LEXINGTON INTERNATIONAL FUND INC
497, 1999-05-12
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<PAGE>
                                [LEXINGTON LOGO]

    PROSPECTUS MAY 3, 1999                                    

     THE LEXINGTON FUNDS(R)
 
<TABLE>
<S>                        <C>                           <C>                         <C>
DOMESTIC EQUITY FUNDS      INTERNATIONAL AND GLOBAL      FIXED-INCOME FUNDS AND      PRECIOUS METALS FUNDS
                           FUNDS                         MONEY MARKET FUNDS
 
LEXINGTON GROWTH AND       LEXINGTON GLOBAL              LEXINGTON GNMA              LEXINGTON GOLDFUND,
  INCOME FUND, INC.        CORPORATE LEADERS             INCOME FUND, INC.             INC.
                           FUND, INC.
 
LEXINGTON SMALLCAP         LEXINGTON INTERNATIONAL       LEXINGTON GLOBAL   INCOME   LEXINGTON SILVER   FUND,
  FUND, INC.                 FUND, INC.                  FUND                        INC.
 
                           LEXINGTON WORLDWIDE           LEXINGTON MONEY   MARKET
                             EMERGING MARKETS            TRUST
                           FUND, INC.
 
                           LEXINGTON SMALL CAP ASIA
                           GROWTH FUND, INC.
 
                           LEXINGTON TROIKA DIALOG
                             RUSSIA FUND, INC.
</TABLE>
 
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
 
<TABLE>
                        <S>                                                           <C>
                        Domestic Equity Funds
                          Lexington Growth and Income Fund, Inc. ...................    4
                          Lexington SmallCap Fund, Inc. ............................    6
                        International and Global Funds
                          Lexington Global Corporate Leaders Fund, Inc. ............    8
                          Lexington International Fund, Inc. .......................   10
                          Lexington Worldwide Emerging Markets Fund, Inc. ..........   12
                          Lexington Small Cap Asia Growth Fund, Inc. ...............   14
                          Lexington Troika Dialog Russia Fund, Inc. ................   16
                        Fixed Income Funds and Money Market Funds
                          Lexington GNMA Income Fund, Inc. .........................   18
                          Lexington Global Income Fund..............................   20
                          Lexington Money Market Trust..............................   22
                        Precious Metals Funds
                          Lexington Goldfund, Inc. .................................   24
                          Lexington Silver Fund, Inc. ..............................   26
                        Risks of Investing
                          Risks of Investing in Mutual Funds........................   28
                          Risks of Investing in Securities of Small Companies.......   28
                          Risks of Investing in Foreign Securities..................   28
                          Risks of Investing in Lower Quality Debt Securities.......   29
                          Risks of Investing in Securities of Russian Companies.....   29
                          Non-diversified Portfolio.................................   29
                          Precious Metals...........................................   30
                          Temporary Defensive Position..............................   30
                        Management of the Funds.....................................   31
                        Shareholder Information
                          Investment Options........................................   37
                          What You Need to Know About Your Lexington Account........   38
                          Becoming a Lexington Shareholder..........................   38
                          Buying Additional Shares..................................   38
                          Exchanging Shares.........................................   39
                          Minimum Account Balance...................................   39
                          Redeeming Your Shares.....................................   40
                          Redeeming by Written Instruction..........................   40
                          Redeeming by Telephone....................................   40
                          Redeeming by Check........................................   41
                          Systematic Withdrawal Plan................................   41
                          How Fund Shares are Priced................................   41
                          Dividends and Capital Gain Distributions..................   42
                          Taxes.....................................................   42
                        Distribution of Fund's Shares...............................   44
                        Financial Highlights........................................   45
</TABLE>
<PAGE>
 
              LEXINGTON GROWTH AND INCOME FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT     - The Lexington Growth and Income Fund's principal investment
    OBJECTIVE       objective is long-term capital appreciation. Income is a 
                    secondary objective.

    INVESTMENT     The Lexington Growth and Income Fund, Inc. ("the Fund") will
      STRATEGY     invest at least 65% of its total assets in common stocks of
                   U.S. companies, which may include dividend paying securities
                   and securities convertible into shares of common stock. The
                   Fund seeks to invest in large, ably managed and well financed
                   companies. The investment approach is to identify high
                   quality companies with good earnings and price momentum which
                   sell at attractive valuations.

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

      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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.

                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
  4
<PAGE>
 
  DOMESTIC EQUITY FUNDS
 
                        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 1989 through 1998. 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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                         GROWTH & INCOME FUND
                                                                         --------------------
<S>                                                           <C>
1989                                                                            27.56%
1990                                                                           -10.27%
1991                                                                            24.87%
1992                                                                            12.36%
1993                                                                            13.22%
1994                                                                            -3.11%
1995                                                                            22.57%
1996                                                                            26.46%
1997                                                                            30.36%
1998                                                                            21.42%
</TABLE>
 
<TABLE>
<S>                                                         <C>             <C>      <C>      <C>
                                                            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
</TABLE>
 
- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
  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 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. 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:
 
<TABLE>
<CAPTION>
1 Year    3 Years   5 Years   10 Years
- ---------------------------------------
<S>       <C>       <C>       <C>
$118.23   $368.48   $638.31   $1,408.96
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                               5
<PAGE>
 
              LEXINGTON SMALLCAP FUND, INC.
 
   RISK/RETURN SUMMARY

  INVESTMENT       -  The Lexington SmallCap Fund's principal investment
   OBJECTIVE          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.
                                                        
                                             
                                                       
 
  INVESTMENT       The Lexington SmallCap Fund, Inc. (the "Fund") will invest at
    STRATEGY       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. The quality of each company including its
                   risk/reward prospects are reviewed and analyzed. This
                   approach takes into account both value and growth stocks.
                   Once the stocks are evaluated and ranked by expected future
                   relative price performance, the Manager and sub-adviser build
                   the portfolio, taking into account both sector and
                   diversification considerations.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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.

                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
  6
<PAGE>
 
  DOMESTIC EQUITY FUNDS
 
                        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 since inception (01/02/96)
through 12/31/98. 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.
 
  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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                            SMALL CAP FUND
                                                                            --------------
<S>                                                           <C>
1996                                                                            17.50%
1997                                                                            10.47%
1998                                                                             6.73%
</TABLE>
 
<TABLE>
<S>                                                         <C>                   <C>      <C>
                                                            AVERAGE ANNUAL RETURNS THROUGH 12/31/98
                                                            SmallCap Fund         6.73(%)  11.51(%)
                                                            Russell 2000 Index   -2.55(%)  11.56(%)
                                                            ---------------------------------------
                                                                                  1 Year      Since
                                                                                           Inception
                                                                                           (01/02/96)
</TABLE>
 
- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
  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 Manager, 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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$295.04   $903.65   $1,537.84   $3,242.41
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                               7
<PAGE>
 
              LEXINGTON GLOBAL CORPORATE LEADERS FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Global Corporate Leaders Fund's investment
    OBJECTIVE         objective is to seek long-term growth of capital through
                      investment in equity securities and equity equivalents of
                      foreign and U.S. companies.

   INVESTMENT      The Lexington Global Corporate Leaders Fund, Inc. (the
     STRATEGY      "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:
 
                   -  Asia Region (including Japan);
 
                   -  Europe;
 
                   -  Latin America;
 
                   -  Africa;
 
                   -  North America (including U.S. and Canada); and,
 
                   -  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:
 
                   -  securities of smaller capitalization companies;
 
                   -  debt securities; and
 
                   -  other investments.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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.

                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
                  
                  
 
  8
<PAGE>
 
        INTERNATIONAL FUNDS
 
                        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 1989 through 1998. 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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                     GLOBAL CORPORATE LEADERS FUND
                                                                     -----------------------------
<S>                                                           <C>
89                                                                              25.10%
90                                                                             -16.75%
91                                                                              15.55%
92                                                                              -3.55%
93                                                                              31.88%
94                                                                               1.84%
95                                                                              10.69%
96                                                                              16.43%
97                                                                               6.90%
98                                                                              19.06%
</TABLE>
 
<TABLE>
<S>                                                      <C>               <C>      <C>      <C>
                                                         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
</TABLE>
 
- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
  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.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$215.05   $663.92   $1,139.01   $2,451.76
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                               9
<PAGE>
 
              LEXINGTON INTERNATIONAL FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington International Fund's investment objective is
    OBJECTIVE         to seek long-term growth of capital through investment in
                      equity securities and equity equivalents of companies
                      outside of the U.S.
                    
                   
                   
 
  INVESTMENT       The Lexington International Fund, Inc. (the "Fund") will
    STRATEGY       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 intends to provide investors with the opportunity to
                   invest in a portfolio of securities of companies and
                   governments located throughout the world. In making the
                   allocation of assets among the various countries and
                   geographic regions, the Fund considers such factors as
                   prospects for relative economic-growth; expected levels of
                   inflation and interest rates; government polices influencing
                   business conditions; the range of investment opportunities
                   available to international investors; and other pertinent
                   financial, tax, social, political and national factors -- all
                   in relation to the prevailing prices of the securities in
                   each country or region. The Fund does not anticipate
                   concentrating its investments in any particular region.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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 28.
 
 10
<PAGE>
 
        INTERNATIONAL FUNDS
 
                        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 since inception (01/03/94)
through 1998. 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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          INTERNATIONAL FUND
                                                                          ------------------
<S>                                                           <C>
94                                                                               5.87%
95                                                                               5.77%
96                                                                              13.57%
97                                                                               1.61%
98                                                                              19.02%
</TABLE>
 
<TABLE>
<S>                                                         <C>                   <C>      <C>
                                                            AVERAGE ANNUAL RETURNS THROUGH 12/31/98
 
                                                            International Fund    19.02(%)     9.00(%)
                                                            EAFE                  20.33(%)     9.25(%)
                                                            ----------------------------------------------
                                                                                  1 Year   Since Inception
                                                                                             (01/03/94)
</TABLE>
 
- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
  Management Fees                                                1.00%
  Rule 12b-1 Fees                                                0.25%
  Other Fees                                                     1.00%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES                                    2.25%
</TABLE>
 
* In 1998, 0.50% of the management fee was voluntarily waived
  by the Manager, 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.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$228.09   $703.27   $1,204.94   $2,584.93
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              11
<PAGE>
 
              LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Worldwide Emerging Markets Fund's investment
    OBJECTIVE         objective is to seek long-term growth of capital primarily
                      through investment in equity securities and equity
                      equivalents of emerging market companies.

                  
                  
 
  INVESTMENT       The Lexington Worldwide Emerging Markets Fund, Inc. (the
    STRATEGY       "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:

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

                   -  Asia: Bahrain, Bangladesh, China, Hong Kong, India,
                      Indonesia, Malaysia, Pakistan, the Philippines, Singapore,
                      South Korea, Sri Lanka, Taiwan and Thailand;
 
                   -  Europe: Croatia, Cyprus, Czech Republic, Estonia, Finland,
                      Greece, Hungary, Latvia, Lithuania, Poland, Portugal,
                      Romania, Russia, Slovakia and Slovenia;
 
                   -  The Middle East: Israel, Jordan, Lebanon, Oman and Turkey;
 
                   -  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 an emerging market country, 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.
 
                   The Fund's investment approach is to focus on positive
                   returns through long-term capital gains. The investment
                   strategy is based on a top-down approach that compares macro
                   trends, such as economics, politics, industry trends, and
                   commodity trends on a relative basis. Countries are grouped
                   regionally and globally and ranked based on their macro
                   scores. Once specific countries are identified as relative
                   outperformers, specific companies are selected as
                   investments. The selection process for selecting individual
                   companies is based on fundamental research, industry themes,
                   and identifying specific catalysts for growth.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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 28.
 
 12
<PAGE>
 
        INTERNATIONAL FUNDS
 
                        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 1989 through 1998*. 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.
 
* Prior to June 17, 1991, the Fund operated under a different investment
  objective.
 
  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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                    WORLDWIDE EMERGING MARKETS FUND
                                                                    -------------------------------
<S>                                                           <C>
89                                                                              28.11%
90                                                                             -14.44%
91                                                                              24.19%
92                                                                               3.77%
93                                                                              63.37%
94                                                                             -13.81%
95                                                                              -5.93%
96                                                                               7.38%
97                                                                             -11.40%
98                                                                             -29.06%
</TABLE>
 
<TABLE>
   <S>                                                         <C>           <C>       <C>       <C>
                                                               AVERAGE ANNUAL RETURNS THROUGH 12/31/98
                                                               Worldwide
                                                               Emerging
                                                               Markets Fund  -29.06(%) -11.36(%)   2.36(%)
                                                               MSCI
                                                               Emerging
                                                               Markets Free  -25.34(%)  -9.27(%)  10.95(%)
                                                               EAFE           20.33(%)   9.25(%)   5.86(%)
                                                               -----------------------------------------
                                                                              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 31.81% for the fourth quarter in 1993 and the fund's lowest quarterly return was -26.18% for the
   third quarter in 1998.
</TABLE>
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
  Management Fees                                                1.00%
  Rule 12b-1 Fees                                                0.25%
  Other Fees                                                     0.60%
- ------------------------------------------------------------------------
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 remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$187.91   $581.69   $1,000.66   $2,169.16
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              13
<PAGE>
 
              LEXINGTON SMALL CAP ASIA GROWTH FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT     -  The Lexington Small Cap Asia Growth Fund's investment
    OBJECTIVE        objective is to seek long-term capital appreciation
                     primarily by investing in equity securities and equity
                     equivalents of companies in the Asia Region having market
                     capitalizations of less than $1 billion.
 
  INVESTMENT       The Lexington Small Cap Asia Growth Fund, Inc. (the "Fund")
    STRATEGY       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.

                   The Fund intends to invest primarily in companies which:
  
                   -  have proven management;
 
                   -  are undervalued and under-researched by the investment
                      community;
 
                   -  are within industry sectors with strong growth prospects;
                      and
 
                   -  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:
 
                   -  companies with market capitalizations of $1 billion or
                      more;
 
                   -  companies outside the Asia Region (e.g. Australia or New
                      Zealand);
 
                   -  debt securities; and
 
                   -  other investments.
 
                   The Fund considers the following countries to be in the Asia
                   Region:(1)
 
<TABLE>
                               <S>        <C>        <C>              <C>        <C>
                               Bangladesh India      Malaysia         Singapore  Taiwan
                               China      Indonesia  Pakistan         Sri Lanka  Thailand
                               Hong Kong  Korea      The Philippines  Vietnam
</TABLE>
 
                   The Fund will normally invest in at least three different
                   countries. The Fund does not intend to invest in Japanese
                   securities.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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. The Fund's volatility may be increased
                   by its heavy concentration in emerging Asian markets as 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 28.
 
                   (1) The Fund considers a company to be within the Asia Region
                       if its principal securities' trading market is located in
                       the Asia Region.
 14
<PAGE>
 
        INTERNATIONAL FUNDS
 
                        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 since inception (07/03/95)
through 12/31/98. 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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                   CROSBY SMALL CAP ASIA GROWTH FUND
                                                                   ---------------------------------
<S>                                                           <C>
95                                                                              -4.39%
96                                                                              25.50%
97                                                                             -42.32%
98                                                                             -19.41%
</TABLE>
 
<TABLE>
   <S>                                                         <C>                  <C>      <C>
                                                               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
                                                                                             (07/03/95)
   ---------------------------------------------------------------------------------------------------
   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.
</TABLE>
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
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 Manager, and 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.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$289.06   $885.87   $1,508.50   $3,185.46
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              15
<PAGE>
 
              LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Troika Dialog Russia Fund's investment
    OBJECTIVE         objective is to seek long-term capital appreciation
                      through investment primarily in equity securities of
                      Russian companies.
 
  INVESTMENT       The Lexington Troika Dialog Russia Fund, Inc. (the "Fund")
    STRATEGY       seeks to achieve its objective by investing at least 65% of
                   its total assets in equity securities and equity equivalents
                   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 economies of the
                   former Soviet Union.
 
      PRINCIPAL    The Fund's investments will include investments in Russian
          RISKS    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:
 
                   -  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;
 
                   -  The extremely volatile and often illiquid nature of the
                      secondary market for Russian securities;
 
                   -  A cumbersome share registration system for recording
                      ownership of Russian securities which may adversely affect
                      a person's ability to prove ownership.
 
                   -  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.
 
                   The Fund is a non-diversified investment company. There is
                   additional risk associated with being non-diversified, since
                   a greater proportion of total assets may be invested in a
                   single company.
 
                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
 16
<PAGE>
 
        INTERNATIONAL FUNDS
 
                        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 since inception (07/03/96)
through 12/31/98. 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.
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                       TROIKA DIALOG RUSSIA FUND
                                                                       -------------------------
<S>                                                           <C>
96                                                                              -9.01%
97                                                                              67.50%
98                                                                             -82.99%
</TABLE>
 
<TABLE>
   <S>                                                         <C>                <C>       <C>
                                                               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
                                                                                            (07/03/96)
   --------------------------------------------------------------------------------------------------
 
   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.
</TABLE>
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
  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. Net expenses were actually 1.84%.
 
