LEXINGTON GOLDFUND INC, DEF 14A, 1995-03-15

LEXINGTON GOLDFUND INC
DEF 14A, 1995-03-15

Previous: MOORE BENJAMIN & CO, SC 13G/A, 1995-03-15

Next: PRUDENTIAL HIGH YIELD FUND, N-30D, 1995-03-15

LEXINGTON GOLDFUND, INC.
PARK 80 WEST PLAZA TWO
SADDLE BROOK, NEW JERSEY 07663

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF THE
LEXINGTON GOLDFUND, INC.

TO BE HELD APRIL 19, 1995

A Special Meeting of Shareholders of Lexington Goldfund, Inc. (the "Fund")
will be held at 9:00 a.m. on April 19, 1995 at the offices of the Fund, Park 80
West Plaza Two, Saddle Brook, New Jersey 07663 for the following purposes:

1. To elect ten (10) Directors to hold office until the election and
qualification of their successors;

2. To consider and act upon a proposal to ratify or reject the selection
of KPMG Peat Marwick LLP, as independent certified public accountants for
the Fund for the fiscal year ending December 31, 1995;

3. To consider and act upon a proposal to approve an amended Investment
Management Agreement between the Fund and Lexington Management Corporation;

4. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning senior securities;

5. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning diversification;

6. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restrictions concerning restricted and illiquid
securities;

7. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning margin and short sales;

8. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning puts and calls;

9. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning concentration;

10. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning commodity contracts;

11. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning real estate;

12. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning securities of issuers in
operation for less than three (3) years;

13. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning securities of affiliates;

<PAGE>

14. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning lending;

15. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning borrowing;

16. To consider and act upon a proposal to amend the Fund's fundamental
investment restriction concerning underwriting;

17. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning securities of other investment
companies;

18. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning investment for control;

19. To consider and act upon a proposal to eliminate the Fund's
fundamental investment restriction concerning joint trading accounts; and

20. To transact such other business as may properly come before the
Meeting.

Shareholders of record at the close of business on February 1, 1995 will be
entitled to vote at the Meeting or any adjournment thereof.

If you cannot attend in person, please sign, date and return promptly the
enclosed proxy in the envelope provided. You are requested to do this at your
earliest convenience so the Fund may avoid the expense and time involved in
sending follow-up letters to shareholders. Any proxy may be revoked at any time
before it is voted.

By Order of the Board of Directors

Lisa Curcio
Secretary

February 27, 1995

- - --------------------------------------------------------------------------------
YOU ARE URGED TO DATE, VOTE, SIGN AND MAIL THE PROXY PROMPTLY TO AVOID A
FURTHER SOLICITATION WHICH WOULD BE AN ADDITIONAL EXPENSE TO THE FUND.
- - --------------------------------------------------------------------------------

<PAGE>

LEXINGTON GOLDFUND, INC.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663

Special Meeting of Shareholders
of the
Lexington Goldfund, Inc.
April 19, 1995

---------------
PROXY STATEMENT
---------------

This proxy statement is furnished by the Board of Directors of Lexington
Goldfund, Inc. (the "Fund"), a corporation under the laws of the State of
Maryland, in connection with the solicitation of proxies to be voted at the
Special Meeting of Shareholders (the "Meeting") to be held at 9:00 a.m. on April
19, 1995 at the offices of the Fund, Park 80 West Plaza Two, Saddle Brook, New
Jersey 07663. The purpose of the Meeting and the matters to be acted upon are
set forth in the accompanying Notice of Special Meeting.

If the accompanying form of Proxy is executed properly and returned, shares
represented by it will be voted at the Meeting in accordance with the
instructions on the Proxy. However, if no instructions are specified, shares
will be voted FOR the election of each of the nominees named below unless
authority to vote for a particular nominee is withheld and in favor of the
proposals set forth in the attached Notice of the Special Meeting. The Board of
Directors of the Fund knows of no business, other than that mentioned in the
Notice of Meeting, which will be presented for consideration at the Meeting. If
any other matter is properly presented, it is the intention of the persons named
in the enclosed proxy to vote in accordance with their best judgment. A Proxy
may be revoked at any time prior to the time it is voted by written notice to
the Secretary of the Fund or by attendance at the Meeting.

The close of business on February 1, 1995 has been fixed as the record date
for the determination of shareholders entitled to notice of, and to vote at, the
Meeting and at any adjournment thereof. On that date, the Fund had outstanding
25,343,271 shares of common stock. Each shareholder is entitled to one vote for
each full share and an appropriate fraction of a vote for each fractional share
held. The shares do not have cumulative voting rights.

The audited financial statements of the Fund are found in its Annual Report
for the fiscal year ended December 31, 1994 which was mailed to shareholders
prior to the date of this Proxy Statement. A free copy of the annual report is
available upon request from Lexington Goldfund, Inc. P.O. Box 1515/Park 80 West
Plaza Two, Saddle Brook, New Jersey 07663, Toll Free: 1-800-526-0056.

The favorable vote of the holders of a simple majority of the shares
represented at the Meeting is required for the election of ten Directors
(Proposal 1, below) and the ratification of the selection of KPMG Peat Marwick
LLP as independent certified public accountants (Proposal 2, below). The
favorable vote of the holders of a majority of the outstanding voting securities
of the Fund, as defined in the Investment Company Act of 1940, as amended (the
"1940 Act") is required to approve an amended investment management agreement
between the Fund and Lexington Management Corporation (Proposal 3, below); to
approve the adoption of a fundamental investment restriction concerning senior
securities (Proposal 4, below); to approve an amendment to the Fund's
fundamental investment

1
<PAGE>

restriction concerning diversification (Proposal 5, below); to approve the
elimination of the Fund's fundamental investment restriction concerning illiquid
securities (Proposal 6, below); to approve the elimination of the Fund's
fundamental investment restriction concerning margin and short sales (Proposal
7, below); to approve the elimination of the Fund's fundamental investment
restriction concerning puts and calls (Proposal 8, below); to approve an
amendment to the Fund's fundamental investment restriction concerning
concentration (Proposal 9, below); to approve an amendment to the Fund's
fundamental investment restriction concerning commodity contracts (Proposal 10,
below); to approve an amendment to the Fund's fundamental investment restriction
concerning real estate (Proposal 11, below); to approve the elimination of the
Fund's fundamental investment restriction concerning securities of issuers in
operation for less than three years (Proposal 12, below); to approve the
elimination of the Fund's fundamental investment restriction concerning
securities of affiliates (Proposal 13, below); to approve an amendment to the
Fund's fundamental investment restriction concerning lending (Proposal 14,
below); to approve an amendment to the Fund's fundamental investment restriction
concerning borrowing (Proposal 15, below); to approve an amendment to the Fund's
fundamental investment restriction concerning underwriting (Proposal 16, below);
to approve the elimination of the Fund's fundamental investment restriction
concerning investment in securities of other investment companies (Proposal 17,
below); to approve the elimination of the Fund's fundamental investment
restriction concerning investment for control (Proposal 18, below); to approve
the elimination of the Fund's fundamental investment restriction concerning
joint trading accounts (Proposal 19, below);

The 1940 Act defines a "majority of the outstanding voting securities" to
mean the lesser of (a) the vote of the holders of 67% or more of the shares of
the Fund represented by proxy, or (b) the vote of the holders of more than 50%
of the outstanding voting securities of the Fund.

In the event that a quorum of shareholders is not represented at the Meeting
or at any adjournment thereof, or, even though a quorum is so represented, in
the event that sufficient votes in favor of any of the proposals set forth in
the Notice of the Meeting are not received, the persons named as proxies may
propose and vote for one or more adjournments of the Meeting to be held within a
reasonable time after the date originally set for the Meeting (but not more than
120 days after the original record date for the Meeting), and further
solicitation of proxies may be made without the necessity of further notice. The
persons named as proxies will vote in favor of any such adjournment those
proxies which instruct them to vote in favor of any of the proposals to be
considered at the adjourned meeting, and will vote against any such adjournment
those proxies which instruct them to vote against or to abstain from voting on
all of the proposals to be considered at the adjourned meeting.

The shares represented by the enclosed proxy will be voted as directed or,
in the absence of direction, for the election of ten directors as set forth in
Proposal 1; for the ratification of the selection of the independent certified
public accountants as set forth in Proposal 2; for the approval of an amended
investment management agreement between the Fund and Lexington Management
Corporation as set forth in Proposal 3; and for each amendment or elimination of
the Fund's fundamental investment restrictions (Proposals 4 through 19).

THE FUND INTENDS TO INFORM SHAREHOLDERS OF THE VOTING RESULTS WITH RESPECT
TO EACH PROPOSAL IN THE FUND'S NEXT SEMI-ANNUAL REPORT.

2
<PAGE>

PROPOSAL 1: ELECTION OF DIRECTORS

Ten directors are to be elected at the Special Meeting as the entire Board
of Directors, to hold office until the next meeting and until their successors
shall have been elected and shall have qualified. If authority is granted on the
accompanying proxy to vote in the election of Directors, it is the intention of
the persons named in the proxy to vote at the Special Meeting for the election
of the nominees named below, each of whom has consented to serve if elected. If
any of the nominees is unavailable to serve for any reason, the persons named as
proxies will vote for such other nominee or nominees selected by the Board of
Directors or the Board may reduce the number of Directors as provided in the
Fund's By-Laws. The Fund currently knows of no reason why any of the nominees
listed below will be unable to serve if elected.

<TABLE>
<CAPTION>
Year First Shares Owned
Director's Name Became A Beneficially
and Age Principal Occupation for Past 5 Years Director February 1, 1995***
- - ------- ------------------------------------- -------- -------------------
<S> <C> <C> <C>

*Robert M. DeMichele President and Chairman; Chairman and Chief Executive 1982 9,179
(50) Officer, LMC; Chairman and Chief Executive Officer,
Lexington Funds Distributor, Inc.; President and
Director, Piedmont Management Company Inc.; Director,
Reinsurance Corporation of New York; Director, Unione
Italiana Reinsurance; Vice Chairman of Board of Trustees,
Union College; Director, Continental National
Corporation; Director, The Navigator's Group, Inc.;
Chairman, Lexington Capital Management, Inc.; Chairman,
LCM Financial Services, Inc.; Director, Vanguard Cellular
Systems, Inc.; Chairman of the Board, Market Systems
Research, Inc. and Market Systems Research Advisors, Inc.
(registered investment advisors); Trustee, Smith
Richardson Foundation.

Beverley C. Duer Director. Private Investor. Formerly, Manager of Opera- 1978 1,419
(65) tions Research Department--CPC International, Inc.

*Barbara R. Evans Director. Private Investor. Formerly, Assistant Vice 1990 -
(34) President and Securities Analyst, Lexington Management
Corporation.

*Lawrence Kantor Vice President and Director. Executive Vice President, 1986 -
(47) Managing Director and Director, Lexington Management
Corporation; Executive Vice President and Director, Lex-
ington Funds Distributor, Inc.

Donald B. Miller Director. Chairman, Horizon Media, Inc.; Trustee, Galaxy 1988 749
(69) Funds (registered investment companies); Director,
Maguire Group of Connecticut.

Francis Olmsted Director. Private Investor. 1988 -
(81)

</TABLE>

3
<PAGE>

John G. Preston Director. Associate Professor of Finance, Boston College. 1978 617
(62)

Margaret W. Russell Director. Private Investor. 1988 -
(74)

Philip C. Smith Director. Private Investor; Director, Southwest Investors 1979 150
(83) Income Fund, Inc., Government Income Fund, Inc., U.S.
Trend Fund, Inc., Investors Cash Reserve and Plimony
Fund, Inc. (registered investment companies).

Francis A. Sunderland Director. Private Investor. 1988 -
(83)

*"Interested persons," of the Fund as defined by the Investment Company Act of 1940, as amended.

**Beneficial ownership is defined in accordance with the rules of the Securities and Exchange Commission and
means generally the power to vote or dispose of shares, regardless of any economic interest therein.
All of the Directors hold similar offices with some or all of the other registered investment companies advised and/
or whose shares are distributed by Lexington Management Corporation and Lexington Funds Distributor, Inc.
</TABLE>

Directors not employed by the Fund or its affiliates receive an annual fee
of $600 and a meeting fee of $150 plus reimbursement of expenses for attendance
at regular meetings. For the fiscal year ending December 31, 1994 an aggregate
of $11,879 in fees and expenses was paid to Directors not employed by the Fund's
affiliates. The Board of Directors held five meetings in the past fiscal year.
All Directors attended at least 75% of such meetings.

