PROSPECTUS
May 1, 1995
Lexington Worldwide
Emerging Markets Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Service-1-800-526-0056
24 Hour Account Information-1-800-526-0052
A NO-LOAD MUTUAL FUND WHOSE INVESTMENT OBJECTIVE IS TO SEEK LONG-TERM GROWTH OF
CAPITAL PRIMARILY THROUGH INVESTMENT IN EQUITY SECURITIES OF COMPANIES DOMICILED
IN, OR DOING BUSINESS IN, EMERGING COUNTRIES AND EMERGING MARKETS.
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Lexington Worldwide Emerging Markets Fund, Inc. (the "Fund") is a
no-load open-end diversified management investment company. The Fund's
investment objective is to seek long-term growth of capital primarily
through investment in equity securities of companies domiciled in, or
doing business in, emerging countries and emerging markets. Investment
in emerging country and emerging market equity securities involves
certain risk considerations which are not normally involved in
investment in securities of U.S. companies.
Lexington Management Corporation ("LMC") is the Fund's investment
adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's
distributor.
This Prospectus sets forth information about the Fund 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 matters in this Prospectus and
other matters which 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 1-800-526-0056 as noted 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.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
Annual Fund Operating Expenses: (as a percentage of average net assets)
<TABLE>
<S> <C>
Management fees ..................................................................................... 1.00%
Other expenses ...................................................................................... 0.65%
-----
Total Fund Operating Expenses ....................................................................... 1.65%
=====
</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 ..... $16.78 $52.03 $89.69 $195.45
</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
"Management of the Fund" 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.
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Selected Per Share Data for a share outstanding throughout the period
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period ...................... $13.96 $8.66 $9.03 $8.56 $10.79 $8.72 $8.01 $11.80 $9.96 $7.98
------ ----- ----- ----- ------ ----- ----- ------ ----- -----
Income (loss) from investment
operations:
Net investment income ....... (0.01) 0.05 0.07 0.09 0.25 0.13 0.12 0.14 0.16 0.18
Net realized and unrealized
gain (loss) on investments . (1.92) 5.43 0.27 1.97 (1.81) 2.32 0.71 0.12 1.88 1.92
------ ----- ----- ----- ------ ----- ----- ------ ----- -----
Total income (loss) from
investment operations ....... (1.93) 5.48 0.34 2.06 (1.56) 2.45 0.83 0.26 2.04 2.10
------ ----- ----- ----- ------ ----- ----- ------ ----- -----
Less distributions:
Dividends from net investment
income ..................... - (0.01) (0.11) (0.11) (0.24) (0.21) (0.12) (0.38) (0.20) (0.12)
Distributions from capital
gains ...................... (0.47) (0.17) (0.60) (1.48) (0.43) (0.17) - (3.67) - -
Distributions in excess of
capital gains (Temporary
book-tax difference) ....... (0.09) - - - - - - - - -
------ ----- ----- ----- ------ ----- ----- ------ ----- -----
Total distributions .......... (0.56) (0.18) (0.71) (1.59) (0.67) (0.38) (0.12) (4.05) (0.20) (0.12)
------ ----- ----- ----- ------ ----- ----- ------ ----- -----
Net asset value, end of period $11.47 $13.96 $8.66 $9.03 $8.56 $10.79 $8.72 $8.01 $11.80 $9.96
====== ====== ===== ===== ===== ====== ===== ===== ====== =====
Total return ................. (13.81%) 63.37% 3.77% 24.19% (14.44%) 28.11% 10.36% 0.35% 20.73% 26.54%
Ratio to average net assets:
Expenses .................... 1.65% 1.64% 1.89% 1.97% 1.42% 1.36% 1.33% 1.34% 1.32% 1.43%
Net investment income ....... (0.06%) 0.21% 0.75% 0.79% 2.52% 1.18% 1.27% 1.26% 1.24% 2.00%
Portfolio turnover ........... 79.56% 38.35% 91.27% 112.03% 52.48% 59.07% 47.63% 83.21% 54.20% 151.24%
Net assets, end of period
(000's omitted) ............ $288,581 $230,473 $30,021 $25,060 $22,192 $29,126 $26,389 $25,579 $29,862 $28,007
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</TABLE>
2
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund, a Maryland corporation, is an open-end, diversified management
investment company. The Fund's investment objective is to seek long-term growth
of capital primarily through investment in equity securities and equivalents of
companies domiciled in, or doing business in, emerging countries and emerging
markets, as defined below.
Due to the risks inherent in international investments generally, the Fund
should be considered as a vehicle for investing a portion of an investor's
assets in foreign securities markets and not as a complete investment program.
The investment objective of the Fund is long-term growth of capital. The
Fund seeks to achieve this objective by investing primarily in emerging country
and emerging market equity securities. Equity securities will consist of all
types of common stocks and equivalents (the following constitute equivalents:
convertible debt securities and warrants.) The Fund may also invest in preferred
stocks, bonds, money market instruments of foreign and domestic companies, U.S.
government, and governmental agencies. There can be no assurance that the Fund
will be able to achieve its investment objective. The Fund's investment
objective is a fundamental policy that may not be changed without the approval
of a "majority of the Fund's outstanding voting securities" which means the
lesser of (i) 67% of the shares represented at a meeting at which more than 50%
of the outstanding shares are represented, or (ii) more than 50% of the
outstanding shares.
Under normal conditions, at least 65% of the Fund's total assets will be
invested in emerging country and emerging market equity securities in at least
three countries outside of the United States. For purposes of its investment
objective, the Fund considers an emerging country to be any country whose
economy and market the World Bank or United Nations considers to be emerging or
developing. The Fund may also invest in equity securities and equivalents traded
in any market, of companies that derive 50% or more of their total revenue from
either goods or services produced in such emerging countries and emerging
markets or sales made in such countries. Determinations as to eligibility will
be made by LMC based on publicly available information and inquiries made to the
companies. It is possible in the future that sufficient numbers of emerging
country or emerging market equity securities would be traded on securities
markets in industrialized countries so that a major portion, if not all, of the
Fund's assets would be invested in securities traded on such markets, although
such a situation is unlikely at present. The Fund will maintain investments at
all times in a minimum of three countries outside of the United States.
Currently, investing in many of the emerging countries and emerging markets
is not feasible or may involve political risks. Accordingly, LMC currently
intends to consider investments only in those countries in which it believes
investing is feasible and does not involve such risks. The list of acceptable
countries will be reviewed by LMC and approved by the Board of Directors on a
periodic basis and any additions or deletions with respect to such list will be
made in accordance with changing economic and political circumstances involving
such countries. (See Appendix).
The Fund's investments in emerging country equity securities are not subject
to any maximum limit, and it is the intention of LMC to invest substantially all
of the Fund's assets in emerging country and emerging market equity securities.
However, to the extent that the Fund's assets are not invested in emerging
country and emerging market equity securities, the remaining 35% of the assets
may be invested in (i) other equity securities without regard to whether they
qualify as emerging country or emerging market equity securities, (ii) debt
securities denominated in the currency of an emerging market or issued or
guaranteed by an emerging market company or the government of an emerging
country, and (iii) short-term and medium-term debt securities of the type
described below under "Temporary Investments." The Fund's assets may be so
invested in debt securities when LMC believes that, based upon factors such as
relative interest rate levels and foreign exchange rates, such debt securities
offer opportunities for long-term growth of capital. It is likely that many of
the debt securities in which the Fund will invest will be unrated, and whether
or not rated, such securities may have speculative characteristics. All unrated
debt securities purchased by the Fund will be comparable to, or the issuers of
such unrated securities will have the capacity to meet its debt obligations
comparable to those issuers of rated securities. In addition, for temporary
defensive purposes, the Fund may invest less than 65% of its assets in emerging
country and emerging market equity securities, in which case the Fund may invest
in other equity securities or may invest in debt securities of the sort
described under "Temporary Investments" below.
The Fund intends to purchase and hold securities for long-term growth of
capital and does not expect to trade for short-term gain. Accordingly, it is
anticipated that the annual portfolio turnover rate normally will not exceed
100%. A 100% turnover rate would
3
<PAGE>
occur if all of the Fund's portfolio investments were sold and either
repurchased or replaced in a year. For the period ended December 31, 1994, the
portfolio turnover rate for the Fund was 79.56%. See "Portfolio Transactions and
Brokerage Commissions" in the Statement of Additional Information. The operating
expenses of the Fund can be expected to be greater than that of an investment
company investing exclusively in United States securities.
Temporary Investments
For temporary defensive purposes, the Fund may invest up to 100% of its
total assets in money market securities, denominated in dollars or in the
currency of any emerging country, issued by entities organized in the U.S. or
any emerging country, such as: short-term (less than twelve months to maturity)
and medium-term (not greater than five years to maturity) obligations issued or
guaranteed by the U.S. Government or the government of an emerging country,
their agencies or instrumentalities; finance company and corporate commerical
paper, and other short-term corporate obligations, in each case rated Prime-1 by
Moody's Investors Service, Inc. or A or better by Standard & Poor's Corporation
or, if unrated, of comparable quality as determined by LMC, obligations
(including certificates of deposit, time deposits and banker's acceptances) of
banks; and repurchase agreements with banks and broker-dealers with respect to
such securities.
Repurchase agreements with respect to the securities described in the
preceding paragraph are contracts under which the Fund would acquire a security
for a relatively short period (usually not more than 7 days) subject to the
obligations of the seller to repurchase and the Fund to resell such security at
a fixed time and price (representing the Fund's cost plus interest). Although
the Fund may enter into repurchase agreements with respect to any portfolio
securities which it may acquire consistent with its investment policies and
restrictions, it is the Fund's present intention to enter into repurchase
agreements only with respect to obligations of the United States Government or
its agencies or instrumentalities to meet anticipated redemptions or pending
investments or reinvestments of Fund assets in portfolio securities. The Fund
will enter into repurchase agreements only with member banks of the Federal
Reserve System and with "primary dealers" in United States Government
securities. Repurchase agreements will be fully collaterized including interest
earned thereon during the entire term of the agreement. 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 market value of the collateral
securities. The Fund intends to limit repurchase agreements to institutions
believed by LMC to present minimal credit risk. The Fund will not enter into
repurchase agreements maturing in more than seven days if the aggregate of such
repurchase agreements and all other illiquid securities when taken together
would exceed 15% of the total assets of the Fund.
Certain Investment Methods-The Fund may from time to time engage in the
following investment practices:
Settlement Transactions-The Fund may, for a fixed amount of United States
dollars, enter into a foreign exchange contract for the purchase or sale of the
amount of foreign currency involved in the underlying securities transaction. In
so doing, the Fund will attempt to insulate itself against possible losses and
gains resulting from a change in the relationship between the United States
dollar and the foreign currency during the period between the date a security is
purchased or sold and the date on which payment is made or received. This
process is known as "transaction hedging".
To effect the translation of the amount of foreign currencies involved in
the purchase and sale of foreign securities and to effect the "transaction
hedging" described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e. cash) basis or on a forward basis whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the time of the
contract, for receipt or delivery at a specified date which may be any fixed
number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign currency when foreign securities are
purchased or sold for settlement beyond customary settlement time (as described
below). Neither type of foreign currency transaction will eliminate fluctuations
in the prices of the Fund's portfolio or securities or prevent loss if the price
of such securities should decline.
