Dear Shareholders:
- --------------------------------------------------------------------------------
The price of gold bullion in 1997 traced a disappointing path. Having ended
1996 at $367.70 an ounce, gold bullion declined by mid-February to $340.00
before rallying. The $340.00 level appeared to be holding until the end of June
when the Australian Central Bank gold sale prompted renewed fears of further
Central Bank selling in anticipation of the European Monetary Union. A brief
rally in late October was followed by a sharp decline to a low of $282.75 in
early December as fears of forced gold selling by distressed Southeast Asian
countries was added to existing concerns regarding European Central Bank sales.
Gold bullion finished the year at $289.05, a decline of 21.41% from where it
stood at the end of 1996.
Demand for gold for fabrication, principally jewelry, was up a healthy 14%
in 1997 according to estimates by the well regarded Gold Fields Mineral
Services, Ltd. Survey. Fabrication demand once again comfortably exceeded mine
production which was up a modest 2% despite falling gold bullion prices as the
lag in closures of higher cost mines was not sufficient to cancel out new
production from mines commissioned when gold prices were higher. This
fundamentally positive picture of fabrication demand outpacing mine production
was, however, overwhelmed by major increases in Central Bank sales, in forward
sales by producers and in short selling by institutions abetted by major Central
Bank lending of gold bullion. With all the concern regarding Central Bank sales,
it is worth remembering that Central Bank purchases were also significant and
that net Central Bank sales for the year were below the amounts sold in 1993, a
year during which the price of gold went up. The real damage came from forward
selling by producers desperately trying to ensure survival and from short
selling by institutions benefiting from the downward sloping trend in gold
prices and from the ready availability of gold lent by Central Banks. The result
has been a massive and growing short position.
As would be expected in this environment of falling gold prices, the gold
mining shares were hard hit. The unmanaged Financial Times All Gold Mine Index
was down 41.97% for the year. Geographic results differed. Surprisingly, given
the Bre-X debacle and the subsequent carnage in the Canadian exploration stocks,
the unmanaged Financial Times North America Gold Index was down a less drastic
38.29%. This index is heavily dominated by a few very large companies which held
up better than the smaller gold company shares. Greater declines were
experienced by the unmanaged African and the Australian indices which were down
an almost identical 47.93% and 47.86% respectively. Normally, the South African
gold shares would be expected to decline more severely than the Australian
shares given the former's more leveraged nature and the latter's significant
forward selling. However, in the first half of the year profitability for the
Australian gold mines was hurt by heavy rainfall and by
1
<PAGE>
earlier currency strength while the second half was adversely affected by
wholesale selling of resource stocks by local institutions and by general
turbulence in Southeast Asian markets.
Lexington Goldfund had a negative return of 42.98%* for 1997. This
disappointing performance was close to the negative return of 42.33% for the
average gold fund monitored by Lipper Analytical Services Inc. in a very
difficult environment for gold equities in general. The Fund was hurt by its
greater international diversification compared with the average gold fund.
Especially unsettling was the underperformance of the Australian gold shares
where the Fund has a relatively high exposure. These shares have appeared
undervalued for some time when compared with the North Americans. The recent
premium of 86% offered by the American gold producer, Homestake, for the
Australian producer, Plutonic, bolsters this view and we hope that this action
will lead to better relative performance in the future by the Australians.
Helping the Fund's relative performance, on the other hand, has been its
significant exposure to gold bullion, an element of diversification missing from
most other gold funds.
As we look forward, it is all too easy to succumb to the general gloom
which so often accompanies market bottoms. We hear more and more frequently that
gold has lost its function as a monetary asset. And yet the world's strongest
currency at present, the United States dollar, is backed by massive gold
reserves. Russia, trying to establish faith in its currency, has publicly stated
its intention of adding to its gold reserves. The European Central Bank will in
all probability have gold reserves and its twin pillars of Germany and France
with their overwhelming vote (and large gold reserves) on the Bank's Governing
Council are both eager to assure strong confidence in the new European currency
which argues strongly for a gold backing. Meanwhile, there are signs that China,
its own total reserves supplemented by its absorption of Hong Kong, has been
adding to its gold reserves in order to provide asset diversification and lessen
its dependence on United States dollars. Gold bullion, the only reserve not a
liability of some other sovereign entity, will continue to play an important
role as a monetary reserve.
