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 SMALLCAP VALUE FUND, INC.

                       STATEMENT OF ADDITIONAL INFORMATION

   
                                   MAY 1, 1997

    This Statement of Additional Information,  which is not a prospectus, should
be read in conjunction with the current  prospectus of Lexington  SmallCap Value
Fund (the  "Fund"),  dated May 1, 1997,  and as it may be  revised  from time to
time. To obtain a copy of the Fund's  prospectus  at no charge,  please write to
the Fund at P.O. Box  1515/Park 80 West - Plaza Two,  Saddle  Brook,  New Jersey
07663 or call the following toll-free numbers:
    

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

Lexington  Management  Corporation  ("LMC")  is the Fund's  Investment  Adviser.
Capital  Technology,  Inc.  ("CTI") is the Fund's  Sub-Adviser.  Lexington Funds
Distributor, Inc. is the Fund's Distributor.

                                TABLE OF CONTENTS

                                                                            Page

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

Portfolio Turnover .........................................................   3

Management of the Fund .....................................................   3

Investment Restrictions ....................................................   5

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

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

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

Distribution Plan ..........................................................   9

Telephone Exchange Provisions ..............................................   9

Tax-Sheltered Retirement Plans .............................................  10

Tax Matters ................................................................  11

Performance Calculation ....................................................  16

Shareholder Reports ........................................................  16

Financial Statements .......................................................  17

                                       1

<PAGE>

                        INVESTMENT OBJECTIVE AND POLICIES

    Lexington  SmalICap  Value  Fund (the  "Fund") is an  open-end,  diversified
management  investment  company.  The  Fund's  investment  objective  is to seek
long-term  capital  appreciation.  The Fund will seek to achieve its  investment
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 which the Sub-Adviser believes offers exceptional relative value
and attractive prices. Production of income is incidental to this objective. The
Fund's  portfolio  will be  invested  primarily  in  equities  listed  on  stock
exchanges or traded in over-the-counter  markets in the U.S. The fund may invest
in Canadian or other  foreign  domiciled  companies  whose  shares trade in U.S.
dollar denominated markets.

    The  Fund  will  seek to  achieve  its  objective  through  investment  in a
diversified  portfolio  of  securities  that will consist of all types of common
stocks and equivalents (the following constitute equivalents: warrants, options,
and convertible debt securities).
There is no  assurance  that the Fund  will be able to  achieve  its  investment
objective.

    Under normal market conditions,  the Fund will invest  substantially all (at
least 90%) of its assets in small  companies  domiciled  in the U.S.  which have
market  capitalization  (based on aggregate market value of outstanding  shares)
between $20 million and $1 billion at the time of  investment.  The remainder of
its assets (no more than 10%) may be invested in  securities  of companies  with
market  capitalizations  below $20  million;  above  $1,000,000,000.;  domiciled
outside the U.S. if its shares trade in U.S. markets in dollar denominations; in
American  Depository  Shares or  Receipts  ("ADR's"  or  "ADS's"),  real  estate
investment trusts ("REIT's") and/or in cash and equivalent securities.  The Fund
does not intend to invest in securities which, at the time of purchase,  are not
readily  marketable;  in securities of foreign  issuers  denominated  in foreign
currencies;  or in futures contracts.  The Fund will not engage in short-selling
activities, leveraging or portfolio hedging techniques.

    The Fund's  overall  approach to  investing  in small  capitalization  value
stocks is based on  research  performed  by its  Sub-Adviser  which  shows  that
extremely  undervalued  companies offer potential for high returns over time and
excellent  diversification  versus other domestic equity investment styles. This
strategy may under-emphasize widely followed, institutional favorites and result
in holdings of stocks with little "Wall  Street" or outside  research  coverage.
Advantages of investing in distressed and/or neglected issues based on internal,
fundamental research include:

        *low valuations that offer some downside protection

        *lack of  institutional  ownership  that  results in return  streams not
         highly correlated with market indices

        *potential  for upside  surprises  that is  increased  as stocks  exceed
         minimal expectations and are "discovered" by other investors

        *low  transaction  costs  based  solely on best  execution  rather  than
         research commitments.

    The  companies in which the Fund intends to invest will  generally  have the
following characteristics:

        *a market capitalization of less that $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

        *a low stock price relative to historical levels.

    By following these criteria, the Fund intends to select securities which can
have enhanced appreciation prospects and may provide investment returns superior
to the  market  as a whole.  However,  the  market  value  of  these  companies'
securities  tends to be volatile and in the past offered  greater  potential for
gain as well as loss than securities of larger capitalization companies.

    Special Considerations. An investor should be aware that investment in small
capitalization  issuers carry more risk than issuers with market  capitalization
greater than $1 billion.  Generally,  small  companies  rely on limited  product
lines,  financial  resources,  and business  activities  that may make them more
susceptible to setbacks or downturns.  In addition,  the stock of such companies
may be more thinly traded. Accordingly,  the performance of small capitalization
issuers may be more volatile.

    Investments by the Fund of up to 10% of its total assets in the common stock
of  foreign  companies  which are  traded in the  United  States or in ADR's may
involve  considerations and risks that are different in certain respects from an
investment  in securities  of U.S.  companies.  Such risks include the effect of
currency fluctuations on the value of Fund shares, the imposition of withholding
taxes on  interest  or  dividends,  possible  adoption  of foreign  governmental
restrictions on repatriation of income or capital  investment,  or other adverse
political or economic  developments.

                                       2

<PAGE>

Additionally,  it may be more  difficult  to  enforce  the  rights of a security
holder  against a foreign  company.  There may be delays in settling  securities
transactions in certain foreign markets and information  about the operations of
foreign companies may be more difficult to obtain and evaluate.

    With  respect  to the  Fund's  investment  in debt  securities,  there is no
requirement  that all such  securities be rated by a recognized  rating  agency.
However,  it is the  policy of the Fund  that  investments  in debt  securities,
whether  rated or unrated,  will be made only if they are, in the opinion of the
Sub-Adviser, of equivalent quality to "investment grade" securities. "Investment
grade"  securities  are those rated  within the four highest  quality  grades as
determined by Moody's Investors Service,  Inc.  ("Moody's") or Standard & Poor's
Corporation  ("Standard & Poor's").  Securities  rated Aaa by Moody's and AAA by
Standard & Poor's are judged to be of the best  quality  and carry the  smallest
degree of risk.  Securities  rated Baa by Moody's  and BBB by  Standard & Poor's
lack high quality  investment  characteristics  and, in fact,  have  speculative
characteristics as well. Debt securities are interest-rate sensitive;  therefore
their value will tend to decrease  when  interest  rates rise and increase  when
interest rates fall. Such increase or decrease in the value of longer-term  debt
instruments  as a result of  interest  rate  movement  will be  larger  than the
increase or decrease in the value of shorter-term debt instruments.

