PROSPECTUS
April 29, 1996
Lexington Goldfund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service--1-800-526-0056
Institutional/Financial Adviser Services--1-800-367-9160
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.
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Lexington Goldfund, Inc. (the "Fund") is a no-load open-end
non-diversified 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 April 29, 1996, 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.
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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.
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Investors Should Read and Retain this Prospectus for Future Reference
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FEE TABLE
Annual Fund Operating Expenses (as a percentage of average net assets):
Management fees ..................................................... 0.83%
12b-1 fees .......................................................... 0.25%
Other expenses ...................................................... 0.62%
----
Total Fund Operating Expenses 1.70%
====
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 $17.28 $53.57 $92.30 $200.86
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, 1995 to December 31, 1995. 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, 1995 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.
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<TABLE>
<CAPTION>
Selected Per Share Data for a share outstanding throughout the period
Year Ended December 31,
---------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ................... $ 6.37 $ 6.90 $ 3.70 $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20 $ 4.49 $ 3.40
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income .... - 0.03 0.01 0.02 0.04 0.04 0.05 0.04 0.01 0.04
Net realized and unrealized
gain (loss) on
investments .............. (0.12) (0.53) 3.21 (0.98) (0.35) (1.36) 1.18 (0.98) 2.07 1.07
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from
investment operations .... (0.12) (0.50) 3.22 (0.96) (0.31) (1.32) 1.23 (0.94) 2.08 1.11
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ...... (0.01) (0.03) (0.02) (0.02) (0.04) (0.04) (0.05) (0.05) (0.05) (0.02)
Distributions from net
realized capital gains . - - - - - - - - (0.32) -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total distributions ........ (0.01) (0.03) (0.02) (0.02) (0.04) (0.04) (0.05) (0.05) (0.37) (0.02)
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period ............ $ 6.24 $ 6.37 $ 6.90 $ 3.70 $ 4.68 $ 5.03 $ 6.39 $ 5.21 $ 6.20 $ 4.49
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Total return ............... (1.89%) (7.28%) 89.96% (20.51%) (6.14%) (20.35%) 23.62% (15.18%) 46.56% 32.65%
Ratios to average net assets:
Expenses ................. 1.70% 1.54% 1.63% 1.69% 1.43% 1.36% 1.42% 1.61% 1.29% 1.52%
Net investment income .... 0.07% 0.50% 0.25% 0.58% 0.81% 0.69% 1.14% 0.78% 0.57% 1.11%
Portfolio turnover ......... 40.41% 23.77% 28.41% 13.18% 22.14% 12.43% 15.98% 20.45% 13.78% 14.97%
Net assets, end of period
(000's omitted) ..........$135,779 $159,435 $159,479 $71,856 $96,316 $106,074 $154,484 $92,782 $104,842 $24,605
</TABLE>
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2
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DESCRIPTION OF THE FUND
The Fund is an open-end non-diversified 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
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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
precious metals 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" 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, 1995, the portfolio
turnover rate was 40.41%.
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 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, reinstatement 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
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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 below 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.
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<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 nine directors (of whom six are
non-affiliated persons) who meet five 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 13 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, 1995, the Fund paid net advisory fees to LMC of $1,251,651.
LMC, established in 1938, currently manages over $3.0 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 Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West Plaza Two,
Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities have a majority voting control of
outstanding shares of Lexington Global Asset Managers, 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). 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, 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. However, when LMC deems it
appropriate, prices for the day of valuation from a third party pricing service
will be used. For over-the-counter securities the mean of the latest bid and
asked prices is used. Short-term securities having maturity of 60 days or less
are valued at cost when it is determined by the Fund's Board of Directors that
amortized cost reflects the fair value of such securities. 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.
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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.
Generally, trading in foreign securities, as well as United States
Government securities, money market instruments and repurchase agreements, is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of the shares of the Fund are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods, events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined by management and approved in good faith by the Board of
Directors.
