LEXINGTON GOLDFUND, INC. PARK 80 WEST PLAZA TWO SADDLE BROOK, NEW JERSEY 07663 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OF THE LEXINGTON GOLDFUND, INC. TO BE HELD APRIL 19, 1995 A Special Meeting of Shareholders of Lexington Goldfund, Inc. (the "Fund") will be held at 9:00 a.m. on April 19, 1995 at the offices of the Fund, Park 80 West Plaza Two, Saddle Brook, New Jersey 07663 for the following purposes: 1. To elect ten (10) Directors to hold office until the election and qualification of their successors; 2. To consider and act upon a proposal to ratify or reject the selection of KPMG Peat Marwick LLP, as independent certified public accountants for the Fund for the fiscal year ending December 31, 1995; 3. To consider and act upon a proposal to approve an amended Investment Management Agreement between the Fund and Lexington Management Corporation; 4. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning senior securities; 5. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning diversification; 6. To consider and act upon a proposal to eliminate the Fund's fundamental investment restrictions concerning restricted and illiquid securities; 7. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning margin and short sales; 8. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning puts and calls; 9. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning concentration; 10. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning commodity contracts; 11. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning real estate; 12. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning securities of issuers in operation for less than three (3) years; 13. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning securities of affiliates; 14. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning lending; 15. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning borrowing; 16. To consider and act upon a proposal to amend the Fund's fundamental investment restriction concerning underwriting; 17. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning securities of other investment companies; 18. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning investment for control; 19. To consider and act upon a proposal to eliminate the Fund's fundamental investment restriction concerning joint trading accounts; and 20. To transact such other business as may properly come before the Meeting. Shareholders of record at the close of business on February 1, 1995 will be entitled to vote at the Meeting or any adjournment thereof. If you cannot attend in person, please sign, date and return promptly the enclosed proxy in the envelope provided. You are requested to do this at your earliest convenience so the Fund may avoid the expense and time involved in sending follow-up letters to shareholders. Any proxy may be revoked at any time before it is voted. By Order of the Board of Directors Lisa Curcio Secretary February 27, 1995 - - -------------------------------------------------------------------------------- YOU ARE URGED TO DATE, VOTE, SIGN AND MAIL THE PROXY PROMPTLY TO AVOID A FURTHER SOLICITATION WHICH WOULD BE AN ADDITIONAL EXPENSE TO THE FUND. - - -------------------------------------------------------------------------------- LEXINGTON GOLDFUND, INC. Park 80 West Plaza Two Saddle Brook, New Jersey 07663 Special Meeting of Shareholders of the Lexington Goldfund, Inc. April 19, 1995 --------------- PROXY STATEMENT --------------- This proxy statement is furnished by the Board of Directors of Lexington Goldfund, Inc. (the "Fund"), a corporation under the laws of the State of Maryland, in connection with the solicitation of proxies to be voted at the Special Meeting of Shareholders (the "Meeting") to be held at 9:00 a.m. on April 19, 1995 at the offices of the Fund, Park 80 West Plaza Two, Saddle Brook, New Jersey 07663. The purpose of the Meeting and the matters to be acted upon are set forth in the accompanying Notice of Special Meeting. If the accompanying form of Proxy is executed properly and returned, shares represented by it will be voted at the Meeting in accordance with the instructions on the Proxy. However, if no instructions are specified, shares will be voted FOR the election of each of the nominees named below unless authority to vote for a particular nominee is withheld and in favor of the proposals set forth in the attached Notice of the Special Meeting. The Board of Directors of the Fund knows of no business, other than that mentioned in the Notice of Meeting, which will be presented for consideration at the Meeting. If any other matter is properly presented, it is the intention of the persons named in the enclosed proxy to vote in accordance with their best judgment. A Proxy may be revoked at any time prior to the time it is voted by written notice to the Secretary of the Fund or by attendance at the Meeting. The close of business on February 1, 1995 has been fixed as the record date for the determination of shareholders entitled to notice of, and to vote at, the Meeting and at any adjournment thereof. On that date, the Fund had outstanding 25,343,271 shares of common stock. Each shareholder is entitled to one vote for each full share and an appropriate fraction of a vote for each fractional share held. The shares do not have cumulative voting rights. The audited financial statements of the Fund are found in its Annual Report for the fiscal year ended December 31, 1994 which was mailed to shareholders prior to the date of this Proxy Statement. A free copy of the annual report is available upon request from Lexington Goldfund, Inc. P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663, Toll Free: 1-800-526-0056. The favorable vote of the holders of a simple majority of the shares represented at the Meeting is required for the election of ten Directors (Proposal 1, below) and the ratification of the selection of KPMG Peat Marwick LLP as independent certified public accountants (Proposal 2, below). The favorable vote of the holders of a majority of the outstanding voting securities of the Fund, as defined in the Investment Company Act of 1940, as amended (the "1940 Act") is required to approve an amended investment management agreement between the Fund and Lexington Management Corporation (Proposal 3, below); to approve the adoption of a fundamental investment restriction concerning senior securities (Proposal 4, below); to approve an amendment to the Fund's fundamental investment 1 restriction concerning diversification (Proposal 5, below); to approve the elimination of the Fund's fundamental investment restriction concerning illiquid securities (Proposal 6, below); to approve the elimination of the Fund's fundamental investment restriction concerning margin and short sales (Proposal 7, below); to approve the elimination of the Fund's fundamental investment restriction concerning puts and calls (Proposal 8, below); to approve an amendment to the Fund's fundamental investment restriction concerning concentration (Proposal 9, below); to approve an amendment to the Fund's fundamental investment restriction concerning commodity contracts (Proposal 10, below); to approve an amendment to the Fund's fundamental investment restriction concerning real estate (Proposal 11, below); to approve the elimination of the Fund's fundamental investment restriction concerning securities of issuers in operation for less than three years (Proposal 12, below); to approve the elimination of the Fund's fundamental investment restriction concerning securities of affiliates (Proposal 13, below); to approve an amendment to the Fund's fundamental investment restriction concerning lending (Proposal 14, below); to approve an amendment to the Fund's fundamental investment restriction concerning borrowing (Proposal 15, below); to approve an amendment to the Fund's fundamental investment restriction concerning underwriting (Proposal 16, below); to approve the elimination of the Fund's fundamental investment restriction concerning investment in securities of other investment companies (Proposal 17, below); to approve the elimination of the Fund's fundamental investment restriction concerning investment for control (Proposal 18, below); to approve the elimination of the Fund's fundamental investment restriction concerning joint trading accounts (Proposal 19, below); The 1940 Act defines a "majority of the outstanding voting securities" to mean the lesser of (a) the vote of the holders of 67% or more of the shares of the Fund represented by proxy, or (b) the vote of the holders of more than 50% of the outstanding voting securities of the Fund. In the event that a quorum of shareholders is not represented at the Meeting or at any adjournment thereof, or, even though a quorum is so represented, in the event that sufficient votes in favor of any of the proposals set forth in the Notice of the Meeting are not received, the persons named as proxies may propose and vote for one or more adjournments of the Meeting to be held within a reasonable time after the date originally set for the Meeting (but not more than 120 days after the original record date for the Meeting), and further solicitation of proxies may be made without the necessity of further notice. The persons named as proxies will vote in favor of any such adjournment those proxies which instruct them to vote in favor of any of the proposals to be considered at the adjourned meeting, and will vote against any such adjournment those proxies which instruct them to vote against or to abstain from voting on all of the proposals to be considered at the adjourned meeting. The shares represented by the enclosed proxy will be voted as directed or, in the absence of direction, for the election of ten directors as set forth in Proposal 1; for the ratification of the selection of the independent certified public accountants as set forth in Proposal 2; for the approval of an amended investment management agreement between the Fund and Lexington Management Corporation as set forth in Proposal 3; and for each amendment or elimination of the Fund's fundamental investment restrictions (Proposals 4 through 19). THE FUND INTENDS TO INFORM SHAREHOLDERS OF THE VOTING RESULTS WITH RESPECT TO EACH PROPOSAL IN THE FUND'S NEXT SEMI-ANNUAL REPORT. 2 PROPOSAL 1: ELECTION OF DIRECTORS Ten directors are to be elected at the Special Meeting as the entire Board of Directors, to hold office until the next meeting and until their successors shall have been elected and shall have qualified. If authority is granted on the accompanying proxy to vote in the election of Directors, it is the intention of the persons named in the proxy to vote at the Special Meeting for the election of the nominees named below, each of whom has consented to serve if elected. If any of the nominees is unavailable to serve for any reason, the persons named as proxies will vote for such other nominee or nominees selected by the Board of Directors or the Board may reduce the number of Directors as provided in the Fund's By-Laws. The Fund currently knows of no reason why any of the nominees listed below will be unable to serve if elected. Year First Shares Owned Director's Name Became A Beneficially and Age Principal Occupation for Past 5 Years Director February 1, 1995*** - - ------- ------------------------------------- -------- ------------------- *Robert M. DeMichele President and Chairman; Chairman and Chief Executive 1982 9,179 (50) Officer, LMC; Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.; President and Director, Piedmont Management Company Inc.; Director, Reinsurance Corporation of New York; Director, Unione Italiana Reinsurance; Vice Chairman of Board of Trustees, Union College; Director, Continental National Corporation; Director, The Navigator's Group, Inc.; Chairman, Lexington Capital Management, Inc.; Chairman, LCM Financial Services, Inc.; Director, Vanguard Cellular Systems, Inc.; Chairman of the Board, Market Systems Research, Inc. and Market Systems Research Advisors, Inc. (registered investment advisors); Trustee, Smith Richardson Foundation. Beverley C. Duer Director. Private Investor. Formerly, Manager of Opera- 1978 1,419 (65) tions Research Department--CPC International, Inc. *Barbara R. Evans Director. Private Investor. Formerly, Assistant Vice 1990 - (34) President and Securities Analyst, Lexington Management Corporation. *Lawrence Kantor Vice President and Director. Executive Vice President, 1986 - (47) Managing Director and Director, Lexington Management Corporation; Executive Vice President and Director, Lex- ington Funds Distributor, Inc. Donald B. Miller Director. Chairman, Horizon Media, Inc.; Trustee, Galaxy 1988 749 (69) Funds (registered investment companies); Director, Maguire Group of Connecticut. Francis Olmsted Director. Private Investor. 1988 - (81) 3 Year First Shares Owned Director's Name Became A Beneficially and Age Principal Occupation for Past 5 Years Director February 1, 1995*** - - ------- ------------------------------------- -------- ------------------- John G. Preston Director. Associate Professor of Finance, Boston College. 1978 617 (62) Margaret W. Russell Director. Private Investor. 1988 - (74) Philip C. Smith Director. Private Investor; Director, Southwest Investors 1979 150 (83) Income Fund, Inc., Government Income Fund, Inc., U.S. Trend Fund, Inc., Investors Cash Reserve and Plimony Fund, Inc. (registered investment companies). Francis A. Sunderland Director. Private Investor. 1988 - (83) *"Interested persons," of the Fund as defined by the Investment Company Act of 1940, as amended. **Beneficial ownership is defined in accordance with the rules of the Securities and Exchange Commission and means generally the power to vote or dispose of shares, regardless of any economic interest therein. All of the Directors hold similar offices with some or all of the other registered investment companies advised and/ or whose shares are distributed by Lexington Management Corporation and Lexington Funds Distributor, Inc. Directors not employed by the Fund or its affiliates receive an annual fee of $600 and a meeting fee of $150 plus reimbursement of expenses for attendance at regular meetings. For the fiscal year ending December 31, 1994 an aggregate of $11,879 in fees and expenses was paid to Directors not employed by the Fund's affiliates. The Board of Directors held five meetings in the past fiscal year. All Directors attended at least 75% of such meetings. As of February 1, 1995, the Directors and executive officers of the Fund as a group beneficially owned a total of 12,114 Fund shares, constituting less than 1% of all issued and outstanding shares of the Fund. Number of Directorships Name of Director in the Fund Complex ---------------- ------------------- Robert M. DeMichele 14 Beverley C. Duer 14 Barbara R. Evans 14 Lawrence Kantor 14 Donald B. Miller 14 Francis Olmsted 13 John G. Preston 14 Margaret W. Russell 13 Philip C. Smith 14 Francis A. Sunderland 13 4 Aggregate Name of Director Compensation from Fund ---------------- ---------------------- Robert M. DeMichele 0 Beverley C. Duer 1350 Barbara R. Evans 0 Lawrence Kantor 0 Donald B. Miller 1350 Francis Olmsted 1350 John G. Preston 1350 Margaret W. Russell 1350 Philip C. Smith 1350 Francis A. Sunderland 1200 Officers of the Fund Principal Occupation; Shares Beneficially Owned Name and Age Other Associations February 1, 1995** - - ------------ ------------------ ------------------ Robert M. DeMichele* Chairman of the Board (see page 3). 0 (50) Richard M. Hisey* Vice President and Treasurer. Managing Director, Chief 0 (36) Financial Officer and Director, Lexington Management Corporation; Vice President, Chief Financial Officer and Director, Lexington Funds Distributor, Inc. Lawrence Kantor* Vice President and Director (see page 3). 0 (47) Robert W. Radsch* Vice President and Portfolio Manager. Vice President, 0 (52) Lexington Management Corporation. Prior to July 1994, Senior Vice President, Portfolio Manager and Chief Economist, Bull & Bear Group. Lisa Curcio* Vice President and Secretary. Vice President and Secre- 0 (35) tary, Lexington Management Corporation; Vice Presi- dent and Secretary, Lexington Funds Distributor, Inc. *Messrs. DeMichele, Hisey, Kantor and Radsch and Ms. Curcio hold similar offices with some or all of the other registered investment companies advised and/or whose shares are distributed by Lexington Management Corporation and Lexington Funds Distributor, Inc. **Beneficial ownership is defined in accordance with the rules of the Securities and Exchange Commission and means generally the power to vote or dispose of shares, regardless of any economic interest therein. The investment adviser to the Fund is Lexington Management Corporation, P.O.Box 1515/Park 80 West Plaza Two, Saddle Brook, N.J. 07663. The distributor of the Fund is Lexington Funds Distributor, Inc., P.O.Box 1515/Park 80 West Plaza Two, Saddle Brook, N.J. 07663. 