                               PORTFOLIO TURNOVER

   
    Although  the Fund does not  generally  intend to invest for the  purpose of
seeking  short-term  profits,   the  Fund's  investments  may  be  changed  when
circumstances  warrant,  without  regard  to the  length  of  time a  particular
security  has been  held.  It is  expected  that the Fund  will  have an  annual
portfolio  turnover  rate that will  generally  not exceed 100%. A 100% turnover
rate would occur if all the Fund's  portfolio  investments  were sold and either
repurchased  or  replaced  within a year.  A high  turnover  rate (100% or more)
results in correspondingly greater brokerage commissions and other transactional
expenses which are borne by the Fund. High portfolio  turnover may result in the
realization of net short-term  capital gains by the Fund which, when distributed
to shareholders,  will be taxable as ordinary income. See "Tax Matters." For the
year ended December 31, 1996, the Fund paid $35,953 in brokerage commissions and
the portfolio turnover rate for the Fund was 60.92%.
    

                             MANAGEMENT OF THE FUND

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

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

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

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

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

*+LAWRENCE  KANTOR (49),  Vice  President and  Director.  P.O. Box 1515,  Saddle
    Brook,  N.J.  07663.  Managing  Director,   General  Manager  and  Director,
    Lexington  Management  Corporation;  Executive  Vice President and Director,
    Lexington  Funds  Distributor,  Inc.;  Executive  Vice President and General
    Manager-Mutual Funds, Lexington Global Asset Managers, Inc.

+JERARD F. MAHER (50), Director. 300 Raritan Center Parkway,  Edison, New Jersey
    08818-7815.  General Counsel,  Federal  Business  Centers;  Counsel,  Ribis,
    Graham & Curtis.

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

                                       3
<PAGE>

   
+DONALD B. MILLER (70),  Director.  10725 Quail Covey Road,  Boynton  Beach,  FL
    33436.  Chairman,  Horizon Media,  Inc.;  Trustee,  Galaxy Funds;  Director,
    Maguire Group of Connecticut; prior to January 1989, President, Director and
    C.E.O., Media General Broadcast Services (advertising firm).

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

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

*ROBB W. ROWE (57), CFA, Vice President and Portfolio Manager.  P.O. Box 472428,
    Charlotte, N.C. 28247. President, Capital Technology, Inc.

*DENNIS J. HAMILTON (51),  CFA, Vice President and Portfolio  Manager.  P.O. Box
    472428,  Charlotte,  N.C. 28247. Vice President,  Capital  Technology,  Inc.
    Prior to October, 1994, Principal, William M. Mercer Asset Planning, Inc.

*+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,  CFA (38),  Vice  President and  Treasurer.  P. O. Box 1515,
    Saddle Brook, N.J. 07663.  Managing  Director,  Director and Chief Financial
    Officer,  Lexington Management  Corporation;  Chief Financial Officer,  Vice
    President and Director,  Lexington Funds Distributor,  Inc.; Chief Financial
    Officer, Market Systems Research Advisors,  Inc.; Executive Vice President &
    Chief Financial Officer, Lexington Global Asset Managers, Inc.

*+RICHARD LAVERY (42), CLU ChFC,  Vice President.  P.O. Box 1515,  Saddle Brook,
    N.J. 07663. Senior Vice President,  Lexington Management  Corporation;  Vice
    President, Lexington Funds Distributor, Inc.

*+JANICE CARNICELLI (37), Vice President Mutual Fund Operations.  P.O. Box 1515,
    Saddle Brook, N.J. 07663.

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

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

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

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

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

*+PETER CORNIOTES (35), Assistant  Secretary.  P.O. Box 1515, Saddle Brook, N.J.
    07663. Assistant Vice President, 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
    Management Corporation.
    

*"Interested  person" and/or "Affiliated  person" of LMC or CT as defined in the
 Investment Company Act of 1940, as amended.

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

Remuneration of Directors and Certain Executive Officers

    Each Director is reimbursed for expenses  incurred in attending each meeting
of the Board of Directors or any committee thereof.  Each Director who is not an
affiliate of the advisor is compensated  for his or her services  according to a
fee  schedule  which  recognizes  the fact that each  Director  also serves as a
Director of other investment  companies advised by LMC. Each Director receives a
fee,  allocated  among all investment  companies for which the Director  serves.
Effective  September  12, 1995 each Director  receives  annual  compensation  of
$24,000. Prior to September 12, 1995, the Directors who were not employed by the
Fund or its affiliates received annual compensation of $16,000.

   
    Set forth below is information regarding compensation paid or accrued during
the period January 1, 1996 to December 31, 1996 for each Director:
    

                                       4

<PAGE>

<TABLE>
<CAPTION>
   
-----------------------------------------------------------------------------------------------------------
                                  Aggregate            `                                  Number of
                              Compensation from       Total Compensation From       Directorships in Fund
    Name of Director                 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 Smith                      $1,600                    $25,080                          16
-----------------------------------------------------------------------------------------------------------
  Francis A. Sunderland*             $744                     $10,528                          N/A
-----------------------------------------------------------------------------------------------------------
    
</TABLE>

 *Retired

Retirement Plan for Eligible Directors/Trustees

    Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an  employee  of any of the Funds,  the  Advisor,  Administrator  or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board.  Pursuant to the Plan, the normal  retirement date is
the date on which the  eligible  Director/Trustee  has  attained  age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more  of  the  investment   companies   advised  by  LMC  (or  its   affiliates)
(collectively,  the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual  benefit  commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal  to  5%  of  his   compensation   multiplied   by  the   number   of  such
Director/Trustee's  years of service (not in excess of 15 years)  completed with
respect  to any of the  Covered  Portfolios.  Such  benefit  is  payable to each
eligible Director in quarterly  installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory  retirement  age for  Directors/Trustees;  however,  Director/Trustees
serving the Funds as of  September  12,  1995 are not subject to such  mandatory
retirement.  Directors/Trustees  serving the Funds as of September  12, 1995 who
elect  retirement  under the Plan prior to  September  12, 1996 will  receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the  Director/Trustee's  spouse  (if  any)  will  be  entitled  to  receive  the
retirement benefit within the 10 year period.)

    Retiring  Directors will be eligible to serve as Honorary  Directors for one
year after  retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.

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

                      Highest Annual Compensation Paid by All Funds
                      ---------------------------------------------
                  $20,000         $25,000         $30,000         $35,000

    Years of
     Service             Estimated Annual Benefit Upon Retirement
    --------             ----------------------------------------
       15         $15,000         $18,750         $22,500         $26,250
       14          14,000          17,500          21,000          24,500
       13          13,000          16,250          19,500          22,750
       12          12,000          15,000          18,000          21,000
       11          11,000          13,750          16,500          19,250
       10          10,000          12,500          15,000          17,500

                                       5

<PAGE>

                             INVESTMENT RESTRICTIONS

    The Fund's investment  objective,  as described under "Investment  Objective
and  Policies"  and  the  following  investment   restrictions  are  matters  of
fundamental  policy which may not be changed without the affirmative vote of the
lesser of (a) 67% or more of the shares of the Fund  present at a  shareholders'
meeting  at which  more  than  50% of the  outstanding  shares  are  present  or
represented by proxy or (b) more than 50% of the outstanding shares. Under these
investment restrictions:

    (1) the Fund will not issue any  senior  security  (as  defined  in the 1940
        Act),  except that (a) the Fund may enter into  commitments  to purchase
        securities in accordance with the Fund's investment  program,  including
        reverse  repurchase  agreements,  foreign  exchange  contracts,  delayed
        delivery  and  when-issued  securities,  which  may  be  considered  the
        issuance of senior  securities;  (b) the Fund may engage in transactions
        that may  result in the  issuance  of a senior  security  to the  extent
        permitted under applicable  regulations,  interpretation of the 1940 Act
        or an  exemptive  order;  (c) the Fund  may  engage  in  short  sales of
        securities to the extent  permitted in its investment  program and other
        restrictions;  (d) the purchase or sale of futures contracts and related
        options  shall not be  considered  to  involve  the  issuance  of senior
        securities;  and (e) subject to fundamental  restrictions,  the Fund may
        borrow money as authorized by the 1940 Act.

