LEXINGTON GNMA INCOME FUND INC, 485APOS, 1999-03-01

LEXINGTON GNMA INCOME FUND INC
485APOS, 1999-03-01

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As filed with the Securities and Exchange Commission on March 1, 1999
Registration No. 2-48906
811-2401

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X

Pre-Effective Amendment No.

Post-Effective Amendment No. 33 X
and/or

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X

Amendment No. 20 X

(Check appropriate box or boxes.)

LEXINGTON GNMA INCOME FUND, INC.
--------------------------------
(Exact name of Registrant as specified in Charter)

Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
--------------------------------
(Address of principal executive offices)

Registrant's Telephone Number: (201) 845-7300

Lisa Curcio, Secretary
Lexington GNMA Income Fund, Inc.
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
--------------------------------------
(Name and address of agent for service)

With a copy to:
Carl Frischling, Esq.
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue, New York, NY 10022
--------------------------------------

It is proposed that this filing will become effective 60 days
after filing pursuant to Paragraph (a) of Rule 485.
---------------------------------------------------

The Registrant has registered an indefinite number of shares under
the Securities Act of 1933, pursuant to Section 24(f) of the Investment
Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal
year ended December 31, 1998 will be by March 31, 1999.

<PAGE>

LEXINGTON GNMA INCOME FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET

PART A

Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
_______________ __________________ ___________

1. Cover Page Cover Page

2. Synopsis *

3. Condensed Financial Information 18

4. General Description of Registrant 4

5. Management of the Fund 42

6. Capital Stock and Other Securities 61

7. Purchase of Securities Being Offered 51

8. Redemption or Repurchase 54

9. Legal Proceedings *

Note * Omitted since answer is negative or inapplicable

<PAGE>

LEXINGTON GNMA INCOME FUND, INC.

STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ----- ----------------------- -----------------------
10. Cover Page Cover Page

11. Table of Contents Cover Page

12. General Information and History 61 (Part A)

13. Investment Objectives and Policies 2

14. Management of the Registrant 11

15. Control Persons and Principal Holders 4
of Securities

16. Investment Advisory and Other Services 4

17. Brokerage Allocation and Other Practices 5

18. Capital Stock and Other Securities 61 (Part A)

19. Purchase, Redemption and Pricing of 51, 54 (Part A)
securities being offered

20. Tax Status 6

21. Underwriters 4

22. Calculation of Yield Quotations on Money *
Market Funds

23. Financial Statements 14

PART C
- ------
Information required to be included in Part C is set
forth under the appropriate Item, so numbered, in Part C
to this Registration Statement.

* Not Applicable

<PAGE>

PROSPECTUS [_______, 1999]

THE LEXINGTON FUNDS

Domestic Equity Lexington SmalllCap Fixed-Income Precious Metals
Funds Fund, Inc. Funds and Money Funds
Market Funds

Lexington Growth International and Lexington GNMA Lexington Goldfund,
and Income Fund, Global Funds Income Fund, Inc. Inc.
Inc.
Lexington Silver
Lexington Crosby Lexington Global Fund, Inc.
Small Cap Asia Income Fund
Growth Fund, Inc.

Lexington Global Lexington Money
Corporate Leaders Market Trust
Fund, Inc.

Lexington
International Fund
Inc.

Lexington
Worldwide
Emerging Markets
Fund, Inc.

Lexington Troika
Dialog Russia Fund,
Inc.

The Securities and Exchange Commission has not approved nor disapproved the
shares of any of the Funds. The Securities and Exchange Commission also has not
determined whether this Prospectus is accurate or complete. Any person who tells
you that the Securities and Exchange Commission has made such an approval or
determination is committing a crime.

<PAGE>

Table of Contents
[Insert if needed]

2
<PAGE>

Table of Contents
[Insert if needed]

3
<PAGE>

DOMESTIC EQUITY FUNDS

Lexington Growth and Income Fund, Inc.

Risk/Return Summary

Investment Objective

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

Investment Strategy

The Lexington Growth and Income Fund, Inc. ("the Fund") will invest at least 65%
of its total assets in common stocks of U.S. companies, which may include senior
securities convertible into shares of common stock. The Fund seeks to invest in
long-term investments in large, ably managed and well financed companies.

The Fund may invest the remaining 35% of its assets in foreign securities and
smaller capitalization companies.

Principal Risks

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

Bar Chart and Performance Table

The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual return compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.

- --------------------------------------------------------------------------------
Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----

Average Annual Returns Through 12/31/98

Growth & Income Fund 21.42% 18.90% 15.76%

S & P 500 28.72% 24.09% 19.22%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year

During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 21.95% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -14.87% for the third quarter in 1990.
- --------------------------------------------------------------------------------

4
<PAGE>

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
Shareholder Fees (Paid directly from your investment)
<S> <C>
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 0.63%
Rule 12b-1 Fees 0.25%
Other Fees 0.28%
Total Fund Operating Expenses 1.16%
</TABLE>

Example of Expenses:

This example is intended to help you compare the cost of investing in Lexington
Growth and Income Fund with the cost of investing in other mutual funds.

This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. It
also assumes that your investment has a 5% annual return each year and that the
operating expenses remain the same. Although your actual costs may be higher or
lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$118.23 $368.48 $638.31 $1,408.96

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

Lexington SmallCap Fund, Inc.

Risk/Return Summary

Investment Objective

The Lexington SmallCap Fund's principal investment objective is long-term
capital appreciation. The Lexington SmallCap Fund will seek to obtain its
objective through investment in equity securities and equivalents primarily of
domestic companies having market capitalizations of less than $1 billion.

5
<PAGE>

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1996 1997 1998
---- ---- ----
17.50% 10.47% 6.73%

Average Annual Returns Through 12/31/98

Small Cap Fund 6.73% 11.51%

Russell 2000 Index -2.55% 11.56%
- --------------------------------------------------------------------------------
1 Year Since Inception
(1/2/96)
- --------------------------------------------------------------------------------

During the three year period shown in the above bar graph chart, the fund's
highest quarterly return was 15.04% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -11.43% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------

Investment Strategy

The Lexington SmallCap Fund, Inc. (the "Fund") will invest at least 90% of its
assets in domestic companies having market capitalizations between $20 million
and $1 billion at the time of investment. The Fund may invest the remaining 10%
of its assets in a similar manner, or in securities of companies with market
capitalizations below $20 million, above $1 billion, foreign companies with
dollar denominated shares traded in the United States, American Depository
Shares or Receipts, real estate investment trusts and cash. The Fund will invest
primarily in listed securities or those traded over-the-counter.

In selecting investments for the Fund, Lexington Management Corporation ("the
Manager") and the sub-adviser have established a universe of small
capitalization stocks that are screened using the sub-adviser's proprietary
stock selectivity model. Once the stocks are evaluated and ranked by expected
future relative price performance, the adviser and sub-adviser establish both
sector and diversification allocations in building the portfolio.

Principal Risks

Through stock investment, the Fund may expose you to common stock risks which
may cause you to lose money if there is a sudden decline in the share price of
one or more of the companies in the Fund's portfolio. Due to the inherent
effects of the stock market, the value of the Fund will fluctuate with the
movement of the market as well as in response to the activities of individual
companies in the Fund's portfolio. Also, the Fund's focus on small cap stocks
may expose investors to additional risks. Smaller companies typically have more
limited product lines, markets and financial resources than larger companies,
and their securities may trade less frequently and in more limited volume than
those of larger, more mature companies. As a result, small cap stocks, and
therefore the Fund, may fluctuate significantly more in value than larger cap
stocks and funds that focus on them.

Bar Chart and Performance Table

The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual returns compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.

6
<PAGE>

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 1.67%
Total Fund Operating Expenses 2.92%
</TABLE>

* In 1998, 0.33% of the management fee was voluntarily waived by the Adviser,
and as a result, net expenses were actually 2.59%.

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remain the same. Although your actual costs may be
higher or lower, based on these assumptions your costs would be:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$295.04 $903.65 $1,537.84 $3,242.41

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

INTERNATIONAL FUNDS

Lexington Crosby Small Cap Asia Growth Fund, Inc.

Risk/Return Summary

Investment Objective

The Lexington Crosby Small Cap Asia Growth Fund's investment objective is to
seek long-term capital appreciation primarily by investing in equity securities
and equivalents of companies in the Asia Region having market capitalizations of
less than $1 billion.

Investment Strategy

The Lexington Crosby Small Cap Asia Growth Fund (the "Fund") will normally
invest at least 65% of its total assets in equity securities of smaller
companies in the Asia Region. The Fund will primarily invest in listed
securities but may also invest in unlisted securities.

7
<PAGE>

The Fund intends to invest primarily in companies which:

o have proven management;
o are undervalued and under-researched by the investment community;
o are within industry sectors with strong growth prospects; and
o which have potential investment returns that are superior to the Asian
market as a whole.

The Fund may invest 35% of its total assets in:

o companies with market capitalizations of $1 billion or more;
o companies outside the Asia Region (e.g. Australia or New Zealand);
o debt securities; and
o other investments.

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1995 1996 1997 1998
---- ---- ---- ----
-4.39% 25.50% -42.32% -19.41%

Average Annual Returns Through 12/31/98

Crosby Small Cap Asia Growth Fund -19.41% -14.82%

MSCI All Country Far East ex-Japan -4.83% -13.21%

EAFE 20.33% 10.24%
- --------------------------------------------------------------------------------
1 Year Since Inception
(7/3/95)
- --------------------------------------------------------------------------------

During the four year period shown in the above bar graph chart, the fund's
highest quarterly return was 23.43% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -41.41% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------

The Fund considers the following countries to be in the Asia Region:(1)

Bangladesh India Malaysia Singapore Taiwan
China Indonesia Pakistan Sri Lanka Thailand
Hong Kong Korea The Philippines Vietnam

The Fund will normally invest in at least three different countries. The Fund
does not intend to invest in Japanese securities.

Principal Risks

8
<PAGE>

they tend to be much more volatile than the U.S. market due to their relative
immaturity and instability. The economies of emerging countries may be
predominately based on only a few industries or on revenue from particular
commodities, international aid and other assistance. Some emerging Asian
countries, such as Malaysia in 1998, have restricted the flow or money into or
out of the country. Emerging markets also tend to be less liquid and offer less
regulatory protection for investors. Since mid-1997 Asia has faced serious
economic problems and disruptions, causing substantial losses for some
investors. Also, most of the securities in which the Fund invests are
denominated in foreign currencies, whose values may decline against the U.S.
dollar.

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None

<CAPTION>
<S> <C>
Annual Fund Operating Expenses (Paid from Fund assets)*
Management Fees 1.25%
Rule 12b-1 Fees None
Other Fees 1.61%
Total Fund Operating Expenses 2.86%
</TABLE>

*In 1998, 0.36% of the management fee was voluntarily waived by the Adviser, as
a result net expenses were actually 2.50%.

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- ---------
$289.06 $885.87 $1,508.50 $3,185.46

9
<PAGE>

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

Lexington Global Corporate Leaders Fund, Inc.

Risk/Return Summary

Investment Objective

The Lexington Global Corporate Leaders Fund's investment objective is to seek
long-term growth of capital through investment in equity securities and
equivalents of foreign and U.S. companies.

Investment Strategy

The Lexington Global Corporate Leaders Fund, Inc. (the "Fund") normally invests
at least 65% of its total assets in a diversified portfolio of blue chip
securities that the Manager believes represent "corporate leaders" in their
respective industries.

The Fund may invest in the securities of companies and governments of the
following regions:

o Asia Region (including Japan);
o Europe;
o Latin America;
o Africa;
o North America (including U.S. and Canada); and,
o Other areas and countries as the Manager may decide from time to time.

The Fund will normally invest in at least three different countries. The Fund
intends to select the countries, currencies and companies that provide the
greatest potential for long-term growth.

The Fund may invest 35% of its total assets in:

o securities of smaller capitalization companies;
o debt securities; and
o other investments.

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

Average Annual Returns Through 12/31/98

Global Corporate Leaders Fund 19.06% 10.81% 9.84%

MSCI-World Index 24.80% 15.77% 10.70%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year

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

During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 16.76% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -18.32% for the third quarter in 1990.
- --------------------------------------------------------------------------------

10
<PAGE>

Principal Risks

Through stock investment, the Fund may expose you to common stock risks which
may cause you to lose money if there is a sudden decline in the share price of
one of the companies in the Fund's portfolio. Due to the inherent effects of
stock markets, the value of the Fund will fluctuate with the movements as well
as in response to the activities of individual companies in the Fund's
portfolio. By investing in foreign stocks, the Fund exposes shareholders to
additional risks. Some foreign stock markets tend to be more volatile than the
U.S. market due to economic and political instability and regulatory conditions
in these countries. In addition, most of the foreign securities in which the
Fund invests are denominated in foreign currencies, whose values may decline
against the U.S. dollar.

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees None
Other Fees 1.12%
Total Fund Operating Expenses 2.12%
</TABLE>

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$215.05 $663.92 $1,139.01 $2,451.76

11
<PAGE>

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1994 1995 1996 1997 1998
---- ---- ---- ---- ----
5.87% 5.77% 13.57% 1.61% 19.02%

Average Annual Returns Through 12/31/98

International Fund 19.02% 9.00%

EAFE 20.33% 9.25%
- --------------------------------------------------------------------------------
1 Year 5 Year
- --------------------------------------------------------------------------------

During the five year period shown in the above bar graph chart, the fund's
highest quarterly return was 17.09% for the fourth quarter in 1998 and the
fund's lowest quarterly return was -10.65% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

Lexington International Fund, Inc.

Risk/Return Summary

Investment Objective

The Lexington International Fund's investment objective is to seek long-term
growth of capital through investment in equity securities and equivalents of
companies outside of the U.S.

Investment Strategy

The Lexington International Fund, Inc. (the "Fund") will invest at least 65% of
its total assets in securities and equivalents of companies outside of the U.S.
The Fund generally invests the remaining 35% of its total assets in a similar
manner, but may invest those assets in companies in the United States, in debt
securities or other investments.

The Fund does not anticipate concentrating its investments in any particular
region.

Principal Risks

Through stock investment, the Fund may expose you to common stock risks which
may cause you to lose money if there is a sudden decline in the share price of
one or more of the companies in the Fund's portfolio. Due to the inherent
effects of stock markets, the value of the Fund will fluctuate with the movement
of the markets as well as in response to the activities of individual companies
in the Fund's portfolio. By investing in foreign stocks, the Fund exposes
shareholders to additional risks. Foreign stock markets tend to be more volatile
than the U.S. market due to economic and political instability and regulatory
conditions in some countries. In addition, most of the foreign securities in
which the Fund invests are denominated in foreign currencies, whose values may
decline against the U.S. dollar.

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

12
<PAGE>

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable)Exchange Fee None
30-Day Redemption/Exchange Fe None
Maximum Account Fee None

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 0.50%
Total Fund Operating Expenses 2.25%
</TABLE>

*In 1998, 0.50% of the management fee was voluntarily waived by the Adviser, and
as a result, net expenses were actually 1.75%.

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$228.09 $703.27 $1,204.94 $2,584.93

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

13
<PAGE>

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1996 1997 1998
---- ---- ----
-9.01% 67.50% -82.99%

Average Annual Returns Through 12/31/98

Troika Dialog Russia Fund -82.99% -40.63%

Moscow Times Index -79.62% -30.08%

Russian Trading System Index -85.15% -41.79%
- --------------------------------------------------------------------------------
1 Year Since Inception
(7/3/96)

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

During the three year period shown in the above bar graph chart, the fund's
highest quarterly return was 46.00% for the first quarter in 1997 and the fund's
lowest quarterly return was -64.89% for the third quarter in 1998.
- --------------------------------------------------------------------------------

Lexington Troika Dialog Russia Fund, Inc.