+ The 2.00% redemption fee only applies to shares held less
  than 365 days.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$471.84   $820.41   $1,400.12   $2,973.44
</TABLE>
 
You would pay the following expenses if you did not redeem your
shares:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$267.12   $820.41   $1,400.12   $2,973.44
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              17
<PAGE>
 
              LEXINGTON GNMA INCOME FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington GNMA Income Fund's investment objective is
    OBJECTIVE         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       Under normal conditions, the Lexington GNMA Income Fund, Inc.
    STRATEGY       (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    Through investment in GNMA securities, the Fund may expose
          RISKS    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 28.
 
                   (2) Please refer to the statement of additional information
                       for a complete description of GNMA certificates and
                       Modified Pass through GNMA Certificates. The Fund intends
                       to use the proceeds from principal payments to purchase
                       additional GNMA Certificates or other U.S. Government
                       guaranteed securities.
 
 18
<PAGE>
 
            FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
 
                        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 1989 through 1998. 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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                           GNMA INCOME FUND
                                                                           ----------------
<S>                                                           <C>
89                                                                              15.60%
90                                                                               9.23%
91                                                                              15.75%
92                                                                               5.19%
93                                                                               8.06%
94                                                                              -2.07%
95                                                                              15.91%
96                                                                               5.71%
97                                                                              10.20%
98                                                                               7.52%
</TABLE>
 
<TABLE>
<S>                                                         <C>                <C>     <C>     <C>
                                                            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    
</TABLE>
 
- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
  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.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years   5 Years   10 Years
- ---------------------------------------
<S>       <C>       <C>       <C>
$103.01   $321.54   $557.85   $1,236.24
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              19
<PAGE>
 
              LEXINGTON GLOBAL INCOME FUND
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Global Income Fund's investment objective is
    OBJECTIVE         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.
 
  INVESTMENT       The Lexington Global Income Fund (the "Fund") invests in a
    STRATEGY       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 in developed foreign countries,
                   and companies in 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.
 
                   The Fund's investment strategy stresses diversification to
                   help reduce the Fund's price volatility. Global fixed income
                   securities are divided into four categories. The categories
                   reflect whether the securities are U.S. dollar denominated or
                   not and whether borrowers are in developed markets or
                   emerging markets. The Fund then seeks to select the best
                   values in each of these four segments. The balance the Fund
                   maintains between these sectors attempts to limit the price
                   volatility.
 
      PRINCIPAL    Through investment in bonds, the Fund may expose you to
          RISKS    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.
 
                   The Fund is a non-diversified investment company. There is
                   additional risk associated with being non-diversified, since
                   a greater proportion of total assets may be invested in a
                   single company.
 
                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
 20
<PAGE>
 
            FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
 
                        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 1989 through 1998.* 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.
 
* Prior to December 31, 1994, the Fund operated under a different investment
objective.
 
  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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                          GLOBAL INCOME FUND
                                                                          ------------------
<S>                                                           <C>
89                                                                               7.40%
90                                                                               6.62%
91                                                                              10.03%
92                                                                               6.51%
93                                                                              10.90%
94                                                                              -6.52%
95                                                                              20.10%
96                                                                              13.33%
97                                                                               5.00%
98                                                                               8.21%
</TABLE>
 
<TABLE>
   <S>                                                         <C>             <C>      <C>     <C>
                                                               AVERAGE ANNUAL RETURNS THROUGH 12/31/98
                                                               Global Income
                                                               Fund             8.21(%) 7.65(%) 7.96(%)
                                                               Lehman
                                                               Brothers
                                                               Global Bond
                                                               Index           15.33(%) 8.43(%) 9.33(%)
                                                               ---------------------------------------
                                                                               1 Year     5       10
                                                                                        Year     Year
 
   ------------------------------------------------------------------------------------------
   During the ten 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 -6.61% for the first quarter in 1994.
</TABLE>
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
  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 Manager, 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.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$191.94   $593.91   $1,021.27   $2,211.54
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              21
<PAGE>
 
              LEXINGTON MONEY MARKET TRUST
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Money Market Trust's investment objective is
    OBJECTIVE         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       The Lexington Money Market Trust (the "Fund") will invest in
    STRATEGY       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    An investment in the Fund is not insured or guaranteed by the
          RISKS    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.
                   
                   
                   
 
 22
<PAGE>
 
                    MONEY MARKET FUNDS
 
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.
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)*
  Management Fees                                                0.50%
  Rule 12b-1 Fees                                                 None
  Other Fees                                                     0.55%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES                                    1.05%
  Fee Waiver and/or Expense Reimbursement                        0.05%
NET EXPENSES                                                     1.00%
</TABLE>
 
                                                                       
                                                                       
                                                                       
 
* Lexington Management Corporation has contractually agreed to
  reduce its management fee in order to limit the Fund's annual
  total operating expenses (exclusive of taxes and interest) to
  1.00%. This agreement has a one-year term, renewable at the
  end of each fiscal year.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years   5 Years   10 Years
- ---------------------------------------
<S>       <C>       <C>       <C>
$102.00   $318.40   $552.46   $1,224.62
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
FEES AND EXPENSES                                                         23

<PAGE>
 
              LEXINGTON GOLDFUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Goldfund's investment objective is to attain
    OBJECTIVE         capital appreciation and such hedge against the loss of
                      buying power of the U.S. Dollar as may be obtained through
                      investment in gold and securities of companies engaged in
                      mining or processing gold throughout the world.
 
  INVESTMENT       Under normal conditions the Lexington Goldfund, Inc. (the
    STRATEGY       "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.
 
                   The Fund's performance and ability to meet its objective will
                   be largely dependent on the market value of gold. The
                   portfolio manager seeks to maximize on advances and minimize
                   on declines by monitoring and anticipating shifts in the
                   relative values of gold related companies throughout the
                   world. A substantial portion of the Fund's investments will
                   be in the securities of foreign issuers.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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.
  
                   The Fund is a non-diversified investment company. There is
                   additional risk associated with being non-diversified, since
                   a greater proportion of total assets may be invested in a
                   single company.
 
                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
 24
<PAGE>
 
                          PRECIOUS METAL FUNDS
 
                        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 1989 through 1998. 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.
 
  ----------------------------------------------------------------------------
<TABLE>
<S>        <C>
1989        23.62%
1990       -20.65%
1991        -6.14%
1992       -20.51%
1993        86.96%
1994        -7.28%
1995        -1/89%
1996         7.84%
1997       -42.98%
1998        -6.39%
</TABLE>



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

- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
  Management Fees                                                  0.92%
  Rule 12b-1 Fees                                                  0.25%
  Other Fees                                                       0.57%
- ------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES                                      1.74%
</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 remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
 
<TABLE>
<CAPTION>
1 Year    3 Years   5 Years   10 Years
- ---------------------------------------
<S>       <C>       <C>       <C>
$176.84   $547.99   $943.74   $2,051.67
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              25
<PAGE>
 
              LEXINGTON SILVER FUND, INC.
 
   RISK/RETURN SUMMARY
 
   INVESTMENT      -  The Lexington Silver Fund's investment objective is to
    OBJECTIVE         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       Lexington Silver Fund, Inc. (the "Fund") will seek to achieve
    STRATEGY       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.
                   Approximately 80% of silver is provided as a by-product or
                   co-product of other mining operations, such as gold mining.
                   The Fund has the ability to significantly increase its
                   exposure to silver by increasing its holding of silver
                   bullion.
 
      PRINCIPAL    Through stock investment, the Fund may expose you to common
          RISKS    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.
 
                   The Fund is a non-diversified investment company. There is
                   additional risk associated with being non-diversified, since
                   a greater proportion of total assets may be invested in a
                   single company.
 
                   For a more detailed risk discussion involving investments in
                   this Fund, please read "Risks of Investing" on page 28.
 
 26
<PAGE>
 
                          PRECIOUS METAL FUNDS
 
                        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 since inception (01/02/92)
through 12/31/98. 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.
 
  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.
 
  ----------------------------------------------------------------------------
 
<TABLE>
<CAPTION>
                                                                              SILVER FUND
                                                                              -----------
<S>                                                           <C>
92                                                                            -19.01%
93                                                                             76.52%
94                                                                             -8.37%
95                                                                             12.37%
96                                                                              2.38%
97                                                                             -8.05%
98                                                                            -29.64%
</TABLE>
 
<TABLE>
<S>                                                         <C>          <C>       <C>      <C>
                                                            AVERAGE ANNUAL RETURNS THROUGH 12/31/98
 
                                                            Silver Fund  
                                                            S&P 500      -29.64(%) - 7.37(%)  0.96(%)
                                                            Silver        28.72(%)  24.09(%) 19.51(%)
                                                            Bullion      -16.51(%)  -0.43(%)  3.39(%)
                                                            ----------------------------------------
                                                                          1 Year   5 Year      Since
                                                                                            Inception
                                                                                            (01/02/92)
</TABLE>
 
- --------------------------------------------------------------------------------
  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.
 
This table describes the fees and expenses that you may pay if
you buy and hold shares of the Fund.
                                                             FEES AND
                                                             EXPENSES
 
<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
ANNUAL FUND OPERATING EXPENSES (Paid from Fund assets)
  Management Fees                                                  1.00%
  Rule 12b-1 Fees                                                   None
  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.
 
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:
 
<TABLE>
<CAPTION>
1 Year    3 Years    5 Years    10 Years
- -----------------------------------------
<S>       <C>       <C>         <C>
$240.12   $739.46   $1,265.42   $2,706.22
</TABLE>
 
See "Management of the Fund" for more complete descriptions of
such costs and expenses.
 
                                                                              27
<PAGE>
 
              RISKS OF INVESTING
 
RISKS OF INVESTING IN MUTUAL FUNDS
 
The following risks are common to all mutual funds and, therefore, apply to the
Funds:
 
- -  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.
 
- -  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.
 
- -  Year 2000 Risk. Preparing for Year 2000 is a high priority for the Manager.
   The Manager is diligently working with external partners, suppliers, vendors
   and other service providers to ensure that the systems with which it
   interacts will remain operational at all times. The Manager does not
   anticipate that the move to Year 2000 will have a material impact on its
   ability to continue to provide the Funds with service at current levels;
   however, the Manager cannot make any assurances that the steps it has taken
   to ensure Year 2000 compliance will be successful. In addition, there can be
   no assurance that Year 2000 issues will not affect the companies in which the
   Funds invest or worldwide markets and economies.
 
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 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:
 
- -  limited product lines;
 
- -  limited markets or financial or managerial resources;
 
- -  their securities may be more susceptible to losses and risks of bankruptcy;
 
- -  their securities may trade less frequently and with lower volume, leading to
   greater price fluctuations; and,
 
- -  their securities are subject to increased volatility and reduced liquidity
   due to limited market making and arbitrage activities.
 
RISKS OF INVESTING IN FOREIGN SECURITIES
 
The following risks apply to all mutual funds that invest in foreign securities
including Lexington Small Cap Asia Growth Fund, Lexington Global Corporate
Leaders Fund, Lexington Goldfund, Lexington Growth and Income Fund, Lexington
International Fund, Lexington Global Income Fund, Lexington Silver Fund,
Lexington Troika Dialog Russia Fund and Lexington Worldwide Emerging Markets
Fund.
 
- -  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.
 
 28
<PAGE>
 
                              RISKS OF INVESTING
 
- -  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.
 
- -  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.
 
- -  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.
 
- -  Political Risk. Since the breakup of the Soviet Union in 1991, Russia has
   experienced and continues to experience dramatic political and social change.
   Russia is undergoing a rapid transition from a centrally-controlled command
   system to a more market-oriented democratic model. The Funds may be affected
   unfavorably by political developments, social instability, changes in
   government policies, and other political and economic developments.
 
- -  Market Concentration and Liquidity Risk. The Russian securities markets are
   substantially smaller, less liquid and more volatile than the securities
   markets in the United States. A few issuers represent a large percentage of
   market capitalization and trading volume. Due to these factors and despite
   the Funds' policies on liquidity, it may be difficult for the Funds to buy or
   sell some securities because of the poor liquidity.
 
- -  Settlement and Custody Risk. Ownership of shares in Russian companies is
   recorded by the companies themselves and by registrars instead of through a
   central registration system. It is possible that the Funds' ownership rights
   could be lost through fraud or negligence. Since the Russian banking
   institutions and registrars are not guaranteed by the state, the Funds may
   not be able to pursue claims on behalf of the Funds' shareholders.
 
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.
 
                                                                              29
<PAGE>
 
These Funds may invest a greater 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 Goldfund and Lexington Silver Fund.
 
Precious metal investments have the following characteristics:
 
- -  earn no income;
 
- -  transaction and storage costs may be higher; and
 
- -  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.
 
 30
<PAGE>
 
              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 LGAM. 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 Small Cap Asia Growth Fund. Crosby Asset Management (US) Inc. (Crosby)
is the sub-adviser of the Lexington Small Cap Asia Growth Fund. Crosby is
located at 32/F Asia Pacific Finance Tower, Citibank Plaza, 3 Garden Road,
Central, Hong Kong. Crosby is a subsidiary of Crosby Group, Hong Kong. Crosby
provides investment advice and management to Lexington Small Cap Asia Growth
Fund.
 
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.
 
                                                                              31
<PAGE>
 
             PORTFOLIO MANAGERS
 
LEXINGTON SMALLCAP FUND

[DEMICHELE PHOTO]
           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 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 Growth and
           Income Fund.

[PELUSO PHOTO]
           FRANK A. PELUSO. Mr. Peluso is one of three lead managers of a
           portfolio management team that manages the Lexington SmallCap Fund.
           He has 36 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. In 1976, he established
Marketiming Inc. (currently named Market Systems Research, Inc., a fully-owned
subsidiary of MSR). He was with MSR since its inception in 1986. 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 GROWTH AND INCOME FUND

[WAPNICK PHOTO]
           ALAN H. WAPNICK. Mr. Wapnick is a member of an investment management
           team that manages the Lexington Global Corporate Leaders Fund and
           Lexington SmallCap Fund. Mr. Wapnick is the lead manager for
           Lexington Growth and Income Fund. Mr. Wapnick is Senior Vice
           President, Director 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 an M.B.A. from Columbia University.
 
LEXINGTON GLOBAL CORPORATE LEADERS FUND

[SALER PHOTO]
           RICHARD T. SALER. Mr. Saler is a member of an investment management
           team that manages the Lexington Global Corporate Leaders 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 thirteen 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.
 
 32
<PAGE>
 
                                   PORTFOLIO MANAGERS
 
[SCHWARTZ PHOTO]
           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 twelve 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. Please see biography under Lexington Growth and Income Fund.
 
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

[VIEGAS PHOTO]
           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.

[ZAIDI PHOTO]
           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 SMALL CAP ASIA GROWTH FUND

[LAM PHOTO]
           CHRISTINA LAM. Ms. Lam is the lead manager on a portfolio management
           team that manages the Lexington Small Cap Asia Growth Fund. Ms. Lam
           is Vice President and Portfolio Manager of the Lexington 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.
 
                                                                              33
<PAGE>
 
LEXINGTON TROIKA DIALOG RUSSIA FUND

[MC CARTHY PHOTO]
           TIMOTHY D. MCCARTHY is a member of the portfolio management team that
           manages the Lexington Troika Dialog Russia Fund. Mr. McCarthy has a
           B.S. degree in Economics from the State University of New York at
           Oneonta and an M.B.A. from the State University of New York at
           Binghamton. He joined Troika Dialog, Moscow in July, 1998. Prior to
           May, 1998 he was an Executive Director with Alfa Asset Management,
           Moscow. From January, 1995 to March, 1997 he was co-founder and
director of Capital Regent Securities, a Moscow based investment and advisory
firm. From June, 1990 to December, 1994 he was a consultant and senior
consultant with Deloitte & Touche Management Consulting in New York.

[HISEY PHOTO]
           RICHARD M. HISEY, C.F.A. Mr. Hisey is a member of the portfolio
           management team and investment strategist for the Lexington Troika
           Dialog Russia Fund. Mr. Hisey is Managing Director and Chief
           Financial Officer of LMC. He is also a Vice President 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 LMC. He
           sits on the Investment Company Institute's Accounting/Treasurers,
International and Tax Committees. He is a Chartered Financial Analyst and is a
member of the New York Society of Security Analysts. Prior to joining LMC 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.

[VARDANIAN PHOTO]
           RUBEN 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 Troika Dialog Asset Management. He is Vice
           Chairman of the Board of Directors of the Depository Clearing
           Company, Moscow. 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.

[TEPLUKHIN PHOTO]
           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 Troika Dialog Asset Management. 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.

[LARICHEV PHOTO]
           OLEG LARICHEV is a member of the portfolio management team that
           manages the Lexington Troika Dialog Russia Fund. Mr. Larichev
           received a Master of Arts in Economics from the New Economic School,
           Moscow and a Diploma in Computer Graphics from Moscow State
           University. He has been associated with Troika Dialog, Moscow since
           September, 1996. Prior to September, 1996 he was an economics expert
           with the Russian European Center for Economic Policy. Prior to April,
           1995 he held part-time positions with the World Bank and the Moscow
office of the London School of Economics.
 
