DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
While a high tide may raise all ships, lower interest rates don't
necessarily lift all bonds. And that's just what happened during the first half
of 1998. Economic turmoil in Asia and the possibility of a slowing U.S. economy
propelled the return on long-term U.S. government bonds to 6.25% during the
first six months of 1998. GNMA securities, however, limped along with a 3.34%
gain. That just about equals the coupon return from these securities. The price
of the typical mortgage securities failed to increase because lower interest
rates mean high mortgage prepayments - a return of principal at par. With the
average GNMA selling at a price of 103, few investors want the current high
level of prepayment risk.
The Lexington GNMA Income Fund returned 3.2%* during the first half of the
year. About half of the Fund's assets are invested in GNMA-guaranteed mortgage
loans on apartment buildings, nursing homes and other multi-unit facilities.
Loan prepayments on these securities are somewhat less affected by changes in
interest rates. This has helped our relative performance. Also, earlier in the
period we held a sizeable long-term U.S. Treasury bond position. This also gave
the Fund a price boost.
We expect the bond market to stall near current price levels during the
second half. Thirty-year U.S. Treasury bonds and money market securities now
yield about the same - 5.5%. Investors are betting that their reward for buying
the more volatile long-term bonds will be significant price appreciation. To see
such gains, the second quarter's economic weakness would need to persist during
the second half and the Federal Reserve would need to respond to this slowdown
by lowering short-term interest rates. We think continued strong consumer
spending will outweigh the economic drag created by sluggish exports. The
current low level of interest rates will spur domestic construction. And the
economy will pick up steam later this year.
The Fund is positioned to perform well in a flat to rising interest rate
environment. During the second quarter, we sold our long-term U.S. Treasury bond
holdings. New investments consisted of GNMA single-family mortgages with coupons
in excess of 7%. The net impact of these transactions was to raise the average
coupon of the securities in the portfolio from 7.0% to 7.23% and reduce the
interest rate sensitivity of the Fund's share price to interest rate changes.
These changes had a negative impact on the Fund's relative performance during
the second quarter. Our return was 1.5%* compared with 1.7% for the typical
GNMA-oriented mutual fund monitored by Lipper Analytical Services, Inc.
We've made our bet-the economy will bounce back later this year and
interest rates, eventually, will trend higher. In the months ahead we will
closely monitor economic developments and alter the Fund's course, if necessary.
Meanwhile, we wish to thank all our shareholders for their continued loyalty.
The management of your Fund will strive to merit your support.
Sincerely,
[GRAPHIC OMITTED] [GRAPHIC OMITTED]
Denis P. Jamison Robert M. DeMichele
Portfolio Manager President
August, 1998 August, 1998
* 10.14%, 6.93% and 8.77% are the one, five and ten year average annual standard
total returns, respectively, for the period ended June 30, 1998. 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 and is not predictive of future
results.
1
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
JUNE 30, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
STATED
COUPON MATURITY
- ----------------------------------------------------------------------------------------- -----------------
<S> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES: 90.8%
10.25% ................................................................................. 8/2029
9.25 .................................................................................... 1/2026-8/2029
9.00 .................................................................................... 5/2020-11/2027
8.75 .................................................................................... 9/1998-10/2023
8.50 .................................................................................... 6/2022-1/2023
8.25 .................................................................................... 3/2001-10/2038
8.25* ................................................................................. 10/2038
8.20 .................................................................................... 4/2012-5/2017
8.15 .................................................................................... 12/2011-9/2015
8.125 ................................................................................. 3/2036-6/2039
8.125* ................................................................................. 3/2036-6/2039
8.10 .................................................................................... 6/2012-7/2012
8.00 .................................................................................... 10/2012-11/2038
8.00* ................................................................................. 11/2038
7.875 ................................................................................. 6/2021-7/2038
7.875* ................................................................................. 6/2021-6/2038
7.75 .................................................................................... 8/2014-1/2036
7.75* ................................................................................. 8/2014
7.70 .................................................................................... 8/2013
7.65 .................................................................................... 12/2012-4/2031
7.625 ................................................................................. 8/2032
7.50 .................................................................................... 4/2013
7.25 .................................................................................... 5/2022-8/2022
7.20 .................................................................................... 6/2014
7.00 .................................................................................... 5/2026-11/2027
6.75 .................................................................................... 6/2013-8/2017
6.70 .................................................................................... 8/2014-12/2014
6.65 .................................................................................... 12/2013-2/2015
6.55 .................................................................................... 11/2013
6.50 .................................................................................... 3/2028
6.25 .................................................................................... 3/2028-4/2028
5.65 .................................................................................... 7/2029
TOTAL GNMA CERTIFICATES (cost $189,961,767) ............................................................
