DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The Lexington GNMA Income Fund completed another successful year. The total
return for 1998 was 7.52%*, assuming the reinvestment of all dividends. This
placed our performance in the top 10% of all GNMA-oriented mutual funds. We are
even more excited about our longer-term results. According to Lipper, Inc., the
Lexington GNMA Income Fund was the top-performing fund within its category over
the last three years and has the second best record over the last ten years.
The Fund's strong relative performance over the last decade is a product of
two factors. First, we were able to discern the value of call-protected project
loans in a period of declining interest rates and capitalize on this observation
by investing a substantial portion of the Fund's assets in these securities.
Second, we were quick to add to these holdings on any backup in yields because
we anticipated a long-term secular decline in interest rates.
We may have seen the bottom of the interest rate cycle in 1998. Yields, as
measured by those of the ten-year U.S. Treasury bond, peaked at 16% during
September 1981. Seventeen years later, ten-year U.S. Treasury bonds yielded
4.4%. We think this will prove to be a secular low. Here's why. Inflation will
likely trend higher in the coming quarters. In selected areas, producers have
responded to global over-capacity and have taken factories and mines off line.
Broad commodity indices already may have bottomed. Labor market conditions are
tight and likely will lead to wage pressure.
It is true that bond yields are high relative to the current inflation
level. However, these real yields will likely remain high. The widening current
account deficit and low savings rate in the U.S. necessitates a huge inflow of
foreign capital. High real yields will be needed to compensate these buyers for
cross-currency risk. And those currency risks are great. The weakened financial
condition of Japanese banks and insurance companies is prompting them to
liquidate U.S. dollar assets and repatriate yen. Meanwhile the new Euro currency
promises to make a strong run for international investor money flows. We expect
a modest, but persistent, increase in U.S. bond yields during 1999.
Portfolio changes are being made to reflect our more bearish market
outlook. U.S. Treasury bond holdings have been reduced and further cutbacks are
probable. Cash flow is being invested in project loans (mortgages on
multi-family properties) with little or no lockout restrictions. Higher
yielding, single family GNMA mortgage loans are up as a percentage of total
assets. Currently, these securities offer excellent value. For example, at the
close of 1998, GNMA 6.5% pass-through securities yielded 170 basis points more
than U.S. Treasury bonds with a comparable maturity. This extra income should go
a long way towards offsetting the total return impact of a decline in bond
prices.
We wish to thank our shareholders for their continued support.
Sincerely,
/s/ Denis P. Jamison /s/ Roseann McCarthy /s/ Robert M. DeMichele
- ---------------------- -------------------- ------------------------
Denis P. Jamison Roseann McCarthy Robert M. DeMichele
Portfolio Manager Portfolio Manager President
February, 1999 February, 1999 February, 1999
1
<PAGE>
- --------------------------------------------------------------------------------
[The following table represents a line chart in the printed report.]
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
LEXINGTON GNMA INCOME FUND, INC., AND
THE UNMANAGED LEHMAN BROTHERS MORTGAGE-BACKED SECURITIES INDEX
Year Lexington GNMA LBMBSI
=========================================================
12/30/88 $10,000 $10,000
12/31/89 $11,560 $11,535
12/31/90 $12,626 $12,772
12/31/91 $14,615 $14,779
12/31/92 $15,373 $15,809
12/30/93 $16,612 $16,891
12/31/94 $16,268 $16,619
12/31/95 $18,857 $19,411
12/30/96 $19,934 $20,449
12/31/97 $21,968 $22,390
12/31/98 $23,620 $23,948
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/98
- --------------------------------------------------------------------------------
FUND NAME 1 YEAR 5 YEAR 10 YEAR
- --------------------------------------------------------------------------------
LEXINGTON GNMA 7.52% 7.29% 8.98%
INCOME FUND
- --------------------------------------------------------------------------------
LEHMAN BROTHERS 6.96% 7.23% 9.13%
MORTGAGE-BACKED
SECURITIES INDEX
- --------------------------------------------------------------------------------
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Lehman Brothers
Mortgage-Backed Securities Index. Results for the Fund and the Lehman Brothers
Mortgage-Backed Securities Index include the reinvestment of all dividend and
capital gain distributions. 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 it is not predictive of future results.
*7.52%, 7.29% and 8.98% are the one, five and ten year average annual standard
total returns, respectively, for the period ended December 31, 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.
For the period ended December 31, 1998, the Fund, according to Lipper, Inc., was
ranked the following: one year-4th out of 51 funds; 3 years-1st out of 44 funds;
5 years-4th out of 32 funds and 10 years-2nd out of 23 funds.