Risk/Return Summary

Investment Objective

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

Investment Strategy

The Lexington Troika Dialog Russia Fund, Inc. (the "Fund") seeks to achieve its
objective by investing at least 65% of its total assets in equity securities of
Russian companies. The Fund may invest the other 35% of its total assets in debt
securities issued by Russian companies and debt securities issued or guaranteed
by the Russian government. The Fund may also invest in the equity securities of
issuers outside of Russia which the Fund believes will experience growth in
revenue and profits from participation in the development of the economics of
the former Soviet Union.

Principal Risks

The Fund's investments will include investments in Russian companies that have
characteristics and business relationships common to companies outside of
Russia, and as a result, outside economic forces may cause fluctuations in the
value of securities held by the Fund.

Additional risks associated with investing in securities of Russian issuers
include:

o The lack of available reliable financial information which has been
prepared and audited in accordance with U.S. or Western European generally
accepted accounting principles and auditing standards;

o The extremely volatile and often illiquid nature of the secondary market
for Russian securities;

o A cumbersome share registration system for recording ownership of Russian
Securities which may adversely affect a person's ability to prove ownership.

14
<PAGE>

o The potential for unfavorable action such as expropriation, dilution,
devaluation, default or excessive taxation by the Russian government or any of
its agencies or political subdivisions with respect to investments in Russian
securities by or for the benefit of foreign entities.

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
<S> <C>
Shareholder Fees (Paid directly from your investment)
Maximum Sales Charges (Load) Imposed on Purchases (as a % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as a % of amount redeemed, if applicable) 2.00%
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 1.25%
Rule 12b-1 Fees 0.25%
Other Fees 1.14%
Total Fund Operating Expenses 2.64%
</TABLE>

*In 1998, expenses were reduced by 0.80% as a result of redemption fee proceeds
and a voluntary waiver of a portion of the management fee by the Adviser. Net
expenses were actually 1.84%.

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$471.84 $1,034.90 $1,624.86 $3.225.98

You would pay the following expenses if you did not redeem your shares:

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$267.12 $820.41 $1,400.12 $2,973.44

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

15
<PAGE>

Lexington Worldwide Emerging Markets Fund, Inc.

Risk/Return Summary

Investment Objective

The Lexington Worldwide Emerging Markets Fund's investment objective is to seek
long-term growth of capital primarily through investment in equity securities
and equivalents of emerging market companies.

Investment Strategy

The Lexington Worldwide Emerging Markets Fund (the "Fund") will invest at least
65% of its total assets according to its investment objective. The Fund's
definition of emerging markets includes, but is not limited to, the following:

o Africa: Botswana, Egypt, Ghana, Ivory Coast, Kenya, Mauritius, Morocco,
Namibia, South Africa, Swaziland, Tunisia, Zambia and Zimbabwe;

o Asia: Bahrain, Bangladesh, China, Hong Kong, India, Indonesia, Malaysia,
Pakistan, the Philippines, Singapore, South Korea, Sri Lanka, Taiwan and
Thailand;

o Europe: Croatia, Cyprus, Czech Republic, Estonia, Finland, Greece,
Hungary, Latvia, Lithuania, Poland, Portugal, Romania, Russia, Slovakia and
Slovenia;

o The Middle East: Israel, Jordan, Lebanon, Oman and Turkey;

o Latin America: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador,
Mexico, Nicaragua, Peru and Venezuela.

The Manager of the Fund considers an emerging markets company to be any company
domiciled in a country emerging market, or any company that derives 50% or more
of its total revenue from either goods or services produced or sold in countries
with emerging markets.

The Fund may invest the remaining 35% of its assets in equity securities without
regard to whether the issuer qualifies as an emerging market company, debt
securities denominated in the currency of an emerging market country or issued
or guaranteed by an emerging market company or the government of an emerging
market country, short-term or medium-term debt securities or other types of
securities.

Principal Risks

Through stock investment, the Fund may expose you to common stock risks which
may cause you to lose money if there is a sudden decline in the share price of
one of the companies in the Fund's portfolio. In addition, the risks of
investing in emerging markets are considerable. Emerging stock markets tend to
be more volatile than the U.S. market due to the relative immaturity, and
occasional instability, of their political and economic systems. In the past
many emerging markets restricted the flow of money into or out of their stock
markets, and some continue to impose restrictions on foreign investors. These
markets tend to be less liquid and offer less regulatory protection for
investors. The economies of emerging countries may be predominately based on
only a few industries or on revenue from particular commodities, international
aid and other assistance. In addition, most of the foreign securities in which
the Fund invests are denominated in foreign currencies, whose values may decline
against the U.S. dollar.

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

16
<PAGE>

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ----
1.73% 3.77% 63.37% -13.81% -5.93% 7.38% -11.40% -29.06%

Average Annual Returns Through 12/31/98

Worldwide Emerging Markets -29.06% -11.36% -0.76%

MSCI Emerging Markets Free -25.34% -9.27% 4.69%

EAFE 20.33% 9.25% 9.67%
- --------------------------------------------------------------------------------
1 Year 5 Year Since
Inception
(6/17/91)
- --------------------------------------------------------------------------------

During the eight year period shown in the above bar graph chart, the fund's
highest quarterly return was 31.81% for the fourth quarter in 1993 and the
fund's lowest quarterly return was -26.18% for the third quarter in 1998.
- --------------------------------------------------------------------------------

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees None
Other Fees 0.85%
Total Fund Operating Expenses 1.85%
</TABLE>

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

This example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. This
example also assumes that your investment has a 5% annual return each year and
that the operating expenses remaining the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:

17
<PAGE>

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$187.91 $581.69 $1,000.66 $2,169.16

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

Average Annual Returns Through 12/31/98

GNMA Income Fund 7.52% 7.29% 8.98%

Lehman Brothers Mortgage
Backed Securities Index 6.96% 7.23% 9.13%
- --------------------------------------------------------------------------------
1 Year 5 Year 10 Year

During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 8.88% for the second quarter in 1989 and the fund's
lowest quarterly return was -2.42% for the first quarter in 1994.
- --------------------------------------------------------------------------------

18
<PAGE>

FIXED-INCOME FUNDS AND MONEY MARKET FUNDS

Lexington GNMA Income Fund, Inc.

Risk/Return Summary

Investment Objective

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

Investment Strategies

Under normal conditions, the Lexington GNMA Income Fund (the "Fund") will invest
at least 80% of the value of its total assets in Government National Mortgage
Association ("GNMA") mortgage-backed securities (also known as "GNMA
Certificates").2 The remaining assets of the Fund will be invested in other
securities issued or guaranteed by the U.S.
Government, including U.S. Treasury securities.

Principal Risks

Through investment in GNMA securities, the Fund may expose you to certain risks
which may cause you to lose money. Mortgage prepayments are affected by the
level of interest rates and other factors, including general economic conditions
and the underlying location and age of the mortgage. In periods of rising
interest rates, the prepayment rate tends to decrease, lengthening the average
life of a pool of GNMA securities. In periods of falling interest rates, the
prepayment rate tends to increase, shortening the life of a pool. Because
prepayments of principal generally occur when interest rates are declining, it
is likely that the Fund may have to reinvest the proceeds of prepayments at
lower interest rates than those of their previous investments. If this occurs,
the Fund's yields will decline correspondingly.

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

19
<PAGE>

<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 0.57%
Rule 12b-1 Fees None
Other Fees 0.44%
Total Fund Operating Expenses 1.01%
</TABLE>

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$103.01 $321.54 $557.85 $1,236.24

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

Lexington Global Income Fund

Risk/Return Summary

Investment Objective

The Lexington Global Income Fund's investment objective is to seek high current
income. Capital appreciation is a secondary objective. The Lexington Global
Income Fund invests in a combination of foreign and domestic high-yield, lower
rated or unrated debt securities.

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1995 1996 1997 1998
---- ---- ---- ----
20.10% 13.33% 5.00% 8.21%

Average Annual Returns Through 12/31/98

Global Income Fund 8.21% 11.51%

Lehman Brothers Global Bond Index 15.33% 10.22%
- --------------------------------------------------------------------------------
1 Year Since Inception
(1/3/95)
- --------------------------------------------------------------------------------
During the four year period shown in the above bar graph chart, the fund's
highest quarterly return was 8.76% for the second quarter in 1995 and the fund's
lowest quarterly return was -1.41% for the fourth quarter in 1998.

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

20
<PAGE>

Investment Strategy

The Lexington Global Income Fund (the "Fund") invests in a variety of foreign
and domestic high yield, lower rated or unrated debt securities.

The Fund, under normal conditions, invests substantially all of its assets in
lower rated or unrated debt securities of domestic companies, companies of
developed foreign countries, and companies in countries with emerging markets.
The credit quality of the foreign debt securities which the Fund intends to buy
is generally equal to U.S. corporate debt securities known as "junk bonds". The
debt securities in which the Fund invests consist of bonds, notes, debentures
and other similar instruments. The Fund may invest in debt securities issued by
foreign governments, their agencies and instrumentalities, central banks,
commercial banks and other corporate entities. The Fund may invest up to 100% of
its total assets in domestic and foreign debt securities that are rated below
investment grade or are of comparable quality. The Fund may also invest in
securities that are in default as to payment of principal and/or interest, and
bank loan participations and assignments.

Principal Risks

Through investment in bonds, the Fund may expose you to certain risks which may
cause you to lose money. Junk bonds have a higher risk of default, tend to be
less liquid, and may be more difficult to value. The Fund could lose money
because of foreign government actions, political instability, or lack of
adequate and accurate information. Currency and investment risks tend to be
higher in emerging markets.

For a more detailed risk discussion involving investments in this Fund, please
read "Risks of Investing" on page __.

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<TABLE>
Shareholder Fees (Paid directly from your investment)
<S> <C>
Maximum Sales Charges (Load) Imposed on Purchases (as % of offering price) None
Maximum Deferred Sales Charge (Load) None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends/Distributions None
Redemption Fee (as % of amount redeemed, if applicable) None
Exchange Fee None
30-Day Redemption/Exchange Fee None
Maximum Account Fee None

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*3
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.25%
Other Fees 0.64%
Total Fund Operating Expenses 1.89%
</TABLE>

*In 1998, 0.39% of the management fee was voluntarily waived by the Adviser, and
as a result, net expenses were actually 1.50%.

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

21
<PAGE>

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$191.94 $593.91 $1,021.27 $2,211.54

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

MONEY MARKET FUNDS

Lexington Money Market Trust

Risk/Return Summary

Investment Objective

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

Investment Strategy

The Lexington Money Market Trust (the "Fund") will invest in short-term money
market instruments that have been rated in one of the two highest rating
categories by both S&P and Moody's, both major rating agencies. The Fund invests
in short-term money market instruments (those with a remaining maturity of 397
days or less) that offer attractive yields and are considered to be undervalued
relative to issues of similar credit quality and interest rate sensitivity.

The Fund will also insure that its money market instruments average weighted
maturities do not exceed 90 days.

Principal Risks

An investment in the Fund is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency. Although the Fund seeks to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the Fund.

Mutual Fund Chart and Performance Table

For information on the Fund's 7-day yield please call the Fund at
1-800-526-0056. You should remember that past performance is not an indication
of future performance.

22
<PAGE>

<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)*
<S> <C>
Management Fees 0.50%
Rule 12b-1 Fees None
Other Fees 0.55%
Total Fund Operating Expenses 1.05%
</TABLE>

*In 1998, 0.05% of the management fee was voluntarily waived by the Adviser, and
as a result, net expenses were actually 1.00%.

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------

$102.00 $318.40 $552.46 $1,224.62

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

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

Past Fund Performance The chart at the left below shows the risk of investing in
the Fund and how the Fund's total return has varied from year-to-year. The chart
at the right compares the Fund's performance with the most commonly used index
for its market segment. Of course, past performance is no guarantee of future
results.
- --------------------------------------------------------------------------------

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
23.62% -20.65% -6.14% -20.51% 86.96% -7.28% -1.89% 7.84% -42.98% -6.39%
</TABLE>
- --------------------------------------------------------------------------------

Average Annual Returns Through 12/31/98

Goldfund -6.39% -12.14% -3.28%

Gold Bullion -0.83% -6.02% -3.50%

S&P 500 28.72% 24.09% 19.22%
- --------------------------------------------------------------------------------

1 Year 5 Year 10 Year

During the ten year period shown in the above bar graph chart, the fund's
highest quarterly return was 34.36% for the second quarter in 1993 and the
fund's lowest quarterly return was -29.07% for the fourth quarter in 1997.
- --------------------------------------------------------------------------------

23
<PAGE>

PRECIOUS METAL FUNDS

Lexington Goldfund, Inc.

Risk/Return Summary

Investment Objective

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

Investment Strategy

Under normal conditions the Lexington Goldfund, Inc. (the "Fund") will invest at
least 65% of the value of its total assets in gold and the equity securities of
companies engaged in mining or processing gold ("gold-related securities"). The
Fund may also invest in other precious metals, including platinum, palladium and
silver. The Fund intends to invest less than half of the value of its assets in
gold and other precious metals. Gold-related securities may include securities
of foreign issuers.

Principal Risks

Through stock investment, the Fund may expose you to common stock risks which
may cause you to lose money if there is a sudden decline in the share price in
one of the companies in the Fund's portfolio. Due to the inherent effects of the
stock market, the value of the Fund will fluctuate with the movement of the
market as well as in response to the activities of individual companies in the
Fund's portfolio. In addition, the Fund's focus on precious metals and precious
metal stocks may expose the investor to additional risks. The market for gold or
other precious metals is concentrated in countries that have the potential for
instability and the market for gold and other precious metals is widely
unregulated. As a result, the price of precious gold and precious metal stocks,
and therefore the Fund, may fluctuate significantly.

Bar Chart and Performance Table

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 0.92%
Rule 12b-1 Fees 0.25%
Other Fees 0.57%
Total Fund Operating Expenses 1.74%
</TABLE>

24
<PAGE>

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$176.84 $547.99 $943.74 $2,051.67

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

Lexington Silver Fund, Inc.

Risk/Return Summary

Investment Objective

The investment objective of the Lexington Silver Fund, Inc. is to maximize total
return on its assets from long-term growth of capital and income principally
through investment in a portfolio of securities which are engaged in the
exploration, mining, processing, fabrication or distribution of silver
("silver-related companies")and in silver bullion .

Investment Strategies

Lexington Silver Fund, Inc. (the "Fund") will seek to achieve its objective
through investment in common stocks of established silver-related companies and
in silver bullion which have the potential for long-term growth of capital or
income, or both. The common stocks of silver-related companies in which the Fund
intends to invest may or may not pay dividends. The Fund may also invest in
other types of securities of silver-related companies including convertible
securities, preferred stocks, bonds, notes and warrants. When the Manager
believes that the return on debt securities will equal or exceed the return on
common stocks, the Fund may, in pursuing its objective of maximizing growth and
income, substantially increase its holding in debt securities.

The securities in which the Fund invests include issues of established
silver-related companies domiciled in the United States, Canada and Mexico as
well as other silver producing countries throughout the world. At least 80% of
the Fund's assets will be invested in established silver-related companies which
have been in business more than three years.

25
<PAGE>

[THE FOLLOWING TABLE WAS REPRESENTED AS A BAR CHART IN THE PRINTED MATERIAL]

1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
-19.01% 76.52% -8.37% 12.37% 2.38% -8.05% -29.64%

Average Annual Returns Through 12/31/98

Silver Fund -29.64% -7.37% 0.96%

S & P 500 28.72% 24.09% 19.51%

Silver Bullion -16.51% -0.43% 3.39%
- --------------------------------------------------------------------------------
1 Year 5 Year Since
Inception
(1/2/92)

During the seven year period shown in the above bar graph chart, the fund's
highest quarterly return was 28.47% for the second quarter in 1993 and the
fund's lowest quarterly return was -18.60% for the fourth quarter in 1994.
- --------------------------------------------------------------------------------

Principal Risks

Through stock investment, the Fund may expose you to common stock risks which
may cause you to lose money if there is a sudden decline in the share price in
one of the companies in the Fund's portfolio. Due to the inherent effects of the
stock market, the value of the Fund will fluctuate with the movement of the
market as well as in response to the activities of individual companies in the
Fund's portfolio. In addition, the Fund's focus on precious metals and precious
metal stocks may expose the investor to additional risks. The market for silver
is relatively limited, the sources of silver are concentrated in countries that
have the potential for instability and the market for silver is widely
unregulated. As a result, the price of silver, and therefore the Fund, may
fluctuate significantly.