 34
<PAGE>
 
                                   PORTFOLIO MANAGERS
 
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. The members of the Board of
Advisers are:
 
KEITH BUSH is a Senior Associate -- Russian and Eurasian Studies at the Center
for Strategic and International Studies in Washington, D.C. Prior to 1994, Mr.
Bush was the Director of Radio Free Europe's Radio Liberty Research area. Mr.
Bush has published more than 1,000 analyses on developments in the former Soviet
Union.
 
MARIN J. STRMECKI is the Director of Programs for the Smith Richardson
Foundation. Prior to 1994, Dr. Strmecki served as a Legislative Assistant to
U.S. Senator Orrin Hatch. Prior to 1993, Dr. Strmecki served as a Special
Assistant for Public Policy on the Policy Planning Staff of the U.S. Office of
the Secretary, Department of Defense. Prior to 1992, Dr. Strmecki served as a
Professional Staff Member of the Foreign Relations Committee of the U.S. Senate.
Dr. Strmecki also served as a Foreign Policy Consultant to former U.S. President
Richard M. Nixon from 1990 to 1994.
 
LEXINGTON GNMA INCOME FUND

[JAMISON PHOTO]
           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 Chartered Financial Analyst and 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.

[MC CARTHY PHOTO]
           ROSEANN G. MCCARTHY. Ms. McCarthy is a co-manager of the Lexington
           GNMA Income Fund and 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 GLOBAL INCOME FUND
 
           DENIS P. JAMISON, CFA. Please see biography under Lexington GNMA
           Income Fund.
 
                                                                              35
<PAGE>
 
LEXINGTON MONEY MARKET TRUST
 
           DENIS P. JAMISON, CFA. Please see biography under Lexington GNMA
           Income Fund.
 
           ROSEANN G. MCCARTHY. Please see biography under Lexington GNMA Income
           Fund.
 
LEXINGTON GOLDFUND

[VAIL PHOTO]
           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.
 
MANAGEMENT FEES AND EXPENSE LIMITS
 
Each Fund pays a management fee at an annual rate based on its average daily net
assets, to LMC as follows: Growth and Income Fund pays 0.75% on the first $100
million of average daily net assets, 0.60% on the next $50 million, 0.50% on the
next $100 million and 0.40% thereafter. SmallCap Fund pays 1.00%. Global
Corporate Leaders Fund pays 1.00%. International Fund pays 1.00%. Worldwide
Emerging Markets Fund pays 1.00%. Small Cap Asia Growth Fund pays 1.25%. Russia
Fund pays 1.25%. GNMA Income Fund pays 0.60% on the first $150 million, 0.50% on
the next $250 million, 0.45% on the next $400 million, and 0.40% thereafter.
Global Income Fund pays 1.00%. Money Market Trust pays 0.50%. Goldfund pays
1.00% on the first $50 million and 0.75% thereafter. Silver Fund pays 1.00% on
the first $30 million and 0.75% thereafter.
 
GNMA Income Fund and Money Market Trust have contractual expense limitations
with LMC. The agreements have a one-year term, renewable at the end of each
fiscal year. GNMA Income Fund's annual expenses are limited to 1.50% of average
daily net assets up to $30 million, and 1.00% thereafter. Money Market Trust's
annual expenses are limited to 1.00%. LMC has voluntarily agreed to limit annual
expenses to 2.50% of average daily net assets for each of the Funds except for
Russia Fund, GNMA Income Fund and Money Market Trust. This limit is exclusive of
12b-1 fees. With respect to Russia Fund, LMC has voluntarily agreed to limit
annual expenses to 3.35% of average daily net assets, inclusive of 12b-1 fees.
These voluntary limits became effective January 1, 1999, and may be terminated
at any time.
 
 36
<PAGE>
              INVESTMENT OPTIONS

    TO OPEN A NEW ACCOUNT, COMPLETE AND MAIL THE NEW ACCOUNT APPLICATION
    INCLUDED WITH THIS PROSPECTUS.
- --------------------------------------------------------------------------------
    Mail your completed application, any checks and correspondence to the
    Transfer Agent:
 
       TRANSFER AGENT
       State Street Bank and Trust Company
       c/o National Financial Data Services
       Lexington Funds
       P.O. Box 419648
       Kansas City, Missouri 64141-6648

       OVERNIGHT MAIL
       State Street Bank and Trust Company
       c/o National Financial Data Services
       Lexington Funds
       330 W. 9th Street
       Kansas City, MO 64105
 
    Checks should be made payable to: The Lexington Funds
 
    Call a Lexington shareholder service representative Monday through
    Friday between 9:00 A.M. and 5:00 P.M. Eastern time for information on the 
    Funds or your account, at:
 
         (800) 526-0056 OR (201) 845-7300 FOR SERVICE M-F 9 A.M.- 5 P.M. EASTERN
         TIME
 
         (800) 526-0052 FOR 24 HOUR ACCOUNT INFORMATION "LEXLINE"
 
         (800) 526-0057 FOR 24 HOUR PROSPECTUS INFORMATION
 
    Trade requests received after 4 P.M. Eastern time (1 P.M. Pacific time)
    will be executed at the following business day's closing price.
 
    Once an account is established you can:
 
    -  SELL OR EXCHANGE SHARES BY PHONE.
       Contact the Lexington Funds at 800-526-0056.
 
    -  BUY OR EXCHANGE SHARES ONLINE.
       Go to WWW.LEXINGTONFUNDS.COM. and follow our online instructions to
       enable this service.
 
    -  BUY, SELL OR EXCHANGE SHARES BY MAIL.
       Mail buy/sell order(s), investment or redemption instructions and any
       required payment by check:
 
       State Street Bank and Trust Company
       c/o National Financial Data Services
       Lexington Funds
       P.O. Box 419648
       Kansas City, Missouri 64141-6648
 
    -  BUY SHARES BY WIRING FUNDS.
 
       To: State Street Bank and Trust Company DDA Account #99043713;
           [Lexington Fund you are investing in]
           For credit to: [shareholder(s) name]
           Account number:
           ABA Routing #011000028
 

 
                                                                              37
<PAGE>
 
              SHAREHOLDER INFORMATION
 
WHAT YOU NEED TO KNOW ABOUT YOUR LEXINGTON ACCOUNT
 
You pay no sales charges to invest in The Lexington Funds. The minimum initial
investment for the Funds (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 for
qualified plan accounts. If you buy shares through a broker or investment
advisor, they may apply different requirements. All investments must be made in
U.S. dollars. In addition, we reserve the right to reject any purchase.
 
BECOMING A LEXINGTON SHAREHOLDER
 
To open a new account:
 
- -  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, traveler's
   checks, instant-loan checks or cash investments. We may impose a charge on
   checks that do not clear.
 
- -  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:
 
   State Street Bank and Trust Company
   DDA account #99043713
   [Lexington Fund you are investing in]
   For credit to: [shareholder(s) name]
   Shareholder(s) account #
   ABA Routing #011000028
 
   Please note that your bank may charge a wire transfer fee.
 
BUYING ADDITIONAL SHARES
 
- -  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.
 
- -  "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."
 
   -  You may not use a "Lex-O-Matic" investment to open a new account. The
      minimum investment amount must still be made into the Fund. The minimum
      Lex-O-Matic 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
      preprinted deposit slip (savings account) from your bank account to your
      Lexington Account Application or a "Lex-O-Matic" Application.
 
 38
<PAGE>
 
                                       SHAREHOLDER INFORMATION
 
   -  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 or change the amount of 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 after payment is received. In order
to facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
 
You may purchase shares of the Lexington Funds through broker-dealers or
financial institutions that have selling agreements with LFD. Broker-dealers and
financial institutions that process such orders for customers may charge a fee
for their services. The fee may be avoided by purchasing shares directly from
the Lexington Funds.
 
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 of the new Fund. An exchange will result in a recognized gain
or loss for income tax purposes. Exchanges of over $500,000 may 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 which is
included on your new account application, or you can request it separately by
calling shareholder services at 800-526-0056. Telephone exchanges may not be
made within 7 calendar days of a previous exchange.
 
If not a new account, the minimum exchange required is $500; $250 for Individual
Retirement Accounts.
 
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 unless you decline this privilege
on the application or the transfer agent is notified by the shareholder in
writing to remove the privilege. All accounts involved in a telephonic exchange
must have the same dividend option, registration and social security number 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.
 
                                                                              39
<PAGE>
 
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 business days after receipt of
all documents in proper form by our transfer agent, 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.
 
The transfer agent will restrict the mailing of redemption proceeds to a
shareholder address of record within 30 days of such address being changed,
unless the shareholder provides a signature guaranteed letter of instruction.
 
REDEEMING BY 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 be made
payable and/or mailed to a party other than the account owner(s) as registered
in our records, 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. Notary
Publics are not acceptable Guarantors. 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 if applicable 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
 
- -  Shares of the Fund may be redeemed by telephone. Call the Fund toll free at
   1-800-526-0056. New applicants may decline this privilege by checking the
   appropriate box on the application.
 
 40
<PAGE>
 
                                       SHAREHOLDER INFORMATION
 
- -  For shareholders who have not previously authorized the redemption privilege
   a redemption authorization and signature guarantee must be given before a
   shareholder may redeem by telephone. Authorization forms may be obtained by
   calling the Fund at 800-526-0056.
 
- -  Telephone redemption privileges may be cancelled by instructing the Transfer
   Agent in writing. Your request will be processed upon receipt.
 
- -  Exchange by telephone. (See "Exchanging Shares")
 
REDEEMING BY CHECK
 
- -  Check writing is available on the Money Market Trust at no charge.
 
- -  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.
 
- -  All checks require only one signature unless otherwise indicated. Checks will
   be returned to you at the end of each month.
 
- -  Redemption checks are free, but a charge of $15.00 may be imposed for any
   stop payments requested.
 
- -  Redemption checks should not be used to close your account.
 
- -  Redemptions 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.
 
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 electronic funds). 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, quarterly,
semi-annually or annually on the 28th of each month. If the 28th falls on a
weekend or a holiday, the withdrawal will occur on the preceding business day.
The redemption will result in the recognition of a 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
prices. Securities traded over-the-counter are valued at the mean between the
last current bid and asked prices. Securities for which market quotations are
not readily available or which are illiquid are valued at their fair values as
determined in good faith under the supervision of the Funds' officers, and by
the Manager and the Boards, in accordance with methods that are specifically
authorized by the Boards. Short-term obligations with maturities of 60 days or
less are valued at amortized cost as reflecting fair value. When Fund management
deems it appropriate, prices obtained for the day of valuation from a third
party pricing service will be used to value portfolio securities.
 
                                                                              41
<PAGE>
 
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.
 
- - 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. dollar 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.
 
DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
 
Each Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.
 
- -  You are not guaranteed any distributions.
 
- -  The Board of Directors has discretion in determining the amount and frequency
   of the distributions.
 
- -  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.
 
- -  The Funds will pay distributions as of the record date.
 
- -  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:
 
- -  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.
 
- -  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.
 
 42
<PAGE>
 
                                       SHAREHOLDER INFORMATION
 
- -  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 from the Fund.
 
- -  Certain dividends paid to you in January will be taxable as if they had been
   paid the previous December.
 
- -  We will mail you tax statements annually showing the amounts and tax status
   of the distributions you received.
 
- -  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.
 
- -  Under certain circumstances, a Fund may be in a position to "pass-through" to
   you the right to a credit or deduction for foreign taxes paid by the Fund.
 
- -  Because your tax treatment depends on your purchase price and tax position,
   you should keep your regular account statements for use in determining your
   tax.
 
- -  You 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.***
 
                                                                              43
<PAGE>
 
              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:
 
- -  Lexington Goldfund;
 
- -  Lexington Global Income Fund;
 
- -  Lexington Growth and Income Fund;
 
- -  Lexington International Fund;
 
- -  Lexington SmallCap Fund;
 
- -  Lexington Troika Dialog Russia Fund; and
 
- -  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:
 
- -  Each Agent receives fees up to 0.25% of the average daily net assets of the
   Fund.
 
- -  LMC may pay additional fees from its past profits, at no additional costs to
   the Funds.
 
- -  Each Agent may waive all or a portion of the fees.
 
- -  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.
 
 44
<PAGE>
 
        FINANCIAL HIGHLIGHTS
 
The financial highlights table on the following pages are intended to help you
understand the Fund's financial performance for the past 5 years. Certain
information reflects financial highlights for a single share. The total returns
in the table represent the rate that an investor would have earned (or lost) on
an investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP, whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.
 
                                                                              45
<PAGE>
 
                           DOMESTIC EQUITY FUNDS
 
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS                                     GROWTH AND INCOME FUND                          SMALLCAP FUND
PER SHARE OPERATING PERFORMANCE             1998       1997       1996       1995       1994       1998       1997     1996(a)
- ------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
NET ASSET VALUE, BEGINNING OF PERIOD        $20.27     $18.56     $15.71     $14.36     $16.16     $11.39     $11.73    $10.00
 Net investment income (loss)                   --       0.05       0.07       0.22       0.17      (0.02)    (0.19)    (0.18)
 Net realized and unrealized gain (loss)
 from investment operations                   4.30       5.46       4.08       3.00      (0.68)      0.75      1.41      1.94
 Total income (loss) from investment
 operations                                   4.30       5.51       4.15       3.22      (0.51)      0.73      1.22      1.76
 Less distributions:
  Distributions from net investment
  income                                        --      (0.07)     (0.13)     (0.22)     (0.16)        --        --        --
  Distributions in excess of net
  investment income                             --         --         --         --         --         --        --        --
  Distributions from net realized gains      (2.66)     (3.73)     (1.17)     (1.65)     (0.91)     (0.22)       --        --
  Distributions in excess of net
  realized gains                                --         --         --         --      (0.22)        --     (1.56)    (0.03)
 Total distributions                         (2.66)     (3.80)     (1.30)     (1.87)     (1.29)     (0.22)    (1.56)    (0.03)
 Net asset value, end of period             $21.91     $20.27     $18.56     $15.71     $14.36     $11.90    $11.39    $11.73
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
 TOTAL RETURN                               21.42%     30.36%     26.46%     22.57%    (3.11)%      6.73%    10.47%    17.50%
 
RATIOS/SUPPLEMENTAL DATA
 Net asset, end of period (thousands)     $245,790   $228,037   $200,309   $138,901   $124,829     $8,172     $9,565    $8,061
 Ratio of expenses to average net
 assets, before reimbursement or waiver      1.16%      1.17%      1.13%      1.09%      1.15%      2.92%     2.57%     3.04%
 Ratio of expenses to average net
 assets, net of reimbursement or waiver      1.16%      1.17%      1.13%      1.09%      1.15%      2.59%     2.57%     2.48%
 Ratio of net investment income (loss)
 to average net assets, before
 reimbursement or waiver                     0.06%      0.21%      0.43%      1.38%      1.06%    (2.00)%    (1.78)%   (2.34)%
 Ratio of net investment income (loss)
 to average net assets, net of
 reimbursement or waiver                     0.06%      0.21%      0.43%      1.38%      1.06%    (1.67)%    (1.78)%   (1.78)%
 Portfolio Turnover Rate                    63.20%     88.15%    101.12%    159.94%     63.04%    145.94%    39.09%    60.92%
</TABLE>
 
<TABLE>
                                       <S>  <C>
                                       *    Annualized.
                                       (a)  SmallCap Fund commenced operations on January 2, 1996.
                                       (b)  Small Cap Asia Growth Fund commenced operations on July 3,
                                            1995.
</TABLE>
 
 46
<PAGE>
 
   GLOBAL AND INTERNATIONAL FUNDS
                                           FINANCIAL HIGHLIGHTS
 
<TABLE>
<CAPTION>
         SMALL CAP ASIA GROWTH FUND                         GLOBAL CORPORATE LEADERS FUND
    1998       1997       1996     1995(b)         1998       1997       1996       1995       1994
  ---------------------------------------------------------------------------------------------------
  <S>        <C>        <C>        <C>           <C>        <C>        <C>        <C>        <C>
     $7.06    $12.24      $9.76      $10.00        $10.59     $11.28     $11.32     $11.17     $13.51
        --     (0.05)     (0.05)       0.02         0.99       0.03       0.01       0.09       0.02
    (1.37)     (5.13)      2.54       (0.24)        1.02       0.73       1.84       1.10       0.23
    (1.37)     (5.18)      2.49       (0.22)        2.01       0.76       1.85       1.19       0.25
        --        --         --       (0.02)       (0.80)     (0.09)     (0.16)     (0.29)        --
        --        --      (0.01)         --           --         --         --      (0.13)        --
        --        --         --          --        (2.34)     (1.36)     (1.73)     (0.62)     (2.46)
        --        --         --          --           --         --         --         --      (0.13)
        --        --      (0.01)      (0.02)       (3.14)     (1.45)     (1.89)     (1.04)     (2.59)
     $5.69     $7.06      $12.24      $9.76        $9.46     $10.59     $11.28     $11.32     $11.17
  ---------------------------------------------------------------------------------------------------
  ---------------------------------------------------------------------------------------------------
  (19.41)%   (42.32)%     25.50%   (4.39)%*        19.06%      6.90%     16.43%     10.69%      1.84%
 