5 PROPOSAL 2: RATIFICATION OR REJECTION OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Directors of the Fund recommend that the shareholders ratify the selection of KPMG Peat Marwick LLP, certified public accountants, to serve as the independent auditors of the Fund for the fiscal year ending December 31, 1995. The Directors, including a majority of the Directors who are not "interested persons" of the Fund, made their selection of the auditors on December 6, 1994 subject to the approval of the shareholders; the shareholders are being requested to ratify the selection of such auditors in accordance with Section 32(a) of the Investment Company Act of 1940. Neither KPMG Peat Marwick LLP, nor any of its partners or employees have had any direct or indirect financial interest in the Fund or its affiliates in any capacity other than as auditors. KPMG Peat Marwick LLP also serves as independent certified public accountants to fourteen other Lexington investment companies. A representative from KPMG Peat Marwick LLP is not expected to be present at the Meeting. PROPOSAL 3: APPROVAL OF AN AMENDED INVESTMENT MANAGEMENT AGREEMENT The Board of Directors has approved, and has recommended that the shareholders of the Fund approve, a proposal to enter into an amended investment management agreement (the "Amended Agreement") between the Fund and LMC. The Amended Agreement will clarify LMC's responsibilities and will not result in a change in advisory fees paid by the Fund. A copy of the existing management agreement between the Fund and LMC (the "Existing Agreement") is attached hereto as Exhibit A. A copy of the Amended Agreement is attached hereto as Exhibit B. The Amended Agreement is the same in all material respects as the Existing Agreement, except for the following: (1) The Amended Agreement clarifies the ability of the Fund to obtain and pay for various services that are not otherwise required in the management arrangement. The Amended Agreement provides that upon the request of the Board of Directors, LMC may perform certain accounting, shareholder servicing or other administrative services on behalf of the Fund that are not required by the Amended Agreement. Such services would be performed on behalf of the Fund and LMC may receive from the Fund such reimbursement for costs or reasonable compensation for such services as may be agreed upon between LMC and the Board on a finding by the Board that the provision of such services by LMC is in the best interests of the Fund and its shareholders. Payment or assumption by LMC of any Fund expense that LMC is not otherwise required to pay or assume under the Amended Agreement would not relieve LMC of any of its obligations to the Fund nor obligate LMC to pay or assume any similar Fund expense on any subsequent occasions. Such services may include, but are not limited to, (a) the services of a principal financial officer of the Fund (including applicable office space, facilities and equipment) whose normal duties consist of maintaining the financial accounts and books and records of the Fund, and the services (including applicable office space, facilities and equipment) of any of the personnel operating under the direction of such principal financial officer; (b) the services of staff to respond to shareholder inquiries concerning the status of their accounts; providing assistance to shareholders in exchanges among the investment companies managed or advised by LMC; changing account designations or changing addresses; assisting in the purchase or redemption of shares; or otherwise providing services to shareholders of the Fund; and (c) such other administrative services as may be furnished from time to time by LMC to the Fund at the request of the Board of Directors. Approval of the Amended Agreement by shareholders will not result in any material increase in the expenses of the Fund. 6 (2) The Amended Agreement clarifies LMC's obligations to comply with the requirements of the Securities Exchange Act of 1934, as amended, including its obligation to execute portfolio transactions in the best interest of the Fund. The Amended Agreement also confirms LMC's ability (at its own expense) to place portfolio trades with brokers and dealers on behalf of the Fund and LMC's ability to take advantage of the safe harbor afforded by Section 28(e) under the Securities Exchange Act of 1934, as amended. It allows LMC to consider bona fide research in deciding to allocate brokerage commissions. In addition, it authorizes LMC to place trades through affiliated brokers, although this is not the current policy of the Fund. The Fund's primary policy will be to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with best execution, considering all of the costs of the transaction including brokerage commissions. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with this policy, the Rules of Fair Practice of the National Association of Securities Dealers, Inc., and such other policies as the Directors may determine, LMC may consider sales of shares of the Fund and of the other Lexington Funds as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. However, pursuant to the Amended Agreement, management consideration may be given in the selection of broker-dealers to research provided and payment may be made of a commission higher than that charged by another broker-dealer which does not furnish research services or which furnishes research services deemed to be of a lesser value, so long as the criteria of Section 28(e) of the Securities Exchange Act of 1934 are met. Section 28(e) of the Securities Exchange Act of 1934 was adopted in 1975 and specifies that a person with investment discretion shall not be "deemed to have acted unlawfully or to have breached a fiduciary duty" solely because such person has caused the account to pay a higher commission than the lowest available under certain circumstances, provided that the person so exercising investment discretion makes a good faith determination that the commissions paid are "reasonable in the relation to the value of the brokerage and research services provided...viewed in terms of either that particular transaction or his overall responsibilities with respect to the accounts as to which he exercises investment discretion." It is not possible to determine the exact extent to which commissions that reflect an element of value for research services might exceed commissions that would be payable for execution services alone. Nor generally can the value of research services to the Fund be measured. Research services furnished might be useful and of value to LMC and its affiliates in serving other clients as well as the Fund. On the other hand, any research services obtained by LMC or its affiliates from the placement of portfolio brokerage of other clients might be useful and of value to LMC in carrying out its obligations to the Fund. (3) The Amended Agreement clarifies the ability of LMC to appoint a sub-adviser to the Fund, subject to the approval of the Fund's shareholders, and clarifies the duties of any such sub-adviser. As of December 31, 1994, the Fund had total net assets of $159,434,606. Fund expenses not assumed by LMC pursuant to the Existing Agreement are paid by the Fund. These expenses include the Fund's custodian charges, transfer agent fees, legal and registration fees, auditing fees, cost of printing of prospectuses, shareholder reports and communications, computation of net asset value, mailing of shareholder reports and communications, portfolio brokerage, taxes and "non-interested" Directors' fees. During the fiscal year ended December 31, 1994, LMC, the Fund's adviser, earned $103,151 as investment advisory fee for services rendered. LMC serves as investment manager to other investment companies in the Lexington Family of Funds. The investment companies having substantially similar investment objectives for which LMC serves as investment manager, together with the fees charged by LMC for each investment company, are as follows: 7 Annual Net Assets Advisory On amounts Fund as of 12/31/94 Fee of Up To:* - - ---- -------------- -------- --------- Lexington Strategic Investments Fund, Inc. $141,603,263 0.75% unlimited Lexington Strategic Silver Fund, Inc. $ 49,611,251 0.75% unlimited - - ---------------- *The percentage of the fee declines if the average net assets of the Fund in question exceed this amount. The principal Executive Officers and Directors of LMC and their principal occupations are: Name Position with LMC Principal Occupation - - ---- ----------------- -------------------- Robert M. DeMichele Chairman and See Page 3 Chief Executive Officer Richard M. Hisey Managing Director, See Page 5 Chief Financial Officer, and Director Lawrence Kantor Executive Vice President, See Page 3 Managing Director and Director James H. O'Leary Managing Director and Director Managing Director and Director, LMC Peter Palenzona Director Senior Vice President and Chief Financial Officer, Piedmont Management Company Inc. Stuart S. Richardson Director Vice Chairman, Piedmont Management Company Inc. John B. Waymire Vice President and Director President and Director, Lexington Capital Management Inc. Lisa Curcio Vice President and Secretary See page 5 The address of all officers and directors of LMC is P.O. Box 1515, Saddle Brook, New Jersey 07663, except for Messrs. Palenzona and Richardson whose address is 80 Maiden Lane, New York, New York 10038 and Mr. Waymire whose address is 2339 Gold Meadow Way, Gold River, CA 95670. LMC is a wholly-owned subsidiary of Piedmont Management Company Inc., 80 Maiden Lane, New York, New York 10038, a publicly traded corporation. Descendants of Lunsford Richardson, Sr., their spouses, trusts and other related entities have a majority voting control of outstanding shares of Piedmont Management Company Inc. Reasons for the Proposal. LMC proposed the Amended Agreement to clarify various obligations and responsibilities of the Fund and LMC under their contractual relationship and the ability of LMC to provide additional services, as described above. No material changes in the nature of the services provided by LMC would be effected under the Amended Agreement and no additional fees would be charged. At a meeting on December 6, 1994, the disinterested Directors reviewed and approved the Amended Agreement. The factors considered by the Directors concerning the Amended Agreement between LMC and the Fund included, 8 among other things, (i) the nature and quality of the services provided by LMC to the Fund; (ii) the Fund's need for management services; (iii) the quality of the personnel of LMC; (iv) the reasonableness of the fees to be charged by LMC in relation to the quality of the services provided; (v) LMC's historical relationship to the Fund; (vi) economies of scale; (vii) the profitability of LMC; (viii) the ability to place portfolio trades with broker-dealers in exchange for bona fide research services; and (ix) the fact that LMC would have the ultimate responsibility for determination of the Fund's investment strategy and implementation of that strategy. Conclusion. Based on the above discussion and the evaluation of additional materials presented during the meeting, the Board of Directors concluded that the Amended Agreement is fair and reasonable and is in the best interest of the shareholders of the Fund. The Directors recommended voting FOR the Amended Agreement. If approved by the Fund's shareholders, the Amended Agreement will take effect as soon as practicable and will remain in effect subject to continuation by the Fund's Board of Directors, including a majority of the disinterested Directors. If the shareholders of the Fund do not approve the Amended Agreement, the Existing Agreement will continue in effect. ADOPTION OF STANDARDIZED INVESTMENT LIMITATIONS. The primary purpose of Proposals 4 through 19 is to revise several of the Fund's investment restrictions. In each case, the Board has reviewed the proposed changes and believes that they are in the best interests of the Fund and its shareholders for the following reasons: Standardization. Some of a Fund's investment restrictions differ in form and substance from similar restrictions of other funds advised by LMC. LMC and the Board believe that increased standardized restrictions among all Lexington Funds will help promote operational efficiencies and facilitate the monitoring of portfolio compliance. In all cases, the adoption of a new or amended restriction or the elimination of a restriction is not expected to have any impact on the investment techniques employed by the Fund at this time. Modernization. The Fund's investment restrictions have been in effect, without changes, for many years. LMC and the Board believe that the Fund should modernize its investment restrictions, where appropriate, to conform to regulatory developments and authorize the use of newer financial instruments. Clarification. Some of the Fund's investment restrictions contain ambiguities that, if interpreted in a narrow way, would prevent the Fund from following the original intent of the restriction. Accordingly, LMC and the Board recommend that the Fund change its fundamental restrictions, where appropriate, to eliminate any ambiguities. Flexibility. Several of the Funds's fundamental investment restrictions may need to be changed to allow it to respond to regulatory developments and changes in the financial markets. For example, restrictions prohibiting certain transactions have been changed or eliminated by a federal or state securities regulator. Currently, to take advantage of such a change, the Fund would need shareholder approval, which is time consuming and costly to the Fund and its shareholders. To give the Fund more flexibility in responding to regulatory and market developments, LMC and the Board recommend changing, reclassifying or eliminating some of the Fund's fundamental investment restrictions so that they can be changed by the Board without shareholder vote. The Fund's prospectus and statement of additional information will be amended to reflect any changes. 