As filed with the Securities and Exchange Commission on April 28, 1995
Registration No. 2-48906
811-2401
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 29 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 16 X
(Check appropriate box or boxes.)
LEXINGTON GNMA INCOME FUND, INC.
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(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington GNMA Income Fund, Inc.
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
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(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue, New York, NY 10022
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It is proposed that this filing will become effective May 1, 1995
pursuant to Paragraph (b) of Rule 485.
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The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, pursuant to Section 24(f) of the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal year ended
December 31, 1994 was filed on February 24, 1995.
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- --------------- ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 2
4. General Description of Registrant 3
5. Management of the Fund 6
6. Capital Stock and Other Securities 12
7. Purchase of Securities Being Offered 7
8. Redemption or Repurchase 8
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 12 (Part A)
13. Investment Objectives and Policies 1
14. Management of the Registrant 18
15. Control Persons and Principal Holders 5
of Securities
16. Investment Advisory and Other Services 5
17. Brokerage Allocation and Other Practices 7
18. Capital Stock and Other Securities 12 (Part A)
19. Purchase, Redemption and Pricing of 7,8 (Part A)
securities being offered
20. Tax Status 9
21. Underwriters 5
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements Exhibit
PART C
- ------
Information required to be included in Part C is set forth
under the appropriate Item, so numbered, in Part C to this
Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS
May 1, 1995
Lexington GNMA Income 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 WITH THE INVESTMENT OBJECTIVE OF HIGH CURRENT INCOME
CONSISTENT WITH LIQUIDITY AND SAFETY OF PRINCIPAL THROUGH INVESTMENT PRIMARILY
IN MORTGAGE-BACKED GNMA CERTIFICATES.
- --------------------------------------------------------------------------------
Lexington GNMA Income Fund, Inc. (the "Fund") is a
no-load open-end diversified management investment company.
The Fund's investment objective is to seek a high level of
current income, consistent with liquidity and safety of
principal, through investment primarily in mortgage-backed
GNMA ("Ginnie Mae") Certificates that are guaranteed as to
the timely payment of principal and interest by the United
States Government.
Shareholders may invest, reinvest or redeem shares at
any time without charge or penalty.
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 or obligations 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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
<TABLE>
Annual Fund Operating Expenses:
(as a percentage of average net assets)
<S> <C>
Management fees ..................................................................................... 0.60%
Other fees .......................................................................................... 0.38%
----
Total Fund Operating Expenses ....................................................................... 0.98%
====
</TABLE>
<TABLE>
<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 ......... $10.00 $31.21 $54.17 $120.14
</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. 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 following Per Share Income and Capital Changes 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.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Selected Per Share Data for a share outstanding throughout the period
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 ..... $8.32 $8.26 $8.45 $7.90 $7.88 $7.45 $7.58 $8.22 $8.06 $7.74
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income .. 0.55 0.59 0.61 0.64 0.65 0.69 0.64 0.71 0.74 0.76
Net realized and
unrealized gain (loss)
on investments ....... (0.72) 0.06 (0.19) 0.55 0.03 0.42 (0.13) (0.59) 0.17 0.49
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total income (loss) from
investment operations . (0.17) 0.65 0.42 1.19 0.68 1.11 0.51 0.12 0.91 1.25
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Less distributions:
Dividends from net
investment income .... (0.55) (0.59) (0.61) (0.64) (0.66) (0.68) (0.64) (0.73) (0.75) (0.93)
Distributions from net
realized capital gains - - - - - - - (0.03) - -
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total distributions ...... (0.55) (0.59) (0.61) (0.64) (0.66) (0.68) (0.64) (0.76) (0.75) (0.93)
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period .......... $7.60 $8.32 $8.26 $8.45 $7.90 $7.88 $7.45 $7.58 $8.22 $8.06
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Total return ............. (2.07%) 8.06% 5.19% 15.75% 9.23% 15.60% 6.90% 1.62% 11.98% 17.36%
Ratio to average net assets:
Expenses ............... 0.98% 1.02% 1.01% 1.02% 1.04% 1.03% 1.07% 0.98% 0.86% 1.01%
Net investment income .. 6.90% 6.96% 7.31% 7.97% 8.43% 8.88% 8.31% 8.49% 9.30% 11.06%
Portfolio turnover ....... 37.15% 52.34% 180.11% 138.71% 112.55% 102.66% 233.48% 89.40% 300.31% 167.76%
Net assets, end of
period (000's omitted) . $132,108 $149,961 $132,048 $122,191 $98,011 $96,465 $97,185 $109,793 $141,284 $87,311
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
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 or
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 the Dow Jones Industrial Average Index
and Standard and Poor's 500 Composite Stock Price Index. Quotations of
historical total returns and yields are not indicative of future dividend income
or total return, but are an indication of the return to shareholders only for
the limited historical period used. The Fund's yield and total return will
depend on the particular investments in its portfolio, its total operating
expenses and other conditions. For further information, including the formulas
and examples of the yield and total return calculations, see the Statement of
Additional Information.
DESCRIPTION OF THE FUND
The Fund is an open-end diversified management investment company. It is
called a no-load Fund because its shares are sold without a sales charge.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek a high level of current
income, consistent with liquidity and safety of principal.
At least 80% of the assets of the Fund will be invested in "GNMA
Certificates" (popularly called "Ginnie Maes") which are Government National
Mortgage Association ("GNMA") mortgage-backed securities representing part
ownership of a pool of mortgage loans. GNMA is a U.S. Government corporation
within the Department of Housing and Urban Development. Such loans are initially
made by lenders such as mortgage bankers, commercial banks and savings and loan
associations and are either insured by the Federal Housing Administration (FHA)
or Farmers' Home Administration (FMHA) or guaranteed by the Veterans
Administration (VA). A GNMA Certificate represents an interest in a specific
pool of such mortgages which, after being approved by GNMA, is offered to
investors through securities dealers. Once approved by GNMA, the timely payment
of interest and principal on each certificate is guaranteed by the full faith
and credit of the United States Government. GNMA Certificates have historically
offered higher yields than direct obligations of the United States Treasury,
although there is no assurance that they will continue to do so. The actual
yield on a GNMA Certificate is influenced by the prepayment experience of the
mortgage pool underlying the Certificate. That is, if the mortgagors pay off
their mortgages early, the principal returned to GNMA Certificate holders may be
reinvested at more or less favorable rates.
GNMA Certificates differ from bonds in that principal is scheduled to be
paid back by the borrower over the length of the loan rather than returned in a
lump sum at maturity. The Fund will purchase "modified pass through" type GNMA
Certificates, which entitle the holder to receive all interest and principal
payments owed on the mortgage in the pool (net of issuers' and GNMA fees),
regardless of whether or not the mortgagor has made such payment. The Fund will
use principal payments to purchase additional GNMA
3
<PAGE>
Certificates or other government guaranteed securities. The remaining 20% of the
Fund's assets will be invested in other securities issued or guaranteed by the
U.S. Government, including U.S. Treasury bills, notes or bonds. The Fund may
also invest in repurchase agreements (see "Investment Policy and Restrictions")
secured by such U.S. Government securities or GNMA Certificates. The Fund
reserves the right at any time for temporary defensive purposes to invest any
portion of its assets in U.S. Government securities or retain its assets in cash
or cash equivalents.
As with any investment there can be no assurance that the Fund's investment
objective will be achieved. By itself, the Fund does not constitute a complete
investment program. Although the payment when due, of interest and principal on
GNMA Certificates is guaranteed by the full faith and credit of the United
States Government, the net asset value of shares of the Fund will fluctuate in
response to changes in interest rates. In general, when interest rates rise,
prices of fixed income securities decline. When interest rates decline, prices
of fixed income securities tend to rise. Interest rate fluctuations can be
expected to affect the Fund's dividends. Moreover, prepayments of the underlying
mortgages, possibly because of a reduction in prevailing interest rates, may
result in a shorter than average life span for the affected GNMA Certificate,
and as a result, a reduction in interest income of the Fund.
WHAT ARE GNMA CERTIFICATES?
GNMA Certificates are created by an "issuer", which is an FHA approved
mortgage banker who also meets criteria imposed by GNMA. The issuer assembles a
pool of FHA, FMHA, or VA insured or guaranteed mortgages which are homogeneous
as to interest rate, maturity and type of dwelling. Upon application by the
issuer, and after approval by GNMA of the pool, GNMA provides its commitment to
guarantee timely payment of principal and interest on the GNMA Certificates
backed by the mortgages included in the pool. The GNMA Certificates, endorsed by
GNMA, are then sold by the issuer through securities dealers.
GNMA is authorized under the Federal National Housing Act to guarantee
timely payment of principal and interest on GNMA Certificates. This guarantee is
backed by the full faith and credit of the United States. GNMA may borrow U.S.
Treasury funds to the extent needed to make payments under its guarantee.
When mortgages in the pool underlying a GNMA Certificate are prepaid by
mortgagors or by result of foreclosure, such principal payments are passed
through to the certificate holders. Accordingly, the life of the GNMA
Certificate is likely to be substantially shorter than the stated maturity of
the mortgages in the underlying pool. Because of such variation in prepayment
rates, it is not possible to predict the life of a particular GNMA Certificate,
but FHA statistics indicate that 25 to 30 year single family dwelling mortgages
have an average life of approximately 12 years. The majority of GNMA
Certificates are backed by mortgages of this type, and accordingly the generally
accepted practice has developed to treat GNMA Certificates as 30 year securities
which prepay fully in the 12th year. Reinvestment of prepayments may occur at
higher or lower rates than the original yield on the Certificates. Due to the
prepayment features and the need to reinvest prepayments of principal at current
rates, GNMA Certificates with underlying mortgages bearing higher interest rates
can be less effective than typical non-callable bonds of similar maturities at
"locking in" yields during periods of declining interest rates, althought they
may have comparable risks of decline in value during periods of rising interest
rates.
GNMA Certificates bear a nominal "coupon rate" which represents the
effective FHA-VA mortgage rate at the time of issuance, less 0.5%, which
constitutes the GNMA and issuer's fees. For providing its guarantee, GNMA
receives an annual fee of 0.06% of the outstanding principal on certificates
backed by single family dwelling mortgages, and the issuer receives an annual
fee of 0.44% for assembling the pool and for passing through monthly payments of
interest and principal.
Payments to holders of GNMA Certificates consist of the monthly
distributions of interest and principal less the GNMA and issuer's fees. The
actual yield to be earned by a holder of a GNMA Certificate is calculated by
dividing such payments by the purchase price paid for the GNMA Certificate
(which may be at a premium or a discount from the face value of the
certificate). Monthly distributions of interest, as contrasted to semi-annual
distributions which are common for other fixed interest investments, have the
effect of compounding and thereby raising the effective annual yield earned on
GNMA Certificates. Because of the variation in the life of the pools of
mortgages which back various GNMA Certificates, and because it is impossible to
anticipate the rate of interest at which future principal payments may be
reinvested, the actual yield earned from a portfolio of GNMA Certificates, such
as that in which the Fund is invested, will differ significantly from the yield
estimated by using an assumption of a 12 year life for each GNMA Certificate
included in such a portfolio as described.
The actual rate of prepayment for any GNMA Certificate does not lend itself
to advance determination, although regional and other characteristics of a given
mortgage pool may provide some guidance for investment analysts. Also, secondary
market trading of outstanding GNMA Certificates tends to be concentrated in
issues bearing the current coupon rate.
