PROSPECTUS
April 29, 1996
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
Institutional/Financial Adviser Services-1-800-367-9160
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 April 29,
1996 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)
Management fees 1.00%
Other expenses 0.88%
----
Total Fund Operating Expenses 1.88%
====
<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 ... $19.09 $59.09 $101.61 $220.10
</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, 1995 to December 31, 1995. 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, 1995 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,
-----------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period .................. $11.47 $13.96 $8.66 $9.03 $8.56 $10.79 $8.72 $8.01 $11.80 $9.96
------ ------ ----- ----- ----- ------ ----- ----- ------ -----
Income (loss) from investment
operations:
Net investment income (loss) 0.08 (0.01) 0.05 0.07 0.09 0.25 0.13 0.12 0.14 0.16
Net realized and unrealized
gain (loss) on investments (0.76) (1.92) 5.43 0.27 1.97 (1.81) 2.32 0.71 0.12 1.88
------ ------ ----- ----- ----- ------ ----- ----- ------ -----
Total income (loss) from
investment operations ...... (0.68) (1.93) 5.48 0.34 2.06 (1.56) 2.45 0.83 0.26 2.04
------ ------ ----- ----- ----- ------ ----- ----- ------ -----
Less distributions:
Dividends from net investment
income ..................... (0.08) - (0.01) (0.11) (0.11) (0.24) (0.21) (0.12) (0.38) (0.20)
Distributions in excess of
net investment income
(temporary book-tax
difference) .............. (0.01) - - - - - - - - -
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 .......... (0.09) (0.56) (0.18) (0.71) (1.59) (0.67) (0.38) (0.12) (4.05) (0.20)
Net asset value, end of
period ..................... $10.70 $11.47 $13.96 $8.66 $9.03 $8.56 $10.79 $8.72 $8.0 $11.80
====== ====== ====== ===== ===== ===== ====== ===== ==== ======
Total return ................. (5.93%) (13.81%) 63.37% 3.77% 24.19% (14.44%) 28.11% 10.36% 0.35% 20.73%
Ratio to average net assets:
Expenses ................... 1.88% 1.65% 1.64% 1.89% 1.97% 1.42% 1.36% 1.33% 1.34% 1.32%
Net investment income (loss).. 0.70% (0.06%) 0.21% 0.75% 0.79% 2.52% 1.18% 1.27% 1.26% 1.24%
Portfolio turnover ........... 92.85% 79.56% 38.35% 91.27% 112.03% 52.48% 59.07% 47.63% 83.21% 54.20%
Net assets, end of period
(000's omitted) ............ 265,544 $288,581 $230,473 $30,021 $25,060 $22,192 $29,126 $26,389 $25,579 $29,862
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</TABLE>
2
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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, 1995, the
portfolio turnover rate for the Fund was 92.85%. 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 commercial
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 collateralized 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,
1995, LMC earned $2,837,412 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 $3.0 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, Lexington Global Asset Managers, 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 Lexington Global Asset
Managers, Inc., a Delaware corporation with offices at Park 80 West Plaza Two,
Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their
spouses, trusts and other related entities are the beneficial owners of a
majority of the shares of Lexington Global Asset Managers, 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 ten 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 University 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).
Automatic Investing Plan with "Lex-O-Matic". A shareholder may arrange to
make additional purchases of shares automatically on a monthly or quarterly
basis. The investments of $50 or more are automatically deducted from a checking
account on or about the 15th day of each month. The institution must be an
Automated Clearing House (ACH) member. Should an order to purchase shares of a
fund be cancelled because your automated transfer does not clear, you will be
responsible for any resulting loss
7
<PAGE>
incurred by that fund. The shareholder reserves the right to discontinue the
Lex-O-Matic program provided wirtten notice is given ten days prior to the
scheduled investment date. Further information regarding this service can be
obtained from Lexington by calling 1-800-526-0056.
On payroll deduction accounts administered by an employer and on payments
into qualified pension or profit sharing plans and other continuing purchase
programs, there are no minimum purchase requirements.