Portfolio Hedging-When, in the opinion of LMC, it is desirable to limit or
reduce exposure in a foreign currency in order to moderate potential changes in
the United States dollar value of the portfolio, the Fund may enter into a
forward foreign currency exchange contract by which the United States dollar
value of the underlying foreign portfolio securities can be approximately
4
<PAGE>
matched by an equivalent United States dollar liability. The Fund may also enter
into forward currency exchange contracts to increase its exposure to a foreign
currency that LMC expects to increase in value relative to the United States
dollar. The Fund will not attempt to hedge all of its portfolio positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by LMC. Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. The Fund will not enter into forward foreign
currency exchange transactions for speculative purposes. The Fund intends to
limit such transactions to not more than 70% of total Fund assets.
Forward Commitments--The Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as the Fund, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets. Although the Fund will enter into such contracts with the
intention of acquiring the securities, the Fund may dispose of a commitment
prior to settlement if LMC deems it appropriate to do so. The Fund may realize
short-term profits or losses upon the sale of forward commitments. When the Fund
engages in a forward commitment transaction, the custodian will set aside cash,
U.S. Government securities or other high quality debt obligations equal to the
amount of the commitment in a separate account. The Fund intends to limit such
transactions to not more than 70% of total Fund assets.
Except as otherwise specifically noted, the Fund's investment objective and
its investment restrictions are fundamental and may not be changed without the
approval of a majority of the outstanding voting securities of the Fund. The
Statement of Additional Information contains a complete description of the
Fund's restrictions and additional information on policies relating to the
investment of its assets and its activities.
Risk Considerations
Investments in emerging market and emerging country equity securities may
involve risks and considerations not present in domestic investments. Since
foreign securities generally are denominated and pay interest or dividends in
foreign currencies, the value of the assets of the Fund as measured in United
States dollars will be affected favorably or unfavorably by changes in the
relationship of the United States dollar and other currency rates. The Fund may
incur costs in connection with the conversion or transfer of foreign currencies.
In addition, there may be less publicly available information about foreign
companies than United States companies. Foreign companies may not be subject to
accounting, auditing, and financial reporting standards, practices and
requirements comparable to those applicable to United States companies. Foreign
securities markets, while growing in volume, have for the most part
substantially less volume than United States securities markets and securities
of foreign companies are generally less liquid and at times their prices may be
more volatile than securities of comparable United States companies. Foreign
stock exchanges, brokers and listed companies are generally subject to less
government supervision and regulation than in the United States. The customary
settlement time for foreign securities may be longer than the 5 day customary
settlement time for United States securities. Although the Fund will try to
invest in companies and governments of countries having stable political
environments, there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization or foreign government restrictions or other
adverse political, social or diplomatic developments that could affect
investment in these nations. (See "Risk Considerations" in the Statement of
Additional Information for further information.)
Income from foreign securities held by the Fund may, and in some cases will
be reduced by a withholding tax at the source or other foreign taxes. A
shareholder of the Fund will, subject to certain restrictions, be entitled to
claim a credit or deduction for United States Federal income tax purposes for
the shareholder's pro rata share of such foreign taxes paid by the Fund. (See
"Tax Matters.")
INVESTMENT RESTRICTIONS
The Fund's investment program is subject to a number of investment
restrictions which reflect self imposed standards as well as federal and state
regulatory limitations. These restrictions are designed to minimize certain
risks associated with investing in certain types of securities or engaging in
certain transactions. The most significant of these restrictions provide that:
(1) The Fund shall not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into repurchase transactions and (c) lend portfolio securities
provided that the value of such loaned securities does not exceed
one-third of the Fund's total assets.
5
<PAGE>
(2) The Fund will not hold more than 5% of the value of its total assets in
the securities of any one issuer or hold more than 10% of the
outstanding voting securities of any one issuer. This restriction
applies only to 75% of the value of the Fund's total assets. Securities
issued or guaranteed by the U.S. Government, its agencies and
instrumentalities are excluded from this restriction.
(3) The Fund will not concentrate its investments in any one industry except
that the Fund may invest up to 25% of its total assets in securities
issuers principally engaged in any one industry. This limitation,
however, will not apply to securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, securities invested in,
or repurchase agreements for, U.S. Government securities, and
certificates of deposit, or bankers' acceptances, or securities of U.S.
banks and bank holding companies.
(4) The Fund shall not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) the Fund may pledge its portfolio securities or receivables or
transfer or assign or otherwise encumber them in an amount not exceeding
one-third of the value of its total assets; and (e) for purposes of
leveraging, the Fund may borrow money from banks (including its
custodian bank), only if, immediately after such borrowing, the value of
the Fund's assets, including the amount borrowed, less its liabilities,
is equal to at least 300% of the amount borrowed, plus all outstanding
borrowings. If at any time, the value of the Fund's assets fails to meet
the 300% asset coverage requirement relative only to leveraging, the
Fund will, within three days (not including Sundays and holidays),
reduce its borrowings to the extent necessary to meet the 300% test. The
Fund will only invest in reverse repurchase agreements up to 5% of the
Fund's total assets.
The forgoing investment restrictions (as well as certain others set forth in
the Statement of Additional Information) are matters of fundamental policy which
may not be changed without the affirmative vote of the majority of the
shareholders of the Fund.
The investment policies described below are non-fundam~ental, therefore,
changes to such policies may be made in the future by the Board of Directors
without the approval of the shareholders of the Fund:
(1) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
(2) The Fund shall not write, purchase or sell puts, calls or combinations
thereof. However, the Fund may invest up to 15% of the value of its
assets in warrants. This restriction on the purchase of warrants does
not apply to warrants attached to, or otherwise included in, a unit with
other securities.
(3) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days. Securities
that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being unregistered. The Investment
Adviser shall determine whether a particular security is deemed to be
liquid based on the trading markets for the specific security and other
factors.
The Statement of Additional Information contains a complete description of
the Fund's restrictions and additional information on policies relating to the
investment of its assets and its activities.
MANAGEMENT OF THE FUND
The Fund has a Board of Directors which establishes the Fund's policies and
supervises and reviews the operations and management of the Fund. Lexington
Management Corporation ("LMC"), P.O. Box 1515 Park 80 West Plaza Two, Saddle
Brook, New Jersey 07663, is the investment adviser of the Fund. For its
investment management services to the Fund, under its current investment
advisory agreement, LMC will receive a monthly fee at the annual rate of 1% of
the Fund's average daily net assets which is
6
<PAGE>
higher than that paid by most other investment companies. However, it is not
necessarily greater than the management fee of other investment companies with
objectives and policies similar to this Fund. For the year ended December 31,
1994, LMC earned $3,028,315 under the advisory agreement. Lexington Funds
Distributor, Inc. ("LFD"), a registered broker-dealer is the Fund's distributor.
LMC also acts as administrator to the Fund and performs certain administrative
and accounting services, including but not limited to, maintaining general
ledger accounts, regulatory compliance, preparation of financial information for
semiannual and annual reports, preparing registration statements, calculating
net asset values, shareholder communications and supervision of the custodian,
transfer agent and provides facilities for such services. The Fund shall
reimburse LMC for its actual cost in providing such services, facilities and
expenses.
LMC was established in 1938 and 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 which own significant amounts of capital stock of
LMC's parent, Piedmont Management Company Inc. The clients pay fees which LMC
considers comparable to the fee levels for similarly served clients.
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 are the beneficial owners of a majority of the shares of
Piedmont Management Company Inc. common stock. See "Investment Adviser and
Distributor" in the Statement of Additional Information.
PORTFOLIO MANAGER
The Fund is managed by an investment management team. Richard T. Saler,
Senior Vice President, Director of International Investment Strategy of LMC, is
the lead manager.
Mr. Saler is responsible for international investment analysis and portfolio
management at LMC. He has nine years of investment experience. Mr. Saler has
focused on international markets since first joining LMC in 1986. Most recently
he was a strategist with Nomura Securities and rejoined LMC in 1992. Mr. Saler
is a graduate of New York Univeristy with a B.S. Degree in Marketing and an
M.B.A. in Finance from New York University's Graduate School of Business
Administration.
HOW TO PURCHASE SHARES
Initial Investment-Minimum $1,000. By Mail: Send a check payable to Lexington
Worldwide Emerging Markets Fund, Inc., along with a completed New Account
Application to State Street Bank and Trust Company (the "Agent"). Fund shares
are sold on a continuous basis at the net asset value per share next determined
after an order in proper form is received by the Agent.
Subsequent Investments-Minimum $50. By Mail: Send a check payable to Lexington
Worldwide Emerging Markets Fund, Inc., to the Agent, accompanied by either the
detachable form which is part of the confirmation of a prior transaction or a
letter indicating the dollar amount of the investment 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 who
have selling agreements with LFD. Broker-dealers who process such purchases 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, a shareholder appoints the Agent, as
his 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 "Tax Matters"). 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 (checks
drawn on the investor's bank periodically for investment in 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.
7
<PAGE>
Determination of Net Asset Value: The net asset value of the shares of the Fund
is computed as of the close of trading on each day the New York Stock Exchange
is open, by dividing the value of the Fund's securities plus any cash and other
assets (including accrued dividends and interest) less all liabilities
(including accrued expenses) by the number of shares outstanding, the result
being adjusted to the nearest whole cent. A security listed or traded on a
recognized stock exchange is valued at its last sale price prior to the time
when assets are valued on the principal exchange on which the security is
traded. If no sale is reported at that time, the mean between the current bid
and asked price will be used. All other securities for which over-the-counter
market quotations are readily available are valued at the mean between the last
current bid and asked price. Short-term securities having maturity of 60 days or
less are valued at cost when it is determined by the Fund's Board of Directors
that amortized cost reflects the fair value of such securities. Securities for
which market quotations are not readily available and other assets are valued at
fair value as determined by Management and approved in good faith by the Board
of Directors.
Generally, trading in foreign securities, as well as United States
Government securities, money market instruments and repurchase agreements, is
substantially completed each day at various times prior to the close of the New
York Stock Exchange. The values of such securities used in computing the net
asset value of the shares of the Fund are determined as of such times. Foreign
currency exchange rates are also generally determined prior to the close of the
Exchange. Occasionally, events affecting the value of such securities and such
exchange rates may occur between the times at which they are determined and the
close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods, events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined by management and approved in good faith by the Board of
Directors.
For purposes of determining the net asset value per share of the Fund all
assets and liabilities initially expressed in foreign currencies will be
converted into United States dollars at the mean between the bid and offer
prices of such currencies against United States dollars quoted by any major
bank.
Terms of Offering: 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.
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.
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. LMC, at no additional cost to the Fund may pay
to Shareholder Servicing Agents additional amounts from its past profits. Each
Shareholder Servicing Agent may, from time to time, voluntarily waive all or a
portion of the fees payable to it.
Account Statements: The Agent will send shareholders 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 purchase or
redeemed, the purchase or redemption price per share, and the amount purchased
or redemption proceeds. A statement is also sent to shareholders
8
<PAGE>
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: (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. If a
redemption 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 normally 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; (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. Notary
publics are not acceptable guarantors.
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") specifying 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" above and in the Statement
of Additional Information).
The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) and 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 account 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.
9
<PAGE>
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, without sales charge,
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 and emerging markets.
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 available for
sale in Vermont, Missouri or Wisconsin.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income. Capital appreciation is a secondary objective.
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 capital
appreciation over the long term through investments in stocks of large,
ably managed and well financed companies.
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 available for sale in Vermont.
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)/Seeks a high level of
current income, consistent with liquidity and safety of principal,
through investment primarily in mortgage-backed GNMA Certificates.
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
securities.
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.