4
<PAGE>
INVESTMENT POLICY AND RESTRICTIONS
The Fund's fundamental investment policy is to seek high current income
consistent with liquidity and safety of principal through investment of at least
80% of its assets in GNMA Certificates, with other investments limited to
securities issued or guaranteed by the U.S. Government or its agencies, or in
repurchase agreements secured by such instruments. This policy, and the
investment restrictions set forth below, may not be changed without the
affirmative vote (defined as the lesser of: 67% of the shares represented at a
meeting at which 50% of the outstanding shares are present, or 50% of the
outstanding shares) of the Fund's shareholders. These restrictions may be
summarized as follows:
The Fund shall not (i) issue senior securities; (ii) borrow money; (iii)
underwrite securities of other issuers; (iv) concentrate its investments in a
particular industry to an extent greater than 25% of the value of its total
assets, provided that such limitation shall not apply to securities issued or
guaranteed by the U.S. Government or its agencies; (v) purchase or sell real
estate, commodity contracts or commodities (however, the Fund may purchase
interests in GNMA mortgage-backed certificates); (vi) make loans to other
persons except: (a) through the purchase of a portion or portions of an issue or
issues of securities issued or guaranteed by the U.S. Government or its
agencies, or (b) through investments in "repurchase agreements" (which are
arrangements under which the Fund acquires a debt security subject to an
obligation of the seller to repurchase it at a fixed price within a short
period), provided that no more than 10% of the Fund's assets may be invested in
repurchase agreements which mature in more than seven days; (vii) purchase the
securities of another investment company or investment trust, except in the open
market and then only if no profit, other than the customary broker's commission,
results to a sponsor or dealer, or by merger or other reorganization; (viii)
purchase any security on margin or effect a short sale of a security; (ix) buy
securities from or sell securities (other than securities issued by the Fund) to
any of its officers, directors or LMC, as principal; (x) contract to sell any
security or evidence of interest therein, except to the extent that the same
shall be owned by the Fund; (xi) purchase or retain securities of an issuer when
one or more of the officers and directors of the Fund or of the investment
adviser, or a person owning more than 10% of the stock of either, own
beneficially more than 1/2 of 1% of the securities of such issuer and such
persons owning more than 1/2 of 1% of such securities together own beneficially
more than 5% of the securities of such issuer; (xii) invest more than 5% of its
total assets in the securities of any one issuer (except securities issued or
guaranteed by the U.S. Government or its agencies), except that such restriction
shall not apply to 25% of the Fund's portfolio so long as the net asset value of
the portfolio does not exceed $2,000,000; (xiii) purchase any securities if such
purchase would cause the Fund to own at the time of purchase more than 10% of
the outstanding voting securities of any one issuer; (xiv) purchase any security
restricted as to disposition under Federal securities laws; (xv) invest in
interests in oil, gas or other mineral exploration or development programs; or
(xvi) buy or sell puts, calls or other options.
Although the Fund has the right to pledge, mortgage or hypothecate its
assets in order to comply with state statute, the Fund will not, as a matter of
operating policy while offering shares in such state, pledge, mortgage or
hypothecate its portfolio securities to the extent that at any time the
percentage of pledged securities will exceed 10% of the Fund's net assets.
GNMA Certificates may at times be purchased or sold on a delayed delivery
basis or on a when-issued basis. These transactions arise when GNMA Certificates
are purchased or sold by the Fund with payment and delivery taking place in the
future, in order to secure what is considered to be an advantageous price and
yield to the Fund. No payment is made until delivery is due, often a month or
more after the purchase. The settlement date on such transactions will take
place no more than 120 days from the trade date. When the Fund engages in
when-issued and delayed delivery transactions, the Fund relies on the buyer or
seller, as the case may be, to consummate the sale. Failure of the buyer or
seller to do so may result in the Fund missing the opportunity of obtaining a
price considered to be advantageous. While when-issued GNMA Certificates may be
sold prior to the settlement date, the Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase a GNMA
Certificate on a when-issued basis, it will record the transaction and reflect
the value of the security in determining its net asset value. The Fund does not
believe that its net asset value or income will be adversely affected by its
purchase of GNMA Certificates on a when-issued basis. The Fund may invest in
when-issued securities without other conditions. Such securities either will
mature or be sold on or about the settlement date. The Fund may earn interest on
such account or securities for the benefit of shareholders.
The Fund's investment portfolio may include repurchase agreements ("repos")
with banks and dealers in U.S. Government securities. A repurchase agreement
involves the purchase by the Fund of an investment contract from a bank or a
dealer in U.S. Government securities which contract is secured by U.S.
Government obligations or GNMA Certificates whose value is equal to or greater
than the value of the repurchase agreement including the agreed upon interest.
The agreement provides that the institution will repurchase the underlying
securities at an agreed upon time and price. The total amount received on
repurchase would exceed
5
<PAGE>
the price paid by the Fund, reflecting an agreed upon rate of interest for the
period from the date of the repurchase agreement to the settlement date, and
would not be related to the interest rate on the underlying securities. The
difference between the total amount to be received upon the repurchase of the
securities and the price paid by the Fund upon their acquisition is accrued
daily as interest. If the institution defaults on the repurchase agreement, the
Fund will retain possession of the underlying securities. In addition, if
bankruptcy proceedings are commenced with respect to the seller, realization on
the collateral by the Fund may be delayed or limited and the Fund may incur
additional costs. In such case the Fund will be subject to risks associated with
changes in the market value of the collateral securities. The Fund intends to
limit repurchase agreements to transactions with institutions believed by LMC to
present minimal credit risk.
PORTFOLIO TURNOVER
Generally, the Fund intends to invest for long-term purposes. However, in
the past, the portfolio turnover rate of the Fund has exceeded 100% and may
exceed 100% in the future. A portfolio turnover rate of 100% would occur for
example, if all the securities in the Fund's portfolio were replaced once in a
period of one year. For the year ending December 31, 1994, the portfolio
turnover rate for the Fund was 37.15%.
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, C.F.A., 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 Analysis. 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.
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 the Administrator 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 annual rate of 0.6% of the average daily net assets. For
the year ending December 31, 1994, LMC earned $891,433 in management fees from
the Fund. See "Investment Adviser and Distributor" in the Statement of
Additional Information.
6
<PAGE>
HOW TO PURCHASE SHARES
Initial Investment-Minimum $1,000. By Mail: Send a check payable to Lexington
GNMA Income 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
GNMA Income 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 State Street
Bank and Trust Company, 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 and 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). Automatic Investing Plan with "Lex-O-Matic". A
shareholder may arrange to make additional purchases of shares automatically on
a monthly or quarterly basis. 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 service can be obtained from Lexington by calling
1-800-526-0056. Additional information may be obtained directly from the Fund.
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 market value of GNMA Certificates varies inversely with interest rates
generally, and therefore the net asset value of the Fund will fluctuate during
periods of changing interest rates.
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.
7
<PAGE>
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. LMC,
at no additional cost to the Fund, may pay to Shareholder Servicing Agents
amounts from its past profits.
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 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
Agent's 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 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.
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).
8
<PAGE>
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 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.
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.
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, next determined, 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.
The 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: LEBDX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
9
<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 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.
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.
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 it
is believed 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 minimum 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.
Telephonic 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 of 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. 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 the Distributor.
The Distributor 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
10
<PAGE>
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 Authorization 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. The Distributor reserves the right
to reject any telephone exchange request. Any telephone exchange orders so
rejected may be processed by mail.
This exchange offer is available only in states where shares of the fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA'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 the
Distributor at 1-800-526-0056. (See "Tax-Sheltered Retirement Plans" in the
Statement of Additional Information.)
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay monthly dividends from investment income after the
close of each month, if earned and as declared by its Board of Directors. The
Fund intends to declare or distribute 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").
Reference is made to the Notes to Financial Statements in the Statement of
Additional Information regarding the amount and age of any capital loss carry
forward at the end of the Fund's last fiscal year. It is the Fund's policy to
offset realized capital gains against its capital loss carryforwards and not to
distribute any offset gains.
TAX MATTERS
The 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 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 the excess, if
any, of its net short-term capital gain over its net long-term capital loss 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
11
<PAGE>
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
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 distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, 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.
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 was incorporated under the laws of the State of Maryland on August
17, 1973 under the name "Lexington Income Fund, Inc." and adopted its present
name on December 29, 1980.
The Fund has authorized 100,000,000 shares of capital stock, $0.01 par
value. All shares are of the same class, with like rights and privileges. Each
share is entitled to vote and to participate equally in distributions declared
by the Fund and in its net assets on liquidation. The shares have non-cumulative
voting rights. The shares are fully paid and non-assessable when issued and have
no preference, preemptive, conversion or exchange rights. There are no options
or other special rights outstanding relating to any Fund shares.
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.
12
<PAGE>
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
constitute 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.
13
<PAGE>
Left Column
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 Account Information: 1-800-526-0052
Table of Contents Page
- --------------------------------------------------------------------------------
Fee Table ................................................................. 2
Financial Highlights ...................................................... 2
Yield and Total Return .................................................... 3
Comparative Performance Information ....................................... 3
Description of the Fund ................................................... 3
Investment Objective ...................................................... 3
What Are GNMA Certificates? ............................................... 4
Investment Policy and Restrictions ........................................ 5
Portfolio Turnover ........................................................ 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 ...................................................... 9
Exchange Privilege ........................................................ 9
Tax-Sheltered Retirement Plans ............................................ 11
Dividend, Distribution and Reinvestment Policy ............................ 11
Tax Matters ............................................................... 11
Custodian, Transfer Agent and
Dividend Disbursing Agent ............................................... 12
Counsel and Independent Auditors .......................................... 12
Other Information ......................................................... 12
Right Column
-----------------
L E X I N G T O N
-----------------
-----------------
LEXINGTON
GNMA
INCOME
FUND, INC.
-----------------
No sales charge
No redemption fee
Monthly dividends
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 GNMA INCOME 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 GNMA
Income 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 Objective . . . . . . . . . . . . . . . . . . . . . . . . .2
What Are GNMA Certificates?. . . . . . . . . . . . . . . . . . . . . .2
Investment Policy and Restrictions . . . . . . . . . . . . . . . . . .3
Investment Adviser, Distributor and Administrator. . . . . . . . . . .5
Portfolio Transactions . . . . . . . . . . . . . . . . . . . . . . . 6
Tax-Sheltered Retirement Plans . . . . . . . . . . . . . . . . . . . .7
Dividend, Distribution and Reinvestment Policy . . . . . . . . . . . .8
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Investment Return Information. . . . . . . . . . . . . . . . . . . . 13
Custodian, Transfer Agent and Dividend Disbursing Agent. . . . . . . 15
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek a high level of current
income, consistent with liquidity and safety of principal. At least 80% of
the assets of the Fund will be invested in "GNMA Certificates" (popularly
called "Ginnie Maes") which are Government National Mortgage Association
("GNMA") mortgage-backed securities representing part ownership of a pool
of mortgage loans. GNMA is a U.S. Government corporation within the
Department of Housing and Urban Development. Such loans are initially made
by lenders such as mortgage bankers, commercial banks and savings and loan
associations and are either insured by the Federal Housing Administration
(FHA) or Farmers' Home Administration (FmHA) or guaranteed by the Veterans
Administration (VA). A GNMA Certificate represents an interest in a
specific pool of such mortgages which, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each certificate is guaranteed
by the full faith and credit of the United States Government.
GNMA Certificates differ from bonds in that principal is scheduled
to be paid back by the borrower over the length of the loan rather than
returned in a lump sum at maturity. The Fund will purchase "modified pass
through" type GNMA Certificates, which entitle the holder to receive all
interest and principal payments owed on the mortgages in the pool (net of
issuers' and GNMA fees), regardless of whether or not the mortgagor has
made such payment. The Fund will use principal payments to purchase
additional GNMA Certificates or other government guaranteed securities. The
balance of the Fund's assets will be invested in other securities issued
or guaranteed by the U.S. Government, including U.S. Treasury bills, notes
or bonds. The Fund may also invest in repurchase agreements (see
"Investment Policy and Restrictions") secured by such U.S. Government
securities or GNMA Certificates.
WHAT ARE GNMA CERTIFICATES?
GNMA Certificates are created by an "issuer", which is an FHA
approved mortgage banker who also meets criteria imposed by GNMA. The
issuer assembles a pool of FHA, FmHA, or VA insured or guaranteed mortgages
which are homogeneous as to interest rate, maturity and type of dwelling.
Upon application by the issuer, and after approval by GNMA of the pool,
GNMA provides its commitment to guarantee timely payment of principal and
interest on the GNMA Certificates backed by the mortgages included in the
pool. The GNMA Certificates, endorsed by GNMA, are then sold by the issuer
through securities dealers.
GNMA is authorized under the Federal National Housing Act to
guarantee timely payment of principal and interest on GNMA Certificates.
This guarantee is backed by the full faith and credit of the United States.
