Dear Shareholders:
--------------------------------------------------------------------------------
Lexington GNMA shareholders have enjoyed substantial gains so far this year.
The Fund's total return for the first half year was 9.75%*. Interest rates
declined sharply in the spring as signs of a slowing economy became more
abundant. The Federal Reserve recently put its imprimatur on the bond market's
rally; it lowered short term interest rates by twenty five basis points.
Investors expect significant further reductions. Currently, two to five year
U.S. Treasury bonds yields aren't much higher than those of money market
securities.
We reduced our interest rate sensitivity at the end of March. Mortgages
typically underperform U.S. Treasury bonds when interest rates fall. So, when
the market looks ripe for a rally, as it did during the fourth quarter of 1994,
we added long term U.S. Treasury bonds. Those securities were sold. Accordingly,
the Fund's price will be less volatile henceforth.
Current market bullishness is based on forecasts of slow 2% economic growth
and a Federal Reserve policy geared for a steady reduction in short term
interest rates. We are somewhat more sanguine about the prospects for economic
growth and have adopted a more defensive investment stance. Meanwhile, we are
finding many ways to put shareholders' money to work in our bread and butter
business-investing in GNMAs.
Many investors are worried that the market is on the brink of another
mortgage prepayment explosion. Remembering their experiences in 1993, they are
avoiding GNMA's with coupons in excess of 8%. We think these higher coupon
securities are cheap; this is expecially true for GNMA-guaranteed multi-family
mortgages. Here, yields are 150 basis points higher than those of U.S. Treasury
bonds with comparable maturities. We look to buy securities which offer high
yield spreads relative to the general market rather than to profit from
temporary changes in market yields. This process has enabled the Fund to
generate an annual return in excess of 9% for its shareholders over the last ten
years.
We added adjustable rate mortgages to our asset mix during the second
quarter. These securities now account for about 8% of total investments. The
interest rate on adjustable rate mortgages ("ARMs") is keyed to the yield on one
year U.S. Treasury bills. ARMs should perform well if, as we suspect, the spread
between money market yields and those of five year U.S. Treasury bonds widens
over the next few months. ARM's tend to be less volatile than thirty-year
mortgages. This investment plus our U.S. Treasury bill holdings accounted for
12% of Fund assets on June 30th.
Dividends are up this year even though general market yields are falling.
During the first half, the cash return was 29.6 cents a share or about 4.9 cents
per share each month. This is above the 4.5 cent a share pace last year. We
continue to find high yielding investments and expect to maintain a dividend
return above that of 1994.
1
<PAGE>
We appreciate your continued support and welcome any questions which you may
have about your investment.
Sincerely,
Denis P. Jamison Robert M. DeMichele
Portfolio Manager President
July, 1995 July, 1995
*11.14%, 8.55% and 9.01% are the one, five and ten year average annual standard
total returns, respectively, for the period ended June 30, 1995. 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 at their original cost.
Total return represents past performance.
2
<PAGE>
Lexington GNMA Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1995 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Stated Principal Value
Coupon Maturity Amount (Note 1)
-------------------------------------------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES: 96.0%
<C> <C> <C> <C>
13.25% ...................................................... 8/2001 $ 39,301 $ 43,440
10.25 ....................................................... 8/2029 1,020,388 1,088,937
10.05 ....................................................... 6/2016 854,44 908,638
10.00 ....................................................... 12/2015-10/2023 2,472,473 2,627,003
9.75 ........................................................ 3/2028-10/2030 8,812,001 9,233,303
9.55 ........................................................ 9/2028 572,871 593,638
9.50 ........................................................ 3/2023 2 025,812 2,093,535
9.25 ........................................................ 12/2021-8/2029 4,669,687 4,819,957
9.00 ........................................................ 5/2016-06/2033 12,004,984 12,440,339
8.75 ........................................................ 3/2005-12/2018 7,917,243 8,125,891
8.75** ...................................................... 2/2036 256,676 259,666
8.625 ....................................................... 6/2029 5,026,490 5,174,118
8.50 ........................................................ 8/2008-1/2028 8,307,999 8,603,874
8.25 ........................................................ 3/2001-7/2027 8,082,567 8,282,259
8.20 ........................................................ 4/2012-5/2017 8,558,304 8,758,825
8.15 ........................................................ 12/2011-9/2015 9,921,213 10,144,440
8.10 ........................................................ 6/2012-7/2012 1,985,490 2,028,297
8.08 ........................................................ 9/2019 600,110 612,863
8.00 ........................................................ 10/2012-11/2033 12,465,737 2,630,737
