Dear Shareholders:
- -------------------------------------------------------------------------------
The gold bullion price was down slightly in U.S. dollar terms for the first
half of 1996, from $391 an ounce on January 2 to $380 an ounce on June 28, while
the price of gold in South African Rands was up 15.7% due to a sharp fall in the
value of the South African currency. This percentage increase in the South
African price of gold is equivalent in South African terms to the dollar price
of gold having gone up $65 an ounce from $391 to $456. Given the major leverage
of gold company earnings in South Africa to the local price of gold, this
increase will have a major positive impact on that country's gold producing
companies in terms of profitability.
CHART/BEGIN
Printed version of this shareholder report contains a
graphic chart indicating the price of gold in South
African Rands per ounce from 12/29/95 through 6/28/96
CHART/END
When we turn to the action of the South African gold shares in U.S. dollars
(to include the translation losses from the weak South African Rand) we see a
more modest appreciation during the first half of 1996. After a spectacular run
from January 2 to February 7-up over 40%-the shares began to establish a base in
late February with that base falling in early June. For the full six months the
unmanaged Financial Times African Gold Mines Index was up 7.0% compared with a
gain of 5.4% for the similarly unmanaged Financial Times All Gold Mines Index.
Although the South African gold shares did a bit better than the average
worldwide gold share, the differential was less than the huge difference in the
relative movements of the respective local gold prices would suggest.
1
<PAGE>
CHART/BEGIN
Printed version of this shareholder report contains a
graphic chart indicating the Financial Times African
Gold Mines Index from 12/29/95 through 6/28/96
CHART/END
Lexington Strategic Investments Fund, produced a total return of 7.66%* for
the first six months of 1996. While comparing favorably with the movement in the
unmanaged Financial Times All Gold Mines Index, the Fund' s performance was
disappointing when compared with the other gold funds which showed an average
total return of 14.82%. Unfortunately, at the beginning of the year, 24% of the
Fund was invested in two gold mining companies, Western Areas and Beatrix,
which, after having steadily outperformed their compatriots for some time
stalled out while the other South African gold shares were showing substantial
gains. Both companies decided to fund major capital expenditure programs with
large gold forward sales provoking a distinct lack of enthusiasm on the part of
their shareholders. By the time the shares had been substantially cut back the
major upward move had already taken place. We are pleased to report that in the
second quarter of 1996, after remedial action had been taken, the Fund responded
by outperforming the competition and placing tenth out of the 47 gold funds
monitored by Lipper Analytical Services, Inc.
As we look ahead we see profitability for the gold mines in South Africa
significantly bolstered by a strong local gold price. Meanwhile the South
African gold shares continue to be extremely cheap in terms of ounces of gold
reserves in the ground when compared with gold mines elsewhere. The problem has
been the high costs associated with the extraction of those reserves. Signs are
beginning to emerge that some progress is taking place in terms of labor
flexibility regarding multiskilling which would allow incentives to be used in
order to attain greater productivity from the mining teams. Additionally,
management continues to push for continuous mining operations in return for
incentives which would allow for much more efficient use of facilities
2
<PAGE>
which had extremely high fixed costs. Labor, on their part, appear to be more
open to changes in work rules. There is reason to believe that productivity can
be improved which would have a major impact on profits. When combined with
modest valuations and a better local gold price, any productivity improvements
should have a significantly positive impact on the prices of the South African
gold shares.