Determination of Net Asset Value: The net asset value of the shares of the Fund
is determined 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 the 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. However, when LMC deems it appropriate, prices for
the day of valuation from a third party pricing service will be used. For
over-the-counter securities the mean between the bid and asked price is used.
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 shall be valued by Fund management in
good faith under the direction of the Fund's 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
8
<PAGE>
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 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 three business
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 $25,000 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.
9
<PAGE>
Group Sub-Accounting: To minimize recordkeeping by fiduciaries, corporations and
certain other investors, the minimum initial investment may be waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, 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 third 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 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 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 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 or Missouri.
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC./Seeks long-term capital
appreciation through investment in companies domiciled in the Asia
Region with a market capitalization of less than $1 billion.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC./Seeks long-term capital appreciation
through investment primarily in the equity securities of Russian
companies. The Fund is expected to be available in June, 1996 and has a
$5,000 minimum investment.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)/Seeks high current
income. Capital appreciation is a secondary objective.
LEXINGTON SMALLCAP VALUE FUND, INC./Seeks long-term capital appreciation through
investment in common stocks of companies domiciled in the United States
with a market capitalization of less than $1 billion.
LEXINGTON 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.
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 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.
10
<PAGE>
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.
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.
11
<PAGE>
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.
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.
12
<PAGE>
Distributions to shareholders will be treated in the same manner for Federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the Federal income tax status of all 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
10036 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, 1996.
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.
The Code of Ethics adopted by each of the Adviser and the Fund prohibits all
affiliated personnel from engaging in personal investment activities which
compete with or attempt to take advantage of the Fund's planned portfolio
transactions. The objective of each Code of Ethics is that the operations of the
Adviser and Fund be carried out for the exclusive benefit of the Fund's
shareholders. All organizations maintain careful monitoring of compliance with
the Code of Ethics.
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>
Right Col.
-----------------------
L E X I N G T O N
-----------------------
------------------------------------------------
LEXINGTON
WORLDWIDE
EMERGING
MARKETS
FUND, INC.
(filled box)
(filled box)Worldwide diversification
(filled box)Free telephone
exchange privilege
(filled box)No sales charge
(filled box)No redemption fee
(filled box)
The Lexington Group
of
No-Load
Investment Companies
------------------------------------------------
P R O S P E C T U S
APRIL 29, 1996
--------------
Left Col.
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
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service: 1-800-526-0056
Institutional/Financial Adviser Services: 1-800-367-9160
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 ............................................ 12
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
APRIL 29, 1996
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 April 29, 1996, 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
Institutional/Financial Adviser Services:-1-800-367-9160
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
Page
General Information and History ............................................ 2
Investment Objectives and Policies ......................................... 2
Risk Considerations ........................................................ 3
Investment Policy and Restrictions ......................................... 4
Management of the Fund ..................................................... 6
Investment Adviser, Distributor and Administrator .......................... 8
Portfolio Transactions and Brokerage Commissions ........................... 9
Tax-Sheltered Retirement Plans ............................................. 10
Determination of Net Asset Value ........................................... 10
Tax Matters ................................................................ 10
Performance Calculation .................................................... 15
Shareholder Reports ........................................................ 16
Financial Statements ....................................................... 17
1
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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). 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
2
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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.
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
3
<PAGE>
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.
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.
4
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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.
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.
5
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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:
*+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, Lexington Global Asset
Managers, Inc.; Unione Italiana Reinsurance; Vice Chairman of the Board of
Trustees, Union College; 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;
Director, Chartwell Re Corporation.
+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. Box 1515, Saddle Brook,
N.J. 07663. Executive Vice President, Managing Director and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc; Executive Vice President and General
Manager-Mutual Funds, Lexington Global Asset Managers, 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).
+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; Secretary, Lexington Global Asset Managers, Inc.
6
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*+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; Executive Vice President and Chief
Financial Officer, Lexington Global Asset Managers, 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.
*+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 Vice President and 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, 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.
The Board of Directors met 5 times during the twelve months ended December
31, 1995, and each of the Directors attended at least 75% of these meetings.
