PROSPECTUS
May 1, 1995
Lexington Goldfund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07662
Toll Free: Service - 1-800-526-0056
24 Hour Account Information - 1-800-526-0052
A NO-LOAD MUTUAL FUND WHOSE INVESTMENT OBJECTIVE IS TO SEEK CAPITAL APPRECIATION
AND A HEDGE AGAINST LOSS OF BUYING POWER THROUGH INVESTMENT IN GOLD AND GOLD
RELATED SECURITIES.
- --------------------------------------------------------------------------------
Lexington Goldfund, Inc. (the "Fund") is a no-load open-end
management investment company. The Fund's investment objective is to
attain capital appreciation and such hedge against loss of buying power
as may be obtained through investment in gold securities of companies
engaged in mining or processing gold throughout the world. The Fund
seeks the benefits of investing in gold and gold related securities, but
it is also subject to the risks involved in such investments. For a
description of the types of securities in which the Fund will invest,
see "Investment Policy" on page 3.
Shareholders may invest, reinvest or redeem shares at any time
without charge or penalty.
Lexington Management Corporation ("LMC") is the Investment Adviser
of the Fund. Lexington Funds Distributor, Inc. ("LFD") is the
Distributor of shares of the Fund.
This Prospectus concisely sets forth information about the Fund that
you should know before investing. It should be read and retained for
future reference.
A Statement of Additional Information dated May 1, 1995, which
provides a further discussion of certain areas in this Prospectus and
other matters which may be of interest to some investors, has been filed
with the Securities and Exchange Commission and is incorporated herein
by reference. For a free copy, call the appropriate telephone number
above or write to the address listed above.
Mutual fund shares are not deposits or obligations of (or endorsed
or guaranteed by) any bank, nor are they federally insured or otherwise
protected by the Federal Deposit Insurance Corporation ("FDIC"), the
Federal Reserve Board or any other agency. Investing in mutual funds
involves investment risks, including the possible loss of principal, and
their value and return will fluctuate.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
Annual Fund Operating Expenses (as a percentage of average net assets):
Management fees ....................................................... 0.83%
12b-1 fees ............................................................ 0.25%
Other expenses ........................................................ 0.46%
-----
Total Fund Operating Expenses ....................................... 1.54%
=====
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following expenses
on a $1,000 investment, assuming
(1) 5% annual return and
(2) redemption at the end of
each period ......................... $15.67 $48.64 $83.94 $183.45
The purpose of the foregoing table is to assist an investor in understanding the
various costs and expenses that an investor in the Fund will bear indirectly.
(For more complete descriptions of the various costs and expenses, see
"Investment Adviser and Distributor" below.) The Expenses and Example appearing
in the table above (other than the 12b-1 fees) are based on the Fund's expenses
for the period from January 1, 1994 to December 31, 1994. The 12b-1 fees shown
in the table reflect the maximum amount which may be paid under the Distribution
Plan. See "Distribution Plan." The Example shown in the table above should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Financial Highlights Information for each of the years in the
five year period ended December 31, 1994 has been audited by KPMG Peat Marwick
LLP, Independent Auditors, whose report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and related notes thereto included in the Statement of
Additional Information. The Fund's annual report, which contains additional
performance information, is available upon request and without charge.
- --------------------------------------------------------------------------------
Selected Per Share Data for a share outstanding throughout the period
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ....................... $ 6.90 $ 3.70 $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20 $ 4.49 $ 3.40 $ 3.05
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income ........ 0.03 0.01 0.02 0.04 0.04 0.05 0.04 0.01 0.04 0.02
Net realized and unrealized
gain (loss) on investments.. (0.53) 3.21 (0.98) (0.35) (1.36) 1.18 (0.98) 2.07 1.07 0.37
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations ........ (0.50) 3.22 (0.96) (0.31) (1.32) 1.23 (0.94) 2.08 1.11 0.39
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income........... (0.03) (0.02) (0.02) (0.04) (0.04) (0.05) (0.05) (0.05) (0.02) (0.04)
Distributions from net
realized capital gains...... - - - - - - - (0.32) - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions............. (0.03) (0.02) (0.02) (0.04) (0.04) (0.05) (0.05) (0.37) (0.02) (0.04)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period.. $ 6.37 $ 6.90 $ 3.70 $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20 $ 4.49 $ 3.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total return.................... (7.28%) 89.96% (20.51%) (6.14%) (20.35%) 23.62% (15.18%) 46.56% 32.65% 12.93%
Ratios to average net assets:
Expenses, net of
reimbursement............... 1.54% 1.63% 1.69% 1.43% 1.36% 1.42% 1.61% 1.29% 1.52% 1.52%
Net investment income......... 0.50% 0.25% 0.58% 0.81% 0.69% 1.14% 0.78% 0.57% 1.11% 0.71%
Portfolio turnover.............. 23.77% 28.41% 13.18% 22.14% 12.43% 15.98% 20.45% 13.78% 14.97% 30.20%
Net assets, end of period
(000's omitted)............... $159,435 $159,479 $71,856 $96,316 $106,074 $154,484 $92,782 $104,842 $24,605 $12,427
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
DESCRIPTION OF THE FUND
The Fund is an open-end management investment company. It is called a
no-load fund because its shares are sold without a sales charge.
INVESTMENT OBJECTIVE
The Fund's principal investment objective is to attain capital appreciation
and such hedge against loss of buying power as may be obtained through
investment in gold and equity securities of companies engaged in mining or
processing gold throughout the world (gold related securities). To the extent
that investments in gold and gold related securities appreciate in value
relative to the U.S. dollar, the Fund's investments may serve to offset erosion
in the purchasing power of the U.S. dollar. The Fund anticipates that, except
for defensive purposes, substantially all of its total assets will be invested
in gold and gold related securities. The Fund seeks the benefits of investing in
gold and gold related securities, but it is also subject to the risks involved
in such investments.
INVESTMENT CONSIDERATION
The Fund's performance and ability to meet its objective will generally be
largely dependent on the market value of gold. The Fund's professional
management seeks to maximize on advances and minimize on declines by monitoring
and anticipating shifts in the relative values of gold and the securities of
various gold related companies throughout the world. A substantial portion of
the Fund's investments will be in the securities of foreign issuers. There can
be no assurance that the Fund's objective will be achieved (see "Investment
Policy" and "Risk Considerations").
INVESTMENT POLICY
The Fund's management is of the belief that a gold investment medium will,
over the long term, protect capital from adverse monetary and political
developments of a national or international nature and, in the face of what
appears to be continuous worldwide inflation, may offer better opportunity for
capital growth than many other forms of investment. Throughout history, gold has
been thought of as the most basic monetary standard. Investments in gold may
provide more of a hedge against currencies with declining buying power,
devaluation, and inflation than other types of investments. Of course, there can
be no assurance that management's belief will be realized or that the investment
objective will be achieved. To the extent that investments in gold and gold
related securities appreciate in value relative to the U.S. dollar, the Fund's
investments may serve to offset erosion in the purchasing power of the U.S.
dollar (see "Risk Considerations").
In an attempt to attain its objective, the Fund invests its assets in gold
and in securities (which may include both equity and debt securities) of
companies engaged in mining or processing gold throughout the world. The Fund
may also invest in other precious metals including platinum, palladium and
silver. The market performance of debt securities of companies engaged in
mining and processing gold can be expected to be comparable to that of other
debt obligations and generally will not react to fluctuations in the price
of gold. An investment in the debt instruments of gold related companies,
therefore, cannot be expected to provide the hedge against inflation that may
be provided through investments in equity securities of companies engaged in
such activities.
It is anticipated that, except for defensive or liquidity purposes, at least
65% of the total assets of the Fund will be invested in gold and gold related
securities. At any time management deems it advisable for temporary defensive or
liquidity purposes, the Fund may hold all its assets in cash or cash equivalents
in the currency of any major industrial nation, and invest in, or hold unlimited
amounts of, debt obligations of the United States government or its political
subdivisions, and money market instruments including repurchase agreements with
maturities of seven days or less and Certificates of Deposit.
The Fund's investment portfolio may include repurchase agreements ("repos")
with banks and dealers in U.S. Government securities. A repurchase agreement
involves the purchase by the Fund of an investment contract from a bank or a
dealer in U.S. Government securities which contract is secured by debt
securities whose value is equal to or greater than the value of the repurchase
agreement including the agreed upon interest. The agreement provides that the
institution will repurchase the underlying securities at an agreed upon time and
price. The total amount received on repurchase would exceed the price paid by
the Fund, reflecting an agreed upon rate of interest for the period from the
date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the underlying securities. The difference
between the total amount to be received upon the repurchase of the securities
and the price paid by the Fund upon their acquisition is accrued daily as
interest. If the institution defaults
3
<PAGE>
on the repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral by the Fund may be delayed or limited
and the Fund may incur additional costs. In such case the Fund will be subject
to risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to transactions with
institutions believed by the adviser to present minimal credit risk.
It is LMC's present intention to manage the Fund's investments so that (i)
less than half of the value of its portfolio will consist of gold and other
(ii) more than half of the value of its portfolio will be invested in gold-
related securities, including securities of foreign issuers. Although the Fund's
Board of Directors' present policy prohibits investments in speculative
securities trading at extremely low prices and in relatively illiquid markets,
investments in such securities can be made when and if the Board determines such
investments to be in the best interests of the Fund and its shareholders. The
policies set forth in this paragraph are subject to change by the Board of
Directors of the Fund, in its sole discretion (see "Risk Considerations"
and "Dividend, Distribution and Reinvestment Policy").
The Fund's classification as a "non-diversified" investment company means
that the proportion of the Fund's assets that may be invested in the securities
of a single issuer is not limited by the Investment Company Act of 1940.
However, the Fund intends to conduct its operations so as to qualify as a
"regulated investment company" for purposes of the Internal Revenue Code, which
requires that, at the end of each quarter of the taxable year, (i) at least 50%
of the market value of the Fund's assets be invested in cash, U.S. Government
securities, the securities of other regulated investment companies and other
securities, with such other securities of any one issuer limited for the
purposes of this calculation to an amount not greater than 5% of the value of
the Fund's total assets, and (ii) not more than 25% of the value of its total
assets be invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies). Since a relatively high percentage of the Fund's assets may be
invested in the securities of a limited number of issuers, the Fund's portfolio
securities may be more susceptible to any single economic, political or
regulatory occurrence than the portfolio securities of a diversified investment
company.
The Fund does not intend to seek short-term trading profits, although
securities or gold may be sold whenever management believes it advisable,
regardless of the length of time any particular asset may have been held. The
Fund anticipates that its annual portfolio turnover rate will generally not
exceed 100%. A 100% turnover rate would occur if all of the Fund's portfolio
investments were sold and either repurchased or replaced within one year. High
turnover may result in increased transaction costs to the Fund; however, the
rate of turnover will not be a limiting factor when the Fund deems it desirable
to purchase or sell portfolio investments. Therefore, depending on market
conditions, the Fund's annual portfolio turnover rate may exceed 100% in a
particular year. For the fiscal year ended December 31, 1994, the portfolio
turnover rate was 23.77%.
RISK CONSIDERATIONS
Although there is some degree of risk in all investments, there are special
risks inherent in the Fund's policies of investing in gold and in the securities
of companies engaged in mining or processing gold, which include, among others,
the following:
1. FLUCTUATIONS IN THE PRICE OF GOLD. The price of gold has been subject to
dramatic downward and upward price movements over short periods of time and may
be affected by unpredictable international monetary and political policies, such
as currency devaluations or revaluations, economic conditions within an
individual country, trade imbalances, or trade or currency restrictions between
countries. The price of gold, in turn, is likely to affect the market prices of
securities of companies mining or processing gold, and accordingly, the value of
the Fund's investments in such securities may also be affected.
2. POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL OF
SALES. The two largest national producers of gold bullion are the Republic of
South Africa and the United States of America. Changes in political and economic
conditions affecting either country may have direct impact on that country's
sales of gold. Under South African law, the only authorized sales agent for gold
produced in South Africa is the Reserve Bank of South Africa, which through its
retention policies controls the time and place of any sale of South African
bullion. The South African Ministry of Mines determines gold mining policy.
South Africa depends significantly on gold sales for the foreign exchange
necessary to finance its imports, and its sales policy is necessarily subject to
national economic and political developments.
4
<PAGE>
3.INVESTMENTS IN PRECIOUS METALS. Unlike certain more traditional investment
vehicles such as savings deposits and stocks and bonds, which may produce
interest or dividend income, bullion earns no income return. Appreciation in
the market price of precious metals is the sole manner in which the Fund will be
able to realize gains on its investment in gold bullion. Furthermore, the
Fund may encounter storage and transaction costs in connection with its
ownership of bullion which may be higher than those attendant to the
purchase, holding and disposition of more traditional types of investments.
