DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
Following a brief rally in late October, gold bullion succumbed to
pessimism concerning further Central Bank sales with heavy producer forward
selling and fund short selling helping to drive gold prices down to $289.05 an
ounce at year's end compared with a price of $367.70 at the end of 1996. Gold
bullion investors have fixated on the potential for further Central Bank sales
prior to the formation of the European Central Bank, ignoring the fact that net
Central Bank sales for the year were estimated by the prestigious Gold Fields
Mineral Services, Ltd. Survey to have been significantly below 1993 levels, a
year of rising gold prices. Despite a healthy increase in fabrication demand,
principally for jewelry, a massive increase in producer forward selling together
with short selling by commodity and hedge funds overwhelmed the market adding to
an already substantial short position. By the end of the year, gold bullion was
down 21.39% from where it stood at the end of 1996.
Gold shares suffered as a result with the unmanaged Financial Times All
Gold Index down 41.97% for the year. As would be expected, the more leveraged
South African gold shares were down, on average, even more sharply by 47.93% as
measured by the unmanaged Financial Times African Gold Index. Of interest is the
fact that the South African gold shares actually did better on average than the
broader index during the latter half of the year (-22.01% versus -24.02%
respectively). This second half performance reflected a successful conclusion to
the wage negotiations, more serious efforts at productivity enhancement and
industry rationalization. In terms of industry rationalization, we have seen two
mega merger proposals--Anglogold and Goldco. In both cases, cost savings have
been a major consideration.
During 1997, Lexington Strategic Investments Fund produced a negative
return of 45.67%*. While this performance compares unfavorably with a negative
return of 42.33% for the average gold fund monitored by Lipper Analytical
Services, Inc., the Fund's return was better than the performance of the
unmanaged Financial Times African Gold Index. Helping the Fund were its holdings
of physical palladium as well as its holdings of platinum related shares. On the
other hand, some of the higher cost mines, such as those held by Randgold and
Exploration Company, performed poorly.
Looking forward, we see the South African gold mining industry undergoing a
major consolidation. The creation of Goldco and of Anglogold, will both
significantly reduce the alternatives available for investing in South African
gold mining. We have therefore begun investing in selective opportunities
outside the strict limits of the South African gold companies themselves.
Platinum and diamond related shares within South Africa helped the Fund's
performance as well as its direct investment in palladium. Exploration companies
in other
1
<PAGE>
African countries outside South Africa proper hold out the promise of future
growth. We are excited about the broader mandate of the Fund and while we look
forward to a reinvigorated South African gold mining industry post
consolidation, we also look forward to participating in other investment
opportunities throughout the huge and resource rich continent of Africa.
Sincerely,
/s/ Robert W. Radsch /s/ Robert M. DeMichele
- -------------------- -----------------------
Robert W. Radsch Robert M. DeMichele
Portfolio Manager President
February, 1998 February, 1998
*-48.82%, 9.75% and -7.16% are the one year, five year and since commencement
(1/2/92) average annual standard total returns, respectively, for the period
ended December 31, 1997. 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.
