DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
Gold experienced a volatile environment in 1998. After reaching a peak of
$314.05 per ounce in April, the price fell to a nineteen year low of $274.35 in
August and ended the year at $288.25, down slightly from $289.05 at the end of
1998. Following a brief rally in August/September, reflecting concerns of a
global financial crisis, selling pressure brought on by fears of central bank
selling ahead of the new European currency drove gold prices lower. For the
final quarter of 1998 gold fell 4.5% from the high reached in early October.
Throughout the year, demand for gold suffered in the face of global
economic slowing and lack of confidence in paper currencies. Consumption of
fabricated material fell 3% last year, but demand from the previously rapid
growth in the Asian region plummeted 30%. Mine production was up 2%, but this
was exacerbated by a 54% drop in hoarding and a 79% increase in scrap sales.
The latter two events were evidence of the lack of faith in paper currencies
especially in Asia.
The Lexington Strategic Investments Fund produced a negative return of
11.1%* for 1998. This performance was generally in line with the decline of
10.9% for the funds monitored by Lipper, Inc., but lagged the annual return for
the unmanaged Johannesburg Gold Index. For the fourth quarter, however, the
Fund's decline of 13.9% outperformed the Johannesburg Index by a wide margin.
The latter reported a negative return of 21%.
The outlook for gold in 1999 can best be described as cautious. Asian
economies appear to be bottoming but the timing of a recovery is difficult to
call. Central European Bank selling fears have abated but demand growth on a
worldwide scale is problematic. As a result, we expect the gold price to remain
in a range of $285-$310 per ounce until the global economy recovers.
Looking ahead, we expect the trends of last year to continue into 1999 in
the South African gold mining industry: consolidation and cost cutting. While
these trends will reduce the available investment opportunities in South
Africa, the survivors will be stronger, better capitalized companies.
Consolidation, on a global basis, is also underway. Late in the last quarter,
Placer Dome, a Canadian mining entity announced a joint venture with Western
Areas Ltd. to develop and operate the South Deep gold deposit in South Africa.
This transaction represents the first time a senior North American producer has
invested in South Africa. Other such investments can be expected by the well
capitalized North Americans in both South Africa and Australia. This
consolidation wave could actually accelerate if gold prices stay in a narrow
range and put financial pressure on the smaller mining companies hungry for
development funding. As mentioned in the 1998 report to shareholders the Fund
will also continue to search for opportunities throughout the African continent
for resource related investments.
Sincerely,
[GRAPHIC OMITTED][GRAPHIC OMITTED]
/s/ James A. Vail /s/ Robert M. DeMichele
- ------------------------ -----------------------------
James A. Vail Robert M. DeMichele
Portfolio Manager President
February, 1999 February, 1999
* -15.89%, -17.39% and -7.73% are the one year, five year and since
commencement (1/2/92) average annual standard total returns, respectively,
for the period ended December 31, 1998. 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, 1998 (unaudited)
Number of Value
Shares Security (Note 1)
=======================================================================
COMMON STOCKS: 93.7%
CANADA: 11.6%
47,200 Barrick Gold Corporation ................. $ 920,400
50,000 Etruscan Resources, Inc.1 ................ 19,858
100,000 Golden Knight Resources, Inc.1 ........... 29,298
50,000 Namibian Minerals Corporation1 ........... 60,156
75,000 Placer Dome, Inc. ........................ 862,500
30,000 Sutton Resources, Ltd.1 .................. 128,911
----------
2,021,123
----------
GHANA: 4.4%
81,969 Ashanti Goldfields Company, Ltd.