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
July, 1996 July, 1996
CHART/BEGIN
Printed version of this shareholder report contains a
graphic chart indicating the comparison of change in
value of a $10,000 investment in Lexington Strategic
Investments Fund, Inc., the S&P 500 and Gold Bullion
(London Spot - U.S. Dollars) from 1/2/92 through 6/30/96
CHART/END
*6.65% and 8.23% are the one year and since commencement (1/2/92) average annual
standard total returns, respectively, for the period ended June 30, 1996. 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)
June 30, 1996
Number of
Shares or
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------
GOLD MINING COMMON STOCKS: 94.8%
South Africa: 94.8%
23,800 Anglovaal, Ltd. "N" ............................... $ 868,854
220,800 Beatrix Mines, Ltd. ............................... 1,772,828
1,127,500 *Blyvooruitzicht Gold Mining Company, Ltd. ......... 1,901,744
122,800 Driefontein Consolidated, Ltd. .................... 1,645,656
90,000 *Durban Roodepoort Deep, Ltd. ...................... 810,998
67,400 *Durban Roodepoort Deep, Ltd. (Options) ............ 295,887
67,400 *Durban Roodepoort Deep, Ltd. (Preferred shares) ... 638,494
411,600 East Rand Gold & Uranium Company, Ltd. ............ 979,547
2,450,500 Eastern Transvaal Consolidated, Ltd. .............. 4,048,308
409,600 Elandsrand Gold Mining Company, Ltd. .............. 2,318,669
584,700 Grootvlei Proprietary Mines, Ltd. ................. 1,486,067
211,400 Harmony Gold Mining, Ltd. ......................... 2,022,172
800,000 *HJ Joel Mining Company, Ltd. ...................... 720,887
160,300 JCI, Ltd. ......................................... 1,574,110
127,900 Kinross Mines, Ltd. ............................... 1,359,381
101,600 Kloof Gold Mining Company, Ltd. ................... 962,477
915,900 *Lebowa Platium Mines, Ltd. ........................ 592,542
238,700 *Loraine Gold Mines, Ltd. .......................... 865,894
850,000 *Oryx Gold Holdings, Ltd. .......................... 1,885,397
239,700 Randfontein Estates Gold Mining Company
Witwatersrand, Ltd. ............................. 1,467,664
579,500 Randgold and Exploration Company, Ltd. ............ 3,052,819
618 Rustenburg Platinum Holdings, Ltd. (ADR) .......... 9,633
43,000 Rustenburg Platinum Holdings, Ltd ................. 670,633
120,900 St. Helena Gold Mines, Ltd. ....................... 698,360
75,000 Southvaal Holdings, Ltd ........................... 2,685,998
1,338,444 *Target Exploration Company, Ltd. .................. 5,380,990
590,800 Unisel Gold Mines, Ltd. ........................... 2,184,104
39,700 Vaal Reefs Exploration & Mining Company, Ltd. ..... 3,242,595
197,700 Western Areas Gold Mining Company, Ltd. ........... 3,083,353
131,500 Western Deep Levels, Ltd. ......................... 4,861,368
28,200 Western Deep Levels, Ltd. (ADR) ................... 1,029,300
-----------
TOTAL GOLD MINING COMMON STOCKS
(cost $51,619,427) .............................. 55,116,729
-----------
CONVERTIBLE DEBENTURES: 2.3%
South Africa: 2.3%
$352,822 Target Convertible Debenture, 11.25% due 1/1/97
(cost $291,628) ................................. 1,369,549
-----------
TOTAL INVESTMENTS: 97.1% (cost $51,911,055(d))
(Note 1) ........................................ 56,486,278
Other assets in excess of liabilities: 2.9% ....... 1,677,943
-----------
TOTAL NET ASSETS: 100.0% (equivalent to $2.81
per share on 20,697,790 shares outstanding) ..... $58,164,221
===========
*ADR - American Depository Receipt.
*Non-income producing securities.
(d)Aggregate cost for Federal income tax purposes is $52,512,513.
