following the date of retirement or the life of the Director/Trustee. The Plan
establishes age 72 as a mandatory retirement age for Directors/Trustees;
however, Director/Trustees serving the Funds as of September 12, 1995 are not
subject to such mandatory retirement. Directors/Trustees serving the Funds as
of September 12, 1995 who elect retirement under the Plan prior to September
12, 1996 will receive an annual retirement benefit at any increased
compensation level if compensation is increased prior to September 12, 1997
and receive spousal benefits (i.e., in the event the Director/Trustee dies
prior to receiving full benefits under the Plan, the Director/Trustee's spouse
(if any) will be entitled to receive the retirement benefit within the 10 year
period.)
Retiring will be eligible to serve as Honorary Trustees for one year after
retirement and will be entitled to be reimbursed for travel expenses to attend
a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of December 31, 1999, the estimated credited years
of service for Trustees Chadha, Duer, Maher, McCosh, Miller and Stowe are 4,
21, 4, 4, 25, and 3, respectively.
Highest Annual Compensation Paid by All Funds
<TABLE>
<S> <C> <C> <C> <C>
$20,000 $25,000 $30,000 $35,000
<CAPTION>
Years of
Service Estimated Annual Benefit upon Retirement
-------- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
</TABLE>
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
As a general matter, purchases and sales of portfolio securities by the Fund
are placed by LMC or MSR with brokers and dealers who in their opinion will
provide the Fund with the best combination of price (inclusive of brokerage
commissions) and execution for its orders. However, pursuant to the Fund's
investment management agreement, management consideration may be given in the
selection of broker-dealers to research provided and payment may be made at a
fee higher than that charged by another broker-dealer which does not furnish
research services or which furnishes research services deemed to be of lesser
value, so long as the criteria of Section 28(e) of the Securities Exchange Act
of 1934, as amended are met. Section 28(e) was adopted in 1975 and specifies
that a person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person
has caused the account to pay a higher commission than the lowest available
under certain circumstances, provided that the person so exercising investment
discretion makes a good faith determination that the commissions paid are
"reasonable in relation to the value of the brokerage and research services
provided . . . viewed in terms of either that particular transaction or his
overall responsibilities with respect to the accounts as to which he exercises
investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services ("soft dollars") might
exceed commissions that would be payable for execution services alone. Nor
generally can the value of research services to the Fund be measured. Research
services furnished might be useful and of value to LMC or MSR and its
affiliates, in serving
9
<PAGE>
other clients as well as the Fund. On the other hand, any research services
obtained by LMC
or MSR or its affiliates from the placement of portfolio brokerage of other
clients might be useful and of value to LMC or MSR in carrying out its
obligations to the Fund.
As a general matter, it is the Fund's policy to execute in the U.S. all
transactions with respect to securities traded in the U.S. except when better
price and execution can, in the judgment of management of the Fund, be
obtained elsewhere. Over-the-counter purchases and sales are normally made
with principal market makers, except where, in the opinion of management, the
best executions are available elsewhere.
In addition, the Fund may from time to time allocate brokerage commissions
to firms which furnish research and statistical information to LMC or MSR or
which render to the Fund services which LMC or MSR is not required to provide.
The supplementary research supplied by such firms is useful in varying degrees
and is of indeterminable value. No formula has been established for the
allocation of business to such brokers. For the fiscal year ended December 31,
1997, the portfolio turnover rate for the Fund was 114.16% and the Fund paid
$258,001 in brokerage commissions and of that amount, $106,488 was paid for
with soft dollars. For the fiscal year ended December 31, 1998, the portfolio
turnover rate for the Fund was 74.36% and the Fund paid $136,812 in brokerage
commission and of that amount, $43,141 was paid for with soft dollars. For the
fiscal year ended December 31, 1999, the portfolio turnover rate for the Fund
was 41.74% and the Fund paid $ 58,268 in brokerage commissions and of that
amount, $ 34,944 was paid for with soft dollars.
CAPITAL STOCK STRUCTURE
Individual variable annuity contract holders and variable life insurance
policy holders are not "shareholders" of the Fund. The Participating Insurance
Companies and their separate accounts are the shareholders or investors,
although such companies may pass through voting rights to their variable
annuity contract or variable life insurance policy. Shares of the Fund are not
offered directly to the general public.