GNMA may borrow U.S. Treasury funds to the extent needed to make payments
under its guarantee. When mortgages in the pool underlying a GNMA
Certificates are prepaid by mortgagors or by result of foreclosure, such
principal payments are passed through to the certificate holders.
Accordingly, the life of the GNMA Certificate is likely to be substantially
shorter than the stated maturity of the mortgages in the underlying pool.
Because of such variation in prepayment rates, it is not possible to
predict the life of a particular GNMA certificate but FHA statistics
indicate that 25 to 30 year single family dwelling mortgages have an
average life of approximately 12 years. The majority of GNMA certificates
are backed by mortgages of this type, and accordingly the generally
accepted practice has developed to treat GNMA certificates as 30 year
securities which prepay fully in the 12th year.
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GNMA certificates bear a nominal "coupon rate" which represents the
effective FHA-VA mortgage rate at the time of issuance, less 0.5% which
constitutes the GNMA and issuer's fees. For providing its guarantees, GNMA
receives an annual fee of 0.06% of the outstanding principal on
certificates backed by single family dwelling mortgages, and the issuer
receives an annual fee of 0.44% for assembling the pool and for passing
through monthly payments of interest and principal.
Payments to holders of GNMA certificates consist of the monthly
distributions of interest and principal less the GNMA and issuer's fees.
The actual yield to be earned by a holder of a GNMA certificate is
calculated by dividing such payments by the purchase price paid for the
GNMA certificate (which may be at a premium or a discount from the face
value of the certificate). Monthly distributions of interest, as contrasted
to semi-annual distributions which are common for other fixed interest
investments, have the effect of compounding and thereby raising the
effective annual yield earned on GNMA certificates. Because of the
variation in the life of the pools of mortgages which back various GNMA
certificates, and because it is impossible to anticipate the rate of
interest at which future principal payments may be reinvested, the actual
yield earned from a portfolio of GNMA certificates, such as that in which
the Fund is invested, will differ significantly from the yield estimated
by using an assumption of a 12 year life for each GNMA certificate included
in such a portfolio as described.
The actual rate of prepayment for any GNMA certificate does not lend
itself to advance determination, although regional and other
characteristics of a given mortgage pool may provide some guidance for
investment analysis. Also, secondary market trading of outstanding GNMA
certificates tends to be concentrated in issues bearing the current coupon
rate.
INVESTMENT POLICY AND RESTRICTIONS
The Fund's fundamental investment policy is to seek high current
income consistent with liquidity and safety of principal through investment
of at least 80% of its assets in GNMA certificates, with other investments
limited to securities issued or guaranteed by the U.S. Government or its
agencies, or in repurchase agreements secured by such instruments. This
policy, and the investment restrictions set forth below, may not be
changed without the affirmative vote (defined as the lesser of: 67% of the
shares represented at a meeting at which 50% of the outstanding shares are
present, or 50% of the outstanding shares) of the Fund's shareholders.
These restrictions may be summarized as follows:
The Fund will not (i) issue senior securities; (ii) borrow money;
(iii) underwrite securities of other issuers; (iv) concentrate its
investments in a particular industry to an extent greater than 25% of its
total assets, provided that such limitation shall not apply to securities
issued or guaranteed by the U.S. Government or its agencies; (v) purchase
or sell real estate, commodity contracts or commodities (however, the Fund
may purchase interests in GNMA mortgage-backed certificates); (vi) make
loans to other persons except: (a) through the purchase of a portion or
portions of an issue or issues of securities issued or guaranteed by the
U.S. Government or its agencies, or (b) through investments in "repurchase
agreements" (which are arrangements under which the Fund acquires a debt
security subject to an obligation of the seller to repurchase it at a fixed
price within a short period), provided that no more than 10% of the Fund's
assets may be invested in repurchase agreements which mature in more than
seven days; (vii) purchase the securities of another investment company or
investment trust, except in the open market and then only if no profit,
other than the customary broker's commission, results to a sponsor or
dealer, or by merger or other reorganization; (viii) purchase any security
on margin or effect a short sale of a security; (ix) buy securities from
or sell securities (other than securities issued by the Fund) to any of its
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officers, directors or its investment adviser, as principal; (x) contract
to sell any security or evidence of interest therein, except to the extent
that the same shall be owned by the Fund; (xi) purchase or retain securities
of an issuer when one or more of the officers and directors of the Fund or
of the LMC, or a person owning more than 10% of the stock of either, own
beneficially more than 1/2 of 1% of the securities of such issuer and such
persons owning more than 1/2 of 1% of such securities together own
beneficially more than 5% of the securities of such issuer; (xii) invest
more than 5% of its total assets in the securities of any one issuer (except
securities issued or guaranteed by the U.S. Government or its agencies),
except that such restriction shall not apply to 25% of the Fund's portfolio
so long as the net asset value of the portfolio does not exceed $2,000,000;
(xiii) purchase any securities if such purchase would cause the Fund to own
at the time of purchase more than 10% of the outstanding voting securities
of any one issuer; (xiv) purchase any security restricted as to disposition
under Federal securities laws; (xv) invest in interests in oil, gas or other
mineral exploration or development programs; or (xvi) buy or sell puts,
calls or other options.
Although the Fund has the right to pledge, mortgage or hypothecate
its assets in order to comply with a state statute, the Fund will not, as
a matter of operating policy while offering shares in such state, pledge,
mortgage or hypothecate its portfolio securities to the extent that at any
time the percentage of pledged securities will exceed 10% of the Fund's net
assets.
GNMA Certificates may at times be purchased or sold on a delayed
delivery basis or on a when-issued basis. These transactions arise when
GNMA Certificates are purchased or sold by the Fund with payment and
delivery taking place in the future, in order to secure what is considered
to be an advantageous price and yield to the Fund. No payment is made until
delivery is due, often a month or more after the purchase. The Settlement
date on such transactions will take place no more than 120 days from the
trade date. When the Fund engages in when-issued and delayed delivery
transactions, the Fund relies on the buyer or seller, as the case may be,
to consummate the sale. Failure of the buyer or seller to do so may result
in the Fund missing the opportunity of obtaining a price considered to be
advantageous. While when-issued GNMA Certificates may be sold prior to the
settlement date, the Fund intends to purchase such securities with the
purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the Fund makes the commitment to purchase
a GNMA Certificate on a when-issued basis, it will record the transaction
and reflect the value of the security in determining its net asset value.
The Fund does not believe that its net asset value or income will be
adversely affected by its purchase of GNMA Certificates on a when-issued
basis. The Fund may invest in when-issued securities without other
conditions. Such securities either will mature or be sold on or about the
settlement date. The Fund may earn interest on such account or securities
for the benefit of shareholders.
The Fund's investment portfolio may include repurchase agreements
("repos") with banks and dealers in U.S. Government securities. A
repurchase agreement involves the purchase by the Fund of an investment
contract from a bank or a dealer in U.S. Government securities which
contract is secured by U.S. Government obligations or GNMA Certificates
whose value is equal to or greater than the value of the repurchase
agreement including the agreed upon interest. The agreement provides that
the institution will repurchase the underlying securities at an agreed upon
time and 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
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transactions with institutions believed by the adviser to present minimal
credit risk. Also, the Fund has undertaken not to invest in real estate
limited partnership interests, oil, gas or mineral leases, as well as
exploration or development programs. The Fund will not purchase warrants
except in units with other securities in original issuance thereof or
attached to other securities, if at the time of purchase, the Fund's
investment in warrants, valued at the lower of cost or market, would exceed
5% of the Fund's total assets. Warrants which are not listed on the New
York or American stock exchanges shall not exceed 2% of the Fund's net
assets. Shares of the Fund will not be issued for consideration other than
cash.
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515/Park 80 West
Plaza Two, Saddle Brook, New Jersey 07663, is the investment adviser to the
Fund, and, as such, advises and makes recommendations to the Fund with
respect to its investments and investment policies.
Pursuant to an investment advisory agreement the Fund pays LMC an
investment advisory fee at the annual rate of 0.60% of its average daily
net assets up to $150 million; 0.50% of such value in excess of $150
million up to $400 million; 0.45% of such value in excess of $400 million
up to $800 million; and 0.40% of such value in excess of $800 million;
after deduction of Fund expenses, if any, in excess of the expense
limitations set forth below. The fee is computed on the basis of current
net assets at the end of each business day and is payable at the end of
each month.
Under the terms of the advisory agreement LMC also pays the Fund's
expenses for office rent, utilities, telephone, furniture and supplies
utilized for the Fund's principal office and the salaries and payroll
expense of officers and directors of the Fund who are also employees of LMC
or its affiliates in carrying out its duties under the investment advisory
agreement. The Fund pays all its other expenses, including custodian and
transfer agent fees, legal and registration fees, audit fees, printing of
prospectuses, shareholder reports and communications required for
regulatory purposes or for distribution to existing shareholders,
computation of net asset value, mailing of shareholder reports and
communications, portfolio brokerage, taxes and independent director's fees,
and furnishes LFD, at printer's overrun cost paid by LFD, such copies of
its prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes.
LMC must also reimburse the Fund to the extent that all of the Fund's
other expenses (including the investment advisory fee) exclusive of
interest and taxes exceed 1.5% of the Fund's net assets up to $30 million
and 1% of the net assets in excess of $30 million during any fiscal year
calculated by averaging such net assets daily. In the event that the Fund's
expenses exceed such limitation at any month end, the investment advisory
fee paid by the Fund for such month is reduced accordingly. In addition to
the provisions of the advisory agreement, in order to comply with the
securities regulations of certain states the adviser has agreed to remit
to the Fund the amount that the ordinary business expenses of the Fund,
including the advisory fee but excluding interest, taxes, brokerage
commissions and extraordinary expenses such as litigation exceed, for any
fiscal year, 1.5% of the average net assets of the Fund.
LMC's services are provided and its investment advisory fee is paid
pursuant to an agreement which will automatically terminate if assigned and
which may be terminated by either party upon 60 days' notice. The terms of
the agreement and any renewal thereof must be approved at least annually
by a majority of the Fund's Board of Directors, including a majority of
directors who are not parties to the agreement or "interested persons" of
such parties, as such term is defined under the Investment Company Act of
1940, as amended.
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LMC serves as investment adviser to other investment companies (see
"Exchange Privilege" in the Prospectus) as well as private and
institutional investment clients. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's
parent company (see below). These clients pay fees which LMC considers
comparable to the fee levels for similarly served clients.
LMC's accounts are managed independently with reference to applicable
investment objectives and current security holdings, but on occasion more
than one fund or counsel account may seek to engage in transactions in the
same security at the same time. To the extent practicable, such
transactions will be effected on a pro rata basis in proportion to the
respective amounts of securities to be bought and sold for each portfolio,
and the allocated transactions will be averaged as to price. While this
procedure may adversely affect the price or volume of a given Fund
transaction, the ability of the Fund to participate in combined transactions
may generally produce better overall executions.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited
to, maintaining general ledger accounts, regulatory compliance, preparation
of financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and
provides facilities for such services. The Fund shall reimburse LMC for
its actual cost in providing such services, facilities and expenses.
LMC also serves as distributor for Fund shares under a distribution
agreement which is subject to annual approval by a majority of the Fund's
Board of Directors, including a majority who are not "interested persons".
Fund Advisory Fee Paid to LMC:
Fiscal Year Ended Management Fee
----------------- --------------
December 31, 1992 $775,116
December 31, 1993 795,307
December 31, 1994 891,433
Of the directors, executive officers, 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 owned of record and beneficially less than 1% of the capital stock
of the Fund.
LMC is a wholly-owned subsidiary of Piedmont Management Company Inc.,
a Delaware corporation with offices at 80 Maiden Lane, New York, N.Y.
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.
PORTFOLIO TRANSACTIONS
Portfolio securities are purchased directly from dealers acting as
principal underwriters or market makers for GNMA certificates or government
securities. Such transactions are usually conducted on a net basis and
accordingly no brokerage commissions are paid by the Fund. The Fund may
also execute transactions through broker-dealers on a commission basis.