As of February 1, 1995, the Directors and executive officers of the Fund as
a group beneficially owned a total of 12,114 Fund shares, constituting less than
1% of all issued and outstanding shares of the Fund.

Number of Directorships
Name of Director in the Fund Complex
---------------- -------------------

Robert M. DeMichele 14

Beverley C. Duer 14

Barbara R. Evans 14

Lawrence Kantor 14

Donald B. Miller 14

Francis Olmsted 13

John G. Preston 14

Margaret W. Russell 13

Philip C. Smith 14

Francis A. Sunderland 13

4
<PAGE>

Aggregate
Name of Director Compensation from Fund
---------------- ----------------------

Robert M. DeMichele 0

Beverley C. Duer 1350

Barbara R. Evans 0

Lawrence Kantor 0

Donald B. Miller 1350

Francis Olmsted 1350

John G. Preston 1350

Margaret W. Russell 1350

Philip C. Smith 1350

Francis A. Sunderland 1200

Officers of the Fund
<TABLE>
<CAPTION>

Principal Occupation; Shares Beneficially Owned
Name and Age Other Associations February 1, 1995**
- - ------------ ------------------ ------------------
<S> <C> <C>

Robert M. DeMichele* Chairman of the Board (see page 3). 0
(50)

Richard M. Hisey* Vice President and Treasurer. Managing Director, Chief 0
(36) Financial Officer and Director, Lexington Management
Corporation; Vice President, Chief Financial Officer
and Director, Lexington Funds Distributor, Inc.

Lawrence Kantor* Vice President and Director (see page 3). 0
(47)

Robert W. Radsch* Vice President and Portfolio Manager. Vice President, 0
(52) Lexington Management Corporation. Prior to July
1994, Senior Vice President, Portfolio Manager and
Chief Economist, Bull & Bear Group.

Lisa Curcio* Vice President and Secretary. Vice President and Secre- 0
(35) tary, Lexington Management Corporation; Vice Presi-
dent and Secretary, Lexington Funds Distributor, Inc.

</TABLE>

*Messrs. DeMichele, Hisey, Kantor and Radsch and Ms. Curcio hold similar
offices with some or all of the other registered investment companies advised
and/or whose shares are distributed by Lexington Management Corporation and
Lexington Funds Distributor, Inc.

The investment adviser to the Fund is Lexington Management Corporation, P.O.Box
1515/Park 80 West Plaza Two, Saddle Brook, N.J. 07663. The distributor of the
Fund is Lexington Funds Distributor, Inc., P.O.Box 1515/Park 80 West Plaza Two,
Saddle Brook, N.J. 07663.

5
<PAGE>

PROPOSAL 2: RATIFICATION OR REJECTION OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

The Directors of the Fund recommend that the shareholders ratify the
selection of KPMG Peat Marwick LLP, certified public accountants, to serve as
the independent auditors of the Fund for the fiscal year ending December 31,
1995. The Directors, including a majority of the Directors who are not
"interested persons" of the Fund, made their selection of the auditors on
December 6, 1994 subject to the approval of the shareholders; the shareholders
are being requested to ratify the selection of such auditors in accordance with
Section 32(a) of the Investment Company Act of 1940. Neither KPMG Peat Marwick
LLP, nor any of its partners or employees have had any direct or indirect
financial interest in the Fund or its affiliates in any capacity other than as
auditors. KPMG Peat Marwick LLP also serves as independent certified public
accountants to fourteen other Lexington investment companies.

A representative from KPMG Peat Marwick LLP is not expected to be present at
the Meeting.

PROPOSAL 3: APPROVAL OF AN AMENDED INVESTMENT MANAGEMENT AGREEMENT

The Board of Directors has approved, and has recommended that the
shareholders of the Fund approve, a proposal to enter into an amended investment
management agreement (the "Amended Agreement") between the Fund and LMC. The
Amended Agreement will clarify LMC's responsibilities and will not result in a
change in advisory fees paid by the Fund. A copy of the existing management
agreement between the Fund and LMC (the "Existing Agreement") is attached hereto
as Exhibit A. A copy of the Amended Agreement is attached hereto as Exhibit B.

The Amended Agreement is the same in all material respects as the Existing
Agreement, except for the following:

(1) The Amended Agreement clarifies the ability of the Fund to obtain and
pay for various services that are not otherwise required in the management
arrangement. The Amended Agreement provides that upon the request of the Board
of Directors, LMC may perform certain accounting, shareholder servicing or other
administrative services on behalf of the Fund that are not required by the
Amended Agreement. Such services would be performed on behalf of the Fund and
LMC may receive from the Fund such reimbursement for costs or reasonable
compensation for such services as may be agreed upon between LMC and the Board
on a finding by the Board that the provision of such services by LMC is in the
best interests of the Fund and its shareholders. Payment or assumption by LMC of
any Fund expense that LMC is not otherwise required to pay or assume under the
Amended Agreement would not relieve LMC of any of its obligations to the Fund
nor obligate LMC to pay or assume any similar Fund expense on any subsequent
occasions. Such services may include, but are not limited to, (a) the services
of a principal financial officer of the Fund (including applicable office space,
facilities and equipment) whose normal duties consist of maintaining the
financial accounts and books and records of the Fund, and the services
(including applicable office space, facilities and equipment) of any of the
personnel operating under the direction of such principal financial officer; (b)
the services of staff to respond to shareholder inquiries concerning the status
of their accounts; providing assistance to shareholders in exchanges among the
investment companies managed or advised by LMC; changing account designations or
changing addresses; assisting in the purchase or redemption of shares; or
otherwise providing services to shareholders of the Fund; and (c) such other
administrative services as may be furnished from time to time by LMC to the Fund
at the request of the Board of Directors. Approval of the Amended Agreement by
shareholders will not result in any material increase in the expenses of the
Fund.

6
<PAGE>

(2) The Amended Agreement clarifies LMC's obligations to comply with the
requirements of the Securities Exchange Act of 1934, as amended, including its
obligation to execute portfolio transactions in the best interest of the Fund.
The Amended Agreement also confirms LMC's ability (at its own expense) to place
portfolio trades with brokers and dealers on behalf of the Fund and LMC's
ability to take advantage of the safe harbor afforded by Section 28(e) under the
Securities Exchange Act of 1934, as amended. It allows LMC to consider bona fide
research in deciding to allocate brokerage commissions. In addition, it
authorizes LMC to place trades through affiliated brokers, although this is not
the current policy of the Fund.

The Fund's primary policy will be to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with this policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
and such other policies as the Directors may determine, LMC may consider sales
of shares of the Fund and of the other Lexington Funds as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
However, pursuant to the Amended Agreement, management consideration may be
given in the selection of broker-dealers to research provided and payment may be
made of a commission higher than that charged by another broker-dealer which
does not furnish research services or which furnishes research services deemed
to be of a lesser value, so long as the criteria of Section 28(e) of the
Securities Exchange Act of 1934 are met. Section 28(e) of the Securities
Exchange Act of 1934 was adopted in 1975 and specifies that a person with
investment discretion shall not be "deemed to have acted unlawfully or to have
breached a fiduciary duty" solely because such person has caused the account to
pay a higher commission than the lowest available under certain circumstances,
provided that the person so exercising investment discretion makes a good faith
determination that the commissions paid are "reasonable in the relation to the
value of the brokerage and research services provided...viewed in terms of
either that particular transaction or his overall responsibilities with respect
to the accounts as to which he exercises investment discretion."

It is not possible to determine the exact extent to which commissions that
reflect an element of value for research services might exceed commissions that
would be payable for execution services alone. Nor generally can the value of
research services to the Fund be measured. Research services furnished might be
useful and of value to LMC and its affiliates in serving other clients as well
as the Fund. On the other hand, any research services obtained by LMC or its
affiliates from the placement of portfolio brokerage of other clients might be
useful and of value to LMC in carrying out its obligations to the Fund.

(3) The Amended Agreement clarifies the ability of LMC to appoint a
sub-adviser to the Fund, subject to the approval of the Fund's shareholders, and
clarifies the duties of any such sub-adviser.

As of December 31, 1994, the Fund had total net assets of $159,434,606. Fund
expenses not assumed by LMC pursuant to the Existing Agreement are paid by the
Fund. These expenses include the Fund's custodian charges, transfer agent fees,
legal and registration fees, auditing fees, cost of printing of prospectuses,
shareholder reports and communications, computation of net asset value, mailing
of shareholder reports and communications, portfolio brokerage, taxes and
"non-interested" Directors' fees. During the fiscal year ended December 31,
1994, LMC, the Fund's adviser, earned $103,151 as investment advisory fee for
services rendered.

LMC serves as investment manager to other investment companies in the
Lexington Family of Funds. The investment companies having substantially similar
investment objectives for which LMC serves as investment manager, together with
the fees charged by LMC for each investment company, are as follows:

7
<PAGE>

Annual
Net Assets Advisory On amounts
Fund as of 12/31/94 Fee of Up To:*
- - ---- -------------- -------- ---------

Lexington Strategic Investments Fund, Inc. $141,603,263 0.75% unlimited

Lexington Strategic Silver Fund, Inc. $ 49,611,251 0.75% unlimited

- - ----------------
*The percentage of the fee declines if the average net assets of the Fund in
question exceed this amount.

The principal Executive Officers and Directors of LMC and their principal
occupations are:

Name Position with LMC Principal Occupation
- - ---- ----------------- --------------------
<S> <C> <C>

Robert M. DeMichele Chairman and See Page 3
Chief Executive Officer

Richard M. Hisey Managing Director, See Page 5
Chief Financial Officer,
and Director

Lawrence Kantor Executive Vice President, See Page 3
Managing Director and Director

James H. O'Leary Managing Director and Director Managing Director and Director, LMC

Peter Palenzona Director Senior Vice President and Chief Financial
Officer, Piedmont Management Company
Inc.

Stuart S. Richardson Director Vice Chairman, Piedmont Management
Company Inc.

John B. Waymire Vice President and Director President and Director, Lexington Capital
Management Inc.

Lisa Curcio Vice President and Secretary See page 5

</TABLE>

The address of all officers and directors of LMC is P.O. Box 1515, Saddle
Brook, New Jersey 07663, except for Messrs. Palenzona and Richardson whose
address is 80 Maiden Lane, New York, New York 10038 and Mr. Waymire whose
address is 2339 Gold Meadow Way, Gold River, CA 95670.

LMC is a wholly-owned subsidiary of Piedmont Management Company Inc., 80
Maiden Lane, New York, New York 10038, 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 Piedmont
Management Company Inc.

Reasons for the Proposal.

LMC proposed the Amended Agreement to clarify various obligations and
responsibilities of the Fund and LMC under their contractual relationship and
the ability of LMC to provide additional services, as described above. No
material changes in the nature of the services provided by LMC would be effected
under the Amended Agreement and no additional fees would be charged.

At a meeting on December 6, 1994, the disinterested Directors reviewed and
approved the Amended Agreement. The factors considered by the Directors
concerning the Amended Agreement between LMC and the Fund included,

8
<PAGE>

among other things, (i) the nature and quality of the services provided by LMC
to the Fund; (ii) the Fund's need for management services; (iii) the quality of
the personnel of LMC; (iv) the reasonableness of the fees to be charged by LMC
in relation to the quality of the services provided; (v) LMC's historical
relationship to the Fund; (vi) economies of scale; (vii) the profitability of
LMC; (viii) the ability to place portfolio trades with broker-dealers in
exchange for bona fide research services; and (ix) the fact that LMC would have
the ultimate responsibility for determination of the Fund's investment strategy
and implementation of that strategy.

Conclusion.

Based on the above discussion and the evaluation of additional materials
presented during the meeting, the Board of Directors concluded that the Amended
Agreement is fair and reasonable and is in the best interest of the shareholders
of the Fund. The Directors recommended voting FOR the Amended Agreement. If
approved by the Fund's shareholders, the Amended Agreement will take effect as
soon as practicable and will remain in effect subject to continuation by the
Fund's Board of Directors, including a majority of the disinterested Directors.
If the shareholders of the Fund do not approve the Amended Agreement, the
Existing Agreement will continue in effect.

ADOPTION OF STANDARDIZED INVESTMENT LIMITATIONS.