Dividends, Distributions, Voting, Preemptive and Redemption Rights
Shareholders of the Fund are given voting rights. Each share of the fund
will be given one vote, unless a different allocation of voting rights is
required under applicable law for a mutual fund that is an investment medium
for variable life insurance or annuity contracts. Participating insurance
companies provide variable annuity Contract Holders and Participants the right
to direct the voting of Fund shares at shareholder meetings to the extent
required by law. See the Separate Account prospectus for the Variable Contract
for more information regarding the pass-through of these voting rights.
Massachusetts business trust law does not require the fund to hold annual
shareholder meetings, although special meetings may be cancelled for the Fund,
for purposes such as electing or removing Trustees, changing fundamental
policies or approving an investment management contract. A shareholders'
meeting will be held after the Fund begins operations for the purpose of
electing the initial Board of Trustees to fill any existing vacancies on the
Board if, at any time, fewer than a majority of the Trustees have been elected
by the shareholders of the fund. In addition, the holders of not less than
two-thirds of the outstanding shares or other voting interests of the Fund may
remove a person serving as Trustee either by declaration in writing or at a
meeting called for such purpose. The Trustees are required to call a meeting
for the purpose of considering the removal of a person serving as trustee, if
requested in writing to do so by the holders of a person serving as trustee,
if requested in writing to do so by the holders of not less than 10% of the
outstanding shares of other voting interests of the Fund. The Fund is required
to assist in shareholders' communications. In accordance with current laws, an
insurance company issuing a variable life insurance or annuity contract that
participates in the Fund will request voting instructions from Contract
Holders and will vote shares or other voting interest in the Separate Account
in proportion to the voting instructions received.
10
<PAGE>
TAX MATTERS
The following is only a summary of certain additional federal income tax
considerations that are not described in the Prospectus and generally affect
the Fund and its shareholders. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
The Fund intends to qualify as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). If so qualified,
the Fund will not be subject to federal income tax on its investment company
taxable income and net capital gains to the extent that such investment
company taxable income and net capital gains are distributed in each taxable
year to the segregated asset accounts ("Accounts") of certain life insurance
companies ("Participating Companies") that hold its shares. In addition, if
the Fund distributes annually to the Accounts its ordinary income and capital
gain net income, in the manner prescribed in the Code, it also will not be
subject to the 4% federal excise tax otherwise applicable to a RIC on any of
its undistributed income or gains. Distributions of net investment income and
net short-term capital gains will be treated as ordinary income and
distributions of net long-term capital gains will be treated as long-term
capital gain in the hands of the insurance companies. Under current tax law,
capital gains or dividends from the Fund are not currently taxable to a holder
of a variable annuity contract (a "Contract") or variable life insurance
policy (a "Policy") when left to accumulate within such Contract or Policy.
Section 817(h) of the Code requires that investments of an Account of an
insurance company be "adequately diversified," in accordance with Treasury
Regulations promulgated thereunder, in order for the holders of the Contracts
or Policies based on such account to receive the tax-deferred or tax- free
treatment generally afforded holders of annuities or life insurance policies
under the Code. The Department of the Treasury has issued Regulations under
section 817(h) which, among other things, provide the manner in which an
Account will treat investments in a RIC for purposes of the applicable
diversification requirements. Under the Regulations, if a RIC satisfies
certain conditions, the RIC will not be treated as a single investment of the
Account for these purposes, but rather the Account will be treated as owning
its proportionate share of each of the assets of the RIC. The Fund plans to
satisfy these conditions at all times so that each Account of a Participating
Company investing in the Fund will take into account its proportionate share
of each of the assets of the Fund in determining whether it is adequately
diversified under the Code and Regulations.
For information concerning the federal income tax consequences to the
holders of a Contract or Policy, such holders should consult the prospectuses
for their particular Contract or Policy.
PERFORMANCE CALCULATION
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indices in advertisements or
in reports to shareholders, rules promulgated by the Securities and Exchange
Commission ("SEC"), a fund's advertising performance must include total return
quotations calculated according to the following formula:
P(1 + T) to the power of n = ERV
Where: P = a hypothetical initial payment of
T = average annual total return,
n = number of years (1, 5 or 10)
ending redeemable value of a hypothetical $1,000
payment, made at the beginning of the 1, 5 or 10 year
period, at the end of such period (or fractional portion
ERV = thereof).