Bar Chart and Performance Table

The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance from ______ through _______.
The table shows how the average annual returns compares with the most commonly
used index for its market segment for 1, 5 and 10 years (or since inception).
You should remember that past performance is not an indication of future
performance.

Fees and Expenses

This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.

26
<PAGE>

<TABLE>
<CAPTION>
Annual Fund Operating Expenses (Paid from Fund assets)
<S> <C>
Management Fees 1.00%
Rule 12b-1 Fees 0.00%
Other Fees 1.37%
Total Fund Operating Expenses 2.37%
</TABLE>

Example of Expenses:

This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.

1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$240.12 $739.46 $1,265.42 $2,706.22

See "Management of the Fund" for more complete descriptions of such costs and
expenses.

RISKS OF INVESTING

Risks of Investing in Mutual Funds

The following risks are common to all mutual funds and, therefore, apply to the
Funds:

o Market Risk. The market value of a security may go up or down, sometimes
rapidly and unpredictably. A decline in market value may cause a security to be
worth less than it was at the time of purchase. Market risk applies to
individual securities, a particular sector or the entire economy.

o Manager Risk. Fund management affects Fund performance. A Fund may lose
money if the Fund manager's investment strategy does not achieve the Fund's
objective or the manager does not implement the strategy properly.

o Year 2000 Risk. The Fund or its service providers could be disrupted by
problems in their computer systems related to the Year 2000.

Risks of Investing in Securities of Small Companies

The following risks apply to all mutual funds that invest in securities of small
companies (market value of less than U.S. $1 billion) including Lexington
SmallCap Fund, Lexington Crosby Small Cap Asia Growth Fund and Lexington Troika
Dialog Russia Fund.

Investing in small companies generally involve greater risk than investing in
larger companies for the following reasons, among others:

o limited product lines;

o limited markets or financial or managerial resources;

o their securities may be more susceptible to losses and risks of
bankruptcy;

o their securities may trade less frequently and with lower volume, leading
to greater price fluctuations; and,

o their securities are subject to increased volatility and reduced
liquidity due to limited market making and arbitrage activities.

27
<PAGE>

Risks of Investing in Foreign Securities

The following risks apply to all mutual funds that invest in foreign securities
including Lexington Crosby Small Cap Asia Growth Fund, Lexington Goldfund,
Lexington Growth and Income Fund, Lexington International Fund, Lexington Global
Income Fund, Lexington Troika Dialog Russia Fund and Lexington Worldwide
Emerging Markets Fund.

o Legal System and Regulation Risk. Foreign countries have different legal
systems and different regulations concerning financial disclosure, accounting
and auditing standards. Corporate financial information that would be disclosed
under U.S. law may not be available. Foreign accounting and auditing standards
may render a foreign corporate balance sheet more difficult to understand and
interpret than one subject to U.S. law and standards. Additionally, government
oversight of foreign stock exchanges and brokerage industries may be less
stringent than in the U.S.

o Currency Risk. Most foreign stocks are denominated in the currency of the
stock exchange where they are traded. The Fund's Net Asset Value is denominated
in U.S. dollars. The exchange rate between the U.S. dollar and most foreign
currencies fluctuates; therefore, the Net Asset Value of the Fund will be
affected by a change in the exchange rate between the U.S. dollar and the
currencies in which the Fund's stocks are denominated. The Fund may also incur
transaction costs associated with exchanging foreign currencies into U.S.
dollars.

o Stock Exchange and Market Risk. Foreign stock exchanges generally have
less volume than U.S. stock exchanges. Therefore, it may be more difficult to
buy or sell shares of foreign securities, which increases the volatility of
share prices on such markets. Additionally, trading on foreign stock markets may
involve longer settlement periods and higher transaction costs.

o Expropriation Risk. Foreign governments may expropriate the Fund's
investments either directly by restricting the Fund's ability to sell a security
or by imposing exchange controls that restrict the sale of a currency or by
taxing the Fund's investments at such high levels as to constitute confiscation
of the security. There may be limitations on the ability of the Fund to pursue
and collect a legal judgment against a foreign government.

Risks of Investing in Lower-Quality Debt Securities

The following risks apply to all mutual funds that invest in lower-quality debt
securities commonly referred to as "junk bonds" including Lexington Global
Income Fund and Lexington Troika Dialog Russia Fund.

Junk bonds are highly speculative. Changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of issuers of their
securities to make principal and interest payments than with higher-grade debt
securities.

Risks of Investing in Securities of Russian Companies

The following risks apply to all mutual funds that invest in securities of
Russian companies including Lexington Troika Dialog Russia Fund.

Non-diversified Portfolio

The following risks apply to all mutual funds that are non-diversified
investment companies including Lexington Goldfund, Lexington Silver Fund,
Lexington Global Income Fund and Lexington Troika Dialog Russia Fund.

These Funds may invest an unlimited proportion of their total assets in a single
company, which increases risk. However, these Funds intend to comply with
diversification requirements of the federal tax law to qualify as regulated
investment companies. For more detailed information on the federal tax law
diversification requirement, see the tax section of the Fund's Statement of
Additional Information.

Precious Metals

The following risks apply to all mutual funds that invest in precious metals
including Lexington

28
<PAGE>

Goldfund and Lexington Strategic Silver Fund.

Precious metal investments have the following characteristics:

o earn no income;

o transaction and storage costs may be higher; and

o the Fund will realize gain only with an increase in the market price.

Temporary Defensive Position

When the Funds anticipate unusual market or other conditions, they may
temporarily depart from their goal and invest substantially in high-quality
short-term investments. This could help the Fund avoid losses but may mean lost
opportunities.

Management of The Funds

Investment Adviser

Lexington Management Corporation (LMC), a wholly-owned subsidiary of Lexington
Global Asset Managers, Inc. ("LGAM"), is the investment adviser to the Lexington
Funds. LMC and its predecessor companies, registered investment advisers under
the Investment Advisers Act of 1940, as amended, were established in 1938. LMC
is located at P.O. Box 1515, Park 80 West Plaza Two, Saddle Brook, New Jersey
07663. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other
related entities have a controlling interest in Lexington Global Asset Managers,
Inc., a Delaware corporation. LMC advises private clients as well as the
Lexington Funds. LMC supervises and assists in the overall management of the
Funds, subject to the oversight by the Board of Directors or Trustees.

Sub- Advisers

Lexington SmallCap Fund. Market Systems Research Advisors, Inc. ("MSR Advisors")
is the sub-adviser of Lexington SmallCap Fund. MSR Advisors is located at 80
Maiden Lane, New York, NY 10038. MSR Advisors provides investment advice and
management to Lexington SmallCap Fund. MSR is 65% owned by LGAM and 35% owned by
Frank A. Peluso, The President and C.E.O. of MSR Advisors. Lexington Crosby
Small Cap Asia Growth Fund. Crosby Asset Management (US) Inc. (Crosby) is the
sub-adviser of the Lexington Crosby Small Cap Asia Growth Fund. Crosby is
located at [52/R] Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road,
Hong Kong. [Crosby is a subsidiary of Crosby Group, Hong Kong.] Crosby manages
assets and provides day-to-day investment advice to the Lexington Crosby Small
Cap Asia Growth Fund, subject to oversight by the Board of Directors.

Lexington Troika Dialog Russia Fund. Troika Dialog Asset Management (TDAM) is
the sub-adviser of Lexington Troika Dialog Russia Fund. TDAM is located at
Romanov Pereulok #4, 103875 Moscow, Russia. TDAM provides investment advice and
management to Lexington Troika Dialog Russia Fund. [TDAM is a majority owned
subsidiary of The Bank of Moscow.]

Lexington Worldwide Emerging Markets Fund. Stratos Advisors, Inc. (Stratos) is
the sub-adviser of Lexington Worldwide Emerging Markets Fund. Stratos is located
at 20 Exchange Place, 52nd Floor, New York, NY 10005. Stratos provides
investment advice and management to Lexington Worldwide Emerging Markets Fund.

Portfolio Managers

Lexington Growth and Income Fund
Alan H. Wapnick. Please see biography under Lexington Global Corporate Leaders
Fund.

Lexington SmallCap Fund

Robert M. DeMichele. Mr. DeMichele is one of three lead managers of a portfolio
management team that manages the Lexington SmallCap Fund. Mr. DeMichele is
Chairman and Chief Executive Officer of LMC. He is also the Chairman of the
Investment Strategy Group. In addition, he is President

29
<PAGE>

of Lexington Global Asset Managers, Inc., LMC's parent company. He holds similar
offices in other companies owned by Lexington Global Asset Managers, Inc., as
well as the Lexington Funds. Prior to joining LMC in 1981, Mr. DeMichele was a
Vice President at A.G. Becker, Inc., the securities division of Warburg,
Paribus, Becker, an international investment banking firm. From 1973 to 1981,
Mr. DeMichele held several positions, the most recent managing A.G. Becker's
Funds Evaluation and Consulting Group for both the East and West Coasts. Mr.
DeMichele graduated from Union College with a B.A. Degree in Economics and from
Cornell University with an M.B.A. in Finance.

Alan H. Wapnick. Please see biography under Lexington Global Corporate Leaders
Fund.

Frank A. Peluso. Mr. Peluso is the third of three lead managers of a portfolio
management team that manages the Lexington SmallCap Fund. He has 35 years
investment experience. Mr. Peluso is President and Chief Executive Officer of
MSR, the sub-adviser to the Fund. Mr. Peluso utilizes a proprietary analytical
system to identify securities with performance potential which he believes to be
exceptional. In addition, Mr. Peluso's proprietary data is used by professional
money managers, insurance companies, brokerage firms, banks, mutual fund
companies and pension funds. Mr. Peluso graduated from Princeton University and
completed a year of post-graduate study at Columbia University, and two years of
post-graduate study at Princeton University with a Fellowship in Mathematics.

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

Lexington Global Corporate Leaders Fund

Richard T. Saler. Mr. Saler is a member of an investment management team that
manages the Lexington Global Corporate Leaders Fund and Lexington Worldwide
Emerging Markets Fund. He is the lead manager of an investment management team
for Lexington International Fund. Mr. Saler is Senior Vice President, Director
of International Investment Strategy of LMC. Mr. Saler is responsible for
international investment analysis and portfolio management at LMC. He has twelve
years of investment experience. Mr. Saler has focused on international markets
since first joining LMC in 1986. In 1991 he was a strategist with Nomura
Securities and rejoined LMC in 1992. Mr. Saler graduated from New York
University with a B.S. Degree in Marketing and from New York University's
Graduate School of Business Administration with an M.B.A. in Finance.

Philip A. Schwartz, CFA. Mr. Schwartz is also a member of an investment
management team that manages the Lexington Global Corporate Leaders Fund and
Lexington International Fund. Mr. Schwartz is a Vice President at LMC, a
Chartered Financial Analyst and a member of the New York Society of Security
Analysts. He is responsible for international investment analysis and portfolio
management at LMC, and has nine years of investment experience. Prior to joining
LMC in 1993, Mr. Schwartz was Vice President of European Research Sales with
Cheuvreux De Virieu in Paris and New York, serving the institutional market.
Prior to Cheuvreux, he was affiliated with Olde and Co. and Kidder, Peabody as a
stockbroker. Mr. Schwartz earned his B.A. and M.A. Degrees from Boston
University.

Alan H. Wapnick. Mr. Wapnick is a member of an investment management team that
manages the Lexington Global Corporate Leaders Fund, Inc. and Lexington SmallCap
Fund. Mr. Wapnick is the lead manager for Lexington Growth and Income Fund. Mr.
Wapnick is Senior Vice President, Director

30
<PAGE>

of Domestic Investment Equity Strategy of LMC. Prior to joining LMC in 1986, Mr.
Wapnick was an equity analyst with Merrill Lynch, J.& W. Seligman, Dean Witter
and most recently Union Carbide Corporation. Mr. Wapnick graduated from
Dartmouth College and received a Master's Degree in Business Administration from
Columbia University.

Lexington International Fund

Richard T. Saler. Please see biography under Lexington Global Corporate Leaders
Fund.

Phillip A. Schwartz, CFA. Please see biography under Lexington Global Corporate
Leaders Fund.

Lexington Worldwide Emerging Markets Fund

Richard T. Saler. Please see biography under Lexington Global Corporate Leaders
Fund.

Alfredo M. Viegas. Mr. Viegas is a member of the portfolio management team for
Lexington Worldwide Emerging Markets Fund. Mr. Viegas is Chief Executive Officer
and Senior Portfolio Manager of Stratos. In 1995, Mr. Viegas established VZB
Partners LLC ("VZB"), an offshore investment manager. Mr. Viegas is responsible
for corporate analysis and bottom-up research. He has concentrated on analyzing
equity opportunities not only in emerging markets but also in newly developing
or frontier markets where the quality of public available information is scarce
and direct research is imperative. Prior to VZB, Mr. Viegas was Vice President
and Latin American Equity Strategist for emerging markets with Salomon Brothers
from 1993 to 1995. From 1991 to 1993, he was a research analyst with Morgan
Stanley. Mr. Viegas is a graduate of Wesleyan University with a B.A. in Classics
and Medieval History.

Mohammed Zaidi. Mr. Zaidi is a member of the Portfolio Management team for the
Lexington Worldwide Emerging Markets Fund. Mr. Zaidi is a Portfolio Manager at
Stratos. Mr. Zaidi is responsible for fundamental corporate analysis with a
particular focus on Asian and Middle Eastern markets as well as the Risk Control
Officer. Mr. Zaidi has been a Portfolio Manager at VZB since 1997. Mr. Zaidi was
Chief Financial Officer and a Partner at Paradigm Software, Inc. from 1992 to
1995. Mr. Zaidi is a graduate of the University of Pennsylvania with a B.S. in
Economics from the Wharton School. Mr. Zaidi also holds an M.B.A. in Finance
from M.I.T. Sloan School of Management.

Lexington Troika Dialog Russia Fund

Richard M. Hisey, C.F.A. Mr. Hisey is Managing Director and Chief Financial
Officer of Lexington Management Corporation. He is also the Treasurer and a
member of the Board of Directors of the Lexington Family of Mutual Funds. Mr.
Hisey is Executive Vice President and Chief Financial Officer of Lexington
Global Assets Managers, Inc., the parent company of Lexington Management
Corporation. He sits on the Investment Company Institute's
Accounting/Treasurers, International and Tax Committees. Mr. Hisey is a
portfolio manager and investment strategist for the Lexington Troika Dialog
Russia Fund. He is a Chartered Financial Analyst and is a member of the New York
Society of Security Analysts. Prior to joining Lexington in 1986, Mr. Hisey was
a Senior Financial Analyst for Richardson Vicks, Inc. Mr. Hisey is a graduate
with Distinction of the University of Connecticut with a Bachelor of Arts in
Soviet and eastern European Studies. His undergraduate work included studies at
Middlebury College and at Leningrad State University in the former Soviet Union.
He also holds an M.B.A. from the University of Connecticut.

Pavel Teplukhin. Dr. Teplukhin is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. He is the President of TDAM,
sub-adviser to the Fund. Dr. Teplukhin received a diploma in Economics and a
Doctorate in Economic Analysis and Statistics from Moscow State University. He
also received a Master of Science in Economics/Macroeconomics from the London
School of Economics. From 1993 to 1996, Dr. Teplukhin was Economic Adviser to
the First Deputy Prime Minister at the Ministry of Finance of the Russian
Federation.