Remuneration of Directors and Certain Executive Officers:
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof. Each Director who is not an
affiliate of the advisor is compensated for his or her services according to a
fee schedule which recognizes the fact that each Director also serves as a
Director of other investment companies advised by LMC. Each Director receives a
fee, allocated among all investment companies for which the Director serves.
Effective September 12, 1995 each Director receives annual compensation of
$24,000. Prior to September 12, 1995, the directors who were not employed by the
Fund or its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1995 to December 31, 1995 for each Director:
- --------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in Fund
Fund Complex
- --------------------------------------------------------------------------------
Robert M. DeMichele 0 $0 15
- --------------------------------------------------------------------------------
Beverley C. Duer $1456 22,616 15
- --------------------------------------------------------------------------------
Barbara R. Evans 0 0 14
- --------------------------------------------------------------------------------
Lawrence Kantor 0 0 14
- --------------------------------------------------------------------------------
Donald B. Miller $1456 $22,616 14
- --------------------------------------------------------------------------------
John G. Preston $1456 $22,616 14
- --------------------------------------------------------------------------------
Margaret Russell $1456 $19,560 13
- --------------------------------------------------------------------------------
Philip C. Smith $1456 $22,616 14
- --------------------------------------------------------------------------------
Francis A. Sunderland $1456 $19,560 13
- --------------------------------------------------------------------------------
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Retirement Plan for Eligible Directors/Trustees
Effective September 12, 1995, the Directors instituted a Retirement Plan for
Eligible Directors/Trustees (the "Plan") pursuant to which each Director/Trustee
(who is not an employee of any of the Funds, the Advisor, Administrator or
Distributor or any of their affiliates) may be entitled to certain benefits upon
retirement from the Board. Pursuant to the Plan, the normal retirement date is
the date on which the eligible Director/Trustee has attained age 65 and has
completed at least ten years of continuous and non-forfeited service with one or
more of the investment companies advised by LMC (or its affiliates)
(collectively, the "Covered Funds"). Each eligible Director/Trustee is entitled
to receive from the Covered Fund an annual benefit commencing on the first day
of the calendar quarter coincident with or next following his date of retirement
equal to 5% of his compensation multiplied by the number of such
Director/Trustee's years of service (not in excess of 15 years) completed with
respect to any of the Covered Portfolios. Such benefit is payable to each
eligible Directors in quarterly installments for ten years following the date of
retirement or the life of the Director/Trustee. The Plan establishes age 72 as a
mandatory retirement age for Directors/Trustees; however, Director/Trustees
serving the Funds as of September 12, 1995 are not subject to such mandatory
retirement. Directors/Trustees serving the Funds as of September 12, 1995 who
elect retirement under the Plan prior to September 12, 1996 will receive an
annual retirement benefit at any increased compensation level if compensation is
increased prior to September 12, 1997 and receive spousal benefits (i.e., in the
event the Director/Trustee dies prior to receiving full benefits under the Plan,
the Director/Trustee's spouse (if any) will be entitled to receive the
retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to an
eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1995, the estimated credited years
of service for Directors Duer, Miller, Preston, Russell, Smith and Sunderland
are 18, 22, 18, 15, 26 and 36, respectively.
Highest Annual Compensation Paid by All Funds
---------------------------------------------
$20,000 $25,000 $30,000 $35,000
Years of
Service Estimated Annual Benefit Upon Retirement
------- ----------------------------------------
15 $15,000 $18,750 $22,500 $26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
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 "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, 1993, $563,193;
December 31, 1994, $3,028,315 and December 31, 1995, $2,837,412.
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.
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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 Lexington Global Asset
Managers, 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 Lexington Global Asset
Managers, 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 March 1, 1996, 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 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: 1993, $958,179; 1994, $2,815,460 and 1995,
$3,157,822. The portfolio turnover rate for the last three fiscal years was:
- -1993, 38.35%; 1994, 79.56% and 1995, 92.85%.
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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.
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
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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.
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 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
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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 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.
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.
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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 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
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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.
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 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
14
<PAGE>
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:
P(1+T)n = 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).
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.
15
<PAGE>
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, 1995 is as follows:
Average Annual
Period Total Return
------ ------------
1 year ended December 31, 1995 -5.93%
5 years ended December 31, 1995 11.29%
10 years ended December 31, 1995 9.59%
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.
