PROSPECTUS
                                                                     May 1, 1997
    

Lexington Global Fund, 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 LONG-TERM GROWTH OF
    CAPITAL THROUGH  INVESTMENT IN COMPANIES  DOMICILED IN FOREIGN COUNTRIES
    AND THE UNITED STATES.

--------------------------------------------------------------------------------

        Lexington  Global  Fund,  Inc.  (the  "Fund") is a no-load  open-end
    diversified   management   investment  company.  The  Fund's  investment
    objective  is to seek  long-term  growth of  capital  primarily  through
    investment in common stocks of companies  domiciled in foreign countries
    and the United States.

        Lexington  Management  Corporation  ("LMC") is the Fund's investment
    adviser. Lexington Funds Distributor, Inc. ("LFD") is the distributor of
    Fund shares.

        This  Prospectus  sets forth  information  about the Fund you should
    know  before  investing.  It  should  be read and  retained  for  future
    reference.

   
        A  Statement  of  Additional  Information  dated May 1, 1997,  which
    provides a further  discussion of certain matters in this Prospectus and
    other matters that may be of interest to some investors,  has been filed
    with the Securities and Exchange  Commission and is incorporated  herein
    by reference.  For a free copy,  call the appropriate  telephone  number
    above or write to the address listed above.
    

        Mutual fund shares are not deposits or  obligations  of (or endorsed
    or guaranteed by) any bank, nor are they federally  insured or otherwise
    protected by the Federal Deposit  Insurance  Corporation  ("FDIC"),  the
    Federal  Reserve  Board or any other  agency.  Investing in mutual funds
    involves investment risks, including the possible loss of principal, and
    their value and return will fluctuate.

--------------------------------------------------------------------------------

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
--------------------------------------------------------------------------------

    Investors Should Read and Retain this Prospectus for Future Reference


<PAGE>


                                    FEE TABLE

Annual Fund Operating Expenses: (as a percentage of average net assets):
   Management fees ....................................................... 1.00%
   Other fees ............................................................ 0.90%
                                                                           -----
      Total Fund Operating Expenses ...................................... 1.90%
                                                                           =====

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                     $19.29    $59.70  $102.64   $222.21
                                             ------    ------  -------   -------

   
    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 directly
and  indirectly.  Shareholder  Servicing  Agents  acting  as  agents  for  their
customers may provide administrative and recordkeeping services on behalf of the
Fund. For these services,  each Shareholder Servicing Agent receives fees, which
may be paid periodically,  provided that such fees will not exceed, on an annual
basis,  0.25% of the average daily net assets of the Fund  represented by shares
owned during the period for which payment is made.  Each  Shareholder  Servicing
Agent  may,  from time to time,  voluntarily  waive all or a portion of the fees
payable  to it.  (For  more  complete  descriptions  of the  various  costs  and
expenses,  see  "Management  of the  Fund"  below.)  The  Expenses  and  Example
appearing  in the table  above are based on the Fund's  expenses  for the period
from January 1, 1996 to December 31, 1996.  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 Per Share Income and Capital  Changes  Information for each of
the years in the five year period  ended  December  31, 1996 has been audited by
KPMG Peat Marwick LLP, Independent Auditors, whose report thereon appears in the
Statement  of  Additional  Information.  This  information  should  be  read  in
conjunction with the financial  statements and related notes thereto included in
the  Statement  of  Additional  Information.  The Fund's  annual  report,  which
contains  additional  performance  information,  is  available  upon request and
without charge.
    

--------------------------------------------------------------------------------

    Selected Per Share Data for a share outstanding throughout the period


<TABLE>
<S>                                <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>           <C> 

   
                                                                                                                     Period from
                                                                                                                   March 27, 1987
                                                                                                                    (commencement
                                                               Year ended December 31,                            of operations) to
                                 -------------------------------------------------------------------------------     December 31,
<S>                                <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>           <C> 
                                   1996     1995     1994     1993     1992     1991     1990     1989     1988          1987
                                   ----     ----     ----     ----     ----     ----     ----     ----     ----          ----
Net asset value, beginning
  of period ..................... $11.62   $11.17   $13.51   $11.09   $11.57   $10.26   $12.83   $10.89   $ 9.89        $9.50
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------        -----
Income (loss) from investment
  operations:
  Net investment income .........   0.01     0.09     0.02     0.06     0.06     0.09     0.11     0.01     0.02         0.01
  Net realized and unrealized
    gain (loss) on investments ..   1.84     1.10     0.23     3.47    (0.47)    1.50    (2.25)    2.72     1.56         0.38
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------        -----
Total income (loss) from
  investment operations .........   1.85     1.19     0.25     3.53    (0.41)    1.59    (2.14)    2.73     1.58         0.39
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------        -----
Less distributions:
  Dividends from net investment
    income ......................   0.16    (0.29)      -     (0.06)   (0.07)   (0.08)   (0.11)   (0.02)   (0.02)          -
  Distributions in excess of
    net investments income
    (temporary book-tax
    difference) .................     -     (0.13)      -        -        -        -        -        -        -            -
  Distributions from net 
    realized capital gains ......  (1.73)   (0.62)   (2.46)   (1.05)      -     (0.20)   (0.32)   (0.77)    (0.56)         -
  Distributions in excess of
    net realized capital gains
    (temporary book-tax 
    difference) .................     -        -     (0.13)       -       -        -        -        -        -            -
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------        -----
Total distributions .............  (1.39)   (1.04)   (2.59)   (1.11)   (0.07)   (0.28)   (0.43)   (0.79)    (0.58)         -
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------        -----
Net asset value, end of period .. $11.23   $11.32   $11.17   $13.51   $11.09   $11.57   $10.26   $12.83    $10.89       $9.89
                                  ------   ------   ------   ------   ------   ------   ------   ------   ------        -----
Total return ....................  16.43%   10.69%    1.84%   31.88%   (3.55%)  15.55%  (16.75%)  25.10%    15.99%       5.47%*
Ratio to average net assets:
  Expenses ......................   1.90%    1.67%    1.61%    1.49%    1.52%    1.57%    1.59%    1.64%     1.80%       1.20%*
  Net investment income .........   0.11%    0.48%    0.14%    0.52%    0.55%    0.79%    0.99%    0.13%     0.12%       0.19%*
Portfolio turnover .............. 128.03%  166.35%   83.40%   84.61%   81.38%   75.71%   81.88%  113.58%    96.90%      95.66%*
Average commission paid on
  equity security
  transactions ..................   0.03
Net assets, end of period
  (000's omitted) ............. $437,223  $53,614  $67,392  $87,313  $50,298  $53,886  $50,501  $57,008   $38,150     $31,250
<FN>
*Annualized
In accordance  with recent SEC disclosure  guidelines,  average  commissions are calculated for the current period and not for price
periods.
</FN>
</TABLE>
    


                                     2
<PAGE>




                        INVESTMENT OBJECTIVE AND POLICIES

    Lexington Global Fund,  Inc., (the "Fund"),  a Maryland  corporation,  is an
open-end,  diversified  management  investment  company.  The Fund's  investment
objective is to seek long-term growth of capital primarily through investment in
common stocks and  equivalents of companies  domiciled in foreign  countries and
the United States.

    The  Fund  will  seek to  achieve  its  objective  through  investment  in a
diversified  portfolio of securities that will consist primarily of all types of
common stocks and equivalents (the following constitute equivalents: convertible
debt  securities,  warrants and options).  The Fund may also invest in preferred
stocks,  bonds  and  other  debt  obligations,  which  consist  of money  market
instruments  of foreign and domestic  companies and U.S.  government and foreign
governments, governmental agencies and international organizations. There can be
no assurance that the Fund will be able to achieve its investment objective.

    The Fund will at all times  invest at least 65% or more of its  assets in at
least three  countries,  one of which may be the United States.  The Fund is not
required  to  maintain  any  particular   geographic  or  currency  mix  of  its
investments, nor is it required to maintain any particular proportion of stocks,
bonds or other  securities  in its  portfolio.  The Fund  may,  however,  invest
substantially  or primarily in foreign debt  securities when it appears that the
capital appreciation available from investments in such securities will equal or
exceed the capital appreciation available from investments in equity securities.
Because the market value of debt  obligations  can be expected to vary inversely
to changes in  prevailing  interest  rates,  investing in debt  obligations  may
provide an opportunity for capital appreciation when interest rates are expected
to decline.  A defensive  position would exist when in the judgment of Lexington
Management  Corporation  conditions in the securities market would make pursuing
the Fund's basic investment strategy inconsistent with the best interests of the
shareholders.  At such time, the Fund may  temporarily  invest up to 100% of its
assets in debt obligations, which consist of repurchase agreements, money market
instruments  of foreign or domestic  companies and U.S.  Government  and foreign
governments, governmental and international organizations.

    The Fund intends to provide  investors  with the  opportunity to invest in a
portfolio of securities  of companies and  governments  located  throughout  the
world.  In making the  allocation  of assets  among the  various  countries  and
geographic  regions,  LMC  ordinarily  considers  such factors as prospects  for
relative  economic growth between the U.S. and other countries;  expected levels
of inflation  and  interest  rates;  government  policies  influencing  business
conditions;  the range of investment  opportunities  available to  international
investors;  and other pertinent financial,  tax, social,  political and national
factors-all  in  relation to the  prevailing  prices of the  securities  in each
country or region.

   
    Investments  may be made in companies based in (or governments of or within)
Asia  (mainly  Japan,  Australia,  Singapore,  Malaysia,  Hong  Kong,  Thailand,
Indonesia  and Israel),  Europe  (mainly the United  Kingdom,  Germany,  Poland,
Switzerland,  the Netherlands,  France, Sweden, Spain, Italy, Austria,  Belgium,
Norway and Denmark),  Latin America  (mainly  Mexico and Chile),  as well as the
United States,  Canada,  Australia and such other areas and countries as LMC may
determine  from  time to time.  The Fund may  invest  in  companies  located  in
developing  countries  without  limitation.  Such countries may have  relatively
unstable governments,  economies based on only a few industries,  and securities
markets which trade a small number of companies.  Prices on these exchanges tend
to be volatile and in the past these  exchanges have offered  greater  potential
for gain, as well as loss, than exchanges in developed countries. While the Fund
invests only in countries  that it  considers  as having  relatively  stable and
friendly  governments  it is possible  that  certain Fund  investments  could be
subject to foreign  expropriation  or exchange control  restrictions.  See "Risk
Considerations" on Page 5.

    Although  the Fund does not  intend to invest  for the  purpose  of  seeking
short-term  profits,  the Fund's investments may be changed whenever the adviser
deems it appropriate to do so, without regard to the length of time a particular
security  has been  held.  It is  expected  that the Fund  will  have an  annual
portfolio  turnover  rate that will  generally  not exceed 100%. A 100% turnover
rate would occur if all the Fund's  portfolio  investments  were sold and either
repurchased or replaced  within a year. For the period ending December 31, 1996,
the portfolio turnover rate for the Fund was 128.05%.
    

Certain  Investment  Methods:  The  Fund  may  from  time to  time engage in the
following investment practices:

Settlement  Transactions-The  Fund may,  for a fixed  amount  of  United  States
dollars, enter into a forward foreign exchange contract for the purchase or sale
of  the  amount  of  foreign  currency  involved  in the  underlying  securities
transaction.  In so doing,  the Fund will


                                     3
<PAGE>



attempt to insulate itself against  possible losses and gains resulting from
a change in the  relationship  between  the  United  States  dollar  and the
foreign  currency during the period between the date a security is purchased
or sold and the date on which  payment is made or received.  This process is
known as "transaction hedging".

    To effect the  translation of the amount of foreign  currencies  involved in
the  purchase  and sale of foreign  securities  and to effect  the  "transaction
hedging"  described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e.  cash) basis or on a forward  basis  whereby the Fund  purchases or
sells a specific amount of foreign  currency,  at a price set at the time of the
contract,  for receipt of  delivery  at a specified  date which may be any fixed
number of days in the future.