The primary purpose of Proposals 4 through 19 is to revise several of the
Fund's investment restrictions. In each case, the Board has reviewed the
proposed changes and believes that they are in the best interests of the Fund
and its shareholders for the following reasons:

Standardization. Some of a Fund's investment restrictions differ in form
and substance from similar restrictions of other funds advised by LMC.
LMC and the Board believe that increased standardized restrictions among
all Lexington Funds will help promote operational efficiencies and
facilitate the monitoring of portfolio compliance. In all cases, the
adoption of a new or amended restriction or the elimination of a
restriction is not expected to have any impact on the investment
techniques employed by the Fund at this time.

Modernization. The Fund's investment restrictions have been in effect,
without changes, for many years. LMC and the Board believe that the Fund
should modernize its investment restrictions, where appropriate, to
conform to regulatory developments and authorize the use of newer
financial instruments.

Clarification. Some of the Fund's investment restrictions contain
ambiguities that, if interpreted in a narrow way, would prevent the Fund
from following the original intent of the restriction. Accordingly, LMC
and the Board recommend that the Fund change its fundamental
restrictions, where appropriate, to eliminate any ambiguities.

Flexibility. Several of the Funds's fundamental investment restrictions
may need to be changed to allow it to respond to regulatory developments
and changes in the financial markets. For example, restrictions
prohibiting certain transactions have been changed or eliminated by a
federal or state securities regulator. Currently, to take advantage of
such a change, the Fund would need shareholder approval, which is time
consuming and costly to the Fund and its shareholders. To give the Fund
more flexibility in responding to regulatory and market developments,
LMC and the Board recommend changing, reclassifying or eliminating some
of the Fund's fundamental investment restrictions so that they can be
changed by the Board without shareholder vote. The Fund's prospectus and
statement of additional information will be amended to reflect any
changes.

9
<PAGE>

A comparison of the existing investment restrictions and the new
restrictions as they would exist after approval by shareholders is attached as
Exhibit C.

PROPOSAL 4: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING SENIOR SECURITIES

Subject to shareholder approval, the Board of Directors intends to adopt the
following fundamental investment restriction concerning senior securities:

"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."

Reasons for the Proposal.

Generally under the 1940 Act, an investment company can not issue senior
securities except under certain conditions. The language of the proposed
fundamental restriction concerning senior securities conforms to the provisions
of the 1940 Act and clarifies that the Fund may issue senior securities to the
extent permitted under the Act. It is proposed that this restriction exclude
those transactions that current regulatory interpretations and policies allow
and are consistent with current investment marketplace practices. Although the
definition of a "senior security" involves complex statutory and regulatory
concepts, a senior security is generally thought of as an obligation of a fund
which has a claim to the fund's assets or earnings that takes precedence over
the claims of the fund's shareholders. The 1940 Act generally prohibits mutual
funds from issuing senior securities; however, mutual funds are permitted to
engage in certain types of transactions that might be considered "senior
securities" as long as certain conditions are satisfied. Therefore, the proposed
fundamental restriction will allow the Fund to engage in the following
transactions, even though they may result in the issuance of senior securities,
provided the Fund segregates cash or other high quality securities with its
custodian, or subcustodian: (a) enter into commitments, including reverse
repurchase agreements and delayed delivery and when-issued securities; (b)
engage in transactions that may result in the issuance of a senior security to
the extent permitted by applicable law or exemptive order; (c) engage in short
sales of securities; (d) purchase and sell futures contracts and related
options; and (e) borrow money, subject to other applicable restrictions.

When-Issued or Delayed-Delivery Securities.

During any period that the Fund has outstanding a commitment to purchase
securities on a when-issued or delayed-delivery basis, the Fund will maintain a
segregated account consisting of cash, U.S. Government securities or other
high-quality debt obligations with its custodian bank. To the extent that the
market value of securities held in this segregated account falls below the
amount that the Fund will be required to pay on settlement, additional assets
may be

10
<PAGE>

required to be added to the segregated account. Such segregated account could
affect the Fund's liquidity and ability to manage its portfolio. When the Fund
engages in when-issued or delayed-delivery transactions, it is effectively
relying on the seller of such securities to consummate the trade; failure of the
seller to do so may result in the Fund's incurring a loss or missing an
opportunity to invest funds held in the segregated account more advantageously.
The Fund will not pay for securities purchased on a when-issued or
delayed-deliver basis, or begin earning interest on such securities, until the
securities are actually received. However, any security so purchased will be
recorded as an asset of the Fund at the time the commitment is made. Because the
market value of securities purchased on a when-issued or delayed-delivery basis
may increase or decrease prior to settlement as a result of changes in interest
rates or other factors, such securities will be subject to changes in market
value prior to settlement and a loss may be incurred if the value of the
security to be purchased declines prior to settlement.

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction is in the best interest of the Fund and its shareholders. The
Directors recommend that shareholders of the fund vote FOR the proposal. If the
proposal is approved by shareholders, the new fundamental restriction will
become effective as soon as practicable.

PROPOSAL 5: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING DIVERSIFICATION

The Fund's current fundamental restrictions concerning diversification
provide that:

"The Fund will not purchase securities of any issuer (other than
obligations of, or guaranteed by, the United States government, its
agencies or instrumentalities) if, as a result, more than 5% of the
value of the Fund's assets would be invested in securities of that
issuer.

The Fund will not purchase more than 10% of the voting securities or
more than 10% of any class of securities of any issuer. (For this
purchase all outstanding debt securities of an issuer are considered as
one class, and all preferred stock of an issuer are considered as one
class.)"

Subject to shareholder approval, the Board of Directors intends to replace
this restriction with the following fundamental investment restriction:

"At the end of each quarter of the taxable year, (i) with respect to at
least 50% of the market value of the Fund's assets, the Fund may invest
in cash, U.S. Government securities, the securities of other regulated
investment companies and other securities, with such other securities of
any one issuer limited for the purchases of this calculation to an
amount not greater than 5% of the value of the Fund's total assets, and
(ii) not more than 25% of the value of its total assets be invested in
the securities of any one issuer (other than U.S. Government securities
or the securities of other regulated investment companies)."

Reasons for the Proposal.

The Fund is classified as a "non-diversified" investment company, which
means that the proportion of the Fund's assets that may be invested in the
securities of a single issuer is not limited by the Investment Company Act of
1940. The Fund's current investment restrictions, described above, are more
restrictive than required for a non-diversified investment company. The Fund,
however, intends to operate as a "regulated investment company" for purposes of
the

11
<PAGE>

Internal Revenue Code. This means that the Fund will limit its investments so
that at the close of every quarter of its taxable year, (i) no more than 25% of
its total assets are invested in a single issuer, and (ii) with regard to at
least 50% of its total assets, no more than 5% of its total assets are invested
in the securities of a single issuer.

The proposed investment restriction would enable the Fund to diversify its
investments consistent with the standards applicable to non-diversified
investment companies, which are broader than the restrictions to which the Fund
is now subject. With respect to 25% of the Fund assets, LMC will be able to take
a larger position in a single issuer if it is believed to be in the best
interest of the Fund. LMC believes that this increased flexibility may provide
opportunities to enhance the Fund's performance. At the same time, investing a
larger percentage of the Fund's assets in a single issuer's securities increases
the Fund's exposure to credit and other risks associated with that issuer's
financial conditions and business operations, including risk of default on debt
securities. LMC will only enter into such transactions when it believes the
securities' potential return justifies subjecting the Fund to the risks
associated with the higher level of investment. The proposed restriction is also
consistent with restrictions contained in similarly managed funds and would
enable the Fund to act in any way which is not deemed to be contrary to the 1940
Act. If the proposal is approved, the new fundamental restriction concerning
diversification can not be changed without a future vote of shareholders.

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction is in the best interest of the Fund and its shareholders. The
Directors recommend that the shareholders of the Fund vote FOR the above
proposal. If the proposal is approved by shareholders, the new fundamental
restriction will become effective as soon as practicable. If the proposal is not
approved, the current fundamental restriction of the Fund will remain unchanged.

PROPOSAL 6: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
RESTRICTED AND ILLIQUID SECURITIES

The Fund's current fundamental investment restriction concerning restricted
and illiquid securities provides that:

The Fund will not invest in restricted securities (securities which are
not readily marketable without registration or the filing of a
notification under the Securities Act of 1933).

The Directors recommend that the shareholders vote to eliminate the above
fundamental restriction. If the proposal is approved, the Directors intend to
replace the current fundamental investment restriction with a non-fundamental
investment restriction, which may be changed without shareholder approval. The
proposed non-fundamental restriction is set forth below, with a brief analysis
of the substantive differences between it and the current fundamental
restriction:

"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."

12
<PAGE>

Reasons for the Proposal.

The current fundamental restriction limits purchases of all securities that
are issued without registration under the 1933 Act. This restriction includes
all securities issued in private placements under Section 4(2) of the 1933 Act
and securities traded under Rule 144A, even though there are markets for both
and they are no longer considered illiquid. The proposed non-fundamental
restriction incorporates these recent developments in securities markets by
placing the restriction only on illiquid securities. Illiquid securities are
defined to mean those that cannot be sold without a discount in seven days. The
proposed non-fundamental restriction clarifies that a recently issued security
under an exemption from registration, although restricted, may still be
classified as liquid. It also clarifies that certain securities that do not
mature for more than seven days may still be liquid.

The proposed non-fundamental restriction would provide the Fund with
additional flexibility to carry out its investment program and would modernize
and standardize the Fund's investment restriction concerning restricted and
illiquid securities to enable the Fund to act in any way which is not deemed to
be contrary to the 1940 Act without an increase in the relative risks involved.

Finally, the current restriction is proposed to be reclassified as
non-fundamental to allow changes to be made by the Directors rather than by
shareholder vote. The market for restricted securities has been rapidly evolving
and it is desirable to allow the Fund to respond quickly to market changes.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning restricted and illiquid securities is in the best
interest of the Fund and its shareholders. The Directors recommend that the
shareholders of the Fund vote FOR the above proposal. If the proposal is
approved, the Fund's current fundamental restriction will be eliminated as soon
as practicable. If the proposal is not approved, the current fundamental
restriction of the Fund will remain unchanged.

PROPOSAL 7: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
MARGIN AND SHORT SALES

The Fund's current fundamental investment restriction concerning margin and
short sales provides that:

"The Fund will not make short sales of securities or purchase any
securities on margin, except for such short-term credits as are
necessary for the clearance of transactions."

The Directors recommend that the shareholders vote to eliminate the above
fundamental investment restriction. If the proposal is approved, the Directors
intend to replace the Fund's current restriction with a non-fundamental
investment restriction which may be changed without shareholder approval. The
proposed non-fundamental restriction is set forth below, with a brief analysis
of the substantive differences between it and the current restriction:

"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."

Reasons for the Proposal.

Margin purchases involve the purchase of securities with money borrowed from
a broker. "Margin" is the cash or eligible securities that the borrower places
with a broker as collateral against the loan. Except for obtaining short-

13
<PAGE>

term credits as may be necessary for the clearance of transactions and margin
payments made in connection with the purchase and sale of futures contracts and
options on futures contracts, mutual funds are prohibited from entering into
most margin purchases by applicable SEC policies.

In a short sale, an investor sells a borrowed security and has a
corresponding obligation to the lender to return the identical security. A short
sale "against the box" is an investment technique where the Fund owns an equal
amount of such securities or, by virtue of ownership of convertible or
exchangeable securities (or otherwise), has the right to obtain an equal amount
of the securities sold short without the payment of future consideration, and it
will retain such securities so long as it is in a short position as to them.

Certain state regulations currently prohibit mutual funds from entering into
any short sales, other than short sales against the box. If the proposal is
approved, however, the Board of Directors would be able to change the Fund's
proposed non-fundamental restriction in the future, without a vote of
shareholders, if state regulations were to change to permit other types of short
sales, or if waivers from existing requirements were available, subject to
appropriate disclosure to investors. The proposed non-fundamental restriction
modernizes the language concerning short sales to enable the Fund to act in any
way which is not deemed to be contrary to the 1940 Act and excludes those
transactions that current regulatory interpretations and policies allow. It also
clarifies the circumstances under which the Fund can make margin purchases. In
addition, the reclassification as non-fundamental will provide the Fund with
additional flexibility to carry out its investment program without an increase
in the relative risks involved. The restriction is also being written to
increase standardization among all Lexington Funds.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning margin and short sales is in the best interest of the
Fund and its shareholders. The Directors recommend that the shareholders of the
Fund vote FOR the above proposal. If the proposal is approved, the Fund's
current fundamental restriction will be eliminated as soon as practicable. If
the proposal is not approved, the current fundamental restriction of the Fund
will remain unchanged.

