PROSPECTUS
May 1, 1995
Lexington Short-Intermediate
Government Securities Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service-1-800-526-0056
24 Hour Account Information-1-800-526-0052
A NO-LOAD MUTUAL FUND WHOSE PRINCIPAL INVESTMENT OBJECTIVE IS TO SEEK CURRENT
INCOME AS IS CONSISTENT WITH PRESERVATION OF CAPITAL BY INVESTING IN A PORTFOLIO
OF U.S. GOVERNMENT SECURITIES.
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Lexington Short-Intermediate Government Securities Fund, Inc. (the
"Fund") is a diversified open-end management investment company, known
as a mutual fund.
Shareholders may invest, reinvest or redeem shares at any time
without charge or penalty.
The Fund's investment objective is to seek current income as is
consistent with the preservation of capital by investing in a portfolio
of U.S. Government securities with a dollar-weighted average maturity in
its portfolio in a range of two to five years. The Fund invests only in
obligations of the U.S. Government and its agencies and
instrumentalities. Shares of the Fund are not insured or guaranteed by
the U.S. Government.
Shareholders may use free redemption checks provided by the Fund for
amounts of $100.00 or more.
Lexington Management Corporation ("LMC") is the Investment Adviser
of the Fund. Lexington Funds Distributor, Inc. ("LFD") is the
Distributor of shares of the Fund.
This Prospectus concisely sets forth information about the Fund that
you should know before investing. It should be read and retained for
future reference.
A Statement of Additional Information dated May 1, 1995, which
provides a further discussion of certain areas in this Prospectus and
other matters that may be of interest to some investors, has been filed
with the Securities and Exchange Commission and is incorporated herein
by reference. For a free copy, call the appropriate telephone number
above or write to the address listed above.
Mutual Fund shares are not deposits of (or endorsed or guaranteed
by) any bank, nor are they federally insured or otherwise protected by
the Federal Deposit Insurance Corporation ("FDIC"), the Federal Reserve
Board or any other agency. Investing in mutual funds involves investment
risks, including the possible loss of principal, and their value and
return will fluctuate.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Investors Should Read and Retain this Prospectus for Future Reference
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FEE TABLE
Annual Fund Operating Expenses:
(as a percentage of average net assets) (net of reimbursement):
Management fees...................................................... 0.50%
Other fees........................................................... 0.50%
-----
Total Fund Operating Expenses.................................... 1.00%
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<CAPTION>
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each period......... $10.20 $31.84 $55.25 $122.46
</TABLE>
The purpose of the foregoing table is to assist an investor in
understanding the various costs and expenses that an investor in the Fund will
bear indirectly. Shareholder Servicing Agents acting as agents for their
customers may provide administrative and recordkeeping services on behalf of the
Fund. For these services, each Shareholder Servicing Agent receives fees, which
may be paid periodically, provided that such fees will not exceed, on an annual
basis, 0.25% of the average daily net assets of the Fund represented by shares
owned during the period for which payment is made. Each Shareholder Servicing
Agent may, from time to time, voluntarily waive all or a portion of the fees
payable to it. (For more complete descriptions of the various costs and
expenses, see "How to Purchase Shares" and "Investment Adviser and Distributor"
below.) The Expenses and Example appearing in the table above are based on the
Fund's expenses for the period from January 1, 1994 to December 31, 1994. Absent
expense reimbursements, total Fund operating expenses would have been 2.35% of
the Fund's average net assets. The Example shown in the table above should not
be considered a representation of past or future expenses and actual expenses
may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The Fund commenced operations on July 7, 1981 under the name ASTA
Government Securities Money Market Fund, Inc. On January 6, 1983 the name of the
Fund was changed to Lexington Government Securities Money Market Fund, Inc.
("Predecessor Fund"). The Fund adopted its present name on September 30, 1993.
The table below shows certain financial highlights of the Predecessor Fund's
investment results for the periods ended December 31, 1994.
Information for each of the years in the five year period ended December 31,
1994 has been audited by KPMG Peat Marwick LLP, Independent Auditors, whose
report thereon appears in the Statement of Additional Information. This
information should be read in conjunction with the financial statements and
related notes thereto included in the Statement of Additional Information. The
Fund's annual report, which contains additional performance information, is
available upon request and without charge. Prior to September 30, 1993, the Fund
operated as a money market mutual fund and maintained a constant net asset value
of $1.00.
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<TABLE>
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Selected Per Share Data for a share outstanding throughout the period
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period.... $9.98 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income................. 0.38 0.08 0.03 0.05 0.07 0.08 0.06 0.06 0.06 0.07
Net realized and unrealized loss
on investments...................... (0.40) (0.02) - - - - - - - -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total income (loss) from
investment operations................. (0.02) 0.06 0.03 0.05 0.07 0.08 0.06 0.06 0.06 0.07
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less Distributions:
Dividends from net investment income.. (0.38) (0.08) (0.03) (0.05) (0.07) (0.08) (0.06) (0.06) (0.06) (0.07)
Reverse stock split (1 for 10).......... - 9.00 - - - - - - - -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value, end of period.......... $9.58 $9.98 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Return............................ (0.20) 2.27% 2.97% 5.14% 7.25% 8.19% 6.60% 5.75% 5.94% 7.55%
Ratio to average net assets:
Expenses, before reimbursement........ 2.35% 1.68% 1.33% 1.21% 1.22% 1.32% 1.39% 1.37% 1.57% 1.24%
Expenses, net of reimbursement........ 1.00% 0.83% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00% 1.00%
Net investment income, before
reimbursement....................... 2.53% 1.59% 2.67% 4.82% 6.80% 7.64% 6.01% 5.25% 5.26% 7.07%
Net investment income................. 3.87% 2.44% 3.00% 5.03% 7.02% 7.96% 6.40% 5.62% 5.83% 7.31%
Portfolio turnove................... 75.87% - - - - - - - - -
Net assets, end of period
(000's omitted)....................... $5,799 $7,747 $11,982 $21,483 $22,373 $20,400 $17,582 $14,341 $12,081 $17,082
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</TABLE>
YIELD AND TOTAL RETURN
From time to time the Fund advertises its yield and total return. Both
yield and total return are based on historical earnings and are not intended to
indicate future performance. The "total return" of the Fund refers to the
average annual compounded rates of return over one, five and ten year periods of
over the life of the Fund (which periods will be stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividend and distributions, including all recurring fees
that are charged to all shareholder accounts and a deduction of all nonrecurring
charges deducted at the end of each period. The "yield" of the Fund is computed
by dividing the net investment income per share earned during the period stated
in the advertisement by the maximum offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The calculation includes among expenses of the Fund, for the purpose of
determining net investment income, all recurring fees that are charged to all
shareholder accounts and any nonrecurring charges for the period stated. The
yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of the six month period. The Fund may cite a 30-day yield (annualized)
as well as a 90-day yield (annualized).
COMPARATIVE PERFORMANCE INFORMATION
Advertisements and communications may compare the Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. Such performance may be
categorized according to the Fund's asset size as determined by the independent
service. From time to time, the performance of the Fund may be compared to
various investment indicies, including Lehman Brothers Intermediate Government
Bond Index and Lehman Brothers 1 to 3 Year Government Bond Index. Quotations of
historical yields are not indicative of future dividend income, but are an
indication of the return to shareholders only for the limited historical period
used. The Fund's yield will depend on the particular investments in its
portfolio, its total operating expenses and other conditions. For further
information, including an example of the yield calculation, see the Statement of
Additional
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Information. The Fund's annual report contains a further discussion by
management of Fund performance and is available upon request and without charge.
DESCRIPTION OF THE FUND
The Fund (formerly, Lexington Government Securities Money Market Fund,
Inc.) is a diversified no-load open-end management investment company. It is
called a no-load fund because its shares are sold without a sales charge. It was
organized as a corporation under the laws of the State of Maryland on July 7,
1981. The Fund adopted its present name on September 30, 1993. Fund shares are
continually sold to the public. The Fund then uses the proceeds to buy
securities as described under "Investment Policies". The Fund's Board of
Directors provides broad supervision over the affairs of the Fund. Lexington
Management Corporation ("LMC") is the Investment Advisor. LMC is responsible for
the management of the Fund's assets and the officers of the Fund are responsible
for its operations. LMC manages the Fund from day-to-day in accordance with the
Fund's investment objective and policies.
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek current income as is consistent
with the preservation of capital. The Fund invests only in obligations of the
U.S. Government and its agencies and instrumentalities with remaining maturities
of five years or less from the date of acquisition or purchased pursuant to
repurchase agreements with respect to such securities (see "Investment
Policies"). It is the investment policy of the Fund to maintain the average
dollar weighted maturity of its portfolio in a range of two to five years.
Although the Fund would not expect the dollar-weighted average maturity of the
Portfolio to exceed three and a half years, during periods when prevailing
market conditions require a defensive posture, the Board of Directors of the
Fund may increase the dollar-weighted average maturity of the Fund up to five
years. Accordingly, the Fund's average weighted maturity may vary, based on
LMC's analysis of interest rate trends and other data. Shares of the Fund are
not insured or guaranteed by the U.S. Government.
INVESTMENT POLICIES
The Fund endeavors to achieve its investment objective by investing in a
portfolio of U.S. Government obligations with remaining maturities of five years
or less from the date of purchase. Although there is no assurance that the Fund
will achieve its investment objective, it will endeavor to do so by way of the
investment policies set forth in this Section, which cannot be changed without
approval by the vote of a majority of the Fund's outstanding shares (see
"Investment Restrictions").
"U.S. Government obligations," as used in this Prospectus, include, (1)
direct obligations issued by the United States Treasury, such as Treasury bills,
certificates of indebtedness, notes and bonds, and (2) instruments issued or
guaranteed by agencies or instrumentalities of the United States Government.
U.S. Government agencies are government sponsored agencies acting under
authority of Congress, such as Federal Land Banks, Central Banks for
Cooperatives, Federal Home Loan Banks, the Farmers Home Administration and
Federal Farm Credit Bureaus. U.S. Government instrumentalities are government
agencies organized by Congress under a Federal Charter and supervised and
regulated by the U.S. Government, such as the Federal National Mortgage
Association and the Student Loan Marketing Association. Some of these securities
are supported by the full faith and credit of the U.S. Treasury; others are
supported by the right of the issuer to borrow from the Treasury; others, such
as those of the Federal National Mortgage Association, are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; still others, such as those of the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government sponsored instrumentalities if it is not obligated to do so
by law. The Fund will invest in the securities of such instrumentalities only
when it is satisfied that the credit risk with respect to such instrumentality
is minimal. Securities of the World Bank, the Inter-American Development Bank,
the Asian Development Bank and Certificates of Deposit insured by the FDIC are
not considered U.S. Government securities and the Fund will not invest in these
securities.