10
<PAGE>
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired. If an exchange involves investing in a
Lexington Fund not already owned and a new account has to be established, the
dollar amount exchanged must meet the 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 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 LFD. 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 Purchase 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-certificate 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, or 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 the shareholder is an entity
other than an individual, such entity may be required to certify 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 the power to take action called for by this
continuing authorization.
Exchange Authorization forms, Telephone Authorization forms and prospectuses
of the other funds may be obtained from LFD.
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 upon 60 days' notice. 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 LMC. For
further information call 1-800-526-0056.
11
<PAGE>
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay dividends annually from investment income if earned
and as declared by its Board of Directors.
The Fund intends to declare or distribute a dividend from its net investment
income and/or net capital gain income in December.
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 that he
wants to receive his 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. An account of such shares owned by
each shareholder will be maintained by the Agent. Shareholders whose accounts
are maintained by the Agent will have the same rights as other shareholders with
respect to shares so registered (see "How to Purchase Shares-The Open Account").
PERFORMANCE CALCULATION
The Fund will calculate performance on a total return basis for various
periods. The total return basis combines changes in principal and dividends for
the periods shown. Principal changes are based on the difference between the
beginning and closing net asset value for the period and assumes reinvestment of
dividends paid by the Fund. Dividends are comprised of net investment income and
net realized capital gains, respectively.
Performance will vary from time to time and past results are not necessarily
representative of future results. A shareholder should remember that performance
is a function of portfolio management in selecting the type and quality of
portfolio securities and is affected by operating expenses.
Comparative performance information may be used from time to time in
advertising or marketing of the Fund's shares, including data from Lipper
Analytical Services, Inc. or major market indices such as the Dow Jones
Industrial Average Index, Standard & Poor's 500 Composite Stock Price Index and
Morgan Stanley Capital International World Index. Such comparative performance
information will be stated in the same terms in which the comparative data and
indices are stated. Further information about the Fund's performance is
contained in the annual report, which may be obtained without charge.
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 the 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 (which includes
certain foreign currency gains and losses) 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 in any year only a portion thereof (which
cannot exceed the aggregate amount of qualifying dividends from domestic
corporations received by the Fund during the year) may qualify for the 70%
dividends-received deduction for corporate shareholders. Because the Fund's
investment income will consist primarily of dividends from foreign corporations
and the Fund may have interest income and short-term capital gains, it is not
expected that a significant portion of the ordinary income dividends paid by the
Fund may qualify for the dividends-received deduction. 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.
Under certain circumstances, the Fund may elect to "pass-through" to its
shareholders the income or other taxes paid by the Fund to foreign governments
during the year. Each shareholder will be required to include his pro rata
portion of these foreign taxes in his gross income, but will be able to deduct
or (subject to various limitations) claim a foreign tax credit for such amount.
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
12
<PAGE>
received by the shareholders on December 31 of the preceding year. A statement
setting forth the Federal income tax status of all distributions made or deemed
made during the year, including any amount of foreign taxes "passed-through",
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 ordinary income dividends,
capital gain dividends 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 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.
ORGANIZATION AND DESCRIPTION OF COMMON STOCK
The Fund is an open-end, diversified management investment company and was
organized as a corporation under the laws of the State of Maryland on January
22, 1969 under the name "Lexington Growth Fund, Inc." and adopted its present
name on June 14, 1991, and has authorized capital of 120,000,000 shares of
common stock, par value $1.00 of which 100,000,000 shares have been designated
as Lexington Worldwide Emerging Markets Fund Series. Each share of common stock
has one vote and shares equally in dividends and distributions when and if
declared by the Fund and in the Fund's assets upon liquidation. All shares, when
issued, are fully paid and non-assessable. There are no preemptive, conversion
or exchange rights. Fund shares do not have cumulative voting rights and, as
such, holders of at least 50% of the shares voting for Directors can elect all
Directors and the remaining shareholders would not be able to elect any
Directors.
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.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank N.A., 1211 Avenue of the Americas, New York, New York
10022 will act as custodian for the Fund's portfolio securities including those
to be held by foreign banks and foreign securities depositories which qualify as
eligible foreign custodians under the rules adopted by the SEC and for the
Fund's domestic securities and other assets. State Street Bank and Trust Company
225 Franklin Street, Boston, Massachusetts, 02110 will 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.
13
<PAGE>
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
This prospectus omits certain information contained in the registration
statement filed with the SEC. Copies of the registration statement, including
items omitted herein, may be obtained from the SEC by paying the charges
prescribed under its rules and regulations. The Statement of Additional
Information included in such registration statement may be obtained without
charge from the Fund.
No person has been authorized to give any information or to make any
representation other than those contained in this Prospectus, and information or
representations not herein contained, if given or made, must not be relied upon
as having been authorized by the Fund. This Prospectus does not constitute an
offer or solicitation in any jurisdiction in which such offering may not
lawfully be made.
APPENDIX
The countries which the Fund considers to represent emerging countries or
countries with emerging markets are set forth below. Each country in which the
Fund invests is subject to prior approval of the Fund's Board of Directors. The
Fund may also invest in equity securities and equivalents traded in any market
of companies that derive 50% or more of their total revenue from either goods or
services produced in such emerging countries and emerging markets or sales made
in such countries.
<TABLE>
<S> <C> <C> <C> <C> <C>
ALGERIA CYPRUS HONG KONG MALAYSIA PHILIPPINES TAIWAN
ARGENTINA CZECH REPUBLIC HUNGARY MAURITIUS POLAND THAILAND
BANGLADESH DOMINICAN INDIA MEXICO PORTUGAL TRINIDAD & TOBAGO
BOLIVIA REPUBLIC INDONESIA MOROCCO RUSSIA TUNISIA
BOTSWANA ECUADOR ISRAEL NICARAGUA SINGAPORE TURKEY
BRAZIL EGYPT IVORY COAST NIGERIA SLOVAKIA URUGUAY
CHILE FINLAND JAMAICA PAKISTAN SOUTH AFRICA VENEZUELA
CHINA GHANA JORDAN PANAMA SOUTH KOREA ZAMBIA
COLOMBIA GREECE KENYA PERU SRI LANKA ZIMBABWE
COSTA RICA
</TABLE>
14
<PAGE>
-----------------
L E X I N G T O N
-----------------
-----------------
LEXINGTON
WORLDWIDE
EMERGING
MARKETS
FUND, INC.
------------
Worldwide diversification
Free telephone
exchange privilege
No sales charge
No redemption fee
------------
The Lexington Group
of
No-Load
Investment Companies
-----------------
P R O S P E C T U S
MAY 1, 1995
-------------
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
Investment Objective and Policies ..................... 3
Investment Restrictions ............................... 5
Management of the Fund ................................ 6
Portfolio Manager ..................................... 7
How to Purchase Shares ................................ 7
How to Redeem Shares .................................. 9
Shareholder Services .................................. 9
Exchange Privilege .................................... 10
Tax-Sheltered Retirement Plans ........................ 11
Dividend Distribution and Reinvestment Policy ......... 12
Performance Calculation ............................... 12
Tax Matters ........................................... 12
Organization and Description of Common Stock .......... 13
Custodian, Transfer Agent and
Dividend Disbursing Agent ........................... 13
Counsel and Independent Auditors ...................... 14
Other Information ..................................... 14
Appendix .............................................. 14
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS 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
Worldwide Emerging Markets Fund, Inc. (the "Fund"), dated May 1, 1995, and
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 Information: 1-800-526-0056
24 Hour Account Information: 1-800-526-0052
Lexington Management Corporation ("LMC") is the Fund's investment
adviser. Lexington Funds Distributor, Inc. ("LFD") is the Fund's
distributor.
TABLE OF CONTENTS
General Information and History . . . . . . . . . . . . . . . . . . .2
Investment Objectives and Policies . . . . . . . . . . . . . . . . . .2
Risk Considerations. . . . . . . . . . . . . . . . . . . . . . . . . .3
Investment Policy and Restrictions . . . . . . . . . . . . . . . . . .5
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . .7
Investment Adviser, Distributor and Administrator. . . . . . . . . . .9
Portfolio Transactions and Brokerage Commissions . . . . . . . . . . 10
Tax-Sheltered Retirement Plans . . . . . . . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . . . . . 12
Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Performance Calculation. . . . . . . . . . . . . . . . . . . . . . . 18
Shareholder Reports. . . . . . . . . . . . . . . . . . . . . . . . . 19
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 20
<PAGE>
GENERAL INFORMATION AND HISTORY
The Fund was formerly named "Lexington Growth Fund, Inc.". At a
meeting held on June 14, 1991, the shareholders of the Fund approved a
change in the Fund's name to "Lexington Worldwide Emerging Markets Fund,
Inc." in connection with a change in the Fund's fundamental investment
objective which was also approved by the shareholders at that time.
INVESTMENT OBJECTIVE AND POLICIES
For a full description of the Fund's investment objective and
policies, see the Prospectus under "Investment Objective and Policies."
CERTAIN INVESTMENT METHODS
Settlement Transactions - When the Fund enters into contracts for the
purchase or sale of a portfolio security denominated in a foreign currency,
it may be required to settle a purchase transaction in the relevant foreign
currency or receive the proceeds of a sale in that currency. In either
event, the Fund will be obligated to acquire or dispose of such foreign
currency as is represented by the transaction by selling or buying an
equivalent amount of United States dollars. Furthermore, the Fund may wish
to "lock in" the United States dollar value of the transaction at or near
the time of a purchase or sale of portfolio securities at the exchange rate
or rates then prevailing between the United States dollar and the currency
in which the foreign security is denominated. Therefore, the Fund may, for
a fixed amount of United States dollars, enter into a foreign exchange
contract for the purchase or sale of the amount of foreign currency
involved in the underlying securities transaction. In so doing, the Fund
will attempt to insulate itself against possible losses and gains resulting
from a change in the relationship between the United States dollar and the
foreign currency during the period between the date a security is purchased
or sold and the date in which payment is made or received. This process
is known as "transaction hedging".
To effect the translation of the amount of foreign currencies
involved in the purchase and sale of foreign securities and to effect the
"transaction hedging" described above, the Fund may purchase or sell
foreign currencies on a "spot" (i.e. cash) basis or on a forward basis
whereby the Fund purchases or sells a specific amount of foreign currency,
at a price set at the time of the contract, for receipt or delivery at a
specified date which may be any fixed number of days in the future.
Such spot and forward foreign exchange transactions may also be
utilized to reduce the risk inherent in fluctuations in the exchange rate
between the United States dollar and the relevant foreign currency when
foreign securities are purchased or sold for settlement beyond customary
settlement time (as described below). Neither type of foreign currency
transaction will eliminate fluctuations in the prices of the Fund's
portfolio or securities or prevent loss if the price of such securities
should decline.
Portfolio Hedging - Some or all of the Fund's portfolio will be denominated
in foreign currencies. As a result, in addition to the risk of change in
the market value of portfolio securities, the value of the portfolio in the
United States dollars is subject to fluctuations in the exchange rate
between such foreign currencies and the United States dollar. When, in the
opinion of LMC, it is desirable to limit or reduce exposure in a foreign
currency in order to moderate potential changes in the United States dollar
value of the portfolio, the Fund may enter into a forward foreign currency
exchange contract by which the United States dollar value of the underlying
foreign portfolio securities can be approximately matched by an equivalent
United States dollar liability. This technique is known as "portfolio
hedging" and moderates or reduces the risk of change in the United States
dollar value of the fund's portfolio only during the period before the
maturity of the forward contract (which will not be in excess of one year).
