Dear Shareholders:
- --------------------------------------------------------------------------------
While gold bullion was down by 5.01% in U.S. dollar terms during 1996, when
measured in South African rand terms gold bullion actually showed an increase of
21.9% due to the extreme weakness of that country's currency. The high
sensitivity of gold company earnings to the local gold price was reflected in
part by the local price action of the South African gold shares which showed a
gain of 12.07% as measured by the unmanaged Johannesburg All Gold Index.
Unfortunately, that gain was transformed into a loss of 12.67% when translated
back into U.S. dollars. Historically, the magnified impact on earnings of a
higher local gold price caused by a weaker currency has more than compensated
for currency translation losses. This time, however, the local share gains fell
short of the currency losses. Local investors, who would normally flock to the
shares for protection against a weak currency, were still concerned about
productivity problems among the South African gold producers. Meanwhile, outside
investors had their eyes fixed on the downtrend in dollar gold prices.
During the year Lexington Strategic Investments Fund produced a negative
return of 11.07%* which was slightly better than the negative return of 12.67%
produced by the unmanaged Johannesburg All Gold Index measured in U.S. dollars.
A trip to South Africa in October provided an opportunity to find out what
managements have been doing in order to improve productivity. Encouragement was
provided for investors with productivity related incentive programs having a
marked effect on production at selected operations. These programs are now being
extended to other mines. Also, two major consolidations have taken place, Avgold
and Evander, with the prospect for exciting merger savings. Unfortunately, these
two consolidations have constricted the number of investment choices available
among the gold shares. Also, it appears that there will be further
consolidations in the future. We have therefore decided to expand the investment
horizons of the Fund to include limited participation in gold producers active
in gold production and exploration in the African continent but outside of South
Africa itself. This gives the Fund participation in the growing production in
that region of the world. Already, a number of the South African mining houses
have decided to pursue this route in order to achieve production growth. We are
excited about this added dimension to the Fund' s investment horizons.
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
February, 1997 February, 1997
*-16.21% and 3.34% are the one year and since commencement (1/2/92) average
annual standard total returns, respectively, for the period ended December 31,
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 and is not predictive of future
results.
1
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
GOLD MINING COMMON STOCKS: 96.2%
Ghana: 1.8%
63,000 Ashanti Goldfields Company, Ltd. ................................. $ 779,625
-----------
South Africa: 91.9%
23,800 Anglovaal, Ltd. "N" .............................................. 702,171
842,706 *Avgold, Ltd. ..................................................... 2,215,989
220,800 Beatrix Mines, Ltd. .............................................. 1,380,739
1,127,500 Blyvooruitzicht Gold Mining Company, Ltd. ........................ 1,144,977
4,009,000 *Consolidated Mining Corporation, Ltd. ............................ 599,958
50,200 DeBeers Consolidated Mining Company, Ltd. ........................ 1,440,803
157,800 Driefontein Consolidated, Ltd. ................................... 1,661,498
70,000 *Durban Roodepoort Deep, Ltd. ..................................... 523,785
67,400 *Durban Roodepoort Deep, Ltd. (Options) 237,755
67,400 Durban Roodepoort Deep, Ltd. (Preferred shares) .................. 576,377
359,900 East Rand Gold & Uranium Company, Ltd. ........................... 623,237
400,000 *Eastvaal Gold Holdings, Ltd. ..................................... 538,750
374,600 Elandsrand Gold Mining Company, Ltd. ............................. 1,841,968
127,900 Evander Gold Mines, Ltd. 1,066,404
50,000 Free State Consolidated Gold Mines, Ltd. ......................... 366,115
145,000 Free State Consolidated Gold Mines, Ltd. (ADR) ................... 1,042,188
52,000 Gold Fields of South Africa, Ltd. ................................ 1,434,101
359,700 Grootvlei Proprietary Mines, Ltd. ................................ 592,131
147,720 *Harmony Gold Mining, Ltd. ........................................ 1,223,764
800,000 *HJ Joel Mining Company, Ltd. ..................................... 790,166
50,000 Impala Platinum Holdings, Ltd. ................................... 499,733
263,316 JCI, Ltd. ........................................................ 2,589,534
1,415,900 *Lebowa Platinum Mines, Ltd. ...................................... 908,114
200,000 *New East Daggafontein Mines, Ltd. ................................ 555,853
850,000 *Oryx Gold Holdings, Ltd. ......................................... 1,264,779
239,700 Randfontein Estates Gold Mining Company Witwatersrand, Ltd.(ADR) . 1,240,138
304,500 *Randgold and Exploration Company, Ltd. ........................... 2,066,891
630 *Rustenburg Platinum Holdings, Ltd. (ADR) ......................... 8,592
75,000 Southvaal Holdings, Ltd .......................................... 2,188,671
100,900 St. Helena Gold Mines, Ltd. ...................................... 668,712
37,200 Vaal Reefs Exploration & Mining Company, Ltd. .................... 2,385,892
