Dear Shareholders:
- --------------------------------------------------------------------------------
During 1995 the gold price experienced one of its least volatile periods
since the metal began trading freely. A strong base was provided by heavy
physical demand whenever the gold price reached the low $370 and ounce range
while above $390 an ounce producer forward selling and central bank sales kept a
lid on the price. Gold shares in North America advanced modestly on average
while gold shares in Australia declined slightly. In South Africa, however,
after two years of excellent gains, these more volatile shares were down a
substantial 33.6% in local terms and 25.8% in U.S. dollar terms as measured by
the unmanaged Johannesburg All Gold Index. These declines resulted from an
explosion in unit costs produced by unauthorized work stoppages, more holidays,
increased wages, and lower grades with no relief from a higher local gold price.
As the year progressed, however, the gold producers showed increasing signs of
coming to grips with these problems and the South African gold shares should
react significantly to a higher gold price.
The Lexington Strategic Investments Fund, after two years of being the top
performing gold fund as measured by Lipper Analytical Services, Inc.,
experienced a negative total return of 14.72%* for 1995 as a whole. While
comparing unfavorably with the average 1.68% positive return recorded by the 47
funds monitored by Lipper Analytical Services, Inc., most of which have low
exposure to South Africa, the Fund did significantly better than the average
South African gold share which was down 25.8% in U.S. dollar terms as measured
by the unmanaged Johannesburg All Gold Index.
_____________________________________________________________________________
GRAPH
Paper version of this shareholder report contains a graph comparing the
Lexington Strategic Investments Fund, Inc. vs. Johannesburg All Gold Index
_____________________________________________________________________________
1
<PAGE>
Despite being heavily concentrated in the South African gold shares,
Lexington Strategic Investments Fund did significantly better than the unmanaged
South African Index in part as a result of its significant holdings in gold and
platinum bullion as well as in two stocks of companies with operations largely
outside of that country in one case and totally outside in the other.
Additionally, emphasis was placed on some of the more defensive mines. We are
pleased that these measures substantially dampened the downside pressures of a
very difficult market. More recently we have cut back on the bullion holdings as
well as the two non-South African holdings in order to permit the Fund to
perform more aggressively in what we perceive to be a better gold market aided
by potential improvements in the South African gold mines.
1995 could be described as the annus horribilis for the South African gold
mining industry in terms of mine productivity. An increase in public holidays
from 4 to 12 together with unauthorized work stoppages and inefficient labor
practices combined to reduce gold production from 580 tons in 1994 to an
estimated 523 tons for last year. When combined with higher wages and a flat
local gold price operating margins fell dramatically after an improving trend
lasting from 1991 to 1994.
Fortunately, these problems are now being addressed by management and the
labor leadership has begun to realize that a robust gold mining industry is
vital to the well-being of its membership. Common interests have begun to be
forged. Importantly, a continuous work week is being considered. Alone among the
world's mines continuous operations have been impeded by holidays and the
prohibition against Sunday work. Given the high fixed costs of the deep South
African gold mines, these work interruptions are costly. While management has
become persuaded that they must share these cost saving benefits with labor,
union leadership has come to realize that proper shift management will not
result in major inevitable job losses. Additionally, more efficient use of the
work crews through multi-skilling should allow for significant improvements in
productivity. Also, mine management has looked at trimming the layers of middle
management that grew up during more prosperous times. Finally, the idea of more
efficiently consolidating operations as well as mineral rights has gained
greater acceptance as demonstrated by Gencor's sale to Randgold of a number of
its more marginal mines. The opportunities for cost savings are substantial and
a recent trip to South Africa has provided strong encouragement that the various
parties are serious about their implementation.
These changes will not come all at once. However, given the low valuations
of the South African gold mines (some $33 per ounce of reserves on average
versus $150 plus for the North Americans), an improvement in the gold price
together with cost improvements by the South African gold mines should provide a
powerful combination in favor of a renewed outperformance of these shares.
Lexington Strategic Investments Fund is uniquely positioned to benefit.
2
<PAGE>
We appreciate your continued support and welcome the opportunity to discuss
any questions you may have about your investment.
Sincerely,
Robert W. Radsch Robert M. DeMichele
Portfolio Manager President
January, 1996 January, 1996
*-19.66 and 7.30% are the one year and since commencement (1/2/92) average
annual standard total returns, respectively, for the period ended December 31,
1995. Prior to January, 1992 the Fund was managed by a different investment
adviser. Investment return and principal value of an investment will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than at
their original cost. These calculations include the maximum 5.75% initial sales
charge and assume reinvestment of dividends and capital gains at net asset
value. Total return represents past performance.