9 A comparison of the existing investment restrictions and the new restrictions as they would exist after approval by shareholders is attached as Exhibit C. PROPOSAL 4: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING SENIOR SECURITIES Subject to shareholder approval, the Board of Directors intends to adopt the following fundamental investment restriction concerning senior securities: "The Fund will not issue any senior security (as defined in the 1940 Act), except that (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretation of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act." Reasons for the Proposal. Generally under the 1940 Act, an investment company can not issue senior securities except under certain conditions. The language of the proposed fundamental restriction concerning senior securities conforms to the provisions of the 1940 Act and clarifies that the Fund may issue senior securities to the extent permitted under the Act. It is proposed that this restriction exclude those transactions that current regulatory interpretations and policies allow and are consistent with current investment marketplace practices. Although the definition of a "senior security" involves complex statutory and regulatory concepts, a senior security is generally thought of as an obligation of a fund which has a claim to the fund's assets or earnings that takes precedence over the claims of the fund's shareholders. The 1940 Act generally prohibits mutual funds from issuing senior securities; however, mutual funds are permitted to engage in certain types of transactions that might be considered "senior securities" as long as certain conditions are satisfied. Therefore, the proposed fundamental restriction will allow the Fund to engage in the following transactions, even though they may result in the issuance of senior securities, provided the Fund segregates cash or other high quality securities with its custodian, or subcustodian: (a) enter into commitments, including reverse repurchase agreements and delayed delivery and when-issued securities; (b) engage in transactions that may result in the issuance of a senior security to the extent permitted by applicable law or exemptive order; (c) engage in short sales of securities; (d) purchase and sell futures contracts and related options; and (e) borrow money, subject to other applicable restrictions. When-Issued or Delayed-Delivery Securities. During any period that the Fund has outstanding a commitment to purchase securities on a when-issued or delayed-delivery basis, the Fund will maintain a segregated account consisting of cash, U.S. Government securities or other high-quality debt obligations with its custodian bank. To the extent that the market value of securities held in this segregated account falls below the amount that the Fund will be required to pay on settlement, additional assets may be 10 required to be added to the segregated account. Such segregated account could affect the Fund's liquidity and ability to manage its portfolio. When the Fund engages in when-issued or delayed-delivery transactions, it is effectively relying on the seller of such securities to consummate the trade; failure of the seller to do so may result in the Fund's incurring a loss or missing an opportunity to invest funds held in the segregated account more advantageously. The Fund will not pay for securities purchased on a when-issued or delayed-deliver basis, or begin earning interest on such securities, until the securities are actually received. However, any security so purchased will be recorded as an asset of the Fund at the time the commitment is made. Because the market value of securities purchased on a when-issued or delayed-delivery basis may increase or decrease prior to settlement as a result of changes in interest rates or other factors, such securities will be subject to changes in market value prior to settlement and a loss may be incurred if the value of the security to be purchased declines prior to settlement. Conclusion. The Board of Directors has concluded that the adoption of the new restriction is in the best interest of the Fund and its shareholders. The Directors recommend that shareholders of the fund vote FOR the proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. PROPOSAL 5: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING DIVERSIFICATION The Fund's current fundamental restrictions concerning diversification provide that: "The Fund will not purchase securities of any issuer (other than obligations of, or guaranteed by, the United States government, its agencies or instrumentalities) if, as a result, more than 5% of the value of the Fund's assets would be invested in securities of that issuer. The Fund will not purchase more than 10% of the voting securities or more than 10% of any class of securities of any issuer. (For this purchase all outstanding debt securities of an issuer are considered as one class, and all preferred stock of an issuer are considered as one class.)" Subject to shareholder approval, the Board of Directors intends to replace this restriction with the following fundamental investment restriction: "At the end of each quarter of the taxable year, (i) with respect to at least 50% of the market value of the Fund's assets, the Fund may invest in cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purchases of this calculation to an amount not greater than 5% of the value of the Fund's total assets, and (ii) not more than 25% of the value of its total assets be invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies)." Reasons for the Proposal. The Fund is classified as a "non-diversified" investment company, which means that the proportion of the Fund's assets that may be invested in the securities of a single issuer is not limited by the Investment Company Act of 1940. The Fund's current investment restrictions, described above, are more restrictive than required for a non-diversified investment company. The Fund, however, intends to operate as a "regulated investment company" for purposes of the 11 Internal Revenue Code. This means that the Fund will limit its investments so that at the close of every quarter of its taxable year, (i) no more than 25% of its total assets are invested in a single issuer, and (ii) with regard to at least 50% of its total assets, no more than 5% of its total assets are invested in the securities of a single issuer. The proposed investment restriction would enable the Fund to diversify its investments consistent with the standards applicable to non-diversified investment companies, which are broader than the restrictions to which the Fund is now subject. With respect to 25% of the Fund assets, LMC will be able to take a larger position in a single issuer if it is believed to be in the best interest of the Fund. LMC believes that this increased flexibility may provide opportunities to enhance the Fund's performance. At the same time, investing a larger percentage of the Fund's assets in a single issuer's securities increases the Fund's exposure to credit and other risks associated with that issuer's financial conditions and business operations, including risk of default on debt securities. LMC will only enter into such transactions when it believes the securities' potential return justifies subjecting the Fund to the risks associated with the higher level of investment. The proposed restriction is also consistent with restrictions contained in similarly managed funds and would enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. If the proposal is approved, the new fundamental restriction concerning diversification can not be changed without a future vote of shareholders. Conclusion. The Board of Directors has concluded that the adoption of the new restriction is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 6: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING RESTRICTED AND ILLIQUID SECURITIES The Fund's current fundamental investment restriction concerning restricted and illiquid securities provides that: The Fund will not invest in restricted securities (securities which are not readily marketable without registration or the filing of a notification under the Securities Act of 1933). The Directors recommend that the shareholders vote to eliminate the above fundamental restriction. If the proposal is approved, the Directors intend to replace the current fundamental investment restriction with a non-fundamental investment restriction, which may be changed without shareholder approval. The proposed non-fundamental restriction is set forth below, with a brief analysis of the substantive differences between it and the current fundamental restriction: "The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors." 12 Reasons for the Proposal. The current fundamental restriction limits purchases of all securities that are issued without registration under the 1933 Act. This restriction includes all securities issued in private placements under Section 4(2) of the 1933 Act and securities traded under Rule 144A, even though there are markets for both and they are no longer considered illiquid. The proposed non-fundamental restriction incorporates these recent developments in securities markets by placing the restriction only on illiquid securities. Illiquid securities are defined to mean those that cannot be sold without a discount in seven days. The proposed non-fundamental restriction clarifies that a recently issued security under an exemption from registration, although restricted, may still be classified as liquid. It also clarifies that certain securities that do not mature for more than seven days may still be liquid. The proposed non-fundamental restriction would provide the Fund with additional flexibility to carry out its investment program and would modernize and standardize the Fund's investment restriction concerning restricted and illiquid securities to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act without an increase in the relative risks involved. Finally, the current restriction is proposed to be reclassified as non-fundamental to allow changes to be made by the Directors rather than by shareholder vote. The market for restricted securities has been rapidly evolving and it is desirable to allow the Fund to respond quickly to market changes. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning restricted and illiquid securities is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 7: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING MARGIN AND SHORT SALES The Fund's current fundamental investment restriction concerning margin and short sales provides that: "The Fund will not make short sales of securities or purchase any securities on margin, except for such short-term credits as are necessary for the clearance of transactions." The Directors recommend that the shareholders vote to eliminate the above fundamental investment restriction. If the proposal is approved, the Directors intend to replace the Fund's current restriction with a non-fundamental investment restriction which may be changed without shareholder approval. The proposed non-fundamental restriction is set forth below, with a brief analysis of the substantive differences between it and the current restriction: "The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund." Reasons for the Proposal. Margin purchases involve the purchase of securities with money borrowed from a broker. "Margin" is the cash or eligible securities that the borrower places with a broker as collateral against the loan. Except for obtaining short- 13 term credits as may be necessary for the clearance of transactions and margin payments made in connection with the purchase and sale of futures contracts and options on futures contracts, mutual funds are prohibited from entering into most margin purchases by applicable SEC policies. In a short sale, an investor sells a borrowed security and has a corresponding obligation to the lender to return the identical security. A short sale "against the box" is an investment technique where the Fund owns an equal amount of such securities or, by virtue of ownership of convertible or exchangeable securities (or otherwise), has the right to obtain an equal amount of the securities sold short without the payment of future consideration, and it will retain such securities so long as it is in a short position as to them. Certain state regulations currently prohibit mutual funds from entering into any short sales, other than short sales against the box. If the proposal is approved, however, the Board of Directors would be able to change the Fund's proposed non-fundamental restriction in the future, without a vote of shareholders, if state regulations were to change to permit other types of short sales, or if waivers from existing requirements were available, subject to appropriate disclosure to investors. The proposed non-fundamental restriction modernizes the language concerning short sales to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act and excludes those transactions that current regulatory interpretations and policies allow. It also clarifies the circumstances under which the Fund can make margin purchases. In addition, the reclassification as non-fundamental will provide the Fund with additional flexibility to carry out its investment program without an increase in the relative risks involved. The restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning margin and short sales is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 8: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING PUTS AND CALLS The Fund's current fundamental investment restriction concerning puts and calls provides that: "The Fund will not write, purchase or sell puts, calls or combinations thereof. However, the Fund may invest up to 15% of the value of its assets in warrants. The holder of a warrant has the right to purchase a given number of shares of a particular company at a specified price until expiration. Such investments generally can provide a greater potential for profit or loss than investment of an equivalent amount in the underlying common stock. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. If the holder does not sell the warrant, he risks the loss of his entire investment if the market price of the underlying stock does not, before the expiration date, exceed the exercise price of the warrant plus the cost thereof. It should be understood that investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying stock) with respect to the assets of the corporation issuing them. In addition, the sale of warrants held more than six months generally results in a long term 14 capital gain or loss to the holder, and the sale of warrants held for less than such period generally results in a short term capital gain or loss. The holding period of securities acquired upon exercise of warrants, however, begins on the day after the date of exercise, regardless of how long the warrant was held. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. Warrants which are not listed on a United States Securities exchange shall not exceed 2% of the Fund's net assets." The Directors recommend that the shareholders vote to eliminate the above fundamental restriction. If the proposal is approved, the Directors intend to replace the current fundamental restriction with a non-fundamental restriction, which may be changed without shareholder approval. The proposed non-fundamental restriction is set forth below, with a brief analysis of the substantive differences between it and the current fundamental restriction. "The Fund shall not write, purchase or sell puts, calls or combinations thereof. However, the Fund may invest up to 15% of the value of its assets in warrants. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities." Reasons for the Proposal. The proposed non-fundamental restriction is substantially the same as the current fundamental restriction, but is written to increase standardization among all Lexington Funds. The 15% restriction on investments in warrants is not changed. However, since non-fundamental restrictions can be changed by a vote of the Directors, the reclassification would provide greater flexibility should changes in investment instruments make it advantageous to change those restrictions quickly, without an increase in the relative risks involved and would enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning puts and calls is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 9: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING CONCENTRATION The Fund currently does not have a fundamental investment restriction concerning concentration of investments in a single industry, except that, as a matter of fundamental policy, the Fund invests at least 65% of its assets in gold and gold-related securities. Subject to shareholder approval, the Board of Directors intends to adopt the following investment restriction concerning concentration of investments: "The Fund will not concentrate its investments by investing more than 25% of its assets in the securities of issuers in any one industry. This limit will not apply to gold and gold-related securities, and to securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities." 