4. INVESTMENTS IN FOREIGN SECURITIES. A substantial portion of the Fund's
investments will be in the securities of foreign issuers. Investments in foreign
securities may involve risks greater than those attendant to investments in
securities of U.S. issuers. Publicly available information concerning issuers
located outside the U.S. may not be comparable in scope or depth of analysis to
that generally available for publicly held U.S. corporations. Accounting and
auditing practices and financial reporting requirements vary significantly from
country to country and generally are not comparable to those applicable to
publicly held U.S. corporations. Government supervision and regulation of
foreign securities exchanges and markets, securities listed on such exchanges or
traded in such markets and brokers, dealers, banks and other financial
institutions who trade the securities in which the Fund may invest is generally
less extensive than in the U.S., and trading customs and practices may differ
substantially from those prevailing in the U.S. The Fund may trade in certain
foreign securities markets which are less developed than comparable U.S.
markets, which may result in reduced liquidity of securities traded in such
markets. Investments in foreign securities are also subject to currency
fluctuations. For example, when the Fund's assets are invested primarily in
securities denominated in foreign currencies, an investor can expect that the
Fund's net asset value per share will tend to increase when the value of U.S.
dollars is decreasing as against such currencies. Conversely, a tendency toward
decline in net asset value per share can be expected when the value of U.S.
dollars is increasing as against such currencies. Changes in net asset value per
share as a result of foreign exchange rate fluctuations will be determined by
the composition of the Fund's portfolio at any given time. Further, it is not
possible to avoid altogether the risks of expropriation, burdensome or
confiscatory taxation, moratoriums, exchange and investment controls or
political or diplomatic events which might adversely affect the Fund's
investments in foreign securities or restrict the Fund's ability to dispose of
such investments.
5. TAX AND CURRENCY LAWS. The Fund's transactions in bullion may, under some
circumstances, preclude its qualifying for the special tax treatment available
to investment companies meeting the requirements of Subchapter M of the Internal
Revenue Code. However, the Fund may make investment decisions without regard to
the effect on its ability to qualify under Subchapter M of the Internal Revenue
Code, if deemed appropriate by LMC (see "Tax Matters"). In addition, changes
in the tax or currency laws of the U.S. (including, for example, rein-
statement of an interest equalization tax as was previously in effect) and of
foreign countries may inhibit the Fund's ability to pursue or may increase the
cost of pursuing its investment program.
6. UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL CONDITIONS. The
Fund's assets might be less liquid or the change in the value of its assets
might be more volatile (and less related to general price movements in the U.S.
securities markets) than would be the case with investments in the securities of
publicly traded U.S. companies, particularly because the price of gold may be
affected by unpredictable international monetary policies, economic and
political conditions, governmental controls, conditions of scarcity and surplus,
and speculation. In addition, the use of gold or Special Drawing Rights (which
are also used by members of the International Monetary Fund for international
settlements) to settle net deficits and surpluses in trade and capital movements
between nations subjects the supply and demand, and therefore the price, of gold
to a variety of economic factors which normally would not affect other types of
investments.
7. INTERNATIONAL AND DOMESTIC MONETARY SYSTEMS. Substantial amounts of gold
bullion serving as primary official reserve assets play a major role in the
international monetary system. Since December 31, 1974, when it again became
legal to invest in gold, several new markets have developed in the United
States. In connection with this legalization of gold ownership, the U.S.
Treasury and the International Monetary Fund embarked upon programs to dispose
of substantial amounts of gold bullion.
8. EXPERTISE OF THE INVESTMENT ADVISER. The successful management of the
Fund's portfolio may be more dependent upon the skills and expertise of its
investment adviser than is the case for most mutual funds because of the need to
evaluate the factors identified above.
5
<PAGE>
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in certain types of securities or engaging in
certain transactions. The most significant of these restrictions provide that:
(1) the Fund will not concentrate its investments by investing more than 25%
of its assets in the securities of issuers in any one industry. This
limit will not apply to gold and gold-related securities, and to
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities.
(2) the Fund will not invest in commodity contracts, except that the Fund
may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related
options, and may enter into forward currency contracts. Transactions in
gold, platinum, palladium or silver bullion will not be subject to this
restriction.
(3) the Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase transactions and (c) lend portfolio securities
provided that the value of such loaned securities does not exceed
one-third of the Fund's total assets.
(4) the Fund will not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) the Fund may pledge its portfolio securities or receivables or
transfer or assign or otherwise encumber then in an amount not exceeding
one-third of the value of its total assets; and (e) for purposes of
leveraging, the Fund may borrow money from banks (including its
custodian bank), only if, immediately after such borrowing, the value of
the Fund's assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all assets fails
to meet the 300% asset coverage requirement relative only to leveraging,
the Fund will, within three days (not including Sundays and holidays),
reduced its borrowings to the extent necessary to meet the 300% test.
The Fund will only invest in reverse repurchase agreements up to 5% of
the Fund's total assets.
The forgoing investment restrictions (as well as certain others set forth in
the Statement of Additional Information) are matters of fundamental policy which
may not be changed without the affirmative vote of the majority of the
shareholders of the Fund.
The investment policies described bellow are non-fundamental, therefore,
changes to such policies may be made in the future by the Board of Directors
without the approval of the shareholders of the Fund:
(1) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days. Securities
that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
(2) The Fund will not write, purchase or sell puts, calls or combinations
thereof. However, the Fund may invest up to 15% of the value of its
assets in warrants. This restriction on the purchase of warrants does
not apply to warrants attached to, or otherwise included in, a unit with
other securities.
6
<PAGE>
(3) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
The Statement of Additional Information contains a complete description of
the Fund's restrictions and additional information on policies relating to the
investment of its assets and its activities.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Directors. There are currently ten directors (of whom eight are
non-affiliated persons) who meet four times each year. The Statement of
Additional Information contains additional information regarding the directors
and officers of the Fund.
PORTFOLIO MANAGER
Robert W. Radsch, CFA, is Vice President and Portfolio Manager of the Fund.
He is also Vice President of Lexington Management Corporation. Prior to joining
Lexington in July 1994, he was Senior Vice President, Portfolio Manager and
Chief Economist for the Bull & Bear Group. He has extensive experience managing
gold, silver and platinum on an international basis having managed precious
metals and international funds for more than 12 years. Mr. Radsch is a graduate
of Yale University with a B.A. degree and holds an M.B.A. in Finance from
Columbia University.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663, is
the investment adviser to the Fund, and, as such, advises and makes
recommendations to the Fund with respect to its investments and investment
policies. LFD is the distributor of shares of the Fund.
LMC is paid an investment advisory fee at the annual rate of 1.00% of the
net assets of the Fund up to $50,000,000 and 0.75% of such value in excess of
$50,000,000. This fee is computed on the basis of the Fund's average daily net
assets and is payable on the last business day of each month. For the year ended
December 31, 1994, the Fund paid net advisory fees to LMC of $1,296,523.
LMC, established in 1938, currently manages over $3.8 billion in assets. LMC
serves as investment adviser to other investment companies and private and
institutional investment accounts. Included among these clients are persons and
organizations which own significant amounts of capital stock of LMC's parent.
The clients pay fees which LMC considers comparable to the fees paid by
similarly served clients.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC and LFD are wholly-owned subsidiaries of Piedmont Management Company
Inc., a Delaware corporation with offices at 80 Maiden Lane, New York, New York
10038. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities have a majority voting control of outstanding shares of
Piedmont Management Company Inc. common stock. See "Investment Adviser and
Distributor" in the Statement of Additional Information.
7
<PAGE>
HOW TO PURCHASE SHARES
Initial Investment-Minimum $1,000: By Mail: Send a check payable to
Lexington Goldfund, Inc., along with a completed New Account Application, to
State Street Bank and Trust Company (the "Agent"). See the back cover of this
Prospectus for the Agent's address.
Subsequent Investments-Minimum $50: By Mail: Send a check payable to Lexington
Goldfund, Inc., to the Agent, accompanied by either the detachable form which
accompanies the confirmation of a prior transaction or a letter indicating the
dollar amount of the investment and identifying the Fund, account number and
registration.
The Open Account: By investing in the Fund, a shareholder appoints the Agent, as
his agent, to establish an Open Account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares (see "Dividend, Distribution and Reinvestment
Policy"). Stock certificates will be issued for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check,
certificates will not be issued for 30 days. In order to facilitate redemptions
and transfers, most shareholders elect not to receive certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund). Automatic
Investing Plan with "Lex-O-Matic". A shareholder may arrange to make additional
purchases of shares automatically on a monthly or quarterly basis with
"Lex-O-Matic" the Automatic Investing Plan. The investments of $50 or more are
automatically deducted from a checking account on or about the 15th day of each
month. The institution must be an Automated Clearing House (ACH) member.
Should an order to purchase shares of a fund be cancelled because your automated
transfer does not clear, you will be responsible for any resulting loss
incurred by that fund. The shareholder reserves the right to discontinue the
Lex-O-Matic program provided written notice is given ten days prior to the
scheduled investment date. Further information regarding this service can
be obtained from Lexington by calling 1-800-526-0056.
On payroll deduction accounts administered by an employer and on payments
into qualified pension or profit sharing plans and other continuing purchase
programs, there are no minimum purchase requirements.
Broker-Dealers: You may invest in shares of the Fund through broker-dealers who
are members of the National Association of Securities Dealers, Inc., and other
financial institutions and who have selling agreements with LFD. Broker-dealers
and financial institutions who process such purchase and sale transactions for
their customers may charge a transaction fee for these services. Such fee may be
avoided by purchasing shares directly from the Fund.
Terms of Offering: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss, the Fund reserves the right to
redeem shares owned by the purchaser, seek reimbursement directly from the
purchaser, and may prohibit or restrict the purchaser in placing future orders
in any of the Lexington Funds.
The Fund reserves the right to reject any order, and to lower the investment
minimums for IRA and other qualified Plan Accounts. An order to purchase shares
is not binding on the Fund until it has been confirmed by the Agent.
Account Statements: The Agent will send shareholders either purchasing or
redeeming shares of the Fund a confirmation of the transaction indicating the
date the purchase or redemption was accepted, the number of shares purchased or
redeemed, the purchase or redemption price per share, and the total amount
purchased or redemption proceeds. A statement is also sent to shareholders
whenever a dividend or capital gain distribution is paid, or when a change in
registration, address, or dividend option occurs. Shareholders are urged to
retain their account statements for tax purposes.
Determination of Net Asset Value: The net asset value of Fund shares is
determined at the official closing time of the New York Stock Exchange, N.Y.
time, each day that such Exchange is open for trading. In determining net asset
value, portfolio securities listed on a national securities exchange are taken
at their sales price on such exchange as of such time; if no sales price is
reported, the mean of the last bid and asked price is used. For over-the-counter
securities the mean of the latest bid and asked prices is used. Securities for
which there are no current bid and asked prices, and any other assets of the
Fund for which there is no readily available market, shall be valued by Fund
officers in good faith using methods adopted by the Fund's Board of Directors.
8
<PAGE>
Precious metals held by the Fund are valued daily at fair market value,
based upon price quotations in common use, in such manner as the Board of
Directors from time to time (not less frequently than quarterly) determines
in good faith to reflect most accurately its fair market value. In accordance
with current Board of Directors' policy, management of the Fund employs the mean
between the closing bid and asked quotations for precious metals as supplied
by one or more Toronto or New York broker dealers or banks in its computation
of the net asset value of Fund shares; the Board retains the ultimate
responsibility in this matter. Securities for which (i) market quotations are
not readily available, or (ii) readily available quotations are deemed, by
the Board of Directors, in good faith, not to be representative of the value of
securities held by the Fund, as well as any other assets held in the Fund's
portfolio, are valued at fair value as determined in good faith by, or under
the supervision of, the Fund's officers in a manner specifically authorized
by the Board of Directors; the Board retains the ultimate responsibility in
this matter. Each foreign security held in the Fund's portfolio is valued as
of the close of the New York Stock Exchange in U.S. dollars. Repurchase
agreements and certificates of deposit of maturities of less than 60 days are
stated at cost.
In order to determine net asset value per share, the aggregate value of
portfolio securities is added to the value of the Fund's other assets, such as
cash and receivables; the total of the assets thus obtained, less liabilities,
is then divided by the number of shares outstanding.
HOW TO REDEEM SHARES
By Mail: Send to the Agent: (1) a written request for redemption, signed by
each registered owner as the shares are registered, including the name of the
Fund, account number and exact registration; (2) stock certificates for any
shares to be redeemed which are held by the shareholder; (3) signature
guarantees, when required, and (4) the additional documents required for
redemptions by corporations, executors, administrators, trustees, and guardians.
Redemptions by mail will not become effective until all documents in the form
required have been received by the Agent. See the back cover of this Prospectus
for the Agent's address. If a shareholder has any questions regarding the
requirements for redeeming shares, he should call the Fund at the toll free
number on the back cover prior to submitting a redemption request. If a
redemption request is sent to the Fund in New Jersey, it will be forwarded to
the Agent and the effective date of redemption will be the date received by the
Agent.
Checks for redemption proceeds will normally be mailed within seven days,
but will not be mailed until all checks in payment for the shares to be redeemed
have been cleared.
Signature Guarantee: Signature guarantees are required in connection with: (a)
redemptions by mail involving $10,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) changes in instructions as to where the
proceeds of redemptions are to be sent, and (d) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member of a domestic
stock exchange or a foreign branch of any of the foregoing. A notary public is
not an acceptable guarantor.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") specifying the total number
of shares to be redeemed, or (c) on all stock certificates tendered for
redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power.