Ruben Vardanian. Mr. Vardanian is a member of the portfolio management team that
manages the Lexington Troika Dialog Russia Fund. Mr. Vardanian is Chairman of
the Board of TDAM. He is Vice

31
<PAGE>

Chairman of the Board of Directors of the Depository Clearing Company. He is a
member of the Expert Council of the Federal Securities Commission of Russia and
a Director of the Russian Trading System (RTS). He is also Chairman of the Board
of Directors of the Russian capital markets self-regulatory organization
(NAUFOR). Mr. Vardanian received a Masters Degree with Distinction from the
Finance Department of Moscow State University. He received post-graduate
training with Banca CRT in Italy and with the Emerging Markets Division of
Merrill Lynch in New York.

Board of Advisers. The Board of Advisers to the Lexington Troika Dialog Russia
Fund is composed of experts in Russian political and economic affairs. The Board
of Advisers provides LMC and the Board of Directors with periodic updates on
political and macroeconomic conditions and trends in Russia, and their political
implication for the overall investment environment in Russia. As a result, LMC
and the Board of Directors will be better able to oversee and safeguard the
assets of Lexington Troika Dialog Russia Fund.

Lexington GNMA Income Fund

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

Lexington Global Income Fund

Denis P. Jamison, CFA. Please see biography under Lexington GNMA Income Fund.

Lexington Money Market Trust

Denis P. Jamison, CFA. Please see biography under Lexington GNMA Income Fund.

RoseAnn McCarthy. Ms. McCarthy is a co-manager of the Lexington Money Market
Trust. Ms. McCarthy is an Assistant Vice President of LMC. Prior to joining the
Fixed Income Department in 1997, she was Mutual Fund Marketing and Research
Coordinator. Prior to 1995, Ms. McCarthy was Fund Statistician and a Shareholder
Service Representative for the Lexington Funds. Ms. McCarthy is a graduate of
Hofstra University with a B.B.A. in Marketing and has an M.B.A. in Finance from
Seton Hall University.

Lexington Goldfund

James A. Vail, CFA. Mr. Vail manages the Lexington Goldfund and the Lexington
Silver Fund. Mr. Vail is a Vice President of LMC and is responsible for precious
metals analysis and portfolio management at LMC. He is a Chartered Financial
Analyst, a member of the New York Society of Security Analysts and has 25 years
of investment experience. Prior to joining LMC in 1991, Mr. Vail held investment
research positions with Chemical Bank, Oppenheimer & Co., Robert Fleming Inc.
and most recently, Beacon Trust Company, where he was a Senior Investment
Analyst. Mr. Vail is a graduate of St. Peter's College with a B.S. and holds an
M.B.A. in Finance from Seton Hall University.

Lexington Silver Fund

James A. Vail, CFA. Please see biography under Lexington Goldfund.

32
<PAGE>

SHAREHOLDER INFORMATION

Investment Options
ice is still under construction and will be available soon.

o Buy, sell or exchange shares by mail.

Mail buy/sell order(s), investment or redemption instructions and any
required payment by check:

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

o Buy shares by wiring funds.

To: State Street Bank and Trust Company
ABA #011000028
Attention: The Lexington Funds
For credit to: [shareholder(s) name]
Shareholder account number:
[shareholder(s) account number]
Name of Fund: [Lexington Fund name]

@(except Lexington Troika Dialog Russia Fund) is $1,000, and the minimum
subsequent investment is $50. The minimum initial investment for Lexington
Troika Dialog Russia Fund is $5,000. The minimum initial investment for IRAs is
$250. Under certain conditions we may waive these minimums. If you buy shares
through a broker or investment advisor, they may apply different requirements.
All investments must be made in U.S. dollars. We must receive payment from you
within three business days of your purchase. In addition, we reserve the right
to reject any purchase.

Becoming a Lexington Shareholder

To open a new account:

o By Mail. Send your completed application, with a check payable to The
Lexington Funds, to the appropriate address. Your check must be in U.S. dollars
and drawn only on a bank located in the United States. We do not accept
third-party checks, "starter" checks, credit-card checks, instant-loan checks or
cash investments. We may impose a charge on checks that do not clear. Note that
if you are investing in a Fixed-Income or Money Market Fund, dividends will not
begin to accrue on your account until your check clears.

o By Wire. Call us at 800-526-0056 to let us know that you intend to make your
initial investment by wire. Tell us your name and the amount you want to invest.
We will give you further instructions and a fax number to which you should send
your completed New Account application. To ensure that we handle your investment
accurately, include complete account information in all wire instructions.

Then request your bank to wire money from your account to the attention of:

To: State Street Bank and Trust Company
ABA #011000028
Attention: The Lexington Funds
For credit to: [shareholder(s) name]
Shareholder account number:

33
<PAGE>

[shareholder(s) account number]
Name of Fund: [Lexington Fund name]

Please note that your bank may charge a wire transfer fee.

o By Phone. To make an initial investment by phone, you must have been a current
Lexington shareholder in another fund for at least 30 days. Shares for
Individual Retirement Accounts (IRAs) may not be purchased by phone. Your
purchase of a new Fund must meet its investment minimum and is limited to the
total value of your existing accounts or $10,000, whichever is greater. To
complete the transaction, we must receive payment within three business days. We
reserve the right to collect any losses from your account if we do not receive
payment within that time.

Buying Additional Shares

o By Mail. Complete the form at the bottom of any Lexington statement and
mail it with your check payable to The Lexington Funds. Or mail the check
with a signed letter noting the name of the Fund in which you want to
invest, your account number and telephone number.

o "Lex-O-Matic" the Automatic Investment Plan:

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

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

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

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

Investments will automatically be transferred into your Lexington Account
from your checking or savings account.

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

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

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

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

You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders

34
<PAGE>

for customers may charge a fee for their services. The fee may be avoided by
purchasing shares directly from the Lexington Funds.

Exchanging Shares

Shares of the Lexington Funds may be exchanged for shares of equivalent value of
any Lexington Fund. If an exchange involves investing in a Lexington Fund not
already owned, the dollar amount of the exchange must meet the minimum initial
investment amount. An exchange will result in a recognized gain or loss for
income tax purposes. Exchanges of over $500,000 will take three days to
complete.

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

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

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

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

Minimum Account Balances

Due to the costs of maintaining small accounts, we require a minimum combined
account balance of [$1,000]. If your account balance falls below that amount for
any reason other than market fluctuations, we will ask you to add to your
account. If your account balance is not brought up to the minimum or you do not
send us other instructions, we will redeem your shares and send you the
proceeds. We believe that this policy is in the best interests of all our
shareholders.

Redeeming Your Shares

The Funds will redeem all or any portion of your outstanding shares upon
request. Redemptions can be made on any day that the NYSE is open for trading.
The redemption price is the net asset value per share next determined after the
shares are validly tendered for redemption and such request is received by the
Transfer Agent. Payment of redemption proceeds is made promptly regardless of
when redemption occurs and normally within three days after receipt of all
documents in proper form, including a written redemption order with appropriate
signature guarantee. Redemption proceeds will be mailed or wired in accordance
with the shareholder's instructions. The Funds may suspend the right of
redemption under certain extraordinary circumstances in accordance with the
rules of the SEC. In the case of shares purchased by check and redeemed shortly
after the purchase, the Transfer Agent will not mail redemption proceeds until
it has been notified that the monies used for the purchase have been collected,
which may take up to 15 days from the purchase date. Shares tendered for
redemptions through brokers or dealers (other than the Distributor) may be
subject to a service charge by such brokers or dealers. Procedures for
requesting a redemption are set forth below.

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

35
<PAGE>

Redeeming by Written Instruction

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

Signature-guarantee your letter if you want the redemption proceeds to go to a
party other than the account owner(s), your predesignated bank account or if the
dollar amount of the redemption exceeds $25,000. Signature guarantees may be
provided by an eligible guarantor institution such as a commercial bank, an NASD
member firm such as a stockbroker, a savings association or national securities
exchange. Contact the Transfer Agent for more information.

If a redemption request is sent to the Fund in New Jersey, it will be
forwarded to the Transfer Agent and the effective date of redemption will be the
date received by the Transfer Agent. Checks for redemption proceeds will
normally be mailed within three business days. Shareholders who redeem all their
shares will receive a check representing the value of the shares redeemed plus
the accrued dividends through the date of redemption. Where shareholders redeem
only a portion of their shares, all dividends declared but unpaid will be
distributed on the next dividend payment date.

Redeeming by Telephone

o Shares of the Fund may be redeemed by telephone. Call the Fund toll free at
1-800-526-0056.

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

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

o Exchange by telephone.

Redeeming by Check

o Check writing is available on the Money Market Trust at no charge.

o The minimum amount per check is $100 or more up to $500,000. Checks for
less than $100 or over $500,000 will not be honored.

o All checks require only one signature unless otherwise indicated. Checks
will be returned to you at the end of each month.

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

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

o Redemption by check are available for shares for which share certificates
have not been issued, and may not be used to redeem shares purchased by
check which have been on the books of the Fund for less than 15 days.

36
<PAGE>

Systematic Withdrawal Plan

Under a Systematic Withdrawal Plan, a shareholder with an account value of
$10,000 or more in a fund may receive (or have sent to a third party) periodic
payments (by check or wire). If the proceeds are to be mailed to a third party a
signature guarantee is required. The minimum payment amount is $100 from each
fund account. Payments may be made either monthly or quarterly on the 1st of
each month. Depending on the form of payment requested, shares will be redeemed
up to five business days before the redemption proceeds are scheduled to be
received by the shareholder. The redemption will result in the recognition of
gain or loss for income tax purposes.

How Fund Shares Are Priced

How and when we calculate the Funds' price or net asset value (NAV) determines
the price at which you will buy or sell shares. The net asset value of each fund
is determined once daily as of 4:00 p.m., New York time, on each day that the
NYSE is open for trading. Per share net asset value is calculated by dividing
the value of each fund's total net assets by the total number of that fund's
shares then outstanding.

As more fully described in the Statement of Additional Information, portfolio
securities are valued using current market valuations: either the last reported
sales price or, in the case of securities for which there is no reported last
sale and fixed-income securities, the mean between the closing bid and asked
price. Securities for which market quotations are not readily available or which
are illiquid are valued at their fair values as determined in good faith under
the supervision of the Funds' officers, and by the Manager and the Boards, in
accordance with methods that are specifically authorized by the Boards.
Short-term obligations with maturities of 60 days or less are valued at
amortized cost as reflecting fair value.

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

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

Money Market Funds. The price of Money Market Funds is determined at 12 noon
Eastern time on most business days. If we receive your order by that time, your
shares will priced at the NAV calculated at noon that day. If we receive your
order after 12 noon Eastern time, you will pay the next price we determined
after receiving your order.

Foreign Funds. Several of our Funds invest in securities denominated in foreign
currencies and traded on foreign exchanges. To determine their value, we convert
their foreign-currency price into U.S. dollars by using the exchange rate last
quoted by a major bank. Exchange rates fluctuate frequently and may affect the
U.S. dollars value of foreign-denominated securities, even if their market
prices do not change. In addition, some foreign exchanges are open for trading
when the U.S. market is closed. As a result, a Fund's foreign securities - and
its price -may fluctuate during periods when you can't buy, sell or exchange
shares in the Fund.

37
<PAGE>

Bank Holidays. On bank holidays we will not calculate the price of the
Fixed-Income and Money Market Funds, even if the NYSE is open that day. Shares
in these Funds will be sold at the next NAV we determine after receipt of your
order.

Dividends and Capital Gains Distributions

Each Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.

o You are not guaranteed any distributions.

o The Board of Directors has discretion in determining the amount and
frequency of the dis tributions.

o Unless you request cash distributions in writing, all dividends and other
distributions will be reinvested automatically in additional shares and
credited to the shareholders' account.

Distributions Affect NAV.

o The Funds will pay distributions as of the record date.

o Dividends and capital gains waiting distribution are included in each
Fund's daily NAV.

Buying a Dividend. If you buy shares of a Fund just before a distribution, you
will pay the full price for the shares and receive a portion of the purchase
price back as a taxable distribution when the distribution is made.

Taxes

Each Fund intends to qualify as a regulated investment company, which means
that it pays no federal income tax on the earnings or capital gains it
distributes to its shareholders. The following statements apply with respect to
each Fund:

o Ordinary dividends from the Fund are taxable as ordinary income and
dividends from the Fund's long-term capital gains are taxable as capital
gain.

o Dividends are treated in the same manner for federal income tax purposes
whether you receive them in the form of cash or additional shares. They may
also be subject to state and local taxes.

o Dividends from the Lexington GNMA Income Fund, Inc. that are attributable
to interest on certain U.S. Government obligations may be exempt from
certain state and local income taxes. the extent to which ordinary
dividends are attributable to U.S. Government obligations will be provided
on the tax tax statements you receive from the Fund.

o Certain dividends paid to you in January will be taxable as if they had
been paid the previous December.

o We will mail you tax statements annually showing the amounts and tax status
of the distributions you received.

o When you sell (redeem) or exchange shares of a Fund, you must recognize any
gain or loss. However, as long as Lexington Money Market Trust's NAV per
share does not deviate from $1.00, there will be no gain or loss.

o Under certain circumstances, a Fund may be in a position to "pass-through"
to you the right to a

38
<PAGE>

credit or deduction for foreign taxes paid by the Fund.

oBecause your tax treatment depends on your purchase price and tax position, you
should keep your regular account statements for use in determining your tax.

oYou should review the more detailed discussion of federal income tax
considerations in the Statement of Additional Information, which is available
for free by calling 1-800-526-0056.

***We provide this tax information for your general information. You should
consult your own tax adviser about the tax consequences of investing in a
Fund.***

DISTRIBUTION OF FUND'S SHARES

Distribution Plan. The following Funds have adopted a plan under Rule 12b-1 for
the sale and distribution of shares:

o Lexington Goldfund;
o Lexington Growth and Income Fund;
o Lexington International Fund;
o Lexington Global Income Fund;
o Lexington SmallCap Fund;
o Lexington Troika Dialog Russia Fund; and
o Lexington Worldwide Emerging Markets Fund.

Under the distribution plan, the Funds may pay fees up to 0.25% of their average
daily net assets for distribution services.

Shareholder Servicing Agreements. The Funds may enter into Shareholder Servicing
Agreements with one or more Shareholder Servicing Agents to provide various
services to shareholders as follows:

o Each Agent receives fees up to 0.25% of the average daily net assets of the
Fund.
o LMC may pay additional fees from its past profits, at no additional costs
to the Funds.
o Each Agent may waive all or a portion of the fees.
o If a Fund has a distribution plan, the Agents will receive fees of up to
0.25% of the average daily assets from the distribution plan in addition to
amounts received for shareholder ser vicing.