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Among the securities that may be purchased are collateralized mortgage
obligations ("CMOs") issued by a U.S. Government instrumentality. A CMO is a
security backed by a portfolio of mortgages or mortgage-backed securities held
under an indenture. The issuer's obligation to make interest and principal
payments is secured by the underlying portfolio of mortgages or mortgage-backed
securities. CMOs are issued with a number of classes or series which have
different maturities and which may represent interests in some or all of the
interest or principal on the underlying collateral or a combination thereof.
CMOs of different classes are generally retired in sequence as the underlying
mortgage loans in the mortgage pool are repaid. In the event of sufficient early
prepayments on such mortgages, the class or series of CMO first to mature
generally will be retired prior to its maturity. Thus, the early retirement of a
particular class or series of CMO held by the Fund would have the same effect as
the prepayment of mortgages underlying a mortgage-backed pass-through security.
The Fund may also invest in securites that are "zero coupon" U.S.
Government securities (which have been stripped of their unmatured interest
coupons and receipts) or in certificates representing undivided interest in such
stripped U.S. Government securities and coupons ("IO/PO Strips"). These
securities tend to be more volatile than other types of U.S. Government
securities.
Interest and principal payments (including prepayments) on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
mortgage-backed security. Prepayments occur when the mortgagor on an individual
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. As a result of the pass-through of prepayments of principal on
the underlying securities, mortgage-backed securities are often subject to more
rapid prepayments of principal than their stated maturity would indicate.
Because the prepayment characteristics of the underlying mortgages vary, it is
not possible to predict accurately the realized yield or average life of a
particular issue of pass-through certificates. Prepayments are important because
of their effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate and the
Fund would be required to reinvest the proceeds at the lower interest rates then
available. In addition, prepayments of mortgages which underlie securities
purchased at a premium may not have been fully amortized at the time the
obligation is repaid. As a result of these principal payment features,
mortgage-backed securities are generally more volatile investments than other
U.S. Government securities.
The Fund's investment portfolio may include repurchase agreements ("repos")
with commercial banks and dealers in U.S. Government securities. A repurchase
agreement involves the purchase by the Fund of an investment contract from a
bank or a dealer in U.S. Government securities which contract is secured by U.S.
Government obligations whose value is equal to or greater than the value of the
repurchase agreement including the agreed upon interest. The agreement provides
that the institution will repurchase the underlying securities at an agreed upon
time and price. The Fund will not invest more than 10% of its net assets in
repurchase agreements maturing in more than seven days. The total amount
received on repurchase would exceed the price paid by the Fund, reflecting an
agreed upon rate of interest for the period from the date of the repurchase
agreement to the settlement date, and would not be related to the interest rate
on the underlying securities. The difference between the total amount to be
received upon the repurchase of the securities and the price paid by the Fund
upon their acquisition is accrued daily as interest. If the institution defaults
on the repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral by the Fund may be delayed or limited
and the Fund may incur additional costs. In such case the Fund will be subject
to risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to transactions
believed by the Adviser to present minimal credit risk. In order to limit the
risks associated with entry into repurchase agreements, the Fund's Board of
Directors has adopted certain criteria to be followed by the Fund. The Fund will
enter into repurchase agreements only with (a) brokers having total
capitalization of at least $40 million and a ratio of aggregate indebtedness to
net capital of no more than 4 to 1, or, alternatively, net capital equal to 6%
of aggregate debit balances, or (b) banks having at least $1 billion in assets
and a net worth of at least $100 million as of its most recent annual report. In
addition, the aggregate repurchase price of all repurchase agreements held by
the Fund with any broker shall not exceed 15% of the total assets of the Fund or
$5 million, whichever is greater, and the Fund will always obtain collateral in
proper form
5
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having a market value of not less than 100% of the repurchase price. The above
criteria may be altered by the Board of Directors of the Fund. Repurchase
agreements are considered loans by the Fund under the Investment Company Act of
1940.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of investment restrictions which may not be
changed without shareholders approval. These are set forth under "Investment
Restrictions" in the Statement of Additional Information. Some of these
restrictions provide that the Fund shall not:
* borrow money except that the Fund may borrow money only from banks as a
temporary measure for extraordinary purposes in amounts up to (a) 10% of
the value of its total assets at the time of borrowing, or (b) in an
amount up to one-third of its total assets, including the amount
borrowed, in order to meet redemption requests without immediately
selling any portfolio instruments where the liquidation of such
investment is deemed inconvenient or disadvantageous, provided that any
such borrowings by the Fund will be repaid prior to the purchase of
additional portfolio securities;
* make loans of money or securities other than (a) through the purchase of
U.S. Government obligations in accordance with the Fund's investment
program, and (b) by entering into repurchase agreements; or
* purchase any securities if such purchase would cause the Fund to own at
the time of such purchase, illiquid securities, including repurchase
agreements with an agreed upon repurchase date in excess of seven days
from the date of acquisition by the Fund, having an aggregate market
value in excess of 10% of the value of the Fund's total assets. Since the
Fund invests only in U.S. Government securities, it may invest in them
without limitation as to concentration.
INVESTMENT CONSIDERATIONS
The value of the portfolio securities held by the Fund will vary inversely
to changes in prevailing interest rates. Thus, if interest rates have increased
from the time a security was purchased, such security, if sold, might be sold at
a price less than its cost. Similarly, if interest rates have declined from the
time a security was purchased, such security, if sold, might be sold at a price
greater than its purchase cost. In either instance, if the security was
purchased at face value and held to maturity, no gain or loss would be realized.
MANAGEMENT OF THE FUND
The business affairs of the Fund are managed under the direction of its
Board of Directors. There are currently ten directors (of whom seven are
non-affiliated persons) who meet four times each year. The Statement of
Additional Information contains additional information regarding the directors
and officers of the Fund.
PORTFOLIO MANAGER
Denis P. Jamison, Senior Vice President, Director of Fixed Income Strategy
is responsible for fixed-income portfolio management at LMC. He is a member of
the New York Society of Security Analysts. Mr. Jamison has 23 years investment
experience.
Prior to joining LMC in 1981, Mr. Jamison had spent nine years at Arnold
Bernhard & Company, an investment counseling and financial services
organization. At Bernhard, he was a Vice President supervising the security
analyst staff and managing investment portfolios. He is a specialist in
government, corporate and municipal bonds. Mr. Jamison is a graduate of the City
College of New York with a B.A. in Economics. Mr. Jamison has been the portfolio
manager of the Fund since July of 1981.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663,
is the investment adviser of the Fund. LFD is the distributor of shares of the
Fund.
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<PAGE>
LMC, established in 1938, currently manages over $3.8 billion in assets. LMC
serves as investment adviser to other investment companies and private and
institutional investment accounts. Included among these clients are persons and
organizations that own significant amounts of capital stock of LMC's parent. The
clients pay fees that LMC considers comparable to the fees paid by similarly
served clients.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC and LFD are wholly-owned subsidiaries of Piedmont Management Company
Inc., a Delaware corporation with offices at 80 Maiden Lane, New York, New York
10038. 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.
For the fiscal year ended December 31, 1994, the Fund paid LMC a monthly
management fee at the rate of 1/2 of 1% of the average daily net assets. For the
year ending December 31, 1994, LMC earned $32,231 in management fees from the
Fund and paid the Fund $85,242 in expense reimbursements. See "Investment
Adviser and Distributor" in the Statement of Additional Information.
HOW TO PURCHASE SHARES
Initial Investment-Minimum $1,000. By Mail: Send a check payable to
Lexington Short-Intermediate Government Securities Fund, Inc., along with a
completed New Account Application, to State Street Bank and Trust Company ("The
Agent"). See the back cover of this Prospectus for the Agent's address.
Subsequent Investments-Minimum $50. By Mail: Send a check payable to
Lexington Short-Intermediate Government Securities Fund, Inc., to the Agent
accompanied by either the detachable form which accompanies the confirmation of
a prior transaction or a letter indicating the dollar amount of shares to be
purchased and identifying the Fund, account number and registration.
Broker-Dealers: You may invest in shares of the Fund through broker-dealers
who are members of the National Association of Securities Dealers, Inc., and
other financial institutions and who have selling agreements with LFD. Banks and
other financial institutions may be required to register as dealers pursuant to
state law. Broker-dealers and financial institutions who process such purchase
and sale transactions for their customers may charge a transaction fee for these
services. The fee may be avoided by purchasing shares directly from the Fund.
The Open Account: By investing in the Fund, shareholders appoint the Agent,
as their agent, to establish an Open Account to which all shares purchased will
be credited, together with any dividends and capital gain distributions which
are paid in additional shares (see "Dividend, Distribution, Reinvestment
Policy"). Stock certificates will be issued for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check or
federal funds wire, certificates will not be issued for 30 days. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
After an Open Account is established, payment can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (by
which a bank is authorized to draw checks on the investor's account periodically
for investment in the Fund). Additional information may be obtained directly
from the Fund. Automatic Investing Plan with "Lex-O-Matic". A shareholder may
arrange to make additional purchases of shares automatically on a monthly or
quarterly basis with the Automatic Investing Plan,"Lex-O-Matic". The investments
of $50 or more are automatically deducted from a checking account on or about
the 15th day of each month. The institution must be an Automated Clearing House
(ACH) member. Should an order to purchase shares of a fund be cancelled because
your automated transfer does not clear, you will be responsible for any
resulting loss incurred by that fund. The shareholder reserves the right to
discontinue the Lex-O-Matic program provided written notice is given ten
days prior to the scheduled investment date. Further information regarding
this
7
<PAGE>
service can be obtained from Lexington by calling 1-800-526-0056. On payroll
deduction accounts administered by an employer and on payments into qualified
pension or profit sharing plans and other continuing purchase programs, there
are no minimum purchase requirements.
Determination of Net Asset Value: The net asset value of the Fund is
computed once daily on the days the New York Stock Exchange is open for
business. The Fund calculates its net asset value for the purpose of pricing
orders for the purchase and redemption of shares as of the close of trading on
the Exchange each day.
The net asset value per share of the Fund is computed by dividing the value
of the securities held by the Fund plus any cash or other assets (including
interest accrued but not yet received), minus all liabilities (including accrued
expenses and dividends payable), by the total number of shares outstanding. The
securities in which the Fund invests are traded primarily in the
over-the-counter market. Securities for which representative market quotations
are readily available are valued at the most recent bid price or yield
equivalent as quoted by one or more dealers who make markets in such securities.