16
<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, 1995, 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, 1995 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, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 29, 1996
17
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 95.4%
BRAZIL: 7.4%
10,690,000 Cia Tecidos Norte De Mina (Preferred shares) ......$ 3,575,435
475,606,000 Cia Acos Especiais Itabir (Preferred shares) ...... 2,765,436
108,400 Compania Vale Do Rio Doce (ADR) ................... 4,444,400
63,134,000 Telecomunicacoes Brasileiras S.A. ................. 3,040,724
17,030,000 Telecomunicacoes de Sao Paulo S.A. ................ 2,506,216
4,033,017,000 Usinas Siderurgicas de Minas Gerais S.A. .......... 3,278,875
------------
19,611,086
------------
CHILE: 4.9%
159,100 Banco O'Higgins (ADR) ............................. 3,659,300
199,300 Banco Osorno y La Union (ADR) ..................... 2,765,288
112,400 Chile Fund, Inc. .................................. 2,922,400
136,800 Madeco, S.A. (ADR) ................................ 3,693,600
------------
13,040,588
------------
GREECE: 4.0%
147,400 AEGEK ............................................. 1,266,995
161,910 Delta Dairy S.A. (Preferred shares) ............... 2,387,751
205,900 Michaniki S.A. .................................... 2,646,084
100,200 Titan Cement Company .............................. 4,200,860
------------
10,501,690
------------
HONG KONG: 2.6%
827,000 Dao Heng Bank Group, Ltd. ......................... 2,973,435
262,000 HSBC Holdings Plc ................................. 3,964,563
------------
6,937,998
------------
HUNGARY: 1.2%
82,520 Pick Szeged ....................................... 3,141,771
------------
INDIA: 3.3%
82,100 Bajaj Auto, Ltd.2 ................................. 2,144,452
68,500 Hindalco Industries, Ltd.2 ........................ 2,329,000
497,400 The India Fund, Inc. .............................. 4,414,425
------------
8,887,877
------------
INDONESIA: 6.3%
371,500 PT Hanjaya Mandala Sampoerna ...................... 3,871,147
1,645,000 PT Hero Supermarket ............................... 3,529,116
380,000 PT Modern Photo Film Company ...................... 2,204,466
1,166,000 PT Semen Cibinong ................................. 2,909,895
928,000 PT Semen Gresik ................................... 2,600 ,350
2,888,000 PT Sinar Mas Agro Resources Agricultural
Production and Technology Corporation .......... 1,612,172
------------
16,727,146
------------
18
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
ISRAEL: 6.5%
790 Africa-Israel Investments, Ltd.2 ..................$ 952,591
1,524,267 Bank Hapoalim, Ltd. ............................... 2,516,078
11,870 First International Bank of Israel ................ 1,388,246
335,000 First Israel Fund, Inc. ........................... 3,894,375
29,010 Koor Industries, Ltd. ............................. 2,880,302
366,336 Osem Investments, Ltd. ............................ 2,190,708
51,000 Teva Pharmaceutical Industries, Ltd. (ADR) ........ 2,361,938
394,000 The Israel Land Development Company ............... 1,139,776
------------
17,324,014
------------
MALAYSIA: 7.8%
234,000 Arab Malaysian Merchant Bank Holdings Bhd ......... 2,673,232
980,000 Berjaya Singer Bhd ................................ 1,219,933
949,000 Cement Industries of Malaysia Bhd ................. 3,074,857
211,000 Genting Bhd ....................................... 1,762,143
735,000 IOI Properties Bhd ................................ 1,838,586
336,000 Malayan Banking Bhd ............................... 2,832,539
1,100,000 New Straits Times Press Bhd ....................... 3,683,278
1,005,000 Sungei Way Holdings Bhd ........................... 3,622,513
------------
20,707,081
------------
MEXICO: 8.2%
739,398 Corporacion Industrial San Luis S.A. .............. 3,802,893
209,500 Grupo Casa Autrey S.A. de C.V. (ADR) .............. 2,802,063
6,135,000 Grupo Industrial Maseca S.A. de C.V. .............. 3,754,492