8.00** ...................................................... 1/2036 546,116 543,402
7.75 ........................................................ 7/2022 956,247 968,793
7.70 ........................................................ 8/2013 857,364 867 541
7.65 ........................................................ 12/2012 204,637 206,810
7.625 ....................................................... 12/2029 881,109 889,638
7.55 ........................................................ 02/2001 182,433 183,858
7.50 ........................................................ 6/2007-12/2025 3,593,828 3,617,403
7.328 ....................................................... 12/2006 333,953 332,490
6.95 ........................................................ 11/2019 1,784,401 1,753,727
6.75 ........................................................ 6/2013 153,255 149,183
6.70 ........................................................ 12/2014 396,084 384,697
6.65 ........................................................ 10/2014 1,433,322 1,388,975
6.55 ........................................................ 11/2013 233,171 224,863
6.00*** ..................................................... 01/2024 10,369,416 10,395,339
------------
TOTAL GNMA CERTIFICATES (cost $116,895,762) .................................................. 120,376,479
------------
U.S. GOVERNMENT OBLIGATIONS: 4.7%
U.S. Treasury Bills, 5.67%, due: 08/03/95 ....................................... 4,400,000 4,377,131
U.S. Treasury Bills, 5.71%, due: 07/20/95 ....................................... 1,500,000 1,495,479
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $5,872,610) .......................................... 5,872,610
------------
TOTAL INVESTMENTS: 100.7% (cost $122,768,372(D)) (Note 1) .................................... 126,249,089
Liabilities in excess of other assets: (0.7%) ................................................ (838,731)
------------
TOTAL NET ASSETS: 100% (equivalent to $8.04 per share on 15,600,301 shares outstanding) ...... $125,410,358
============
<FN>
(D)Aggregate cost for Federal income tax purposes is identical.
**When-issued securities.
***Rate adjusts annually.
</FN>
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
(Left Column)
Lexington GNMA Income Fund, Inc.
Statement of Assets and Liabilities
June 30, 1995 (unaudited)
Assets
Investments in securities, at value
(cost $122,768,372) (Note 1) ................................. $126,249,089
Cash ........................................................... 127,030
Receivable for shares sold ..................................... 6,949
Interest receivable ............................................ 807,558
------------
Total Assets ............................................... 127,190,626
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ............... 65,651
Payable for investment securities purchased .................... 1,435,668
Payable for shares redeemed .................................... 1,000
Accrued expenses ............................................... 89,202
Distributions payable .......................................... 188,747
------------
Total Liabilities .......................................... 1,780,268
------------
Net Assets (equivalent to $8.04 per share on
15,600,301 shares outstanding) (Note 3) ...................... $125,410,358
============
Net Assets consist of:
Capital stock-authorized 100,000,000 shares,
$.01 par value per share ..................................... $ 156,003
Additional paid-in capital ..................................... 129,578,749
Distributions in excess of net investment income ............... (167,934)
Accumulated net realized loss on investments ................... (7,637,177)
Net unrealized appreciation of investments ..................... 3,480,717
------------
$125,410,358
============
(Right Column)
Lexington GNMA Income Fund, Inc.
Statement of Operations
Six months ended June 30, 1995 (unaudited)
Investment Income
Interest income .................................. $ 5,201,637
Expenses
Investment advisory fee (Note 2) ............... $ 378,708
Accounting and shareholder services
expense (Note 2) ............................. 104,318
Custodian and transfer agent
expenses ..................................... 66,579
Printing and mailing ........................... 29,378
Directors' fees and expenses ................... 6,545
Audit and legal ................................ 11,229
Registration fees .............................. 10,732
Computer processing fees ....................... 11,962
Other expenses ................................. 26,255
-----------
Total expenses ............................... 645,706
-----------
Net investment income .................... 4,555,931
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Realized loss from security transactions
(excluding short term securities):
Proceeds from sales .......................... 32,140,557
Cost of securities sold ...................... 34,052,397
-----------
Net realized loss (1,911,840)
Unrealized appreciation (depreciation)
of investments:
End of period ................................ 3,480,717
Beginning of period .......................... (5,684,190)
-----------
Change during period ....................... 9,164,907
-----------
Net realized and unrealized gain on investments. 7,253,067
-----------
Increase in Net Assets Resulting
from Operations .............................. $11,808,998
===========
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
(Left Column)
Lexington GNMA Income Fund, Inc.