Redemption Price: The redemption price will be the net asset value per share of
the Fund next determined after receipt by the Agent of a redemption request in
proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information).
The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) and mail the proceeds to the shareholder. Shareholders
will be notified before these redemptions are to be made and will have 30 days
to make an additional investment to bring their accounts up to the required
minimum.
9
<PAGE>
SHAREHOLDER SERVICES
Additional information about any of the Fund's special plans may be obtained
from the Fund or the Agent.
Transfer: Shares of the Fund may be transferred to another owner. A signature
guarantee of the original owner is required on the letter of instruction or
accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect to withdraw cash in fixed
amounts from their accounts at regular intervals. The minimum investment to
establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required.
Group Sub-Accounting: To minimize recordkeeping by fiduciaries, corporations,
and certain other investors, the minimum initial investment may be waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share next determined at the
time of the exchange. In the event shares of one or more of these funds being
exchanged by a single investor have a value in excess of $500,000, the shares of
the Fund will not be purchased until the fifth business day following the
redemption of the shares being exchanged in order to enable the redeeming fund
to utilize normal securities settlement procedures in transferring the proceeds
of the redemption to the Fund. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
The Lexington Funds currently available for exchange are:
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)/Seeks long-term growth of
capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in, emerging
countries.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)/Seeks long term growth
of capital through investment in common stocks of companies domiciled
in foreign countries. Shares of the Fund are not presently available
for sale in Vermont, Missouri and Wisconsin.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX/Seeks high current
income. Capital appreciation is a secondary objective.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)/Seeks long-term
capital growth and income through investment in an equal number of
shares of the common stocks of a fixed list of American blue chip
corporations.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)/Seeks long-term
capital appreciation through investments in stocks of large, ably
managed and well financed companies. Income is a secondary objective.
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through
investment in gold bullion and equity securities of companies engaged
in mining or processing gold throughout the world. Shares are not
presently available for sale in Wisconsin.
LEXINGTON CONVERTIBLE SECURITIES FUND (NASDAQ Symbol: CNCVX)/Seeks total return
by providing capital appreciation, current income and conservation of
capital through investments in a diversified portfolio of securities
convertible into shares of common stock. Shares of the Fund are not
presently available for sale in Vermont.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity
through investments in interest bearing short term money market
instruments.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)/Seeks current income
exempt from Federal income taxes while maintaining liquidity and
stability of principal through investment in short-term municipal
securities.
LEXINGTON SHORT-INTERMEDIATE GOVERNMENT SECURITIES FUND, INC. (NASDAQ Symbol:
LSGXX)/Seeks current income as is consistent with preservation of
capital by investing in a portfolio of U.S. Government securities.
10
<PAGE>
Shareholders in any of these funds may exchange all or part of their shares
of this Fund for shares of one or more of the other funds, subject to the
conditions described herein. The Exchange Privilege enables a shareholder in any
of these funds to acquire shares in a fund with a different investment objective
when the shareholder believes that a shift between funds is an appropriate
investment decision. Shareholders contemplating an exchange should obtain and
review the prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
initial investment of the Fund being purchased. If, however, an account already
exists in the Fund being bought, there is a $500 minimum exchange required.
Shareholders must provide the account number of the existing account.
Any exchange between mutual funds is, in effect, a redemption of shares in
one Fund and a purchase in the other Fund. Shareholders should consider the
possible tax effects of an exchange.
This exchange offer is available only in states where shares of the
investment company being acquired may legally be sold and may be modified or
terminated at any time by the Fund. Broker-dealers who process exchange orders
on behalf of their customers may charge a fee for their services. Such fee may
be avoided by making requests for exchange directly to the Fund or Agent.
Telephone Exchange Provisions
Exchange instructions may be given in writing or by telephone. Telephone
exchanges may only be made if a Telephone Authorization form has been previously
executed and filed with LFD. Telephone exchanges are permitted only after a
minimum of 7 days have elapsed from the date of a previous exchange. Exchanges
may not be made until all checks in payment for the shares to be exchanged have
been cleared.
Telephone exchanges can only involve shares held on deposit at the Agent;
shares held in certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for these
services. Any new account established with the same registration will also have
the privilege of exchange by telephone in the Lexington Funds.
All accounts involved in a telephonic exchange must have the same
registration and dividend option as the account from which the shares were
transferred and will also have the privilege of exchange by telephone in the
Lexington Funds in which these services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD distributor of the
Lexington Group of Mutual Funds as the true and lawful attorney to surrender for
redemption or exchange any and all non-certificated shares held by the Agent in
account(s) designated, or in any other account with the Lexington Funds, present
or future, which has the identical registration with full power of substitution
in the premises, authorizes and directs LFD to act upon any instruction from any
person by telephone for exchange of shares held in any of these accounts, to
purchase shares of any other Lexington Fund that is available, provided the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed and agrees that neither LFD, the
Agent, nor the Fund(s) will be liable for any loss, expense or cost arising out
of any requests effected in accordance with this authorization which would
include requests effected by imposters or persons otherwise unauthorized to act
on behalf of the account. LFD, the Agent and the Fund, will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine
and if they do not employ reasonable procedures they may be liable for any
losses due to unauthorized or fraudulent instructions. The following
identification procedures may include, but are not limited to, the following:
account number, registration and address, taxpayer identification number and
other information particular to the account. In addition, all exchange
transactions will take place on recorded telephone lines and each transaction
will be confirmed in writing by the Fund. LFD reserves the right to cease to act
as agent subject to the above appointment upon thirty (30) days' written notice
to the address of record. If other than an individual, it is certified that
certain persons have been duly elected and are now legally holding the titles
given and that the said corporation, trust, unincorporated association, etc. is
duly organized and existing and has power to take action called for by this
continuing Authorization.
Exchange Authorization forms, Telephone Authorization forms and prospectuses
of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund for shares of one of the other
Lexington investment companies at net aset value as described above. Under this
procedure, the dealer must
11
<PAGE>
agree to indemnify LFD and the investment companies from any loss or liability
that any of them might incur as a result of the acceptance of such telephone
exchange orders. A properly signed Exchange Authorization must be received by
LFD within five days of the exchange request. In each such exchange, the
registration of the shares of the fund being acquired must be identical to the
registration of the shares of the fund exchanged. Shares in certificate form are
not eligible for this type of exchange. LFD reserves the right to reject any
telephone exchange request. Any telephone exchange orders so rejected may be
processed by mail.
This exchange offer is available only in states where shares of the fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Salary Reduction
Plans, Section 457 Deferred Compensation Plans and 403(b)(7) Plans. Plan support
services are available through the Shareholder Services Department of LMC at
1-800-526-0056.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay dividends semi-annually from investment income if
earned and as declared by its Board of Directors.
The Fund intends to declare or distribute a dividend from its net investment
income and/or net capital gain income in December.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing that he
wants to receive his payments in cash. This request must be received by the
Agent at least seven days before the dividend record date. Upon receipt by the
Agent of such written notice, all further payments will be made in cash until
written notice to the contrary is received. An account of such shares owned by
each shareholder will be maintained by the Agent. Shareholders whose accounts
are maintained by the Agent will have the same rights as other shareholders with
respect to shares so registered (see "How to Purchase Shares-The Open Account").
DISTRIBUTION PLAN
The Board of Directors of the Fund have adopted a Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940,
after having concluded that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan provides that the Fund may pay
distribution fees, including payments to the Distributor, at an annual rate not
to exceed 0.25% of its average daily net assets for distribution services.
Distribution payments will be made as follows: The Fund either directly or
through the Adviser, may make payments periodically (i) to the Distributor or to
any broker-dealer (a "Broker") who is registered under the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and who has entered into a Selected Dealer Agreement
with the Distributor, (ii) to other persons or organizations ("Servicing
Agents") who have entered into shareholder processing and service agreements
with the Adviser or with the Distributor, with respect to Fund shares owned by
shareholders for which such Broker is the dealer or holder of record or such
servicing agent has a servicing relationship, or (iii) for expenses associated
with distribution of Fund shares, including the compensation of the sales
personnel of the Distributor; payments of no more than an effective annual rate
of 0.25%, or such lesser amounts as the Distributor determines appropriate.
Payments may also be made for any advertising and promotional expenses relating
to selling efforts, including but not limited to the incremental costs of
printing prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to persons who are not shareholders of
the Fund; the costs of preparing and distributing any other supplemental sales
literature; costs of radio, television, newspaper and other advertising;
telecommunications expenses, including the cost of telephones, telephone lines
and other communications equipment incurred by or for the Distributor in
carrying out its obligations under the Distribution Agreement. LMC, at no
additional cost to the Fund, may pay to Shareholder Servicing Agents, additional
amounts from past profits for administrative services.
12
<PAGE>
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including the requirements with respect to diversification
of assets, distribution of income and sources of income. It is the Fund's policy
to distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
Although the Fund's management and its investment adviser will endeavor to
manage the Fund's portfolio so that the Fund's investment in gold and in foreign
currencies does not result in its failure to satisfy the asset diversification
or the source of income requirements of subchapter M of the Code, the Fund's
management reserves the right to depart from this policy whenever, in its sole
judgment, it is deemed in the best interest of the Fund and its shareholders to
do so. If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including capital gains) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable as
ordinary dividends (even if derived from the Fund's net long term capital gains)
to the extent of the Fund's current and accumulated earnings and profits (which
includes certain foreign currency gains and losses).
If the Fund qualifies as a regulated investment company, distributions by
the Fund of its net investment income and the excess, if any, of its net
short-term capital gain over its net long-term capital loss are taxable to
shareholders as ordinary income. These distributions are treated as dividends
for federal income tax purposes, but in any year only a portion thereof (which
cannot exceed the aggregate amount of qualifying dividends from domestic
corporations received by the Fund during the year) may qualify for the 70%
dividends-received deduction for corporate shareholders. Because the Fund's
investment income will include dividends from foreign corporations and the Fund
may have interest income and short-term capital gains, less than 100% of the
ordinary income dividends paid by the Fund may qualify for the
dividends-received deduction. Distributions by the Fund of the excess, if any,
of its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder held
his shares.
Under certain circumstances, the Fund may elect to "pass-through" to its
shareholders the income or other taxes paid by the Fund to foreign governments
during a year. Each shareholder will be required to include his pro rata portion
of these foreign taxes in his gross income, but will be able to deduct or
(subject to various limitations) claim a foreign tax credit for such amount.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made or deemed made
during the year including any amount of foreign taxes "passed through" will be
sent to shareholders promptly after the end of each year. Shareholders
purchasing shares of the Fund just prior to the ex-dividend date will be taxed
on the entire amount of the dividend received, even though the net asset value
per share on the date of such purchase reflected the amount of such dividend.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as long-term capital loss to the
extent of any capital gain dividends received on such shares. All or a portion
of any loss realized upon a taxable disposition of shares of the Fund may be
disallowed if other shares of the Fund are purchased within 30 days before or
after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary income dividends,
capital gain dividends and redemption payments made by the Fund. In order to
avoid this back-up withholding, a shareholder must provide the Fund with a
correct taxpayer identification number (which for most individuals is their
Social Security number) or certify that it is a corporation or otherwise exempt
from or not subject to back-up withholding. The new account application included
with this Prospectus provides for shareholder compliance with these
certification requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information
13
<PAGE>
only, a prospective shareholder should also review the more detailed discussion
of federal income tax considerations relevant to the Fund that is contained in
the Statement of Additional Information. In addition, each prospective
shareholder should consult with his own tax adviser as to the tax consequences
of investments in the Fund, including the application of state and local taxes
which may differ from the federal income tax consequences described above.
PERFORMANCE CALCULATION
The Fund will calculate performance on a total return basis for various
periods. The total return basis combines principal and dividend income changes
for the periods shown. Principal changes are based on the difference between the
beginning and closing net asset values for the period and assume reinvestment of
dividends paid by the Fund. Dividends are comprised of net realized capital
gains and net investment income.
Performance will vary from time to time and past results are not necessarily
representative of future results. It should be remembered that performance is a
function of portfolio management in selecting the type and quality of portfolio
securities and is affected by operating expenses.
Comparative performance information may be used from time to time in
advertising or marketing of the Fund's shares, including data from Lipper
Analytical Services, Inc. or major market indices such as the Dow Jones
Industrial Average Index and Standard & Poor's 500 Composite Stock Price Index.
Such comparative performance information will be stated in the same terms in
which the comparative data and indices are stated. Further information about the
Fund's performance is contained in the annual report, which may be obtained
without charge.
CUSTODIANS, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York,
10036, has been retained to act as the Custodian for the Fund's investments and
assets. In addition, Chase Manhattan Bank, N.A. may appoint foreign banks and
securities depositories to act as sub-custodians for the Fund's portfolio
securities subject to their qualification as eligible foreign custodians under
the rules adopted by the SEC. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110 is the transfer agent and dividend
disbursing agent for the Fund.
Neither Chas Manhattan Bank, N.A. nor State Street Bank and Trust Company
have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022, will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1995.