39
<PAGE>

<TABLE>
<CAPTION>
DOMESTIC EQUITY FUNDS
========================================================================
Growth and Income Fund
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $20.27 $18.56 $15.71 $14.36 $16.16
Net investment income (loss) 0.01 0.05 0.07 0.22 0.17
Net realized and unrealized gain (loss) from investment
operations 4.29 5.46 4.08 3.00 (0.68)
Total income (loss) from investment operations 4.30 5.51 4.15 3.22 (0.51)
Less distributions:
Distributions from net investment income (0.07) (0.13) (0.22) (0.16)
Distribution in excess of net investment income -- -- -- -- --
Distributions from net realized gains (2.66) (3.73) (1.17) (1.65) (0.91)
Distribution in excess of net realized gains -- -- -- -- (0.22)
Total distributions (2.66) (3.80) (1.30) (1.87) (1.29)
Net asset value, end of period $21.91 $20.27 $18.56 $15.71 $14.36
Total return 21.42% 30.36% 26.46% 22.57% (3.11)%

Ratios/Supplemental Data
Net asset, end of period (thousands) $245,790 $228,037 $200,309 $138,901 $124,829
Ratio of expenses to average net assets, before
reimbursement or waiver 1.16% 1.17% 1.13% 1.09% 1.15%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.16% 1.17% 1.13% 1.09% 1.15%
Ratio of net investment income to average net assets,
before reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.06% 0.21% 0.43% 1.38% 1.06%
Portfolio Turnover Rate 63.20% 88.15% 101.12% 159.94% 63.04%

===========================================
SmallCap Fund
--------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996(a)
--------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $11.39 $11.73 $10.00
Net investment income (loss) (0.02) (0.19) (0.18)
Net realized and unrealized gain (loss) from investment
operations 0.75 1.41 1.94
Total income (loss) from investment operations 0.73 1.22 1.76
Less distributions:
Distributions from net investment income -- -- --
Distribution in excess of net investment income -- -- --
Distributions from net realized gains (0.22) -- --
Distribution in excess of net realized gains -- -- --
Total distributions (0.22) (1.56) (0.03)
Net asset value, end of period $11.56 $11.39 $11.73
Total return 6.73% 10.47% 17.50%

Ratios/Supplemental Data
Net asset, end of period (thousands) $8,172 $9,565 $8,061
Ratio of expenses to average net assets, before
reimbursement or waiver 2.92% 2.57% 3.04%
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.59% 2.57% 2.48%
Ratio of net investment income to average net assets,
before reimbursement or waiver (2.00)% (1.78)% (2.34)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver (1.67)% (1.78)% (1.78)%
Portfolio Turnover Rate 145.94% 39.09% 60.92%

<CAPTION>
GLOBAL AND INTERNATIONAL FUND
===========================================================
Small Cap Asia Growth Fund
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995(b)
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $7.06 $12.24 $9.76 $10.00
Net investment income (loss) -- (0.05) (0.05) 0.02
Net realized and unrealized gain (loss) from investment
operations (1.37) (5.13) (2.54) (0.24)
Total income (loss) from investment operations (1.37) (5.18) 2.49 (0.22)
Less distributions:
Distributions from net investment income -- -- -- (0.02)
Distribution in excess of net investment income -- -- (0.01) --
Distributions from net realized gains -- -- -- --
Distribution in excess of net realized gains -- -- -- --
Total distributions -- -- (0.01) (0.02)
Net asset value, end of period $5.69 $7.06 $12.24 $9.76
Total return (19.41)% (42.32)% 25.50% (4.39)%*

Ratios/Supplemental Data
Net asset, end of period (thousands) $18,278 $13,867 $23,796 $8,936
Ratio of expenses to average net assets, before
reimbursement or waiver 2.86% 2.30% 2.64% 3.51%*
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.50% 2.30% 2.42% 1.75%*
Ratio of net investment income to average net assets,
before reimbursement or waiver (0.57)% (0.32)% (0.86)% (1.24)%*
Ratio of net investment income to average net assets,
net of reimbursement or waiver (0.21)% (0.32)% (0.64)% 0.52%*
Portfolio Turnover Rate 193.48% 187.41% 176.49% 40.22%*
</TABLE>

* Annualized

(a) Small Cap Fund commenced operations on January 2, 1996

(b) Small Cap Asia Growth Fund commenced operations on July 3, 1995

40 41

<PAGE>

<TABLE>
<CAPTION>
======================================================================
Global Corporate Leaders Fund
---------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.59 $11.28 $11.32 $11.17 $13.51
Net investment income (loss) 0.99 0.03 0.01 0.09 0.02
Net realized and unrealized gain (loss) from investment
operations 1.02 0.73 1.84 1.10 0.23
Total income (loss) from investment operations 2.01 0.76 1.85 1.19 0.25
Less distributions:
Distributions from net investment income (0.80) (0.09) (0.16) (0.29) --
Distributions in excess of net investment income -- -- -- (0.13) --
Distributions from net realized gains (2.34) (1.36) (1.73) (0.62) (2.46)
Distributions in excess of net realized gains -- -- -- -- (0.13)
Total distributions (3.14) (1.45) (1.89) (1.04) (2.59)
Net asset value, end of period $9.46 $10.59 $11.28 $11.32 $11.17
Total return $19.06% 6.90% 16.43% 10.69% 1.84%

Ratios/Supplemental Data
Net assets, end of period (thousands) $17.803 $35,085 $37,223 $53,614 $67,392
Ratio of expenses to average net assets, before
reimbursement or waiver 2.12% 1.75% 1.90% 1.67% 1.61%
Ratio of expenses to average net assets, net of
reimbursement or waiver 2.12% 1.75% 1.90% 1.67% 1.61%
Ratio of net investment income to average net assets,
before reimbursement or waiver (0.06)% 0.23% 0.11% 0.48% 0.14%
Ratio of net investment income to average net assets,
net of reimbursement or waiver (0.06)% 0.23% 0.11% 0.48% 0.14%
Portfolio Turnover Rate 137.33% 177.48% 128.05% 166.35% 83.40%

<CAPTION>
=======================================================================
International Fund
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.10 $10.86 $10.60 $10.37 $10.000
Net investment income (loss) 0.17 0.07 (0.02) (0.01) (0.08)
Net realized and unrealized gain (loss) from investment
operations 174 0.10 1.45 0.61 0.67
Total income (loss) from investment operations 1.91 0.17 1.43 0.60 0.59
Less distributions:
Distributions from net investment income (0.06) (0.13) (0.20) -- --
Distributions in excess of net investment income -- -- -- (0.35) --
Distributions from net realized gains (0.34) (0.80) (0.97) (0.02) (0.10)
Distributions in excess of net realized gains -- -- -- -- (0.12)
Total distributions (0.40) (0.93) (1.17) (0.37) (0.22)
Net asset value, end of period $11.61 $10.10 $10.86 $10.60 $10.37
Total return 19.02% 1.61% 13.57% 5.77% 5.87%

Ratios/Supplemental Data
Net assets, end of period (thousands) $24,000 $19,949 $18,891 $17,855 $17,843
Ratio of expenses to average net assets, before
reimbursement or waiver 2.25% 2.15% 2.45% 2.46% 2.39%
Ratio of expenses to average net assets, net of
reimbursement or waiver 1.75% 1.75% 2.45% 2.46% 2.39%
Ratio of net investment income to average net assets,
before reimbursement or waiver (0.16)% 0.13% (0.39)% (0.12)% (0.94)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.35% 0.53% (0.39)% (0.12)% (0.94)%
Portfolio Turnover Rate 143,67% 122.56% 113.55% 137.72% 100.10%
</TABLE>

42 43
<PAGE>

<TABLE>
<CAPTION>
=======================================================================
Global Income Fund
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $10.58 $11.22 $10.75 $9.80 $10.95
Net investment income (loss) 0.90 1.04 1.01 0.96 0.46
Net realized and unrealized gain (loss) from investment
operations (0.07) (0.50) 0.36 0.95 (1.16)
Total income (loss) from investment operations (0.83) 0.54 1.37 1.91 (0.70)
Less distributions:
Distributions from net investment income (0.87) (0.91) (0.86) (0.96) (0.45)
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains (0.18) (0.27) (0.04) -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions (1.05) (1.18) (0.90) (0.96) (0.45)
Net asset value, end of period $10.36 $10.58 $11.22 $10.75 $9.80
Total return 8.21% 5.00% 13.33% 20.10% (6.52)%

Ratios/Supplemental Data
Net assets, end of period (thousands) $36,407 $23,668 $29,110 $12,255 $10,351
Ratio of expenses to average net assets, before
reimbursement or waiver 1.89% 2.17% 2.33% 3.07% 1.80%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.50% 1.50% 1.50% 2.75% 1.50%
Ratio of net investment income to average net assets,
before reimbursement or waiver 10.99% 8.99% 9.49% 9.48% 4.18%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 11.38% 9.66% 10.32% 9.80% 4.48%
Portfolio Turnover Rate 45.26% 117.94% 71.84% 164.72% 10.20%

<CAPTION>
===========================================
Russia Fund
-------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996(c)
-------------------------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $17.50 $11.24 $12.12
Net investment income (loss) 0.15 (0.01) (0.05)
Net realized and unrealized gain (loss) from investment
operations (14.70) 7.57 (0.51)
Total income (loss) from investment operations (14.55) 7.56 (0.56)
Less distributions:
Distributions from net investment income (0.07) -- --
Distributions in excess of net investment income -- -- --
Distributions from net realized gains (0.24) (1.30) (0.32)
Distributions in excess of net realized gains -- -- --
Total distributions (0.31) (1.30) (0.32)
Net asset value, end of period $2.64% $17.50 $11.24
Total return (82.99%) 67.50% (9.01)%*

Ratios/Supplemental Data
Net assets, end of period (thousands) $19.147 $137,873 $13,846
Ratio of expenses to average net assets, before
reimbursement or waiver 2.64% 2.89%# 5.07%*#
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.84% 1.85%# 2.65%*#
Ratio of net investment income to average net assets,
before reimbursement or waiver 0.57% (1.14)%# (3.69)%*#
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.36% (0.11)%# (1.27)%*#
Portfolio Turnover Rate 65.76% 66.84% 115.55%

<CAPTION>
==========================================================
Worldwide Emerging Markets Fund
----------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1997 1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $11.49 $10.70 $11.47 $13.96
Net investment income (loss) 0.01 -- 0.08 (0.01)
Net realized and unrealized gain (loss) from investment
operations (1.32) 0.79 (0.76) (1.92)
Total income (loss) from investment operations (1.31) 0.79 (0.68) (1.93)
Less distributions:
Distributions from net investment income -- -- (0.08) --
Distributions in excess of net investment income -- -- (0.01) --
Distributions from net realized gains -- -- -- (0.47)
Distributions in excess of net realized gains -- -- -- (0.09)
Total distributions -- -- (0.09) (0.56)
Net asset value, end of period $10.18 $11.49 $10.70 $11.47
Total return (11.40)% 7.38% (5.93)% (13.81)%

Ratios/Supplemental Data
Net assets, end of period (thousands) $137,686 $254,673 $265,544 $288,581
Ratio of expenses to average net assets, before
reimbursement or waiver 1.82% 1.76% 1.88% 1.65%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 1.82% 1.76% 1.88% 1.65%
Ratio of net investment income to average net assets,
before reimbursement or waiver 0.09% (0.01)% 0.70% (0.06)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.09% (0.01)% 0.70% (0.06)%
Portfolio Turnover Rate 112.05% 86.26% 92.85% 79.56%
</TABLE>

* Annualized

# (before, or net of) reinbursement or waiver or redemption fee proceeds.

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

44 45

<PAGE>

<TABLE>
<CAPTION>
PRECIOUS METALS FUNDS
====================================================================
Goldfund
--------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.24 $5.97 $6.24 $6.37 $6.90
Net investment income (loss) -- -- 0.02 -- 0.03
Net realized and unrealized gain (loss) from investment
operations (0.21) (2.52) 0.50 (0.12) (0.53)
Total income (loss) from investment operations (0.21) (2.52) 0.52 (0.12) (0.50)
Less distributions:
Distributions from net investment income -- (0.21) (0.79) (0.01) (0.03)
Distributions in excess of net investment income -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions
Net asset value, end of period 3.03 $3.24 $5.97 $6.24 $6.37
Total return (6.39)% (42.98)% 7.84% (1.89)% 7.28%

Ratios/Supplemental Data
Net assets, end of period (thousands) 50.841 $53,707 $109,287 $135,779 $159,435
Ratio of expenses to average net assets,
before reimbursement or waiver 1.74% 1.65% 1.60% 1.70% 1.54%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.74% 1.65% 1.60% 1.70% 1.54%
Ratio of net investment income to average net assets
, before reimbursement or waiver 0.08% 0.17% (0.32)% 0.07% 0.50%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 0.08% 0.17% (0.32)% 0.07% 0.50%
Portfolio Turnover Rate 28.93% 38.32% 31.04% 40.41% 23.77%

<CAPTION>
PRECIOUS METALS FUNDS
=======================================================================
Silver Fund
-----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998(d) 1998(e) 1997(e) 1996(e) 1995(e) 1994(e)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $3.26 $3.95 $4.46 $4.00 $3.92 $3.52
Net investment income (loss) (0.01) (0.02) (0.04) (0.03) (0.03) (0.02)
Net realized and unrealized gain (loss) from investment
operations (0.52) (0.66) (0.43) 0.51 0.11 0.42
Total income (loss) from investment operations (0.53) (0.68) (0.47) 0.48 0.08 0.04
Less distributions:
Distributions from net investment income -- -- -- -- -- --
Distributions in excess of net investment income -- (0.01) (0.04) (0.02) -- --
Distributions from net realized gains -- -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- -- --
Total distributions
Net asset value, end of period $2.73 $3.26 $3.95 $4.46 $4.00 $3.92
Total return (16.26)%* (17.32)% (10.76)% 12.02% 2.04% 11.36%

Ratios/Supplemental Data
Net assets, end of period (thousands) $25,560 $34,921 $42,035 $73,945 $65,517 $49,499
Ratio of expenses to average net assets,
before reimbursement or waiver 2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
Ratio of expenses to average net assets,
net of reimbursement or waiver 2.37%* 1.90% 1.96% 1.73% 1.82% 1.84%
Ratio of net investment income to average net assets
, before reimbursement or waiver (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Ratio of net investment income to average net assets,
net of reimbursement or waiver (0.61)%* (0.54)% (0.78)% (0.72)% (0.83)% (0.82)%
Portfolio Turnover Rate 5.68%* 28.78% 18.76% 44.30% 44.22% 5.28%
</TABLE>

* Annualized

(d) Six month period ended December 31, 1998. The Fund changed its fiscal
year-end from June 30th to December 31st.

(e) Fiscal year-end June 30th.

46 47
<PAGE>

<TABLE>
<CAPTION>
FIXED INCOME FUNDS AND
======================================================================
GNMA Income Fund
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.40 $8.12 $8.19 $7.60 $8.32
Net investment income (loss) 0.48 0.51 0.53 0.58 0.55
Net realized and unrealized gain (loss) from investment
operations 0.13 0.29 (0.08) 0.59 (0.72)
Total income (loss) from investment operations 0.61 0.80 0.45 1.17 (0.17)
Less distributions:
Distributions from net investment income (0.48) (0.52) (0.52) (0.58) (0.55)
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions (0.48) (0.52) (0.52) (0.58) (0.55)
Net asset value, end of period $8.53 $8.40 $8.12 $8.19 $7.60
Total return 7.52% 10.20% 5.71% 15.91% (2.07)%

Ratios/Supplemental Data
Net assets, end of period (thousands) $273.591 $158,071 $133,777 $130,681 $132,108
Ratio of expenses to average net assets,
before reimbursement or waiver 1.01% 1.01% 1.05% 1.01% 0.98%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.01% 1.01% 1.05% 1.01% 0.98%
Ratio of net investment income to average net assets,
before reimbursement or waiver 5.85% 6.28% 6.56% 7.10% 6.90%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 5.85% 6.28% 6.56% 7.10% 6.90%
Portfolio Turnover Rate 54.47% 134.28% 128.76% 30.69% 37.15%

<CAPTION>
MONEY MARKET FUNDS
======================================================================
Money Market Trust
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1998 1997 1996 1995 1994
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $100 $1.00 $1.00 $1.00 $1.00
Net investment income (loss) 0.0455 0.0458 0.0441 0.0495 0.0330
Net realized and unrealized gain (loss) from investment
operations -- -- -- -- --
Total income (loss) from investment operations 0.0455 0.0458 0.0441 0.0495 0.0330
Less distributions:
Distributions from net investment income 0.455 0.0458 0.0441 0.0495 0.0330
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gains -- -- -- -- --
Distributions in excess of net realized gains -- -- -- -- --
Total distributions 0.0455 0.0458 0.0441 0.0495 0.0330
Net asset value, end of period $100 $1.00 $1.00 $1.00 $1.00
Total return 4.65% 4.68% 4.50% 5.06% 3.35%

Ratios/Supplemental Data
Net assets, end of period (thousands) $87,488 $95,149 $97,526 $88,786 $111,805
Ratio of expenses to average net assets,
before reimbursement or waiver 1.05% 1.04% 1.04% 1.08% 1.02%
Ratio of expenses to average net assets,
net of reimbursement or waiver 1.00% 1.00% 1.00% 1.00% 1.00%
Ratio of net investment income to average net assets,
before reimbursement or waiver 4.51% 4.55% 4.37% 4.87% 3.30%
Ratio of net investment income to average net assets,
net of reimbursement or waiver 4.56% 4.58% 4.41% 4.95% 3.32%
Portfolio Turnover Rate -- -- -- -- --
</TABLE>

48 49
<PAGE>

Statement of Additional Information

The Statement of Additional Information (SAI) provides a more complete
discussion about the Lexington Funds and is incorporated by reference, which
means that it is considered a part of this prospectus.