    Such spot and forward foreign exchange  transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States  dollar and the relevant  foreign  currency when foreign  securities  are
purchased or sold for settlement beyond customary  settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.

Portfolio  Hedging-When,  in the  opinion of LMC,  it is  desirable  to limit or
reduce exposure in a foreign currency in order to moderate  potential changes in
the  United  States  dollar  value of the  portfolio,  the Fund may enter into a
forward  foreign  currency  exchange  contract by which the United States dollar
value  of the  underlying  foreign  portfolio  securities  can be  approximately
matched by an equivalent United States dollar liability. The Fund may also enter
into forward currency  exchange  contracts to increase its exposure to a foreign
currency  that LMC expects to increase  in value  relative to the United  States
dollar.  The Fund will not attempt to hedge all of its  portfolio  positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by the investment  adviser.  Hedging  against a decline in the value of currency
does not eliminate fluctuations in the prices of portfolio securities or prevent
losses if the prices of such  securities  decline.  The Fund will not enter into
forward foreign currency  exchange  transactions for speculative  purposes.  The
Fund  intends  to limit  such  transactions  to not more than 70% of total  Fund
assets.

Forward  Commitments-The  Fund may make  contracts to purchase  securities for a
fixed  price  at a  future  date  beyond  customary  settlement  time  ("forward
commitments")  because  new  issues  of  securities  are  typically  offered  to
investors,  such as the Fund, on that basis.  Forward commitments involve a risk
of loss if the  value of the  security  to be  purchased  declines  prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets.  Although the Fund will enter into such  contracts with the
intention  of  acquiring  the  securities,  the Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. The
Fund  may  realize  short-term  profits  or  losses  upon  the  sale of  forward
commitments.

Covered Call  Options-The  Fund may seek to preserve  capital by writing covered
call  options  on  securities  which it owns.  Such an option  on an  underlying
security  would  obligate the Fund to sell, and give the purchaser of the option
the right to buy, that security at a stated  exercise  price at any time until a
stated  expiration  date of the option.  The premium paid by the purchaser of an
option will be income to the Fund.

Repurchase  Agreements-A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively  short period (usually not more than 7
days) subject to the  obligations  of the seller to  repurchase  and the Fund to
resell  such  security at a fixed time and price  (representing  the Fund's cost
plus  interest).  Although the Fund may enter into  repurchase  agreements  with
respect to any portfolio  securities  which it may acquire  consistent  with its
investment  policies and  restrictions,  it is the Fund's  present  intention to
enter into repurchase  agreements only with respect to obligations of the United
States  government  or its  agencies or  instrumentalities  to meet  anticipated
redemptions or pending  investments or  reinvestment of Fund assets in portfolio
securities.  The Fund will enter into  repurchase  agreements  only with  member
banks of the Federal Reserve System and with "primary  dealers" in United States
government  securities.  Repurchase  agreements  will  be  fully  collateralized
including  interest  earned thereon during the entire term of the agreement.  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 market value
of the collateral securities. The Fund intends to limit repurchase agreements to
institutions  believed by LMC to present  minimal credit risk. The Fund will not
enter  into  repurchase  agreements  maturing  in more  than  seven  days if the
aggregate


                                     4
<PAGE>



of such repurchase  agreements and all other illiquid  securities when taken
together would exceed 15% of the total assets of the Fund.

     Except as otherwise specifically noted, the Fund's investment objective and
its investment  restrictions  are fundamental and may not be changed without the
approval of a majority of the  outstanding  voting  securities of the Fund.  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.

Portfolio Transactions

   
    The primary  consideration in placing security  transactions is execution at
the most favorable prices,  consistent with best execution. See the Statement of
Additional Information for a further discussion of brokerage allocation. For the
period  ending   December  31,  1996,   the  Fund  paid  $424,440  in  brokerage
commissions. 
    

Risk Considerations 

    Investments in foreign  securities may involve risks and  considerations not
present  in  domestic  investments.   Since  foreign  securities  generally  are
denominated  and pay interest or dividends in foreign  currencies,  the value of
the assets of the Fund as measured  in United  States  dollars  will be affected
favorably or  unfavorably  by changes in the  relationship  of the United States
dollar and other currency rates. The Fund may incur costs in connection with the
conversion  or transfer of foreign  currencies.  In addition,  there may be less
publicly  available  information  about  foreign  companies  than United  States
companies.  Foreign  companies may not be subject to accounting,  auditing,  and
financial reporting  standards,  practices and requirements  comparable to those
applicable to United States companies. Foreign securities markets, while growing
in volume,  have for the most part  substantially less volume than United States
securities markets and securities of foreign companies are generally less liquid
and at times their prices may be more  volatile  than  securities  of comparable
United States companies.  Foreign stock exchanges,  brokers and listed companies
are generally subject to less government  supervision and regulation than in the
United  States.  The customary  settlement  time for foreign  securities  may be
longer than the 5 day customary  settlement  time for United States  securities.
Although the Fund will try to invest in companies and  governments  of countries
having stable political environments,  there is the possibility of expropriation
or  confiscatory  taxation,  seizure or  nationalization  or foreign  government
restrictions or other adverse political,  social or diplomatic developments that
could affect investment in these nations.

    Income from foreign  securities held by the Fund may, and in some cases will
be  reduced  by a  withholding  tax at the  source  or other  foreign  taxes.  A
shareholder of the Fund will,  subject to certain  restrictions,  be entitled to
claim a credit or deduction  for United States  Federal  income tax purposes for
the  shareholder's  pro rata share of such foreign taxes paid by the Fund.  (See
Tax Matters.)

                             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 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 them 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 outstanding
        borrowings. If at any time, the value of the Fund's assets fails to meet
        the 300% asset coverage  requirement  relative only to  leveraging,  the
        Fund will,  within  three days (not  including  Sundays  and  holidays),
        reduce its borrowings to the extent necessary to meet the 300% test.

    (2) 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


                                       5
<PAGE>



        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.

    (3) The Fund  will not  concentrate  its  investments  in any one  industry,
        except  that  the Fund  may  invest  up to 25% of its  total  assets  in
        securities issued by companies  principally engaged in any one industry.
        The  Fund  considers   securities  of  individual  foreign  governments,
        companies  and  supranational   organizations  to  be  industries.  This
        limitation,  however,  will not apply to securities issued or guaranteed
        by the U.S. Government, its agencies and instrumentalities.

    (4) The Fund will not purchase  securities of an issuer, if (a) more than 5%
        of the Fund's  total  assets  taken at market value would at the time be
        invested in the securities of such issuer,  except that such restriction
        shall not apply to securities  issued or guaranteed by the United States
        government or its agencies or instrumentalities  or, with respect to 25%
        of the Fund's total assets,  to  securities  issued or guaranteed by the
        government of any country other than the United States which is a member
        of the Organization for Economic  Cooperation and Development  ("OECD").
        The  member  countries  of  OECD  are at  present:  Australia,  Austria,
        Belgium,  Canada, Denmark,  Germany,  Finland,  France, Greece, Iceland,
        Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway,
        Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the
        United States;  or (b) such  purchases  would at the time result in more
        than 10% of the outstanding  voting securities of such issuer being held
        by the Fund.

    The foregoing  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 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.

    (2) 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.

                             MANAGEMENT OF THE FUND

   
    The Fund has a Board of Directors which  establishes the Fund's policies and
supervises  and reviews the  operations  and  management of the Fund.  Lexington
Management  Corporation  ("LMC"),  P.O. Box 1515 Park 80 West Plaza Two,  Saddle
Brook,  New Jersey 07663,  is the investment  adviser of shares of the Fund. For
its investment  management  services to the Fund, LMC will receive a monthly fee
at the annual rate of 1% of the Fund's  average daily net assets which is higher
than  that  paid  by  most  other  investment  companies.  However,  it  is  not
necessarily  greater than the management fee of other investment  companies with
objectives and policies similar to this Fund. For the period ending December 31,
1996,  LMC earned  $393,512 in management  fees from the Fund.  Lexington  Funds
Distributor,   Inc.  ("LFD"),   a  registered   broker-dealer,   is  the  Fund's
distributor.  LMC also acts as  administrator  to the Fund and performs  certain
administrative and internal 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
    



                                       6
<PAGE>


facilities for such services.  The Fund shall  reimburse LMC for its actual cost
in providing such services,  facilities and expenses.  The operating expenses of
the Fund  can be  expected  to be  higher  than  that of an  investment  company
investing exclusively in United States securities.

   
    LMC was  established  in 1938 and  currently  manages  over $3.3  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 that own significant amounts of capital stock of LMC's
parent,  Lexington  Global  Asset  Managers,  Inc. The clients pay fees that LMC
considers comparable to the fees paid by similarly served clients.
    

    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  are the  beneficial  owners of a
majority of the shares of Lexington  Global Asset  Managers,  Inc. common stock.
See  "Investment  Adviser  and  Distributor"  in  the  Statement  of  Additional
Information.

                               PORTFOLIO MANAGERS

     The Fund is  managed  by  Richard T.  Saler,  Philip  Schwartz  and Alan H.
Wapnick.

    Mr. Saler is Senior Vice  President,  Director of  International  Investment
Strategy at LMC. Mr. Saler is responsible for international  investment analysis
and portfolio management at LMC. He has ten years of investment experience.  Mr.
Saler has focused on international markets since first joining LMC in 1986. Most
recently he was a strategist  with Nomura  Securities  and rejoined LMC in 1992.
Mr. Saler is a graduate of New York  University  with a B.S. Degree in Marketing
and an M.B.A. in Finance from New York University's  Graduate School of Business
Administration.

   
    Mr. Schwartz is a Vice President,  Chartered Financial Analyst and member of
the New York Security Analysts Association.  He is responsible for international
investment  analysis and portfolio  management,  and has eight years  investment
experience.  Prior to joining Lexington in 1993, Mr. Schwartz was Vice President
of  European  Research  Sales  with  Cheuvreux  De Virieu in Paris and New York,
serving the  institutional  market.  Prior to Cheuvreux,  he was affiliated with
Olde and Co. and Kidder, Peabody as a stockbroker.  Mr. Schwartz earned his B.A.
and M.A. degrees from Boston University.
    

    Mr. Wapnick is Senior Vice President, Director of Domestic Investment Equity
Strategy at LMC. Mr. Wapnick is responsible for domestic investment analysis and
portfolio  management at LMC. He has 26 years  investment  experience.  Prior to
joining LMC in 1986, Mr. Wapnick was an equity analyst with Merrill Lynch, J.&W.
Seligman,  Dean Witter and most recently Union Carbide Corporation.  Mr. Wapnick
is a graduate of Dartmouth  College and  received a Master's  Degree in Business
Administration from Columbia University.

                             HOW TO PURCHASE SHARES

Initial  Investment-Minimum  $1,000.  By Mail: Send a check payable to Lexington
Global  Fund,  Inc.,  along with a completed  New Account  Application  to State
Street Bank and Trust Company (the "Agent"). 

   
Subsequent  Investments-Minimum  $50. By Mail: Send a check payable to Lexington
Global Fund, Inc., to the Agent, accompanied by either the detachable form which
is part of 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 Fund does not accept third party checks or cash  investments.
Third party checks are defined as checks made payable to someone  other than the
Fund. Checks must be in U.S. dollars,  and to avoid fees and delays,  drawn only
on banks located in the U.S.
    

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.  The fee may be
avoided by  purchasing  shares  directly  from the Fund.



                                       7
<PAGE>


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.  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 or federal funds wire, certificates will not be issued for 30
days. In order to facilitate redemptions and transfers,  most shareholders elect
not to receive certificates.

   
Automatic Investing Plan with  "Lex-0-Matic".  A shareholder may arrange to make
additional  purchases of shares  automatically  on a monthly or quarterly basis.
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 canceled  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.
    

    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).

    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.