3
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (unaudited)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
GOLD MINING COMMON STOCKS: 93.7%
Ghana Gold Mining Shares: 1.8%
66,000 Ashanti Goldfields Company, Ltd. (ADR) ............... $ 1,336,500
-----------
South African Gold Mining Shares: 91.9%
25,000 Anglovaal, Ltd. "N"1 ................................. 1,015,228
820,800 Beatrix Mines, Ltd.1 7,375,827
1,032,500 Blyvooruitzicht Gold Mining Company, Ltd.1 ........... 1,713,987
50,000 DeBeers Consolidated Gold Mining Company, Ltd. ....... 1,515,983
1,434,800 Deelkraal Gold Mining Company, Ltd. .................. 1,141,698
295,800 Driefontein Consolidated, Ltd. ....................... 3,753,807
140,000 Durban Roodepoort Deep, Ltd.1 ........................ 1,210,043
67,400 Durban Roodepoort Deep, Ltd. New ordinaries1 ......... 591,796
67,400 Durban Roodepoort Deep, Ltd. (Options)1 .............. 224,235
701,600 East Rand Gold & Uranium Company ..................... 1,876,965
3,200,500 Eastern Transvaal Consolidated, Ltd. ................. 3,139,467
434,400 Elandsrand Gold Mining Company, Ltd. ................. 2,085,883
100,125 Free State Consolidated Gold Mines, Ltd. ............. 748,637
70,000 Gold Fields of South Africa, Ltd. .................... 2,179,997
789,300 Grootvlei Proprietary Mines, Ltd. .................... 1,732,583
433,300 Harmony Gold Mining, Ltd. ............................ 3,923,419
800,000 HJ Joel Mining Company, Ltd.1 ........................ 658,527
50,000 Impala Platinum Holdings, Ltd. ....................... 912,334
350,000 JCI, Ltd. ............................................ 2,761,009
134,700 Kinross Mines, Ltd. .................................. 1,275,113
23,000 Kloof Gold Mining Company, Ltd. ...................... 220,881
900,000 Lebowa Platinum Mines, Ltd.1 ......................... 740,842
75,000 Leslie Gold Mines, Ltd. (ADR) ........................ 380,610
371,700 Loraine Gold Mines, Ltd.1 ............................ 1,070,888
213,200 Northam Platinum Holdings, Ltd.1 ..................... 157,948
187,400 Randfontein Estates Gold Mining Company
Witwatersrand, Ltd. ................................ 1,208,369
562,500 Randgold and Exploration Company, Ltd. ............... 2,276,547
216,700 St. Helena Gold Mines, Ltd. .......................... 1,189,189
4
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (unaudited) (continued)
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
South African Gold Mining Shares (continued):
1,429,622 Target Exploration Company, Ltd.1 .................... $ 2,942,012
485,700 Unisel Gold Mines, Ltd. .............................. 1,266,058
46,700 Vaal Reefs Exploration & Mining Company, Ltd. ........ 3,024,064
651,400 Western Areas Gold Mining Company, Ltd. .............. 11,126,259
74,000 Western Deep Levels, Ltd ............................. 2,477,157
30,000 Western Deep Levels, Ltd (ADR) ....................... 1,003,995
152,600 Winkelhaak Mines, Ltd. ............................... 1,088,654
-----------
70,010,011
-----------
TOTAL COMMON STOCKS:
(cost $70,167,967) ................................. 71,346,511
-----------
CONVERTIBLE DEBENTURES: 1.9%
South Africa: 1.9%
$352,822 Target Exploration Company, Ltd., 11.25% due 1/1/97
(cost $497,083) .................................... 1,452,142
-----------
TOTAL INVESTMENTS: 95.6% (cost $70,665,050+)
(Note 1) ........................................... 72,798,653
Other assets in excess of liabilities: 4.4% .......... 3,388,856
-----------
TOTAL NET ASSETS: 100.0% (equivalent to $2.61 per
share on 29,236,364 shares outstanding) ............ $76,187,509
===========
*ADR - American Depository Receipt.
1Non-income producing securities.