11
<PAGE>
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
1,5 and 10 year periods of the Fund's existence or such shorter period dating
from the effectiveness of the Fund's Registration Statement. In calculating
the ending redeemable value, the maximum sales load is deducted from the
initial $1,000 payment and all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. Total return, or "T"
in the formula above, is computed by finding the average annual compounded
rates of return over the 1, 5 and 10 year periods (or fractional portion
thereof) that would equate the initial amount invested to the ending
redeemable value. Any recurring account charges that might in the future be
imposed by the Fund would be included at that time.
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above
in order to compare more accurately the performance of the Fund with other
measures of investment return. For example, in comparing the Fund's total
return, the Fund calculates its aggregate total return for the specified
periods of time by assuming the investment of $10,000 in Fund shares and
assuming the reinvestment of each dividend or other distribution at net asset
value on the reinvestment of each dividend or other distribution at net asset
value on the reinvestment date. Percentage increases are determined by
subtracting the initial value of the investment from the ending value and by
dividing the remainder by the beginning value. Such alternative total return
information will be given no greater prominence in advertising than the
information prescribed under Item 21 of Form N-1A.
The Fund's performance may be compared in advertising to the performance of
other mutual funds in general, or of particular types of mutual funds,
especially those with similar objectives. Such performance data may be
prepared by Lipper Analytical Services, Inc. and other independent services
which monitor the performance of mutual funds. The Fund may also advertise
mutual fund performance rankings which have been assigned to it by such
monitoring services.
Pursuant to the SEC calculation, the Fund's average total rate of return for
the one and five year and ten year period ended December 31, 1999 was 14.09%,
7.82% and 2.48%, respectively.
OTHER INFORMATION
As of April 4, 2000, the following persons are known by fund management to
have owned beneficially, directly or indirectly, 5% or more of the outstanding
shares of the Fund: Aetna Life Insurance & Annuity, 151 Farmington Avenue,
Hartford, CT 06156, 65%; Kemper Investors Life Insurance Company, 1 Kemper
Drive, Long Grove, IL 60049, 15%; and Safeco Life Insurance Company, P.O. Box
34690, Seattle, WA 98124, 13%.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02181, has been retained to act as the transfer agent and
dividend disbursing agent.
CUSTODIAN
Chase Manhattan Bank, N.A. 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as custodian for the Fund's portfolio
securities including those to he held by foreign banks and foreign securities
depositories that qualify as eligible foreign custodians under the rules
adopted by the Securities and Exchange Commission and for the Fund's domestic
securities and other assets.
12
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York
10022 will pass upon legal matters for the Fund in connection with the
offering of its shares. KPMG LLP, 757 Third Avenue, New York, New York 10017,
has been selected as independent auditors for the Fund for the fiscal year
ending December 31, 2000.
13
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Lexington Natural Resources Trust:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Natural
Resources Trust as of December 31, 1999, the related statement 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 and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999 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, 1999, 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 its financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG LLP
New York, New York
February 7, 2000
14
<PAGE>
Lexington Natural Resources Trust
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1999
<TABLE>
<CAPTION>
Number
of Value
Shares Security (Note 1)
- -----------------------------------------------------
<S> <C> <C>
COMMON STOCKS: 92.8%
Basic Materials: 4.0%
31,000 Martin Marietta Materials, Inc.... $1,271,000
----------
Chemicals: 4.9%
6,000 Dow Chemical Company.............. 801,750
23,500 Geon Company...................... 763,750
----------
1,565,500
----------
Energy Sources: 60.1%
20,000 Anadarko Petrol Corporation....... 682,500
20,000 Apache Corporation................ 738,750
33,000 Avatar Holdings, Inc.............. 587,813
15,000 BP Amoco plc...................... 889,687
20,000 Burlington Resources, Inc.