202,900 Grupo Televisa S.A. (ADR) ......................... 4,565,250
341,500 Transportation Maritima Mexicana
S.A. de C.V. "L" (ADR) ......................... 2,860,063
587,100 Tubos De Acero De Mexico S.A. (ADR)2 .............. 4,109,700
------------
21,894,461
------------
PAKISTAN: 0.6%
313,700 Pakistan Investment Fund, Inc. .................... 1,646,925
------------
PHILIPPINES: 6.3%
3,595,700 Ayala Land, Inc. "B" .............................. 4,390,019
15,107,500 Filinvest Land Inc.2 .............................. 4,841,778
4,574,650 International Container Terminal Service, Inc. .... 2,399,902
214,000 Philippine Commercial International Bank1 ......... 1,975,887
6,315,000 Universal Robina Corporation ...................... 3,132,201
------------
16,739,787
------------
19
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
POLAND: 6.7%
239,600 Bank Rozwoju Eksportu S.A. ........................$ 3,646,510
26,242 Bank Slaski S.A. .................................. 1,528,298
116,100 Debica S.A. ....................................... 1,752,808
1,029,380 Elektrim Towarzystwo Handlowe S.A. ................ 3,488,362
447,900 Polifarb Cieszyn Wroclaw S.A. ..................... 1,699,621
209,400 Stomil Olsztyn S.A.2 .............................. 1,954,627
148,400 Universal S.A. .................................... 421,591
25,000 Wedel S.A. ........................................ 826,907
34,100 Zaklady Piwowarski w Zywcu S.A. ................... 2,352,679
------------
17,671,403
------------
PORTUGAL: 1.8%
255,300 Portugal Telecom S.A. (ADR)2 ...................... 4,797,527
------------
RUSSIA: 1.5%
829,700 Lukoil Holdings2 .................................. 3,974,263
------------
SINGAPORE: 6.7%
299,000 Development Bank of Singapore, Ltd. ............... 3,722,167
259,000 Fraser & Neave, Ltd. .............................. 3,297,496
233,000 Jurong Engineering, Ltd. .......................... 1,359,634
324,000 Keppel Corporation, Ltd. .......................... 2,887,537
224,000 Oversea-Chinese Banking Corporation, Ltd. ......... 2,804,357
534,000 Overseas Union Bank, Ltd. ......................... 3,682,628
------------
17,753,819
------------
SOUTH AFRICA: 6.8%
16,000 Anglo American Corporation of
South Africa, Ltd. (ADR) ..................... 969,000
239,599 Anglo American Platinum (ADR)2 ................... 1,363,798
261,800 Barlow, Ltd. (ADR) ............................... 3,714,288
154,200 Liberty Life Association of Africa, Ltd. (ADR) ... 4,750,324
244,700 Malbak, Ltd.1 .................................... 1,695,342
259,400 Malbak, Ltd. ..................................... 1,797,188
223,462 Rustenburg Platinum Holdings, Ltd. (ADR) ......... 3,677,939
------------
17,967,879
------------
SOUTH KOREA: 2.3%
100,000 Cho Hung Bank .................................... 1,164,110
13,441 Kia Motors Corporation (ADR)1,2 .................. 312,503
22,409 Korea Long Term Credit Bank ...................... 632,664
30,800 Pohang Iron & Steel Company, Ltd. ................ 2,013,098
20,200 Pohang Iron & Steel Company, Ltd. (ADR) .......... 441,875
26,062 Sung Shin Cement Industrial Company, Ltd. ........ 940,745
7,000 Tae Young Corporation ............................ 422,328
11,201 Taihan Electric Wire Company ..................... 303,237
------------
6,230,560
------------
20
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
Number of
Shares or
principal Value
amount Security (Note 1)
- --------------------------------------------------------------------------------
TAIWAN: 2.0%
256,125 Taiwan Fund, Inc. ................................. $ 5,250,563
------------
THAILAND: 6.3%
203,300 Bangkok Bank, Ltd. ................................ 2,470,604
2,700 Charoen Pokphand Feedmill Company, Ltd. ........... 13,189
310,000 Matichon Public Company, Ltd. ..................... 1,859,015
269,000 Phatra Thanakit Company, Ltd. ..................... 2,307,546
88,000 Saha Pathanapibul Company, Ltd. ................... 164,257
180,000 Siam City Cement Company, Ltd. .................... 2,816,521