Other securities are appraised at values deemed best to reflect their fair value
as determined in good faith by the Fund's officers using procedures specifically
authorized and periodically reviewed by the fund's directors.
Terms of Offering: The Fund reserves the right to reject any order, and to
waive or lower the investment minimums with respect to any person or class of
persons, including shareholders of the Fund's special investment programs. An
order to purchase shares is not binding on the Fund until it has been confirmed
by the Agent. If an order to purchase shares is cancelled because the investor's
check does not clear, the purchaser will be responsible for any loss incurred by
the Fund. to recover any such loss, the Fund reserves the right to redeem shares
owned by the purchaser, seek reimbursement directly from the purchaser and may
prohibit or restrict the purchaser in placing future orders in any of the
Lexington Funds.
Shareholder Servicing Agents: The Fund may enter into Shareholder Servicing
Agreements with one or more Shareholder Servicing Agents. The Shareholder
Servicing Agent may, as agent for its customers, among other things: answer
customer inquiries regarding account status, account history and purchase and
redemption procedures; assist shareholders in designating and changing dividend
options, account designations and addresses; provide necessary personnel and
facilities to establish and maintain shareholder accounts and records; assist in
processing purchase and redemption transactions; arrange for the wiring of
funds; transmit and receive funds in connection with customer orders to purchase
or redeem shares; verify and guarantee shareholder signatures in connection with
redemption orders and transfers and changes in shareholder-designated accounts;
furnish monthly and year-end statements and confirmations of purchases and
redemptions; transmit, on behalf of the Fund, proxy statements, annual reports,
updated prospectuses and other communications to shareholders of the Fund;
receive, tabulate and transmit to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; and provide such other related
services as the Fund or a shareholder may request. For these services, each
Shareholder Servicing Agent receives fees, which may be paid periodically,
provided that such fees will not exceed, on an annual basis, 0.25% of the
average daily net assets of the Fund represented by shares owned during the
period for which payment is made. Each Shareholder Servicing Agent may, from
time to time, voluntarily waive all or a portion of the fees payable to it.
Account Statements: The Agent will send shareholders who are either
purchasing or redeeming shares of the Fund a confirmation of the transaction
indicating the date the purchase or redemption was accepted, the number of
shares purchased or redeemed, the purchase price or redemption price per share,
and the total amount purchased or redemption proceeds. A statement is also sent
to shareholders whenever a distribution is paid, or when a change in the
registration, address, or dividend option occurs. Shareholders are urged to
retain their account statements for tax purposes.
HOW TO REDEEM SHARES
By Mail: Send to the Agent (see the back cover of this prospectus for the
address): (1) a written request for redemption, signed by each registered owner
exactly as the shares are registered including the name of the Fund, account
number and exact registration; (2) stock certificates for any shares to be
redeemed which are held by the
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<PAGE>
shareholder; (3) signature guarantees, when required; and (4) the additional
documents required for redemptions by corporations, executors, administrators,
trustees, and guardians. Redemptions by mail will not become effective until all
documents in proper form have been received by the Agent. If a shareholder has
any questions regarding the requirements for redeeming shares, he should call
the Fund at the toll free number on the back cover prior to submitting a
redemption request. The redemption price may be more or less than the
shareholder's cost depending on the market value of the Fund's portfolio at the
time of redemption. If a redemption request is sent to the Fund in New Jersey,
it will be forwarded to the Agent and the effective date of redemption will be
the date received by the Agent.
Checks for redemption proceeds will be mailed within seven days, but will
not be mailed until all checks in payment for the shares to be redeemed have
been cleared.
By Check: Shareholders may effect redemptions by writing checks drawn on
the Fund, payable to the order of any person in any amount of $100 or more up to
$500,000 at no charge. Checks in amounts over $500,000 will not be honored.
Special forms and instructions may be obtained from the Fund or the Agent.
Redemption checks should not be used to close your account. Redemption
checks are free, but the Agent will impose a fee (currently $15.00) for stopping
payment of a redemption check upon your request or if the Agent cannot honor the
redemption check due to insufficient funds, uncollected funds or other valid
reason.
Procedures for redemptions by check may only be used for shares for which
share certificates have not been issued, and may not be used to redeem shares
purchased by check which have been on the books of the Fund for less than 15
days.
Signature Guarantee: Signature guarantees are required in connection with
(a) redemptions by mail involving $10,000 or more on the date of receipt by the
Agent of all necessary documents; (b) all redemptions by mail, regardless of the
amount involved, when the proceeds are to be paid to someone other than the
registered owners; (c) changes in instructions as to where the proceeds of
redemptions are to be sent; and (d) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is
a member of the Federal Deposit Insurance Corporation, a trust company, a
savings and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. A notary
public is not an acceptable guarantor.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") which should specify the
total number of shares to be redeemed, or (c) on all stock certificates tendered
for redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power.
Redemption Price: The redemption price will be the net asset value per
share of the Fund next determined after receipt by the Agent of a redemption
request in proper form (see "Determination of Net Asset Value in the Statement
of Additional Information).
The right of redemption may be suspended (a) for any period during which
the New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) and to mail the proceeds to the shareholder.
Shareholders will be notified before these redemptions are to be made and will
have 30 days to make an additional investment to bring their accounts up to the
required minimum.
9
<PAGE>
SHAREHOLDER SERVICES
Transfer: Shares of the Fund may be transferred to another owner. A
signature guarantee of the registered owner is required on the letter of
instruction or accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect to withdraw cash in
fixed amounts from their accounts at regular intervals. The minimum investment
to establish a Systematic Withdrawal Plan is $10,000. If the proceeds are to be
mailed to someone other than the registered owner, a signature guarantee is
required.
Group Sub-Accounting: To minimize recordkeeping by fiduciaries,
corporations, and certain other investors, the minimum initial investment may be
waived.
Additional information about any of the Fund's special plans may be
obtained directly from the Fund.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, no load, at the time
of the exchange. In the event shares of one or more of these Funds being
exchanged by a single investor have a value in excess of $500,000, the shares of
the Fund will not be purchased until the fifth business day following the
redemption of the shares being exchanged in order to enable the redeeming Fund
to utilize normal securities settlement procedures in transferring the proceeds
of the redemption to the Fund. Exchanges may not be made until all checks in
payment for the shares to be exchanged have been cleared.
Lexington Funds currently available for exchange are:
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)/Seeks long-term growth of
capital primarily through investment in common stocks of companies
domiciled in foreign countries and the United States.
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)/Seeks
long-term growth of capital primarily through investment in equity
securities of companies domiciled in, or doing business in, emerging
countries.
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)/Seeks long term growth
of capital through investment in common stocks of companies domiciled
in foreign countries. Shares of the Fund are not presently for sale in
Vermont.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)/Seeks long-term
capital growth and income through investment in an equal number of
shares of the common stocks of a fixed list of American blue chip
corporations.
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)/Seeks long-term
capital appreciation through investments in stocks of large, ably
managed and well financed companies. Income is a secondary objective.
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)/Seeks capital appreciation and
such hedge against loss of buying power as may be obtained through
investment in gold bullion and equity securities of companies engaged
in mining or processing gold throughout the world. Shares are not
presently available for sale in Wisconsin.
LEXINGTON CONVERTIBLE SECURITIES FUND (NASDAQ Symbol: CNCVX)/Seeks total return
by providing capital appreciation, current income and conservation of
capital through investments in a diversified portfolio of securities
convertible into shares of common stock. Shares of the Fund are not
presently for sale in Vermont.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
10
<PAGE>
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income by investing in a combination of foreign and domestic
high-yield, lower rated debt securities. Capital appreciation is a
secondary objective.
LEXINGTON SHORT-INTERMEDIATE GOVERNMENT SECURITIES FUND, INC. (NASDAQ Symbol:
LSGXX)/Seeks current income as is consistent with preservation of
capital by investing in a portfolio of U.S. Government securities.
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)/Seeks a high level of
current income consistent with preservation of capital and liquidity
through investments in interest bearing short term money market
instruments.
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)/Seeks current income
exempt from federal income taxes while maintaining liquidity and
stability of principal through investment in short-term municipal
securities.
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
initial investment of the Fund being purchased. If, however, an account already
exists in the Fund being bought, there is a $500 minimum exchange required.
Shareholders must provide the account number of the existing account.
Any exchange between mutual funds is, in effect, a redemption of shares in
one Fund and a purchase in the other Fund. Shareholders should consider the
possible tax effects of an exchange.
TELEPHONE EXCHANGE PROVISIONS-Exchange instructions may be given in writing
or by telephone. Telephone exchanges may only be made if a Telephone
Authorization form has been previously executed and filed with the Distributor.
Telephone exchanges are permitted only after a minimum of 7 days have elapsed
from the date of a previous exchange. Exchanges may not be made until all checks
in payment for the shares to be exchanged have been cleared.
Telephone exchanges can only involve shares held on deposit at the Agent;
shares held in certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for these
services. Any new account established with the same registration will also have
the privilege of exchange by telephone in the Lexington Funds. All accounts
involved in a telephonic exchange must have the same registration and dividend
option as the account from which the shares were transferred and will also have
the privilege of exchange by telephone in the Lexington Funds in which these
services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD distributor of the
Lexington Group of Mutual Funds as the true and lawful attorney to surrender for
redemption or exchange any and all non-certificated shares held by the Agent in
account(s) designated, or in any other account with the Lexington Funds, present
or future, which has the identical registration with full power or substitution
in the premises, authorizes and directs LFD to act upon any instruction from any
person by telephone for exchange of shares held in any of these accounts, to
purchase shares of any other Lexington Fund that is available, provided the
registration and mailing address of the shares to be purchased are identical to
the registration of the shares being redeemed, and agrees that neither LFD, the
Agent, nor the Fund(s) will be liable for any loss, expense or cost arising out
of any requests effected in accordance with this authorization which would
include requests effected by imposters or persons otherwise unauthorized to act
on behalf of the account subject to the procedures outlined below.
11
<PAGE>
LFD, the Agent and the Fund, will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine and if they do not employ
reasonable procedures they may be liable for any losses due to unauthorized or
fraudulent instructions. The following identification procedures may include,
but are not limited to, the following: account number, registration and address,
taxpayer identification number and other information particular to the account.
In addition, all exchange transactions will take place on recorded telephone
lines and each transaction will be confirmed in writing by the Fund. LFD
reserves the right to cease to act as Agent subject to the above appointment
upon thirty (30) days' written notice to the address of record. If other than an
individual, it is certified that certain persons have been duly elected and are
now legally holding the titles given and that the said corporation, trust,
unincorporated association, etc. is duly organized and existing and has power to
take action called for by this continuing Authorization.