(ADR)............................ 661,250
7,500 Chevron Corporation............... 649,687
6,000 Coastal Corporation............... 212,625
23,000 Columbia Energy Group............. 1,454,750
20,000 Diamond Offshore Drilling, Inc.... 611,250
33,000 Enron Corporation................. 1,464,375
15,100 Exxon Mobil Corporation........... 1,216,494
25,000 Halliburton Company............... 1,006,250
41,500 Noble Affiliates, Inc............. 889,656
12,000 Royal Dutch Petroleum Company--
NY Shares/1/ .................... 725,250
22,500 Schlumberger, Ltd.-NY Shares...... 1,265,625
20,000 Texaco, Inc....................... 1,086,250
17,000 The AES Corporation/1/ ........... 1,270,750
19,000 The Williams Companies, Inc....... 580,687
20,000 Total Fina S.A. (ADR)............. 1,385,000
4,356 Transocean Sedco Forex, Inc./1/ .. 146,743
20,000 Unocal Corporation................ 671,250
15,000 Valero Energy Corporation......... 298,125
10,000 Vastar Resources, Inc............. 590,000
----------
19,084,767
----------
</TABLE>
<TABLE>
<CAPTION>
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued):
Ferous Metals: 8.2 %
15,700 Alcoa, Inc............................................ $ 1,303,100
13,500 Rio Tinto plc......................................... 1,279,125
-----------
2,582,225
-----------
Paper And Forest Products: 15.6%
23,200 Georgia Pacific Corporation........................... 1,177,400
20,000 International Paper Company........................... 1,128,750
20,500 The Mead Corporation.................................. 890,469
13,400 Weyerhaeuser Company.................................. 962,288
17,000 Willamette Industries, Inc............................ 789,438
-----------
4,948,345
-----------
TOTAL COMMON STOCKS
(cost $28,134,207).................................... 29,451,837
-----------
SHORT-TERM INVESTMENT: 6.1%
U.S. Government Obligation: 6.1%
$2,000,000 U.S. Treasury Bills, 5.57%,
due 06/22/00
(cost $1,948,581) ................................... 1,948,035
-----------
TOTAL INVESTMENTS: 98.9%
(cost $30,082,788+)(Note 1)........................... 31,399,872
Other assets in excess of liabilities: 1.1%........... 337,265
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $12.51 per share
on 2,536,111 shares
outstanding)......................................... $31,737,137
===========
</TABLE>
- --------
/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.
15
<PAGE>
Lexington Natural Resources Trust
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (cost $30,082,788) (Note 1)................... $31,399,872
Cash................................................................ 430,808
Receivable for fund shares sold..................................... 953
Dividends and interest receivable................................... 14,987
-----------
Total Assets..................................................... 31,846,620
-----------
Liabilities
Due to Lexington Management
Corporation (Note 2) .............................................. 26,150
Payable for fund shares redeemed.................................... 51,861
Accrued expenses.................................................... 31,472
-----------
Total Liabilities................................................ 109,483
-----------
Net Assets (equivalent to $12.51 per share on 2,536,111 shares
outstanding) (Note 3).............................................. $31,737,137
===========
Net Assets consist of:
Additional paid-in-capital.......................................... $31,494,489
Undistributed net investment income................................. 113,523
Accumulated net realized loss on investments (Note 6)............... (1,187,959)
Unrealized appreciation of investments ............................. 1,317,084
-----------
Total Net Assets................................................. $31,737,137
===========
</TABLE>
Lexington Natural Resources Trust
Statement of Operations
Year ended December 31, 1999
<TABLE>
<S> <C> <C>
Investment Income
Dividends............................................... $ 509,637
Interest................................................ 64,618
----------
574,255
Less: foreign tax expense............................... 10,228
----------
Total investment income................................. $ 564,027
Expenses
Investment advisory fee (Note 2)........................ 338,700
Professional fees....................................... 30,437
Custodian expenses...................................... 5,014
Transfer agent.......................................... 1,552
Printing and mailing expenses........................... 5,380
Directors' fees and expenses............................ 16,945
Accounting expenses (Note 2)............................ 29,990
Registration fees....................................... 1,231
Computer processing fees................................ 11,475
Other expenses.......................................... 9,712
----------
Total expenses.......................................... 450,436
----------
Net investment income................................... 113,591
Realized and Unrealized Gain on Investments (Note 4)
Net realized gain on investments......................... 1,242,484
Net change in unrealized appreciation of investments..... 2,883,412
----------
Net realized and unrealized gain......................... 4,125,896
----------
Increase in Net Assets Resulting from Operations......... $4,239,487
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
16
<PAGE>
Lexington Natural Resources Trust
Statement of Changes in Net Assets
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operations:
Net investment income................................ $ 113,591 $ 201,733
Net realized gain (loss) from investments............ 1,242,484 (2,286,879)
Net change in unrealized appreciation (depreciation)
of investments ..................................... 2,883,412 (8,067,438)
----------- -----------
Net increase (decrease) in net assets resulting
from operations................................... 4,239,487 (10,152,584)
----------- -----------
Distributions to Shareholders: (Note 1)
Distributions to shareholders from net investment
income.............................................. (201,233) (246,500)
Distributions to shareholders from net realized gains
from security transactions.......................... -- (2,842,852)
----------- -----------
Decrease in net assets from distributions........... (201,233) (3,089,352)
----------- -----------
Capital Share Transactions: (Note 3)
Proceeds from sale of shares......................... 11,201,809 8,218,783
Reinvested dividends................................. 201,233 3,089,351
Cost of shares redeemed.............................. (19,122,133) (27,911,086)
----------- -----------
Net decrease in net assets from capital share
transactions....................................... (7,719,091) (16,602,952)
----------- -----------
Net decrease in net assets........................... (3,680,837) (29,844,888)
Net Assets:
Beginning of period.................................. 35,417,974 65,262,862
----------- -----------
End of period (including undistributed net investment
income of $113,523 and $201,165 in 1999 and 1998,
respectively)....................................... $31,737,137 $35,417,974
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
- -------------------------------------------------------------------------------
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1999 and 1998
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:
17
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1999 and 1998 (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 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 the
Trust's average daily net assets. For 1999, 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 year ended December 31, 1999.