2
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997 (unaudited)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
PALLADIUM BULLION: 2.0%
1,972 fine ounces1
(cost $322,062) ................................ $ 401,370
----------
COMMON STOCK: 93.9%
AUSTRALIA: 0.1%
360,000 Ghana Gold Mines, Ltd.1 .......................... 16,420
----------
CANADA: 3.7%
50,000 Etruscan Resources, Inc.1 ........................ 139,411
100,000 Golden Knight Resources, Inc.1 ................... 236,195
50,000 Namibian Minerals Corporation1 ................... 150,000
30,000 Sutton Resources, Ltd.1 .......................... 202,303
180,000 West African Gold Corporation1 ................... 23,899
----------
751,808
----------
GHANA: 2.3%
61,969 Ashanti Goldfields Company, Ltd. (GDR) ........... 464,768
----------
SOUTH AFRICA: 85.4%
28,000 Anglo American Gold Investment Company, Ltd. ..... 1,058,698
68,954 Anglo American Platinum Corporation, Ltd. ........ 921,020
758,326 Avgold, Ltd.1 .................................... 592,156
611,600 Avmin, Ltd. ...................................... 735,224
150,000 Barnato Exploration, Ltd.1 ....................... 263,544
129,800 Beatrix Mines, Ltd. .............................. 446,772
467,866 Consolidated African Mines, Ltd. ................. 134,600
40,000 De Beers Centenary AG ............................ 813,751
70,000 Driefontein Consolidated, Ltd. ................... 474,688
75,000 Durban Roodepoort Deep, Ltd.1 .................... 107,884
67,400 Durban Roodepoort Deep, Ltd. (Options)1 .......... 36,357
33,700 Durban Roodepoort Deep, Ltd. (Warrants)1 ......... 6,752
359,900 East Rand Gold & Uranium Company, Ltd. ........... 440,043
400,000 Eastvaal Gold Holdings, Ltd.1 .................... 328,788
374,600 Elandsrand Gold Mining Company, Ltd. ............. 935,277
169,343 Evander Gold Mines, Ltd. ......................... 320,148
50,000 Free State Consolidated Gold Mines, Ltd. ......... 227,583
25,000 Free State Consolidated Gold Mines, Ltd. (ADR) ... 110,156
486,000 Gencor, Ltd. ..................................... 803,949
66,500 Gold Fields of South Africa, Ltd. ................ 1,018,062
180,630 Harmony Gold Mining, Ltd. ........................ 441,706
800,000 HJ Joel Mining Company, Ltd. ..................... 394,546
3
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1997 (unaudited)(continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
SOUTH AFRICA (CONTINUED):
98,000 Impala Platinum Holdings, Ltd. ................... $ 936,430
49,731 JCI, Ltd. ........................................ 222,271
200,000 New East Daggafontein Mines, Ltd. ................ 258,921
100,000 New Wits, Ltd. ................................... 197,787
850,000 Oryx Gold Holdings, Ltd.1 ........................ 558,940
365,700 RANDFONTEIN ESTATES GOLD MINING COMPANY
Witwatersrand, Ltd. .............................. 552,343
324,500 Randgold and Exploration Company, Ltd.1 .......... 420,099
50,000 Southvaal Holdings, Ltd .......................... 770,597
175,900 St. Helena Gold Mines, Ltd. ...................... 506,046
11,700 Vaal Reefs Exploration & Mining Company, Ltd. ... 468,832
200,000 West Rand Consolidated Mines, Ltd.1 .............. 152,065
172,700 Western Areas Gold Mining Company, Ltd. .......... 951,094
44,500 Western Deep Levels, Ltd. ........................ 822,998
-----------
17,430,127
-----------
UNITED KINGDOM: 2.4%
315,000 Lonrho Plc ....................................... 482,020
-----------
TOTAL COMMON STOCK
(cost $38,475,374) ............................. 19,145,143
-----------
PREFERRED STOCK: 0.7%
SOUTH AFRICA: 0.7%
87,080 Durban Roodepoort Deep, Ltd.
(cost $445,910) ................................ 143,154
-----------
TOTAL INVESTMENTS: 96.6% (cost $39,243,346+)
(Note 1) ....................................... 19,689,667
Other assets in excess of liabilities: 3.4% ...... 703,915
-----------
TOTAL NET ASSETS: 100.0% (equivalent to
$1.22 per share on
16,647,853 shares outstanding) ................. $20,393,582
===========
ADR -- American Depository Receipt.
GDR -- Global Depository Receipt.
1 Non income producing security.
+ Aggregate cost for Federal income tax purposes is $39,881,425.
