THE LEXINGTON FUNDS
                                  P.O. Box 1515
   
                             Park 80 West Plaza Two
    
                         Saddle Brook, New Jersey 07663

                                            Shareholder Services--1-800-526-0056
                                                                  1-201-845-7300

                        Institutional/Financial Adviser Services--1-800-367-9160
                                     24 Hour Account Information--1-800-526-0052

PROSPECTUS

   
May 1, 1997
    

      The  following  eleven mutual funds (each a "Fund," and  collectively  the
"Funds") are offered in this Prospectus:

   
    FUND NAME                                                     NASDAQ SYMBOL
    Lexington Convertible Securities Fund                            CNCVX
    Lexington Crosby Small Cap Asia Growth Fund, Inc.                LXCAX
    Lexington GNMA Income Fund, Inc.                                 LEXNX
    Lexington Goldfund, Inc.                                         LEXMX
    Lexington Growth and Income Fund, Inc.                           LEXRX
    Lexington International Fund, Inc.                               LEXIX
    Lexington Money Market Trust                                     LMMXX
    Lexington Ramirez Global Income Fund                             LEBDX
    Lexington SmallCap Value Fund, Inc.                              LESVX
    Lexington Troika Dialog Russia Fund, Inc.                        LETRX
    Lexington Worldwide Emerging Markets Fund, Inc.                  LEXGX
    

      Each Fund's shares offered in this  Prospectus are sold at net asset value
with no sales load, no  commissions  and (except for certain  redemptions of the
Lexington Troika Dialog Russia Fund) no redemption or exchange fees. The minimum
initial investment in each Fund is $1000 ($5,000 for the Lexington Troika Dialog
Russia  Fund),  and  subsequent  investments  must be at least $50.  See "How to
Invest in the Funds."

   
      Each Fund is an  open-end  management  investment  company  and managed by
Lexington  Management  Corporation  (the  "Manager"),  an affiliate of Lexington
Funds  Distributor  Inc. (the  "Distributor").  Each Fund has its own investment
objective  and  policies  designed  to  meet  different  investment  goals.  The
Lexington  Convertible  Securities and Lexington Ramirez Global Income Funds may
invest without limitation in lower rated debt securities commonly referred to as
"junk  bonds."  Investments  of this type are subject to greater risk of loss of
principal and interest. Lexington Troika Dialog Russia Fund involves speculative
investments   and  special  risks,   such  as  political,   economic  and  legal
uncertainties, currency fluctuations, portfolio settlement and custody risks and
risks of loss arising out of Russia's system of share registration. The Fund may
not be  appropriate  for all  investors.  As with all mutual funds,  there is no
guarantee a Fund will achieve its objective.
    
<PAGE>

   
      Please  read this  Prospectus  before  investing  and retain it for future
reference.  A Statement of  Additional  Information  dated May 1,1997,  has been
filed with the  Securities  and Exchange  Commission,  is  incorporated  to this
Prospectus  by  reference  and  is  available  without  charge  by  calling  the
appropriate  telephone  number  above or writing to the  address  listed  above.
Information   about  the  Lexington  Funds  is  available  on  the  Internet  at
http://www.sec.gov or http://www.lexingtonfunds.com

     AN  INVESTMENT IN THE FUNDS IS NEITHER  INSURED NOR  GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE LEXINGTON MONEY MARKET TRUST WILL
BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.

      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.
    

TABLE OF CONTENTS

The Lexington Funds ...............................  3
Fees and Expenses of the Funds ....................  5
Financial Highlights ..............................  8
The Funds' Investment Objectives
  and Policies .................................... 19
Portfolio Securities .............................. 28
Other Investment Practices ........................ 32
Risk Considerations ............................... 34
Management of the Funds ........................... 41
How to Contact the Funds .......................... 52
How to Invest in the Funds ........................ 52
How to Redeem an Investment
  in the Funds .................................... 55
Exchange/Telephone Redemption
   Privileges and Restrictions .................... 58
How Net Asset Value is Determined ................. 59
Dividends and Distributions ....................... 61
Taxation .......................................... 62
General Information ............................... 63
Back-up Withholding ............................... 65
Glossary .......................................... 66


                                        2
<PAGE>

THE LEXINGTON FUNDS

      The Funds'  investment  objectives are summarized  below.  See "The Funds'
Investment Objectives and Policies" beginning on page 19, "Portfolio Securities"
beginning  on page 28,  "Other  Investment  Practices"  beginning on page 19 and
"Risk Considerations" beginning on page 35 for more detailed information.

INTERNATIONAL FUNDS

LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.

      The Lexington Crosby Small Cap Asia Growth Fund's investment  objective is
to seek long-term capital  appreciation  through investment in common stocks and
equivalents   of   companies   domiciled  in  the  Asia  Region  with  a  market
capitalization of less than $1 billion.

   
LEXINGTON INTERNATIONAL FUND, INC.
    

      The  Lexington  International  Fund's  investment  objective  is  to  seek
long-term growth of capital through  investment in common stocks and equivalents
of companies domiciled in foreign countries.

LEXINGTON RAMIREZ GLOBAL INCOME FUND

      The Lexington Ramirez Global Income Fund's investment objective is to seek
high  current  income.  Capital  appreciation  is  a  secondary  objective.  The
Lexington  Ramirez  Global Income Fund invests in a  combination  of foreign and
domestic  high-yield,  lower  rated  debt  securities,  commonly  known as "junk
bonds."

LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.

   
      The Lexington Troika Dialog Russia Fund's investment  objective is to seek
long-term  capital  appreciation  through  investment  primarily  in the  equity
securities of Russian companies.
    

LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.

      The Lexington Worldwide Emerging Markets Fund's investment objective is to
seek  long-term  growth  of  capital  primarily  through  investment  in  equity
securities of companies  domiciled in, or doing  business in emerging  countries
and emerging markets.

                                       3
<PAGE>

DOMESTIC EQUITY FUNDS

LEXINGTON CONVERTIBLE SECURITIES FUND

      The Lexington Convertible  Securities Fund's investment objective is total
return  which it seeks to achieve by  providing  capital  appreciation,  current
income and conservation of the shareholders capital.

LEXINGTON GROWTH AND INCOME FUND, INC.

      The Lexington Growth and Income Fund's principal  investment  objective is
long term appreciation of capital. Income is a secondary objective.

LEXINGTON SMALLCAP VALUE FUND, INC.

      The Lexington SmallCap Value Fund's principal investment objective is long
term capital appreciation. The Lexington SmallCap Value Fund will seek to obtain
its objective through  investment in common stocks and equivalents  primarily of
companies  domiciled in the United States with a market  capitalization  of less
than $1 billion.

PRECIOUS METALS FUNDS

LEXINGTON GOLDFUND, INC.

      The  Lexington  Goldfund's  investment  objective  is  to  attain  capital
appreciation  and such hedge  against  loss of buying  power as may be  obtained
through  investment  in gold  securities  of  companies  engaged  in  mining  or
processing gold throughout the world.

DOMESTIC FIXED-INCOME FUNDS

LEXINGTON GNMA INCOME FUND, INC.

      The Lexington  GNMA Income Fund's  investment  objective is to seek a high
level of current  income,  consistent  with  liquidity  and safety of principal,
through investment primarily in mortgage-backed GNMA ("Ginnie Mae") Certificates
that are  guaranteed  as to the timely  payment of principal and interest by the
United States Government.

MONEY MARKET FUNDS

LEXINGTON MONEY MARKET TRUST

      The Lexington Money Market Trust's investment objective is to seek as high
a level of current income from short-term  investments as is consistent with the
preservation of capital and liquidity. The Lexington Money Market Trust seeks to
maintain a stable net asset value of $1 per share.

                                       4
<PAGE>

FEES AND EXPENSES OF THE FUNDS

SHAREHOLDER TRANSACTION EXPENSES

      An investor  would pay the  following  charges  when  buying or  redeeming
shares of a Fund:
<TABLE>
<CAPTION>

                                 MAXIMUM
         MAXIMUM                  SALES
          SALES               LOAD IMPOSED           DEFERRED SALES         REDEMPTION
      LOAD IMPOSED            ON REINVESTED               LOAD                 FEES+           EXCHANGE FEES
      ON PURCHASES              DIVIDENDS
------------------------------------------------------------------------------------------------------------
     <S>                     <C>                     <C>                   <C>                 <C>
      None                    None                    None                  None                None
------------------------------------------------------------------------------------------------------------
</TABLE>

+    Shareholders effecting redemptions via wire transfer may be required to pay
     fees, including the wire fee and other fees, that will be directly deducted
     from  redemption  proceeds.  LEXINGTON  TROIKA DIALOG RUSSIA FUND ONLY: you
     will pay a redemption fee of 2% for shares you redeem within 365 days after
     you have purchased them. See "How to Redeem an Investment in the Funds."
   

                                       5
<PAGE>

ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS):

   
<TABLE>
<CAPTION>
                                                                                                                       TOTAL FUND
                                                 MANAGEMENT                RULE 12B-1              OTHER                OPERATING
                                                    FEES                      FEES                 FEES                 EXPENSES
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>                      <C>                   <C>                    <C>   
   INTERNATIONAL FUNDS

   Lexington Crosby Small Cap Asia
     Growth Fund                                    1.25                                           1.17                   2.42 *
   Lexington International Fund                     1.00                      0.25                 0.50                   1.75 *
   Lexington Ramirez Global Income Fund             1.00                      0.25                 0.25                   1.50 *
   Lexington Troika Dialog Russia Fund              1.25                      0.25                 1.65                   3.35 *
   Lexington Worldwide Emerging 
     Markets Fund                                   1.00                                           0.76                   1.76
-----------------------------------------------------------------------------------------------------------------------------------
   DOMESTIC EQUITY FUNDS
   Lexington Convertible Securities
      Fund                                          1.00                      0.25                 1.14                   2.39
   Lexington Growth and Income Fund                 0.68                      0.25                 0.20                   1.13
   Lexington SmallCap Value Fund                    1.00                      0.25                 1.23                   2.48 *
-----------------------------------------------------------------------------------------------------------------------------------
   PRECIOUS METALS FUNDS
   Lexington Goldfund                               0.84                      0.25                 0.51                   1.60
-----------------------------------------------------------------------------------------------------------------------------------
   DOMESTIC FIXED-INCOME FUNDS
   Lexington GNMA Income Fund                       0.60                                           0.45                   1.05
-----------------------------------------------------------------------------------------------------------------------------------
   MONEY MARKET FUNDS
   Lexington Money Market Trust                     0.50                                           0.50                   1.00 *
   * Net of reimbursement or waivers
</TABLE>
    

       This  table is  intended  to assist the  investor  in  understanding  the
various  expenses  of each  Fund.  Operating  expenses  are paid out of a Fund's
assets and are factored into the Fund's share price. Each Fund estimates that it
will have the expenses listed  (expressed as a percentage of average net assets)
for the current fiscal year.

                                       6
<PAGE>

EXAMPLE OF EXPENSES FOR THE FUNDS

   
       Assuming,  hypothetically,  that each fund's annual return is 5% and that
its operating  expenses are as set forth on previous  page,  an investor  buying
$1,000 of a fund's  shares would have paid the  following  total  expenses  upon
redeeming such shares:

<TABLE>
<CAPTION>

                                                               1 YEAR            3 YEARS             5 YEARS           10 YEARS
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>              <C>                 <C>                <C>
 Lexington Crosby Small Cap Asia Growth Fund                    24.51             75.45              129.05             275.63
 Lexington International Fund                                   17.78             55.11               94.89             206.24
 Lexington Ramirez Global Income Fund                           15.26             47.41               81.84             179.05
 Lexington Troika Dialog Russia Fund                            54.11            103.01              174.55             363.98
 Lexington Worldwide Emerging Markets Fund                      17.89             55.41               95.41             207.31
 Lexington Convertible Securities Fund                          24.21             74.55              127.55             272.63
 Lexington Growth and Income Fund                               11.52             35.91               62.23             137.46
 Lexington SmallCap Value Fund                                  25.11             77.25              132.05             281.60
 Lexington Goldfund                                             16.27             50.49               87.08             190.01
 Lexington GNMA Income Fund                                     10.71             33.41               57.94             128.26
 Lexington Money Market Trust                                   10.20             31.84               55.25             122.46
</TABLE>

    

       This  example is to show the effect of  expenses.  This  example does not
represent past or future  expenses or returns;  actual  expenses and returns may
vary.

                                       7
<PAGE>

       FINANCIAL HIGHLIGHTS

SELECTED PER SHARE DATA AND RATIOS

       The following  financial  information  for the periods ended December 31,
1991 (or inception of Fund, if later), through December 31, 1996, was audited by
KPMG Peat Marwick LLP,  whose report,  dated  December 31, 1996,  appears in the
1996 Annual Reports of the Funds.
<TABLE>
<CAPTION>
   

                   LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND

                                                                                                         JULY 3, 1995
                                                                                                 (COMMENCEMENT OF OPERATIONS)
                                                                               1996                  TO DECEMBER 31, 1995
                                                                             --------             ---------------------------
<S>                                                                           <C>                         <C>
Net asset value, beginning of period                                           $  9.76                     $ 10.00
Income (loss) from investment operations:
 Net investment income (loss)                                                    (0.05)                       0.02
 Net realized and unrealized gain (loss) on investments                           2.54                       (0.24)
--------------------------------------------------------------------------------------------------------------------------------
Total income (loss) from investment operations                                    2.49                       (0.22)
Less distributions:
 Distributions from net investment income                                           --                       (0.02)
 Distributions in excess of net investment income                                (0.01)                         --
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                                 $ 12.24                      $ 9.76
--------------------------------------------------------------------------------------------------------------------------------
Total return                                                                     25.50%                      (4.39)%*
Ratios to average net asset of:
 Expenses, before reimbursement or waiver                                         2.64%                       3.51%*
--------------------------------------------------------------------------------------------------------------------------------
 Expenses, net of reimbursement or waiver                                         2.42%                       1.75%*
 Net investment loss, before reimbursement or waiver                             (0.86)%                     (1.24)%*
 Net investment loss                                                             (0.64)%                      0.52%*
Portfolio turnover                                                              176.49%                      40.22%*
Average commission paid on equity security transactions**                           --                            --
--------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                                         $23,796                       $8,936
--------------------------------------------------------------------------------------------------------------------------------
    
</TABLE>

 *Annualized

**The average  commission  paid on equity security  transactions  for the period
ended December 31, 1996 is less than $0.05 per share of securities purchased and
sold. In accordance with recent  SECdisclosure  guidelines,  average commissions
were calculated for the current period and not for prior periods.

                                       8
<PAGE>


                          LEXINGTON INTERNATIONAL FUND
<TABLE>
<CAPTION>

                                                                             1996                 1995                   1994
                                                                             ----                 ----                   ----
<S>                                                                         <C>                  <C>                    <C>

Net asset value, beginning of period                                        $10.60                $10.37                $10.00
Income (loss) from investment operations:
    Net investment loss                                                       (.02)                 (.01)                 (.08)
    Net realized and unrealized gain on investments                           1.45                   .61                   .67
--------------------------------------------------------------------------------------------------------------------------------
Total income from investment operations                                       1.43                   .60                   .59
Less distributions:
    Distributions from net investment income                                  (.20)                   --                    --
    Dividends in excess of net investment income
      (temporary book-tax difference)                                           --                  (.35)                   --
    Distributions from net realized capital gains                             (.97)                 (.02)                 (.10)
    Distributions in excess of net realized capital
      gains (temporary book-tax difference)                                     --                   --  (.12                )
--------------------------------------------------------------------------------------------------------------------------------
    Total distributions                                                      (1.17)                 (.37)                 (.22)
Net asset value, end of period                                              $10.86                $10.60                $10.37
Total return                                                                 13.57%                 5.77%                 5.87%
Ratio to average net assets:
    Expenses                                                                  2.45%                 2.46%                 2.39%
    Net investment loss                                                      (0.39%)                (.12%)                (.94%)
Portfolio turnover                                                          113.55%               137.72%               100.10%
Average commission paid on equity security transactions*                     $0.03                    --                    --
--------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                                  $18,891               $17,855               $17,843
</TABLE>

*IN ACCORDANCE WITH RECENT  SECDISCLOSURE  GUIDELINES,  AVERAGE  COMMISSIONS ARE
CALCULATED FOR THE CURRENT PERIOD AND NOT FOR PRIOR PERIODS.

                                       9
<PAGE>

                      LEXINGTON RAMIREZ GLOBAL INCOME FUND
<TABLE>
<CAPTION>

   
                                                                 1996       1995       1994       1993       1992       1991
                                                                 ----       ----       ----       ----       ----       ----
<S>                                                            <C>         <C>       <C>         <C>        <C>        <C>
Net asset value, beginning of period                            $10.75     $ 9.80    $ 10.95     $10.39     $10.35     $10.05
Income (loss) from investment operations:
    Net investment income                                         1.01       0.96       0.46       0.53       0.61       0.67
    Net realized and unrealized gain (loss)
      on investments                                              0.36       0.95      (1.16)      0.58       0.04       0.30
-------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                    1.37       1.91      (0.70)      1.11       0.65       0.97
-------------------------------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                         (0.86)     (0.96)     (0.45)     (0.55)     (0.61)     (0.67)
    Distributions from net realized gains                         (.04)     --         --         --         --         --   
-------------------------------------------------------------------------------------------------------------------------------
    Total distributions                                           (.90)     (0.96)     (0.45)     (0.55)     (0.61)     (0.67)
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                  $11.22     $10.75     $ 9.80     $10.95     $10.39     $10.35 
-------------------------------------------------------------------------------------------------------------------------------
Total return                                                     13.33%     20.10%     (6.52%)    10.90%      6.51%     10.03% 
-------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
-------------------------------------------------------------------------------------------------------------------------------
    Expenses, before reimbursement or waiver                      2.33%      3.07%      1.80%      1.44%      1.54%      1.65% 
-------------------------------------------------------------------------------------------------------------------------------
    Expenses, net of reimbursement or waiver                      1.50%      2.75%      1.50%      1.44%      1.50%      1.12% 
-------------------------------------------------------------------------------------------------------------------------------
    Net investment income, before
      reimbursement or waiver                                     9.49%      9.48%      4.18%      4.83%      5.88%      6.11% 
-------------------------------------------------------------------------------------------------------------------------------
    Net investment income                                        10.32%      9.80%      4.48%      4.83%      5.92%      6.64% 
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                               71.83%    164.72%     10.20%     31.06%     31.24%     29.45% 
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                        $29,110    $12,255     $10,351    $14,576    $13,085   $12,252
-------------------------------------------------------------------------------------------------------------------------------
*Annualized
    

</TABLE>


<TABLE>
<CAPTION>

                     LEXINGTON RAMIREZ GLOBAL INCOME FUND                                           
                                                                                                                     
                                                                    1990       1989       1988       1987 
                                                                    ----       ----       ----       ---- 
<S>                                                                <C>        <C>        <C>        <C>   
Net asset value, beginning of period                               $10.12     $10.03     $ 9.67     $10.55
Income (loss) from investment operations:                                                                 
   Net investment income                                            0.73       0.63       0.63       0.78 
   Net realized and unrealized gain (loss)                                                                
     on investments                                                (0.09)      0.09       0.36      (0.86)
----------------------------------------------------------------------------------------------------------  
Total income (loss)                                                                                       
   from investment operations                                       0.64       0.72       0.99     (0.08) 
----------------------------------------------------------------------------------------------------------  
Less distributions:
Dividends from net investment income                              (0.71)     (0.63)     (0.63)     (0.80) 
   Distributions from net realized gains                           --         --         --         --     
----------------------------------------------------------------------------------------------------------
   Total distributions                                             (0.71)     (0.63)     (0.63)     (0.80) 
----------------------------------------------------------------------------------------------------------
Net asset value, end of period                                    $10.05     $10.12     $10.03     $ 9.67
----------------------------------------------------------------------------------------------------------
Total return                                                        6.62%      7.40%     10.54%    (0.21%) 
----------------------------------------------------------------------------------------------------------
 Ratio to average net assets:                                
----------------------------------------------------------------------------------------------------------
   Expenses, before reimbursement or waiver                         1.61%      1.72%      1.50%      1.97%   
----------------------------------------------------------------------------------------------------------
   Expenses, net of reimbursement or waiver                         1.08%      1.20%      1.33%     --       
----------------------------------------------------------------------------------------------------------
   Net investment income, before                                                                             
     reimbursement or waiver                                        6.67%      5.70%      6.16%      5.98%   
----------------------------------------------------------------------------------------------------------     
   Net investment income                                            7.20%      6.22%      6.33%      7.95%   
----------------------------------------------------------------------------------------------------------
Portfolio turnover                                                 44.50%     46.60%     67.11%     66.77%   
Net assets, end of period (000's omitted)                         $10,707    $12,739    $13,139    $11,049  
----------------------------------------------------------------------------------------------------------  
Annualized                                                                                                  
</TABLE>

                                       10
<PAGE>

<TABLE>
<CAPTION>

                       LEXINGTON TROIKA DIALOG RUSSIA FUND

                                                                         JULY 3, 1996 TO
                                                                       DECEMBER 31, 1996** 
                                                                       -----------------
<S>                                                                        <C>

Net asset value, beginning of period                                        $12.12
-------------------------------------------------------------------------------------
    Income (loss) from investment operations:
    Net investment income (loss)                                             (0.05)
    Net realized and unrealized gain (loss) on investments                   (0.51)
-------------------------------------------------------------------------------------
Total income (loss) from investment operations                               (0.56)
-------------------------------------------------------------------------------------
    Less distributions:        
    Distributions from net investment income
    Distributions from net realized capital gains                            (0.32)
-------------------------------------------------------------------------------------
    Total distributions                                                      (0.32)
-------------------------------------------------------------------------------------
Net asset value, end of period                                              $11.24
-------------------------------------------------------------------------------------
Total return                                                                 (9.01)%*
-------------------------------------------------------------------------------------
Ratios to average net asset of
            EXPENSES, BEFORE REIMBURSEMENT OR WAIVERS                         5.07%*
------------------------------------------------------------------------------------
    Expenses, net of reimbursement or waivers                                 2.65%*
------------------------------------------------------------------------------------
    Net investment loss, before reimbursement or waivers                     (3.69)%*
------------------------------------------------------------------------------------
    Net investment loss                                                      (1.27)%*
------------------------------------------------------------------------------------
Portfolio turnover                                                          115.55%*
------------------------------------------------------------------------------------
Average commission paid on equity security transactions                         --***
------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                                  $13,846
------------------------------------------------------------------------------------
  *Annualized

 **The Fund's commencement of operations was June 3, 1996 with the investment of
its initial capital.  The Fund's registration  statement with the Securities and
Exchange Commission became effective on July 3, 1996. Financial results prior to
the  effective  date of the Fund's  registration  statement are not presented in
this  Financial  Highlights  Table. 

***The average  commission paid on equity security  transactions  for the period
ended  December 31, 1996 was less than $0.005 per share of securities  purchased
and sold.
</TABLE>

                                       11
<PAGE>

<TABLE>
<CAPTION>

                                                                     LEXINGTON WORLDWIDE EMERGING MARKETS FUND

                                                      1996       1995       1994       1993       1992       1991       1990  
                                                      ----       ----       ----       ----       ----       ----       ----  
<S>                                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>    

Net asset value, beginning of period                 $10.70     $11.47     $13.96     $ 8.66     $ 9.03     $ 8.56     $10.79 
------------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
------------------------------------------------------------------------------------------------------------------------------
 Net investment income                                --          0.08      (0.01)      0.05       0.07       0.09       0.25
------------------------------------------------------------------------------------------------------------------------------
 Net realized and unrealized gain (loss)
  on investments                                       0.79      (0.76)     (1.92)      5.43       0.27       1.97      (1.81)
-----------------------------------------------------------------------------------------------------------------------------
Total income (loss)
 from investment operations                            0.79      (0.68)     (1.93)      5.48       0.34       2.06      (1.56)
-----------------------------------------------------------------------------------------------------------------------------
Less distributions:
 Dividends from net investment income                 --         (0.08)     --         (0.01)     (0.11)     (0.11)     (0.24)
-----------------------------------------------------------------------------------------------------------------------------
 Distributions in excess of net investment
  income (temporary book-tax difference)              --         (0.01)     --         --         --         --         --  
-----------------------------------------------------------------------------------------------------------------------------
 Distributions from capital gains                     --         --         (0.47)     (0.17)     (0.60)     (1.48)     (0.43)
-----------------------------------------------------------------------------------------------------------------------------
 Distributions in excess of capital gains
  (temporary book-tax difference)                     --        --          (0.09)    --         --         --         --    
-----------------------------------------------------------------------------------------------------------------------------
Total distributions                                   --         (0.09)     (0.56)     (0.18)     (0.71)     (1.59)     (0.67)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                       $11.49     $10.70     $11.47     $13.96     $ 8.66     $ 9.03     $ 8.56 
-----------------------------------------------------------------------------------------------------------------------------
Total return                                           7.38%     (5.93%)   (13.81%)    63.37%      3.77%     24.19%    (14.44%)
-----------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
 Expenses                                              1.76%      1.88%      1.65%      1.64%      1.89%      1.97%      1.42% 
-------------------------------------------------------------------------------------------------------------------------------
 Net investment income (loss)                         (0.01)%     0.70%     (0.06)%     0.21%      0.75%      0.79%      2.52%
------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                    86.26%     92.85%     75.56%     38.35%     91.27%    112.03%     52.48%
-----------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security
  transactions*                                       --         --         --         --         --         --         --     
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)           $254,673   $265,544   $288,581   $230,473    $30,021    $25,060    $22,192 
-------------------------------------------------------------------------------------------------------------------------------

</TABLE>

<TABLE>
<CAPTION>

                                                       1989       1988       1987       1986
                                                       ----       ----       ----       ----
<S>                                                   <C>        <C>        <C>        <C>  

Net asset value, beginning of period                  $ 8.72      $8.01     $11.80     $ 9.96
---------------------------------------------------------------------------------------------
Income (loss) from investment operations:
---------------------------------------------------------------------------------------------
 Net investment income                                  0.13       0.12       0.14       0.16
---------------------------------------------------------------------------------------------
 Net realized and unrealized gain (loss)
  on investments                                        2.32       0.71       0.12       1.88
---------------------------------------------------------------------------------------------
Total income (loss)
 from investment operations                             2.45       0.83       0.26       2.04
---------------------------------------------------------------------------------------------
Less distributions:
 Dividends from net investment income                  (0.21)     (0.12)     (0.38)     (0.20)
---------------------------------------------------------------------------------------------
 Distributions in excess of net investment
  income (temporary book-tax difference)               --         --         --         --
---------------------------------------------------------------------------------------------
 Distributions from capital gains                      (0.17)     --         (3.67)     --
---------------------------------------------------------------------------------------------
 Distributions in excess of capital gains
  (temporary book-tax difference)                     --         --         --         --
---------------------------------------------------------------------------------------------
Total distributions                                    (0.38)     (0.12)     (4.05)     (0.20)
---------------------------------------------------------------------------------------------
Net asset value, end of period                        $10.79     $ 8.72     $ 8.01     $11.80
---------------------------------------------------------------------------------------------
Total return                                           28.11%     10.36%      0.35%     20.73%
---------------------------------------------------------------------------------------------
Ratio to average net assets:
 Expenses                                               1.36%      1.33%      1.34%      1.32%
----------------------------------------------------------------------------------------------
 Net investment income (loss)                           1.18%      1.27%      1.26%      1.24%
---------------------------------------------------------------------------------------------
Portfolio turnover                                     59.07%     47.63%     83.21%     54.20%
---------------------------------------------------------------------------------------------
Average commission paid on equity security
  transactions*                                        --         --         --         --
----------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)             $29,126    $26,389    $25,579    $29,862
----------------------------------------------------------------------------------------------
</TABLE>

*The average commission paid on equity security  transactions for the year ended
December  31, 1996 is less than  $0.005 per share of  securities  purchased  and
sold. In accordance with recent  SECdisclosure  guidelines,  average commissions
are calculated for the current period and not for prior periods.

                                       12
<PAGE>

<TABLE>
<CAPTION>
                     LEXINGTON CONVERTIBLE SECURITIES FUND

                                                                            1996       1995       1994       1993       1992 
                                                                            ----       ----       ----       ----       ---- 
<S>                                                                        <C>        <C>        <C>        <C>        <C>   
Net asset value, beginning of period                                       $13.66     $11.84     $14.10     $13.80     $12.41
-----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
    Net investment income (loss)                                             0.11       0.15       0.08        --        0.18
    Net realized and unrealized gain (loss)
              on investments                                                 0.55       2.04       0.10       0.89       1.39
-----------------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations                                          0.66       2.19       0.18       0.89       1.57
-----------------------------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                                    (0.11)     (0.15)     (0.07)       --       (0.18)
    Dividends from net realized capital gains                               (0.55)     (0.22)     (2.32)     (0.59)        --
    Distribution in excess of capital gains
      (temporary book-tax difference)                                         --         --       (0.05)       --          --
-----------------------------------------------------------------------------------------------------------------------------
Total distributions                                                         (0.66)     (0.37)     (2.44)     (0.59)     (0.18)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                             $13.66     $13.66     $11.84     $14.10     $13.80   
------------------------------------------------------------------------------------------------------------------------------
Total return                                                                 4.89%     18.63%      1.30%      6.53%     12.82% 
-------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:

    Expenses, before reimbursement of waiver                                 2.39%      2.52%      2.81%      2.76%      3.02% 
-------------------------------------------------------------------------------------------------------------------------------
   Expenses, net of reimbursement or waiver                                 2.39%      2.52%      2.75%      2.76%      2.32%  
-------------------------------------------------------------------------------------------------------------------------------
    Net investment income (loss), before
      reimbursement or waiver                                                0.77%      1.24%      0.50%     (0.04%)     0.70% 
-------------------------------------------------------------------------------------------------------------------------------
    Net investment income                                                    0.77%      1.24%      0.56%     (0.04%)     1.40%  
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                                          18.45%     11.23%     38.14%      6.53%     12.58% 
-------------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions*                     0.04      --         --         --         --       
-------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                                   $11,208     $11,641     $8,117     $8,319    $7,180
-------------------------------------------------------------------------------------------------------------------------------


                                                                             1991       1990       1989       1988
                                                                             ----       ----       ----       ----
<S>                                                                         <C>        <C>        <C>        <C>  
Net asset value, beginning of period                                        $ 8.74     $ 9.55     $ 9.51     $ 9.35
-------------------------------------------------------------------------------------------------------------------
Income from investment operations:
    Net investment income (loss)                                              0.22       0.50       0.64       0.42
    Net realized and unrealized gain (loss)
              on investments                                                  3.68      (0.81)      0.04       0.19
-------------------------------------------------------------------------------------------------------------------
Total income (loss) from operations                                           3.90      (0.31)      0.68       0.61
-------------------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                                     (0.23)     (0.50)     (0.64)     (0.42)
    Dividends from net realized capital gains                                   --         --        --       (0.03)
    Distribution in excess of capital gains
      (temporary book-tax difference)                                           --         --        --         --
-------------------------------------------------------------------------------------------------------------------
Total distributions                                                          (0.23)     (0.50)     (0.64)     (0.45)
-------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                              $12.41      $8.74      $9.55      $9.51
-------------------------------------------------------------------------------------------------------------------
Total return                                                                 45.06%     (3.39%)     7.16%      6.96%
--------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:

    Expenses, before reimbursement of waiver                                  3.42%      4.51%      2.64%      4.12%
--------------------------------------------------------------------------------------------------------------------
   Expenses, net of reimbursement or waiver                                   2.50%      2.68%      2.13%      2.00%
--------------------------------------------------------------------------------------------------------------------
    Net investment income (loss), before
      reimbursement or waiver                                                 1.14%      3.09%      5.74%      3.43%
--------------------------------------------------------------------------------------------------------------------
    Net investment income                                                     2.06%      4.92%      6.25%      5.55%
--------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                                           29.46%     25.58%     34.23%     39.70%
--------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions*                     --         --         --         --
--------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                                    $6,599     $4,744     $5,986     $6,930
--------------------------------------------------------------------------------------------------------------------

*In accordance with recent SEC disclosure  guidelines, the average commission is
calculated for the current period, but not for prior periods.


                                       13
<PAGE>

                        LEXINGTON GROWTH AND INCOME FUND

                                                                 1996       1995       1994       1993       1992       1991 
                                                                 ----       ----       ----       ----       ----       ---- 
<S>                                                             <C>        <C>        <C>        <C>        <C>        <C>       
Net asset value, beginning of period                            $15.71     $14.36     $16.16     $16.25     $16.39     $14.24 
Income from investment operations:
    Net investment income                                         0.07       0.22       0.17       0.21       0.23       0.35 
    Net realized and unrealized gain (loss)
      on investments                                              4.08       3.00      (0.68)      1.94       1.79       3.17 
-----------------------------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                    4.15       3.22      (0.51)      2.15       2.02       3.52 
-----------------------------------------------------------------------------------------------------------------------------
Less distributions:

    Dividends from net investment income                         (0.13)     (0.22)     (0.16)     (0.21)     (0.32)     (0.35)
    Distributions from net realized capital gains                (1.17)     (1.65)     (0.91)     (2.03)     (1.84)     (1.02)
    Distributions in excess of net realized
      gains (temporary book-tax difference)                         --       --        (0.22)       --        --          --   
-----------------------------------------------------------------------------------------------------------------------------
Total distributions                                              (1.30)     (1.87)     (1.29)     (2.24)     (2.16)     (1.37)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                  $18.56     $15.71     $14.36     $16.16     $16.25     $16.39
-----------------------------------------------------------------------------------------------------------------------------
Total return                                                     26.46%     22.57%     (3.11%)    13.22%     12.36%     24.87%
-----------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
-----------------------------------------------------------------------------------------------------------------------------
   Expenses                                                      1.13%      1.09%      1.15%      1.29%      1.20%      1.13%  
-----------------------------------------------------------------------------------------------------------------------------
 Net investment income                                            0.43%      1.38%      1.06%      1.20%      2.57%      2.19%   
-----------------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                              101.12%    159.94%     63.04%     93.90%     88.13%     80.33% 
-----------------------------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions*        $0.07      --         --         --         --         --       
-----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                     $200,309   $138,901    $124,289   $134,508   $126,241  $121,263
-----------------------------------------------------------------------------------------------------------------------------


                                                                   1990       1989       1988       1987
                                                                   ----       ----       ----       ----
<S>                                                               <C>        <C>        <C>        <C>
Net asset value, beginning of period                              $16.19     $14.39     $13.58     $19.16
Income from investment operations:
    Net investment income                                           0.60       0.50       0.46       0.43
    Net realized and unrealized gain (loss)
      on investments                                               (2.25)      3.44       0.80       0.02
---------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                     (1.65)      3.94       1.26       0.45
---------------------------------------------------------------------------------------------------------
Less distributions:

    Dividends from net investment income                           (0.30)     (0.60)     (0.45)     (0.51)
    Distributions from net realized capital gains                     --      (1.54)       --       (5.52)
    Distributions in excess of net realized
      gains (temporary book-tax difference)                          --         --        --         --
---------------------------------------------------------------------------------------------------------
Total distributions                                                (0.30)     (2.14)     (0.45)     (6.03)
---------------------------------------------------------------------------------------------------------
Net asset value, end of period                                    $14.24     $16.19     $14.39     $13.58
---------------------------------------------------------------------------------------------------------
Total return                                                      (10.27%)    27.56%      9.38%      0.15%
---------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
---------------------------------------------------------------------------------------------------------
    Expenses                                                        1.04%      1.02%      1.10%      0.96%
---------------------------------------------------------------------------------------------------------
 Net investment income                                              3.91%      2.82%      3.20%      2.37%
---------------------------------------------------------------------------------------------------------
Portfolio turnover                                                 67.39%     64.00%     81.10%     95.28%
---------------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions*          --         --         --         --
---------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                       $104,664   $128,329   $111,117   $112,780
---------------------------------------------------------------------------------------------------------

*In accordance with recent SECdisclosure  guidelines,  the average commission is
calculated for the current period, but not for prior periods.