Determination  of Net Asset Value: The net asset value of the shares of the Fund
is determined  close of trading on each day the New York Stock Exchange is open,
by dividing  the value of the Fund's  securities  plus any cash and other assets
(including  accrued  dividends and  interest)  less all  liabilities  (including
accrued expenses) by the number of shares outstanding, the result being adjusted
to the nearest  whole cent. A security  listed or traded on a  recognized  stock
exchange  is valued at the last sale  price  prior to the time when  assets  are
valued on the principal  exchange on which the security is traded. If no sale is
reported at that time,  the mean between the current bid and asked price will be
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 between the 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 market quotations are not readily available and
other  assets shall be valued by the Fund's  management  in good faith under the
direction of the Fund's Board of Directors.

    Generally,  trading in foreign securities markets is substantially completed
each day at various times prior to the close of the New York Stock Exchange. The
values of foreign securities used in computing the net asset value of the shares
of the Fund are determined as of the earlier of such market close or the closing
time of the New York Stock Exchange (the "Exchange").  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 LMC and approved in good faith by the Board of Directors.

    For  purposes of  determining  the net asset value per share of the Fund all
assets  and  liabilities  initially  expressed  in  foreign  currencies  will be
converted  into  United  States  dollars at the mean  between  the bid and offer
prices of such  currencies  against  United States  dollars  quoted by any major
bank.

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 waive or lower the
investment  minimums  with respect to any person or class of persons,  including
shareholders  of the Fund's special  investment  programs.  An order to purchase
shares is not  binding  on the Fund  until it has been  confirmed  by the Agent.



                                       8
<PAGE>


Shareholder  Servicing  Agents:  The Fund may enter into  Shareholder  Servicing
Agreements  with  one or more  Shareholder  Servicing  Agents.  The  Shareholder
Servicing  Agent may, as agent for its  customers,  among other  things:  answer
customer  inquiries  regarding account status,  account history and purchase and
redemption procedures;  assist shareholders in designating and changing dividend
options,  account  designations and addresses;  provide necessary  personnel and
facilities to establish and maintain shareholder accounts and records; assist in
processing  purchase  and  redemption  transactions;  arrange  for the wiring of
funds; transmit and receive funds in connection with customer orders to purchase
or redeem shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated  accounts;
furnish  monthly and year-end  statements  and  confirmations  of purchases  and
redemptions;  transmit, on behalf of the Fund, proxy statements, annual reports,
updated  prospectuses  and other  communications  to  shareholders  of the Fund;
receive, tabulate and transmit to the Fund proxies executed by shareholders with
respect to meetings of  shareholders of the Fund; and provide such other related
services as the Fund or a  shareholder  may request.  For these  services,  each
Shareholder  Servicing  Agent  receives  fees,  which may be paid  periodically,
provided  that such  fees will not  exceed,  on an  annual  basis,  0.25% of the
average  daily net assets of the Fund  represented  by shares  owned  during the
period  for  which  payment  is  made.  LMC,  at no  cost to the  Fund,  may pay
additional  amounts from its past profits to  Shareholder  Servicing  Agents for
administrative  services.  Each  Shareholder  Servicing  Agent may, from time to
time,  voluntarily  waive all or a portion of the fees  payable  to it.

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 amount purchased
or  redemption  proceeds.  A statement is also sent to  shareholders  whenever a
distribution is paid, or when a change in the registration, address, or dividend
option occurs. Shareholders are urged to retain their account statements for tax
purposes.

                              HOW TO REDEEM SHARES

By Mail: Send to the Agent: (1) a written request for redemption, signed by each
registered owner exactly 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 proper form
have been received by the Agent.  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  firm 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).


                                       9
<PAGE>


    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) for reasons other than market  fluctuations  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.

                              SHAREHOLDER SERVICES

Transfer:  Shares of the Fund may be  transferred  to another owner. A signature
guarantee of the  registered  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.

   
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.  (NASDAQ Symbol:  LXCAX)/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. (NASDAQ Symbol: LETRX)/Seeks long-term
capital  appreciation  through  investment  primarily  in the  equity of Russian
companies. The Fund 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.  (NASDAQ  Symbol:  LESVX)/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.
    



                                       10
<PAGE>


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.

   
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
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 minimum  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.

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.

    Telephonic  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-certificate  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,  or 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



                                       11
<PAGE>



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 the
shareholder is an entity other than an  individual,  such entity may be required
to certify  that  certain  persons  have been duly  elected  and are now legally
holding the titles given and that the said  corporation,  trust,  unincorporated
association,  etc.  is duly  organized  and  existing  and has the 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.

    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. For
further information call  1-800-526-0056.  (See "Tax Sheltered Retirement Plans"
in the Statement of Additional Information.)

                             PERFORMANCE CALCULATION

    The Fund will  calculate  performance  on a total  return  basis for various
periods.  The total return basis combines changes in principal and dividends for
the periods shown.  Principal  changes are based on the  difference  between the
beginning and closing net asset value for the period and assumes reinvestment of
dividends paid by the Fund. Dividends are comprised of net investment income and
net realized capital gains, respectively.

    Performance will vary from time to time and past results are not necessarily
representative of future results. A shareholder should remember 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,  Standard & Poor's 500 Composite Stock Price Index and
Morgan Stanley Capital  International World 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.

                 DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY

    The Fund intends to pay dividends  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



                                       12
<PAGE>


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").

                                   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 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.

    Distributions  by the  Fund of its net  investment  income  (which  includes
certain  foreign  currency gains and losses) 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,  substantially less than
100% of the  ordinary  income  dividends  paid by the Fund may  qualify  for the
dividends-received  deduction.  Distributions by the Fund of the excess, if any,
of its net  long-term  capital  gain over its net  short-term  capital  loss are
designated  as  capital  gain  dividends  and are  taxable  to  shareholders  as
long-term  capital gains,  regardless of the length of time the shareholder held
his shares.

    Under certain  circumstances,  the Fund may elect to  "pass-through"  to its
shareholders  the income or other taxes paid by the Fund to foreign  governments
during a year. Each shareholder will be required to include his pro rata portion
of these  foreign  taxes in his  gross  income,  but will be able to  deduct  or
(subject to various limitations) claim a foreign tax credit for such amount.

    Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional  shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However,  certain distributions
made during January will be treated as having been paid by the Fund and received
by the  shareholders on December 31 of the preceding  year. A statement  setting
forth the  federal  income tax status of all  distributions  made or deemed made
during the year, including any amount of foreign taxes "passed-through", will be
sent  to  shareholders  promptly  after  the  end  of  each  year.  Shareholders
purchasing  shares of the Fund just prior to the ex-dividend  date will be taxed
on the entire amount of the dividend  received,  even though the net asset value
per share on the date of such purchase reflected the amount of such dividend.

    Any loss  realized  upon a taxable  disposition  of shares within six months
from the date of their purchase will be treated as long-term capital loss to the
extent of any capital gain dividends  received on such shares.  All or a portion
of any loss  realized  upon a taxable  disposition  of shares of the Fund may be
disallowed  if other shares of the Fund are  purchased  within 30 days before or
after such disposition.

    Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on ordinary  income  dividends,
capital gain  dividends  and  redemption  payments made by the Fund. In order to
avoid this  back-up  withholding,  a  shareholder  must  provide the Fund with a
correct  taxpayer  identification  number (which for most  individuals  is their
Social Security  number) or certify that it is a corporation or otherwise exempt
from or not subject to back-up withholding. The new account application included
with  this   Prospectus   provides  for   shareholder   compliance   with  these
certification requirements.

    The foregoing  discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative  action. As the foregoing  discussion is
for general  information 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.


                                       13
<PAGE>


                  ORGANIZATION AND DESCRIPTION OF COMMON STOCK

    The Fund is an open-end, diversified management investment company organized
as a corporation  under the laws of the State of Maryland on March 24, 1987, and
has  authorized  capital  of  1,000,000,000  shares of a single  class of common
stock,  par value  $.001.  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.

             CUSTODIAN, 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 custodian for the Fund's portfolio  securities
including those to be held by foreign banks and foreign securities  depositories
that qualify as eligible  foreign  custodians under the rules adopted by the SEC
and for the Fund's domestic  securities and other assets.  State Street Bank and
Trust  Company,  225 Franklin  Street,  Boston,  Massachusetts  02110,  has been
retained to act as the  transfer  agent and  dividend  disbursing  agent for the
Fund. State Street Bank and Trust Company and Chase Manhattan Bank, N.A. have no
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 & 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, 1997.
    

                                OTHER INFORMATION

    This  prospectus  omits certain  information  contained in the  registration
statement filed with the SEC. Copies of the  registration  statement,  including
items  omitted  herein,  may be  obtained  from the SEC by  paying  the  charges
prescribed  under  its  rules  and  regulations.  The  Statement  of  Additional
Information  included in such  registration  statement  may be obtained  without
charge from the Fund.

    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.

    No  person  has  been  authorized  to give  any  information  or to make any
representation other than those contained in this Prospectus, and information or
representations not herein contained,  if given or made, must not be relied upon
as having been  authorized by the Fund.  This  Prospectus does not constitute an
offer or  solicitation  in any  jurisdiction  in  which  such  offering  may not
lawfully be made.


                                       14
<PAGE>

(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:
Shareholder Service: 1-800-526-0056
Institutional/Financial Adviser Services: 1-800-367-9160
24 Hour Account Information: 1-800-526-0052

Table of Contents                                                           Page
--------------------------------------------------------------------------------
Fee Table ...................................................................  2
Financial Highlights ........................................................  2
Investment Objective and Policies ...........................................  3
Investment Restrictions .....................................................  5
Management of the Fund ......................................................  6
Portfolio Managers ..........................................................  7
How to Purchase Shares ......................................................  7
How to Redeem Shares ........................................................  9
Shareholder Services ........................................................ 10
Exchange Privilege .......................................................... 10
Tax-Sheltered Retirement Plans .............................................. 12
Performance Calculation ..................................................... 12
Dividend, Distribution and Reinvestment Policy .............................. 12
Tax Matters ................................................................. 13
Organization and Description of Common Stock ................................ 14
Custodian, Transfer Agent and Dividend Disbursing Agent ..................... 14
Counsel and Independent Auditors ............................................ 14
Other Information ........................................................... 14

(RIGHT COLUMN)

                                   LEXINGTON
                      -------------------------------------
                                   LEXINGTON
                                     GLOBAL
                                   FUND, INC.
                                 ------x-----
                             x Worldwide
                               diversification
                             x Free telephone
                               exchange privilege
                             x No sales charge
                             x No redemption fee
                                -------x-----



                              The Lexington Group
                                       of
                                    No-Load
                              Investment Companies
                       ------------------------------------



                                   PROSPECTUS
           
   
                                   MAY 1, 1997
    


                                       
<PAGE>

                           LEXINGTON GLOBAL FUND, INC.

                       STATEMENT OF ADDITIONAL INFORMATION


   
                                   MAY 1, 1997


    This Statement of Additional  Information which is not a prospectus,  should
be read in  conjunction  with the current  prospectus of Lexington  Global Fund,
Inc.  (the  "Fund"),  dated May 1, 1997,  and 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 Service Information:-1-800-526-0056
            Institutional/Financial Adviser Services:-1-800-367-9160
                         24 Hour Account Information:-1-800-526-0052


Lexington  Management  Corporation is the Fund's investment  adviser.  Lexington
Funds Distributor, Inc. is the Fund's distributor.


                                TABLE OF CONTENTS

                                                                            Page

Investment Objective and Policies ..........................................   2

Investment Restrictions ....................................................   3

Management of the Fund .....................................................   4

Investment Adviser, Distributor and Administrator ..........................   7

Portfolio Transactions and Brokerage Commissions ...........................   8

Determination of Net Asset Value ...........................................   8

Telephone Exchange Provisions ..............................................   8

Tax Sheltered Retirement Plans .............................................   9

Tax Matters ................................................................  10

Performance Calculation ....................................................  15

Shareholder Reports ........................................................  15

Other Information ..........................................................  15

Financial Statements .......................................................  16



                                       1
<PAGE>



                        INVESTMENT OBJECTIVE AND POLICIES

    For a full description of the Fund's investment objective and policies,  see
the Prospectus under "Investment Objective and Policies".