The Trust also reimburses LMC for certain expenses, including accounting costs
of $29,990, which are incurred by the Trust, but paid by LMC.
18
<PAGE>
Lexington Natural Resources Trust
Notes to Financial Statements
December 31, 1999 and 1998 (continued)
3.Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1999 December 31, 1998
----------------------- ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold................ 902,368 $11,201,809 588,215 $ 8,218,783
Shares issued on
reinvestment of
dividends................. 15,895 201,233 274,122 3,089,351
---------- ----------- ---------- ------------
918,263 11,403,042 862,337 11,308,134
Shares redeemed............ (1,593,749) (19,122,133) (2,026,593) (27,911,086)
---------- ----------- ---------- ------------
Net decrease............... (675,486) $(7,719,091) (1,164,256) $(16,602,952)
========== =========== ========== ============
</TABLE>
4.Investment Transactions
The cost of purchases and proceeds from sales of investments for the year
ended December 31, 1999, excluding short-term securities, were $14,556,647 and
$24,532,732, respectively.
At December 31, 1999, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$3,535,039 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,217,955.
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.Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for Federal income tax purposes as of
December 31, 1999 are $1,187,960 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
may not be distributed to contractholders.
7.Tax Information (unaudited)
The following tax information represents the designation of various tax
benefits relating to the year ended December 31, 1999:
The percentage of investment company taxable income eligible for the dividends
received deduction available to certain corporate shareholders with respect to
the fiscal year ended December 31, 1999 is 100%.
The percentage of ordinary income distributions paid by the Trust derived from
agency and direct obligations of the United States government were as follows:
<TABLE>
<S> <C>
U.S. Treasury......................... 11.48%
Federal Home Loan Bank................ 9.14
</TABLE>
19
<PAGE>
Lexington Natural Resources Trust
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $11.03 $14.91 $14.29 $11.30 $ 9.71
------- -------- ------- ------- -------
Income (loss) from investment
operations:
Net investment income........... 0.06 0.08 0.06 0.05 0.06
Net realized and unrealized gain
(loss) on investments.......... 1.50 (2.98) 1.00 2.99 1.58
------- -------- ------- ------- -------
Total income (loss) from
investment operations........... 1.56 (2.90) 1.06 3.04 1.64
------- -------- ------- ------- -------
Less distributions:
Dividends from net investment
income......................... (0.08) (0.08) -- (0.05) (0.05)
Distributions from net realized
gains.......................... -- (0.90) (0.44) -- --
------- -------- ------- ------- -------
Total distributions.............. (0.08) (0.98) (0.44) (0.05) (0.05)
------- -------- ------- ------- -------
Net asset value, end of period... $12.51 $11.03 $14.91 $14.29 $11.30
======= ======== ======= ======= =======
Total return..................... 14.09% (19.62)% 7.15% 26.89% 16.87%
Ratio to average net assets:
Expenses........................ 1.33% 1.29% 1.25% 1.42% 1.47%
Net investment income........... 0.34% 0.42% 0.39% 0.40% 0.56%
Portfolio turnover rate.......... 41.94% 74.36% 114.16% 102.76% 149.18%
Net assets, end of period (000's
omitted)........................ $31,737 $35,418 $65,263 $37,934 $16,955
</TABLE>
20
<PAGE>
PART C. OTHER INFORMATION
- ------- -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1999 was filed
electronically on February 28, 2000 (as form type N-30D).