Statements of Changes in Net Assets
Six months
ended Year ended
June 30, 1995 December 31,
(unaudited) 1994
------------ ------------
Net investment income ......................... $ 4,555,931 $ 10,248,302
Net realized loss from security
transactions ................................ (1,911,840) (2,551,181)
Decrease in unrealized appreciation
(depreciation) of investments ............... 9,164,907 (11,308,000)
------------ ------------
Net increase (decrease) in net assets
resulting from operations ................... 11,808,998 (3,610,879)
Distributions to shareholders from net
investment income ........................... (4,727,530) (10,190,529)
Decrease in net assets from capital
share transactions (Note 3) ................. (13,778,769) (4,051,452)
------------ ------------
Net decrease in net assets .................... (6,697,301) (17,852,860)
Net Assets:
Beginning of period ......................... 132,107,659 149,960,519
------------ ------------
End of period (including
distributions in excess of net
investment income of $167,934 and
undistributed net investment
income of $3,665, respectively) ........... $125,410,358 $132,107,659
============ ============
The Notes to Financial Statements are an integral part of these statements.
(Right Column)
Lexington GNMA Income Fund, Inc.
Notes to Financial Statements
June 30, 1995 (unaudited) and December 31, 1994
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
5
<PAGE>
(Left Column)
Lexington GNMA Income Fund, Inc.
Notes to Financial Statements
June 30, 1995 (unaudited) and December 31, 1994 (continued)
average daily net assets up to $150 million and in decreasing stages to 0.4% of
average daily net assets in excess of $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 six months ended
June 30, 1995.
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:
Six months ended
June 30, 1995 Year ended
(unaudited) December 31, 1994
-------------------------- -----------------------
Shares Amount Shares Amount
--------- ------ ------ ------
Shares sold 937,522 $ 7,403,843 4,931,556 $40,062,384
Shares issued on
reinvestment
of dividends 440,958 3,484,649 1,017,841 7,977,604
---------- ------------ -------- -----------
1,378,480 10,888,492 5,949,397 48,039,988
Shares redeemed (3,155,318) (24,667,261) (6,591,822) (52,091,440)
---------- ------------ -------- -----------
Net decrease (1,776,838) $(13,778,769) (642,425) $(4,051,452)
========== ============ ======== ===========
(Right Column)
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 1995, excluding short term securities, were $14,890,134 and
$32,140,557, respectively. At June 30, 1995, aggregate gross unrealized
appreciation for all securities in which there is an excess of value over tax
cost amounted to $3,659,131, and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value amounted to
$178,414.
<TABLE>
----------------------------------------------------------------------------------------------------------------
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<CAPTION>
Six months
ended Year ended December 31,
. June 30, -------------------------------------
1995 1994 1993 1992 1991
(unaudited) ---- ---- ---- ----
-----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $7.60 $8.32 $8.26 $8.45 $7.90
----- ----- ----- ----- -----
Income from investment operations:
Net investment income .29 .55 .59 .61 .64
Net realized and unrealized gain (loss) on investments .45 (.72) .06 (.19) .55
----- ----- ----- ----- -----
Total income (loss) from investment operations .74 (.17) .65 .42 1.19
----- ----- ----- ----- -----
Less distributions:
Dividends from net investment income (.30) (.55) (.59) (.61) (.64)
----- ----- ----- ----- -----
Net asset value, end of period $8.04 $7.60 $8.32 $8.26 $8.45
===== ===== ===== ===== =====
Total return 20.70%* (2.07%) 8.06% 5.19% 15.75%
Ratio to average net assets:
Expenses 1.02%* 0.98% 1.02% 1.01% 1.02%
Net investment income 7.22%* 6.90% 6.96% 7.31% 7.97%
Portfolio turnover 24.51%* 37.15% 52.34% 180.11% 138.71%
Net assets at end of period (000's omitted) $125,410 $132,108 $149,961 $132,048 $122,191
<FN>
*Annualized
</FN>
</TABLE>
6
<PAGE>
Right Col.