U.S. GOVERNMENT OBLIGATIONS: 9.4%
U.S. Treasury Bills, 5.16%, due 11/19/98 ...............................................................
U.S. Treasury Bills, 5.165%, due 11/27/98 ............................................................
U.S. Treasury Bills, 5.17%, due 11/12/98 ...............................................................
U.S. Treasury Bonds, 5.50%, due 02/28/03 ...............................................................
U.S. Treasury Notes, 5.625%, due 04/30/00 ............................................................
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $20,170,664) ...................................................
TOTAL INVESTMENTS: 100.2% (cost $210,132,431\^)(Note 1) ................................................
Liabilities in excess of other assets: (0.2%) .........................................................
TOTAL NET ASSETS: 100.0% (equivalent to $8.43 per share on 25,449,277 shares outstanding)
<CAPTION>
PRINCIPAL VALUE
COUPON AMOUNT (NOTE 1)
- ----------------------------------------------------------------------------------------- ------------- ---------------
<S> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES: 90.8%
10.25% .................................................................................$ 1,009,519 $ 1,094,066
9.25 .................................................................................... 5,967,993 6,384,402
9.00 .................................................................................... 976,897 1,048,518
8.75 .................................................................................... 3,255,395 3,465,798
8.50 .................................................................................... 1,629,200 1,692,239
8.25 .................................................................................... 7,496,806 7,889,381
8.25* ................................................................................. 114,688 117,501
8.20 .................................................................................... 7,464,232 7,852,283
8.15 .................................................................................... 10,382,054 10,900,829
8.125 ................................................................................. 8,713,158 8,989,708
8.125* ................................................................................. 650,842 670,579
8.10 .................................................................................... 1,808,065 1,894,981
8.00 .................................................................................... 49,898,845 51,780,530
8.00* ................................................................................. 445,000 460,575
7.875 ................................................................................. 7,421,606 7,610,641
7.875* ................................................................................. 620,468 641,127
7.75 .................................................................................... 2,076,967 2,135,756
7.75* ................................................................................. 158,575 162,282
7.70 .................................................................................... 826,838 859,134
7.65 .................................................................................... 3,897,484 4,010,614
7.625 ................................................................................. 1,541,231 1,580,717
7.50 .................................................................................... 1,232,482 1,276,001
7.25 .................................................................................... 2,348,254 2,413,559
7.20 .................................................................................... 2,872,625 2,955,213
7.00 .................................................................................... 48,195,874 49,036,086
6.75 .................................................................................... 829,380 847,267
6.70 .................................................................................... 441,753 450,999
6.65 .................................................................................... 1,660,114 1,691,285
6.55 .................................................................................... 5,485 5,571
6.50 .................................................................................... 10,059,149 10,037,119
6.25 .................................................................................... 4,517,829 4,459,910
5.65 .................................................................................... 479,035 419,884
------------
TOTAL GNMA CERTIFICATES (cost $189,961,767) ........................................................ 194,834,555
------------
U.S. GOVERNMENT OBLIGATIONS: 9.4%
U.S. Treasury Bills, 5.16%, due 11/19/98 ................................................ 2,200,000 2,156,638
U.S. Treasury Bills, 5.165%, due 11/27/98 ............................................. 1,900,000 1,860,518
U.S. Treasury Bills, 5.17%, due 11/12/98 ................................................ 2,900,000 2,845,567
U.S. Treasury Bonds, 5.50%, due 02/28/03 ................................................ 1,300,000 1,297,998
U.S. Treasury Notes, 5.625%, due 04/30/00 ............................................. 12,000,000 12,020,400
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $20,170,664) ............................................... 20,181,121
------------
TOTAL INVESTMENTS: 100.2% (cost $210,132,431\^)(Note 1) ............................................ 215,015,676
Liabilities in excess of other assets: (0.2%) ..................................................... (542,052)
------------
TOTAL NET ASSETS: 100.0% (equivalent to $8.43 per share on 25,449,277 shares outstanding) $214,473,624
============
</TABLE>
* Construction loan securities (Note 1).
+ Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
2
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
ASSETS
Investments, at value
(cost $210,132,431) (Note 1) ............... $215,015,676
Cash .......................................... 93,351
Receivable for shares sold .................. 801,726
Interest receivable ........................... 1,334,057
------------
Total Assets ........................... 217,244,810
------------
LIABILITIES
Due to Lexington Management Corporation
(Note 2) ................................. 97,500
Payable for investment securities purchased . 2,224,037
Payable for shares redeemed .................. 260,677
Distributions payable ........................ 97,867
Accrued expenses .............................. 91,105
------------
Total Liabilities ..................... 2,771,186
------------
NET ASSETS (equivalent to $8.43 per share on
25,449,277 shares outstanding) (Note 3) . $214,473,624
============
NET ASSETS consist of:
Capital stock-authorized 100,000,000
shares, $.01 par value per share ......... $ 254,493
Additional paid-in capital .................. 210,285,005
Undistributed net investment income ......... 136,891
Accumulated net realized loss on investments (1,086,010)
Unrealized appreciation on investments ...... 4,883,245
------------
TOTAL NET ASSETS .............................. $214,473,624
============
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF OPERATIONS
Six months ended June 30, 1998 (unaudited)
INVESTMENT INCOME
Interest income ........................... $6,293,113
EXPENSES
Investment advisory fee (Note 2) . $525,431
Transfer agent and shareholder
servicing expenses (Note 2) ......... 200,837
Accounting expenses (Note 2) ......... 71,007
Printing and mailing expenses ......... 27,740
Registration fees ..................... 22,002
Professional fees ..................... 20,251
Directors' fees and expenses ......... 10,538
Computer processing fees ............... 9,718
Custodian expenses ..................... 8,937
Other expenses ........................ 21,978
--------
Total expenses ........................ 918,439
----------
Net investment income ............... 5,374,674
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 4)
Net realized loss on investments ...... (31,382)
Net change in unrealized
appreciation on investments ......... 277,665
----------
Net realized and
unrealized gain .................. 246,283
----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................ $5,620,957
==========
The Notes to Financial Statements are an integral part of these statements.
3
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
ended Year ended
June 30, 1998 December 31,
(unaudited) 1997
------------ ------------
Net investment income .................. $ 5,374,674 $ 9,001,795
Net realized gain (loss) from
investments ........................ (31,382) 2,716,315
Net change in unrealized appreciation
of investments ..................... 277,665 2,258,584
------------ ------------
Increase in net assets
resulting from operations ......... 5,620,957 13,976,694
Distributions to shareholders from
net investment income ............... (5,238,187) (9,107,074)
Increase in net assets from capital
share transactions (Note 3) ......... 56,020,082 19,424,028
------------ ------------
Net increase in net assets ......... 56,402,852 24,293,648
NET ASSETS
Beginning of period .................. 158,070,772 133,777,124
------------ ------------
End of period (including
undistributed net
investment income of
$136,891 and $404,
1998 and 1997, respectively) ...... $214,473,624 $158,070,772
============ ============
The Notes to Financial Statements are an integral part of these statements.
LEXINGTON GNMA INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997
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 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. The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements:
INVESTMENTS Securities transactions are accounted for on a trade date
basis. Realized gains and losses from investment transactions are reported on
the identified cost basis. Securities 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 in good faith
under the direction of the Fund's Board of Directors. Short-term securities
having a maturity of 60 days or less are stated at amortized cost, which
approximates market value. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Interest income, adjusted for amortization of
premiums and accretion of discounts, is accrued as earned.
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.
CONSTRUCTION LOAN SECURITIES The Fund may purchase construction loan
securities which are issued to finance building costs. The funds are disbursed
4
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited), and December 31, 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
as needed or in accordance with a prearranged plan. The securities provide for
the timely payment to the registered holder of interest at the specified rate
plus scheduled installments of principal. Upon completion of the construction
phase, the construction loan securities are terminated, and project loan
securities are issued. It is the Fund's policy to record these GNMA certificates
on trade date, and to segregate assets to cover its commitments on trade date as
well.