263,000 Thai Farmers Bank Public Company, Ltd ............. 2,652,979
54,000 The Siam Cement Company, Ltd. ..................... 2,993,805
213,000 Total Access Communication Plc1,2 ................. 1,384,500
------------
16,662,416
------------
UNITED KINGDOM: 1.5%
864,000 Antofagasta Holdings Plc ......................... 3,917,160
------------
VENEZUELA: 0.7%
410,400 Ceramanic Carobobo (ADR) .......................... 439,128
146,280 Mantex S.A.C.A. (ADR) ............................. 694,830
92,933 Mavesa S.A. (ADR) 1 ............................... 348,499
114,800 Mavesa S.A. (ADR) ................................. 430,500
------------
1,912,957
------------
TOTAL COMMON STOCKS (cost $256,287,316) ........... 253,298,971
------------
SHORT-TERM INVESTMENTS: 4.1%
$8,000,000 Federal Home Loan Mortgage Corporation,
5.50%, due 1/12/96 ............................ 7,998,778
3,000,000 Federal Home Loan Mortgage Corporation,
6.25%, due 2/26/96 ............................ 2,973,570
------------
TOTAL SHORT-TERM INVESTMENTS (cost $10,972,925) ... 10,972,348
------------
TOTAL INVESTMENTS: 99.5%
(cost $267,260,241+) (Note 1) ................ 264,271,319
Other assets in excess of liabilities: 0.5% ....... 1,273,134
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $10.70 per share
on 24,826,051 shares outstanding) ............$265,544,453
============
21
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
Notes to Statement of Net Assets
1The following securities were purchased under Rule 144A of the Securities Act
of 1933 and, unless registered under the Act or exempted from registration, may
be sold only to qualified institutional investors.
<TABLE>
<CAPTION>
Acquisition Average Cost Per Percent of
Issuer Date Share/Principal Unit Market Value Net Assets
- ---------------------------------- -------------------- ------------------- ------------ ----------
<S> <C> <C> <C> <C>
Kia Motors Corporation (ADR) .... 11-15-91 to 12-7-93 $30.06 $ 312,503 .12%
Mavesa S.A. (ADR) ................ 2-15-94 to 6-6-94 10.82 348,499 .13%
Malbak, Ltd. ..................... 7-25-95 1.66 1,695,342 .64%
Philippine Commercial
International Bank ........... 8-4-95 8.30 1,975,887 .74%
Total Access Communications Plc .. 9-28-95 6.31 1,384,500 .52%
---------- -----
$5,716,731 2.15%
========== =====
</TABLE>
Pursuant to guidelines adopted by the Fund's Board of Directors, these
unregistered securities have been deemed to be illiquid. The Fund currently
limits investment in illiquid securities to 15% of the Fund's net assets, at
market value, at the time of purchase, but, pursuant to state regulations, the
Fund's investment in such securities is effectively limited to 10%.
2Non-income producing securities.
ADR-American Depository Receipt.
+Aggregate cost for Federal income tax purposes is identical.
___________________________
At December 31, 1995, the composition of the Fund's net assets by industry
concentration was as follows:
(left column)
Banking/Financial Services .................. 16.8%
Capital Equipment ........................... 4.1%
Consumer (Durables) ......................... 3.6%
Consumer (Non-Durables) ..................... 11.0%
Construction and Housing .................... 2.1%
Energy Sources/Utility ...................... 1.5%
Financial Services .......................... 3.7%
Health Care ................................. 1.9%
Materials ................................... 19.2%
(right column)
Merchandising ............................... 1.3%
Multi-Industry .............................. 13.2%
Real Estate ................................. 4.6%
Services .................................... 5.4%
Telecommunications .......................... 4.4%
Trade ....................................... 1.5%
Transportation .............................. 1.1%
U.S. Government Obligations ................. 4.1%
Other assets ................................ 0.5%
------
Net Assets ..........................100.0%
======
The Notes to Financial Statements are an integral part of this statement.