Exchange Authorization forms, Telephone Authorization forms and
prospectuses of the other funds may be obtained from LFD.
LFD has made arrangements with certain dealers to accept instructions by
telephone to exchange shares of the Fund for shares of one of the other
Lexington funds at net asset value as described above. Under this procedure, the
dealer must agree to indemnify the Distributor and the Lexington funds from any
loss or liability that any of them might incur as a result of the acceptance of
such telephone exchange orders. A properly signed exchange application must be
received by the Distributor within five days of the exchange request. In each
such exchange, the registration of the shares of the fund being acquired must be
identical to the registration of the shares of the fund exchanged. Shares in
certificate form are not eligible for this type of exchange. LFD reserves the
right to reject any telephone exchange request. Any telephone exchange orders so
rejected may be processed by mail.
A capital gain or loss for federal tax purposes may be realized upon the
exchange, depending upon the cost or other basis of the shares exchanged. This
exchange offer is available only in states where shares of the fund being
acquired may legally be sold and may be modified or terminated at any time by
the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-lRA's and IRA Rollover Accounts, 401(k) Salary Reduction
Plans, Section 457 Deferred Compensation Plans and 403 (b) (7) Plans. Plan
support services are available through the Shareholder Services Department of
LMC at 1-800-526-0056. (See Tax-Sheltered Retirement Plans in the Statement of
Additional Information.)
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund's policy is to declare dividends from net investment income daily,
reinvest and distribute them monthly. The Fund intends to declare or distribute
net captial gain income if any, in December in order to comply with distribution
requirements of the 1986 Tax Reform Act to avoid the imposition of a 4% excise
tax. The Fund adopted a fiscal year ending on December 31.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the agent in writing requesting
payments in cash. This request must be received by the Agent at least seven days
before the dividend record date. Upon receipt by the Agent of such written
notice, all further payments will be made in cash until written notice to the
contrary is received. A record of shares owned by each shareholder will be
maintained by the Agent. These accounts will have the rights of other
shareholders with respect to shares so registered (see "How to Purchase
Shares-The Open Account").
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification
12
<PAGE>
of assets, distribution of income and sources of income. It is the Fund's policy
to distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
Distributions by the Fund of its net investment income and any net
short-term capital gain are taxable to shareholders as ordinary income. These
distributions are treated as dividends for federal income tax purposes but do
not qualify for the 70% dividends-received deduction for corporate shareholders.
Distributions by the Fund of the excess, if any, of its net long-term capital
gain over its net short-term capital loss are designated as capital gain
dividends and are taxable to shareholders as long-term capital gains, regardless
of the length of time the shareholder held his shares.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made or deemed made
during the year will be sent to shareholders promptly after the end of each
year. Shareholders purchasing shares of the Fund just prior to the ex-dividend
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase reflected the amount
of such dividend.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as long-term capital loss to the
extent of any capital gain dividends received on such shares. All or a portion
of any loss realized upon a taxable disposition of shares of the Fund may be
disallowed if other shares of the Fund are purchased within 30 days before or
after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may
be subject to 31% withholding of federal income tax on distributions and
redemption payments made by the Fund. In order to avoid this back-up
withholding, a shareholder must provide the Fund with a correct taxpayer
identification number (which for most individuals is their Social Security
number) or certify that it is a corporation or otherwise exempt from or not
subject to back-up withholding. The new account application included with this
Prospectus provides for shareholder compliance with these certification
requirements.
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank N.A., 1211 Avenue of the Americas, New York, New York
10022, has been retained to act as the Custodian for the Fund's investments and
assets. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts, 02110, is the transfer agent and dividend disbursing agent for
the Fund. Neither Chase Manhattan Bank, N.A. nor State Street Bank and Trust
Company have any part in determining the investment policies of the Fund or in
determining which portfolio securities are to be purchased or sold by the Fund
or in the declaration of dividends and distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Natfalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022, will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus.
13
<PAGE>
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1995.
OTHER INFORMATION
The Fund is an open-end diversified management investment company organized
as a corporation under the laws of the State of Maryland on July 7, 1981 under
the name "ASTA Government Securities Money Market Fund, Inc." On January 6, 1983
the name of the Fund was changed to "Lexington Government Securities Money
Market Fund, Inc." The Fund adopted its present name on September 30, 1993. The
authorized capital stock of the Fund consists of 10,000,000,000 shares of common
stock, par value $.001 per share. Shares of the Fund have equal rights in
respect of voting, dividends, redemptions and liquidations. Fractional shares
have the same rights as full shares to the extent of their proportionate
interest.
Shareholders of the Fund do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares voting for
election of directors may elect all of the members of the Board of Directors of
the Fund. In such event, the remaining holders cannot elect any members of the
Board of Directors of the Fund.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate not
less than 25% of the outstanding shares, such request specifying the purposes
for which such meeting is to be called. In addition, the Directors will promptly
call a meeting of shareholders for the purpose of voting upon the question of
removal of any Director when requested to do so in writing by the recordholders
of not less than 10% of the Fund's outstanding shares. The Fund will assist
shareholders in any such communication between shareholders and Directors.
The Board of Directors may classify or reclassify any unissued shares of any
class or classes in addition to that already authorized by setting or changing
in any one or more respects, from time to time, prior to the issuance of such
shares, the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or terms or
conditions of redemption, of such shares. Any such classification or
reclassification will comply with the provisions of the Act. The Board of
Directors has no present intention of classifying the shares of the Fund's
stock. LMC provided the initial capitalization of the Fund.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the SEC, Washington, D.C.
under the Securities Act of 1933, as amended.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
consitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made. A "Statement of Additional Information", to
which reference is made in this Prospectus, provides a further discussion of
certain areas in the Prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and the Statement of Additional Information omit certain information
contained in the Registration Statement, to which reference is made, filed with
the Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
14
<PAGE>
Investment Adviser
- -----------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Distributor
- -----------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
All shareholder requests for services of any kind should be
sent to:
Transfer Agent
- -----------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service: 1-800-526-0056
24 Hour Information: 1-800-526-0052
Table of Contents
- -----------------------------------------------------------
Fee Table............................................... 2
Financial Highlights.................................... 2
Yield and Total Return.................................. 3
Comparative Performance Information..................... 3
Description of the Fund................................. 4
Investment Objective.................................... 4
Investment Policies..................................... 4
Investment Restrictions................................. 6
Investment Considerations............................... 6
Management of the Fund.................................. 6
Portfolio Manager....................................... 6
Investment Adviser, Distributor and Administrator....... 6
How to Purchase Shares.................................. 7
How to Redeem Shares.................................... 8
Shareholder Services.................................... 10
Exchange Privilege...................................... 10
Tax-Sheltered Retirement Plans.......................... 12
Dividend, Distribution and Reinvestment Policy.......... 12
Tax Matters............................................. 12
Custodian, Transfer Agent and
Dividend Disbursing Agent............................. 13
Counsel and Independent Auditors........................ 13
Other Information....................................... 14
-----------------
L E X I N G T O N
-----------------
-------------------
LEXINGTON
SHORT-
INTERMEDIATE
GOVERNMENT
SECURITIES
FUND, INC.
-------------------
No sales charge
No redemption fee
Free check writing service
Free telephone exchange
privilege
-------------------
The Lexington Group
of
No-Load
Investment Companies
-------------------
P R O S P E C T U S
MAY 1, 1995
-----------
<PAGE>
LEXINGTON SHORT-INTERMEDIATE GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1995
This Statement of Additional Information which is not a prospectus,
should be read in conjunction with the current prospectus of Lexington
Short-Intermediate Government Securities Fund, Inc. (the "Fund"), dated May
1, 1995, as it may be revised from time to time. To obtain a copy of the
Fund's prospectus at no charge, please write to the Fund at P.O. Box
1515/Park 80 West - Plaza Two, Saddle Brook, New Jersey 07663 or call the
following toll - free numbers:
Shareholder Services: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's
investment adviser. Lexington Funds Distributor, Inc. ("LFD") is the
Fund's distributor.
TABLE OF CONTENTS
PAGE
Investment Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .2
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . . .3
Tax Sheltered Retirement Plans . . . . . . . . . . . . . . . . . . . .4
Investment Adviser, Distributor and Administrator . . . . . . . . . .5
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . .7
Dividend, Distribution and Reinvestment Policy . . . . . . . . . . . .7
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
Investment Return Information. . . . . . . . . . . . . . . . . . . . 12
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . 13
Custodian, Transfer Agent and Dividend Disbursing Agent. . . . . . . 15
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 17
1
<PAGE>
INVESTMENT POLICY
The Fund endeavors to achieve its investment objective by investing
in a portfolio of U.S. Government obligations with maturities of five years
or less from the date of purchase. Although there is no assurance that the
Fund will achieve its investment objective, it will endeavor to do so by
way of the investment policies set forth in this Section, which cannot be
changed without approval by the vote of a majority of the Fund's
outstanding shares (see "Investment Restrictions").
"U.S. Government obligations", as used in this Statement of
Additional Information, include, (l) direct obligations issued by the
United States Treasury, such as Treasury bills, certificates of
indebtedness, notes and bonds, and (2) instruments issued or guaranteed by
agencies or instrumentalities of the United States Government. U.S.
Government agencies are government sponsored agencies acting under
authority of Congress, such as Federal Land Banks, Central Banks for
Cooperatives, Federal Home Loan Banks, the Farmers Home Administration and
Federal Farm Credit Bureaus. U.S. Government instrumentalities are
government agencies organized by Congress under a Federal Charter and
supervised and regulated by the U.S. Government, such as the Federal
National Mortgage Association and the Student Loan Marketing Association.
Some of these securities are supported by the full faith and credit of the
U.S. Treasury; others are supported by the right of the issuer to borrow
from the Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others, such as
those of the Student Loan Marketing Association, are supported only by the
credit of the instrumentality. No assurance can be given that the U.S.
Government would provide financial support to U.S. Government sponsored
instrumentalities if it is not obligated to do so by law. The Fund will
invest in the securities of such instrumentalities only when it is
satisfied that the credit risk with respect to such instrumentality is
minimal. Securities of the World Bank, the Inter-American Development Bank,
the Asian Development Bank and Certificates of Deposit insured by the FDIC
are not considered U.S. Government securities and the Fund will not invest
in these securities.
Among the securities that may be purchased are collateralized
mortgage obligations ("CMOs") issued by a U.S. Government instrumentality.
