DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The price of gold followed a volatile pattern in 1998. After reaching a peak
of $314.05 per ounce in late April, the metal price plummeted to a 19 year low
of $274.35 per ounce in August. Gold enjoyed a dramatic recovery from the low
at the end of August as news of the Russian financial crisis surfaced and the
potential collapse of Long Term Capital Management forced nervous investors
back into precious metals. However, the price of gold failed to achieve its
previous high and topped out at $301.55. For most of the fourth quarter gold
remained under pressure as fear of increased European Central Bank sales after
the launch of the new currency, the Euro, depressed prices. Gold closed 1998 at
$288.25 per ounce down slightly from $289.05 where it began the year.
As the global economic slowdown and currency turmoil unfolded during the
year, demand for gold faltered. Consumption of fabricated gold was down 3% in
total, but reflected a 30% drop in Asia and a 4% decline in the Middle East,
two areas of historic above average growth. Furthermore, where in the past gold
hoarding added to consumption, 1998 experienced a 54% drop, in essence adding
to growing supply. Interestingly, demand for gold coins was a strong point,
rising 29%. Fear of monetary upheaval generated by year 2000 computer
uncertainties is seen as the driving force behind this event. Mine production
increased 2% last year as new properties in Peru, Ghana and the Far East began
production. Official sector sales increased 8% and the sale of scrap rose 79%
as individuals sold jewelry in the face of unreliable paper currencies.
While the Lexington Goldfund reported a return of -6.39%* for 1998, the
average gold fund monitored by Lipper, Inc. returned -10.92%. This performance
reflected the Fund's concentration in large, well-capitalized North American
producers as well as holdings of other high quality gold companies in Australia
and South Africa. After a brief flurry of activity in August/September,
pressure on gold shares returned as metal prices fell through the end of the
year and the fourth quarter was a difficult period for gold equities.
The outlook for gold remains cautious given the continued global economic
malaise and expectation for slower growth. Nevertheless, there are signs that
the declines in Asia may be over, and while a recovery is still a ways off, the
worst may be behind us. Another positive development has been a statement from
the European Central Bank that member banks will not be under pressure to sell
bullion as prices rise to maintain the initial 15% quota. With a potential for
modest demand improvement and limited supply additions, it appears that the
price of gold has bottomed in a range of $285-$300 per ounce. Within this
environment, the
1
<PAGE>
Fund will continue to focus the bulk of its holdings on well recognized
companies with attractive asset profiles. This strategy should allow the Fund to
report attractive returns as the environment improves later in 1999.
Sincerely,
/s/ JAMES A. VAIL /s/ ROBERT M. DEMICHALE
- ------------------- -----------------------
JAMES A. VAIL ROBERT M. DEMICHALE
Portfolio Manager President
February, 1999 February, 1999
- --------------------------------------------------------------------------------
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
================================================================================
12/31/88 .................... $10,000 $10,000 $10,000
12/31/89 .................... $12,362 $ 9,716 $13,164
12/31/90 .................... $ 9,809 $ 9,573 $12,756
12/31/91 .................... $ 9,207 $ 8,609 $16,634
12/31/92 .................... $ 7,319 $ 8,114 $17,900
12/31/93 .................... $13,683 $ 9,549 $19,700
12/31/94 .................... $12,687 $ 9,323 $19,958
12/31/95 .................... $12,447 $ 9,415 $27,459
12/31/96 .................... $13,423 $ 8,983 $33,766
12/31/97 .................... $ 7,653 $ 7,060 $45,034
12/31/98 .................... $ 7,164 $ 7,001 $57,967
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/98
- ---------------------------------------------------------------
FUND/INDEX 1 YR 5 YR 10 YR
- ---------------------------------------------------------------
LEXINGTON GOLD FUND (6.39%) (12.14%) (3.28%)
- ---------------------------------------------------------------
GOLD BULLION (0.83%) (6.02%) (3.50%)
- ---------------------------------------------------------------
S & P 500 28.72% 24.09% 19.21%
- ---------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
*-6.39%, -12.4% and -3.28% are the one, five and ten year average annual
standard total returns, respectiely, for the period ended December 31, 1998.
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.