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Assets and Liabilities
December 31, 1995 (unaudited)
Assets
Investments, at value (cost $70,665,050) (Note 1) ................ $ 72,798,653
Receivable for investment securities sold ........................ 5,538,619
Receivable for shares sold ....................................... 290,781
Dividends and interest receivable ................................ 43,197
Deferred reorganization expenses, net (Note 1) ................... 28,117
------------
Total Assets ................................................ 78,699,367
------------
Liabilities
Due to custodian bank ............................................ 1,134,517
Due to Lexington Management Corporation (Note 2) ................. 55,451
Payable for shares redeemed ...................................... 1,046,631
Distributions payable ............................................ 108,534
Accrued expenses ................................................. 166,725
------------
Total Liabilities ........................................... 2,511,858
------------
Net Assets (equivalent to $2.61 per share on 29,236,364 shares
outstanding) (Note 3) .......................................... $ 76,187,509
============
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
$.001 par value per share ...................................... $ 29,236
Additional paid-in capital........................................ 144,345,945
Undistributed net investment income............................... 367,856
Accumulated net realized loss on investments and
foreign currency holdings....................................... (70,689,364)
Net unrealized appreciation of investments and
foreign currency holdings....................................... 2,133,836
------------
$ 76,187,509
============
Net Asset Value, redemption price per share....................... $2.61
=====
Offering price per share
(100/94.25 of $2.61 adjusted to nearest cent)................... $2.76
=====
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
(Left Column)
Lexington
Strategic Investments Fund, Inc.
Statement of Operations
Six months ended December 31, 1995 (unaudited)
Investment Income
Income
Dividends......................... $1,278,134
Interest.......................... 93,672
----------
1,371,806
Less: foreign tax expense......... 197,678
----------
Total investment income......... $1,174,128
Expenses
Investment advisory fees
(Note 2)........................ 397,366
Accounting and shareholder
services expenses (Note 2)...... 77,076
Custodian and transfer agent
expenses........................ 187,835
Printing and mailing.............. 77,923
Directors' fees and expenses...... 5,289
Audit and legal................... 17,543
Registration fees................. 23,233
Amortization of deferred
reorganization expenses
(Note 1)........................ 13,989
Computer processing fees.......... 9,747
Other expenses.................... 37,521
----------
Total expenses.................. 847,522
-----------
Net investment income......... 326,606
Realized and Unrealized Gain (Loss)
on Investments (Note 4)
Net realized loss on:
Investments..................... (3,097,088)
Foreign currency transactions... (13,708)
----------
Net realized loss............. (3,110,796)
Net change in unrealized
appreciation (depreciation) on:
Investments..................... 7,936,467
Foreign currency
translations of other
assets and liabilities........ (179)
----------
Net change in unrealized
appreciation................ 7,936,288
-----------
Net realized and
unrealized gain............. 4,825,492
-----------
Increase in Net Assets Resulting
from Operations................... $ 5,152,098
===========
(Right Column)
Lexington
Strategic Investments Fund, Inc.
Statements of Changes in Net Assets
Years ended June 30, 1995 and 1994
Six months
ended
December 31, Year ended
1995 June 30,
(unaudited) 1995
----------- -------------
Net investment income.................. $ 326,606 $ 1,699,137
Net realized loss from
investment and foreign currency
transactions......................... (3,110,796) (4,939,047)
Increase (decrease) in unrealized
appreciation (depreciation)
of investments and foreign currency
transactions ........................ 7,936,288 (1,647,487)
----------- -----------
Net increase (decrease) in
net assets resulting
from operations...................... 5,152,098 (4,887,397)
Distributions to shareholders
from net investment income........... (731,482) (1,662,361)
Increase (decrease) in net assets
from capital share transactions
(Note 3)............................. (22,291,821) 27,108,968
----------- -----------
Net increase (decrease) in
net assets..................... (17,871,205) 20,559,210
Net Assets
Beginning of period.................. 94,058,714 73,499,504
----------- -----------
End of period (including
undistributed net investment
income of $367,856 and
$772,732, respectively)............ $76,187,509 $94,058,714
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
December 31, 1995 (unaudited) and June 30, 1995
1. Significant Accounting Policies
Lexington Strategic Investments Fund, Inc. (the "Fund") is an open end
diversified management investment company registered under the Investment
Company Act of 1940, as amended. The Fund's investment objective is capital
appreciation. Current income is a secondary objective. The following is a
summary of significant accounting policies followed by the Fund in the
preparation of its financial statements:
Investments Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a national securities exchange are
valued at the closing price or, in the absence of a recorded sale, at the mean
between the last reported bid and asked price. Securities traded on the
over-the-counter market and bullion are valued at the mean between the last
reported bid and asked price. Short-term securities are stated at amortized
cost, which approximates market value. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by management and approved in good faith by the Board of Directors.
Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income is accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
closed and are reported in the statement of operations. There were no foreign
currency exchange contracts outstanding at December 31, 1995.
Federal Income Taxes It is the Fund's intention 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 has been made.
Deferred Reorganization Expenses Reorganization expenses aggregating
$140,435 have been deferred and are being amortized on a straight line basis
over five years.