A CMO is a security backed by a portfolio of mortgages or mortgage-backed
securities held under an indenture. The issuer's obligation to make
interest and principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a number of
classes or series which have different maturities and which may represent
interests in some or all of the interest or principal on the underlying
collateral or a combination thereof. CMOs of different classes are
generally retired in sequence as the underlying mortgage loans in the
mortgage pool are repaid. In the event of sufficient early prepayments on
such mortgages, the class or series of CMO first to mature generally will
be retired prior to its maturity. Thus, the early retirement of a
particular class or series of CMO held by the Fund would have the same
effect as the prepayment of mortgages underlying a mortgage-backed pass-
through security.
The Fund may also invest in securities that are "zero coupon" U.S.
Government Securities (which have been stripped of their unmatured interest
coupons and receipts) or in certificates representing undivided interests
in such stripped U.S. Government Securities and coupons (IO/PO Strips").
These securities tend to be more volatile than other types of U.S.
Government Securities.
Interest and principal payments (including prepayments) on the
mortgages underlying mortgage-backed securities are passed through to the
holders of the mortgage-backed security. Prepayments occur when the
mortgagor on an individual mortgage prepays the remaining principal before
the mortgage's scheduled maturity date. As a result of the pass-through
of prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayments of principal than
2
<PAGE>
their stated maturity would indicate. Because the prepayment
characteristics of the underlying mortgages vary, it is not possible to
predict accurately the realized yield or average life of a particular issue
of pass-through certificates. Prepayments are important because of their
effect on the yield and price of the securities. During periods of
declining interest rates, such prepayments can be expected to accelerate
and the Fund would be required to reinvest the proceeds at the lower
interest rates then available. In addition, prepayments of mortgages which
underlie securities purchased at a premium may not have been fully
amortized at the time the obligation is repaid. As a result of these
principal payment features, mortgage-backed securities are generally more
volatile investments than other U.S. Government Securities.
The Fund's investment portfolio may include repurchase agreements
("repos") with commercial banks and dealers in U.S. Government securities.
A repurchase agreement involves the purchase by the Fund of an investment
contract from a bank or a dealer in U.S. Government securities which
contract is secured by U.S. Government obligations whose value is equal to
or greater than the value of the repurchase agreement including the agreed
upon interest. The agreement provides that the institution will repurchase
the underlying securities at an agreed upon time and price. The total
amount received on repurchase would exceed the price paid by the Fund,
reflecting an agreed upon rate of interest for the period from the date of
the repurchase agreement to the settlement date, and would not be related
to the interest rate on the underlying securities. The difference between
the total amount to be received upon the repurchase of the securities and
the price paid by the Fund upon their acquisition is accrued daily as
interest. If the institution defaults on the repurchase agreement, the Fund
will retain possession of the underlying securities. In addition, if
bankruptcy proceedings are commenced with respect to the seller,
realization on the collateral by the Fund may be delayed or limited and the
Fund may incur additional costs. In such case the Fund will be subject to
risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to transactions
believed by LMC to present minimal credit risk. In order to limit the risks
associated with entry into repurchase agreements, the Fund's Board of
Directors has adopted certain criteria to be followed by the Fund. The Fund
will enter into repurchase agreements only with (a) brokers having total
capitalization of at least $40 million and a ratio of aggregate
indebtedness to net capital of no more than 4 to 1, or, alternatively, net
capital equal to 6% of aggregate debit balances, or (b) banks having at
least $1 billion in assets and a net worth of at least $100 million as of
its most recent annual report. In addition, the aggregate repurchase price
of all repurchase agreements held by the Fund with any broker shall not
exceed 15% of the total assets of the Fund or $5 million, whichever is
greater, and the Fund will always obtain collateral in proper form having
a market value of not less than 100% of the repurchase price. The above
criteria may be altered by the Board of Directors of the Fund. Repurchase
agreements are considered loans by the Fund under the Investment Company
Act of 1940.
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self-imposed standards as well as Federal and
state regulatory limitations. The investment restrictions are matters of
fundamental policy and may not be changed without the affirmative vote of
the lesser of (a) 50% of the outstanding shares of the Fund or (b) 67% or
more of the shares present at a meeting if more than 50% of the outstanding
shares of the Fund are represented at the meeting in person or by proxy.
Accordingly, the Fund will not: (l) purchase any portfolio instruments on
margin or sell any portfolio instruments short, but it may obtain such
short term credit as may be necessary for clearance of purchases and sales
of portfolio instruments; (2) borrow money except that the Fund may borrow
money only from banks as a temporary measure for extraordinary purposes in
amounts up to (a) 10% of the value of its total assets at the time of
borrowing, or (b) in an amount up to one-third of its total assets,
including the amount borrowed, in order to meet redemption requests without
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immediately selling any portfolio instruments where the liquidation of such
investments is deemed inconvenient or disadvantageous, provided that any
such borrowings by the Fund will be repaid prior to the purchase of
additional portfolio securities; (3) issue senior securities, except that
the Fund may enter into repurchase agreements in accordance with the Fund's
investment program, which may be considered the issuance of senior
securities; (4) mortgage, pledge or hypothecate any assets except to secure
permitted borrowings and then only in an amount up to the lesser of the
dollar amount borrowed or 10% of the value of the Fund's total assets at
the time of borrowing; (5) act as an underwriter of securities of other
issuers; (6) make loans of money or securities other than (a) through the
purchase of U.S. Government obligations in accordance with the Fund's
investment program, and (b) by entering into repurchase agreements; or (7)
purchase any securities if such purchase would cause the Fund to own at the
time of such purchase, illiquid securities, including repurchase agreements
with an agreed upon repurchase date in excess of seven days from the date
of acquisition by the Fund, having an aggregate market value in excess of
10% of the value of the Fund's total assets. Since the Fund invests only
in U.S. Government securities, it may invest in them without limitation as
to concentration.
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of prototype Pension and Profit
Sharing plans including a 401(k) Salary Reduction Plan and a 403(b)(7)
Plan. Plan services are available by contacting the Shareholder Services
Department of LMC at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): Individuals may make tax
deductible contributions to their own Individual Retirement Accounts
established under Section 408 of the Internal Revenue Code (the "Code").
Married investors filing a joint return neither of whom is an active
participant in an employer sponsored retirement plan, or who have adjusted
gross income of $40,000 or less ($25,000 or less for single taxpayers) may
continue to make a $2,000 ($2,250 for spousal IRAs) annual deductible IRA
contribution. For adjusted gross incomes above $40,000 ($25,000 for single
taxpayers), the IRA deduction limit is generally phased out ratably over
the next $10,000 of adjusted gross income, subject to a minimum $200
deductible contribution. Investors who are not able to deduct a full $2,000
($2,250 spousal) IRA contribution because of the limitations may make a
nondeductible contribution to their IRA to the extent a deductible
contribution is not allowed. Federal income tax on accumulations earned on
nondeductible contributions is deferred until such time as these amounts
are deemed distributed to an investor. Rollovers are also permitted under
the Plan. The disclosure statement required by the Internal Revenue Service
("IRS") to be furnished to individuals who are considering adopting an IRA
is provided by the Fund. The minimum initial investment to establish a tax-
sheltered plan through the Fund is $250 for both Keogh Plans and IRA Plans.
Subsequent investments are subject to a minimum of $50 for each account.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may
make tax deductible contributions to a prototype defined contribution
pension plan or profit sharing plan. There are, however, a number of
special rules which apply when self-employed individuals participate in
such plans. Currently purchase payments under a self-employed plan are
deductible only to the extent of the lesser of (i) $30,000 or (ii) 25% of
the individual's earned annual income (as defined in the Code) and in
applying these limitations not more than $200,000 of "earned income" may
be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available
a Prototype Defined Contribution Pension Plan and a Prototype Profit
Sharing Plan. All purchases and redemptions of Fund shares pursuant to any
one of the Fund's tax sheltered plans must be carried out in accordance
with the provisions of the plan. Accordingly all plan documents should be
reviewed carefully before adopting or enrolling in the plan. Investors
should especially note that a penalty tax of 10% may be imposed on early
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withdrawals under corporate, Keogh or IRA plans. It is recommended by the
IRS that an investor consult a tax adviser before investing in the Fund
through any of these plans. An investor participating in any of the Fund's
special plans has no obligation to continue to invest and may terminate the
plan at any time. Except for expenses of sales and promotion, executive and
administrative personnel, and certain services which are furnished by LMC,
the cost of the plans generally is borne by the Fund; however, each IRA
Plan account is subject to an annual maintenance fee of $12.00 charged by
State Street Bank and Trust Company, the Fund's transfer agent.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
LMC, P.O. Box 1515, Park 80 West Plaza Two, Saddle Brook, New Jersey
07663, is the investment adviser to the Fund pursuant to an investment
management agreement dated September 30, 1993 (the "Advisory Agreement")
which was approved by the Fund's Board of Directors on May 18, 1993. LFD
is the distributor of Fund shares pursuant to a Distribution Agreement
dated August 21, 1990 (the "Distribution Agreement"), which was approved
by the Fund's Board of Directors (including a majority of the Directors who
were not parties to either the Advisory Agreement or the Distribution
Agreement or "interested persons" of any such party) on December 7, 1993.
As adviser to the Fund, LMC advises and makes recommendations to the
Fund with respect to its investments and investment policies. As
compensation for its advisory and administrative services, LMC receives a
fee from the Fund, calculated daily and paid monthly, at the annual rate
of 0.50% of the Fund's average daily net assets. All fees and expenses are
accrued daily and deducted before payment of dividends.
In the event the operating expenses (see below) of the Fund for any
fiscal year, including all advisory and administrative fees (but excluding
any interest, taxes, brokerage and extraordinary expenses) should exceed
1% of the Fund's average daily net assets for such fiscal year, LMC will
reimburse the Fund for such excess expenses. In the case of the 1% of total
average daily net assets limitation, the obligation of LMC to reimburse the
Fund is limited to the fees actually received by LMC from the Fund for such
fiscal year, except that, in order to comply with the blue sky laws of
certain states in which the Fund's shares are currently offered for sale,
LMC may undertake, for so long as the Fund sells shares in such states, to
reimburse the Fund for operating expenses in excess of 1% of total average
daily net assets without limitation to the amount of fees actually
received.
Under the terms of the Advisory Agreement LMC also pays the Fund's
expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll
expense of officers and directors of the Fund who are also employees of LMC
or its affiliates. The Fund pays all its other expenses, including
custodian and transfer fees, legal fees, and other expenses for
registration of the Fund's shares in accordance with Federal or state
securities laws, audit fees, printing of prospectuses, shareholder reports
and communications required for regulatory purposes or for distribution to
existing shareholders, computation of net asset value, mailing of
shareholder reports and communications, portfolio brokerage, taxes and
independent directors' fees and expenses.