OTHER INFORMATION
The Fund is an open-end, non-diversified management investment company. The
Fund was originally organized as a Delaware corporation on December 3, 1975 with
10,000,000 shares of capital stock, $1.00 par value. The Fund was re-organized
as a corporation under the laws of the State of Maryland on May 11, 1988. The
Fund has authorized capital of 500,000,000 shares of common stock, $0.001 par
value. Each share of common stock has one vote and shares equally in dividends
and distributions when and if declared by the Fund and in the Fund's net assets
upon liquidation. All shares, when issued, are fully paid and non-assessable.
There are no preemptive, conversion or exchange rights. Fund shares do not have
cumulative voting rights and, as such, holders of at least 50% of the shares
voting for Directors can elect all Directors and the remaining shareholders
would not be able to elect any Directors.
14
<PAGE>
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate not
less than 25% of the outstanding shares, such request specifying the purposes
for which such meeting is to be called. In addition, the Directors will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director when requested to do so in writing by the recordholders
of not less than 10% of the Fund's outstanding shares. The Fund will assist
shareholders in any such communication between shareholders and Directors.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the Securities and Exchange
Commission (herein called the "Commission"), Washington, D.C. under the
Securities Act of 1933, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made. "A Statement of Additional Information", to
which reference is made in this Prospectus, provides a further discussion of
certain areas in the prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and the Statement of Additional Information omit certain information
contained in the Registration Statement, to which reference is made, filed with
the Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
15
<PAGE>
-----------------
L E X I N G T O N
-----------------
LEXINGTON
GOLDFUND,
INC.
-----------------
No sales charge
No redemption fee
Free telephone
exchange privilege
-----------------
The Lexington Group
of
No-Load
Investment Companies
-----------------
P R O S P E C T U S
MAY 1, 1995
-----------------
Investment Adviser
- ----------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Distributor
- -----------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 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
Table of Contents
- ----------------------------------------------------------------
Fee Table .................................................. 2
Financial Highlights ....................................... 2
Description of the Fund .................................... 3
Investment Objective ....................................... 3
Investment Consideration ................................... 3
Investment Policy .......................................... 3
Risk Considerations ........................................ 4
Investment Restrictions .................................... 6
Management of the Fund ..................................... 7
Portfolio Managers ......................................... 7
Investment Adviser, Distributor and Administrator ......... 7
How to Purchase Shares ..................................... 8
How to Redeem Shares ....................................... 9
Shareholder Services ....................................... 10
Exchange Privilege ......................................... 10
Tax-Sheltered Retirement Plans ............................. 12
Dividend, Distribution and Reinvestment Policy ............. 12
Distribution Plan .......................................... 12
Tax Matters ................................................ 13
Performance Calculation .................................... 14
Custodians, Transfer Agent and
Dividend Disbursing Agent ................................ 13
Counsel and Independent Auditors ........................... 14
Other Information .......................................... 14
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This Statement of Additional Information which is not a prospectus,
should be read in conjunction with the current prospectus, of Lexington
Goldfund, Inc. (the "Fund"), dated May 1, 1995 as it may be revised from
time to time. To obtain a copy of the Fund's prospectus at no charge,
please write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle
Brook, New Jersey 07663 or call the following toll-free numbers:
Shareholder Services Information: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") is the Fund's investment adviser.
Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
Investment Consideration . . . . . . . . . . . . . . . . . . . . . . .2
Investment Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . .3
Risk Considerations. . . . . . . . . . . . . . . . . . . . . . . . . .6
Investment Adviser, Distributor and Administrator. . . . . . . . . . 7
Portfolio Turnover and Brokerage Allocations . . . . . . . . . . . . .9
Tax Sheltered Retirement Plans . . . . . . . . . . . . . . . . . . . 10
Dividend, Distribution and Reinvestment Policy . . . . . . . . . . . 11
Distribution Plan. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Performance Calculation. . . . . . . . . . . . . . . . . . . . . . . 18
Custodians, Transfer Agent and Dividend Disbursing Agent . . . . . . 19
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . 19
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 22
-1-
<PAGE>
INVESTMENT CONSIDERATION
The Fund's performance and ability to meet its objective will
generally be largely dependent on the market value of gold. The Fund's
professional management seeks to maximize on advances and minimize on
declines by monitoring and anticipating shifts in the relative values of
gold and the securities of various gold related companies throughout the
world. A substantial portion of the Fund's investments will be in the
securities of foreign issuers. There can be no assurance that the Fund's
objective will be achieved (see "Investment Policy" and "Risk
Considerations").
INVESTMENT POLICY
The Fund is of the belief that a gold investment medium will over the
long term, protect capital from adverse monetary and political developments
of a national or international nature and, in the face of what appears to
be continuous worldwide inflation, may offer better opportunity for capital
growth than many other forms of investment. Throughout history, gold has
been thought of as the most basic monetary standard. Investments in gold
may provide more of a hedge against currencies with declining buying power,
devaluation, and inflation than other types of investments. Of course,
there can be no assurance that management's belief will be realized or that
the investment objective will be achieved.
The Fund's principal investment objective is to attain capital
appreciation and such hedge against the loss of buying power as may be
obtained through investments in gold and the equity securities of gold
related companies. To the extent that investments in gold and gold related
securities appreciate in value relative to the U.S. dollar, the Fund's
investments may serve to offset erosion in the purchasing power of the U.S.
dollar (see "Risk Considerations").
In an attempt to attain its objective, the Fund invests its assets
in gold and in securities (which may include both equity and debt
securities) of companies engaged in mining or processing gold throughout
the world. The market performance of debt securities of companies engaged
in mining and processing gold can be expected to be comparable to that of
other debt obligations and generally will not react to fluctuations in the
price of gold. An investment in the debt instruments of gold related
companies, therefore, cannot be expected to provide the hedge against
inflation that may be provided through investments in equity securities of
companies engaged in such activities.
It is anticipated that, except for temporary defensive or liquidity
purposes, 65% of the total assets of the Fund will be invested in gold and
gold-related securities. At any time management deems it advisable for
defensive or liquidity purposes, the Fund may hold cash or cash equivalents
in the currency of any major industrial nation, and invest in, or hold
unlimited amounts of debt obligations of the United States Government or
its political subdivisions, and money market instruments including
repurchase agreements with maturities of seven days or less and
Certificates of Deposit.
The Fund's investment portfolio may include repurchase agreements
("repos") with commercial banks and dealers in U.S. Government securities.
A repurchase agreement involves the purchase by the Fund of an investment
contract from a bank or a dealer in U.S. Government securities which
contract is secured by U.S. Government obligations whose value is equal to
or greater than the value of the repurchase agreement including the agreed
upon interest. The agreement provides that the institution will repurchase
the underlying securities at an agreed upon time and price. The total
amount received on repurchase would exceed the price paid by the Fund,
reflecting an agreed upon rate of interest for the period from the date of
the repurchase agreement to the settlement date, and would not be related
to the interest rate on the underlying securities. The difference between
the total amount to be received upon the repurchase of the securities and
the price paid by the Fund upon their acquisition is accrued daily as
interest. If the institution defaults on the repurchase agreement, the
Fund will retain possession of the underlying securities. In addition, if
bankruptcy proceedings are commenced with respect to the seller,
realization on the collateral by the Fund may be delayed or limited and the
Fund may incur additional costs. In such case the Fund will be subject to
risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to
transactions believed by LMC to present minimal credit risk.
-2-
<PAGE>
It is LMC's present intention to manage the Fund's investments so
that (i) less than half of the value of its portfolio will consist of gold
and (ii) more than half of the value of its portfolio will be invested in
gold- related securities, including securities of foreign issuers.
Although the Fund's Board of Directors' present policy prohibits
investments in speculative securities trading at extremely low prices and
in relatively illiquid markets, investments in such securities can be made
when and if the Board determines such investments to be in the best
interests of the Fund and its shareholders. The policies set forth in this
paragraph are subject to change by the Board of Directors of the Fund, in
its sole discretion. (See "Risk Considerations"; "Dividend, Distribution
and Reinvestment Policy" and "Tax Matters".)
The Fund does not intend to seek short term trading profits, although
securities or gold may be sold whenever management believes it advisable,
regardless of the length of time any particular asset may have been held.
The Fund anticipates that its annual portfolio turnover rate will generally
not exceed 100%. A 100% turnover rate would occur if all of the Fund's
portfolio investments were sold and either repurchased or replaced within
one year. High turnover may result in increased transaction costs to the
Fund; however, the rate of turnover will not be a limiting factor when the
Fund deems it desirable to purchase or sell portfolio investments.
Therefore, depending on market conditions, the Fund's annual portfolio
turnover rate may exceed 100% in a particular year. The portfolio turnover
rate for each of the last three fiscal years was: 1992, 13.18%; 1993,
28.41% and 1994, 23.77%.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "investment
policy" and the following investment restrictions are matters or
fundamental policy which may not be changed without the affirmative vote
of the lesser of (a) 67% or more of the shares of the Fund present at a
shareholders' meeting at which more than 50% of the outstanding shares are
present or represented by proxy or (b) more than 50% of the outstanding
shares. Under these investment restrictions:
(1) the Fund will not issue any senior security (as defined in the
1940 Act), except that (a) the Fund may enter into commitments
to purchase securities in accordance with the Fund's investment
program, including reverse repurchase agreements, foreign
exchange contracts, delayed delivery and when-issued
securities, which may be considered the issuance of senior
securities; (b) the Fund may engage in transactions that may
result in the issuance of a senior security to the extent
permitted under applicable regulations, interpretation of the
1940 Act or an exemptive order; (c) the Fund may engage in
short sales of securities to the extent permitted in its
investment program and other restrictions; (d) the purchase or
sale of futures contracts and related options shall not be
considered to involve the issuance of senior securities; and
(e) subject to fundamental restrictions, the Fund may borrow
money as authorized by the 1940 Act.
(2) at the end of each quarter of the taxable year, (i) with
respect to at least 50% of the market value of the Fund's
assets, the Fund may invest in cash, U.S. Government
securities, the securities of other regulated investment
companies and other securities, with such other securities of
any one issuer limited for the purchases of this calculation
to an amount not greater than 5% of the value of the Fund's
total assets, and (ii) not more than 25% of the value of its
total assets be invested in the securities of any one issuer
(other than U.S. Government securities or the securities of
other regulated investment companies).
-3-
<PAGE>
(3) the Fund will not concentrate its investments by investing more
than 25% of its assets in the securities of issuers in any one
industry. This limit will not apply to gold and gold-related
securities, and to securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities.
(4) the Fund will not invest in commodity contracts, except that
the Fund may, to the extent appropriate under its investment
program, purchase securities of companies engaged in such
activities, may enter into transactions in financial and index
futures contracts and related options, and may enter into
forward currency contracts. Transactions in gold, platinum,
palladium or silver bullion will not be subject to this
restriction.
(5) the Fund will not purchase real estate, interests in real
estate or real estate limited partnership interest except that,
to the extent appropriate under its investment program, the
Fund may invest in securities secured by real estate or
interests therein or issued by companies, including real estate
investment trusts, which deal in real estate or interests
therein.
(6) the Fund will not make loans, except that, to the extent
appropriate under its investment program, the Fund may (a)
purchase bonds, debentures or other debt securities, including
short-term obligations, (b) enter into repurchase transactions
and (c) lend portfolio securities provided that the value of
such loaned securities does not exceed one-third of the Fund's
total assets.
(7) the Fund will not borrow money, except that (a) the Fund may
enter into certain futures contracts and options related
thereto; (b) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program,
including delayed delivery and when-issued securities and
reverse repurchase agreements; (c) for temporary emergency
purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan
is made; (d) the Fund may pledge its portfolio securities or
receivables or transfer or assign or otherwise encumber then
in an amount not exceeding one-third of the value of its total
assets; and (e) for purposes of leveraging, the Fund may borrow
money from banks (including its custodian bank), only if,
immediately after such borrowing, the value of the Fund's
assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all
assets fails to meet the 300% asset coverage requirement
relative only to leveraging, the Fund will, within three days
(not including Sundays and holidays), reduced its borrowings
to the extent necessary to meet the 300% test. The Fund will
only invest in reverse repurchase agreements up to 5% of the
Fund s total assets.
(8) the Fund will not act as underwriter of securities except to
the extent that, in connection with the disposition of
portfolio securities by the Fund, the Fund may be deemed to be
an underwriter under the provisions of the 1933 Act.
-4-
<PAGE>
In addition to the above fundamental restrictions, the Fund has
undertaken the following non fundamental restrictions, which may be changed
in the future by the Board of Directors, without a vote of the shareholders
of the Fund:
(1) The Fund will not invest more than 15% of its total assets in
illiquid securities. Illiquid securities are securities that
are not readily marketable or cannot be disposed of promptly
within seven days and in the usual course of business without
taking a materially reduced price. Such securities include,
but are not limited to, time deposits and repurchase agreements
with maturities longer than seven days. Securities that may
be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall
not be deemed illiquid solely by reason of being unregistered.
The Investment Adviser shall determine whether a particular
security is deemed to be liquid based on the trading markets
for the specific security and other factors.
(2) The Fund will not make short sales of securities, other than
short sales "against the box," or purchase securities on margin
except for short-term credits necessary for clearance of
portfolio transactions, provided that this restriction will not
be applied to limit the use of options, futures contracts and
related options, in the manner otherwise permitted by the
investment restrictions, policies and investment programs of
the Fund.