                                       14
<PAGE>

                          LEXINGTON SMALLCAP VALUE FUND
   
                                                                               JANUARY 2, 1996
                                                                        (COMMENCEMENT OF OPERATIONS)
                                                                              DECEMBER 31, 1996
                                                                         ---------------------------
Net asset value, beginning of period                                                 $ 10.00
Income (loss) from investment operations:
    Net investment income (loss)                                                       (0.18)
    Net realized and unrealized gain (loss) on investments                              1.94
----------------------------------------------------------------------------------------------------
Total income (loss) from investment operations                                          1.76
----------------------------------------------------------------------------------------------------
Less distributions:
    Distributions from net realized capital gains                                      (0.03)
----------------------------------------------------------------------------------------------------
Net asset value, end of period                                                        $11.73
----------------------------------------------------------------------------------------------------
Total return                                                                          17.50%
----------------------------------------------------------------------------------------------------
Ratios to average net asset of:
----------------------------------------------------------------------------------------------------
    Expenses, before reimbursement or waiver                                           3.04%
----------------------------------------------------------------------------------------------------
    Expenses, net of reimbursement or waiver                                           2.48%
----------------------------------------------------------------------------------------------------
    Net investment loss, before reimbursement or waiver                               (2.34)%
----------------------------------------------------------------------------------------------------
    Net investment loss                                                               (1.78)%
----------------------------------------------------------------------------------------------------
Portfolio turnover                                                                    60.92%
----------------------------------------------------------------------------------------------------
Average commissions paid on equity security transactions                               0.03
----------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                                            $8,061
----------------------------------------------------------------------------------------------------
*Annualized
    

                                       15
<PAGE>

                               LEXINGTON GOLDFUND

   
                                                                 1996       1995       1994       1993       1992       1991  
                                                                 ----       ----       ----       ----       ----       ----  
<S>                                                              <C>       <C>        <C>        <C>        <C>        <C>     
Net asset value, beginning of period                             $6.24     $ 6.37     $ 6.90     $ 3.70     $ 4.68     $ 5.03
-----------------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
    Net investment income                                         0.02        --        0.03       0.01       0.02       0.04
    Net realized and unrealized gain (loss)
      on investments                                              0.50      (0.12)     (0.53)      3.21      (0.98)     (0.35)
------------------------------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                    0.52      (0.12)     (0.50)      3.22      (0.96)     (0.31) 
------------------------------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                         (0.79)     (0.01)     (0.03)     (0.02)     (0.02)     (0.04)
    Distributions from net realized capital gains                   --       --         --       --           --          --  
------------------------------------------------------------------------------------------------------------------------------
Total distributions                                              (0.79)     (0.01)     (0.03)     (0.02)     (0.02)     (0.04)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                  $ 5.97     $ 6.24     $ 6.37     $ 6.90     $ 3.70     $ 4.68 
------------------------------------------------------------------------------------------------------------------------------
Total return                                                      7.84%     (1.89%)    (7.28%)    89.96%    (20.51%)    (6.14%)
-------------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
-------------------------------------------------------------------------------------------------------------------------------
    Expenses                                                      1.60%      1.70%      1.54%      1.63%      1.69%      1.43% 
-------------------------------------------------------------------------------------------------------------------------------
    Net investment income (loss)                                 (0.32)%     0.07%      0.50%      0.25%      0.58%      0.81% 
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                               31.04%     40.41%     23.77%     28.41%     13.18%     22.14% 
-------------------------------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions*           .02      --         --         --         --         --     
------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                       $109,287   $135,779    $159,435   $159,479    $71,856   $96,3164
--------------------------------------------------------------------------------------------------------------------------------
    


                                                                   1990       1989       1988       1987
                                                                   ----       ----       ----       ----
<S>                                                               <C>        <C>        <C>        <C>   
Net asset value, beginning of period                              $ 6.39     $ 5.21     $ 6.20     $ 4.49
----------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
    Net investment income                                           0.04       0.05       0.04       0.01
    Net realized and unrealized gain (loss)
      on investments                                               (1.36)      1.18      (0.98)      2.07
----------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                     (1.32)      1.23      (0.94)      2.08
----------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                           (0.04)     (0.05)     (0.05)     (0.05)
    Distributions from net realized capital gains                    --         --        --        (0.32)
----------------------------------------------------------------------------------------------------------
Total distributions                                                (0.04)     (0.05)     (0.05)     (0.37)
----------------------------------------------------------------------------------------------------------
Net asset value, end of period                                    $ 5.03     $ 6.39     $ 5.21     $ 6.20
----------------------------------------------------------------------------------------------------------
Total return                                                      (20.35%)    23.62%    (15.18%)    46.56%
----------------------------------------------------------------------------------------------------------
Ratios to average net assets:
----------------------------------------------------------------------------------------------------------
    Expenses                                                        1.36%      1.42%      1.61%      1.29%
----------------------------------------------------------------------------------------------------------
    Net investment income (loss)                                    0.69%      1.14%      0.78%      0.57%
----------------------------------------------------------------------------------------------------------
Portfolio turnover                                                 12.43%     15.98%     20.45%     13.78%
----------------------------------------------------------------------------------------------------------
Average commission paid on equity security transactions*           --         --         --         --
----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                        $106,074   $154,484    $92,782   $104,842
----------------------------------------------------------------------------------------------------------
*In accordance with recent SEC disclosure  guidelines, the average commission is
calculated for the current period, but not for prior periods.

                                       16
<PAGE>


                           LEXINGTON GNMA INCOME FUND

                                                                 1996       1995       1994       1993       1992       1991  
                                                                 ----       ----       ----       ----       ----       ----  
<S>                                                              <C>        <C>        <C>        <C>        <C>        <C>    
Net asset value, beginning of period                             $8.19      $7.60      $8.32      $8.26      $8.45      $7.90 
------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
    Net investment income                                         0.53       0.58       0.55       0.59       0.61       0.64 
    Net realized and unrealized gain (loss)
      on investments                                             (0.08)      0.59      (0.72)      0.06      (0.19)      0.55
-----------------------------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                    0.45       1.17      (0.17)      0.65       0.42       1.19 
Less distributions:
    Dividends from net investment income                         (0.52)     (0.58)    (0.55)      (0.59)     (0.61)     (0.64)
------------------------------------------------------------------------------------------------------------------------------
    Distributions from net realized capital gains                   --       --          --      --           --          --  
------------------------------------------------------------------------------------------------------------------------------
    Total distributions                                          (0.52)     (0.58)     (0.55)     (0.59)     (0.61)     (0.64)
------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                   $8.12      $8.19      $7.60      $8.32      $8.26      $8.45 
------------------------------------------------------------------------------------------------------------------------------
Total return                                                      5.71%     15.91%     (2.07%)     8.06%      5.19%     15.75%  
------------------------------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
------------------------------------------------------------------------------------------------------------------------------
    Expenses                                                      1.05%      1.01%      0.98%      1.02%      1.01%      1.02%  
------------------------------------------------------------------------------------------------------------------------------
    Net investment income                                         6.56%      7.10%      6.90%      6.96%      7.31%      7.97% 
-------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover                                              128.76%     30.69%     37.15%     52.34%    180.11%    138.71% 
--------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                       $133,777   $130,681    $132,108   $149,961   $132,048  $122,191
--------------------------------------------------------------------------------------------------------------------------------


   
                                                                 1990       1989       1988       1987
                                                                 ----       ----       ----       ----
<S>                                                              <C>        <C>        <C>        <C>  
Net asset value, beginning of period                             $7.88      $7.45      $7.58      $8.22
--------------------------------------------------------------------------------------------------------
Income from investment operations:
    Net investment income                                         0.65       0.69       0.64       0.71
    Net realized and unrealized gain (loss)
      on investments                                              0.03       0.42      (0.13)     (0.59)
--------------------------------------------------------------------------------------------------------
Total income (loss)
    from investment operations                                    0.68       1.11       0.51       0.12
Less distributions:
    Dividends from net investment income                         (0.66)     (0.68)    (0.61)      (0.76)
--------------------------------------------------------------------------------------------------------
    Distributions from net realized capital gains                 --         --       (0.03)      --
--------------------------------------------------------------------------------------------------------
    Total distributions                                          (0.66)     (0.68)     (0.64)     (0.76)
--------------------------------------------------------------------------------------------------------
Net asset value, end of period                                   $7.90      $7.88      $7.45      $7.58
--------------------------------------------------------------------------------------------------------
Total return                                                      9.23%     15.60%      6.90%      1.62%
--------------------------------------------------------------------------------------------------------
Ratios to average net asset of:
--------------------------------------------------------------------------------------------------------
    Expenses                                                      1.04%      1.03%      1.07%      0.98%
--------------------------------------------------------------------------------------------------------
    Net investment income                                         8.43%      8.88%      8.31%      8.49%
--------------------------------------------------------------------------------------------------------
Portfolio turnover                                              112.55%    102.66%    233.48%     89.40%
--------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                        $98,011    $96,465    $97,185   $109,793
--------------------------------------------------------------------------------------------------------
    

                                       17
<PAGE>

                          LEXINGTON MONEY MARKET TRUST

                                                                 1996       1995       1994       1993       1992       1991    
                                                                 ----       ----       ----       ----       ----       ----    
<S>                                                             <C>        <C>        <C>        <C>        <C>        <C>       
Net asset value, beginning of period                            $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00   
--------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
    Net investment income                                         0.0441     0.0495     0.0330     0.0230     0.0299     0.0532 
--------------------------------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                         (0.0441)   (0.0495)   (0.0330)   (0.0230)   (0.0299)   (0.0532)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period                                  $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00     $ 1.00   
--------------------------------------------------------------------------------------------------------------------------------
Total return                                                      4.50%      5.06%      3.35%      2.32%      3.03%      5.45%  
--------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
--------------------------------------------------------------------------------------------------------------------------------
    Expenses, before reimbursement                                1.04%      1.08%      1.02%      1.00%      1.03%      1.02%  
--------------------------------------------------------------------------------------------------------------------------------
    Expenses, net of reimbursement                                1.00%      1.00%      1.00%      1.00%      1.00%      1.00%  
--------------------------------------------------------------------------------------------------------------------------------
    Net investment income, before
      reimbursement                                               4.37%      4.87%      3.30%      2.30%      2.99%      5.35%  
--------------------------------------------------------------------------------------------------------------------------------
    Net investment income, net of
      reimbursement                                               4.41%      4.95%      3.32%      2.30%      3.02%      5.37%  
--------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                        $97,526    $88,786    $111,805    $94,718   $111,453  $143,137 
--------------------------------------------------------------------------------------------------------------------------------


                                                                   1990       1989       1988       1987
                                                                   ----       ----       ----       ----
<S>                                                               <C>        <C>        <C>        <C>   
Net asset value, beginning of period                              $ 1.00     $ 1.00     $ 1.00     $ 1.00
----------------------------------------------------------------------------------------------------------
Income from investment operations:
    Net investment income                                           0.0732     0.0828     0.0678     0.0610
-----------------------------------------------------------------------------------------------------------
Less distributions:
    Dividends from net investment income                           (0.0732)   (0.0828)   (0.0678)   (0.0610)
----------------------------------------------------------------------------------------------------------
Net asset value, end of period                                    $ 1.00     $ 1.00     $ 1.00     $ 1.00
-----------------------------------------------------------------------------------------------------------
Total return                                                        7.56%      8.60%      7.00%      6.29%
-----------------------------------------------------------------------------------------------------------
Ratio to average net assets:
-----------------------------------------------------------------------------------------------------------
    Expenses, before reimbursement                                  0.97%      0.99%      0.97%      0.80%
-----------------------------------------------------------------------------------------------------------
    Expenses, net of reimbursement                                  0.97%      0.99%      0.97%      0.80%
-----------------------------------------------------------------------------------------------------------
    Net investment income, before
      reimbursement                                                 7.32%      8.29%      6.74%      6.13%
-----------------------------------------------------------------------------------------------------------
    Net investment income, net of
      reimbursement                                                 7.32%      8.29%      6.74%      6.13%
-----------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted)                         $176,127   $182,703   $192,079   $212,487
-----------------------------------------------------------------------------------------------------------
</TABLE>

                                       18
<PAGE>

THE FUNDS' INVESTMENT OBJECTIVES AND POLICIES
   
The  investment  objective  and  general  investment  policies  of each Fund are
described  below.  Specific  portfolio  securities  that may be purchased by the
Funds are described in  "Portfolio  Securities"  beginning on page 28.  Specific
investment  practices  that may be employed by the Funds are described in "Other
Investment  Practices"  beginning  on page 32.  Certain  risks  associated  with
investments  in the Funds are  described  in those  sections as well as in "Risk
Considerations"  beginning on page 34.  CERTAIN TERMS USED IN THE PROSPECTUS ARE
DEFINED IN THE GLOSSARY  BEGINNING ON PAGE 66.

SUMMARY COMPARISON OF FUNDS
Under normal market conditions, the Funds will invest their assets as follows:

<TABLE>
<CAPTION>
                                                                                                TYPICAL MARKET
                                             ANTICIPATED   ANTICIPATED                          CAPITALIZATION
                                                EQUITY       DEBT                                OF PORTFOLIO
            FUND NAME                          EXPOSURE    EXPOSURE           FOCUS                COMPANIES
==============================================================================================================
            <S>                                   <C>         <C>      <C>                      <C>
INTERNATIONAL FUNDS
            Lexington Crosby                      100%        0%       Asia Small-Cap           Less than
            Small Cap Asia                                                                      $1 billion
            Growth Fund
--------------------------------------------------------------------------------------------------------------
            Lexington                             100%        0%       Foreign Growth           Any size
            International Fund
--------------------------------------------------------------------------------------------------------------
            Lexington Ramirez                      0%        100%      Global Income            Any size
            Global Income Fund
--------------------------------------------------------------------------------------------------------------
            Lexington Troika                       85%        15%      Russian Growth           Any size
            Dialog Russia Fund
--------------------------------------------------------------------------------------------------------------
            Lexington Worldwide                   100%        0%       Foreign Emerging         Any size
            Emerging Markets                                           Growth
            Fund
==============================================================================================================
DOMESTIC EQUITY FUNDS
            Lexington Convertible                 0-35%     65-100%    Convertible              Any size
            Securities Fund                                            Securities
--------------------------------------------------------------------------------------------------------------
            Lexington Growth                      100%        0%       Capital Appreciation     Any size
            and Income Fund                                            and Income
            Lexington SmallCap                    100%        0%       U.S. Small-Cap           Between
            Value Fund                                                                          $20 million
                                                                                                and $1 billion
==============================================================================================================
PRECIOUS METALS
            Lexington Goldfund                    100%        0%       Gold and Gold            Any size
                                                                       Companies
==============================================================================================================
DOMESTIC FIXED-INCOME FUNDS
            Lexington GNMA                         0%        100%      Income                   N/A
            Income Fund
==============================================================================================================
MONEY MARKET FUNDS
            Lexington Money                        0%        100%      Income                   N/A
            Market Trust
==============================================================================================================
</TABLE>
See each Fund's  investment  objective and policies on the following  pages, and
the section titled "Portfolio Securities" for more information.
    

                                       19
<PAGE>


LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.

      The  investment  objective of the  Lexington  Crosby Small Cap Asia Growth
Fund is long-term capital  appreciation  through investment in common stocks and
equivalents   of   companies   domiciled  in  the  Asia  Region  with  a  market
capitalization of less than $1 billion.

   
      The Lexington Crosby Small Cap Asia Growth Fund will invest principally in
companies listed on stock exchanges in the Asia Region consisting of Bangladesh,
China, Hong Kong, India, Indonesia, Korea, Malaysia,  Pakistan, The Philippines,
Singapore,  Sri Lanka, Taiwan,  Thailand,  and Vietnam ("the Asia Region").  The
Lexington  Crosby  Small Cap Asia  Growth  Fund will  invest at least 65% of its
total assets in securities of companies (1) that are organized under the laws of
the above countries, (2) whose principal securities trading market is located in
those  countries,  and (3) that derive at least 50% of their revenues or profits
from those  countries.  The  Lexington  Crosby  Small Cap Asia  Growth Fund also
intends  to invest in  Australia  and New  Zealand.  The Fund does not intend to
invest in Japan. The Lexington Crosby Small Cap Asia Growth Fund may also invest
in unlisted  securities.  Under normal market  conditions,  the Lexington Crosby
Small Cap Asia Growth Fund will invest  substantially all of its assets in three
or more countries in the Asia Region.

      The  Lexington  Crosby Small Cap Asia Growth Fund will invest at least 65%
of its total  assets in growth  companies  in the Asia Region  which have market
capitalizations  of less than $1 billion.  Approximately  13,000  companies  are
listed on recognized  exchanges in the Asia Region.  Approximately 300 companies
in the Asia Region are  capitalized  over $1 billion.  These  companies form the
principal components of their respective market indices and consequently attract
the majority of foreign investment in the region. Approximately 3,000 companies,
which are considered small capitalization  companies,  will be the primary focus
for the  Lexington  Crosby  Small  Cap Asia  Growth  Fund's  investments.  These
companies  are  frequently   under-researched  by  international  investors  and
undervalued by their markets.  The companies in which the Lexington Crosby Small
Cap Asia  Growth  Fund  intends  to invest  will  generally  have the  following
characteristics:  a market  capitalization  of less than $1 billion;  are within
industry sectors with  particularly  strong growth  prospects;  part of a strong
growth  industry;   proven  management;   under-researched   by  the  investment
community; and undervalued.
    

      The  Lexington  Crosby  Small  Cap Asia  Growth  Fund  intends  to  select
securities which can have enhanced growth  prospects and may provide  investment
returns  superior  to the Asian  market as a whole.  The  market  value of small
capitalization  companies in the Asia Region  tends to be  volatile,  and in the

                                       20
<PAGE>

past has offered  greater  potential for gain as well as loss than securities of
companies traded in developed  countries.  It is possible that certain Lexington
Crosby  Small Cap Asia  Growth  Fund  investments  could be  subject  to foreign
expropriation or exchange control restrictions. See "Risk Considerations."

      The Lexington Crosby Small Cap Asia Growth Fund may invest in all types of
common stocks and equivalents (the following constitute equivalents: convertible
debt  securities,  warrants and options).  The  Lexington  Crosby Small Cap Asia
Growth  Fund  may  also  invest  in  preferred  stocks,  bonds  and  other  debt
obligations  and money market  instruments,  including  cash and cash  deposits,
which will be denominated in U.S. Dollars or currencies related thereto.

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

   
LEXINGTON INTERNATIONAL FUND, INC.

      The investment  objective of the Lexington  International  Fund is to seek
long-term growth of capital through  investment in common stocks and equivalents
of companies  domiciled in foreign countries.  The Lexington  International Fund
will  invest  at  least  65% of its  total  assets  in at  least  three  foreign
countries.  The  Lexington  International  Fund will invest  primarily in common
stocks and common  stock  equivalents.  The  following  constitute  common stock
equivalents:  convertible debt securities,  warrants and options.  The Lexington
International  Fund may also invest in  preferred  stocks,  bonds and other debt
obligations,   including  money  market  instruments  of  foreign  and  domestic
companies  and  foreign  and  domestic  government  securities.   The  Lexington
International  Fund is not required to maintain  any  particular  geographic  or
currency  mix  of its  investments.  The  Lexington  International  Fund  is not
required  to  maintain  any  particular  proportion  of  stocks,  bonds or other
securities in its portfolio.
    

      The  Lexington  International  Fund may invest  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.  The  market  value of debt
securities varies 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.  The Lexington  International  Fund will
invest in investment grade  obligations and non-rated  obligations of comparable
quality.

   
      The Lexington  International Fund may invest in securities of companies in
the following  regions and the  governments of those  regions:  the Asia Region,
including Japan;  Africa;  North America;  Europe; Latin America; and such other
areas  and  countries  as the  Manager  may  determine  from  time to time.  The

                                       21
<PAGE>

Lexington  International  Fund may invest in  companies  located  in  developing
countries without limitation.  Developing 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
Lexington  International  Fund invests  only in  countries  that it considers as
having  relatively  stable and friendly  governments it is possible that certain
Lexington   International   Fund   investments   could  be  subject  to  foreign
expropriation or exchange control restrictions. See "Risk Considerations."
    

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

LEXINGTON RAMIREZ GLOBAL INCOME FUND

      The investment objective of the Lexington Ramirez Global Income Fund is to
seek high current income.  Capital  appreciation is a secondary  objective.  The
Lexington  Ramirez  Global  Income  Fund  invests  primarily  in lower rated and
unrated  foreign debt  securities  whose credit quality is generally  considered
equal to U.S.  corporate debt  securities  known as "junk bonds." Junk bonds and
similarly  rated foreign debt  securities  involve a high degree of risk and are
predominantly speculative. See "Portfolio Securities" and "Risk Considerations."

   
      The Lexington Ramirez Global Income Fund, under normal conditions, invests
substantially  all of its  assets  in debt  securities  of  domestic  companies,
companies of developed foreign  countries,  companies in emerging  markets,  and
debt securities issued by the U.S. and foreign governments.  The debt securities
in which the  Lexington  Ramirez  Global  Income Fund invests  consist of bonds,
notes,  debentures and other similar  instruments.  The Lexington Ramirez Global
Income Fund may invest in debt  securities  issued by  government  agencies  and
instrumentalities, central banks, commercial banks and other corporate entities.
The  Lexington  Ramirez  Global  Income  Fund may invest up to 100% of its total
assets in domestic and foreign debt securities  that are rated below  investment
grade.  The Lexington  Ramirez  Global Income Fund may also invest in securities
that are in default as to payment of principal  and/or  interest,  and bank loan
participations and assignments.
    

      The Lexington Ramirez Global Income Fund's investments in emerging markets
will primarily  consist of the  following:  foreign "junk bonds," "Brady Bonds,"
and  sovereign  debt  securities  issued by  emerging  market  governments.  The
Lexington  Ramirez Global Income Fund may invest in debt  securities of emerging
market issuers  without regard to ratings.  Many emerging market debt securities
are not rated by United States rating  agencies.  The Lexington  Ramirez  Global

                                       22
<PAGE>

Income  Fund's  ability  to  achieve  its  investment  objectives  is thus  more
dependent  on the  Manager's  credit  analysis  than  would  be the  case if the
Lexington  Ramirez  Global Income Fund were to invest in higher  quality  bonds.
Currently,  most emerging market debt securities are considered to have a credit
quality below investment grade.

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

LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.

   
      The investment  objective of the Lexington Troika Dialog Russia Fund is to
seek long-term capital  appreciation  through investment primarily in the equity
securities of Russian Companies.  Under normal conditions,  the Lexington Troika
Dialog  Russia Fund seeks to achieve its  objective by investing at least 65% of
its total assets in the securities of Russian Companies. The securities in which
the Lexington  Troika Dialog Russia Fund may invest are common stock,  preferred
stock,  convertible preferred stock, bonds, notes or debentures convertible into
common or  preferred  stock,  direct  investments  in Russian  Companies,  stock
purchase  warrants  or  rights,  and  American  Depository  Receipts  or  Global
Depository  Receipts.  The  Lexington  Troika  Dialog Russia Fund may invest the
remaining  35%  of its  total  assets  in  debt  securities  issued  by  Russian
Companies,  debt securities issued or guaranteed by the Russian  Government or a
Russian governmental entity, debt securities of corporate and government issuers
outside  Russia,  equity  securities  of issuers  outside  Russia which the Fund
believes will experience growth in revenue and profits from participation in the
development  of the economies of the  Commonwealth  of Independent  States,  and
Short-Term and Medium-Term Debt Securities.
    

      The  Lexington  Troika  Dialog Russia Fund intends to invest its assets in
Russian Companies in a broad array of industries,  including the following:  oil
and gas, energy generation and distribution, communications, mineral extraction,
trade,  financial and business  services,  transportation,  manufacturing,  real
estate, textiles, food processing and construction.  The Lexington Troika Dialog
Russia Fund is not  permitted  to invest more than 25% of the value of its total
assets in any one industry.  It may, however,  invest an unrestricted  amount of
its assets in the oil and gas  industry.  The  Lexington  Troika  Dialog  Russia
Fund's  investments  will include  investments  in Russian  Companies  that have
characteristics  and  business  relationships  common to  companies  outside  of
Russia. As a result, outside economic forces may cause fluctuations in the value
of securities held by the Lexington Troika Dialog Russia Fund.

   
     Under current  conditions,  the Lexington Troika Dialog Russia Fund expects
to invest at least 15% of its total  assets in very  liquid  assets to  maintain
liquidity and provide stability. As the Russian equity markets develop, however,
    

                                       23
<PAGE>

   
and the liquidity of Russian securities becomes less of a concern, the Lexington
Troika  Dialog  Russia  Fund will invest a greater  percentage  of its assets in
Russian equity securities.
    

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

LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.

   
      The investment  objective of the Lexington Worldwide Emerging Markets Fund
is to seek long-term growth of capital  primarily  through  investment in equity
securities  and  equivalents  of companies  domiciled in, or doing  business in,
emerging countries and emerging markets. Under normal conditions,  the Lexington
Worldwide  Emerging  Markets Fund seeks to achieve its objective by investing at
least 65% of its total  assets  in the  equity  securities  and  equivalents  of
emerging market  companies.  Under normal  conditions,  the Lexington  Worldwide
Emerging Markets Fund invests in emerging country and emerging market securities
of at least three countries  outside of the United States. In the opinion of the
Manager,  emerging  market  countries  include,  but are  not  limited  to,  the
following: Algeria, Argentina,  Bahrain, Bangladesh,  Bolivia, Botswana, Brazil,
Chile, China, Colombia, Costa Rica, Cyprus, Czech Republic,  Dominican Republic,
Ecuador,  Egypt Estonia,  Finland,  Ghana,  Greece, Hong Kong,  Hungary,  India,
Indonesia,  Israel, Ivory Coast,  Jamaica,  Jordan,  Kenya,  Lebanon,  Malaysia,
Mauritius, Mexico, Morocco, Namibia, Nicaragua, Nigeria, Oman, Pakistan, Panama,
Peru, Philippines,  Poland, Portugal, Russia, Singapore, Slovakia, South Africa,
South Korea, Sri Lanka Swaziland,  Taiwan, Thailand, Trinidad & Tobago, Tunisia,
Turkey, Uruguay,  Venezuela,  Zambia, Zimbabwe. The Lexington Worldwide Emerging
Markets Fund may also invest in equity  securities and  equivalents of companies
that derive 50% or more of their  total  revenue  from either  goods or services
produced in emerging market countries or sales made in those countries.
    

     The Lexington  Worldwide  Emerging  Markets Fund's  investments in emerging
country  equity  securities  are  not  subject  to any  maximum  limit,  and the
Lexington Worldwide Emerging Markets Fund intends to invest substantially all of
its assets in emerging  country  and  emerging  market  equity  securities.  The
Lexington  Worldwide  Emerging  Markets Fund may invest the remaining 35% of its
total  assets in equity  securities  without  regard to whether  they qualify as
emerging  country  or  emerging  market  equity   securities,   debt  securities
denominated in the currency of an emerging  market or issued or guaranteed by an
emerging market company or the government of an emerging country, and Short-Term
and Medium-Term Debt Securities.

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

LEXINGTON CONVERTIBLE SECURITIES FUND

      The investment objective of the Lexington  Convertible  Securities Fund is
total  return  which it seeks to  achieve  by  providing  capital  appreciation,
current  income  and   conservation  of  shareholders   capital.   Under  normal

                                       24
<PAGE>

conditions,  the  Lexington  Convertible  Securities  Fund seeks to achieve  its
objective  by  investing  at least  65% of its total  assets in debt  securities
convertible  into  shares  of  common  stock  ("convertible  securities").   The
Lexington   Convertible   Securities  Fund  may  invest  without  limitation  in
high-yield  debt  securities  rated  below  investment  grade.  Such lower rated
securities  are commonly  referred to as "junk bonds." Junk bonds are considered
speculative  and pose a greater  risk of loss of  principal  and  interest  than
investment   grade   securities.    See   "Portfolio   Securities"   and   "Risk
Considerations."   Common  stock   received  upon  the  conversion  or  sale  of
convertible  securities held by the Lexington  Convertible  Securities Fund will
either  continue to be held by the Lexington  Convertible  Securities Fund or be
sold.

      The convertible  securities held by the Lexington  Convertible  Securities
Fund may consist of securities  rated in the six highest rating  categories by a
major rating service and non-rated debt  securities.  The Lexington  Convertible
Securities  Fund will not invest in any security which has been rated lower than
"B" by S&P or  Moody's,  which are both  major  rating  services,  or  non-rated
securities of comparable quality.

   
     The remaining  assets of the Lexington  Convertible  Securities Fund may be
invested  in  securities  other  than  convertible  securities.   The  Lexington
Convertible  Securities  Fund may invest in  dividend  and  non-dividend  paying
non-convertible  common stocks,  corporate  bonds,  covered call options and put
options, stock index options, U.S. Government securities,  repurchase agreements
and money market securities.
    

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

LEXINGTON GROWTH AND INCOME FUND, INC.

   
      The Lexington Growth and Income Fund's principal  investment  objective is
long term capital appreciation.  Income is a secondary objective. The Fund seeks
to achieve its objective over the long term through  investment in the stocks of
large, ably managed and well financed companies. Generally, the Lexington Growth
and Income Fund invests its assets in publicly  traded  common stocks and senior
securities convertible into common stocks of domestic and foreign companies.
    

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

LEXINGTON SMALLCAP VALUE FUND, INC.

   
     The  investment  objective of the Lexington  SmallCap Value Fund is to seek
long term capital appreciation.  Under normal conditions, the Lexington SmallCap
Value Fund seeks its objective by investing in common stocks and  equivalents of
domestic companies with a market  capitalization under $1 billion.  Warrants and
convertible debt securities are common stock  equivalents in which the Lexington
SmallCap Value Fund may invest. The Lexington SmallCap Value Fund will invest at

                                       25
<PAGE>

least 90% of its assets in domestic companies which have market  capitalizations
between $20 million and $1 billion at the time of  investment.  The remainder of
its  assets  may  be   invested  in   securities   of   companies   with  market
capitalizations  below $20 million,  above $1 billion,  foreign  companies  with
dollar  denominated  shares  traded in the United  States,  American  Depository
Shares or Receipts, real estate investment trusts, and cash.

      The Lexington  SmallCap Value Fund will invest it assets  primarily in the
equity  securities  of domestic  companies  listed on stock  exchanges or traded
over-the-counter.  The  Lexington  SmallCap  Value  Fund may  invest in  foreign
companies whose shares are traded in U.S. dollar denominated markets.

      The companies in which the Lexington SmallCap Value Fund intends to invest
will generally have the following  characteristics:  a market  capitalization of
less than $1 billion; a high relative ratio of revenue per share to stock price;
a low relative  ratio of price to book value per share; a positive cash flow and
other  measures  of  financial  stability;  and a low stock  price  relative  to
historical levels.
    
                              -------------------

LEXINGTON GOLDFUND, INC.

      The  Lexington  Goldfund's  principal  investment  objective  is to attain
capital  appreciation  and such  hedge  against  loss of buying  power as may be
obtained through  investment in gold and equity  securities of companies engaged
in mining or processing gold throughout the world. Under normal  conditions,  at
least 65% of the value of the total  assets of the  Lexington  Goldfund  will be
invested in gold and the securities of companies engaged in mining or processing
gold  ("gold-related  securities").  The  Lexington  Goldfund may also invest in
other precious metals,  including platinum,  palladium and silver. The Lexington
Goldfund intends to invest less than half of the value of its assets in gold and
other  precious  metals  and  more  than  half of the  value  of its  assets  in
gold-related securities, including securities of foreign issuers.

      The Lexington  Goldfund is designed to provide  investors  with a means to
protect  against  declines  in  the  value  of the  U.S.  dollar  against  world
currencies.   To  the  extent  that  the  Lexington  Goldfund's  investments  in
gold-related  securities  appreciate in value relative to the U.S.  dollar,  the
Lexington  Goldfund's  investments  may serve to offset  declines  in the buying
power  of the U.S.  dollar.  Management  believes  that,  over  the  long  term,
investing in gold will  protect  capital  from  adverse  monetary and  political
developments.  Investments in gold may provide more of a hedge against a decline
in the buying power of the dollar, devaluation and inflation than other types of
investments. The value of gold-related debt securities,  however, will generally
not  react  to  fluctuations  in the  price of gold.  The  market  value of debt
securities of companies  engaged in mining or processing gold can be expected to
fluctuate inversely with prevailing interest rates.

                                       26
<PAGE>

LEXINGTON GNMA INCOME FUND, INC.

   
      The  investment  objective of the Lexington  GNMA Income Fund is to seek a
high level of current income, consistent with liquidity and safety of principal.
Under normal market  conditions,  the Lexington  GNMA Income Fund will invest at
least 80% of the  value of its total  assets  in  Government  National  Mortgage
Association   ("GNMA")   mortgage-backed   securities   (also   known  as  "GNMA
Certificates").  Lexington GNMA Certificates  represent part ownership of a pool
of  mortgage  loans.  The  timely  payment of  interest  and  principal  on each
certificate  is  guaranteed  by the full faith and  credit of the United  States
Government. The principal on Lexington GNMA Certificates is scheduled to be paid
back by the borrower over the length of the loan.  The  remaining  assets of the
Lexington  GNMAIncome  Fund  will be  invested  in other  securities  issued  or
guaranteed by the U.S. Government, including U.S. Treasury securities.
    

     The Lexington  GNMA Income Fund will purchase  "modified pass through" type
GNMA Certificates.  "Modified pass through" GNMA Certificates entitle the holder
to receive all interest and principal  payments owed by the borrower even if the
borrower has not made payment. The Lexington GNMA Income Fund intends to use the
proceeds from principal  payments to purchase  additional  GNMA  Certificates or
other U.S. Government guaranteed securities.

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

LEXINGTON MONEY MARKET TRUST

     The investment  objective of the Lexington Money Market Trust is to seek as
high a level of current income as is consistent with the preservation of capital
and liquidity by investing in short-term money market instruments. The following
are the money market  instruments in which the Lexington Money Market Trust will
invest:  U.S.  Government  securities,  time deposits,  certificates of deposit,
bankers'  acceptances,  commercial paper,  repurchase agreements and other money
market  instruments.The  Lexington Money Market Trust seeks to maintain a stable
net asset value of $1 per share.

      The Lexington  Money Market Trust will invest in money market  instruments
that have been rated in one of the two highest rating categories by both S&P and
Moody's,  both major rating  agencies.  A "Tier 1" security is one that has been
rated by either S&P or Moody's in the highest rating  category,  or, if unrated,
is of comparable  quality. A "Tier 2" security is one that has been rated in the
second  highest  category  by  either  S&P or  Moody's,  or, if  unrated,  is of
comparable  quality.  Up to 5% of the total assets of the Lexington Money Market
Trust may be invested in a single  Tier 1 security  (other than U.S.  Government
securities).  In addition,  the Lexington Money Market Trust may not invest more
than 5% of its total assets in Tier 2  securities,  and may not invest more than
1% of its total assets in any single Tier 2 security.

                                       27
<PAGE>

     The  Lexington   Money  Market  Trust  may  only  invest  in  money  market
instruments  with a remaining  maturity of 397 days or less,  provided  that the
Fund's average weighted maturity does not exceed 90 days. 

                              PORTFOLIO SECURITIES

EQUITY SECURITIES

   
      The Lexington Convertible  Securities Fund, Lexington Goldfund,  Lexington
Growth and Income Fund,  Lexington Crosby Small Cap Asia Growth Fund,  Lexington
International  Fund,  Lexington  SmallCap  Value Fund,  Lexington  Troika Dialog
Russia  Fund and  Lexington  Worldwide  Emerging  Markets  Fund invest in common
stocks and some of the funds may invest in common stock equivalents (see chart).
The  following  constitute  common  stock  equivalents:  warrants,  options  and
convertible debt securities,  ADRs, GDRs and EDRs.  Common stock equivalents may
be converted  into or provide the holder with the right to common  stock.  These
funds may also invest in other types of equity securities,  including  preferred
stocks, and equity derivative securities. 
    

DEBT SECURITIES

   
      The Lexington  Ramirez  Global  Income Fund and the Lexington  Convertible
Securities Fund will invest  primarily in debt securities and the Lexington GNMA
Income  Fund  will  have  substantially  all  of its  assets  invested  in  GNMA
Certificates and U.S. Government securities.

      The Lexington Goldfund,  Lexington  International  Fund,  Lexington Troika
Dialog  Russia Fund and  Lexington  Worldwide  Emerging  Markets Fund may invest
primarily in debt securities when the Manager believes that debt securities will
provide  capital  appreciation  through  favorable  changes in relative  foreign
exchange rates, in relative interest rate levels or in the  creditworthiness  of
issuers.

      The Lexington Troika Dialog Russia Fund and Lexington  Worldwide  Emerging
Markets  Fund may,  under  normal  conditions,  invest up to 35% of their  total
assets in  Short-Term  and  Medium-Term  Debt  Securities.  The  Short-Term  and
Medium-Term  Debt  Securities  in which the Funds may  invest  are  foreign  and
domestic  debt  securities,  including  short-term  (less than twelve  months to
maturity) and medium-term (not greater than five years to maturity)  obligations
issued  by the  U.S.  Government,  foreign  governments,  foreign  and  domestic
corporations and banks, and repurchase agreements.