FEDERAL INCOME TAXES It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
DISTRIBUTIONS Dividends from net investment income are normally declared
and paid monthly and dividends from net realized capital gains are normally
declared and paid annually. However, the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code. The character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. At December 31, 1997, reclassifications were
made to the Fund's capital accounts to reflect permanent book/tax differences
and income and gains available for distribution under income tax regulations.
Net investment income, net realized gains and net assets were not affected by
this change.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
2. INVESTMENT ADVISORY FEE AND OTHER
TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 0.60% of the Fund's average daily net assets up to
$150 million and in decreasing stages to 0.40% of average daily net assets in
excess of $800 million. In accordance with the investment advisory agreement,
LMC is required to reimburse the Fund for any expenses, excluding interest,
taxes and extraordinary expenses which exceed 1.50% of the first $30 million of
the Fund's average daily net assets and 1.00% thereafter. No reimbursement was
required for the six months ended June 30, 1998.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $155,291, which are incurred by the Fund, but
paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1998 Year ended
(unaudited) December 31, 1997
---------------------------------- --------------------------------
Shares Amount Shares Amount
--------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
Shares sold ......... 9,418,086 $ 79,591,340 5,059,013 $ 41,657,370
Shares issued on
reinvestment
of dividends ...... 550,689 4,640,109 916,291 7,517,813
--------- ------------- --------- -------------
9,968,775 84,231,449 5,975,304 49,175,183
Shares redeemed ...... (3,337,283) (28,211,367) (3,624,917) (29,751,155)
---------- ------------- ---------- -------------
Net increase ......... 6,631,492 $ 56,020,082 2,350,387 $ 19,424,028
========== ============= ========== =============
</TABLE>
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 1998, excluding short-term securities, were $122,218,833 and
$77,690,919, respectively.
At June 30, 1998, the aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $4,918,400 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $35,155.
5
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months Year ended December 31,
ended --------------------------------------------
June 30, 1998
(unaudited) 1997 1996 1995 1994
-------------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...... $ 8.40 $ 8.12 $ 8.19 $ 7.60 $ 8.32
------- ------- ------- ------- -------
Income (loss) from investment operations:
Net investment income ..................... 0.25 0.51 0.53 0.58 0.55
Net realized and unrealized gain (loss)
on investments ........................... 0.02 0.29 ( 0.08) 0.59 (0.72)
------- ------- ------- ------- -------
Total income (loss) from investment
operations ................................. 0.27 0.80 0.45 1.17 (0.17)
------- ------- ------- ------- -------
Less distributions:
Distributions from net investment
income .................................... (0.24) ( 0.52) ( 0.52) (0.58) (0.55)
------- ------- ------- ------- -------
Net asset value, end of period ............ $ 8.43 $ 8.40 $ 8.12 $ 8.19 $ 7.60
======= ======= ======= ======= =======
Total return .............................. 6.53%* 10.20% 5.71% 15.91% (2.07)%
Ratio to average net assets:
Expenses ................................. 1.02%* 1.01% 1.05% 1.01% 0.98%
Net investment income ..................... 5.96%* 6.28% 6.56% 7.10% 6.90%
Portfolio turnover ........................ 86.82%* 134.28% 128.76% 30.69% 37.15%
Net assets, end of period (000's omitted) . $214,474 $158,071 $133,777 $130,681 $132,108
</TABLE>
* Annualized.
6
<PAGE>
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 permits 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.
THE LEXINGTON GROUP OF
NO LOAD INVESTMENT COMPANIES
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 CORPORATE LEADERS 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 TROIKA DIALOG RUSSIA FUND, INC.-Seeks long-term capital appreciation
through investments primarily in the equity securities of Russian companies.
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 SMALLCAP FUND, INC.-Seeks long-term capital appreciation through
investment in common stocks of companies domiciled in the United States with a
market capitalization of less than $1 billion.
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 GNMA INCOME FUND, INC.-Seeks to achieve 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.
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.
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.
*Redemptions on shares of Lexington Troika Dialog Russia Fund, Inc. held less
than 365 days are subject to a redemption fee of 2% of the redemption proceeds.
<PAGE>
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 o Account Balances o Exchanges o
Last Transactions o Total Return o 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.
-------------------------
LEXINGTON
-------------------------
[GRAPHIC]
LEXINGTON
GNMA INCOME
FUND, INC.
-------------------------
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.
-------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
The Lexington Group
of NO LOAD
Investment Companies