Annual and Semi-Annual Reports

The annual and semi-annual reports to shareholders have more information about
each Lexington Fund's investments, including a discussion about the market
conditions and investment strategies that significantly affected the Fund's
performance during its last fiscal year.

Reviewing or Obtaining Additional Information You may obtain a copy of the SAI
and the annual and semi-annual reports (free of charge) by contacting a
broker-dealer or other financial intermediaries that sell the Fund's shares or
by writing or calling:

THE LEXINGTON FUNDS
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Attn: Shareholder Services
Tel: (800) 526-0056 or (201) 845-7300.

You may also obtain a copy of the SAI and the annual and semi-annual reports
(for a fee) by contacting the Public Reference Room of the Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C., telephone
800-SEC-0330. You may also obtain this information by visiting the SEC's
Worldwide Website at http://www.sec.gov.

Investment Company Act File No. 811-_______.

50
<PAGE>

<PAGE>

LEXINGTON GNMA INCOME FUND, INC.

STATEMENT OF ADDITIONAL INFORMATION

MAY 1, 1999

This statement of additional information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington GNMA Income
Fund, Inc. (the "Fund"), dated May 1, 1999, as it may be revised from time to
time. To obtain a copy of the Fund's prospectus at no charge, please write to
the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle Brook, New Jersey
07663 or call the following toll-free numbers:

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

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

TABLE OF CONTENTS

PAGE

Investment Objective ..................................................... 2

What Are GNMA Certificates? .............................................. 2

Investment Policy and Restrictions ....................................... 3

Investment Adviser, Distributor and Administrator ........................ 4

Portfolio Transactions ................................................... 5

Tax-Sheltered Retirement Plans ........................................... 6

Dividend, Distribution and Reinvestment Policy ........................... 7

Tax Matters .............................................................. 7

Investment Return Information ............................................ 10

Custodian, Transfer Agent and Dividend Disbursing Agent .................. 12

Management of the Fund ................................................... 12

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

1
<PAGE>

INVESTMENT OBJECTIVE

The Fund's investment objective is to seek a high level of current income,
consistent with liquidity and safety of principal. At least 80% of the assets of
the Fund will be invested in "GNMA Certificates" (popularly called "Ginnie
Maes") which are Government National Mortgage Association ("GNMA")
mortgage-backed securities representing part ownership of a pool of mortgage
loans. GNMA is a U.S. Government corporation within the Department of Housing
and Urban Development. Such loans are initially made by lenders such as mortgage
bankers, commercial banks and savings and loan associations and are either
insured by the Federal Housing Administration (FHA) or Farmers' Home
Administration (FmHA) or guaranteed by the Veterans Administration (VA). A GNMA
Certificate represents an interest in a specific pool of such mortgages which,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each certificate is guaranteed by the full faith and credit of the United States
Government.

GNMA Certificates differ from bonds in that principal is scheduled to be
paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. The Fund will purchase "modified pass through" type GNMA
Certificates, which entitle the holder to receive all interest and principal
payments owed on the mortgages in the pool (net of issuers' and GNMA fees),
regardless of whether or not the mortgagor has made such payment. The Fund will
use principal payments to purchase additional GNMA Certificates or other
government guaranteed securities. The balance of the Fund's assets will be
invested in other securities issued or guaranteed by the U.S. Government,
including U.S. Treasury bills, notes or bonds. The Fund may also invest in
repurchase agreements (see "Investment Policy and Restrictions") secured by such
U.S. Government securities or GNMA Certificates.

WHAT ARE GNMA CERTIFICATES?

GNMA Certificates are created by an "issuer", which is an FHA approved
mortgage banker who also meets criteria imposed by GNMA. The issuer assembles a
pool of FHA, FmHA, or VA insured or guaranteed mortgages which are homogeneous
as to interest rate, maturity and type of dwelling. Upon application by the
issuer, and after approval by GNMA of the pool, GNMA provides its commitment to
guarantee timely payment of principal and interest on the GNMA Certificates
backed by the mortgages included in the pool. The GNMA Certificates, endorsed by
GNMA, are then sold by the issuer through securities dealers.

GNMA is authorized under the Federal National Housing Act to guarantee
timely payment of principal and interest on GNMA Certificates. This guarantee is
backed by the full faith and credit of the United States. GNMA may borrow U.S.
Treasury funds to the extent needed to make payments under its guarantee. When
mortgages in the pool underlying the GNMA Certificates are prepaid by mortgagors
or by result of foreclosure, such principal payments are passed through to the
certificate holders. Accordingly, the life of the GNMA Certificate is likely to
be substantially shorter than the stated maturity of the mortgages in the
underlying pool. Because of such variation in prepayment rates, it is not
possible to predict the life of a particular GNMA certificate but FHA statistics
indicate that 25 to 30 year single family dwelling mortgages have an average
life of approximately 12 years. The majority of GNMA certificates are backed by
mortgages of this type, and accordingly the generally accepted practice has
developed to treat GNMA certificates as 30 year securities which prepay fully in
the 12th year.

GNMA certificates bear a nominal "coupon rate" which represents the
effective FHA-VA mortgage rate at the time of issuance, less 0.5% which
constitutes the GNMA and issuer's fees. For providing its guarantees, GNMA
receives an annual fee of 0.06% of the outstanding principal on certificates
backed by single family dwelling mortgages, and the issuer receives an annual
fee of 0.44% for assembling the pool and for passing through monthly payments of
interest and principal.

Payments to holders of GNMA certificates consist of the monthly
distributions of interest and principal less the GNMA and issuer's fees. The
actual yield to be earned by a holder of a GNMA certificate is calculated by
dividing such payments by the purchase price paid for the GNMA certificate
(which may be at a premium or a discount from the face value of the
certificate). Monthly distributions of interest, as contrasted to semi-annual
distributions which are common for other fixed interest investments, have the
effect of compounding and thereby raising the effective annual yield earned on
GNMA certificates. Because of the variation in the life of the pools of
mortgages which back various GNMA certificates, and because it is impossible to
anticipate the rate of interest at which future principal payments may be
reinvested, the actual yield earned from a portfolio of GNMA certificates, such
as that in which the Fund is invested, will differ significantly from the yield
estimated by using an assumption of a 12 year life for each GNMA certificate
included in such a portfolio as described.

The actual rate of prepayment for any GNMA certificate does not lend itself
to advance determination, although regional and other characteristics of a given
mortgage pool may provide some guidance for investment analysis. Also, secondary
market trading of outstanding GNMA certificates tends to be concentrated in
issues bearing the current coupon rate.

2
<PAGE>

INVESTMENT POLICY AND RESTRICTIONS

The Fund's fundamental investment policy is to seek high current income
consistent with liquidity and safety of principal through investment of at least
80% of its assets in GNMA certificates, with other investments limited to
securities issued or guaranteed by the U.S. Government or its agencies, or in
repurchase agreements secured by such instruments. This policy, and the
investment restrictions set forth below, may not be changed without the
affirmative vote (defined as the lesser of: 67% of the shares represented at a
meeting at which 50% of the outstanding shares are present, or 50% of the
outstanding shares) of the Fund's shareholders. These restrictions may be
summarized as follows:

The Fund will not (i) issue senior securities; (ii) borrow money; (iii)
underwrite securities of other issuers; (iv) concentrate its investments in a
particular industry to an extent greater than 25% of its total assets, provided
that such limitation shall not apply to securities issued or guaranteed by the
U.S. Government or its agencies; (v) purchase or sell real estate, commodity
contracts or commodities (however, the Fund may purchase interests in GNMA
mortgage-backed certificates); (vi) make loans to other persons except: (a)
through the purchase of a portion or portions of an issue or issues of
securities issued or guaranteed by the U.S. Government or its agencies, or (b)
through investments in "repurchase agreements" (which are arrangements under
which the Fund acquires a debt security subject to an obligation of the seller
to repurchase it at a fixed price within a short period), provided that no more
than 10% of the Fund's assets may be invested in repurchase agreements which
mature in more than seven days; (vii) purchase the securities of another
investment company or investment trust, except in the open market and then only
if no profit, other than the customary broker's commission, results to a sponsor
or dealer, or by merger or other reorganization; (viii) purchase any security on
margin or effect a short sale of a security; (ix) buy securities from or sell
securities (other than securities issued by the Fund) to any of its officers,
directors or its investment adviser, as principal; (x) contract to sell any
security or evidence of interest therein, except to the extent that the same
shall be owned by the Fund; (xi) purchase or retain securities of an issuer when
one or more of the officers and directors of the Fund or of the LMC, or a person
owning more than 10% of the stock of either, own beneficially more than 1/2 of
1% of the securities of such issuer and such persons owning more than 1/2 of 1%
of such securities together own beneficially more than 5% of the securities of
such issuer; (xii) invest more than 5% of its total assets in the securities of
any one issuer (except securities issued or guaranteed by the U.S. Government or
its agencies), except that such restriction shall not apply to 25% of the Fund's
portfolio so long as the net asset value of the portfolio does not exceed
$2,000,000; (xiii) purchase any securities if such purchase would cause the Fund
to own at the time of purchase more than 10% of the outstanding voting
securities of any one issuer; (xiv) purchase any security restricted as to
disposition under Federal securities laws; (xv) invest in interests in oil, gas
or other mineral exploration or development programs; or (xvi) buy or sell puts,
calls or other options.

GNMA Certificates may at times be purchased or sold on a delayed delivery
basis or on a when-issued basis. These transactions arise when GNMA Certificates
are purchased or sold by the Fund with payment and delivery taking place in the
future, in order to secure what is considered to be an advantageous price and
yield to the Fund. No payment is made until delivery is due, often a month or
more after the purchase. The Settlement date on such transactions will take
place no more than 120 days from the trade date. When the Fund engages in
when-issued and delayed delivery transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure of the buyer or
seller to do so may result in the Fund missing the opportunity of obtaining a
price considered to be advantageous. While when-issued GNMA Certificates may be
sold prior to the settlement date, the Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a GNMA
Certificate on a when-issued basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The Fund does not
believe that its net asset value or income will be adversely affected by its
purchase of GNMA Certificates on a when-issued basis. The Fund may invest in
when-issued securities without other conditions. Such securities either will
mature or be sold on or about the settlement date. The Fund may earn interest on
such account or securities for the benefit of shareholders.

The Fund may purchase construction loan securities which are issued to
finance building costs. The funds are disbursed as needed or in accordance with
a prearranged plan. The securities provide for the timely payment to the
registered holder of interest at the specified rate plus scheduled installments
of principal. Upon completion of the construction phase, the construction loan
securities are terminated, and project loan securities are issued. It is the
Fund's policy to record these GNMA certificates on trade date, and to segregate
assets to cover its commitments on trade date as well.

The Fund's investment portfolio may include repurchase agreements ("repos")
with banks and dealers in U.S. Government securities. A repurchase agreement
involves the purchase by the Fund of an investment contract from a bank or a
dealer in U.S. Government securities which contract is secured by U.S.
Government obligations or GNMA Certificates whose value is equal to or greater
than the value of the repurchase agreement including the agreed upon interest.
The agreement provides that the institution will repurchase the underlying
securities at an agreed upon time and

3
<PAGE>

price. The total amount received on repurchase would exceed the price paid by
the Fund, reflecting an agreed upon rate of interest for the period from the
date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the underlying securities. The difference
between the total amount to be received upon the repurchase of the securities
and the price paid by the Fund upon their acquisition is accrued daily as
interest. If the institution defaults on the repurchase agreement, the Fund will
retain possession of the underlying securities. In addition, if bankruptcy
proceedings are commenced with respect to the seller, realization on the
collateral by the Fund may be delayed or limited and the Fund may incur
additional costs. In such case the Fund will be subject to risks associated with
changes in the market value of the collateral securities. The Fund intends to
limit repurchase agreements to transactions with institutions believed by the
adviser to present minimal credit risk. Also, the Fund has undertaken not to
invest in real estate limited partnership interests, oil, gas or mineral leases,
as well as exploration or development programs. The Fund will not purchase
warrants except in units with other securities in original issuance thereof or
attached to other securities, if at the time of purchase, the Fund's investment
in warrants, valued at the lower of cost or market, would exceed 5% of the
Fund's total assets. Warrants which are not listed on the New York or American
stock exchanges shall not exceed 2% of the Fund's net assets. Shares of the Fund
will not be issued for consideration other than cash.

INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR

Lexington Management Corporation ("LMC"), P.O. Box 1515/Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663, is the investment adviser to the Fund, and,
as such, advises and makes recommendations to the Fund with respect to its
investments and investment policies.

Pursuant to an investment advisory agreement the Fund pays LMC an investment
advisory fee at the annual rate of 0.60% of its average daily net assets up to
$150 million; 0.50% of such value in excess of $150 million up to $400 million;
0.45% of such value in excess of $400 million up to $800 million; and 0.40% of
such value in excess of $800 million; after deduction of Fund expenses, if any,
in excess of the expense limitations set forth below. The fee is computed on the
basis of current net assets at the end of each business day and is payable at
the end of each month.

Under the terms of the advisory agreement LMC also pays the Fund's expenses
for office rent, utilities, telephone, furniture and supplies utilized for the
Fund's principal office and the salaries and payroll expense of officers and
directors of the Fund who are also employees of LMC or its affiliates in
carrying out its duties under the investment advisory agreement. The Fund pays
all its other expenses, including custodian and transfer agent fees, legal and
registration fees, audit fees, printing of prospectuses, shareholder reports and
communications required for regulatory purposes or for distribution to existing
shareholders, computation of net asset value, mailing of shareholder reports and
communications, portfolio brokerage, taxes and independent director's fees, and
furnishes LFD, at printer's overrun cost paid by LFD, such copies of its
prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes.

LMC must also reimburse the Fund to the extent that all of the Fund's other
expenses (including the investment advisory fee) exclusive of interest and taxes
exceed 1.5% of the Fund's net assets up to $30 million and 1% of the net assets
in excess of $30 million during any fiscal year calculated by averaging such net
assets daily. In the event that the Fund's expenses exceed such limitation at
any month end, the investment advisory fee paid by the Fund for such month is
reduced accordingly. In addition to the provisions of the advisory agreement, in
order to comply with the securities regulations of certain states the adviser
has agreed to remit to the Fund the amount that the ordinary business expenses
of the Fund, including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses such as litigation exceed, for any fiscal
year, 1.5% of the average net assets of the Fund.

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

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

LMC's accounts are managed independently with reference to applicable
investment objectives and current security holdings, but on occasion more than
one fund or counsel account may seek to engage in transactions in the same
security at the same time. To the extent practicable, such transactions will be
effected on a pro rata basis in proportion to the respective amounts of
securities to be bought and sold for each portfolio, and the allocated

4
<PAGE>

transactions will be averaged as to price. While this procedure may adversely
affect the price or volume of a given Fund transaction, the ability of the Fund
to participate in combined transactions may generally produce better overall
executions.