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 three business
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 $25,000 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.
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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 third 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 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 and emerging markets.
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 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 and Missouri.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC./Seeks long-term capital
appreciation through investment in companies domiciled in the Asia
Region with a market capitalization of less than $1 billion.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC./Seeks long-term capital appreciation
through investment primarily in the equity securities of Russian
companies. The Fund is expected to be available in June, 1996 and has
a $5,000 minimum investment.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX/Seeks high current
income. Capital appreciation is a secondary objective.
LEXINGTON SMALLCAP VALUE FUND, INC./Seeks long-term capital appreciation through
investment in common stocks of companies domiciled in the United
States with a market capitalization of less than $1 billion.
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.
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 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.
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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.
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
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<PAGE>
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 asset value as described above. Under this
procedure, the dealer must 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,
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<PAGE>
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.
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
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<PAGE>
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 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 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.
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, 1996.
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,
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<PAGE>
$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.
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.
The Code of Ethics adopted by each of the Adviser and the Fund prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Fund's planned portfolio
transactions. The objective of each Code of Ethics is that the operations of the
Adviser and Fund be carried out for the exclusive benefit of the Fund's
shareholders. All organizations maintain careful monitoring of compliance with
the Code of Ethics.
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.
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(Left Column)
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
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
Institutional/Financial Adviser Services: 1-800-367-9160
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 and Distributor .................... 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 ........................... 14
Counsel and Independent Auditors ...................... 14
Other Information ..................................... 14
(Right Column)
-----------------
L E X I N G T O N
-----------------
-------------------------------------
LEXINGTON
GOLDFUND,
INC.
(filled box)
(filled box)No sales charge
(filled box)No redemption fee
(filled box)Free telephone
exchange privilege
(filled box)
The Lexington Group
of
No-Load
Investment Companies
-------------------------------------
P R O S P E C T U S
APRIL 29, 1996
==============
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 29, 1996
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 April 29, 1996 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
Institutional/Financial Adviser Services:--1-800-367-9160
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
Page
Investment Consideration .................................................. 2
Investment Policy ......................................................... 2
Investment Restrictions ................................................... 3
Risk Considerations ....................................................... 4
Investment Adviser, Distributor and Administrator ......................... 6
Portfolio Turnover and Brokerage Allocations .............................. 7
Tax Sheltered Retirement Plans ............................................ 7
Dividend, Distribution and Reinvestment Policy ............................ 8
Distribution Plan ......................................................... 8
Tax Matters ............................................................... 9
Performance Calculation ................................................... 13
Custodians, Transfer Agent and Dividend Disbursing Agent .................. 14
Management of the Fund .................................................... 14
Financial Statements ...................................................... 17
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.
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
2
<PAGE>
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: 1993, 28.41%; 1994, 23.77% and 1995, 40.41%.
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) 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.
3
<PAGE>
In additional 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.
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
4
<PAGE>
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.
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.
5
<PAGE>
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.
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
----------------- ----------------
1993 1,978,750
1994 1,296,523
1995 1,251,651
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 Lexington Global Asset Managers, 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 Lexington Global Asset Managers, 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.
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 March 1, 1996, 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.
6
<PAGE>
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.
The Fund paid brokerage commissions and portfolio turnover rates are as
follows:
Total Brokerage Portfolio Turnover
Commission Paid Rate
--------------- ------------------
1993 165,858 28.41%
1994 192,131 23.77%
1995 388,175 40.41%
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
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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").
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.
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
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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, 1995, the Fund has capital loss
carryforwards of approximately $283,213, $8,266,551, and $2,280,435, which
expire through 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 March, 1996 is 5.31%). 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.
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
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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.
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.
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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.
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.
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
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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."
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
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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.