    (2) The Fund will not borrow money,  except that (a) the Fund may enter into
        certain futures contracts and options related thereto;  (b) the Fund may
        enter into  commitments  to purchase  securities in accordance  with the
        Fund's  investment  program,  including delayed delivery and when-issued
        securities  and  reverse  repurchase   agreements;   (c)  for  temporary
        emergency  purposes,  the Fund may borrow money in amounts not exceeding
        5% of the value of its  total  assets at the time when the loan is made;
        (d) The Fund may pledge  its  portfolio  securities  or  receivables  or
        transfer or assign or otherwise encumber them in an amount not exceeding
        one-third  of the value of its total  assets;  and (e) for  purposes  of
        leveraging,  the  Fund  may  borrow  money  from  banks  (including  its
        custodian bank), only if, immediately after such borrowing, the value of
        the Fund's assets,  including the amount borrowed, less its liabilities,
        is equal to at least 300% of the amount  borrowed,  plus all outstanding
        borrowings. If at any time, the value of the Fund's assets fails to meet
        the 300% asset coverage  requirement  relative only to  leveraging,  the
        Fund will,  within  three days (not  including  Sundays  and  holidays),
        reduce its borrowings to the extent necessary to meet the 300% test. The
        Fund has no  intention at this time of engaging in these  activities  or
        investing in the securities.

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

    (4) The Fund will not purchase real estate, interests in real estate or real
        estate  limited  partnership   interests  except  that,  to  the  extent
        appropriate  under  its  investment  program,  the  Fund may  invest  in
        securities  secured  by real  estate or  interests  therein or issued by
        companies,  including real estate investment trusts,  which deal in real
        estate or interests therein.

    (5) The Fund will not make loans,  except  that,  to the extent  appropriate
        under  its  investment  program,   the  Fund  may  (a)  purchase  bonds,
        debentures or other debt securities,  including short-term  obligations,
        (b) enter into repurchase transactions and (c) lend portfolio securities
        provided  that  the  value of such  loaned  securities  does not  exceed
        one-third of the Fund's total assets.

    (6) The Fund will not invest in  commodity  contracts,  except that the Fund
        may, to the extent  appropriate under its investment  program,  purchase
        securities  of  companies  engaged  in such  activities,  may enter into
        transactions  in  financial  and index  futures  contracts  and  related
        options,  may  engage  in  transactions  on  a  when-issued  or  forward
        commitment basis, and may enter into forward currency contracts.

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

    (8) The Fund will not purchase  securities of an issuer, if (a) more than 5%
        of the Fund's  total  assets  taken at market value would at the time be
        invested in the securities of such issuer,  except that such restriction
        shall not apply to securities  issued or guaranteed by the United States
        government or its agencies or  instrumentalities;  or (b) such purchases
        would at the time  result  in more  than 10% of the  outstanding  voting
        securities of such issuer being held by the Fund .

                                       6

<PAGE>

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

    (1) The Fund will not participate on a joint or  joint-and-several  basis in
        any securities trading account. The "bunching" of orders for the sale or
        purchase of marketable  portfolio  securities  with other accounts under
        the  management  of  the  investment  adviser  or  sub-adviser  to  save
        commissions or to average prices among them is not deemed to result in a
        securities trading account.

    (2) The Fund may  purchase and sell futures  contracts  and related  options
        under the following conditions:  (a) the then-current  aggregate futures
        market  prices of financial  instruments  required to be  delivered  and
        purchased  under  open  futures  contracts  shall not  exceed 30% of the
        Fund's total  assets,  at market  value;  and (b) no more than 5% of the
        assets,  at market value at the time of entering into a contract,  shall
        be committed to margin  deposits in relation to futures  contracts.  The
        Fund has no  intention at this time of engaging in these  activities  or
        investing in the securities.

    (3) The Fund will not make short sales of securities, other than short sales
        "against  the  box,"  or  purchase   securities  on  margin  except  for
        short-term  credits  necessary for clearance of portfolio  transactions,
        provided that this  restriction  will not be applied to limit the use of
        options,  futures contracts and related options, in the manner otherwise
        permitted  by  the  investment  restrictions,  policies  and  investment
        programs of the Fund. The Fund has no intention at this time of engaging
        in these activities or investing in the securities.

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

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

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

    (7) The Fund will not invest  more than 15% of its total  assets in illiquid
        securities.  Illiquid  securities  are  securities  that are not readily
        marketable  or cannot be disposed of promptly  within  seven days and in
        the usual course of business without taking a materially  reduced price.
        Such  securities  include,  but are not limited to,  time  deposits  and
        repurchase agreements with maturities longer than seven days. Securities
        that may be resold  under Rule 144A or  securities  offered  pursuant to
        Section 4(2) of the  Securities  Act of 1933,  as amended,  shall not be
        deemed illiquid solely by reason of being  unregistered.  The Investment
        Adviser shall  determine  whether a particular  security is deemed to be
        liquid based on the trading markets for the specific  security and other
        factors.  The Fund has no  intention  at this time of  engaging in these
        activities or investing in the securities.
    

    The  percentage  restrictions  referred to above are to be adhered to at the
time of investment  and are not  applicable  to a later  increase or decrease in
percentage  beyond the specified  limit  resulting  from change in values or net
assets.

         INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR

    Lexington Management  Corporation ("LMC"),  P.O. Box 1515, Saddle Brook, New
Jersey 07663 is the  investment  adviser to the Fund  pursuant to an  Investment
Management  Agreement  dated  September 14, 1995,  (the  "Advisory  Agreement").
Lexington  Funds  Distributor,  Inc.  ("LFD") is the  distributor of Fund shares
pursuant to a  Distribution  Agreement  dated May 16, 1995,  (the  "Distribution
Agreement").   LMC  has  entered  into  a  Sub-Advisory  contract  with  Capital
Technology,  Inc. under which CTI will provide the Fund with  investment  advice
and management of the Fund's investment  program.  LMC makes  recommendations to
the  Fund  with  respect  to its  investments  and  investment  policies.  These
agreements were approved by the Fund's Board of Directors  (including a majority
of the  Directors  who  were not  parties  to  either  the  Advisory  Agreement,
Sub-Advisory  Agreement or the Distribution Agreement or "interested persons" of
any such party) on September 14, 1995.
    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.