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<PAGE>
The Fund will not attempt to hedge all of its foreign portfolio positions
and will enter into such transactions only to the extent, if any, deemed
appropriate by LMC. Hedging against a decline in the value of currency
does not eliminate fluctuations in the prices of portfolio securities or
prevent losses if the prices of such securities decline. The Fund will not
enter into forward foreign currency exchange transactions for speculative
purposes. The Fund intends to limit transactions as described in this
paragraph to not more than 70% of total Fund assets.
Forward Commitments - The Fund may make contracts to purchase securities
for a fixed price at a future date beyond customary settlement time
("forward commitments") because new issues of securities are typically
offered to investors, such as the Fund, on that basis. Forward commitments
involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date. This risk is in addition to the
risk of decline in value of the Fund's other assets. Although the Fund
will enter into such contracts with the intention of acquiring the
securities, the Fund may dispose of a commitment prior to settlement if the
investment adviser deems it appropriate to do so. The Fund may realize
short-term profits or losses upon the sale of forward commitments. When
the Fund engages in a forward commitment transaction, the custodian will
set aside cash, U.S. government securities or other high quality debt
obligations equal to the amount of the commitment in a separate account.
Normally, the custodian will set aside portfolio securities to satisfy a
purchase commitment, and in such a case the Fund may be required
subsequently to place additional assets in the separate account in order
to ensure that the value of the account remains equal to the amount of the
Fund's commitment. Because the Fund will set aside cash or liquid assets
to satisfy its purchase commitments in the manner described, the Fund's
liquidity and ability to manage its portfolio might be adversely affected
in the event its commitments to make forward purchases exceed 70% of the
value of its assets. In the case of a forward commitment to sell portfolio
securities, the Fund's custodian will hold the portfolio securities
themselves in a segregated account while the commitment is outstanding.
RISK CONSIDERATIONS
Investors should recognize that investing in securities of companies in
emerging markets and emerging countries involves certain risk
considerations, including those set forth below, which are not typically
associated with investing in securities of U.S. companies.
Foreign Currency Considerations
The Fund's assets will be invested in securities of companies in
emerging markets and emerging countries and substantially all income will
be received by the Fund in foreign currencies. However, the Fund will
compute and distribute its income in dollars, and the computation of income
will be made on the date of its receipt by the Fund at the foreign exchange
rate in effect on that date. Therefore, if the value of the foreign
currencies in which the Fund receives its income falls relative to the
dollar between receipt of the income and the making of Fund distributions,
the Fund will be required to liquidate securities in order to make
distributions if the Fund has insufficient cash in dollars to meet
distribution requirements.
The value of the assets of the Fund as measured in dollars also may
be affected favorably or unfavorably by fluctuations in currency rates and
exchange control regulations. Further, the Fund may incur costs in
connection with conversions between various currencies. Foreign exchange
dealers realize a profit based on the difference between the prices at
which they are buying and selling various currencies. Thus, a dealer
normally will offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire immediately
to resell that currency to the dealer. The Fund will conduct its foreign
currency exchange transactions either on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or through
entering into forward or futures contracts to purchase or sell foreign
currencies.
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<PAGE>
Investment and Repatriation Restrictions
Some emerging countries have laws and regulations which currently
preclude direct foreign investment in the securities of their companies.
However, indirect foreign investment in the securities of companies listed
and traded on the stock exchanges in these countries is permitted by
certain emerging countries through investment funds which have been
specifically authorized. The Fund may invest in these investment funds
subject to the provisions of the 1940 Act as discussed below under
"Investment Restrictions". If the Fund invests in such investment funds,
the Fund's shareholders will bear not only their proportionate share of the
expenses of the Fund (including operating expenses and the fees of the
Investment Manager), but also will bear indirectly similar expenses of the
underlying investment funds.
In addition to the foregoing investment restrictions, prior
governmental approval for foreign investments may be required under certain
circumstances in some emerging countries, while the extent of foreign
investment in domestic companies may be subject to limitation in other
emerging countries. Foreign ownership limitations also may be imposed by
the charters of individual companies in emerging countries to prevent,
among other concerns, violation of foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales
by foreign investors may require governmental registration and/or approval
in some emerging countries. The Fund could be adversely affected by delays
in or a refusal to grant any required governmental approval for such
repatriation.
Emerging Country and Emerging Market Securities Markets
Trading volume on emerging country stock exchanges is substantially
less than that on the New York Stock Exchange. Further, securities of some
emerging country or emerging market companies are less liquid and more
volatile than securities of comparable U.S. companies. Similarly, volume
and liquidity in most emerging country bond markets is substantially less
than in the U.S. and, consequently, volatility of price can be greater than
in the U.S. Fixed commissions on emerging country stock or emerging market
exchanges are generally higher than negotiated commissions on U.S.
exchanges, although the Fund endeavors to achieve the most favorable net
results on its portfolio transactions and may be able to purchase the
securities in which the Fund may invest on other stock exchanges where
commissions are negotiable.
Companies in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and
disclosure requirements comparable to those applicable to U.S. companies.
Consequently, there may be less publicly available information about an
emerging country company than about a U.S. company. Further, there is
generally less governmental supervision and regulation of foreign stock
exchanges, brokers and listed companies than in the U.S.
Economic and Political Risks
The economies of individual emerging countries may differ favorably
or unfavorably from the U.S. economy in such respects as growth of gross
domestic product, rate of inflation, capital reinvestment, resource self-
sufficiency and balance of payments position. Further, the economies of
developing countries generally are heavily dependent upon international
trade and, accordingly, have been and may continue to be adversely affected
by trade barriers, managed adjustments in relative currency values and
other protectionist measures imposed or negotiated by the countries with
which they trade. These economies also have been and may continue to be
adversely affected by economic conditions in the countries with which they
trade.
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<PAGE>
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such
countries or the Fund's investments in those countries. In addition, it
may be more difficult to obtain a judgement in a court outside of the
United States.
INVESTMENT POLICY AND RESTRICTIONS
The Fund's investment objective, as described under "investment
policy" and the following investment restrictions are matters or
fundamental policy which may not be changed without the affirmative vote
of the lesser of (a) 67% or more of the shares of the Fund present at a
shareholders' meeting at which more than 50% of the outstanding shares are
present or represented by proxy or (b) more than 50% of the outstanding
shares. Under these investment restrictions:
a. the Fund will not issue any senior security (as defined
in the 1940 Act), except that (a) the Fund may enter
into commitments to purchase securities in accordance
with the Fund's investment program, including reverse
repurchase agreements, foreign exchange contracts,
delayed delivery and when-issued securities, which may
be considered the issuance of senior securities; (b) the
Fund may engage in transactions that may result in the
issuance of a senior security to the extent permitted
under applicable regulations, interpretation of the 1940
Act or an exemptive order; (c) the Fund may engage in
short sales of securities to the extent permitted in its
investment program and other restrictions; (d) the
purchase or sale of futures contracts and related
options shall not be considered to involve the issuance
of senior securities; and (e) subject to fundamental
restrictions, the Fund may borrow money as authorized by
the 1940 Act.
b. The Fund shall not act as an underwriter of securities
except to the extent that, in connection with the
disposition of portfolio securities by the Fund, the
Fund may be deemed to be an underwriter under the
provisions of the 1933 Act.
c. The Fund shall not purchase real estate, interests in
real estate or real estate limited partnership interests
except that, to the extent appropriate under its
investment program, the Fund may invest in securities
secured by real estate or interests therein or issued by
companies, including real estate investment trusts,
which deal in real estate or interests therein.
d. The Fund will not invest in commodity contracts, except
that the Fund may, to the extent appropriate under its
investment program, purchase securities of companies
engaged in such activities, may enter into transactions
in financial and index futures contracts and related
options, may engage in transactions on a when-issued or
forward commitment basis, and may enter into forward
currency contracts.
e. The Fund shall not make loans, except that, to the
extent appropriate under its investment program, the
Fund may (a) purchase bonds, debentures or other debt
securities, including short-term obligations, (b) enter
into repurchase transactions and (c) lend portfolio
securities provided that the value of such loaned
securities does not exceed one-third of the Fund's total
assets.
f. The Fund will not hold more than 5% of the value of its
total assets in the securities of any one issuer or hold
more than 10% of the outstanding voting securities of
any one issuer. This restriction applies only to 75% of
the value of the Fund's total assets. Securities issued
or guaranteed by the U.S. Government, its agencies and
instrumentalities are excluded from this restriction.
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<PAGE>
g. The Fund will not concentrate its investments in any one
industry except that the Fund may invest up to 25% of
its total assets in securities issuers principally
engaged in any one industry. This limitation, however,
will not apply to securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities,
securities invested in, or repurchase agreements for,
U.S. Government securities, and certificates of deposit,
or bankers' acceptances, or securities of U.S. banks and
bank holding companies.
h. The Fund shall not borrow money, except that (a) the
Fund may enter into certain futures contracts and
options related thereto; (b) the Fund may enter into
commitments to purchase securities in accordance with
the Fund's investment program, including delayed
delivery and when-issued securities and reverse
repurchase agreements; (c) for temporary emergency
purposes, the Fund may borrow money in amounts not
exceeding 5% of the value of its total assets at the
time when the loan is made; (d) the Fund may pledge its
portfolio securities or receivables or transfer or
assign or otherwise encumber them in an amount not
exceeding one-third of the value of its total assets;
and (e) for purposes of leveraging, the Fund may borrow
money from banks (including its custodian bank), only
if, immediately after such borrowing, the value of the
Fund's assets, including the amount borrowed, less its
liabilities, is equal to at least 300% of the amount
borrowed, plus all outstanding borrowings. If at any
time, the value of the Fund's assets fails to meet the
300% asset coverage requirement relative only to
leveraging, the Fund will, within three days (not
including Sundays and holidays), reduce its borrowings
to the extent necessary to meet the 300% test.
In addition to the above fundamental restrictions, the Fund has undertaken
the following non- fundamental restrictions, which may be changed in the
future by the Board of Directors, without a vote of the shareholders of the
Fund:
i. The Fund may purchase and sell futures contracts
and related options under the following
conditions: (a) the then-current aggregate
futures market prices of financial instruments
required to be delivered and purchased under open
futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no
more than 5% of the assets, at market value at the
time of entering into a contract, shall be
committed to margin deposits in relation to
futures contracts.
ii. The Fund will not purchase the securities of any
other investment company, except as permitted
under the 1940 Act.
iii. The Fund will not purchase any securities on
margin or make short sales of securities, other
than short sales "against the box," or purchase
securities on margin except for short-term credits
necessary for clearance of portfolio transactions,
provided that this restriction will not be applied
to limit the use of options, futures contracts and
related options, in the manner otherwise permitted
by the investment restrictions, policies and
investment programs of the Fund.
iv. The Fund shall not buy securities from or sell
securities (other than securities issued by the
Fund) to any of its officers, directors or its
investment adviser or distributor as principal.
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<PAGE>
v. The Fund shall not contract to sell any security
or evidence of interest therein, except to the
extent that the same shall be owned by the Fund.
vi. The Fund will not purchase securities of an issuer
if to the Fund's knowledge, one or more of the
Directors or officers of the Fund or LMC
individually owns beneficially more than 0.5% and
together own beneficially more than 5% of the
securities of such issuer nor will the Fund hold
the securities of such issuer.
vii. The Fund will not, except for investments which,
in the aggregate, do not exceed 5% of the Fund's
total assets taken at market value, purchase
securities unless the issuer thereof or any
company on whose credit the purchase was based has
a record of at least three years continuous
operations prior to the purchase.
viii. The Fund will not invest for the purpose of
exercising control over or management of any
company.
ix. The Fund shall not write, purchase or sell puts,
calls or combinations thereof. However, the Fund
may invest up to 15% of the value of its assets in
warrants. This restriction on the purchase of
warrants does not apply to warrants attached to,
or otherwise included in, a unit with other
securities.
x. The Fund will invest more than 15% of its total
assets in illiquid securities. Illiquid
securities are securities that are not readily
marketable or cannot be disposed of promptly
within seven days and in the usual course of
business without taking a materially reduced
price. Such securities include, but are not
limited to, time deposits and repurchase
agreements with maturities longer than seven days.