The Lexington Group of
No Load Investment Companies
Investment objectives range from growth and income to high
yield and liquidity in money market instruments. Selection
depends on the investor's current financial objectives and
the degree of risk one is willing to assume.
Lexington Worldwide Emerging Markets Fund, Inc.-Seeks
long-term growth of capital primarily through investment in
equity securities of companies domiciled in, or doing
business in, emerging countries and emerging markets.
Lexington Global Fund, Inc.-Seeks long-term growth of
capital primarily through investment in common stocks of
companies domiciled in foreign countries and the United
States.
Lexington International Fund, Inc.-Seeks long-term growth of
capital through investment in companies domiciled in foreign
countries.
Lexington Crosby Small Cap Asia Growth Fund, Inc.-Seeks
long-term capital appreciation through investment in
companies domiciled in the Asia Region with a market
capitalization of less than $1 billion.
Lexington Ramirez Global Income Fund-Seeks high current
income. Capital appreciation is a secondary objective. The
Fund invests in a combination of foreign and domestic
high-yield, lower rated debt securities.
Lexington Goldfund, Inc.-Seeks capital appreciation through
investment in gold bullion and shares of gold mining
companies.
Lexington Growth and Income Fund, Inc.-Seeks capital
appreciation over the long-term through investments in the
stocks of large, ably managed and well financed companies.
Lexington Corporate Leaders Trust Fund-Seeks capital growth
and reasonable income through investment in an equal number
of shares of an established list of American blue chip
corporations.
Lexington Convertible Securities Fund-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.
Lexington Short-Intermediate Government Securities Fund,
Inc.-Seeks current income as is consistent with the
preservation of capital by investing in a portfolio of U.S.
Government Securities with a dollar-weighted average
maturity in its portfolio in a range of two to five years.
Lexington Money Market Trust-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.-Seeks current income
exempt from Federal income taxes while maintaining stability
of principal, liquidity and preservation of capital.
For more complete information about any of the Lexington Funds and a prospectus
which includes management fee and expenses call the distributor toll-free at
1-800-526-0056. Read the prospectus carefully before you invest or send money.
Left Col.
LEXINGTON
INVESTOR SERVICES
------------------------------------------------------------
As a Lexington shareholder, you should be aware of the many
services available to you.
------------
No Load-The Lexington Funds are no load funds. That is,
investments and redemptions are made without any sales
charges, commissions or redemption fees.
------------
Free Telephone Exchange-Investments in the Lexington Funds
may be exchanged for shares of a different Lexington Fund at
any time.
------------
Check Writing Privileges-Lexington Money Market Trust,
Lexington Tax Free Money Fund and Lexington
Short-Intermediate Government Securities Fund permit
investors immediate access to their funds with check writing
for withdrawals from their account.
------------
Tax Sheltered Plans-IRA, Keogh, Pension, and Profit Sharing
Prototype Plans are available to qualified individuals.
These plans offer investment flexibility through the Share
Exchange Service, simplified record keeping, convenience and
investment supervision.
------------
Custodial Accounts for Minors-Investments may be made on
behalf of minors under the Uniform Gifts to Minors Act
currently in effect in all states.
------------
Systematic Withdrawal Plan-An investor may elect to receive
a fixed amount from his or her account each month or
quarter, subject to certain minimums.
------------
Complete Record Keeping-A statement is provided for every
transaction in addition to a year-end statement with tax
information.
7
<PAGE>
(Left Column)
Lexington
GNMA Income Fund, Inc.
Investment Adviser
--------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Distributor
--------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 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 and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
--------------------------------------------
------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield * Account Balances * Exchanges *
Last Transactions * Total Return * Duplicate Statements
------------------------------------------------------------------
This report has been prepared for the information of the
shareholders of Lexington GNMA Income Fund, Inc. and is
authorized for distribution to the public only if it is
accompanied or preceded by a currently effective prospectus
which sets forth expenses and other material information.
(Right Column)
LEXINGTON
--------------------------------------------------------------
LEXINGTON
GNMA
INCOME
FUND, INC.
(filled box)
An investment primarily in
mortgage-backed GNMA
Certificates that are guaranteed
as to the timely payment of
principal and interest by the
United States Government.
(filled box)
SEMI-ANNUAL REPORT
JUNE 30, 1995
The Lexington Group
of No Load
Investment Companies
--------------------------------------------------------------