22
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Assets and Liabilities
December 31, 1995
Assets
Investments in securities, at value
(cost $267,260,241) (Note 1) .................................. $264,271,319
Cash ............................................................ 2,678,772
Foreign currencies, at value (cost $487,347) .................... 487,511
Receivable for shares sold ...................................... 7,674,853
Dividends receivable ............................................ 265,613
Foreign taxes recoverable ....................................... 2,462
------------
Total Assets .......................................... 275,380,530
------------
Liabilities
Due to Lexington Management Corporation (Note 2) ................ 486,373
Payable for shares redeemed ..................................... 4,422,177
Payable for investment securities purchased ..................... 3,966,921
Accrued expenses ................................................ 737,877
Distributions payable ........................................... 222,729
------------
Total Liabilities ..................................... 9,836,077
------------
Net Assets (equivalent to $10.70 per share
on 24,826,051 shares outstanding) (Note 3) ................... $265,544,453
============
Net Assets consist of:
Capital stock-authorized 100,000,000 shares,
$1.00 par value per share ..................................... $ 24,826,051
Additional paid-in capital (Note 1) ............................. 279,989,335
Distributions in excess of net investment income (Note 1) ....... (420,121)
Accumulated net realized loss on investments and foreign
currency holdings (Notes 1 and 6) ............................. (35,860,265)
Net unrealized depreciation of investments and foreign
currency holdings ............................................. (2,990,547)
------------
$265,544,453
============
The Notes to Financial Statements are an integral part of this statement.
23
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statement of Operations
Year ended December 31, 1995
Investment Income
Income
Dividends ...................................... $ 6,002,960
Interest ....................................... 2,129,820
-----------
8,132,780
Less: Foreign tax expense ...................... 818,698
-----------
Total investment income ..................... 7,314,082
Expenses
Investment advisory fee (Note 2) ............... 2,837,412
Accounting and shareholder
services expense (Note 2) ................... 435,809
Custodian and transfer agent expenses .......... 1,284,175
Printing and mailing ........................... 400,754
Directors' fees and expenses ................... 12,241
Audit and Legal ................................ 62,428
Registration fees .............................. 113,318
Computer processing fees ....................... 22,604
Other expenses ................................. 172,164
-----------
Total expenses ............................. 5,340,905
------------
Net investment income ................. 1,973,177
Realized and Unrealized Gain (Loss) on
Investments (Note 4)
Realized loss on:
Investments ................................. (33,525,989)
Foreign currency transactions ............... (224,850)
-----------
Net realized loss ..................... (33,750,839)
Net change in unrealized appreciation
(depreciation) on:
Investments ................................. 16,903,699
Foreign currency translation of other
assets and liabilities ..................... (2,503)
-----------
Net change in unrealized appreciation .. 16,901,196
------------
Net realized and unrealized loss ....... (16,849,643)
------------
Decrease in Net Assets Resulting from Operations . $(14,876,466)
============
The Notes to Financial Statements are an integral part of this statement.
24
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
1995 1994
------------ ------------
Net investment income (loss) ....................... $ 1,973,177 $ (174,837)
Net realized gain (loss) from security transactions. (33,750,839) 11,472,267
Increase (decrease) in unrealized appreciation
(depreciation) of investments and foreign
currency holdings ................................. 16,901,196 (62,458,378)
------------ ------------
Net decrease in net assets resulting
from operations ............................... (14,876,466) (51,160,948)
Distributions to shareholders from net
investment income ................................. (1,973,177) -
Distributions to shareholders in excess of net
investment income (Note 1) ........................ (195,271) -
Distributions to shareholders from net realized
gains from security transactions (Note 1) ......... (9,702) (11,472,267)
Distributions to shareholders in excess of net
realized gains from security
transactions (Note 1) ............................. - (2,117,189)
Increase (decrease) in net assets from
capital share transactions (Note 3) ............... (5,982,120) 122,858,778
------------ ------------
Net increase (decrease) in net assets .... (23,036,736) 58,108,374
Net Assets
Beginning of period ................................ 288,581,189 230,472,815
------------ ------------
End of period ...................................... $265,544,453 $288,581,189
============ ============
The Notes to Financial Statements are an integral part of these statements.