(a) Financial statements:
---------------------
Report of Independent Auditors
dated February 7, 2000
Statement of Net Assets
(including the Portfolio of
Investments) at December 31, 1999
Statement of Assets and
Liabilities at December 31, 1999
Statement of Operations
for the year ended December 31, 1999
Statement of Changes in Net Assets for
the year ended December 31, 1999 and 1998
Notes to Financial Statements
Schedules II-VII and other Financial Statements, for which provisions
are made in the applicable accounting regulations of the Securities and
Exchange Commission, are omitted because they are not required under
the related instructions, they are inapplicable, or the required
information is presented in the financial statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of Realized
Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Declaration of Trust - Filed electronically on 4/10/97 -
Incorporated by reference
2. By-Laws - Filed electronically on 4/10/97 -
Incorporated by reference
3. Not Applicable
4. Rights of Holders - Filed electronically on 4/24/98 -
Incorporated by reference
5. Investment Advisory Agreement between Registrant
and Lexington Management Corporation - Filed Electronically
on April 29, 1996 - Incorporated by reference
5a. Sub-Advisory Investment Management Agreement between
Registrant & Market Systems Research Advisors, Inc.- Filed
electronically on April 29, 1996 - Incorporated by reference
6. Distribution Agreement between Registrant
and Lexington Funds Distributor, Inc. - Filed electronically
on 4/10/97 - Incorporated by reference
7. Retirement Plan for Eligible Trustees - Filed electronically
On 4/24/98 - Incorporated by reference
8a. Form of Custodian Agreement between
Registrant and Chase Manhattan Bank, N.A. -
Filed electronically on 4/28/95 -
Incorporated by reference
8b. Transfer Agency Agreements between Registrant
and State Street Bank and Trust Company - Filed Electronically
on April 29, 1996 - Incorporated by reference
9. Form of Administrative Services Agreement between
Registrant and Lexington Management Corporation -
Filed electronically on 4/28/95 -
Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered - Filed electronically on 4/24/98 - Incorporated
by reference
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Performance Calculation - Filed electronically on 4/24/98 -
Incorporated by reference
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each
such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, (2) the percentage of voting
securities owned or other basis of control by the person, if any,
immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.
The following information is given as of April 16, 2000:
Title of Class Number of Record Holders
-------------- ------------------------
Shares of beneficial interest 15
(no par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any trustee, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by
any trustee, officer, affiliated person or underwriter for their own
protection.
Under the terms of the General Laws of the State of Massachusetts and
the Trust's Restated Declaration of Trust, the Trust shall indemnify each
of its Trustees to receive such indemnification (including those who serve
at its request as directors, officers or trustees of another organization
in which it has any interest as a shareholder, creditor or otherwise),
against all liabilities and expenses, including amounts paid in
satisfaction of judgements, in compromise of fines and penalties, and
counsel fees, reasonably incurred by him in connection with the defense or
disposition of any action, suit or other proceeding by the Trust or any
other person, whether civil or criminal, in which he may be involved or
with which he may be threatened, while in office or thereafter, by reason
of this being or having been such a Trustee, officer, employee or agent,
except with respect to any matter as to which he shall have been
adjudicated to have acted in bad faith or with willful misfeasance or
reckless disregard of duties or gross negligence; provided, however, that
as to any matter disposed of by a compromise payment by such Trustee,
officer, employee or agent, pursuant to a consent, decree or otherwise, no
indemnification either for said payment or for any other expenses shall be
provided unless the Trust shall have received a written opinion from
independent counsel approved by the Trustee to the effect that if the
foregoing matter had been adjudicated they would likely have been
adjudicated in favor of such Trustee, officer, employee or agent. The
rights accruing to any Trustee, officer, employee or agent under these
provisions shall not exclude any other right to which he may lawfully be
titled; provided, however, that no Trustee, officer, employee or agent may
satisfy any right of indemnity or reimbursement granted herein or to which
he may otherwise be entitled except out of Trust Property, and no
Shareholder shall be personally liable to any Person with respect to any
claim for indemnity or reimbursement or otherwise. The Trustees may make
advance payments in connection with indemnification under the Declaration
of Trust, provided that the indemnified Trustee, officer, employee or agent
shall have given a written undertaking to reimburse the Trust in the event
it is subsequently determined that he is entitled to such indemnification.