LMC serves as investment adviser to other investment companies and
private and institutional investment accounts. Included among these clients
are persons and organizations which own significant amounts of capital
stock of LMC's parent (see below). These clients pay fees which LMC
considers comparable to the fee levels for similarly served clients. LMC's
accounts are managed independently with reference to the applicable
investment objectives and current security holdings but on occasion more
than one fund or counsel account may seek to engage in transactions in the
same security at the same time. To the extent practicable, such
transactions will be effected on a pro rata basis in proportion to the
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respective amounts of securities to be bought and sold for each portfolio,
and the allocated transactions will be averaged as to price. While this
procedure may adversely affect the price or volume of a given Fund
transaction, LMC believes that the ability of the Fund to participate in
combined transactions may generally produce better executions overall.
LFD serves as distributor for Fund shares under a Distribution
Agreement dated August 21, 1990 between the Fund and LFD pursuant to which
LFD acts, without commission or other compensation from the Fund, as the
principal selling representative for the Fund. LFD pays the advertising and
sales expenses of the continuous offering of Fund shares, including the
cost of printing prospectuses, proxies and shareholder reports for persons
other than existing shareholders. The Fund furnishes LFD, at printer's
overrun cost paid by LFD, such copies of its prospectus and annual, semi-
annual and other reports and shareholder communications as may reasonably
be required for sales purposes.
The Advisory Agreement, Distribution Agreement and the Administrative
Services Agreement are subject to annual approval by the Fund's Board of
Directors and by the affirmative vote, cast in person at a meeting called
for such purpose, of a majority of the directors who are not parties either
to the Advisory Agreement or to the Distribution Agreement, as the case may
be, or "interested persons" of any such party. Either the Fund or LMC may
terminate either the Advisory Agreement or the Distribution Agreement on
60 days' written notice without penalty. The Advisory Agreement terminates
automatically in the event of assignment, as defined in the Investment
Company Act of 1940.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and
provides facilities for such services. The Fund shall reimburse LMC for
its actual cost in providing such services, facilities and expenses.
LMC shall not be liable to the Fund or its shareholders for any act
or omission by LMC, its officers, directors or employees or any loss
sustained by the Fund or its shareholders except in the case of willful
misfeasance, bad faith, gross negligence or reckless disregard of duty. LMC
and LFD are wholly-owned subsidiaries of Piedmont Management Company Inc.,
a Delaware corporation with offices at 80 Maiden Lane, New York, New York
10038. 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.
For the fiscal year ended December 31, 1994, LMC earned $32,231 in
management fees from the Fund and paid the Fund $86,463 in expense
reimbursements; for the fiscal year ended December 31, 1993, LMC earned
$49,874 in management fees from the Fund and paid the Fund $85,242 in
expense reimbursements.; and for the fiscal year ended December 31, 1992,
LMC earned $83,167 in management fees from the Fund, and paid the Fund
$54,438 in expense reimbursements.
Of the directors, officers or employees ("affiliated persons") of the
Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Jamison, Kantor, Lavery,
Luehs and Petruski and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca
(see "Management of the Fund") may also be deemed affiliates of LMC by
virtue of being officers, directors or employees thereof. As of April 3,
1995, all officers and directors of the Fund as a group were beneficial
owners of less than 1% of the shares of the Fund.
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DETERMINATION OF NET ASSET VALUE
The net asset value of the Fund for purposes of pricing orders is
determined daily at the close of trading on the New York Stock Exchange
on each Fund "business day" (which is any day on which the New York Stock
Exchange is open for business). It is expected that the Exchange will be
closed on Saturdays, Sundays, New Year's Day, President's Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas Day.
The net asset value of the Fund is determined by dividing the total
value of the investments and other assets of the Fund, less any
liabilities, by the total outstanding shares of the Fund.
Except as described below, debt securities are normally valued at the
last quoted bid price for those debt securities for which the over-the-
counter market is the primary market. As authorized by the Directors,
securities may be valued on the basis of valuations furnished by a pricing
service which determines valuations based upon market transactions for
normal institutional-size trading units of such securities. In determining
net asset value, portfolio securities listed on a national securities
exchange are taken at their sales price on such exchange as of such time;
if no sales price is reported, the mean of prices is used. Securities for
which there is no such quotation or valuation and all other assets are
valued at fair value as determined in good faith by the Directors although
the actual calculations may be made by persons acting pursuant to the
direction of the Directors.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay monthly dividend from investment income after
the close of each month, if earned and as declared by its Board of
Directors. The Fund intends to declare or distribute net capital gain
income if any, in December in order to comply with distribution
requirements of the 1986 Tax Reform Act to avoid the imposition of a 4%
excise tax. The Fund adopted a fiscal year ending on December 31.
Any dividends and distribution payments will be reinvested at net
asset value, without sales charge, in additional full and fractional shares
of the Fund unless and until the shareholder notifies the agent in writing
requesting payments in cash. This request must be received by the agent
at least seven days before the dividend record date. Upon receipt by the
Agent of such written notice, all further payments will be made in cash
until written notice to the contrary is received. A record of shares owned
by each shareholder will be maintained by the Agent. These accounts will
have the rights of other shareholders with respect to shares so registered
(see "How to Purchase Shares -- The Open Account").
TAX MATTERS
The following is only a summary of certain additional tax
considerations generally affecting the Fund and its shareholders that are
not described in the Prospectus. No attempt is made to present a detailed
explanation of the tax treatment of the Fund or its shareholders, and the
discussions here and in the Prospectus are not intended as substitutes for
careful tax planning.
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Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"). As a regulated investment company, the Fund is not subject to
federal income tax on the portion of its net investment income (i.e.,
taxable interest, dividends and other taxable ordinary income, net of
expenses) and capital gain net income (i.e., the excess of capital gains
over capital losses) that it distributes to shareholders, provided that it
distributes at least 90% of its investment company taxable income (i.e.,
net investment income and the excess of net short-term capital gain over
net long-term capital loss) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that
are described below. Distributions by the Fund made during the taxable
year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and
gains of the taxable year and can therefore satisfy the Distribution
Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive
of certain gains on designated hedging transactions that are offset by
realized or unrealized losses on offsetting positions) from the sale or
other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the
Fund may have to limit the sale of appreciated securities that it has held
for less than three months. However, the Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding
period is disregarded for this purpose. Interest (including original issue
discount) received by the Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is
attributable to realized market appreciation will be treated as gross
income from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition
of an asset will be a capital gain or loss. However, gain recognized on
the disposition of a debt obligation purchased by the Fund at a market
discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market
discount which accrued during the period of time the Fund held the debt
obligation.
Treasury Regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain
(i.e., the excess of net long-term capital gain over net short-term capital
loss) for any taxable year, to elect (unless it has made a taxable year
election for excise tax purposes as discussed below) to treat all or any
part of any net capital loss, any net long-term capital loss or any net
foreign currency loss incurred after October 31 as if it had been incurred
in the succeeding year.
In addition to satisfying the requirements described above, the Fund
must satisfy an asset diversification test in order to qualify as a
regulated investment company. Under this test, at the close of each
quarter of the Fund's taxable year, at least 50% of the value of the Fund's
assets must consist of cash and cash items, U.S. Government securities,
securities of other regulated investment companies, and securities of other
issuers (as to which the Fund has not invested more than 5% of the value
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of the Fund's total assets in securities of such issuer and as to which the
Fund does not hold more than 10% of the outstanding voting securities of
such issuer), and no more than 25% of the value of its total assets may be
invested in the securities of any one issuer (other than U.S. Government
securities and securities of other regulated investment companies), or in
two or more issuers which the Fund controls and which are engaged in the
same or similar trades or businesses. For purposes of asset
diversification testing, obligations issued or guaranteed by agencies or
instrumentalities of the U.S. Government such as the Federal Agricultural
Mortgage Corporation, the Farm Credit System Financial Assistance
Corporation, a Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation, the Federal National Mortgage Association, the Government
National Mortgage Corporation, and the Student Loan Marketing Association
are treated as U.S. Government securities.
If for any taxable year the Fund does not qualify as a regulated
investment company, all of its taxable income (including its net capital
gain) will be subject to tax at regular corporate rates without any
deduction for distributions to shareholders, and such distributions will
be taxable to the shareholders as ordinary dividends to the extent of the
Fund's current and accumulated earnings and profits. Such distributions
generally will be eligible for the dividends-received deduction in the case
of corporate shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to
98% of ordinary taxable income for the calendar year and 98% of capital
gain net income for the one-year period ended on October 31 of such
calendar year (or, at the election of a regulated investment company having
a taxable year ending November 30 or December 31, for its taxable year (a
"taxable year election")). The balance of such income must be distributed
during the next calendar year. For the foregoing purposes, a regulated
investment company is treated as having distributed any amount on which it
is subject to income tax for any taxable year ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall:
(1) reduce its capital gain net income (but not below its net capital gain)
by the amount of any net ordinary loss for the calendar year; and (2)
exclude foreign currency gains and losses incurred after October 31 of any
year (or after the end of its taxable year if it has made a taxable year
election) in determining the amount of ordinary taxable income for the
current calendar year (and, instead, include such gains and losses in
determining ordinary taxable income for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income
prior to the end of each calendar year to avoid liability for the excise
tax. However, investors should note that the Fund may in certain
circumstances be required to liquidate portfolio investments to make
sufficient distributions to avoid excise tax liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be
taxable to shareholders as ordinary income and treated as dividends for
federal income tax purposes, but they will not qualify for the 70%
dividends-received deduction for corporate shareholders.
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The Fund may either retain or distribute to shareholders its net
capital gain for each taxable year. The Fund currently intends to
distribute any such amounts. If net capital gain is distributed and
designated as a capital gain dividend, it will be taxable to shareholders
as long-term capital gain, regardless of the length of time the shareholder
has held his shares or whether such gain was recognized by the Fund prior
to the date on which the shareholder acquired his shares.
Conversely, if the Fund elects to retain its net capital gain, the
Fund will be taxed thereon (except to the extent of any available capital
loss carryovers) at the 35% corporate tax rate. If the Fund elects to
retain its net capital gain, it is expected that the Fund also will elect
to have shareholders of record on the last day of its taxable year treated
as if each received a distribution of his pro rata share of such gain, with
the result that each shareholder will be required to report his pro rata
share of such gain on his tax return as long-term capital gain, will
receive a refundable tax credit for his pro rata share of tax paid by the
Fund on the gain, and will increase the tax basis for his shares by an
amount equal to the deemed distribution less the tax credit.