(GDR) .................................... 768,459
----------
SOUTH AFRICA: 63.5%
15,000 Anglo American Corporation of
South Africa, Ltd. ....................... 422,771
703 Anglo American Investment Trust,
Ltd. ..................................... 8,395
70,149 Anglo American Platinum
Corporation, Ltd. ........................ 962,331
68,576 Anglogold, Ltd. .......................... 2,671,875
5,795 Anglogold, Ltd. (ADR) .................... 113,365
136,363 Anglovaal Mining, Ltd. ................... 417,252
447,918 Avgold, Ltd.1 ............................ 243,656
150,000 Barnato Exploration, Ltd.1 ............... 50,998
142,500 Driefontein Consolidated, Ltd. ........... 577,740
262,080 Durban Roodepoort Deep, Ltd. ............. 723,963
154,480 Durban Roodepoort Deep, Ltd.
(Options)1 ............................... 68,146
33,700 Durban Roodepoort Deep, Ltd.
(Warrants)1 .............................. 12,603
116,000 Gencor, Ltd. ............................. 195,219
162,696 Gold Fields, Ltd.1 ....................... 898,855
36,049 Gold Fields of South Africa, Ltd. ........ 67,409
213,656 Harmony Gold Mining, Ltd.1 ............... 987,901
29,460 Impala Platinum Holdings, Ltd. ........... 400,638
27,352 JCI Gold, Ltd.1 .......................... 21,388
200,000 New East Daggafontein Mines, Ltd. ........ 42,498
179,600 New Wits, Ltd. ........................... 53,429
33,123 Northam Platinum, Ltd. ................... 17,737
198,566 Randfontein Estates, Ltd. ................ 442,187
22,451 Randfontein Estates, Ltd. (Options)1 ..... 15,838
324,500 Randgold and Exploration Company,
Ltd.1 .................................... 159,971
Number of
Shares
or Principal Value
Amount Security (Note 1)
=======================================================================
SOUTH AFRICA (continued):
80,972 Sasol, Ltd. .............................. $ 306,263
175,900 St. Helena Gold Mines, Ltd. .............. 435,069
45,818 Vansa Vanadium S.A., Ltd.1 ............... -
22,219 Vogelstruisbult Metal Holdings, Ltd....... 38,148
200,000 West Rand Consolidated
Mines, Ltd.1 ............................. 220,990
159,484 Western Areas, Ltd.1 ..................... 519,177
-----------
11,095,812
-----------
UNITED STATES: 14.2%
45,000 Freeport McMoran Copper & Gold
"Class A" ................................ 435,938
42,100 Freeport McMoran Copper & Gold
"Class B" ................................ 439,419
83,400 Homestake Mining Company ................. 766,237
46,500 Newmont Mining Corporation ............... 839,906
-----------
2,481,500
-----------
TOTAL COMMON STOCKS
(cost $31,336,757)........................ 16,366,894
-----------
SHORT-TERM INVESTMENT: 5.7%
U.S. GOVERNMENT AGENCY
OBLIGATION
$1,000,000 Federal Home Loan Mortgage
Corporation, 4.50%, due 01/04/99
(cost $999,625)........................... 999,625
-----------
TOTAL INVESTMENTS: 99.4%
(cost $32,336,382+) (Note 1).............. 17,366,519
Other assets in excess of liabilities:
0.6% ..................................... 107,140
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $1.08 per share on
16,149,619 shares outstanding) ........... $17,473,659
===========
ADR - American Depository Receipt.
GDR - Global Depository Receipt.
1 Non-income producing security.
+ Aggregate cost for Federal income tax purposes is $32,951,176.
The Notes to Financial Statements are an integral part of this statement.