                                       7

<PAGE>

   
    LMC's  investment  advisory  fee will be reduced  for any fiscal year by any
amount  necessary to prevent Fund expenses from  exceeding the most  restrictive
expense  limitations  imposed by the  securities  laws or  regulations  of those
states or  jurisdictions  in which the Fund's shares are registered or qualified
for sale.LFD pays the advertising  and sales expenses  related to the continuous
offering of Fund shares,  including the cost of printing  prospectuses,  proxies
and shareholder reports for persons other than existing  shareholders.  The Fund
furnishes  LFD,  at  printer's  overrun  cost  paid by LFD,  such  copies of its
prospectus   and  annual,   semi-annual   and  other  reports  and   shareholder
communications as may reasonably be required for sales purposes.

    The Advisory Agreement,  Sub-Advisory Agreement,  the Distribution Agreement
and the Administrative  Services Agreement are subject to annual approval by the
Fund's  Board of  Directors  and by the  affirmative  vote,  cast in person at a
meeting  called for such  purpose,  of a majority of the  Directors  who are not
parties  either  to  the  Advisory  Agreement,  Sub-Advisory  Agreement  of  the
Distribution  Agreement, as the case may be, or "interested persons" of any such
party.  Either the Fund or LMC may terminate the Advisory Agreement and the Fund
or LFD may  terminate  the  Distribution  Agreement on 60 days'  written  notice
without penalty. The Advisory Agreement terminates automatically in the event of
assignment,  as defined in the Investment  Company Act of 1940. As  compensation
for its services,  the Fund pays LMC a monthly management fee at the annual rate
of 1.00% of the average  daily net assets.  This fee is higher than that paid by
most other investment companies. However, it is not necessarily greater than the
management  fee of other  investment  companies  with  objectives  and  policies
similar to this Fund.  LMC will pay CTI an annual  sub-advisory  fee of 0.50% of
the Fund's average daily net assets.  The  sub-advisory fee will be paid by LMC,
not the Fund.  For the year ending  December 31, 1996, the Fund paid LMC $30,331
in net advisory fees.
    

    LMC as owner of the registered  service mark  "Lexington" will sublicense to
the Fund to include the word  "Lexington"  as part of its corporate name subject
to  revocation  by LMC in the event  that the Fund  ceases to engage  LMC or its
affiliate as investment  adviser or distributor.  In that event the Fund will be
required  upon  demand of LMC to change its name to delete the word  "Lexington"
therefrom.

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

    LMC and  LFD  are  wholly  owned  subsidiaries  of  Lexington  Global  Asset
Managers,   Inc.,  a  publicly  traded  corporation.   Descendants  of  Lunsford
Richardson,  Sr.,  their  spouses,  trusts  and other  related  entities  have a
majority  voting  control  of  outstanding  shares  of  Lexington  Global  Asset
Managers, Inc.

    CTI was  founded  in  Charlotte,  North  Carolina  in 1977 and has  invested
exclusively in domestic smaller  capitalization stocks since then. CTI currently
manages  assets  both small and mid cap growth  and value  styles for  primarily
institutional clients.

   
    Of the directors,  officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes,  DeMichele,  Faust, Hisey, Kantor, Lavery and Luehs and Mmes.
Carnicelli,  Carr, Curcio, Gilfillan,  Lederer and Mosca (see "Management of the
Fund"),  may  also  be  deemed  affiliates  of LMC and LFD by  virtue  of  being
officers, directors or employees thereof.
    

                PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS

   
    The Fund's primary policy is to execute all purchases and sales of portfolio
instruments  at the  most  favorable  prices  consistent  with  best  execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a  transaction  is  executed.  Consistent  with this  policy,  the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the  Directors  may  determine,  LMC and CTI may  consider  sales of
shares of the Fund and of the other Lexington Funds as a factor in the selection
of  broker-dealers  to execute the Fund's portfolio  transactions.  For the year
ending December 31, 1996, the Fund paid $35,953 in brokerage commissions.
    

    The research  that is used for  security  selection  is 100%  internal.  CTI
evaluates publicly available data and generates original research.  CTI believes
that by generating original research, CTI can maintain its objectivity and avoid
the tendency to move in tandem with the  prevailing  sentiment of the investment
community.

                        DETERMINATION OF NET ASSET VALUE

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

                                       8

<PAGE>

                                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  the  compensation  of the sales
personnel of the Distributor;  payments of no more than an effective annual rate
of 0.25%,  or such lesser  amounts as the  Distributor  determines  appropriate.
Payments may also be made for any advertising and promotional  expenses relating
to  selling  efforts,  including  but not  limited to the  incremental  costs of
printing prospectuses,  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.

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

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

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

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

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

                          TELEPHONE EXCHANGE PROVISIONS

    Exchange  instructions  may be given in writing or by  telephone.  Telephone
exchanges may only be made if a Telephone Authorization form has been previously
executed and filed with LFD.  Telephone  exchanges  are  permitted  only after a
minimum of seven (7) days have  elapsed  from the date of a  previous  exchange.
Exchanges  may not be made  until all  checks in  payment  for the  shares to be
exchanged have been cleared.

    Telephonic exchanges can only involve shares held on deposit at State Street
Bank and Trust Company (the  "Agent");  shares held in  certificate  form by the
shareholder  cannot  be  included.  However,  outstanding  certificates  can  be
returned  to  the  Agent  and  qualify  for  these  services.  Any  new  account
established with the same  registration will also have the privilege of exchange
by  telephone in the  Lexington  Funds.  All  accounts  involved in a telephonic
exchange must have the same registration and dividend option as the account from
which the shares were  transferred  and will also have the privilege of exchange
by telephone in the Lexington Funds in which these services are available.

    By checking  the box on the New Account  Application  authorizing  telephone
exchange services,  a shareholder  constitutes and appoints LFD,  distributor of
the  Lexington  Group  of  Mutual  Funds,  as the true and  lawful  attorney  to
surrender for redemption or exchange any and all non-certificate  shares held by
the Agent in account(s)  designated,  or

                                       9

<PAGE>

in any other account with the Lexington  Funds,  present or future which has the
identical  registration,  with  full  power  of  substitution  in the  premises,
authorizes  and  directs  LFD to act upon any  instruction  from any  person  by
telephone  for  exchange  of shares held in any of these  accounts,  to purchase
shares of any other Lexington Fund that is available,  provided the registration
and  mailing  address  of  the  shares  to be  purchased  are  identical  to the
registration  of the shares  being  redeemed,  and agrees that  neither LFD, the
Agent,  or the Fund(s) will be liable for any loss,  expense or cost arising out
of any  requests  effected in  accordance  with this  authorization  which would
include requests effected by impostors or persons otherwise  unauthorized to act
on behalf of the  account.  LFD  reserves  the right to cease to act as attorney
subject to the above  appointment  upon thirty (30) days  written  notice to the
address of record.  If the  shareholder  is an entity other than an  individual,
such entity may be  required  to certify  that  certain  persons  have been duly
elected  and are now  legally  holding  the  titles  given  and  that  the  said
corporation,  trust,  unincorporated  association,  etc. is duly  organized  and
existing  and has  the  power  to  take  action  called  for by this  continuing
authorization.