2
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
<TABLE>
<CAPTION>
NUMBER
OF VALUE
SHARES SECURITY (NOTE 1)
- ------------ ---------------------------------------------------------- -------------
<S> <C> <C>
GOLD BULLION: 14.4%
25,458 fine ounces (cost $9,832,907)2..................... $7,338,142
----------
GOLD MINING COMMON STOCKS: 80.5%
AUSTRALIA: 15.4%
805,000 Acacia Resources, Ltd.2 .................................. 1,192,418
900,000 Delta Gold NL ............................................ 1,369,020
607,900 Emperor Mines, Ltd.2 ..................................... 223,717
280,000 Great Central Mines, Ltd. ................................ 200,937
550,000 Lihir Gold, Ltd.2 ........................................ 617,347
15,000 Lihir Gold, Ltd. (ADR)2 .................................. 341,250
1,470,000 Menzies Gold NL2 ......................................... 112,705
100,000 Newcrest Mining, Ltd.2 ................................... 138,742
493,750 Niugini Mining, Ltd.2 .................................... 690,490
1,752,539 Normandy Mining, Ltd. .................................... 1,623,155
450,000 Otter Gold Mines, Ltd.2 .................................. 253,931
70,000 Otter Gold Mines, Ltd. (Options, due 10/31/01)2 .......... 4,294
180,000 Otter Gold Mines, Ltd. (Options, due 06/30/03)2 .......... 25,945
207,713 Ranger Minerals, Ltd. .................................... 509,611
292,857 Resolute, Ltd. ........................................... 206,571
114,285 Sons of Gwalia, Ltd. ..................................... 325,254
----------
7,835,387
----------
GHANA: 3.6%
133,709 Ashanti Goldfields Company, Ltd. ......................... 1,173,296
72,642 Ashanti Goldfields Company, Ltd. (GDR) ................... 681,019
----------
1,854,315
----------
NORTH AMERICA: 49.7%
74,407 Barrick Gold Corporation ................................. 1,450,936
100,000 Barrick Gold Corporation Installment Recepts1 ............ 1,240,281
150,000 Battle Mountain Gold Company ............................. 618,750
100,344 Battle Mountain Gold Company ............................. 431,182
95,400 Cambior, Inc. ............................................ 471,037
226,586 Canyon Resources Corporation2 ............................ 56,646
50,000 Colony Pacific Explorations, Ltd. (Warrants)1,2 .......... -
100,000 Dayton Mining Corporation1,2 ............................. 22,136
210,000 Dayton Mining Corporation2 ............................... 46,486
30,000 Francisco Gold Corporation2 .............................. 167,975
55,000 Franco Nevada Mining Corporation, Ltd. ................... 1,050,984
132,600 Freeport McMoran Copper & Gold "A" ....................... 1,284,563
100,000 Freeport McMoran Copper & Gold "B" ....................... 1,043,750
433,400 Geomaque Explorations, Ltd.2 ............................. 423,258
</TABLE>
3
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
<TABLE>
<CAPTION>
NUMBER
OF VALUE
SHARES SECURITY (NOTE 1)
- ------------ ------------------------------------------------------------------ -------------
<S> <C> <C>
NORTH AMERICA (CONTINUED):
100,000 Gold Reserve Corporation2 ........................................ $ 117,192
170,000 Goldcorp, Inc."A"2 ............................................... 962,927
490,000 Homestake Mining Company ......................................... 4,501,875
110,600 IAMGOLD, International African Mining Gold Corporation2 .......... 288,032
400,000 Kinross Gold Corporation2 ........................................ 919,306