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The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including
brokerage commissions. This policy governs the selection of brokers and
dealers and the market in which a transaction is executed. Consistent with
this policy, the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and such other policies as the Directors may
determine, LMC may consider sales of shares of the Fund and of the other
Lexington Funds as a factor in the selection of broker-dealers to execute
the Fund's portfolio transactions. However, pursuant to the Fund's
investment management agreement, management consideration may be given in
the selection of broker-dealers to research provided and payment may be
made of a commission higher than that charged by another broker-dealer
which does not furnish research services or which furnishes research
services deemed to be of a lesser value, so long as the criteria of Section
28(e) of the Securities Exchange Act of 1934 are met. Section 28(e) of the
Securities Exchange Act of 1934 was adopted in 1975 and specifies that a
person with investment discretion shall not be "deemed to have acted
unlawfully or to have breached a fiduciary duty" solely because such person
has caused the account to pay a higher commission than the lowest available
under certain circumstances, provided that the person so exercising
investment discretion makes a good faith determination that the commissions
paid are "reasonable in the relation to the value of the brokerage and
research services provided ... viewed in terms of either that particular
transaction or his overall responsibilities with respect to the accounts
as to which he exercises investment discretion."
Currently, it is not possible to determine the extent to which
commissions that reflect an element of value for research services might
exceed commissions that would be payable for execution services alone. Nor
generally can the value of research services to the Fund be measured.
Research services furnished might be useful and of value to LMC and its
affiliates in serving other clients as well as the Fund. On the other hand,
any research services obtained by LMC or its affiliates from the placement
of portfolio brokerage of other clients might be useful and of value to LMC
in carrying out its obligations to the Fund.
For fiscal year ended December 31, 1992, all portfolio transactions
were effected on a net basis through dealers acting as principal and,
accordingly, no brokerage commissions were payable. For the fiscal year
ended December 31, 1993 and 1994, the Fund paid brokerage commissions of
$21,519 and $14,178 respectively. The Fund's portfolio turnover rate for
the fiscal years ending December 31, 1992, 1993 and 1994 were respectively,
180.11%, 52.34% and 37.15%.
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit
Sharing Plans including a 401(k) Salary Reduction Plan, Section 457
Deferred Compensation Plan and a 403(b)(7) Plan. Plan services are
available by contacting the Shareholder Services Department of the
Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT (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 an
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") is provided by the Fund.
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The minimum initial investment to establish a tax-sheltered plan is
$250. 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 individuals 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 by the IRS on
early withdrawals under corporate, Keogh or IRA Plans. It is recommended
by the IRS that an investor consult a tax adviser before investing in the
Fund through any of these plans. An investor participating in any of the
Fund's special plans has no obligation to continue to invest in the Fund
and may terminate the plan with the Fund at any time. Except for expenses
of sales and promotion, executive and administrative personnel, and certain
services which are furnished by the LMC, the cost of the plans generally
is borne by the Fund; however, each IRA Plan account is subject to an
annual maintenance fee of $12.00 charged by the Agent.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay monthly dividends from investment income
after the close of each month, if earned and as declared by its Board of
Directors. The Fund intends to declare or distribute a dividend from
capital gain income if any, in December in order to comply with
distribution requirements of the 1986 Tax Reform Act to avoid the
imposition of a 4% excise tax. The Fund adopted a fiscal year ending on
December 31.
Any dividends and distribution payments will be reinvested at net
asset value, without sales charge, in additional full and fractional shares
of the Fund unless and until the shareholder notifies the Agent in writing
requesting payments in cash. This request must be received by the Agent at
least seven days before the dividend record date. Upon receipt by the Agent
of such written notice, all further payments will be made in cash until
written notice to the contrary is received. A record of shares owned by
each shareholder will be maintained by the Agent. These accounts will have
the rights of other shareholders with respect to shares so registered (see
"How to Purchase Shares - The Open Account" in the Prospectus).
Reference is made to the Notes to Financial Statements regarding the
amount and age of any capital loss carryforward at the end of the Fund's
last fiscal year. It is the Fund's policy to offset realized capital gains
against its capital loss carryforwards and not to distribute any offset
gains.
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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.
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.
If the Fund has a net capital loss (i.e., the excess of capital
losses over capital gains) for any year, the amount thereof may be carried
forward up to eight years and treated as a short-term capital loss which
can be used to offset capital gains in such years. As of December 31,
1994, the Fund has capital loss carryforwards of approximately $3,533,220,
$2,130,253 and $61,864 which expire in 1996, 2002 and 2003, respectively.
Under Code sections 382 and 383, if the Fund has an "ownership change,"
then the Fund's use of its capital loss carryforwards in any year following
the ownership change will be limited to an amount equal to the net asset
value of the Fund immediately prior to the ownership change multiplied by
the long-term tax-exempt rate (which is published monthly by the Internal
Revenue Service (the "IRS")) in effect for the month in which the ownership
change occurs (the rate for March 1995 is 6.83%) The Fund will use its
best efforts to avoid having an ownership change. However, because of
circumstances which may be beyond the control or knowledge of the Fund,
there can be no assurance that the Fund will not have, or has not already
had, an ownership change. If the Fund has or has had an ownership change,
then any capital gain net income for any year following the ownership
change in excess of the annual limitation on the capital loss carryforwards
will have to be distributed by the Fund and will be taxable to shareholders
as described under "Fund Distributions" below.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (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
9
<PAGE>
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
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.
10
<PAGE>
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to
98% of 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.
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.
11
<PAGE>
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 ordinary income dividends and capital gain
dividends, 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
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.
12
<PAGE>
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 such shareholders furnish the Fund with
proper notification of its foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers
with respect to the particular tax consequences to them of an investment
in the Fund, including the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the Treasury Regulations issued
thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court
decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect
to the transactions contemplated herein.
Rules of state and local taxation of 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.
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).
13
<PAGE>
Under the foregoing formula, the time period used in advertising will
be based on rolling calendar quarters, updated to the last day of the most
recent quarter prior to submission of the advertising for publication, and
will cover one, five and ten year periods or a shorter period dating from
the effectiveness of the Fund's Registration Statement. In calculating the
ending redeemable value, the maximum sales load is deducted from the
initial $1,000 payment and all dividends and distributions by the Funds are
assumed to have been reinvested at net asset value as described in the
Prospectus on the reinvestment dates during the period. Total return, or
"T" in the formula above, is computed by finding the average annual
compounded rates of return over the 1, 5 and 10 year periods (or fractional
portion thereof) that would equate the initial amount invested to the
ending redeemable value. Any recurring account charges that might in the
future be imposed by the Funds would be included at that time.
The Fund may also from time to time include in such advertising a
total return figure that is not calculated according to the formula set
forth above in order to compare more accurately the performance of the Fund
with other measures of investment return. For example, in comparing a
Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Standard & Poor's 500 Stock Index or
the Dow Jones Industrial Average, the Fund calculates its aggregate total
return for the specified periods of time by assuming the investment of
$10,000 in Fund shares and assuming the reinvestment of each dividend or
other distribution at net asset value on the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment
from the ending value and by dividing the remainder by the beginning value.
Such alternative total return information will be given no greater
prominence in such advertising than the information prescribed under SEC
rules. Lexington GNMA Income Fund, Inc.'s average annual total return for
the 1, 5 and 10 years ended December 31, 1994 are set forth in the table
below:
Average Annual
Period Total Return
------ -------------
1 year ended December 31, 1994 -2.07%
5 years ended December 31, 1994 +7.07%
10 years ended December 31, 1994 +8.79%
In addition to the total return quotations discussed above, the Fund
may advertise its yield based on a 30-day (or one month) period ended on
the date of the most recent balance sheet included in the Fund's
Registration Statement, computed by dividing the net investment income per
share earned during the period by the maximum offering price per share on
the last day of the period, according to the following formula:
a-b
--- 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.
14
<PAGE>
Under this formula, interest earned on debt obligations for the
purposes of "a" above, is calculated by (l) computing the yield to maturity
of each obligation (including actual accrued interest) at the close of
business on the last day of each month, or, with respect to obligations
purchased during the month, the purchase price (plus actual accrued
interest), (2) dividing that figure by 360 and multiplying the quotient by
the market value of the obligation (including actual accrued interest as
referred to above) to determine the interest income on the obligation for
each day of the subsequent month that the obligation is in the Fund's
portfolio (assuming a month of 30 days) and (3) computing the total of the
interest earned on all debt obligations and all dividends accrued on all
equity securities during the 30-day or one month period. For mortgage or
other receivables backed security subject to regular paydowns (e.g.
GNMA's), interest is calculated using the coupon rate and the outstanding
participant amount for one monthly paydown. For these types of securities,
interest income is also adjusted for the gain or loss or the monthly
paydown. In computing dividends accrued, dividend income is recognized by
accruing 1/360 of the stated dividend rate of a security each day that the
security is in a Fund's portfolio.
The Fund may also from time to time advertise its yield based on a
90-day period ended on the date of the most recent balance sheet included
with the Funds' Registration Statement, computed in accordance with the
yield formula described above, as adjusted to conform with the differing
period for which the yield computation is based.
Any quotation of performance stated in terms of yield (whether based
on a 30-day or 90-day period) will be given no greater prominence than the
information prescribed under SEC rules. In addition, all advertisements
containing performance data of any kind will include a legend disclosing
that such performance data represents past performance and that the
investment return and principal value of an investment will fluctuate so
that an investor's shares, when redeemed, may be worth more or less than
their original cost.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York,
New York, 10036, has been retained to act as the Custodian for the Fund's
investments and assets. State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, has also been retained to act as the
transfer agent and dividend disbursing agent for the Fund. Neither Chase
Manhattan Bank, N.A. nor State Street Bank and Trust Company have any part
in determining the investment policies of the Fund or in determining which
portfolio securities are to be purchased or sold by the Fund or in the
declaration of dividends and distributions.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund 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).
+BEVERLEY C. DUER, Director. 340 East 72nd Street, New York, N.Y.
10021.Investments/Engineering Economics Consultant; formerly Manager
of Operations Research Department, CPC International, Inc.
15
<PAGE>
*+BARBARA M. EVANS, Director. 5 Fernwood Drive, 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, Vice President and Director. P.O. Box 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and
Director, Lexington Management Corporation; Executive Vice President
and Director, Lexington Funds Distributor, Inc.
+DONALD B. MILLER, Director. 10725 Quail Covey Road, Boynton Beach, Florida
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds;
Director, Maguire Group of Connecticut; prior to January 1989,
President, Director and C.E.O., Media General Broadcast Services
(advertising firm).
+FRANCIS OLMSTED, Director. 50 Van Hooten Court, San Anselmo, CA 94960.
Private Investor, formerly Manager-Commercial Development (West
Coast), Essex Chemical Corporation, Clifton, N.J. (chemical
manufacturers).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts 02181.
+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; formerly, Chairman of the Board, Yardley of London,
Inc. (cosmetic manufacturer); Director, Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc. and Investors
Cash Reserve, Inc. 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 Fixed
Income Strategy, Lexington Management Corporation. Mr. Jamison is a
Chartered Financial Analyst and a member of the New York Society of
Security 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. Chief Financial Officer, Managing Director and
Director, Lexington Management Corporation; Chief Financial Officer,
Senior Vice President and Director, Lexington Funds Distributor, Inc.
Chief Financial Officer, Market Systems Research Advisors, Inc.
*+RICHARD J. LAVERY, CLU ChFC, Senior Vice President. P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Lexington Management
Corporation; Vice President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, 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
LLP.
16
<PAGE>
*+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 $10,885 in fees and
expenses was paid to eight Directors not employed by the Fund's affiliates.
The Board of Directors held four meetings in the past fiscal year. The
Board does not have any audit, nominating or compensation committees.