    Exchange   Authorizations   forms,   Telephone   Authorization   forms   and
prospectuses of the other funds may be obtained from LFD.

    LFD has made  arrangements  with certain  dealers to accept  instructions by
telephone to exchange shares of the Fund or shares of one of the other Lexington
Funds at net asset value as described  above.  Under this procedure,  the dealer
must agree to indemnify LFD and the funds from any loss or liability that any of
them  might  incur as a result  of the  acceptance  of such  telephone  exchange
orders. A properly signed Exchange  Authorization must be received by LFD within
5 days of the exchange  request.  LFD reserves the right to reject any telephone
exchange request.  In each such exchange,  the registration of the shares of the
Fund being acquired must be identical to the  registration  of the shares of the
Fund being exchanged. Any telephone exchange orders so rejected may be processed
by mail.

    This  exchange  offer is  available  only in states where shares of the Fund
being acquired may legally be sold and may be modified or terminated at any time
by the  Fund.  Broker-dealers  who  process  exchange  orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.

                         TAX-SHELTERED RETIREMENT PLANS

    The Fund makes  available a variety of Prototype  Pension and Profit Sharing
plans  including a 401(k) Plan and a 403(b)(7} Plan. Plan services are available
by  contacting  the  Shareholder  Services  Department  of  the  Distributor  at
1-800-526-0056.

   
    INDIVIDUAL  RETIREMENT ACCOUNT ("IRA"):  Individuals may make tax deductible
contributions  to their own Individual  Retirement  Accounts  established  under
Section 408 of the Internal Revenue Code (the "Code").  Married investors filing
a joint return neither of whom is an active participant in an employer sponsored
retirement  plan,  or who have an  adjusted  gross  income  of  $40,000  or less
($25,000 or less for single  taxpayers) may make a $2,000 annual  deductible IRA
contribution.  For adjusted  gross  incomes  above  $40,000  ($25,000 for single
taxpayers, the IRA deduction limit is generally phased out ratably over the next
$10,000  of  adjusted  gross  income,  subject  to  a  minimum  $200  deductible
contribution.   Investors  who  are  not  able  to  deduct  a  full  $2,000  IRA
contribution because of the limitations may make a nondeductible contribution to
their IRA to the extent a deductible contribution is not allowed. Federal income
tax on  accumulations  earned on  nondeductible  contributions is deferred until
such time as these amounts are deemed distributed to an investor.  Rollovers are
also permitted under the Plan. The disclosure statement required by the Internal
Revenue Service ("IRS") is provided by the Fund.
    

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

   
    SELF-EMPLOYED  RETIREMENT PLAN (HR-10):  Self-employed  individuals may make
tax deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are,  however,  a number of special rules which apply
when  self-employed  individuals  participate in such plans.  Currently purchase
payments under a  self-employed  plan are  deductible  only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the  individuals  earned  annual income (as
defined in the Code) and in applying these limitations not more than $150,000 of
"earned income" may be taken into account.
    

    CORPORATE  PENSION  AND PROFIT  SHARING  PLANS:  The Fund makes  available a
Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.

    All  purchases  and  redemptions  of Fund shares  pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the Plan. Accordingly, all plan documents should be reviewed carefully before
adopting or  enrolling  in the Plan.  Investors  should  especially  note that a
penalty  tax of 10%  may  be  imposed  by the  IRS

                                       10

<PAGE>

on early withdrawals  under corporate,  Keogh or IRA plans. It is recommended by
the IRS that an investor  consult a tax  adviser  before  investing  in the Fund
through any of these plans.

    An  investor  participating  in any  of  the  Fund's  special  plans  has no
obligation to continue to invest in the Fund and may terminate the Plan with the
Fund at any time.  Except for  expenses of sales and  promotion,  executive  and
administrative  personnel,  and certain services which are furnished by LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan account
is subject to an annual maintenance fee of $12.00 charged by the Agent.

                                   TAX MATTERS

    The  following is only a summary of certain  additional  tax  considerations
generally  affecting the Fund and its shareholders that are not described in the
Prospectus.  No attempt is made to  present a  detailed  explanation  of the tax
treatment of the Fund or its  shareholders,  and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.

Qualification as a Regulated Investment Company

   
    The Fund has elected to be taxed as a  regulated  investment  company  under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated  investment company,  the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest,  dividends and
other  taxable  ordinary  income,  net of expenses)  and capital gain net income
(i.e.,  the excess of capital gains over capital  losses) that it distributes to
shareholders,  provided  that it  distributes  at  least  90% of its  investment
company  taxable  income  (i.e.,  net  investment  income  and the excess of net
short-term  capital gain over net  long-term  capital loss) for the taxable year
(the  "Distribution  Requirement"),  and satisfies certain other requirements of
the Code that are  described  below.  Distributions  by the Fund made during the
taxable year or, under specified  circumstances,  within twelve months after the
close of the taxable year, will be considered  distributions of income and gains
of the taxable year and will therefore satisfy the Distribution Requirement.

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

    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.


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

    In addition to satisfying the  requirements  described  above, the Fund must
satisfy  an  asset  diversification  test in  order to  qualify  as a  regulated
investment company.  Under this test, at the close of each quarter of the Fund's
taxable

                                       11

<PAGE>

   
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 as to which  the  Fund  does  not  hold  more  than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the  securities  of any one issuer (other
than U.S.  Government  securities and securities of other  regulated  investment
companies),  or in two or more  issuers  which the Fund  controls  and which are
engaged in the same or similar trades or businesses.  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,  and  generally  should  qualify  for the 70%  dividends-received
deduction for corporate shareholders to the extent discussed below.

    A 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. The Code provides,  however,  that under certain conditions only 50%
of the capital gain  recognized  upon the Fund's  disposition of domestic "small
business" stock will be subject to tax.
    

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

    Ordinary  income  dividends  paid by the Fund with respect to a taxable year
will qualify for the 70%  dividends-received  deduction  generally  available to
corporations  (other than  corporations,  such as S corporations,  which are not
eligible for the deduction  because of their special  characteristics  and other
than for purposes of special taxes such as the accumulated  earnings tax and the
personal  holding  company  tax)  to the  extent  of the  amount  of  qualifying
dividends

                                       12

<PAGE>

received by the Fund from domestic corporations for the taxable year. A dividend
received by the Fund will not be treated as a qualifying  dividend (1) if it has
been received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain  preferred  stock),  excluding  for
this purpose under the rules of Code Section 246(c)(3) and (4): (i) any day more
than 45 days (or 90 days in the case of certain  preferred stock) after the date
on which the stock becomes ex-dividend and (ii) any period during which the Fund
has an option to sell, is under a contractual  obligation to sell,  has made and
not closed a short sale of, is the grantor of a  deep-in-the-money  or otherwise
nonqualified  option to buy,  or has  otherwise  diminished  its risk of loss by
holding  other  positions  with  respect to, such (or  substantially  identical)
stock;  (2) to the extent that the Fund is under an  obligation  (pursuant  to a
short sale or otherwise)  to make related  payments with respect to positions in
substantially  similar  or related  property;  or (3) to the extent the stock on
which the dividend is paid is treated as  debt-financed  under the rules of Code
Section  246A.  Moreover,  the  dividends-received  deduction  for  a  corporate
shareholder may be disallowed or reduced (1) if the corporate  shareholder fails
to satisfy the foregoing  requirements with respect to its shares of the Fund or
(2)  by  application  of  Code  Section  246(b)  which  in  general  limits  the
dividends-received   deduction  to  70%  of  the  shareholder's  taxable  income
(determined without regard to the dividends-received deduction and certain other
items).