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:
P(1+T)n = 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
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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, 1995 is as follows:
Average Annual
Period Total Return
------ ------------
1 year ended December 31, 1995 ............. -1.89%
5 years ended December 31, 1995 ............ 4.88%
10 years ended December 31, 1995 ............ 7.45%
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, Lexington Global Asset
Managers, Inc.; Unione Italiana Reinsurance; Vice Chairman of the Board of
Trustees, Union College; 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.; Executive Vice President and General
Manager - Mutual Funds, Lexington Global Asset Managers, 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).
+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.; Secretary, Lexington Global Asset Managers, Inc.
14
<PAGE>
*+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.; Executive Vice President and Chief
Financial Officer, Lexington Global Asset Managers, 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.
*+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.
*+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 Vice
President and 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, 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.
The Board of Directors met 5 times during the twelve months ended December
31, 1995, and each of the Directors attended at least 75% of those meetings.
Remuneration of Directors and Certain Executive Officers
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof. Each Director who is not an
affiliate of the advisor is compensated for his or her services according to a
fee schedule which recognizes the fact that each Director also serves as a
Director of other investment companies advised by LMC. Each Director receives a
fee, allocated among all investment companies for which the Director serves.
Effective September 12, 1995 each Director receives annual compensation of
$24,000. Prior to September 12, 1995, the Directors who were not employed by the
Fund or its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1995 to December 31, 1995 for each Director:
- --------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in Fund
Fund Complex
- --------------------------------------------------------------------------------
Robert M. DeMichele 0 0 15
- --------------------------------------------------------------------------------
Beverley C. Duer $ 1,456 $22,616 15
- --------------------------------------------------------------------------------
Barbara R. Evans 0 0 14
- --------------------------------------------------------------------------------
Lawrence Kantor 0 0 14
- --------------------------------------------------------------------------------
Donald B. Miller $ 1,456 $20,616 14
- --------------------------------------------------------------------------------
John G. Preston $ 1,456 $20,616 14
- --------------------------------------------------------------------------------
Margaret Russell $ 1,456 $19,560 13
- --------------------------------------------------------------------------------
Philip C. Smith $ 1,456 $20,616 14
- --------------------------------------------------------------------------------
Francis A. Sunderland $ 1,456 $19,560 13
- --------------------------------------------------------------------------------
Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator
15
<PAGE>
or Distributor or any of their affiliates) may be entitled to certain benefits
upon retirement from the Board. Pursuant to the Plan, the normal retirement date
is the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Director in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1995, the estimated credited years
of service for Directors Duer, Miller, Preston, Russell, Smith and Sunderland
are 18, 22, 18, 15, 26 and 36, respectively.
Highest Annual Compensation Paid by All Funds
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
Years of
Service Estimated Annual Benefit Upon Retirement
-------- ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
16
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Goldfund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Goldfund, Inc.
as of December 31, 1995, 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, 1995 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 Goldfund, Inc. as of December 31, 1995, 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
January 29, 1996
17
<PAGE>
Lexington Goldfund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
GOLD BULLION: 11.4%