15 Reasons for the Proposal. The basic requirement that 65% of the Fund's total assets be invested in gold and related securities is not changed, however, the 25% limit clarifies the restriction on the ability of the Fund to concentrate its investments in any one industry other than gold and gold-related securities. The proposed restriction also clarifies that government securities, securities invested in, or repurchase agreements for, U.S. Government securities, and certificates of deposit, or bankers' acceptances, or securities of U.S. banks and holding companies are excluded from this restriction, so that LMC will be allowed to acquire such instruments if it is believed to be in the best interest of the Fund. Conclusion. The Board of Directors has concluded that the adoption of the new restriction is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. PROPOSAL 10: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING COMMODITY CONTRACTS The Fund's current fundamental investment restriction concerning commodity contracts provides that: "The Fund will not invest in any commodities or commodities futures contracts, including futures contracts relating to gold. Investments in gold shall not be deemed an investment in a commodity subject to the Fund's investment restrictions." Subject to shareholder approval, the Board of Directors intends to replace the above restriction with the following fundamental investment restriction: "The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, and may enter into forward currency contracts. Transactions in gold, platinum, palladium or silver bullion will not be subject to this restriction." Reasons for the Proposal. LMC, the Fund's investment adviser, has proposed the amendment of the Fund's fundamental investment restriction concerning commodity contracts. The proposed fundamental investment restriction concerning commodity contracts involves a higher level of investment risk. In order to protect the Fund against such risks, LMC believes it is desirable to have the ability to enter into certain hedging transactions. The Directors believe that given the increasing complexity and volatility of investment in international markets, it is in the best interests of the Fund and its shareholders to have flexibility in managing the Fund's investments. The Directors believe that the investment strategies as described below will enable the Fund to hedge various market risks associated with investing in global securities. These changes, if approved by shareholders, would allow the Fund to have the added investment flexibility to enter into forward currency contracts; financial futures and other contracts and related options, traded both in U.S. and foreign markets; and cross-currency hedges. Approval by shareholders also constitutes approval of any amendments 16 necessary to the Fund to effectuate these changes. If the proposal is approved, the new fundamental restriction concerning commodity contracts can not be changed without a future vote of shareholders. If the shareholders approve the above fundamental investment restrictions, the Directors intend to adopt the following non-fundamental investment restriction, which may be changed without shareholder approval: "The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the Fund's total assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts." Description of the Proposed Investment Techniques. Futures contracts. If approved by shareholders, the Fund may enter into financial or currency futures contracts or options thereon as a hedge against changes in prevailing levels of interest rates, or changes in prevailing currency exchange rates and in anticipation of future purchases or sales of securities. Hedging transactions may include sales of futures as an offset against the effect of expected increases in interest rates or decreases in the value of foreign currencies. Hedging transactions may also include purchases of futures contracts as an offset against the effect of expected decreases in interest rates or an increase in the value of a particular currency. Although techniques other than sales and purchases of futures contracts could be used to reduce the exposure of the Fund to market fluctuations, it may be able to hedge its exposure more effectively and perhaps at a lower cost through using futures contracts. The Fund may enter into futures contracts or options thereon that are traded on national futures exchanges and are standardized as to maturity and underlying financial instrument. Futures exchanges and trading are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (the "CFTC"). In addition, the Fund may enter into certain futures contracts traded on foreign exchanges, provided that the futures contracts have been approved by the CFTC. A futures contract provides for the future sale by one party and purchase by another party of a specified amount of a specific financial instrument or a specific market index for a specified price at a designated date, time and place. Brokerage fees are incurred when a futures contract is bought or sold and at expiration, and margin deposits must be maintained. Although interest rate futures typically require actual future delivery of and payment for the underlying instruments, those contracts are usually closed out before the delivery dates. Index futures contracts do not contemplate actual future delivery and will be settled in cash at expiration or closed out prior to expiration. Closing out an open futures contract sale or purchase is effected by entering into an offsetting futures contract purchase or sale, respectively, for the same aggregate amount of the identical type of underlying instrument and the same delivery date. There can be no assurance, however, that the Fund will be able to enter into an offsetting transaction with respect to a particular contract at a particular time. If the Fund is not able to enter into an offsetting transaction, it will continue to be required to maintain the margin deposits on the contract. Persons who engaged in futures contracts transactions may be broadly classified as "hedgers" and "speculators." Hedgers, such as the Fund, whose business activity involves investment in securities, use the futures markets primarily to offset unfavorable changes in value that may occur because of fluctuations in the value of the securities 17 held or expected to be acquired by them. Debtors and other obligors may also hedge the interest cost of their obligations. The speculator, like the hedger, generally expects neither to deliver nor to receive the financial instrument underlying the futures contract, but, unlike the hedger, hopes to profit from fluctuations in prevailing interest rates or currency exchange rates. The prices of futures contracts are volatile and are influenced, among other things, by actual and anticipated changes in interest rates and currency exchange rates, which in turn are affected by fiscal and monetary policies and national and international political and economic events. At best, the correlation between changes in prices of futures contracts and of the securities being hedged can be only approximate. The degree of imperfection of correlation depends upon circumstances such as: variations in speculative market demand for futures and for securities, including technical influences in futures trading; and differences between the financial instruments being hedged and the instruments underlying the standard futures contracts available for trading. Even a well-conceived hedge may be unsuccessful to some degree because of unexpected market behavior or foreign currency or interest rate trends. Most United States futures exchanges limit the amount of fluctuation permitted in interest rate futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some persons engaging in futures transactions to substantial losses. The risk involved in writing options on futures contracts or market indices is that there could be an increase in the market value of such contracts or indices. If that occurred, the option would be exercised and the Fund would not benefit from any increase in value above the purchase price. Usually, this risk can be eliminated by entering into an offsetting transaction. However, the cost to do an offsetting transaction and terminate the Fund's obligations might be more or less than the premium received when it originally wrote the option. Further, the Fund might occasionally not be able to close the option because of insufficient activity in the options market. "Margin" is the amount of funds that must be deposited by the Fund with a commodities broker in a custodian account in order to initiate futures trading and to maintain open positions in the Fund's futures contracts. A margin deposit is intended to assure the Fund's performance of the futures contract. The margin required for a particular futures contract is set by the exchanges on which the contract is traded and may be significantly modified from time to time by the exchange during the term of this contract. If the price of an open futures contract changes (by increase in the case of a sale or by decrease in the case of a purchase) so that the loss on the futures contract reached a point at which the margin on deposit does not satisfy margin requirements, the broker will require an increase in the margin. However, if the value of a position increases because of favorable price changes in the futures contract so that the margin deposit exceeds the required margin, the broker will promptly pay the excess to the Fund. These daily payments to and from the Fund are called variation margin. At times of extreme price volatility such as occurred during the week of October 19, 1987, intra-day variation margin payments may be required. In computing daily net asset values, the Fund will mark to market the current value of its open futures contract. The Fund expects to earn interest income on its initial margin deposits. Furthermore, in the case of a futures contract purchase, the Fund has deposited in a segregated account money market instruments sufficient to meet all futures contract initial margin requirements. 18 Because of the low margin deposit required, futures trading involves an extremely high degree of leverage. As a result, a relatively small price movement in a futures contract may result in immediate, substantial and potentially unlimited loss, or gain, to the investor relative to the size of the margin commitment. For example, if at the time of purchase 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit before any deduction for the transaction costs, if the contract were then closed out. A 15% decrease in the value of the futures contract would result in a loss equal to 150% of the original margin deposit, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount initially invested in the futures contract. However, the Fund would presumably have sustained comparable losses if, instead of the futures contract, it had invested in the underlying financial instrument and sold it after the decline. Forward Foreign Currency Exchange Contracts. If approved by shareholders, the Fund may purchase or sell forward foreign currency exchange contracts ("forward contracts") as part of its portfolio investment strategy. A forward contract is an obligation to purchase or sell a specific currency for an agreed price at a future date which is individually negotiated and privately traded by currency traders and their customers. The Fund may enter into a forward contract, for example, when it enters into a contract for the purchase or sale of a security denominated in a foreign currency in order to "lock in" the U.S. dollar price of the security ("transaction hedge"). Additionally, for example, when the Fund believes that a foreign currency may suffer a substantial decline against the U.S. dollar, it may enter into a forward sale contract to sell an amount of that foreign currency approximating the value of some or all of the Fund's portfolio securities denominated in such foreign currency. Conversely, when the Fund believes that the U.S. dollar may suffer a substantial decline against a foreign currency, it may enter into a forward purchase contract to buy that foreign currency for a fixed dollar amount ("position hedge"). In this situation, the Fund may, in the alternative, enter into a forward contract to sell a different foreign currency for a fixed U.S. dollar amount where the Fund believes that the U.S. dollar value of the currency to be sold pursuant to the forward contract will fall whenever there is a decline in the U.S. dollar value of the currency in which portfolio securities of the Fund are denominated ("cross-hedge"). The Fund's custodian will place cash not available for investment or U.S. government securities or other high quality debt securities in a segregated account having a value equal to the aggregate amount of the Fund's commitments under forward contracts entered into with respect to position hedges and cross-hedges, to the extent they do not already own the security subject to the transaction hedge. If the value of the securities placed in a segregated account declines, additional cash or securities will be placed in the account on a daily basis so that the value of the account will equal the amount of the Fund's commitments with respect to such contracts. As an alternative to maintaining all or part of the segregated account, the Fund may purchase a call option permitting it to purchase the amount of foreign currency being hedged by a forward sale contract at a price no higher than the forward contract price or the Fund may purchase a put option permitting the Fund to sell the amount of foreign currency subject to a forward purchase contract at a price as high or higher than the forward contract price. Unanticipated changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. If the party with which the Fund enters into a forward contract becomes insolvent or breaches its obligation under the contract, then the Fund may lose the ability to purchase or sell a currency as desired. Investment Risks. Currency Fluctuations. Because the Fund may invest in the securities of foreign issuers which are denominated in foreign currencies, the strength or weakness of the U.S. dollar against such foreign currencies will account for part 19 of the Fund's investment performance. A decline in the value of any particular currency against the U.S. dollar will cause a decline in the U.S. dollar value of the Fund's holdings of securities dominated in such currency and, therefore, will cause an overall decline in the Fund's net asset value and any net investment income and capital gains to be distributed in U.S. dollars to shareholders of the Fund. The rate of exchange between the U.S. dollar and other currencies is determined by several factors including the supply and demand for particular currencies, central bank efforts to support particular currencies, the movement of interest rates, the pace of business activity in certain other countries and the United States, and other economic and financial conditions affecting the world economy. Although the Fund values its assets daily in terms of U.S. dollars, the Fund does not intend to convert its holdings of foreign currencies into U.S. dollars on a daily basis. The Fund will do so from time to time, and investors should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference ("spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to sell that currency to the dealer. Interest Rate Fluctuations. Generally, if interest rates decrease, the value of debt securities held by the Fund will increase. Conversely, if interest rates increase, the value of debt securities held by the Fund will decrease. Conclusion. The Board of Directors has concluded that the adoption of the new restriction concerning commodity contracts is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 11: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING REAL ESTATE The Fund's current fundamental investment restriction concerning real estate provides that: "The Fund will not invest in real estate." Subject to shareholder approval, the Board of Directors intends to replace the above restriction with the following fundamental investment restriction: "The Fund will not purchase real estate, interests in real estate or real estate limited partnership interest except that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein." Reasons for the Proposal. The primary purpose of the proposed amendment is to clarify the types of securities in which the Fund is authorized to invest and to conform the Fund's fundamental real estate restriction to a restriction that is expected to 20 become the standard for all funds managed by LMC. If the proposal is approved, the new fundamental real estate restriction may not be changed without a future vote of shareholders. Adoption of the proposed restriction concerning real estate is not expected to significantly affect the way in which the Fund is managed or the way in which securities or instruments are selected for the Fund, which primarily invests in gold and gold-related securities. However, to the extent that the Fund invests in real estate related securities, it will