200,000 Meridian Gold, Inc.2 ............................................. 1,171,919
22,750 New Venoro Gold Corporation2 ..................................... 1,185
111,670 Newmont Mining Corporation ....................................... 2,017,039
50,000 Pangea Goldfields, Inc.2 ......................................... 63,479
15,000 Pioneer Group, Inc. .............................................. 296,250
296,000 Placer Dome, Inc. ................................................ 3,404,000
500,000 Steppe Gold Resources, Ltd.1,2 ................................... 13,021
75,000 Stillwater Mining Company2 ....................................... 3,075,000
250,000 Vista Gold Corporation2 .......................................... 37,436
500,000 X-Cal Resources, Ltd.2 ........................................... 91,149
----------
25,267,794
----------
SOUTH AFRICA: 11.7%
71,600 Anglo American Platinum Corporation, Ltd. ........................ 982,236
2,045 Anglo American Platinum Corporation, Ltd. (ADR) .................. 27,505
72,672 Anglogold, Ltd. .................................................. 2,831,464
261,000 Driefontein Consolidated, Ltd. ................................... 1,058,177
150,000 Free State Development & Investment Corporation, Ltd.2 ........... 46,535
56,808 Gold Fields, Ltd.2 ............................................... 313,850
9,405 Randfontein Estates, Ltd. (Options)2 ............................. 6,635
177,000 St. Helena Gold Mines, Ltd. ...................................... 437,790
72,349 Western Areas, Ltd.2 ............................................. 235,522
----------
5,939,714
----------
ZIMBABWE: 0.1%
180,000 Zimbabwe Platinum Mines, Ltd.2 ................................... 35,330
----------
TOTAL GOLD MINING COMMON STOCKS
(cost $64,642,591)............................................... 40,932,540
----------
GOLD MINING PREFERRED STOCKS: 0.3%
GHANA: 0.3%
80,000 Ashanti Goldfields Company, Ltd. "B" (due 3/31/99)2 .............. 37,400
80,000 Ashanti Goldfields Company, Ltd. "C" (due 3/31/00)2 .............. 37,400
80,000 Ashanti Goldfields Company, Ltd. "D" (due 3/31/01)2 .............. 37,400
80,000 Ashanti Goldfields Company, Ltd. "E" (due 3/31/02)2 .............. 37,400
----------
TOTAL GOLD MINING PREFERRED STOCKS
(cost $49,064) .................................................. 149,600
----------
</TABLE>
4
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR VALUE
PRINCIPAL AMOUNT SECURITY (NOTE 1)
- ------------------ ----------------------------------------------------------------- -------------
<S> <C> <C>
CONVERTIBLE PREFERRED STOCK: 0.1%
AUSTRALIA: 0.1%
100,000 Gold and Resource Developments NL
(cost $383,201) ................................................ $ 40,482
-----------
CONVERTIBLE NOTES: 0.7%
CANADA: 0.7%
$ 500,000 Trizec Hahn Corporation, 3.0%, due 1/29/211
(cost $500,000)................................................. 377,500
-----------
SHORT-TERM INVESTMENT: 3.0%
U.S. GOVERNMENT AGENCY OBLIGATION
1,500,000 Federal Home Loan Mortgage Corporation,
4.25%, due 01/04/99 (cost $1,499,469) .......................... 1,499,469
-----------
TOTAL INVESTMENTS: 99.0%
(cost $76,907,232+) (Note 1) ................................... 50,337,733
Other assets in excess of liabilities: 1.0% ..................... 503,563
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $3.03 per share on 16,754,890 shares outstanding) $50,841,296
===========
</TABLE>
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 $77,754,794.