2
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $32,336,382) (Note 1) ..................................... $ 17,366,519
Cash .................................................................................. 107,956
Receivable for investment securities sold ............................................. 75,349
Receivable for shares sold ............................................................ 93,880
Dividends and interest receivable ..................................................... 10,753
-------------
Total Assets ...................................................................... 17,654,457
-------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ...................................... 7,325
Payable for shares redeemed ........................................................... 88,354
Distributions payable ................................................................. 10,275
Accrued expenses ...................................................................... 74,844
-------------
Total Liabilities ................................................................. 180,798
-------------
NET ASSETS (equivalent to $1.08 per share on 16,149,619 shares outstanding) (Note 3)... $ 17,473,659
=============
NET ASSETS consist of:
Capital stock-authorized 1,000,000,000 shares, $.001 par value per share .............. $ 16,149
Additional paid-in capital ............................................................ 67,835,365
Distributions in excess of net investment income ...................................... (44,031)
Accumulated net realized loss on investments and foreign currency transactions ........ (35,363,671)
Unrealized depreciation of investments and foreign currency translation of other assets
and liabilities ..................................................................... (14,970,153)
-------------
TOTAL NET ASSETS .................................................................. $ 17,473,659
=============
NET ASSET VALUE, REDEMPTION PRICE PER SHARE ........................................... $ 1.08
=============
OFFERING PRICE PER SHARE (100/94.25 of $1.08 adjusted to nearest cent)................. $ 1.15
=============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENT OF OPERATIONS
Six months ended December 31, 1998 (unaudited)
INVESTMENT INCOME
Dividends ............................ $ 283,666
Interest ............................. 41,977
----------
325,643
Less: foreign tax expense ............ 637
----------
Total investment income ............. $ 325,006
EXPENSES
Investment advisory fee
(Note 2) ........................... 101,329
Transfer agent and
shareholder servicing
expenses (Note 2) .................. 67,794
Printing and mailing
expenses ........................... 44,117
Professional fees .................... 17,210
Registration fees .................... 14,879
Custodian expenses ................... 11,110
Accounting expenses (Note 2) ......... 10,207
Directors' fees and expenses ......... 8,739
Computer processing fees ............. 3,588
Other expenses ....................... 21,356
----------
Total expenses ..................... 300,329
Less: expenses recovered
under contract with
investment adviser
(Note 2) ........................ 47,000 253,329
---------- ----------
Net investment income .............. 71,677
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 4)
Net realized gain (loss) on:
Investments ........................ (4,145,999)
Foreign currency
transactions ...................... 2,233
----------
Net realized loss ................. (4,143,766)
Net change in unrealized
appreciation on:
Investments ........................ 4,516,978
Foreign currency
translation of other
assets and liabilities ............ 1,731
----------
Net change in unrealized
appreciation ...................... 4,518,709
----------
Net realized and
unrealized gain ................. 374,943
----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................ $ 446,620
==========
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Six months
ended Year
December 31, ended
1998 June 30,
(unaudited) 1998
-------------- ---------------
Net investment income ................. $ 71,677 $ 311,771
Net realized loss from
investments and foreign
currency transactions .............. (4,143,766) (5,193,876)
Net change in unrealized
appreciation (depreciation) of
investments and foreign
currency translation ............... 4,518,709 (4,728,132)
----------- -----------
Net increase (decrease) in
net assets resulting
from operations ................. 446,620 (9,610,237)
Distributions to shareholders
from net investment income ......... (80,799) (345,646)
Decrease in net assets from
capital share transactions
(Note 3) ........................... (1,476,488) (2,663,286)
----------- -----------
Net decrease in
net assets ...................... (1,110,667) (12,619,169)
NET ASSETS
Beginning of period .................. 18,584,326 31,203,495
----------- -----------
End of period (including
distributions in excess of net
investment income of
$44,031 and $34,909
respectively) ..................... $17,473,659 $18,584,326
=========== ===========
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 (unaudited) and June 30, 1998
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 located primarily in South
Africa. The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements:
INVESTMENTS Securities transactions are accounted for on a trade date
basis. Realized gains and losses from investment transactions are reported on
the identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market and
bullion are valued at the mean between the last current bid and asked prices.
Short-term securities having a maturity of 60 days or less are stated at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued by 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.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. At December 31, 1998, the Fund had no forward
foreign currency contracts outstanding.