Securities that may be resold under Rule 144A or
securities offered pursuant to Section 4(2) of the
Securities Act of 1933, as amended, shall not be
deemed illiquid solely by reason of being
unregistered. The Investment Adviser shall
determine whether a particular security is deemed
to be liquid based on the trading markets for the
specific security and other factors.
xi. The Fund will not purchase interests in oil, gas,
mineral leases or other exploration programs;
however, this policy will not prohibit the
acquisition of securities of companies engaged in
the production or transmission of oil, gas or
other materials.
The percentage restrictions referred to above are to be adhered to at the
time of investment and are not applicable to a later increase or decrease
in percentage beyond the specified limit resulting from change in values
or net assets.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
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<PAGE>
*+ROBERT M. DEMICHELE, President and Chairman of the Board. 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; Unione Italiana Reinsurance; Vice Chairman of the Board
of Trustees, Union College; Director, Continental National
Corporation; Director, The Navigator's Group, Inc.; Chairman,
Lexington Capital Management, Inc.; Chairman, LCM Financial Services,
Inc.; Director, Vanguard Cellular Systems, Inc.; Chairman of the
Board, Market Systems Research, Inc. and Market Systems Research
Advisors, Inc. (registered investment advisers); Trustee, Smith
Richardson Foundation.
+BEVERLEY C. DUER, Director, 340 East 72nd Street, New York, N.Y. 10021.
Private Investor. Formerly, Manager of Operations Research
Department, CPC International, Inc.
*+BARBARA R. EVANS, Director. 5 Fernwood Road, Summit, N.J. 07901.
Private Investor. Prior to May 1989, Assistant Vice President and
Securities Analyst, Lexington Management Corporation; prior to March
1987, Vice President - Institutional Equity Sales, L.F. Rothchild,
Unterberg, Towbin.
*+LAWRENCE KANTOR, Vice President and Director. P.O. Bx 1515, Saddle
Brook, N.J. 07663. Executive Vice President, Managing Director and
Director, Lexington Management Corporation; Executive Vice President,
General Manager 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, New Jersey (chemical
manufacturers).
+JOHN G. PRESTON, Director. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston,
Massachusetts.
+MARGARET RUSSELL. Director. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor; formerly, Community Affairs Director, Union
Camp Corporation.
+PHILIP C. SMITH, Director. 87 Lord's Highway, Weston, Connecticut 06883.
Private Investor; Director, Southwest Investors Income Fund, Inc.,
Government Income Fund, Inc., U.S. Trend Fund, Inc. and Investors
Cash Reserve and Plimony Fund, Inc. (registered investment
companies).
+FRANCIS A. SUNDERLAND, Director. 309 Quito Place, Castle Pines, Castle
Rock, Colorado 80104. Private Investor.
*+RICHARD T. SALER, Vice President and Portfolio Manager. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director of
International Equity Investment Strategy, Lexington Management
Corporation. Prior to July 1992, Securities Analyst, Nomura
Securities, Inc. Prior to November 1991, Vice President, Lexington
Management Corporation.
*+LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook,
N.J. 07663 Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds
Distributor, Inc.
*+RICHARD M. HISEY, Vice President and Treasurer. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Director and Chief Financial
Officer, Lexington Management Corporation; Chief Financial Officer,
Vice President and Director, Lexington Funds Distributor, Inc.; Chief
Financial Officer, Market Systems Research Advisors, Inc.
*+RICHARD J. LAVERY, CLU ChFC, Vice President. P.O. Box 1515, Saddle
Brook, N.J. 07663. Senior Vice President, Lexington Management
Corporation; Vice President, Lexington Funds Distributor, Inc.
*+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.
*+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.
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<PAGE>
*+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, Kantor, Lavery, Luehs,
Miller, Olmsted, Petruski, Preston, Saler, Smith, and Sunderland and Mmes.
Carnicelli, Carr, Curcio, Evans, Gilfillan, Mosca and Russell hold similar
offices with some or all of the other investment companies advised and/or
distributed by LMC and LFD.
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. For the
fiscal year ended December 31, 1994, an aggregate of $10,879 in fees and
expenses was paid to seven Directors not employed by the Fund's affiliates.
The Board does not have any audit, nominating or compensation committees.
Aggregate Total Compensation Number of
Name of Director Compensation From From Fund Directorships in
Fund and 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
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle
Brook, New Jersey 07663 is the investment adviser to the Fund pursuant to
an Investment Management Agreement dated December 5, 1994, (the "Advisory
Agreement"). LFD is the distributor of Fund shares pursuant to a
Distribution Agreement dated December 4, 1990 (the "Distribution
Agreement"). Both of these agreements were approved by the Fund's Board
of Directors (including a majority of the Directors who were not parties
to either the Advisory Agreement or the Distribution Agreement or
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<PAGE>
"interested persons" of any such party) on December 5, 1994. LMC makes
recommendations to the Fund with respect to its investments and investment
policies. LMC is paid an investment advisory fee at the annual rate of
1.00% of the Fund's average daily net assets. Advisory fees paid to LMC
by the Fund for the last three fiscal years are as follows: December 31,
1992, $277,756 ; December 31, 1993, $563,193 and December 31, 1994,
$3,028,315.
LMC's investment advisory fee will be reduced for any fiscal year by
any amount necessary to prevent Fund expenses from exceeding the most
restrictive expense limitations imposed by the securities laws or
regulations of those states or jurisdictions in which the Fund's shares are
registered or qualified for sale. Currently, the most restrictive of such
expense limitation would require LMC to reduce its fee so that ordinary
expense (excluding interest, taxes, brokerage commissions and extraordinary
expenses) for any fiscal year do not exceed 2.5% of the first $30 million
of the Fund's average daily net assets, plus 2.0% of the next $70 million,
plus 1.5% of the Fund's average daily net assets in excess of $100 million.
LFD pays the advertising and sales expenses of the continuous offering of
Fund shares, including the cost of printing prospectuses, proxies and
shareholder reports for persons other than existing shareholders. The Fund
furnishes LFD, at printer's overrun cost paid by LFD, such copies of its
prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing
registration statements, calculating net asset values, shareholder
communications and supervision of the custodian, transfer agent and
provides facilities for such services. The Fund shall reimburse LMC for
its actual cost in providing such services, facilities and expenses.
The Advisory Agreement and the Distribution Agreement are subject to
annual approval by the Fund's Board of Directors and by the affirmative
vote, cast in person at a meeting called for such purpose, of a majority
of the Directors who are not parties either to the Advisory Agreement or
the Distribution Agreement, as the case may be, or "interested persons" of
any such party. Either the Fund or LMC may terminate the Advisory
Agreement and the Fund or LFD may terminate the Distribution Agreement on
60 days' written notice without penalty. The Advisory Agreement terminates
automatically in the event of assignment, as defined in the Investment
Company Act of 1940. LMC shall not be liable to the Fund or its
shareholders for any act or omission by LMC, its officers, directors or
employees for any loss sustained by the Fund or its shareholders except in
the case of willful misfeasance, bad faith, gross negligence or reckless
disregard of duty.
LMC and LFD are wholly owned subsidiaries of Piedmont Management
Company Inc., a publicly traded corporation. 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.
Of the directors, officers or employees ("affiliated persons") of the
Fund, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs,
Petruski and Saler and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca
(see "Management of the Fund"), may also be deemed affiliates of LMC and
LFD by virtue of being officers, directors or employees thereof. As of
February 23, 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.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
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
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<PAGE>
determine, LMC may consider sales of shares of the Fund and of the other
Lexington Funds as a factor in the selection of brokers and dealers and the
market in which a transaction is executed. However, pursuant to the Fund's
investment advisory 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 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
transactions 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.
The Fund anticipates that its brokerage transactions involving
securities of companies domiciled in countries other than the United States
will normally be conducted on the principal stock exchanges of those
countries. Fixed commissions of foreign stock exchange transactions are
generally higher than the negotiated commission rates available in the
United States. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the United
States. Brokerage commissions paid for each of the last three fiscal years
were: 1992, $201,739; 1993, $958,179 and 1994, $2,815,460. The portfolio
turnover rate for the last three fiscal years was: 1992, 91.27%; 1993,
38.35% and 1994, 79.56%.
TAX-SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit
Sharing plans including a 401(k) Salary Reduction Plan and a 403(b)(7)
Plan. Plan services are available by contracting 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.
The minimum initial investment to establish a tax-sheltered plan is
$250. Subsequent investments are subject to a minimum of $50 for each
account.
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SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make
tax deductible contributions to a prototype defined contributions 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 investment adviser, 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.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of the Fund is normally determined at
4:00 p.m. New York time on each Fund "business day" which is any day on
which the New York Stock Exchange is open for business. It is expected
that the New York Stock Exchange will be closed on Saturdays and Sundays
and on New Year's day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. See the
Prospectus for the further discussion of net asset value.
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.
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In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans,
gains from the sale or other disposition of stock or securities or foreign
currencies (to the extent such currency gains are directly related to the
regulated investment company's principal business of investing in stock or
securities) and other income (including but not limited to gains from
options, futures or forward contracts) derived with respect to its business
of investing in such stock, securities or currencies (the "Income
Requirement"); and (2) derive less than 30% of its gross income (exclusive
of certain gains on designated hedging transactions that are offset by
realized or unrealized losses on offsetting positions) from the sale or
other disposition of stock, securities or foreign currencies (or options,
futures or forward contracts thereon) held for less than three months (the
"Short-Short Gain Test"). However, foreign currency gains, including those
derived from options, futures and forwards, will not in any event be
characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or
options or futures thereon). Because of the Short-Short Gain Test, the
Fund may have to limit the sale of appreciated securities that it has held
for less than three months. However, the Short-Short Gain Test will not
prevent the Fund from disposing of investments at a loss, since the
recognition of a loss before the expiration of the three-month holding
period is disregarded for this purpose. Interest (including original issue
discount) received by the Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross
income derived from the sale or other disposition of such security within
the meaning of the Short-Short Gain Test. However, income that is
attributable to realized market appreciation will be treated as gross
income from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition
of an asset will be a capital gain or loss. However, gain recognized on
the disposition of a debt obligation purchased by the Fund at a market
discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market
discount which accrued during the period of time the Fund held the debt
obligation. In addition, under the rules of Code Section 988, gain or loss
recognized on the disposition of a debt obligation denominated in a foreign
currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or
loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign
currency itself, except for regulated futures contracts or non-equity
options subject to Code Section 1256 (unless the Fund elects otherwise),
will generally be treated as ordinary income or loss.