39,978 fine ounces (cost $15,468,090) ............................ $ 15,465,303
------------
GOLD MINING COMMON STOCKS: 84.6%
AUSTRALIA: 22.6%
805,000 Acacia Resources, Ltd.2 .......................................... 1,446,464
292,215 Burmine, Ltd. .................................................... 574,970
800,000 Climax Mining, Ltd.2 ............................................. 736,560
950,000 Delta Gold NL2 ................................................... 2,299,523
607,600 Eagle Mining Corporation NL2 ..................................... 1,168,460
600,000 Emperor Mines, Ltd. .............................................. 957,825
2,240,423 Gold Mines of Kalgoorlie, Ltd. ................................... 2,079,393
1,300,000 Golden Shamrock Mines, Ltd.2 ..................................... 801,158
750,000 Great Central Mines NL ........................................... 1,447,875
800,000 Gwalia Resources, Ltd. ........................................... 1,366,200
15,000 Lihir Gold, Ltd. (ADR)2 .......................................... 328,125
624,750 Mount Edon Gold Mines, Ltd. ...................................... 1,275,661
441,200 Newcrest Mining, Ltd. ............................................ 1,854,165
393,750 Niugini Mining, Ltd.2 ............................................ 757,211
1,000,000 Otter Gold Mines, Ltd.2 .......................................... 1,225,125
500,000 Plutonic Resources, Ltd. ......................................... 2,376,000
682,700 Posgold, Ltd. .................................................... 1,358,505
391,000 Ranger Minerals NL2 .............................................. 827,405
892,857 Resolute Samantha, Ltd ........................................... 1,889,397
65,000 Ross Mining NL ................................................... 61,293
2,000,000 St. Barbara Mines, Ltd. .......................................... 1,232,550
977,100 St. Barbara Mines, Ltd.1 ......................................... 602,162
814,100 Wiluna Mines, Ltd. ............................................... 840,212
500,000 WMC, Ltd ......................................................... 3,207,600
------------
30,713,839
------------
GHANA: 1.9%
125,000 Ashanti Goldfields Company, Ltd.1 ................................ 2,531,250
------------
NORTH AMERICA: 40.1%
25,000 Agnico-Eagle Mines, Ltd. ......................................... 315,625
15,000 Amax Gold Inc. (Preferred shares) ................................ 817,500
105,000 Barrick Gold Corporation ......................................... 2,769,375
70,000 Bre-X Minerals, Ltd.2 ............................................ 2,720,939
50,000 Cambior, Inc.1 ................................................... 543,750
195,400 Cambior, Inc. .................................................... 2,124,975
20,000 Cambior, Inc. (Warrants) ......................................... 8,750
165,000 Campbell Resources, Inc.2 ........................................ 159,736
340,000 Canarc Resource Corporation2 ..................................... 349,102
500,000 Dayton Mining Corporation2 ....................................... 2,108,544
125,000 Echo Bay Mines, Ltd. ............................................. 1,296,875
80,500 Euro Nevada Mining Corporation, Ltd. ............................. 2,937,202
32,169 First Mississippi Corporation .................................... 707,718
45,000 Franco Nevada Mining Corporation, Ltd. ........................... 2,632,013
118,600 Freeport McMoran Copper & Gold (Preferred shares) ................ 3,320,800
526,000 Geddes Resources, Ltd.2 .......................................... 501,503
500,000 Geomaque Explorations, Ltd.2 ..................................... 674,734
</TABLE>
18
<PAGE>
Lexington Goldfund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
NORTH AMERICA (continued)
100,000 Golden Knight Resources, Inc. .................................... $ 577,558
120,000 Golden Star Resources, Ltd.1,2 ................................... 615,000
120,000 Golden Star Resources, Ltd. (Warrants)1,2 ........................ 1,200
17,800 Golden Star Resources, Ltd.2 ..................................... 91,225
500,000 Granges, Inc.2 ................................................... 825,083
100,000 Greenstone Resources, Ltd.2 ...................................... 286,029
15,400 Guyanor Resources S.A.2 .......................................... 38,401
237,800 Hemlo Gold Mines, Inc. ........................................... 2,229,375
548,100 International Gold Resources Corporation2 ........................ 1,447,129
200,000 Laminco Resources, Inc.2 ......................................... 205,354