PROPOSAL 8: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
PUTS AND CALLS

The Fund's current fundamental investment restriction concerning puts and
calls provides that:

"The Fund will not write, purchase or sell puts, calls or combinations
thereof. However, the Fund may invest up to 15% of the value of its
assets in warrants. The holder of a warrant has the right to purchase a
given number of shares of a particular company at a specified price
until expiration. Such investments generally can provide a greater
potential for profit or loss than investment of an equivalent amount in
the underlying common stock. The prices of warrants do not necessarily
move parallel to the prices of the underlying securities. If the holder
does not sell the warrant, he risks the loss of his entire investment if
the market price of the underlying stock does not, before the expiration
date, exceed the exercise price of the warrant plus the cost thereof. It
should be understood that investment in warrants is a speculative
activity. Warrants pay no dividends and confer no rights (other than the
right to purchase the underlying stock) with respect to the assets of
the corporation issuing them. In addition, the sale of warrants held
more than six months generally results in a long term

14
<PAGE>

capital gain or loss to the holder, and the sale of warrants held for
less than such period generally results in a short term capital gain or
loss. The holding period of securities acquired upon exercise of
warrants, however, begins on the day after the date of exercise,
regardless of how long the warrant was held. This restriction on the
purchase of warrants does not apply to warrants attached to, or
otherwise included in, a unit with other securities. Warrants which are
not listed on a United States Securities exchange shall not exceed 2% of
the Fund's net assets."

The Directors recommend that the shareholders vote to eliminate the above
fundamental restriction. If the proposal is approved, the Directors intend to
replace the current fundamental restriction with a non-fundamental restriction,
which may be changed without shareholder approval. The proposed non-fundamental
restriction is set forth below, with a brief analysis of the substantive
differences between it and the current fundamental restriction.

"The Fund shall not write, purchase or sell puts, calls or combinations
thereof. However, the Fund may invest up to 15% of the value of its
assets in warrants. This restriction on the purchase of warrants does
not apply to warrants attached to, or otherwise included in, a unit with
other securities."

Reasons for the Proposal.

The proposed non-fundamental restriction is substantially the same as the
current fundamental restriction, but is written to increase standardization
among all Lexington Funds. The 15% restriction on investments in warrants is not
changed. However, since non-fundamental restrictions can be changed by a vote of
the Directors, the reclassification would provide greater flexibility should
changes in investment instruments make it advantageous to change those
restrictions quickly, without an increase in the relative risks involved and
would enable the Fund to act in any way which is not deemed to be contrary to
the 1940 Act.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning puts and calls is in the best interest of the Fund and
its shareholders. The Directors recommend that the shareholders of the Fund vote
FOR the above proposal. If the proposal is approved, the Fund's current
fundamental restriction will be eliminated as soon as practicable. If the
proposal is not approved, the current fundamental restriction of the Fund will
remain unchanged.

PROPOSAL 9: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING CONCENTRATION

The Fund currently does not have a fundamental investment restriction
concerning concentration of investments in a single industry, except that, as a
matter of fundamental policy, the Fund invests at least 65% of its assets in
gold and gold-related securities.

Subject to shareholder approval, the Board of Directors intends to adopt the
following investment restriction concerning concentration of investments:

"The Fund will not concentrate its investments by investing more than
25% of its assets in the securities of issuers in any one industry. This
limit will not apply to gold and gold-related securities, and to
securities issued or guaranteed by the U.S. Government, its agencies and
instrumentalities."

15
<PAGE>

Reasons for the Proposal.

The basic requirement that 65% of the Fund's total assets be invested in
gold and related securities is not changed, however, the 25% limit clarifies the
restriction on the ability of the Fund to concentrate its investments in any one
industry other than gold and gold-related securities. The proposed restriction
also clarifies that government securities, securities invested in, or repurchase
agreements for, U.S. Government securities, and certificates of deposit, or
bankers' acceptances, or securities of U.S. banks and holding companies are
excluded from this restriction, so that LMC will be allowed to acquire such
instruments if it is believed to be in the best interest of the Fund.

Conclusion.

PROPOSAL 10: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING COMMODITY CONTRACTS

The Fund's current fundamental investment restriction concerning commodity
contracts provides that:

"The Fund will not invest in any commodities or commodities futures
contracts, including futures contracts relating to gold. Investments in
gold shall not be deemed an investment in a commodity subject to the
Fund's investment restrictions."

Subject to shareholder approval, the Board of Directors intends to replace
the above restriction with the following fundamental investment restriction:

"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, and may enter into forward currency contracts. Transactions in
gold, platinum, palladium or silver bullion will not be subject to this
restriction."

Reasons for the Proposal.

LMC, the Fund's investment adviser, has proposed the amendment of the Fund's
fundamental investment restriction concerning commodity contracts. The proposed
fundamental investment restriction concerning commodity contracts involves a
higher level of investment risk. In order to protect the Fund against such
risks, LMC believes it is desirable to have the ability to enter into certain
hedging transactions. The Directors believe that given the increasing complexity
and volatility of investment in international markets, it is in the best
interests of the Fund and its shareholders to have flexibility in managing the
Fund's investments. The Directors believe that the investment strategies as
described below will enable the Fund to hedge various market risks associated
with investing in global securities.

These changes, if approved by shareholders, would allow the Fund to have the
added investment flexibility to enter into forward currency contracts; financial
futures and other contracts and related options, traded both in U.S. and foreign
markets; and cross-currency hedges. Approval by shareholders also constitutes
approval of any amendments

16
<PAGE>

necessary to the Fund to effectuate these changes. If the proposal is approved,
the new fundamental restriction concerning commodity contracts can not be
changed without a future vote of shareholders.

If the shareholders approve the above fundamental investment restrictions,
the Directors intend to adopt the following non-fundamental investment
restriction, which may be changed without shareholder approval:

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

Description of the Proposed Investment Techniques.

Futures contracts.

If approved by shareholders, the Fund may enter into financial or currency
futures contracts or options thereon as a hedge against changes in prevailing
levels of interest rates, or changes in prevailing currency exchange rates and
in anticipation of future purchases or sales of securities. Hedging transactions
may include sales of futures as an offset against the effect of expected
increases in interest rates or decreases in the value of foreign currencies.
Hedging transactions may also include purchases of futures contracts as an
offset against the effect of expected decreases in interest rates or an increase
in the value of a particular currency. Although techniques other than sales and
purchases of futures contracts could be used to reduce the exposure of the Fund
to market fluctuations, it may be able to hedge its exposure more effectively
and perhaps at a lower cost through using futures contracts. The Fund may enter
into futures contracts or options thereon that are traded on national futures
exchanges and are standardized as to maturity and underlying financial
instrument. Futures exchanges and trading are regulated under the Commodity
Exchange Act by the Commodity Futures Trading Commission (the "CFTC"). In
addition, the Fund may enter into certain futures contracts traded on foreign
exchanges, provided that the futures contracts have been approved by the CFTC.

A futures contract provides for the future sale by one party and purchase by
another party of a specified amount of a specific financial instrument or a
specific market index for a specified price at a designated date, time and
place. Brokerage fees are incurred when a futures contract is bought or sold and
at expiration, and margin deposits must be maintained.

Although interest rate futures typically require actual future delivery of
and payment for the underlying instruments, those contracts are usually closed
out before the delivery dates. Index futures contracts do not contemplate actual
future delivery and will be settled in cash at expiration or closed out prior to
expiration. Closing out an open futures contract sale or purchase is effected by
entering into an offsetting futures contract purchase or sale, respectively, for
the same aggregate amount of the identical type of underlying instrument and the
same delivery date. There can be no assurance, however, that the Fund will be
able to enter into an offsetting transaction with respect to a particular
contract at a particular time. If the Fund is not able to enter into an
offsetting transaction, it will continue to be required to maintain the margin
deposits on the contract.

Persons who engaged in futures contracts transactions may be broadly
classified as "hedgers" and "speculators." Hedgers, such as the Fund, whose
business activity involves investment in securities, use the futures markets
primarily to offset unfavorable changes in value that may occur because of
fluctuations in the value of the securities

17
<PAGE>

held or expected to be acquired by them. Debtors and other obligors may also
hedge the interest cost of their obligations. The speculator, like the hedger,
generally expects neither to deliver nor to receive the financial instrument
underlying the futures contract, but, unlike the hedger, hopes to profit from
fluctuations in prevailing interest rates or currency exchange rates.

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

At best, the correlation between changes in prices of futures contracts and
of the securities being hedged can be only approximate. The degree of
imperfection of correlation depends upon circumstances such as: variations in
speculative market demand for futures and for securities, including technical
influences in futures trading; and differences between the financial instruments
being hedged and the instruments underlying the standard futures contracts
available for trading. Even a well-conceived hedge may be unsuccessful to some
degree because of unexpected market behavior or foreign currency or interest
rate trends.

Most United States futures exchanges limit the amount of fluctuation
permitted in interest rate futures contract prices during a single trading day.
The daily limit establishes the maximum amount that the price of a futures
contract may vary either up or down from the previous day's settlement price at
the end of a trading session. Once the daily limit has been reached in a
particular type of contract, no trades may be made on that day at a price beyond
that limit. The daily limit governs only price movement during a particular
trading day and therefore does not limit potential losses, because the limit may
prevent the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some persons engaging in futures transactions to substantial
losses.

The risk involved in writing options on futures contracts or market indices
is that there could be an increase in the market value of such contracts or
indices. If that occurred, the option would be exercised and the Fund would not
benefit from any increase in value above the purchase price. Usually, this risk
can be eliminated by entering into an offsetting transaction. However, the cost
to do an offsetting transaction and terminate the Fund's obligations might be
more or less than the premium received when it originally wrote the option.
Further, the Fund might occasionally not be able to close the option because of
insufficient activity in the options market.

"Margin" is the amount of funds that must be deposited by the Fund with a
commodities broker in a custodian account in order to initiate futures trading
and to maintain open positions in the Fund's futures contracts. A margin deposit
is intended to assure the Fund's performance of the futures contract. The margin
required for a particular futures contract is set by the exchanges on which the
contract is traded and may be significantly modified from time to time by the
exchange during the term of this contract.

If the price of an open futures contract changes (by increase in the case of
a sale or by decrease in the case of a purchase) so that the loss on the futures
contract reached a point at which the margin on deposit does not satisfy margin
requirements, the broker will require an increase in the margin. However, if the
value of a position increases because of favorable price changes in the futures
contract so that the margin deposit exceeds the required margin, the broker will
promptly pay the excess to the Fund. These daily payments to and from the Fund
are called variation margin. At times of extreme price volatility such as
occurred during the week of October 19, 1987, intra-day variation margin
payments may be required. In computing daily net asset values, the Fund will
mark to market the current value of its open futures contract. The Fund expects
to earn interest income on its initial margin deposits. Furthermore, in the case
of a futures contract purchase, the Fund has deposited in a segregated account
money market instruments sufficient to meet all futures contract initial margin
requirements.

18
<PAGE>

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

Forward Foreign Currency Exchange Contracts.

If approved by shareholders, the Fund may purchase or sell forward foreign
currency exchange contracts ("forward contracts") as part of its portfolio
investment strategy. A forward contract is an obligation to purchase or sell a
specific currency for an agreed price at a future date which is individually
negotiated and privately traded by currency traders and their customers. The
Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). Additionally, for example, when the Fund believes that a
foreign currency may suffer a substantial decline against the U.S. dollar, it
may enter into a forward sale contract to sell an amount of that foreign
currency approximating the value of some or all of the Fund's portfolio
securities denominated in such foreign currency. Conversely, when the Fund
believes that the U.S. dollar may suffer a substantial decline against a foreign
currency, it may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this situation, the
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. dollar amount where the Fund believes that the
U.S. dollar value of the currency to be sold pursuant to the forward contract
will fall whenever there is a decline in the U.S. dollar value of the currency
in which portfolio securities of the Fund are denominated ("cross-hedge").

The Fund's custodian will place cash not available for investment or U.S.
government securities or other high quality debt securities in a segregated
account having a value equal to the aggregate amount of the Fund's commitments
under forward contracts entered into with respect to position hedges and
cross-hedges, to the extent they do not already own the security subject to the
transaction hedge. If the value of the securities placed in a segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call option
permitting it to purchase the amount of foreign currency being hedged by a
forward sale contract at a price no higher than the forward contract price or
the Fund may purchase a put option permitting the Fund to sell the amount of
foreign currency subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in currency prices
may result in poorer overall performance for the Fund than if it had not entered
into such contracts. If the party with which the Fund enters into a forward
contract becomes insolvent or breaches its obligation under the contract, then
the Fund may lose the ability to purchase or sell a currency as desired.