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $76,907,232)
(Note1) ......................................... $50,337,733
Cash .............................................. 4,790
Receivable for investment securities sold ......... 107,616
Receivable for shares sold ........................ 744,872
Dividends and interest receivable ................. 15,316
-----------
Total Assets .................................... 51,210,327
-----------
LIABILITIES
Due to Lexington Management Corporation
(Note 2) ........................................ 43,481
Payable for shares redeemed ....................... 246,291
Accrued expenses .................................. 79,259
-----------
Total Liabilities ............................... 369,031
-----------
NET ASSETS (equivalent to $3.03 per
share on 16,754,890 shares
outstanding) (Note 4) ........................... $50,841,296
===========
NET ASSETS consist of:
Capital stock - authorized 500,000,000 shares,
$.001 par value per share ....................... $ 16,755
Additional paid-in capital (Note 1) ............... 104,101,680
Distributions in excess of net investment income
(Note 1) ........................................ (83,069)
Accumulated net realized loss on investments
and foreign currency holdings
(Notes 1 and 8) ................................. (26,622,235)
Unrealized depreciation of investments and
foreign currency translation of other assets
and liabilities ................................. (26,571,835)
-----------
TOTAL NET ASSETS .................................. $50,841,296
===========
</TABLE>
LEXINGTON GOLDFUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ............................. $ 913,135
Interest .............................. 144,792
----------
1,057,927
Less: foreign tax expense ............. 20,822
----------
Total investment income .............. $ 1,037,105
EXPENSES
Investment advisory fee (Note 2) ...... 552,325
Transfer agent and shareholder
servicing expenses (Note 2) ........ 126,197
Printing and mailing expenses ......... 68,567
Accounting expenses (Note 2) .......... 50,219
Distribution expenses (Note 3) ........ 41,125
Professional fees ..................... 30,954
Custodian expenses .................... 24,064
Registration fees ..................... 23,762
Directors' fees and expenses .......... 16,954
Computer processing fees .............. 11,847
Other expenses ........................ 45,393
----------
Total expenses ...................... 991,407
-----------
Net investment income .............. 45,698
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 5)
Net realized loss on:
Investments ........................ (9,781,557)
Foreign currency transactions ........ (16,099)
----------
Net realized loss ................... (9,797,656)
Net change in unrealized
depreciation of:
Investments ........................ 6,902,745
Foreign currency translation of
other assets and liabilities ...... 16,100
----------
Net change in unrealized
depreciation ....................... 6,918,845
-----------
Net realized and unrealized loss ..... (2,878,811)
-----------
DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................ $(2,833,113)
-----------
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
LEXINGTON GOLDFUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Net investment income ..................................................... $ 45,698 $ 145,946
Net realized loss from investment and foreign currency transactions ....... (9,797,656) (12,371,463)
Net change in unrealized depreciation of investments
and foreign currency translation ......................................... 6,918,845 (32,727,335)
------------ -------------
Decrease in net assets resulting from operations ........................ (2,833,113) (44,952,852)
Distributions to shareholders from net investment income (Note 1) ......... (52,416) (3,835,168)
Increase (decrease) in net assets from capital share transactions
(Note 4) ................................................................. 19,732 (6,791,980)
------------ -------------
Net decrease in net assets .............................................. (2,865,797) (55,580,000)
NET ASSETS:
Beginning of period ...................................................... 53,707,093 109,287,093
------------ -------------
End of period (including distributions in excess of
net investment income of $83,069 and
$937,281 in 1998 and 1997, respectively) ................................ $ 50,841,296 $ 53,707,093
============ =============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
7
<PAGE>
LEXINGTON GOLDFUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 as 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 Securities transactions are accounted for on a trade date
basis. Realized gains and losses from investment transactions are reported on
the identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market and gold
bullion are valued at the mean between the last current bid and asked prices.
Short-term securities having a maturity of 60 days or less are stated at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued by Fund
management in good faith under the direction of the Fund's Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income and distributions to shareholders are recorded on the
ex-dividend date. Interest income, adjusted for amortization of premiums and
accretion of discounts, is accrued as earned.
FOREIGN CURRENCY TRANSACTIONS Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order
to hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio
positions. These contracts are marked to market daily, by recognizing the
difference between the contract exchange rate and the current market rate as
unrealized gains or losses. Realized gains or losses are recognized when
contracts are closed and are reported in the statement of operations.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. There are no forward foreign currency
contracts outstanding at December 31, 1998.
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, 1998,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets up to
$50 million and at an annual rate of 0.75% thereafter. For 1998, LMC has agreed
to voluntarily limit the total expenses of the Fund (excluding interest, taxes,
brokerage commissions, 12B-1 fees and extraordinary expenses, but including
management fee and operating expenses) to an annual rate of 2.50% of the Fund's
average net assets. No reimbursement was required for the year ended December
31, 1998.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $107,130, which are incurred by the Fund, but
paid by LMC.