      JUNK  BONDS.   The  Lexington   Ramirez  Global  Income  Fund,   Lexington
Convertible  Securities Fund and Lexington  Troika Dialog Russia Fund may invest
in high yield, lower rated debt securities known as "junk bonds." Junk bonds are
debt  obligations  rated below  investment  grade and  non-rated  securities  of


                                       28
<PAGE>

comparable  quality.  Junk  bonds  are  considered  speculative  and thus pose a
greater risk of default than investment  grade  securities.  Investments of this
type are  subject to greater  risk of loss of  principal  and  interest,  but in
general provide higher yields than higher rated debt  obligations.  Bonds issued
by companies  domiciled in emerging  markets are usually rated below  investment
grade.  The Lexington  Ramirez Global Income Fund may invest in securities  that
are in default  as to payment of  principal  and/or  interest.  Debt  securities
purchased   by  Lexington   Crosby   Small  Cap  Asia  Growth  Fund,   Lexington
International  Fund and  Lexington  Worldwide  Emerging  Markets Fund must be of
investment grade quality or comparable thereto.

      ZERO COUPON BONDS. The Lexington  Ramirez Global Income Fund may invest in
zero coupon  bonds.  Zero coupon bond prices are highly  sensitive to changes in
market interest rates. The original issue discount on the zero coupon bonds must
be included ratably in the income of the Lexington Ramirez Global Income Fund as
the income  accrues even though  payment has not been  received.  The  Lexington
Ramirez Global Income Fund nevertheless  intends to distribute an amount of cash
equal to the currently  accrued  original issue  discount,  and this may require
liquidating securities at times they might not otherwise do so and may result in
capital loss. See "Tax Information" in the Statement of Additional Information.

      LOAN  PARTICIPATION  AND ASSIGNMENTS.  The Lexington Ramirez Global Income
Fund may invest in loans arranged through private negotiations between a foreign
entity and one or more  lenders.  The majority of the Lexington  Ramirez  Global
Income Fund's  investments in loans in emerging markets is expected to be in the
form of participation in loans ("Participations") and assignments of portions of
loans from third parties  ("Assignments").  Participations typically will result
in the Lexington  Ramirez  Global Income Fund having a contractual  relationship
only with the Lender, not with the borrower. The Lexington Ramirez Global Income
Fund will have the right to receive payments of principal, interest and any fees
to which it is entitled only from the Lender selling the  Participation and only
upon receipt by the Lender of the payments from the borrower.  As a result,  the
Lexington  Ramirez  Global  Income  Fund will assume the credit risk of both the
borrower and the Lender that is selling the  Participation.  When the  Lexington
Ramirez Global Income Fund  purchases  Assignments  from Lenders,  the Lexington
Ramirez  Global Income Fund will acquire  direct rights  against the borrower on
the Loan. The Lexington Ramirez Global Income Fund may have difficulty disposing
of Assignments and  Participations.  The liquidity of such securities is limited
and the Lexington  Ramirez Global Income Fund  anticipates  that such securities
could be sold only to a limited number of institutional investors. The lack of a
liquid  secondary  market  could  have an  adverse  impact  on the value of such
securities.

     BRADY BONDS. The Lexington  Ramirez Global Income Fund may invest in "Brady
Bonds".  Brady Bonds are  securities  created  through the  exchange of existing
    

                                       29
<PAGE>

   
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with a debt  restructuring plan introduced by former
U.S.  Secretary  of the  Treasury,  Nicholas F.  Brady.  Fund  investors  should
recognize that  BradyBonds have been issued only recently and,  accordingly,  do
not have a long payment history. DEPOSITORY RECEIPTS

 DEPOSITORY RECEIPTS

      Each  Lexington  Fund (except  Lexington  Money Market Trust and Lexington
GNMAIncome Fund) may invest in American Depository Receipts ("ADRs") and similar
securities. ADRs are securities traded in the U.S. that are backed by securities
of foreign issuers.
    

INVESTMENT COMPANIES

     Each Lexington Fund (except the Lexington Money Market Trust) may invest up
to 10% of its total assets in shares of other  investment  companies that invest
in securities which the Funds may otherwise invest.

U.S. GOVERNMENT SECURITIES

      All   Lexington   Funds  may  invest  in   fixed-rate   and  floating-  or
variable-rate  U.S.  government  securities.   The  U.S.  Government  guarantees
payments of interest and  principal  of U.S.  Treasury  bills,  notes and bonds,
mortgage-related securities of the GNMA, and other securities issued by the U.S.
government.   Other   securities   issued  by  U.S.   government   agencies   or
instrumentalities   are   supported   only  by  the  credit  of  the  agency  or
instrumentality, for example those issued by the Federal Home Loan Bank, whereas
others,  such as those issued by the FNMA,  Farm Credit  System and Student Loan
Marketing Association, have an additional line of credit with the U.S. Treasury.

     Short-term U.S. government  securities generally are considered to be among
the  safest  short-term  investments.  However,  the  U.S.  government  does not
guarantee  the net  asset  value of the  Funds'  shares.  With  respect  to U.S.
government  securities  supported  only by the credit of the  issuing  agency or
instrumentality or by an additional line of credit with the U.S. Treasury, there
is no guarantee that the U.S.  government  will provide support to such agencies
or instrumentalities.  Accordingly,  such U.S. government securities may involve
risk of loss of principal and interest.

   
      The  following  table  illustrates  investments  that the Funds  primarily
invest in or are  permitted to invest in, as indicated in dark shade.  The light
shade  indicates  that the  Fund's  policy may permit  such  investments  within
limits.
    


                                       30
<PAGE>


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

PORTFOLIO SECURITIES
DARK SHADE:

Fund invests  primarily in these types of investments,  or Fund's policy permits
such investments.

LIGHT SHADE: Within limits, Fund's policy may permit such investments.

TYPE OF PORTFOLIO SECURITY

<TABLE>
<CAPTION>
                                    Lexington Crosby    Lexington       Lexington     Lexington   Lexington Worldwide   Lexington
                                     Small Cap Asia   International  Ramirez Global Troika Dialog      Emerging        Convertible
                                      Growth Fund         Fund        Income Fund    Russia Fund      Markets Fund   Securities Fund
<S>                                                                         <C>
------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants)
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options)                                          *
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
  (Convertible Debt Securities)
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
  (Depository Receipts)
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
------------------------------------------------------------------------------------------------------------------------------------
Equity Derivative Securities                                                *
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Below Investment 
Grade) or (Junk Bonds)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds) 
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities  
(Loan Participation and Assignments)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities)
------------------------------------------------------------------------------------------------------------------------------------
Gold Bullion
------------------------------------------------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------------------------------------------------
                                        Lexington      Lexington                   Lexington      *Lexingtonn
                                       Growth and     SmallCap Value  Lexington    GNMA Income     Money Market
                                       Income Fund        Fund         Goldfund        Fund         Trust Fund
------------------------------------------------------------------------------------------------------------------------------------
Common Stock
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Warrants)
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents (Options)
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
  (Convertible Debt Securities)
------------------------------------------------------------------------------------------------------------------------------------
Common Stock Equivalents
  (Depository Receipts)
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stocks
------------------------------------------------------------------------------------------------------------------------------------
Equity Derivative Securities
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Below Investment 
Grade) or (Junk Bonds)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Brady Bonds) 
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Zero Coupon)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities  
(Loan Participation and Assignments)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (GNMA Certificates)
------------------------------------------------------------------------------------------------------------------------------------
Debt Securities (Guaranteed by the U.S.
Gov't, its agencies or instrumentalities)
------------------------------------------------------------------------------------------------------------------------------------
Gold Bullion
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

* Notes:  Lexington  Ramirez  Global  Income  Fund may  invest  in  options  and
derivatives with respect to debt securities,  not equity  securities.  Lexington
Money Market Trust is not permitted to purchase any of the portfolio  securities
identified in this table,  and may only invest in short-term  securities such as
commercial paper,  short-term  government  securities,  banker's  acceptances or
other money market instruments.
    

                                       31
<PAGE>

   
Other Investment Practices

The following table and sections summarize certain investment practices that the
Funds are  permitted  to engage in.  These  practices  may  involve  risks.  The
Glossary  section at the end of this  Prospectus  briefly  describes each of the
investment techniques summarized below. The Statement of Additional Information,
under the heading  "Investment  Objectives and Policies of the Funds,"  contains
more detailed information about certain of these practices.

<TABLE>
<CAPTION>

                                   Lexington Crosby     Lexington       Lexington     Lexington   Lexington Worldwide   Lexington
                                    Small Cap Asia    International  Ramirez Global Troika Dialog      Emerging        Convertible
                                     Growth Fund         Fund        Income Fund    Russia Fund      Markets Fun    Securities Fund
------------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>            <C>            <C>              <C>               <C>

Repurchase agreements(1)                  x                 x              x              x                x                 x 
------------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions1
------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed                   x                 x                             x                x
one-third of total fund assets
for leveraging purposes
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement              x                 x              x              x                x
------------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions                                                                  x
------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets          
------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed 
one-third of total fund assets            x                 x                             x                x
------------------------------------------------------------------------------------------------------------------------------------
When-issued and forward                   x                 x              x              x                x
commitment securities
------------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2)             x                 x              x              x                x
------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies(3)                                                          x              x                                 x
------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities                                             x              x                                 x
and indices3
------------------------------------------------------------------------------------------------------------------------------------
Write covered call options(3)             x                 x              x              x                                 x
------------------------------------------------------------------------------------------------------------------------------------
Write covered put options(3)                                               x              x                                 x
------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts                                            x              x
------------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options    
on futures(4)                            x                  x              x              x                x             
------------------------------------------------------------------------------------------------------------------------------------
Equity swap
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to                          
5% of fund's net assets
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to                                                                                              x
10% of fund's net assets
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to                          
15% of fund's net assets                x                   x              x              x                x              
------------------------------------------------------------------------------------------------------------------------------------


------------------------------------------------------------------------------------------------------------------------------------
                                        Lexington       Lexington                   Lexington      *Lexingtonn
                                        Growth and     SmallCap Value  Lexington    GNMA Income     Money Market
                                       Income Fund        Fund         Goldfund        Fund            Trust 
------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements(1)                  x                 x              x              x                x       
------------------------------------------------------------------------------------------------------------------------------------
Reverse dollar roll
transactions1
------------------------------------------------------------------------------------------------------------------------------------
Borrowing not to exceed                                                    x       
one-third of total fund assets
for leveraging purposes
------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase agreement                               x               x   
------------------------------------------------------------------------------------------------------------------------------------
Dollar roll transactions                                                                  x
------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed
10% of total fund assets          
------------------------------------------------------------------------------------------------------------------------------------
Securities lending not to exceed 
one-third of total fund assets                                             x   
------------------------------------------------------------------------------------------------------------------------------------
When-issued and forward                                                    x              x  
commitment securities
------------------------------------------------------------------------------------------------------------------------------------
Forward currency contracts(2)                                              x   
------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities
and currencies(3)                                                
------------------------------------------------------------------------------------------------------------------------------------
Purchase options on securities                                          
and indices3
------------------------------------------------------------------------------------------------------------------------------------
Write covered call options(3)        
------------------------------------------------------------------------------------------------------------------------------------
Write covered put options(3)                    
------------------------------------------------------------------------------------------------------------------------------------
Interest rate futures contracts                                     
------------------------------------------------------------------------------------------------------------------------------------
Futures and swaps and options    
on futures(4)                                                              x            
------------------------------------------------------------------------------------------------------------------------------------
Equity swap
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to                          
5% of fund's net assets
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to                                                                                              x
10% of fund's net assets
------------------------------------------------------------------------------------------------------------------------------------
Illiquid securities limited to                          
15% of fund's net assets                                                   x                
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
    

                                       32
<PAGE>


     -----------

1    Under the Investment Company Act, repurchase  agreements and reverse dollar
     roll  transactions  are  considered to be loans by a fund and must be fully
     collateralized  by  collateral  assets.  If  the  seller  defaults  on  its
     obligations to repurchase the  underlying  security,  a fund may experience
     delay or  difficulty  in exercising it rights to realize upon the security,
     may  incur a loss if the  value  of the  security  declines  and may  incur
     disposition costs in liquidating the security.

   
2    A fund that may enter into in forward currency contracts may not do so with
     respect to more than 70% of its total assets.
    

3    A FUND WILL NOT ENTER INTO  OPTIONS ON  SECURITIES,  SECURITIES  INDICES OR
     CURRENCIES OR RELATED OPTIONS  (INCLUDING OPTIONS ON FUTURES) IF THE SUM OF
     INITIAL  MARGIN  DEPOSITS AND PREMIUMS  PAID FOR ANY SUCH OPTION OR OPTIONS
     WOULD  EXCEED 5% OF ITS TOTAL  ASSETS,  AND IT WILL NOT ENTER INTO  OPTIONS
     WITH  RESPECT TO MORE THAN 25% OF ITS TOTAL  ASSETS.

4    A 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.

   
BORROWING FOR TEMPORARY OR EMERGENCY PURPOSES

      For temporary or emergency purposes, Lexington Convertible Securities Fund
and Lexington Growth and Income Fund may borrow up to 10% of their total assets.
Lexington  Money Market  Trust may borrow up to  one-third of its total  assets;
Lexington  GNMAIncome  Fund may not borrow money,  and the  remaining  Lexington
Funds may borrow up to 5% of their total assets. For leveraging  purposes,  some
Lexington Funds (see Chart)may borrow up to one-third of their total assets.
    

DEFENSIVE INVESTMENTS AND PORTFOLIO TURNOVER

      Each  Lexington  Fund may invest up to 100% of its total assets in cash or
high-quality debt obligations for temporary defensive purposes.

   
      The  "portfolio  turnover  rate" is the  frequency  a Fund  buys and sells
securities.  Frequent  transactions  involve  added  expense.  All Funds  except
Lexington Convertible Securities Fund, Lexington Goldfund and Lexington SmallCap
Value Fund expect a portfolio turnover rate of greater than 100%.
    

HEDGING AND RISK MANAGEMENT PRACTICES

      The  Lexington  Funds (other than the  Lexington  Money Market  Trust) may
"hedge" against changes in financial markets, currency rates and interest rates.
A typical hedge is designed to offset a decline that could hurt the value of the
Fund's securities. The Lexington Funds may hedge with "derivatives." Derivatives
are instruments whose value is linked to, or derived from,  another  instrument,
like an index or a  commodity.  Some  Lexington  Funds (see chart) may invest in
options and futures contracts.

                                       33
<PAGE>

      Hedging  transactions  involve certain risks.  Although a Fund may benefit
from hedging,  unanticipated  changes in interest rates or securities prices may
result in greater losses for a Fund than if it did not hedge. If a Fund does not
correctly  predict  a  hedge,  it may  lose  money.  In  addition,  a Fund  pays
commissions  and  other  costs in  connection  with  such  investments.  Hedging
transactions may not exist is some countries.

INVESTMENT RESTRICTIONS

      The investment objective of each Lexington Fund is fundamental and may not
be changed without  shareholder  approval but,  unless  otherwise  stated,  each
Fund's other investment  policies may be changed by its Board. If a Fund changes
its investment  objective or policies,  you should consider whether that Fund is
right for you. The Lexington Funds are subject to additional investment policies
and restrictions described in the Statement of Additional  Information,  some of
which are fundamental.

                               RISK CONSIDERATIONS

SMALL COMPANIES

      The  Lexington  Crosby Small Cap Asia Growth Fund and  Lexington  SmallCap
Value Fund emphasize  investments in smaller companies that may benefit from the
development  of new products and  services.  Such smaller  companies may present
greater opportunities for capital appreciation but may involve greater risk than
larger,  more mature  issuers.  Such smaller  companies may have limited product
lines,  markets or  financial  resources,  and their  securities  may trade less
frequently  and in more  limited  volume  than  those  of  larger,  more  mature
companies.  As a result,  the prices of their securities may fluctuate more than
those of larger issuers.

      Many companies traded on securities  markets in many foreign countries are
smaller,  newer and less seasoned than companies whose  securities are traded on
securities  markets  in the United  States.  Investments  in  smaller  companies
involve  greater risk than is  customarily  associated  with investing in larger
companies.  Smaller  companies  may  have  limited  product  lines,  markets  or
financial or  managerial  resources  and may be more  susceptible  to losses and
risks of bankruptcy.  Additionally,  market making and arbitrage  activities are
generally  less  extensive in such  markets and with respect to such  companies,
which may  contribute  to  increased  volatility  and reduced  liquidity of such
markets or such securities. Accordingly, each of these markets and companies may
be subject to  greater  influence  by adverse  events  generally  affecting  the
market, and by large investors trading significant blocks of securities, than is
usual  in the  United  States.  To  the  extent  that  any  of  these  countries

                                       34
<PAGE>

experiences  rapid  increases  in its  money  supply  and  investment  in equity
securities for speculative  purposes,  the equity  securities traded in any such
country may trade at  price-earning  multiples  higher than those of  comparable
companies trading on securities  markets in the United States,  which may not be
sustainable.  In addition, risks due to the lack of modern technology,  the lack
of a sufficient capital base to expand business  operations,  the possibility of
permanent or temporary  termination of trading,  and greater spreads between bid
and ask prices may exist in such markets.

FOREIGN SECURITIES

   
      The  Lexington  Crosby  Small Cap Asia Growth  Fund,  Lexington  Goldfund,
Lexington  Growth and  Income  Fund,  Lexington  International  Fund,  Lexington
Ramirez  Global Income Fund,  Lexington  Troika Dialog Russia Fund and Lexington
Worldwide Emerging Markets Fund have the right to purchase securities in foreign
countries.  Accordingly,  shareholders should consider carefully the substantial
risks involved in investing in securities issued by companies and governments of
foreign  nations,  which are in addition to the usual risks of loss  inherent in
domestic investments. The Lexington Crosby Small Cap Asia Growth Fund, Lexington
International  Fund,  Lexington  Ramirez  Global Income Fund,  Lexington  Troika
Dialog Russia Fund and Lexington  Worldwide Emerging Markets Fund, may invest in
securities  of companies  domiciled  in, and in markets of,  so-called  emerging
market  countries.  These  investments  may be  subject  to  higher  risks  than
investments in more developed countries.
    

      Foreign    investments   involve   the   possibility   of   expropriation,
nationalization or confiscatory  taxation,  taxation of income earned in foreign
nations (including, for example, withholding taxes on interest and dividends) or
other taxes  imposed with respect to  investments  in foreign  nations,  foreign
exchange  controls  (which may  include  suspension  of the  ability to transfer
currency  from a given  country and  repatriation  of  investments),  default in
foreign government securities, and political or social instability or diplomatic
developments  that could adversely  affect  investments.  In addition,  there is
often less publicly  available  information  about foreign issuers than those in
the U.S. Foreign companies are often not subject to uniform accounting, auditing
and  financial  reporting   standards.   Further,   these  funds  may  encounter
difficulties  in pursuing  legal  remedies or in obtaining  judgments in foreign
courts. Additional risk factors, including use of domestic and foreign custodian
banks and  depositories,  are described  elsewhere in this Prospectus and in the
Statement of Additional Information.

      Brokerage  commissions,  fees  for  custodial  services  and  other  costs
relating to  investments  in other  countries are generally  greater than in the
U.S.  Foreign  markets have different  clearance and settlement  procedures from

                                       35
<PAGE>

those in the U.S., and certain markets have  experienced  times when settlements
did not keep pace with the volume of securities transactions. The inability of a
fund to make intended security  purchases due to settlement  difficulties  could
cause  it to  miss  attractive  investment  opportunities.  Inability  to sell a
portfolio  security due to settlement  problems could result in loss to the fund
if the value of the portfolio  security declined or result in claims against the
fund. In certain countries,  there is less government supervision and regulation
of  business  and  industry  practices,  stock  exchanges,  brokers,  and listed
companies  than in the U.S. The  securities  markets of many of the countries in
which these funds may invest may also be smaller,  less  liquid,  and subject to
greater price volatility than those in the U.S.

      Because  certain   foreign   securities  may  be  denominated  in  foreign
currencies, the value of such securities will be affected by changes in currency
exchange rates and in exchange control  regulations,  and costs will be incurred
in connection with conversions  between  currencies.  A change in the value of a
foreign  currency  against the U.S. dollar results in a corresponding  change in
the U.S. dollar value of a fund's securities  denominated in the currency.  Such
changes also affect the fund's income and distributions to shareholders.  A fund
may be affected either favorably or unfavorably by changes in the relative rates
of  exchange  between  the  currencies  of  different  nations,  and a fund  may
therefore  engage in  foreign  currency  hedging  strategies.  Such  strategies,
however,  involve  certain  transaction  costs and investment  risks,  including
dependence upon the Manager's ability to predict movements in exchange rates.

      Some  countries in which one of these funds may invest also may have fixed
or managed  currencies that are not freely  convertible at market rates into the
U.S. dollar.  Certain currencies may not be internationally  traded. A number of
these  currencies  have  experienced  steady  devaluation  relative  to the U.S.
dollar, and such devaluations in the currencies may have a detrimental impact on
the  fund.  Many  countries  in  which  a  fund  may  invest  have   experienced
substantial,  and in some periods  extremely  high,  rates of inflation for many
years.  Inflation  and rapid  fluctuation  in inflation  rates may have negative
effects on certain economies and securities markets.  Moreover, the economies of
some countries may differ favorably or unfavorably from the U.S. economy in such
respects as the rate of growth of gross  domestic  product,  rate of  inflation,
capital reinvestment, resource self-sufficiency and balance of payments. Certain
countries also limit the amount of foreign capital that can be invested in their
markets and local companies, creating a "foreign premium" on capital investments
available  to foreign  investors  such as the fund.  The fund may pay a "foreign
premium" to  establish  an  investment  position  which it cannot  later  recoup
because of changes in that country's foreign investment laws.

                                       36
<PAGE>

LOWER-QUALITY DEBT

   
      The Lexington Convertible  Securities Fund, Lexington Troika Dialog Russia
Fund,  Lexington  Goldfund,  Inc. and Lexington  Ramirez  Global Income Fund are
authorized to invest high-yield,  lower-rated debt securities  commonly referred
to  as  "junk  bonds."   Lower-rated  debt  securities  are  considered   highly
speculative and changes in economic  conditions or other  circumstances are more
likely to lead to a weakened  capacity to make  principal and interest  payments
than with higher-grade debt securities.
    

CONCENTRATION IN SECURITIES OF RUSSIAN COMPANIES

   
      The Lexington  Troika Dialog Russia Fund  concentrates  its  investment in
companies  that have their  principal  activities in Russia.  Consequently,  the
Lexington Troika Dialog Russia Fund's share value may be more volatile than that
of investment  companies not sharing this  geographic  concentration.  Since the
breakup of the Soviet Union at the end of 1991, Russia has experienced  dramatic
political and social change.  The political  system in Russia is emerging from a
long history of extensive state involvement in economic affairs.  The country is
undergoing a rapid  transition from a  centrally-controlled  command system to a
market-oriented,  democratic  model. The Lexington Troika Dialog Russia Fund may
be  affected  unfavorably  by  political  or  diplomatic  developments,   social
instability,  changes in  government  policies,  taxation  and  interest  rates,
currency repatriation restrictions and other political and economic developments
in  the  law  or  regulations  in  Russia  and,  in  particular,  the  risks  of
expropriation,  nationalization  and  confiscation  of  assets  and  changes  in
legislation relating to foreign ownership. See "Russia" and "Russian Company" in
the Glossary.

      The Russian securities markets are substantially  smaller, less liquid and
significantly more volatile than the securities markets in the United States. In
addition,  there is little  historical data on these securities  markets because
they are of recent origin. A substantial  proportion of securities  transactions
in  Russia   are   privately   negotiated   outside  of  stock   exchanges   and
over-the-counter   markets.   A  limited   number   of   issuers   represent   a
disproportionately large percentage of market capitalization and trading volume.
Some issuers may be exposed to center-regional  conflicts in jurisdiction in the
areas of taxation and overall  corporate  governance  which could put the Fund's
investments  at risk. In addition,  because the Russian  securities  markets are
smaller and less liquid than in the United States, obtaining prices on portfolio
securities from independent sources may be more difficult than in other markets.
    

      The  political  environment  in Russia in 1997 is more stable than in 1993
and earlier when clashes between  reformers and  reactionaries  were continuous,

                                       37
<PAGE>

setting the stage for an attempted  coup d'etat in October  1993.  Nevertheless,
there is still a great deal of uncertainty  surrounding the political  future of
the country.  The civil war in Chechnya has highlighted  the political  tensions
that exist  between  the  central  government  in Moscow and some of the regions
within the Russian  Federation and has  contributed to political  instability by
weakening  confidence  domestically and  internationally in the government.  The
risk exists that armed  conflict in Chechnya  will  continue,  which could deter
foreign  investment  and  international  aid and  further  weaken the  reformist
government's   control.   A  continuing   trend  away  from   reformers   toward
conservatives   could  further  deter  foreign   investment  if  foreign  policy
initiatives  contrary to western interests (Iran,  Iraq) lead to a deterioration
in relations  between the Russian  Federation and the West. The risk also exists
that the  political  tensions  associated  with the war in Chechnya will lead to
attempts for  independence in other regions within the Russian  Federation.  The
war in Chechnya and other inflammatory  issues may also lead to greater tensions
and divisions between the President and the legislature.

      The  military  could  have a negative  impact on  Russia's  political  and
economic future.  The declining  stature of Russia as a world power has led to a
widespread  sentiment  among  Russians  for a return  to  Russia's  status  as a
superpower. Demobilization of troops, cuts in the military budget, the growth of
significant gaps in living standards  between the military and civilian sectors,
and the  perception  of an  external  threat  from NATO  could  lead to  further
political unrest.

      Moreover,  it is uncertain  whether  Russia's  privatization  process will
continue.  Although  government  officials have publicly pledged their continued
support for the reform process.  It is also unclear whether the reforms intended
to liberalize  prevailing  economic  structures based on free market  principles
will be  successful,  particularly  in terms of  foreign  ownership  of  Russian
companies.

      The planned economy of the former Soviet Union was run with  qualitatively
different objectives and assumptions from those prevalent in a market system and
Russian  businesses  do not  have  any  recent  history  of  operating  within a
market-oriented economy. In general,  relative to companies operating in Western
economies,  companies in Russia are  characterized  by a lack of: (i) management
with experience of operating in a market economy;  (ii) modern technology;  and,
(iii) a  sufficient  capital  base  with  which  to  develop  and  expand  their
operations.  It is unclear what will be the future effect on Russian  companies,
if any, of  Russia's  continued  attempts to move toward a more  market-oriented
economy.

                                       38
<PAGE>

      Russia's  economy  has  experienced  severe  economic  recession,  if  not
depression,  since 1990 during which time the economy has been  characterized by
high rates of inflation,  high rates of  unemployment,  declining gross domestic
product,  deficit government  spending,  and a devaluing currency.  The economic
reform  program has  involved  major  disruptions  and  dislocations  in various
sectors of the economy. The economic problems have been exacerbated by a growing
liquidity crisis which culminated in a bank liquidity crisis in August 1995. The
taxation  system has had numerous  attempts at reform,  but a failure to collect
taxes is an ongoing major problem.

      Russia presently receives  significant  financial assistance from a number
of countries through various programs.  To the extent these programs are reduced
or  eliminated  in the future,  Russian  economic  development  may be adversely
impacted.

   
      Although  evolving  rapidly,  even the largest of Russia's stock exchanges
are not well developed compared to Western stock exchanges. The actual volume of
exchange-based  trading in Russia is low and active on-market  trading generally
occurs  only in the shares of a few private  companies.  Most  secondary  market
trading of equity securities occurs through over-the-counter trading facilitated
by  a  growing   number  of   licensed   brokers.   Shares  are  traded  on  the
over-the-counter  market primarily by the management of enterprises,  investment
funds, short-term speculators and foreign investors.
    

INTEREST RATES

      The market value of debt  securities  that are interest rate  sensitive is
inversely  related to changes  in  interest  rates.  That is, an  interest  rate
decline produces an increase in a security's  market value, and an interest rate
increase  produces a decrease in value.  The longer the remaining  maturity of a
security,  the more  sensitive  that  security is to changes in interest  rates.
Changes in the ability of an issuer to make  payments of interest and  principal
and in the market's perception of the issuer's  creditworthiness also affect the
market value of that issuer's debt securities.

      Prepayments of principal of  mortgage-related  securities by mortgagors or
mortgage foreclosures affect the average life of the mortgage-related securities
in a  fund's  portfolio.  Mortgage  prepayments  are  affected  by the  level of
interest rates and other factors,  including general economic conditions and the
underlying  location  and age of the  mortgage.  In periods  of rising  interest
rates, the prepayment rate tends to decrease,  lengthening the average life of a
pool of mortgage-related  securities.  In periods of falling interest rates, the
prepayment  rate  tends to  increase,  shortening  the  average  life of a pool.
Because  prepayments  of  principal  generally  occur  when  interest  rates are
declining, it is likely that the Lexington GNMA Income Fund may have to reinvest

                                       39
<PAGE>

the proceeds of prepayments at lower interest rates than those of their previous
investments. If this occurs, a fund's yield will decline correspondingly.  Thus,
mortgage-related  securities may have less potential for capital appreciation in
periods  of  falling  interest  rates  than  other  fixed-income  securities  of
comparable  duration,  although they have a comparable risk of decline in market
value in periods of rising interest rates. To the extent that the Lexington GNMA
Income Fund  purchases  mortgage-related  securities  at a premium,  unscheduled
prepayments,  which are made at par,  result in a loss equal to any  unamortized
premium.  Duration  is one of the  fundamental  tools  used  by the  Manager  in
managing  interest rate risks including  prepayment risks. See "Duration" in the
Glossary.

      NON-DIVERSIFIED  PORTFOLIO.  The Lexington  Goldfund and Lexington  Troika
Dialog  Russia  Fund  are  "non-diversified"   investment  companies  under  the
Investment  Company Act.  This means that the  Lexington  Goldfund and Lexington
Troika  Dialog  Russia  Fund are not  limited in the  proportion  of their total
assets that may be invested in a single  company.  The  Lexington  Goldfund  and
Lexington Troika Dialog Russia Fund may invest a greater portion of their assets
in fewer companies than "diversified"  funds, and thus may be subject to greater
risk. The Lexington  Goldfund and Lexington Troika Dialog Russia Fund,  however,
intend to comply with the  diversification  requirements  of federal tax laws to
qualify as a regulated investment company.

   
PRECIOUS METALS

      The  Lexington  Goldfund  may invest in gold  bullion  and other  precious
metals. These precious metals investments earn no income return,  unlike savings
deposits,  bonds or even stocks which may produce  interest or dividend  income.
Transaction  and storage costs may be higher than costs  relating to the buying,
holding and selling of more traditional types of investments. An increase in the
market price of precious metals is the only way the Fund will be able to realize
a gain on these investments.

SETTLEMENT AND CUSTODY

      The Funds that  invest in foreign  securities,  especially  the  Lexington
Troika Dialog Russia Fund could be subject to risks not normally associated with
U.S.   investments  because  of  newly  developed  securities  markets  and  the
underdeveloped state of banking and telecommunications  systems. Russia does not
have a central registration system, therefore ownership of shares is recorded by
the companies  themselves and by registrars located throughout Russia.  Although
these  registrars  may be inspected,  it is possible  that the Fund's  ownership
rights could be lost through fraud,  negligence or even mere oversight on behalf


                                       40
<PAGE>

the registrars,  and the Fund could experience  difficulty  enforcing any rights
against the registrar or issuer in the event of loss of share registration.  Due
to local  postal and  banking  standards,  there are risks  that the  payment of
dividends  or other  distributions  could be  delayed or lost.  Russian  banking
institutitons and registrars are not guaranteed by the state.

      In light of these risks,  the Board of Directors of the  Lexington  Troika
Dialog Russia Fund has approved  procedures  whereby the Fund will not invest in
the securities of a Russian company unless that company's  registrar has entered
into a contract with the Fund's  Sub-Custodian  Bank. This  protective  contract
gives the Sub-Custodian Bank the right to conduct regular share confirmations on
behalf of the Fund.  These  procedures  also require the  Sub-Custodian  Bank to
provide  certain  information  on a  periodic  basis to the  Board of  Directors
concerning the registration of shares and custody arrangements in Russia.
    

                             MANAGEMENT OF THE FUNDS

BOARD OF DIRECTORS/TRUSTEES

      Each Lexington Fund has either a Board of Directors or a Board of Trustees
that  establishes  its  policies  and  supervises  and reviews  its  management.
Day-to-day operations of the Lexington Funds are administered by the officers of
the Lexington Funds and by the Manager and Sub-Advisers pursuant to the terms of
an investment  management  agreement with each fund and investment  sub-advisory
agreements between the Manager and the Sub-Advisers.

 BOARD OF ADVISERS

      The Lexington  Troika Dialog Russia Fund's Board of Directors will receive
oversight  assistance from a Board of Advisers which will be composed of experts
in  Russian  political  and  economic  affairs.  The Board of  Advisers  will be
responsible  for  providing  the Board of  Directors  with  periodic  updates on
political and macroeconomic conditions and trends in Russia, and their potential
implication for the overall investment  environment in Russia. This will enhance
the Board of  Directors'  ability to  oversee  and  safeguard  the assets of the
Lexington Troika Dialog Russia Fund.

   
      The  members of the Board of Advisers  currently  are:Keith  Bush,  Senior
Associate-Russian   and  Eurasian  Studies  at  the  Center  for  Strategic  and
International  Studies:Richard  M. Hisey,  Executive  Vice  President  and Chief
Financial  Officer  of  Lexington  Global  Asset  Managers,  Inc.  and  Marin J.
Strmecki,  Ph.D., Director of Programs for the Smith Richardson Foundation.  See
Statement of  Additional  Information  for further  information  on the Board of
Advisers.
    

                                       41
<PAGE>

INVESTMENT ADVISER

   
      Lexington  Management  Corporation is the Manager of the Lexington  Funds.
The Manager was established in 1938 and is an investment  adviser  registered as
such with the Securities and Exchange  Commission under the Investment  Advisers
Act of 1940,  as amended.  The Manager  advises  private  clients as well as the
Lexington  Funds.  The Manager is a wholly-owned  subsidiary of Lexington Global
Asset  Managers,   Inc.,  a  Delaware   corporation.   Descendants  of  Lunsford
Richardson,  Sr.,  their  spouses,  trusts  and other  related  entities  have a
controlling    interest   in    Lexington    Global   Asset    Managers,    Inc.
(NASDAQSymbol:LGAM).

                                THE SUB-ADVISERS

LEXINGTON CONVERTIBLE SECURITIES FUND

      The Manager has entered into a Sub-Advisory Agreement with Ariston Capital
Management Corporation  ("Ariston").  Under the Sub-Advisory Agreement,  Ariston
will  provide  the  Lexington   Convertible   Securities  Fund  with  investment
management  and  administrative  services.  Ariston  also  serves as  investment
adviser to private and institutional  investment  accounts.  Such accounts own a
significant  number of shares of the Lexington  Convertible  Securities  Fund as
part of their  investment  program.  Ariston  was  founded in 1977 and  provides
investment management to individuals,  corporations,  pension and profit sharing
plans, and other qualified  retirement plan accounts.  Ariston is recognized for
its expertise in portfolio  management,  specializing in convertible  securities
and market forecasting.

LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND

      The Manager has entered into a  Sub-Advisory  Agreement  with Crosby Asset
Management (US) Inc. ("Crosby").  Under the Sub-Advisory Agreement,  Crosby will
provide  the  Lexington  Crosby  Small  Cap Asia  Growth  Fund  with  investment
management  services.  Crosby was  established on October 4, 1990 in the British
Virgin  Islands.  Crosby  manages  assets  and  provides  investment  advice for
investment company and institutional  private accounts around the world. It is a
subsidiary of the Crosby Group, Hong Kong.

LEXINGTON RAMIREZ GLOBAL INCOME FUND

      The Manager has entered into a  Sub-Advisory  Agreement with MFR Advisors,
Inc. ("MFR"). Under the Sub-Advisory  Agreement,  MFR will provide the Lexington
Ramirez Global Income Fund with investment and economic research  services.  MFR
manages  assets  for  both  investment  companies  and  institutions.  MFR  is a
subsidiary of Maria Fiorini Ramirez, Inc.