(3) The Fund will not write, purchase or sell puts, calls or
combinations thereof. However, the Fund may invest up to 15%
of the value of its assets in warrants. This restriction on
the purchase of warrants does not apply to warrants attached
to, or otherwise included in, a unit with other securities.
(4) The Fund may purchase and sell futures contracts and related
options under the following conditions: (a) the then-current
aggregate futures market prices of financial instruments
required to be delivered and purchased under open futures
contracts shall not exceed 30% of the Fund's total assets, at
market value; and (b) no more than 5% of the assets, at market
value at the time of entering into a contract, shall be
committed to margin deposits in relation to futures contracts.
(5) The Fund will not, except for investments which, in the
aggregate, do not exceed 5% of the Fund's total assets taken
at market value, purchase securities unless the issuer thereof
or any company on whose credit the purchase was based has a
record of at least three years continuous operations prior to
the purchase.
(6) The Fund will not purchase securities of an issuer if to the
Fund's knowledge, one or more of the Directors or officers of
the Fund or LMC individually owns beneficially more than 0.5%
and together own beneficially more than 5% of the securities
of such issuer nor will the Fund hold the securities of such
issuer.
(7) The Fund will not purchase the securities of any other
investment company, except as permitted under the 1940 Act.
(8) The Fund will not invest for the purpose of exercising control
over or management of any company.
(9) The Fund will not participate on a joint or joint-and-several
basis in any securities trading account. The "bunching" of
orders for the sale or purchase of marketable portfolio
securities with other accounts under the management of the
investment adviser to save commissions or to average prices
among them is not deemed to result in a securities trading
account.
-5-
<PAGE>
The percentage restrictions referred to above are to be adhered to at the
time of investment and are not applicable to a later increase or decrease
in percentage beyond the specified limit resulting from change in values
or net assets.
RISK CONSIDERATIONS
Although there is some degree of risk in all investments, there are
special risks inherent in the Fund's policies of investing in gold and in
the securities of companies engaged in mining or processing gold, which
include, among others, the following:
1. FLUCTUATIONS IN THE PRICE OF GOLD. The price of gold has been
subject to dramatic downward and upward price movements over short periods
of time and may be affected by unpredictable international monetary and
political policies, such as currency devaluations or revaluations, economic
conditions within an individual country, trade imbalances, or trade or
currency restrictions between countries. The price of gold, in turn, is
likely to affect the market prices of securities of companies mining or
processing gold, and accordingly, the value of the Fund's investments in
such securities may also be affected.
2. POTENTIAL EFFECT OF CONCENTRATION OF SOURCE OF SUPPLY AND CONTROL
OF SALES. The two largest national producers of gold bullion are the
Republic of South Africa and the United States of America. Changes in
political and economic conditions affecting either country may have direct
impact on that country's sales of gold. Under South African law, the only
authorized sales agent for gold produced in South Africa is the Reserve
Bank of South Africa, which through its retention policies controls the
time and place of any sale of South African bullion. The South African
Ministry of Mines determines gold mining policy. South Africa depends
predominately on gold sales for the foreign exchange necessary to finance
its imports, and its sales policy is necessarily subject to national
economic and political developments.
3. INVESTMENTS IN GOLD BULLION. Unlike certain more traditional
investment vehicles such as savings deposits and stocks and bonds, which
may produce interest or dividend income, gold bullion earns no income
return. Appreciation in the market price of gold is the sole manner in
which the Fund will be able to realize gains on its investment in gold
bullion. Furthermore, the Fund may encounter storage and transaction costs
in connection with its ownership of gold bullion which may be higher than
those attendant to the purchase, holding and disposition of more
traditional types of investments.
4. INVESTMENTS IN FOREIGN SECURITIES. A substantial portion of the
Fund's security investments will be in the securities of foreign issuers.
Investments in foreign securities may involve risks greater the those
attendant to investments in securities of U.S. issuers. Publicly available
information concerning issuers located outside the U.S. may not be
comparable in scope or depth of analysis to that generally available for
publicly held U.S. corporations. Accounting and auditing practices and
financial reporting requirements vary significantly from country to country
and generally are not comparable to those applicable to publicly held U.S.
corporations. Government supervision and regulation of foreign securities
exchanges and markets, securities listed on such exchanges or traded in
such markets and brokers, dealers, banks and other financial institutions
who trade the securities in which the Fund may invest is generally less
extensive than the U.S., and trading customs and practices may differ
substantially from those prevailing in the U.S. The Fund may trade in
certain foreign securities markets which are less developed than comparable
U.S. markets, which may result in reduced liquidity of securities traded
in such markets. Investments in foreign securities are also subject to
currency fluctuations. For example, when the Fund's assets are invested
primarily in securities denominated in foreign currencies, an investor can
expect that the Fund's net asset value per share will tend to increase when
the value of U.S. dollars is decreasing as against such currencies.
Conversely, a tendency toward decline in net asset value per share can be
expected when the value of U.S. dollars is increasing as against such
currencies. Changes in net asset value per share as a result of foreign
exchange rate fluctuations will be determined by the composition of the
Fund's portfolio at any given time. Further, it is not possible to avoid
altogether the risks of expropriation, burdensome or confiscatory taxation,
moratoriums, exchange and investment controls or political or diplomatic
events which might adversely affect the Fund's investments in foreign
securities or restrict the Fund's ability to dispose of such investments.
-6-
<PAGE>
5. TAX AND CURRENCY LAWS. The Fund's transactions in gold may, under
some circumstances, preclude its qualifying for the special tax treatment
available to investment companies meeting the requirements of Subchapter
M of the Internal Revenue Code. However, the Fund may make investment
decisions without regard to the effect on its ability to qualify under
Subchapter M of the Internal Revenue Code, if deemed appropriate by LMC
(see "Dividend, Distribution and Reinvestment Policy" and "Federal Income
Taxation"). In addition, changes in the tax or currency laws of the U.S.
(including, for example, reinstatement of an interest equalization tax as
was previously in effect or the recent disallowance for U.S. tax credits
for South African taxes) and of foreign countries may inhibit the Fund's
ability to pursue or may increase the cost of pursuing its investment
program.
6. UNPREDICTABLE MONETARY POLICIES, ECONOMIC AND POLITICAL
CONDITIONS. The Fund's assets might be less liquid or the change in the
value of its assets might be more volatile (and less related to general
price movements in the U.S. securities markets) than would be the case with
investments in the securities of publicly traded U.S. companies,
particularly because the price of gold may be affected by unpredictable
international monetary policies, economic and political conditions,
governmental controls, conditions of scarcity and surplus, and speculation.
In addition, the use of gold or Special Drawing Rights (which are also used
by members of the International Monetary Fund for international
settlements) to settle net deficits and surpluses in trade and capital
movements between nations subjects the supply and demand, and therefore the
price, of gold to a variety of economic factors which normally would not
affect other types of investments.
7. INTERNATIONAL AND DOMESTIC MONETARY SYSTEMS. Substantial amounts
of gold bullion serving as primary official reserve assets play a major
role in the international monetary system. Since December 31, 1974, when
it again became legal to invest in gold, several new markets have developed
in the United States. In connection with this legalization of gold
ownership, the U.S. Treasury and the International Monetary Fund embarked
upon programs to dispose of substantial amounts of gold bullion.
8. EXPERTISE OF THE INVESTMENT ADVISER. The successful management
of the Fund's portfolio may be more dependent upon the skills and expertise
of its investment adviser than is the case for most mutual funds because
of the need to evaluate the factors identified above.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation, ("LMC") P.O. Box 1515/Park 80 West
Plaza Two, Saddle Brook, New Jersey 07663, is the investment adviser to the
Fund, and, as such, advises and makes recommendations to the Fund with
respect to its investments and investment policies.
LMC is paid an investment advisory fee at the annual rate of 1.00%
of the net assets of the Fund up to $50,000,000 and 0.75% of such, value
in excess of $50,000,000. This fee is computed on the basis of the Fund's
average daily net assets and is payable on the last business day of each
month.
-7-
<PAGE>
Under the terms of the investment management agreement, LMC pays the
Fund's expenses for office rent, utilities, telephone, furniture and
supplies utilized for the Fund's principal office and the salaries and
payroll expense of officers and directors of the Fund who are employees of
LMC or its affiliates in carrying out its duties under the investment
management agreement. The Fund pays all its other expenses, including
custodian and transfer agent fees, legal and registration fees, audit fees,
printing of prospectuses, shareholder reports and communications required
for regulatory purposes or for distribution to existing shareholders,
computation of net asset value, mailing of shareholder reports and
communications, portfolio brokerage, taxes and independent directors' fees,
and furnishes LFD at printers overrun cost, such copies of its prospectus,
annual, semi-annual and other reports and shareholder communications as may
be reasonably required for sales purposes.
LMC's investment advisory fee will be reduced for any fiscal year by
any amount necessary to prevent Fund expenses from exceeding the most
restrictive expense limitations imposed by the securities laws or
regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. Brokerage fees and commissions, taxes,
interest and extraordinary expenses are not deemed to be expenses of the
Fund for such reimbursement. Currently, the most restrictive of such
expenses limitation would require LMC to reduce its fee so that ordinary
expenses (excluding interest, taxes, brokerage commissions and
extraordinary expenses) for any fiscal year do not exceed 2.5% of the first
$30 million of the Fund's average daily net assets, plus 2.0% of the next
$70 million, plus 1.5% of the Fund's average daily net assets in excess of
$100 million.
LMC's services are provided and its fee is paid pursuant to an
investment management agreement, dated December 5, 1994 which will
automatically terminate if assigned and which may be terminated by either
party upon 60 days' notice. The terms of the agreement and any renewal
thereof must be approved annually by a majority of the Fund's Board of
Directors, including a majority of directors who are not parties to the
agreement or "interested persons" of such parties, as such term is defined
under the Investment Company Act of 1940, as amended.
Fund advisory fees paid to LMC:
Investment Advisory
Fiscal Year Ended Fees Paid to LMC
----------------- -------------------
1992 $ 776,157
1993 978,750
1994 1,296,523
LFD serves as distributor for Fund shares under a distribution
agreement which is subject to annual approval by a majority of the Fund's
Board of Directors, including a majority of directors who are not
"interested persons."
LMC is a wholly owned subsidiary of Piedmont Management Company Inc.,
a publicly traded corporation. Descendants of Lunsford Richardson, Sr.,
their spouses, trusts and other related entities have a majority voting
control of outstanding shares of Piedmont Management Company Inc.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and
provides facilities for such services. The Fund shall reimburse LMC for its
actual cost in providing such services, facilities and expenses.
-8-
<PAGE>
Of the directors, officers or employees ("affiliated persons") of the
Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs,
Petruski and Radsch and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca
(see "Management of the Fund"), may also be deemed affiliates of LMC by
virtue of being officers, directors or employees thereof. As of February
23, 1995, all officers and directors of the Fund as a group owned of record
and beneficially less than 1% of the outstanding shares of the Fund.
PORTFOLIO TURNOVER AND BROKERAGE ALLOCATIONS
As a general matter, purchases and sales of gold and portfolio
securities by the Fund are placed by LMC with brokers and dealers who in
its opinion will provide the Fund with the best combination of price
(inclusive of brokerage commissions) and execution for its orders.
However, pursuant to the Fund's investment management agreement, management
consideration may be given in the selection of broker-dealers to research
provided and a fee higher than that charged by another broker-dealer which
does not furnish research services or which furnishes research services
deemed to be of lesser value, so long as the criteria of Section 28(e) of
the Securities Exchange Act of 1934 are met. Section 28(e) of the
Securities Exchange Act of 1934 was adopted in 1975 and specifies that a
person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person
has caused the account to pay a higher commission than the lowest available
under certain circumstances, provided that the person so exercising
investment discretion makes a good faith determination that the commissions
paid are "reasonable in relation to the value of the brokerage and research
services provided ...viewed in terms of either that particular transaction
or his overall responsibilities with respect to the accounts as to which
he exercises investment discretion."
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for research services might
exceed commissions that would be payable for execution services alone. Nor
generally can the value of research services to the Fund be measured.
Research services furnished might be useful and of value to LMC and its
affiliates, in serving other clients as well as the Fund. On the other
hand, any research services obtained by LMC or its affiliates from the
placement of portfolio brokerage of other clients might be useful and of
value to LMC in carrying out its obligations to the Fund.
As a general matter, it is the Fund's policy to execute in the U.S.
all transactions with respect to securities traded in the U.S. and to
execute its gold transactions in the U.S. except when better price and
execution can, in the judgement of management of the Fund, be obtained
elsewhere. Over-the-counter purchases and sales are normally made with
principal market makers, except where, in the opinion of management, the
best executions are available elsewhere.
In addition, the Fund may from time to time allocate brokerage
commissions to firms which furnish research and statistical information to
LMC or which render to the Fund services which LMC is not required to
provide. The supplementary research supplied by such firms is useful in
varying degrees and is of indeterminable value. No formula has been
established for the allocation of business to such brokers.