Investment Risks.

Currency Fluctuations. Because the Fund may invest in the securities of
foreign issuers which are denominated in foreign currencies, the strength or
weakness of the U.S. dollar against such foreign currencies will account for
part

19
<PAGE>

of the Fund's investment performance. A decline in the value of any particular
currency against the U.S. dollar will cause a decline in the U.S. dollar value
of the Fund's holdings of securities dominated in such currency and, therefore,
will cause an overall decline in the Fund's net asset value and any net
investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund.

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

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

Interest Rate Fluctuations. Generally, if interest rates decrease, the value
of debt securities held by the Fund will increase. Conversely, if interest rates
increase, the value of debt securities held by the Fund will decrease.

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction concerning commodity contracts is in the best interest of the Fund
and its shareholders. The Directors recommend that the shareholders of the Fund
vote FOR the above proposal. If the proposal is approved by shareholders, the
new fundamental restriction will become effective as soon as practicable. If the
proposal is not approved, the current fundamental restriction of the Fund will
remain unchanged.

PROPOSAL 11: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING REAL ESTATE

The Fund's current fundamental investment restriction concerning real estate
provides that:

"The Fund will not invest in real estate."

Subject to shareholder approval, the Board of Directors intends to replace
the above restriction with the following fundamental investment restriction:

"The Fund will not purchase real estate, interests in real estate or
real estate limited partnership interest 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."

Reasons for the Proposal.

The primary purpose of the proposed amendment is to clarify the types of
securities in which the Fund is authorized to invest and to conform the Fund's
fundamental real estate restriction to a restriction that is expected to

20
<PAGE>

become the standard for all funds managed by LMC. If the proposal is approved,
the new fundamental real estate restriction may not be changed without a future
vote of shareholders.

Adoption of the proposed restriction concerning real estate is not expected
to significantly affect the way in which the Fund is managed or the way in which
securities or instruments are selected for the Fund, which primarily invests in
gold and gold-related securities. However, to the extent that the Fund invests
in real estate related securities, it will be subject to the risks of the real
estate market. This industry is sensitive to factors such as changes in real
estate values and property taxes, overbuilding, variations in rental income, and
interest rates. Performance could also be affected by the structure, cash flow
and management skill of real estate companies.

The Fund does not expect to acquire real estate. However, the proposed
restriction would clarify several points. First, the proposed restriction would
make it explicit that the Fund may acquire a security or other instrument that
is secured by a mortgage or other right to foreclose on real estate, in the
event of a default. Second, the proposed restriction would clarify the fact that
the Fund may invest without limitation in securities issued or guaranteed by
companies engaged in acquiring, constructing, financing, developing, or
operating real estate projects (e.g., securities of issuers that develop various
industrial, commercial, or residential real estate projects such as factories,
office buildings, or apartments). Any investments in these securities or other
instruments are, of course, subject to the Fund's investment objective and
policies and to other limitations regarding diversification and concentration in
particular industries.

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction concerning real estate is in the best interest of the Fund and its
shareholders. The Directors recommend that the shareholders of the Fund vote FOR
the above proposal. If the proposal is approved by shareholders, the new
fundamental restriction will become effective as soon as practicable. If the
proposal is not approved, the current fundamental restriction of the Fund will
remain unchanged.

PROPOSAL 12: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
SECURITIES OF ISSUERS IN OPERATION FOR LESS THAN THREE YEARS

The Fund's current fundamental investment restriction concerning securities
of issuers in operation for less than three years provides that:

"The Fund shall not invest more than 5% of the value of its total assets
in securities of issuers which, with their predecessors, have a record
of less than three years continuous operation."

The Directors recommend that the shareholders approve the elimination of the
above fundamental investment restriction. If the proposal is approved, the
Directors intend to replace the current fundamental restriction with a
non-fundamental investment restriction, which may be changed without shareholder
approval. The proposed non-fundamental restriction is set forth below, with a
brief analysis of the substantive differences between it and the current
fundamental restriction:

"The Fund will not, except for investments which, in the aggregate, do
not exceed 5% of the Fund's total assets taken at market value, purchase
securities unless the issuer thereof or any company on whose credit the
purchase was based has a record of at least three years continuous
operations prior to the purchase."

21
<PAGE>

Reasons for the Proposal.

The proposed non-fundamental restriction is materially the same as the
current fundamental restriction. The purpose of the fundamental restriction on
investments in unseasoned issuers is to comply with state laws and limit the
risks associated with investing in companies that have no proven track record in
business and whose prospects are uncertain. The proposed restriction clarifies
that securities of business enterprises, such as pools of asset-backed
securities, with a record of less than three years of continuous operation will
be limited to 5% of the Fund's total assets. The proposal will have no current
impact on the Fund. However, adoption of a standard non-fundamental limitation
will facilitate LMC's compliance efforts and will enable the Fund to respond
more promptly if applicable state laws change in the future. The proposal
modernizes the language of the restriction concerning securities of issuers in
operation for less than three years to enable the Fund to act in any way which
is not deemed to be contrary to the 1940 Act and will provide the Fund with
additional flexibility without an increase in the relative risks involved. The
restriction is also being written to increase standardization among all
Lexington Funds.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning securities of issuers in operation for less than three
years is in the best interest of the Fund and its shareholders. The Directors
recommend that the shareholders of the Fund vote FOR the above proposal. If the
proposal is approved, the Fund's current fundamental restriction will be
eliminated as soon as practicable. If the proposal is not approved, the current
fundamental restriction of the Fund will remain unchanged.

PROPOSAL 13: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
SECURITIES OF AFFILIATES

The Fund's current fundamental investment restriction concerning securities
of affiliates provides that:

"The Fund will not purchase or retain the securities of any issuer if
the officers or directors of the Fund or its investment adviser who own
individually more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such issuer."

The Directors recommend that the shareholders approve the elimination of the
above fundamental investment restriction. If the proposal is approved, the
Directors intend to replace the current fundamental investment restriction with
a non-fundamental investment restriction, which may be changed without
shareholder approval. The proposed non-fundamental investment restriction is set
forth below with a brief analysis of the substantive differences between it and
the current investment restriction:

"The Fund will not purchase securities of an issuer if to the Fund's
knowledge, one or more of the Directors or officers of the Fund or LMC
individually owns beneficially more than 0.5% and together own
beneficially more than 5% of the securities of such issuer nor will the
Fund hold the securities of such issuer."

Reasons for the Proposal.

The proposed non-fundamental restriction is materially the same as the
current fundamental restriction. The purpose of this restriction is to comply
with state laws. The proposal will have no current impact on the Fund. However,
adoption of a standard non-fundamental limitation will facilitate LMC's
compliance efforts and will enable

22
<PAGE>

the Fund to respond more promptly, if applicable state laws change in the
future. In addition, the reclassification will provide the Fund with additional
flexibility without an increase in the relative risks involved. The restriction
is also being written to increase standardization among all Lexington Funds.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning securities of affiliates is in the best interest of the
Fund and its shareholders. The Directors recommend that the shareholders of the
Fund vote FOR the above proposal. If the proposal is approved, the Fund's
current fundamental restriction will be eliminated as soon as practicable. If
the proposal is not approved, the current fundamental restriction of the Fund
will remain unchanged.

PROPOSAL 14: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING LENDING.

The Fund's current fundamental restriction concerning lending provides that:

"The Fund will not lend money or securities, provided that the making of
time or demand deposits with domestic banks and the purchase of debt
securities such as bonds, debentures, commercial paper, repurchase
agreements and short term obligations in accordance with the fund's
objective and policies, are not prohibited."

Subject to shareholder approval, the Board of Directors intends to replace
this restriction with the following fundamental investment restriction:

"The Fund shall 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."

Reasons for the Proposal.

The proposed fundamental restriction is materially the same as the current
fundamental restriction. However, the proposed restriction will increase the
Fund's ability to lend portfolio securities to up to one-third of its total
assets. The primary purpose of the proposal is to conform the language of the
fundamental restriction concerning lending to the provisions of the 1940 Act. It
is proposed that this restriction excludes those transactions that current
regulatory interpretations and policies allow and are consistent with current
investment marketplace practices. The restriction is also being written to
increase standardization among all Lexington Funds.

Although the Board proposes that the procedural requirements be removed from
this restriction, the Fund will not make loans, enter into repurchase agreements
or lend portfolio securities unless it receives collateral that is at least
equal to the value of the loan, including accrued interest. If the recipient of
the loan or the seller of the instrument defaults and the value of the
collateral securing the loan or the repurchase agreement declines, the Fund may
incur a loss. This risk is increased by the proposed restriction as it permits
the Fund to lend up to one-third of its total assets. If the proposal is
approved the new fundamental restriction concerning lending can not be changed
without a future vote of the shareholders.

23
<PAGE>

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction concerning lending is in the best interest of the Fund and its
shareholders. The Directors recommend that the shareholders of the Fund vote FOR
the above proposal. If the proposal is approved by shareholders, the new
fundamental restriction will become effective as soon as practicable. If the
proposal is not approved, the current fundamental restriction of the Fund will
remain unchanged.

PROPOSAL 15: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING BORROWING

The Fund's current fundamental restriction concerning borrowing provides
that:

"The Fund shall not borrow money, except for temporary emergency
purposes, and in no event more than 5% of its net assets at value or
cost, whichever is less; or pledge its gold or portfolio securities or
receivables or transfer or assign or otherwise encumber them in an
amount exceeding 10% of the value of its total assets."

Subject to shareholder approval, the Board of Directors intends to replace
this restriction with the following fundamental investment restriction:

"The Fund shall 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 (reverse repurchase
agreements are limited to 5% of the Fund's total assets); (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 then 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
assets fails to meet the 300% asset coverage requirement relative only
to leveraging, the Fund will, within three days (not including Sundays
and holidays), reduced its borrowings to the extent necessary to meet
the 300% test."

Reasons for the Proposal.

The current fundamental investment restriction prohibits borrowing in excess
of 5% of the value of the Fund's assets and restricts such borrowing to certain
situations. The proposed fundamental restriction incorporates recent regulatory
changes by excluding from the restriction certain securities that could be
considered borrowing, such as certain futures contracts and when-issued
securities, which do not represent the same kinds of risk as unrestricted
borrowing. The proposed fundamental restriction would allow borrowing up to 5%
of the value of the Fund's assets for temporary emergency purposes. This
provision is necessary to address excessive or unanticipated liquidations of
Fund shares that exceed available cash. The Fund could also borrow with
limitations on the amounts being borrowed. This change would allow the
investment adviser to leverage if it is believed to be in the best interest of
the Fund. The investment adviser has no present intention to do so. Leveraging
involves certain risks. For example, leveraging by

24
<PAGE>

means of borrowing will exaggerate the effect of any increase or decrease in the
value of portfolio securities on the Fund's net asset value. The proposed
fundamental restriction is further written to enable the Fund to borrow to meet
redemptions. Money borrowed will be subject to interest and other costs. In
addition, the proposed fundamental restriction would further increase the Fund's
ability to pledge its portfolio securities to up to one-third of its total
assets. The proposed restriction would also modernize the Fund's investment
restriction concerning borrowing to enable the Fund to act in any way which is
not deemed to be contrary to the 1940 Act. The restriction is also being written
to increase standardization among all Lexington Funds.

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction concerning borrowing is in the best interest of the Fund and its
shareholders. The Directors recommend that the shareholders of the Fund vote FOR
the above proposal. If the proposal is approved by shareholders, the new
fundamental restriction will become effective as soon as practicable. If the
proposal is not approved, the current fundamental restriction of the Fund will
remain unchanged.

PROPOSAL 16: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING UNDERWRITING

The Fund's current fundamental investment restriction concerning
underwriting provides that:

"The Fund shall not underwrite securities issued by others".

Subject to shareholder approval, the Board of Directors intends to replace
this restriction with the following fundamental investment restriction:

"The Fund shall not act as 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."

Reasons for the Proposal.

The proposed fundamental investment restriction modernizes the language
concerning underwriting to enable the Fund to act in any way which is not deemed
to be contrary to the 1940 Act. The Restriction is also being written to
increase standardization among all Lexington Funds.

Conclusion.