    

                                       42
<PAGE>

LEXINGTON SMALLCAP VALUE FUND

   
      The  Manager  has  entered  into a  Sub-Advisory  Agreement  with  Capital
Technology Inc. ("CTI"). Under the Sub-Advisory Agreement,  CTI will provide the
Lexington  SmallCap  Value Fund with  investment  advice and  management  of the
Fund's investment program. CTI was founded in Charlotte,  North Carolina in 1977
and invests exclusively in domestic smaller capitalization stocks. CTI currently
manages  assets  both small and mid cap growth  and value  styles for  primarily
institutional clients.
    

LEXINGTON TROIKA DIALOG RUSSIA FUND

      The Manager has entered into a  Sub-Advisory  Agreement with Troika Dialog
Asset Management ("TDAM").  Under the Sub-Advisory Agreement,  TDAM will provide
the Lexington Troika Dialog Russia Fund with investment advice and management of
the Fund's  investment  program.  TDAM is a wholly  owned  subsidiary  of Troika
Dialog  which was  founded in Moscow,  Russia in 1991 by Dialog  Bank and Troika
Capital Corporation.

   
REGISTERED SERVICE MARK

      The  Manager as owner of the  registered  service  mark  "Lexington"  will
sublicense  the Funds to include  the word  "Lexington"  as part of their  names
subject to revocation by the Manager in the event that the Funds cease to engage
the Manager or its affiliates as investment  manager or distributor.  Crosby has
authorized  the Lexington  Crosby Small Cap Asia Growth Fund to include the word
"Crosby" as part of its  corporate  name subject to  revocation by Crosby in the
event the Lexington Crosby Small Cap Asia Growth Fund ceases to engage Crosby as
Sub-Adviser. In that event the Funds will be required upon demand of the Manager
(or with regard to the Lexington  Crosby Small Cap Asia Growth Fund,  Crosby) to
change their  respective names to delete the word "Lexington" (or with regard to
the Lexington Crosby Small Cap Asia Growth Fund, "Crosby") therefrom.
    

                               PORTFOLIO MANAGERS

LEXINGTON CONVERTIBLE SECURITIES FUND

     Richard B. Russell manages the Lexington  Convertible  Securities Fund. Mr.
Russell is President of Ariston Capital  Management  Corporation,  the Lexington
Convertible  Securities  Fund's  Sub-Adviser.  He is a graduate of the School of
Business at the University of Washington and has completed  additional  training
at the New York Institute of Finance. He is a recognized  authority on portfolio
management,  particularly  through the use of convertible  securities and market
forecasting. He has spent his entire professional career as an independent money
manager,  dating from 1972.  Before founding Ariston in 1977, he was a full-time
manager of private family assets.  Mr. Russell has conducted  extensive research
on investment topics.

                                       43
<PAGE>

LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND

      CHRISTINA  LAM is a lead manager  (Nigel Webber is the other lead manager)
on a portfolio  management team that manages the Lexington Crosby Small Cap Asia
Growth Fund.  Ms. Lam is Vice  President and Portfolio  Manager of the Lexington
Crosby Small Cap Asia Growth Fund.  Ms. Lam joined  Crosby Asset  Management  in
1991.  She is  responsible  for the  investment  management of the listed equity
portfolios under the management of Crosby Asset Management which include a major
Asian small  capitalization  account.  After  graduating  with a Law Degree with
Honors from Warwick University,  she qualified as a Barrister from Lincoln's Inn
in London.  She moved to Hong Kong in 1987 where she joined Schroder  Securities
Limited in Hong Kong as an investment  analyst,  where her coverage included the
utilities, industrials and retail sectors and conglomerates.

      NIGEL WEBBER is a lead  manager  (Ms. Lam is the other lead  manager) on a
portfolio  management  team that  manages the  Lexington  Crosby  Small Cap Asia
Growth Fund. Mr. Webber is Vice President and Portfolio Manager of the Lexington
Crosby  Small Cap Asia Growth Fund.  Mr.  Webber is  responsible  for the Fund's
overall  investment  strategy.  Mr. Webber was appointed a Managing  Director of
Crosby Asset Management in October 1993 with primary responsibility for business
development. He joined Crosby Asset Management after being a partner in Causeway
Capital  Limited,  a  leading  independent  U.K.   investment   management  firm
specializing  in private  equity  investment and smaller  listed  companies.  He
started  his career at KPMG Peat  Marwick,  followed  by five years at  Citicorp
International  Bank  Limited  in  London  and New  York  and  three  years  with
Mercantile  House Holdings PLC a leading  financial  services group. In 1987, he
joined as Managing Director, an investment company specializing in the financial
sector where he first became associated with the Crosby Group. He was a Director
and member of the  investment  committee  of The Thai  Development  Capital Fund
Limited and The China Investment Company Ltd., two funds managed by Crosby Asset
Management from their launch until September 1993.

   
LEXINGTON GOLDFUND
    

     Robert W. Radsch, CFA, is portfolio manager of the Lexington Goldfund.  Mr.
Radsch is a Vice  President of the Manager.  Prior to joining  Lexington in July
1994, he was Senior Vice  President,  Portfolio  Manager and Chief Economist for
the Bull & Bear Group.  He has extensive  experience  managing gold,  silver and
platinum  on  an   international   basis  having  managed  precious  metals  and
international  funds for more than 13 years.  Mr.  Radsch is a graduate  of Yale
University  with a B.A.  degree  and holds an M.B.A.  in Finance  from  Columbia
University.

                                       44
<PAGE>

LEXINGTON GROWTH AND INCOME FUND

   
     Alan Wapnick is portfolio  manager of the Lexington Growth and Income Fund.
Mr. Wapnick is Senior Vice  President,  Director of Domestic  Investment  Equity
Strategy of the Manager.  Mr.  Wapnick is  responsible  for domestic  investment
analysis and portfolio management at LMC. He has 26 years investment experience.
Prior to joining the Manager 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.
    

LEXINGTON GNMA INCOME FUND

   
     Denis P. Jamison  manages the Lexington  GNMA Income Fund.  Mr.  Jamison is
Senior Vice  President and Director  Fixed Income  Strategy of the Manager.  Mr.
Jamison is responsible for fixed-income portfolio management.  He is a member of
the New York Society of Security Analysts. Prior to joining the Manager in 1981,
Mr.  Jamison had spent nine years at Arnold  Bernhard & Company,  an  investment
counseling  and  financial  services  organization.  At Bernhard,  he was a Vice
President  supervising  the  security  analyst  staff  and  managing  investment
portfolios. He is a specialist in government, corporate and municipal bonds. Mr.
Jamison is a graduate of the City College of New York with a B.A. in Economics.

LEXINGTON INTERNATIONAL FUND

     Richard T. Saler is the lead manager on an investment  management team that
manages the Lexington  International  Fund. Mr. Saler is Senior Vice  President,
Director of  International  Investment  Strategy of the  Manager.  Mr.  Saler is
responsible for international  investment  analysis and portfolio  management at
the Manager. He has ten years of investment experience. Mr. Saler has focused on
international  markets since first joining the Manager in 1986. In 1991 he was a
strategist with Nomura Securities and rejoined the Manager 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.

     PHILLIP A. SCHWARTZ is a co-manager on an investment  management  team that
manages the Lexington  International  Fund. Mr.  Schwartz is a Vice President of
the Manager,  Chartered  Financial  Analyst and member of the New York  Security
Analysts  Association.  He is responsible for international  investment analysis
and  portfolio  management  at the  Manager,  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,


                                       45
<PAGE>

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.
    

LEXINGTON MONEY MARKET TRUST

   
     DENIS P. JAMISON is portfolio  manager of the Lexington Money Market Trust.
Mr.  Jamison  also  manages the  Lexington  GNMA  Income Fund and the  Lexington
Ramirez  GlobalIncome  Fund.  Mr.  Jamison is Senior Vice President and Director
Fixed  Income  Strategy of  Lexington  Management  Corporation.  Mr.  Jamison is
responsible for  fixed-income  portfolio  management.  He is a member of the New
York  Society of Security  Analysts.  Prior to joining the Manager in 1981,  Mr.
Jamison  had spent  nine  years at Arnold  Bernhard  &  Company,  an  investment
counseling  and  financial  services  organization.  At Bernhard,  he was a Vice
President  supervising  the  security  analyst  staff  and  managing  investment
portfolios. He is a specialist in government, corporate and municipal bonds. Mr.
Jamison is a graduate of the City College of New York with a B.A. in Economics.
    

LEXINGTON RAMIREZ GLOBAL INCOME FUND

   
     Denis P. Jamison  manages the Lexington  Ramirez  Global  Income Fund.  Mr.
Jamison is Senior Vice President and Director Fixed Income Strategy of Lexington
Management  Corporation.  Mr. Jamison is responsible for fixed-income  portfolio
management.  He is a member of the New York Society of Security Analysts.  Prior
to joining  the  Manager  in 1981,  Mr.  Jamison  had spent nine years at Arnold
Bernhard  &  Company,   an  investment   counseling   and   financial   services
organization.  At Bernhard,  he was a Vice  President  supervising  the security
analyst  staff  and  managing  investment  portfolios.  He  is a  specialist  in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics.

     MARIA  FIORINI  RAMIREZ,  President  and  Chief  Executive  Officer  of MFR
Advisors  Inc. In 1973 she started a ten year  association  with Merrill  Lynch,
serving as Vice President and Senior Money Market  Economist.  She joined Becker
Paribas in 1984 as Vice  President  and Senior  Money  Market  Economist  before
joining Drexel Burnham  Lambert that same year as First Vice President and Money
Market Economist.  She was promoted to Managing Director of Drexel in 1986. From
April,  1990 to August 1992, Ms.  Ramirez was the President and Chief  Executive
Officer of Maria Ramirez Capital Consultants, Inc., a subsidiary of John Hancock
Freedom Securities Corporation. Ms. Ramirez established MFR in August, 1992, MFR

                                       46
<PAGE>

is Sub-Adviser to the Lexington  Ramirez Global Income Fund. Ms. Ramirez holds a
B.A. in Business Administration and Economics from Pace University.
    

LEXINGTON SMALLCAP VALUE FUND

   
      DENNIS  HAMILTON  is one of two lead  managers  (Robb W. Rowe is the other
lead manager) of a portfolio management team that manages the Lexington SmallCap
Value Fund.  Mr.  Hamilton is Vice  President and  Portfolio  Manager of Capital
Technology,  Inc. ("CTI").  He is responsible for issue selection and the day to
day investment  activities of the Lexington  SmallCap  Value Fund. Mr.  Hamilton
joined CTI in 1994 after being a principal at Mercer Investment Consulting, Inc.
He has also served as Director of Pension  Investment for several  multi-billion
dollar corporate pension funds and was President and Chief Investment Officer of
Western Reserve Capital Management,  Inc., an SEC registered investment advisor.
He is an Honors  graduate of Colgate  University  and earned an MBA from Harvard
Business School in 1971.

     ROBB W. ROWE is one of two lead  managers  (Mr.  Hamilton is the other lead
manager) of a portfolio  management  team that  manages the  Lexington  SmallCap
Value Fund.  Mr.  Rowe is  President  and  principal  shareholder  of CTI. He is
responsible for the Lexington SmallCap Value Fund's overall investment strategy.
Mr. Rowe joined CTI in 1982 after being Vice  President and Regional  Manager of
AG Becker Co. He is a graduate  of Ripon  College  and  received an MBA from the
University of Chicago in 1971.
    

LEXINGTON TROIKA DIALOG RUSSIA FUND

   
      PETER DERBY is a manager on a portfolio  management  team that manages the
Lexington  Troika Dialog Russia Fund.  Mr. Derby is the Chairman of the Board of
TDAM and is the President,  Chief Executive Officer and founder of Troika Dialog
and is the President and Chief  Executive  Officer of Dialog Bank, a position he
has held since 1991.  Mr.  Derby  participated  in the  drafting  of  corporate,
banking and  securities  legislation  in Russia and is currently a member of the
Expert Council of Russia's Federal  Securities  Exchange  Commission.  Mr. Derby
holds numerous director positions in Russian enterprises and charities;  he is a
founding and current  Member of the Board of the Moscow  International  Currency
Exchange,  and is a Member of the Board of Directors of the American  Chamber of
Commerce in Russia.  Mr.  Derby is  Treasurer  and Member of the Board of Junior
Achievement  in  Russia.  He  is  a  founding  Member  of  the  Russian-American
Professional Club in New York City.

     NANCY HERRING is a lead manager of a portfolio management team that manages
the  Lexington  Troika  Dialog  Russia  Fund.  Ms.  Herring  manages the Russian
    


                                       47
<PAGE>

   
domestic mutual funds of Troika Dialog.  She was appointed  Managing Director in
1996. Before joining TDAM, Ms. Herring, a U.S. citizen,  was a portfolio manager
of a U.S. equity fund for Dean Witter Intercapital.  In all, she has over twelve
years  of  security  industry  experience.   Her  Master's  Degree  in  Business
Administration  was earned in  International  Business  and  Finance at Columbia
University Graduate School of Business.

     GAVIN RANKIN is a lead manager of a portfolio  management team that manages
the Lexington Troika Dialog Russia Fund. Mr. Rankin is Head of Research for TDAM
and Troika Dialog. He is responsible,  along with other members of the portfolio
management  team, for the Fund's  overall  investment  strategy.  Before joining
Troika Dialog, he was the Founder and Chief Executive Officer of Lonpra A.S., an
investment  banking firm in Czechoslovakia in 1991. Mr. Rankin received a degree
in law (L.L.B.) from the  University of Buckingham in England and also qualified
as a  Chartered  Accountant  with Price  Waterhouse.  Mr.  Rankin has  extensive
experience in East European equity research and management.

     RUBEN  VARDANIAN is a manager on a portfolio  management  team that manages
the Lexington  Troika Dialog Russia Fund. Mr. Vardanian is President of TDAM and
Executive  Director of Troika Dialog.  Mr. Vardanian,  a Russian national,  is a
sitting member of the Moscow Times Index Composition Committee. He is a Director
and  former  Chairman  of the  Board of  Directors  of the  Depository  Clearing
Company.  He is also  Chairman of the Board of Directors of the Russian  capital
markets self-regulatory  organization (PAUFOR). Mr. Vardanian received a Masters
Degree with Distinction from the Finance  Department of Moscow State University.
He  received  post-graduate  training  with Banca CRT in Italy and the  Emerging
Markets Division of Merrill Lynch in New York.

LEXINGTON WORLDWIDE EMERGING MARKETS FUND

     Richard T. Saler is the lead manager on an investment  management team that
manages the Lexington  Worldwide Emerging Markets Fund. Mr. Saler is Senior Vice
President,  Director of International  Investment  Strategy of the Manager.  Mr.
Saler  is  responsible  for  international  investment  analysis  and  portfolio
management at the Manager. He has ten years of investment experience.  Mr. Saler
has focused on international markets since first joining the Manager in 1986. In
1991 he was a  strategist  with Nomura  Securities  and  rejoined the Manager 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.

    

                                       48
<PAGE>

   
                       MANAGEMENT FEES AND OTHER EXPENSES

      The  Manager  provides  the  Funds  with  advice  on  buying  and  selling
securities,  manages the Funds'  Investments,  including the placement of orders
for  portfolio  transactions,  furnishes the Funds with office space and certain
administrative  services and provides personnel needed by the Funds with respect
to the  Manager's  responsibilities  under the Manager's  Investment  Management
Agreement with each fund. The Manager also compensates the members of the Funds'
Board of Directors or Trustees who are  interested  persons of the Manager,  and
assumes  the  cost  of  printing   prospectuses  and  shareholder   reports  for
dissemination to prospective investors.

     The management  fees for all the Funds except  Lexington  Growth and Income
Fund,  Lexington  GNMA Income Fund and  Lexington  Money Market Trust are higher
than for most mutual funds.

      As  compensation,  each  Lexington  Fund pays the Manager a management fee
(accrued  daily but paid when  requested by the Manager) based upon the value of
the average daily net assets of that fund, according to the following table.
<TABLE>
<CAPTION>

                                               MANAGEMENT FEE                     AVERAGE DAILY NET
                                                (ANNUAL RATE)                  ASSETS (IF APPLICABLE)
------------------------------------------------------------------------------------------------------
<S>                                                 <C>                                <C>
Lexington Crosby Small Cap
   Asia Growth Fund                                 1.25%                                  *
------------------------------------------------------------------------------------------------------
Lexington International Fund                        1.00%                                  *
------------------------------------------------------------------------------------------------------
Lexington Ramirez Global
   Income Fund                                      1.00%                                  *
------------------------------------------------------------------------------------------------------
Lexington Troika Dialog Russia Fund                 1.25%                                  *
------------------------------------------------------------------------------------------------------
Lexington Worldwide Emerging
   Markets Fund                                     1.00%                                  *
------------------------------------------------------------------------------------------------------
Lexington Convertible
   Securities Fund                                  1.00%                                  *
-----------------------------------------------------------------------------------------------------
Lexington Growth and                                0.75%                        First $100 million
  Income fund                                       0.60%                        Next $50 million
                                                    0.50%                        Next $100 million
                                                    0.40%                        Over $250 million
------------------------------------------------------------------------------------------------------
Lexington SmallCap Value Fund                       1.00%                                  *
------------------------------------------------------------------------------------------------------
Lexington Goldfund                                  1.00%                        First $50 million
                                                    0.75%                        Over $50 million
-------------------------------------------------------------------------------------------------------
Lexington GNMA Income Fund                          0.60%                                  *
-------------------------------------------------------------------------------------------------------
Lexington Money Market Trust                        0.50%                                  *
-------------------------------------------------------------------------------------------------------
</TABLE>

*One rate applies to the Fund's average daily net assets
    

                                       49
<PAGE>

   
      The Manager also serves as the Funds' Administrator (the "Administrator").
The  Administrator  performs  services  with  regard to various  aspects of each
fund's administrative operations at cost.

      Each fund is responsible for its own operating expenses including, but not
limited  to:  the  Manager's  fees;  taxes,  if any;  brokerage  and  commission
expenses,   if  any;  interest  charges  on  any  borrowings;   transfer  agent,
administrator,  custodian,  legal and auditing fees;  shareholder servicing fees
including fees to third-party servicing agents; fees and expenses of Director or
Trustees  who are not  interested  persons of the  Manager;  salaries of certain
personnel;  costs and expenses of calculating  its daily net asset value;  costs
and expenses of accounting,  bookkeeping  and record keeping  required under the
Investment Company Act of 1940; insurance premiums; trade association dues; fees
and expenses of registering and maintaining  registration of its shares for sale
under federal and applicable  state  securities  laws; all costs associated with
shareholders  meetings and the preparation and dissemination of proxy materials,
except  for  meetings  called  solely  for the  benefit  of the  Manager  or its
affiliates;   printing  and  mailing  prospectuses,   statements  of  additional
information  and reports to  shareholders;  and other expenses  relating to that
fund's operations, plus any extraordinary and nonrecurring expenses that are not
expressly assumed by the Manager.

      For certain funds,  the Manager has agreed to reduce its management fee if
necessary  to keep total  annual  operating  expenses at or below the  following
percentages  of each fund's  average daily net assets.  Lexington  International
Fund, one and  three-quarters  percent (1.75%);  Lexington Ramirez Global Income
Fund, one and one-half  percent  (1.50%);  Lexington  Troika Dialog Russia Fund,
three and thirty-five one-hundredths of one percent (3.35%); and Lexington Money
Market  Trust,  one  percent  (1.00%).  The Manager  also may reduce  additional
amounts  in these or other of the  Funds  to  increase  the  return  to a fund's
investors. The Manager may terminate these voluntary reductions at any time.

      In addition,  the Manager may elect to absorb  operating  expenses  that a
fund is obligated to pay to increase the return to that fund's investors. If the
Manager  performs a service or assumes an operating  expense for which a fund is
obligated to pay and the  performance of such service or payment of such expense
is not an obligation of the Manager under the Investment  Management  Agreement,
the Manager is entitled to seek  reimbursement  from that fund for the Manager's
costs incurred in rendering  such service or assuming such expense.  The Manager
also may compensate  broker-dealers and other  intermediaries  that distribute a
fund's  shares  as  well  as  other  service   providers  of   shareholder   and
administrative  services.  The Manager may also sponsor seminars and educational
programs on the Funds for financial intermediaries and shareholders.
    

                                       50
<PAGE>

   
      The Manager  considers a number of factors in determining which brokers or
dealers to use for each fund's  portfolio  transactions.  Although these factors
are more fully  discussed  in the  Statement  of  Additional  Information,  they
include,  but are not  limited to,  reasonableness  of  commissions,  quality of
services,  and  execution  and  availability  of  research  that the Manager may
lawfully  and  appropriately  use  in its  investment  management  and  advisory
capacities.  Provided the Funds receive prompt execution at competitive  prices,
the  Manager  also  may  consider  the sale of a fund's  shares  as a factor  in
selecting broker-dealers for that fund's portfolio transactions.

      It is  anticipated  that Troika Dialog or  SocGen-Crosby  Securities  (HK)
Limited  may  act as two of the  Fund's  brokers  in the  purchase  and  sale of
portfolio securities and, in that capacity,  will receive brokerage  commissions
from the Funds.  The Funds will use Troika  Dialog or  SocGen-Crosby  Securities
(HK)  Limited as its broker  only when,  in the  judgement  of the  Manager  and
pursuant to review by the Boards of Directors,  Troika  Dialog or  SocGen-Crosby
Securities  (HK) Limited will obtain a price and execution at least as favorable
as that available from other qualified brokers. See "Portfolio  Transactions and
Brokerage Commissions" in the Statement of Additional Information.
    

                                       51
<PAGE>

   
                            HOW TO CONTACT THE FUNDS

      Call a Lexington shareholder service representative  Monday-Friday between
9-5 ET for information on the Funds or your account, at:
    

                  (800) 526-0056 OR (201) 845-7300 FOR SERVICE

                 (800) 526-0052 FOR 24 HOUR ACCOUNT INFORMATION

      Mail your  completed  application,  any checks,  investment  or redemption
instructions and correspondence to the Transfer Agent:

                                      TRANSFER AGENT:
                                      State Street Bank and Trust Company
                                      c/o National Financial Data Services
                                      Lexington Funds
                                      1004 Baltimore
                                      Kansas City, Missouri 64105

                           HOW TO INVEST IN THE FUNDS

      The Funds' shares are offered directly to the public,  with no sales load,
at their next determined net asset value after receipt of an order with payment.
The Funds'  shares are offered for sale by State  Street Bank and Trust  Company
(the "Transfer Agent") and through selected securities brokers and dealers.

      If an order,  together  with  payment in proper  form,  is received by the
Transfer  Agent by 4:00 p.m.,  New York time, on any day that the New York Stock
Exchange  ("NYSE") is open for  trading,  fund shares will be  purchased  at the
fund's  next-determined  net asset value.  Orders for fund shares received after
the Funds' cutoff times will be purchased at the next-determined net asset value
after receipt of the order.

   
      The minimum  investment  in each fund is  described in this  section.  The
Manager or the  Distributor,  in its discretion,  may waive these minimums.  The
Funds do 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. See the Statement of Additional Information for further details.
    

                                       52
<PAGE>

INITIAL INVESTMENTS

      Minimum Initial Investment (except Lexington
        Troika Dialog Russia Fund):$1,000

      MINIMUM INITIAL INVESTMENT FOR THE LEXINGTON TROIKA
        DIALOG RUSSIA FUND:$5,000

INITIAL INVESTMENTS BY CHECK

     o    Complete  the New Account  Application.  Tell us in which  fund(s) you
          want to invest and make your check payable to THE LEXINGTON FUNDS.

     o    Mail the New Account  Application  and check to the Transfer  Agent at
          the address given above.

     o    A charge may be imposed on checks that do not clear.

     o    The Funds and the  Distributor  each  reserve  the right to reject any
          purchase order in whole or in part.

INITIAL INVESTMENTS BY WIRE

   
     o    Shares of the Funds may be purchased by wire if a prospectus  has been
          received and read prior to investing. The purchase will be made at the
          net asset value on the day received if the wire is received prior to 4
          pm ET.

     o    Telephone the Funds toll-free at 1-800-526-0056. Provide the Fund with
          your name,  dollar amount to be invested and fund(s) in which you want
          to invest. They will provide you with further instructions to complete
          your  purchase.  Complete  information  regarding your account must be
          included in all wire  instructions to ensure accurate handling of your
          investment.
    

     o    Request your bank to transmit immediately  available funds by wire for
          purchase of shares in your name to the following:

   
                        State Street Bank and Trust Company
                        Account No. 99043713
                            Re: Lexington Fund you are
                            investing in
                        Account of (your Registration)
                        Account # (of new account)
                        ABARouting Number 011000028
    

     O    A COMPLETED NEW ACCOUNT APPLICATION MUST THEN BE FORWARDED TO THE FUND
          AT THE ADDRESS ON THE APPLICATION.

     o    Your bank may charge a fee for any wire transfers.

                                       53
<PAGE>

     o    The Funds and the  Distributor  each  reserve  the right to reject any
          purchase order in whole or in part.

MINIMUM SUBSEQUENT INVESTMENT:                                              $50

     SUBSEQUENT INVESTMENTS BY CHECK

     o    Make your check payable to The Lexington Funds. Enclose the detachable
          form which  accompanies the Transfer  Agent's  confirmation of a prior
          transaction  with your check. If you do not have the detachable  form,
          mail your check with written instructions indicating the fund name and
          account number to which your investment should be credited.

     o    A charge may be imposed on checks that do not clear.

     SUBSEQUENT INVESTMENTS BY WIRE

     o    You do not  need  to  contact  the  Transfer  Agent  prior  to  making
          subsequent  investments  by wire.  Instruct your bank to wire funds to
          the  Transfer  Agent using the bank wire  information  under  "Initial
          Investments by Wire" above.

     "LEX-O-MATIC" THE AUTOMATIC INVESTMENT PLAN

     o    A shareholder may make additional purchases of shares automatically on
          a monthly  or  quarterly  basis  with the  automatic  investing  plan,
          "Lex-O-Matic."

     o    "Lex-O-Matic"  will be established on existing  accounts only. You may
          not use a "Lex-O-Matic"  investment to open a new account. The minimum
          automatic investment amount is $50.

     o    Your bank must be a member of the Automated Clearing House.

     o    To establish Lex-O-Matic,  attach a voided check (checking account) or
          preprinted deposit slip  (savings  account)  from your bank account to
          your Lexington Account Application or your letter of instruction.

   
     o    Investments will  automatically  be  transferred  into your  Lexington
          Account from your checking or savings account. The institution must be
          an Automated Clearing House (ACH) member.
    

     o    Investments may be transferred either monthly or quarterly on or about
          the 15th day of the month.

     o    You  should  allow  20  business  days  for  this  service  to  become
          effective.

     o    You may cancel your  Lex-O-Matic at any time provided that a letter is
          sent to the Transfer Agent ten days prior to the scheduled  investment
          date. Your request will be processed upon receipt.

                                       54
<PAGE>

      By investing in the  Lexington  Funds,  you appoint the Transfer  Agent as
your agent to establish an open  account to which all shares  purchased  will be
credited, along with any dividends and capital gain distributions which are paid
in additional  shares (see "Dividends and  Distributions").  Stock  certificates
will be issued,  upon  written  request,  for full  shares of  Lexington  Funds.
Certificates  will not be issued for 30 days unless payment is made by certified
check, cashier's check or federal funds wire. In order to facilitate redemptions
and transfers, most shareholders elect not to receive certificates.

      You may purchase shares of the Lexington Funds through  broker-dealers  or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial  institutions  that process such orders for customers may charge a fee
for their  services.  The fee may be avoided by purchasing  shares directly from
the Lexington Funds.

                    HOW TO REDEEM AN INVESTMENT IN THE FUNDS

   
      The Funds will  redeem  all or any  portion  of an  investors  outstanding
shares upon  request.  Redemptions  can be made on any day that the NYSE is open
for  trading.  The  redemption  price is the net  asset  value  per  share  next
determined after the shares are validly tendered for redemption and such request
is  received  by the  Transfer  Agent.  Payment of  redemption  proceeds is made
promptly  regardless of when  redemption  occurs and normally  within three days
after  receipt of all documents in proper form,  including a written  redemption
order with appropriate  signature guarantee.  Redemption proceeds will be mailed
or wired in accordance with the shareholders instructions. The Funds may suspend
the right of redemption under certain extraordinary  circumstances in accordance
with the rules of the SEC. In the case of shares purchased by check and redeemed
shortly after the purchase, the Transfer Agent will not mail redemption proceeds
until it has been  notified  that the  monies  used for the  purchase  have been
collected,  which may take up to 15 days from the purchase  date. You may redeem
shares of the Lexington Funds through  broker-dealers or financial  institutions
that have selling agreements with LFD. Broker-dealers and financial institutions
that process such orders for customers may charge a fee for their services.  The
fee may be avoided by redeeming shares directly from the Lexington Funds.

      A 2%  redemption  fee will be charged on the  redemption  of shares of the
Lexington  Troika Dialog Russia Fund held less than 365 days. The redemption fee
will not apply to shares  representing the reinvestment of dividends and capital
gains  distributions.  The  redemption  fee will be  applied on a share by share
basis using the "first  shares in, first shares out" (FIFO)  method.  Therefore,
the oldest shares are considered to have been sold first.
    

                                       55
<PAGE>

       REDEEMING BY WRITTEN INSTRUCTION

     o    Write a letter giving your name,  account number, the name of the fund
          from  which  you wish to  redeem  and the  dollar  amount or number of
          shares you wish to redeem.

   
     o    Signature guarantee your letter if you want the redemption proceeds to
          go to a party other than the account owner(s), your predesignated bank
          account or if the dollar amount of the redemption exceeds $25,000. The
          Transfer Agent requires that the guarantor be either a commercial bank
          which is a member of the FederalDeposit 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. CONTACT THE FUND FOR MORE INFORMATION.
    

     o    If a redemption  request is sent to the Fund in New Jersey, it will be
          forwarded to the Transfer  Agent and the effective  date of redemption
          will be the date received by the Transfer Agent.

   
     o    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.  Shareholders  who redeem
          all their  shares will receive a check  representing  the value of the
          shares  redeemed  plus  the  accrued  dividends  through  the  date of
          redemption.  Where shareholders redeem only a portion of their shares,
          all  dividends  declared  but unpaid  will be  distribute  on the next
          dividend payment date. The Transfer Agent will restrict the mailing of
          redemption  proceeds to a shareholder address of record within 30 days
          of such  address  being  changed,  unless the  shareholder  provides a
          signature guaranteed letter of instruction.
    

       REDEEMING BY TELEPHONE

   
     o    Shares of the Funds may redeemed by telephone.  A telephone redemption
          in good order  will be  processed  at the net asset  value of the Fund
          next  determined.  There is a maximum  telephone  redemption  limit of
          $100,000.  Call the Fund  between  9 a.m.  and 4 p.m.  ET toll free at
          1-800-526-0056.
    

     o    A  redemption  authorization  and  signature  guarantee  must be given
          before  a   shareholder   may  redeem  by   telephone.   A  redemption
          authorization  form is  contained in the New Account  Application  and
          authorization forms may be obtained by calling the Funds.

   
     o    Shareholders  may elect on the redemption  authorization  form to have
          redemption  proceeds,  in any  amount  of $200 or more,  mailed to the
          registered  address  or to any  other  designated  person.  There is a
          minimum  of $1,000 to have your  Redemption  proceeds  wired to a bank
          account.  A new form must be completed whenever these instructions are
          revised.
    

                                       56
<PAGE>

   

     o    Telephone  redemption  privileges may be canceled by  instructing  the
          Transfer  Agent  in  writing.  Your  request  will be  processed  upon
          receipt.

     o    Telephone  Exchanges  may only  involve  shares held on deposit by the
          Transfer   Agent,   not  shares  held  in  certificate   form  by  the
          shareholder.

     o    Exchange/Redemption  by  telephone,   see  below   "Exchange/Telephone
          Privileges and Restrictions."

     REDEEMING BY CHECK

     o    Checkwriting is available on the Lexington Money Market Trust.
    

     o    The  minimum  amount  per check is $100 or more up to  $500,000  at no
          charge.  Checks  for  less  than  $100 or over  $500,000  will  not be
          honored.

     o    All checks require only one signature unless otherwise indicated.

     o    Checks will be returned to you at the end of each month.

     o    Redemption  checks are free, but a charge of $15.00 may be imposed for
          any stop payments requested.

     o    Redemption checks should not be used to close your account.

     o    Procedures for  redemptions by telephone,  at no charge,  or check may
          only be used for shares  for which  share  certificates  have not been
          issued,  and may not be used to redeem shares purchased by check which
          have been on the books of the Fund for less than 15 days.

SYSTEMATIC WITHDRAWAL PLAN

   
      Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third  party)  periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature  guarantee is required.  The minimum  payment amount is $100 from each
fund  account.  Payments  may  be  made  monthly,  quarterly,  semi-annually  or
annually.  Systematic  withdrawals  occur on the 28th of each month. If the 28th
falls on a weekend  or  holiday,  the  withdrawal  will  occur on the  preceding
business day. Depending on the form of payment requested, shares may be redeemed
up to five  business  days before the  redemption  proceeds are  scheduled to be
received by the  shareholder.  The redemption  may result in the  recognition of
gain or loss for income tax purposes.
    

                                       57
<PAGE>

   
EXCHANGE/TELEPHONE REDEMPTION PRIVILEGES AND RESTRICTIONS

      Shares of the  Lexington  Funds may be exchanged  for shares of equivalent
value of any Lexington  Fund. If an exchange  involves  investing in a Lexington
Fund not already owned,  the dollar amount of the exchange must meet the minimum
initial  investment amount. An exchange may result, in a recognized gain or loss
for income tax purposes.  Exchanges  over $500,000 may take up to three business
days  to  complete.   See  the  discussion  of  fund  telephone  procedures  and
limitations of liability under "Telephone Transactions" above.
    

     PURCHASING AND REDEEMING SHARES BY EXCHANGE

   
     o    You may make exchange/redemption  requests in writing or by telephone.
          Telephone exchanges may only be made if you have completed a Telephone
          Authorization form.  Telephone exchanges may not be made within 7 days
          of a previous exchange.

     o    The minimum exchange  required is $500,  unless a new account is being
          established.

     o    Telephone  exchanges/redemptions  may  only  involve  shares  held  on
          deposit by the Transfer Agent,  not shares held in certificate form by
          the shareholder.

     o    Any new  account  established  by a  shareholder  will  also  have the
          privilege  of  exchange  by  telephone  in the  Lexington  Funds.  All
          accounts involved in a telephonic exchange must have the same dividend
          option as the account from which the shares are transferred.

     o    Telephone  redemption  privileges are not available on retirement plan
          accounts.

TELEPHONE EXCHANGE/TELEPHONE REDEMPTION IDENTIFICATION PROCEDURES

      You agree that neither LFD,  the  Transfer  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
imposters or persons otherwise unauthorized to act on behalf of the account. The
above provision is subject to the procedures  outlined below.  LFD, the Transfer
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 telephone exchange and telephone redemption  transactions will
take place on recorded telephone lines and each transaction will be confirmed in
    

                                       58
<PAGE>

   
writing by the Fund. 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.
    

                        HOW NET ASSET VALUE IS DETERMINED

      The net asset value of each Fund is determined once daily as of 4:00 p.m.,
New York  time,  on each day that the NYSE is open for  trading.  Per  share net
asset value is  calculated by dividing the value of each fund's total net assets
by the total number of that fund's shares then outstanding.

   
      As more  fully  described  in the  Statement  of  Additional  Information,
portfolio securities are valued using current market valuations: either the last
reported  sales  price  or,  in the case of  securities  for  which  there is no
reported last sale and fixed-income securities, the mean between the closing bid
and asked  price.  Securities  traded  over-the-counter  are  valued at the mean
between  the last  current  bid and asked  price.  Securities  for which  market
quotations  are not readily  available or which are illiquid are valued at their
fair  values as  determined  in good faith under the  supervision  of the Funds'
officers, and by the Manager and the Boards, in accordance with methods that are
specifically authorized by the Boards. Short-term obligations with maturities of
60 days or less are valued at amortized cost as reflecting fair value. When Fund
management deems it appropriate  prices obtained for the day of valuation from a
third party pricing service will be used to value portfolio securities.
    

      The value of securities  denominated  in foreign  currencies and traded on
foreign  exchanges or in foreign markets will be translated into U.S. dollars at
the last price of their respective  currency  denomination  against U.S. dollars
quoted by a major bank or, if no such  quotation  is  available,  at the rate of
exchange determined in accordance with policies established in good faith by the
Boards.  Because the value of securities  denominated in foreign currencies must
be translated into U.S. dollars, fluctuations in the value of such currencies in
relation  to the U.S.  dollar may affect the net asset value of fund shares even
without  any  change  in  the   foreign-currency   denominated  values  of  such
securities.