be subject to the risks of the real estate market. This industry is sensitive to factors such as changes in real estate values and property taxes, overbuilding, variations in rental income, and interest rates. Performance could also be affected by the structure, cash flow and management skill of real estate companies. The Fund does not expect to acquire real estate. However, the proposed restriction would clarify several points. First, the proposed restriction would make it explicit that the Fund may acquire a security or other instrument that is secured by a mortgage or other right to foreclose on real estate, in the event of a default. Second, the proposed restriction would clarify the fact that the Fund may invest without limitation in securities issued or guaranteed by companies engaged in acquiring, constructing, financing, developing, or operating real estate projects (e.g., securities of issuers that develop various industrial, commercial, or residential real estate projects such as factories, office buildings, or apartments). Any investments in these securities or other instruments are, of course, subject to the Fund's investment objective and policies and to other limitations regarding diversification and concentration in particular industries. Conclusion. The Board of Directors has concluded that the adoption of the new restriction concerning real estate is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 12: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING SECURITIES OF ISSUERS IN OPERATION FOR LESS THAN THREE YEARS The Fund's current fundamental investment restriction concerning securities of issuers in operation for less than three years provides that: "The Fund shall not invest more than 5% of the value of its total assets in securities of issuers which, with their predecessors, have a record of less than three years continuous operation." The Directors recommend that the shareholders approve the elimination of the above fundamental investment restriction. If the proposal is approved, the Directors intend to replace the current fundamental restriction with a non-fundamental investment restriction, which may be changed without shareholder approval. The proposed non-fundamental restriction is set forth below, with a brief analysis of the substantive differences between it and the current fundamental restriction: "The Fund will not, except for investments which, in the aggregate, do not exceed 5% of the Fund's total assets taken at market value, purchase securities unless the issuer thereof or any company on whose credit the purchase was based has a record of at least three years continuous operations prior to the purchase." 21 Reasons for the Proposal. The proposed non-fundamental restriction is materially the same as the current fundamental restriction. The purpose of the fundamental restriction on investments in unseasoned issuers is to comply with state laws and limit the risks associated with investing in companies that have no proven track record in business and whose prospects are uncertain. The proposed restriction clarifies that securities of business enterprises, such as pools of asset-backed securities, with a record of less than three years of continuous operation will be limited to 5% of the Fund's total assets. The proposal will have no current impact on the Fund. However, adoption of a standard non-fundamental limitation will facilitate LMC's compliance efforts and will enable the Fund to respond more promptly if applicable state laws change in the future. The proposal modernizes the language of the restriction concerning securities of issuers in operation for less than three years to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act and will provide the Fund with additional flexibility without an increase in the relative risks involved. The restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning securities of issuers in operation for less than three years is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 13: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING SECURITIES OF AFFILIATES The Fund's current fundamental investment restriction concerning securities of affiliates provides that: "The Fund will not purchase or retain the securities of any issuer if the officers or directors of the Fund or its investment adviser who own individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer." The Directors recommend that the shareholders approve the elimination of the above fundamental investment restriction. If the proposal is approved, the Directors intend to replace the current fundamental investment restriction with a non-fundamental investment restriction, which may be changed without shareholder approval. The proposed non-fundamental investment restriction is set forth below with a brief analysis of the substantive differences between it and the current investment restriction: "The Fund will not purchase securities of an issuer if to the Fund's knowledge, one or more of the Directors or officers of the Fund or LMC individually owns beneficially more than 0.5% and together own beneficially more than 5% of the securities of such issuer nor will the Fund hold the securities of such issuer." Reasons for the Proposal. The proposed non-fundamental restriction is materially the same as the current fundamental restriction. The purpose of this restriction is to comply with state laws. The proposal will have no current impact on the Fund. However, adoption of a standard non-fundamental limitation will facilitate LMC's compliance efforts and will enable 22 the Fund to respond more promptly, if applicable state laws change in the future. In addition, the reclassification will provide the Fund with additional flexibility without an increase in the relative risks involved. The restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning securities of affiliates is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 14: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING LENDING. The Fund's current fundamental restriction concerning lending provides that: "The Fund will not lend money or securities, provided that the making of time or demand deposits with domestic banks and the purchase of debt securities such as bonds, debentures, commercial paper, repurchase agreements and short term obligations in accordance with the fund's objective and policies, are not prohibited." Subject to shareholder approval, the Board of Directors intends to replace this restriction with the following fundamental investment restriction: "The Fund shall not make loans, except that, to the extent appropriate under its investment program, the Fund may (a) purchase bonds, debentures or other debt securities, including short-term obligations, (b) enter into repurchase transactions and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets." Reasons for the Proposal. The proposed fundamental restriction is materially the same as the current fundamental restriction. However, the proposed restriction will increase the Fund's ability to lend portfolio securities to up to one-third of its total assets. The primary purpose of the proposal is to conform the language of the fundamental restriction concerning lending to the provisions of the 1940 Act. It is proposed that this restriction excludes those transactions that current regulatory interpretations and policies allow and are consistent with current investment marketplace practices. The restriction is also being written to increase standardization among all Lexington Funds. Although the Board proposes that the procedural requirements be removed from this restriction, the Fund will not make loans, enter into repurchase agreements or lend portfolio securities unless it receives collateral that is at least equal to the value of the loan, including accrued interest. If the recipient of the loan or the seller of the instrument defaults and the value of the collateral securing the loan or the repurchase agreement declines, the Fund may incur a loss. This risk is increased by the proposed restriction as it permits the Fund to lend up to one-third of its total assets. If the proposal is approved the new fundamental restriction concerning lending can not be changed without a future vote of the shareholders. 23 Conclusion. The Board of Directors has concluded that the adoption of the new restriction concerning lending is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 15: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING BORROWING The Fund's current fundamental restriction concerning borrowing provides that: "The Fund shall not borrow money, except for temporary emergency purposes, and in no event more than 5% of its net assets at value or cost, whichever is less; or pledge its gold or portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount exceeding 10% of the value of its total assets." Subject to shareholder approval, the Board of Directors intends to replace this restriction with the following fundamental investment restriction: "The Fund shall not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase agreements (reverse repurchase agreements are limited to 5% of the Fund's total assets); (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) the Fund may pledge its portfolio securities or receivables or transfer or assign or otherwise encumber then in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (not including Sundays and holidays), reduced its borrowings to the extent necessary to meet the 300% test." Reasons for the Proposal. The current fundamental investment restriction prohibits borrowing in excess of 5% of the value of the Fund's assets and restricts such borrowing to certain situations. The proposed fundamental restriction incorporates recent regulatory changes by excluding from the restriction certain securities that could be considered borrowing, such as certain futures contracts and when-issued securities, which do not represent the same kinds of risk as unrestricted borrowing. The proposed fundamental restriction would allow borrowing up to 5% of the value of the Fund's assets for temporary emergency purposes. This provision is necessary to address excessive or unanticipated liquidations of Fund shares that exceed available cash. The Fund could also borrow with limitations on the amounts being borrowed. This change would allow the investment adviser to leverage if it is believed to be in the best interest of the Fund. The investment adviser has no present intention to do so. Leveraging involves certain risks. For example, leveraging by 24 means of borrowing will exaggerate the effect of any increase or decrease in the value of portfolio securities on the Fund's net asset value. The proposed fundamental restriction is further written to enable the Fund to borrow to meet redemptions. Money borrowed will be subject to interest and other costs. In addition, the proposed fundamental restriction would further increase the Fund's ability to pledge its portfolio securities to up to one-third of its total assets. The proposed restriction would also modernize the Fund's investment restriction concerning borrowing to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. The restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the adoption of the new restriction concerning borrowing is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 16: AMENDMENT TO THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING UNDERWRITING The Fund's current fundamental investment restriction concerning underwriting provides that: "The Fund shall not underwrite securities issued by others". Subject to shareholder approval, the Board of Directors intends to replace this restriction with the following fundamental investment restriction: "The Fund shall not act as underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act." Reasons for the Proposal. The proposed fundamental investment restriction modernizes the language concerning underwriting to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. The Restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the adoption of the new restriction concerning underwriting is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved by shareholders, the new fundamental restriction will become effective as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 17: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING SECURITIES OF OTHER INVESTMENT COMPANIES The Fund's current fundamental restriction concerning securities of other investment companies provides that: 25 "The Fund will not purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets." The Directors recommend that shareholders of the fund vote to eliminate the above fundamental investment restriction. If the proposal is approved, the Directors intend to replace the current fundamental restriction with a non-fundamental restriction, which could be changed without a vote of shareholders. The proposed non-fundamental investment restriction is set forth below with a brief analysis of the substantive differences between it and the current investment restriction: "The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act." Reasons for the Proposal. The proposed non-fundamental investment restriction is materially the same as the current fundamental restriction. The ability of mutual funds to invest in other investment companies is restricted by rules under the 1940 Act and by some state regulations. The Fund's current fundamental investment restriction recites certain of the applicable federal and former state restrictions. The federal restrictions will remain applicable to the Fund whether or not they are recited in a fundamental restriction. As a result, elimination of the above fundamental restriction is not expected to have any impact on the Fund's investment practices, except to the extent that regulatory requirements may change in the future. However, the Board of Directors believes that the efforts to standardize the Fund's investment restrictions will facilitate LMC's investment compliance efforts and are in the best interests of the shareholders. The change will modernize the language concerning the purchase of securities of other investment companies to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. The restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning securities of other investment companies is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 18: ELIMINATION OF THE FUND'S FUNDAMENTAL RESTRICTION CONCERNING INVESTMENT FOR CONTROL The Fund's current fundamental investment restriction concerning investment for control provides that: "The Fund will not invest for the purpose of exercising control or management of another company." The Directors recommend that shareholders of the fund vote to eliminate the above fundamental investment restriction. If the proposal is approved, the Directors intend to replace the current fundamental restriction with a non-fundamental restriction, which could be changed without a vote of shareholders. The proposed non-fundamental investment restriction is set forth below with a brief analysis of the substantive differences between it and the current investment restriction: 26 "The Fund will not invest for the purpose of exercising control over or management of any company." Reasons for the Proposal. The proposed non-fundamental restriction is materially the same as the current fundamental restriction. It modernizes the Fund's investment restriction concerning investment for control to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. In addition, the reclassification will provide the Fund with additional flexibility without an increase in the relative risks involved and allow the Fund to respond quickly to changes in the financial markets. The restriction is also being written to increase standardization among all Lexington Funds. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning investment for control is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. PROPOSAL 19: ELIMINATION OF THE FUND'S FUNDAMENTAL INVESTMENT RESTRICTION CONCERNING JOINT TRADING ACCOUNTS The Fund's current fundamental restriction concerning joint trading accounts provides that: "The Fund will not participate on a joint or a joint-and-several basis in any trading account in securities." The Directors recommend that shareholders of the fund vote to eliminate the above fundamental investment restriction. If the proposal is approved, the Directors intend to replace the current fundamental restriction with a non-fundamental restriction, which could be changed without a vote of shareholders. The proposed non-fundamental investment restriction is set forth below with a brief analysis of the substantive differences between it and the current investment restriction: "The Fund will not participate on a joint or joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of the investment adviser to save commissions or to average prices among them is not deemed to result in a securities trading account." Reasons for the Proposal. The proposed non-fundamental restriction is materially the same as the current fundamental restriction. The proposed restriction will modernize and standardize the Fund's investment restriction concerning joint trading accounts to enable the Fund to act in any way which is not deemed to be contrary to the 1940 Act. In addition, the reclassification will provide additional flexibility without an increase in the relative risks involved and allow the Fund to respond quickly to changes in the financial markets. Conclusion. The Board of Directors has concluded that the elimination of the fundamental restriction concerning joint trading accounts is in the best interest of the Fund and its shareholders. The Directors recommend that the shareholders of the 27 Fund vote FOR the above proposal. If the proposal is approved, the Fund's current fundamental restriction will be eliminated as soon as practicable. If the proposal is not approved, the current fundamental restriction of the Fund will remain unchanged. ADDITIONAL INFORMATION Brokerage and Portfolio Turnover Rate As a general matter, purchases and sales of gold and portfolio securities by the Fund are placed by LMC with brokers and dealers who in its opinion will provide the Fund with the best combination of price (inclusive of brokerage commissions) and execution for its orders. However, pursuant to the Fund's investment management agreement, management consideration may be given in the selection of broker-dealers to research provided and a fee higher than that charged by another broker-dealer which does not furnish research services or which furnishes research services deemed to be of lesser value, so long as the criteria of Section 28(e) of the Securities Exchange Act of 1934 are met. Section 28(e) of the Securities Exchange Act of 1934 was adopted in 1975 and specifies that a person with investment discretion shall not be "deemed to have acted unlawfully or to have breached a fiduciary duty" solely because such person has caused the account to pay a higher commission than the lowest available under certain circumstances, provided that the person so exercising investment discretion makes a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided...viewed in terms of either that particular transaction or his overall responsibilities with respect to the accounts as to which he exercises investment discretion." Currently, it is not possible to determine the extent to which commissions that reflect an element of value for research services might exceed commissions that would be payable for execution services alone. Nor generally can the value of research services to the Fund be measured. Research services furnished might be useful and of value to LMC and its affiliates, in serving other clients as well as the Fund. On the other hand, any research services obtained by LMC or its affiliates from the placement of portfolio brokerage of other clients might be useful and of value to LMC in carrying out its obligations to the Fund. No formula has been established for the allocation of business to brokers who furnish research and statistical information or render other services to LMC. The Fund paid brokerage commissions and portfolio turnover rates are as follows: Brokerage Portfolio Commissions Turnover Rate ----------- ------------- 1992 ................. $ 59,584 13.18% 1993 ................. 65,858 28.41% 1994 ................. 192,131 23.77% Other Services LMC provides additional services to the Fund that are in addition to the services provided under the investment management agreement. Such services include the services of a principal financial officer and personnel operating under his direction and other administrative services. Such services are provided to the Fund at cost. For the year ended December 31, 1994, the Fund reimbursed LMC $223,049 for costs in providing such administrative services. OTHER BUSINESS LMC knows of no other business to be presented at the Meeting other than the matters set forth in this Proxy Statement. If any other business properly comes before the Meeting, the proxies will exercise their best judgment in deciding how to vote such matters. 28 SHAREHOLDER PROPOSALS The Fund does not hold annual shareholder meetings, except as required by the Investment Company Act of 1940 or other applicable law. Therefore, it is probable that no annual meeting of shareholders will be held in 1995 or in subsequent years until so required. For those years in which annual shareholder meetings are held, proposals that shareholders of the Fund intend to present for inclusion in the proxy material with respect to the annual meeting of shareholders must be received by the Fund within a reasonable time before the solicitation is made. Please complete the enclosed proxy card and return it promptly in the enclosed self-addressed postage-paid envelope. You may revoke your proxy at any time prior to the Meeting by written notice to the Fund or by submitting a proxy card bearing a later date. Lisa Curcio Secretary 29 EXHIBIT A INVESTMENT MANAGEMENT AGREEMENT THIS AGREEMENT is made this 13th day of May, 1986, by and between LEXINGTON GOLDFUND, INC., a Delaware corporation having its principal place of business at Park 80 West-Plaza Two, Saddle Brook, New Jersey (the "Company"), and LEXINGTON MANAGEMENT CORPORATION, a Delaware corporation having its principal place of business at Park 80 West-Plaza Two, Saddle Brook, New Jersey (the "Manager"), with respect to the following recital of fact: RECITAL The Company and the Manager desire to enter an agreement to provide for the management of the Company's assets on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt whereof is hereby acknowledged, the parties hereto agree as follows: 1. Management. The Manager shall act as investment manager for the Company and shall, in such capacity, supervise the investment and re-investment of the gold bullion, gold coins, cash, securities or other properties comprising the Company's assets, subject at all times to the policies and control of the Company's Board of Directors. The manager shall give the Company the benefit of its best judgment, efforts and facilities in rendering its services as investment manager. 2. Investment Analysis and Implementation. In carrying out its obligation under paragraph 1 hereof, the Manager shall: (a) obtain and evaluate pertinent information about significant developments and economic, statistical and financial data, domestic, foreign or otherwise, whether affecting the economy generally or the portfolio of the Company, and whether concerning the gold market, the individual companies whose securities are included in the Company's portfolio or the industries in which they engage, or with respect to securities which the Manager considers desirable for inclusion in the Company's portfolio; and (b) determine what industries and companies shall be represented in the Company's portfolio and regularly report them to the Company's Board of Directors; and (c) formulate and implement programs for the purchases and sales of the securities of such companies and for the purchase and sale of gold bullion and coins and regularly report thereon to the Company's Board of Directors; and (d) provide the services of its personnel to the Company; and (e) take, on behalf of the Company, all actions which appear to the Company necessary to carry into effect such purchaser and sale programs and supervisory functions as aforesaid, including the placing of orders for the purchase and sale of portfolio securities. 3. Broker-Dealer Relationships. The Manager is responsible for decisions to buy and sell securities and gold for the Company, security and commodity broker-dealer selection, and negotiation of its brokerage commission rates. 1-A The Manager is further authorized to allocate the orders placed by it on behalf of the Company to such brokers and dealers who also provide research or statistical material, or other services to the Company or the Manager. Such allocation shall be in such amounts and proportions as the Manager shall determine and the Manager will report on said allocations regularly to the Board of Directors of the Company indicating the brokers to whom such allocations have been made and the basis therefore. 4. Control by Board of Directors. Any investment program undertaken by the Manager pursuant to this Agreement, as well as any other activities undertaken by the Manager on behalf of the Company pursuant thereto, shall at all times be subject to any directives of the Board of Directors of the Company. 5. Compliance with Applicable Requirements. In carrying out its obligations under this Agreement, the Manager shall at all times conform to: (a) all applicable provisions of the Investment Company Act of 1940 (the "Act") and any rules and regulations adopted thereunder as amended; and (b) the provisions of the Registration Statements of the Company under the Securities Act of 1933 and the Investment Company Act of 1940, as amended; and (c) the provisions of the Articles of Incorporation of the Company, as amended; and (d) the provisions of the By-laws of the Company, as amended; and (e) any other applicable provisions of state and federal law. 6. Expenses. The expenses connected with the Company shall be allocated between the Company and the Manager as follows: (a) the Manager shall pay the Company's expenses for office rent, utilities, telephone, furniture and supplies utilized at the Company's principal office; and (b) the Manager shall pay salaries and payroll expenses of persons serving as officers or directors of the Company who are also employees of the Manager or any of its affiliates; and (c) all expenses incurred in the operations of the Company and the offering of its shares shall be borne by the Company unless specifically otherwise provided in subparts (a) and (b) of this paragraph 6. 7. Compensation. The Company shall pay the Manager in full compensation for services rendered hereunder an annual fee, payable monthly, at the rate of 1% of the first $50 million of the Company's average daily net assets and .75% of the Company's average daily net assets in excess of $50 million. 8. Expense Limitation. If, for any fiscal year, the total of all ordinary business expenses of the Company, including all investment advisory fees but excluding brokerage commissions and fees, taxes, interest and extraordinary expenses such as litigation, would exceed the expense limitations imposed by applicable state securities laws and regulations in the most restrictive jurisdiction in which the Company's securities are offered, as determined in the manner described above as of the close of business on each business day during such fiscal year, the aggregate of all such investment management fees shall be reduced by the amount of such excess. The amount of any such reduction to 2-A be borne by the Manager shall be deducted from the monthly investment management fee otherwise payable to the Manager during such fiscal year; and if such amount should exceed such monthly fee, the Manager agrees to repay to the Company such amount of its investment management fee previously received with respect to such fiscal year as may be required to make up the deficiency no later than the last day of the first month of the next succeeding fiscal year. For the purposes of this paragraph, the term "fiscal year" shall exclude the portion of the current fiscal year which shall have elapsed prior to the date hereof and shall include the portion of the then current fiscal year which shall have elapsed at the date of termination of this Agreement. 9. Term and Approval. This Agreement shall become effective at the close of business on the date hereof and shall remain in force and effect for two years and shall thereafter continue in force and effect from year to year provided that such continuance is specifically approved at least annually: (a) (i) by the Company's Board of Directors or (ii) by the vote of a majority of the outstanding voting securities (as defined in section 2 (a) (42) of the Act, and (b) by the affirmative vote of a majority of the directors who are not parties to this agreement or interested persons of a party to this agreement (other than as Company directors), by votes cast in person at a meeting specifically called for such purposes. 10. Termination. This Agreement may be terminated at any time, without the payment of any penalty, by vote of the Company's Board of Directors or by vote of a majority of the Company's outstanding voting securities, or by the Manager, on sixty (60) days' written notice to the other party. The notice provided for herein may be waived by either party. This Agreement shall automatically terminate in the event of its assignment, the term "assignment" for the purpose having the meaning defined in Section 2(2)(4) of the Act. 11. License of "Lexington". Lexington Funds Distributor, Inc. the Distributor of the Company's shares, has licensed the Company to include the registered service mark "Lexington" as part of the corporate name pursuant to paragraph 9 of the Distribution Agreement between the Company and the Distributor. In the event that the Distributor revokes such license, the parties hereto agree to submit the continuation of this agreement to the Company's shareholders. 12. Liability of Manager and Indemnification. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Manager or any of its officers, directors or employees, it shall not be subject to liability to the Company or to any shareholder of the Company for any act or omission in the course of, or connected with rendering services hereunder for any losses that may be sustained in the purchase, holding or sale of any security or other asset. 13. Notices. Any notices under this Agreement shall be in writing addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice to the other party, it is agreed that the address of the Company for this purpose and that of the Manager shall be Park 80 West Plaza Two, Saddle Brook, New Jersey 07663. 14. Questions of Interpretation. Any questions of interpretation of any term or provision of this agreement having a counterpart in or otherwise derived from a term or provision of the Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States Courts or in the absence of any 3-A controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Act. In addition, where the effect of a requirement of the Act, as amended, reflected in any provision of this Agreement is released by rules, regulation or order of the Securities and Exchange Commission, such provision shall be deemed to incorporate the effect of such rule, regulations or order. IN WITNESS WHEREOF, the parties hereto caused this agreement to be executed in duplicate by their respective officers on the day and year first above written. LEXINGTON GOLDFUND, INC. By________________________________________ President Attest: - - ------------------------ LEXINGTON MANAGEMENT CORPORATION By________________________________________ President Attest: - - ------------------------ 4-A EXHIBIT B FORM OF INVESTMENT ADVISORY AGREEMENT THIS AGREEMENT is made this 5th day of December, 1994 by and between LEXINGTON GOLDFUND, INC., a Maryland corporation (the "Fund"), and LEXINGTON MANAGEMENT CORPORATION, a Delaware corporation (the "Manager"), with respect to the following recital of fact: RECITALS WHEREAS, the Fund is registered as an open-end diversified management investment company under the Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations promulgated thereunder; and WHEREAS, the Manager is registered as an investment advisor under the investment Advisers Act of 1940, as amended, and engages in the business of acting as an investment advisor; and WHEREAS, the Fund and the Manager desire to enter an agreement to provide for management services for the Fund on the terms and conditions hereinafter set forth. NOW THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Management. The Manager shall act as investment advisor for the Fund and shall, in such capacity, supervise the investment and reinvestment of the cash, securities or other properties comprising the Fund's assets subject at all times to the policies and control of the Fund's Board of Directors. The Manager shall give the Fund the benefit of its best judgment, efforts and facilities in rendering its services as investment advisor. 