   $18,278   $13,867     $23,796     $8,936       $17,803    $35,085    $37,223    $53,614    $67,392
     2.86%     2.30%       2.64%     3.51%*         2.12%      1.75%     1.90%      1.67%      1.61%
     2.50%     2.30%       2.42%     1.75%*         2.12%      1.75%     1.90%      1.67%      1.61%
   (0.57)%   (0.32)%     (0.86)%   (1.24)%*       (0.06)%      0.23%     0.11%      0.48%      0.14%
   (0.21)%   (0.32)%     (0.64)%     0.52%*       (0.06)%      0.23%     0.11%      0.48%      0.14%
   193.48%   187.41%     176.49%    40.22%*       137.33%    177.48%   128.05%    166.35%     83.40%
</TABLE>
 
                                                                              47
<PAGE>
 
<TABLE>
<CAPTION>
                                                                             INTERNATIONAL FUND
          PER SHARE OPERATING PERFORMANCE                1998          1997          1996         1995       1994(c)
- ---------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>           <C>           <C>          <C>          <C>
NET ASSET VALUE, BEGINNING OF PERIOD                      $10.10        $10.86       $10.60       $10.37       $10.00
 Net investment income (loss)                               0.17          0.07        (0.02)       (0.01)       (0.08)
 Net realized and unrealized gain (loss) from
 investment operations                                      1.74          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 (loss) to average
 net assets, before reimbursement or waiver              (0.16)%         0.13%      (0.39)%      (0.12)%      (0.94)%
 Ratio of net investment income (loss) 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>
 
<TABLE>
                                                     <S>  <C>
                                                     *    Annualized.
                                                     #    (before, or net of) reimbursement or waiver or redemption
                                                          fee proceeds.
                                                     (c)  International Fund commenced operations on January 3, 1994.
                                                     (d)  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.
</TABLE>
 
 48
<PAGE>
 
                                           FINANCIAL HIGHLIGHTS
 
<TABLE>
 
                  GLOBAL INCOME FUND                              RUSSIA FUND                  WORLDWIDE EMERGING MARKETS FUND
   1998       1997       1996       1995       1994       1998       1997      1996(d)      1998       1997       1996       1995
  ---------------------------------------------------------------------------------------------------------------------------------
<S>          <C>        <C>         <C>       <C>        <C>         <C>        <C>        <C>         <C>        <C>       <C>
   $10.58     $11.22     $10.75      $9.80     $10.95     $17.50     $11.24      $12.12     $10.18     $11.49     $10.70     $11.47
     0.90      1.04       1.01       0.96       0.46        0.15      (0.01)      (0.05)      0.12       0.01         --       0.08
   (0.07)     (0.50)      0.36       0.95      (1.16)     (14.70)      7.57       (0.51)     (3.08)     (1.32)      0.79      (0.76)
     0.83      0.54       1.37       1.91      (0.70)     (14.55)      7.56       (0.56)     (2.96)     (1.31)      0.79      (0.68)
   (0.87)     (0.91)     (0.86)     (0.96)     (0.45)      (0.07)        --          --      (0.09)        --         --      (0.08)
       --        --         --         --         --          --         --          --         --         --         --      (0.01)
   (0.18)     (0.27)     (0.04)        --         --       (0.24)     (1.30)      (0.32)        --         --         --         --
       --        --         --         --         --          --         --          --         --         --         --         --
   (1.05)     (1.18)     (0.90)     (0.96)     (0.45)      (0.31)     (1.30)      (0.32)     (0.09)        --         --      (0.09)
   $10.36     $10.58     $11.22     $10.75      $9.80      $2.64     $17.50      $11.24      $7.13     $10.18     $11.49     $10.70
  ---------------------------------------------------------------------------------------------------------------------------------
  ---------------------------------------------------------------------------------------------------------------------------------
    8.21%      5.00%     13.33%     20.10%    (6.52)%   (82.99)%     67.50%    (9.01)%*   (29.06)%   (11.40)%      7.38%    (5.93)%
 
  $36,407    $23,668    $29,110    $12,255    $10,351    $19,147   $137,873     $13,846    $65,323   $137,686   $254,673   $265,544
    1.89%     2.17%      2.33%      3.07%      1.80%       2.64%     2.89%#     5.07%*#      1.85%      1.82%      1.76%      1.88%
    1.50%     1.50%      1.50%      2.75%      1.50%       1.84%     1.85%#     2.65%*#      1.85%      1.82%      1.76%      1.88%
   10.99%     8.99%      9.49%      9.48%      4.18%       0.57%   (1.14)%#   (3.69)%*#      1.14%      0.09%    (0.01)%      0.70%
   11.38%     9.66%     10.32%      9.80%      4.48%       1.36%   (0.11)%#   (1.27)%*#      1.14%      0.09%    (0.01)%      0.70%
   45.25%   117.94%     71.83%    164.72%     10.20%      65.76%     66.84%     115.55%    107.19%    112.05%     86.26%     92.85%
 
  1994
<S>           <C>
               $13.96
                (0.01)
                (1.92)
                (1.93)
                   --
                   --
                (0.47)
                (0.09)
                (0.56)
               $11.47
- -------------------------------
- -------------------------------
<S>         <C>
               (13.81)%
             $288,581
                 1.65%
                 1.65%
               (0.06)%
               (0.06)%
                79.56%
</TABLE>
 
                                                                              49
<PAGE>
 
                                    PRECIOUS METALS FUNDS
<TABLE>
<CAPTION>
<S>                                                       <C>          <C>           <C>          <C>          <C>
                                                                                    GOLDFUND
 
<CAPTION>
            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                                           --          (0.21)       (0.79)       (0.01)       (0.03)
 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 (loss) to average net
 assets, before reimbursement or waiver                     0.08%          0.17%      (0.32)%        0.07%        0.50%
 Ratio of net investment income (loss) 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%
</TABLE>
 
<TABLE>
                                                     <S>  <C>
                                                     *    Annualized.
                                                     (e)  Six month period ended December 31, 1998. The Fund changed
                                                          its fiscal year-end from June 30th to December 31st.
                                                     (f)  Fiscal year-end June 30th.
</TABLE>
 
 50
<PAGE>
 
                                           FINANCIAL HIGHLIGHTS
 
<TABLE>
<CAPTION>
                                  SILVER FUND
   1998(e)       1998(f)      1997(f)      1996(f)      1995(f)      1994(f)
    ----------------------------------------------------------------------
  <S>           <C>           <C>          <C>          <C>          <C>      
      $3.26         $3.95        $4.46        $4.00        $3.92        $3.52
      (0.01)        (0.02)       (0.04)       (0.03)      (0.03)       (0.02)
           )
      (0.52         (0.66)       (0.43)        0.51        0.11         0.42
      (0.53)        (0.68)       (0.47)        0.48        0.08         0.40
         --            --           --           --          --           --
         --         (0.01)       (0.04)       (0.02)
         --            --           --           --          --           --
         --            --           --           --          --           --
         --         (0.01)       (0.04)       (0.02)         --           --
      $2.73         $3.26        $3.95        $4.46        $4.00        $3.92
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
   (16.26)%      (17.32)%     (10.76)%       12.02%        2.04%       11.36%
 
    $25,560       $34,921      $42,035      $73,945      $65,517      $49,499
     2.37%*         1.90%        1.96%        1.73%        1.82%        1.84%
     2.37%*         1.90%        1.96%        1.73%        1.82%        1.84%
   (0.61)%*       (0.54)%      (0.78)%      (0.72)%      (0.83)%      (0.82)%
   (0.61)%*       (0.54)%      (0.78)%      (0.72)%      (0.83)%      (0.82)%
      5.68%        28.78%       18.76%       44.30%      44.22%        5.28%
</TABLE>
 
                                                                              51
<PAGE>
 
                            FIXED-INCOME FUNDS AND MONEY MARKET FUNDS
 
<TABLE>
<CAPTION>
                                                                       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 (loss)
 to average net assets, before
 reimbursement or waiver                      5.85%           6.28%           6.56%           7.10%           6.90%
 Ratio of net investment income (loss)
 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%
</TABLE>
 
 52
<PAGE>
 
                                           FINANCIAL HIGHLIGHTS
 
<TABLE>
<CAPTION>
                           MONEY MARKET TRUST
    1998          1997            1996            1995           1994
  ---------------------------------------------------------------------
  <S>           <C>            <C>             <C>             <C>
     $1.00          $1.00           $1.00           $1.00         $1.00
    0.0455         0.0458          0.0441          0.0495        0.0330
        --             --              --              --            --
    0.0455         0.0458          0.0441          0.0495        0.0330
   (0.0455)       (0.0458)        (0.0441)        (0.0495)      (0.0330)
        --             --              --              --            --
        --             --              --              --            --
        --             --              --              --            --
   (0.0455)       (0.0458)        (0.0441)        (0.0495)      (0.0330)
     $1.00          $1.00           $1.00           $1.00         $1.00
  ---------------------------------------------------------------------
  ---------------------------------------------------------------------
     4.64%          4.68%           4.50%           5.06%         3.35%
 
   $87,488        $95,149         $97,526         $88,786      $111,805
     1.05%          1.04%           1.04%           1.08%         1.02%
     1.00%          1.00%           1.00%           1.00%         1.00%
     4.51%          4.55%           4.37%           4.87%         3.30%
     4.56%          4.58%           4.41%           4.95%         3.32%
        --             --              --              --            --
</TABLE>
 
                                                                              53
<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.
 
                 TRADEMARKS
 
                 Lexington(R) and Global Corporate Leaders(R) are registered
                 trademarks of Lexington Management Corporation.
 
                 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(R)
                      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
 
                ----------------------------------------------------------------
                      www.lexingtonfunds.com
                                                         [LOGO]
 
                 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. 811-0865 (Growth and Income);
                 811-7413 (SmallCap); 811-5113 (Global Corporate Leaders);
                 811-8172 (International); 811-1838 (Worldwide); 811-7287 (Small
                 Cap Asia Growth); 811-7587 (Russia); 811-2401 (GNMA Income);
                 811-4675 (Global Income); 811-2701 (Money Market); 811-2881
                 (Goldfund); 811-4111 (Silver).



50
<PAGE>


              LEXINGTON INTERNATIONAL FUND, INC.

             STATEMENT OF ADDITIONAL INFORMATION


                         May 3, 1999

     This Statement of Additional Information which is not a prospectus,
should be read in conjunction with the current prospectus of Lexington
International Fund, Inc.  (the "Fund"), dated May 3, 1999, and as it may
be revised from time to time.  To obtain a copy of the Fund's prospectus
at no charge, please write to the Fund at P.O.  Box 1515/Park 80 West -
Plaza Two, Saddle Brook, New Jersey 07663 or call the following toll-free
numbers:

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

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


                         TABLE OF CONTENTS
                                                         Page

History of the Fund . . . . . . . . . . . . . . . . . . . . 3 

Investment Strategies and Risks of the Fund. . . . . . . .  3

Investment Policies and Restrictions . . . . . . . . . . .  9

Portfolio Transactions and Turnover. . . . . . . . . . . . 12

Management of the Fund . . . . . . . . . . . . . . . . . . 13

Control Persons and Principal Holders of Securities. . . . 18

Investment Adviser, Administrator and Distributor. . . . . 18

Determination of Net Asset Value . . . . . . . . . . . . . 19

Distribution Plan. . . . . . . . . . . . . . . . . . . . . 20

Telephone Exchange Provisions. . . . . . . . . . . . . . . 21

Tax Sheltered Retirement Plans . . . . . . . . . . . . . . 22

Capital Stock of the Fund. . . . . . . . . . . . . . . . . 24

Dividend Distribution and Reinvestment Policy. . . . . . . 24

Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . 24

Calculation of Performance Data. . . . . . . . . . . . . . 31

Custodian, Transfer Agent and Dividend Disbursing Agent. . 32

Counsel and Independent Auditors . . . . . . . . . . . . . 32

Financial Statements . . . . . . . . . . . . . . . . . . . 33


History of the Fund
- -------------------                    
     The Lexington International Fund, Inc. (the "Fund") is a corporation
organized under the laws of the State of Maryland on November 23, 1993. 
The Fund is an open-end diversified management investment company. 

Investment Strategies and Risks of the Fund
- -=-----------------------------------------
The  Fund may purchase stock equivalents including warrants, option,
convertible debt securities and depository receipts.  The common stock
equivalents may be converted into or provide the holder with the right to
common stock.  These investments are made in order to limit the risk of a
substantial increase in the market price of a security (or an adverse
movement in its applicable currency).  

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

     The Fund may purchase put options on particular securities (or on
currencies in which those securities are denominated) in order to protect
against a decline in the market value of the underlying security below the
exercise price less the premium paid for the option (or an adverse movement
in the applicable currency relative to the U.S. dollar).  Prior to
expiration, most options are expected to be sold in a closing sale
transaction.  Profit or loss from the sale depends upon whether the amount
received is more or less than the premium paid plus transaction costs.  The
Fund may purchase put and call options on stock indices in order to hedge
against risks of stock market or industry wide stock price fluctuations. 
     
     A convertible security is a fixed-income security (a bond or
preferred stock) that may be converted at a stated price within a specified
period of time into a certain quantity of the common stock of the same or
a different issuer.  Convertible securities are senior to common stock in
a corporation's capital structure but are usually subordinated to similar
non-convertible securities.  The price of a convertible security is
influenced by the market value of the underlying common stock.        

     Depositary receipts include American depositary receipts ("ADRs"),
European depositary receipts ("EDRs"), global depositary receipts ("GDRs")
and other similar instruments.  Depositary receipts are receipts typically
issued in connection with a U.S. or foreign bank or trust company and
evidence ownership of underlying securities issued by a foreign
corporation.
                    
     The Fund may also invest in other types of equity securities
including preferred stocks.  A preferred stock is a class of capital stock
that pays dividends at a specified rate and that has preference over common
stock in the payment of dividends and the liquidation of assets.  Preferred
stock does not normally carry voting rights.

     When the Fund's investment adviser believes that debt securities will
provide capital appreciation through favorable changes in relative foreign
exchange rates, in relative interest rate levels or in the creditworthiness
of issuers, Fund may invest primarily in debt securities.

     The Fund may invest up to 10% of its total assets in shares of other
investment companies that invest in securities in which it may otherwise
invest.
     
     The Fund may invest in fixed-rate and floating- or variable-rate U.S.
government securities.  The U.S. Government guarantees payments of interest
and principal of U.S. Treasury bills, notes and bonds, mortgage-related
securities and other securities issued by the U.S. government.  Other
securities issued by U.S. government agencies or instrumentalities are
supported only by the credit of the agency or instrumentality, for example
those issued by the Federal Home Loan Bank, whereas others, such as those
issued by the FNMA, Farm Credit System and Student Loan Marketing
Association, have an additional line of credit with the U.S. Treasury.

     Short-term U.S. government securities generally are considered to be
among the safest short-term investments.  However, the U.S. government does
not guarantee the net asset value of the Funds' shares.  With respect to
U.S. government securities supported only by the credit of the issuing
agency or instrumentality or by an additional line of credit with the U.S.
Treasury, there is no guarantee that the U.S. government will provide
support to such agencies or instrumentalities.  Accordingly, such U.S.
government securities may involve risk of loss of principal and interest.
     
     Settlement Transactions- When the Fund enters into contracts for
purchase or sale of a portfolio security denominated in a foreign currency,
it may be required to settle a purchase transaction in the relevant foreign
currency or receive the proceeds of a sale in that currency. In either
event, the Fund will be obligated to acquire or dispose of such foreign
currency as is represented by the transaction by selling or buying an
equivalent amount of United States dollars. Furthermore, the Fund may wish
to "lock in" the United States dollar value of the transaction at or near
the time of a purchase or sale of portfolio securities at the exchange rate
or rates then prevailing between the United States dollar and the currency
in which the foreign security is denominated. Therefore, the Fund may, for
a fixed amount of United States dollars, enter into a forward foreign
exchange contract for the purchase or sale of the amount of foreign
currency involved in the underlying securities transaction. In so doing,
the Fund will attempt to insulate itself against possible losses and gains
resulting from a change in the relationship between the United States
dollar and the foreign currency during the period between the date a
security is purchased or sold and the date on which payment is made or
received.  This process is known as "transaction hedging".

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

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

     Portfolio Hedging-  Some or all of the Fund's portfolio will be
denominated in foreign currencies.  As a result, in addition to the risk
of change in the market value of portfolio securities, the value of the
portfolio in United States dollars is subject to fluctuations in the
exchange rate between such foreign currencies and the United States dollar. 
When, in the opinion of LMC or Crosby it is desirable to limit or reduce
exposure in a foreign currency in order to moderate potential changes in
the United States dollar value of the portfolio, the Fund may enter into
a forward foreign currency exchange contract by which the United States
dollar value of the underlying foreign portfolio securities can be
approximately matched by an equivalent United States dollar liability. 
This technique is known as "portfolio hedging" and moderates or reduces the
risk of change in the United States dollar value of the Fund's portfolio
only during the period before the maturity of the forward contract (which
will not be in excess of one year).     