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. For
the year ended June 30, 1998, the Fund did not qualify as a regulated
investment company as the Fund's qualifying gross income did not exceed 90% of
its total gross income. As a result, the Fund accrued a tax liability at June
30, 1998, of $140,825. The difference between the combined Federal and state
statutory income tax rate of 43% and the effective tax rate of 31.1% is
primarily attributed to the corporate dividends received deduction available to
the Fund. Management anticipates the Fund will qualify as a regulated
investment company in fiscal 1999 and, as a result, will not be subject to
Federal and state corporate income taxes.
5
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 (unaudited) and June 30, 1998 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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 that
may differ from generally accepted accounting principles. At June 30, 1998,
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.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The 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 1998, 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 the Fund's average daily
net assets. Total reimbursement was $47,000 for the six months ended December
31, 1998, and is set forth in the statement of operations.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $20,424, 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, 1998 Year ended
(unaudited) June 30, 1998
------------------------------------ ----------------------------------
Shares Amount Shares Amount
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Shares sold ........................................ 14,278,152 $ 16,699,906 43,277,982 $ 56,943,518
Shares issued on reinvestment of dividends ......... 65,300 70,525 245,887 312,276
---------- ------------- ---------- -------------
14,343,452 16,770,431 43,523,869 57,255,794
Shares redeemed .................................... (15,324,145) (18,246,919) (43,887,327) (59,919,080)
----------- ------------- ----------- -------------
Net decrease ....................................... (980,693) $ (1,476,488) (363,458) $ (2,663,286)
=========== ============= =========== =============
</TABLE>
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the six months
ended December 31, 1998, excluding short-term securities, were $3,569,786 and
$4,064,875, respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$28,682 and aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value amounted to $15,613,339.
6
<PAGE>
LEXINGTON STRATEGIC INVESTMENTS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 (unaudited) and June 30, 1998 (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.
6. SUBSEQUENT EVENT
On February 18, 1999, the Board of Directors approved a resolution to merge the
Fund into the Lexington Goldfund, Inc. If approved by shareholders, the merger
will become effective on May 1, 1999.
================================================================================
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,
1998 --------------------------------------------------------
(unaudited) 1998 1997 1996 1995
-------------- ------------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $ 1.08 $ 1.78 $ 2.81 $ 2.51 $ 2.48
------- -------- -------- ------ -------
Income (loss) from investment operations:
Net investment income ............................ 0.01 0.02 0.03 0.02 0.04
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions .................................... - (0.70) (1.02) 0.31 0.03
-------- -------- -------- ------ -------
Total income (loss) from investment
operations ...................................... 0.01 (0.68) (0.99) 0.33 0.07
Less distributions from net investment income ..... (0.01) (0.02) (0.04) (0.03) (0.04)
-------- -------- -------- ------- -------
Net asset value, end of period .................... $ 1.08 $ 1.08 $ 1.78 $ 2.81 $ 2.51
======== -------- -------- ------- -------
Total return** .................................... 1.28%* (38.40)% (35.51)% 13.02% 2.47%
Ratio to average net assets:
Expenses, before reimbursement or waivers......... 2.96%* 3.58% 1.93% 1.77% 1.70%
Expenses, net of reimbursement or waivers ........ 2.50%* 3.09% 1.93% 1.77% 1.70%
Net investment income, before
reimbursement or waivers ........................ 0.24%* 0.81% 1.24% 0.44% 1.54%
Net investment income ............................ 0.71%* 1.30% 1.24% 0.44% 1.54%
Portfolio turnover rate ........................... 40.05%* 94.47% 85.10% 84.44% 115.91%
Net assets, end of period (000's omitted) ......... $ 17,474 $ 18,584 $ 31,203 $58,164 $ 94,059
</TABLE>
* Annualized
** Sales load is not reflected in total return.
7
<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
OUTSIDE U.S. (201) 845-7300
---------------------------------------------------
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
-----------------------------------
[GRAPHIC OMITTTED]
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, 1998