2. Investment Analysis and Implementation. In carrying out its obligation under paragraph 1 hereof, the Manager shall: (a) determine which issuers and securities shall be represented in the Fund and regularly report thereof to the Fund's Board of Directors; (b) formulate and implement continuing programs for the purchases and sales of the securities of such issuers and regularly report thereon to the Fund's Board of Directors; (c) continuously review the portfolio security holdings, the investment programs and the investment policies of the Fund; and (d) take, on behalf of the Fund, all actions which appear to the Fund necessary to carry into effect such purchase and sale programs and supervisory functions aforesaid, including the placing of orders for the purchase and sale of portfolio securities. 3. Broker-Dealer Relationships. The Manager's primary policy is to execute all purchases and sales of portfolio instruments at the most favorable prices consistent with the best execution, considering all of the costs of the transaction including brokerage commissions. This policy governs the selection of brokers and dealers and the market in which a transaction is executed. Consistent with this policy, the Rules of Fair Practice of the National Association of 1-B Securities Dealers, Inc., and such other policies and the Directors may determine, the Manager may consider sales of shares of the Fund and of the other funds advised by the Manager as a factor in the selection of broker-dealers to execute the Fund's portfolio transactions. However, in selecting a broker-dealer to execute each transaction, the Manager may consider research provided and payment may be made of the commission higher than that charged by another broker-dealer which does not furnish research services or which furnishes research services deemed to be of lesser value, in accordance with Section 28(e) of the Securities Exchange Act of 1934. Section 28(e) of the Securities Exchange Act of 1934 specifies that a person with investment discretion shall not be "deemed to have acted unlawfully or to have breached a fiduciary duty" solely because such person has caused the account to pay a higher commission than the lowest available under certain circumstances, provided that the person so exercising investment discretion makes a good faith determination that the commissions paid are "reasonable in relation to the value of the brokerage and research services provided...viewed in terms of either that particular transaction or his overall responsibilities with respect to the accounts as to which he exercises investment discretion." The Manager cannot determine the extent to which commissions that reflect an element of value for research services might exceed commissions that would be payable for execution services might exceed commissions that would be payable for execution services alone. Research services furnished may be useful and of value to the Manager and its affiliates, in serving other clients as well as the Fund. Similarly, any research services obtained by the Manager or its affiliates from the placement of portfolio brokerage of other clients might be useful and of value to the Manager in carrying out its obligations to the Fund. Brokerage transactions involving securities of companies domiciled in countries other than the United States will be normally conducted on the principal stock exchanges of those countries. 4. Control by Board of Directors. Any investment program undertaken by the Manager pursuant to this Agreement, as well as any other activities undertaken by the Manager on behalf of the Fund pursuant thereto, shall at all times be subject to any directives of the Board of Directors of the Fund. 5. Compliance with Applicable Requirements. In carrying out its obligations under this Agreement, the Manager shall at all times conform to: (a) all applicable provisions of the 1940 Act and any rules and regulations adopted hereunder as amended; and (b) the provisions of the Registration Statement of the Fund under the Securities Act of 1933, as amended, and the 1940 Act; and (c) the provisions of the Articles of Incorporation of the Fund; and (d) the provisions of the By-Laws of the Fund; and (e) any other applicable provisions of state and federal law. 6. Expenses. The expenses connected with the Fund shall be allocable between the Fund and the Manager as follows: (a) The Manager shall maintain, at its expense and without cost to the Fund, a trading function in order to carry out its obligations under subparagraph (d) of paragraph 2 hereof to place orders for the purchase and sale of portfolio securities for the Fund. (b) The Manager shall pay the Fund's expenses for office rent, utilities, telephone, furniture and supplies utilized at the fund's principal office. 2-B (c) The Manager shall pay the salaries and payroll expenses of persons serving as officers or Directors of the Fund who are also employees of the Manager of any of its affiliates in carrying out its duties under the Investment Advisory Agreement. (d) Nothing in subparagraph (a) through (e) hereof shall be construed to require the Manager to bear other expenses. (e) Any of the other expenses incurred in the operation of the Fund shall be borne by the Fund, including, among other things, fees of its custodian, transfer and shareholder servicing agent; cost of pricing and calculating its daily net asset value and of maintaining its books and accounts required by the 1940 Act; expenditures in connection with meetings of the Fund's Directors and shareholders, except those called to accommodate the Manager; fees and expenses of Directors who are not affiliated with or interested persons of the Manager; in maintaining registration of its shares under state securities laws or in providing shareholder and dealer services; insurance premiums on property or personnel of the Fund which inure to its benefit; costs of preparing and printing reports, proxy statements and prospectuses of the Fund for distribution to its shareholders; legal, auditing and accounting fees; fees and expenses of registering and maintaining registration of its shares for sale under Federal and applicable state securities laws; and all other expenses in connection with issuance, registration and transfer of its shares. 7. Delegation of Responsibilities. Upon the request of the Fund's Board of Directors, the Manager may perform services on behalf of the Fund which are not required by this Agreement. Such services will be performed on behalf of the Fund and the Manager's cost in rendering such services may be billed monthly to the Fund, subject to examination by the Fund's independent accountants. Payment or assumption by the Manager of any Fund expense that the Manager is not required to pay or assume under this Agreement shall not relieve the Manager of any of its obligations to the Fund nor obligate the Manager to pay or assume any similar Fund expense on any subsequent occasions. 8. Compensation. The Fund shall pay the Manager in full compensation for services rendered hereunder an annual investment advisory fee payable monthly equal to 1.00% of the first $50 million and 0.75% in excess of $50 million of the Fund's average daily net assets after deduction of the Funds' expenses, if any, in excess of the expense limitations set forth below. The average daily net asset value of the Fund shall be determined in the manner set forth in the Articles of Incorporation and Prospectus of the Fund. 9. Expense Limitation. If, for any fiscal year, the total of all ordinary business expenses of the Fund, including all investment advisory fees but excluding brokerage commissions and fees, taxes, interest and extraordinary expenses such as litigation, would exceed the most restrictive expense limits imposed by any statute or regulatory authority of any jurisdiction in which the Fund's securities are offered as determined in the manner described above as of the close of business on each business day during such fiscal year, the aggregate of all such investment management fees shall be reduced by the amount of such excess but will not be required to reimburse the Fund for any ordinary business expenses which exceed the amount of its advisory fee for the such fiscal year. The amount of any such reduction to be borne by the Adviser shall be deducted from the monthly investment advisory fee otherwise payable to the Adviser during such fiscal year; and if such amount should exceed such monthly fee, the Adviser agrees to repay to the Fund such amount of its investment management fee previously received with respect to such fiscal year as may be required to make up the deficiency no later than the last day of the first month of the next succeeding fiscal year. For purposes of this paragraph, the term "fiscal year" shall exclude the portion of the current fiscal year which shall have 3-B elapsed prior to the date hereof and shall include the portion of the then current fiscal year which shall have elapsed at the date of termination of this Agreement. 10. Additional Services. Upon the request of the Board, the Adviser may perform certain accounting, shareholder servicing or other administrative services on behalf of the Fund that are not required by this Agreement. Such services will be performed on behalf of the Fund and the Adviser may receive from the Fund such reimbursement for costs or reasonable compensation for such services as may be agreed upon between the Adviser and the Board on a finding by the Board that the provision of such services by the Adviser is in the best interests of the Fund and its shareholders. Payment or assumption by the Adviser of any Fund expense that the Adviser is not otherwise required to pay or assume under this Agreement shall not relieve the Adviser of any of its obligations to the Fund nor obligate the Adviser to pay or assume any similar Fund expense on any subsequent occasions. Such services may include, but are not limited to, (a) the services of a principal financial officer of the Fund (including applicable office space, facilities and equipment) whose normal duties consist of maintaining the financial accounts and books and records of the Fund, and the services (including applicable office space, facilities and equipment) of any of the personnel operating under the direction of such principal financial officer; (b) the services of staff to respond to shareholder inquiries concerning the status of their accounts; providing assistance to shareholders in exchanges among the investment companies managed or advised by the Adviser; changing account designations or changing addresses; assisting in the purchase or redemption of shares; or otherwise providing services to shareholders of the Fund; and (c) such other administrative services as may be furnished from time to time by the Adviser to the Fund at the request of the Board. 11. Non-Exclusivity. The services of the Manager to the Fund are not to be deemed to be exclusive, and the Manager shall be free to render investment advisory and corporate administrative or other services to others (including other investment companies) and to engage in other activities. It is understood and agreed that officers and Directors of the Manager may serve as officers or Directors of the Fund, and that officers or Directors of the Fund may serve as officers or Directors of the Manager to the extent permitted by law; and that the officers and directors of the Manager are not prohibited from engaging in any other business activity or from rendering services to any other person, or from serving as partners, officers, trustees or directors of any other firm or corporation, including other investment companies. The Manager, subject to the approval of the Fund's shareholders, may appoint a sub-Aadviser to the Fund to provide to the Fund certain investment advisory and related services. 12. Term and Approval. This Agreement shall become effective at the close of business on the date hereof and shall thereunder continue in force and effect from year to year, provided that such continuance is specifically approved at least annually: (a) (i) by the Fund's Board of Directors; or (ii) by the vote of a majority of the Fund's outstanding voting securities (as defined in Section 2(a)(42) of the 1940 Act, and (b) by the affirmative vote of a majority of the Directors who are not parties to this Agreement or interested persons of a party to this Agreement (other than as a Director of the Fund), by votes cast in person at a meeting specifically called for such purpose. 13. Termination. This Agreement may be terminated at any time, without the payment of any penalty, by vote of the Fund's Board of Directors or by vote of a majority of the Fund's outstanding voting securities or by the Manager, on sixty (60) days' written notice to the other party. This Agreement shall automatically terminate in the event of its 4-B assignment, the term "assignment" for the purposes having the meaning defined in Section 2(a)(4) of the 1940 Act, as amended. 14. Liability of Manager and Indemnification. In the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of obligations or duties hereunder on the part of the Manager or any of its officers, directors or employees, it shall not be subject to liability to the Fund or to any shareholder of the Fund for any commission in the course of, or connected with, rendering services hereunder or for any losses that may be sustained in the purchase, holding or sale of any security. 15. Notices. Any notices under this agreement shall be in writing, addressed and delivered or mailed postage paid to the other party at such address as such other party may designate for the receipt of such notice. Until further notice of the other party, it is agreed that the address of the Manager shall be Park 80 West, Plaza Two, Saddle Brook, New Jersey 07663. 