As for gold demand in the important Asian markets, it is worth remembering
that currency devaluation resulted in substantial increases in the local gold
price in many of the affected countries. Gold served its traditional role as a
store of value reminding Asian investors of gold's attributes and the risks of
paper currencies. While gold demand softened in the third quarter as investors
cashed in, it appears that investment demand for gold in Asia has reasserted
itself, not only in the important countries of India and China, but also in some
of the more hard hit countries such as Thailand, Indonesia and Japan. With a
return to strong underlying demand fundamentals, the massive short position
should have a more difficult time maintaining itself. There appears to be a
greater realization by the Central Banks that lending to potential short sellers
has been a market depressant and has hurt the value of their
2
<PAGE>
own reserves all of which may lead to greater restraint. Some of the classic
signs of a market bottom for gold bullion prices are now in place and Lexington
Goldfund looks forward to participating in a better gold market with its well
diversified portfolio of gold related assets.
Sincerely,
/s/ Robert W. Radsch /s/ Robert M. DeMichele
- -------------------- -----------------------
Robert W. Radsch Robert M. DeMichele
Portfolio Manager President
February, 1998 February, 1998
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
LEXINGTON GOLDFUND, INC.
THE UNMANAGED STANDARD & POOR'S 500 STOCK PRICE INDEX
AND GOLD BULLION (LONDON P.M. FIX, (U.S. DOLLARS)
[The following table represents a chart in the printed report]
Lexington
Year Goldfund Gold Bullion S&P 500
================================================================================
12/31/87 .................... $10,000 $10,000 $10,000
12/31/88 .................... $ 8,495 $ 8,475 $11,655
12/31/89 .................... $10,501 $ 8,234 $15,343
12/31/90 .................... $ 8,333 $ 8,113 $14,867
12/31/91 .................... $ 7,821 $ 7,296 $19,387
12/31/92 .................... $ 6,217 $ 6,877 $20,862
12/31/93 .................... $11,624 $ 8,093 $22,961
12/31/94 .................... $10,778 $ 7,902 $23,261
12/31/95 .................... $10,574 $ 7,979 $32,003
12/31/96 .................... $11,403 $ 7,613 $39,354
12/31/97 .................... $ 6,502 $ 5,983 $52,487
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/97
- ---------------------------------------------------------------
FUND/INDEX 1 YR 5 YR 10 YR
- ---------------------------------------------------------------
LEXINGTON GOLD FUND 42.98% .90% (4.21%)
- ---------------------------------------------------------------
GOLD BULLION (21.41%) (2.75%) (5.01%)
- ---------------------------------------------------------------
S & P 500 33.37% 20.27% (18.05%)
- ---------------------------------------------------------------
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Standard & Poor's 500
Stock Index ("S&P 500") and a direct investment in gold bullion. Results for the
Fund and the S&P 500 Index include the reinvestment of all dividend and capital
gain distributions. The price of gold is subject to substantial price
fluctuations over short periods of time and may be affected by unpredictable
international monetary and political policies. Investment returns and principal
value of an investment will fluctuate so that an investor's shares when redeemed
may be worth more or less than at their original cost. Total return represents
past performance and it is not predictive of future results.
- --------------------------------------------------------------------------------
*-42.98%, 0.90% and -4.21% are the one, five and ten year average annual
standard total returns, respectively, for the period ended December 31, 1997.
Investment return and principal value of an investment will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than at their
original cost. Total return represents past performance and is not predictive
of future results.