Transactions that may be engaged in by the Fund (such as regulated
futures contracts, certain foreign currency contracts, and options on stock
indexes and futures contracts) will be subject to special tax treatment as
"Section 1256 contracts." Section 1256 contracts are treated as if they
are sold for their fair market value on the last business day of the
taxable year, even though a taxpayer's obligations (or rights) under such
contracts have not terminated (by delivery, exercise, entering into a
closing transaction or otherwise) as of such date. Any gain or loss
recognized as a consequence of the year-end deemed disposition of Section
1256 contracts is taken into account for the taxable year together with any
other gain or loss that was previously recognized upon the termination of
Section 1256 contracts during that taxable year. Any capital gain or loss
for the taxable year with respect to Section 1256 contracts (including any
capital gain or loss arising as a consequence of the year-end deemed sale
of such contracts) is generally treated as 60% long-term capital gain or
loss and 40% short-term capital gain or loss. The Fund, however, may elect
not to have this special tax treatment apply to Section 1256 contracts that
are part of a "mixed straddle" with other investments of the Fund that are
not Section 1256 contracts. The IRS has held in several private rulings
(and Treasury Regulations now provide) that gains arising from Section 1256
contracts will be treated for purposes of the Short-Short Gain Test as
being derived from securities held for not less than three months if the
gains arise as a result of a constructive sale under Code Section 1256.
The Fund may purchase securities of certain foreign investment funds
or trusts which constitute passive foreign investment companies ("PFICs")
for federal income tax purposes. If the Fund invests in a PFIC, it may
elect to treat the PFIC as a qualifying electing fund (a "QEF") in which
event the Fund will each year have ordinary income equal to its pro rata
share of the PFIC's ordinary earnings for the year and long-term capital
gain equal to its pro rata share of the PFIC's net capital gain for the
year, regardless of whether the Fund receives distributions of any such
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ordinary earning or capital gain from the PFIC. If the Fund does not
(because it is unable to, chooses not to or otherwise) elect to treat the
PFIC as a QEF, then in general (1) any gain recognized by the Fund upon
sale or other disposition of its interest in the PFIC or any excess
distribution received by the Fund from the PFIC will be allocated ratably
over the Fund's holding period of its interest in the PFIC, (2) the portion
of such gain or excess distribution so allocated to the year in which the
gain is recognized or the excess distribution is received shall be included
in the Fund's gross income for such year as ordinary income (and the
distribution of such portion by the Fund to shareholders will be taxable
as an ordinary income dividend, but such portion will not be subject to tax
at the Fund level), (3) the Fund shall be liable for tax on the portions
of such gain or excess distribution so allocated to prior years in an
amount equal to, for each such prior year, (i) the amount of gain or excess
distribution allocated to such prior year multiplied by the highest tax
rate (individual or corporate) in effect for such prior year plus (ii)
interest on the amount determined under clause (i) for the period from the
due date for filing a return for such prior year until the date for filing
a return for the year in which the gain is recognized or the excess
distribution is received at the rates and methods applicable to
underpayments of tax for such period, and (4) the distribution by the Fund
to shareholders of the portions of such gain or excess distribution so
allocated to prior years (net of the tax payable by the Fund thereon) will
again be taxable to the shareholders as an ordinary income dividend.
Under recently proposed Treasury Regulations the Fund can elect to
recognize as gain the excess, as of the last day of its taxable year, of
the fair market value of each share of PFIC stock over the Fund's adjusted
tax basis in that share ("mark to market gain"). Such mark to market gain
will be included by the Fund as ordinary income, such gain will not be
subject to the Short-Short Gain Test, and the Fund's holding period with
respect to such PFIC stock commences on the first day of the next taxable
year. If the Fund makes such election in the first taxable year it holds
PFIC stock, the Fund will include ordinary income from any mark to market
gain, if any, and will not incur the tax described in the previous
paragraph.
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. With regard to forward currency
contracts, there does not appear to be any formal or informal authority
which identifies the issuer of such instrument.
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.
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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 qualify for the 70% dividends-
received deduction for corporate shareholders only to the extent discussed
below.
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. The Code
provides, however, that under certain conditions only 50% of the capital
gain recognized upon the Fund's disposition of domestic "small business"
stock will be subject to tax.
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.
Ordinary income dividends paid by the Fund with respect to a taxable
year will qualify for the 70% dividends-received deduction generally
available to corporations (other than corporations, such as S corporations,
which are not eligible for the deduction because of their special
characteristics and other than for purposes of special taxes such as the
accumulated earnings tax and the personal holding company tax) to the
extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. A dividend received by the
Fund will not be treated as a qualifying dividend (1) if it has been
received with respect to any share of stock that the Fund has held for less
than 46 days (91 days in the case of certain preferred stock), excluding
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for this purpose under the rules of Code Section 246(c)(3) and (4): (i)
any day more than 45 days (or 90 days in the case of certain preferred
stock) after the date on which the stock becomes ex-dividend and (ii) any
period during which the Fund has an option to sell, is under a contractual
obligation to sell, has made and not closed a short sale of, is the grantor
of a deep-in-the-money or otherwise nonqualified option to buy, or has
otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that
the Fund is under an obligation (pursuant to a short sale or otherwise) to
make related payments with respect to positions in substantially similar
or related property; or (3) to the extent the stock on which the dividend
is paid is treated as debt-financed under the rules of Code Section 246A.
Moreover, the dividends-received deduction for a corporate shareholder may
be disallowed or reduced (1) if the corporate shareholder fails to satisfy
the foregoing requirements with respect to its shares of the Fund or (2)
by application of Code Section 246(b) which in general limits the
dividends-received deduction to 70% of the shareholder's taxable income
(determined without regard to the dividends-received deduction and certain
other items).
Alternative minimum tax ("AMT") is imposed in addition to, but only
to the extent it exceeds, the regular tax and is computed at a maximum
marginal rate of 28% for noncorporate taxpayers and 20% for corporate
taxpayers on the excess of the taxpayer's alternative minimum taxable
income ("AMTI") over an exemption amount. In addition, under the Superfund
Amendments and Reauthorization Act of 1986, a tax is imposed for taxable
years beginning after 1986 and before 1996 at the rate of 0.12% on the
excess of a corporate taxpayer's AMTI (determined without regard to the
deduction for this tax and the AMT net operating loss deduction) over $2
million. For purposes of the corporate AMT and the environmental superfund
tax (which are discussed above), the corporate dividends-received deduction
is not itself an item of tax preference that must be added back to taxable
income or is otherwise disallowed in determining a corporation's AMTI.
However, corporate shareholders will generally be required to take the full
amount of any dividend received from the Fund into account (without a
dividends-received deduction) in determining its adjusted current earnings,
which are used in computing an additional corporate preference item (i.e.,
75% of the excess of a corporate taxpayer's adjusted current earnings over
its AMTI (determined without regard to this item and the AMT net operating
loss deduction)) includable in AMTI.
Investment income that may be received by the Fund from sources
within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle the Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of the Fund's assets to be invested
in various countries is not known. If more than 50% of the value of the
Fund's total assets at the close of its taxable year consist of the stock
or securities of foreign corporations, the Fund may elect to "pass through"
to the Fund's shareholders the amount of foreign taxes paid by the Fund.
If the Fund so elects, each shareholder would be required to include in
gross income, even though not actually received, his pro rata share of the
foreign taxes paid by the Fund, but would be treated as having paid his pro
rata share of such foreign taxes and would therefore be allowed to either
deduct such amount in computing taxable income or use such amount (subject
to various Code limitations) as a foreign tax credit against federal income
tax (but not both). For purposes of the foreign tax credit limitation
rules of the Code, each shareholder would treat as foreign source income
his pro rata share of such foreign taxes plus the portion of dividends
received from the Fund representing income derived from foreign sources.
No deduction for foreign taxes could be claimed by an individual
shareholder who does not itemize deductions. Each shareholder should
consult his own tax adviser regarding the potential application of foreign
tax credits.
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.
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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) (discussed above in connection with the dividends-
received deduction for corporations) 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. Furthermore, such a foreign shareholder may be subject to U.S.
withholding tax at the rate of 30% (or lower treaty rate) on the gross
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income resulting from the Fund's election to treat any foreign taxes paid
by it as paid by its shareholders, but may not be allowed a deduction
against this gross income or a credit against this U.S. withholding tax for
the foreign shareholder's pro rata share of such foreign taxes which it is
treated as having paid. Such a foreign shareholder would generally be
exempt from U.S. federal income tax on gains realized on the sale of shares
of the Fund, capital gain dividends and amounts retained by the Fund that
are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S.
trade or business carried on by a foreign shareholder, then ordinary income
dividends, capital gain dividends, and any gains realized upon the sale of
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. citizens or domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be
required to withhold U.S. federal income tax at a rate of 31% on
distributions that are otherwise exempt from withholding tax (or taxable
at a reduced treaty rate) unless 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 ordinary income dividends and
capital gain dividends from regulated investment companies often differ
from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences
of these and other state and local tax rules affecting investment in the
Fund.
PERFORMANCE CALCULATION
For the purpose 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. 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(1+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 or at the end of the
1, 5 or 10 year periods (or fractional portion thereof).
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Under the foregoing formula, the time periods 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, all dividends and distributions
by the Fund 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 or 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 Fund 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 the
Fund's total return with data published by Lipper Analytical Services,
Inc., or with the performance of the Standard and Poor's 500 Composite
Stock Price Index, Morgan Stanley Capital International World 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.
In June 1991, shareholders approved a change in the Fund's
investment objective. Previously, the Fund was managed as a domestic
growth fund. Accordingly, the performance data represents total return
under both objectives. The Lexington Worldwide Emerging Markets Fund,
Inc.'s total return for the one, five and ten year period ended December
31, 1994 is as follows:
Average Annual
Period Total Return
------ -------------
1 year ended December 31, 1994 -13.81%
5 years ended December 31, 1994 9.20%
10 years ended December 31, 1994 12.90%
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the
Fund's holdings and other information. In addition, shareholders will
receive annual financial statements audited by KPMG Peat Marwick LLP, the
Fund's independent auditors.