      Because  foreign  securities  markets may close before the Funds determine
their net asset  values,  events  affecting  the value of  portfolio  securities
occurring  between  the time  prices  are  determined  and the  time  the  Funds
calculate their net asset values may not be reflected unless the Manager,  under
supervision of the Board,  determines that a particular  event would  materially
affect a fund's net asset value.

                                       59
<PAGE>

DISTRIBUTION PLAN

   
     The Lexington  Convertible  Securities Fund, Lexington Goldfund,  Lexington
Growth and Income Fund,  Lexington  International Fund, Lexington Ramirez Global
Income Fund,  Lexington  SmallCap Value Fund and Lexington  Troika Dialog Russia
Fund have each adopted a Distribution  Plan. The Distribution Plan provides that
the  Funds  may pay  distribution  fees up to 0.25% of their  average  daily net
assets for distribution services.
    

SHAREHOLDER SERVICE AGREEMENTS

   
      The  Lexington  Crosby Small Cap Asia Growth Fund,  Lexington  GNMA Income
Fund and Lexington  Worldwide  Emerging  Markets Fund may enter into Shareholder
Servicing  Agreements  with  one  or  more  Shareholder  Servicing  Agents.  The
Shareholder Servicing Agents provide various services to shareholders. For these
services,  each  Shareholder  Servicing  Agent  receives fees up to 0.25% of the
average  daily net assets of the Fund  represented  by shares  owned  during the
period for which  payment is made.  The Manager,  at no  additional  cost to the
Funds, may pay to Shareholder  Servicing Agents additional amounts from its past
profits.  Each Shareholder  Servicing Agent may, from time to time,  voluntarily
waive all or a portion of the fees payable to it.

TAX-SHELTERED RETIREMENT PLANS

      The Funds offers a Prototype Pension and Profit Sharing Plan,  including a
Keogh  Plan,  IRA's,  SEP-IRA's  and IRA  Rollover  Accounts,  401(k)  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.
    

                                       60
<PAGE>

                           DIVIDENDS AND DISTRIBUTIONS

      Each fund distributes  substantially  all of its net investment income and
net capital gains to  shareholders  each year.  The amount and frequency of fund
distributions  are  not  guaranteed  and  are at the  discretion  of the  Board.
Currently,  the Lexington Funds intend to distribute  according to the following
schedule:
<TABLE>
<CAPTION>

                                    INCOME DIVIDENDS                     CAPITAL GAINS
---------------------------------------------------------------------------------------------------
<S>                                 <C>                                  <C>
LEXINGTON CONVERTIBLE               Declared and paid quarterly          Declared and paid annually
   SECURITIES FUND
LEXINGTON GROWTH AND INCOME FUND
LEXINGTON RAMIREZ GLOBAL
   INCOME FUND
---------------------------------------------------------------------------------------------------
LEXINGTON GNMA INCOME FUND          Declared and paid monthly            Declared and paid annually
---------------------------------------------------------------------------------------------------
LEXINGTON CROSBY SMALL CAP          Declared and paid annually           Declared and paid annually
   ASIA GROWTH FUND
LEXINGTON INTERNATIONAL FUND
LEXINGTON SMALLCAP VALUE FUND
LEXINGTON TROIKA DIALOG
   RUSSIA FUND
   
LEXINGTON WORLDWIDE
   EMERGING MARKETS FUND
---------------------------------------------------------------------------------------------------
LEXINGTON GOLDFUND                  Declared and paid                    Declared and paid
                                    semi-annually                        semi-annually
    
---------------------------------------------------------------------------------------------------
LEXINGTON MONEYMARKET               Declared daily                       Not expected
   TRUST                            and paid monthly
---------------------------------------------------------------------------------------------------
</TABLE>

      Unless investors request cash distributions in writing,  all dividends and
other distributions will be reinvested automatically in additional shares of the
applicable  fund and  credited  to the  shareholders  account at the closing net
asset value on the reinvestment date.

DISTRIBUTIONS AFFECT A FUND'S NET ASSET VALUE

      Distributions are paid to you as of the record date of a distribution of a
fund,  regardless  of how long you have held the shares.  Dividends  and capital
gains awaiting  distribution  are included in each fund's daily net asset value.
The share  price of a fund  drops on the  ex-dividend  date by the amount of the
distribution,  net of any subsequent market  fluctuations.  For example,  assume
that on December 31, the Lexington Growth and Income Fund declared a dividend in
the amount of $0.50 per share.  If the Lexington  Growth and Income Fund's share
price was $10.00 on December  30, the Fund's share price on December 31 would be
$9.50, barring market fluctuations.

                                       61
<PAGE>

"BUYING A DIVIDEND"

      If you buy shares of a fund just before a  distribution,  you will pay the
full price for the shares and receive a portion of the purchase  price back as a
taxable distribution.  This is called "buying a dividend." In the example above,
if you bought  shares on December  30, you would have paid $10.00 per share.  On
December  31,  the Fund  would pay you $0.50  per share as a  dividend  and your
shares would now be worth $9.50 per share. Unless your account is a tax-deferred
account,  dividends  paid to you would be included in your gross  income for tax
purposes even though you may not have  participated in the increase of net asset
value of the Fund, regardless of whether you reinvested the dividends.

                                    TAXATION

      Each of the funds has  elected  and  intends to  continue to qualify to be
treated as a regulated  investment  company  under  Subchapter M of the Code, by
distributing  substantially  all of its net  investment  income and net  capital
gains to its shareholders and meeting other requirements of the Code relating to
the sources of its income and diversification of assets. Accordingly,  the Funds
generally  will not be liable for federal  income tax or excise tax based on net
income  except  to  the  extent  their  earnings  are  not  distributed  or  are
distributed in a manner that does not satisfy the requirements of the Code. If a
fund is unable to meet certain Code requirements,  it may be subject to taxation
as a  corporation.  Funds  investing  in foreign  securities  also may incur tax
liability to the extent they invest in "passive foreign  investment  companies."
See "Portfolio Securities" and the Statement of Additional Information.

      For federal income tax purposes, any dividends derived from net investment
income and any excess of net short-term  capital gain over net long-term capital
loss that investors (other than certain  tax-exempt  organizations that have not
borrowed to purchase fund shares) receive from the Funds are considered ordinary
income.  Part of the  distributions  paid by the Funds may be  eligible  for the
dividends-received  deduction allowed to corporate  shareholders under the Code.
Distributions  of the excess of net long-term  capital gain over net  short-term
capital  loss  from  transactions  of a fund  are  treated  by  shareholders  as
long-term  capital gains regardless of the length of time the fund's shares have
been owned.  Distributions  of income and capital  gains are taxed in the manner
described above,  whether they are taken in cash or are reinvested in additional
shares of the Funds.

                                       62
<PAGE>

      Each fund will inform its  investors of the source of their  dividends and
distributions  at the time they are paid,  and will promptly  after the close of
each calendar year advise investors of the tax status of those distributions and
dividends. Investors (including tax exempt and foreign investors) are advised to
consult their own tax advisers regarding the particular tax consequences to them
of an investment in shares of the Funds.  Additional  information on tax matters
relating to the Funds and their  shareholders  is included in the  Statement  of
Additional Information.

                               GENERAL INFORMATION

THE FUNDS

   
      The Lexington  Convertible  Securities Fund,  Lexington Money Market Trust
and Lexington Ramirez Global Income Fund are business trusts organized under the
laws of  Massachusetts.  The  Lexington  Crosby  Small  Cap  Asia  Growth  Fund,
Lexington  Goldfund,  Lexington  GNMA Income Fund,  Lexington  Growth and Income
Fund,  Lexington  International Fund,  Lexington SmallCap Value Fund,  Lexington
Troika  Dialog  Russia Fund and Lexington  Worldwide  Emerging  Markets Fund are
Maryland  corporations.  The assets and  liabilities  of each business trust and
corporation  are  separate  and  distinct  from  each  other  business  trust or
corporation.
    

      The Funds may offer other classes of shares to eligible  investors and may
in the future designate other classes of shares for specific purposes.

SHAREHOLDER RIGHTS

      Shares issued by the Funds have no preemptive,  conversion or subscription
rights. Each whole share is entitled to one vote as to any matter on which it is
entitled  to vote  and each  fractional  share is  entitled  to a  proportionate
fractional  vote.  Shareholders  have equal and exclusive rights as to dividends
and  distributions  as  declared by each fund and to the net assets of each fund
upon liquidation or dissolution. Each fund votes separately on matters affecting
only that fund (e.g., approval of the Investment Management  Agreement).  Voting
rights are not cumulative,  so the holders of more than 50% of the shares voting
in any  election of Trustees or Directors  can, if they so choose,  elect all of
the Trustees or Directors of that Fund. Although the Funds are not required, and
do not intend,  to hold annual  meetings of  shareholders,  such meetings may be
called by each Fund's Board at its discretion,  or upon demand by the holders of
10% or more of the outstanding shares of the Fund for the purpose of electing or
removing  Trustees  or  Directors.   Shareholders  may  receive   assistance  in
communicating with other shareholders in connection with the election or removal
of Trustees or  Directors  pursuant to the  provisions  of Section  16(c) of the
Investment Company Act.

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<PAGE>

PERFORMANCE INFORMATION

      From time to time,  the Funds may publish their total return,  and, in the
case of certain funds,  current yield and tax equivalent yield in advertisements
and communications to investors. Total return information generally will include
a fund's  average  annual  compounded  rate of return  over the most recent four
calendar quarters and over the period from the fund's inception of operations. A
fund may also  advertise  aggregate  and average total return  information  over
different  periods of time. Each fund's average annual compounded rate of return
is determined by reference to a  hypothetical  $1,000  investment  that includes
capital  appreciation  and  depreciation  for the stated  period  according to a
specific  formula.  Aggregate  total return is calculated  in a similar  manner,
except that the results are not  annualized.  Total return  figures will reflect
all recurring charges against each fund's income.

      Current yield as prescribed  by the SEC is an annualized  percentage  rate
that reflects the change in value of a hypothetical  account based on the income
received from the fund during a 30-day period. It is computed by determining the
net  change,   excluding  capital  changes,  in  the  value  of  a  hypothetical
preexisting  account  having a  balance  of one  share at the  beginning  of the
period. A hypothetical  charge reflecting  deductions from shareholder  accounts
for  management  fees or shareholder  services fees, for example,  is subtracted
from the value of the account at the end of the period,  and the  difference  is
divided  by the value of the  account  at the  beginning  of the base  period to
obtain the base period return.  The result is then annualized.  See "Performance
Information" in the Statement of Additional Information.

   
      Comparative  performance  information  may be  used  from  time to time in
advertising  and marketing a Fund's  shares.  The  performance  information  may
include  data from  sources such as Lipper  Analytical  Services,  Inc. or major
market indices. Such comparative  performance  information will be stated in the
same terms in which the comparative data and indices are stated.

      Investment  results  of the  Funds  will  fluctuate  over  time,  and  any
representation  of the Funds' total return or current yield for any prior period
should not be considered as a  representation  of what an investors total return
or current yield may be in any future period.  The Funds' Annual Report contains
additional  performance  information  and is available  upon request and without
charge by calling (800) 526-0056.

CODE OF ETHICS

      The  Code of  Ethics  adopted  by the  Lexington  Funds  and  the  Manager
prohibits affiliated  personnel from engaging in personal investment  activities
which compete with or attempt to take advantage of the Funds' planned  portfolio
transactions.  The objective of the Funds' and the  Manager's  Code of Ethics is

    

                                       64
<PAGE>

   

that  the  operations  of the  Funds  and the  Manager  be  carried  out for the
exclusive benefit of the Fund's shareholders. The Funds and the Manager maintain
careful monitoring of compliance with the Code of Ethics.
LEGAL OPINION

      The  validity of shares  offered by this  Prospectus  will be passed on by
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022.

SHAREHOLDER REPORTS AND INQUIRIES

      During the year, the Funds will send you the following information:

       o Confirmation statements are mailed after every transaction that affects
         your account balance,  including  preauthorized  automatic  investment,
         exchange and  redemption  transactions.  Lexington  Money Market Trust,
         Lexington  GNMA Income Fund and  Lexington  Ramirez  Global Income Fund
         provide quarterly  confirmation  statements  annually.  All other Funds
         will  provide  confirmation  statements  annually,  unless the  account
         balance is affected by any daily transactions. Shareholders  are  urged
         to retain  their  account  statements  for tax purposes.  
    

       o Annual and semi-annual  reports are mailed  approximately 60
         days after December 31 and June 30.

       o 1099 TAX FORM(S) ARE MAILED BY JANUARY 31.

      Unless otherwise  requested,  only one copy of each shareholder  report or
other  material  sent to  shareholders  will be  mailed to each  household  with
accounts under common ownership and the same address regardless of the number of
shareholders or accounts at that household or address.  Any questions  should be
directed to The Lexington Funds at (800) 526-0056.

                               BACK-UP WITHHOLDING

   
TAXPAYER IDENTIFICATION NUMBER (TIN)

      Be sure to complete  the  Taxpayer  Identification  Number  section of the
fund's  application when you open an account.  Federal tax law requires the fund
to withhold 31% of taxable dividends, capital gains distributions and redemption
and exchange  proceeds from accounts (other than those of certain exempt payees)
without a  certified  Social  Security  or  taxpayer  identification  number and
certain  other  certified  information  or upon  notification  from the IRS or a
broker that withholding is required.
    

      A shareholder  who does not have a TIN should apply for one immediately by
contacting the local office of the Social  Security  Administration  or the IRS.
Back-up withholding could apply to payments made to a shareholders account while
awaiting  receipt  of a TIN.  Special  rules  apply for  certain  entities.  For

                                       65
<PAGE>

example,  for an account  established under the Uniform Gifts to Minors Act, the
TIN of the minor should be furnished.  If a shareholder has been notified by the
IRS that he or she is subject to back-up withholding because he or she failed to
report  all  interest  and  dividend  income  on his or her tax  return  and the
shareholder has not been notified by the IRS that such  withholding  will cease,
the  shareholder   should  cross  out  the  appropriate   item  in  the  Account
Application.  Dividends paid to a foreign shareholder's account by a fund may be
subject to up to 30% withholding instead of back-up withholding.

      A shareholder  who is an exempt  recipient  should furnish a TIN and check
the appropriate box. Exempt  recipients  include certain  corporations,  certain
tax-exempt entities,  tax-exempt pension plans and IRAs,  governmental agencies,
financial  institutions,  registered  securities  and  commodities  dealers  and
others. For further information,  see Section 3406 of the Code and consult a tax
adviser.

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


      THIS PROSPECTUS IS NOT AN OFFERING OF THE SECURITIES  HEREIN  DESCRIBED IN
ANY STATE IN WHICH THE OFFERING IS UNAUTHORIZED. NO SALESPERSON, DEALER OR OTHER
PERSON IS AUTHORIZED TO GIVE ANY  INFORMATION OR MAKE ANY  REPRESENTATION  OTHER
THAN  THOSE   CONTAINED  IN  THIS   PROSPECTUS,   THE  STATEMENT  OF  ADDITIONAL
INFORMATION, OR IN THE FUNDS' OFFICIAL SALES LITERATURE.

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

                                    GLOSSARY

O CASH   EQUIVALENTS.   Cash   equivalents  are   short-term,   interest-bearing
  instruments  or deposits  and may  include,  for  example,  commercial  paper,
  certificates of deposit,  repurchase  agreements,  bankers' acceptances,  U.S.
  Treasury Bills,  bank money market deposit  accounts,  master demand notes and
  money market mutual funds.  These consist of  high-quality  debt  obligations,
  certificates of deposit and bankers'  acceptances rated at least A-1 by S&P or
  Prime1 by Moody's,  or the issuer has an outstanding  issue of debt securities
  rated  at  least A by S&P or  Moody's,  or are of  comparable  quality  in the
  opinion of the Manager.

   
O COLLATERAL  ASSETS.  Collateral assets include cash,  letters of credit,  U.S.
  government  securities or other  high-grade  liquid debt or equity  securities
  (except that instruments  collateralizing loans by the Money Market Funds must
  be  debt  securities  rated  in the  highest  grade).  Collateral  assets  are
  separately identified and rendered unavailable for investment or sale.
    

O CONVERTIBLE  SECURITY.  A convertible  security is a fixed-income  security (a
  bond or  preferred  stock) that may be  converted  at a stated  price within a
  specified  period of time into a certain  quantity of the common  stock of the

                                       66
<PAGE>

  same or a different issuer.  Convertible securities are senior to common stock
  in a corporation's  capital structure but are usually  subordinated to similar
  non-convertible  securities. The price of a convertible security is influenced
  by the market value of the underlying common stock.

O COVERED  CALL  OPTION.  A call  option  is  "covered"  if the  fund  owns  the
  underlying  securities,  has the  right to  acquire  such  securities  without
  additional  consideration,  has  collateral  assets  sufficient  to  meet  its
  obligations under the option or owns an off setting call option.

O COVERED PUT OPTION.  A put option is "covered"  if  the  fund  has  collateral
  assets with a value not less than the exercise price  of  the option  or holds
  a put option on the underlying security.

   
O DEPOSITORY RECEIPTS.  Depository receipts include American depository receipts
  ("ADRs"),  European depository  receipts ("EDRs"),  global depository receipts
  ("GDRs")  and other  similar  instruments.  Depository  receipts  are receipts
  typically  issued in  connection  with a U.S. or foreign bank or trust company
  and  evidence   ownership  of  underlying   securities  issued  by  a  foreign
  corporation.
    

O DERIVATIVES.  Derivatives include forward currency exchange  contracts,  stock
  options,  currency options,  stock and stock index options,  futures contracts
  and swaps and  options on futures  contracts  on U.S.  government  and foreign
  government securities and currencies.

O DOLLAR ROLL  TRANSACTION.  A dollar roll  transaction is similar to  a reverse
  repurchase  agreement except it requires a fund to repurchase a similar rather
  than the same security.

   
O DURATION. A time measure of a bond's interest-rate  sensitivity,  based on the
  weighted  average of the time periods over which a bond's cash flows accrue to
  the bondholder.  Time periods are weighted by multiplying by the present value
  of its cash flow divided by the bond's  price.  (A bonds cash flows consist of
  coupon  payments  and  repayment of capital).  A bond's  duration  will almost
  always be shorter than its maturity,  with the exception of zero-coupon bonds,
  for which maturity and duration are equal.
    

O EMERGING  MARKET  COMPANIES.  A company is considered to be an emerging market
  company if its securities are  principally  traded in the capital market of an
  emerging  market  country;  it derives at least 50% of its total  revenue from
  either goods  produced or services  rendered in emerging  market  countries or
  from sales made in such  emerging  market  countries,  regardless of where the
  securities of such companies are principally  traded; or it is organized under
  the laws of, and with a principal  office in, an emerging market  country.  An
  emerging  market country is one having an economy and market that are or would

                                       67
<PAGE>

  be  considered  by the World Bank or the  United  Nations  to be  emerging  or
  developing.

O EQUITY DERIVATIVE  SECURITIES.  These include,  among other things, options on
equity securities, warrants and future contracts on equity securities.

O EQUITY SWAPS.  Equity swaps allow the parties to exchange the dividend  income
  or other components of return on an equity investment (e.g., a group of equity
  securities  or an index) for a component  of return on another  non-equity  or
  equity  investment.  Equity swaps  transitions may be volatile and may present
  the fund with counterparty risks.

O FHLMC. The Federal Home Loan Mortgage Corporation.

O FNMA. The Federal National Mortgage Association.

O FORWARD  CURRENCY  CONTRACTS.  A  forward  currency  contract  is  a  contract
  individually  negotiated  and privately  traded by currency  traders and their
  customers and creates an  obligation  to purchase or sell a specific  currency
  for an agreed-upon  price at a future date.  The Funds  generally do not enter
  into forward  contracts  with terms  greater  than one year. A fund  generally
  enters into forward contracts only under two  circumstances.  First, if a fund
  enters into a contract for the purchase or sale of a security denominated in a
  foreign  currency,  it may  desire to "lock in" the U.S.  dollar  price of the
  security  by entering  into a forward  contract to buy the amount of a foreign
  currency needed to settle the  transaction.  Second,  if the Manager  believes
  that the currency of a particular  foreign country will  substantially rise or
  fall against the U.S.  dollar,  it may enter into a forward contract to buy or
  sell the currency approximating the value of some or all of a fund's portfolio
  securities  denominated in such currency. A fund will not enter into a forward
  contract  if, as a result,  it would have more than  one-third of total assets
  committed to such contracts  (unless it owns the currency that it is obligated
  to deliver or has caused its custodian to segregate segregable assets having a
  value sufficient to cover its  obligations).  Although  forward  contracts are
  used primarily to protect a fund from adverse currency movements, they involve
  the risk that currency movements will not be accurately predicted.

O FUTURES AND  OPTIONS ON  FUTURES.  An  interest  rate  futures  contract is an
  agreement  to  purchase  or sell  debt  securities,  usually  U.S.  government
  securities,  at a  specified  date and  price.  For  example,  a fund may sell
  interest rate futures  contracts (i.e.,  enter into a futures contract to sell
  the  underlying  debt  security) in an attempt to hedge against an anticipated
  increase in interest rates and a  corresponding  decline in debt securities it
  owns. Each fund will have collateral assets equal to the purchase price of the
  portfolio  securities  represented  by the  underlying  interest  rate futures
  contracts it has an obligation to purchase.

                                       68
<PAGE>


O GNMA. The Government National Mortgage Association.

O HIGHLY RATED DEBT SECURITIES.  Debt securities rated within the three  highest
  grades by Standard & Poor's Corporation  ("S&P") (AAA to A), Moodys  Investors
  Services,  Inc. ("Moody's")  (Aaa  to A)  or  Fitch  Investor  Services,  Inc.
  ("Fitch") (AAA to A), or in unrated debt securities deemed to be of comparable
  quality by the Manager using guidelines approved by the Board of Trustees. See
  the Appendix to the Statement of Additional Information for a  description  of
  these ratings.

O ILLIQUID SECURITIES. The Funds treat any securities subject to restrictions on
  repatriation  for more than seven days,  and  securities  issued in connection
  with foreign debt conversion  programs that are restricted as to remittance of
  invested  capital  or profit,  as  illiquid.  The Funds also treat  repurchase
  agreements  with  maturities  in excess of seven  days as  illiquid.  Illiquid
  securities  do not include  securities  that are  restricted  from  trading on
  formal markets for some period of time but for which an active informal market
  exists,  or  securities  that meet the  requirements  of Rule  144A  under the
  Securities Act of 1933 and that, subject to the review by the Funds' Board and
  guidelines  adopted by the Funds'  Board,  the  Manager has  determined  to be
  liquid.

O INVESTMENT GRADE.  Investment grade debt securities are those rated within the
  four highest grades by S&P (at least BBB), Moody's (at least Baa) or Fitch (at
  least Baa) or in unrated debt securities deemed to be of comparable quality by
  the Manager using guidelines approved by the Board of Trustees.

O LEVERAGE.  Some  funds  may use  leverage  in an effort  to  increase  return.
  Although  leverage  creates an opportunity  for increased  income and gain, it
  also creates special risk  considerations.  Leveraging  also creates  interest
  expenses that can exceed the income from the assets retained.

   
O OPTIONS ON SECURITIES,  SECURITIES INDICES AND CURRENCIES. A fund may purchase
  call options on  securities  that it intends to purchase (or on  currencies in
  which  those  securities  are  denominated)  in order  to limit  the risk of a
  substantial  increase  in the  market  price of such  security  (or an adverse
  movement  in the  applicable  currency).  A fund may  purchase  put options on
  particular  securities  (or  on  currencies  in  which  those  securities  are
  denominated)  in order to protect against a decline in the market value of the
  underlying  security  below the  exercise  price less the premium paid for the
  option (or an adverse movement in the applicable currency relative to the U.S.
  dollar).  Prior to  expiration,  most  options  are  expected  to be sold in a
  closing  sale  transaction.  Profit or loss from the sale depends upon whether
  the amount  received  is more or less than the premium  paid plus  transaction
  costs.  A fund may purchase put and call options on stock  indices in order to

                                       69
<PAGE>

  hedge against risks of stock market or industry wide stock price fluctuations.
    

O PARTICIPATION  INTERESTS.  Participation  interests  are  issued by  financial
  institutions  and  represent  undivided  interests  in  municipal  securities.
  Participation  interests  may  have  fixed,  floating  or  variable  rates  of
  interest.  Some participation interests are subject to a "nonappropriation" or
  "abatement"  feature by which,  under  certain  conditions,  the issuer of the
  underlying  municipal  security,  without  penalty,  may terminate its payment
  obligation. In such event, the Funds must look to the underlying collateral.

O REPURCHASE  AGREEMENT.  With a repurchase  agreement,  a fund  acquires a U.S.
  government  security or other high-grade liquid debt instrument (for the Money
  Market  Funds,  the  instrument  must be rated in the  highest  grade)  from a
  financial  institution  that  simultaneously  agrees  to  repurchase  the same
  security at a specified time and price.

O REVERSE  DOLLAR ROLL  TRANSACTIONS.  When a fund  engages in a reverse  dollar
  roll, it purchases a security from a financial  institution  and  concurrently
  agrees to resell a similar  security to that institution at a later date at an
  agreed-upon price.

O REVERSE REPURCHASE AGREEMENT.  In a reverse repurchase agreement, a fund sells
  to a financial  institution  a security that it holds and agrees to repurchase
  the same security at an agreed-upon price and date.

O RUSSIA. "Russia" refers to the Russian  Federation,  which  does  not  include
  other countries that formerly comprised the Soviet Union.

O RUSSIAN COMPANY.  "Russian Company" means a legal entity (i) that is organized
  under the laws of, or with a principal  office and domicile in,  Russia,  (ii)
  for which the principal  equity  securities  trading  market is in Russia,  or
  (iii) that derives at least 50% of its revenues or profits from goods produced
  or sold,  investments  made, or services  performed,  in Russia or that has at
  least 50% of its assets situated in Russia.

O SECURITIES  LENDING. A fund may lend securities to brokers,  dealers and other
  financial   organizations.   Each  securities  loan  is  collateralized   with
  collateral  assets in an amount at least equal to the current  market value of
  the loaned  securities,  plus  accrued  interest.  There is a risk of delay in
  receiving  collateral or in recovering the securities loaned or even a loss of
  rights in collateral should the borrower fail financially.

O S&P 500. Standard & Poor's 500 Composite Stock Price Index.

O U.S.  GOVERNMENT  SECURITIES.  These include U.S. Treasury bills, notes, bonds
  and other obligations  issued  or  guaranteed  by  the  U.S.  government,  its

                                       70
<PAGE>

  agencies or instrumentalities.

O WARRANT.  A warrant typically is a long-term option that permits the holder to
  buy a specified number of shares of the issuer's  underlying common stock at a
  specified  exercise  price by a  particular  expiration  date.  A warrant  not
  exercised or disposed of by its expiration date expires worthless.

O WHEN-ISSUED  AND FORWARD  COMMITMENT  SECURITIES.  The Funds may purchase U.S.
  government or other  securities on a  "when-issued"  basis and may purchase or
  sell securities on a "forward  commitment" or "delayed  delivery"  basis.  The
  price is fixed at the time the  commitment  is made,  but delivery and payment
  for the  securities  take place at a later date.  When-issued  securities  and
  forward  commitments may be sold prior to the settlement date, but a fund will
  enter into  when-issued  and forward  commitments  only with the  intention of
  actually  receiving  or  delivering  the  securities.  No  income  accrues  on
  securities that have been purchased  pursuant to a forward  commitment or on a
  when-issued  basis prior to delivery to a fund. At the time a fund enters into
  a transaction on a when-issued or forward  commitment  basis,  it supports its
  obligation  with  collateral  assets equal to the value of the  when-issued or
  forward commitment securities and causes the collateral assets to be marked to
  market  daily.  There is a risk that the  securities  may not be delivered and
  that the fund may incur a loss.

O ZERO COUPON  BONDS.  Zero coupon  bonds are debt  obligations  that do not pay
  current  interest and are consequently  issued at a significant  discount from
  face value. The discount approximates the total interest the bonds will accrue
  and compound over the period to maturity or the first interest-payment date at
  a rate of  interest  reflecting  the market  rate of  interest  at the time of
  issuance.

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<PAGE>


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

                               INVESTMENT MANAGER

   
                        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 shall 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

                                    CUSTODIAN
                           Chase Manhattan Bank, N.A.
                           1211 Avenue of the Americas
                            New York, New York 10022

                                  LEGAL COUNSEL
                        Kramer, Levin, Naftalis & Frankel
                                919 Third Avenue
                            New York, New York 10022

                                    AUDITORS
                              KMPG Peat Marwick LLP
                                 345 Park Avenue
                            New York, New York 10154

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


                                       71
<PAGE>



                      LEXINGTON RAMIREZ GLOBAL INCOME FUND

                       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  Ramirez Global
Income Fund (the  "Fund"),  dated May 1, 1997 as it may be revised  from time to
time. To obtain a copy of the Fund's  prospectus  at no charge,  please write to
the Fund at P.O. Box 1515,  Park 80 West - Plaza Two,  Saddle Brook,  New Jersey
07663 or call the following toll-free numbers:
    

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

Lexington  Management  Corporation  ("LMC")  serves  as  the  Fund's  Investment
Adviser.  MFR Advisors,  Inc. serves as the Fund's Sub-Adviser.  Lexington Funds
Distributor, Inc. ("LFD") serves as the Fund's Distributor.

                                TABLE OF CONTENTS

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

Derivative Instruments: Options, Futures and Forward Currency Strategies ...   4

Risk Factors ...............................................................  10

Investment Restrictions ....................................................  12

Portfolio Transactions .....................................................  13

Valuation of Fund Shares ...................................................  14

Investment Adviser, Sub-Adviser, Distributor and Administrator .............  15

Taxes ......................................................................  17

Distribution Plan ..........................................................  21

Custodian, Transfer Agent and Dividend Disbursing Agent ....................  22

Management of the Fund .....................................................  22

Investment Return Information ..............................................  25

   
Other Information ..........................................................  26

Appendix A ................................................................. A-1

Appendix B ................................................................. B-1
    

Financial Statements .......................................................  27

                                       1

<PAGE>


                        INVESTMENT OBJECTIVE AND POLICIES

    The Fund seeks high  current  income.  Capital  appreciation  is a secondary
objective. The Fund is a non-diversified open-end management investment company.
The Fund, under normal circumstances, invests substantially all of its assets in
debt securities of issuers in the United States, developed foreign countries and
emerging markets. For purposes of its investment  objective,  the Fund considers
an emerging country to be any country whose economy and market the World Bank or
United Nations considers to be emerging or developing.  The Fund may also invest
in debt securities traded in any market, of companies that derive 50% or more of
their total  revenue  from either  goods or services  produced in such  emerging
countries and emerging  markets or sales made in such countries.  Determinations
as to  eligibility  will be made by LMC and  MFR  based  on  publicly  available
information  and inquiries made to the  companies.  It is possible in the future
that sufficient  numbers of emerging  country or emerging market debt securities
would be traded on  securities  markets in  industrialized  countries  so that a
major portion,  if not all, of the Fund's assets would be invested in securities
traded on such markets, although such a situation is unlikely at present.

    Currently,  investing in many of the emerging countries and emerging markets
is not  feasible or may involve  political  risks.  Accordingly,  LMC  currently
intends to consider  investments  only in those  countries  in which it believes
investing is feasible and does not involve  such risks.  The list of  acceptable
countries  will be reviewed by LMC and MFR and approved by the Board of Trustees
on a periodic  basis and any  additions or  deletions  with respect to such list
will be made in accordance  with changing  economic and political  circumstances
involving such countries.  (See Appendix B in the Prospectus.) 

Selection of Debt Investments

    LMC is the  investment  manager and MFR is the  sub-adviser  of the Fund. In
determining the appropriate  distribution of investments among various countries
and  geographic  regions  for the  Fund,  LMC and MFR  ordinarily  consider  the
following  factors:  prospects for relative  economic growth among the different
countries in which the Fund may invest; expected levels of inflation; government
policies   influencing   business   conditions;   the   outlook   for   currency
relationships;   and  the  range  of  the  individual  investment  opportunities
available to international investors.

    Although  the Fund values  assets daily in terms of U.S.  dollars,  the Fund
does not intend to convert holdings of foreign currencies into U.S. dollars on a
daily  basis.  The Fund will do so from time to time,  and  investors  should be
aware of the costs of currency conversion.  Although foreign exchange dealers do
not  charge  a fee for  conversion,  they  do  realize  a  profit  based  on the
difference  ("spread")  between  the prices at which they are buying and selling
various  currencies.  Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate,  while  offering  a lesser  rate of  exchange  should the Fund
desire to sell that currency to the dealer.

    The Fund may  invest  in the  following  types of money  market  instruments
(i.e.,  debt  instruments  with less than 12 months  remaining  until  maturity)
denominated  in U.S.  dollars or other  currencies:  (a)  obligations  issued or
guaranteed by the U.S. or foreign governments, their agencies, instrumentalities
or municipalities;  (b) obligations of international  organizations  designed or
supported  by  multiple  foreign  governmental   entities  to  promote  economic
reconstruction  or  development;  (c)  finance  company  obligations,  corporate
commercial  paper  and  other  short-term  commercial   obligations;   (d)  bank
obligations (including  certificates of deposit, time deposits,  demand deposits
and  bankers'  acceptances),  subject to the  restriction  that the Fund may not
invest  more than 25% of its total  assets in bank  securities;  (e)  repurchase
agreements with respect to the foregoing;  and (f) other  substantially  similar
short-term debt securities with comparable  characteristics.  

Samurai and Yankee Bonds

    Subject to its respective fundamental investment restrictions,  the Fund may
invest in yen-denominated  bonds sold in Japan by non-Japanese issuers ("Samurai
bonds"), and may invest in dollar-denominated bonds sold in the United States by
non-U.S.  issuers  ("Yankee  bonds").  It is the policy of the Fund to invest in
Samurai or Yankee bond issues only after taking into account  considerations  of
quality and liquidity, as well as yield.

Commercial Bank Obligations

    For the  purposes of the Fund's  investment  policies  with  respect to bank
obligations,  obligations of foreign branches of U.S. banks and of foreign banks
are obligations of the issuing bank and may be general obligations of the parent
bank.  Such  obligations,  however,  may be  limited  by the terms of a specific
obligation  and  by  government  regulation.  As  with  investment  in  non-U.S.
securities in general,  investments in the  obligations  of foreign  branches of
U.S.  banks and of foreign banks may subject the Fund to  investment  risks that
are  different in some  respect  from those of  investments  in  obligations  of
domestic issuers.  Although the Fund typically will acquire  obligations  issued
and  supported by the credit of U.S. or foreign banks having total assets at the
time of  purchase  in  excess of $1  billion,  this $1  billion  figure is not a

                                       2

<PAGE>

fundamental  investment  policy or  restriction of the Fund. For the purposes of
calculation with respect to the $1 billion figure,  the assets of a bank will be
deemed to include the assets of its U.S. and non-U.S. branches.

Repurchase Agreements, Reverse Repurchase Agreements and Roll Transactions

    Although  repurchase  agreements  carry  certain risks not  associated  with
direct  investments  in  securities,  the Fund intends to enter into  repurchase
agreements only with banks and broker/dealers believed by LMC and MFR to present
minimal  credit risks in accordance  with  guidelines  approved by the Company's
Board of Trustees.  LMC and MFR will review and monitor the  creditworthiness of
such institutions,  and will consider the capitalization of the institution, LMC
and MFR's prior dealings with the institution,  any rating of the  institution's
senior long-term debt by independent rating agencies and other relevant factors.

    The Fund will invest only in  repurchase  agreements  collateralized  at all
times in an amount at least equal to the repurchase price plus accrued interest.
To the extent that the proceeds from any sale of such  collateral upon a default
in the obligation to repurchase  were less than the repurchase  price,  the Fund
would  suffer  a loss.  If the  financial  institution  which  is  party  to the
repurchase  agreement  petitions for bankruptcy or otherwise  becomes subject to
bankruptcy or other  liquidation  proceedings  there may be  restrictions on the
Fund's ability to sell the collateral and the Fund could suffer a loss. However,
with  respect  to  financial   institutions   whose  bankruptcy  or  liquidation
proceedings are subject to the U.S.  Bankruptcy Code, the Fund intends to comply
with  provisions  under such Code that would allow the immediate  resale of such
collateral.  The Fund will not enter into a repurchase agreement with a maturity
of more than seven  days if, as a result,  more than 15% of the value of its net
assets  would be  invested  in such  repurchase  agreements  and other  illiquid
investments and securities for which no readily available market exists.