2
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
<TABLE>
<CAPTION>
STATED PRINCIPAL VALUE
COUPON MATURITY AMOUNT (NOTE 1)
- ---------------------------------------------------- ----------------- -------------- --------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) CERTIFICATES: 93.1%
10.25% ............................................. 8/2029 $ 1,007,352 $ 1,120,991
9.25 ............................................... 8/2029 2,296,5241 2,547,695
9.00 ............................................... 5/2020-11/2027 972,837 1,066,248
8.75 ............................................... 11/2017-10/2023 3,180,774 3,522,537
8.50 ............................................... 6/2022-1/2023 3,393,806 3,498,983
8.25 ............................................... 3/2001-10/2038 6,771,8061 7,407,651
8.20 ............................................... 4/2012-5/2017 6,965,803 7,617,328
8.15 ............................................... 12/2011-9/2015 10,185,955 11,115,844
8.125 .............................................. 3/2036-6/2039 9,073,158 9,602,043
8.125* ............................................. 3/2036 290,842 302,202
8.10 ............................................... 6/2012-7/2012 1,773,859 1,932,071
8.00 ............................................... 10/2012-11/2038 42,084,313 44,006,519
8.00* .............................................. 11/2038 260,892 262,032
7.875 .............................................. 6/2021-7/2038 9,926,500 10,355,412
7.875* ............................................. 6/2021 333,021 333,021
7.75 ............................................... 8/2014-1/2036 2,073,788 2,122,833
7.75* .............................................. 8/2014 158,575 158,673
7.70 ............................................... 8/2013 803,789 867,835
7.65 ............................................... 12/2012-4/2031 3,875,805 4,156,287
7.625 .............................................. 8/2032 1,536,699 1,643,776
7.50 ............................................... 4/2013-8/2027 4,779,482 4,973,588
7.25 ............................................... 5/2022-8/2022 2,330,322 2,481,793
7.20 ............................................... 6/2014 2,825,210 3,005,317
7.00 ............................................... 5/2026-7/2028 58,042,9521 59,510,160
6.875 .............................................. 12/2039 25,000 25,570
6.875* ............................................. 12/2039 705,000 721,081
6.75 ............................................... 6/2013-11/2018 6,660,535 6,806,290
6.70 ............................................... 8/2014-12/2014 434,469 455,106
6.65 ............................................... 12/2013-2/2015 1,630,375 1,703,221
6.625 .............................................. 11/2028 461,631 473,024
6.55 ............................................... 11/2013 5,382 5,594
6.50 ............................................... 2/2022-5/2040 30,965,501 31,295,129
6.50* .............................................. 5/2040 3,854,278 3,930,130
6.25 ............................................... 4/2026-4/2028 5,512,799 5,520,595
6.00 ............................................... 7/2028-10/2028 19,862,265 19,694,627
5.65 ............................................... 7/2029 476,300 426,883
------------
TOTAL GNMA CERTIFICATES (cost $246,530,391)......... 254,668,089
------------
</TABLE>
<TABLE>
<S> <C> <C>
U.S. GOVERNMENT OBLIGATIONS: 8.2%
U.S. Treasury Bills, 4.25%, due 02/04/99 ................................................. 500,000 497,993
U.S. Treasury Bills, 4.35%, due 06/10/99 ................................................. 3,900,000 3,825,159
U.S. Treasury Bonds, 5.50%, due 02/28/03 ................................................. 1,300,000 1,338,402
U.S. Treasury Notes, 5.625%, due 04/30/00 ................................................ 10,150,000 10,273,221
U.S. Strip Principle, 0.00%, due 11/15/15 ................................................ 16,250,000 6,455,963
------------
TOTAL U.S. GOVERNMENT OBLIGATIONS (cost $22,453,504) ..................................... 22,390,738
------------
TOTAL INVESTMENTS: 101.3% (cost $268,983,895+)(Note 1) ................................... 277,058,827
Liabilities in excess of other assets: (1.3%) ............................................ (3,467,709)
------------
TOTAL NET ASSETS: 100.0% (equivalent to $8.53 per share on 32,069,991 shares outstanding). $273,591,118
============
</TABLE>
* Construction loan securities issued on a when issued basis (Note 1).