3
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31,1997
Number
of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOLD BULLION: 17.2%
31,928 fine ounces (cost $12,335,608)2 ................................. $ 9,228,817
----------
GOLD MINING COMMON STOCKS: 78.2%
AUSTRALIA: 15.6%
1,605,000 Acacia Resources, Ltd.2 ................................................ 1,464,069
500,000 Centaur Mining and Exploration, Ltd.2 .................................. 175,923
910,000 Climax Mining, Ltd.2 ................................................... 257,922
600,000 Delta Gold NL .......................................................... 631,758
607,900 Emperor Mines, Ltd.2 ................................................... 178,239
280,000 Great Central Mines, Ltd. .............................................. 301,024
400,000 Gwalia Consolidated, Ltd.2 ............................................. 211,107
550,000 Lihir Gold, Ltd.2 ...................................................... 573,378
15,000 Lihir Gold, Ltd. (ADR)2 ................................................ 315,938
1,470,000 Menzies Gold NL2 ....................................................... 172,404
343,250 Niugini Mining, Ltd.2 .................................................. 413,753
1,752,539 Normandy Mining, Ltd. .................................................. 1,701,423
450,000 Otter Gold Mines, Ltd.2 ................................................ 307,865
70,000 Otter Gold Mines, Ltd. (Options)2 ...................................... 3,193
250,000 Plutonic Resources, Ltd. ............................................... 697,176
191,000 Ranger Minerals NL2 .................................................... 410,682
792,857 Resolute, Ltd. ......................................................... 578,591
----------
8,394,445
----------
GHANA: 3.4%
133,709 Ashanti Goldfields Company, Ltd. ....................................... 1,096,414
96,942 Ashanti Goldfields Company, Ltd. (GDR) ................................. 727,065
80,000 Ashanti Goldfields Company, Ltd. (Preferred Shares)2 ................... 2
----------
1,823,481
----------
NEW ZEALAND: 0.2%
200,000 Macraes Mining Company, Ltd. ........................................... 131,616
----------
4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31,1997 (continued)
Number
of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH AMERICA: 45.6%
700,000 Augusta Gold (Warrants)1,2 .............................................$ --
54,407 Barrick Gold Corporation ............................................... 1,013,330
100,344 Battle Mountain Canada, Inc. ........................................... 578,495
245,400 Cambior, Inc. .......................................................... 1,441,725
165,000 Campbell Resources, Inc.2 .............................................. 61,110
226,586 Canyon Resources Corporation2 .......................................... 269,071
50,000 Colony Pacific Explorations, Ltd. (Warrants)1,2 ........................ --
310,000 Dayton Mining Corporation2 ............................................. 584,898
100,000 Dayton Mining Corporation1,2 ........................................... 188,677
50,000 Euro-Nevada Mining Corporation, Ltd. ................................... 676,092
30,000 Francisco Gold Corporation2 ............................................ 220,123
35,000 Franco Nevada Mining Corporation, Ltd. ................................. 687,273
102,600 Freeport McMoran Copper & Gold "A" ..................................... 1,571,063
433,400 Geomaque Explorations, Ltd.2 ........................................... 769,267
62,169 Getchell Gold Corporation2 ............................................. 1,492,056
100,000 Gold Reserve Corporation2 .............................................. 366,871
50,000 Goldcorp, Inc. "A"2 .................................................... 197,412
175,000 Golden Knight Resources, Inc.2 ......................................... 413,342
400,000 Golden Queen Mining Company, Ltd.1,2 ................................... 251,569
200,000 Golden Queen Mining Company, Ltd. (Warrants)1,2 ........................ --
200,000 Gran Colombia Resources, Inc.1,2 ....................................... 25,157
25,000 Greenstone Resources, Ltd.2 ............................................ 118,796
114,000 Homestake Mining Company ............................................... 1,011,750
112,000 International Pursuit1,2 ............................................... 88,440
200,000 Laminco Resources, Inc.2 ............................................... 16,771
200,000 Meridian Gold, Inc.2 ................................................... 559,042
50,000 Nevsun Resources, Inc.1,2 .............................................. 127,182
50,000 Nevsun Resources, Ltd.2 ................................................ 127,182
25,000 Nevsun Resources, Ltd. (Warrants)1,2 ................................... --
22,750 New Venoro Gold Corporation2 ........................................... 2,226
115,420 Newmont Mining Corporation ............................................. 3,390,463
62,000 North American Palladium, Ltd.2 ........................................ 83,313
77,400 Pangea Goldfields, Inc.2 ............................................... 91,948
50,000 Pangea Goldfields, Inc.1,2 ............................................. 59,398
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31,1997
Number
of Shares Value
or Principal Amount Security (Note 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NORTH AMERICA (continued):
25,000 Pioneer Group, Inc. .................................................... $ 696,875
286,000 Placer Dome, Inc. ...................................................... 3,628,625
150,000 Prime Resource Group, Inc. ............................................. 995,794
107,000 Rea Gold Corporation2 .................................................. --
120,000 Samax Gold, Inc.1,2 .................................................... 356,389
500,000 Steppe Gold Resources, Ltd.1,2 ......................................... 125,785