197,700 Western Areas Gold Mining Company, Ltd. .......................... 2,726,170
61,500 Western Deep Levels, Ltd. ........................................ 1,883,460
11,200 Western Deep Levels, Ltd. (ADR) .................................. 333,900
-----------
39,323,315
-----------
</TABLE>
2
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Number of
Shares or
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
United Kingdom: 2.5%
500,000 Lonrho Plc ....................................................... $ 1,065,284
-----------
TOTAL GOLD MINING COMMON STOCKS
(cost $48,913,476) ............................................. 41,168,224
-----------
CONVERTIBLE DEBENTURES: 1.9%
South Africa: 1.9%
$352,822 Avgold Convertible Debenture, 11.25% due 1/1/97 (cost $291,628) .. 822,183
-----------
SHORT-TERM INVESTMENTS: 4.2%
1,800,000 Federal Home Loan Mortgage Corporation
5.4% due 01/02/97 (cost $1,799,730) ............................ 1,799,730
-----------
TOTAL INVESTMENTS: 102.3% (cost $51,004,834+) (Note 1) ........... 43,790,137
Liabilities in excess of other assets: (2.3%) .................... (1,015,781)
-----------
TOTAL NET ASSETS: 100.0% (equivalent to $2.28 per share
on 18,799,473 shares outstanding) .............................. $42,774,356
===========
</TABLE>
ADR - American Depository Receipt.
*Non-income producing securities.
+Aggregate cost for Federal income tax purposes is $51,606,292.
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
Lexington Strategic Investments Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996 (unaudited)
Assets
<TABLE>
<S> <C>
Investments, at value (cost $51,004,834) (Note 1) ....................................... $ 43,790,137
------------
Cash .................................................................................... 88,158
Receivable for shares sold .............................................................. 87,594
Dividends and interest receivable ....................................................... 47,350
------------
Total Assets ........................................................................ 44,013,239
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ........................................ 33,566
Payable for shares redeemed ............................................................. 961,989
Distributions payable ................................................................... 86,976
Accrued expenses ........................................................................ 156,352
------------
Total Liabilities ................................................................... 1,238,883
------------
Net Assets (equivalent to $2.28 per share on 18,799,473 shares outstanding) (Note 3) .... $ 42,774,356
============
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares, $.001 par value per share ................ $ 18,799
Additional paid-in capital .............................................................. 98,927,636
Distributions in excess of net investment income (Note 1) ............................... (330,757)
Accumulated net realized loss on investments and foreign currency transactions (Note 1) . (48,626,426)
Unrealized depreciation of investments and foreign currency transactions ................ (7,214,896)
------------
Total Net Assets .................................................................... $ 42,774,356
============
Net Asset Value, redemption price per share ............................................. $2.28
=====
Offering price per share (100/94.25 of $2.28 adjusted to nearest cent) .................. $2.42
=====
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
(left column)
Lexington
Strategic Investments Fund, Inc.
Statement of Operations
Six months ended December 31, 1996 (unaudited)
Investment Income
Dividends ................................ $ 622,526
Interest ................................. 76,295
-----------
698,821
Less: foreign tax expense ................ 2,193
-----------
Total investment income ................ $ 696,628
Expenses
Investment advisory fees
(Note 2) ............................... 254,014
Transfer agent and
shareholder servicing
expense (Note 2) ....................... 144,420
Printing and mailing expenses ............ 51,158
Custodian expense ........................ 38,407
Accounting expenses (Note2) .............. 25,665
Amortization of deferred
reorganization costs (Note 1) .......... 14,129
Professional fees ........................ 12,518
Registration fees ........................ 12,373
Computer processing fees ................. 12,303
Directors fees and expenses .............. 8,149
Other expenses ........................... 27,986
-----------
Total expenses ......................... 601,122
------------
Net investment income ................ 95,506
Realized and Unrealized Gain
(Loss) on Investments (Note 4)
Net realized gain (loss) on:
Investments ............................ 1,558,377
Foreign currency
transactions ......................... (20,702)
-----------
Net realized gain .................. 1,537,675
Net change in unrealized
appreciation on:
Investments ............................ (11,789,920)
Foreign currency
translations of other
assets and liabilities ............... 4,775
-----------
Net change in unrealized
appreciation ......................... (11,785,145)
------------
Net realized and
unrealized loss .................... (10,247,470)
------------
Decrease in Net Assets Resulting
from Operations .......................... $(10,151,964)
============
(right column)
Lexington
Strategic Investments Fund, Inc.