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997 (unaudited)
ASSETS
Investments, at value (cost $39,243,346) (Note 1) .............. $ 19,689,667
Cash ........................................................... 214,625
Receivable for investment securities sold ...................... 1,142,862
Receivable for shares sold ..................................... 405,760
Dividends and interest receivable .............................. 2,868
Foreign taxes recoverable ...................................... 14,607
------------
Total Assets ................................................... 21,470,389
------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ............... 4,154
Payable for investment securities purchased .................... 226,065
Payable for shares redeemed .................................... 748,156
Distributions payable .......................................... 33,400
Accrued expenses ............................................... 65,032
------------
Total Liabilities .............................................. 1,076,807
------------
NET ASSETS (equivalent to $1.22 per share on 16,647,853 shares
outstanding) (Note 3) ....................................... $ 20,393,582
============
NET ASSETS consist of:
Capital stock--authorized 1,000,000,000 shares,
$.001 par value per share .................................... $ 16,657
Additional paid-in capital (Note 1) ............................ 82,897,945
Undistributed net investment income (Note 1) ................... 28,800
Accumulated net realized loss on investments and
foreign currency holdings (Note 1) ........................... (42,996,141)
Unrealized depreciation on investments
and foreign currency holdings ................................ (19,553,679)
------------
Total Net Assets .......................................... $ 20,393,582
============
NET ASSET VALUE, REDEMPTION PRICE PER SHARE .................... $ 1.22
============
OFFERING PRICE PER SHARE (100/94.25 of $1.22 adjusted
to nearest cent) ............................................ $ 1.29
============
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENT OF OPERATIONS
SIX MONTHS ENDED DECEMBER 31, 1997 (UNAUDITED)
INVESTMENT INCOME
Dividends ............................ $ 512,841
Interest ............................ 45,718
------------
558,559
Less: foreign tax expense .............. 3,252
------------
Total investment income......
$ 555,307
Expenses
Investment advisory fee
(Note 2) .................... 133,141
Transfer agent and
shareholder servicing
expense (Note 2) ............ 102,110
Custodian expense ...................... 35,810
Printing and mailing
expenses .................... 33,409
Registration fees ...................... 16,685
Accounting expenses (Note 2) ........... 13,290
Professional fees ...................... 10,928
Directors' fees and expenses ........... 7,868
Computer processing fees ............... 5,638
Other expenses ......................... 24,844
------------
Total expenses .............. 383,723
Less: expenses recovered
under contract with
investment adviser (Note 2). 50,717 333,006
------------ ----------
Net investment income ...... 222,301
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 4)
Net realized loss on:
Investments ....................... (3,699,001)
Foreign currency
transactions .................... (17,357)
------------
Net realized loss ............. (3,716,358)
Net change in unrealized
depreciation on:
Investments ....................... (4,793,341)
Foreign currency
translation of other
assets and liabilities...... 392
------------
Net change in unrealized
depreciation .................... (4,792,949)
-----------
Net realized and
unrealized loss ............... (8,509,307)
-----------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ..................... $(8,287,006)
-----------
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Six months
ended Year
December 31, ended
1997 June 30,
(unaudited) 1997
------------ ------------
Net investment income ............. $ 222,301 $ 604,454
Net realized loss from
investments and foreign
currency transactions .......... (3,716,358) (564,051)
Net change in unrealized
depreciation of investments
and foreign currency
translation .................... (4,792,949) (19,330,979)
--------- ----------
Net decrease in
net assets resulting
from operations ............ (8,287,006) (19,290,576)
Distributions to shareholders
from net investment income ..... (345,646) (768,498)
Decrease in net assets from
capital share transactions
(Note 3) ....................... (2,177,261) (6,901,652)
---------- ---------
Net decrease in
net assets ............... (10,809,913) (26,960,726)
NET ASSETS
Beginning of period ............ 31,203,495 58,164,221
---------- ----------
End of period (including
undistributed net
investment income of
$28,800 and $152,145
respectively) ................ $20,393,582 $ 31,203,495
=========== ============
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (unaudited) and June 30, 1997
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 located primarily in South
Africa. The Fund may also invest in bullion which includes silver, platinum, and
palladium. 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 foward
foreign currency exchange contracts outstanding at December 31, 1997.