250,000 Steppe Gold Resources, Ltd. (Warrants)1,2 .............................. --
75,000 Stillwater Mining Company2 ............................................. 1,256,250
625,000 Tombstone Explorations Company, Ltd.1,2 ................................ 165,966
100,000 Triton Mining Corporation2 ............................................. 35,639
200,000 TVX Gold, Inc.2 ........................................................ 675,000
250,000 Vista Gold Corporation2 ................................................ 57,651
------------
24,478,016
------------
SOUTH AFRICA: 13.4%
71,600 Anglo American Platinum Corporation, Ltd. .............................. 956,363
2,045 Anglo American Platinum Corporation, Ltd. (ADR) ........................ 27,710
135,000 Beatrix Mines, Ltd. .................................................... 464,670
304,000 Driefontein Consolidated, Ltd. ......................................... 2,061,502
1,099,000 East Rand Gold & Uranium Company, Ltd. ................................. 1,343,727
370,000 Elandsrand Gold Mining Company, Ltd. ................................... 923,792
150,000 Free State Development & Investment, Ltd.2 ............................. 50,859
1,517 JCI, Ltd. (ADR) ........................................................ 6,780
177,000 St. Helena Gold Mines, Ltd. ............................................ 509,211
72,349 Western Areas Gold Mining Company, Ltd.2 ............................... 398,441
25,000 Western Deep Levels, Ltd. .............................................. 462,358
------------
7,205,413
------------
TOTAL GOLD MINING COMMON STOCKS (cost $72,278,424) ..................... 42,032,971
------------
CONVERTIBLE NOTES: 0.7%
$500,000 Trizec Hahn Corporation 3.0%, due 1/29/21 (cost $500,000) .............. 380,000
------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31,1997
Number
of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENT: 5.6%
U.S. Government Agency Obligation
$ 3,000,000 Federal Home Loan Mortgage Corporation,
4.75%, due 01/02/98
(cost $2,999,604) .................................................... $ 2,999,604
-----------
TOTAL INVESTMENTS: 101.7%
(cost $88,113,636+) (Note 1) ......................................... 54,641,392
Liabilities in excess of other assets: (1.7%) .......................... (934,299)
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $3.24 per share on
16,601,826 shares outstanding) ....................................... $53,707,093
===========
1 Restricted Security. (Note 7).
2 Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $89,721,279.
The Notes to Financial Statements are an integral part of this statement.
7
</TABLE>
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
ASSETS
Investments, at value (cost $88,113,636)(Note 1) .............. $ 54,641,392
Cash .......................................................... 12,675
Receivable for investment securities sold ..................... 210,325
Receivable for shares sold .................................... 124,507
Dividends and interest receivable ............................. 37,453
-------------
Total Assets .............................................. 55,026,352
-------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ............. 44,316
Payable for investment securities purchased ................... 722,318
Payable for shares redeemed ................................... 366,415
Distributions payable ......................................... 15,728
Accrued expenses .............................................. 170,482
-------------
Total Liabilities ......................................... 1,319,259
-------------
NET ASSETS (equivalent to $3.24 per share on
16,601,826 shares outstanding) (Note 4) ....................... $ 53,707,093
=============
NET ASSETS consist of:
Capital stock -- authorized 500,000,000 shares,
$.001 par value per share ..................................... $ 16,602
Additional paid-in capital (Note 1) ........................... 104,624,309
Distributions in excess of net investment income (Note 1) ..... (937,281)
Accumulated net realized loss on investments
and foreign currency holdings (Notes 1 and 8) .............. (16,505,857)
Unrealized depreciation on investments and
foreign currency holdings ................................... (33,490,680)
-------------
TOTAL NET ASSETS .............................................. $ 53,707,093
=============
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
INVESTMENT INCOME
<S> <C> <C>
Dividends ............................................ $ 1,299,546
Interest ............................................. 305,104
------------
1,604,650
Less: foreign tax expense ............................ 44,229
------------
Total investment income .............................. $ 1,560,421
EXPENSES
Investment advisory fee (Note 2) ..................... 769,527
Transfer agent and shareholder
servicing expense (Note 2) ......................... 170,007
Distribution expense (Note 3) ........................ 130,987
Accounting expenses (Note 2) ......................... 81,641
Custodian expense .................................... 52,585
Printing and mailing expenses ........................ 50,399
Professional fees .................................... 39,097
Registration fees .................................... 27,198
Computer processing fees ............................. 17,299
Directors' fees and expenses ......................... 17,212
Other expenses ....................................... 58,523
------------
Total expenses ..................................... 1,414,475
------------
Net investment income ............................ 145,946
REALIZED AND UNREALIZED LOSS
ON INVESTMENTS (NOTE 5)
Net realized loss on:
Investments .......................................... (12,362,327)
Foreign currency transactions ........................ (9,136)
------------
Net realized loss ................................ (12,371,463)
Net change in unrealized
depreciation on:
Investments .......................................... (32,709,825)
Foreign currency translation of