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser of the Registrant, and
each director, officer or partner of any such investment adviser, is or has
been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee.
See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Corporate Leaders Fund, Inc.
Lexington Natural Resources Trust
Lexington Corporate Leaders Trust Fund
Lexington Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Small Cap Asia Growth Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
Lexington Global Technology Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa Curcio* Vice President and Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President &
Vice President & Trustee Treasurer
Richard Lavery* Vice President Vice President
Janice McInerney* Assistant Treasurer None
(c)
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to
be maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR 270,
31a-1 to 31a-3) promulgated thereunder, furnish the name and address of
each person maintaining physical possession of each such account, book or
other document.
The Registrant, Lexington Natural Resources Trust, Park 80 West
Plaza Two, Saddle Brook, New Jersey 07663 will maintain physical
possession of each such account, book or other document of the Company,
except for those maintained by the Registrant's Custodian, Chase Manhattan
Bank, N.A., 1211 Avenue of the Americas, New York, New York 10036, or
Transfer Agent, State Street Bank and Trust Company, c/o National Financial
Data Services, City Center Square, 1100 Main, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B of this
Form (because the contract was not believed to be material to a purchaser
of securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid
and by whom for the last three fiscal years.
None.
Item 32. Undertakings -
------------
The Registrant, Lexington Natural Resources Trust undertakes to
furnish a copy of the Fund's latest annual report, upon request
and without charge, to every person to whom a prospectus is
delivered.
The Registrant will hold a meeting of its public shareholders, if
requested to do so by the holders of at least 10 percent of the
Registrant's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of a
trustee or trustees and to assist in communications with other
shareholders.
<PAGE>
Registration No. 33-26116
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON NATURAL RESOURCES TRUST
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Consent of Kramer, Levin, Naftalis & Frankel
Consent of independent auditors for the inclusion of their report herein
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it has met
all of the requirements for effectiveness of this amendments to the
Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amendment to be signed on its behalf by
the Undersigned, thereunto duly authorized, in the City of Saddle Brook
and State of New Jersey, on the 28th day of April, 2000.
LEXINGTON NATURAL RESOURCES TRUST
/s/ Robert M. DeMichele
________________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Amendment has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele
__________________________ Chairman of the Board April 28, 2000
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial April 28, 2000
Richard M. Hisey and Accounting Officer
and Trustee
/s/ Lisa Curcio
__________________________ Principal Compliance April 28, 2000
Lisa Curcio Officer
*SMS Chadha Trustee April 28, 2000
__________________________
SMS Chadha
*Beverley C. Duer, P.E. Trustee April 28, 2000
__________________________
Beverley C. Duer, P.E.
*Barbara R. Evans Trustee April 28, 2000
__________________________
Barbara R. Evans
<PAGE>
Signature Title Date
*Jerard F. Maher Trustee April 28, 2000
_________________________
Jerard F. Maher
*Andrew M. McCosh Trustee April 28, 2000
_________________________
Andrew M. McCosh
*Donald B. Miller Trustee April 28, 2000
_________________________
Donald B. Miller
*Allen H. Stowe Trustee April 28, 2000
_________________________
Allen H. Stowe
/s/ Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
Kramer, Levin, Naftalis & Frankel LLP
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT NUMBER
(212) 715-9100
April 25, 2000
Lexington Natural Resources Trust
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Re: Lexington Natural Resources Trust
File No. 33-26116; 811-5710
Registration Statement on Form N-1A
Dear Ladies and Gentlemen:
We hereby consent to the reference to our firm as Counsel in Post-
Effective Amendment No. 12 to the Registration Statement on Form N-1A filed
under Rule 485(b) of the Securities Act of 1933.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel LLP
Independent Auditors' Consent
To the Board of Trustees and Shareholders of
Lexington Natural Resources Trust:
We consent to the use of our report dated February 7, 2000 incorporated herein
by reference and to the references to our firm under the headings "Financial
Highlights" in the Prospectus and "Counsel and Independent Auditors" in the
Statement of Additional Information.
KPMG LLP
New York, New York
April 26, 2000