     The Fund may hedge against changes in financial markets, currency
rates and interest rates.  The Fund may hedge with "derivatives."  
Derivatives are instruments whose value is lined to, or derived from,
another instrument, like an index or a commodity.  The Fund, for hedging
purposes only, may also enter into forward foreign currency exchange
contracts to increase its exposure to a foreign currency that LMC expects
to increase in value relative to the United States dollar. The Fund will
not attempt to hedge all of its foreign portfolio positions and will enter
into such transactions only to the extent, if any deemed appropriate by the
investment adviser or sub-adviser. Hedging against a decline in the value
of currency does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline. The
Fund will not enter into forward foreign currency exchange transactions for
speculative purposes.  The Fund intends to limit transactions as described
in this paragraph to not more than 70% of the total Fund assets.

     Covered Call Options - Call options may also be used as a means of
participating in an anticipated price increase of a security on a more
limited basis than would be possible if the security itself were purchased.
The Fund may write only covered call options. Since it can be expected that
a call option will be exercised if the market value of the underlying
security increases to a level greater than the exercise price, this
strategy will generally be used when the investment adviser believes that
the call premium received by the Fund plus anticipated appreciation in the
price of the underlying security, up to the exercise price of the call,
will be greater than the appreciation in the price of the security.  The
Fund intends to limit transactions as described in this paragraph to less
than 5% of total Fund assets.  The Fund will not purchase put and call
options written by others.  Also, the Fund will not write any put options.
The Fund will cause its custodian to segregate cash, U.S. Government
Securities or other high grade liquid debt obligations having a value
sufficient to meet the Fund's obligations under the call options.
     
     Futures, Swaps and Options on Futures - An interest rate futures
contract is an agreement to purchase or sell debt securities, usually U.S.
government securities, at a specified date and price.  For example, the
fund may sell interest rate futures contracts (i.e., enter into a futures
contract to sell the underlying debt security) in an attempt to hedge
against an anticipated increase in interest rates and a corresponding
decline in debt securities it owns.  The Fund will have collateral assets
equal to the purchase price of the portfolio securities represented by the
underlying interest rate futures contracts it has an obligation to
purchase.  The Fund may purchase and sell futures contracts and related
options under the following conditions:  (a) the then-current aggregate
futures market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the Fund's
total assets, at market value; and (b) no more than 5% of the assets, at
market value at the time of entering into a contract, shall be committed
to margin deposits in relation to futures contracts.


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

     Repurchase Agreements - A repurchase agreement is a contract under
which the Fund would acquire a security for a relatively short period
(usually not more than 7 days) subject to the obligations of the seller to
repurchase and the Fund to resell such security at a fixed time and price
(representing the Fund's cost plus interest).  Under the Investment Company
Act, repurchase agreements are considered to be loans by the Fund and must
be fully collateralized by collateral assets.  If the seller defaults on
its obligations to repurchase the underlying security, the Fund may
experience delay or difficulty in exercising its rights to realize upon the
security, may incur a loss if the value of the security declines and may
incur disposition costs in liquidating the security.   The Fund intends to
limit repurchase agreements to transactions with institutions believed by
LMC to present  minimal  credit risk.  Although the Fund may enter into
repurchase agreements with respect to any portfolio securities which it may
acquire consistent with its investment policies and restrictions, it is the
Fund's present intention to enter into repurchase agreements only with
respect to obligations of the United States government or its agencies or
instrumentalities to meet anticipated redemptions or pending investments
or reinvestment of Fund assets in portfolio securities. The Fund will enter
into repurchase agreements only with member banks of the Federal Reserve
System and with "primary dealers" in United States government securities.
In addition if bankruptcy proceedings are commenced with respect to the
seller, be subject to risks associated with changes in market value of the
collateral securities. The Fund intends to limit repurchase agreements to
institutions believed by LMC to present minimal credit risk.  The Fund will
not enter into repurchase agreements maturing in more than seven days if
the aggregate of such repurchase agreements and all other illiquid
securities when taken together would exceed 15% of the total assets of the
Fund.  The Fund treats any securities subject to restrictions on
repatriation for more than seven days, and securities issued in connection
with foreign debt conversion programs that are restricted as to remittance
of invested capital or profit, as illiquid.  The Fund also treats
repurchase agreements with maturities in excess of seven days as illiquid. 
Illiquid securities do not include securities that are restricted from
trading on formal markets for some period of time but for which an active
informal market exists, or securities that meet the requirements of Rule
144A under the Securities Act of 1933 and that, subject to the review by
the Board of Directors and guidelines adopted by the Board of Directors,
LMC has determined to be liquid.
     
     Reverse Repurchase Agreements -    The Fund may purchase reverse
repurchase agreements.  In a reverse repurchase agreement, the Fund sells
to a financial institution a security that it holds and agrees to
repurchase the same security at an agreed-upon price and date.
          
     When Issued and Forward Commitment Securities - The Fund may make
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time ("forward commitments") because new issues of
securities are typically offered to investors, such as the Fund, on that
basis.  Forward commitments involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date.  This risk
is in addition to the risk of decline in value of the Fund's other assets. 
Although the Fund will enter into such contracts with the intention of
acquiring the securities, the Fund may dispose of a commitment prior to
settlement if the investment adviser deems it appropriate to do so.  The
Fund may realize short-term profits or losses upon the sale of forward
commitments.  The Fund may purchase U.S. government or other securities on
a "when-issued" basis and may purchase or sell securities on a "delayed
delivery" basis.  The price is fixed at the time the commitment is made,
but delivery and payment for the securities take place at a later date. 
When-issued securities and forward commitments may be sold prior to the
settlement date, but the Fund will enter into when-issued and forward
commitments only with the intention of actually receiving or delivering the
securities.  No income accrues on securities that have been purchased
pursuant to a forward commitment or on a when-issued basis prior to
delivery to a fund.  At the time the Fund enters into a transaction on a
when-issued or forward commitment basis, it supports its obligation with
collateral assets equal to the value of the when-issued or forward
commitment securities and causes the collateral assets to be marked to
market daily.  There is a risk that the securities may not be delivered and
that the fund may incur a loss.

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

     Investors should recognize that investing in securities of foreign
companies and in particular securities of companies domiciled in or doing
business in emerging markets and emerging countries involves certain risk
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies.

Foreign Currency Considerations

     The Fund's assets will be invested in securities of foreign companies
and substantially all income will be received by the Fund in foreign
currencies. However, the Fund will compute and distribute its income in
dollars, and the computation of income will be made on the date of its
receipt by the Fund at the foreign exchange rate in effect on that date.
Therefore, if the value of the foreign currencies in which the Fund
receives its income falls relative to the dollar between receipt of the
income and the making of Fund distributions, the Fund will be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in dollars to meet distribution requirements.

     The value of the assets of the Fund as measured in dollars also may
be affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations. Further, the Fund may incur costs in
connection with conversions between various currencies. Foreign exchange
dealers realize a profit based on the difference between the prices at
which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire immediately
to resell that currency to the dealer. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward or futures contracts to purchase or sell foreign
currencies.

Risks Associated With Hedging Transactions

     Hedging transactions have special risks associated with them,
including possible default by the Counterparty to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market
movements is incorrect, the risk that the use of a hedging transaction
could result in losses greater than if it had not been used. Use of call
options could result in losses to the Fund, force the sale or purchase of
portfolio securities at inopportune times or for prices lower than current
market values, or cause the Fund to hold a security it might otherwise
sell.

     Currency hedging involves some of the same risks and considerations
as other transactions with similar instruments. Currency transactions can
result in losses to the Fund if the currency being hedged fluctuates in
value to a degree or in a direction that is not anticipated. Further, the
risk exists that the perceived linkage between various currencies may not
be present or may not be present during the particular time that the Fund
is engaging in portfolio hedging. Currency transactions are also subject
to risks different from those of other portfolio transactions. Because
currency control is of great importance to the issuing governments and
influences economic planning and policy, purchases and sales of currency
and related instruments can be adversely affected by government exchange
controls, limitations or restrictions on repatriation of currency, and
manipulations or exchange restrictions imposed by governments. These forms
of governmental actions can result in losses to the Fund if it is unable
to deliver or receive currency or monies in settlement of obligations and
could also cause hedges it has entered into to be rendered useless,
resulting in full currency exposure as well as incurring transaction costs.

     In addition, the Fund pays commissions and other costs in connection
with such investments.  Losses resulting from the use of hedging
transactions will reduce the Fund's net asset value, and possibly income,
and the losses can be greater than if hedging transactions had not been
used.

Risks of Hedging Transactions Outside the United States

     When conducted outside the U.S., hedging transactions may not be
regulated as rigorously as in the U.S., may not involve a clearing
mechanism and related guarantees, and will be subject to the risk of
government actions affecting trading in, or the price of, foreign
securities, currencies and other instruments. The value of positions taken
as part of non-U.S. hedging transactions also could be adversely affected
by: (1) other complex foreign political, legal and economic factors; (2)
lesser availability of data on which to make trading decisions than in the
U.S.; (3) delays in the Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the U.S.; (4) the
imposition of different exercise and settlement terms and procedures and
margin requirements than in the U.S.; and (5) lower trading volume and
liquidity.

Investment and Repatriation Restrictions

     Some foreign countries may have laws and regulations which currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed
and traded on the stock exchanges in these countries is permitted by
certain foreign countries through investment funds which have been
specifically authorized. The Fund may invest in these investment funds
subject to the provisions of the 1940 Act as discussed below under
"Investment Restrictions". If the Fund invests in such investment funds,
the Fund's shareholders will bear not only their proportionate share of the
expenses of the Fund (including operating expenses and the fees of the
Investment Manager), but also will bear indirectly similar expenses of the
underlying investment funds.

     In addition, prior governmental approval for foreign investments may
be required under certain circumstances in some foreign countries, while
the extent of foreign investment in domestic companies may be subject to
limitation in other foreign countries. Foreign ownership limitations also
may be imposed by the charters of individual companies in foreign countries
to prevent, among other concerns, violation of foreign investment
limitations.

     Repatriation of investment income, capital and the proceeds of sales
by foreign investors may require governmental registration and/or approval
in some foreign countries. The Fund could be adversely affected by delays
in or a refusal to grant any required governmental approval for such
repatriation.

Foreign Securities Markets

     Trading volume on foreign country stock exchanges is substantially
less than that on the New York Stock Exchange. Further, securities of some
foreign companies are less liquid and more volatile than securities of
comparable U.S. companies. Similarly, volume and liquidity in most foreign
bond markets is substantially less than in the U.S. and, consequently,
volatility of price can be greater than in the U.S. Fixed commissions on
foreign exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Fund endeavors to achieve the most favorable net
results on its portfolio transactions and may be able to purchase the
securities in which the Fund may invest on other stock exchanges where
commissions are negotiable.

     Companies in foreign countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, there may be less publicly available information about a
foreign company than about a U.S. company. Further, there is generally less
governmental supervision and regulation of foreign stock exchanges, brokers
and listed companies than in the U.S. Further, these Funds may encounter
difficulties or be unable to pursue legal remedies and obtain judgments in
foreign courts.

Economic and Political Risks

     The economies of individual foreign countries in which the Fund
invests may differ favorably or unfavorably from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Further, the economies of foreign countries generally are heavily dependent
upon international trade and, accordingly, have been and may continue to
be adversely affected by trade barriers, managed adjustments in relative
currency values and other protectionist measures imposed or negotiated by
the countries with which they trade. These economies also have been and may
continue to be adversely affected by economic conditions in the countries
with which they trade. The export driven nature of Asian economies is often
dependent on the strength of their trading partners in the United States
and Europe, although growing intra-regional trade is seen mitigating some
of this external dependence.

     With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the Fund's investments in those countries. In addition, it may
be more difficult to obtain a judgement in a court outside of the United
States.

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

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

     (2)  The Fund will not borrow money, except that: (a) the Fund may
          enter into certain futures contracts and options related
          thereto; (b) the Fund may enter into commitments to purchase
          securities in accordance with the Fund's investment program,
          including delayed delivery and when-issued securities and
          reverse repurchase agreements; (c) for temporary emergency
          purposes, the Fund may borrow money in amounts not exceeding
          5% of the value of its total assets at the time when the loan
          is made; (d) The Fund may pledge its portfolio securities or
          receivables or transfer or assign or otherwise encumber them
          in an amount not exceeding one-third of the value of its total
          assets; and (e) for purposes of leveraging, the Fund may borrow
          money from banks (including its custodian bank), only if,
          immediately after such borrowing, the value of the Fund's
          assets, including the amount borrowed, less its liabilities,
          is equal to at least 300% of the amount borrowed, plus all
          outstanding borrowings.  If at any time, the value of the
          Fund's assets fails to meet the 300% asset coverage requirement
          relative only to leveraging, the Fund will, within three days
          (not including Sundays and holidays), reduce its borrowings to
          the extent necessary to meet the 300% test.  

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

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

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

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

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

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

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

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

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

     (3)  The Fund will not make short sales of securities, other than
          short sales "against the box," or purchase securities on margin
          except for short-term credits necessary for clearance of
          portfolio transactions, provided that this restriction will not
          be applied to limit the use of options, futures contracts and
          related options, in the manner otherwise permitted by the
          investment restrictions, policies and investment programs of
          the Fund.  

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

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

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

     (7)  The Fund will not invest more than 15% of its total assets in
          illiquid securities.  Illiquid securities are securities that
          are not readily marketable or cannot be disposed of promptly
          within seven days and in the usual course of business without
          taking a materially reduced price.  Such securities include,
          but are not limited to, time deposits and repurchase agreements
          with maturities longer than seven days.  Securities that may
          be resold under Rule 144A or securities offered pursuant to
          Section 4(2) of the Securities Act of 1933, as amended, shall
          not be deemed illiquid solely by reason of being unregistered. 
          The Investment Adviser shall determine whether a particular
          security is deemed to be liquid based on the trading markets
          for the specific security and other factors.

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

Portfolio Transactions and Turnover
- -----------------------------------
     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 lesser value, so long as the criteria of
Section 28(e) of the Securities Exchange Act of 1934 are met.  Section 28
(e) of the Securities Exchange Act of 1934 was adopted in 1975 and
specifies that a person with investment  discretion shall not be "deemed
to have acted  unlawfully  or to have  breached a fiduciary duty" solely
because such person has caused the account to pay higher commission than
the lowest available under certain circumstances,  provided that the person
so exercising  investment  discretion makes a good faith  determination
that the person so commissions  paid are  "reasonable in the relation to
the value of the brokerage  and  research  services  provided...viewed  in
terms of  either  that particular  transaction  or his  overall 
responsibilities  with  respect to the accounts as to which he exercises
investment discretion."    

     Currently,  it is not possible to determine the extent to which 
commissions that reflect an element of value for research  services  ("soft 
dollars") might exceed  commissions  that would be payable for 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.

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

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

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



          Total Brokerage        Soft Dollar          Portfolio
          Commission Paid     Commissions Paid      Turnover Rate
          ---------------     ----------------      -------------
1996         $ 180,719            $ 16,748              113.55%
1997           177,179              20,613              122.56%
1998           174,405              40,453              143.67%



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

 + S.M.S.  CHADHA  (61), 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  (54),  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 (69), DIRECTOR.  340 East 72nd Street,  New York, N.Y. 10021
   Private Investor.  Formerly Manager,  Operations Research Department,     CPC
   International Inc.

*+ BARBARA R. EVANS (38),DIRECTOR. 5 Fernwood Road, Summit, N.J. 07901.  Private
   Investor,   formerly,   Assistant  Vice  President  and  Securities  Analyst,
   Lexington Management Corporation.

*+ LAWRENCE  KANTOR (51),  VICE  PRESIDENT AND DIRECTOR.  P.O. Box 1515,  Saddle
   Brook, N.J. 07663. Managing Director,  Executive Vice President and Director,
   Lexington  Management  Corporation;  Executive  Vice  President and Director,
   Lexington  Funds  Distributor,  Inc.;  Executive  Vice  President,  Lexington
   Global Asset Managers, Inc.,

 + JERARD F. MAHER (53), DIRECTOR.  300 Raritan  Center  Parkway,  Edison,  N.J.
   08818.  General  Counsel,  Federal Business Center;  Counsel,  Ribis,  Graham
   &Curtin.

 + ANDREW M.  MCCOSH (58),DIRECTOR. 12 Wyvern Park, Edinburgh EH92 JY, Scotland,
   U.K.  Professor of the  Organisation of Industry and Commerce,  Department of
   Business Studies, The University of Edinburgh, Scotland..

 + DONALD B. MILLER  (72), DIRECTOR.  10725 Quail Covey  Drive,  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.

 + JOHN G. PRESTON (66), DIRECTOR.  3 Woodfield Road,  Wellesley,  Massachusetts
   02181. Associate Professor of Finance, Boston College, Boston, Massachusetts.

*+ RICHARD T. SALER (37), VICE PRESIDENT AND PORTFOLIO MANAGER.   P.O. Box 1515,
   Saddle Brook, NJ 07663.      Senior Vice President, Director of International
   Equity Investment Strategy, Lexington Management Corporation.  
    
*+ RICHARD M. HISEY (40), VICE PRESIDENT. P.O. Box 1515,  Saddle Brook, NJ 07663
   Managing Director, Chief Financial Officer and Director, Lexington Management
   Corporation; Chief Financial Officer,  Vice President and Director, Lexington
   Funds  Distributor,  Inc;  Chief Financial Officer,  Market Systems  Research
   Advisors, Inc.; Executive Vice President, Chief Financial Officer and General
   Manager - Mutual Funds, Lexington Global Asset Managers, Inc.