1 Some or all of this security is segregated for 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.
3
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value
(cost $268,983,895) (Note1) .................. $277,058,827
Cash ............................................ 64,141
Receivable for shares sold ...................... 1,001,960
Interest receivable ............................. 1,590,174
------------
Total Assets .................................... 279,715,102
------------
LIABILITIES
Due to Lexington Management Corporation
(Note 2) ..................................... 126,382
Payable for investment securities purchased ..... 5,642,199
Payable for shares redeemed ..................... 104,894
Distributions payable ........................... 120,017
Accrued expenses ................................ 130,492
------------
Total Liabilities ............................... 6,123,984
------------
NET ASSETS (equivalent to $8.53 per share on
32,069,991 shares outstanding) (Note 3) ...... $273,591,118
============
NET ASSETS consist of:
Capital stock-authorized 100,000,000
shares, $.01 par value per share ............. $ 320,700
Additional paid-in capital ...................... 266,479,255
Distributions in excess of net investment
income (Note 1) .............................. (411)
Accumulated net realized loss on investments
(Notes 1 and 5) .............................. (1,283,358)
Unrealized appreciation of investments .......... 8,074,932
------------
TOTAL NET ASSETS ................................ $273,591,118
============
</TABLE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income ......................... $14,716,974
EXPENSES
Investment advisory fee (Note 2) ..... $1,224,048
Transfer agent and shareholder
servicing expenses (Note 2) ........ 508,917
Accounting expenses (Note 2) ......... 156,645
Printing and mailing expenses ........ 70,067
Registration fees .................... 47,609
Professional fees .................... 35,709
Custodian expenses ................... 26,633
Computer processing fees ............. 20,203
Directors' fees and expenses ......... 18,810
Other expenses ....................... 51,306
----------
Total expenses ...................... 2,159,947
-----------
Net investment income .............. 12,557,027
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS (NOTE 4)
Net realized loss on investments ..... (279,621)
Net change in unrealized
appreciation of investments ........ 3,469,352
-----------
Net realized and
unrealized gain .................. 3,189,731
-----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ........................ $15,746,758
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
Net investment income ..................... $ 12,557,027 $ 9,001,795
Net realized gain (loss) from
investments ............................. (279,621) 2,716,315
Net change in unrealized appreciation
of investments .......................... 3,469,352 2,258,584
------------ ------------
Increase in net assets
resulting from operations .............. 15,746,758 13,976,694
Distributions to shareholders from
net investment income (Note 1) .......... (12,506,951) (9,107,074)
Increase in net assets from capital
share transactions (Note 3) ............. 112,280,539 19,424,028
------------ ------------
Net increase in net assets .............. 115,520,346 24,293,648
NET ASSETS
Beginning of period ..................... 158,070,772 133,777,124
------------ ------------
End of period (including
distributions in excess of net
investment income of $411, and
undistributed net investment
income of $404 in 1998 and
1997, respectively) .................... $273,591,118 $158,070,772
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
LEXINGTON GNMA INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 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 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
5
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 1998, 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 year ended December 31, 1998.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $344,126, which are incurred by the Fund, but
paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1997
--------------------------------- ----------------------------------
Shares Amount Shares Amount
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares sold ............. 19,566,899 $165,825,142 5,059,013 $41,657,370
Shares issued on
reinvestment
of dividends .......... 1,324,681 11,213,355 916,291 7,517,813
---------- ------------ --------- -----------
20,891,580 177,038,497 5,975,304 49,175,183
Shares redeemed ......... (7,639,373) (64,757,958) (3,624,917) (29,751,155)
---------- ------------ ---------- -----------
Net increase ............ 13,252,207 $112,280,539 2,350,387 $19,424,028
========== ============ ========== ===========
</TABLE>
4. INVESTMENT TRANSACTIONS
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1998, excluding short-term securities, were $222,935,743 and
$116,611,097, respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$8,252,793 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $177,861.
5. FEDERAL INCOME TAXES-CAPITAL LOSS CARRYFORWARDS
Capital loss carryforwards1 available for Federal income tax purposes as of
December 31, 1998 are:
$1,054,628 expiring in 2003; and,
89,699 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
may not be distributed to shareholders.
1Temporary book-tax differences of $139,031 are the result of deferred
post-October losses.
6. TAX INFORMATION (UNAUDITED)
The following tax information represents the designation of a tax benefit
relating to year ended December 31, 1998:
The percentage of ordinary income distributions paid by the Fund derived from
agency and direct obligations of the United States government were as follows:
U.S. Treasury.................................................. 8.82%
Government National Mortgage Association..................... 90.58
6
<PAGE>
LEXINGTON GNMA INCOME FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1998 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 ............................. 0.48 0.51 0.53 0.58 0.55
Net realized and unrealized gain (loss) on
investments ....................................... 0.13 0.29 (0.08) 0.59 (0.72)
------- ------- ---------- --------- ----------
Total income (loss) from investment
operations ........................................ 0.61 0.80 0.45 1.17 (0.17)
------- ------- ---------- --------- ----------
Less distributions:
Distributions from net investment income .......... (0.48) (0.52) (0.52) (0.58) (0.55)
------- ------- ---------- --------- ---------
Net asset value, end of period ..................... $ 8.53 $ 8.40 $ 8.12 $ 8.19 $ 7.60
======= ======= ========== ========= =========
Total return ....................................... 7.52% 10.20% 5.71% 15.91% (2.07)%
Ratio to average net assets:
Expenses .......................................... 1.01% 1.01% 1.05% 1.01% 0.98%
Net investment income ............................. 5.85% 6.28% 6.56% 7.10% 6.90%
Portfolio turnover rate ............................ 54.47% 134.28% 128.76% 30.69% 37.15%
Net assets at end of period(000's omitted) ......... $273,591 $158,071 $133,777 $130,681 $132,108
</TABLE>
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, 1998, 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 and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 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, 1998, 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 LLP
New York, New York
February 19, 1999
7
<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, 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 OMITTED]
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.
-------------
ANNUAL REPORT
DECEMBER 31, 1998
The Lexington group
of NO LOAD
Investment Companies
[GRAPHIC OMITTED