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Assets and Liabilities
June 30, 1996
Assets
<TABLE>
<S> <C>
Investments, at value (cost $51,911,055) (Note 1) ........................................ $ 56,486,278
Cash ..................................................................................... 1,164,439
Receivable for investment securities sold ................................................ 690,289
Receivable for shares sold ............................................................... 48,938
Dividends and interest receivable ........................................................ 55,214
Deferred reorganization expenses, net (Note 1) ........................................... 15,074
------------
Total Assets ....................................................................... 58,460,232
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ......................................... 40,518
Payable for shares redeemed .............................................................. 129,010
Accrued expenses ......................................................................... 126,483
------------
Total Liabilities .................................................................. 296,011
------------
Net Assets (equivalent to $2.81 per share on 20,697,790 shares outstanding) (Note 3) ..... $ 58,164,221
============
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.001 par value per share ................. $ 20,707
Additional paid-in capital (Note 6) ...................................................... 103,395,131
Undistributed net investment income (Note 1) ............................................. 342,235
Accumulated net realized loss on investments and foreign currency holdings
(Notes 1 and 6) ........................................................................ (50,164,101)
Unrealized appreciation of investments and foreign currency holdings ..................... 4,570,249
------------
Total Net Assets ................................................................... $ 58,164,221
============
Net Asset Value, redemption price per share .............................................. $2.81
=====
Offering price per share (100/94.25 of $2.81 adjusted to nearest cent) ................... $2.98
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
Left Column
Lexington
Strategic Investments Fund, Inc.
Statement of Operations
Year ended June 30, 1996
Investment Income
Dividends ....................................... $2,022,431
Interest ........................................ 147,668
----------
2,170,099
Less: foreign tax expense ....................... 198,780
----------
Total investment income ....................... $1,971,319
Expenses
Investment advisory fees
(Note 2) ...................................... 737,722
Transfer agent and
shareholder servicing
expense (Note 2) .............................. 353,322
Printing and mailing expenses ................... 150,959
Accounting expenses (Note2) ..................... 81,363
Registration fees ............................... 48,111
Custodian fees ................................. 41,492
Amortization of reorganization .
costs (Note 1) ................................ 27,977
Professional fees .............................. 25,430
Computer processing fees ........................ 21,715
Directors fees .................................. 13,526
Other expenses .................................. 74,514
----------
Total expenses ................................ 1,576,131
----------
Net investment income ....................... 395,188
Realized and Unrealized Gain
on Investments (Note 4)
Net realized gain (loss) on:
Investments ................................... 3,574,501
Foreign currency
transactions ................................ (52,953)
----------
Net realized gain ......................... 3,521,548
Net change in unrealized
appreciation on:
Investments ................................... 10,378,087
Foreign currency
translations of other
assets and liabilities ...................... (5,386)
----------
Net change in unrealized
depreciation ................................ 10,372,701
-----------
Net realized and
unrealized gain ........................... 13,894,249
-----------
Increase in Net Assets Resulting
from Operations ................................. $14,289,437
===========
Right Column
Lexington
Strategic Investments Fund, Inc.
Statements of Changes in Net Assets
Year ended June 30, 1996 and 1995
1996 1995
----------- -----------
Net investment income .......................... $ 395,188 $ 1,699,137
Net realized gain (loss) from
investments and foreign
currency transactions ........................ 3,521,548 (4,939,047)
Change in unrealized
appreciation (depreciation)
of investments and foreign
currency translations ........................ 10,372,701 (1,647,487)
----------- -----------
Increase (decrease) in
net assets resulting
from operations .......................... 14,289,437 (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) ........................ (49,452,448) 27,108,968
----------- -----------
Increase (decrease) in
net assets ............................... (35,894,493) 20,559,210
Net Assets
Beginning of period .......................... 94,058,714 73,499,504
----------- -----------
End of period (including
undistributed net investment
income of $342,235 and
$772,732, respectively) ................... $58,164,221 $94,058,714
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
June 30, 1996 and 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. The investment concentration is currently in the common stock of
gold and other precious metals mining companies. 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 recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked price is used. Securities traded on the over-the-counter market and
bullion are valued at the mean between the last current bid and asked price.
Short-term securities having a maturity of 60 days or less are stated at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued by Fund
management in good faith under the direction of the Fund's Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. 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.
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 June 30, 1996.