*+ LISA CURCIO (39), 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,  CLU, CHFC (45),  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 (39), VICE PRESIDENT. P. O. Box 1515, Saddle Brook, N.J.
   07663.

*+ CHRISTIE CARR-WALDRON (31),TREASURER, P.O. Box 1515, Saddle Brook, N.J.07663.
   Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.

*+ CATHERINE DIFALCO (29), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, New
   Jersey 07663. Prior to October 1997, Manager, Fund Accounting.

*+ SIOBHAN  GILFILLAN (35),  ASSISTANT  TREASURER.  P.O. Box 1515, Saddle Brook,
   N.J. 07663.

*+ JOAN K. LEDERER (32), 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 (35),  ASSISTANT  TREASURER.  P. O. Box 1515,  Saddle Brook, N.J.
   07663.

*+ PETER CORNIOTES (36), 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 FAUST (38),  ASSISTANT  SECRETARY,  P.O. Box 1515, Saddle Brook, N.J.
   07663. Assistant Vice President,  Lexington Management Corporation.  Prior to
   March 1994,  Blue Sky Compliance  Coordinator,  Lexington Group of Investment
   Companies.


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

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

     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      NUMBER OF
      NAME OF DIRECTOR   COMPENSATION FROM      FROM FUND AND   DIRECTORSHIPS IN
                              FUND             FUND COMPLEX       FUND COMPLEX
- --------------------------------------------------------------------------------
   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
- --------------------------------------------------------------------------------
   Lawrence Kantor              0                    0                 15
- --------------------------------------------------------------------------------
   Jerard F. Maher           $2,462               $30,518              16
- --------------------------------------------------------------------------------
   Andrew M. McCosh          $1,712               $27,818              15
- --------------------------------------------------------------------------------
   Donald B. Miller          $1,712               $27,818              15
- --------------------------------------------------------------------------------
   Frances Olmsted*          $1,400               $16,800              N/A
- --------------------------------------------------------------------------------
   John G. Preston           $1,712               $27,818              15
- --------------------------------------------------------------------------------
   Margaret W. Russell*      $1,456               $23,228              N/A
- --------------------------------------------------------------------------------
   Philip C. Smith*          $1,280               $19,200              N/A
- --------------------------------------------------------------------------------
   Frances A. Sunderland*    $1,200               $16,800              N/A
- --------------------------------------------------------------------------------
  *Retired
                               
RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES

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

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

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



Control Persons and Principal Holders of Securities
- ---------------------------------------------------
     As of February 19, 1999, the following persons are known by fund
management to have owned beneficially, directly or indirectly, 5% or more
of the outstanding shares of Lexington International Fund, Inc.: Piedmont
Associates, Ltd., P.O. Box 20124, Greensboro, NC 27420, 31%. Smith
Richardson Foundation, 60 Jesup Road, Westport, CT 06880, 14%; Hillsdale
Fund, c/o Piedmont Financial Company, P.O. Box 20124, Greensboro, NC 27420,
14%; Raritan Bay Health Services Corporation, 530 New Brunswick Avenue,
Perth Amboy, NJ 08861, 9% and Lexington Management Corporation Retirement
Plan Trust c/o Bank of New York Trust Company, One Wall Street, New York,
NY 10005, 5%.

Investment Adviser, Administrator and Distributor
- -------------------------------------------------
     Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle
Brook, New Jersey 07663 is the investment adviser to the Fund pursuant to
an Investment Management Agreement dated December 7, 1993, (the "Advisory
Agreement").  Lexington Funds Distributor, Inc.  ("LFD") is the distributor
of Fund shares pursuant to a Distribution Agreement dated December 7, 1993,
(the "Distribution Agreement").  Both of these agreements were approved by
the Fund's Board of Directors (including a majority of the Directors who
were not parties to either the Advisory Agreement or the Distribution
Agreement or "interested persons" of any such party) on November 30, 1998
and were last approved by the Board of Directors on November 30, 1998.  LMC
makes recommendations to the Fund with respect to its investments and
investment policies.

     LMC is paid an investment advisory fee at the annual rate of 1.00%
of the Fund's average daily net assets.  LMC has agreed to reduce its
management fee if necessary to keep total operating expenses at or below
2.50% of the Fund's average daily net assets.  LMC may terminate this
voluntary reduction at any time.  LFD pays the advertising and sales
expenses of the continuous offering of Fund shares, including the cost of
printing prospectuses, proxies and shareholder reports for persons other
than existing shareholders.  The Fund furnishes LFD, at printer's overrun
cost paid by LFD, such copies of its prospectus and annual, semi-annual and
other reports and shareholder communications as may reasonably be required
for sales purposes. For the year ended December 31, 1998, the Fund paid LMC
$217,864 in investment advisory fees and LMC reimbursed the Fund $109,634. 
For the year ended December 31, 1997, the Fund paid LMC $210,897 in
investment advisory fees; for the year ended December 31, 1996, the Fund
paid LMC $190,486 in investment advisory fees and for the year ended
December 31, 1995, the Fund paid LMC $173,563 in investment advisory fees.

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

     The Advisory Agreement, the Distribution Agreement and the
Administrative Services Agreement are subject to annual approval by the
Fund's Board of Directors and by the affirmative vote, cast in person at
a meeting called for such purpose, of a majority of the Directors who are
not parties either to the Advisory Agreement or the Distribution Agreement,
as the case may be, or "interested persons" of any such party.  Either the
Fund or LMC may terminate the Advisory Agreement and the Fund or LFD may
terminate the Distribution Agreement on 60 days' written notice without
penalty.  The Advisory Agreement terminates automatically in the event of
assignment, as defined in the Investment Company Act of 1940.  

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

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

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

Determination of Net Asset Value
- --------------------------------
     The Fund calculates net asset value as of the close of normal trading
on the New York Stock Exchange (currently 4:00 p.m., Eastern time, unless
weather, equipment failure or other factors contribute to an earlier
closing time) each business day.  It is expected that the New York Stock
Exchange will be closed on Saturdays and Sundays and on New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.  Per share net asset value is
calculated by dividing the value of the Fund's total net assets by the
total number of the Fund's shares then outstanding.

     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 Board, in accordance with
methods that are specifically authorized by the Board.  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  the Fund's shares even without any change in the
foreign-currency denominated values of such securities.

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

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

     Distribution  payments will be made as follows:  The Fund, either
directly or through the Adviser, may make payments periodically (i) to the
Distributor or to any  broker-dealer (a "Broker") who is registered under
the Securities  Exchange Act of 1934  and a  member  in good  standing  of
the  National  Association  of Securities  Dealers,  Inc. and who has
entered into a Selected Dealer  Agreement with  the  Distributor,  (ii) to 
other  persons  or  organizations  ("Servicing Agents") who have entered
into  shareholder  processing  and service  agreements with the Adviser or
with the  Distributor,  with respect to Fund shares owned by shareholders 
for which  such  Broker is the  dealer or holder of record or such
servicing agent has a servicing  relationship,  or (iii) for expenses
associated with  distribution  of Fund  shares,  including  the 
compensation  of the sales personnel of the Distributor;  payments of no
more than an effective annual rate of 0.25%,  or such lesser  amounts as
the  Distributor  determines  appropriate.  Payments may also be made for
any advertising and promotional  expenses relating to  selling  efforts, 
including  but not  limited to the  incremental  costs of printing
prospectuses,  statements of additional information, annual reports and
other periodic  reports for  distribution to persons  who are not 
shareholders  of the  Fund;  the  costs of  preparing  and distributing 
any  other   supplemental   sales  literature;   costs  of  radio,
television,  newspaper  and  other  advertising;   telecommunications 
expenses, including  the cost of  telephones,  telephone  lines and  other 
communications equipment,  incurred by or for the  Distributor in carrying
out its  obligations under the Distribution Agreement.    

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

     The Plan shall  become  effective  upon  approval  of the Plan,  the
form of Selected Dealer Agreement and the form of Shareholder Service
Agreement,  by the majority votes of both (a) the Fund's Directors and the
Directors who are not interested  persons (as defined in Section 2(a)(19)
of the 1940 Act) of the Fund and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the
Plan (the "Qualified Directors"),  cast in person at a meeting called for
the purpose of voting on the Plan and (b) the  outstanding  voting 
securities of the Fund, as defined in Section 2(a)(42) of the 1940 Act.  
 

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

     The Plan may be  terminated  at any time by a majority vote of the
Qualified Directors who have no direct or indirect  financial  interest in
the operation of the Plan or in any agreements related to the Plan or by
vote of a majority of the  outstanding  voting  securities of the Fund, as
defined in Section 2(a)(42) of the 1940 Act.    

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

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

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

     By checking the box on the New Account Application authorizing
telephone exchange services, a shareholder constitutes and appoints LFD as
the true and lawful attorney to surrender for redemption or exchange any
and all non-certificate shares held by the Agent in account(s) designated,
or in any other account with the Lexington Funds, present or future which
has the identical registration, with full power of substitution in the
premises.  This selection also authorizes and directs LFD to act upon any
instruction from any person by telephone for exchange of shares held in any
of these accounts.  In acting on a request to exchange, LFD is authorized
to purchase shares of any other Lexington Fund that is available, provided
the registration and mailing address of the shares to be purchased are
identical to the registration of the shares being redeemed.  The
shareholder also agrees that neither LFD, the Agent, or the Fund(s) will
be liable for any loss, expense or cost arising out of any requests
effected in accordance with this authorization which would include requests
effected by impostors or persons otherwise unauthorized to act on behalf
of the account. LFD, the Agent, and the Fund will employ reasonable
procedures to confirm that instructions communicated by telephone are
genuine and if they do not employ reasonable procedures they may be liable
for any losses due to unauthorized or fraudulent instructions.  The
following identification procedures may include, but are not limited to,
the following: account number, registration and address, taxpayer
identification number and other information particular to the account.  In
addition, all telephone exchange and telephone redemption transactions will
take place on recorded telephone lines and each transaction will be
confirmed in writing by the Fund.  If the shareholder is an entity other
than an individual, it may be required to certify that certain persons have
been duly elected and are now legally holding the titles given and that the
said corporation, trust, unincorporated association, etc. is duly organized
and existing and has the power to take action called for by this continuing
authorization.  LFD reserves the right to cease to act as attorney subject
to the above appointment upon thirty (30) days written notice to the
address of record. 

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

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

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

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

     Individual Retirement Account (IRA):  Individuals  may make tax
deductible contributions  to their own Individual  Retirement  Accounts 
("IRA") established  under Section 408 of the Internal Revenue Code of
1986, as amended (the "Code").  Married investors filing a joint return (i)
neither of whom is an active participant in an employer sponsored
retirement  plan,  or (ii) for 1999 who have an  adjusted  gross  income 
of  $51,000  or less ($31,000 or less for single  taxpayers) may each make
a $2,000 annual  deductible IRA contribution.  For  adjusted  gross 
incomes  over  $51,000  ($31,000 for single taxpayers),  the IRA  deduction 
limit is generally  phased out ratably over the next $10,000 of adjusted 
gross  income,  subject to a minimum  $200  deductible contribution.  
Investors  who  are  not  able  to  deduct  a  full  $2,000  IRA
contribution  because of the limitations may make a non-deductible 
contribution to their IRA to the extent a deductible  contribution  is not
allowed.  Federal  income tax on  accumulations earned on  deductible or
non-deductible  contributions  is  deferred  until such time as these
amounts are deemed  distributed  to an investor.  Rollovers  are also 
permitted.  The  Disclosure  statement  required  by the  Internal  Revenue
Service ("IRS") is provided by the Fund.
     
     Roth IRA:  Individuals may make non-deductible contributions to their
own Roth Individual Retirement Accounts ("Roth IRAs") under Section 408A
of the Code.  Generally, Roth IRAs are subject to many of the same rules
as Traditional IRAs.  Most important with a Roth IRA: there is no income
tax on qualified withdrawals.  In addition, unlike a Traditional IRA, there
is no prohibition on making contributions to a Roth IRA after an individual
reaches age 70 1/2, and there are no required minimum withdrawals beginning
at that age.  Total contributions to all of an individual's Traditional and
Roth IRAs may not exceed $2,000 per year (other limitations may apply). 
The $2,000 maximum contribution amount is reduced by any amounts
contributed in the same year to a Traditional IRA or another Roth IRA. 
Married investors filing a joint return may not make a Roth IRA
contribution for a year in which his or her joint adjusted gross income is
$160,000 or greater (for unmarried investors, $110,000 or greater), and the
amount allowed as a contribution is phased out ratably for married
investors with an adjusted gross income of more than $150,000, but less
than $160,000 (for unmarried investors, more than $95,000, but less than
$110,000).  Married investors filing separate returns may not contribute
to a Roth IRA in a year in which his or her adjusted gross income is
$10,000 or more (the allowed contribution amount is phased out ratably over
the first $10,000 of this investor's adjusted gross income).  The
Disclosure statement required by the IRS is provided by the Fund upon
opening a Roth IRA. 

     The minimum initial investment to establish a tax-sheltered plan
through the Fund is $250 for both Keogh  Plans and IRA  Plans.  Subsequent 
investments  are subject to a minimum of $50 for each account.

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

     Corporate Pension and Profit Sharing Plans:  The Fund makes 
available a Prototype Defined Contribution Pension Plan and a Prototype
Profit Sharing Plan.

     All  purchases  and  redemptions  of Fund shares  pursuant to any one
of the Fund's tax sheltered plans must be carried out in accordance with
the provisions of the Plan. Accordingly, all plan documents should be
reviewed carefully before adopting or  enrolling  in the plan.  Investors 
should  especially  note that a penalty  tax of 10%  may  be  imposed  by
the  IRS on  early  withdrawals  under corporate,  Keogh or IRA Plans.  It
is  recommended  by the IRS that an investor consult a tax adviser  before 
investing in the Fund through any of these plans.

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

Capital Stock of the Fund
- -------------------------
     The Fund has one class of stock which has no preemptive rights.

Dividend Distribution and Reinvestment Policy
- ---------------------------------------------
     The Fund intends to pay  semi-annual  dividends from investment 
income,  if earned and as declared by its Board of Directors. The Board of
Directors may, at its  discretion,  elect to  retain or  declare  and pay 
distributions  from any realized security profits.

     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  State 
Street  Bank and Trust Company (the  "Agent") in writing that he wants to
receive his payments in cash.This  request  must be  received  by the Agent
at least  seven  days  before the dividend  record date.  Upon receipt by
the Agent of such  written  notice,  all further  payments will be made in
cash until  written  notice to the contrary is received. An account of such
shares owned by each shareholder will be maintained by the Agent.

     Shareholders  whose  accounts are maintained by the Agent will have
the same rights as other  shareholders  with respect to shares so
registered (see "How to Purchase Shares" in the Prospectus).

Tax Matters
- -----------
     Information set forth in the Prospectus and this SAI is only a
summary of certain key tax considerations generally affecting purchasers
of shares of the Fund.  The following is only a summary of certain
additional tax considerations generally affecting the Fund and its
shareholders that are not described in the Prospectus.  No attempt has been
made to present a complete explanation of the federal, state and local tax
treatment of the Fund or the implications to shareholders, and the
discussions here and in the Fund's Prospectus are not intended as
substitutes for careful tax planning.  Accordingly, potential purchasers
of shares of the Fund are urged to consult their tax advisers with specific
reference to their own tax circumstances.  In addition, the tax discussion
in the Prospectus and this SAI is based on tax law in effect on the date
of the Prospectus and this SAI; such laws and regulations may be changed
by legislative, judicial or administrative action, sometimes with
retroactive effect.             

     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.

     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 addition, under
the rules of Code section 988, gain or loss recognized on the disposition
of a debt obligation denominated in a foreign currency or an option with
respect thereto (but only to the extent attributable to changes in foreign
currency exchange rates), and gain or loss recognized on the disposition
of a foreign currency forward contract, futures contract, option or similar
financial instrument, or of foreign currency itself, except for regulated
futures contracts or non-equity options subject to Code section 1256
(unless the Fund elects otherwise), will generally be treated as ordinary
income or loss.

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

     In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the
asset is used to close a "short sale" (which includes for certain purposes
the acquisition of a put option) or is substantially identical to another
asset so used, (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.

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

     The Fund may purchase securities of certain foreign investment funds
or trusts which constitute passive foreign investment companies ("PFICs")
for federal income tax purposes.  If the Fund invests in a PFIC, it has
three separate options.  First, it may elect to treat the PFIC as a
qualified electing fund (a "QEF"), in which event the Fund will each year
have ordinary income equal to its pro rata share of the PFIC's ordinary
earnings for the year and long-term capital gain equal to its pro rata
share of the PFIC's net capital gain for the year, regardless of whether
the Fund receives distributions of any such ordinary earnings or capital
gains from the PFIC.  Second, the Fund that invests in stock of a PFIC may
make a mark-to-market election with respect to such stock.  Pursuant to
such election, the Fund will include as ordinary income any excess of the
fair market value of such stock at the close of any taxable year over the
Fund's adjusted tax basis in the stock.  If the adjusted tax basis of the
PFIC stock exceeds the fair market value of the stock at the end of a given
taxable year, such excess will be deductible as ordinary loss in an amount
equal to the lesser of the amount of such excess or the net mark-to-market
gains on the stock that the Fund included in income in previous years.  The
Fund's holding period with respect to its PFIC stock subject to the
election will commence on the first day of the next taxable year.  If the
Fund makes the mark-to-market election in the first taxable year it holds
PFIC stock, it will not incur the tax described below under the third
option.  