525,000 Loki Gold Corporation (Warrants) ................................. 1,2904,840
130,000 Newmont Gold Company ............................................. 5,687,500
31,691 Newmont Mining Corporation ....................................... 1,434,018
62,000 North American Palladium, Ltd.2 .................................. 364,250
100,000 Pegasus Gold, Inc. ............................................... 1,387,500
90,000 Placer Dome, Inc. ................................................ 2,171,250
150,000 Prime Resource Group, Inc.2 ...................................... 1,031,353
239,002 Santa Fe Pacific Gold Corporation ................................ 2,897,899
75,000 Stillwater Mining Company2 ....................................... 1,462,500
200,000 Triton Mining Corporation (Warrants)1,2 .......................... 733,407
850,000 TVX Gold, Inc. ................................................... 6,056,250
182,000 Venoro Gold Corporation2 ......................................... 32,034
------------
54,468,296
------------
SOUTH AFRICA: 19.3%
59,925 Anglo American Platinum (ADR)2 ................................... 341,093
15,000 Anglovaal Ltd. "N" ............................................... 609,137
235,000 Beatrix Mines, Ltd. .............................................. 2,111,744
640,600 Deelkraal Gold Mining Company, Ltd. .............................. 509,738
304,000 Driefontein Consolidated, Ltd. ................................... 3,857,868
19,680 Durban Roodepoort Deep, Ltd.2 .................................... 172,797
49,200 Durban Roodepoort Deep, Ltd.2 .................................... 425,244
19,680 Durban Roodepoort Deep, Ltd. (Options)2 .......................... 65,474
1,299,000 East Rand Gold & Uranium Company ................................. 3,475,168
370,000 Elandsrand Gold Mining Company, Ltd. ............................. 1,776,650
20,000 Free State Consolidated Gold Mines, Ltd. ......................... 149,540
150,000 Free State Development & Investment, Ltd. ........................ 102,895
135,000 Impala Platinum Holdings, Ltd. ................................... 2,463,301
58,000 JCI, Ltd. (ADR) .................................................. 457,417
100,000 Kinross Mines, Ltd. .............................................. 946,632
30,500 Kloof Gold Mining Company (ADR) .................................. 289,750
125,000 Kloof Gold Mining Company, Ltd. .................................. 1,200,439
360,000 Randex, Ltd.2 .................................................... 148,168
71,600 Rustenburg Platinum Holdings, Ltd. ............................... 1,178,763
177,000 St. Helena Gold Mines, Ltd. ...................................... 971,327
6,600 Vaal Reefs Exploration & Mining Company, Ltd. .................... 427,384
221,849 Western Areas Gold Mining Company, Ltd. .......................... 3,789,298
99,000 Winkelhaak Mines, Ltd. ........................................... 706,270
------------
26,176,097
------------
</TABLE>
19
<PAGE>
Lexington Goldfund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
<TABLE>
<CAPTION>
Number of Shares Value
or Principal Amount Security (Note 1)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM: 0.7%
600,000 Cluff Resources Plc .............................................. $ 995,100
------------
TOTAL GOLD MINING COMMON STOCKS:
(Cost $106,998,782) ............................................ 114,884,582
CONVERTIBLE NOTES: 0.5%
$750,000 Canyon Resources Corporation1
6.00%, due 06/01/98 (Cost $692,265) ............................ 607,500
------------
SHORT-TERM INVESTMENTS: 3.0%
1,500,000 Federal Home Loan Bank 5.55%, due 02/13/96 ....................... 1,490,056
2,600,000 Federal Home Loan Mortgage Corporation 5.50%, due 01/02/96 ....... 2,599,603
------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $4,089,659) .............................................. 4,089,659
------------
TOTAL INVESTMENTS: 99.5%
(Cost $127,248,796+) (Note 1) .................................. 135,047,044
Other assets in excess of liabilities: 0.5% ...................... 731,618
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $6.24 per share on
21,750,338 shares outstanding) ................................. $135,778,662
============
</TABLE>
20
<PAGE>
Lexington Goldfund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
- --------------------------------------------------------------------------------
Notes to Statement of Net Assets
1The following securities were purchased under Rule 144A of the Securities Act
of 1933 and, unless registered under the Act or exempted from registration, may
be sold only to qualified institutional investors.