Federal Income Taxes It is the Fund'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 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 June 30, 1996, reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distribution under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change.
Deferred Reorganization Expenses Reorganization expenses aggregating
$140,435 have been deferred and are being amortized on a straight line basis
over five years.
7
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
June 30, 1996 and 1995 (continued)
1. Significant Accounting Policies (continued)
Use of Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
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 1.00% of the Fund's average daily net assets up to
$30 million and at an annual rate of 0.75% thereafter. The investment advisory
contract provides that the total annual expenses of the Fund (including
management fees, but excluding interest, taxes, brokerage commission 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. No reimbursement was
required for the year ended June 30, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $159,191 which are incurred by the Fund, but paid
by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
June 30, 1996 June 30, 1995
---------------------------- -----------------------------
Shares Amount Shares Amount
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 67,142,109 $191,811,160 106,249,102 $313,690,114
Shares issued on reinvestment of dividends ......... 237,847 623,166 461,700 1,417,415
---------- ------------ ----------- ------------
67,379,956 192,434,326 106,710,802 315,107,529
Shares redeemed .................................... (84,083,047) (241,886,774) (98,974,867) (287,998,561)
---------- ------------ ----------- ------------
Net increase (decrease) .......................... (16,703,091) (49,452,448) 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 year ended
June 30, 1996, excluding short-term securities, were $115,087,332 and
$118,663,863 respectively.
At June 30, 1996, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$11,376,409 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $7,402,644.
8
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
June 30, 1996 and 1995 (continued)
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, all of which could affect the market and/or credit risk of the
investments.
6. Federal Income Taxes-Capital Loss Carryforwards
As of June 30, 1996, $13,839,966 of capital loss carryforwards have expired
and have been reclassified to additional paid-in capital. Capital loss
carryforwards1 available for federal income tax purposes as of June 30, 1996 are
approximately:
$11,422,434 expiring in 1997;
13,348,932 expiring in 1998;
1,703,574 expiring in 1999;
14,932,782 expiring in 2000;
591,575 expiring in 2001;
753,540 expiring in 2002;
2,902,447 expiring in 2003; and
4,076,418 expiring in 2004.
To the extent any future capital gains are offset by these losses, such
gains may not be distributed to shareholders.
1Temporary book-tax differences of $432,399 are the result of losses generated
from wash sales.
9
<PAGE>
Lexington Strategic Investments Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended June 30,
-------------------------------------------------
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
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 and foreign currency
transactions ................................... .31 .03 .18 1.01 (1.27)
----- ----- ----- ----- -----
Total income (loss) from investment
operations ....................................... .33 .07 .22 1.04 (1.27)
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income ............. (.03) (.04) (.04) - (.01)
----- ----- ----- ----- -----
Net asset value, end of period ..................... $2.81 $2.51 $2.48 $2.30 $1.26
===== ===== ===== ===== =====
Total return* ...................................... 13.02% 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 .................................. .44% 1.54% 2.00% 2.05% (0.10%)
Net investment income ............................ .44% 1.54% 2.00% 3.03% 0.22%
Portfolio turnover ................................. 84.44% 115.91% 25.66% 4.80% 13.92%
Average commissions paid on equity
security transactions** .......................... $0.03 - - - -
Net assets, end of period (000's omitted) .......... $58,164 $94,059 $73,500 $43,816 $14,402
<FN>
*Sales load is not reflected in total return.
**In accordance with recent SEC disclosure guidelines, average commissions are
calculated for the current period and not for prior periods.
</FN>
</TABLE>
10
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Strategic Investments Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Strategic
Investments Fund, Inc. as of June 30, 1996, 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 Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1996, by correspondence with the custodian. As to securities sold but not
delivered, we performed other appropriate auditing procedures. 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 Strategic Investments Fund, Inc. as of June 30, 1996, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
August 1, 1996
11
<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)
ANNUAL REPORT
JUNE 30, 1996
- -----------------------------------------------------------