-19-
<PAGE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Worldwide Emerging Markets Fund Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Worldwide
Emerging Markets 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 Worldwide Emerging Markets 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
February 6, 1995
20
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS: 71.4%
Argentina: 2.7%
803,960 Commercial Del Plata ....................................................... $ 2,050,098
269,600 YPF Sociedad Anonima (ADR) ................................................. 5,762,700
------------
7,812,798
------------
AUSTRlA: 0.7%
25,000 Bank Austria Staemme ....................................................... 2,040,348
------------
BRAZIL: 6.6%
8,900,000 Acesita (Preferred shares) ................................................. 757,446
150,000 Aracruz Celulose (ADR) ..................................................... 1,912,500
81,000 Companhia Vale (ADR) (Preferred shares) .................................... 3,857,625
36,000,000 Compania Energetica de Minas Gerais ........................................ 3,276,595
37,964,198 Compania Siderurgica Nacional .............................................. 1,294,641
4,800,000 Coteminas (Preferred shares) ............................................... 1,645,390
1,969,000 Electrobras (Preferred shares) ............................................. 695,899
1,200,000 Iochpe Maxion S.A. (Preferred shares) ...................................... 836,879
80,000 Multibras (Preferred shares) ............................................... 104,964
4,600 ,000 Petrobras (Preferred shares) ............................................... 581,742
13,705,480 Telebras (Preferred shares) ................................................ 613,992
18,480,000 Telesp (Preferred shares) .................................................. 2,632,198
532,800,000 Usiminas (Preferred shares) ................................................ 724,255
------------
18,934,126
------------
CHILE: 5.6%
91,000 Banco O'Higgins (ADR) ...................................................... 1,558,375
104,200 Compania Cervecerias Unidas (ADR) .......................................... 2,605,000
33,700 Compania de Telefonos de Chile (ADR) ....................................... 2,653,875
136,800 Madeco S.A. (ADR) .......................................................... 3,625,200
216,900 Maderas y Sinteticos (ADR) ................................................. 5,530,950
6,100 Vina Concha y Toro (ADR) ................................................... 100,650
------------
16,074,050
------------
CZECH REPUBLIC: 0.6%
2,700 Fatra ...................................................................... 246,106
9,568 IPS Praha .................................................................. 653,672
15,000 Komercni Banka ............................................................. 764,601
------------
1,664,379
------------
GREECE: 2.5%
32,500 A.E.G.E.K. ................................................................. 609,629
86,100 Delta Dairy (Preferred Shares) ............................................. 1,536,090
33,000 ETVA Leasing S.A. .......................................................... 667,152
150,000 Michaniki .................................................................. 2,310,337
75,000 Titan Cement ............................................................... 2,204,043
------------
7,327,251
------------
HUNGARY: 0.1%
20,000 Fotex Rt (ADR)** ........................................................... 315,000
------------
21
</TABLE>
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INDONESIA: 5.0%
1,235,000 Argha Karya Prima Industries ............................................... $ 1,292,899
1,297,000 Astra International ........................................................ 2,479,472
169,000 Bank Niaga ................................................................. 669,230
656,100 Lippo Bank ................................................................. 1,015,357
1,632,500 Sampoerna .................................................................. 8,025,034
35,000 Tripolyta (ADR) ............................................................ 855,312
------------
14,337,304
------------
ISRAEL: 1.8%
341,000 *First Israel Fund, Inc. .................................................... 3,410,000
13,020 Koor ....................................................................... 997,170
38,000 Teva Pharmaceutical Industries (ADR) ....................................... 921,500
------------
5,328,670
------------
KOREA: 1.9%
100,000 Cho Hung Bank .............................................................. 1,484,018
13,404 Kia Motors (ADR)** ......................................................... 244,623
18,000 Korea Long Term Credit Bank ................................................ 559,360
3,382 *Korea Long Term Credit Bank Rights ......................................... 105,097
8,364 Lucky Securities ........................................................... 207,933
14,555 Orion Electric Company ..................................................... 430,151
10,000 Shinyoung Security Company ................................................. 300,608
26,062 Sungshin Cement ............................................................ 1,190,045
7,000 Taeyoung Corporation ....................................................... 578,006
11,201 Taihan Electric Wire Company ............................................... 397,803
------------
5,497,644
------------
MALAYSIA: 6.1%
178,000 Aokam Perdana Bhd .......................................................... 1,102,037
980,000 Berjaya Singer Bhd ......................................................... 1,075,235
375,000 Cycle and Carriage Bhd ..................................................... 1,359,228
220,000 Genting Berhad ............................................................. 1,887,931
545,000 Perusahaan Otomobl ......................................................... 1,986,089
1,207,000 Resorts World Bhd .......................................................... 7,094,435
459,000 Telekom Malaysia ........................................................... 3,111,559
------------
17,616,514
------------
MEXICO: 9.0%
129,800 Consorcio G Grupo Dina (ADR) ............................................... 1,233,100
50,000 Desc Sociedad de Fomento Industrial, S.A. de C.V. "A" ...................... 217,821
569,000 Desc Sociedad de Fomento Industrial, S.A. de C.V. "B" ...................... 2,816,831
5,000 Desc Sociedad de Fomento Industrial, S.A. de C.V. "C" ...................... 27,623
38,800 Empresas ICA Sociedad Company (ADR) ........................................ 601,400
200,000 Grupo Finanaciero Banamex "B" .............................................. 554,455
743,000 Grupo Finanaciero Banamex "C" .............................................. 2,103,940
10,000 Grupo Finanaciero Banamex "L" .............................................. 27,762
3,635,000 Grupo Finanaciero Bancomer "C" ............................................. 2,101,821
40,000 Grupo Mexicano "B" (ADR) ................................................... 305,000
80,374 Grupo Mexicano "L" (ADR) ................................................... 713,319
564,000 Grupo Sidek S.A. de C.V. "B2" .............................................. 1,217,346
55,200 Grupo Simec S.A. de C.V. (ADR) ............................................. 834,900
18,400 Hylsamex S.A. de C.V. (ADR)** .............................................. 301,300
147,100 Telefonos de Mexico S.A. de C.V. (ADR) ..................................... 6,031,100
303,400 Transportacion Maritima Mexicana S.A. "L" (ADR) ............................ 2,313,425
74,400 Tubos de Acero de Mexico S.A. (ADR) ........................................ 348,750
305,000 Vitro Sociedad Anonima (ADR) ............................................... 4,270,000
------------
26,019,893
------------
22
</TABLE>
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PHILIPPINES: 3.3%
1,405,000 Ayala Land Inc."B" ......................................................... $ 2,206,198
420,000 Bacnotan Cement ............................................................ 572,727
3,659,720 International Container Terminal Service ................................... 3,024,561
4,500,000 J.G. Summit "B" ............................................................ 1,654,958
3,000,000 Universal Robina Corporation ............................................... 2,169,421
------------
9,627,865
------------
POLAND: 2.7%
26,242 Bank Slaski ................................................................ 1,217,301
30,678 Elektrim ................................................................... 1,372,701
323,100 Polifarb S.A. .............................................................. 1,458,990
148,400 Universal S.A. ............................................................. 700,574
25,000 Wedel S.A. ................................................................. 1,621,510
22,000 Zywiec ..................................................................... 1,449,507
------------
7,820,583
------------
PORTUGAL: 0.5%
81,571 Banco Portugues Do Atlantico ............................................... 1,032,206
23,650 Banco Totta e Ascores ...................................................... 529,522
------------
1,561,728
------------
SINGAPORE: 6.7%
900,000 Hitachi Zosen Ltd. ......................................................... 796,842
40,000 *Hong Leong Finance Ltd. Warrants ........................................... 43,925
1,588,000 Jurong Cement Ltd. ......................................................... 5,035,387
158,000 Jurong Engineering Ltd. .................................................... 1,084,420
490,000 Keppel Corporation Ltd. .................................................... 4,170,212
2,016,000 Neptune Orient Lines Ltd. .................................................. 2,767,330
200,000 Overseas Union Bank ........................................................ 1,166,781
1,110,000 Pacific Carriers Ltd. ...................................................... 1,074,193
443,000 Sembawang Corporation Ltd. ................................................. 3,314,138
------------
19,453,228
------------
SOUTH AFRlCA: 10.1%
72,000 Anglo American Corporation (ADR) ........................................... 4,144,500
261,800 Barlow Rand (ADR) .......................................................... 2,339,837
127,000 Engen Ltd. ................................................................. 1,188,084
255,400 Johannesburg Consolidated Investments, Ltd. (ADR) .......................... 6,549,452
184,100 Liberty Life (ADR) ......................................................... 4,464,425
219,000 Rustenburg Platinum Ltd. (ADR) ............................................. 6,019,061
310,300 Samancor Ltd. (ADR) ........................................................ 4,340,321
------------
29,045,680
------------
TAIWAN: 1.4%
143,700 *Taiwan Fund Inc. ........................................................... 4,149,337
------------
THAILAND: 1.7%
2,700 C.P. Feedmill .............................................................. 18,290
95,000 Nation Publishing Group Company, Ltd. ...................................... 170,352
88,000 Saha Pathanapibul Company .................................................. 231,440
54,000 Siam Cement Company, Ltd. .................................................. 3,236,341
75,000 Siam City Cement Company, Ltd. ............................................. 1,279,139
------------
4,935,562
------------
23
</TABLE>
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1994 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UNITED KINGDOM: 1.5%
864,000 Antofagasta Holdings Plc ................................................... $ 4,262,069
------------
URUGUAY: 0.1%
11,000 Banco Commercial GDR** ................................................. 154,000
------------
VENEZUELA: 0.8%
342,000 *Cermanic Carobobo (ADR) .................................................... 427,500
121,900 *Mantex (ADR) ............................................................... 883,773
112,000 *Mavesa (ADR) ............................................................... 476,000
90,667 *Mavesa (ADR)** ............................................................. 385,334
------------
2,172,607
------------
TOTAL COMMON STOCKS (cost $225,897,007) .................................... 206,150,636
------------
CONVERTIBLE DEBENTURES: 0.9%
$1,300,000 Formosa Chemicals 1.75%, 7/19/2001** ....................................... 1,251,250
1,300,000 Nan Ya Plastics 1.75%, 7/19/2001** ......................................... 1,202,500
------------
TOTAL CONVERTIBLE DEBENTURES (cost $2,600,000) ............................. 2,453,750
------------
SHORT-TERM INVESTMENTS: 24.4%
8,000,000 Federal Farm Credit Bank. 6.00%, 02/08/95 .................................. 7,952,000
4,000,000 Federal Home Loan Bank, 5.75%, 01/03/95 .................................... 3,998,740
14,000,000 Federal National Mortgage Association 5.88%, 01/04/95-01/19/95 ............. 13,978,113
44,900,000 U.S. Treasury Bills, 4.88-5.58% due: 01/19/95-03/30/95 ..................... 44,460,023
------------
TOTAL SHORT-TERM INVESTMENTS (cost $70,388,876) ............................ 70,388,876
------------
TOTAL INVESTMENTS: 96.7% (cost $298,885,883\'86) (Note 1) .................. 278,993,262
Other assets in excess of liabilities: 3.3% ................................ 9,587,927
------------
TOTAL NET ASSETS: 100.0% (equivalent to $11.47 per share
on 25,165,424 shares outstanding) ........................................ $288,581,189
============
</TABLE>
At December 31, 1994, the composition of the Fund's net assets by industry
concentration was as follows:
Left Col.
Banking/Financial Services .............. 8.0%
Capital Equipment ....................... 2.4
Consumer (Durables) ..................... 2.5
Consumer (Non-Durables) ................. 4.9
Electrical & Electronics ................ 0.1
Energy Sources/Utility .................. 5.7
Health Care ............................. 0.3
Materials ............................... 20.3
Right Col.
Merchandising ........................... 0.2%
Multi-Industry .......................... 12.4
Real Estate ............................. 0.8
Services ................................ 9.5
Telecommunications ...................... 5.2
U.S. Government Obligations ............. 24.4
Other assets in excess of liabilities ... 3.3
-----
Net Assets 100.0%
=====
ADR-American Depository Receipt.
(D)Aggregate cost for Federal income tax purposes is identical.
*Non-income producing securities.
**Restricted securities.
The Notes to Financial Statements are an integral part of this statement.
24
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Portfolio Changes
Six months ended December 31, 1994 (unaudited)
Col. 1
Additions
Acesita (Preferred shares)
Anglo American Corporation (ADR)
Ayala Land Inc. "B"
Bacnotan Cement
Banco Commercial GDR
Banco O'Higgins (ADR)
Bank Slaski
Compania Energatica de Minas Gerais
Compania Siderurgica Nacional
Coteminas (Preferred shares)
Cycle and Carriage Bhd
C.P. Feedmill
Electrobas (Preferred shares)
Elektrim
Engen Ltd.
Formosa Chemicals
Genting Berhad
Hitachi Zosen Ltd.
Hylsamex S.A. de C.V. (ADR)
lochpe Maxion S.A. (Preferred shares)
Jurong Engineering Ltd.
J.G. Summit "B"
Koor
Multibras (Preferred shares)
Nan Ya Plastics
Neptune Orient Lines Ltd.
Overseas Union Bank
Pacific Carriers Ltd.
Petrobas (Preferred shares)
Polifarb S.A.
Siam City Cement Company, Ltd.