Statements of Changes in Net Assets
Six months
ended Year
December 31, ended
1996 June 30,
(unaudited) 1996
----------- -----------
Net investment income .......................... $ 95,506 $ 395,188
Net realized gain on
investments and foreign
currency transactions ........................ 1,537,675 3,521,548
Net change in unrealized
appreciation oninvestments and foreign
currency translations ........................ (11,785,145) 10,372,701
----------- -----------
Net Increase (decrease) in
net assets resulting
from operations .......................... (10,151,964) 14,289,437
Distributions to shareholders
from net investment income ................. (768,498) (731,482)
Decrease in net
assets from capital share
transactions (Note 3) ...................... (4,469,403) (49,452,448)
----------- -----------
Net decrease in net assets ............... (15,389,865) (35,894,493)
Net Assets
Beginning of period .......................... 58,164,221 94,058,714
----------- -----------
End of period (including
distributions in excess of net
investment income of
$330,757 and undistributed
net investment income of
$342,235, respectively) .................... $42,774,356 $58,164,221
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
December 31, 1996 (unaudited) and June 30, 1996
1. Significant Accounting Policies
Lexington Strategic Investments Fund, Inc. (the "Fund") is an open-end
non-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 prices 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 forward
foreign currency exchange contracts outstanding at December 31, 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 Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund 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 June 30, 1996,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax
6
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
December 31, 1996 (unaudited) and June 30, 1996 (continued)
1. Significant Accounting Policies (continued)
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 fully amortized as of December 31, 1996.
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 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. No reimbursement was
required for the six months ended December 31, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $52,831, which were 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, 1996 Year ended
(unaudited) June 30, 1996
------------------------------ -----------------------------
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Shares sold 22,510,279 $ 60,333,259 67,142,109 191,811,160
Shares issued on reinvestment of dividends 304,015 680,994 237,847 623,166
----------- ----------- ----------- ------------
22,814,294 61,014,253 67,379,956 192,434,326
Shares redeemed (24,712,611) (65,483,656) (84,083,047) (241,886,774)
----------- ----------- ----------- ------------
Net decrease (1,898,317) (4,469,403) (16,703,091) $(49,452,448)
=========== =========== =========== ============
</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, 1996, excluding short-term securities, were $24,021,799 and
$28,286,437, respectively.
At December 31, 1996, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$4,394,372 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $11,609,268.
7
<PAGE>
Lexington Strategic Investments Fund, Inc.
Notes to Financial Statements
December 31, 1996 (unaudited) and June 30, 1996 (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.
8
<PAGE>
Lexington Strategic Investments Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months
ended Year ended June 30,
December 31, ---------------------------------------------
1996 1996 1995 1994 1993
(unaudited) ---- ---- ---- ----
-----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $2.81 $2.51 $2.48 $2.30 $1.26
----- ----- ----- ----- -----
Income (loss) from investment operations:
Net investment income ......................... 0.01 .02 .04 .04 .03
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................ (0.50) .31 .03 .18 1.01
----- ----- ----- ----- -----
Total income (loss) from investment
operations .................................... (0.49) .33 .07 .22 1.04
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income .......... (0.04) (.03) (.04) (.04) -
----- ----- ----- ----- -----
Net asset value, end of period .................. $2.28 $2.81 $2.51 $2.48 $2.30
===== ===== ===== ===== =====
Total return** .................................. (31.46%)* 13.02% 2.47% 9.26% 82.54%
Ratios to average net assets:
Expenses, before reimbursement
or waivers .................................. 2.13%* 1.77% 1.70% 1.76% 3.76%
Expenses, net of reimbursement
or waivers .................................. 2.13%* 1.77% 1.70% 1.76% 2.78%
Net investment income, before
reimbursement or waivers .................... 0.34%* .44% 1.54% 2.00% 2.05%
Net investment income ......................... 0.34%* .44% 1.54% 2.00% 3.03%
Portfolio turnover .............................. 91.79%* 84.44% 115.91% 25.66% 4.80%
Average commissions paid on equity
security transactions*** ...................... $0.01 $0.03 - - -
Net assets, end of period (000's omitted) ....... $42,774 $58,164 $94,059 $73,500 $43,816
</TABLE>
*Annualized
**Sales load is not reflected in total return.
***In accordance with recent SEC disclosure guidelines, the average commissions
are calculated, for the year ended in 1996 and forward, but not for prior
periods.
9
<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.
--------------------------------
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, 1996
--------------------------------