other assets and liabilities ....................... (17,510)
------------
Net change in unrealized
depreciation ....................................... (32,727,335)
------------
Net realized and unrealized loss ................. (45,098,798)
------------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................................ $(44,952,852)
============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
8
<PAGE>
<TABLE>
<CAPTION>
LEXINGTON GOLDFUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1997 and 1996
1997 1996
------------- -------------
<S> <C> <C>
Net investment income (loss) ......................................................... $ 145,946 $ (451,907)
Net realized gain (loss) from investment and foreign
currency transactions .............................................................. (12,371,463) 23,503,613
Net change in unrealized appreciation (depreciation) of investments
and foreign currency translation ................................................... (32,727,335) (8,561,690)
------------- -------------
Increase (decrease) in net assets resulting from operations ..................... (44,952,852) 14,490,016
Distributions to shareholders from net investment income ............................. (3,835,168) (13,568,657)
Decrease in net assets from capital share transactions (Note 4) ...................... (6,791,980) (27,412,928)
------------- -------------
Net decrease in net assets ....................................................... (55,580,000) (26,491,569)
NET ASSETS:
Beginning of period ................................................................ 109,287,093 135,778,662
------------- -------------
End of period (including distributions in excess of
net investment income of $937,281 and
undistributed net investment income of
$1,870,550, 1997 and 1996, respectively) ......................................... $ 53,707,093 $ 109,287,093
============= =============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
9
<PAGE>
LEXINGTON GOLDFUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
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 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. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements:
INVESTMENTS Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked price is used. Securities traded on the over-the-counter market and gold
bullion are valued at the mean between the last current bid and asked price.
Short-term securities having a maturity of 60 days or less are stated at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued by Fund
management in good faith under the direction of the Fund's Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income, adjusted for amortization of premiums and
accretion of discounts, is accrued as earned.
FOREIGN CURRENCY TRANSACTIONS Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
closed and are reported in the statement of operations. There were no forward
foreign currency exchange contracts outstanding at December 31, 1997.
FEDERAL INCOME TAXES It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to regulated investment companies and to
distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income taxes is required.
DISTRIBUTIONS Dividends from net investment income and net realized capital
gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of increases and
decreases in net assets from operations during the reporting period. Actual
results could differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets up to
$50 million and at an annual rate of 0.75% thereafter. For 1997, the investment
advisor has voluntarily agreed to reimburse the Fund if total annual expenses
(including management fees, but excluding interest, taxes, brokerage commissions
and extraordinary expenses) exceed 2.50% of the Fund's average daily net assets.
No reimbursement was required for the year ended December 31, 1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $165,295, which are incurred by the Fund, but
paid by LMC.
10
<PAGE>
LEXINGTON GOLDFUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996 (continued)
3. DISTRIBUTION PLAN
The Fund has 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 Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1997 were $130,987 and are set forth in the statement of operations.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1997 December 31, 1996
------------------------------------- -------------------------------------
Shares Amount Shares Amount
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Shares sold ........................ 15,430,852 $ 74,102,304 16,342,313 $ 118,484,798
Shares issued on
reinvestment of
dividends ........................ 799,300 3,400,114 1,854,776 11,861,015
------------- ------------- ------------- -------------
16,230,152 77,502,418 18,197,089 130,345,813
Shares redeemed .................... (17,932,580) (84,294,398) (21,643,173) (157,758,741)
------------- ------------- ------------- -------------
Net decrease ..................... (1,702,428) $ (6,791,980) (3,446,084) $ (27,412,928)
============= ============= ============= =============
</TABLE>
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year ended
December 31,1997, excluding short-term securities, were $30,824,438 and
$38,221,251, respectively.
At December 31, 1997, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$1,003,440 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $36,083,327.
6. 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 of gold. There are certain risks involved in investing in foreign
securities or concentrating in specific industries that are in addition to the
usual risks inherent in domestic investments. These risks include those
resulting from potentially adverse political and economic developments as well
as the possible imposition of foreign exchange or other foreign governmental
restrictions or laws, all of which could affect the market and/or credit risk of
the investments.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the potential inability of counterparties to
meet the terms of their contracts.