    The Fund may enter into reverse repurchase agreements.  A reverse repurchase
agreement is a borrowing transaction in which the Fund transfers possession of a
security to another party, such as a bank or broker/dealer,  in return for cash,
and agrees to  repurchase  the  security  in the future at an agreed upon price,
which  includes  an  interest  component.  The Fund  also may  engage  in "roll"
borrowing  transactions which involve the Fund's sale of fixed income securities
together  with a  commitment  (for which the Fund may receive a fee) to purchase
similar, but not identical, securities at a future date. The Fund will maintain,
in a segregated account with a custodian,  cash, U.S.  government  securities or
other liquid,  high grade debt  securities in an amount  sufficient to cover its
obligation  under  "roll"   transactions  and  reverse  repurchase   agreements.

Borrowing

    The Fund is prohibited from borrowing money in order to purchase securities.
The Fund may borrow up to 5% of its total  assets  for  temporary  or  emergency
purposes  other than to meet  redemptions.  Any  borrowing by the Fund may cause
greater  fluctuation  in the value of its  shares  than would be the case if the
Fund did not borrow.

Short Sales

    The Fund is authorized to make short sales of securities, although it has no
current  intention of doing so. A short sale is a transaction  in which the Fund
sells a security in  anticipation  that the market price of that  security  will
decline.  The Fund may make short sales as a form of hedging to offset potential
declines  in long  positions  in  securities  it owns and in  order to  maintain
portfolio flexibility.  The Fund only may make short sales "against the box." In
this type of short sale, at the time of the sale,  the Fund owns the security it
has sold short or has the  immediate  and  unconditional  right to  acquire  the
identical security at no additional cost.

    In a short sale, the seller does not immediately deliver the securities sold
and does not  receive  the  proceeds  from the  sale.  To make  delivery  to the
purchaser,  the  executing  broker  borrows the  securities  being sold short on
behalf  of the  seller.  The  seller  is said to  have a short  position  in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. To secure its  obligation to deliver  securities  sold
short,  the Fund will deposit in a separate  account with its custodian an equal
amount  of  the  securities  sold  short  or  securities   convertible  into  or
exchangeable  for such  securities at no cost.  The Fund could close out a short
position by purchasing  and  delivering an equal amount of the  securities  sold
short,  rather than by delivering  securities  already held by the Fund, because
the Fund might want to continue to receive  interest  and  dividend  payments on
securities in its portfolio that are convertible into the securities sold short.

    The Fund might make a short sale "against the box" in order to hedge against
market risks when LMC and MFR believes that the price of a security may decline,
causing a decline  in the value of a  security  owned by the Fund or a  security
convertible into or exchangeable for such security,  or when LMC and MFR want to
sell the security the Fund owns at a current  attractive  price, but also wishes
to defer  recognition  or gain or loss for federal  income tax  purposes and for
purposes  of  satisfying  certain  tests  applicable  to  regulated   investment
companies under the Internal  Revenue Code

                                       3

<PAGE>

of 1986, as amended (the "Code").  In such case, any future losses in the Fund's
long position should be reduced by a gain in the short position. Conversely, any
gain in the long position should be reduced by a loss in the short position. The
extent to which  such  gains or losses in the long  position  are  reduced  will
depend upon the amount of the  securities  sold short  relative to the amount of
the securities the Fund owns,  either  directly or indirectly,  and, in the case
where a Fund owns convertible  securities,  changes in the investment  values or
conversion  premiums  of  such  securities.  There  will be  certain  additional
transaction  costs  associated  with short sales "against the box," but the Fund
will endeavor to offset these costs with income from the  investment of the cash
proceeds of short sales. 

Illiquid Securities

    The  Fund  may  invest  up to 15%  of net  assets  in  illiquid  securities.
Securities may be considered  illiquid if the Fund cannot  reasonably  expect to
receive approximately the amount at which the Fund values such securities within
seven  days.  The  sale of  illiquid  securities,  if  they  can be sold at all,
generally  will  require  more time and  result in higher  brokerage  charges or
dealer  discounts  and  other  selling  expenses  than  will the sale of  liquid
securities, such as securities eligible for trading on U.S. securities exchanges
or in the over-the-counter markets. Moreover,  restricted securities,  which may
be illiquid for purposes of this  limitation  often sell,  if at all, at a price
lower than similar securities that are not subject to restrictions on resale.

    With respect to liquidity  determinations  generally, the Company's Board of
Trustees  has the  ultimate  responsibility  for  determining  whether  specific
securities,  including  restricted  securities  pursuant  to Rule 144A under the
Securities  Act of 1933,  are liquid or illiquid.  The Board has  delegated  the
function of making  day-to-day  determinations  of  liquidity  to LMC and MFR in
accordance with procedures approved by the Fund's Board of Trustees. LMC and MFR
take  into  account  a  number  of  factors  in  reaching  liquidity  decisions,
including,  but not limited to: (i) the  frequency  of trading in the  security;
(ii) the number of dealers that make quotes for the  security;  (iii) the number
of  dealers  that have  undertaken  to make a market in the  security;  (iv) the
number of other potential purchasers; and (v) the nature of the security and how
trading is effected (e.g., the time needed to sell the security,  how offers are
solicited and the mechanics of transfer). LMC and MFR will monitor the liquidity
of securities held by the Fund and report  periodically on such decisions to the
Board of Trustees.

    DERIVATIVE INSTRUMENTS: OPTIONS, FUTURES AND FORWARD CURRENCY STRATEGIES

Writing Covered Call Options

    The Fund may  write  (sell)  covered  call  options.  Covered  call  options
generally will be written on securities and currencies  which, in the opinion of
LMC and MFR are not  expected  to make any major  price moves in the near future
but which,  over the long term, are deemed to be attractive  investments for the
Fund.

    A call option  gives the holder  (buyer) the right to purchase a security or
currency at a specified  price (the exercise  price) at any time until a certain
date (the  expiration  date).  So long as the obligation of the writer of a call
option  continues,  he may be assigned an exercise  notice by the  broker/dealer
through  whom such  option was sold,  requiring  him to deliver  the  underlying
security or currency  against  payment of the exercise  price.  This  obligation
terminates upon the expiration of the call option, or such earlier time at which
the  writer  effects a closing  purchase  transaction  by  purchasing  an option
identical to that previously sold. LMC, MFR and the Fund believe that writing of
covered call options is less risky than  writing  uncovered or "naked"  options,
which the Fund will not do.

    Portfolio securities or currencies on which call options may be written will
be purchased  solely on the basis of investment  considerations  consistent with
the Fund's investment  objectives.  When writing a covered call option, the Fund
in return for the  premium  gives up the  opportunity  for  profit  from a price
increase in the underlying  security or currency above the exercise  price,  and
retains the risk of loss should the price of the  security or currency  decline.
Unlike one who owns securities or currencies not subject to an option,  the Fund
has no control over when it may be required to sell the underlying securities or
currencies,  since the option may be exercised at any time prior to the option's
expiration.  If a call option which the Fund has written expires,  the Fund will
realize a gain in the amount of the premium; however, such gain may be offset by
a decline in the market value of the underlying  security or currency during the
option period. If the call option is exercised,  the Fund will realize a gain or
loss from the sale of the  underlying  security or  currency.  The Fund does not
consider a security or currency covered by a call option to be "pledged" as that
term is used in the  Fund's  fundamental  investment  policy  which  limits  the
pledging or mortgaging of its assets.

    The premium  which the Fund  receives for writing a call option is deemed to
constitute the market value of an option. The premium the Fund will receive from
writing a call option will reflect, among other things, the current market price
of the underlying  security or currency,  the relationship of the exercise price
to such market price, the historical price volatility of the underlying security
or  currency,  and the length of the option  period.  In  determining  whether a
particular

                                       4

<PAGE>

call option should be written on a particular security or currency,  LMC and MFR
will consider the  reasonableness of the anticipated  premium and the likelihood
that a liquid  secondary  market  will  exist for  those  options.  The  premium
received  by the Fund for writing  covered  call  options  will be recorded as a
liability in the Fund's statement of assets and liabilities. This liability will
be adjusted daily to the option's current market value, which will be the latest
sales  price at the time  which  the net  asset  value  per share of the Fund is
computed at the close of regular  trading on the NYSE  (currently,  4:00 Eastern
time,  unless  weather,  equipment  failure or other  factors  contribute  to an
earlier closing time),  or, in the absence of such sale, the latest asked price.
The liability will be extinguished  upon expiration of the option,  the purchase
of an identical option in a closing  transaction,  or delivery of the underlying
security or currency upon the exercise of the option.

    Closing  transactions  will be  effected  in order to realize a profit on an
outstanding  call option,  to prevent an  underlying  security or currency  from
being  called,  or to permit the sale of the  underlying  security or  currency.
Furthermore,  effecting  a closing  transaction  will  permit  the Fund to write
another  call  option on the  underlying  security  or  currency  with  either a
different exercise price, expiration date or both. If the Fund desires to sell a
particular  security or currency  from its  portfolio  on which it has written a
call  option,  or  purchased  a put  option,  it will  seek to  effect a closing
transaction  prior  to,  or  concurrently  with,  the  sale of the  security  or
currency.  There  is no  assurance  that the Fund  will be able to  effect  such
closing  transactions at favorable  prices. If the Fund cannot enter into such a
transaction,  it may be required  to hold a security  or currency  that it might
otherwise  have sold, in which case it would  continue to be at market risk with
respect to the security or currency.

    The Fund  will pay  transaction  costs in  connection  with the  writing  of
options and in entering  into  closing  purchase  contracts.  Transaction  costs
relating  to options  activity  normally  are higher  than those  applicable  to
purchases and sales of portfolio securities.

    Call options written by the Fund normally will have expiration dates of less
than nine months from the date written. The exercise price of the options may be
below, equal to or above the current market values of the underlying  securities
or currencies at the time the options are written.  From time to time,  the Fund
may purchase an underlying  security or currency for delivery in accordance with
the exercise of an option, rather than delivering such security or currency from
its portfolio. In such cases, additional costs will be incurred.

    The Fund will realize a profit or loss from a closing  purchase  transaction
if the cost of the transaction is less or more,  respectively,  than the premium
received from the writing of the option.  Because  increases in the market price
of a call option  generally  will  reflect  increases in the market price of the
underlying  security or currency,  any loss  resulting  from the repurchase of a
call  option is likely to be offset in whole or in part by  appreciation  of the
underlying security or currency owned by the Fund. 

Writing Covered Put Options

    The Fund may write covered put options.  A put option gives the purchaser of
the option the right to sell, and the writer (seller) the obligation to buy, the
underlying  security or currency at the exercise price during the option period.
The  option  may be  exercised  at any time prior to its  expiration  date.  The
operation of put options in other  respects,  including  their related risks and
rewards, is substantially identical to that of call options.

    The Fund would write put options only on a covered  basis,  which means that
the Fund would either (i) set aside cash,  U.S.  government  securities or other
liquid, high-grade debt securities in an amount not less than the exercise price
at all times  while the put  option is  outstanding  (the  rules of the  Options
Clearing  Corporation  currently require that such assets be deposited in escrow
to secure  payment  of the  exercise  price),  (ii) sell short the  security  or
currency underlying the put option at the same or higher price than the exercise
price of the put option,  or (iii) purchase a put option,  if the exercise price
of the purchased put option is the same or higher than the exercise price of the
put option sold by the Fund. The Fund generally  would write covered put options
in circumstances  where LMC and MFR wish to purchase the underlying  security or
currency for the Fund's portfolio at a price lower than the current market price
of the security or currency. In such event, the Fund would write a put option at
an exercise price which, reduced by the premium received on the option, reflects
the lower price it is willing to pay. Since the Fund also would receive interest
on debt  securities or currencies  maintained to cover the exercise price of the
option, this technique could be used to enhance current return during periods of
market  uncertainty.  The risk in such a  transaction  would be that the  market
price of the  underlying  security or currency  would decline below the exercise
price less the premiums received. 

Purchasing Put Options

    The Fund may purchase put options.  As the holder of a put option,  the Fund
would have the right to sell the underlying security or currency at the exercise
price at any time during the option period. The Fund may enter into closing sale
transactions  with  respect to such  options,  exercise  them or permit  them to
expire.


                                       5

<PAGE>

    The Fund may  purchase a put option on an  underlying  security  or currency
("protective  put") owned by the Fund as a hedging technique in order to protect
against an  anticipated  decline in the value of the security or currency.  Such
hedge  protection  is  provided  only during the life of the put option when the
Fund, as the holder of the put option,  is able to sell the underlying  security
or  currency  at  the  put  exercise  price  regardless  of any  decline  in the
underlying  security's market price or currency's exchange value. For example, a
put option may be purchased  in order to protect  unrealized  appreciation  of a
security or currency  when LMC and MFR deem it desirable to continue to hold the
security or currency because of tax considerations. The premium paid for the put
option and any  transaction  costs  would  reduce  any  capital  gain  otherwise
available for distribution when the security or currency eventually is sold.

    The Fund also may  purchase put options at a time when the Fund does not own
the underlying security or currency.  By purchasing put options on a security or
currency it does not own, the Fund seeks to benefit from a decline in the market
price of the underlying security or currency. If the put option is not sold when
it has remaining  value,  and if the market price of the underlying  security or
currency  remains equal to or greater than the exercise price during the life of
the put option,  the Fund will lose its entire  investment in the put option. In
order for the purchase of a put option to be profitable, the market price of the
underlying  security or currency  must decline  sufficiently  below the exercise
price to cover the premium and transaction  cost,  unless the put option is sold
in a closing sale transaction.

    The premium  paid by the Fund when  purchasing a put option will be recorded
as an asset in the Fund's statement of assets and  liabilities.  This asset will
be adjusted daily to the option's current market value, which will be the latest
sale  price at the time at which  the net  asset  value per share of the Fund is
computed  (at the close of regular  trading on the NYSE),  or, in the absence of
such sale, the latest bid price. The asset will be extinguished  upon expiration
of the option, the writing of an identical option in a closing  transaction,  or
the  delivery of the  underlying  security or currency  upon the exercise of the
option. 

Purchasing Call Options

    The Fund may purchase call options. As the holder of a call option, the Fund
would have the right to  purchase  the  underlying  security  or currency at the
exercise  price at any time  during the option  period.  The Fund may enter into
closing sale transactions with respect to such options,  exercise them or permit
them to expire.  Call  options may be  purchased  by the Fund for the purpose of
acquiring the  underlying  security or currency for its  portfolio.  Utilized in
this fashion,  the purchase of call options would enable the Fund to acquire the
security or currency at the  exercise  price of the call option plus the premium
paid.  At times,  the net cost of  acquiring  the  security  or currency in this
manner may be less than the cost of acquiring the security or currency directly.
This  technique  also may be useful to the Fund in  purchasing  a large block of
securities  that would be more difficult to acquire by direct market  purchases.
So long as it holds such a call option  rather than the  underlying  security or
currency itself, the Fund is partially  protected from any unexpected decline in
the market price of the underlying  security or currency and in such event could
allow the call  option to  expire,  incurring  a loss only to the  extent of the
premium paid for the option.

    The Fund  also  may  purchase  call  options  on  underlying  securities  or
currencies  it owns  in  order  to  protect  unrealized  gains  on call  options
previously  written by it. A call option  would be  purchased  for this  purpose
where tax  considerations  make it  inadvisable  to realize such gains through a
closing  purchase  transaction.  Call  options also may be purchased at times to
avoid  realizing  losses that would result in a reduction of the Fund's  current
return.  For example,  where the Fund has written a call option on an underlying
security or currency having a current market value below the price at which such
security or currency was  purchased by the Fund, an increase in the market price
could  result in the  exercise  of the call  option  written by the Fund and the
realization  of a loss on the  underlying  security  or  currency  with the same
exercise price and expiration date as the option previously written.

    Aggregate  premiums  paid for put and call options will not exceed 5% of the
Fund's total assets at the time of purchase.

    The Fund may attempt to accomplish  objectives  similar to those involved in
using Forward  Contracts  (defined  below),  as described in the Prospectus,  by
purchasing  put or call  options on  currencies.  A put option gives the Fund as
purchaser  the right  (but not the  obligation)  to sell a  specified  amount of
currency at the exercise price until the expiration of the option. A call option
gives the Fund as  purchaser  the right (but not the  obligation)  to purchase a
specified  amount of currency at the exercise  price until its  expiration.  The
Fund might purchase a currency put option, for example, to protect itself during
the contract period against a decline in the dollar value of a currency in which
it holds or  anticipates  holding  securities.  If the  currency's  value should
decline  against the dollar,  the loss in currency  value  should be offset,  in
whole or in part,  by an  increase  in the value of the put. If the value of the
currency  instead should rise against the dollar,  any gain to the Fund would be
reduced by the  premium it had paid for the put option.  A currency  call option
might be purchased,  for example,  in anticipation of, or to protect against,  a
rise in the value against the dollar of a currency in which the Fund anticipates
purchasing securities.

                                       6

<PAGE>

    Currency   options   may  be  either   listed  on  an   exchange  or  traded
over-the-counter  ("OTC  options").  Listed  options are  third-party  contracts
(i.e.,  performance of the obligations of the purchaser and seller is guaranteed
by the exchange or clearing  corporation),  and have standardized  strike prices
and expiration dates. OTC options are two-party contracts with negotiated strike
prices and expiration  dates.  The Securities  and Exchange  Commission  ("SEC")
staff  considers  OTC  options  to be  illiquid  securities.  The Fund  will not
purchase an OTC option unless the Fund believes that daily  valuations  for such
options are readily obtainable.  OTC options differ from exchange-traded options
in that OTC options  are  transacted  with  dealers  directly  and not through a
clearing corporation (which guarantees  performance).  Consequently,  there is a
risk of  non-performance  by the  dealer.  Since no exchange  is  involved,  OTC
options are valued on the basis of a quote  provided by the dealer.  In the case
of OTC options,  there can be no assurance that a liquid  secondary  market will
exist for any particular option at any specific time. 

Interest Rate and Currency Futures Contracts

    The  Fund  may  enter  into  interest  rate or  currency  futures  contracts
("Futures"  or "Futures  Contracts")  as a hedge  against  changes in prevailing
levels of interest  rates or currency  exchange rates in order to establish more
definitely the effective  return on securities or currencies held or intended to
be acquired by the Fund.  The Fund's  hedging may include sales of Futures as an
offset  against the effect of expected  increases in interest  rates or currency
exchange  rates,  and  purchases  of Futures as an offset  against the effect of
expected declines in interest rates or currency exchange rates.

    The Fund will not enter into Futures  Contracts for speculation and the Fund
only will enter into  Futures  Contracts  which are traded on  national  futures
exchanges  and are  standardized  as to maturity date and  underlying  financial
instrument.  The principal  interest rate and currency Futures  exchanges in the
United  States  are the Board of Trade of the City of  Chicago  and the  Chicago
Mercantile  Exchange.  Futures  exchanges  and trading are  regulated  under the
Commodity  Exchange Act by the Commodity  Futures Trading  Commission  ("CFTC").
Futures are exchanged in London at the London  International  Financial  Futures
Exchange.

    Although  techniques  other than sales and  purchases  of Futures  Contracts
could be used to reduce  the  Fund's  exposure  to  interest  rate and  currency
exchange  rate  fluctuations,  the  Fund  may be able  to  hedge  exposure  more
effectively and at a lower cost through using Futures Contracts.

    The Fund will not enter  into a Futures  Contract  if, as a result  thereof,
more than 5% of the Fund's  total  assets  (taken at market value at the time of
entering  into the  contract)  would be  committed  to "margin"  (down  payment)
deposits on such Futures Contracts.

    An interest rate Futures Contract  provides for the future sale by one party
and  purchase  by another  party of a specified  amount of a specific  financial
instrument  (debt  security or currency)  for a specified  price at a designated
date,  time and place.  Brokerage  fees are incurred when a Futures  Contract is
bought or sold, and margin  deposits must be maintained at all times the Futures
Contract is outstanding.

    Although Futures Contracts  typically require future delivery of and payment
for financial  instruments or currencies,  Futures  Contracts usually are closed
out before the  delivery  date.  Closing out an open  Futures  Contract  sale or
purchase is effected by entering into an offsetting Futures Contract purchase or
sale,  respectively,  for the same aggregate  amount of the identical  financial
instrument or currency and the same delivery  date. If the  offsetting  purchase
price is less than the original  sale price,  the Fund realizes a gain; if it is
more, the Fund realizes a loss. Conversely, if the offsetting sale price is more
than the original  purchase price,  the Fund realizes a gain; if it is less, the
Fund  realizes a loss.  The  transaction  costs also must be  included  in these
calculations.  There can be no assurance, however, that the Fund will be able to
enter  into an  offsetting  transaction  with  respect to a  particular  Futures
Contract  at a  particular  time.  If the  Fund  is not  able to  enter  into an
offsetting  transaction,  the Fund will  continue to be required to maintain the
margin deposits on the Futures Contract.

    As an example of an  offsetting  transaction,  the  contractual  obligations
arising  from the sale of one Futures  Contract of October  Deutschemarks  on an
exchange may be fulfilled at any time before delivery under the Futures Contract
is required (i.e., on a specified date in October,  the "delivery month") by the
purchase  of  another  Futures  Contract  of October  Deutschemarks  on the same
exchange.  In such  instance,  the  difference  between  the  price at which the
Futures Contract was sold and the price paid for the offsetting purchase,  after
allowance for transaction costs, represents the profit or loss to the Fund.

    Persons  who  trade  in  Futures  Contracts  may be  broadly  classified  as
"hedgers" and "speculators."  Hedgers, such as the Fund, whose business activity
involves investment or other commitment in securities or other obligations,  use
the Futures markets  primarily to offset  unfavorable  changes in value that may
occur because of  fluctuations  in the value of the securities  and  obligations
held or  expected to be  acquired  by them or  fluctuations  in the value of the
currency in which the securities or  obligations  are  denominated.  Debtors and
other  obligors  also may  hedge the  interest  cost of their  

                                       7

<PAGE>

obligations.  The  speculator,  like the hedger,  generally  expects  neither to
deliver nor to receive the financial instrument underlying the Futures Contract,
but, unlike the hedger, hopes to profit from fluctuations in prevailing interest
rates or currency exchange rates.

    The Fund's Futures transactions will be entered into for traditional hedging
purposes;  that is, Futures  Contracts will be sold to protect against a decline
in the  price  of  securities  or  currencies  that the Fund  owns,  or  Futures
Contracts will be purchased to protect the Fund against an increase in the price
of securities or currencies it has committed to purchase or expects to purchase.

    "Margin" with respect to Futures  Contracts is the amount of funds that must
be deposited by the Fund, in a segregated account with the Fund's custodian,  in
order to initiate  Futures  trading and to maintain the Fund's open positions in
Futures  Contracts.  A margin deposit made when the Futures  Contract is entered
into  ("initial  margin") is intended  to assure the Fund's  performance  of the
Futures Contract.  The margin required for a particular  Futures Contract is set
by the  exchange  on which the Futures  Contract is traded,  and may be modified
significantly  from time to time by the exchange  during the term of the Futures
Contract.  Futures Contracts  customarily are purchased and sold on margins that
may range  upward from less than 5% of the value of the Futures  Contract  being
traded.

    If the price of an open Futures Contract changes (by increase in the case of
a sale or by decrease in the case of a purchase) so that the loss on the Futures
Contract  reaches a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin deposit ("margin
variation").  If the value of a position  increases  because of favorable  price
changes in the Futures  Contract so that the margin deposit exceeds the required
margin,  however, the broker will pay the excess to the Fund. In computing daily
net asset  values,  the Fund will mark to market the  current  value of its open
Futures  Contracts.  The Fund  expects  to earn  interest  income on its  margin
deposits. 

Risks of Using Futures Contracts.

    The prices of Futures Contracts are volatile and are influenced, among other
things, by actual and anticipated  changes in interest rates,  which in turn are
affected  by  fiscal  and  monetary  policies  and  national  and  international
political and economic events.

    There is a risk of  imperfect  correlation  between  changes  in  prices  of
Futures  Contracts  and prices of the  securities  or  currencies  in the Fund's
portfolio being hedged.  The degree of imperfection of correlation  depends upon
circumstances  such as: variations in speculative  market demand for Futures and
for debt  securities or currencies,  including  technical  influences in Futures
trading; and differences between the financial  instruments being hedged and the
instruments  underlying the standard  Futures  Contracts  available for trading,
with  respect to interest  rate  levels,  maturities,  and  creditworthiness  of
issuers.  A decision  of  whether,  when,  and how to hedge  involves  skill and
judgment,  and even a  well-conceived  hedge may be  unsuccessful to some degree
because of unexpected market behavior or interest rate trends.

    Because of the low margin deposits  required,  Futures  trading  involves an
extremely  high  degree of  leverage.  As a result,  a  relatively  small  price
movement in a Futures Contract may result in immediate and substantial  loss, as
well as gain, to the investor.  For example, if at the time of purchase,  10% of
the value of the Futures  Contract is  deposited  as margin,  a  subsequent  10%
decrease in the value of the Futures  Contract  would  result in a total loss of
the margin  deposit,  before any deduction  for the  transaction  costs,  if the
account were then closed out. A 15%  decrease  would result in a loss of 150% of
the original margin  deposit,  if the Contract were closed out. Thus, a purchase
or sale of a Futures  Contract  may  result  in  losses in excess of the  amount
invested  in the  Futures  Contract.  However,  the Fund  presumably  would have
sustained comparable losses if, instead of the Futures Contract, it had invested
in the underlying financial instrument and sold it after the decline.

    Furthermore,  in the case of a  Futures  Contract  purchase,  in order to be
certain that the Fund has sufficient  assets to satisfy its obligations  under a
Futures  Contract,  the Fund sets aside and commits to back the Futures Contract
an amount of cash, U.S. government  securities and other liquid, high grade debt
securities equal in value to the current value of the underlying instrument less
margin deposit.

    In the case of a  Futures  contract  sale,  the Fund  either  will set aside
amounts,  as in the  case of a  Futures  Contract  purchase,  own  the  security
underlying  the contract or hold a call option  permitting  the Fund to purchase
the same Futures  Contract at a price no higher than the contract price.  Assets
used as cover  cannot be sold while the  position in the  corresponding  Futures
Contract is open, unless they are replaced with similar assets. As a result, the
commitment of a  significant  portion of the Fund's assets to cover could impede
portfolio  management or the Fund's ability to meet redemption requests or other
current obligations.

    Most U.S.  Futures  exchanges  limit the amount of fluctuation  permitted in
Futures Contract prices during a single trading day. The daily limit establishes
the maximum  amount that the price of a Futures  Contract  may vary either up or

                                       8

<PAGE>


down from the previous day's  settlement  price at the end of a trading session.
Once the daily limit has been reached in a particular type of Futures  Contract,
no trades may be made on that day at a price beyond that limit.  The daily limit
governs only price movement  during a particular  trading day and therefore does
not limit  potential  losses,  because the limit may prevent the  liquidation of
unfavorable  positions.  Futures Contract prices  occasionally have moved to the
daily  limit for  several  consecutive  trading  days with little or no trading,
thereby  preventing prompt  liquidation of Futures positions and subjecting some
Futures traders to substantial losses. 

Options on Futures Contracts

    Options on Futures  Contracts  are  similar  to  options  on  securities  or
currencies  except that  options on Futures  Contracts  give the  purchaser  the
right,  in  return  for the  premium  paid,  to assume a  position  in a Futures
Contract (a long  position  if the option is a call and a short  position if the
option is a put),  rather than to purchase  or sell the Futures  Contract,  at a
specified  exercise  price at any time  during  the period of the  option.  Upon
exercise of the option,  the  delivery of the Futures  position by the writer of
the option to the holder of the option  will be  accompanied  by delivery of the
accumulated  balance in the writer's Futures margin account which represents the
amount by which the market price of the Futures Contract,  at exercise,  exceeds
(in the  case of a call) or is less  than  (in the  case of a put) the  exercise
price of the option on the Futures  Contract.  If an option is  exercised on the
last trading day prior to the expiration date of the option, the settlement will
be made entirely in cash equal to the  difference  between the exercise price of
the option and the closing  level of the  securities,  currencies  or index upon
which the Futures  Contracts  are based on the  expiration  date.  Purchasers of
options who fail to exercise  their  options prior to the exercise date suffer a
loss of the premium paid.

    As an  alternative to purchasing  call and put options on Futures,  the Fund
may purchase  call and put options on the  underlying  securities  or currencies
themselves.  Such  options  would  be used in a manner  identical  to the use of
options on Futures Contracts.

    To reduce or eliminate  the leverage then employed by the Fund, or to reduce
or eliminate the hedge  position then  currently  held by the Fund, the Fund may
seek to close out an option  position  by  selling an option  covering  the same
securities or contract and having the same exercise price and  expiration  date.
Trading in options on Futures Contracts began relatively  recently.  The ability
to  establish  and close out  positions  on such  options will be subject to the
development and maintenance of a liquid secondary market. It is not certain that
this market will develop. 
Forward Currency Contracts and Options on Currency

    A forward currency contract ("Forward Contract") is an obligation, generally
arranged with a commercial bank or other currency dealer,  to purchase or sell a
currency  against another  currency at a future date and price as agreed upon by
the  parties.  The Fund may  accept  or make  delivery  of the  currency  at the
maturity of the Forward  Contract or,  prior to  maturity,  enter into a closing
transaction  involving the purchase or sale of an offsetting contract.  The Fund
will utilize  Forward  Contracts  only on a covered  basis.  The Fund engages in
forward currency  transactions in anticipation of, or to protect itself against,
fluctuations  in  exchange  rates.  The Fund  might  sell a  particular  foreign
currency  forward,  for example,  when it holds bonds  denominated  in a foreign
currency but anticipates,  and seeks to be protected  against,  a decline in the
currency against the U.S. dollar. Similarly, the Fund might sell the U.S. dollar
forward when it holds bonds  denominated in U.S.  dollars but  anticipates,  and
seeks to be  protected  against,  a decline in the U.S dollar  relative to other
currencies. Further, the Fund might purchase a currency forward to "lock in" the
price  of  securities   denominated   in  that  currency  which  it  anticipates
purchasing.

    Forward  Contracts  are  transferable  in  the  interbank  market  conducted
directly between  currency  traders  (usually large commercial  banks) and their
customers.  A Forward  Contract  generally  has no deposit  requirement,  and no
commissions  are charged at any stage for trades.  The Fund will enter into such
Forward  Contracts  with major U.S. or foreign banks and  securities or currency
dealers in accordance with guidelines approved by the Fund's Board of Trustees.

    The Fund may enter into  Forward  Contracts  either with respect to specific
transactions  or with  respect to the Fund's  portfolio  positions.  The precise
matching of the Forward  Contract  amounts and the value of specific  securities
generally  will not be possible  because the future value of such  securities in
foreign currencies will change as a consequence of market movements in the value
of those  securities  between the date the Forward  Contract is entered into and
the date it matures.  Accordingly,  it may be necessary for the Fund to purchase
additional  foreign  currency  on the spot  (i.e.,  cash)  market  (and bear the
expense of such  purchase)  if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign  currency the
Fund is obligated to deliver.  The  projection  of  short-term  currency  market
movements is extremely  difficult,  and the successful execution of a short-term
hedging strategy is highly  uncertain.  Forward  Contracts involve the risk that
anticipated  currency  

                                       9

<PAGE>

movements will not be predicted  accurately,  causing the Fund to sustain losses
on these Contracts and transaction costs.

    At or before the maturity of a Forward Contract requiring the Fund to sell a
currency,  the  Fund  either  may  sell a  portfolio  security  and use the sale
proceeds to make  delivery of the currency or retain the security and offset its
contractual  obligation to deliver the currency by purchasing a second  contract
pursuant to which the Fund will  obtain,  on the same  maturity  date,  the same
amount of the currency which it is obligated to deliver. Similarly, the Fund may
close out a Forward  Contract  requiring it to purchase a specified  currency by
entering into a second Contract entitling it to sell the same amount of the same
currency on the maturity  date of the first  Contract.  The Fund would realize a
gain or loss as a result of entering  into such an offsetting  Forward  Contract
under either  circumstance  to the extent the exchange rate or rates between the
currencies  involved moved between the execution dates of the first Contract and
the offsetting Contract.

    The cost to the Fund of engaging in Forward  Contracts  varies with  factors
such as the  currencies  involved,  the  length of the  contract  period and the
market conditions then prevailing. Because Forward Contracts usually are entered
into on a principal  basis,  no fees or  commissions  are  involved.  The use of
Forward  Contracts  does  not  eliminate  fluctuations  in  the  prices  of  the
underlying securities the Fund owns or intends to acquire, but it does establish
a rate of exchange in advance.  In addition,  while Forward  Contracts limit the
risk of loss due to a decline in the value of the hedged  currencies,  they also
limit any potential  gain that might result  should the value of the  currencies
increase.  Although Forward  Contracts  presently are not regulated by the CFTC,
the CFTC, in the future, may assert authority to regulate Forward Contracts.  In
that event,  the Fund's ability to utilize  Forward  Contracts in the manner set
forth above may be restricted. 

Interest Rate and Currency Swaps

    The Fund usually will enter into  interest  rate swaps on a net basis,  that
is, the two payment  streams are netted out in a cash  settlement on the payment
date or dates specified in the instrument, with the Fund receiving or paying, as
the case may be,  only the net amount of the two  payments.  Inasmuch  as swaps,
caps,  floors,  collars and other  derivative  transactions are entered into for
good faith  hedging  purposes,  LMC,  MFR and the Fund  believe that they do not
constitute  senior  securities under the 1940 Act and, thus, will not treat them
as being subject to the Fund's borrowing  restrictions.  The Fund will not enter
into any swap, cap, floor, collar or other derivative transaction unless, at the
time of entering into the  transaction,  the unsecured  long-term debt rating of
the  counterparty  combined with any credit  enhancements is rated at least A by
Moody's Investors Service,  Inc.  ("Moody's") or Standard & Poor's Ratings Group
("S&P") or has an  equivalent  rating from a nationally  recognized  statistical
rating  organization or is determined to be of equivalent  credit quality by LMC
and MFR. If a  counterparty  defaults,  the Fund may have  contractual  remedies
pursuant  to the  agreements  related to the  transactions.  The swap market has
grown substantially in recent years, with a large number of banks and investment
banking firms acting both as  principals  and as agents  utilizing  standardized
swap  documentation.  As a result, the swap market has become relatively liquid.
Caps,  floors and  collars are more recent  innovations  for which  standardized
documentation  has not yet been fully  developed and, for that reason,  they are
less liquid than swaps.

                                  RISK FACTORS

Emerging Countries

    The Fund may invest in debt  securities  in emerging  markets.  Investing in
securities in emerging countries may entail greater risks than investing in debt
securities  in  developed  countries.  These  risks  include  (i)  less  social,
political and economic stability; (ii) the small current size of the markets for
such  securities and the currently low or nonexistent  volume of trading,  which
result in a lack of liquidity  and in greater  price  volatility;  (iii) certain
national  policies  which may  restrict  the  Fund's  investment  opportunities,
including  restrictions on investment in issuers or industries  deemed sensitive
to national interests;  (iv) foreign taxation;  and (v) the absence of developed
structures  governing  private or foreign  investment  or allowing  for judicial
redress for injury to private property. 

Political and Economic Risks

    Investing in securities of non-U.S.  companies may entail  additional  risks
due to the potential political and economic instability of certain countries and
the risks of expropriation,  nationalization,  confiscation or the imposition of
restrictions on foreign  investment and on repatriation of capital invested.  In
the event of such  expropriation,  nationalization  or other confiscation by any
country, the Fund could lose its entire investment in any such country.

    An investment  in the Fund is subject to the  political  and economic  risks
associated with investments in emerging markets.  Even though  opportunities for
investment  may exist in  emerging  markets,  any  change in the  leadership  or
policies of the  governments of those countries or in the leadership or policies
of any other  government  which  exercises a

                                       10

<PAGE>

significant influence over those countries, may halt the expansion of or reverse
the  liberalization  of foreign  investment  policies now  occurring and thereby
eliminate any investment opportunities which may currently exist.

    Investors  should  note that upon the  accession  to power of  authoritarian
regimes,  the  governments of a number of emerging market  countries  previously
expropriated  large  quantities  of real and  personal  property  similar to the
property which will be represented by the securities  purchased by the Fund. The
claims of property owners against those  governments were never finally settled.
There can be no assurance that any property  represented by securities purchased
by  the  Fund  will  not  also  be  expropriated,   nationalized,  or  otherwise
confiscated.  If  such  confiscation  were  to  occur,  the  Fund  could  lose a
substantial portion of its investments in such countries. The Fund's investments
would similarly be adversely  affected by exchange control  regulation in any of
those countries. 