Distributions by the Fund that do not constitute ordinary income
dividends or capital gain dividends will be treated as a return of capital
to the extent of (and in reduction of) the shareholder's tax basis in his
shares; any excess will be treated as gain from the sale of his shares, as
discussed below.
Distributions by the Fund will be treated in the manner described
above regardless of whether such distributions are paid in cash or
reinvested in additional shares of the Fund (or of another fund).
Shareholders receiving a distribution in the form of additional shares will
be treated as receiving a distribution in an amount equal to the fair
market value of the shares received, determined as of the reinvestment
date. In addition, if the net asset value at the time a shareholder
purchases shares of the Fund reflects undistributed net investment income
or recognized capital gain net income, or unrealized appreciation in the
value of the assets of the Fund, distributions of such amounts will be
taxable to the shareholder in the manner described above, although such
distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by the
Fund into account in the year in which the distributions are made.
However, dividends declared in October, November or December of any year
and payable to shareholders of record on a specified date in such a month
will be deemed to have been received by the shareholders (and made by the
Fund) on December 31 of such calendar year if such dividends are actually
paid in January of the following year. Shareholders will be advised
annually as to the U.S. federal income tax consequences of distributions
made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of distributions, and the proceeds of redemption of
shares, paid to any shareholder (1) who has provided either an incorrect
tax identification number or no number at all, (2) who is subject to
backup withholding by the IRS for failure to report the receipt of
interest or dividend income properly, or (3) who has failed to certify to
the Fund that it is not subject to backup withholding or that it is a
corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on the sale or redemption
of shares of the Fund in an amount equal to the difference between the
proceeds of the sale or redemption and the shareholder's adjusted tax basis
in the shares. All or a portion of any loss so recognized may be
disallowed if the shareholder purchases other shares of the Fund within 30
days before or after the sale or redemption. In general, any gain or loss
arising from (or treated as arising from) the sale or redemption of shares
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of the Fund will be considered capital gain or loss and will be long-term
capital gain or loss if the shares were held for longer than one year.
However, any capital loss arising from the sale or redemption of shares
held for six months or less will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares.
For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period
of shares. Long-term capital gains of noncorporate taxpayers are currently
taxed at a maximum rate 11.6% lower than the maximum rate applicable to
ordinary income. Capital losses in any year are deductible only to the
extent of capital gains plus, in the case of a noncorporate taxpayer,
$3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign
corporation, or foreign partnership ("foreign shareholder"), depends on
whether the income from the Fund is "effectively connected" with a U.S.
trade or business carried on by such shareholder.
If the income from the Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income
dividends paid to a foreign shareholder will be subject to U.S. withholding
tax at the rate of 30% (or lower treaty rate) upon the gross amount of the
dividend. Such a foreign shareholder would generally be exempt from U.S.
federal income tax on gains realized on the sale of shares of the Fund,
capital gain dividends and amounts retained by the Fund that are designated
as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable
at a reduced treaty rate) unless the shareholder furnishes the Fund with
proper notification of its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may differ from those described
herein. Foreign shareholders are urged to consult their own tax advisers
with respect to the particular tax consequences to them of an investment
in the Fund, including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect
to the transactions contemplated herein.
Rules of state and local taxation of ordinary income dividends and
capital gain dividends from regulated investment companies often differ
from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences
of these and other state and local tax rules affecting investment in the
Fund.
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INVESTMENT RETURN INFORMATION
For purposes of quoting and comparing the performance of the Fund to
that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in
terms of total return and yield. Under the rules of the Securities and
Exchange Commission ("SEC rules"), funds advertising performance must
include total return quotes calculated according to the following formula:
n
P(l+T) = ERV
Where: P= a hypothetical initial payment of $1,000
T= average annual total return
n= number of years (1, 5 or 10)
ERV= ending redeemable value of a hypothetical $1,000
payment made at the beginning of the 1, 5 or 10 year
periods at the end of the 1, 5 or 10 year periods (or
fractional portion thereof).
Under the foregoing formula, the time period used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover one, five and ten year periods or a shorter period dating from
the effectiveness of the Fund's Registration Statement. In calculating the
ending redeemable value, the maximum sales load is deducted from the
initial $1,000 payment and all dividends and distributions by the Funds are
assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. Total return, or
"T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the
ending redeemable value. Any recurring account charges that might in the
future be imposed by the Funds would be included at that time.
The Fund may also from time to time include in such advertising a
total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the Fund
with other measures of investment return. For example, in comparing a
Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Lehman Brothers Intermediate
Government Bond Index or Lehman Brothers one to three year Government Bond
Index, the Fund calculates its aggregate total return for the specified
periods of time by assuming the investment of $10,000 in Fund shares and
assuming the reinvestment of each dividend or other distribution at net
asset value on the reinvestment date. Percentage increases are determined
by subtracting the initial value of the investment from the ending value
and by dividing the remainder by the beginning value. Such alternative
total return information will be given no greater prominence in such
advertising than the information prescribed under SEC rules.
The Fund's total average annual total return for the one year period
and since inception of the Fund's new investment objective (11/1/93) as of
December 31, 1994 are -0.20% and 0.16%, respectively.
In addition to the total return quotations discussed above, the Fund
may advertise its yield based on a 30-day (or one month) period ended on
the date of the most recent balance sheet included in the Fund's
Registration Statement, computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
12
<PAGE>
a-b
--- 6
YIELD=2[(cd + 1) - 1]
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends.
d = the maximum offering price per share on the last day
of the period.
Under this formula, interest earned on debt obligations for the
purposes of "a" above, is calculated by (l) computing the yield to maturity
of each obligation (including actual accrued interest) at the close of
business on the last day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued
interest), (2) dividing that figure by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest as
referred to above) to determine the interest income on the obligation for
each day of the subsequent month that the obligation is in the Fund's
portfolio (assuming a month of 30 days) and (3) computing the total of the
interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. For mortgage or
other receivables backed security subject to regular paydowns (e.g. CMOs),
interest is calculated using the coupon rate and the outstanding
participant amount for one monthly paydown. For these types of securities,
interest income is also adjusted for the gain or loss or the monthly
paydown. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in a Fund's portfolio.
The Fund may also from time to time advertise its yield based on a
90-day period ended on the date of the most recent balance sheet included
with the Funds' Registration Statement, computed in accordance with the
yield formula described above, as adjusted to conform with the differing
period for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based
on a 30-day or 90-day period) will be given no greater prominence than the
information prescribed under SEC rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing
that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
*+ROBERT M. DEMICHELE, President and Chairman. P.O. Box 1515, Saddle
Brook, N.J. 07663. Chairman and Chief Executive Officer, Lexington
Management Corporation; 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 the
Board of Trustees, Union College; Director, Continental National
Corporation; Director, The Navigator s Group, Inc.; 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 advisers); Trustee, Smith Richardson
Foundation.
13
<PAGE>
+BEVERLEY C. DUER, Director. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research
Department - CPC International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Prior to May 1989, Assistant Vice President and Securities
Analyst, Lexington Management Corporation; prior to March 1987, Vice
President - Institutional Equity Sales, L.F. Rothschild, Unterberg,
Towbin.
*+LAWRENCE KANTOR, Director and Vice President. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and
Director, Lexington Management Corporation; Executive Vice President
and Director, Lexington Funds Distributor, Inc.
+DONALD B. MILLER, Director. 10725 Quail Covey Road, Boyton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds;
Director, Maguire Group of Connecticut; prior to January 1989,
President, Director and C.E.O., Media General Broadcast Services
(advertising firm).
+FRANCIS OLMSTED, Director. 50 Van Hooten Court, San Anselmo, California
94960. Private Investor. Formerly, Manager Commercial Development
(West Coast), Essex Chemical Corporation, Clifton, New Jersey
(chemical manufacturers).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts
Associate Professor of Finance, Boston College, Boston,
Massachusetts.
+MARGARET W. RUSSELL, Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor. Formerly, Community Affairs Director, Union
Camp Corporation.
+PHILIP C. SMITH, Director. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor; Director, Southwest Investors 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. 309 Quito Place, Castle Pines, Castle
Rock, Colorado 80104. Private Investor.
*+DENIS P. JAMISON, Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director of Fixed
Income Investment Strategy, Lexington Management Corporation. Mr.
Jamison is a Chartered Financial Analyst and is a member of the New
York Society of Securities Analysts.
*+LISA A. CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President and Secretary, Lexington
Management Corporation; Vice President and Secretary, Lexington Funds
Distributor, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Director and Chief Financial
Officer, Lexington Management Corporation; Chief Financial Officer,
Vice President and Director, Lexington Funds Distributor, Inc; Chief
Financial Officer, Market Systems Research Advisors, Inc.
*+RICHARD J. LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation;
Vice President, Lexington Funds Distributor, Inc.
14
<PAGE>
*+JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to November, 1993, Supervisor Investment Accounting,
Alliance Capital Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to September 1990, Fund Accounting Manager, Lexington
Group of Investment Companies.
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to May 1994, Supervising Senior Accountant, NY Life
Securities. Prior to December 1990, Senior Accountant, Dreyfus
Corporation.
*+PETER CORNIOTES, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Assistant Secretary, Lexington Management Corporation;
Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator,
Lexington Group of Investment Companies.
* "Interested person" and/or "affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
+ Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Jamison, Kantor,
Lavery, Luehs, Miller, Olmsted, Petruski, Preston, Smith and Sunderland and
Mmes. Carnicelli, Carr, Curcio, Evans, Gilfillan, Mosca and Russell hold
similar offices with some or all of the other registered investment
companies advised and/or 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 fee of $150 for each meeting attended plus
reimbursement of expenses for attendance at regular meetings. During the
fiscal year ended December 31, 1994, an aggregate of $8,899 fees and
expenses was paid to eight directors not employed by the Fund or its
affiliates.
CUSTODIAN, TRANSFER AGENT, AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York,
New York 10036, has been retained to act as the Custodian for the Fund's
investments and assets. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, is the transfer agent and dividend
disbursing agent for the Fund. Neither Chase Manhattan Bank, N.A. nor State
Street Bank and Trust Company have any part in determining the investment
policies of the Fund or in determining which portfolio securities are to
be purchased or sold by the Fund or in the declaration of dividends and
distribution.