7. RESTRICTED SECURITIES
The following securities were purchased under Rule 144A of the Securities Act of
1933 or issued in private placements and, unless registered under the Act or
exempted from registration, may be sold only to qualified institutional
investors.
<TABLE>
<CAPTION>
Average
Acquisition Cost Market % of Net
Security Date Shares Per Share Value Assets
-------- ---- ------ --------- ----- ------
Augusta Gold
<S> <C> <C> <C> <C> <C>
(Warrants) .................................. 9/10/96 700,000 $ 0.00 $ 0.00 0.00%
Colony Pacific Explorations,
Ltd. (Warrants) ............................. 4/28/97 50,000 0.00 0.00 0.00
Dayton Mining Corporation .................... 1/15/96 100,000 4.77 188,677 0.35
Golden Queen Mining
Company, Ltd. ............................... 5/02/96 400,000 1.84 251,569 0.47
Golden Queen Mining
Company, Ltd. (Warrants) ................... 5/02/96 200,000 0.00 0.00 0.00
Gran Colombia Resources,
Inc ........................................ 5/29/96 200,000 2.62 25,157 0.05
International Pursuit
Corporation ................................ 4/24/96 112,000 3.30 88,440 0.16
Nevsun Resources, Ltd. ....................... 9/05/96 50,000 7.29 127,182 0.24
Nevsun Resources, Ltd. ......................
(Warrants) ................................. 9/05/96 25,000 0.00 0.00 0.00
Pangea Goldfields, Inc. ...................... 5/14/96 50,000 4.09 59,398 0.11
Samax Gold, Inc. ............................. 12/06/96 120,000 3.31 356,389 0.66
Steppe Gold Resources, Ltd. .................. 5/21/96 500,000 1.65 125,785 0.23
Steppe Gold Resources, Ltd. ..................
(Warrants) .................................. 5/21/96 250,000 0.00 0.00 0.00
Tombstone Explorations
Company, Ltd. ............................... 5/02/96 625,000 1.27 165,966 0.31
---------- ----
$1,388,563 2.58%
========== ====
</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.
8. FEDERAL INCOME TAXES--CAPITAL LOSS CARRYFORWARDS
Capital loss carryforwards available for federal income tax purposes as of
December 31, 1997 are approximately:
$ 972,568 expiring in 2000;
2,280,435 expiring in 2001; and,
10,373,808 expiring in 2005.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
9. TAX INFORMATION (unaudited)
The percentage of investment company taxable income eligible for the dividends
received deduction available to certain corporate shareholders with respect to
the year ended December 31, 1997 is 77.47%.
11
<PAGE>
LEXINGTON GOLDFUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $ 5.97 $ 6.24 $ 6.37 $ 6.90 $ 3.70
--------- -------- ---------- ---------- ----------
Income (loss) from investment operations:
Net investment income ........................ -- 0.02 -- 0.03 0.01
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions ................................. (2.52) 0.50 (0.12) (0.53) 3.21
--------- -------- ---------- ---------- ----------
Total income (loss) from investment
operations ..................................... (2.52) 0.52 (0.12) (0.50) 3.22
--------- -------- ---------- ---------- ----------
Less distributions:
Distributions from net investment income ....... (0.21) (0.79) (0.01) (0.03) (0.02)
--------- -------- ---------- ---------- ----------
Net asset value, end of period ................. $ 3.24 $ 5.97 $ 6.24 $ 6.37 $ 6.90
========= ======== ========== ========== ==========
Total return ................................... (42.98%) 7.84% (1.89%) (7.28%) 86.96%
Ratio to average net assets:
Expenses ..................................... 1.65% 1.60% 1.70% 1.54% 1.63%
Net investment income (loss) ................. 0.17% (0.32%) 0.07% 0.50% 0.25%
Portfolio turnover rate ........................ 38.32% 31.04% 40.41% 23.77% 28.41%
Average commission paid on equity
security transactions* ......................... $ 0.02 $ 0.02 -- -- --
Net assets, end of period (000's omitted) ...... $ 53,707 $ 109,287 $ 135,779 $ 159,435 $ 159,479
</TABLE>
* In accordance with SEC disclosure guidelines, average commissions are
calculated beginning with the year ended December 31, 1996, but not for prior
periods.