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
17
<PAGE>
PART C. OTHER INFORMATION
- -----------------------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
Page in the Financial
(a) Financial Statements: Statements Exhibit
--------------------
Report of Independent Auditors 1
dated February 4, 1994
Statement of Net Assets (Including 2
the Portfolio of Investments) at
December 31, 1994(1)
Statement of Assets and Liabilities 3
at December 31, 1994
Statement of Operations for the year 3
ended December 31, 1994 (2)
Statements of Changes in Net Assets for 4
the years ended December 31, 1994
and 1993
Notes to Financial Statements 4
Schedules II-VII and other Financial Statements, for which provisions
are made in the applicable accounting regulations of the Securities
and Exchange Commission, are omitted because they are not required
under the related instructions, they are inapplicable, or the required
information is presented in the financial statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement
of Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
(b) Exhibits:
1. Articles of Incorporation - Filed 9/24/73 -
Incorporated by reference
2. By-Laws - Filed 9/24/73 - Incorporated by reference
3. Not Applicable
4. Stock Certificate Specimen - Filed 9/24/73 -
Incorporated by reference
5. Investment Advisory Agreement between
Registrant and Lexington Management Corporation -
Filed 9/24/73 - Incorporated by reference
6. Distribution Agreement between Registrant and
Lexington Funds Distributor, Inc. - Filed 4/30/92 -
Incorporated by reference
7. Not Applicable
8a. Form of Custodian Agreement between Filed electronically
Registrant and Chase Manhattan Bank, N.A.
8b. Custodian and Transfer Agency Agreements between
Registrant and State Street Bank and Trust
Company - Filed 4/30/90 - Incorporated by reference
9. Form of Administrative Services Agreement Filed electronically
between Registrant and Lexington Management
Corporation
10. Opinion of Counsel as to Legality of Securities being
registered - Filed 9/24/73 - Incorporated by reference
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Not Applicable
15. Not Applicable
16. Performance Calculation - Filed 5/2/88 - Incorporated by reference
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or
indirectly controlled by or under common control with the
Registrant and as to each such person indicate (1) if a company,
the state or other sovereign power under the laws of which it is
organized, (2) the percentage of voting securities owned or other
basis of control by the person, if any, immediately controlling
it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the
number of record holders of each class of securities of the
Registrant.
The following information is given as of April 3, 1995:
Title of Class Number of Record Holders
-------------- -----------------------
Capital Stock 6,117
($0.01 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or
statute under which any director, officer, underwriter or
affiliated person of the Registrant is insured or indemnified in
any manner against any liability which may be incurred in such
capacity, other than insurance provided by any director, officer,
affiliated person or underwriter for their own protection.
Under the terms of the Maryland General Corporation Law and
the Company's By-Laws, the Company may indemnify any person who
was or is a director, officer or employee of the Company to the
maximum extent permitted by the Maryland General Corporation Law;
provided, however, that Company only as authorized in the
specific case upon a determination that indemnification of such
persons is proper in the circumstances. Such determination shall
be made (i) by the Board of Directors, by a majority vote of a
quorum which consists of directors who are neither "interested
persons" of Company as defined in Section 2(a)(19) of the 1940
Act, nor parties to the proceeding, or (ii) if the required
quorum is not obtainable or if a quorum of such directors so
directs by independent legal counsel in a written opinion. No
indemnification will be provided by the Company to any director
or officer of the Company of any liability to the Company or
Shareholders to which he would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or
employment of a substantial nature in which the investment
adviser of the Registrant, and each director, officer or partner
of any such investment adviser, is or has been, at any time
during the past two fiscal years, engaged for his own account or
in the capacity of director, officer, employee, partner or
trustee.
See Prospectus Part A and Statement of Additional
Information Part B ("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Tax Free Money Fund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Short-Intermediate Government Securities Fund, Inc.
Lexington Ramirez Global Income Fund
Lexington Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington Convertible Securities Fund
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- -------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa A. Curcio* Vice President and Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President and
Vice President & Director Treasurer
Lawrence Kantor* Executive Vice President, Director & Vice
General Manager & Director President
Richard Lavery* Vice President Vice President
Janice Violette* Assistant Treasurer None
(c)
Not Applicable.
- --------------
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document
required to be maintained by Section 31(a) of the 1940 Act and
the Rules (17 CFR 270, 31a-1 to 31a-3) promulgated thereunder,
furnish the name and address of each person maintaining physical
possession of each such account, book or other document.
The Registrant, Lexington GNMA Income Fund, Inc., Park
80 West - Plaza Two, Saddle Brook, New Jersey 07663 will maintain
physical possession of such of each such account, book or other
document of the Company, except for those maintained by the
Registrant's Custodian, Chase Manhattan Bank, N.A., 1211 Avenue
of the Americas, New York, New York 10036, or Transfer Agent,
State Street Bank and Trust Company, c/o National Financial Data
Services, City Center Square, 1100 Main, Kansas City, Missouri
64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B
of this Form (because the contract was not believed to be
material to a purchaser of securities of the Registrant) under
which services are provided to the Registrant, indicating the
parties to the contract, the total dollars paid and by whom for
the last three fiscal years.
None.
Item 32. Undertakings
------------
The Registrant, Lexington GNMA Income Fund, Inc.
undertakes to furnish a copy of the Fund s latest
annual report, upon request and without charge to every
person to whom a prospectus is delivered.
<PAGE>
Registration No. 2-48906
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON GNMA INCOME FUND, INC.
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Financial Statements for the period ending December 31, 1994
Form of Custodian Agreement
Form of Administrative Services Agreement
Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
Consent of independent auditors for the inclusion of their report
herein
Article 6 Financial Data Schedule
Cover
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933 and the Investment Company Act of 1940 the Registrant
certifies that it meets all of the requirements for effectiveness
of this amendment to the Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this
amendment to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the City of Saddle Brook and State
of New Jersey, on the 25th day of April, 1995.
LEXINGTON GNMA INCOME FUND, INC.
Robert M. DeMichele
________________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of
1933, this amendment to the Registration Statement has been
signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
Robert M. DeMichele
__________________________ Chairman of the Board April 25, 1995
Robert M. DeMichele Principal Executive
Officer
Richard M. Hisey
__________________________ Principal Financial April 25, 1995
Richard M. Hisey and Accounting Officer
Lisa Curcio
__________________________ Principal Compliance April 25, 1995
Lisa Curcio Officer
*Beverley C. Duer, P.E. Director April 25, 1995
- --------------------------
Beverley C. Duer, P.E.
*Barbara M. Evans Director April 25, 1995
- --------------------------
Barbara M. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director April 25, 1995
- ---------------------------
Lawrence Kantor
*Donald B. Miller Director April 25, 1995
- ---------------------------
Donald B. Miller
*Francis Olmsted Director April 25, 1995
- ---------------------------
Francis Olmsted
*John G. Preston Director April 25, 1995
- ---------------------------
John G. Preston
*Margaret W. Russell Director April 25, 1995
- ---------------------------
Margaret W. Russell
*Philip C. Smith Director April 25, 1995
- ---------------------------
Philip C. Smith
*Francis A. Sunderland Director April 25, 1995
- ---------------------------
Francis A. Sunderland
Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington GNMA Income Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington GNMA Income
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 GNMA Income 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
1
<PAGE>
Lexington GNMA Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994
<TABLE>
<CAPTION>
Stated Principal Value
Coupon Maturity Amount (Note 1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES: 83.6%
13.25%....................................................... 8/2001 $ 41,164 $ 45,281
12.50........................................................ 6/2010-4/2014 78,832 88,908
12.00........................................................ 4/2014-3/2015 141,807 158,115
10.25........................................................ 8/2029 1,021,890 1,056,379
10.05........................................................ 6/2016 859,892 883,539
10.00........................................................ 10/2023 1,125,740 1,154,930
9.75........................................................ 1/2026-10/2030 8,827,931 8,965,823
9.55........................................................ 9/2028 573,924 578,229
9.50........................................................ 3/2023 2,032,769 2,044,193
9.25........................................................ 12/2021-8/2029 4,683,687 4,661,721
9.00........................................................ 5/2016-1/2022 10,068,003 10,093,689
9.00**...................................................... 12/2029 1,470,000 1,485,156
8.75........................................................ 3/2005-5/2029 10,589,246 10,298,195
8.75**...................................................... 2/2036 1,578,299 1,556,597
8.625....................................................... 6/2029 5,037,716 4,864,520
8.50........................................................ 8/2008-1/2028 8,557,408 8,377,895
8.25........................................................ 3/2002-4/2022 7,801,875 7,397,113
8.20........................................................ 4/2012-5/2017 8,809,426 8,377,145
8.15........................................................ 12/2011-9/2015 9,255,819 8,738,049
8.10........................................................ 6/2012-7/2012 2,010,921 1,894,026
8.08........................................................ 9/2019 6,715,311 6,318,638
8.00........................................................ 10/2012-11/2033 10,796,155 10,221,201
8.00**...................................................... 1/2036 1,934,926 1,876,878
7.75........................................................ 7/2022 961,121 889,633
7.70........................................................ 8/2013 873,143 806,287
7.65........................................................ 12/2012 207,475 191,070
7.625....................................................... 12/2029 883,531 812,849
7.50........................................................ 6/2007-12/2025 3,064,523 2,805,969
7.328....................................................... 12/2006 342,777 319,640
6.95........................................................ 11/2019 1,797,526 1,582,938
6.75........................................................ 6/2013 155,348 134,861
6.70........................................................ 12/2014 400,768 346,789
6.65........................................................ 10/2014 1,451,758 1,251,677
6.55........................................................ 11/2013 236,333 202,285
------------
TOTAL GNMA CERTIFICATES (cost $113,449,642)................................................... 110,480,218
------------
U.S. GOVERNMENT OBLIGATIONS: 19.7%
U.S. Treasury Bonds, 10.375%, due 11/15/12......................................... 9,000,000 10,722,780
U.S. Treasury Bonds, 7.25%, due 05/15/16........................................... 6,000,000 5,549,580
U.S. Treasury Bonds, 6.50%, due 09/30/96........................................... 700,000 686,987
U.S. Treasury Bonds, 6.00%, due 06/30/96........................................... 3,000,000 2,934,270
U.S. Treasury Bills, 4.85-5.50%, due 01/05/95-03/30/95............................. 6,100,000 6,066,485
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $28,674,868).......................................... 25,960,102
------------
TOTAL INVESTMENTS: 103.3% (cost $142,124,510*) (Note 1)....................................... 136,440,320
Liabilities in excess of other assets: (3.3%)................................................. (4,332,661)
------------
TOTAL NET ASSETS: 100.0% (equivalent to $7.60 per share on 17,377,139 shares outstanding)..... $132,107,659
============
<FN>
*Aggregate cost for Federal income tax purposes is identical.
**When-issued securities.
</FN>
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
2
<PAGE>
Left Column
Lexington GNMA Income Fund, Inc.
Statement of Assets and Liabilities
December 31, 1994
Assets
Investments in securities, at value
(cost $142,124,510) (Note 1) ................................. $136,440,320
------------
Cash ........................................................... 162,721
Receivable for shares sold ..................................... 8,536
------------
Interest receivable ............................................ 1,057,778
------------
Total Assets ............................................... 137,669,355
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ............... 65,365
Payable for investment securities purchased .................... 4,906,571
Payable for shares redeemed .................................... 270,755
Accrued expenses ............................................... 80,785
Distributions payable .......................................... 230,870
Other liabilities .............................................. 7,350
Total Liabilities .......................................... 5,561,696
------------
Net Assets (equivalent to $7.60 per share on
17,377,139 shares outstanding) (Note 3) ...................... $132,107,659
------------
Net Assets consist of:
Capital stock-authorized 100,000,000 shares,
$.01 par value per share ..................................... $ 173,771
Additional paid-in capital (Note 1) ............................ 143,339,750
Undistributed net investment income (Note 1) ................... 3,665
Accumulated net realized loss on investments
(Notes 1 and 5) .............................................. (5,725,337)
Net unrealized depreciation of investments ..................... (5,684,190)
------------
$132,107,659
============
Right Column
Lexington GNMA Income Fund, Inc.
Statement of Operations
Year ended December 31, 1994
Investment Income
Interest income .................................... $11,700,091
Expenses
Investment advisory fee (Note 2) ................. $ 891,433
-----------
Accounting and shareholder services
expense (Note 2) ............................... 222,454
Custodian and transfer agent
expenses ....................................... 140,157
Printing and mailing ............................. 59,509
Directors' fees and expenses ..................... 10,885
Audit and legal .................................. 24,262
Registration fees ................................ 18,471
Computer processing fees ......................... 21,011
Other expenses ................................... 63,607
-----------
Total expenses ................................. 1,451,789
-----------
Net investment income ...................... 10,248,302
-----------
Realized and Unrealized Loss on Investments (Note 4)
Realized loss from security transactions
(excluding short term securities):
Proceeds from sales ............................ 51,999,119
Cost of securities sold ........................ 54,550,300
-----------
Net realized loss ............................ (2,551,181)
Unrealized appreciation (depreciation)
of investments:
End of period .................................. (5,684,190)
Beginning of period ............................ 5,623,810
-----------
Change during period ......................... (11,308,000)
-----------
Net realized and unrealized
loss on investments ............................ (13,859,181)
-----------
Decrease in Net Assets Resulting
from Operations ................................ $(3,610,879)
===========
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE>
Left Column
Lexington GNMA Income Fund, Inc.