Telebras (Preferred shares)
Telesp (Preferred shares)
Teva Pharmaceutical Industries (ADR)
Tripolyta (ADR)
Tubos de Acero de Mexico S.A. (ADR)
Universal Robina Corporation
Universal S.A.
Usiminas (Preferred shares)
Vina Concha y Toro (ADR)
Wedel S.A.
Zywiec
Co. 2
Increases in Holdings
Astra International
Comercial Del Plata
Grupo Financiero Banamex "C"
Grupo Financiero Bancomer "C"
Grupo Mexicano "L" (ADR)
International Container
Terminal Service
Keppel Corporation
Kia Motors (ADR)
Lippo Bank
Mantex (ADR)
Michaniki
Orion Electric Company
Perusahaan Otombl
Rustenburg Platinum Ltd. (ADR)
Sampoerna
Deletions
Banco Comercial Portugues
Banco Galicia
Bank Bali
Bank International Indonesia
Cemex "B"
Cerebos Pacific Ltd.
Chilectra S.A. (ADR)
Cifra "C"
Cimentas
Commerce Assets Holdings
Ege Seramik
Empresas La Moderne (ADR)
FEMSA "B"
First Capital Corporation Ltd.
Fraser & Neave Ltd.
Freeport McMoran Copper & Gold
Grupo Casa Autrey (ADR)
Grupo Industrial Bimbo S. A.
de C. V. Class "A"
Indah Kiat Paper & Pulp
Izimir Demir Celik
Kimberly Clark "A"
Kordska
Land & House Public Company, Ltd.
Co. 3
Deletions (continued)
Manila Electric Company "B"
Nestle Malaysia Bhd
Perez Companc
Radio Marconi (P Shares)
San Miguel "B"
Shinsegae Department Store Company
Sime Darby Bhd
Singapore Airlines Ltd
South African Breweries (ADR)
Standard Chartered Bank Plc
Sungei Way Holdings
Tat Konservecili
Telefonica de Argentina (ADR)
Tjiwi Kimia
Ttolmex S.A. de C.V. "B2"
Unicer
Decreases in Holdings
Aokam Perdana Bhd
Aracruz Celulose (ADR)
Argha Karya Prima Industries
Delta Dairy (Preferred shares)
Empresas ICA Sociedad
Company (ADR)
Fotex Rt (ADR)
Grupo Sidek S.A. de C.V. "B2"
Jurong Cement Ltd.
Saha Pathanapibul Company
Samancor Ltd. (ADR)
Sembawang Corporation, Ltd.
Siam Cement Company, Ltd.
Telekom Malaysia
Purchased and Sold Same Period
Advanced Info
Buenos Aires Embotellado (ADR)
Inchcape
Technology Resources Industries
Telefonica Argentina
Teenage National
Van Der Horst
25
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Assets and Liabilities
December 31, 1994
<TABLE>
<S> <C>
Assets
Investments in securities, at value (cost $298,885,883) (Note 1) ............................... $278,993,262
Cash ........................................................................................... 2,481,094
Foreign currencies, at value (cost $480,818) ................................................... 481,829
Receivable for investment securities sold ...................................................... 8,871,629
Receivable for shares sold ..................................................................... 2,158,869
Dividends receivable ........................................................................... 175,519
Foreign taxes recoverable ...................................................................... 19,572
------------
Total Assets 293,181,774
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ............................................... 258,092
Payable for shares redeemed .................................................................... 2,690,915
Payable for investment securities purchased .................................................... 339,135
Accrued expenses ............................................................................... 183,938
Distributions Payable .......................................................................... 1,128,505
------------
Total Liabilities ...................................................................... 4,600,585
------------
Net Assets (equivalent to $11.47 per share
on 25,165,424 shares outstanding) (Note 3) ................................................... $288,581,189
------------
Net Assets consist of:
Capital stock-authorized 100,000,000 shares, $1.00 par value per share ......................... $ 25,165,424
Additional paid-in capital (Note 1) ............................................................ 285,599,534
Distributions in excess of net realized gains on investments and foreign currency holdings
(Note 1) ..................................................................................... (2,292,026)
Net unrealized depreciation of investments and foreign currency holdings ....................... (19,891,743)
------------
$288,581,189
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
26
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Operations
Year ended December 31, 1994
<TABLE>
<S> <C> <C>
Investment Income
Income
Dividends ............................................................ $ 4,342,724
Interest ............................................................. 1,479,656
-----------
5,822,380
Less: Foreign tax expense ............................................ 990,843
-----------
Total investment income ........................................... 4,831,537
Expenses
Investment advisory fee (Note 2) ..................................... 3,028,315
Accounting and shareholder services expense (Note 2) ................. 394,933
Custodian and transfer agent expenses ................................ 1,190,084
Printing and mailing ................................................. 117,524
Directors' fees and expenses ......................................... 10,879
Audit and Legal ...................................................... 37,194
Registration fees .................................................... 105,637
Computer processing fees ............................................. 14,864
Other expenses ....................................................... 106,944
-----------
Total expenses .................................................... 5,006,374
-----------
Net investment loss ............................................. (174,837)
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Realized gain from investments and foreign currency transactions
(excluding short-term securities):
Proceeds from sales ............................................... 210,947,635
Cost of securities sold ........................................... 199,475,368
-----------
Net realized gain ............................................... 11,472,267
Unrealized appreciation (depreciation) of investments and foreign
currency holdings:
End of period ..................................................... (19,891,743)
Beginning of period ............................................... 42,566,635
-----------
Change during period ............................................ (62,458,378)
Net realized and unrealized loss on investments ................. (50,986,111)
-----------
Decrease in Net Assets Resulting from Operations ................ $(51,160,948)
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
27
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------ -----------
<S> <C> <C>
Net investment income (loss) ........................................... $ (174,837) $ 115,528
Net realized gain from security transactions ........................... 11,472,267 1,901,654
Increase (decrease) in unrealized appreciation (depreciation) of
investments and foreign currency holdings ............................ (62,458,378) 41,419,385
------------ -----------
Net increase (decrease) in net assets resulting from operations .... (51,160,948) 43,436,567
Distributions to shareholders from net investment income ............... - (69,304)
Distributions to shareholders from realized gains from
security transactions (Note 1) ....................................... (11,472,267) (2,230,343)
Distributions to shareholders in excess of realized gains
from security transactions (Note 1) .................................. (2,117,189) -
Increase in net assets from
capital share transactions (Note 3) .................................. 122,858,778 159,314,714
------------ -----------
Net increase in net assets ..................................... 58,108,374 200,451,634
Net Assets
Beginning of period .................................................... 230,472,815 30,021,181
------------ -----------
End of period .......................................................... $288,581,189 $230,472,815
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993
1. Significant Accounting Policies
Lexington Worldwide Emerging Markets 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 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 stated at market value based on closing
prices reported by the exchange on which the securities are traded, on the last
business day of the period or, for over-the-counter securities, at the average
between bid and asked prices. Short-term securities are stated at amortized
cost, which approximates market value. Securities for which market quotations
are not readily available and other assets are valued at fair value as
determined by management and approved in good faith by the Board of Directors.
All investments quoted in foreign currency are valued in U.S. dollars on the
basis of the foreign currency exchange rate prevailing at the close of business.
Dividends are recorded on the ex-dividend date. Interest income is accrued as
earned.
28
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993 (continued)
1. Significant Accounting Policies (continued)
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order to
hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts to
hedge against changes in foreign currency exchange rates on portfolio positions.
These contracts are marked to market daily, by recognizing the difference
between the contract exchange rate and the current market rate as unrealized
gains or losses. Realized gains or losses are recognized when contracts are
settled and are reported in the statement of operations.
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
$132,316 have been reclassified from distributions in excess of net realized
gains to additional paid-in capital. In addition $174,837 was reclassified from
net investment loss to distributions in excess of net realized gains on
investments. Distribution in excess of net realized gains reflect temporary
book-tax differences arising from Internal Revenue Code ("IRC") Excise Tax
distribution requirements and associated post-October loss deferral provisions,
which effectively allow the deferral of net realized capital losses to the next
tax year.
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 1% of average daily net assets. The investment advisory
contract provides that the total annual expenses of the Fund (including
management fees, but excluding interest, taxes, brokerage commissions and
extraordinary expenses) will not exceed the level of expenses which the Fund is
permitted to bear under the most restrictive expense limitation imposed by any
state in which shares of the Fund are offered for sale. 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 ................................... 39,085,412 $521,337,885 15,866,918 $190,973,353
---------- ------------ ---------- ------------
Shares issued on reinvestment of dividends .... 1,084,862 12,465,043 150,584 2,039,760
---------- ------------ ---------- ------------
.............................................. 40,170,274 533,802,928 16,017,502 193,013,113
Shares redeemed ............................... (31,509,363) (410,944,150) (2,980,215) (33,698,399)
---------- ------------ ---------- ------------
Net increase .................................. 8,660,911 $122,858,778 13,037,28 $159,314,714
========== ============ ========= ============
</TABLE>
29
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1994 and 1993 (continued)
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 $246,415,216 and
$210,947,635, respectively.
At December 31, 1994 aggregate gross unrealized appreciation for all securities
and foreign currency holdings (including foreign currency receivables and
payables) in which there is an excess of value over tax cost amounted to
$22,572,033 and aggregate gross unrealized depreciation for which there is an
excess of tax cost over value amounted to $42,463,776.
5. Investment Risks
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since foreign securities may be denominated in a foreign
currency and involve settlement and pay interest or dividends in foreign
currencies, changes in the relationship of these foreign currencies to the U.S.
dollar can significantly affect the value of the investments and earnings of the
Fund. Foreign investments may also subject the Fund to foreign government
exchange restrictions, expropriation, taxation or other political, social or
economic developments, all of which could affect the market and/or credit risk
of the investments.
In addition to the risks described above, risks may arise from forward foreign
currency contracts from the potential inability of counterparties to meet the
terms of their contracts.
Lexington Worldwide Emerging Markets Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:1
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........... $13.96 $ 8.66 $ 9.03 $ 8.56 $10.79
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net Investment income (loss) ................. (.01) .05 .07 .09 .25
Net realized and unrealized gain
(loss) on investments ...................... (1.92) 5.43 .27 1.97 (1.81)
------ ------ ------ ------ ------
Total income (loss) from investment operations . (1.93) 5.48 .34 2.06 (1.56)
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ......... - (.01) (.11) (.11) (.24)
Distributions from capital gains ............. (.47) (.17) (.60) (1.48) (.43)
Distributions in excess of capital gains
(Temporary book-tax difference) ............ (.09) - - - -
------ ------ ------ ------ ------
Total distributions ............................ (.56) (.18) (.71) (1.59) (.67)
------ ------ ------ ------ ------
Net asset value, end of period ................. $11.47 $13.96 $ 8.66 $ 9.03 $ 8.56
====== ====== ====== ====== ======
Total return ................................... (13.81%) 63.37% 3.77% 24.19% (14.44%)
Ratio to average net assets:
Expenses ..................................... 1.65% 1.64% 1.89% 1.97% 1.42%
Net investment income ........................ (.06%) .21% .75% .79% 2.52%
Portfolio turnover 79.56% 38.35% 91.27% 112.03% 52.48%
Net assets at end of period (000's omitted) .... $288,581 $230,473 $30,021 $25,060 $22,192
</TABLE>
- ---------
1Effective June 17, 1991 the Fund changed its name and investment objective from
Lexington Growth Fund, Inc. to Lexington Worldwide Emerging Markets Fund, Inc.
30