   
    Alternative  minimum tax ("AMT") is imposed in addition  to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate  taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's  alternative  minimum  taxable income  ("AMTI") over an exemption
amount.  For purposes of the corporate AMT and the  environmental  superfund tax
(which are discussed above), the corporate  dividends-received  deduction is not
itself an item of tax preference that must be added back to taxable income or is
otherwise  disallowed in determining a corporation's  AMTI.  However,  corporate
shareholders  will generally be required to take the full amount of any dividend
received from the Fund into account (without a dividends-received  deduction) in
determining  its  adjusted  current  earnings,  which are used in  computing  an
additional  corporate  preference  item (i.e.,  75% of the excess of a corporate
taxpayer's adjusted current earnings over its AMTI (determined without regard to
this item and the AMT net operating loss deduction)) includable in AMTI.
    

    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)  (discussed  above in connection  with the  dividends-received
deduction for  corporations)  generally  will apply in  determining  the 



                                       13

<PAGE>

holding period of shares.  Long-term capital gains of noncorporate taxpayers are
currently  taxed at a maximum rate 11.6% lower than the maximum rate  applicable
to ordinary income. Capital losses in any year are deductible only to the extent
of  capital  gains  plus,  in the case of a  noncorporate  taxpayer,  $3,000  of
ordinary income.

Foreign Shareholders

    Taxation of a  shareholder  who, as to the United  States,  is a nonresident
alien  individual,  foreign  trust or estate,  foreign  corporation,  or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is  "effectively  connected"  with a U.S.  trade or business  carried on by such
shareholder.

   
    If the income from the Fund is not  effectively  connected with a U.S. trade
or business carried on by a foreign shareholder,  ordinary income dividends paid
to a foreign shareholder will be subject to U.S.  withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the dividend. 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.

                             PERFORMANCE CALCULATION

    For the purpose of quoting and comparing the performance of the Fund to that
of other mutual funds and to other relevant market indices in  advertisements or
in reports to shareholders,  performance may be stated in terms of total return.
Under the rules of the Securities and Exchange  Commission ("SEC rules"),  funds
advertising performance must include total return quotes calculated according to
the following formula:

   P(l + T)n = ERV
Where:     P = a hypothetical initial payment of $1,000
           T = average annual total return
           n = number of years (1, 5 or 10)
         ERV = ending redeemable value of a hypothetical $1,000 payment
               made at the beginning of the 1, 5 or 10 year periods or at the
               end of the 1, 5 or 10 year periods (or fractional
               portion thereof).

    Under the foregoing  formula,  the time periods used in advertising  will be
based on rolling calendar  quarters,  updated to the last day of the most recent
quarter prior to submission of the advertising for  publication,  and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's  Registration  Statement.  In  calculating  the ending  redeemable
value,  all  dividends  and  distributions  by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period.  Total return, or "T" in the formula above, is computed
by finding the average  annual  compounded  rates of return over the 1, 5 and 10
year  periods (or  fractional  portion  thereof)  that would  equate the initial
amount invested to the ending  redeemable  value. Any recurring  account charges
that might in the future be imposed by the Fund would be included at that time.

                                       14
<PAGE>

   
    The Fund may also  from time to time  include  in such  advertising  a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of  investment  return.  For example,  in comparing the Fund's total return with
data published by Lipper Analytical  Services,  Inc., or with the performance of
the Standard and Poor's 500 Stock Index or the Russell 2000, the Fund calculates
its  aggregate  total  return for the  specified  periods of time  assuming  the
investment  of $10,000 in Fund  shares and  assuming  the  reinvestment  of each
dividend  or other  distribution  at net asset value on the  reinvestment  date.
Percentage  increases  are  determined by  subtracting  the initial value of the
investment  from the ending value and by dividing the remainder by the beginning
value.  For the one year period  ended  December 31,  1996,  the Fund's  average
annual standard total return was 17.50%.
    

                               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.


                                       15


<PAGE>


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

 Number
   of                                                                   Value
 Shares               Security                                         (Note 1)
--------------------------------------------------------------------------------
          Common Stocks: 98.4%
          Capital Equipment: 5.5%
   9,200  Detroit Diesel Corporation1 ............................. $   211,600
   9,000  Giddings & Lewis, Inc.1 .................................     117,000
   5,000  Watts Industries, Inc. ..................................     119,375
                                                                    -----------
                                                                        447,975
                                                                    -----------
          Construction & Housing: 1.5%
   6,000  Granite Construction, Inc. ..............................     117,000
                                                                    -----------
          Consumer-Durable Goods: 6.8%
  13,500  Ampco-Pittsburgh Corporation ............................     162,000
   3,700  Bio-Rad Laboratiories, Inc. "A"1 ........................     111,000
  19,700  O'Sullivan Industries Holdings, Inc.1 ...................     275,800
                                                                    -----------
                                                                        548,800
                                                                    -----------
          Consumer-non Durable Goods: 3.9%
   3,900  Canandaigua Wine Company, Inc. "A"1 .....................     110,906
   6,700  Paragon Trade Brands, Inc.1 .............................     201,000
                                                                    -----------
                                                                        311,906
                                                                    -----------
          Electrical and Electronics: 12.6%
  26,000  American Software, Inc.1 ................................     164,125
  22,000  Asante Technologies, Inc.1 ..............................     105,875
  45,000  Dataware Technologies, Inc.1 ............................     135,000
  16,500  Intergraph Corporation1 .................................     171,187
  10,700  Progress Software Corporation1 ..........................     212,662
   6,600  Sequent Computer Systems, Inc.1 .........................     116,737
   8,700  Telxon Corporation ......................................     107,663
                                                                    -----------
                                                                      1,013,249
                                                                    -----------
          Energy Sources: 3.9%
  24,700  Patina Oil & Gas Corporation1 ...........................     228,475
   4,400  Western Gas Resources, Inc. .............................      84,700
                                                                    -----------
                                                                        313,175
                                                                    -----------
          Financial Services: 6.4%
   6,200  John Alden Financial Corporation ........................     114,700
  16,940  National Auto Credit, Inc. ..............................     203,280
  11,800  Titan Holdings, Inc. ....................................     194,700
                                                                    -----------
                                                                        512,680
                                                                    -----------
                                  