Statements of Changes in Net Assets
Years Ended December 31, 1994 and 1993
1994 1993
------------ ------------
Net investment income ..................... $ 10,248,302 $ 9,224,745
Net realized gain (loss) from security
transactions ............................ (2,551,181) 1,110,939
Decrease in unrealized
appreciation of investments ............. (11,308,000) (110,032)
Net increase (decrease) in net assets
resulting from operations ............... (3,610,879) 10,225,652
Distributions to shareholders from net
investment income ....................... (10,190,529) (9,295,754)
Increase (decrease) in net assets from
capital share transactions (Note 3) ..... (4,051,452) 16,982,563
------------ ------------
Net increase (decrease) in net assets ..... (17,852,860) 17,912,461
Net Assets:
Beginning of period ..................... 149,960,519 132,048,058
------------ ------------
End of period (including
undistributed net investment
income of $3,665 and $304,955,
respectively) ......................... $132,107,659 $149,960,519
============ ============
Right Column
Lexington GNMA Income Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Significant Accounting Policies
Lexington GNMA Income Fund, Inc. (the "Fund") is an open end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The following is a summary of the significant accounting
policies followed by the Fund in the preparation of its financial statements:
Securities Security transactions are accounted for on a trade date basis.
Realized gains and losses from security transactions are reported on the
identified cost basis. Investments are valued at the last reported bid price as
of the last business day of the period or, if no current bid price is available,
by the valuation as determined by the Fund's management and approved in good
faith by the Board of Directors. Short-term securities are stated at amortized
cost, which approximates market value. Dividends and distributions to
shareholders are recorded on the ex-dividend date. Interest income is accrued as
earned.
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
$96,382 have been reclassified from undistributed net investment income to
additional paid-in capital. In addition, GNMA paydown gains of $117,809 were
reclassified from accumulated net realized loss on investments to undistributed
net investment income.
When-Issued Securities The Fund, at times, may purchase GNMA certificates on
a delayed delivery, forward or when-issued basis with payment and delivery often
taking place a month or more after the initiation of the transaction. It is the
Fund's policy to record when-issued GNMA certificates (and the corresponding
obligation to pay for the securities) at the time the purchase commitment
becomes fixed-generally on the trade date. It is also the Fund's policy to
segregate assets to cover its commitments for when-issued securities on trade
date.
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 taxable income to its shareholders.
Therefore, no provision for Federal income taxes has been made.
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 0.6% of its Lexington GNMA Income Fund, Inc. Notes to
Financial Statements December 31, 1994 and 1993 (continued) average daily net
assets up to $150 million and in decreasing stages to 0.4% of average daily net
assets in excess of
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Left Column
Lexington GNMA Income Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993 (continued)
$800 million. LMC is required to reimburse the Fund for any expenses, excluding
interest, taxes and extraordinary expenses which exceed 1-1/2% of the first $30
million of the Fund's average daily net assets and 1% thereafter. No
reimbursement was required for the year ended December 31, 1994.
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, 1993
----------------- -----------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ......... 4,931,556 $40,062,384 4,973,253 $41,485,830
Shares issued on
reinvestment
of dividends ...... 1,017,841 7,977,604 865,830 7,331,158
---------- ----------- ---------- -----------
5,949,397 48,039,988 5,839,083 48,816,988
---------- ----------- ---------- -----------
Shares redeemed ..... (6,591,822) (52,091,440) (3,801,374) (31,834,425)
---------- ----------- ---------- -----------
Net increase
(decrease) ...... (642,425) (4,051,452) 2,037,709 $16,982,563
========== =========== ========== ===========
</TABLE>
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1994, excluding short term securities, were $74,201,204 and
$51,999,119, respectively.
Right Column
At December 31, 1994, aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $468,580, and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $6,152,770.
5. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforward available for Federal income tax purposes as of
December 31, 1994 are approximately:
$3,533,220 expiring in 1996; and
$2,130,253 expiring in 2002; and
$ 61,864 expiring in 2003.
To the extent any future capital 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 fund's 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 GNMA Income Fund, Inc. have been adjusted to reflect
prior years' post-October losses in the next fiscal year.
Both Columns
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Financial Highlights
Selected per share data for a share outstanding throughout the period:
Year ended December 31,
----------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value beginning of period $8.32 $8.26 $8.45 $7.90 $7.88
----- ----- ----- ----- -----
Income from investment operations:
Net investment income ..................................... .55 .59 .61 .64 .65
Net realized and unrealized gain (loss) on investments .... (.72) .06 (.19) .55 .03
----- ----- ----- ----- -----
Total income (loss) from investment operations .............. (.17) .65 .42 1.19 .68
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income ...................... (.55) (.59) (.61) (.64) (.66)
----- ----- ----- ----- -----
Net asset value, end of period .............................. $7.60 $8.32 $8.26 $8.45 $7.90
===== ===== ===== ===== =====
Total return ................................................ (2.07%) 8.06% 5.19% 15.75% 9.23%
Ratio to average net assets:
Expenses .................................................. 0.98% 1.02% 1.01% 1.02% 1.04%
Net investment income ..................................... 6.90% 6.96% 7.31% 7.97% 8.43%
Portfolio turnover .......................................... 37.15% 52.34% 180.11% 138.71% 112.55%
Net assets at end of period (000's omitted) ................. $132,108 $149,961 $132,048 $122,191 $98,011
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
CUSTODY AGREEMENT
This AGREEMENT is effective __________, 19__, and is between THE CHASE
MANHATTAN BANK, N.A. (the "Bank") and LEXINGTON GNMA INCOME FUND, INC. (the
"Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody Account")
for any and all stocks, shares, bonds, debentures, notes, mortgages or other
obligations for the payment of money, bullion, coin and any certificates,
receipts, warrants or other instruments representing rights to receive,
purchase or subscribe for the same or evidencing or representing any other
rights or interests therein and other similar property whether certificated
or uncertificated as may be received by the Bank or its Subcustodian (as
defined in Section 3) for the account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit Account")
for any and all cash in any currency received by the Bank or its Subcustodian
for the account of the Customer, which cash shall not be subject to
withdrawal by draft or check.
The Customer warrants its authority to: 1) deposit the cash and
Securities ("Assets") received in the Accounts and 2) give Instructions (as
defined in Section 11) concerning the Accounts. The Bank may deliver
securities of the same class in place of those deposited in the Custody
Account.
Upon written agreement between the Bank and the Customer, additional
Accounts may be established and separately accounted for as additional
Accounts under the terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction in
which the principal trading market for such Securities is located, where such
Securities are to be presented for payment or where such Securities are
acquired; and
(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is the legal
currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or
non-interest bearing accounts as may be available for the particular
currency. To the extent Instructions are issued and the Bank can comply with
such Instructions, the Bank is authorized to maintain cash balances on
deposit for the Customer with itself or one of its affiliates at such
reasonable rates of interest as may from time to time be paid on such
accounts, or in non-interest bearing accounts as the Customer may direct, if
acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of
an institution other than the established Subcustodians as defined in Section
3 (or their securities depositories), such arrangement must be authorized by
a written agreement, signed by the Bank and the Customer.
3. Subcustodians and Securities Depositories.
The Bank may act under this Agreement through the subcustodians listed
in Schedule A of this Agreement with which the Bank has entered into
subcustodial agreements ("Subcustodians"). The Customer authorizes the Bank
to hold Assets in the Accounts in accounts which the Bank has established
with one or more of its branches or Subcustodians. The Bank and Subcustodians
are authorized to hold any of the Securities in their account with any
securities depository in which they participate.
The Bank reserves the right to add new, replace or remove
Subcustodians. The Customer will be given reasonable notice by the Bank of
any amendment to Schedule A. Upon request by the Customer, the Bank will
identify the name, address and principal place of business of any
Subcustodian of the Customer's Assets and the name and address of the
governmental agency or other regulatory authority that supervises or
regulates such Subcustodian.
4. Use of Subcustodian.
(a) The Bank will identify such Assets on its books as belonging to
the Customer.
(b) A Subcustodian will hold such Assets together with assets
belonging to other customers of the Bank in accounts identified on such
Subcustodian's books as special custody accounts for the exclusive benefit of
customers of the Bank.
(c) Any Assets in the Accounts held by a Subcustodian will be subject
only to the instructions of the Bank or its agent. Any Securities held in a
securities depository for the account of a Subcustodian will be subject only
to the instructions of such Subcustodian.
(d) Any agreement the Bank enters into with a Subcustodian for
holding its customer's assets shall provide that such assets will not be
subject to any right, charge, security interest, lien or claim of any kind in
favor of such Subcustodian except for safe custody or administration, and
that the beneficial ownership of such assets will be freely transferable
without the payment of money or value other than for safe custody or
administration. The foregoing shall not apply to the extent of any special
agreement or arrangement made by the Customer with any particular
Subcustodian.
5. Deposit Account Transactions.
(a) The Bank or its Subcustodians will make payments from the Deposit
Account upon receipt of Instructions which include all information required
by the Bank.
(b) In the event that any payment to be made under this Section 5
exceeds the funds available in the Deposit Account, the Bank, in its
discretion, may advance the Customer such excess amount which shall be deemed
a loan payable on demand, bearing interest at the rate customarily charged by
the Bank on similar loans.
(c) If the Bank credits the Deposit Account on a payable date, or at
any time prior to actual collection and reconciliation to the Deposit
Account, with interest, dividends, redemptions or any other amount due, the
Customer will promptly return any such amount upon oral or written
notification: (i) that such amount has not been received in the ordinary
course of business or (ii) that such amount was incorrectly credited. If the
Customer does not promptly return any amount upon such notification, the Bank
shall be entitled, upon oral or written notification to the Customer, to
reverse such credit by debiting the Deposit Account for the amount previously
credited. The Bank or its Subcustodian shall have no duty or obligation to
institute legal proceedings, file a claim or a proof of claim in any
insolvency proceeding or take any other action with respect to the collection
of such amount, but may act for the Customer upon Instructions after
consultation with the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the
Bank or its Subcustodian upon receipt by the Bank of Instructions which
include all information required by the Bank. Settlement and payment for
Securities received for, and delivery of Securities out of, the Custody
Account may be made in accordance with the customary or established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivery of Securities to a purchaser, dealer or their agents
against a receipt with the expectation of receiving later payment and free
delivery. Delivery of Securities out of the Custody Account may also be made
in any manner specifically required by Instructions acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts on
a contractual settlement date with cash or Securities with respect to any
sale, exchange or purchase of Securities. Otherwise, such transactions will
be credited or debited to the Accounts on the date cash or Securities are
actually received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts
in its discretion if the related transaction fails to settle
within a reasonable period, determined by the Bank in its
discretion, after the contractual settlement date for the related
transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the
credits and debits of the particular transaction at any time.
7. Actions of the Bank.
The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary, the
Bank will:
(a) Present for payment any Securities which are called, redeemed or
retired or otherwise become payable and all coupons and other income items
which call for payment upon presentation, to the extent that the Bank or
Subcustodian is actually aware of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect of Securities.
(c) Exchange interim receipts or temporary Securities for definitive
Securities.
(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the Bank or any
Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed upon,
identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices or
notifications shall indicate the identity of the entity having custody of the
Assets. Unless the Customer sends the Bank a written exception or objection
to any Bank statement within sixty (60) days of receipt, the Customer shall
be deemed to have approved such statement. In such event, or where the
Customer has otherwise approved any such statement, the Bank shall, to the
extent permitted by law, be released, relieved and discharged with respect to
all matters set forth in such statement or reasonably implied therefrom as
though it had been settled by the decree of a court of competent jurisdiction
in an action where the Customer and all persons having or claiming an
interest in the Customer or the Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk of the
Customer. The Bank shall have no liability for any loss occasioned by delay
in the actual receipt of notice by the Bank or by its Subcustodians of any
payment, redemption or other transaction regarding Securities in the Custody
Account in respect of which the Bank has agreed to take any action under this
Agreement.