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994
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 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. 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.
25
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994 (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 In accordance with 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,
1995, $224,850 was reclassified from accumulated net realized loss on
investments and foreign currencies to distributions in excess of net investment
income. In addition, book and tax differences of $32,548 have been reclassified
from accumulated net realized loss on investments to additional paid-in capital.
Distributions in excess of net investment income reflect temporary book-tax
differences. 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. Accumulated net realized loss on investments reflect temporary
book-tax differences arising from Internal Revenue Code 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, 1995.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the
Fund, but paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
Year ended Year ended
December 31, 1995 December 31, 1994
------------------------- ------------------------
Shares Amount Shares Amount
----------- ------------ ---------- ------------
Shares sold ............... 22,479,065 $242,654,550 39,085,412 $521,337,885
Shares issued on
reinvestment of
dividends ............... 183,411 1,963,204 1,084,862 12,465,043
----------- ------------ ---------- ------------
.......................... 22,662,476 244,617,754 40,170,274 533,802,928
Shares redeemed ........... (23,001,849) (250,599,874)(31,509,363) (410,944,150)
----------- ------------ ---------- ------------
Net increase (decrease) . (339,373) $(5,982,120) 8,660,911 $122,858,778
=========== ============ ========== ============
26
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
4. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1995, excluding short-term securities, were $289,286,823 and
$227,931,120, respectively.
At December 31, 1995 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
$25,824,307 and aggregate gross unrealized depreciation for which there is an
excess of tax cost over value amounted to $28,814,854.
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.
6. Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for federal income tax purposes as of
December 31, 1995 are approximately $34,104,140 expiring in 2003.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
Treasury regulations were issued in early 1990 which provide that capital losses
incurred after October 31 of a fund's taxable year can be deemed to have
occurred on the first day of the following year (i.e.: January 1). The
regulations indicate that a fund may elect to retroactively apply these rules
for purposes of computing taxable income. Accordingly, the 1995 post-October
losses of $1,756,125 have been deemed to have occured in 1996 for federal income
tax purposes.
27
<PAGE>
Lexington Worldwide Emerging Markets Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period: 1
Year ended December 31,
-------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Net asset value, beginning
of period ....................... $11.47 $13.96 $ 8.66 $ 9.03 $ 8.56
------ ------ ------ ------ ------
Income (loss) from investment
operations:
Net investment income (loss) ... .08 (.01) .05 .07 .09
Net realized and unrealized gain
(loss) on investments ........... (.76) (1.92) 5.43 .27 1.97
------ ------ ------ ------ ------
Total income (loss) from
investment operations ........... (.68) (1.93) 5.48 .34 2.06
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment
income ....................... (.08) - (.01) (.11) (.11)
Distributions in excess of net
investment income (temporary
book-tax difference) ......... (.01) - - - -
Distributions from capital gains - (.47) (.17) (.60) (1.48)
Distributions in excess of
capital gains (temporary
book-tax difference) ......... - (.09) - - -
------ ------ ------ ------ ------
Total distributions .............. (.09) (.56) (.18) (.71) (1.59)
------ ------ ------ ------ ------
Net asset value, end of period ... $10.70 $11.47 $13.96 $ 8.66 $ 9.03
====== ====== ====== ====== ======
Total return ..................... (5.93%) 13.81%) 63.37% 3.77% 24.19%
Ratio to average net assets:
Expenses ....................... 1.88% 1.65% 1.64% 1.89% 1.97%
Net investment income (loss) ..... .70% (.06%) .21% .75% .79%
Portfolio turnover ............... 92.85% 79.56% 38.35% 91.27% 112.03%
Net assets at end of period
(000's omitted) ................ $265,544 $288,581 $230,473 $30,021 $25,060
- --------
1Effective June 17, 1991 the Fund changed its name and investment objective from
Lexington Growth Fund, Inc. to Lexington Worldwide Emerging Markets Fund, Inc.
28