15
<PAGE>
Aggregate Total Compensation Number of
Compensation From Fund and Directorships in
Name of Director From Fund Fund Complex Fund Complex
- ---------------- ------------ ------------------ ----------------
Robert M. DeMichele 0 0 15
Beverley C. Duer $1350 $20,250 15
Barbara R. Evans 0 0 14
Lawrence Kantor 0 0 15
Donald B. Miller $1350 $20,250 14
Francis Olmsted $1350 $18,900 13
John G. Preston $1350 $20,250 14
Margaret Russell $1350 $18,900 13
Philip C. Smith $1350 $20,250 14
Francis A. Sunderland $1200 $16,800 13
16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Lexington Short-Intermediate Government Securities Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington
Short-Intermediate Government Securities Fund, Inc. as of December 31, 1994, the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the years in the two-year period then ended,
and the financial highlights for each of the years in the five-year period then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1994 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Short-Intermediate Government Securities Fund, Inc. as of December 31,
1994, the results of its operations for the year then ended, the changes in its
net assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended,
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 30, 1995
17
<PAGE>
Lexington Short-Intermediate Government Securities Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994
<TABLE>
<CAPTION>
Principal Value
Amount Security (Note 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS: 96.6%
$1,253,743 Government National Mortgage Association, 6.00%*, 05/2022 ........ $1,203,594
400,000 U.S. Treasury Note, 3.875%, 10/1995 .............................. 389,552
4,200,000 U.S. Treasury Note, 6.00%, 11/1997 ............................... 4,006,212
----------
Total U.S. Government Obligations: (Cost $5,773,858) ............. 5,599,358
----------
SHORT-TERM INVESTMENTS: 3.4%
200,000 U.S. Treasury Bill (cost $197,311), 5.50%, 3/30/95 ............... 197,311
----------
TOTAL INVESTMENTS: 100.0% (Cost $5,971,169(D)) (Note 1) ......... 5,796,669
Other assets in excess of liabilities: 0.0% ...................... 2,750
----------
TOTAL NET ASSETS: 100.0% (equivalent to $9.58 per share
on 605,585 shares outstanding) ................................. $5,799,419
==========
<FN>
*Adjustable annually.
(D)Aggregate cost for Federal income tax purposes is identical.
</FN>
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
18
<PAGE>
Lexington Short-Intermediate Government Securities Fund, Inc.
Statement of Assets and Liabilities
December 31, 1994
Assets
<TABLE>
<S> <C>
Investments in securities, at value (cost $5,971,169) (Note 1) ................. $5,796,669
----------
Cash (Note 4) .................................................................. 13,820
Interest receivable ............................................................ 31,105
Due from Lexington Management Corporation (Note 2) ............................. 9,318
----------
Total Assets ............................................................... 5,850,912
----------
Liabilities
Accrued expenses ............................................................... 25,546
Distributions payable .......................................................... 25,947
----------
Total Liabilities .......................................................... 51,493
----------
Net Assets (equivalent to $9.58 per share
on 605,585 shares outstanding) (Note 3) ...................................... $5,799,419
==========
Net Assets consist of:
Capital stock-authorized 10,000,000,000 shares, $.001 par value per share ...... $ 606
Additional paid-in capital (Note 1) ............................................ 6,085,321
Accumulated net realized loss on investments (Notes 1 and 6) ................... (112,008)
Net unrealized depreciation of investments ..................................... (174,500)
----------
$5,799,419
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
19
<PAGE>
Lexington Short-Intermediate Government Securities Fund, Inc.
Statement of Operations
Year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment Income
Interest income $ 314,361
Expenses
Investment advisory fee (Note 2) ............................... $ 32,231
Accounting and shareholder services expense (Note 2) ........... 9,299
Custodian and transfer agent fees and expenses ................. 26,261
Printing and mailing ........................................... 22,455
Directors' fees and expenses ................................... 8,899
Audit and legal ................................................ 21,847
Registration fees .............................................. 15,901
Other expenses ................................................. 14,401
---------
Total expenses ............................................. 151,294
Less: expenses recovered under contract with investment
advisor (Note 2) ......................................... 86,463 64,831
--------- ---------
Net investment income ...................................... 249,530
Realized and Unrealized Loss on Investments (Note 5)
Realized loss on investments (excluding short-term securities):
Proceeds from sales ........................................ 5,152,611
Cost of securities sold .................................... 5,255,023
---------
Net realized loss ...................................... (102,412)
Unrealized depreciation of investments:
End of period .............................................. (174,500)
Beginning of period ........................................ (5,877)
---------
Change during period ..................................... (168,623)
---------
Net realized and unrealized loss on investments ........ (271,035)
---------
Decrease in Net Assets Resulting from Operations ................... $ (21,505)
=========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
20
<PAGE>
Lexington Short-Intermediate Government Securities Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Net investment income .................................................. $ 249,530 $ 243,401
Net realized loss from security transactions ........................... (102,412) (11,541)
Increase in unrealized depreciation of investments ..................... (168,623) (5,877)
---------- ----------
Net increase (decrease) in net assets resulting from operations .... (21,505) 225,983
Distributions to shareholders from net investment income ............... (247,585) (243,439)
Decrease in net assets from capital share transactions (Note 3) ........ (1,678,490) (4,217,080)
---------- ----------
Net decrease in net assets ............................................. (1,947,580) (4,234,536)
Net Assets:
Beginning of period ................................................ 7,746,999 11,981,535
---------- ----------
End of period ...................................................... $5,799,419 $7,746,999
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
21
<PAGE>
Lexington Short-Intermediate Government Securities Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Significant Accounting Policies
Lexington Short-Intermediate Government Securities Fund, Inc. (formerly
Lexington Government Securities Money Market Fund, Inc.) (the "Fund") is an
open-end diversified management investment company registered under the
Investment Company Act of 1940, as amended. The Board of Directors approved a
change in the Fund's name and objective to a short-intermediate government
securities fund at a meeting on May 18, 1993. The change was approved at the
annual meeting of shareholders on September 9, 1993. In accordance with this
change a 1 for 10 reverse stock split occurred on October 8, 1993.
The following is a summary of significant accounting policies followed by the
Fund in the preparation of its financial statements:
Security Transactions Security transactions are accounted for on a trade
date basis. Realized gains and losses from security transactions are reported on
an identified cost basis. Investments are stated at market value based on the
last reported bid price as of the last business day of the period for those
securities traded in the over-the-counter market. As authorized by the Board of
Directors, securities may be valued on the basis of valuations furnished by a
pricing service. Short-term securities are stated at amortized cost, which
approximates market value. Interest income is accrued as earned.
Federal Income Taxes It is the Fund's intention to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its income to its shareholders. Therefore,
no provision for Federal income taxes has been made.
Dividends Dividends are declared daily from net investment income.
Distributions Effective January 1, 1993, the Fund adopted Statement of
Position 93-2: Determination, Disclosure and Financial Statement Presentation of
Income, Capital Gain and Return of Capital Distributions by Investment
Companies. As of December 31, 1994, book and tax basis differences amounting to
$38 have been reclassified from undistributed net investment income to
additional paid-in capital. In addition GNMA paydown losses of $1,945 were
reclassified from accumulated net realized losses to undistributed net
investment income.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at the rate of 0.5% of the Fund's average daily net assets. LMC is
required to reimburse the Fund for any expenses, excluding brokerage
commissions, taxes, interest and extraordinary expenses, in excess of 1% of the
Fund's average daily net assets. The investment advisory fee and expense
reimbursement are set forth in the statement of operations.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund but paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1994 December 31, 1994
----------------------- --------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ..................................................... 219,023 $ 2,135,075 10,815,126 $11,475,644
Shares issued to shareholders on reinvestment of dividends ...... 23,240 227,255 186,723 213,593
-------- ----------- ----------- -----------
242,263 $ 2,362,330 11,001,849 $11,689,237
Shares redeemed ................................................. (413,015) (4,040,820) (14,741,093) (15,906,317)
1 for 10 reverse stock split on October 8, 1993 ................. - - (7,465,953) -
-------- ----------- ----------- -----------
Net decrease .................................................. (170,752) $(1,678,490) (11,205,197) $(4,217,080)
======== =========== =========== ===========
</TABLE>
4. Cash
In order to facilitate the clearing process for redemptions by check, the Fund
maintains a compensating balance with its transfer agent. At December 31, 1994
this compensating balance amounted to $2,200 and is included in cash in the
statement of assets and liabilities.
5. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities, excluding
short-term securities, for the year ended December 31, 1994 were $4,621,000 and
$5,152,611, respectively.
At December 31, 1994, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $0 and aggregate
gross unrealized depreciation for all securities in which there is an excess of
tax cost over value amounted to $174,500.
22
<PAGE>
Lexington Short-Intermediate Government Securities Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993 (continued)
6. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for Federal income tax purposes as of
December 31, 1994 are approximately:
$ 260 expiring in 2001,
$106,279 expiring in 2002, and
$ 5,469 expiring in 2003.
To the extent any future gains are offset by these losses, such gains would not
be distributed to shareholders. Treasury regulations were issued in early 1990
which provide that capital losses incurred after October 31 of a funds taxable
year should be deemed to have occurred on the first day of the following taxable
year (i.e., January 1). The regulations indicate that a fund may elect to
retroactively apply these rules for purposes of computing taxable income.
Accordingly, the capital loss carryforwards for Lexington Short-Intermediate
Government Securities Fund, Inc. have been adjusted to reflect prior years'
post-October losses in the next fiscal year.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1994 1993 1992 1991 1990
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ......... $9.98 $1.00 $1.00 $1.00 $1.00
Income from investment operations:
Net Investment income ...................... .38 .08 .03 .05 .07
Net realized and unrealized
loss on investments ...................... (.40) (.02) - - -
----- ----- ----- ----- -----
Total income (loss) from
investment operations ...................... (.02) .06 .03 .05 .07
Less distributions:
Dividends from net investment income ....... (.38) (.08) (.03) (.05) (.07)
Reverse stock split (1 for 10) ............... - 9.00 - - -
----- ----- ----- ----- -----
Net asset value, end of period ............... $9.58 $9.98 $1.00 $1.00 $1.00
===== ===== ===== ===== =====
Total return ................................. (.20%) 2.27% 2.97% 5.14% 7.25%
Ratio to average net assets:
Expenses, before reimbursement ............. 2.35% 1.68% 1.33% 1.21% 1.22%
Expenses, net of reimbursement ............. 1.00% 0.83% 1.00% 1.00% 1.00%
Net investment income,
before reimbursement ..................... 2.53% 1.59% 2.67% 4.82% 6.80%
Net investment income,
including reimbursement .................... 3.87% 2.44% 3.00% 5.03% 7.02%
Portfolio turnover ........................... 75.87% - - - -
Net assets at end of period
(000's omitted) ............................ $5,799 $7,747 $11,982 $21,483 $22,373
</TABLE>
23