8
<PAGE>
LEXINGTON GOLDFUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (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,
1998 were $41,125 and are set forth in the statement of operations.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1997
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
------ ------ ------ ------
Shares sold ............. 15,653,921 $51,873,043 15,430,852 $74,102,304
Shares issued on
reinvestment of
dividends ............. 15,753 46,630 799,300 3,400,114
---------- ----------- ---------- -----------
15,669,674 51,919,673 16,230,152 77,502,418
Shares redeemed ......... (15,516,610) (51,899,941) (17,932,580) (84,294,398)
----------- ----------- ----------- -----------
Net increase
(decrease) ............ 153,064 $ 19,732 (1,702,428) $(6,791,980)
=========== =========== =========== ===========
</TABLE>
5. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1998, excluding short-term securities, were $15,818,598 and
$15,717,956, respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$2,444,870 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $29,861,930.
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>
Shares or Average
Aquisition Principal Cost Market Percent of
Security Date Amount Per Share Value Net Assets
- ----------------------------------- ------------ ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
Barrick Gold Corporation
Installment Receipts ............ 1/27/98 100,000 $ 10.84 $ 1,240,281 2.44%
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 22,136 0.04
Steppe Gold Resources, Ltd. 5/21/96 500,000 1.65 13,021 0.03
Trizec Hahn Corporation ........... 1/16/96 500,000 - 377,500 0.74
------------ ----
$ 1,652,938 3.25%
============ ====
</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 carryforwards1 available for federal income tax purposes as of
December 31, 1998 are approximately:
$ 972,568 expiring in 2000;
2,280,435 expiring in 2001;
10,373,808 expiring in 2005; and
9,205,092 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
1 Temporary book-tax differences of $3,790,332 are the result of deferred
post-October losses and wash sales.
9. SUBSEQUENT EVENT
On February 18, 1999, the Board of Directors approved a resolution to merge the
Lexington Strategic Investments Fund, Inc. into the Fund. If approved by
shareholders, the merger will become effective on May 1, 1999.
10. TAX INFORMATION (UNAUDITED)
The following tax information represents the designation of various tax
benefits relating to year ended December 31, 1998:
The percentage of investment company taxable income distributions to
shareholders eligible for the dividends received deduction available to certain
corporate shareholders is 75.28%.
The percentage of ordinary income distributions paid by the Fund derived from
agency and direct obligations of the United States government were as follows:
U.S. Treasury................................................. 3.07%
Federal Home Loan Bank....................................... 6.63
Federal Home Loan
Mortgage Corporation........................................ 6.10
Federal National Mortgage
Association................................................. 1.57
9
<PAGE>
LEXINGTON GOLDFUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $ 3.24 $ 5.97 $ 6.24 $ 6.37 $ 6.90
------- -------- -------- ------- -------
Income (loss) from investment
operations:
Net investment income ....................... - - 0.02 - 0.03
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions .................... (0.21) ( 2.52) 0.50 (0.12) (0.53)
------- -------- -------- ------- -------
Total income (loss) from investment
operations ................................. (0.21) ( 2.52) 0.52 (0.12) (0.50)
------- -------- -------- ------- -------
Less distributions:
Distributions from net investment
income ..................................... - ( 0.21) ( 0.79) (0.01) (0.03)
------- -------- -------- ------- -------
Net asset value, end of period ............... $ 3.03 $ 3.24 $ 5.97 $ 6.24 $ 6.37
======= ======== ======== ======= =======
Total return ................................. (6.39)% (42.98)% 7.84% (1.89)% (7.28)%
Ratio to average net assets:
Expenses .................................... 1.74% 1.65% 1.60% 1.70% 1.54%
Net investment income (loss) ................ 0.08% 0.17% (0.32)% 0.07% 0.50%
Portfolio turnover rate ...................... 28.93% 38.32% 31.04% 40.41% 23.77%
Net assets, end of period (000's
omitted) ................................... $50,841 $ 53,707 $109,287 $135,779 $159,435
</TABLE>
10
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Goldfund, Inc.:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Goldfund,
Inc. as of December 31, 1998, 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 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 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 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, 1998, 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 LLP
New York, New York
February 19, 1999
11
<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 64105
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.
[LOGO]
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LEXINGTON
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[GRAPHIC]
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LEXINGTON
GOLDFUND,
INC.
---------- o ----------
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
---------- o ----------
ANNUAL REPORT
DECEMBER 31, 1998
The Lexington Group
of No Load
Investment Companies
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