     Finally, if the Fund does not elect to treat the PFIC as a QEF and
does not make a mark-to-market election, then, in general, (1) any gain
recognized by the Fund upon the sale or other disposition of its interest
in the PFIC or any "excess distribution" (as defined) received by the Fund
from the PFIC will be allocated ratably over the Fund's holding period of
its interest in the PFIC stock, (2) the portion of such gain or excess
distribution so allocated to the year in which the gain is recognized or
the excess distribution is received shall be included in the Fund's gross
income for such year as ordinary income (and the distribution of such
portion by the Fund to shareholders will be taxable as an ordinary income
dividend, but such portion will not be subject to tax at the Fund level),
(3) the Fund shall be liable for tax on the portions of such gain or excess
distribution so allocated to prior years in an amount equal to, for each
such prior year, (i) the amount of gain or excess distribution allocated
to such prior year multiplied by the highest tax rate (individual or
corporate) in effect for such prior year, plus (ii) interest on the amount
determined under clause (i) for the period from the due date for filing a
return for such prior year until the date for filing a return for the year
in which the gain is recognized or the excess distribution is received, at
the rates and methods applicable to underpayments of tax for such period,
and (4) the distribution by the Fund to its shareholders of the portions
of such gain or excess distribution so allocated to prior years (net of the
tax payable by the Fund thereon) will again be taxable to the shareholders
as an ordinary income dividend.

     Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) for any taxable year, to elect (unless it has made a taxable year
election for excise tax purposes as discussed below) to treat all or any
part of any net capital loss, any net long-term capital loss or any net
foreign currency loss (including, to the extent provided in Treasury
Regulations, losses recognized pursuant to the PFIC mark-to-market
election) 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 the Fund's total assets in securities of such issuer and does not
hold more than 10% of the outstanding voting securities of such issuer),
and no more than 25% of the value of its total assets may be invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies), or in two or more
issuers which the Fund controls and which are engaged in the same or
similar trades or businesses.  Generally, an option (call or put) with
respect to a security is treated as issued by the issuer of the security,
not the issuer of the option.

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

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

     For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year and (2)
exclude foreign currency gains and losses and ordinary gains or losses
arising as a result of a PFIC mark-to-market election (or upon the actual
disposition of the PFIC stock subject to such election) 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
attributable to dividends received by the Fund from domestic corporations
will qualify for the 70% dividends-received deduction for corporate
shareholders only to the extent discussed below. Distributions attributable
to interest received by the Fund will not, and distributions attributable
to dividends paid by a foreign corporation generally should not, qualify
for the dividend-received deduction.
  
     Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations such as S corporations,
which are not eligible for the deduction because of their special
characteristics, and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the
extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year.  A dividend received by the
Fund will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding
for this purpose under the rules of Code Section 246(c)(3) and (4): 
(i) any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any
period during which the Fund has an option to sell, is under a contractual
obligation to sell, has made and not closed a short sale of, is the grantor
of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that
the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar
or related property; or (3) to the extent the stock on which the dividend
is paid is treated as debt-financed under the rules of Code Section 246A. 
Moreover, the dividends-received deduction for a corporate shareholder may
be disallowed or reduced (1) if the corporate shareholder fails to satisfy
the foregoing requirements with respect to its shares of the Fund or (2)
by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain
other items).

     The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year.  The Fund currently intends to
distribute any such amounts.  Net capital gain that is distributed and
designated as a capital gain dividend will be taxable to shareholders as
long-term capital gain, regardless of the length of time the shareholder
has held his shares or whether such gain was recognized by the Fund prior
to the date on which the shareholder acquired his shares.  The Code
provides, however, that under certain conditions only 50% (58% for
alternative minimum tax purposes) of the capital gain recognized upon the
Fund's disposition of domestic "small business" stock will be subject to
tax.

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

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

     Investment income that may be received by the Fund from sources
within foreign countries may be subject to foreign taxes withheld at the
source.  The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of, or exemption from,
taxes on such income.  It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested
in various countries is not known.  If more than 50% of the value of the
Fund's total assets at the close of its taxable year consist of the stock
or securities of foreign corporations, the Fund may elect to "pass through"
to its shareholders the amount of foreign taxes paid by the Fund.  If the
Fund so elects, each shareholder would be required to include in gross
income, even though not actually received, his pro rata share of the
foreign taxes paid by the Fund, but would be treated as having paid his pro
rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject
to various Code limitations) as a foreign tax credit against federal income
tax (but not both).  For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income
his pro rata share of such foreign taxes plus the portion of dividends
received from the Fund representing income derived from foreign sources. 
No deduction for foreign taxes could be claimed by an individual
shareholder who does not itemize deductions.  Each shareholder should
consult his own tax adviser regarding the potential application of foreign
tax credits.

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

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

     Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which the distributions are made. 
However, dividends declared in October, November or December of any year
and payable to shareholders of record on a specified date in such month
will be deemed to have been received by the shareholders (and made by the
Fund) on December 31 of such calendar year if such dividends are actually
paid in January of the following year.  Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions
made (or deemed made) during the year.

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

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

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

     If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding
tax at the rate of 30% (or lower applicable treaty rate) upon the gross
amount of the dividend.  Furthermore, such foreign shareholder may be
subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) on the gross income resulting from the Fund's election to
treat any foreign taxes paid by it as paid by its shareholders, but may not
be allowed a deduction against this gross income or a credit against this
U.S. withholding tax for the foreign shareholder's pro rata share of such
foreign taxes which it is treated as having paid.  Such foreign shareholder
would generally be exempt from U.S. federal income tax on gains realized
on the sale of shares of the Fund, capital gain dividends, and amounts
retained by the Fund that are designated as undistributed capital gains.

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

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

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

     Effect of Future Legislation; State and 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 dividends 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 investment in the Fund.

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

P(l+T)n = ERV

Where:       P = a hypothetical  initial payment of $1,000
             T = average annual total return
             n = number of years (1, 5 or 10) 

ERV = ending  redeemable value of a hypothetical $1,000 payment made at the
beginning of the 1, 5 or 10 year periods or at the end of the 1, 5 or 10
year periods (or fractional portion thereof).

     Under the foregoing formula,  the time periods used in advertising 
will be based on rolling calendar quarters, updated to the last day of the
most recent quarter prior to submission of the advertising for publication,
and will cover one, five and ten year periods or a shorter period dating
from the effectiveness of the Fund's  Registration  Statement.  In 
calculating  the ending  redeemable value, all dividends and distributions
by the Fund are assumed to have been reinvested at net asset value as
described in the prospectus on the reinvestment dates during the period. 
Total return, or "T" in the formula above, is computed by finding the
average annual compounded rates of return over the 1, 5 and 10 year periods
(or  fractional  portion  thereof) that would equate the initial amount
invested to the ending redeemable value.  Any recurring  account charges
that might in the future be imposed by the Fund would be included at that
time. 
   
     The Fund may also from time to time include in such  advertising  a
total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the Fund
with other measures of  investment  return.  For example,  in comparing the
Fund's total return with data published by Lipper Analytical Services, 
Inc., or with the performance of the Standard and Poor's 500 Stock Index
or the Dow Jones Industrial Average, the Fund calculates  its aggregate 
total return for the specified periods of time assuming the investment of
$10,000 in Fund shares and assuming the  reinvestment of each dividend or
other  distribution  at net asset value on the  reinvestment date. 
Percentage increases are determined by subtracting  the initial value of
the  investment  from the ending value and by dividing the remainder by the
beginning value.  The Fund's average annual standard total return for the
one year and since commencement (1/3/94) periods ending December 31, 1998
were 19.02% and 9.00%.

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  portfolio securities  including  those to be held by foreign banks
and foreign  securities depositories  which  qualify  as  eligible  foreign 
custodians  under the rules adopted by the S.E.C. and for the Fund's
domestic  securities and other assets.  State Street Bank and Trust
Company, 225 Franklin Street, Boston,  Massachusetts 02181, has been
retained to act as the transfer  agent and dividend  disbursing agent. 
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.

Counsel and Independent Auditors
- --------------------------------
     Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New
York 10022 will pass upon legal matters for the Fund in connection with the
offering of its shares.  KPMG LLP, 345 Park Avenue, New York, New York
10154, has been selected as independent auditors for the Fund for the
fiscal year ending December 31, 1999.

<PAGE>


LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998


<TABLE>
<CAPTION>


    NUMBER OF                                                                  VALUE
      SHARES                             SECURITY                            (NOTE 1)
==========================================================================================
<S>                 <C>                                                <C>
                    COMMON STOCKS: 91.1%
                    AUSTRALIA: 2.1%
  127,900           Foster's Brewing Group, Ltd. ....................   $ 346,743
    6,200           OzEmail, Ltd. (ADR) .............................     137,369
                                                                        ---------
                                                                          484,112
                                                                        ---------
                    CANADA: 2.9%
   19,400           Imax Corporation2 ...............................     614,738
   25,280           Yogen Fruz World-Wide, Inc.2 ....................      86,410
                                                                        ---------
                                                                          701,148
                                                                        ---------
                    DENMARK: 1.1%
    2,010           Tele Danmark A/S ................................     271,291
                                                                        ---------
                    FINLAND: 1.7%
    3,300           Nokia Oyj "Class A" .............................     404,085
                                                                        ---------
                    FRANCE: 11.5%
    2,040           Alcatel .........................................     249,796
    5,420           Axa-UAP .........................................     785,928
    6,800           Elf Aquitaine S.A. (ADR) ........................     385,050
    5,300           Schlumberger, Ltd. - NY Shares ..................     244,462
    7,800           SEITA ...........................................     488,721
    2,370           Vivendi .........................................     615,198
                                                                        ---------
                                                                        2,769,155
                                                                        ---------
                    GERMANY: 2.2%
   11,100           Dresdner Bank AG ................................     466,520
      800           Kamps AG ........................................      51,876
                                                                        ---------
                                                                          518,396
                                                                        ---------
                    HONG KONG: 1.2%
  280,000           JCG Holdings, Ltd. ..............................      90,357
  312,000           Mandarin Oriental International, Ltd. ...........     196,560
                                                                        ---------
                                                                          286,917
                                                                        ---------
                    HUNGARY: 1.2%
    9,300           Magyar Tavkozlesi RT. (ADR) .....................     277,256
                                                                        ---------
                    IRELAND: 0.9%
    2,400           ICON plc (ADR)2 .................................      79,950
   20,150           Ryanair Holdings plc2 ...........................     144,209
                                                                        ---------
                                                                          224,159
                                                                        ---------
                    ISRAEL: 2.4%
   14,300           Teva Pharmaceutical Industries, Ltd.
                    (ADR) ...........................................     583,172
                                                                        ---------
                    ITALY: 2.2%
   71,000           Istituto Nazionale delle Assicurazioni ..........     188,212
   40,900           Telecom Italia SpA ..............................     348,975
                                                                        ---------
                                                                          537,187
                                                                        ---------
                    JAPAN: 13.2%
    8,000           Able, Inc.2 .....................................     248,234
   36,000           Asahi Diamond Industries Company,
                     Ltd.3 ..........................................     179,367
    6,300           Doutor Coffee Company, Ltd.3 ....................     209,448
    7,000           Ito-Yokado Company, Ltd.3 .......................     490,263
   46,000           National House Industrial Company,
                    Ltd.3 ...........................................     391,909
    2,900           Oriental Land Company, Ltd.3 ....................     132,149
    3,100           Paris Miki, Inc. ................................      71,456
    7,400           Rinnai Corporation ..............................     129,635
   37,000           Seino Transportation Company, Ltd. ..............     211,903
    4,700           Softbank Corporation ............................     283,342
   21,000           Sumitomo Forestry Company, Ltd. .................     150,802
   13,000           Tostem Corporation ..............................     258,164
        4           Yahoo Japan Corporation2 ........................     301,073
   20,000           Yamato Kogyo Company, Ltd. ......................     115,961
                                                                        ---------
                                                                        3,173,706
                                                                        ---------
                    NETHERLANDS: 7.1%
   11,000           ABN-AMRO Holding NV .............................     231,527
    1,800           Equant NV - NY Shares2 ..........................     122,062
   17,700           Koninklijke Ahold NV ............................     654,554
    5,400           Koninklijke KPN NV ..............................     270,479
    8,900           Koninklijke Numico NV ...........................     424,449
                                                                        ---------
                                                                        1,703,071
                                                                        ---------
                    NEW ZEALAND: 3.3%
   83,200           Carter Holt Harvey, Ltd. ........................      74,717
   37,000           Sky City, Ltd. ..................................     140,728
  107,900           Tranz Rail Holdings, Ltd. .......................     247,946
   46,800           Tranz Rail Holdings, Ltd. (ADR) .................     318,825
                                                                        ---------
                                                                          782,216
                                                                        ---------
                    NORWAY: 2.7%
   29,900           Saga Petroleum AS ...............................     272,754
   49,310           Storebrand ASA2 .................................     372,150
                                                                        ---------
                                                                          644,904
                                                                        ---------
                    SPAIN: 5.2%
    3,771           Mapfre Vida Seguros .............................     141,587
   22,900           Tabacalera S.A. .................................     587,485
   11,730           Telefonica S.A. .................................     522,377
                                                                        ---------
                                                                        1,251,449
                                                                        ---------
                    SWEDEN: 3.3%
  217,062           Swedish Match AB ................................     789,994
                                                                        ---------
                    SWITZERLAND: 7.8%
      113           Nestle AG .......................................     245,995
      294           Novartis AG .....................................     577,947
      376           Rentenanstalt-Societe Suisse
                    Assurances Vie ..................................     279,232
       45           Roche Holding AG ................................     549,115
</TABLE>

                                       


<PAGE>

LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)

 NUMBER OF                                           VALUE
   SHARES                 SECURITY                  (NOTE 1)
=========== ==================================== =============
            COMMON STOCKS (CONTINUED):
            SWITZERLAND (CONTINUED):
      730   UBS AG .............................  $   224,291
                                                  -----------
                                                    1,876,580
                                                  -----------
            UNITED KINGDOM: 19.1%
  150,900   Aegis Group plc ....................      220,311
   71,000   Aegis Group plc1 ...................      103,659
   63,600   British Steel plc ..................       94,178
   30,100   British Telecommunications plc .....      453,478
   19,400   Cadbury Schweppes plc ..............      330,846
   72,600   D.F.S. Furniture Company plc .......      227,693
   37,700   Devro plc ..........................      107,574
   35,800   Diageo plc .........................      407,418
  100,500   George Wimpey plc ..................      181,425
   14,400   Glaxo Welcome plc ..................      495,466
  127,000   Inchcape plc .......................      271,524
   95,700   Polypipe plc .......................      181,517
   72,700   Regent Inns plc ....................      122,773
   37,600   Rentokil Initial plc ...............      283,392
   21,260   Rio Tinto plc ......................      247,253
   40,700   SmithKline Beecham plc .............      568,820
   18,000   Vodafone Group plc .................      292,296
                                                  -----------
                                                    4,589,623
                                                  -----------
            TOTAL COMMON STOCKS
            (cost $19,316,758)..................   21,868,421
                                                  -----------


 NUMBER OF SHARES
        OR                                                        VALUE
 PRINCIPAL AMOUNT                   SECURITY                     (NOTE 1)
================== ========================================== =============
                   PREFERRED STOCKS: 2.2%
                   GERMANY: 2.2%
         4,310     Rhoen-Klinikum AG ........................  $   439,921
           386     Sto AG ...................................       90,386
                                                               -----------
                   TOTAL PREFERRED STOCKS
                   (cost $632,692) ..........................      530,307
                                                               -----------
                   U.S. GOVERNMENT OBLIGATION: 2.2%
    $2,018,000     U.S. Strip Bond, 0.00%, due
                   05/15/23 (cost $480,841)..................      534,286
                                                               -----------
                   SHORT-TERM INVESTMENT: 4.2%
                   U.S. GOVERNMENT AGENCY OBLIGATION
     1,000,000     Federal Home Loan Mortgage
                   Corporation, 4.50%, due 01/04/99
                   (cost $999,646)...........................      999,646
                                                               -----------
                   TOTAL INVESTMENTS: 99.7%
                   (cost $21,429,937+) (Note 1)..............   23,932,660
                   Other assets in excess of liabilities:
                   0.3% .....................................       67,055
                                                               -----------
                   TOTAL NET ASSETS: 100.0%
                   (equivalent to $11.61 per share on
                   2,067,783 shares outstanding) ............  $23,999,715
                                                               ===========

1 Restricted Security (Note 8).
2 Non-income producing security.
3 Some  or  all  of this security is segregated for forward foreign currency
  contracts (Notes 1 and 7).
ADR - American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $21,459,304.