12
<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, 1997, the related statements 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 audit 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, 1997 by correspondence with the custodian. As to securities
purchased or sold but not yet received or delivered, we performed other
appropriate auditing procedures. 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
audit provides 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, 1997, the results of its operations
for the year then ended, the changes in its net assets for each of the years in
the two-year period then ended, and the financial highlights for each of the
years in the five-year period then ended, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
New York, New York
February 12, 1998
13
<PAGE>
LEXINGTON
INVESTOR SERVICES
- --------------------------------------------------------------------------------
AS A LEXINGTON SHAREHOLDER, YOU SHOULD BE AWARE OF THE MANY SERVICES AVAILABLE
TO YOU.
NO LOAD-The Lexington Funds are no load funds. That is, investments and
redemptions are made without any sales charges, commissions or redemption fees.*
-----------------------
FREE TELEPHONE EXCHANGE-Investments in the Lexington Funds may be exchanged for
shares of a different Lexington Fund at any time.
-----------------------
CHECK WRITING PRIVILEGES-Lexington Money Market Trust permits investors
immediate access to their funds with check writing for withdrawals from their
account.
-----------------------
TAX SHELTERED PLANS-IRA, Keogh, Pension, and Profit Sharing Prototype Plans are
available to qualified individuals. These plans offer investment flexibility
through the Share Exchange Service, simplified record keeping, convenience and
investment supervision.
-----------------------
CUSTODIAL ACCOUNTS FOR MINORS-Investments may be made on behalf of minors under
the Uniform Gifts to Minors Act currently in effect in all states.
-----------------------
SYSTEMATIC WITHDRAWAL PLAN-An investor may elect to receive a fixed amount from
his or her account each month or quarter, subject to certain minimums.
-----------------------
COMPLETE RECORD KEEPING-A statement is provided for every transaction in
addition to a year-end statement with tax information.
THE LEXINGTON GROUP OF
NO LOAD INVESTMENT COMPANIES
THE LEXINGTON GROUP OF
NO LOAD INVESTMENT COMPANIES
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.--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.--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.--Seeks long-term growth of capital through
investment in companies domiciled in foreign countries.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.--Seeks long-term capital appreciation
through investments primarily in the equity securities of Russian companies.
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 RAMIREZ GLOBAL INCOME FUND--Seeks high current income. Capital
appreciation is a secondary objective. The Fund invests in a combination of
foreign and domestic high-yield, lower rated debt securities.
LEXINGTON GOLDFUND, INC.--Seeks capital appreciation through investment in gold
bullion and shares of gold mining companies.
LEXINGTON GROWTH AND INCOME FUND, INC.--Seeks capital appreciation over the
long-term through investments in the stocks of large, ably managed and well
financed companies.
LEXINGTON CORPORATE LEADERS TRUST FUND--Seeks capital growth and reasonable
income through investment in an equal number of shares of an established list of
American blue chip corporations.
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 CONVERTIBLE SECURITIES FUND--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.
LEXINGTON GNMA INCOME FUND, INC.--Seeks to achieve a high level of current
income, consistent with liquidity and safety of principal, through investment
primarily in mortgage-backed GNMA ("Ginnie Mae") certificates that are
guaranteed as to the timely payment of principal and interest by the United
States Government.
LEXINGTON MONEY MARKET TRUST--Seeks a high level of current income consistent
with preservation of capital and liquidity through investments in interest
bearing short-term money market instruments.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
*Redemptions on shares of Lexington Troika Dialog Russia Fund, Inc. held less
than 365 days are subject to a redemption fee of 2% of the redemption proceeds.
14
<PAGE>
LEXINGTON
GOLDFUND, INC.
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
DISTRIBUTOR
- --------------------------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
---------------------------------------------------------------------------
ALL SHAREHOLDER REQUESTS FOR SERVICES OF ANY KIND SHOULD BE SENT TO:
TRANSFER AGENT
---------------------------------------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 84105
OR CALL TOLL FREE:
SERVICE AND SALES: 1-800-526-0056
24 HOUR ACCOUNT INFORMATION:
1-800-526-0052
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield o Account Balances o Exchanges o
Last Transactions o Total Return o Duplicate Statements
- --------------------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Goldfund, Inc. and is authorized for distribution to the public only
if it is accompanied or preceded by a currently effective prospectus which sets
forth expenses and other material information.
LEXINGTON
================================================================================
LEXINGTON
GOLDFUND,
INC.
- --------------------------------------------------------------------------------
Seeks 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
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1997
The Lexington Group
of No Load
Investment Companies
================================================================================