Certain Investment Methods

Settlement Transactions-When the Fund enters into contracts for purchase or sale
of a portfolio security denominated in a foreign currency, it may be required to
settle a purchase  transaction in the relevant  foreign  currency or receive the
proceeds of a sale in that currency. In either event, the Fund will be obligated
to  acquire  or  dispose  of such  foreign  currency  as is  represented  by the
transaction by selling or buying an equivalent  amount of United States dollars.
Furthermore,  the Fund may wish to "lock in" the United  States  dollar value of
the  transaction  at or near  the  time  of a  purchase  or  sale  of  portfolio
securities  at the  exchange  rate or rates then  prevailing  between the United
States  dollar and the  currency in which the foreign  security is  denominated.
Therefore, the Fund may, for a fixed amount of United States dollars, enter into
a forward  foreign  exchange  contract for the purchase or sale of the amount of
foreign currency involved in the underlying securities transaction. In so doing,
the Fund will  attempt to  insulate  itself  against  possible  losses and gains
resulting from a change in the relationship between the United States dollar and
the foreign  currency during the period between the date a security is purchased
or sold and the date on which payment is made or received. This process is known
as "transaction hedging".

    To effect the  translation of the amount of foreign  currencies  involved in
the  purchase  and sale of foreign  securities  and to effect  the  "transaction
hedging"  described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e.  cash) basis or on a forward  basis  whereby the Fund  purchases or
sells a specific amount of foreign  currency,  at a price set at the time of the
contract,  for receipt of  delivery  at a specified  date which may be any fixed
number of days in the future.

    Such spot and forward foreign exchange  transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant  foreign dollar and the relevant foreign currency
when foreign  securities are purchased or sold for settlement  beyond  customary
settlement  time  (as  described  below).   Neither  type  of  foreign  currency
transaction will eliminate fluctuations in the prices of the Fund's portfolio or
securities or prevent loss if the price of such securities should decline.

Portfolio  Hedging-Some  or all of the Fund's  portfolio  will be denominated in
foreign currencies. As a result, in addition to the risk of change in the market
value of  portfolio  securities,  the value of the  portfolio  in United  States
dollars is subject to  fluctuations  in the  exchange  rate between such foreign
currencies  and the United  States  dollar.  When,  in the opinion of LMC, it is
desirable to limit or reduce exposure in a foreign currency in order to moderate
potential  changes in the United States dollar value of the portfolio,  the Fund
may enter into a forward foreign currency  exchange contract by which the United
States  dollar  value of the  underlying  foreign  portfolio  securities  can be
approximately  matched by an equivalent  United States  dollar  liability.  This
technique is known as  "portfolio  hedging" and moderates or reduces the risk of
change in the United States dollar value of the Fund's portfolio only during the
period before the maturity of the forward  contract (which will not be in excess
of one year).  The Fund will not attempt to hedge all of its  foreign  portfolio
positions  and will enter into such  transactions  only to the  extent,  if any,
deemed appropriate by the investment  adviser.  Hedging against a decline in the
value of currency  does not  eliminate  fluctuations  in the prices of portfolio
securities or prevent losses if the prices of such securities decline.  The Fund
will  not  enter  into  forward  foreign  currency  exchange   transactions  for
speculative  purposes.  The Fund intends to limit  transactions  as described in
this paragraph to not more than 70% of the total Fund assets.

    Forward Commitments - The Fund may make contracts to purchase securities for
a fixed  price at a future  date  beyond  customary  settlement  time  ("forward
commitments")  because  new  issues  of  securities  are  typically  offered  to
investors,  such as the Fund, on that basis.  Forward commitments involve a risk
of loss if the  value of the  security  to be  purchased  declines  prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets.  Although the Fund will enter into such  contracts with the
intention  of  acquiring  the  securities,  the Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. The
Fund  may  realize  short-term  profits  or  losses  upon  the  sale of  forward
commitments.

Covered Call  Options-Call  options may also be used as a means of participating
in an  anticipated  price  increase of a security on a more  limited  basis than
would be possible if the security itself were purchased. The Fund may write only
covered  call  options.  Since it can be  expected  that a call  option  will be
exercised if the market value of the  underlying  security  increases to a level
greater than the exercise  price,  this strategy will generally be used when the
investment  adviser  believes  that the call  premium  received by the Fund plus
anticipated  appreciation  in the price of the  underlying



                                       2
<PAGE>


security,  up to the  exercise  price  of the  call,  will be  greater  than the
appreciation  in  the  price  of  the  security.   The  Fund  intends  to  limit
transactions  as  described  in this  paragraph  to less  than 5% of total  Fund
assets. The Fund will not purchase put and call options written by others. Also,
the Fund will not write any put options.

                             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) 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  them 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 outstanding  borrowings.  If at any time, the
value of the Fund's  assets  fails to meet the 300% asset  coverage  requirement
relative only to  leveraging,  the Fund will,  within three days (not  including
Sundays and holidays), reduce 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.

    (3) The Fund  will not act as an  underwriter  of  securities  except to the
extent that, in connection with the  disposition of portfolio  securities by the
Fund,  the Fund may be deemed to be an  underwriter  under the provisions of the
1933 Act.

    (4) The Fund will not purchase real estate, interests in real estate or real
estate  limited  partnership  interests  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.

    (5) 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.

    (6)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,  may  engage in
transactions on a when-issued or forward  commitment  basis,  and may enter into
forward currency contracts.

    (7) The Fund  will not  concentrate  its  investments  in any one  industry,
except  that the Fund may  invest  up to 25% of its total  assets in  securities
issued by companies principally engaged in any one industry.  The Fund considers
securities  of  individual  foreign  governments,  companies  and  supranational
organizations  to be industries.  This  limitation,  however,  will not apply to
securities  issued  or  guaranteed  by the U.S.  Government,  its  agencies  and
instrumentalities.

    (8) The Fund will not purchase  securities of an issuer, if (a) more than 5%
of the Fund's  total  assets taken at market value would at the time be invested
in the securities of such issuer,  except that such restriction  shall not apply
to  securities  issued or  guaranteed  by the United  States  government  or its
agencies  or  instrumentalities  or,  with  respect to 25% of the  Fund's  total
assets,  to securities  issued or  guaranteed  by the  government of any country
other than the United States which is a member of the  Organization for Economic
Cooperation  and  Development  ("OECD").  The  member  countries  of OECD are at
present: Australia, Austria, Belgium, Canada, Denmark, Germany, Finland, France,
Greece,


                                       3
<PAGE>


Iceland,  Ireland,  Italy,  Japan,  Luxembourg,  the  Netherlands,  New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the
United States;  or (b) such purchases  would at the time result in more than 10%
of the outstanding voting securities of such issuer being held by the Fund.

    In addition to the above fundamental  restrictions,  the Fund has undertaken
the following non fundamental  restrictions,  which may be changed in the future
by the Board of Directors, without a vote of the shareholders of the Fund:

    (1) The Fund will not 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.

    (2) 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.

    (3) 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.

   
    (4) The Fund  will not  purchase  the  securities  of any  other  investment
company, except as permitted under the 1940 Act.

    (5) The Fund will not invest for the purpose of  exercising  control over or
management of any company.

    (6) The  Fund  will  not  purchase  warrants  except  in  units  with  other
securities in original issuance thereof or attached to other  securities,  if at
the time of the purchase, the Fund's investment in warrants, valued at the lower
of cost or  market,  would  exceed  5% of the  Fund's  total  assets.  For these
purposes,  warrants  attached to units or other securities shall be deemed to be
without value.

    (7) 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.

    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.
    

                             MANAGEMENT OF THE FUND

    The  Directors  and  executive  officers  of the  Fund and  their  principal
occupations are set forth below:

   
*+S.M.S.  CHADHA  (59),  Director.  3/16 Shanti  Niketan,  New Delhi 21,  India.
    Secretary,  Ministry of External Affairs,  New Delhi, India; Head of Foreign
    Service  Institute,  New Delhi,  India;  Special Envoy of the  Government of
    India;  Director,  Special Unit for Technical  Cooperation  among Developing
    Countries, United Nations Development Program, New York.

*+ROBERT M. DEMICHELE (52), President and Chairman. P.O. Box 1515, Saddle Brook,
    N.J.  07663.  Chairman and Chief  Executive  Officer,  Lexington  Management
    Corporation;  President and Director, Lexington Global Asset Managers, Inc.;
    Chairman and Chief Executive  Officer,  Lexington Funds  Distributor,  Inc.;
    Chairman of the Board,  Market  Systems  Research,  Inc. and Market  Systems
    Research  Advisors,  Inc.;  Director,  Chartwell  Re  Corporation,  Claredon
    National  Insurance  Company,  The Navigator's  Group, Inc., Unione Italiana
    Reinsurance, Vanguard Cellular Systems, Inc. and Weeden & Co.; Vice Chairman
    of the Board of  Trustees,  Union  College  and  Trustee,  Smith  Richardson
    Foundation.

*+BEVERLEY C. DUER (67),  Director,  340 East 72nd Street, New York, N.Y. 10021.
    Private Investor.  Formerly,  Manager of Operations Research Department, CPC
    International, Inc.
    


                                       4
<PAGE>


   
*+BARBARA R. EVANS (36),  Director. 5 Fernwood Road, Summit, N.J. 07901. Private
    Investor.  Prior to May,  1989,  Assistant  Vice  President  and  Securities
    Analyst, Lexington Management Corporation.

*+LAWRENCE  KANTOR (49),  Vice  President and  Director.  P.O. Box 1515,  Saddle
    Brook, N.J. 07663.  Executive Vice President,  General Manager 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.

*+JERARD F. MAHER (50),  Director.  300 Raritan  Center  Parkway,  Edison,  N.J.
    08818. General Counsel,  Federal Business Center;  Counsel,  Ribis, Graham &
    Curtin.

*+ANDREW M. McCOSH (56), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
    U.K.  Professor of the Organisation of Industry and Commerce,  Department of
    Business Studies, The University of Edinburgh, Scotland.

*+DONALD B. MILLER (70),  Director.  10725 Quail Covey Road,  Boynton Beach,  FL
    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 (64),  Director.  3 Woodfield Road,  Wellesley,  Massachusetts
    02181. Associate Professor of Finance, Boston College, Massachusetts.

*+MARGARET RUSSELL (76),  Director.  55 North Mountain Avenue,  Montclair,  N.J.
    07042. Private Investor;  formerly,  Community Affairs Director,  Union Camp
    Corporation.

*+RICHARD T. SALER (35), Vice President and Co-Portfolio Manager. P.O. Box 1515,
    Saddle Brook, N.J. 07663.  Senior Vice President,  Director of International
    Equity Investment Strategy, Lexington Management Corporation.  Prior to July
    1992,  Securities Analyst,  Nomura Securities,  Inc. Prior to November 1991,
    Vice President, Lexington Management Corporation.

*+ALAN H. WAPNICK (50),  Vice  President and  Co-Portfolio  Manager.  P.O. 1515,
    Saddle Brook, N.J. 07663.

*+LISA CURCIO (37), 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.

*+RICHARD M. HISEY (38),  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 LAVERY (42), 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  CARNICELLI  (37), Vice President.  P.O. Box 1515,  Saddle Brook,  N.J.
    07663.

*+CHRISTIE CARR (29),  Assistant  Treasurer.  P.O. Box 1515,  Saddle Brook, N.J.
    07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.

*+SIOBHAN GILFILLAN (33), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
    07663.

*+JOAN K. LEDERER (30),  Assistant  Treasurer.  P.O. Box 1515 Saddle Brook, N.J.
    07663. Prior to April 1997, Director of Investment  Accounting,  Diversified
    Investment  Advisors,  Inc. Prior to April 1996,  Assistant Vice  President,
    PIMCO.