                                       16

<PAGE>


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

 Number
   of                                                                   Value
 Shares               Security                                         (Note 1)
--------------------------------------------------------------------------------
          Health & Personal Care: 8.9%
   9,000  Alpharma, Inc. .......................................... $   128,250
  76,300  Laboratory Corporation of America Holdings1 .............     219,363 
  12,700  NBTY, Inc.1 .............................................     240,506
  55,800  Staff Builders, Inc. "A"1 ...............................     129,909
                                                                    -----------
                                                                        718,028
                                                                    -----------
          Health Care Diversified: 1.5%
   9,100  Sun Healthcare Group, Inc.1 .............................     122,850
                                                                    -----------
          Health Equipment And Services: 5.0%
  20,000  NovaCare, Inc.1 .........................................     220,000
  12,200  OEC Medical Systems, Inc.1 ..............................     183,000
                                                                    -----------
                                                                        403,000
                                                                    -----------
          Healthcare Miscellaneous: 5.0%
  14,800  Carter-Wallace, Inc. ....................................     231,250
   7,000  Integrated Health Services, Inc. ........................     170,625
                                                                    -----------
                                                                        401,875
                                                                    -----------
          Manufacturing-Diversified Industries: 1.6%
  22,400  United Industrial Corporation ...........................     131,600
                                                                    -----------
          Materials: 8.9%
   6,400  ACX Technologies, Inc.1 .................................     127,200
   9,800  Coeur D'Alene Mines Corporation .........................     148,225
  15,100  Phillips-Van Heusen .....................................     217,063
  12,500  Pillowtex Corporation ...................................     225,000
                                                                    -----------
                                                                        717,488
                                                                    -----------
          Merchandising: 3.6%
  13,900  Cyrk International, Inc.1 ...............................     181,569
  13,000  Handleman Company .......................................     110,500
                                                                    -----------
                                                                        292,069
                                                                    -----------
          Retail: 2.6%
  24,500  Cash America International, Inc. ........................     208,250
                                                                    -----------


                                       17

<PAGE>



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

 Number
   of                                                                   Value
 Shares               Security                                         (Note 1)
--------------------------------------------------------------------------------
          Services: 7.6%
  41,200  Interface Systems, Inc.1 ................................ $   185,400
  11,500  International Technology1 ...............................      97,750
  14,800  Spelling Entertainment Group, Inc.1 .....................     109,150
  22,500  Transitional Hospital Corporation1 ......................     216,563
                                                                    -----------
                                                                        608,863
                                                                    -----------
          Telecommunications: 2.3%
  12,600  California Microwave, Inc.1 .............................     185,850
                                                                    -----------

          Transportation: 5.8%
   8,500  Alaska Air Group, Inc.1 .................................     178,500
  14,000  America West Airlines, Inc.1 ............................     222,250
   4,800  Yellow Corporation1 .....................................      69,600
                                                                    -----------
                                                                        470,350
                                                                    -----------

          Utilities: 5.0%
  13,500  Forest Oil Corporation1 .................................     236,250
  52,000  Kaneb Services, Inc.1 ...................................     169,000
                                                                    -----------
                                                                        405,250
                                                                    -----------
          Total Investments: 98.4%
          (cost $6,942,240+) (Note 1) .............................   7,930,258

          Other assets in excess of liabilities: 1.6% .............     130,966
                                                                    -----------

          Total Net Assets: 100.0%
            (equivalent to $11.73 per share on 687,232
            shares outstanding) ...................................  $8,061,224
                                                                    ===========

1Non-income producing security.
+Aggregate cost for Federal income tax purposes is $6,942,509.

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



                                       18

<PAGE>



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

Assets

Investments, at value (cost $6,942,240) (Note 1) ..................  $7,930,258
Cash ..............................................................     186,935
Receivable for shares sold ........................................       7,250
Dividends and interest receivable .................................       2,358
Deferred organization expense, net (Note 1) .......................      42,270
                                                                    -----------
        Total Assets ..............................................   8,169,071
                                                                    -----------


Liabilities
Due to Lexington Management Corporation (Note 2) ..................       6,538
Payable for investment securities purchased .......................      20,374
Payable for shares redeemed .......................................       2,355
Distributions payable .............................................          91
Accrued expenses ..................................................      28,655
Other liabilities .................................................      49,834
                                                                    -----------
        Total Liabilities .........................................     107,847
                                                                    -----------

Net Assets (equivalent to $11.73 per share
  on 687,232 shares outstanding) (Note 4) .........................  $8,061,224
                                                                    -----------

Net Assets consist of:
Capital stock-authorized 1,000,000,000 shares,
  $.001 par value per share .......................................  $      687
Additional paid-in capital (Note 1) ...............................   6,972,282
Distributions in excess of net investment income (Note 1) .........      (9,044)
Accumulated net realized gain on investments (Note 1) .............     109,281
Unrealized appreciation on investments ............................     988,018
                                                                    -----------
        Total Net Assets ..........................................  $8,061,224
                                                                    -----------

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

   
                                       19
    

<PAGE>

Lexington SmallCap Value Fund, Inc.
Statement of Operations
January 2, 1996 (commencement of operations) to December 31, 1996

Investment Income

Income
    Dividends .......................................... $ 31,435
    Interest ...........................................   17,020
                                                         -------- 
        Total investment income                                     $    48,455
Expenses
    Investment advisory fee (Note 2) ...................   68,948
    Printing and mailing expenses ......................   39,996
    Distribution expenses (Note 3) .....................   17,237
    Transfer agent and shareholder servicing
      expense (Note 2) .................................   15,596
    Directors' fees and expenses .......................   15,504
    Professional fees ..................................   14,299
    Amortization of deferred organizational
      costs (Note 1) ...................................   10,567
    Registration fees ..................................    8,993
    Computer processing fees ...........................    5,502
    Accounting expenses (Note 2) .......................    4,696
    Custodian fees .....................................    1,800
    Other expenses .....................................    6,352
                                                         --------
        Total expenses .................................  209,490
          Less: expenses recovered under contract with
            investment adviser (Note 2) ................   38,617       170,873
                                                         --------   -----------
            Net investment  loss .......................               (122,418)

Realized and Unrealized Gain on Investments (Note 5)
    Net realized gain on investments ...................                241,416
    Net change in unrealized appreciation on investments                988,018
                                                                    -----------
            Net realized and unrealized gain ...........              1,229,434
                                                                    -----------
Increase in Net Assets Resulting from Operations .......             $1,107,016
                                                                    ===========

Statement of Changes in Net Assets
January 2, 1996 (commencement of operations) to December 31, 1996

Net investment loss ...............................................  $ (122,418)
Net realized gain on investments ..................................     241,416
Net change in unrealized appreciation of investments ..............     988,018
                                                                    -----------
    Net increase in net assets resulting from operations ..........   1,107,016
Distributions to shareholders from net realized gains on
  investments .....................................................     (18,761)
Increase in net assets from capital share transactions (Note 4) ...   6,972,969
                                                                    -----------
        Net increase in net assets ................................   8,061,224
                                                                    -----------