8. Corporate Actions; Proxies.
Whenever the Bank receives information concerning the Securities which
requires discretionary action by the beneficial owner of the Securities
(other than a proxy), such as subscription rights, bonus issues, stock
repurchase plans and rights offerings, or legal notices or other material
intended to be transmitted to securities holders ("Corporate Actions"), the
Bank will give the Customer notice of such Corporate Actions to the extent
that the Bank's central corporate actions department has actual knowledge of
a Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting from a
rights issue, stock dividend, stock split or similar Corporate Action is
received which bears an expiration date, the Bank will endeavor to obtain
Instructions from the Customer or its Authorized Person, but if Instructions
are not received in time for the Bank to take timely action, or actual notice
of such Corporate Action was received too late to seek Instructions, the Bank
is authorized to sell such rights entitlement or fractional interest and to
credit the Deposit Account with the proceeds or take any other action it
deems, in good faith, to be appropriate in which case it shall be held
harmless for any such action.
The Bank will deliver proxies to the Customer or its designated agent
pursuant to special arrangements which may have been agreed to in writing.
Such proxies shall be executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of such nominee but
without indicating the manner in which such proxies are to be voted; and
where bearer Securities are involved, proxies will be delivered in accordance
with Instructions.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may without notice to the Customer
cause any such Securities to cease to be registered in the name of any such
nominee and to be registered in the name of the Customer. In the event that
any Securities registered in a nominee name are called for partial redemption
by the issuer, the Bank may allot the called portion to the respective
beneficial holders of such class of security in any manner the Bank deems to
be fair and equitable. The Customer agrees to hold the Bank, Subcustodians,
and their respective nominees harmless from any liability arising directly or
indirectly from their status as a mere record holder of Securities in the
Custody Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by written
notice from the Customer or its designated agent to act on behalf of the
Customer under this Agreement. Such persons shall continue to be Authorized
Persons until such time as the Bank receives Instructions from the Customer
or its designated agent that any such employee or agent is no longer an
Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile transmission, bank
wire or other teleprocess or electronic instruction or trade information
system acceptable to the Bank which the Bank believes in good faith to have
been given by Authorized Persons or which are transmitted with proper testing
or authentication pursuant to terms and conditions which the Bank may
specify. Unless otherwise expressly provided, all Instructions shall
continue in full force and effect until canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but the
Customer will hold the Bank harmless for the failure of an Authorized Person
to send such confirmation in writing, the failure of such confirmation to
conform to the telephone instructions received or the Bank's failure to
produce such confirmation at any subsequent time. The Bank may
electronically record any Instructions given by telephone, and any other
telephone discussions with respect to the Custody Account. The Customer
shall be responsible for safeguarding any testkeys, identification codes or
other security devices which the Bank shall make available to the Customer or
its Authorized Persons.
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly contained in
Instructions which are consistent with the provisions of this Agreement as
follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping of Assets.
The Bank shall be liable to the Customer for any loss which shall
occur as the result of the failure of a Subcustodian to exercise
reasonable care with respect to the safekeeping of such Assets to
the same extent that the Bank would be liable to the Customer if
the Bank were holding such Assets in New York. In the event of
any loss to the Customer by reason of the failure of the Bank or
its Subcustodian to utilize reasonable care, the Bank shall be
liable to the Customer only to the extent of the Customer's
direct damages, to be determined based on the market value of the
property which is the subject of the loss at the date of
discovery of such loss and without reference to any special
conditions or circumstances.
(ii) The Bank will not be responsible for any act, omission,
default or for the solvency of any broker or agent which it or a
Subcustodian appoints unless such appointment was made
negligently or in bad faith.
(iii) The Bank shall be indemnified by, and without liability to
the Customer for any action taken or omitted by the Bank whether
pursuant to Instructions or otherwise within the scope of this
Agreement if such act or omission was in good faith, without
negligence. In performing its obligations under this Agreement,
the Bank may rely on the genuineness of any document which it
believes in good faith to have been validly executed.
(iv) The Customer agrees to pay for and hold the Bank harmless
from any liability or loss resulting from the imposition or
assessment of any taxes or other governmental charges, and any
related expenses with respect to income from or Assets in the
Accounts.
(v) The Bank shall be entitled to rely, and may act, upon the
advice of counsel (who may be counsel for the Customer) on all
matters and shall be without liability for any action reasonably
taken or omitted pursuant to such advice.
(vi) The Bank need not maintain any insurance for the benefit of
the Customer.
(vii) Without limiting the foregoing, the Bank shall not be
liable for any loss which results from: 1) the general risk of
investing, or 2) investing or holding Assets in a particular
country including, but not limited to, losses resulting from
nationalization, expropriation or other governmental actions;
regulation of the banking or securities industry; currency
restrictions, devaluations or fluctuations; and market conditions
which prevent the orderly execution of securities transactions or
affect the value of Assets.
(viii) Neither party shall be liable to the other for any
loss due to forces beyond their control including, but not
limited to strikes or work stoppages, acts of war or terrorism,
insurrection, revolution, nuclear fusion, fission or radiation,
or acts of God.
(b) Consistent with and without limiting the first paragraph of this
Section 12, it is specifically acknowledged that the Bank shall have no duty
or responsibility to:
(i) question Instructions or make any suggestions to the
Customer or an Authorized Person regarding such Instructions;
(ii) supervise or make recommendations with respect to
investments or the retention of Securities;
(iii) advise the Customer or an Authorized Person regarding any
default in the payment of principal or income of any security other
than as provided in Section 5(c) of this Agreement;
(iv) evaluate or report to the Customer or an Authorized Person
regarding the financial condition of any broker, agent or other
party to which Securities are delivered or payments are made
pursuant to this Agreement;
(v) review or reconcile trade confirmations received from
brokers. The Customer or its Authorized Persons (as defined in
Section 10) issuing Instructions shall bear any responsibility to
review such confirmations against Instructions issued to and
statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or affiliates may have
a material interest in a transaction, or circumstances are such that the Bank
may have a potential conflict of duty or interest including the fact that the
Bank or any of its affiliates may provide brokerage services to other
customers, act as financial advisor to the issuer of Securities, act as a
lender to the issuer of Securities, act in the same transaction as agent for
more than one customer, have a material interest in the issue of Securities,
or earn profits from any of the activities listed herein.
13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with the
Bank's reasonable out-of-pocket or incidental expenses, including, but not
limited to, legal fees. The Bank shall have a lien on and is authorized to
charge any Accounts of the Customer for any amount owing to the Bank under
any provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the administration
of the Customer's trading and investment activity, the Bank is authorized to
enter into spot or forward foreign exchange contracts with the Customer or an
Authorized Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians. Instructions,
including standing instructions, may be issued with respect to such contracts
but the Bank may establish rules or limitations concerning any foreign
exchange facility made available. In all cases where the Bank, its
subsidiaries, affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the then current
foreign exchange contract of the Bank, its subsidiary, affiliate or
Subcustodian and, to the extent not inconsistent, this Agreement shall apply
to such transaction.
(b) Certification of Residency, etc. The Customer certifies that it
is a resident of the United States and agrees to notify the Bank of any
changes in residency. The Bank may rely upon this certification or the
certification of such other facts as may be required to administer the Bank's
obligations under this Agreement. The Customer will indemnify the Bank
against all losses, liability, claims or demands arising directly or
indirectly from any such certifications.
(c) Access to Records. The Bank shall allow the Customer's
independent public accountant reasonable access to the records of the Bank
relating to the Assets as is required in connection with their examination of
books and records pertaining to the Customer's affairs. Subject to
restrictions under applicable law, the Bank shall also obtain an undertaking
to permit the Customer's independent public accountants reasonable access to
the records of any Subcustodian which has physical possession of any Assets
as may be required in connection with the examination of the Customer's books
and records.
(d) Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be assignable by
either party, but shall bind the successors in interest of the Customer and
the Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that
the Assets deposited in the Accounts are (Check one):
Employee Benefit Plan or other assets subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA");
X Mutual Fund assets subject to certain Securities and Exchange
Commission ("SEC") rules and regulations;
Neither of the above.
This Agreement consists exclusively of this document together with
Schedule A, Exhibits I - _______ and the following Rider(s) [Check
applicable rider(s)]:
ERISA
MUTUAL FUND
SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this Agreement
supersedes any other agreements, whether written or oral, between the
parties. Any amendment to this Agreement must be in writing, executed by
both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any respect on the
basis of any particular circumstances or in any jurisdiction, the validity,
legality and enforceability of such provision or provisions under other
circumstances or in other jurisdictions and of the remaining provisions will
not in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any power or right
under this Agreement operates as a waiver, nor does any single or partial
exercise of any power or right preclude any other or further exercise, or the
exercise of any other power or right. No waiver by a party of any provision
of this Agreement, or waiver of any breach or default, is effective unless in
writing and signed by the party against whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective
when actually received. Any notices or other communications which may be
required under this Agreement are to be sent to the parties at the following
addresses or such other addresses as may subsequently be given to the other
party in writing:
Bank: The Chase Manhattan Bank, N.A.
Chase MetroTech Center
Brooklyn, NY 11245
Attention: Global Custody Division
or telex:
Customer: Richard Hisey
Lexington Management Corp.
Park 80 West, Plaza Two
Saddlebrook, NJ 07663
or telex:
(i) Termination. This Agreement may be terminated by the Customer or
the Bank by giving sixty (60) days written notice to the other, provided that
such notice to the Bank shall specify the names of the persons to whom the
Bank shall deliver the Assets in the Accounts. If notice of termination is
given by the Bank, the Customer shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions specifying the names
of the persons to whom the Bank shall deliver the Assets. In either case the
Bank will deliver the Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to it under
Section 13. If within sixty (60) days following receipt of a notice of
termination by the Bank, the Bank does not receive Instructions from the
Customer specifying the names of the persons to whom the Bank shall deliver
the Assets, the Bank, at its election, may deliver the Assets to a bank or
trust company doing business in the State of New York to be held and disposed
of pursuant to the provisions of this Agreement, or to Authorized Persons, or
may continue to hold the Assets until Instructions are provided to the Bank.
LEXINGTON GNMA INCOME FUND, INC.
By:____________________________________________
Title
THE CHASE MANHATTAN BANK, N.A.
By:____________________________________________
Title
STATE OF )
: ss.
COUNTY OF )
On this day of , 19 , before me personally came
, to me known, who being by me duly sworn, did
depose and say that he/she resides in at
;
that he/she is of
, the entity described in and which executed the
foregoing instrument; that he/she knows the seal of said entity, that the
seal affixed to said instrument is such seal, that it was so affixed by order
of said entity, and that he/she signed his/her name thereto by like order.
Sworn to before me this
day of , 19 .
Notary
<PAGE>
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this day of ,19 ,
before me personally came , to me known, who being by
me duly sworn, did depose and say that he/she resides in
at
; that he/she is a Vice
President of THE CHASE MANHATTAN BANK, (National Association), the
corporation described in and which executed the foregoing instrument; that
he/she knows the seal of said corporation, that the seal affixed to said
instrument is such corporate seal, that it was so affixed by order of the
Board of Directors of said corporation, and that he/she signed his/her name
thereto by like order.
Sworn to before me this
day of , 19 .