The Board of Directors has concluded that the adoption of the new
restriction concerning underwriting is in the best interest of the Fund and its
shareholders. The Directors recommend that the shareholders of the Fund vote FOR
the above proposal. If the proposal is approved by shareholders, the new
fundamental restriction will become effective as soon as practicable. If the
proposal is not approved, the current fundamental restriction of the Fund will
remain unchanged.

PROPOSAL 17: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
SECURITIES OF OTHER INVESTMENT COMPANIES

The Fund's current fundamental restriction concerning securities of other
investment companies provides that:

25
<PAGE>

"The Fund will not purchase securities of other investment companies,
except in connection with a merger, consolidation, reorganization or
acquisition of assets."

The Directors recommend that shareholders of the fund vote to eliminate the
above fundamental investment restriction. If the proposal is approved, the
Directors intend to replace the current fundamental restriction with a
non-fundamental restriction, which could be changed without a vote of
shareholders. The proposed non-fundamental investment restriction is set forth
below with a brief analysis of the substantive differences between it and the
current investment restriction:

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

Reasons for the Proposal.

The proposed non-fundamental investment restriction is materially the same
as the current fundamental restriction. The ability of mutual funds to invest in
other investment companies is restricted by rules under the 1940 Act and by some
state regulations. The Fund's current fundamental investment restriction recites
certain of the applicable federal and former state restrictions. The federal
restrictions will remain applicable to the Fund whether or not they are recited
in a fundamental restriction. As a result, elimination of the above fundamental
restriction is not expected to have any impact on the Fund's investment
practices, except to the extent that regulatory requirements may change in the
future. However, the Board of Directors believes that the efforts to standardize
the Fund's investment restrictions will facilitate LMC's investment compliance
efforts and are in the best interests of the shareholders. The change will
modernize the language concerning the purchase of securities of other investment
companies to enable the Fund to act in any way which is not deemed to be
contrary to the 1940 Act. The restriction is also being written to increase
standardization among all Lexington Funds.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning securities of other investment companies is in the best
interest of the Fund and its shareholders. The Directors recommend that the
shareholders of the Fund vote FOR the above proposal. If the proposal is
approved, the Fund's current fundamental restriction will be eliminated as soon
as practicable. If the proposal is not approved, the current fundamental
restriction of the Fund will remain unchanged.

PROPOSAL 18: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING
INVESTMENT FOR CONTROL

The Fund's current fundamental investment restriction concerning investment
for control provides that:

"The Fund will not invest for the purpose of exercising control or
management of another company."

26
<PAGE>

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

Reasons for the Proposal.

The proposed non-fundamental restriction is materially the same as the
current fundamental restriction. It modernizes the Fund's investment restriction
concerning investment for control to enable the Fund to act in any way which is
not deemed to be contrary to the 1940 Act. In addition, the reclassification
will provide the Fund with additional flexibility without an increase in the
relative risks involved and allow the Fund to respond quickly to changes in the
financial markets. The restriction is also being written to increase
standardization among all Lexington Funds.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning investment for control is in the best interest of the
Fund and its shareholders. The Directors recommend that the shareholders of the
Fund vote FOR the above proposal. If the proposal is approved, the Fund's
current fundamental restriction will be eliminated as soon as practicable. If
the proposal is not approved, the current fundamental restriction of the Fund
will remain unchanged.

PROPOSAL 19: ELIMINATION OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION
CONCERNING JOINT TRADING ACCOUNTS

The Fund's current fundamental restriction concerning joint trading accounts
provides that:

"The Fund will not participate on a joint or a joint-and-several basis
in any trading account in securities."

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

Reasons for the Proposal.

The proposed non-fundamental restriction is materially the same as the
current fundamental restriction. The proposed restriction will modernize and
standardize the Fund's investment restriction concerning joint trading accounts
to enable the Fund to act in any way which is not deemed to be contrary to the
1940 Act. In addition, the reclassification will provide additional flexibility
without an increase in the relative risks involved and allow the Fund to respond
quickly to changes in the financial markets.

Conclusion.

The Board of Directors has concluded that the elimination of the fundamental
restriction concerning joint trading accounts is in the best interest of the
Fund and its shareholders. The Directors recommend that the shareholders of the

27
<PAGE>

Fund vote FOR the above proposal. If the proposal is approved, the Fund's
current fundamental restriction will be eliminated as soon as practicable. If
the proposal is not approved, the current fundamental restriction of the Fund
will remain unchanged.

ADDITIONAL INFORMATION

Brokerage and Portfolio Turnover Rate

As a general matter, purchases and sales of gold and portfolio securities by
the Fund are placed by LMC with brokers and dealers who in its opinion will
provide the Fund with the best combination of price (inclusive of brokerage
commissions) and execution for its orders. However, pursuant to the Fund's
investment management agreement, management consideration may be given in the
selection of broker-dealers to research provided and a fee higher than that
charged by another broker-dealer which does not furnish research services or
which furnishes research services deemed to be of lesser value, so long as the
criteria of Section 28(e) of the Securities Exchange Act of 1934 are met.
Section 28(e) of the Securities Exchange Act of 1934 was adopted in 1975 and
specifies that a person with investment discretion shall not be "deemed to have
acted unlawfully or to have breached a fiduciary duty" solely because such
person has caused the account to pay a higher commission than the lowest
available under certain circumstances, provided that the person so exercising
investment discretion makes a good faith determination that the commissions paid
are "reasonable in relation to the value of the brokerage and research services
provided...viewed in terms of either that particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion."

Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services might exceed commissions
that would be payable for execution services alone. Nor generally can the value
of research services to the Fund be measured. Research services furnished might
be useful and of value to LMC and its affiliates, in serving other clients as
well as the Fund. On the other hand, any research services obtained by LMC or
its affiliates from the placement of portfolio brokerage of other clients might
be useful and of value to LMC in carrying out its obligations to the Fund. No
formula has been established for the allocation of business to brokers who
furnish research and statistical information or render other services to LMC.

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

Brokerage Portfolio
Commissions Turnover Rate
----------- -------------

1992 ................. $ 59,584 13.18%
1993 ................. 65,858 28.41%
1994 ................. 192,131 23.77%

Other Services

LMC provides additional services to the Fund that are in addition to the
services provided under the investment management agreement. Such services
include the services of a principal financial officer and personnel operating
under his direction and other administrative services. Such services are
provided to the Fund at cost. For the year ended December 31, 1994, the Fund
reimbursed LMC $223,049 for costs in providing such administrative services.

OTHER BUSINESS

LMC knows of no other business to be presented at the Meeting other than the
matters set forth in this Proxy Statement. If any other business properly comes
before the Meeting, the proxies will exercise their best judgment in deciding
how to vote such matters.

28
<PAGE>

SHAREHOLDER PROPOSALS

The Fund does not hold annual shareholder meetings, except as required by
the Investment Company Act of 1940 or other applicable law. Therefore, it is
probable that no annual meeting of shareholders will be held in 1995 or in
subsequent years until so required. For those years in which annual shareholder
meetings are held, proposals that shareholders of the Fund intend to present for
inclusion in the proxy material with respect to the annual meeting of
shareholders must be received by the Fund within a reasonable time before the
solicitation is made.

Please complete the enclosed proxy card and return it promptly in the enclosed
self-addressed postage-paid envelope. You may revoke your proxy at any time
prior to the Meeting by written notice to the Fund or by submitting a proxy card
bearing a later date.

Lisa Curcio
Secretary

29
<PAGE>

EXHIBIT A

INVESTMENT MANAGEMENT AGREEMENT

THIS AGREEMENT is made this 13th day of May, 1986, by and between LEXINGTON
GOLDFUND, INC., a Delaware corporation having its principal place of business at
Park 80 West-Plaza Two, Saddle Brook, New Jersey (the "Company"), and LEXINGTON
MANAGEMENT CORPORATION, a Delaware corporation having its principal place of
business at Park 80 West-Plaza Two, Saddle Brook, New Jersey (the "Manager"),
with respect to the following recital of fact:

RECITAL

The Company and the Manager desire to enter an agreement to provide for the
management of the Company's assets on the terms and conditions hereinafter set
forth.

NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:

1. Management. The Manager shall act as investment manager for the Company
and shall, in such capacity, supervise the investment and re-investment of the
gold bullion, gold coins, cash, securities or other properties comprising the
Company's assets, subject at all times to the policies and control of the
Company's Board of Directors. The manager shall give the Company the benefit of
its best judgment, efforts and facilities in rendering its services as
investment manager.

2. Investment Analysis and Implementation. In carrying out its obligation
under paragraph 1 hereof, the Manager shall:

(a) obtain and evaluate pertinent information about significant developments
and economic, statistical and financial data, domestic, foreign or otherwise,
whether affecting the economy generally or the portfolio of the Company, and
whether concerning the gold market, the individual companies whose securities
are included in the Company's portfolio or the industries in which they engage,
or with respect to securities which the Manager considers desirable for
inclusion in the Company's portfolio; and

(b) determine what industries and companies shall be represented in the
Company's portfolio and regularly report them to the Company's Board of
Directors; and

(c) formulate and implement programs for the purchases and sales of the
securities of such companies and for the purchase and sale of gold bullion and
coins and regularly report thereon to the Company's Board of Directors; and

(d) provide the services of its personnel to the Company; and

(e) take, on behalf of the Company, all actions which appear to the Company
necessary to carry into effect such purchaser and sale programs and supervisory
functions as aforesaid, including the placing of orders for the purchase and
sale of portfolio securities.

3. Broker-Dealer Relationships. The Manager is responsible for decisions to
buy and sell securities and gold for the Company, security and commodity
broker-dealer selection, and negotiation of its brokerage commission rates.

1-A
<PAGE>

The Manager is further authorized to allocate the orders placed by it on
behalf of the Company to such brokers and dealers who also provide research or
statistical material, or other services to the Company or the Manager. Such
allocation shall be in such amounts and proportions as the Manager shall
determine and the Manager will report on said allocations regularly to the Board
of Directors of the Company indicating the brokers to whom such allocations have
been made and the basis therefore.

4. Control by Board of Directors. Any investment program undertaken by the
Manager pursuant to this Agreement, as well as any other activities undertaken
by the Manager on behalf of the Company pursuant thereto, shall at all times be
subject to any directives of the Board of Directors of the Company.

5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Manager shall at all times conform to:

(a) all applicable provisions of the Investment Company Act of 1940 (the
"Act") and any rules and regulations adopted thereunder as amended; and

(b) the provisions of the Registration Statements of the Company under the
Securities Act of 1933 and the Investment Company Act of 1940, as amended; and

(d) the provisions of the By-laws of the Company, as amended; and

(e) any other applicable provisions of state and federal law.

6. Expenses. The expenses connected with the Company shall be allocated
between the Company and the Manager as follows:

(a) the Manager shall pay the Company's expenses for office rent, utilities,
telephone, furniture and supplies utilized at the Company's principal office;
and

(b) the Manager shall pay salaries and payroll expenses of persons serving
as officers or directors of the Company who are also employees of the Manager or
any of its affiliates; and

(c) all expenses incurred in the operations of the Company and the offering
of its shares shall be borne by the Company unless specifically otherwise
provided in subparts (a) and (b) of this paragraph 6.

7. Compensation. The Company shall pay the Manager in full compensation for
services rendered hereunder an annual fee, payable monthly, at the rate of 1% of
the first $50 million of the Company's average daily net assets and .75% of the
Company's average daily net assets in excess of $50 million.

8. Expense Limitation. If, for any fiscal year, the total of all ordinary
business expenses of the Company, including all investment advisory fees but
excluding brokerage commissions and fees, taxes, interest and extraordinary
expenses such as litigation, would exceed the expense limitations imposed by
applicable state securities laws and regulations in the most restrictive
jurisdiction in which the Company's securities are offered, as determined in the
manner described above as of the close of business on each business day during
such fiscal year, the aggregate of all such investment management fees shall be
reduced by the amount of such excess. The amount of any such reduction to

2-A
<PAGE>

be borne by the Manager shall be deducted from the monthly investment management
fee otherwise payable to the Manager during such fiscal year; and if such amount
should exceed such monthly fee, the Manager agrees to repay to the Company such
amount of its investment management fee previously received with respect to such
fiscal year as may be required to make up the deficiency no later than the last
day of the first month of the next succeeding fiscal year. For the purposes of
this paragraph, the term "fiscal year" shall exclude the portion of the current
fiscal year which shall have elapsed prior to the date hereof and shall include
the portion of the then current fiscal year which shall have elapsed at the date
of termination of this Agreement.