Religious and Ethnic Instability

    Certain  countries  in which the Fund may invest  may have vocal  minorities
that advocate radical religious or revolutionary  philosophies or support ethnic
independence.  Any disturbance on the part of such  individuals  could carry the
potential for  wide-spread  destruction  or  confiscation  of property  owned by
individuals and entities foreign to such country and could cause the loss of the
Fund's investment in those countries. 

Foreign Investment Restrictions

    Certain countries prohibit or impose substantial restrictions on investments
in their capital markets, particularly their equity markets, by foreign entities
such as the Fund.  As  illustrations,  certain  countries  require  governmental
approval  prior to  investments  by  foreign  persons,  or limit  the  amount of
investment by foreign persons in a particular  company, or limit the investments
by foreign  persons to only a specific class of securities of a company that may
have less  advantageous  terms than  securities  of the  company  available  for
purchase by nationals.  Moreover, the national policies of certain countries may
restrict  investment  opportunities in issuers or industries deemed sensitive to
national interests.  In addition,  some countries require governmental  approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign  investors.  The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental  approval for repatriation,  as
well  as by  the  application  to  it  of  other  restrictions  on  investments.

Non-Uniform Corporate Disclosure Standards and Governmental Regulation

    Foreign  companies  are  subject  to  accounting,   auditing  and  financial
standards and requirements that differ, in some cases significantly,  from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing  on the  financial  statements  of such a company  may not reflect its
financial  position or results of  operations in the way they would be reflected
had such financial  statements been prepared in accordance  with U.S.  generally
accepted accounting principles. Most of the securities held by the Fund will not
be registered  with the SEC or regulators of any foreign  country,  nor will the
issuers thereof be subject to the SEC's reporting requirements. Thus, there will
be less available  information  concerning foreign issuers of securities held by
the Fund than is available  concerning  U.S.  issuers.  In  instances  where the
financial  statements  of an issuer  are not deemed to  reflect  accurately  the
financial  situation of the issuer,  LMC and MFR will take appropriate  steps to
evaluate the proposed  investment,  which may include on-site  inspection of the
issuer,  interviews  with its management  and  consultations  with  accountants,
bankers and other  specialists.  There is substantially  less publicly available
information about foreign companies than there are reports and ratings published
about  U.S.  companies  and the  U.S.  Government.  In  addition,  where  public
information  is  available,  it may  be  less  reliable  than  such  information
regarding U.S. issuers. 

Currency Fluctuations

    Because  the  Fund,  under  normal  circumstances,  may  invest  substantial
portions of its total  assets in the  securities  of foreign  issuers  which are
denominated in foreign  currencies,  the strength or weakness of the U.S. dollar
against such foreign  currencies will account for part of the Fund's  investment
performance.  A decline in the value of any particular currency against the U.S.
dollar will cause a decline in the U.S.  dollar value of the Fund's  holdings of
securities  denominated in such currency and,  therefore,  will cause an overall
decline in the Fund's net asset value and any net investment  income and capital
gains to be distributed in U.S. dollars to shareholders of the Fund.

    The rate of  exchange  between  the U.S.  dollar  and  other  currencies  is
determined by several  factors  including  the supply and demand for  particular
currencies,  central bank efforts to support particular currencies, the movement
of interest rates, the pace of business  activity in certain other countries and
the U.S.,  and other  economic  and  financial  conditions  affecting  the world
economy.

                                       11

<PAGE>

    Although the Fund values its assets daily in terms of U.S. dollars, the Fund
does not intend to convert holdings of foreign currencies into U.S. dollars on a
daily  basis.  The Fund will do so from time to time,  and  investors  should be
aware of the costs of currency conversion.  Although foreign exchange dealers do
not  charge  a fee for  conversion,  they  do  realize  a  profit  based  on the
difference  ("spread")  between  the prices at which they are buying and selling
various  currencies.  Thus, a dealer may offer to sell a foreign currency to the
Fund at one rate,  while  offering  a lesser  rate of  exchange  should the Fund
desire to sell that currency to the dealer. 

Adverse Market Characteristics

    Securities of many foreign  issuers may be less liquid and their prices more
volatile than  securities  of  comparable  U.S.  issuers.  In addition,  foreign
securities  exchanges  and brokers  generally  are subject to less  governmental
supervision  and  regulation  than in the U.S. and foreign  securities  exchange
transactions  usually  are subject to fixed  commissions,  which  generally  are
higher than negotiated  commissions on U.S. transactions.  In addition,  foreign
securities exchange transactions may be subject to difficulties  associated with
the  settlement  of such  transactions.  Delays in  settlement  could  result in
temporary periods when assets of the Fund are uninvested and no return is earned
thereon.  The inability of the Fund to make intended  security  purchases due to
settlement problems could cause it to miss attractive  opportunities.  Inability
to dispose of a portfolio  security  due to  settlement  problems  either  could
result  in  losses  to the  Fund  due to  subsequent  declines  in  value of the
portfolio  security  or, if the Fund has  entered  into a  contract  to sell the
security,  could result in possible liability to the purchaser. LMC and MFR will
consider such difficulties when determining the allocation of the Fund's assets,
although LMC and MFR do not believe that such  difficulties will have a material
adverse effect on the Fund's portfolio trading activities.  

Non-U.S. Withholding Taxes

    The Fund's net  investment  income  from  foreign  issuers may be subject to
non-U.S.  withholding taxes,  thereby reducing the Fund's net investment income.
See "Taxes."

                             INVESTMENT RESTRICTIONS

    The Fund's  investment  policy,  and the investment  restrictions  set forth
below,  may not be changed without the  affirmative  vote (defined as the lesser
of: 67% of the shares  represented at a meeting at which 50% of the  outstanding
shares are present or 50% of the outstanding shares) of the Fund's shareholders.
These restrictions may be summarized as follows:

    The Fund shall not:

        (1) 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,  delayed delivery and when-issued securities,
            which may be  considered  the issuance of senior  securities  to the
            extent  permitted  under  applicable  regulations;  (b) the Fund may
            engage in  transactions  that may result in the issuance of a senior
            security to the extent permitted under applicable  regulations,  the
            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) 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,  and (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.

        (3) underwrite securities of other issuers;

        (4) concentrate  its  investments in a particular  industry to an extent
            greater  than 25% of the value of its total  assets,  provided  that
            such limitation  shall not apply to securities  issued or guaranteed
            by the U.S. Government or its agencies;

        (5) 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 for
            hedging purposes, may engage in

                                       12

<PAGE>

            transactions  on a when-issued or forward  commitment  basis and may
            enter into forward  currency  contracts.  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 issued by companies, including real
            estate  investment  trusts,  which deal in real estate or  interests
            therein.

        (6) make loans to other  persons  except:  (a) through the purchase of a
            portion or  portions of an issue or issues of  securities  issued or
            guaranteed by the U.S.  Government  or its agencies,  or (b) through
            investments in "repurchase agreements" (which are arrangements under
            which the Fund acquires a debt security  subject to an obligation of
            the seller to repurchase it at a fixed price within a short period),
            provided  that no more than 5% of the Fund's  assets may be invested
            in repurchase agreements;

        (7) purchase the securities of another  investment company or investment
            trust,  except in the open market and then only if no profit,  other
            than the  customary  broker's  commission,  results  to a sponsor or
            dealer, or by merger or other reorganization;

        (8) buy securities from or sell securities (other than securities issued
            by the Fund) to any of its officers, Trustees or LMC as principal;

        (9) contract to sell any  security  or  evidence  of  interest  therein,
            except to the extent that the same shall be owned by the Fund;

       (10) purchase or retain  securities  of an issuer when one or more of the
            officers and Trustees of the Fund or of the investment adviser, or a
            person owning more that 10% of the stock of either, own beneficially
            more  than  1/2 of 1% of the  securities  of such  issuer  and  such
            persons owning more than 1/2 of 1% of such  securities  together own
            beneficially more than 5% of the securities of such issuer;

       (11) invest more than 5% of its total assets in the securities of any one
            issuer  (except   securities   issued  or  guaranteed  by  the  U.S.
            Government)  except that such restriction  shall not apply to 50% of
            the Fund's portfolio;

       (12) purchase any security if such  purchase  would cause the Fund to own
            at the time of  purchase  more  than 10% of the  outstanding  voting
            securities of any one issuer;

       (13) invest  more  than 15% of its net  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.
            LMC shall  determine  whether a particular  security is deemed to be
            liquid based on the trading  markets for the  specific  security and
            other factors; and

       (14) invest in  interest  in oil,  gas or other  mineral  exploration  or
            development programs.

    The following  investment policy of the Fund is not a fundamental policy and
may be changed by a vote of a majority of the Fund's  Board of Trustees  without
shareholder  approval.  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 Fund's total assets, at
market  value at the time of entering  into a contract,  shall be  committed  to
margin deposits in relation to futures contracts.

                             PORTFOLIO TRANSACTIONS

    Subject to policies  established  by the Fund's  Board of  Trustees,  LMC is
responsible  for the  execution  of the Fund's  portfolio  transactions  and the
selection of  broker/dealers  that execute  such  transactions  on behalf of the
Fund. In executing  portfolio  transactions,  LMC seeks the best net results for
the  Fund,  taking  into  account  such  factors  as the  price  (including  the
applicable brokerage commission or dealer spread), size of the order, difficulty
of execution  and  operational  facilities  of the firm  involved.  Although LMC
generally seeks reasonably competitive commission rates and spreads,  payment of
the lowest commission or spread is not necessarily  consistent with the best net
results.  While the Fund may engage in soft  dollar  arrangements  for  research
services,  as  described  below,  the Fund has no  obligation  to deal  with any
broker/dealer  or  group  of   broker/dealers  in  the  execution  of  portfolio
transactions.

                                       13

<PAGE>

    Debt  securities  generally are traded on a "net" basis with a dealer acting
as principal for its own account without a stated commission, although the price
of the  security  usually  includes a profit to the  dealer.  U.S.  and  foreign
government  securities and money market instruments  generally are traded in the
OTC markets.  In underwritten  offerings,  securities usually are purchased at a
fixed price which  includes an amount of  compensation  to the  underwriter.  On
occasion,  securities may be purchased directly from an issuer, in which case no
commissions  or discounts are paid.  Broker/dealers  may receive  commissions on
futures, currency and options transactions.

    Consistent with the interests of the Fund, LMC may select brokers to execute
the Fund's  portfolio  transactions  on the basis of the research and  brokerage
services  they  provide  to LMC for its use in  managing  the Fund and its other
advisory accounts.  Such services may include furnishing  analyses,  reports and
information  concerning  issuers,  industries,  securities,  geographic regions,
economic factors and trends,  portfolio  strategy,  and performance of accounts;
and  effecting  securities  transactions  and  performing  functions  incidental
thereto (such as clearance  and  settlement).  Research and  brokerage  services
received  from such brokers are in addition to, and not in lieu of, the services
required to be performed by LMC under the Advisory  Agreement (defined below). A
commission paid to such brokers may be higher than that which another  qualified
broker would have charged for effecting the same transaction,  provided that LMC
determines  in good faith that such  commission is reasonable in terms either of
that particular transaction or the overall responsibility of LMC to the Fund and
its  other  clients  and that the  total  commissions  paid by the Fund  will be
reasonable in relation to the benefits  received by the Fund over the long term.
Research   services  may  also  be  received   from  dealers  who  execute  Fund
transactions.

    Investment  decisions for the Fund and for other investment accounts managed
by LMC are made  independently  of each other in light of differing  conditions.
However,  the same investment decision  occasionally may be made for two or more
of such accounts. In such cases,  simultaneous transactions may occur. Purchases
or sales are then  allocated  as to price or amount in a manner  deemed fair and
equitable to all accounts involved. While in some cases this practice could have
a detrimental  effect upon the price or value of the security as far as the Fund
is concerned,  in other cases LMC believes that  coordination and the ability to
participate  in volume  transactions  will be beneficial to the Fund.  

Portfolio Trading and Turnover

   
    The Fund engages in portfolio  trading when LMC concludes that the sale of a
security  owned by the Fund and/or the  purchase  of another  security of better
value can enhance  principal  and/or increase  income. A security may be sold to
avoid any prospective decline in market value, or a security may be purchased in
anticipation of a market rise. Consistent with the Fund's investment objectives,
a security also may be sold and a comparable  security purchased  coincidentally
in order to take  advantage  of what is believed to be a disparity in the normal
yield and price  relationship  between  the two  securities.  Although  the Fund
generally does not intend to trade for short-term profits, the securities in the
Fund's  portfolio will be sold whenever LMC believes it is appropriate to do so,
without  regard to the length of time a  particular  security may have been held
(except to the extent  necessary to avoid  non-compliance  with the "Short-Short
Limitation"  described below in "Taxes General").  The Fund anticipates that its
portfolio  turnover rate will exceed 100%. A 100% portfolio  turnover rate would
occur if the lesser of the value of purchases  or sales of portfolio  securities
for the  Fund  for a year  (excluding  purchases  of  U.S.  Treasury  and  other
securities  with a maturity  at the date of  purchase  of one year or less) were
equal  to  100%  of the  average  monthly  value  of the  securities,  excluding
short-term  investments,  held by the Fund  during such year.  Higher  portfolio
turnover  involves  correspondingly  greater  brokerage  commissions  and  other
transaction costs that the Fund will bear directly. The portfolio turnover rates
for the Fund for the last three  fiscal  years were as  follows:  1994,  10.20%,
1995, 164.72% and 1996, 71.83%.
    

                            VALUATION OF FUND SHARES

    As  described  in the  Prospectus,  the Fund's net asset value per share for
each class of shares is  determined  at the close of regular  trading on the New
York Stock Exchange  ("NYSE")  (currently,  4:00 Eastern time,  unless  weather,
equipment  failure or other factors  contribute to an earlier  closing  business
time) on each business day the NYSE is open for business. Currently, the NYSE is
closed on weekends and on certain days relating to the following  holidays:  New
Year's Day,  President's  Day, Good Friday,  Memorial Day, July 4th,  Labor Day,
Thanksgiving Day and Christmas Day.

    The Fund's portfolio securities and other assets are valued as follows:

    Long-term debt obligations are valued at the mean of  representative  quoted
bid or asked prices for such securities or, if such prices are not available, at
prices for securities of comparable  maturity,  quality and type; however,  when
LMC deems it  appropriate,  prices obtained for the day of valuation from a bond
pricing  service will be used.  Short-term  debt  investments  are  amortized to
maturity  based  on their  cost,  adjusted  for  foreign  exchange  translation,
provided such valuation represents fair value.

                                       14

<PAGE>

    Options  on  currencies  purchased  by the Fund are valued at their last bid
price in the case of listed  options  or at the  average  of the last bid prices
obtained  from  dealers in the case of OTC options.  The value of each  security
denominated in a currency other than U.S.  dollars will be translated  into U.S.
dollars at the prevailing market rate as determined by LMC on that day.

    Securities and assets for which market  quotations are not readily available
(including  restricted  securities  which are subject to limitations as to their
sale)  are  valued at fair  value as  determined  in good  faith by or under the
direction of the Fund's Board of Trustees.  The valuation  procedures applied in
any  specific  instance  are  likely  to  vary  from  case  to  case.   However,
consideration  is generally  given to the  financial  position of the issuer and
other  fundamental  analytical data relating to the investment and to the nature
of the restrictions on disposition of the securities (including any registration
expenses that might be borne by the Fund in connection  with such  disposition).
In addition, specific factors also are generally considered, such as the cost of
the  investment,  the market value of any  unrestricted  securities  of the same
class (both at the time of purchase and at the time of  valuation),  the size of
the  holding,  the prices of any recent  transactions  or offers with respect to
such securities and any available analysts' reports regarding the issuer.

    The fair value of any other  assets is added to the value of all  securities
positions  to  arrive  at the  value of the  Fund's  total  assets.  The  Fund's
liabilities,  including  accruals  for  expenses,  are  deducted  from its total
assets.  Once the total  value of the Fund's net assets is so  determined,  that
value is then  divided  by the total  number of  shares  outstanding  (excluding
treasury shares), and the result,  rounded to the nearest cent, is the net asset
value per share.

    Any  assets  or  liabilities  initially  denominated  in  terms  of  foreign
currencies are translated into U.S. dollars at the official  exchange rate or at
the mean of the current bid and asked prices of such currencies against the U.S.
dollar last quoted by a major bank that is a regular  participant in the foreign
exchange market or on the basis of a pricing service that takes into account the
quotes provided by a number of such major banks.  If none of these  alternatives
are  available  or none  are  deemed  to  provide  a  suitable  methodology  for
converting a foreign currency into U.S. dollars,  management at the direction of
the Board of Trustees,  in good faith, will establish a conversion rate for such
currency.

    European,  Far  Eastern or Latin  American  securities  trading may not take
place on all days on which the NYSE is open.  Further,  trading  takes  place in
Japanese markets on certain  Saturdays and in various foreign markets on days on
which  the  NYSE  is not  open.  Consequently,  the  calculation  of the  Fund's
respective net asset values therefore may not take place  contemporaneously with
the determination of the prices of securities held by the Fund. Events affecting
the values of portfolio  securities that occur between the time their prices are
determined and the close of regular trading on the NYSE will not be reflected in
the Fund's net asset value unless LMC, under the supervision of the Fund's Board
of Trustees,  determines that the particular event would  materially  affect net
asset  value.  As a result,  the  Fund's  net asset  value may be  significantly
affected by such trading on days when a  shareholder  cannot  purchase or redeem
shares of the Fund.

         INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR

    The Fund has entered into an investment advisory contract with LMC, P.O. Box
1515,  Park 80 West Plaza Two,  Saddle  Brook,  New Jersey  07663.  LMC, as such
provides investment advice and in general conducts the management and investment
program of the Fund under the  supervision  and  control of the  Trustees of the
Fund.  LMC has entered into a  sub-advisory  contract with MFR  Advisors,  Inc.,
("MFR"),  One World Financial  Center,  200 Liberty  Street,  New York, New York
10281,  under  which  MFR will  provide  the Fund  with  economic  and  research
services.

    Pursuant  to  an  investment  advisory  agreement,  the  Fund  pays  LMC  an
investment  advisory  fee of 1% of the Fund's  average  net asset  value,  after
deduction of Fund  expenses,  if any, in excess of the expense  limitations  set
forth below.  Of this  amount,  LMC will pay MFR an annual  sub-advisory  fee of
0.50% of the Fund's average net assets,  net of  reimbursement,  that exceed $15
million.  The sub-advisory fee will be paid by LMC not by the Fund. The fees are
computed on the basis of current net assets at the end of each  business day and
is payable at the end of each month.

   
    For the fiscal years ended  December 31, 1994,  1995 and 1996, the Fund paid
$41,599, $97,938 and $30,004,  respectively,  in net investment advisory fees to
LMC.
    

Investment Adviser, Sub-Adviser, Distributor, and Administrator

    Lexington  Management  Corporation has agreed to voluntarily limit the total
operating  expenses  of the  Fund  (excluding  interest,  taxes,  brokerage  and
extraordinary  expenses, but including management fee and operating expenses) to
an annual rate of 1.50% of the Fund's  average net assets through April 30, 1998
or such later date to be determined by Lexington Management Corporation.

                                       15

<PAGE>

    Under  the terms of the  investment  advisory  agreement,  LMC also pays the
Fund's expenses for a trading function to place orders for the purchase and sale
of  portfolio  securities  for the  Fund;  office  rent,  utilities,  telephone,
furniture and supplies  utilized at the Fund's  principal  office;  salaries and
payroll  expenses of persons serving as officers or Trustees of the Fund who are
also employees of LMC or any of its affiliates.

    Any of the other  expenses  incurred in the  operation  of the Fund shall be
borne  by the  Fund,  including,  among  other  things,  fees of its  custodian,
transfer and shareholder  servicing  agent;  cost of pricing and calculating its
daily net asset value and of maintaining its books and accounts  required by the
Investment Company Act of 1940;  expenditures in connection with meetings of the
Fund's Trustees and  shareholders,  except those called to accommodate LMC; fees
and expenses of Trustees who are not  affiliated  with or interested  persons of
LMC; in maintaining registration of its shares under state securities laws or in
providing  shareholder and dealer  services;  insurance  premiums on property or
personnel  of the Fund  which  inure to its  benefit;  costs  of  preparing  and
printing reports, proxy statements and prospectuses of the Fund for distribution
to its shareholders;  legal,  auditing and accounting fees; fees and expenses of
registering and  maintaining  registration of its shares for sales under Federal
and applicable  state securities laws; and all other expenses in connection with
issuance, registration and transfer of its shares.

    If, for any fiscal year, the total of all ordinary  business expenses of the
Fund, including all investment advisory fees but excluding brokerage commissions
and fees, taxes, interest and extraordinary  expenses such as litigation,  would
exceed the most restrictive  expense limits imposed by any statute or regulatory
authority  of any  jurisdiction  in which the Fund's  securities  are offered as
determined  in the manner  described  above as of the close of  business on each
business  day during such fiscal  year,  the  aggregate  of all such  investment
management  fees shall be  reduced by the amount of such  excess but will not be
required to reimburse the Fund for any ordinary  business  expenses which exceed
the amount of its  advisory  fee for such  fiscal  year.  The amount of any such
reduction  to be borne by LMC  shall be  deducted  from the  monthly  investment
advisory  fee  otherwise  payable to LMC during  such fiscal  year;  and if such
amount  should  exceed such  monthly  fee,  LMC agrees to repay to the Fund such
amount of its investment management fee previously received with respect to such
fiscal year as may be required to make up the  deficiency no later than the last
day of the first month of the next succeeding  fiscal year. For purposes of this
paragraph,  the term  "fiscal  year"  shall  exclude  the portion of the current
fiscal year which shall have elapsed  prior to the date hereof and shall include
the portion of the then current fiscal year which shall have elapsed at the date
of termination of the Advisory Agreement.

    LMC  also  acts  as   administrator   to  the  Fund  and  performs   certain
administrative   and  accounting   services,   including  but  not  limited  to,
maintaining  general  ledger  accounts,  regulatory  compliance,  preparation of
financial information for semiannual and annual reports,  preparing registration
statements,   calculating  net  asset  values,  shareholder  communications  and
supervision  of the custodian,  transfer agent and provides  facilities for such
services.  The Fund shall  reimburse  LMC for its actual cost in providing  such
services, facilities and expenses.

    LMC's services are provided and investment advisory its fee is paid pursuant
to an agreement which will automatically  terminate if assigned and which may be
terminated by either party upon 60 days' notice. The terms of the Agreement must
be approved by  shareholders  of the Fund at the first annual  meeting,  and any
renewal  thereof as to the  Agreement  must be approved  at least  annually by a
majority of the Fund's Board of  Trustees,  including a majority of Trustees who
are not parties to the agreement or  "interested  persons" of such  parties,  as
such term is defined under the Investment Company Act of 1940, as amended.

    LMC  serves  as  investment  adviser  to  other  investment  companies  (see
"Exchange  Privilege") as well as private and institutional  investment clients.
Included among these clients are persons and organizations which own significant
amounts of capital stock of LMC's parent  company  Piedmont  Management  Company
Inc. These clients pay fees which LMC considers comparable to the fee levels for
similarly served clients.

    LMC's  accounts  are managed  independently  with  reference  to  applicable
investment  objectives and current security holdings,  but on occasion more than
one fund or  counsel  account  may seek to  engage in  transactions  in the same
security at the same time. To the extent practicable,  such transactions will be
effected  on a pro  rata  basis  in  proportion  to the  respective  amounts  of
securities  to be  bought  and  sold  for  each  portfolio,  and  the  allocated
transactions  will be averaged as to price.  While this  procedure may adversely
affect the price or volume of a given Fund transaction,  the ability of the Fund
to participate  in combined  transactions  may generally  produce better overall
executions.

    LFD serves as  distributor  for Fund shares under a  distribution  agreement
which is  subject  to annual  approval  by a  majority  of the  Fund's  Board of
Trustees, including a majority who are not "interested persons."

    MFR is a subsidiary of Maria Fiorini Ramirez,  Inc.  ("Ramirez"),  which was
established in August of 1992 to provide global economic consulting,  investment
advisory and  broker-dealer  services.  Ramirez is the  successor  firm to Maria

                                       16

<PAGE>

Ramirez Capital Consultants,  Inc. ("MRCC").  MRCC was formed in April 1990 as a
subsidiary of John Hancock Freedom  Securities  Corporation and offered in-depth
economic  consulting  services to  clients.  MFR  currently  does not manage any
assets for  investment  companies  but is an  institutional  manager for private
clients.  Under  the  terms of the  Sub-Advisory  Agreement,  MFR  will  provide
economic and investment research.

   
    Of the Trustees,  executive officers and employees ("affiliated persons") of
the Fund, Messrs. Corniotes,  DeMichele,  Faust, Hisey, Jamison, Kantor, Lavery,
Luehs and Mmes.  Carnicelli,  Carr,  Curcio,  Gilfillan,  Lederer and Mosca (see
"Management  of the  Trust") may also be deemed  affiliates  of LMC by virtue of
being  officers,  Trustees or employees  thereof.  As of February 28, 1997,  all
officers and  Trustees of the Fund as a group,  were  beneficial  owners of less
than 1% of the shares of the Fund.
    

    LMC  and  LFD  are  wholly-owned  subsidiaries  of  Lexington  Global  Asset
Managers,  Inc., a Delaware  corporation with offices at Park 80 West Plaza Two,
Saddle Brook, New Jersey 07663.  Descendants of Lunsford Richardson,  Sr., their
spouses,  trusts and other related  entities have a majority  voting  control of
outstanding shares of Lexington Global Asset Managers, Inc. common stock.

                                      TAXES

    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.
    

    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

                                       17

<PAGE>

 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.

    Further,  the Code also treats as ordinary  income, a portion of the capital
gain  attributable  to a  transaction  where  substantially  all of  the  return
realized is  attributable  to the time value of the Fund's net investment in the
transaction and: (1) the transaction  consists of the acquisition of property by
the Fund and a contemporaneous contract to sell substantially identical property
in the future;  (2) the  transaction is a straddle within the meaning of Section
1092 of the Code;  (3) the  transaction  is one that was marketed or sold to the
Fund on the basis that it would have the economic  characteristics of a loan but
the interest-like  return would be taxed as capital gain; or (4) the transaction
is described as a conversion transaction in the Treasury Regulations. The amount
of the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term,  mid-term, or short-term rate, depending
upon the type of instrument  at issue,  reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction; and (2) the
capital interest on acquisition indebtedness under Code Section 263(g). Built-in
losses  will be  preserved  where the Fund has a built-in  loss with  respect to
property that becomes a part of a conversion  transaction.  No authority  exists
that indicates that the converted  character of the income will not be passed to
the Fund's shareholders.

    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,  or (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 Fund
grants a qualified covered call option (which,  among other things,  must not be
deep-in-the-money)   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.

   
    Certain  transactions  that may be engaged in by the Fund (such as regulated
futures  contracts,  certain foreign  currency  contracts,  and options on stock
indexes  and futures  contracts)  will be subject to special  tax  treatment  as
"Section 1256 contracts." Section 1256 contracts are treated as if they are sold
for their fair market value on the last business day of the taxable  year,  even
though a  taxpayer's  obligations  (or  rights)  under such  contracts  have not
terminated  (by  delivery,  exercise,  entering  into a closing  transaction  or
otherwise) as of such date. Any gain or loss  recognized as a consequence of the
year-end deemed  disposition of Section 1256 contracts is taken into account for
the  taxable  year  together  with any other  gain or loss  that was  previously
recognized  upon the  termination of Section 1256 contracts  during that taxable
year. Any capital gain or loss for the taxable year with respect to Section 1256
contracts  (including  any capital gain or loss arising as a consequence  of the
year-end  deemed sale of such  contracts) is generally  treated as 60% long-term
capital gain or loss and 40% short-term capital gain or loss. The Fund, however,
may elect not to have this special tax treatment apply to Section 1256 contracts
that are part of a "mixed straddle" with other  investments of the Fund that are
not Section 1256  contracts.  Under  Treasury  Regulations,  gains  arising from
Section 1256 contracts will be treated for purposes of the Short-Short Gain Test
as being  derived  from  securities  held for not less than three  months if the
gains arise as a result of a constructive sale under Code Section 1256.

    The Fund may enter into notional  principal  contracts,  including  interest
rate swaps, caps, floors, and collars.  Under Treasury Regulations,  in general,
the net income or  deduction  from a notional  principal  contract for a taxable
year is included in or deducted from gross income for that taxable year. The net
income or deduction from a notional principal contract for a taxable year equals
the total of all of the periodic payments (generally,  payments that are payable
or receivable at fixed periodic  intervals of one year or less during the entire
term of the  contract)  that are  recognized  from that contract for the taxable
year and all of the non-periodic  payments  (including premiums for caps, floors
and collars)  that are  recognized  from that  contract for the taxable year. No
portion of a payment by a party to a notional  principal  contract is recognized
prior to the first year to which any  portion  of a payment by the  counterparty
relates.  A periodic  
    

                                       18

<PAGE>

   
payment is recognized ratably over the period to which it relates. In general, a
non-periodic  payment must be recognized over the term of the notional principal
contract in a manner that  reflects the economic  substance of the  contract.  A
non-periodic payment that relates to an interest rate swap, cap, floor or collar
shall be recognized over the term of the contract by allocating it in accordance
with the values of a series of  cash-settled  forward or option  contracts  that
reflect  the  specified  index and  notional  principal  amount  upon  which the
notional  principal contract is based (or, in the case of swaps and certain caps
and floors, under an alternative method contained in the regulations).
    

    Treasury  Regulations permit a regulated  investment company, in determining
its investment  company taxable income and net capital gain (i.e., the excess of
net  long-term  capital gain over net  short-term  capital loss) for any taxable
year,  to elect  (unless  it has made a taxable  year  election  for  excise tax
purposes as discussed  below) to treat all or any part of any net capital  loss,
any net long-term  capital loss or any net foreign  currency loss incurred after
October 31 as if it had been incurred in the succeeding year.

   
    In addition to satisfying the requirements  described above, the Fund's 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.
    

    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   generally   should   not   qualify   for  the  70%
dividends-received deduction for corporate shareholders.

    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 that 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.
    

                                       19

<PAGE>

    Conversely, if the Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35%  corporate  tax rate.  If the Fund  elects to retain its net  capital
gain,  it is  expected  that the Fund also will  elect to have  shareholders  of
record  on the  last day of its  taxable  year  treated  as if each  received  a
distribution  of his pro rata  share of such  gain,  with the  result  that each
shareholder  will be  required  to report his pro rata share of such gain on his
tax return as long-term  capital gain,  will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain,  and will  increase  the
tax basis for his shares by an amount equal to the deemed  distribution less the
tax credit.

    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.

   
    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) generally  will apply in  determining  the holding  period of
shares. Long-term capital gains of noncorporate taxpayers are currently 

                                       20

<PAGE>

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.
Futhermore, 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 his 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 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.

                                DISTRIBUTION PLAN

    The Fund has adopted a  Distribution  Plan (the "Plan") in  accordance  with
Rule 12b-1 under the  Investment  Company Act of 1940,  which  provides that the
Fund may pay  distribution  fees including  payments to the  Distributor,  at an
annual rate not to exceed 0.25% of its average daily net assets for distribution
services.

    Distribution  payments will be made as follows:  The Fund either directly or
through the adviser, may make payments periodically (i) to the Distributor or to
any  broker-dealer (a "Broker") who is registered under the Securities  Exchange
Act of 1934  and a  member  in good  standing  of the  National  Association  of
Securities  Dealers,  Inc. and who has entered into a Selected Dealer  Agreement
with  the  Distributor,  (ii) to  other  persons  or  organizations  ("Servicing
Agents") who have entered into  shareholder  processing  and service  agreements
with the Adviser or with the  Distributor,  with respect to Fund shares owned by
shareholders  for which  such  Broker is the  dealer or holder of record or such
servicing agent has a servicing  relationship,  or (iii) for expenses associated
with  distribution of Fund shares,  including but not limited to the incremental
costs of printing  prospectuses,  statements of additional  information,  annual
reports  and other  periodic  reports  for  distribution  to persons who are not
shareholders  of the Fund;  the costs of preparing  and  distributing  any other
supplemental sales literature;  costs of radio, television,  newspaper and other
advertising;  telecommunications  expenses,  including  the cost of  telephones,
telephone  lines  and other  communications  equipment,  incurred  by or for the
Distributor in carrying out its obligations under the Distribution Agreement.

                                       21

<PAGE>

    Quarterly,  in each year  that  this Plan  remains  in  effect,  the  Fund's
Treasurer  shall  prepare  and  furnish  to the  Trustees  of the Fund a written
report, complying with the requirements of Rule 12b-1, setting forth the amounts
expended  by the Fund under the Plan and  purposes  for which such  expenditures
were made.

    The Plan shall  become  effective  upon  approval  of the Plan,  the form of
Selected Dealer Agreement and the form of Shareholder Service Agreement,  by the
majority  votes of both (a) the Fund's  Trustees and the Qualified  Trustees (as
defined below), cast in person at a meeting called for the purposes of voting on
the Plan and (b) the  outstanding  voting  securities of the Fund, as defined in
Section 2(a)(42) of the 1940 Act.

    The Plan shall remain in effect for one year from its adoption  date and may
be continued  thereafter if this Plan and all related agreements are approved at
least  annually  by a majority  vote of the  Trustees  of the Fund,  including a
majority of the Qualified  Trustees  cast in person at a meeting  called for the
purpose  of voting  such Plan and  agreements.  This Plan may not be  amended in
order to increase materially the amount to be spent for distribution  assistance
without  shareholder  approval.  All  material  amendments  to this Plan must be
approved by a vote of the Trustees of the Fund,  and of the  Qualified  Trustees
(as hereinafter defined),  cast in person at a meeting called for the purpose of
voting thereon.

    The Plan may be  terminated  at any time by a majority  vote of the Trustees
who are not interested  persons (as defined in Section 2(a)(19) of the 1940 Act)
of the Fund and have no direct or indirect  financial  interest in the operation
of the Plan or in any agreements related to the Plan (the "Qualified  Trustees")
or by vote of a majority of the  outstanding  voting  securities of the Fund, as
defined in Section 2(a)(42) of the 1940 Act.

    While this Plan shall be in effect,  the  selection  and  nomination  of the
"non-interested"  Trustees of the Fund shall be committed to the  discretion  of
the Qualified Trustees then in office.

             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. Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company
have  any  part  in  determining  the  investment  policies  of the  Fund  or in
determining  which portfolio  securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.

                             MANAGEMENT OF THE FUND

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

   
+S.M.S.  CHADHA  (59),  Trustee.  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 P.C., (67), Trustee. 340 East 72nd Street, New York, New York,
    10021. Private Investor; formerly Manager of Operations Research Department,
    CPC International, Inc.

*+BARBARA R. EVANS (36), Trustee. 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 Trustee. P.O. Box 1515, Saddle Brook,
    N.J.  07663.   Executive  Vice  President,   Managing  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.
    

                                       22

<PAGE>

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

+ANDREW M. McCOSH (56), Trustee.  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), Trustee.  10725 Quail Covey Road, Boynton Beach, Florida
    33436.  Chairman,  Horizon Media,  Inc.;  Trustee,  Galaxy Funds;  Director,
    Maguire Group of Connecticut;  prior to January 1989, President,  C.E.O. and
    Director, Media General Broadcast Services (advertising firm).

+JOHN G. PRESTON (64),  Trustee.  3 Woodfield  Road,  Wellesley,  Massachusetts.
    Associate Professor of Finance, Boston College, Boston, Massachusetts 02181.

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

*+DENIS P. JAMISON (49),  Vice President and Portfolio  Manager.  P.O. Box 1515,
    Saddle Brook,  N.J. 07663.  Senior Vice President,  Director of Fixed Income
    Investment  Strategy,  Lexington  Management  Corporation.  Mr. Jamison is a
    Chartered  Financial  Analyst  and a  member  of the  New  York  Society  of
    Securities Analysts.

*MARIA FIORINI  RAMIREZ (49),  Vice President and Portfolio  Manager.  One World
    Financial Center,  200 Liberty Street,  New York, N.Y. 10281.  President and
    Chief  Executive  Officer,  MFR  Advisors,  Inc.  Prior  to  1992,  Managing
    Director, Drexel Burnham Lambert.

*+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. Chief Financial Officer,  Managing Director and Director,
    Lexington Management  Corporation;  Chief Financial Officer,  Vice President
    and Director,  Lexington Funds  Distributor,  Inc.; Chief Financial Officer,
    Market Systems Research Advisors,  Inc.;  Executive Vice President and Chief
    Financial Officer, Lexington Global Asset Managers, Inc.