Notary
FORM OF
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made by and between LEXINGTON GNMA INCOME FUND,
INC., a Maryland corporation (the Fund ), and LEXINGTON MANAGEMENT
CORPORATION, a Delaware corporation (the Administrator ), with respect to
the following recital of facts:
RECITAL
WHEREAS, the Fund is registered as an open-end diversified management
investment company under the Investment Company Act of 1940, as amended (the
1940 Act ), and the rules and regulations promulgated thereunder;
WHEREAS, the Administrator is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended (the Advisers Act ),
and engages in the business of acting as an investment adviser and an
administrator of investment companies;
WHEREAS, the Fund, and the Administrator desire to enter into an
agreement to provide for administrative services for the Fund on the terms
and conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable considerations, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
I. APPOINTMENT AND OBLIGATIONS OF THE ADMINISTRATOR
The Administrator is hereby appointed to serve as the Administrator
to the Fund, to provide the administrative services described herein and
assume the obligations set forth in Section II, subject to the terms of this
Agreement and the control of the Fund s Board of [Directors/Trustees] (the
Board ). The administrator shall, for all purposes herein, be deemed an
independent contractor and shall have, unless otherwise expressly provided
or authorized, no authority to act for or represent the Fund in any way or
otherwise be deemed an agent of the Fund.
II. DUTIES OF THE ADMINISTRATOR
In carrying out the terms of this Agreement, the Administrator shall:
A. provide office space, equipment and facilities (which may be
the Administrator s or its affiliates ) for maintaining the
Fund s organization, for meetings of the Board and the
shareholders, and for performing administrative services
hereunder;
B. supervise and manage all aspects of the Fund s operations
(other than investment advisory activities), and supervise
relations with, and monitor the performance of, custodians,
depositories, transfer and pricing agents, accountants,
attorneys, underwriters, brokers and dealers, insurers and
other persons in any capacity deemed to be necessary and
desirable by the Board;
C. determine and arrange for the publication of the net asset
value of the Fund;
D. provide non-investment related statistical and research data
and such other reports, evaluations and information as the Fund
may request from time to time;
E. provide internal clerical, accounting and legal services, and
stationery and office supplies;
F. prepare, to the extent requested by the Fund, the Fund s
prospectus, statement of additional information, proxy
statements and annual and semi-annual reports to shareholders;
G. arrange for the printing and mailing (at the Fund s expense) of
proxy statements and other reports or other materials provided
to the Fund s shareholders;
H. prepare for execution and file all the Fund s federal and state
tax returns and required tax filings other than those required
to be made by the Fund s custodian and transfer agent;
I. prepare periodic reports to and filings with the Securities and
Exchange Commission (the SEC ) and state Blue Sky authorities
with the advice of the Fund s counsel;
J. maintain the Fund s existence, and during such times as the
shares of the Fund are publicly offered, maintain the
registration and qualification of the Fund s shares under the
federal and state law;
K. keep and maintain the financial accounts and records of the
Fund;
L. develop and implement, if appropriate, management and
shareholder services designed to enhance the value or
convenience of the Fund as an investment vehicle;
M. provide the Board on a regular basis with reports and analyses
of the Fund s operations and the operations of comparable
investment companies;
N. respond to inquiries from shareholders or participants of
employee benefit plans (for which the administrator or any
affiliate provides recordkeeping) relating to the Fund,
concerning, among other things, exchanges among Funds, or refer
any such inquiries to the Fund s officers or the Fund s
transfer agent;
O. provide participant recordkeeping services for participants in
employee benefit plans for which the Administrator or any
affiliate provides recordkeeping services; and
P. provide such information as may be reasonably requested by a
shareholder representative of or a participant in an employee
benefit plan to comply with applicable federal or state laws.
III. REPRESENTATIONS AND WARRANTIES
A. REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR
The Administrator hereby represents and warrants to the Fund as
follows:
1. Due Incorporation and Organization. The Administrator is
duly organized and is in good standing under the laws of the
State of Delaware and is fully authorized to enter into this
Agreement and carry out its duties and obligations hereunder.
2. Best Efforts. The Administrator at all times shall provide
its best judgment and effort to the Fund in carrying out its
obligations hereunder.
B. REPRESENTATIONS AND WARRANTIES OF THE FUND AND THE FUND
The Fund hereby represents and warrants to the Administrator as
follows:
1. Organization. The Fund has been duly organized as a
corporation under the laws of the State of Maryland and it is
authorized to enter into this Agreement and carry out its
terms.
2. Registration. The Fund is registered as an investment
company with the SEC under the 1940 Act and shares of the Fund
are registered or qualified for offer and sale to the public
under the Securities Act of 1933, as amended (the 1933 Act ),
and all applicable state securities laws. Such registrations
or qualifications will be kept in effect during the term of
this Agreement.
IV. CONTROL BY THE BOARD
Any activities undertaken by the administrator pursuant to this
Agreement on behalf of the Fund shall at all times be subject to any
directives of the Board.
V. COMPLIANCE WITH APPLICABLE REQUIREMENTS
In carrying out its obligations under this Agreement, the
Administrator shall at all times conform to:
A. all applicable provisions of the 1940 Act;
B. the provisions of the registration statement of the Fund under
the 1933 Act and the 1940 Act;
C. the provisions of the Fund s chartering documents, as amended;
D. the provisions of the By-Laws of the Fund, as amended; and
E. any other applicable provisions of state and federal law.
VI. DELEGATION OF RESPONSIBILITIES
All services to be provided by the Administrator under this Agreement
may be furnished by any directors, officers or employees of the
Administrator or by any affiliates of the Administrator under the
Administrator s supervision.
VII. COMPENSATION
For the services to be rendered, the facilities furnished and the
expenses assumed by the administrator, the Fund shall pay to the
Administrator an annual fee, payable monthly, equal to the pro-rata portion
of the Administrator s actual cost in providing such services, facilities
and expenses.
VIII. NON-EXCLUSIVITY
The services of the Administrator to the Fund are not to be deemed to
be exclusive, and the Administrator shall be free to render administrative
or other services to others (including other investment companies) and to
engage in other activities, so long as its services under this agreement are
not impaired thereby. It is understood and agreed that officers and
directors of the Administrator may serve as officers or [directors/trustees]
of the Fund, and that officers of [directors/trustees] of the Fund may serve
as officers or directors of the Administrator to the extent permitted by
law; and that the officers and directors of the Administrator are not
prohibited from engaging in any other business activity or from rendering
services to any other person, or from serving as partners, officers,
directors or trustees of any other firm or trust, including other investment
companies.
IX. TERM
This Agreement shall become effective at the close of business on the
date hereof and shall continue automatically for successive annual periods,
provided such continuance is specifically approved at least annually by the
Fund s [directors/trustees] who are not parties to this Agreement or
interested persons (as defined in the 1940 Act) of any such party, or by
the vote of the holders of a majority (as so defined) of the outstanding
voting securities of the Fund and by such vote of the [directors/trustees].
X. TERMINATION
This Agreement may be terminated at any time, without the payment of
any penalty, by vote of the Fund s [directors/trustees] or by vote of a
majority of the Fund s outstanding voting securities (as defined in Section
2(a)(42) of the 1940 Act), or by the Administrator, on sixty (60) days
written notice to the other party.
XI. LIABILITY OF ADMINISTRATOR AND INDEMNIFICATION
A. LIABILITY
In the absence of willful misfeasance, bad faith or gross
negligence on the part of the Administrator or its officers, directors
or employees, or reckless disregard by the Administrator of its duties
under this Agreement, the Administrator shall not be liable to the
Fund or to any shareholder of the Fund for any act or omission in the
course of, or connected with, rendering services hereunder or for any
looses that may be sustained in the purchase, holding or sale of any
security.
B. INDEMNIFICATION
In the absence of willful misfeasance, bad faith, gross
negligence or reckless disregard of obligations or duties hereunder
on the part of the Administrator or any officer, director or employee
of the Administrator, to the extent permitted by applicable law, the
Fund hereby agrees to indemnify and hold the Administrator harmless
from and against all claims, actions, suits and proceedings at law or
in equity, whether brought or asserted by a private party or a
governmental agency, instrumentality or entity of any kind, relating
to the sale, purchase, pledge of, advertisement of, or solicitation
of sales or purchases of any security (whether of the Fund or
otherwise) by the Fund, its officers, directors, employees or agents
in alleged violation of applicable federal, state or foreign laws,
rules or regulations.
XII. MATERIALS FOR DISTRIBUTION TO SHAREHOLDERS
During the term of this Agreement, the Fund shall furnish to the
Administrator at its principal office copies of all prospectuses, proxy
statements, reports to shareholders, sales literature and other material
referring to the Administrator that were prepared for distribution to
shareholders of the Fund and to participants in employee benefit plans
owning interests in the Fund (prior to the public distribution of such
materials). The Fund shall not use any such materials that refer to the
Administrator if the Administrator reasonably objects in writing within five
business days (or such other time as the parties may agree) after receipt
thereof, unless prior to such use the material is modified in a manner that
is satisfactory to the Administrator. Subsequent to the termination of this
Agreement, the Fund will continue to furnish to the Administrator copies of
such materials. The Fund shall also furnish or otherwise make available to
the Administrator other information relating to the business affairs of the
Fund as the Administrator reasonably requests from time to time.
XIII. NOTICES
Any notices under this Agreement shall be in writing, addressed and
delivered or mailed postage paid to the other party at such address as such
other party may designate for the receipt of such notice. Until further
notice to the other party, it is agreed that the address of the
Administrator and that of the Fund for this purpose shall be Park 80 West,
Plaza Two, Saddle Brook, New Jersey, 07663.
XIV. QUESTIONS OF INTERPRETATIONS
This Agreement shall be governed by the laws of the State of New
Jersey. Any question of interpretation of any term or provision of this
Agreement having a counterpart in or otherwise derived from a term or
provision of the 1940 Act shall be resolved by reference to such term or
provision of the 1940 Act and to interpretations thereof, if any, by the
United States Courts or in the absence of any controlling decision of any
such court, by rules, regulations or orders of the SEC issued pursuant to
said Act. In addition, where the effect of a requirement of the 1940 Act
reflected in the provisions of this Agreement is revised by rule, regulation
or order of the SEC, such provisions shall be deemed to incorporate the
effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in duplicate by their respective officers on the ____ day of
_________________, 199__.
LEXINGTON GNMA INCOME FUND, INC.
Attest: By: _______________________________
Name Title
________________________
LEXINGTON MANAGEMENT CORPORATION
Attest: By: ______________________________
Name Title
________________________
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT
NUMBER
(212) 715-9100
April 21, 1995
Lexington GNMA Income Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Re: Lexington GNMA Income Fund, Inc.
Registration No. 2-48906
Post-Effective Amendment to Registration
Statement on Form N-1A
Gentlemen:
We hereby consent to the reference of our firm as Counsel in the
Post-Effective Amendment No. 29 to the Registration Statement on Form N-1A of
Lexington GNMA Income Fund, Inc.
Very truly yours,
Consent of Independent Auditors
The Board of Directors
Lexington GNMA Income Fund, Inc.:
We consent to the use of our report dated January 30, 1995, included in the
Registration Statement on Form N-1A and to the reference to our firm under
the heading "Financial Highlights" in the Prospectus.
KPMG PEAT MARWICK LLP
New York, New York
April 26, 1995
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from year-
end audited financial statements dated December 31, 1994 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 142,124,510
<INVESTMENTS-AT-VALUE> 136,440,320
<RECEIVABLES> 1,066,314
<ASSETS-OTHER> 162,721
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 137,669,355
<PAYABLE-FOR-SECURITIES> 4,906,571
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 655,125
<TOTAL-LIABILITIES> 5,561,696
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 143,513,521
<SHARES-COMMON-STOCK> 17,377,139
<SHARES-COMMON-PRIOR> 18,019,564
<ACCUMULATED-NII-CURRENT> 3,665
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,725,337)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (5,684,190)
<NET-ASSETS> 132,107,659
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,700,091
<OTHER-INCOME> 0
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<APPREC-INCREASE-CURRENT> (11,308,000)
<NET-CHANGE-FROM-OPS> (3,610,789)
<EQUALIZATION> 0
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<NUMBER-OF-SHARES-REDEEMED> (6,591,822)
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<NET-CHANGE-IN-ASSETS> (17,852,860)
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<ACCUMULATED-GAINS-PRIOR> (3,056,348)
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<INTEREST-EXPENSE> 0
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<AVERAGE-NET-ASSETS> 148,572,173
<PER-SHARE-NAV-BEGIN> 8.32
<PER-SHARE-NII> 0.55
<PER-SHARE-GAIN-APPREC> (0.72)
<PER-SHARE-DIVIDEND> (0.55)
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</TABLE>