9. Term and Approval. This Agreement shall become effective at the close of
business on the date hereof and shall remain in force and effect for two years
and shall thereafter continue in force and effect from year to year provided
that such continuance is specifically approved at least annually:

(a) (i) by the Company's Board of Directors or (ii) by the vote of a
majority of the outstanding voting securities (as defined in section 2 (a) (42)
of the Act, and

(b) by the affirmative vote of a majority of the directors who are not
parties to this agreement or interested persons of a party to this agreement
(other than as Company directors), by votes cast in person at a meeting
specifically called for such purposes.

10. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Company's Board of Directors or by vote
of a majority of the Company's outstanding voting securities, or by the Manager,
on sixty (60) days' written notice to the other party. The notice provided for
herein may be waived by either party. This Agreement shall automatically
terminate in the event of its assignment, the term "assignment" for the purpose
having the meaning defined in Section 2(2)(4) of the Act.

11. License of "Lexington". Lexington Funds Distributor, Inc. the
Distributor of the Company's shares, has licensed the Company to include the
registered service mark "Lexington" as part of the corporate name pursuant to
paragraph 9 of the Distribution Agreement between the Company and the
Distributor. In the event that the Distributor revokes such license, the parties
hereto agree to submit the continuation of this agreement to the Company's
shareholders.

12. Liability of Manager and Indemnification. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Manager or any of its officers, directors or
employees, it shall not be subject to liability to the Company or to any
shareholder of the Company for any act or omission in the course of, or
connected with rendering services hereunder for any losses that may be sustained
in the purchase, holding or sale of any security or other asset.

13. Notices. Any notices under this Agreement shall be in writing addressed
and delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
to the other party, it is agreed that the address of the Company for this
purpose and that of the Manager shall be Park 80 West Plaza Two, Saddle Brook,
New Jersey 07663.

14. Questions of Interpretation. Any questions of interpretation of any term
or provision of this agreement having a counterpart in or otherwise derived from
a term or provision of the Act shall be resolved by reference to such term or
provision of the Act and to interpretations thereof, if any, by the United
States Courts or in the absence of any

3-A
<PAGE>

controlling decision of any such court, by rules, regulations or orders of the
Securities and Exchange Commission issued pursuant to said Act. In addition,
where the effect of a requirement of the Act, as amended, reflected in any
provision of this Agreement is released by rules, regulation or order of the
Securities and Exchange Commission, such provision shall be deemed to
incorporate the effect of such rule, regulations or order.

IN WITNESS WHEREOF, the parties hereto caused this agreement to be executed
in duplicate by their respective officers on the day and year first above
written.

LEXINGTON GOLDFUND, INC.

By________________________________________

President

Attest:

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

LEXINGTON MANAGEMENT CORPORATION

By________________________________________

President

Attest:

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

4-A

<PAGE>

EXHIBIT B

FORM OF
INVESTMENT ADVISORY AGREEMENT

THIS AGREEMENT is made this 5th day of December, 1994 by and between
LEXINGTON GOLDFUND, INC., a Maryland corporation (the "Fund"), and LEXINGTON
MANAGEMENT CORPORATION, a Delaware corporation (the "Manager"), with respect to
the following recital of fact:

RECITALS

WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act"), and the rules and regulations promulgated thereunder; and

WHEREAS, the Manager is registered as an investment advisor under the
investment Advisers Act of 1940, as amended, and engages in the business of
acting as an investment advisor; and

WHEREAS, the Fund and the Manager desire to enter an agreement to provide
for management services for the Fund on the terms and conditions hereinafter set
forth.

NOW THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:

1. Management. The Manager shall act as investment advisor for the Fund and
shall, in such capacity, supervise the investment and reinvestment of the cash,
securities or other properties comprising the Fund's assets subject at all times
to the policies and control of the Fund's Board of Directors. The Manager shall
give the Fund the benefit of its best judgment, efforts and facilities in
rendering its services as investment advisor.

2. Investment Analysis and Implementation. In carrying out its obligation
under paragraph 1 hereof, the Manager shall:

(a) determine which issuers and securities shall be represented in the Fund
and regularly report thereof to the Fund's Board of Directors;

(b) formulate and implement continuing programs for the purchases and sales
of the securities of such issuers and regularly report thereon to the Fund's
Board of Directors;

(c) continuously review the portfolio security holdings, the investment
programs and the investment policies of the Fund; and

(d) take, on behalf of the Fund, all actions which appear to the Fund
necessary to carry into effect such purchase and sale programs and supervisory
functions aforesaid, including the placing of orders for the purchase and sale
of portfolio securities.

3. Broker-Dealer Relationships. The Manager's primary policy is to execute
all purchases and sales of portfolio instruments at the most favorable prices
consistent with the 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

1-B
<PAGE>

Securities Dealers, Inc., and such other policies and the Directors may
determine, the Manager may consider sales of shares of the Fund and of the other
funds advised by the Manager as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions. However, in selecting a broker-dealer
to execute each transaction, the Manager may consider research provided and
payment may be made of the commission higher than that charged by another
broker-dealer which does not furnish research services or which furnishes
research services deemed to be of lesser value, in accordance with Section 28(e)
of the Securities Exchange Act of 1934. Section 28(e) of the Securities Exchange
Act of 1934 specifies that a person with investment discretion shall not be
"deemed to have acted unlawfully or to have breached a fiduciary duty" solely
because such person has caused the account to pay a higher commission than the
lowest available under certain circumstances, provided that the person so
exercising investment discretion makes a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided...viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts as to
which he exercises investment discretion."

The Manager cannot determine the extent to which commissions that reflect an
element of value for research services might exceed commissions that would be
payable for execution services might exceed commissions that would be payable
for execution services alone. Research services furnished may be useful and of
value to the Manager and its affiliates, in serving other clients as well as the
Fund. Similarly, any research services obtained by the Manager or its affiliates
from the placement of portfolio brokerage of other clients might be useful and
of value to the Manager in carrying out its obligations to the Fund.

Brokerage transactions involving securities of companies domiciled in
countries other than the United States will be normally conducted on the
principal stock exchanges of those countries.

4. Control by Board of Directors. Any investment program undertaken by the
Manager pursuant to this Agreement, as well as any other activities undertaken
by the Manager on behalf of the Fund pursuant thereto, shall at all times be
subject to any directives of the Board of Directors of the Fund.

5. Compliance with Applicable Requirements. In carrying out its obligations
under this Agreement, the Manager shall at all times conform to:

(a) all applicable provisions of the 1940 Act and any rules and regulations
adopted hereunder as amended; and

(b) the provisions of the Registration Statement of the Fund under the
Securities Act of 1933, as amended, and the 1940 Act; and

(d) the provisions of the By-Laws of the Fund; and

(e) any other applicable provisions of state and federal law.

6. Expenses. The expenses connected with the Fund shall be allocable between
the Fund and the Manager as follows:

(a) The Manager shall maintain, at its expense and without cost to the Fund,
a trading function in order to carry out its obligations under subparagraph (d)
of paragraph 2 hereof to place orders for the purchase and sale of portfolio
securities for the Fund.

(b) The Manager shall pay the Fund's expenses for office rent, utilities,
telephone, furniture and supplies utilized at the fund's principal office.

2-B
<PAGE>

(c) The Manager shall pay the salaries and payroll expenses of persons serving
as officers or Directors of the Fund who are also employees of the Manager of
any of its affiliates in carrying out its duties under the Investment Advisory
Agreement.

(d) Nothing in subparagraph (a) through (e) hereof shall be construed to
require the Manager to bear other expenses.

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

7. Delegation of Responsibilities. Upon the request of the Fund's Board of
Directors, the Manager may perform services on behalf of the Fund which are not
required by this Agreement. Such services will be performed on behalf of the
Fund and the Manager's cost in rendering such services may be billed monthly to
the Fund, subject to examination by the Fund's independent accountants. Payment
or assumption by the Manager of any Fund expense that the Manager is not
required to pay or assume under this Agreement shall not relieve the Manager of
any of its obligations to the Fund nor obligate the Manager to pay or assume any
similar Fund expense on any subsequent occasions.

8. Compensation. The Fund shall pay the Manager in full compensation for
services rendered hereunder an annual investment advisory fee payable monthly
equal to 1.00% of the first $50 million and 0.75% in excess of $50 million of
the Fund's average daily net assets after deduction of the Funds' expenses, if
any, in excess of the expense limitations set forth below. The average daily net
asset value of the Fund shall be determined in the manner set forth in the
Articles of Incorporation and Prospectus of the Fund.

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

3-B
<PAGE>

elapsed prior to the date hereof and shall include the portion of the then
current fiscal year which shall have elapsed at the date of termination of this
Agreement.

10. Additional Services. Upon the request of the Board, the Adviser may
perform certain accounting, shareholder servicing or other administrative
services on behalf of the Fund that are not required by this Agreement. Such
services will be performed on behalf of the Fund and the Adviser may receive
from the Fund such reimbursement for costs or reasonable compensation for such
services as may be agreed upon between the Adviser and the Board on a finding by
the Board that the provision of such services by the Adviser is in the best
interests of the Fund and its shareholders. Payment or assumption by the Adviser
of any Fund expense that the Adviser is not otherwise required to pay or assume
under this Agreement shall not relieve the Adviser of any of its obligations to
the Fund nor obligate the Adviser to pay or assume any similar Fund expense on
any subsequent occasions. Such services may include, but are not limited to, (a)
the services of a principal financial officer of the Fund (including applicable
office space, facilities and equipment) whose normal duties consist of
maintaining the financial accounts and books and records of the Fund, and the
services (including applicable office space, facilities and equipment) of any of
the personnel operating under the direction of such principal financial officer;
(b) the services of staff to respond to shareholder inquiries concerning the
status of their accounts; providing assistance to shareholders in exchanges
among the investment companies managed or advised by the Adviser; changing
account designations or changing addresses; assisting in the purchase or
redemption of shares; or otherwise providing services to shareholders of the
Fund; and (c) such other administrative services as may be furnished from time
to time by the Adviser to the Fund at the request of the Board.

11. Non-Exclusivity. The services of the Manager to the Fund are not to be
deemed to be exclusive, and the Manager shall be free to render investment
advisory and corporate administrative or other services to others (including
other investment companies) and to engage in other activities. It is understood
and agreed that officers and Directors of the Manager may serve as officers or
Directors of the Fund, and that officers or Directors of the Fund may serve as
officers or Directors of the Manager to the extent permitted by law; and that
the officers and directors of the Manager are not prohibited from engaging in
any other business activity or from rendering services to any other person, or
from serving as partners, officers, trustees or directors of any other firm or
corporation, including other investment companies. The Manager, subject to the
approval of the Fund's shareholders, may appoint a sub-Aadviser to the Fund to
provide to the Fund certain investment advisory and related services.

12. Term and Approval. This Agreement shall become effective at the close of
business on the date hereof and shall thereunder continue in force and effect
from year to year, provided that such continuance is specifically approved at
least annually:

(a) (i) by the Fund's Board of Directors; or (ii) by the vote of a majority
of the Fund's outstanding voting securities (as defined in Section 2(a)(42) of
the 1940 Act, and

(b) by the affirmative vote of a majority of the Directors who are not
parties to this Agreement or interested persons of a party to this Agreement
(other than as a Director of the Fund), by votes cast in person at a meeting
specifically called for such purpose.

13. Termination. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of the Fund's Board of Directors or by vote of a
majority of the Fund's outstanding voting securities or by the Manager, on sixty
(60) days' written notice to the other party. This Agreement shall automatically
terminate in the event of its

4-B
<PAGE>

assignment, the term "assignment" for the purposes having the meaning defined in
Section 2(a)(4) of the 1940 Act, as amended.

14. Liability of Manager and Indemnification. In the absence of willful
misfeasance, bad faith, gross negligence or reckless disregard of obligations or
duties hereunder on the part of the Manager or any of its officers, directors or
employees, it shall not be subject to liability to the Fund or to any
shareholder of the Fund for any commission in the course of, or connected with,
rendering services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security.

15. Notices. Any notices under this agreement shall be in writing, addressed
and delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further notice
of the other party, it is agreed that the address of the Manager shall be Park
80 West, Plaza Two, Saddle Brook, New Jersey 07663.