*+THOMAS LUEHS (34),  Assistant  Treasurer.  P.O. Box 1515,  Saddle Brook,  N.J.
    07663. Prior to November,  1993, Supervisor Investment Accounting,  Alliance
    Capital Management, Inc.

*+SHERI MOSCA (33),  Assistant  Treasurer.  P.O. Box 1515,  Saddle  Brook,  N.J.
    07663.

*+PETER CORNIOTES (34), Assistant  Secretary.  P.O. Box 1515, Saddle Brook, N.J.
    07663.   Assistant  Vice  President  and  Assistant   Secretary,   Lexington
    Management  Corporation.  Assistant Secretary,  Lexington Funds Distributor,
    Inc.

*+ENRIQUE J. FAUST (36), 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.


                                       5
<PAGE>



   
    +Messrs. Chadha, Corniotes,  DeMichele,  Duer, Faust, Hisey, Kantor, Lavery,
Luehs, Maher, McCosh, Miller,  Preston, Saler, and Wapnick and Mmes. Carnicelli,
Carr,  Curcio,  Evans,  Gilfillan,  Lederer,  Mosca,  and Russell  hold  similar
officers  with  some or all of the other  investment  companies  advised  and/or
distributed by LMC and LFD.

    The Board of Trustees  met 5 times during the twelve  months ended  December
31, 1996, 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, 1996 to December 31, 1996 for each Director:

--------------------------------------------------------------------------------
                         Aggregate      Total Compensation From      Number of
Name of Director    Compensation from    Fund and Fund Complex    Directorships
                           Fund                                  in Fund Complex
--------------------------------------------------------------------------------
S.M.S. Chadha              $856                $13,696                 16
--------------------------------------------------------------------------------
Robert M. DeMichele          0                    $0                   17
--------------------------------------------------------------------------------
Beverley C. Duer          $1,712               $29,110                 17
--------------------------------------------------------------------------------
Barbara R. Evans             0                     0                   16
--------------------------------------------------------------------------------
Lawrence Kantor              0                     0                   16
--------------------------------------------------------------------------------
Jerard F. Maher            $856                $16,046                 17
--------------------------------------------------------------------------------
Andrew M. McCosh           $856                $13,696                 16
--------------------------------------------------------------------------------
Donald B. Miller          $1,712               $26,760                 16
--------------------------------------------------------------------------------
Francis Olmsted*          $1,068               $16,800                N/A
--------------------------------------------------------------------------------
John G. Preston           $1,712               $26,760                 16
--------------------------------------------------------------------------------
Margaret W. Russell       $1,712               $25,048                 16
--------------------------------------------------------------------------------
Philip C. Smith           $1,600               $25,080                 16
--------------------------------------------------------------------------------
Francis A. Sunderland*     $744                $10,528                N/A
--------------------------------------------------------------------------------

*Retired
    

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  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.


                                       6
<PAGE>


   
    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, 1996, the estimated credited years
of service for  Directors  Chadha,  Duer,  Maher,  McCosh,  Miller,  Preston and
Russell are 1, 18, 1, 1, 22, 18 and 15, 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


                INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR

    Lexington Management  Corporation ("LMC"),  P.O. Box 1515, Saddle Brook, New
Jersey 07663 is the  investment  adviser to the Fund  pursuant to an  Investment
Management  Agreement  dated  February 24,  1987,  (the  "Advisory  Agreement").
Lexington  Funds  Distributor,  Inc.  ("LFD") is the  distributor of Fund shares
pursuant to a Distribution  Agreement  dated August 21, 1990 (the  "Distribution
Agreement").  Both of these  agreements  were  approved  by the Fund's  Board of
Directors  (including a majority of the Directors who were not parties to either
the Advisory Agreement or the Distribution  Agreement or "interested persons" of
any such party) on December 5, 1994. LMC makes  recommendations to the Fund with
respect to its investments and investment policies.

    LMC's 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. Currently,  the
most restrictive of such expense  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.  LFD pays the advertising and sales expenses of the continuous offering
of Fund  shares,  including  the  cost of  printing  prospectuses,  proxies  and
shareholder  reports  for persons  other than  existing  shareholders.  The Fund
furnishes  LFD,  at  printer's  overrun  cost  paid by LFD,  such  copies of its
prospectus   and  annual,   semi-annual   and  other  reports  and   shareholder
communications as may reasonably be required for sales purposes.

    LMC  also  acts  as   administrator   to  the  Fund  and  performs   certain
administrative and internal 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.

   
    The Advisory  Agreement,  the Distribution  Agreement and the Administrative
Services  Agreement  are  subject  to annual  approval  by the  Fund's  Board of
Directors and by the  affirmative  vote,  cast in person at a meeting called for
such purpose,  of a majority of the Directors who are not parties  either to the
Advisory  Agreement  or the  Distribution  Agreement,  as the  case  may be,  or
"interested persons" of any such party. Either the Fund or LMC may terminate the
Advisory Agreement and the Fund or LFD may terminate the Distribution  Agreement
on 60 days' written notice without penalty.  The Advisory  Agreement  terminates
automatically in the event of assignment,  as defined in the Investment  Company
Act of 1940. LMC is paid an investment  advisory fee at the annual rate of 1.00%
of the Fund's  average daily net assets.  For the year ended  December 31, 1996,
LMC  earned  $393,512  in  management  fees  from the Fund;  for the year  ended
December 31, 1995, LMC earned  $590,198 in management fees from the Fund and for
the year ended  December 31, 1994, LMC earned  $798,119 in management  fees from
the Fund.
    

    LMC  shall  not be  liable  to the Fund or its  shareholders  for any act or
omission by LMC, its officers,  directors or employees or any loss  sustained by
the Fund or its  shareholders  except in the case of  willful  misfeasance,  bad
faith, gross negligence or reckless disregard of duty.


                                       7
<PAGE>


    LMC and  LFD  are  wholly  owned  subsidiaries  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.

                PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

    The Fund's primary policy is to execute all purchases and sales of portfolio
instruments  at the  most  favorable  prices  consistent  with  best  execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a  transaction  is  executed.  Consistent  with this  policy,  the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the Directors may determine, LMC may consider sales of shares of the
Fund  and  of the  other  Lexington  Funds  as a  factor  in  the  selection  of
broker-dealers to execute the Fund's portfolio transactions.  However,  pursuant
to the Fund's investment management agreement,  management  consideration may be
given in the selection of broker-dealers to research provided and payment may be
made of a  commission  higher than that charged by another  broker-dealer  which
does not furnish research  services or which furnishes  research services deemed
to be a 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 higher commission
than the lowest available under certain circumstances,  provided that the person
so exercising  investment  discretion makes a good faith  determination that the
person so commissions  paid are  "reasonable in the 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  ("soft  dollars") might
exceed  commissions  that would be payable for executions  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.
    

    The Fund anticipates that its brokerage transactions involving securities of
companies  domiciled in countries  other than the United States will normally be
conducted on the principal stock exchanges of those countries. Fixed commissions
of foreign stock exchange  transactions are generally higher than the negotiated
commission  rates  available  in the  United  States.  There is  generally  less
government   supervision   and   regulation  of  foreign  stock   exchanges  and
broker-dealers than in the United States.

   
The Fund paid brokerage commissions and portfolio turnover rates are as follows:

                       Total Brokerage    Soft Dollar       Portfolio Turnover
                      Commissions Paid  Commissions Paid          Rate
                      ----------------  ----------------    ------------------
        1994              $523,335         $ 51,935               83.40%
        1995               568,882          106,489              166.35%
        1996               424,440           45,589              128.39%
    


                        DETERMINATION OF NET ASSET VALUE

    The Fund calculates net asset value as of the close of normal trading on the
NYSE (currently 4:00 p.m.  Eastern time,  unless weather,  equipment  failure or
other factors  contribute  to an earlier  closing time) each business day. It is
expected  that the New York  Stock  Exchange  will be  closed on  Saturdays  and
Sundays and on New Year's day,  President's  Day,  Good  Friday,  Memorial  Day,
Independence  Day,  Labor  Day,  Thanksgiving  Day and  Christmas  Day.  See the
Prospectus for the further discussion of net asset value.

                          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 seven (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.

    Telephonic exchanges can only involve shares held on deposit at State Street
Bank and Trust Company (the  "Agent");  shares held in  certificate  form by the
shareholder  cannot  be  included.  However,  outstanding  certificates  can  be



                                       8
<PAGE>


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-certificate  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,  or 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  impostors or persons
otherwise  unauthorized to act on behalf of the account.  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 the  shareholder is an entity other
than an individual,  such entity may be required to certify that certain persons
have been duly elected and are now legally holding the titles given and that the
said corporation,  trust, unincorporated association, etc. is duly organized and
existing  and has  the  power  to  take  action  called  for by this  continuing
authorization.

    Exchange   Authorizations   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 or shares of one of the other Lexington
Funds at net asset value as described  above.  Under this procedure,  the dealer
must agree to indemnify LFD and the funds 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
5 days of the exchange  request.  LFD reserves the right to reject any telephone
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 being exchanged. 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 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
services are available by contacting the Shareholder  Services Department of the
Distributor  at   1-800-526-0056. 

   
INDIVIDUAL  RETIREMENT  ACCOUNT  ("IRA"):  Individuals  may make tax  deductible
contributions  to their own Individual  Retirement  Accounts  established  under
Section 408 of the Internal Revenue Code (the "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  of less
($25,000 or less for single  taxpayers) may make a $2,000 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  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 ("IRS") is provided by the Fund.
    

    The minimum initial  investment to establish a  tax-sheltered  plan is $250.
Subsequent  investments  are  subject  to a  minimum  of $50 for  each  account.

   
SELF-EMPLOYED  RETIREMENT PLAN (HR-10):  Self-employed  individuals may make tax
deductible  contributions to a prototype  defined  contribution  pension plan or
profit sharing plan. There are,  however,  a number of special rules which apply
when  self-employed  individuals  participate in such plans.  Currently purchase
payments under a  self-employed  plan are  deductible  only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the  individual's  earned annual income (as
    


                                       9
<PAGE>



   
defined in the Code) and in applying these limitations not more than $150,000 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  IRS on  early  withdrawals  under
corporate,  Keogh or IRA plans.  It is  recommended  by the IRS 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 LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan account
is subject to an annual maintenance fee to $12.00 charged by the Agent.

                                   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 will therefore satisfy the Distribution Requirement.

    In  addition  to  satisfying  the  Distribution  Requirement,   a  regulated
investment  company  must:  (1)  derive at least 90% of its  gross  income  from
dividends,  interest,  certain payments with respect to securities loans,  gains
from the sale or other disposition of stock or securities or foreign  currencies
(to the  extent  such  currency  gains are  directly  related  to the  regulated
investment company's principal business of investing in stock or securities) and
other  income  (including  but not  limited  to gains from  options,  futures or
forward  contracts)  derived  with  respect to its business of investing in such
stock, securities or currencies (the "Income Requirement");  and (2) derive less
than 30% of its gross income  (exclusive of certain gains on designated  hedging
transactions  that are offset by realized  or  unrealized  losses on  offsetting
positions)  from the sale or other  disposition of stock,  securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the  "Short-Short  Gain Test").  However,  foreign currency gains,
including  those  derived from options,  futures and  forwards,  will not in any
event be  characterized  as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures  thereon).  Because of the  Short-Short  Gain Test, the Fund may have to
limit the sale of  appreciated  securities  that it has held for less than three
months.  However,  the  Short-Short  Gain  Test will not  prevent  the Fund from
disposing of investments at a loss,  since the  recognition of a loss before the
expiration of the  three-month  holding period is disregarded  for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the  disposition  of a security held for less than three months will not be
treated  as gross  income  derived  from the sale or other  disposition  of such
security within the meaning of the Short-Short Gain Test.  However,  income that
is attributable to realized market  appreciation will be treated as gross income
from such sale or other disposition of securities for this purpose.
    