Distributions In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of June 30, 1995,
book and tax basis differences amounting to $11,002 have been reclassified from
undistributed net investment income to additional paid-in capital. In addition,
$22,521 was reclassified from accumulated net realized loss to undistributed net
investment income.
8
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
December 31, 1995 (unaudited) and June 30, 1995 (continued)
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1% of the Fund's average daily net assets up to $30
million and at an annual rate of .75% thereafter. The investment advisory
contract provides that the total annual expenses of the Fund (including
management fees, but excluding interest, taxes, brokerage commissions and
extraordinary expenses) will not exceed the level of expenses which the Fund is
permitted to bear under the most restrictive expense limitation imposed by any
state in which shares of the Fund are offered for sale. The investment advisory
fee is set forth in the accompanying statement of operations. No reimbursement
was required for the six months ended December 31, 1995.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
December 31, 1995 Year ended
(unaudited) June 30, 1995
------------------------- --------------------------
Shares Amount Shares Amount
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold.................................. 26,926,109 $ 72,708,810 106,249,102 $313,690,114
Shares issued on reinvestment of dividends... 237,773 622,968 461,700 1,417,415
---------- ------------ ----------- ------------
27,163,882 73,331,778 106,710,802 315,107,529
Shares redeemed.............................. (35,328,399) (95,623,599) (98,974,867) (287,998,561)
---------- ------------ ----------- ------------
Net increase (decrease)...................... (8,164,517) $(22,291,821) 7,735,935 $ 27,108,968
========== ============ =========== ============
</TABLE>
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the six months
ended December 31, 1995, excluding short term securities, were $27,561,779 and
$50,371,661, respectively.
At December 31, 1995, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$14,542,282, and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $12,408,446.
5. Investment and Concentration Risks
The Fund makes significant investments in foreign securities and has a policy of
investing in precious metals and in the securities of companies engaged in the
exploration, mining, processing, fabrication and distribution of natural
resources. There are certain risks involved in investing in foreign securities
or concentrating in specific industries that are in addition to the usual risks
inherent in domestic investments. These risks include those resulting from
potentially adverse political and economic developments as well as the possible
imposition of foreign exchange or other foreign governmental restrictions or
laws.
9
<PAGE>
Lexington Strategic Investments Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended
December 31, Year ended June 30,
1995 --------------------------------------
(unaudited) 1995 1994 1993 1992
----------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period........ $2.51 $2.48 $2.30 $1.26 $2.54
Income (loss) from investment operations:
Net investment income..................... .02 .04 .04 .03 -
Net realized and unrealized gain (loss)
on investments.......................... .11 .03 .18 1.01 (1.27)
----- ----- ----- ----- -----
Total income (loss) from investment
operations................................ .13 .07 .22 1.04 (1.27)
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income...... (.03) (.04) (.04) - (.01)
----- ----- ----- ----- -----
Net asset value, end of period.............. $2.61 $2.51 $2.48 $2.30 $1.26
===== ===== ===== ===== =====
Total return**.............................. 10.25%* 2.47% 9.26% 82.54% (50.14%)
Ratios to average net assets:
Expenses, before reimbursement............ 1.77%* 1.70% 1.76% 3.76% 2.82%
Expenses, net of reimbursement............ 1.77%* 1.70% 1.76% 2.78% 2.50%
Net investment income (loss), before
reimbursement........................... .68%* 1.54% 2.00% 2.05% (0.10%)
Net investment income..................... .68%* 1.54% 2.00% 3.03% 0.22%
Portfolio turnover.......................... 62.50%* 115.91% 25.66% 4.80% 13.92%
Net assets, end of period (000's omitted)... $76,188 $94,059 $73,500 $43,816 $14,402
<FN>
**Annualized
**Sales load is not reflected in total return.
</FN>
</TABLE>
10
<PAGE>
(Left column)
Lexington Strategic
Investments Fund, Inc.
Investment Adviser
- --------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Distributor
- --------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
- --------------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
- --------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
- --------------------------------------------
This report has been prepared for the
information of the shareholders of Lexington
Strategic Investments Fund, Inc. and is
authorized for distribution to the public
only if it is accompanied or preceded by a
currently effective prospectus which sets
forth expenses and other material
information.
(Right column)
-------------------------------------------
LEXINGTON
-------------------------------------------
-------------------------------------------
LEXINGTON
STRATEGIC
INVESTMENTS
FUND, INC.
(filled box)
Seeks capital appreciation.
The Fund's investments
are concentrated in the
common stock of gold
and other precious metals
mining companies located
in the Republic of South Africa.
(filled box)
SEMI-ANNUAL REPORT
DECEMBER 31, 1995
-------------------------------------------