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

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

Fund Advisory Fee Paid to LMC:

Fiscal Year Ended Management Fee

December 31, 1996 $758,779
December 31, 1997 859,774
December 31, 1998

Of the directors, executive officers, employees ("affiliated persons") of
the Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Jamison, Kantor and Lavery
and Mmes. Carnicelli, Carr-Waldron, Curcio, DiFalco, Gilfillan, Lederer and
Mosca (see "Management of the Fund") may also be deemed affiliates of LMC by
virtue of being officers, directors or employees thereof. As of February 19,
1999, all officers and directors of the Fund as a group owned of record and
beneficially less than 1% of the capital stock of the Fund.

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

PORTFOLIO TRANSACTIONS

Portfolio securities are purchased directly from dealers acting as principal
underwriters or market makers for GNMA certificates or government securities.
Such transactions are usually conducted on a net basis and accordingly no
brokerage commissions are paid by the Fund. The Fund may also execute
transactions through broker-dealers on a commission basis.

The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with this policy, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the Directors may determine, LMC may consider sales of shares of the
Fund and of the other Lexington Funds as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. However, pursuant
to the Fund's investment management agreement, management consideration may be
given in the selection of broker-dealers to research provided and payment may be
made of a commission higher than that charged by another broker-dealer which
does not furnish research services or which furnishes research services deemed
to be 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."

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.

For the fiscal years ended December 31, 1996, 1997 and 1998 the Fund paid
brokerage commissions of $57,767, $40,646 and $34,516, respectively. The Fund's
portfolio turnover rate for the fiscal years ending December 31, 1996, 1997 and
1998 were respectively, 128.76%, 134.28% and 54.47%.

5
<PAGE>

TAX-SHELTERED RETIREMENT PLANS

The Fund makes available a variety of Prototype Pension and Profit Sharing
Plans including a 401(k) Salary Reduction Plan, Section 457 Deferred
Compensation Plan and a 403(b)(7) Plan. Plan services are available by
contacting the Shareholder Services Department of the Distributor at
1-800-526-0056.

INDIVIDUAL RETIREMENT ACCOUNT ("Traditional IRA and ROTH IRA")

What's the Difference between a Traditional IRA and a Roth IRA?

With a Traditional IRA, an individual can contribute up to $2,000 per year
and may be able to deduct the contribution from taxable income, reducing income
taxes. Taxes on investment growth and dividends are deferred until the money is
withdrawn. Withdrawals are taxed as additional ordinary income when received.
Non deductible contributions, if any, are withdrawn tax-free. Withdrawals before
age 59-1/2 are assessed a 10% penalty in addition to income tax, unless an
exception applies.

With a Roth IRA, the contribution limits are essentially the same as
Traditional IRA's, but there is no tax deduction for contributions. All
dividends and investment growth in the account are tax-free. Most important with
a Roth IRA: there is no income tax on qualified withdrawals from your Roth IRA.
Additionally, unlike a Traditional IRA, there is no prohibition on making
contributions to Roth IRAs after turning age 70-1/2, and there's no requirement
that you begin making minimum withdrawals at that age.

The following chart highlights some of the major differences between a
Traditional IRA and a Roth IRA:

- -----------------------------------------------------------------------------------------------------------
Characteristics Traditional Roth
IRA IRA
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Eligibility * Individuals (and their spouses) * Individuals (and their spouses)
who receive compensation who receive compensation
* Individuals age 70-1/2 and over * Individuals age 70-1/2 may con-
may not contribute tribute
- -----------------------------------------------------------------------------------------------------------
Tax Treatment Contributions * Subject to limitations, contribu- * No deduction permitted for
tions are deductible amounts contributed
- -----------------------------------------------------------------------------------------------------------
Contribution Limits * Individuals may contribute up to * Individuals may generally con-
$2,000 annually (or 100% of tribute up to $2,000 (or 100% of
compensation if less) compensation, if less)
* Deductibility depends on income * Ability to contribute phases out
level for individuals who are at income levels of $95,000 to
active participants in an $110,000 (individual taxpayer)
employer-sponsored retirement and $150,000 to $160,000 (mar-
plan ried taxpayers)

* Overall limit for contributions to
all IRA's (Traditional and Roth
combined) is $2,000 annually (or
100% of compensation, if less)
- -----------------------------------------------------------------------------------------------------------
Earnings * Earnings and interest are not * Earnings and interest are not
taxed when received by your IRA taxed when received by your IRA
- -----------------------------------------------------------------------------------------------------------
Rollover/Conversions * Individual may rollover amounts * Rollovers from other Roth IRAs
held in employer-sponsored or Traditional IRAs only
retirement arrangements * Amounts rolled over (or con-
(401(k), SEP IRA, etc.) tax free verted) from another Traditional
to Traditional IRA IRA are subject to income tax in
the year rolled over or converted
* Tax on amounts rolled over or
converted in 1998 is spread over
four year period (1998-2001)
- -----------------------------------------------------------------------------------------------------------
Withdrawals * Total (principal + earnings) tax- * Not taxable as long as a qualified
able as income in year distribution - generally, account
withdrawn (except for any prior open for 5 years, and age 59-1/2
non-deductible contributions) * Minimum withdrawals not
* Minimum withdrawals must required after age 70-1/2
begin after age 70-1/2
- -----------------------------------------------------------------------------------------------------------
</TABLE>

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

6
<PAGE>

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

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

All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA Plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no obligation
to continue to invest in the Fund and may terminate the plan with the Fund at
any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by the LMC,
the cost of the plans generally is borne by the Fund; however, each IRA Plan
account is subject to an annual maintenance fee of $12.00 charged by the Agent.

DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY

The Fund intends to pay monthly dividends from investment income after the
close of each month, if earned and as declared by its Board of Directors. The
Fund intends to declare or distribute a dividend from capital gain income if
any, in December in order to comply with distribution requirements of the 1986
Tax Reform Act to avoid the imposition of a 4% excise tax. The Fund adopted a
fiscal year ending on December 31.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing requesting
payments in cash. This request must be received by the Agent at least seven days
before the dividend record date. Upon receipt by the Agent of such written
notice, all further payments will be made in cash until written notice to the
contrary is received. A record of shares owned by each shareholder will be
maintained by the Agent. These accounts will have the rights of other
shareholders with respect to shares so registered (see "How to Purchase Shares -
The Open Account" in the Prospectus).

Reference is made to the Notes to Financial Statements regarding the amount
and age of any capital loss carryforward at the end of the Fund's last fiscal
year. It is the Fund's policy to offset realized capital gains against its
capital loss carryforwards and not to distribute any offset gains.

TAX MATTERS

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

Qualification as a Regulated Investment Company

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

If the Fund has a net capital loss (ie., the excess of capital losses over
capital gains) for any year, the amount thereof may be carried forward up to
eight years and treated as a short-term capital loss which can be used to offset
capital gains in such years. As of December 31, 1997, the Fund has a capital
loss carryforward of $1,054,628, which expires in 2003. Under Code sections 382
and 383, if the Fund has an "ownership change," then the Fund's use of its
capital loss

7
<PAGE>

carryforward in any year following the ownership change will be limited to an
amount equal to the net asset value of the Fund immediately prior to the
ownership change multiplied by the long-term tax-exempt rate (which is published
monthly by the Internal Revenue Service) in effect for the month in which the
ownership change occurs (the rate for April 1998 is 5.04%). The Fund will use
its best efforts to avoid having an ownership change. However, because of
circumstances which may be beyond the control or knowledge of the Fund, there
can be no assurance that the Fund will not have, or has not already had, an
ownership change. If the Fund has or has had an ownership change, then any
capital gain net income for any year following the ownership change in excess of
the annual limitation on the capital loss carryforward will have to be
distributed by the Fund and will be taxable to shareholders as described under
"Fund Distributions" below.

In addition to satisfying the Distribution Requirement, a regulated
investment company must derive at least 90% of its gross income from dividends,
interest, certain payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or foreign currencies (to the extent
such currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement").

In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. In addition, gain will be recognized as a
result of certain constructive sales, including short sales "against the box."
However, gain recognized on the disposition of a debt obligation purchased by
the Fund at a market discount (generally, at a price less than its principal
amount) will be treated as ordinary income to the extent of the portion of the
market discount which accrued during the period of time the Fund held the debt
obligation.

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

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

In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of its total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. For purposes of the asset
diversification test, obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government such as the Federal Agriculture
Mortgage Corporation, the Farm Credit System Financial Assistance Corporation, a
Federal Home Loan Bank, the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Government National Mortgage Corporation, and
the Student Loan Marketing Association are treated as U.S. Government
securities.

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

8
<PAGE>

Excise Tax on Regulated Investment Companies

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

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

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

Fund Distributions

The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes. Distributions by the Fund generally will not qualify for the 70%
dividends-received deduction available to corporations on the receipt of
qualifying dividends from domestic corporations (other than corporations, such
as S corporations, which are not eligible for the deduction because of their
special characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax).

The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time a shareholder has held his shares or whether such gain was
recognized by the Fund prior to the date on which the shareholder acquired his
shares.

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

Alternative minimum tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for noncorporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount.

Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain realized from a sale of the shares, as discussed below.

Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of the Fund reflects realized but
undistributed income or gain or unrealized appreciation in the value of assets
held by the Fund distributions of such amounts to the shareholder will be
taxable in the manner described above, although economically they constitute a
return of capital to the shareholder.

Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such month will be deemed to have been received by the
shareholders (and made by the

9
<PAGE>

Fund) on December 31 of such calendar year provided such dividends are actually
paid in January of the following year. Shareholders will be advised annually as
to the U.S. federal income tax consequences of distributions made (or deemed
made) during the year.

The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions and the proceeds of redemption of shares, paid to
any shareholder who (1) has failed to provide a correct taxpayer identification
number, (2) is subject to backup withholding for failure properly to report the
receipt of interest or dividend income, or (3) failed to certify to the Fund
that it is not subject to backup withholding or that it is an "exempt recipient"
(such as a corporation).

Sale or Redemption of Shares

A shareholder will recognize gain or loss on a sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares. All
or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. Long-term capital gain recognized by an individual
shareholder will be taxed at the lowest rates applicable to capital gains if the
holder has held such shares for more than 18 months at the time of the sale.
However, any capital loss arising from the sale or redemption of shares held for
six months or less will be treated as a long-term capital loss to the extent of
the amount of capital gain dividends received on such shares. For this purpose,
the special holding period rules of Code Section 246(c)(3) and (4) generally
will apply in determining the holding period of shares. Capital losses in any
year are deductible only to the extent of capital gains plus, in the case of a
noncorporate taxpayer, $3,000 of ordinary income.

Foreign Shareholders

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

If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower applicable treaty rate) upon the gross amount of the dividend. A
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on a sale or redemption of shares of the Fund, capital gain
dividends and amounts retained by the Fund that are designated as undistributed
capital gains.

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

In the case of a noncorporate foreign shareholder, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate) unless the shareholder furnishes the Fund with proper notification of its
foreign status.

The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.

Effect of Future Legislation; Local Tax Considerations

The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect.

Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies may differ from the rules for U.S.
federal income taxation described above. Shareholders are urged to consult their
tax advisers as to the consequences of these and other state and local tax rules
affecting an investment in the Fund.

INVESTMENT RETURN INFORMATION

For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms of total

10
<PAGE>

return and yield. Under the rules of the Securities and Exchange Commission
("SEC rules"), funds advertising performance must include total return quotes
calculated according to the following formula:

P(l + T)n = ERV

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

Under the foregoing formula, the time period used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's Registration Statement. In calculating the ending redeemable
value, the maximum sales load is deducted from the initial $1,000 payment and
all dividends and distributions by the Funds are assumed to have been reinvested
at net asset value as described in the Prospectus on the reinvestment dates
during the period. Total return, or "T" in the formula above, is computed by
finding the average annual compounded rates of return over the 1, 5 and 10 year
periods (or fractional portion thereof) that would equate the initial amount
invested to the ending redeemable value. Any recurring account charges that
might in the future be imposed by the Funds would be included at that time.

The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing a Fund's total return with data
published by Lipper Analytical Services, Inc., or with the performance of the
Standard & Poor's 500 Stock Index or the Dow Jones Industrial Average, the Fund
calculates its aggregate total return for the specified periods of time by
assuming the investment of $10,000 in Fund shares and assuming the reinvestment
of each dividend or other distribution at net asset value on the reinvestment
date. Percentage increases are determined by subtracting the initial value of
the investment from the ending value and by dividing the remainder by the
beginning value. Such alternative total return information will be given no
greater prominence in such advertising than the information prescribed under SEC
rules. Lexington GNMA Income Fund, Inc.'s average annual total return for the 1,
5 and 10 years ended December 31, 1997 are set forth in the table below:

Average Annual
Period Total Return
------ -------------
1 year ended December 31, 1998 7.52%%
5 years ended December 31, 1998 7.29%
10 years ended December 31, 1998 8.98%

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

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

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

Under this formula, interest earned on debt obligations for the purposes of
"a" above, is calculated by (l) computing the yield to maturity of each
obligation (including actual accrued interest) at the close of business on the
last day of each month, or, with respect to obligations purchased during the
month, the purchase price (plus actual accrued interest), (2) dividing that
figure by 360 and multiplying the quotient by the market value of the obligation
(including actual accrued interest as referred to above) to determine the
interest income on the obligation for each day of the subsequent month that the
obligation is in the Fund's portfolio (assuming a month of 30 days) and (3)
computing the total of the interest earned on all debt obligations and all
dividends accrued on all equity securities during the 30-day or one month
period. For mortgage or other receivables backed security subject to regular
paydowns (e.g. GNMA's), interest is calculated using the coupon rate and the
outstanding participant amount for one monthly paydown. For these types of
securities, interest income is also adjusted for the gain or loss or the monthly
paydown. In computing dividends accrued, dividend

11
<PAGE>

income is recognized by accruing 1/360 of the stated dividend rate of a security
each day that the security is in a Fund's portfolio.

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

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

CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT

Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York,
10036, has been retained to act as the Custodian for the Fund's investments and
assets. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110, has also been retained to act as the transfer agent and
dividend disbursing agent for the Fund. Neither Chase Manhattan Bank, N.A. nor
State Street Bank and Trust Company have any part in determining the investment
policies of the Fund or in determining which portfolio securities are to be
purchased or sold by the Fund or in the declaration of dividends and
distributions.

MANAGEMENT OF THE FUND

The Directors and executive officers of the Fund, their ages as of the
Fund's most recent fiscal year-end and their principal occupations are set forth
below:

+S.M.S. CHADHA (60), Director. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of
India; Director, Special Unit for Technical Cooperation among Developing
Countries, United Nations Development Program, New York.

*+ROBERT M. DEMICHELE (53), President and Chairman. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington Global Asset Managers,
Inc.; Chairman and Chief Executive Officer, Lexington Funds Distributor,
Inc., Chairman of the Board, Market Systems Research, Inc. and Market
Systems Research Advisors, Inc.; Director, Chartwell Re Corporation,
Claredon National Insurance Company, The Navigator's Group, Inc., Unione
Italiana Reinsurance, Vanguard Cellular Systems, Inc. and Weeden & Co.;
Vice Chairman of the Board of Trustees, Union College and Trustee, Smith
Richardson Foundation.

+BEVERLEY C. DUER (68), Director. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor; formerly, Manager of Operations Research Department, CPC
International, Inc.

*+BARBARA R. EVANS (37), Director. 5 Fernwood Road, Summit, N.J. 07901 Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation.

*+RICHARD M. HISEY (39), Vice President, Treasurer and Director. P.O. Box 1515,
Saddle Brook, N.J. 07663. Chief Financial Officer, Managing Director and
Director, Lexington Management Corporation; Chief Financial Officer, Vice
President and Director, Lexington Funds Distributor, Inc.; Executive Vice
President and Chief Financial Officer and General Manager - Mutual Funds,
Lexington Global Asset Managers, Inc.; Chief Financial Officer, Market
Systems Research Advisors, Inc.