-9-
<PAGE>
The Fund paid brokerage commissions and portfolio turnover rates are
as follows:
Total Brokerage Portfolio Turnover
Commission Paid Rate
--------------- ------------------
1992 $ 59,584 13.18%
1993 65,858 28.41%
1994 192,131 23.77%
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit
Sharing plans including a 401(k) Salary Reduction Plan and a 403(b)(7)
Plan. Plan support services are available by contacting the Shareholder
Services Department of LMC at 1-800-526-0056.
Individual Retirement Account (IRA): Individuals who have earned
income may make tax deductible contributions to their own Individual
Retirement Accounts established under Section 408 of the Internal Revenue
Code. Married investors filing a joint return neither of whom is an active
participant in an employer sponsored retirement plan, or who have an
adjusted gross income of $40,000 or less ($25,000 or less for single
taxpayers) may continue to make a $2,000 ($2,250 for spousal IRAs) annual
deductible IRA contribution. For adjusted gross incomes above $40,000
($25,000 for single taxpayers), the IRA deduction limit is generally phased
out ratably over the next $10,000 of adjusted gross income, subject to a
minimum $200 deductible contribution. Investors who are not able to deduct
a full $2,000 ($2,250 spousal) IRA contribution because of the limitations
may make a nondeductible contribution to their IRA to the extent a
deductible contribution is not allowed. Federal income tax on
accumulations earned on nondeductible contributions is deferred until such
time as these amounts are deemed distributed to an investor. Rollovers are
also permitted under the Plan. The disclosure statement required by the
Internal Revenue Service to be furnished to individuals who are considering
adopting an IRA may be obtained from the Fund.
Self-Employed Retirement Plan (HR-10): Self-employed individuals may
make tax deductible contributions to a prototype defined contribution
pension plan or profit sharing plan. There are, however, a number of
special rules which apply when self-employed individuals participate in
such plans. Currently purchase payments under a self-employed plan are
deductible only to the extent of the lesser of (i) $30,000 or (ii) 25% of
the individual's earned annual income (as defined in the Code) and in
applying these limitations not more than $200,000 of "earned income" may
be taken into account.
Corporate Pension and Profit Sharing Plans: The Fund makes available
a Prototype Defined Contribution Pension Plan and a Prototype Profit
Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of
the Fund's tax sheltered plans must be carried out in accordance with the
provisions of the plan. Accordingly, all plan documents should be reviewed
carefully before adopting or enrolling in the plan. Investors should
especially note that a penalty tax of 10% may be imposed by the Internal
Revenue Service on early withdrawals under corporate, Keogh or IRA. It is
recommended that an investor consult a tax adviser before investing in the
Fund through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund, and may terminate the Plan
with the Fund at any time. Except for expenses of sales and promotion,
executive and administrative personnel, and certain services which are
furnished by the investment adviser, the cost of the plans generally is
borne by the Fund; however, each IRA Plan is subject to an annual
maintenance fee of $10.00 charged by State Street Bank and Trust Company
(the "Agent").
-10-
<PAGE>
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay dividends semi-annually from investment
income if earned and as declared by its Board of Directors. The Fund also
intends to declare or distribute a dividend from its net capital gain in
December in order to comply with distribution requirements of the 1986 Tax
Reform Act to avoid the imposition of a 4% excise tax.
Any dividends and distribution payments will be reinvested at net
asset value, without sales charge, in additional full and fractional shares
of the Fund unless and until the shareholder notifies the Agent in writing
that he wants to receive his payments in cash. This request must be
received by the Agent at least seven days before the dividend record date.
Upon receipt by the Agent of such written notice, all further payments will
be made in cash until written notice to the contrary is received. An
account of such shares owned by each shareholder will be maintained by the
Agent. Shareholders whose accounts are maintained by the Agent will have
the same rights as other shareholders with respect to shares so registered
(see "The Open Account" in the Prospectus).
DISTRIBUTION PLAN
The Board of Directors of the Fund has adopted a Distribution Plan
(the "Plan") in accordance with Rule 12b-1 under the Investment Company Act
of 1940, which provides that the Fund may pay distribution fees including
payments to the Distributor, at an annual rate not to exceed 0.25% of its
average daily net assets for distribution services. The Fund's
shareholders approved the Plan on April 15, 1992.
Distribution payments will be made as follows: The Fund either
directly or through the Adviser, may make payments periodically (i) to the
Distributor or to any broker-dealer (a "Broker") who is registered under
the Securities Exchange Act of 1934 and a member in good standing of the
National Association of Securities Dealers, Inc. and who has entered into
a Selected Dealer Agreement with the Distributor, (ii) to other persons or
organizations ("Servicing Agents") who have entered into shareholder
processing and service agreements with the Adviser or with the Distributor,
with respect to fund shares owned by shareholders for which such Broker is
the dealer or holder of record or such servicing agent has a servicing
relationship, or (iii) for expenses associated with distribution of Fund
shares, including compensation of the sales personnel of the Distributor;
payments of no more than an effective annual rate of 0.25%, or such lesser
amounts as the Distributor determines appropriate. Payments may also be
made for any advertising and promotional expenses relating to selling
efforts, including but not limited to the incremental costs of printing
prospectuses, statements of additional information, annual reports and
other periodic reports for distribution to persons who are not shareholders
of the Fund; the cost of preparing and distributing any other supplemental
sales literature; costs of radio, television, newspaper and other
advertising; telecommunications expenses, including the cost of telephones,
telephone lines and other communications equipment, incurred by or for the
Distributor in carrying out its obligations under the Distribution
Agreement.
Quarterly, in each year that this Plan remains in effect, the Fund's
Treasurer shall prepare and furnish to the Directors of the Fund a written
report, complying with the requirements of Rule 12b-1, setting forth the
amounts expended by the Fund under the Plan and purposes for which such
expenditures were made.
-11-
<PAGE>
The Plan shall become effective upon approval of the Plan, the form
of Selected Dealer Agreement and the form of Shareholder Service Agreement,
by the majority votes of both (a) the Fund's Directors and the Qualified
Directors (as defined below), cast in person at a meeting called for the
purpose of voting on the Plan and (b) the outstanding voting securities of
the Fund, as defined in Section 2(a)(42) of the 1940 Act.
The Plan shall remain in effect for one year from its adoption date
and may be continued thereafter if this Plan and all related agreements are
approved at least annually by a majority vote of the Directors of the Fund,
including a majority of the Qualified Directors cast in person at a meeting
called for the purpose of voting on such Plan and agreements. This Plan
may not be amended in order to increase materially the amount to be spent
for distribution assistance without shareholder approval. All material
amendments to this Plan must be approved by a vote of the Directors of the
Fund, and of the Qualified Directors (as hereinafter defined), cast in
person at a meeting called for the purpose of voting thereon.
The Plan may be terminated at any time by a majority vote of the
Directors who are not interested persons (as defined in Section 2(a)(19)
of the 1940 Act) of the Fund and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the
Plan (the "Qualified Directors") or by vote of a majority of the
outstanding voting securities of the Fund, as defined in Section 2(a)(42)
of the 1940 Act.
While this Plan shall be in effect, the selection and nomination of
the "non-interested" Directors of the Fund shall be committed to the
discretion of the Qualified Directors then in office.
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains
over capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e.,
net investment income and the excess of net short-term capital gain over
net long-term capital loss) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that
are described below. Distributions by the Fund made during the taxable
year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and
gains of the taxable year and can therefore satisfy the Distribution
Requirement.
If the Fund has a net capital loss (i.e., the excess of capital
losses over capital gains) for any year, the amount thereof may be carried
forward up to eight years and treated as a short-term capital loss which
can be used to offset capital gains in such years. As of December 31,
1993, the Fund has capital loss carryforwards of approximately $77,440,
$5,850,841, $4,027,951, $8,266,551, and $2,280,435, which expire through
1997, 1998, 1999, 2000, and 2001, respectively. Under Code Sections 382
and 383, if the Fund has an "ownership change," then the Fund's use of its
capital loss carryforwards in any year following the ownership change will
be limited to an amount equal to the net asset value of the Fund
immediately prior to the ownership change multiplied by the long-term tax-
exempt rate (which is published monthly by the Internal Revenue Service
(the "IRS")) in effect for the month in which the ownership change occurs
(the rate for April, 1994 is 5.42%). The Fund will use its best efforts
to avoid having an ownership change. However, because of circumstances
which may be beyond the control or knowledge of the Fund, there can be no
assurance that the Fund will not have, or has not already had, an ownership
change. If the Fund has or has had an ownership change, then any capital
gain net income for any year following the ownership change in excess of
the annual limitation on the capital loss carryforwards will have to be
distributed by the Fund and will be taxable to shareholders as described
under "Fund Distributions" below.
-12-
<PAGE>
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive
of certain gains on designated hedging transactions that are offset by
realized or unrealized losses on offsetting positions) from the sale or
other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the
Fund may have to limit the sale of appreciated securities that it has held
for less than three months. However, the Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding
period is disregarded for this purpose. Interest (including original issue
discount) received by the Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is
attributable to realized market appreciation will be treated as gross
income from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition
of an asset will be a capital gain or loss. However, gain recognized on
the disposition of a debt obligation purchased by the Fund at a market
discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market
discount which accrued during the period of time the Fund held the debt
obligation. In addition, under the rules of Code Section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or
loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign
currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256 (unless the Fund elects otherwise),
will generally be treated as ordinary income or loss.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) for any taxable year, to elect (unless it has made a taxable year
election for excise tax purposes as discussed below) to treat all or any
part of any net capital loss, any net long-term capital loss or any net
foreign currency loss incurred after October 31 as if it had been incurred
in the succeeding year.
-13-
<PAGE>
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each
quarter of the Fund's taxable year, at least 50% of the value of the Fund's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value
of the Fund's total assets in securities of such issuer and as to which the
Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will
be taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends-received deduction in the case
of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to
98% of ordinary taxable income for the calendar year and 98% of capital
gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having
a taxable year ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a regulated
investment company is treated as having distributed any amount on which it
is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise
tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will qualify for the 70% dividends-
received deduction for corporate shareholders only to the extent discussed
below.
The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to
distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to shareholders
as long-term capital gain, regardless of the length of time the shareholder
has held his shares or whether such gain was recognized by the Fund prior
to the date on which the shareholder acquired his shares. The Code
provides, however, that under certain conditions only 50% of the capital
gain recognized upon the Fund's disposition of domestic "small business"
stock will be subject to tax.
-14-
<PAGE>
Conversely, if the Fund elects to retain its net capital gain, the
Fund will be taxed thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If the Fund elects to
retain its net capital gain, it is expected that the Fund also will elect
to have shareholders of record on the last day of its taxable year treated
as if each received a distribution of his pro rata share of such gain, with
the result that each shareholder will be required to report his pro rata
share of such gain on his tax return as long-term capital gain, will
receive a refundable tax credit for his pro rata share of tax paid by the
Fund on the gain, and will increase the tax basis for his shares by an
amount equal to the deemed distribution less the tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations, such as S corporations,
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the
extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. A dividend received by the
Fund will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding
for this purpose under the rules of Code Section 246(c)(3) and (4): (i)
any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any
period during which the Fund has an option to sell, is under a contractual
obligation to sell, has made and not closed a short sale of, is the grantor
of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that
the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar
or related property; or (3) to the extent the stock on which the dividend
is paid is treated as debt-financed under the rules of Code Section 246A.
Moreover, the dividends-received deduction for a corporate shareholder may
be disallowed or reduced (1) if the corporate shareholder fails to satisfy
the foregoing requirements with respect to its shares of the Fund or (2)
by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain
other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only
to the extent it exceeds, the regular tax and is computed at a maximum
marginal rate of 28% for noncorporate taxpayers and 20% for corporate
taxpayers on the excess of the taxpayer's alternative minimum taxable
income ("AMTI") over an exemption amount. In addition, under the Superfund
Amendments and Reauthorization Act of 1986, a tax is imposed for taxable
years beginning after 1986 and before 1996 at the rate of 0.12% on the
excess of a corporate taxpayer's AMTI (determined without regard to the
deduction for this tax and the AMT net operating loss deduction) over $2
million. For purposes of the corporate AMT and the environmental superfund
tax (which are discussed above), the corporate dividends-received deduction
is not itself an item of tax preference that must be added back to taxable
income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e.,
75% of the excess of a corporate taxpayer's adjusted current earnings over
its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
-15-
<PAGE>
Investment income that may be received by the Fund from sources
within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested
in various countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consist of the stock
or securities of foreign corporations, the Fund may elect to "pass through"
to the Fund's shareholders the amount of foreign taxes paid by the Fund.
If the Fund so elects, each shareholder would be required to include in
gross income, even though not actually received, his pro rata share of the
foreign taxes paid by the Fund, but would be treated as having paid his pro
rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject
to various Code limitations) as a foreign tax credit against federal income
tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income
his pro rata share of such foreign taxes plus the portion of dividends
received from the Fund representing income derived from foreign sources.
No deduction for foreign taxes could be claimed by an individual
shareholder who does not itemize deductions. Each shareholder should
consult his own tax adviser regarding the potential application of foreign
tax credits.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital
to the extent of (and in reduction of) the shareholder's tax basis in his
shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by the Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another fund).