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, 1997,
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.
7
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (unaudited) and June 30, 1997 (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. For 1997, LMC has
voluntarily agreed to limit the total expenses of the Fund (including management
fees, but excluding interest, taxes, brokerage commissions and extraordinary
expenses) to an annual rate of 2.50% of average daily net assets. Total
reimbursement was $50,717 for the six months ended December 31, 1997, and is set
forth in the statement of operations.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $20,484, 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, 1997 Year ended
(unaudited) June 30, 1997
--------------------------------- ---------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 15,710,267 $ 23,183,408 40,011,394 $ 99,573,956
Shares issued on reinvestment of dividends ......... 245,864 312,246 304,025 681,017
------------- ------------- ------------- -------------
15,956,131 23,495,654 40,315,419 100,254,973
Shares redeemed .................................... (16,802,047) (25,672,915) (43,519,439) (107,156,625)
------------- ------------- ------------- -------------
Net decrease ..................................... (845,916) $ (2,177,261) (3,204,020) $ (6,901,652)
------------- ------------- ------------- -------------
</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, 1997, excluding short-term securities, were $8,272,274 and
$9,685,931, respectively.
At December 31, 1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$137,808 and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value amounted to $20,329,566.
8
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 (unaudited) and June 30, 1997 (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.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the potential inability of counterparties to
meet the terms of their contracts.
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,
1997 -----------------------------------------------
(unaudited) 1997 1996 1995 1994
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 1.78 $ 2.81 $ 2.51 $ 2.48 $ 2.30
---------- ---------- ----------- ---------- ----------
Income (loss) from investment operations:
Net investment income ................... 0.01 0.03 0.02 0.04 0.04
Net realized and unrealized gain (loss)
on investments and foreign
currency transactions ................. (0.55) (1.02) 0.31 0.03 0.18
---------- ---------- ----------- ---------- ----------
Total income (loss) from investment
operations ........................... (0.54) (0.99) 0.33 0.07 0.22
Less distributions:
Distributions from net investment
income ............................... (0.02) (0.04) (0.03) (0.04) (0.04)
---------- ---------- ----------- ---------- ----------
Net asset value, end of period ............ $ 1.22 $ 1.78 $ 2.81 $ 2.51 $ 2.48
========== ========== =========== ========== ==========
Total return** ............................ (59.77)%* (35.51%) 13.02% 2.47% 9.26%
Ratio to average net assets:
Expenses, before reimbursement
or waivers ............................ 2.88%* 1.93% 1.77% 1.70% 1.76%
Expenses, net of reimbursement
or waivers ............................ 2.50%* 1.93% 1.77% 1.70% 1.76%
Net investment income, before
reimbursement or waivers .............. 1.29%* 1.24% 0.44% 1.54% 2.00%
Net investment income ................... 1.67%* 1.24% 0.44% 1.54% 2.00%
Portfolio turnover rate ................... 65.25%* 85.10% 84.44% 115.91% 25.66%
Average commission paid on equity
security transactions*** ................ $ 0.01 $ 0.01 $ 0.03 -- --
Net assets, end of period (000's omitted) . $ 20,394 $ 31,203 $ 58,164 $ 94,059 $ 73,500
</TABLE>
*Annualized
**Sales load is not reflected in total return.
***In accordance with SEC disclosure guidelines, the average commissions are
calculated for the years beginning after June 1996, but not for prior periods.
10
<PAGE>
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.
--------------------------------------------------------
Seeks capital appreciation.
The Fund's investments
are concentrated in the
common stock of gold
and other precious metals
mining companies and bullion.
--------------------------------------------------------
SEMI-ANNUAL REPORT
DECEMBER 31, 1997
- --------------------------------------------------------------------------------