*+RICHARD J. LAVERY (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 A. 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 (35),  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.

+Messrs.  Chadha,  Corniotes,  DeMichele,  Duer, Faust, Hisey, Jamison,  Kantor,
 Lavery,  Luehs, Maher, McCosh, Miller and Preston and Mmes.  Carnicelli,  Carr,
 Curcio, Evans, Gilfillan,  Lederer, Mosca and Russell hold similar offices with
 some  or  all of the  other  registered  investment  companies  advised  and/or
 distributed   by  Lexington   Management   Corporation   and  Lexington   Funds
 Distributor, Inc.

    The Board of Trustees  met 5 times during the twelve  months ended  December
31, 1996, and each of the Trustees attended at least 75% of those meetings.
    
                                       23

<PAGE>

             Remuneration of Trustees and Certain Executive Officers

    Each Trustee is reimbursed  for expenses  incurred in attending each meeting
of the Board of Trustees or any  committee  thereof.  Each Trustee 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  Trustee  also  serves as a
Trustee of other  investment  companies  advised by LMC. Each Trustee receives a
fee,  allocated  among all  investment  companies for which the Trustee  serves.
Effective  September  12, 1995 each  Trustee  receives  annual  compensation  of
$24,000.  Prior to September 12, 1995, the trustees 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 Trustee:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------
                                  Aggregate                                             Number of
     Name of Director         Compensation From      Total Compensation From      Directorships in Fund
                                     Fund             Fund and Fund Complex              Complex
-------------------------------------------------------------------------------------------------------

<S>                                  <C>                       <C>                          <C>
  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
-------------------------------------------------------------------------------------------------------
    
</TABLE>

Retirement Plan for Eligible Directors/Trustees

    Effective  September 12, 1995, the Trustees 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  Trustee 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  Trustees  will be eligible to serve as Honorary  Trustees  for one
year after  retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.

   
    Set forth in the table below are the estimated annual benefits payable to an
eligible  Trustee upon retirement  assuming  various  compensation  and years of
service  classifications.  As of December 31, 1996, the estimated credited years
of service for Messrs.  Chadha, Duer, Maher, McCosh, Miller, Preston and Russell
are 1, 18, 1, 1, 22, 18 and 15, respectively.
    

                                       24

<PAGE>

                    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 RETURN INFORMATION

    For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indices in  advertisements or in
reports to shareholders, performance may be stated in terms of total returns and
yield. 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 Funds' Registration Statement.  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 a Fund's total return with data
published by Lipper  Analytical  Services,  Inc., or with the performance of the
Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average,  the Fund
calculates  its  aggregate  total  return for the  specified  periods of time by
assuming the investment of $10,000 in Fund shares and assuming the  reinvestment
of each dividend or other  distribution  at net asset value on the  reinvestment
date.  Percentage  increases are determined by subtracting  the initial value of
the  investment  from the ending  value and by  dividing  the  remainder  by the
beginning  value.  Such  alternative  total return  information will be given no
greater prominence in such advertising than the information prescribed under the
SEC rules.

    Prior to January,  1995,  the Fund was managed under a different  investment
objective.  The Fund's average  annual total return for the one year,  five year
and since inception 7/10/86, period ended December 31, 1995 are set forth in the
table below:

                                                        Average Annual
     Period                                              Total Return
     1 year ended December 31, 1995 ....................    -20.16%
     5 years ended December 31, 1995 ...................      7.85%
     113 month period ended December 31, 1995 ..........      7.54%

    In addition to the total return  quotations  discussed  above,  the Fund may
advertise its yield based on a 30-day (or one month) period ended on the date of
the most recent  balance sheet  included in the Fund's  Registration  Statement,
computed by  dividing  the net  investment  income per share  earned  during the
period by the  maximum  offering  price per share on the last day of the period,
according to the following formula:


                                       25

<PAGE>

                                          a-b
                              YIELD = 2[--------6 - 1]
                                        (cd + 1)

 Where:  a = dividends and interest earned during the period.
         b = expenses accrued for the period (net of reimbursement).
         c = the average daily number of shares outstanding during the period
             that were entitled to receive dividends.
         d = the maximum offering price per share on the last day of the period.

    Under this formula,  interest earned on debt obligations for purposes of "a"
above,  is calculated by (1) computing the yield to maturity of each  obligation
held by a Fund based on the market  value of the  obligation  (including  actual
accrued  interest)  at the close of business on the last day of each month,  or,
with respect to obligations purchased during the month, the purchase price (plus
actual accrued  interest),  (2) dividing that figure by 360 and  multiplying the
quotient  by the  market  value  of the  obligation  (including  actual  accrued
interest  as  referred  to  above)  to  determine  the  interest  income  on the
obligation for each day of the  subsequent  month that the obligation is held by
the Fund  (assuming  a month  of 30 days)  and (3)  computing  the  total of the
interest earned on all debt obligations and all dividends  accrued on all equity
securities during the 30-day period. In computing  dividends  accrued,  dividend
income is recognized by accruing 1/360 of the stated dividend rate of a security
each  day that the  security  is held by the  Fund.  Undeclared  earned  income,
computed in accordance with generally  accepted  accounting  principles,  may be
subtracted from the maximum offering price calculation  required pursuant to "d"
above.

    The Fund may also from time to time  advertise  its yield  based on a 90-day
period ended on the date of the most recent balance sheet included in the Fund's
Registration Statement,  computed in accordance with the yield formula described
above,  as adjusted  to conform  with the  differing  period for which the yield
computation is based.

    Any quotation of  performance  stated in terms of yield  (whether based on a
30-day  or  90-day  period)  will  be  given  no  greater  prominence  than  the
information   prescribed  under  SEC  rules.  In  addition,  all  advertisements
containing  performance  data of any kind will include a legend  disclosing that
such performance data represents past performance and that the investment return
and  principal  value of an  investment  will  fluctuate  so that an  investor's
shares, when redeemed, may be worth more or less than their original cost.

                               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 20, 1997, the following  persons are known by fund management
to have owned beneficially,  directly or indirectly, five percent or more of the
outstanding shares of the Lexington Ramirez Global Income Fund: Smith Richardson
Foundation, 60 Jesup Road, Westport, Ct 06880, 8% and Bernard and Barbara Ponte,
943 W. Williams Ave., Fallon, NV 89406, 5%.
    

                                       26



<PAGE>


Lexington Ramirez Global Income Fund
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (unaudited)

   Principal                                                           Value
     Amount                        Security                          (Note 1)
--------------------------------------------------------------------------------
                  LONG-TERM DEBENTURES: 77.5%
                  Government Obligations: 54.4%
                  Argentina: 5.8%       
       750,000    Republic of Argentina
                    9.25%, due 2/23/01 ...........................  $   764,062
     1,500,000    Republic of Argentina
                    5.25%, due 3/31/23 ...........................      946,875
                                                                    -----------
                                                                      1,710,937
                                                                    -----------
                  Australia: 5.2%
       930,000   *Commonwealth of Australia
                    9.00%, due 09/15/04 ..........................      811,982
       940,000   *New South Wales
                    Treasury Corporation
                    6.50%, due 05/01/06 ..........................      691,537
                                                                    -----------
                                                                      1,503,519
                                                                    -----------
                  Costa Rica: 2.5%
       900,000    Banco Costa Rica
                    6.25%, due 05/21/10 ..........................      715,500
                                                                    -----------
                  Dominican Republic: 3.1%
     1,200,000    Central Bank of Dominican
                    Republic
                    6.375%, due 08/30/24 .........................      915,000
                                                                    -----------
                  Greece: 4.7%
   330,000,000   *Hellenic Republic
                    14.00%, due 10/23/03 .........................    1,356,462
                                                                    -----------
                  Hungary: 4.3%
   200,000,000   *Government of Hungary
                    21.00%, due 10/24/99 .........................    1,262,480
                                                                    -----------
                  Ireland: 5.9%
     1,000,000   *Government of Ireland
                    6.50%, due 10/18/01 ..........................    1,720,439
                                                                    -----------
                  Jordan: 3.6%
     1,750,000    Kingdom of Jordan
                    4.00%, due 12/23/23 ..........................    1,036,875
                                                                    -----------
                  Kazakhstan: 3.4%
     1,000,000    Republic of Kazakhstan
                    9.25%, due 12/20/99 ..........................    1,000,001
                                                                    -----------
                  New Zealand: 2.8%
     1,150,000   *New Zealand Government
                    6.50%, due 02/15/00 ..........................      800,893
                                                                    -----------
                  Poland: 3.0%
     2,680,000   *Government of Poland
                    16.00%, due 10/12/98 .........................      883,022
                                                                    -----------
                  Portugal: 5.7%
   110,000,000   *Obrig Do Tes Medio Prazo
                    11.875%, due 02/23/00 ........................      844,416
                                                                    -----------
   100,000,000   *Obrig Do Tes Medio Prazo
                    11.875%, due 02/23/05 ........................      824,420
                                                                    -----------
                                                                      1,668,836
                                                                    -----------

(right column)

   Principal                                                           Value
     Amount                        Security                          (Note 1)
--------------------------------------------------------------------------------
                  South Africa: 1.8%
     1,100,000   *Electricity Supply Commission
                    11.00%, due 06/01/08 .........................   $  172,173
     2,000,000   *Republic of South Africa
                    12.00%, due 02/28/05 .........................      349,692
                                                                    -----------
                                                                        521,865
                                                                    -----------
                  Spain: 2.6%
    80,000,000   *Bonos Y Oblig
                    Del Estado
                    10.15%, due 01/31/06 ..........................     750,643
                                                                    -----------
                  Total Government Obligations
                    (Cost $15,249,770) ............................  15,846,472
                                                                    -----------
                  Corporate Bonds: 23.1%
                  Canada: 6.9%
     1,000,000    CHC Helicopter
                    11.50%, due 07/15/02 ..........................   1,025,000
       500,000   *Roger's Communication, Inc.
                    10.50%, due 02/14/06 ..........................     380,803
       700,000   *Stelco, Inc.
                    10.40%, due 11/30/09 ..........................     603,628
                                                                    -----------
                                                                      2,009,431
                                                                    -----------
                  Czech Republic: 3.5%
    12,500,000   *CEZ, A.S.
                    11.30%, due 06/06/05 ..........................     464,044
    14,800,000   *Skofin S.R.O., A.S.
                    11.625%, due 02/09/98 .........................     546,275
                                                                    -----------
                                                                      1,010,319
                                                                    -----------
                  Denmark: 6.0%
     5,500,000   *Nykredit
                    7.00%, due 10/01/26 ...........................     877,832
     5,500,000   *Realkredit Danmark
                    7.00%, due 10/01/26 ...........................     873,916
                                                                    -----------
                                                                      1,751,748
                                                                    -----------
                  Thailand: 2.5%
    17,500,000   *Italian-Thai Development
                    Company
                    12.50%, due 10/11/05 ..........................     734,912
                                                                    -----------
                  United States: 4.2%
       750,000    Chiquita Brands International, Inc.
                    10.25%, due 11/01/06 ..........................     802,500
       250,000    Clark Material Handling Company
                    10.75%, due 11/15/06 ..........................     261,250
       204,288    DLJ Mortgage Acceptance
                    7.25%, due 9/25/11** ..........................     148,804
                                                                    -----------
                                                                      1,212,554
                                                                    -----------
                  Total Corporate Bonds
                    (Cost $6,513,554) .............................   6,718,964
                                                                    -----------
                  TOTAL LONG-TERM DEBENTURES
                    (Cost $21,763,324) ............................  22,565,436
                                                                    -----------

                                      27


<PAGE>


Lexington Ramirez Global Income Fund
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1996 (continued)(unaudited)

   Principal                                                           Value
     Amount                        Security                          (Note 1)
--------------------------------------------------------------------------------


                  SHORT-TERM INVESTMENTS: 20.0%
                  Greece: 3.7%
   175,000,000   *Hellenic Treasury Bills
                    0%, due 01/31/97 .............................. $   702,390
   100,000,000   *Hellenic Treasury Bills
                    0%, due 05/31/97 ..............................     385,909
                                                                    -----------
                                                                      1,088,299
                                                                    -----------
                  Indonesia: 3.2%
 1,600,000,000   *Asia Pulp & Paper
                    0%, due 04/29/97 ..............................     645,108
   700,000,000   *Chase Manhattan Bank
                    IDR Time Deposit
                    14.00%, due 1/16/97 ...........................     296,296
                                                                    -----------
                                                                        941,404
                                                                    -----------
                  Mexico: 3.4%
     8,000,000   *Cetes
                    0%, due 2/20/97 ...............................     978,965
                                                                    -----------
                  New Zealand: 3.4%
     1,400,000   *New Zealand Government
                    Treasury Bills
                    0%, due 1/15/97 ...............................     985,914
                                                                    -----------
                  Slovakia: 2.7%
    25,000,000   *European Bank for Research
                    & Development
                    12.50%, due 08/19/97 ..........................     782,567
                                                                    -----------


(right column)

   Principal                                                           Value
     Amount                        Security                          (Note 1)
--------------------------------------------------------------------------------



                  Turkey: 1.3%
50,000,000,000   *Government of Turkey
                    Treasury Bills
                    0%, due 4/09/97 ............................... $   381,332
                                                                    -----------
                  United States: 2.3%
       700,000    U.S. Treasury Bills
                    5.155%, due 12/11/97 ..........................     665,518
                                                                    -----------
                  Total Short-Term Investments
                    (cost $5,924,865) .............................   5,823,999
                                                                    -----------
                  Call Options in Currency:
     1,400,000   *Written Call Option on New
                    Zealand Dollar strike price
                    .713 NZD expires 1/13/97
                    (premium $5,530) (Note 8) .....................      (1,610)
                                                                    -----------
                  Total Investments: 97.5%
                    (cost $27,688,189+) (Note 1) ...............  28,387,825
                  Other assets in excess of
                    liabilities: 2.5% .............................     721,995
                                                                    -----------
   
                  Total Net Assets: 100%
                    (equivalent to $11.22 per share
                    on 2,594,444 shares outstanding) .............. $29,109,820
                                                                    ===========
    



 *Principal amount represents local currency.
**Restricted Security (Note 9).
 +Aggregate cost for Federal income tax purposes is identical.

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

                                      28

<PAGE>


Lexington Ramirez Global Income Fund
Statement of Assets and Liabilities
December 31, 1996 

Assets
<TABLE>
<S>                                                                                            <C>        
Investments, at value (cost $27,688,189) (Note 1) ............................................ $28,387,825
Cash .........................................................................................      72,570
Receivable for investment securities sold ....................................................      89,375
Receivable for shares sold ...................................................................     233,960
Dividends and interest receivable ............................................................     713,512
Unrealized gain on open forward contracts (Note 7) ...........................................      19,668
                                                                                               -----------
        Total Assets ......................................................................... $29,516,910
                                                                                               -----------

Liabilities
Due to Lexington Management Corporation (Note 2) .............................................      22,500
Payable for shares redeemed ..................................................................     232,128
Distributions payable ........................................................................     107,377
Accrued expenses .............................................................................      45,085
                                                                                               -----------
        Total Liabilities ....................................................................     407,090
                                                                                               -----------
Net Assets (equivalent to $11.22 per share on 2,594,444 shares outstanding) (Note 4) ......... $29,109,820
                                                                                               ===========

Net Assets consist of:
Additional paid-in capital (Note 1) ..........................................................  28,286,038
Distributions in excess of net investment income (Note 1) ....................................     (86,311)
Accumulated net realized gain on investments and foreign currency transactions (Note 1) ......     192,017
Unrealized appreciation on investments and foreign currency transactions .....................     718,076
                                                                                               -----------
        Total Net Assets ..................................................................... $29,109,820
                                                                                               ===========
</TABLE>

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

                                      29

<PAGE>


Lexington Ramirez Global Income Fund
Statement of Operations
Years ended December 31, 1996 

<TABLE>
Investment Income
<S>                                                                             <C>              <C> 
    Interest .................................................................  $2,106,538
    Less: foreign tax expense ................................................      25,200
                                                                                ----------
            Total investment income ..........................................                   $2,081,338

Expenses
    Investment advisory fee (Note 2) .........................................     175,988
    Printing and mailing expenses ............................................      55,988
    Distribution expense (Note 3) ............................................      43,997
    Registration fees ........................................................      25,558
    Custodian fees ...........................................................      23,158
    Professional fees ........................................................      21,556
    Transfer agent and shareholder services expense (Note 2) .................      20,870
    Directors' fees and expenses .............................................      15,488
    Accounting expenses (Note 2) .............................................      12,686
    Computer processing fees .................................................       5,922
    Other expenses ...........................................................       9,446
                                                                                ----------
            Total expenses ...................................................     410,657
   
            Less: expenses recovered under contract
              with investment adviser (Note 2) ...............................    (145,984)         264,673
                                                                                ----------       ----------
    
            Net investment income ............................................                    1,816,665

Realized and Unrealized Gain (Loss) on Investments (Note 5)
    Net realized gain (loss) on:
        Investments ..........................................................     583,537
        Foreign currency transactions ........................................    (389,687)
                                                                                ----------
            Net realized gain ................................................                      193,850
    Net change in unrealized appreciation/depreciation on:
        Investments ..........................................................     207,852  
        Foreign currency translation of other assets and liabilities .........      14,433
                                                                                ----------
            Net change in unrealized appreciation ............................                      222,285  
                                                                                                 ----------

                Net realized and unrealized gain .............................                      416,135
                                                                                                 ----------
Increase in Net Assets Resulting from Operations .............................                   $2,232,800
                                                                                                 ==========
</TABLE>

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

                                      30
<PAGE>


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



                                                          1996           1995
                                                       -----------  -----------
Net investment income ...............................  $ 1,816,665  $   959,352
Net realized gain on investments and
  foreign  currency  transactions ...................      193,850      331,370
Net change in  unrealized appreciation  of
  investments and foreign currency translations .....      222,285      492,391
                                                       -----------  -----------
Increase in net assets resulting from operations ....    2,232,800    1,783,113
Distributions to shareholders from net
  investment income .................................   (1,529,914)    (901,633)
Distributions to shareholders from net realized
  gains from security transactions ..................      (92,247)        -
Increase in net assets from capital share
  transactions (Note 4) .............................   16,244,449    1,022,692
                                                       -----------  -----------
Net increase in net assets ..........................   16,855,088    1,904,172

Net Assets
Beginning of period .................................   12,254,732   10,350,560
                                                       -----------  -----------
End of period (including distributions in excess
  of net investment income of $86,311 and
  undistributed net investment income of
  $16,186, respectively) ............................  $29,109,820  $12,254,732
                                                       ===========  ===========


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


                                      31
<PAGE>



Lexington Ramirez Global Income Fund
Notes to Financial Statements
December 31, 1996 and 1995

1.  Significant Accounting Policies

Lexington  Ramirez  Global  Income  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 high
current income. Capital appreciation is a secondary objective.  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. Long-term debt obligations held by the Fund are valued at
the mean of  representative  quoted bid and asked prices for such securities or,
if such  prices  are not  available,  at prices  for  securities  of  comparable
maturity,  quality  and type;  however,  when LMC deems it  appropriate,  prices
obtained  for the day of  valuation  from a bond  pricing  service will be used.
Short-term  debt  investments  are  amortized  to maturity  based on their cost,
adjusted  for  foreign  exchange  translation  and market  fluctuations.  Equity
securities are valued at the last sale price on the exchange or in the principal
OTC market in which such  securities are traded,  as of the close of business on
the day the  securities  are  being  valued,  lacking  any  sales,  at the  last
available  bid price.  Securities  for which market  quotations  are not readily
available  and other assets are valued at fair value as determined by management
in good faith and approved by the 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 are normally declared and
paid  quarterly  and  dividends  from net  realized  capital  gains are normally
declared and paid annually.  However,  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.


                                      32
<PAGE>


Lexington Ramirez Global Income Fund
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 could differ from those estimates.


2.  Investment Advisory Fee and Other Transactions with Affiliate

The Fund pays an  investment  advisory fee to Lexington  Management  Corporation
("LMC") at an annual rate of 1.00% of the Fund's  average  daily net assets.  In
connection with providing  investment advisory services,  LMC has entered into a
sub-advisory  contract with MFR Advisors  Inc.  ("MFR") under which MFR provides
the Fund  with  investment  management  services.  Pursuant  to the terms of the
sub-advisory  contract between LMC and MFR, LMC pays MFR a monthly  sub-advisory
fee at the annual rate of .50% of the Fund's  average  daily net assets over $15
million.  LMC has agreed to  voluntarily  limit the total  expenses  of the Fund
(excluding interest, taxes, brokerage commissions and extraordinary expenses but
including  management fee and operating  expenses) to an annual rate of 1.50% of
the Fund's  average net assets  through  December 31, 1997 or such later date as
may be determined by LMC. The investment advisory fee and expense  reimbursement
are set forth in the statement of operations.

   
The Fund also  reimbursed  LMC for certain  expenses,  including  accounting and
shareholder  servicing  costs of $22,160,  which were incurred by the Fund,  but
paid by LMC.
    


3.  Distribution Plan

The Fund has adopted a Distribution  Plan (the "Plan") which allows  payments to
finance  activities  associated with the distribution of the Fund's shares.  The
Plan provides that the Fund may pay distribution fees on a reimbursement  basis,
including  payments to Lexington Funds  Distributor,  Inc.  ("LFD"),  the Fund's
distributor,  in amounts  not  exceeding  0.25% per annum of the Fund's  average
daily net assets.  Total  distribution  expenses for the year ended December 31,
1996 were $43,997 and are set forth in the statement of operations.


4.  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 ................... 2,090,482   $23,291,607    356,354   $3,788,187
Shares issued on reinvestment
  of dividends ................   119,710     1,308,206     72,344      755,680
                                ---------   -----------    -------   ----------
                                2,210,192    24,599,813    428,698    4,543,867
Shares redeemed ...............  (755,281)   (8,355,364)  (345,326)  (3,521,175)
                                ---------   -----------    -------   ----------
Net increase .................. 1,454,911   $16,244,449     83,372   $1,022,692
                                =========   ===========    =======   ==========



                                      33
<PAGE>



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



5.  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  $21,471,435  and
$9,717,270, 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
$1,172,971 and aggregate  gross  unrealized  depreciation  for all securities in
which there is an excess of tax cost over value amounted to $454,895.


6.  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
exchange contracts as the result of the potential inability of counterparties to
meet the terms of their contracts.


7.  Forward Foreign Exchange Contracts

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

                                                                     Unrealized
                             Settlement  Contract  Contract  Current  Gain at
       Security                 Date      Amount     Rate      Rate   12/31/96
       --------              ----------  --------  --------  ------- ----------
Canadian Dollar ...........   1/31/97   $ 896,861   1.3380   1.3680    $19,668
                                                                       =======

8. Option Contracts

When the Fund writes a call option,  an amount equal to the premium  received by
the Fund is  recorded  as a  liability,  the value of which is  marked-to-market
daily.  When a written  option  expires,  the Fund  realizes a gain equal to the
amount of the premium  received.  When the Fund  enters into a closing  purchase
transaction,  the Fund  realizes  a gain  (or  loss if the  cost of the  closing
purchase  transaction  exceeds  the premium  received  when the option was sold)
without regard to any unrealized  gain or loss on the underlying  security,  and
the liability  related to such option is eliminated.  When a written call option
is  exercised  the cost of the  security  sold will be  decreased by the premium
originally received.  The risk in writing a covered call option is that the Fund
gives up the  opportunity  to  participate  in any  increase in the price of the
underlying security beyond the exercise price.


                                       34
<PAGE>



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


8. Option Contracts (continued)


The following written call option transactions  occurred during the period ended
December 31, 1996:

                                                                      Number of
                                                         Premiums     Contracts
                                                       ------------  ----------
Options written outstanding at December 31, 1995 ....... $  -              0
Options written during the period ended
  December 31, 1996 ....................................  78,629          12
Options cancelled in closing purchase transactions ..... (26,458)         (6)
Options expired ........................................ (46,641)         (5)
                                                         -------         ---
   
Options written, outstanding at December 31, 1996 ...... $ 5,530           1
                                                         =======         ===
    

9. 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  Principal                Market  % of Net
Security                    Date       Amount   Average Cost   Value    Assets
--------                 -----------  --------- ------------   ------  --------
DLJ Mortgage Acceptance .. 10/25/96    204,288     $0.74     $ 148,804   0.51%

   
    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.
    



                                       35
<PAGE>


Lexington Ramirez Global Income Fund
Financial Highlights

Selected per share data for a share outstanding throughout the period:

                                               Year ended December 31,
                                     ------------------------------------------
                                       1996     1995     1994     1993    1992
                                       ----     ----     ----     ----    ----
Net asset value, beginning
  of period                           $10.75   $ 9.80   $10.95   $10.39  $10.35
                                      ------   ------   ------   ------  ------
Income (loss) from investment
  operations:
Net investment income                   1.01      .96      .46      .53     .61
Net realized and unrealized gain
  (loss) from investments and
  foreign currency transactions          .36      .95    (1.16)     .58     .04
                                      ------   ------   ------   ------  ------
Total income (loss) from investment
  operations                            1.37     1.91     (.70)    1.11     .65
                                      ------   ------   ------   ------  ------
Less distributions:
  Distributions from net investment
    income                              (.86)    (.96)    (.45)    (.55)   (.61)
  Distributions from net realized
    gains                               (.04)       -        -        -       -
                                      ------   ------   ------   ------  ------
Total distributions                     (.90)    (.96)    (.45)    (.55)   (.61)
                                      ------   ------   ------   ------  ------
Net asset value, end of period        $11.22   $10.75   $ 9.80   $10.95  $10.39
                                      ======   ======   ======   ======  ======
Total return                          13.33%   20.10%   (6.52%)  10.90%   6.51%

Ratios to average net assets:
  Expenses, before reimbursement
    or waiver                          2.33%    3.07%    1.80%    1.44%   1.54%
  Expenses, net of reimbursement
    or waiver                          1.50%    2.75%    1.50%    1.44%   1.50%
  Net investment income, before
   reimbursement or waiver             9.49%    9.48%    4.18%    4.83%   5.88%

  Net investment income               10.32%    9.80%    4.48%    4.83%   5.92%
Portfolio turnover                    71.83%  164.72%   10.20%   31.06%  31.24%
Net assets, end of period
  (000's omitted)                    $29,110  $12,255  $10,351  $14,576 $13,085



                                       36
<PAGE>




Independent Auditors' Report

The Board of Trustees and Shareholders
Lexington Ramirez Global Income Fund:


    We have audited the  accompanying  statements of net assets  (including  the
portfolio of investments) and assets and liabilities of Lexington Ramirez Global
Income Fund 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 sold
but not 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 Ramirez Global Income Fund 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 14, 1997



                                       37

<PAGE>

                                   APPENDIX A
                           DESCRIPTION OF DEBT RATINGS

DESCRIPTION OF BOND RATINGS

    Moody's Investors Service, Inc. ("Moody's") rates the debt securities issued
by various  entities from "Aaa" to "C".  Investment  grade ratings are the first
four categories:

        Aaa-Best  quality.   These  securities  carry  the  smallest  degree  of
    investment  risk and are  generally  referred  to as "gilt  edge."  Interest
    payments  are  protected  by a large or  exceptionally  stable  margin,  and
    principal  is secure.  While the various  protective  elements are likely to
    change,  such changes as can be  visualized  are most unlikely to impair the
    fundamentally strong position of such issues.

        Aa-High  quality by all  standards.  They are rated  lower than the best
    bond because margins of protection may not be as large as in Aaa securities,
    fluctuation of protective elements may be of greater amplitude, or there may
    be other  elements  present which make the long-term  risks appear  somewhat
    greater.

        A-Upper  medium grade  obligations.  These bonds possess many  favorable
    investment attributes. Factors giving security to principal and interest are
    considered   adequate,   but  elements  may  be  present   which  suggest  a
    susceptibility to impairment sometime in the future.

        Baa-Medium grade  obligations.  Interest payments and principal security
    appear  adequate  for the  present but certain  protective  elements  may be
    lacking or may be  characteristically  unreliable  over any great  length of
    time. Such bonds lack outstanding  investment  characteristics and, in fact,
    have speculative characteristics as well.

        Ba-Have speculative elements and their future cannot be considered to be
    well assured. Often the protection of interest and principal payments may be
    very  moderate  and thereby not well  safeguarded  during other good and bad
    times over the future.  Uncertainty of position  characterizes bonds in this
    class.

        B-Generally lack characteristics of the desirable investment.  Assurance
    of interest and principal  payments or of  maintenance of other terms of the
    contract over any long period of time may be small.

        Caa-Poor standing. Such issues may be in default or there may be present
    elements of danger with respect to principal or interest.

        Ca-Speculative  in a high  degree.  Such  issues are often in default or
    have other marked shortcomings.

        C-Lowest rated class of bonds. Issues so rated can be regarded as having
    extremely poor prospects of ever attaining any real investment standing.

Absence of Rating

    Where no rating has been  assigned or where a rating has been  suspended  or
withdrawn, it may be for reasons unrelated to the quality of the issue.

    Should no rating be assigned, the reason may be one of the following:

    1. An application for rating was not received or accepted.

    2. The issue or issuer  belongs to a group of securities  that are not rated
       as a matter of policy.

    3. There is a lack of essential data pertaining to the issue or issuer.

    4. The issue was privately placed, in which case the rating is not published
       in Moody's publications.

    Suspension or withdrawal may occur if new and material  circumstances arise,
the  effects  of which  preclude  satisfactory  analysis;  if there is no longer
available  reasonable  up-to-date data to permit a judgement to be formed;  if a
bond is called for  redemption;  or for other  reasons.  

Note:  Moody's  applies  numerical  modifiers 1, 2 and 3 in each generic ratings
classification  from Aa  through B in its  corporate  bond  rating  system.  The
modifier 1 indicates  that the  security  ranks in the higher end of its generic
rating category;  the modifier 2 indicates a mid-range ranking; and the modifier
3  indicates  that  the  issue  ranks in the  lower  end of its  generic  rating
category.

                                      A-1

<PAGE>

    Standard & Poor's Rating Group ("S&P") rates the securities  debt of various
entities  in  categories  ranging  from  "AAA"  to  "D"  according  to  quality.
Investment grade ratings are the first four categories:

        AAA-Highest  rating.  Capacity to pay  interest  and repay  principal is
    extremely strong.

        AA-High grade. Very strong capacity to pay interest and repay principal.
    Generally, these bonds differ from AAA issues only in a small degree.

        A-Have a strong  capacity to pay interest and repay  principal  although
    they are  somewhat  more  susceptible  to the  adverse  effects of change in
    circumstances and economic conditions than debt in higher rated categories.

        BBB-Regarded  as having  adequate  capacity  to pay  interest  and repay
    principal.  These bonds normally exhibit adequate protection parameters, but
    adverse  economic  conditions or changing  circumstances  are more likely to
    lead to a weakened  capacity to pay  interest and repay  principal  than for
    debt in higher rated categories.

        BB, B,  CCC,  CC,  C-Debt  rated  "BB,"  "B,"  "CCC,"  "CC," and "C" are
    regarded, on balance, as predominantly  speculative with respect to capacity
    to pay interest and repay  principal  in  accordance  with the terms of this
    obligation.  "BB"  indicates  the lowest degree of  speculation  and "C" the
    highest degree of speculation. While such debt will likely have some quality
    and protective characteristics,  these are outweighed by large uncertainties
    or major risk exposures to adverse conditions.

        BB-Has less near-term  vulnerability  to default than other  speculative
    issues; however, it faces major ongoing uncertainties or exposure to adverse
    business,  financial or economic conditions,  which could lead to inadequate
    capacity to meet timely  interest and  principal  payments.  The "BB" rating
    category is also used for debt  subordinated to senior debt that is assigned
    an actual or implied "BBB\'96" rating.

        B-Has a greater  vulnerability to default but currently has the capacity
    to meet  interest  payments  and  principal  repayments.  Adverse  business,
    financial or economic  conditions will likely impair capacity or willingness
    to pay interest and repay  principal.  The "B" rating  category is also used
    for debt  subordinated  to senior debt that is assigned an actual or implied
    "BB" or "BB\'96" rating.

        CCC-Has  a  currently  indefinable  vulnerability  to  default,  and  is
    dependent upon favorable business, financial and economic conditions to meet
    timely  payment of interest  and  repayment  of  principal.  In the event of
    adverse business, financial or economic conditions, it is not likely to have
    the capacity to pay interest and repay principal.  The "CCC" rating category
    is also used for debt subordinated to senior debt that is assigned an actual
    or implied "B" or "B\'96" rating.

        CC-Typically  applied  to  debt  subordinated  to  senior  debt  that is
    assigned an actual or implied "CCC" rating.

        C-Typically  applied  to debt  subordinated  to  senior  debt  which  is
    assigned an actual or implied  "CCC\'96" debt rating.  The "C" rating may be
    used to cover a situation  where a bankruptcy  petition has been filed,  but
    debt service payments are continued.

        C-Reserved for income bonds on which no interest is being paid.

        D-In payment default.  The "D" rating is used when interest payments are
    not  made on the  date  due  even if the  applicable  grace  period  has not
    expired,  unless S&P believes  that such  payments  will be made during such
    grace  period.  The "D"  rating  also  will be used  upon  the  filing  of a
    bankruptcy petition if debt service payments are jeopardized.

    Plus (+) or Minus (\'96):  The ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative  standing within the major
rating categories.

    NR: Indicates that no rating has been requested,  that there is insufficient
information  on which to base a rating,  or that S&P does not rate a  particular
type of obligation as a matter of policy.

                                      A-2

<PAGE>

DESCRIPTION OF COMMERCIAL PAPER RATINGS

    Moody's  employs  the  designations  "Prime-1"  and  "Prime-2"  to  indicate
commercial paper having the highest capacity for timely repayment. Issuers rated
Prime-1  have  a  superior  capacity  for  repayment  of  short-term  promissory
obligations.  Prime-1  repayment  capacity  normally  will be  evidenced  by the
following   characteristics:   leading  market  positions  in   well-established
industries; high rates of return on funds employed;  conservative capitalization
structures  with moderate  reliance on debt and ample asset  protections;  broad
margins in earnings  coverage of fixed financial  charges and high internal cash
generation;  and  well-established  access to a range of  financial  markets and
assured  sources of  alternate  liquidity.  Issues  rated  Prime-2 have a strong
capacity for repayment of short-term promissory obligations.  This normally will
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings  trends and  coverage  ratios,  while  sound,  will be more  subject to
variation. Capitalization characteristics,  while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

    S&P ratings of commercial paper are graded into four categories ranging from
"A" for the highest quality obligations to "D" for the lowest. A-Issues assigned
its highest  rating are  regarded  as having the  greatest  capacity  for timely
payment.  Issues in this  category  are  delineated  with  numbers 1, 2 and 3 to
indicate the relative degree of safety.  A-1-This designation indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
Those issues determined to possess  overwhelming safety  characteristics will be
denoted with a plus (++) sign  designation.  A-2-Capacity for timely payments on
issues with this designation is strong;  however,  the relative degree of safety
is not as high as for issues designated "A-1."

                                      A-3

<PAGE>

                                   APPENDIX B

    The countries  which the Fund considers to represent  emerging  countries or
countries with emerging  markets are set forth below.  Each country in which the
Fund invests is subject to prior  approval of the Fund's Board of Trustees.  The
Fund may also invest in debt securities and equivalents  traded in any market of
companies  that derive 50% or more of their total  revenue  from either goods or
services produced in such emerging  countries and emerging markets or sales made
in such countries.

ALGERIA       CYPRUS               INDONESIA     NIGERIA       SOUTH KOREA
ARGENTINA     CZECH REPUBLIC       ISRAEL        PAKISTAN      SRI LANKA
BANGLADESH    DOMINICAN REPUBLIC   IVORY COAST   PANAMA        TAIWAN
BOLIVIA       ECUADOR              JAMAICA       PERU          THAILAND
BOTSWANA      EGYPT                JORDAN        PHILIPPINES   TRINIDAD & TOBAGO
BRAZIL        FINLAND              KENYA         POLAND        TUNISIA
BULGARIA      GHANA                MALAYSIA      PORTUGAL      TURKEY
CHILE         GREECE               MAURITIUS     RUSSIA        URUGUAY
CHINA         HONG KONG            MEXICO        SLOVAKIA      VENEZUELA
COLOMBIA      HUNGARY              MOROCCO       SINGAPORE     ZAMBIA
COSTA RICA    INDIA                NICARAGUA     SOUTH AFRICA  ZIMBABWE



                                      B-1