<TABLE>
<CAPTION>
Average Cost
Per Share/
Acquisition Principal Unit Market % of Net
Issuer Date or Par Value Value Assets
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ashanti Goldfields Company, Ltd. ........... 1/6/95-11/3/95 $19.40 $2,531,250 1.86%
Cambior, Inc. .............................. 5/7/93 10.28 543,750 0.40%
Canyon Resource Corporation ................ 5/19/93-6/19/95 91.00 607,500 0.45%
Golden Star Resources, Ltd. ................ 1/24/94 16.01 615,000 0.45%
Golden Star Resources, Ltd. (Warrants) ..... 1/24/94 0.01 1,200 0.00%
Loki Gold Corporation (Warrants) ........... 9/28/95 1.34 904,840 0.67%
St. Barbara Mines, Ltd. .................... 5/13/93 0.53 602,162 0.44%
Triton Mining Corporation (Warrants) ....... 5/19/95 2.76 733,407 0.54%
---------- ----
$6,539,109 4.81%
========== ====
</TABLE>
Pursuant to guidelines adopted by the Fund's Board of Directors, these
unregistered securities have been deemed to be illiquid. The Fund currently
limits investment in illiquid securities to 15% of the Fund's net assets, at
market value, at the time of purchase.
2Non-income producing securities.
ADR-American Depository Receipt.
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
21
<PAGE>
Lexington Goldfund, Inc.
Statement of Assets and Liabilities
December 31, 1995 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $127,248,796) (Note 1) .......................................... $135,047,044
Cash ........................................................................................ 70,881
Receivable for investment securities sold ................................................... 1,296,575
Receivable for shares sold .................................................................. 355,242
Dividends and interest receivable ........................................................... 247,729
------------
Total Assets ........................................................................ 137,017,471
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ............................................ 92,663
Payable for shares redeemed ................................................................. 770,735
Payable for investment securities purchased ................................................. 199,927
Accrued expenses ............................................................................ 175,484
------------
Total Liabilities ................................................................... 1,238,809
------------
Net Assets (equivalent to $6.24 per share on 21,750,338 shares outstanding) (Note 4) ........ $135,778,662
============
Net Assets consist of:
Capital stock-authorized 500,000,000 shares, $.001 par value per share ...................... $ 21,750
Additional paid-in capital (Note 1) ......................................................... 138,788,767
Accumulated net realized loss on investments (Notes 1 and 6) ................................ (10,830,199)
Net unrealized appreciation of investments .................................................. 7,798,344
------------
$135,778,662
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
22
<PAGE>
Lexington Goldfund, Inc.
Statement of Operations
Year ended December 31, 1995
<TABLE>
<S> <C> <C>
Investment Income
Income
Dividends ....................................................... $ 2,567,136
Interest ........................................................ 449,967
-----------
3,017,103
Less: foreign tax expense ....................................... 353,770
-----------
Total investment income ....................................... $2,663,333
Expenses
Investment advisory fee (Note 2) ................................ 1,251,651
Accounting and shareholder services expense (Note 2) ............ 236,674
Custodian and transfer agent expenses ........................... 197,100
Printing and mailing ............................................ 243,618
Directors' fees and expenses .................................... 11,787
Audit and legal ................................................. 51,354
Registration fees ............................................... 52,087
Computer processing fees ........................................ 18,609
Distribution expenses (Note 3) .................................. 375,548
Other expenses .................................................. 120,975
-----------
Total expenses ................................................ 2,559,403
-----------
Net investment income ..................................... 103,930
Realized and Unrealized Gain (Loss)
on Investments (Note 5)
Net realized gain (loss) on:
Investments ..................................................... 9,673,019
Foreign currency transactions ................................... (1,808)
-----------
Net realized gain ............................................. 9,671,211
Net change in unrealized appreciation (depreciation) on:
Investments ..................................................... (11,866,711)
Foreign currency translations of other assets and liabilities ... 124
-----------
Net change in unrealized depreciation ......................... (11,866,587)
-----------
Net realized and unrealized loss .......................... (2,195,376)
-----------
Decrease in Net Assets Resulting from Operations .................. $(2,091,446)
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
23
<PAGE>
Lexington Goldfund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Net investment income .................................................. $ 103,930 $ 783,023
Net realized gain from security transactions ........................... 9,671,211 5,641,763
Decrease in unrealized appreciation of investments ..................... (11,866,587) (19,365,629)
------------ -------------
Net decrease in net assets resulting from operations ........... (2,091,446) (12,940,843)
Distributions to shareholders from net investment income ............... (244,385) (704,103)
Increase (decrease) in net assets from capital share transactions
(Note 4) ............................................................. (21,320,113) 13,600,482
------------ -------------
Net decrease in net assets ..................................... (23,655,944) (44,464)
Net Assets
Beginning of period .................................................... 159,434,606 159,479,070
------------ -------------
End of period (including undistributed net investment income of
$100,368 for the year ended December 31, 1994) ....................... $135,778,662 $159,434,606
============ =============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
24
<PAGE>
Left Col.