16. Questions of Interpretation. Any question of interpretation of any term
or provision of this agreement having a counterpart in or otherwise derived from
a term or provision of the 1940 Act shall be resolved by reference to such term
or provision of the Act and to interpretations thereof, if any, by the United
States Courts or in the absence of any controlling decision of any such court,
by rules, regulations or orders of the Securities and Exchange Commission issued
pursuant to said Act. In addition, where the effect of a requirement of the 1940
Act reflected in any provision of this agreement is revised by rules,
regulations or order of the Securities and Exchange Commission, such provisions
shall be deemed to incorporate the effect of such rule, regulation or order.

In witness whereof, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.

LEXINGTON GOLDFUND, INC.

By________________________________________

President

Attest:

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

LEXINGTON MANAGEMENT CORPORATION

By________________________________________

President

Attest:

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

5-B
<PAGE>

EXHIBIT C

LEXINGTON GOLDFUND, INC.

Comparison of certain existing fundamental investment restrictions, and
corresponding proposed fundamental investment restrictions of Lexington
Goldfund, Inc.

Left Column

Current Fundamental Restriction
-------------------------------

SENIOR SECURITIES.
None.

DIVERSIFICATION.
The Fund will not purchase securities of any issuer
(other than obligations of, or guaranteed by, the
United States government, its agencies or
instrumentalities) if, as a result, more than 5% of
the value of the Fund's assets would be invested in
securities of that issuer.

The Fund will not purchase more than 10% of the
voting securities or more than 10% of any class of
securities of any issuer. (For this purpose all
outstanding debt securities of an issuer are
considered as one class, and all preferred stock of
an issuer are considered as one class.)

RESTRICTED AND ILLIQUID SECURITIES.
The Fund will not invest in restricted securities
(securities which are not readily marketable without
registration or the filing of a notification under
the Securities Act of 1933).

Right Column

Proposed Restriction
--------------------

Fundamental Restriction
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, interpretations 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.

Fundamental Restriction
At the end of each quarter of the taxable year, (i)
with respect to at least 50% of the market value of
the Fund's assets, the Fund may invest in cash, U.S.
Government securities, the securities of other
regulated investment companies and other securities,
with such other securities of any one issuer limited
for the purposes of this calculation to an amount
not greater than 5% of the value of the Fund's total
assets, and (ii) not more than 25% of the value of
its total assets be invested in the securities of
any one issuer (other than U.S. Government
securities or the securities of other regulated
investment companies).

Non-Fundamental Restriction
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

C-1
<PAGE>

Left Column

Current Fundamental Restriction
-------------------------------

MARGIN AND SHORT SALES.
The Fund will not make short sales of securities or
purchase any securities on margin, except for such
short-term credits as are necessary for the
clearance of transactions.

PUTS AND CALLS.
The Fund will not write, purchase or sell puts,
calls or combinations thereof. However, the Fund may
invest up to 15% of the value of its assets in
warrants. The holder of a warrant has the right to
purchase a given number of shares of a particular
company at a specified price until expiration. Such
investments generally can provide a greater
potential for profit or loss than investment of an
equivalent amount in the underlying common stock.
The prices of warrants do not necessarily move
parallel to the prices of the underlying securities.
If the holder does not sell the warrant, he risks
the loss of his entire investment if the market
price of the underlying stock does not, before the
expiration date, exceed the exercise price of the
warrant plus the cost thereof. It should be
understood that investment in warrants is a
speculative activity. Warrants pay no dividends and
confer no rights (other than the right to purchase
the underlying stock) with respect to the assets of
the corporation issuing them. In addition, the sale
of warrants held more than

Right Column

Proposed Restriction
--------------------

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.

Non-Fundamental Restriction
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.

Non-Fundamental Restriction
The Fund will not write, purchase or sell puts,
calls or combinations thereof. However, the Fund may
invest up to 15% of the value of its assets in
warrants. This restriction on the purchase of
warrants does not apply to warrants attached to, or
otherwise included in, a unit with other securities.

C-2
<PAGE>

Left Column

Current Fundamental Restriction
-------------------------------

six months generally results in a long term capital
gain or loss to the holder, and the sale of warrants
held for less than such period generally results in
a short term capital gain or loss. The holding
period for securities acquired upon exercise of
warrants, however, begins on the day after the date
of exercise, regardless of how long the warrant was
held. This restriction on the purchase of warrants
does not apply to warrants attached to, or otherwise
included in, a unit with other securities. Warrants
which are not listed on a United States Securities
exchange shall not exceed 2% of the Fund's net
assets.

INDUSTRY CONCENTRATION.
None.

COMMODITY CONTRACTS.
The Fund will not invest in any commodities or
commodities futures contracts, including futures
contracts relating to gold. Investments in gold
shall not be deemed an investment in a commodity
subject to the Fund's investment restrictions.

Right Column

Proposed Restriction
--------------------

Fundamental Restriction
The Fund will not concentrate its investments by
investing more than 25% of its assets in the
securities of issuers of any one industry. This
limit will not apply to gold and gold-related
securities and to securities issued or guaranteed by
the U.S. Government, its agencies or
instrumentalities.

Fundamental Restriction
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, and may enter into
forward currency contracts. Transactions in gold,
platinum or palladium bullion will not be subject to
this restriction.

Non-Fundamental Restriction
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.

C-3
<PAGE>

Left Column

Current Fundamental Restriction
-------------------------------

REAL ESTATE.
The Fund will not invest in real estate.

SECURITIES OF ISSUERS IN OPERATION FOR
LESS THAN THREE YEARS.
The Fund will not invest more than 5% of the value
of its total assets in securities of issuers which,
with their predecessors, have a record of less than
three years continuous operation.

SECURITIES OF AFFILIATES.
The Fund will not purchase or retain the securities
of any issuer if the officers or directors of the
Fund or its investment adviser who own individually
more than 1/2 of 1% of the securities of such issuer
together own more than 5% of the securities of such
issuer.

LENDING.
The Fund will not lend money or securities, provided
that the making of time or demand deposits with
domestic banks and the purchase of debt securities
such as bonds, debentures, commercial paper,
repurchase agreements and short term obligations in
accordance with the Fund's objective and policies,
are not prohibited.

BORROWING.
The Fund will not borrow money, except for temporary
emergency purposes, and in no event more than 5% of
its net assets at value or cost, whichever is less;
or pledge its gold or portfolio securities or
receivables or transfer or assign or otherwise
encumber them in an amount exceeding 10% of the
value of its total assets.

Right Column

Proposed Restriction
--------------------

Fundamental Restriction
The Fund will not purchase real estate, interests in
real estate or real estate limited partnership
interests ex- cept 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.

Non-Fundamental Restriction
The Fund will not, except for investments which, in
the aggregate, do not exceed 5% of the Fund's total
assets taken at market value, purchase securities
unless the issuer thereof or any company on whose
credit the purchase was based has a record of at
least three years continuous operations prior to the
purchase.

Non-Fundamental Restriction
The Fund will not purchase securities of an issuer
if to the Fund's knowledge, one or more of the
Directors or officers of the Fund or LMC
individually owns beneficially more than 0.5% and
together own beneficially more than 5% of the
securities of such issuer nor will the Fund hold the
securities of such issuer.

Fundamental Restriction
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.

Fundamental Restriction
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

C-4
<PAGE>

Left Column

Current Fundamental Restriction
-------------------------------

UNDERWRITING.
The Fund will not underwrite securities issued by
others.

SECURITIES OF OTHER INVESTMENT COMPANIES.
The Fund will not purchase securities of other
investment companies, except in connection with a
merger, consolidation, reorganization or acquisition
of assets.

INVESTMENT FOR CONTROL.
The Fund will not invest for the purpose of
exercising control or management of another company.

JOINT TRADING ACCOUNTS.
The Fund will not participate on a joint or a
joint-and-several basis in any trading account in
securities.

Right Column

Proposed Restriction
--------------------

agreements (reverse repurchase agreements are
limited to 5% of the Fund's total assets); (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 gold or 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 (no including Sundays and
holidays), reduce its borrowings to the extent
necessary to meet the 300% test.

Fundamental Restriction
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.

Non-Fundamental Restriction
The Fund will not purchase the securities of any
other investment company, except as permitted under
the 1940 Act.

Fundamental Restriction
The Fund will not invest for the purpose of
exercising control over or management of any
company.

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

C-5

APPENDIX D

LEXINGTON GOLDFUND, INC.
LEXINGTON FUNDS C/O NFDS
PO BOX 419648 KANSAS CITY MO 64141

JOHN HORATIO DOE TAX I.D. OR SOC. SEC. NO. 99-9999999
AND JANE DORENE DOE ACCOUNT NO. 99999999999
ANYBODY'S CORPORATION FUND NO. 0000271
999 W 99TH ST RECORD DATE SHARES 99999999999.9999
PO BOX 99999
KANSAS CITY MO 64999-9999 PROPOSAL DESCRIPTION
PROPOSAL(S) MAY BE CONTINUED ON BACK

LEXINGTON GOLDFUND, INC.
Proxy for a Special Meeting of Shareholders, April 19, 1995
The undersigned hereby appoints Peter Corniotes and Richard J. Lavery, and
each of them separately, as proxies, with power of substitution to each and
hereby authorizes them to represent and to vote, as designated below, at a
Special Meeting of Shareholders of Lexington Goldfund, Inc. on April 19, 1995
at 9:00 a.m. Eastern time, and at any adjournments thereof, all of the shares
of the Lexington Goldfund, Inc. which the undersigned would be entitled to
vote if personally present. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 2 THROUGH 19 AND FOR ELECTING
DIRECTORS AS SET FORTH IN PROPOSAL 1. In their discretion, the proxies are
authorized to vote upon such other business as may properly come before the
meeting. The Directors recommend a vote FOR electing all of the nominees for
Directors and FOR the other proposals below.

PROPOSAL(S)

In order to hold the Special Meeting of Shareholders, a majority of the
outstanding voting securities of the Fund must be represented in person or by
proxy. You can help reduce the cost of additional mailings by promptly
returning your signed proxy. No matter how many shares you own, your vote
counts! This proxy is for the account as stated below. If you have shares
of this Fund in more than one account, a separate proxy is enclosed for each
account. The multiple proxies are not duplicates: you should sign, date and
return all proxies in the single postage paid envelope provided. PLEASE SIGN
YOUR NAME(S) EXACTLY AS IT (THEY) APPEAR ON THE PROXY.

PROXY VOTING

ELECTION OF DIRECTORS Nominees: To withhold authority to vote
for any individual nominee(s), draw a line through that nominee s name.

__ For all nominees listed below
__ Vote withheld for all nominees listed below
__ For all nominees listed below (except as marked to the contrary below)

Robert M. DeMichele Beverley C. Duer Barbara R. Evans Lawrence Kantor
Donald B. Miller Francis Olmsted John G. Preston Margaret W. Russell
Philip C. Smith Francis Sunderland

PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS ON THIS PROXY. If the shares
are registered in more than one name, each joint owner or each
fiduciary should sign personally. Only Authorized persons should
sign for corporations.

Dated:____________________________, 19_____

__________________________________________

__________________________________________
Signature/Signature(s) (if held jointly)

PROPOSALS

FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
1) 11)
2) 12)
3) 13)
4) 14)
5) 15)
6) 16)
7) 17)
8) 18)
9) 19)
10)

1) ELECTION OF DIRECTORS
2) PROPOSAL TO RATIFY THE SELECTION OF KPMG PEAT MARWICK LLP AS AUDITORS
3) PROPOSAL TO APPROVE THE AMENDED INVESTMENT MANAGEMENT AGREEMENT
PROPOSALS TO APPROVE CHANGES TO THE FUND'S FUNDAMENTAL INVESTMENT POLICY
RELATING TO:
4) SENIOR SECURITIES
5) DIVERSIFICATION
6) RESTRICTED AND ILLIQUID SECURITIES
7) MARGIN AND SHORT SALES
8) PUTS AND CALLS
9) CONCENTRATION
10) COMMODITY CONTRACTS
11) REAL ESTATE
12) SECURITIES OF ISSUERS IN OPERATION FOR LESS THAN THREE YEARS
13) SECURITIES OF AFFILIATES
14) LENDING
15) BORROWING
16) UNDERWRITING
17) OTHER INVESTMENT COMPANIES
18) INVESTMENT FOR CONTROL
19) JOINT TRADING ACCOUNTS
20) IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING

FIRST CLASS MAIL PERMIT NO. 2108
KANSAS CITY, MO
POSTAGE WILL BE PAID BY ADDRESSEE

PROXY TABULATION SERVICES
LEXINGTON GOLDFUND, INC.
P.O. BOX 5229
KANSAS CITY, MO 64112-9771