Net Assets
Beginning of period ...............................................        -
                                                                    -----------
End of period (including distributions in excess of net
  investment income of $9,044) ....................................  $8,061,224
                                                                    ===========

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


   
                                       20
    

<PAGE>


Lexington SmallCap Value Fund, Inc.
Notes to Financial Statements
December 31, 1996

1.  Significant Accounting Policies

Lexington  SmallCap  Value Fund,  Inc.  (the "Fund") is an open-end  diversified
management  investment  company  registered under the Investment  Company Act of
1940, as amended.  The Fund commenced  operations on January 2, 1996. The Fund's
investment objective is to seek long-term capital appreciation. The following is
a  summary  of  significant  accounting  policies  followed  by the  Fund in the
preparation of its financial statements:

    Investments  Security  transactions are accounted for on a trade date basis.
Realized  gains and losses  from  investment  transactions  are  reported on the
identified  cost basis.  Securities  traded on a recognized  stock  exchange are
valued at the last sales price  reported by the exchange on which the securities
are traded.  If no sales price is  recorded,  the mean  between the last bid and
asked price is used. Securities traded on the over-the-counter market are valued
at the mean between the last current bid and asked price.  Short-term securities
having a  maturity  of 60 days or less  are  stated  at  amortized  cost,  which
approximates  market  value.  Securities  for which  market  quotations  are not
readily  available and other assets are valued by Fund  management in good faith
under the  direction  of the  Fund's  Board of  Directors.  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.

    Federal Income Taxes It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated  investment companies" and
to  distribute  all of its taxable  income to its  shareholders.  Therefore,  no
provision for Federal income taxes is required.

    Distributions  Dividends from net investment income and net realized capital
gains  are  normally  declared  and  paid  annually,   but  the  Fund  may  make
distributions  on  a  more  frequent  basis  to  comply  with  the  distribution
requirements of the Internal  Revenue Code. The character of income and gains to
be distributed are determined in accordance  with income tax  regulations  which
may differ from generally accepted accounting principals.  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  distribution  under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.

    Deferred  Organization  Expenses  Organization  expenses aggregating $52,837
have been  deferred and are being  amortized on a straight  line basis over five
years.

    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  operatons  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 the 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 Capital  Technology  Inc.  ("CTI")  under which CTI
provides the Fund with investment management services.  Pursuant to the terms of
the  sub-advisory  contract  between  LMC  and  CTI,  LMC  pays  CTI  a  monthly
sub-advisory  fee at the annual  rate of 0.50% of the Fund's  average  daily net
assets.  The  sub-advisory  fee will be paid by LMC, not the Fund. LMC agreed to
voluntarily limit the total expenses



   
                                       21
    

<PAGE>

Lexington SmallCap Value Fund, Inc.
Notes to Financial Statements
December 31, 1996 (continued)

2. Investment Advisory Fee and Other Transactions with Affiliate (continued)


of the Fund (excluding interest,  taxes,  brokerage,  and extraordinary expenses
but including the  management  fee and operating  expenses) to an annual rate of
1.75% of the Fund's average daily net assets  through April 30, 1996.  Effective
May 1, 1996 the total annual  expenses of the Fund (excluding  interest,  taxes,
brokerage,  and  extraordinary  expenses but  including the  management  fee and
operating  expenses)  will not  exceed the level of  expenses  which the Fund is
permitted to bear under the most restrictive  expense  limitation imposed by any
state in which shares of the Fund are offered for sale. 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 $10,096, which are incurred by the Fund, but paid
by LMC.


3. Distribution Plan


The Fund has a distribution  Plan (the "Plan") which allows  payments to finance
activities  associated  with the  distribution  of the Fund's  shares.  The Plan
provides  that the  Fund may pay  distribution  fees on a  reimbursement  basis,
including  payments to Lexington Funds  Distributor,  Inc.  ("LFD"),  the Fund's
distributor,  in amounts  not  exceeding  0.25% per annum of the Fund's  average
daily net assets.  Total  distribution  expenses for the year ended December 31,
1996 were $17,237 and are set forth in the statement of operations.


4. Capital Stock


Transactions in capital stock were as follows:


                                                        January 2, 1996
                                                  (commencement of operations)
                                                      to December 31, 1996
                                                  ----------------------------
                                                     Shares         Amount
                                                    --------       -------
Shares sold                                          806,989      $8,267,408

Shares issued on reinvestment of dividends             1,594          18,670
                                                    --------      ----------
                                                     808,583       8,286,078
Shares redeemed                                     (121,351)     (1,313,109)
                                                    --------      ----------
Net increase                                         687,232      $6,972,969
                                                    ========      ==========


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  $10,586,945  and
$298,250 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
$1,249,495 and aggregate  gross  unrealized  depreciation  for all securities in
which there is an excess of tax cost over value amounted to $261,746.


   
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<PAGE>


Lexington SmallCap Value Fund, Inc.
Financial Highlights

Selected per share data for a share outstanding throughout the period:
January 2, 1996 (commencement of operations) to December 31, 1996


Net asset value, beginning of period .................................  $10.00
Income (loss) from investment operations:
  Net investment loss ................................................   (0.18)
  Net realized and unrealized gain on investments ....................    1.94
                                                                        ------
Total income from investment operations ..............................    1.76
Less distributions:
  Distributions from net realized gains ..............................   (0.03)
                                                                        ------
Net asset value, end of period .......................................  $11.73
                                                                        ======
Total return .........................................................   17.50%
Ratio to average net assets:
  Expenses, before reimbursement or waivers ..........................    3.04%
  Expenses, net of reimbursement or waivers ..........................    2.48%
  Net investment loss, before reimbursement or waivers ...............   (2.34%)
  Net investment loss ................................................   (1.78%)
Portfolio turnover rate ..............................................   60.92%
Average commissions paid on equity security transactions .............  $ 0.03
Net assets at end of period (000's omitted) ..........................  $8,061



   
                                       23
    

<PAGE>


Independent Auditors' Report

The Board of Directors and Shareholders
Lexington SmallCap Value Fund, Inc.:


    We have audited the  accompanying  statements of net assets  (including  the
portfolio of investments) and assets and liabilities of Lexington SmallCap Value
Fund,  Inc. as of December 31, 1996,  and the related  statements of operations,
changes in net assets, and the financial  highlights for the period from January
2, 1996  (commencement  of  operations)  to December 31, 1996.  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 audit.

    We  conducted  our audit in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether the  financial  statements  and  financial
highlights are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  Our  procedures  included  confirmation  of securities  owned as of
December 31, 1996 by correspondence with the custodian.  As to securities bought
but not received we performed other appropriate  auditing  procedures.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

    In our opinion,  the financial  statements and financial highlights referred
to above present fairly,  in all material  respects,  the financial  position of
Lexington  SmallCap Value Fund, Inc. as of December 31, 1996, and the results of
operations,  changes in net assets and the financial  highlights  for the period
from January 2, 1996  (commencement  of  operations)  to December  31, 1996,  in
conformity with generally accepted accounting principles.

                                                           KPMG Peat Marwick LLP



New York, New York
February 10, 1997



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