*+LAWRENCE KANTOR (50), Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President, Lexington Global
Asset Managers, Inc.; Executive Vice President and Director, Lexington Funds
Distributor, Inc.

+JERARD F. MAHER (52), Director. 300 Raritan Center Parkway, Edison, N.J. 08818.
General Counsel, Federal Business Center; Counsel, Ribis, Graham & Curtin.

+ANDREW M. McCOSH (57), Director. 12 Wyvern Park, Edinburgh EH 92 JY, Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University of Edinburgh, Scotland.

+DONALD B. MILLER (71), Director. 10725 Quail Covey Road, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director,
Maguire Group of Connecticut; prior to January 1989, President, Director
and C.E.O., Media General Broadcast Services (advertising firm).

12
<PAGE>

+JOHN G. PRESTON (65), Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts 02181.

*+ALLAN H. STOWE, (60), Trustee. 3674 Fifth and Ocean Avenues, Normandy Beach,
New Jersey 08739. President, Shelter Service Company, Inc.; President,
Dartmouth Co-operative Society Co., Inc.

*+DENIS P. JAMISON, (50), Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director Fixed Income
Strategy, Lexington Management Corporation. Mr. Jamison is a Chartered
Financial Analyst and a member of the New York Society of Security
Analysts.

*+LISACURCIO (38), Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor,
Inc.; Secretary, Lexington Global Asset Managers, Inc.

*+RICHARD J. LAVERY (44), CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.

*+JANICE A. CARNICELLI (38), Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.

*+CHRISTIE CARR-WALDRON (30), Assistant Treasurer. P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick
LLP.

*+CATHERINE DiFALCO (28), Assistant Treasurer. P.O. Box 1515, Saddle Brook, New
Jersey 07663. Prior to October 1997, Manager, Fund Accounting.

*+SIOBHAN GILFILLAN (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.

*+JOANK. LEDERER (31), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1997, Director of Investment Accounting, Diversified
Investment Advisors, Inc. Prior to April 1996, Assistant Vice President,
PIMCO.

*+SHERI MOSCA (34), Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.

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

*+ENRIQUE J. FAUST (37), Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington
Group of Investment Companies.

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

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

The Board of Directors met 5 times during the twelve months ended December
31, 1998, and each of the Directors attended at least 75% of those meetings.

Remuneration of Directors and Certain Executive Officers:

Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof up to a maximum of $9,000 per
year for Directors living outside the U.S. and $6,000 per year for Directors
living within the U.S. Each Director who is not an affiliate of the advisor is
compensated for his or her services according to a fee schedule which recognizes
the fact that each Director also serves as a Director of other investment
companies advised by LMC. Each Director receives a fee, allocated among all
investment companies for which the Director serves. Effective September 12,
1995, each Director receives annual compensation of $24,000. Prior to September
12, 1995, the Directors who were not employed by the Fund or its affiliates
received annual compensation of $16,000.

13
<PAGE>

Set forth below is information regarding compensation paid or accrued during
the period January 1, 1998 to December 31, 1998 for each Director:

- -----------------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of Directorships
Name of Director Compensation from Fund Fund and Fund Complex in Fund Complex
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
S.M.S. Chadha $1,712 $27,068 15
- -----------------------------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 16
- -----------------------------------------------------------------------------------------------------
Beverley C. Duer $2,045 $35,518 16
- -----------------------------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- -----------------------------------------------------------------------------------------------------
Richard M. Hisey 0 0 5
- -----------------------------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- -----------------------------------------------------------------------------------------------------
Jerard F. Maher $1,712 $30,518 16
- -----------------------------------------------------------------------------------------------------
Andrew M. McCosh $1,712 $27,818 15
- -----------------------------------------------------------------------------------------------------
Donald B. Miller $1,712 $27,818 15
- -----------------------------------------------------------------------------------------------------
Francis Olmsted* $1,400 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
John G. Preston $1,712 $27,818 15
- -----------------------------------------------------------------------------------------------------
Margaret W. Russell* $1,456 $23,228 15
- -----------------------------------------------------------------------------------------------------
Philip C. Smith* $1,280 $19,200 N/A
- -----------------------------------------------------------------------------------------------------
Allen H. Stowe $1,712 $12,340 8
- -----------------------------------------------------------------------------------------------------
Francis A. Sunderland* $1,200 $16,800 N/A
- -----------------------------------------------------------------------------------------------------
</TABLE>

*Retired

Retirement Plan for Eligible Directors/Trustees

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

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

Set forth in the table below are the estimated annual benefits payable to an
eligible Trustee upon retirement assuming various compensation and years of
service classifications. As of December 31, 1998, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCosh, Miller, Preston, and Stowe
are 3, 20, 3, 3, 24, 20 and 3, respectively.

Highest Annual Compensation Paid by All Funds
---------------------------------------------

$20,000 $25,000 $30,000 $35,000

Years of
Service Estimated Annual Benefit Upon Retirement

15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500

14
<PAGE>

SHAREHOLDER REPORTS

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

[1998 Audited Financial Statements and Auditor's Report to be inserted here.]

<PAGE>

PART C. OTHER INFORMATION
- ------ -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1998 was filed
electronically on February 26, 1999 (as form type N-30D). Financial
statements from this 1998 Annual Report have been included in the
Statement of Additional Information.

Page in the Statement
(a) Financial statements: of Additional Information
- ------------------------- -----------------------------
Report of Independent Auditors 18
dated February 19, 1999

Statement of Net Assets (Including 14
the Portfolio of Investments) at
December 31, 1998 (1)

Statement of Assets and Liabilities 15
at December 31, 1998

Statement of Operations for the year 15
ended December 31, 1998 (2)

Statements of Changes in Net Assets for 16
the years ended December 31, 1998 and 1997

Notes to Financial Statements 16-17

Schedules II-VII and other Financial Statements, for which provisions are
made in the applicable accounting regulations of the Securities and
Exchange Commission, are omitted because they are not required under the
related instructions, they are inapplicable, or the required information
is
presented in the financial statements or notes thereto.

(1) Includes the information required by Schedule I.

(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments

<PAGE>

ITEM 24. Financial Statements and Exhibits - List
- --------------------------------------------------
(b) Exhibits:

1. Articles of Incorporation - Filed electronically 4/29/96 -
Incorporated by reference

2. By-Laws - Filed electronically 3/3/97 -
Incorporated by reference

3. Not Applicable

4. Rights of Holders - Filed electronically 3/2/98 -
Incorporated by reference

5. Investment Advisory Agreement between Registrant
and Lexington Management Corporation - Filed
electronically 4/29/96 - Incorporated by reference

6. Distribution Agreement between Registrant and
Lexington Funds Distributor, Inc. - Filed
electronically 3/3/97 - Incorporated by reference

7. Retirement Plan for Eligible Directors - Filed electronically
3/2/98 - Incorporated by reference

8a. Form of Custodian Agreement between
Registrant and Chase Manhattan Bank, N.A. - Filed
electronically 4/28/95 - Incorporated by reference

8b. Transfer Agency Agreement between
Registrant and State Street Bank and Trust
Company - Filed electronically 4/29/96 -
Incorporated by reference

9. Form of Administrative Services Agreement
between Registrant and Lexington Management
Corporation - Filed electronically 4/28/95 -
Incorporated by reference

10. Opinion of Counsel as to Legality of Securities
being registered - Filed electronically 3/2/98 -
Incorporated by reference

11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically

12. Not Applicable

13. Not Applicable

14. Retirement Plans - Filed electronically 4/29/96 -
Incorporated by reference

15. Not Applicable

16. Performance Calculation - Filed electronically 3/2/98 -
Incorporated by reference

17. Financial Data Schedule Filed electronically
<PAGE>

Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each
such person indicate (1) if a company, the state or other sovereign power
under the laws of which it is organized, (2) the percentage of voting
securities owned or other basis of control by the person, if any,
immediately controlling it.

None.

Item 26. Number of Holders of Securities
-------------------------------

State in substantially the tabular form indicated, as of a specified
date within 90 days prior to the date of filing, the number of record
holders of each class of securities of the Registrant.

The following information is given as of February 19, 1999:

Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 5,783
($0.01 par value)

Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by
any director, officer, affiliated person or underwriter for their own
protection.

Under the terms of the Maryland General Corporation Law and the
Company's By-Laws, the Company may indemnify any person who was or is a
director, officer or employee of the Company to the maximum extent
permitted by the Maryland General Corporation Law; provided, however, that
Company only as authorized in the specific case upon a determination that
indemnification of such persons is proper in the circumstances. Such
determination shall be made (i) by the Board of Directors, by a majority
vote of a quorum which consists of directors who are neither "interested
persons" of Company as defined in Section 2(a)(19) of the 1940 Act, nor
parties to the proceeding, or (ii) if the required quorum is not
obtainable or if a quorum of such directors so directs by independent
legal counsel in a written opinion. No indemnification will be provided
by the Company to any director or officer of the Company of any liability
to the Company or Shareholders to which he would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.

<PAGE>

Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of
a substantial nature in which the investment adviser of the Registrant,
and each director, officer or partner of any such investment adviser, is
or has been, at any time during the past two fiscal years, engaged for his
own account or in the capacity of director, officer, employee, partner or
trustee.

See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").

Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Global Income Fund
Lexington Goldfund, Inc.
Lexington Global Corporate Leaders Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Silver Fund, Inc.
Lexington Convertible Securities Fund
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.

<PAGE>

29 (b)

Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ----------------- ------------------ --------------
Peter Corniotes* Assistant Secretary Asst. Secretary

Lisa Curcio* Vice President and Secretary
Secretary

Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and
President

Richard M. Hisey* Chief Financial Officer, Vice President and
Vice President & Director Treasurer

Lawrence Kantor* Executive Vice President Director & Vice
and Director President

Richard Lavery* Vice President Vice President

Janice McInerney* Assistant Treasurer None

*P.O. Box 1515
Saddle Brook, New Jersey 07663

<PAGE>

Item 30. Location of Accounts and Records
--------------------------------

With respect to each account, book or other document required
to be maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR
270, 31a-1 to 31a-3) promulgated thereunder, furnish the name and address
of each person maintaining physical possession of each such account, book
or other document.

The Registrant, Lexington GNMA Income Fund, Inc., Park 80 West
- - Plaza Two, Saddle Brook, New Jersey 07663 will maintain physical
possession of each such account, book or other document of the Company,
except for those maintained by the Registrant's Custodian, Chase Manhattan
Bank, N.A., 1211 Avenue of the Americas, New York, New York 10036, or
Transfer Agent, State Street Bank and Trust Company, c/o National
Financial Data Services, 1004 Baltimore, Kansas City, Missouri 64105.

Item 31. Management Services
------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B of this
Form (because the contract was not believed to be material to a purchaser
of securities of the Registrant) under which services are provided to the
Registrant, indicating the parties to the contract, the total dollars paid
and by whom for the last three fiscal years.

None.

Item 32. Undertakings
------------
The Registrant, Lexington GNMA Income Fund, Inc. undertakes to
furnish a copy of the Fund's latest annual report, upon
request and without charge to every person to whom a
prospectus is delivered.

The Registrant will hold a meeting of its public shareholders,
if requested to do so by the holders of at least 10 percent of
the Registrant's outstanding shares, to call a meeting of
shareholders for the purpose of voting upon the question of
removal of a director or directors and to assist in
communications with other shareholders.

<PAGE>

Registration No. 2-48906

Securities and Exchange Commission

Washington, D.C. 20549

Exhibits

Filed With

Form N-1A

LEXINGTON GNMA INCOME FUND, INC.
<PAGE>

EXHIBIT INDEX

The following documents are being filed electronically as exhibits to
this filing:

Consent of Counsel

Consent of Independent Auditors

Financial Data Schedule

Cover

<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and
the Investment Company Act of 1940 the Registrant has duly caused this
Registratiion statement to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the City of Saddle Brook and State of New
Jersey, on the 1st day of March, 1999.

LEXINGTON GNMA INCOME FUND, INC.

/s/ Robert M. Demichele
________________________________________
By: Robert M. DeMichele
Chairman of the Board

Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.

Signature Title Date

/s/ Robert M. Demichele Chairman of the Board March 1, 1999
_______________________ Principal Executive
Robert M. DeMichele Officer

/s/Richard M. Hisey Principal Financial March 1, 1999
______________________ and Accounting Officer
Richard M. Hisey and Director

/s/ Lisa Curcio Principal Compliance March 1, 1999
______________________ Officer
Lisa Curcio

*SMS Chadha Director March 1, 1999
______________________
SMS Chadha

*Beverley C. Duer, P.E. Director March 1, 1999
______________________
Beverly C. Duer, P.E.

*Barbara M. Evans Director March 1, 1999
_______________________
Barbara M. Evans

<PAGE>

Signature Title Date

*Lawrence Kantor Director March 1, 1999
______________________
Lawrence Kantor

*Jerard F. Maher Director March 1, 1999
______________________
Jerard F. Maher

*Andrew M. McCosh Director March 1, 1999
______________________
Andrew M. McCosh

*Donald B. Miller Director March 1, 1999
______________________
Donald B. Miller

*John G. Preston Director March 1, 1999
______________________
John G. Preston

*Allen H. Stowe Director March 1, 1999
_______________________
Allen H. Stowe

*By: /s/ Lisa Curcio
______________________
Lisa Curcio
Attorney-in-Fact

Kramer Levin Naftalis & Frankel LLP
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 B 3852
(212) 715 B 9100
FACSIMILE
(212) 715-8000
______
WRITER'S
DIRECT NUMBER

(212) 715-9100

February 26, 1999

The Lexington Funds
Park 80 West Plaza Two
Saddlebrook, New Jersey 07662

Re: Lexington GNMA Income Fund, Inc.
Registration No. 2-48906
to Registration Statement on Form
N-1A

Dear Gentlemen:

We hereby consent to the reference of our firm as
counsel in Post-Effective Amendment No. 20 to the Registration
Statement on Form N-1A.

Very truly yours,

/s/ Kramer Levin Naftalis and Frankel LLP

Independent Auditors' Consent

To the Board of Directors and Shareholders
Lexington GNMA Income Fund, Inc.:

We consent to the use of our report dated February 19, 1999 included in
this Registration Statement on Form N-1A of the Lexington GNMA Income
Fund, Inc. dated March 1, 1999 and to the references to our firm under
the headings "Financial Highlights" in the Prospectus and "Shareholder
Reports" in the Statement of Additional Information.

KPMG LLP

New York, New York
March 1, 1999

<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from annual
audited financial statements dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 268,983,895
<INVESTMENTS-AT-VALUE> 277,058,827
<RECEIVABLES> 2,592,134
<ASSETS-OTHER> 64,141
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 279,715,102
<PAYABLE-FOR-SECURITIES> 5,642,199
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 481,785
<TOTAL-LIABILITIES> 6,123,984
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 266,799,955
<SHARES-COMMON-STOCK> 32,069,991
<SHARES-COMMON-PRIOR> 18,817,784
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (411)
<ACCUMULATED-NET-GAINS> (1,283,358)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,074,932
<NET-ASSETS> 273,591,118
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,716,974
<OTHER-INCOME> 0
<EXPENSES-NET> 2,159,947
<NET-INVESTMENT-INCOME> 12,557,027
<REALIZED-GAINS-CURRENT> (279,621)
<APPREC-INCREASE-CURRENT> 3,469,352
<NET-CHANGE-FROM-OPS> 15,746,758
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (12,506,951)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,566,899
<NUMBER-OF-SHARES-REDEEMED> (7,639,373)
<SHARES-REINVESTED> 1,324,681
<NET-CHANGE-IN-ASSETS> 112,280,539
<ACCUMULATED-NII-PRIOR> 404
<ACCUMULATED-GAINS-PRIOR> (1,054,628)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,224,048
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,159,947
<AVERAGE-NET-ASSETS> 214,809,754
<PER-SHARE-NAV-BEGIN> 8.40
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> 0.13
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.53
<EXPENSE-RATIO> 1.01
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0

</TABLE>