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

At December 31, 1998,  the  composition of the Fund's net assets by industry was
as follows:



Banking ............................   3.8%
Capital Equipment ..................   3.3
Construction & Housing .............   2.4
Consumer Durable Goods .............   0.5
Consumer Non-durable Goods .........  17.7
Electrical & Electronics ...........   2.2
Energy Sources .....................   2.7
Financial Services .................   7.7%
Health & Personal Care .............  13.4
Materials ..........................   5.5
Merchandising ......................   4.9
Real Estate ........................   1.9
Services ...........................   9.9
Telecommunications .................  12.4
Trade ..............................   1.1%
Transportation .....................   3.9
U.S. Government Agency &
    Obligations ....................   6.4
Other Assets .......................   0.3
                                     -----
 Total Net Assets .................. 100.0%
                                     =====

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

                                       


<PAGE>


LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998



ASSETS
Investments, at value (cost $21,429,937)
  (Note 1) .......................................   $23,932,660
Cash .............................................       458,577
Receivable for investment securities sold ........            21
Dividends and interest receivable ................        11,600
Foreign taxes recoverable ........................        16,955
                                                     -----------
    Total Assets .................................    24,419,813
                                                     -----------
LIABILITIES
Due to Lexington Management Corporation
  (Note 2) .......................................        39,335
Payable for investment securities purchased ......        64,200
Distributions payable ............................       115,108
Accrued expenses .................................        36,703
Unrealized loss on open forward contracts
  (Note 7) .......................................       164,752
                                                     -----------
    Total Liabilities ............................       420,098
                                                     -----------
NET ASSETS (equivalent to $11.61 per share on
  2,067,783 shares outstanding) (Note 4) .........   $23,999,715
                                                     ===========
NET ASSETS consist of:
Capital stock - authorized 500,000,000
  shares, $.001 par value per share ..............   $     2,068
Additional paid-in capital (Note 1) ..............    21,128,423
Undistributed net investment income (Note 1) .....       154,188
Accumulated net realized gain on investments
  and foreign currency transactions (Note 1) .....       376,139
Unrealized appreciation of investments and
  foreign currency translation of other assets
  and liabilities ................................     2,338,897
                                                     -----------
    TOTAL NET ASSETS .............................   $23,999,715
                                                     ===========


LEXINGTON INTERNATIONAL FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998


INVESTMENT INCOME
  Dividends ............................  $ 412,745
  Interest .............................    101,131
                                          ---------
                                            513,876
  Less: foreign tax expense ............     56,705
                                          ---------
   Total investment income .............                  $  457,171
EXPENSES
  Investment advisory fee (Note 2)......    217,864
  Custodian expenses ...................     72,018
  Transfer agent and shareholder
     servicing expenses (Note 2) .......     33,014
  Professional fees ....................     32,314
  Printing and mailing expenses ........     30,805
  Distribution expenses (Note 3) .......     19,670
  Directors' fees and expenses .........     17,886
  Accounting expenses (Note 2) .........     17,775
  Registration fees ....................     17,006
  Amortization of deferred
     organization costs (Note 1) .......     12,213
  Computer processing fees .............      7,474
  Other expenses .......................     13,007
                                          ---------
   Total expenses ......................    491,046
   Less: expenses recovered
      under contract with
      investment adviser (Note 2) ......    109,634          381,412
                                          ---------       ----------
   Net investment income ...............                      75,759
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 5)
Net realized gain on:
  Investments ..........................  1,294,568
   Foreign currency transactions .......     80,197
                                          ---------
    Net realized gain ..................                   1,374,765
Net change in unrealized
 appreciation (depreciation) on:
   Investments .........................  2,399,709
   Foreign currency translation of
      other assets and liabilities .....   (254,033)
                                          ---------
    Net change in unrealized
       appreciation (depreciation)......                   2,145,676
                                                          ----------
     Net realized and
        unrealized gain ................                   3,520,441
                                                          ----------
INCREASE IN NET ASSETS RESULTING
     FROM OPERATIONS ...................                  $3,596,200
                                                          ==========


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

                                       

<PAGE>

LEXINGTON INTERNATIONAL FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997


<TABLE>
<CAPTION>
                                                                                      1998              1997
                                                                                ---------------   ---------------
<S>                                                                               <C>              <C>
Net investment income .......................................................     $    75,759      $    111,647
Net realized gain from investments and foreign currency transactions ........       1,374,765         1,524,350
Net change in unrealized appreciation (depreciation) of investments
 and foreign currency translation ...........................................       2,145,676        (1,346,297)
                                                                                  -----------      ------------
  Net increase in net assets resulting from operations ......................       3,596,200           289,700
Distributions to shareholders from net investment income (Note 1) ...........        (116,960)         (245,229)
Distributions to shareholders from net realized gains from
 security transactions (Note 1) .............................................        (695,462)       (1,451,487)
Increase in net assets from capital share transactions (Note 4) .............       1,266,820         2,465,165
                                                                                  -----------      ------------
  Net increase in net assets ................................................       4,050,598         1,058,149

NET ASSETS:
 Beginning of period ........................................................      19,949,117        18,890,968
                                                                                  -----------      ------------
 End of period (including undistributed net investment income of $154,188
  and distributions in excess of net investment income of $81,791 in
  1998 and 1997, respectively) ..............................................     $23,999,715      $ 19,949,117
                                                                                  ===========      ============
</TABLE>

     .

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


<PAGE>


LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997

1. SIGNIFICANT ACCOUNTING POLICIES

Lexington  International  Fund,  Inc.  (the  "Fund")  is an open-end diversified
management  investment  company  registered  under the Investment Company Act of
1940,  as  amended.  The Fund's investment objective is to seek long-term growth
of  capital  through  investment  in  common stocks and equivalents of companies
domiciled  in  foreign  countries.  The  following  is  a summary of significant
accounting  policies  followed  by  the Fund in the preparation of its financial
statements:

     INVESTMENTS Securities  transactions  are  accounted  for  on  a trade date
basis.  Realized  gains  and losses from investment transactions are reported on
the  identified cost basis. Securities traded on a recognized stock exchange are
valued  at the last sales price reported by the exchange on which the securities
are  traded.  If  no  sales price is recorded, the mean between the last bid and
asked  prices  is  used.  Securities  traded  on the over-the-counter market are
valued  at  the  mean  between the last current bid and asked prices. Short-term
securities  having  a  maturity of 60 days or less are stated at amortized cost,
which  approximates market value. Securities for which market quotations are not
readily  available  and other assets are valued by Fund management in good faith
under  the direction of the Fund's Board of Directors. All investments quoted in
foreign  currencies  are  valued  in  U.S.  dollars  on the basis of the foreign
currency  exchange  rates  prevailing  at the close of business. Dividend income
and  distributions  to  shareholders  are  recorded  on  the  ex-dividend  date.
Interest  income,  adjusted  for  amortization  of  premiums  and  accretion  of
discounts, is accrued as earned.

     FOREIGN  CURRENCY  TRANSACTIONS Foreign  currencies  (and  receivables  and
payables  denominated  in  foreign  currencies)  are translated into U.S. dollar
amounts  at  current  exchange rates. Translation gains or losses resulting from
changes  in  exchange  rates  and realized gains and losses on the settlement of
foreign  currency  transactions  are reported in the statement of operations. In
addition,  the  Fund  may enter into forward foreign exchange contracts in order
to  hedge  against  foreign  currency risk in the purchase or sale of securities
denominated  in foreign currency. The Fund may also enter into such contracts to
hedge   against   changes  in  foreign  currency  exchange  rates  on  portfolio
positions.  These  contracts  are  marked  to  market  daily, by recognizing the
difference  between  the  contract  exchange rate and the current market rate as
unrealized  gains  or  losses.  Realized  gains  or  losses  are recognized when
contracts are closed and are reported in the statement of operations.

The  Fund  authorizes its custodian to place and maintain equity securities in a
segregated  account  of the Fund having a value equal to the aggregate amount of
the  Fund's  commitments  under  forward foreign currency contracts entered into
with respect to position hedges.

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

     DISTRIBUTIONS Dividends   from  net  investment  income  and  net  realized
capital  gains  are  normally  declared and paid annually, but the Fund may make
distributions  on  a  more  frequent  basis  to  comply  with  the  distribution
requirements  of the Internal Revenue Code. The character of income and gains to
be  distributed  are  determined in accordance with income tax regulations which
may  differ from generally accepted accounting principles. At December 31, 1998,
reclassifications  were made to the Fund's capital accounts to reflect permanent
book/tax  differences  and  income  and  gains  available for distribution under
income  tax  regulations.  Net  investment  income,  net  realized gains and net
assets were not affected by this change.


                                       


<PAGE>


LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)

1. SIGNIFICANT ACCOUNTING POLICIES (continued)

     DEFERRED  ORGANIZATION  COSTS Organization  costs  aggregating $48,067 have
been fully amortized as of December 31, 1998.

     USE  OF  ESTIMATES The  preparation  of  financial statements in conformity
with  generally  accepted  accounting  principles  requires  management  to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities  and  disclosure of contingent assets and liabilities at the date of
the  financial statements and the reported amounts of increases and decreases in
net  assets  from  operations  during the reporting period. Actual results could
differ from those estimates.

2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The  Fund  pays  an  investment advisory fee to Lexington Management Corporation
("LMC")  at  an annual rate of 1.00% of the Fund's average daily net assets. For
1998,  LMC  has  voluntarily  agreed  to  limit  the  total expenses of the Fund
(including   management   fees,   but   excluding   interest,  taxes,  brokerage
commissions  and  extraordinary  expenses)  to  an  annual  rate of 1.75% of the
Fund's  average  daily net assets. Total reimbursement was $109,634 for the year
ended December 31, 1998, and is set forth in the statement of operations.

The   Fund  reimburses  LMC  for  certain  expenses,  including  accounting  and
shareholder  servicing costs of $39,838 which are incurred by the Fund, but paid
by LMC.

3. DISTRIBUTION PLAN
The  Fund  has a Distribution Plan (the "Plan") which allows payments to finance
activities  associated  with  the  distribution  of  the Fund's shares. The Plan
provides  that  the  Fund  may  pay  distribution fees on a reimbursement basis,
including  payments  to  Lexington  Funds  Distributor, Inc. ("LFD"), the Fund's
distributor,  in  amounts  not  exceeding  0.25% per annum of the Fund's average
daily  net  assets.  Total distribution expenses for the year ended December 31,
1998, were $19,670 and are set forth in the statement of operations.

4. CAPITAL STOCK
Transactions in capital stock were as follows:

<TABLE>
<CAPTION>
                                                                                   Year ended
                                                              December 31, 1998                  December 31, 1997
                                                       --------------------------------   -------------------------------
                                                           Shares           Amount            Shares           Amount
                                                       -------------   ----------------   -------------   ---------------
<S>                                                    <C>             <C>                <C>             <C>
Shares sold ........................................     1,005,127      $  11,440,387         305,117      $  3,577,373
Shares issued on reinvestment of dividends .........        58,468            669,485         149,918         1,506,676
                                                         ---------      -------------         -------      ------------
                                                         1,063,595         12,109,872         455,035         5,084,049
Shares redeemed ....................................      (970,855)       (10,843,052)       (218,983)       (2,618,884)
                                                         ---------      -------------        --------      ------------
Net increase .......................................        92,740      $   1,266,820         236,052      $  2,465,165
                                                         =========      =============        ========      ============
</TABLE>

5. INVESTMENT TRANSACTIONS
The  cost  of purchases and proceeds from sales of securities for the year ended
December  31,  1998,  excluding  short-term  securities,  were  $31,555,131  and
$29,396,736 respectively.

At  December  31,  1998,  the  aggregate  gross  unrealized appreciation for all
securities  in  which  there  is  an  excess  of value over tax cost amounted to
$3,726,861  and  aggregate  gross  unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $1,253,505.


                                       


<PAGE>


LEXINGTON INTERNATIONAL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)

6. INVESTMENT AND CONCENTRATION RISKS

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

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


7. FORWARD FOREIGN EXCHANGE CONTRACT

At  December 31, 1998, the Fund was committed to sell foreign currency under the
following forward foreign exchange contract:



<TABLE>
<CAPTION>
                                             Contract            Contract                          Unrealized
                          Settlement          Amount              Amount                             Loss at
       Contract              Date        (Local Currency)     (U.S. Dollar)        Value        December 31, 1998
- ----------------------   ------------   ------------------   ---------------   -------------   ------------------
<S>                      <C>            <C>                  <C>               <C>             <C>
Japanese Yen .........    03/15/99         137,199,721          $1,050,373      $1,215,125         $ (164,752)
                                                                                                   ==========
</TABLE>

8. RESTRICTED SECURITY

The  following  security  was purchased under Rule 144A of the Securities Act of
1933  and, unless registered under the Act or exempted from registration, may be
sold only to qualified institutional investors.



<TABLE>
<CAPTION>
                             Acquisition                Average Cost       Market      Percent of
         Security                Date        Shares       Per Share        Value       Net Assets
- -------------------------   -------------   --------   --------------   -----------   -----------
<S>                         <C>             <C>        <C>              <C>           <C>
Aegis Group plc .........   04/27/98        71,000     $ 1.36           $103,659      0.43%
                                                                        ========      ====
</TABLE>

Pursuant   to  guidelines  adopted  by  the  Fund's  Board  of  Directors,  this
unregistered  security has been deemed to be illiquid. The Fund currently limits
investment  in  illiquid  securities  to 15% of the Fund's net assets, at market
value.


9. TAX INFORMATION (UNAUDITED)

The  following  tax  information  represents  the  designation  of  various  tax
benefits relating to the year ended December 31, 1998:
The  percentage  of  ordinary income distributions paid by the Fund derived from
agency and direct obligations of the United States government were as follows:

          U.S. Treasury.................................. 0.63%
          Federal Home Loan Bank......................... 1.53
          Federal Home Loan Mortgage Corporation......... 1.93
          Federal National Mortgage Association.......... 0.06


The  Fund designates $695,462, whether taken in shares or cash, as 20% long-term
capital gain distributions.

                                       


<PAGE>


LEXINGTON INTERNATIONAL FUND, INC.
FINANCIAL HIGHLIGHTS

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

<TABLE>
<CAPTION>
                                                                                                            January 3, 1994
                                                                                                            (commencement of
                                                                    Year ended December 31,                  operations) to
                                                     -----------------------------------------------------    December 31,
                                                          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       $ 10.00
                                                      -------       -------     -------       -------       -------
Income (loss) from investment operations:
 Net investment income (loss) ......................     0.17          0.07       (0.02)        (0.01)        (0.08)
 Net realized and unrealized gain
  on investments and foreign
   currency transactions ...........................     1.74          0.10        1.45          0.61          0.67
                                                      -------       -------     -------       -------       -------
Total income 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
  (temporary book-tax difference) ..................       --            --          --         (0.35)           --
 Distributions from net realized gains .............    (0.34)        (0.80)      (0.97)        (0.02)        (0.10)
 Distributions in excess of net realized gains
  (temporary book-tax difference) ..................       --            --          --            --         (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%
Ratio to average net assets:
 Expenses, before reimbursement or waivers .........    2.25%         2.15%       2.45%         2.46%         2.39%
 Expenses, net of reimbursement or waivers .........    1.75%         1.75%       2.45%         2.46%         2.39%
 Net investment income (loss), before reimbursement
  or waivers .......................................  (0.16)%         0.13%     (0.39)%       (0.12)%       (0.94)%
 Net investment income (loss) ......................    0.35%         0.53%     (0.39)%       (0.12)%       (0.94)%
Portfolio turnover rate ............................  143.67%       122.56%     113.55%       137.72%       100.10%
Net assets, end of period (000's omitted) ..........  $24,000       $19,949     $18,891       $17,855       $17,843
</TABLE>

      

                                       


<PAGE>


INDEPENDENT AUDITORS' REPORT

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


     We  have  audited  the accompanying statements of net assets (including the
portfolio  of investments) and assets and liabilities of Lexington International
Fund,  Inc. as of December 31, 1998, and the related statement of operations for
the  year  ended,  the statements of changes in net assets for each of the years
in  the two-year period then ended, and the financial highlights for each of the
years  in  the  four-year  period  then ended and for the period from January 3,
1994  (commencement  of  operations)  to  December  31,  1994.  These  financial
statements  and  financial  highlights  are  the  responsibility  of  the Fund's
management.  Our  responsibility  is  to  express  an opinion on these financial
statements and financial highlights based on our audits.

     We  conducted  our  audits  in  accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable  assurance  about  whether  the  financial  statements  and financial
highlights  are free of material misstatement. An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements  and  financial  highlights.  Our procedures included confirmation of
securities  owned  as of December 31, 1998, by correspondence with the custodian
and  brokers.  An  audit  also includes assessing the accounting principles used
and  significant estimates made by management, as well as evaluating the overall
financial   statement  presentation.  We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In  our opinion, the financial statements and financial highlights referred
to  above  present  fairly,  in all material respects, the financial position of
Lexington  International  Fund,  Inc. as of December 31, 1998, the result of its
operations  for  the  year then ended, the changes in its net assets for each of
the  years  in  the two-year period then ended, and the financial highlights for
each  of  the  years  in the four-year period then ended and for the period from
January   3,  1994  (commencement  of  operations)  to  December  31,  1994,  in
conformity with generally accepted accounting principles.



                                                                   KPMG LLP
New York, New York
February 8, 1999

                                       11




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