                                       10
<PAGE>


    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.

    In  general,  for  purposes  of  determining  whether  capital  gain or loss
recognized  by  the  Fund  on  the  disposition  of an  asset  is  long-term  or
short-term,  the holding period of the asset may be affected if (1) the asset is
used  to  close  a  "short  sale"  (which  includes  for  certain  purposes  the
acquisition of a put option) or is  substantially  identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a  qualified  covered  call  option  (which,  among  other  things,  must not be
deep-in-the-money)  with respect thereto) or (3) the asset is stock and the Fund
grants an  in-the-money  qualified  covered  call option with  respect  thereto.
However,  for purposes of the  Short-Short  Gain Test, the holding period of the
asset  disposed  of may be  reduced  only in the case of clause  (1)  above.  In
addition,  the Fund may be  required to defer the  recognition  of a loss on the
disposition  of an  asset  held as  part  of a  straddle  to the  extent  of any
unrecognized gain on the offsetting position.

    Any  gain  recognized  by the  Fund on the  lapse  of,  or any  gain or loss
recognized  by the Fund from a closing  transaction  with  respect to, an option
written by the Fund will be treated as a short-term  capital  gain or loss.  For
purposes of the  Short-Short  Gain Test, the holding period of an option written
by the  Fund  will  commence  on the date it is  written  and end on the date it
lapses or the date a closing transaction is entered into. Accordingly,  the Fund
may be limited in its ability to write  options which expire within three months
and to enter into  closing  transactions  at a gain within  three  months of the
writing of options.

   
    The Fund may purchase  securities  of certain  foreign  investment  funds or
trusts which  constitute  passive  foreign  investment  companies  ("PFICs") for
federal  income tax  purposes.  If the Fund  invests in a PFIC,  it may elect to
treat the PFIC as a qualified  electing fund (a "QEF"),  in which event the Fund
will each year have  ordinary  income  equal to its pro rata share of the PFIC's
ordinary  earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net  capital  gain for the year,  regardless  of whether the
Fund receives  distributions  of any such ordinary  earning or capital gain from
the  PFIC.  If the Fund  does not  elect to treat  the PFIC as a QEF,  then,  in
general,  (1) any gain recognized by the Fund upon sale or other  disposition of
its  interest in the PFIC or any excess  distribution  received by the Fund from
the PFIC  will be  allocated  ratably  over the  Fund's  holding  period  of its
interest  in the PFIC,  (2) the portion of such gain or excess  distribution  so
allocated to the year in which the gain is recognized or the excess distribution
is  received  shall be  included  in the  Fund's  gross  income for such year as
ordinary  income  (and  the   distribution  of  such  portion  by  the  Fund  to
shareholders  will be taxable as an ordinary income  dividend,  but such portion
will not be subject to tax at the Fund level),  (3) the Fund shall be liable for
tax on the  portions of such gain or excess  distribution  so allocated to prior
years in an amount equal to, for each such prior year, the sum of (i) the amount
of gain or excess  distribution  allocated to such prior year  multiplied by the
highest tax rate  (individual  or  corporate)  in effect for such prior year and
(ii) interest on the amount  determined under clause (i) for the period from the
due date for  filing a return  for such  prior  year until the date for filing a
return for the year in which the gain is recognized  or the excess  distribution
is received at the rates and methods applicable to underpayments of tax for such
period,  and (4) the distribution by the Fund to shareholders of the portions of
such gain or excess  distribution  so  allocated  to prior years (net of the tax
payable by the Fund  thereon)  will again be taxable to the  shareholders  as an
ordinary income dividend.

    Under proposed Treasury  Regulations the Fund can elect to recognize as gain
the excess,  as of the last day of its taxable year, of the fair market value of
each share of PFIC stock over the Fund's adjusted tax basis in that share ("mark
to market gain").  Such mark to market gain will constitute  ordinary income and
will not be subject to the Short-Short  Gain Test, and the Fund's holding period
with  respect  to such PFIC  stock  will  commence  on the first day of the next
taxable year. If the Fund makes such election in the first taxable year it holds
PFIC stock, it will not incur the tax described in the preceding paragraph.
    

    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.


                                       11
<PAGE>

   
    In addition to satisfying the  requirements  described  above, the Fund must
satisfy  an  asset  diversification  test in  order to  qualify  as a  regulated
investment company.  Under this test, at the close of each quarter of the Fund's
taxable  year,  at least 50% of the value of the Fund's  assets must  consist of
cash and cash items, U.S. Government  securities,  securities of other regulated
investment  companies,  and securities of other issuers (as to each of which the
Fund has not  invested  more than 5% of the value of the Fund's  total assets in
securities  of such  issuer  and 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.  Generally, an option (call
or put) with  respect  to a  security  is treated as issued by the issuer of the
security not the issuer of the option.  However, with regard to forward currency
contracts,  there does not appear to be any formal or informal  authority  which
identifies the issuer of such instrument.
    

    If for any taxable year the Fund does not qualify as a regulated  investment
company,  all of its taxable  income  (including  its net capital  gain) will be
subject  to  tax  at  regular   corporate   rates   without  any  deduction  for
distributions to  shareholders,  and such  distributions  will be taxable to the
shareholders  as  ordinary  dividends  to the extent of the Fund's  current  and
accumulated earnings and profits. Such distributions  generally will be eligible
for the  dividends-received  deduction  in the case of  corporate  shareholders.

Excise Tax on Regulated Investment Companies

    A 4% non-deductible  excise tax is imposed on a regulated investment company
that  fails  to  distribute  in each  calendar  year an  amount  equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year  period ended on October 31 of such  calendar  year (or, at the
election of a regulated investment company having a taxable year ending November
30 or  December  31, for its  taxable  year (a "taxable  year  election")).  The
balance of such income must be  distributed  during the next calendar  year. For
the  foregoing  purposes,  a regulated  investment  company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.

    For purposes of the excise tax, a regulated  investment  company shall:  (1)
reduce its capital  gain net income (but not below its net capital  gain) by the
amount of any net ordinary loss for the calendar year;  and (2) exclude  foreign
currency  gains and losses  incurred  after October 31 of any year (or after the
end of its taxable year if it has made a taxable year  election) in  determining
the amount of  ordinary  taxable  income  for the  current  calendar  year (and,
instead,  include such gains and losses in determining  ordinary  taxable income
for the succeeding calendar year).

    The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax.  However,  investors should
note  that  the Fund may in  certain  circumstances  be  required  to  liquidate
portfolio  investments  to make  sufficient  distributions  to avoid  excise tax
liability.

Fund Distributions

    The  Fund  anticipates  distributing  substantially  all of  its  investment
company taxable income for each taxable year. Such distributions will be taxable
to  shareholders  as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.

   
    The Fund may either  retain or distribute  to  shareholders  its net capital
gain for each taxable year.  The Fund  currently  intends to distribute any such
amounts.  Net capital gain t hat is distributed and designated as a capital gain
dividend 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


                                       12
<PAGE>



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.  For  purposes of the  corporate  AMT 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,  a corporate  shareholder  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 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 they 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.


                                       13
<PAGE>


   
    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  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 an "exempt  recipient" (such
as a corporation).
    

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 will be treated as a long-term
capital loss to the extent of the amount of capital gain  dividends  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  applicable  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  applicable  treaty  rate)  on the  gross  income
resulting from the Fund's election to treat any foreign taxes paid by it as paid
by its  shareholders,  but may not be  allowed a  deduction  against  this gross
income  or  a  credit  against  this  U.S.   withholding  tax  for  the  foreign
shareholder's pro rata share of such foreign taxes which it is treated as having
paid. Such a foreign  shareholder  would  generally be exempt from U.S.  federal
income tax on gains  realized  on the sale of shares of the Fund,  capital  gain
dividends and amounts  retained by the Fund that are designated as undistributed
capital gains.
    

     If the income from the Fund is  effectively  connected with a U.S. trade or
business carried on by a foreign  shareholder,  then ordinary income  dividends,
capital gain  dividends,  and any gains  realized upon the sale of shares of the
Fund will be subject to U.S.  federal income tax at the rates applicable to U.S.
citizens or domestic corporations.

   
    In the case of foreign noncorporate  shareholders,  the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on  distributions  that are
otherwise  exempt from  withholding  tax (or taxable at a reduced  treaty  rate)
unless such  shareholders  furnish the Fund with  proper  notification  of their
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,
exempt-interest  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.


                                       14
<PAGE>


                             PERFORMANCE CALCULATION

    For the purpose 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(l+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 Stock Index or the Dow Jones Industrial Average, the
Fund  calculates  its aggregate  total return for the specified  periods of time
assuming the investment of $10,000 in Fund shares and assuming the  reinvestment
of each dividend or other  distribution  at net asset value on the  reinvestment
date.  Percentage  increases are determined by subtracting  the initial value of
the  investment  from the ending  value and by  dividing  the  remainder  by the
beginning value. The Lexington Global Fund, Inc.'s average annual standard total
return for the one and five year and since commencement (3/27/87) ended December
31, 1996 was as follows:

                                                            Average Annual
            Period                                           Total Return
            ------                                          --------------
           1 year ended December 31, 1996 ..................... 16.43%
           5 years ended December 31, 1996 .................... 10.80%
           Since commencement period ended December 31, 1996 ..  9.51%
    

                               SHAREHOLDER REPORTS

    Shareholders will receive reports at least semi-annually  showing the Fund's
holdings and other  information.  In addition,  shareholders will receive annual
financial  statements  audited by KPMG Peat Marwick LLP, the Fund's  independent
auditors.

                                OTHER INFORMATION

   
    As of February 21, 1997, the following persons were known by Fund management
to  have  owned  beneficially,  directly  or  indirectly,  5%  or  more  of  the
outstanding shares of the Lexington Global Fund, Inc.: Piedmont Associates, P.O.
20124, Greensboro, NC 27420, 29%; Center for Creative Leadership, One Leadership
Place,  Greensboro,  NC 27438-6300,  19% and Southeastern  Associates,  P.O. Box
20124, Greensboro, NC 27402, 5%.
    



                                       15
<PAGE>

(LEFT COLUMN)

Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996

Number of                                                              Value
 Shares                   Security                                   (Note 1)
--------------------------------------------------------------------------------
                  COMMON STOCKS: 97.7%
                  Australia: 1.1%
  77,875          QBE Insurance Group, Ltd. ..................... $   410,082
                                                                  -----------
                  Austria: 2.0%
   7,100          Bank Austria AG (Preferred shares) ............     275,104
   2,400          Wienerberger Baustoffindustrie AG .............     464,964
                                                                  -----------
                                                                      740,068
                                                                  -----------
                  Belgium: 1.0%
   1,400          Credit Communal Holding/Dexia2 ................     127,595
   2,700          Credit Communal Holding/Dexia1,2 ..............     246,077
                                                                  -----------
                                                                      373,672
                                                                  -----------
                  Brazil: 0.8%
  36,000          Aracruz Celulose S.A. (ADR) ...................     297,000
                                                                  -----------
                  Canada: 1.4%
  13,100          Jetform Corporation2 ..........................     237,438
  42,600          Noranda Forest, Inc. ..........................     289,045
                                                                  -----------
                                                                      526,483
                                                                  -----------
                  Chile: 2.2%
  36,700          Antofagasta Holdings Plc ......................     213,536
  24,400          Banco Santander (ADR) .........................     366,000
  18,100          Maderas y Sinteticos Sociedad
                    Anonima S.A. (ADR) ..........................     253,400
                                                                  -----------
                                                                      832,936
                                                                  -----------
                  Finland: 1.0%
  21,500          Valmet Corporation ............................     375,048
                                                                  -----------
                  France: 5.7%
   4,880          Alcatel Alsthom ...............................     391,246
   8,500          Elf Aquitaine S.A. (ADR) ......................     384,625
   9,300          Lafarge .......................................     556,883
   3,190          SGS-Thomson Microelectronics N.V.2 ............     225,195
   4,830          Sidel .........................................     331,679
   2,240          Societe Generale de Surveillance
                    Holding S.A. "B" ............................     241,720
                                                                  -----------
                                                                    2,131,348
                                                                  -----------
                  Germany: 4.5%
  13,900          Continental AG ................................     249,840
   4,600          Daimler-Benz AG2 ..............................     316,396
   7,800          Deutsche Bank AG ..............................     363,907
   7,000          Hoechst AG ....................................     330,217
     854          Sto AG (Preferred shares) .....................     401,756
                                                                  -----------
                                                                    1,662,116
                                                                  -----------
                  Greece: 1.4%
   4,200          Ergo Bank S.A. ................................     212,885
  17,900          Hellenic Tellecommunication
                    Organization S.A. ...........................     305,818
                                                                  -----------
                                                                      518,703
                                                                  -----------