Shareholders receiving a distribution in the form of additional shares will
be treated as receiving a distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment
date. In addition, if the net asset value at the time a shareholder
purchases shares of the Fund reflects undistributed net investment income
or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be
taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which the distributions are made.
However, dividends declared in October, November or December of any year
and payable to shareholders of record on a specified date in such a month
will be deemed to have been received by the shareholders (and made by the
Fund) on December 31 of such calendar year if such dividends are actually
paid in January of the following year. Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions
made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain
dividends, and the proceeds of redemption of shares, paid to any
shareholder (1) who has provided either an incorrect tax identification
number or no number at all, (2) who is subject to backup withholding by the
IRS for failure to report the receipt of interest or dividend income
properly, or (3) who has failed to certify to the Fund that it is not
subject to backup withholding or that it is a corporation or other "exempt
recipient."
-16-
<PAGE>
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's adjusted tax basis
in the shares. All or a portion of any loss so recognized may be
disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares
of the Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of shares
held for six months or less s received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of
shares. Long-term capital gains of noncorporate taxpayers are currently
taxed at a maximum rate 11.6% lower than the maximum rate applicable to
ordinary income. Capital losses in any year are deductible only to the
extent of capital gains plus, in the case of a noncorporate taxpayer,
$3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on
whether the income from the Fund is "effectively connected" with a U.S.
trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding
tax at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Furthermore, such a foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) on the gross
income resulting from the Fund's election to treat any foreign taxes paid
by it as paid by its shareholders, but may not be allowed a deduction
against this gross income or a credit against this U.S. withholding tax for
the foreign shareholder's pro rata share of such foreign taxes which it is
treated as having paid. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the sale of shares
of the Fund, capital gain dividends and amounts retained by the Fund that
are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable
at a reduced treaty rate) unless such shareholders furnish the Fund with
proper notification of its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers
with respect to the particular tax consequences to them of an investment
in the Fund, including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect
to the transactions contemplated herein.
-17-
<PAGE>
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ
from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences
of these and other state and local tax rules affecting investment in the
Fund.
PERFORMANCE CALCULATION
For the purposes of quoting and comparing the performance of the Fund
to that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in
terms of total return. Under the rules of the Securities and Exchange
Commission ("SEC rules"), funds advertising performance must include total
return quotes calculated according to the following formula:
n
P(1+T) = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods or at the end
of the 1, 5 or 10 year periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover one, five and ten year periods or a shorter period dating from
the effectiveness of the Fund's Registration Statement. In calculating the
ending redeemable value, all dividends and distributions by the Fund are
assumed to have been reinvested at net asset value as described in the
prospectus on the reinvestment dates during the period. Total return, or
"T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the
ending redeemable value. Any recurring account charges that might in the
future be imposed by the Fund would be included at that time.
The Fund may also from time to time include in such advertising a
total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the Fund
with other measures of investment return. For example, in comparing the
Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Standard and Poor's 500 Composite
Stock Price Index or the Dow Jones Industrial Average, the Fund calculates
its aggregate total return for the specified periods of time by assuming
the investment of $10,000 in Fund shares and assuming the reinvestment of
each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value
of the investment from the ending value and by dividing the remainder by
the beginning value. The Lexington Goldfund, Inc.'s total return for the
1, 5 and 10 year periods ended December 31, 1994 is as follows:
-18-
<PAGE>
Average Annual
Period Total Return
------ ---------------
1 year ended December 31, 1994 -7.28%
5 years ended December 31, 1994 0.52%
10 years ended December 31, 1994 8.98%
CUSTODIANS, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as the custodian for the Fund's investments
and assets. In addition, the Fund and Chase Manhattan Bank, N.A. may
appoint foreign banks and foreign securities depositories which qualify as
eligible foreign sub-custodians under the rules adopted by the Securities
and Exchange Commission. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, has also been retained to act as the
transfer agent and dividend disbursing agent for the Fund.
Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust
Company have any part in determining the investment policies of the Fund
or in determining which portfolio securities are to be purchased or sold
by the Fund or in the declaration of dividends and distributions.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
*+ROBERT M. DEMICHELE, President and Chairman of the Board. P.O. Box 1515,
Saddle Brook, N.J. 07663. Chairman and Chief Executive Officer,
Lexington Management Corporation; Chairman and Chief Executive
Officer, Lexington Funds Distributor, Inc., President and Director,
Piedmont Management Company Inc.; Director, Reinsurance Corporation
of New York; Unione Italiana Reinsurance; Vice Chairman of the Board
of Trustees, Union College; Director, Continental National
Corporation; Director, The Navigator s Group, Inc.; Lexington Capital
Management, Inc.; Chairman, LCM Financial Services, Inc.; Director,
Vanguard Cellular Systems, Inc.; Chairman of the Board, Market Systems
Research, Inc. and Market Systems Research Advisors, Inc. (registered
investment advisers); Trustee, Smith Richardson Foundation.
+BEVERLEY C. DUER, Director, 340 East 72nd Street, New York, N.Y. 10021.
Private Investor; formerly, Manager of Operations Research Department,
CPC International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901.
Private Investor. Prior to May 1989, Assistant Vice President and
Securities Analyst, Lexington Management Corporation; prior to March
1987, Vice President - Institutional Equity Sales, L.F. Rothchild,
Unterberg, Towbin.
*+LAWRENCE KANTOR, Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and
Director, Lexington Management Corporation; Executive Vice President
and Director, Lexington Funds Distributor, Inc.
+DONALD B. MILLER, Director. 3689 Quail Ridge Drive, Boynton Beach,
Florida 33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds;
Director, Maguire Group of Connecticut; prior to January 1989,
President, Director and C.E.O., Media General Broadcast Services
(advertising firm).
+FRANCIS OLMSTED, Director. 50 Van Hooten Court, San Anselmo, CA 94960.
Private Investor; formerly, Manager - Commercial Development (West
Coast) Essex Chemical Corporation, Clifton, New Jersey (chemical
manufacturers).
-19-
<PAGE>
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts.
+MARGARET RUSSELL. Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor; formerly, Community Affairs Director, Union
Camp Corporation.
+PHILIP C. SMITH, Director. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor; Director, Southwest Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc., Investors Cash
Reserve, Inc. and Plimony Fund, Inc. (registered investment
companies).
+FRANCIS A. SUNDERLAND, Director. 309 Quito Place, Castle Pines, Castle
Rock, Colorado 80104. Private Investor.
*+ROBERT W. RADSCH, C.F.A., Vice President and Portfolio Manager. P.O.
Box 1515, Saddle Brook, N.J. 07663. Vice President, Lexington Management
Corporation. Prior to July 1994, Senior Vice President, Portfolio Manager
and Chief Economist, Bull & Bear Group.
*+LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds
Distributor, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Director and Chief Financial
Officer, Lexington Management Corporation. Chief Financial Officer,
Vice President and Director, Lexington Funds Distributor, Inc.; Chief
Financial Officer, Market Systems Research Advisors, Inc.
*+RICHARD J. LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Lexington Management
Corporation; Vice President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick
LLP.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1989, Assistant Treasurer, Lexington Group of
Investment Companies.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November, 1993, Supervisor Investment Accounting,
Alliance Capital Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to September 1990, Fund Accounting Manager, Lexington
Group of Investment Companies.
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07662. Prior to May 1994, Supervising Senior Accountant, NY Life
Securities. Prior to December 1990, Senior Accountant, Dreyfus
Corporation.
*+PETER CORNIOTES, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Secretary, Lexington Management Corporation.
Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator,
Lexington Group of Investment Companies.
* "Interested person" and/or "Affiliated person" of LMC as defined in
the Investment Company Act of 1940, as amended.
+ Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery,
Luehs, Miller, Olmsted, Petruski, Preston, Radsch, Smith and
Sunderland and Mmes. Carnicelli, Carr, Curcio, Evans, Gilfillan, Mosca
and Russell hold similar offices with some or all of the other
investment companies advised and/or distributed by LMC and LFD.
-20-
<PAGE>
Directors not employed by the Fund or its affiliates receive an annual
fee of $600 and a fee of $150 for each meeting attended plus reimbursement
of expenses for attendance at regular meetings. During the year ended
December 31, 1994, the aggregate remuneration paid by the Fund to seven
such directors was $11,879.
Aggregate Total Compensation Number of
Name of Director Compensation From From Fund Directorships
Fund and Fund Complex in Fund Complex
- ---------------- ----------------- ------------------ ----------------
Robert M. DeMichele 0 0 15
Beverley C. Duer $1350 $20,250 15
Barbara R. Evans 0 0 14
Lawrence Kantor 0 0 15
Donald B. Miller $1350 $20,250 14
Francis Olmsted $1350 $18,900 13
John G. Preston $1350 $20,250 14
Margaret Russell $1350 $18,900 13
Philip C. Smith $1350 $20,250 14
Francis A. Sunderland $1200 $16,800 13
-21-
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Worldwide Emerging Markets Fund Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Worldwide
Emerging Markets Fund Inc. as of December 31, 1994, 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
December 31, 1994 by correspondence with the custodian and brokers. 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 Worldwide Emerging Markets Fund, Inc. as of December 31, 1994, 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 the 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
February 6, 1995
22
<PAGE>
Lexington Goldfund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994
Left Col.
Number of
Shares or
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------
GOLD BULLION: 4.6%
*19,250 fine ounces (cost $7,463,750) $ 7,371,829
------------
GOLD MINING COMMON STOCKS: 92.0%
AUSTRALIA: 16.7%
134,166 Burmine, Ltd. .................................. 306,737
400,000 Climax Mining, Ltd. ............................ 310,000
350,000 Delta Gold N.L. ................................ 764,925
550,000 Eagle Mining Corporation** ..................... 639,375
200,000 Emperor Mines, Ltd. ............................ 313,100
2,000,000 Gold Mines of Australia, Ltd. .................. 620,000
4,490,423 Gold Mines of Kalgoorlie, Ltd. ................. 3,480,078
800,000 Gwalia Consolidated, Ltd. ...................... 1,097,400
1,409,727 Homestake Gold of Australia, Ltd. .............. 1,616,957
1,000,000 Mineral Resources (N.Z.), Ltd. ................. 1,240,000
700,000 Mount Burgess Gold Mining Company, Ltd. ........ 103,075
512,500 Mount Edon Gold Mines N.L. ..................... 1,191,562
1,541,200 Newcrest Mining, Ltd. .......................... 6,867,973
1,935,700 Poseidon Gold, Ltd. ............................ 4,050,452
3,000,000 Saint Barbara Mines, Ltd.** ................... 3,603,750
142,857 Samantha Gold N.L. ............................ 326,607
------------
26,531,991
------------
NORTH AMERICA: 39.4%
15,000 Amax Gold Inc. (Preferred shares) "B" .......... 727,500
430,000 American Barrick Resources Corporation ......... 9,567,500
345,400 Cambior Inc.** ................................. 3,928,925
25,000 *Cambior Inc. Warrants .......................... 45,313
20,000 *Cambior Inc. "A" Warrants ...................... 27,500
340,000 Canarc Resource Corporation .................... 849,090
150,000 Canyon Resources Corporation ................... 243,750
200,000 *Carson Gold Corporation Units .................. 242,000
250,000 Dayton Mining Corporation ...................... 722,440
130,000 Echo Bay Mines, Ltd. ........................... 1,381,250
140,000 Euro-Nevada Mining Corporation ................. 2,947,000
75,000 Franco-Nevada Mining Corporation ............... 3,685,500
218,600 Freeport McMoran Copper & Gold Inc. ............ 4,645,250
500,000 Goldbelt Resources, Ltd. ....................... 410,275
370,000 Golden Star Resources, Ltd. .................... 3,098,750
120,000 *Golden Star Resources, Ltd. Special
Warrants ..................................... 1,200
237,800 Hemlo Gold Mines Inc. .......................... 2,407,725
30,000 Homestake Mining Company ....................... 513,750
90,000 Newmont Gold Company ........................... 3,206,250
102,291 Newmont Mining Corporation ..................... 3,682,476
62,000 North American Palladium, Ltd. ................. 461,125
285,000 Placer Dome Inc. ............................... 6,198,750
150,000 Prime Resources Group .......................... 1,083,000
165,002 Santa Fe Pacific Gold Corporation .............. 2,124,401
150,000 Stillwater Mining Company ...................... 2,015,625
1,250,000 TVX Gold Inc. .................................. 8,437,500
286,500 Venoro Gold Corporation ........................ 153,318
------------
62,807,163
------------
Right Col.