Lexington Goldfund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
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 Fund's 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. 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 closed and
are reported in the statement of operations.
25
Right Col.
Distributions In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of December 31,
1995, foreign exchange losses of $1,808 were reclassified from accumulated net
realized losses to distributions in excess of net investment income. In
addition, book and tax differences amounting to $41,895 have been reclassified
from distributions in excess of net investment income to additional paid-in
capital. 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, 1995.
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, 1995
were $375,548 and are set forth in the statement of operations.
<PAGE>
Left Col.
Lexington Goldfund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
4. Capital Stock
Transactions in capital stock were as follows:
Year ended Year ended
December 31, 1995 December 31, 1994
------------------------- -------------------------
Shares Amount Shares Amount
----------- ------------ ----------- ------------
Shares sold ............. 22,030,928 $132,527,053 29,889,582 $196,803,590
Shares issued to share-
holders on reinvest-
ment of dividends ...... 32,429 212,081 93,509 615,486
----------- ------------ ----------- ------------
22,063,357 132,739,134 29,983,091 197,419,076
Shares redeemed ......... (25,332,729) (154,059,247 (28,084,616) (183,818,594)
----------- ------------ ----------- ------------
Net increase (decrease). (3,269,372) $(21,320,113) 1,898,475 $13,600,482
=========== ============ =========== ============
5. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments for the year ended
December 31, 1995, excluding short-term securities, were $57,413,783 and
$78,604,155, respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$19,555,949 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $11,757,605.
6. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for federal income tax purposes as of
December 31, 1995 are approximately:
5,283,213expiring in 1999;
$8,266,551expiring in 2000; and,
$2,280,435expiring 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.
26
<PAGE>
Lexington Goldfund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .......... $6.37 $6.90 $3.70 $4.68 $5.03
----- ----- ----- ----- -----
Income from investment operations:
Net investment income ....................... - .03 .01 .02 .04
Net realized and unrealized gain (loss)
on investments ............................ (.12) (.53) 3.21 (.98) (.35)
----- ----- ----- ----- -----
Total income (loss) from investment
operations .................................. (.12) (.50) 3.22 (.96) (.31)
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income ........ (.01) (.03) (.02) (.02) (.04)
----- ----- ----- ----- -----
Net asset value, end of period ................ $6.24 $6.37 $6.90 $3.70 $4.68
===== ===== ===== ===== =====
Total return .................................. (1.89%) (7.28%) 86.96% (20.51%) (6.14%)
Ratio to average net assets:
Expenses .................................... 1.70% 1.54% 1.63% 1.69% 1.43%
Net investment income .07% .50% .25% .58% .81%
Portfolio turnover 40.41% 23.77% 28.41% 13.18% 22.14%
Net assets, end of period (000's omitted) ..... $135,779 $159,435 $159,479 $71,856 $96,316
</TABLE>
27