(RIGHT COLUMN)


Number of                                                              Value
 Shares                   Security                                   (Note 1)
--------------------------------------------------------------------------------
                  Hong Kong: 4.1%
  66,000          Citic Pacific, Ltd. ........................... $   383,116
 576,000          Guangdong Investments .........................     554,777
 396,000          National Mutual Asia, Ltd. ....................     376,290
 132,000          Peregrine Investment Holdings, Ltd. ...........     226,115
                                                                  -----------
                                                                    1,540,298
                                                                  -----------
                  Hungary: 0.6%
   3,900          Pick Szeged Rt. ...............................     230,888
                                                                  -----------
                  Indonesia: 1.1%
  62,000          PT Semen Cibinong .............................     174,518
 122,000          PT Tambang Timah ..............................     222,053
                                                                  -----------
                                                                      396,571
                                                                  -----------
                  Ireland: 2.8%
  45,800          Allied Irish Banks Plc ........................     306,968
 236,200          Jefferson Smurfit Group .......................     717,590
                                                                  -----------
                                                                    1,024,558
                                                                  -----------
                  Italy: 2.6%
  10,000          Bulgari S.p.A .................................     202,565
  43,800          Istituto Mobiliare Italiano S.p.A. ............     372,754
  85,900          Stet Societa' Finanziara Tlefonica S.p.A. .....     389,417
                                                                  -----------
                                                                      964,736
                                                                  -----------
                  Japan: 8.5%
   5,980          Amway Japan, Ltd. .............................     191,657
  11,000          Canon, Inc. ...................................     242,612
  28,000          Citizen Watch Company, Ltd. ...................     200,224
     300          H.I.S. Company, Ltd. ..........................      14,474
   3,300          Maruco Company, Ltd. ..........................     110,597
  18,000          Matsushita Electric Industrial Company, Ltd. ..     293,099
  13,000          Nitto Denko Corporation .......................     190,402
  18,000          Nomura Securities Company, Ltd. ...............     269,837
     110          NTT Data Communications Systems Corporation ...     321,272
  22,000          Sodick2 .......................................     181,959
   6,100          Sony Corporation ..............................     398,889
   8,000          Tokyo Electron, Ltd. ..........................     244,680
  11,000          Toyota Motor Corporation ......................     315,585
  21,000          Yamato Kogyo Company, Ltd. ....................     193,590
                                                                  -----------
                                                                    3,168,877
                                                                  -----------
                  Malaysia: 4.6%
  42,000          Arab Malaysian Finance Bhd ....................     234,488
   4,000          Berjaya Sports Toto Bhd .......................      19,956
  41,000          Hong Kong Credit Bhd ..........................     258,126
 140,000          Magnum Corporation Bhd ........................     271,629
 161,000          MBF Capital Bhd ...............................     261,373
  49,000          Sime Darby Bhd ................................     193,050
  32,000          Sime Darby Bhd1 ...............................     126,074
  89,000          Tanjong Plc ...................................     355,929
                                                                  -----------
                                                                    1,720,625
                                                                  -----------



                                       16
<PAGE>


(LEFT COLUMN)

Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)

Number of                                                              Value
 Shares                   Security                                   (Note 1)
--------------------------------------------------------------------------------
                  Mexico: 1.0%
  23,600          Tubos De Acero De Mexico S.A. (ADR) ........... 
                                                                  -----------
                  Netherlands: 0.7%
   6,120          Philips Electronics N.V. ......................     247,668
                                                                  -----------
                  New Zealand: 3.2%
 300,900          Brierley Investments, Ltd. ....................     278,501
 129,200          Carter Holt Harvey, Ltd. ......................     293,023
  62,100          Fisher & Paykel Industries, Ltd. ..............     243,511
 127,200          Fletcher Challenge Building ...................     390,940
                                                                  -----------
                                                                    1,205,975
                                                                  -----------
                  Norway: 2.0%
  55,600          Fokus Banken AS2 ..............................     381,384
  21,200          Saga Petroleum AS .............................     355,249
                                                                  -----------
                                                                      736,633
                                                                  -----------
                  Philippines: 2.1%
 635,500          C & P Homes, Inc. .............................     326,207
 414,500          Filinvest Land, Inc.2 .........................     129,236
  38,000          Manila Electric Company "B" ...................     310,646
                                                                  -----------
                                                                      766,089
                                                                  -----------
                  Poland: 1.9%
   7,550          Debica S.A.2 ..................................     168,921
  16,411          Elektrim Towarzystwo Handlowe S.A. ............     149,164
   6,436          Wedel S.A. ....................................     317,242
   1,649          Zaklady Piwowarski w Zywcu S.A. ...............      76,670
                                                                  -----------
                                                                      711,997
                                                                  -----------
                  Portugal: 0.8%
   4,700          Telecel-Communicacaoes Pessoais, S.A.2 ........     299,710
                                                                  -----------
                  Russia: 1.0%
   7,700          LUKoil Holdings of Russia (ADR) ...............     358,666
                                                                  -----------
                  Singapore: 4.1%
  34,000          City Develoments, Ltd. ........................     306,258
  70,300          Clipsal Industries, Ltd. ......................     255,892
  84,000          DBS Land, Ltd. ................................     309,261
  65,000          Inchcape Bhd ..................................     225,833
  69,000          Jardine Strategic Holdings, Ltd. ..............     249,780
  63,000          Want Want Holdings2 ...........................     165,690
                                                                  -----------
                                                                    1,512,714
                                                                  -----------
                  Spain: 2.7%
   1,600          Banco Popular Espanol S.A. ....................     313,665
   5,800          Banco Santander S.A. ..........................     370,540
   8,800          Repsol S.A. ...................................     336,913
                                                                  -----------
                                                                    1,021,118
                                                                  -----------

(RIGHT COLUMN)


Number of                                                              Value
 Shares                   Security                                   (Note 1)
--------------------------------------------------------------------------------
                  Sweden: 1.6%
   3,400          Astra AB ...................................... $   167,808
  25,200          Skandinaviska Enskilda Banken .................     258,347
   6,400          Svenska Handelsbanken .........................     183,713
                                                                  -----------
                                                                      609,868
                                                                  -----------
                  Switzerland: 3.8%
     240          ABB AG ........................................     297,605 
     380          Nestle S.A. ...................................     406,682
      58          Roche Holdings AG .............................     449,885
     470          Winterthur Scheizerische 
                    Versicherungs-Gesellschaft ..................     270,927
                                                                  -----------
                                                                    1,425,099
                                                                  -----------
                  Thailand: 0.4%
  15,000          BEC World Public Company, Ltd.2 ...............     135,725
  13,600          Property Perfect Public Company, Ltd. .........      14,056
                                                                  -----------
                                                                      149,781
                                                                  -----------
                  United Kingdom: 8.1%
 285,300          Aegis Group Plc2 ..............................     297,823
  47,800          British Telecommunications Plc ................     322,702
  33,600          D.F.S. Furniture Company Plc ..................     347,010
 107,400          Grand Metropolitan Plc ........................     843,613
  15,300          RTZ Corporation Plc ...........................     245,203
 141,900          Tomkins Plc ...................................     652,008
  71,100          Vodafone Group Plc ............................     299,925
                                                                  -----------
                                                                    3,008,284
                                                                  -----------
                  United States: 18.9%
   2,700          Abbott Laboratories ...........................     137,025
   2,100          Ace, Ltd. .....................................     126,262
   2,600          AlliedSignal, Inc. ............................     174,200
   1,600          American International Group ..................     173,200
   2,400          Aon Corporation ...............................     149,100
   3,800          Avery-Dennison Corporation ....................     134,425
   4,200          Becton, Dickinson & Company ...................     182,175
   1,900          Boeing Company ................................     202,113
   4,300          Borders Group, Inc.2 ..........................     154,262
   8,300          Calpine Corporation2 ..........................     166,000
   1,300          Citicorp ......................................     133,900
   2,250          Computer Associates International, Inc. .......     111,938
   4,400          Conseco, Inc. .................................     280,500
   1,800          CPC International, Inc. .......................     139,500
   3,000          Crown Cork & Seal Company, Inc. ...............     163,125
   2,600          Diamond Offshore Drilling, Inc.2 ..............     148,200


                                       17
<PAGE>


(LEFT COLUMN)

Lexington Global Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)

Number of                                                              Value
 Shares                   Security                                   (Note 1)
--------------------------------------------------------------------------------
                  United States (continued)
   3,400          Dover Corporation ............................. $   170,850
   3,600          Ecolab, Inc. ..................................     135,450
   3,700          Federal National Mortgage Association .........     137,825
   5,700          Gap, Inc. .....................................     171,712
   3,400          Hasbro, Inc. ..................................     132,175
   4,200          Hershey Foods Corporation .....................     183,750
   3,000          Honeywell, Inc. ...............................     197,250
   3,400          Ingersoll-Rand Company ........................     151,300
   2,800          Johnson & Johnson .............................     139,300
   2,000          Lockheed Martin Corporation ...................     183,000
   1,300          Mobil Corporation .............................     158,925
   4,400          Monsanto Company ..............................     171,050
   3,600          NAC Re Corporation ............................     121,950
   1,900          NationsBank Corporation .......................     185,725
   3,300          Newmont Gold Company ..........................     144,375
   2,800          Nike, Inc. ....................................     167,300
   3,500          Norwest Corporation ...........................     152,250
     800          PacifiCare Health Systems, Inc.2 ..............      68,100
   2,600          Parker Hannifin Corporation ...................     100,750
   1,600          Procter & Gamble Company ......................     172,000
   5,400          Safeway, Inc.2 ................................     230,850
   1,800          Schlumberger, Ltd. ............................     179,775
   5,400          Service Corporation International .............     151,200
   2,300          Union Pacific Corporation .....................     138,288
   5,047          Union Pacific Resources Group, Inc. ...........     147,625
   1,900          United Healthcare Corporation .................      85,500
   3,000          Warner-Lambert Company ........................     225,000
   3,000          Williams Companies, Inc. ......................     112,500
   4,000          WMX Technologies, Inc. ........................     130,500
                                                                  -----------
                                                                    7,022,200
                                                                  -----------
                  Total Common Stocks
                    (cost $32,521,014) .......................... $36,364,461
                                                                  -----------

(RIGHT COLUMN)

Number of
Shares or
Principal                                                              Value
 Amount                   Security                                   (Note 1)
--------------------------------------------------------------------------------
                  Foreign Government Obligation: 1.7%
                  Germany: 1.7%
$1,000,000        German Treasury Bill, due 04/18/97
                    (cost $642,250) ............................. $   643,036
                                                                  -----------
                  Total Investments: 99.4%
                  (cost $33,163,264\'86) (Note 1) ...............  37,007,497
                  Other assets in excess of liabilites: 0.6% ....     215,986
                                                                  -----------
                  Total Net Assets: 100.0%
                  (equivalent to $11.28 per share on
                    3,299,680 shares outstanding) ............... $37,223,483
                                                                  ===========

1Restricted securities (Note 7).
jhdADR - American Depository Receipt.
+Aggregate cost for Federal income tax purposes is $33,259,775.