16. Questions of Interpretation. Any question of interpretation of any term or provision of this agreement having a counterpart in or otherwise derived from a term or provision of the 1940 Act shall be resolved by reference to such term or provision of the Act and to interpretations thereof, if any, by the United States Courts or in the absence of any controlling decision of any such court, by rules, regulations or orders of the Securities and Exchange Commission issued pursuant to said Act. In addition, where the effect of a requirement of the 1940 Act reflected in any provision of this agreement is revised by rules, regulations or order of the Securities and Exchange Commission, such provisions shall be deemed to incorporate the effect of such rule, regulation or order. In witness whereof, the parties hereto have caused this Agreement to be executed in duplicate by their respective officers on the day and year first above written. LEXINGTON GOLDFUND, INC. By________________________________________ President Attest: - - ------------------------ LEXINGTON MANAGEMENT CORPORATION By________________________________________ President Attest: - - ------------------------ 5-B EXHIBIT C LEXINGTON GOLDFUND, INC. Comparison of certain existing fundamental investment restrictions, and corresponding proposed fundamental investment restrictions of Lexington Goldfund, Inc. Left Column Current Fundamental Restriction ------------------------------- SENIOR SECURITIES. None. DIVERSIFICATION. The Fund will not purchase securities of any issuer (other than obligations of, or guaranteed by, the United States government, its agencies or instrumentalities) if, as a result, more than 5% of the value of the Fund's assets would be invested in securities of that issuer. The Fund will not purchase more than 10% of the voting securities or more than 10% of any class of securities of any issuer. (For this purpose all outstanding debt securities of an issuer are considered as one class, and all preferred stock of an issuer are considered as one class.) RESTRICTED AND ILLIQUID SECURITIES. The Fund will not invest in restricted securities (securities which are not readily marketable without registration or the filing of a notification under the Securities Act of 1933). Right Column Proposed Restriction -------------------- Fundamental Restriction The Fund will not issue any senior security (as defined in the 1940 Act), except that (a) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including reverse repurchase agreements, foreign exchange contracts, delayed delivery and when-issued securities, which may be considered the issuance of senior securities; (b) the Fund may engage in transactions that may result in the issuance of a senior security to the extent permitted under applicable regulations, interpretations of the 1940 Act or an exemptive order; (c) the Fund may engage in short sales of securities to the extent permitted in its investment program and other restrictions; (d) the purchase or sale of futures contracts and related options shall not be considered to involve the issuance of senior securities; and (e) subject to fundamental restrictions, the Fund may borrow money as authorized by the 1940 Act. Fundamental Restriction At the end of each quarter of the taxable year, (i) with respect to at least 50% of the market value of the Fund's assets, the Fund may invest in cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund's total assets, and (ii) not more than 25% of the value of its total assets be invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies). Non-Fundamental Restriction The Fund will not invest more than 15% of its total assets in illiquid securities. Illiquid securities are securities that are not readily marketable or cannot be disposed of promptly within seven days and in the C-1 Left Column Current Fundamental Restriction ------------------------------- MARGIN AND SHORT SALES. The Fund will not make short sales of securities or purchase any securities on margin, except for such short-term credits as are necessary for the clearance of transactions. PUTS AND CALLS. The Fund will not write, purchase or sell puts, calls or combinations thereof. However, the Fund may invest up to 15% of the value of its assets in warrants. The holder of a warrant has the right to purchase a given number of shares of a particular company at a specified price until expiration. Such investments generally can provide a greater potential for profit or loss than investment of an equivalent amount in the underlying common stock. The prices of warrants do not necessarily move parallel to the prices of the underlying securities. If the holder does not sell the warrant, he risks the loss of his entire investment if the market price of the underlying stock does not, before the expiration date, exceed the exercise price of the warrant plus the cost thereof. It should be understood that investment in warrants is a speculative activity. Warrants pay no dividends and confer no rights (other than the right to purchase the underlying stock) with respect to the assets of the corporation issuing them. In addition, the sale of warrants held more than Right Column Proposed Restriction -------------------- usual course of business without taking a materially reduced price. Such securities include, but are not limited to, time deposits and repurchase agreements with maturities longer than seven days. Securities that may be resold under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed illiquid solely by reason of being unregistered. The Investment Adviser shall determine whether a particular security is deemed to be liquid based on the trading markets for the specific security and other factors. Non-Fundamental Restriction The Fund will not make short sales of securities, other than short sales "against the box," or purchase securities on margin except for short-term credits necessary for clearance of portfolio transactions, provided that this restriction will not be applied to limit the use of options, futures contracts and related options, in the manner otherwise permitted by the investment restrictions, policies and investment programs of the Fund. Non-Fundamental Restriction The Fund will not write, purchase or sell puts, calls or combinations thereof. However, the Fund may invest up to 15% of the value of its assets in warrants. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. C-2 Left Column Current Fundamental Restriction ------------------------------- six months generally results in a long term capital gain or loss to the holder, and the sale of warrants held for less than such period generally results in a short term capital gain or loss. The holding period for securities acquired upon exercise of warrants, however, begins on the day after the date of exercise, regardless of how long the warrant was held. This restriction on the purchase of warrants does not apply to warrants attached to, or otherwise included in, a unit with other securities. Warrants which are not listed on a United States Securities exchange shall not exceed 2% of the Fund's net assets. INDUSTRY CONCENTRATION. None. COMMODITY CONTRACTS. The Fund will not invest in any commodities or commodities futures contracts, including futures contracts relating to gold. Investments in gold shall not be deemed an investment in a commodity subject to the Fund's investment restrictions. Right Column Proposed Restriction -------------------- Fundamental Restriction The Fund will not concentrate its investments by investing more than 25% of its assets in the securities of issuers of any one industry. This limit will not apply to gold and gold-related securities and to securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities. Fundamental Restriction The Fund will not invest in commodity contracts, except that the Fund may, to the extent appropriate under its investment program, purchase securities of companies engaged in such activities, may enter into transactions in financial and index futures contracts and related options, and may enter into forward currency contracts. Transactions in gold, platinum or palladium bullion will not be subject to this restriction. Non-Fundamental Restriction The Fund may purchase and sell futures contracts and related options under the following conditions: (a) the then-current aggregate futures market prices of financial instruments required to be delivered and purchased under open futures contracts shall not exceed 30% of the Fund's total assets, at market value; and (b) no more than 5% of the assets, at market value at the time of entering into a contract, shall be committed to margin deposits in relation to futures contracts. C-3 Left Column Current Fundamental Restriction ------------------------------- REAL ESTATE. The Fund will not invest in real estate. SECURITIES OF ISSUERS IN OPERATION FOR LESS THAN THREE YEARS. The Fund will not invest more than 5% of the value of its total assets in securities of issuers which, with their predecessors, have a record of less than three years continuous operation. SECURITIES OF AFFILIATES. The Fund will not purchase or retain the securities of any issuer if the officers or directors of the Fund or its investment adviser who own individually more than 1/2 of 1% of the securities of such issuer together own more than 5% of the securities of such issuer. LENDING. The Fund will not lend money or securities, provided that the making of time or demand deposits with domestic banks and the purchase of debt securities such as bonds, debentures, commercial paper, repurchase agreements and short term obligations in accordance with the Fund's objective and policies, are not prohibited. BORROWING. The Fund will not borrow money, except for temporary emergency purposes, and in no event more than 5% of its net assets at value or cost, whichever is less; or pledge its gold or portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount exceeding 10% of the value of its total assets. Right Column Proposed Restriction -------------------- Fundamental Restriction The Fund will not purchase real estate, interests in real estate or real estate limited partnership interests ex- cept that, to the extent appropriate under its investment program, the Fund may invest in securities secured by real estate or interests therein or issued by companies, including real estate investment trusts, which deal in real estate or interests therein. Non-Fundamental Restriction The Fund will not, except for investments which, in the aggregate, do not exceed 5% of the Fund's total assets taken at market value, purchase securities unless the issuer thereof or any company on whose credit the purchase was based has a record of at least three years continuous operations prior to the purchase. Non-Fundamental Restriction The Fund will not purchase securities of an issuer if to the Fund's knowledge, one or more of the Directors or officers of the Fund or LMC individually owns beneficially more than 0.5% and together own beneficially more than 5% of the securities of such issuer nor will the Fund hold the securities of such issuer. Fundamental Restriction The Fund will not make loans, except that, to the extent appropriate under its investment program, the Fund may (a) purchase bonds, debentures or other debt securities, including short-term obligations, (b) enter into repurchase transactions and (c) lend portfolio securities provided that the value of such loaned securities does not exceed one-third of the Fund's total assets. Fundamental Restriction The Fund will not borrow money, except that (a) the Fund may enter into certain futures contracts and options related thereto; (b) the Fund may enter into commitments to purchase securities in accordance with the Fund's investment program, including delayed delivery and when-issued securities and reverse repurchase C-4 Left Column Current Fundamental Restriction ------------------------------- UNDERWRITING. The Fund will not underwrite securities issued by others. SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund will not purchase securities of other investment companies, except in connection with a merger, consolidation, reorganization or acquisition of assets. INVESTMENT FOR CONTROL. The Fund will not invest for the purpose of exercising control or management of another company. JOINT TRADING ACCOUNTS. The Fund will not participate on a joint or a joint-and-several basis in any trading account in securities. Right Column Proposed Restriction -------------------- agreements (reverse repurchase agreements are limited to 5% of the Fund's total assets); (c) for temporary emergency purposes, the Fund may borrow money in amounts not exceeding 5% of the value of its total assets at the time when the loan is made; (d) The Fund may pledge its gold or portfolio securities or receivables or transfer or assign or otherwise encumber them in an amount not exceeding one-third of the value of its total assets; and (e) for purposes of leveraging, the Fund may borrow money from banks (including its custodian bank), only if, immediately after such borrowing, the value of the Fund's assets, including the amount borrowed, less its liabilities, is equal to at least 300% of the amount borrowed, plus all outstanding borrowings. If at any time, the value of the Fund's assets fails to meet the 300% asset coverage requirement relative only to leveraging, the Fund will, within three days (no including Sundays and holidays), reduce its borrowings to the extent necessary to meet the 300% test. Fundamental Restriction The Fund will not act as an underwriter of securities except to the extent that, in connection with the disposition of portfolio securities by the Fund, the Fund may be deemed to be an underwriter under the provisions of the 1933 Act. Non-Fundamental Restriction The Fund will not purchase the securities of any other investment company, except as permitted under the 1940 Act. Fundamental Restriction The Fund will not invest for the purpose of exercising control over or management of any company. Non-Fundamental Restriction The Fund will not participate on a joint or joint-and-several basis in any securities trading account. The "bunching" of orders for the sale or purchase of marketable portfolio securities with other accounts under the management of the investment adviser to save commissions or to average prices among them is not deemed to result in a securities trading account. C-5 APPENDIX D LEXINGTON GOLDFUND, INC. LEXINGTON FUNDS C/O NFDS PO BOX 419648 KANSAS CITY MO 64141 JOHN HORATIO DOE TAX I.D. OR SOC. SEC. NO. 99-9999999 AND JANE DORENE DOE		 ACCOUNT NO. 99999999999 ANYBODY'S CORPORATION	 FUND NO. 0000271 999 W 99TH ST			 RECORD DATE SHARES 99999999999.9999 PO BOX 99999 KANSAS CITY MO 64999-9999	 PROPOSAL DESCRIPTION PROPOSAL(S) MAY BE CONTINUED ON BACK LEXINGTON GOLDFUND, INC. Proxy for a Special Meeting of Shareholders, April 19, 1995 The undersigned hereby appoints Peter Corniotes and Richard J. Lavery, and each of them separately, as proxies, with power of substitution to each and hereby authorizes them to represent and to vote, as designated below, at a Special Meeting of Shareholders of Lexington Goldfund, Inc. on April 19, 1995 at 9:00 a.m. Eastern time, and at any adjournments thereof, all of the shares of the Lexington Goldfund, Inc. which the undersigned would be entitled to vote if personally present. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 2 THROUGH 19 AND FOR ELECTING DIRECTORS AS SET FORTH IN PROPOSAL 1. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting. The Directors recommend a vote FOR electing all of the nominees for Directors and FOR the other proposals below. PROPOSAL(S) In order to hold the Special Meeting of Shareholders, a majority of the outstanding voting securities of the Fund must be represented in person or by proxy. You can help reduce the cost of additional mailings by promptly returning your signed proxy. No matter how many shares you own, your vote counts! This proxy is for the account as stated below. If you have shares of this Fund in more than one account, a separate proxy is enclosed for each account. The multiple proxies are not duplicates: you should sign, date and return all proxies in the single postage paid envelope provided. PLEASE SIGN YOUR NAME(S) EXACTLY AS IT (THEY) APPEAR ON THE PROXY. PROXY VOTING ELECTION OF DIRECTORS Nominees: To withhold authority to vote for any individual nominee(s), draw a line through that nominee s name. __ For all nominees listed below	 __ Vote withheld for all nominees listed below __ For all nominees listed below (except as marked to the contrary below) Robert M. DeMichele Beverley C. Duer Barbara R. Evans Lawrence Kantor Donald B. Miller Francis Olmsted John G. Preston Margaret W. Russell Philip C. Smith Francis Sunderland PLEASE SIGN YOUR NAME EXACTLY AS IT APPEARS ON THIS PROXY. If the shares are registered in more than one name, each joint owner or each fiduciary should sign personally. Only Authorized persons should sign for corporations. Dated:____________________________, 19_____ __________________________________________ __________________________________________ 	Signature/Signature(s) (if held jointly) PROPOSALS FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN 1) 11) 2)	 12) 3) 13) 4) 14) 5) 15) 6) 16) 7) 17) 8) 18) 9) 19) 10) 1) ELECTION OF DIRECTORS 2) PROPOSAL TO RATIFY THE SELECTION	OF KPMG PEAT MARWICK LLP AS	AUDITORS 3) 	PROPOSAL TO APPROVE THE AMENDED INVESTMENT MANAGEMENT AGREEMENT PROPOSALS TO	APPROVE CHANGES TO THE FUND'S 	FUNDAMENTAL INVESTMENT POLICY 	RELATING TO: 4) SENIOR SECURITIES 5) DIVERSIFICATION 6) RESTRICTED AND ILLIQUID SECURITIES 7) MARGIN AND SHORT SALES 8) PUTS AND CALLS 9) CONCENTRATION 10) COMMODITY CONTRACTS 11) REAL ESTATE 12) SECURITIES OF ISSUERS IN OPERATION FOR LESS THAN THREE YEARS 13) SECURITIES OF AFFILIATES 14) LENDING 15) BORROWING 16) UNDERWRITING 17) OTHER INVESTMENT COMPANIES 18) INVESTMENT FOR CONTROL 19) JOINT TRADING ACCOUNTS 20) IN THEIR DISCRETION, THE PROXIES	ARE AUTHORIZED TO VOTE UPON	SUCH OTHER BUSINESS AS MAY	PROPERLY COME BEFORE THE	MEETING FIRST CLASS MAIL PERMIT NO. 2108 KANSAS CITY, MO POSTAGE WILL BE PAID BY ADDRESSEE PROXY TABULATION SERVICES LEXINGTON GOLDFUND, INC. P.O. BOX 5229 KANSAS CITY, MO 64112-9771