Number of
Shares or
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------
SOUTH AFRICA (ADR's): 34.9%
235,000 Beatrix Mines, Ltd. ............................ $ 1,470,536
2,118,000 Deelkraal Gold Mining Company, Ltd. ............ 3,454,458
336,000 Driefontein Consolidated, Ltd. ................. 5,124,000
65,000 Durban Roodepoort Deep, Ltd. ................... 685,880
1,355,000 East Rand Gold &
Uranium Company, Ltd. ....................... 3,491,293
370,000 Elandsrand Gold Mining Company, Ltd. ........... 2,564,988
150,000 Free State Development, Ltd. ................... 139,875
20,000 Free State Consolidated Gold Mines, Ltd. ....... 307,500
676,400 Hartebeestfontein Gold Mining Company, Ltd. .... 3,070,721
200,000 Impala Platinum Holdings, Ltd. ................. 4,907,920
103,000 Johannesburg Consolidated
Investments, Ltd. ........................... 2,641,322
190,000 Kinross Mines, Ltd. ............................ 3,193,824
401,500 Kloof Gold Mining Company, Ltd. ................ 5,897,031
360,000 Rand Extension & Explorations, Ltd. ............ 287,100
103,400 Randfontein Estates Gold Mining
Company, Ltd. ............................... 1,179,887
211,600 Rustenburg Platinum Holdings, Ltd. ............. 5,815,678
177,000 St. Helena Gold Mines, Ltd. .................... 1,725,750
398,000 Vaal Reefs Exploration & Mining
Company, Ltd. ............................... 3,619,313
270,000 Western Areas Gold Mining Company, Ltd. 4,770,495
99,000 Winkelhaak Mines, Ltd. ......................... 1,360,466
------------
55,708,037
------------
UNITED KINGDOM: 1.0%
30,000 R.T.Z. Corporation (ADR) ...................... 1,578,750
------------
TOTAL GOLD MINING COMMON STOCKS:
(cost $126,709,061) ........................... 146,625,941
------------
CONVERTIBLE NOTES: 0.2%
$500,000 Canyon Resources Corporation**
6.00% due 06/01/98 (cost $500,000) ............ 340,000
------------
SHORT TERM INVESTMENTS: 4.7%
500,000 Federal Home Loan Bank 5.75%,
due 1/03/95 ................................... 499,840
5,000,000 Federal Home Loan Mortgage Corp.
5.95% due 01/19/95 ............................ 4,985,125
2,000,000 U.S. Treasury Bills 5.41%, due 3/23/95 .......... 1,975,678
------------
TOTAL SHORT TERM INVESTMENTS
(cost $7,460,643) ............................. 7,460,643
------------
TOTAL INVESTMENTS: 101.5%
(cost $142,133,454\'86) (Note 1) .............. 161,798,413
Liabilities in excess of
other assets: (1.5%) .......................... (2,363,807)
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $6.37 per share on
25,019,710 shares outstanding) ................$159,434,606
============
* Non-income producing investments.
** Restricted securities.
(D)Aggregate cost for Federal income tax purposes is identical.
ADR-American Depository Receipt.
The Notes to Financial Statements are an integral part of this statement.
23
<PAGE>
Left Col.
Lexington Goldfund, Inc.
Portfolio Changes
Six months ended December 31, 1994 (unaudited)
ADDITIONS
Amax Gold Inc. (Preferred shares) "B"
Delta Gold N.L.
Emperor Mines, Ltd.
Free State Consolidated Gold Mines, Ltd.
Goldbelt Resources, Ltd.
Gwalia Consolidated, Ltd.
Prime Resources Group
Samantha Gold N.L.
Santa Fe Pacific Gold Corporation
Stillwater Mining
INCREASE IN HOLDINGS
American Barrick Resources Corporation
Cambior Inc.
Dayton Mining Corporation
Deelkraal Gold Mining Company, Ltd.
Eagle Mining Corporation
Freeport McMoran Copper & Gold Inc.
Gold Bullion
Gold Mines of Kalgoorlie, Ltd.
Golden Star Resources, Ltd.
Kloof Gold Mining Company, Ltd.
Poseidon Gold, Ltd.
Randfontein Estates Gold Mining Company, Ltd.
St. Helena Gold Mines, Ltd.
TVX Gold Inc.
Western Areas Gold Mining Company, Ltd.
DECREASE IN HOLDINGS
Echo Bay Mines, Ltd.
Homestake Gold of Australia, Ltd.
Homestake Mining Company
Impala Platinum Holdings, Ltd.
Johannesburg Consolidated Investments, Ltd.
Newcrest Mining, Ltd.
Newmont Mining Corporation
Rustenburg Platinum Holdings, Ltd.
DELETIONS
Crystallex International Corporation
Gold Mines of Kalgoorlie, Ltd. Options
Lac Minerals, Ltd.
Poseidon Gold, Ltd. Options
Resolute Resources
Santa Fe Southern Pacific Corporation
Right Col.
Lexington Goldfund, Inc.
Statement of Assets and Liabilities
December 31, 1994
Assets
Investments, at value (cost $142,133,454)
(Note 1) ....................................................... $161,798,413
Cash ............................................................. 97,286
Foreign currencies, at value (cost $15,083) ...................... 15,055
Receivable for investment securities sold ........................ 72,774
Receivable for shares sold ....................................... 1,464,541
Dividends and interest receivable ................................ 538,345
------------
Total Assets ............................................... 163,986,414
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ................. 103,151
Payable for shares redeemed ...................................... 505,560
Payable for investment securities purchased ...................... 3,801,502
Accrued expenses ................................................. 84,193
Distributions payable ............................................ 57,402
------------
Total Liabilities .......................................... 4,551,808
------------
Net Assets (equivalent to $6.37 per share on 25,019,710
shares outstanding) (Note 4) ................................... $159,434,606
============
Net Assets consist of:
Capital stock-authorized 500,000,000 shares,
$.001 par value per share ...................................... $ 25,020
Additional paid-in capital (Note 1) .............................. 160,147,505
Undistributed net investment income (Note 1) ..................... 100,368
Accumulated net realized loss on investments (Notes 1 and 6). .... (20,503,218)
Net unrealized appreciation of investments ....................... 19,664,931
------------
$159,434,606
============
The Notes to Financial Statements are an integral part of this statement.
24
<PAGE>
Left Col.
Lexington Goldfund, Inc.
Statement of Operations
Year ended December 31, 1994
Investment Income
Income
Dividends ............................ $ 3,461,053
Interest ............................. 269,044
-----------
3,730,097
Less: foreign tax expense ............ 541,586
-----------
Total investment income ............ $3,188,511
Expenses
Investment advisory fee (Note 2) ..... 1,296,523
Accounting and shareholder services
expense (Note 2) ................... 223,055
Custodian and transfer agent expenses 223,607
Printing and mailing ................. 92,460
Directors' fees and expenses ......... 11,879
Audit and legal ...................... 31,667
Registration fees .................... 36,803
Distribution expenses (Note 3) ....... 390,511
Other expenses ....................... 98,983
-----------
Total expenses ..................... 2,405,488
------------
Net investment income ............ 783,023
------------
Realized and Unrealized Gain (Loss) on
Investments (Note 5)
Realized gain on investments
(excluding short-term securities):
Proceeds from sales .................. 36,121,799
Cost of securities sold .............. 30,480,036
-----------
Net realized gain 5,641,763
Unrealized appreciation of investments:
End of period ........................ 19,664,931
Beginning of period .................. 39,030,560
-----------
Change during period ............... (19,365,629)
------------
Net realized and unrealized loss
on investments ................. (13,723,866)
------------
Decrease in Net Assets Resulting
from Operations ...................... $(12,940,843)
============
Right Col.
Lexington Goldfund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
1994 1993
------------ ------------
Net investment income ........................... $ 783,023 $ 281,255
Net realized gain (loss) from security
transactions .................................. 5,641,763 (1,562,185)
Increase (decrease) in unrealized
appreciation of investments ................... (19,365,629) 68,919,219
------------ ------------
Net increase (decrease) in net
assets resulting from
operations ................................ (12,940,843) 67,638,289
Distributions to shareholders from net
investment income ............................. (704,103) (352,570)
Increase in net assets from capital
share transactions (Note 4) ................... 13,600,482 20,337,064
------------ ------------
Net increase (decrease) in
net assets ................................ (44,464) 87,622,783
Net Assets
Beginning of period ........................... 159,479,070 71,856,287
------------ ------------
End of period (including
undistributed net investment
income of $100,368 and $29,447,
respectively) ................................. $159,434,606 $159,479,070
============ ============
The Notes to Financial Statements are an integral part of these statements.
25
<PAGE>
Left Col.
Lexington Goldfund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Significant Accounting Policies
Lexington Goldfund, Inc. (the "Fund") is an open end non-diversified management
investment company registered under the Investment Company Act of 1940, as
amended. 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. Investments in securities traded on a national securities
exchange are valued at the last sale price on the last business day of the
fiscal period. Securities traded on the over-the-counter market and gold bullion
are valued at the mean between the last reported bid and asked price. Securities
for which market quotations are not readily available and other assets are
valued at fair value as determined by management and approved in good faith by
the Board of Directors. Short-term securities are stated at amortized cost,
which approximates market value. Dividend income and distributions to
shareholders are recorded on the ex-dividend date. Interest income is accrued as
earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
settled and are reported in the statement of operations.
Distributions Effective January 1, 1993, the Fund adopted Statement of
Position 93-2: Determination, Disclosure and Financial Statement Presentation of
Income,
Right Col.
Capital Gain and Return of Capital Distributions by Investment Companies. As of
December 31, 1994, book and tax basis differences amounting to $26,684 have been
reclassified from undistributed net investment income to additional paid-in
capital. In addition, foreign exchange losses of $7,999 were reclassified from
accumulated net realized losses to undistributed net investment income.
Federal Income Taxes It is the Fund's intention to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes has been made.
2. Investment Advisory Fee and Other Transactions
with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at the annual rate of 1% of the Fund's average daily net assets up to
$50 million and 0.75% of average daily net assets in excess of $50 million. 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 year ended December 31, 1994.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
3. Distribution Plan
The Fund has adopted a Distribution Plan (the "Plan") which allows payments to
finance activities associated with the distribution of the Fund's shares. The
Plan provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Fund Distributors, Inc. ("LFD"), the Fund's
distributor in amounts not exceeding .25% per annum of the Fund's average daily
net assets. Total distribution expenses for the year ended December 31, 1994
were $390,511 which are set forth in the statement of operations.
26
<PAGE>
Left Col.
Lexington Goldfund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993 (continued)
4. Capital Stock
Transactions in capital stock were as follows:
Year Ended Year Ended
December 31, 1994 December 31, 1993
----------------------- ------------------------
Shares Amount Shares Amount
-------- ------ -------- ---------
Shares sold ............ 29,889,582 $196,803,590 27,165,164 $152,263,598
Shares issued to share-
holders on reinvest-
ment of dividends ...... 93,509 615,486 50,241 309,186
---------- ------------ ---------- ------------
29,983,091 197,419,076 27,215,405 152,572,784
Shares redeemed ........(28,084,616) (183,818,594) (23,540,982) (132,235,720)
---------- ------------ ---------- ------------
Net increase ........... 1,898,475 $13,600,482 3,674,423 $20,337,064
========== ============ ========== ============
5. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments for the year ended
December 31, 1994, excluding short-term securities, were $50,497,918 and
$36,121,799, respectively.
At December 31, 1994, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$28,489,607 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $8,824,676.
6. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for federal income tax purposes as of
December 31, 1994 are approximately:
5,577,440 expiring in 1997;
$5,850,841 expiring in 1998;
$4,027,951 expiring in 1999;
$8,266,551 expiring in 2000; and,
$2,280,435 expiring in 2001.
Right Col.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
Treasury regulations were issued in early 1990 which provide that capital losses
incurred after October 31 of a fund's taxable year should be deemed to have
occurred on the first day of the following year (i.e.: January 1). The
regulations indicate that a fund may elect to retroactively apply these rules
for purposes of computing taxable income. Accordingly, the capital loss
carryforwards for Lexington Goldfund, Inc. have been adjusted to reflect prior
years' post-October losses in the next fiscal year.
7. Investment and Concentration Risks
The Fund makes significant investments in foreign securities and has a policy of
investing in gold and in the securities of companies engaged in mining or
processing gold. There are certain risks involved in investing in foreign
securities or concentrating in specific industries, such as mining and
processing gold, that are in addition to the usual risks inherent in domestic
investments. The price of gold in particular, is subject to substantial price
fluctuations over short periods of time. These risks also include those
resulting from future adverse political and economic developments as well as the
possible imposition of foreign exchange or other foreign governmental
restrictions or laws.
27
<PAGE>
Lexington Goldfund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $6.90 $3.70 $4.68 $5.03 $6.39
----- ----- ----- ----- -----
Income from investment operations:
Net investment income ....................... .03 .01 .02 .04 .04
Net realized and unrealized gain (loss)
on investments ............................ (.53) 3.21 (.98) (.35) (1.36)
----- ----- ----- ----- -----
Total income (loss) from investment
operations .................................. (.50) 3.22 (.96) (.31) (1.32)
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income ........ (.03) (.02) (.02) (.04) (.04)
----- ----- ----- ----- -----
Net asset value, end of period ................ $6.37 $6.90 $3.70 $4.68 $5.03
===== ===== ===== ===== =====
Total return .................................. (7.28%) 86.96% (20.51%) (6.14%) (20.65%)
Ratio to average net assets:
Expenses .................................... 1.54% 1.63% 1.69% 1.43% 1.36%
Net investment income ....................... .50% .25% .58% . 81% .69%
Portfolio turnover ............................ 23.77% 28.41% 13.18% 22.14% 12.43%
Net assets, end of period (000's omitted) ..... $159,435 $159,479 $71,856 $96,316 $106,074
</TABLE>
28