                  ----------------------------------------

At December 31, 1996,  the  composition of the Fund's net assets by industry was
as follows:

Banking ............................. 11.0%
Capital Equipment ...................  6.5%
Chemicals ...........................  0.5%
Construction  & Housing .............  0.9%  
Consumer  durable ...................  7.5%  
Consumer non-durable ................  8.1%  
Electrical & Electronics ............  4.1% 
Energy  Sources .....................  5.4% 
Financial Services .................. 12.3% 
Foreign  Government  Obligation .....  1.7% 
Health & Personal Care ..............  3.9%
Materials ........................... 14.0% 
Merchandising .......................  2.5% 
Multi-industry ......................  7.5% 
Real Estate .........................  2.0% 
Services ............................  5.5% 
Telecommunications ..................  4.4% 
Trade ...............................  0.4% 
Transportation ......................  0.4% 
Utilities ...........................  0.8% 
Other Assets ........................  0.6%
                                    -------
                                     100.0%

    The Notes to Financial Statements are an integral part of this statement.


                                       18
<PAGE>



Lexington Global Fund, Inc.
Statement of Assets and Liabilities
December 31, 1996


Assets

Investments, at value (cost $33,163,264) (Note 1) ................  $37,007,497
Cash .............................................................      917,219
Receivable for investment securities sold ........................      856,537
Receivable for shares sold .......................................        5,500
Dividends and interest receivable ................................       28,933
Foreign taxes recoverable ........................................       21,816
                                                                    -----------
      Total Assets ...............................................   38,837,502
                                                                    -----------
Liabilities
Due to Lexington Management Corporation (Note 2) .................       30,354
Payable for investment securities purchased ......................    1,195,188
Payable for shares redeemed ......................................        6,827
Distributions payable ............................................      311,800
Accrued expenses .................................................       51,507
Unrealized loss on open forward contracts (Note 6) ...............       18,343
                                                                    -----------
      Total Liabilities ..........................................    1,614,019
                                                                    -----------
Net Assets (equivalent to $11.28 per share on 3,299,680
  shares outstanding) (Note 3) ...................................  $37,223,483
                                                                    -----------
Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
  $.001 par value per share ......................................  $     3,300
Additional paid-in capital (Note 1) ..............................   33,683,879
Distributions in excess of net investment income (Note 1) ........      (14,783)
Accumulated net realized loss on investments and foreign
  currency transactions (Note 1) .................................     (273,232)
Unrealized appreciation of investments and foreign
  currency transactions ..........................................    3,824,319
                                                                    -----------
Total Net Assets .................................................  $37,223,483
                                                                    ===========




    The Notes to Financial Statements are an integral part of this statement.




                                       19
<PAGE>

Lexington Global Fund, Inc.
Statement of Operations
Year ended December 31, 1996

Investment Income
Dividends .........................................  $  716,467
Interest ..........................................     155,261
                                                     ----------
 ..................................................     871,728
Less: Foreign tax expense .........................      81,330
                                                     ----------
      Total Investment income .....................                  $ 790,398
Expenses
Investment advisory fee (Note 2) ..................     393,512
Custodian fees ....................................     112,967
Transfer agent and shareholder servicing
   expense (Note 2) ...............................      63,772
Printing and mailing expenses .....................      50,648
Accounting expenses (Note 2) ......................      36,753
Professional fees .................................      24,715
Registration fees .................................      20,694
Directors' fees and expenses ......................      15,769
Computer processing fees ..........................      10,524
Other expenses ....................................      17,796
                                                     ----------
   Total expenses .................................                    747,150
                                                                     ---------
      Net investment income .......................                     43,248
Realized and Unrealized Gain (Loss)
 on Investments (Note 4)
  Net realized gain on:
    Investments ...................................   4,838,386
    Foreign currency transactions .................   1,197,910
                                                     ----------
      Net realized gain ...........................                  6,036,296
  Net change in unrealized appreciation on:
    Investments ...................................     (86,094)    
    Foreign currency translations of other
      assets and liabilities ......................       1,570
                                                     ----------
    Net change in unrealized appreciation .........                    (84,524)
                                                                     ---------
      Net realized and unrealized gain ............                  5,951,772
                                                                     ---------
Increase in Net Assets Resulting from Operations ..                 $5,995,020
                                                                     =========




    The Notes to Financial Statements are an integral part of this statement.



                                       20
<PAGE>


Lexington Global Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1996 and 1995

                                                         1996          1995
                                                  -----------      -----------
Net investment income ........................... $    43,248      $   280,577
Net realized gain from investments and
  foreign currency transactions .................   6,036,296        3,775,954
Net change in unrealized appreciation of
  investments and foreign currency translations .     (84,524)       1,614,187
                                                  -----------      -----------
Increase in net assets resulting from operations    5,995,020        5,670,718
Distributions to shareholders from net 
  investment income .............................    (457,395)      (1,284,116)
Distributions to shareholders in excess of
  net investment income (Note 1) ................         -           (576,895)
Distributions to shareholders from net realized
  gains from security transactions ..............  (4,924,188)      (2,751,490)
Decrease in net assets from capital 
  share transactions (Note 3) ................... (17,004,160)     (14,836,260)
                                                  -----------      -----------
Net decrease in net assets ...................... (16,390,723)     (13,778,043)


Net Assets:
Beginning of period .............................  53,614,206       67,392,249
                                                  -----------      -----------
End of period (including distributions in
  excess of net investment income of $14,783
  and $534,709, respectively) ................... $37,223,483      $53,614,206
                                                  ===========      ===========

  The Notes to Financial Statements are an integral part of these statements.



                                       21
<PAGE>



Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995

1.  Significant Accounting Policies


    Lexington  Global  Fund,  Inc.  (the  "Fund")  is  an  open-end  diversified
management  investment  company  registered under the Investment  Company Act of
1940, as amended. The Fund's investment objective is to seek long-term growth of
capital primarily through  investment in common stock of companies  domiciled in
foreign  countries  and  the  United  States.  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 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.


    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, 1996,
reclassifications  were made to the Fund's capital accounts to reflect permanent
book/tax  differences  and income and gains  available for  distributions  under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.


                                       22
<PAGE>


Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995 (continued)


    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 may 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.  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, 1996.


    The Fund also reimbursed LMC for certain expenses,  including accounting and
shareholder servicing costs of $74,809 which were incurred by the Fund, but paid
by LMC.


3. Capital Stock

    Transactions in capital stock were as follows:


                                     Year ended                Year ended
                                  December 31, 1996         December 31, 1995
                                 --------------------     --------------------
                                  Shares     Amount        Shares      Amount
                               ---------  ------------  ---------  ------------
Shares sold .................... 639,550  $  7,983,790    357,460  $  4,001,451
Shares issued to shareholders
  on reinvestment of dividends . 452,255     5,069,783    326,079     3,690,927
                               ---------  ------------  ---------  ------------
                               1,091,805    13,053,573    683,539     7,692,378

Shares redeemed ............. (2,526,528)  (30,057,733)(1,984,366)  (22,528,638)
                               ---------  ------------  ---------  ------------
Net decrease ................ (1,434,723) $(17,004,160)(1,300,827) $(14,836,260)
                               ---------  ------------  ---------  ------------


4. Purchases and Sales of Investment Securities

    The cost of purchases  and proceeds  from sales of  securities  for the year
ended December 31, 1996, excluding short-term  securities,  were $46,860,395 and
$68,465,916 respectively.


    At December 31, 1996, the aggregate gross  unrealized  appreciation  for all
securities  in which  there is an  excess  of value  over tax cost  amounted  to
$4,543,992 and aggregate  gross  unrealized  depreciation  for all securities in
which there is an excess of tax cost over value amounted to $816,184.



                                       23
<PAGE>


Lexington Global Fund, Inc.
Notes to Financial Statements
December 31, 1996 and 1995 (continued)


5. Investment and Concentration Risks


     The Fund's  investments in foreign securities may involve risks not present
in domestic  investments.  Since  foreign  securities  may be  denominated  in a
foreign currency and involve settlement and pay interest or dividends in foreign
currencies,  changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund.  Foreign  investments  may also  subject  the Fund to  foreign  government
exchange  restrictions,  expropriation,  taxation or other political,  social or
economic  developments,  all of which could affect the market and/or credit risk
of the investments.

    In  addition  to the risks  described  above,  risks may arise from  forward
foreign  currency   contracts  as  a  result  of  the  potential   inability  of
counterparties to meet the terms of their contracts.


6. Forward Foreign Exchange Contracts

    At December 31, 1996, the Fund was committed to sell foreign  currency under
the following forward foreign exchange contract:


                                                                      Unrealized
                    Settlement    Contract    Contract    Current       Loss at
      Security         Date        Amount       Rate        Rate       12/31/96
      --------      ----------    --------    --------    -------     ----------
New Zealand Dollar . 04/01/97    $731,074      0.6859      0.7031      ($18,343)
                                                                       --------

7. Restricted Securities

    The 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.


                    Acquisition             Average Cost   Market     % of Net
      Security         Date        Shares    Per Share     Value        Assets 
      --------      ----------    --------    --------    -------     ----------
Credit Communal
  Holding/Dexia ...  11/20/96       2,700      $84.51     $246,077       0.66%
Sime Darby Bhd ....  11/26/96      32,000        3.72      126,074       0.34%
                                                          --------       -----
                                                          $372,151       1.00%
                                                          --------       -----

    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.


                                       24
<PAGE>



Lexington Global Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:


                                            Years ended December 31,
                               ------------------------------------------------
                                  1996      1995      1994      1993     1992
                                  ----      ----      ----      ----     ----
Net asset value,
  beginning of period            $11.32    $11.17    $13.51    $11.09   $11.57
                                -------   -------   -------   -------  -------
Income (loss) from investment
  operations:
  Net investment income            0.01      0.09      0.02      0.06     0.06
  Net realized and unrealized
    gain (loss) on investments
    and foreign currency 
    transactions                   1.84      1.10      0.23      3.47    (0.47)
                                -------   -------   -------   -------  -------
  Total income (loss) from
    investment operations          1.85      1.19      0.25      3.53    (0.41)
                                -------   -------   -------   -------  -------
Less distributions:
  Distributions from net
    investment income             (0.16)    (0.29)       -      (0.06)   (0.07)
  Distributions in excess of
    net investment income
    (temporary book-tax
    difference)                      -      (0.13)       -          -       -
  Distributions from net
    realized gains                (1.73)    (0.62)    (2.46)    (1.05)      -
  Distributions in excess of
    net realized gains
    (temporary book-tax
    difference)                      -        -       (0.13)        -       -
                                -------   -------   -------   -------  -------
      Total distributions         (1.89)    (1.04)    (2.59)    (1.11)    (.07)
                                -------   -------   -------   -------  -------
Net asset value, end of period   $11.28    $11.32    $11.17    $13.51   $11.09
                                =======   =======   =======   =======  =======
Total return                     16.43%    10.69%     1.84%    31.88%   (3.55%)
Ratio to average net assets:
  Expenses                        1.90%     1.67%     1.61%     1.49%    1.52%
  Net investment income           0.11%     0.48%     0.14%     0.52%    0.55%
Portfolio turnover rate         128.05%   166.35%    83.40%    84.61%   81.38%
Average commision paid on
  equity security
  transactions*                  $ 0.03       -         -          -        -
Net assets at end of period     $37,223   $53,614   $67,392   $87,313  $50,298

*In accordance with recent SEC disclosure guidelines, average commissions are
 calculated for the current period and not for prior periods.



                                       25
<PAGE>



Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Global Fund, Inc.:


    We have audited the  accompanying  statements of net assets  (including  the
portfolio of investments)  and assets and liabilities of Lexington  Global Fund,
Inc. as of December 31, 1996,  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,  1996 by  correspondence  with  the  custodian.  As to  securities
purchased and sold but not 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 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  Global  Fund,  Inc.  as of  December  31,  1996,  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 10, 1997






                                       26