DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
Lexington Worldwide Emerging Markets Fund increased by 13.75%* during the
fourth quarter and fell 29.06%* for the full year of 1998. According to Lipper,
Inc. the average emerging markets fund increased 13.29% for the quarter and
declined 26.83% for the year. The unmanaged Morgan Stanley Emerging Markets
Free Index posted a gain of 17.99% for the quarter** and declined 25.34%** for
the year. The Fund performed in line with the average emerging markets fund in
1998. The following is a discussion of the major factors impacting the
performance of emerging markets in 1998.
INVESTMENT APPROACH
The Fund's investment approach is to focus on positive returns through
long-term capital gains. The investment strategy is based on a top-down
approach that compares macro trends, such as economics, politics, industry
trends, and commodity trends on a relative basis. Countries are grouped
regionally and globally and ranked based on their macro scores. Once specific
countries are identified as relative outperformers, specific companies are
selected as investments. The selection process for selecting individual
companies is based on fundamental research, industry themes, and identifying
specific catalysts for growth.
On an asset allocation basis, the objective of the investment manager is
to be fully allocated (up to 98%) given the correct mix of investment
opportunities. Or, in times of uncertainty the Fund can invest up to 100% in
cash. At the regional and country level, the investment manager will use the
MSCI Emerging Markets Free Index as a benchmark to underweight and overweight
its positions.
WHAT HAPPENED IN 1998?
In emerging markets, 1998 can be summarized as the year of de-leveraging,
restructuring, and deflating. Starting in the third quarter of 1997, the Asian
"Tiger" economies suffered a severe credit crunch caused primarily by slowing
growth, a strong currency and industrial over-capacity. With their currencies
pegged to the dollar, the "Asian Tigers" had enjoyed the export benefits of a
strong dollar and an extremely low cost of borrowing, both domestically and
abroad. As long as their economies were growing at 5-7% per annum the "Tigers"
were able to finance their growth by borrowing in U.S. dollars and were able to
offset large current account deficits by large capital inflows. Once the
economic growth stalled, and the dollar strengthened, the "Tiger" currencies
came under severe pressure and buckled, devaluing, in some instances, over 50%.
As a result, the heavily indebted governments and corporations could no longer
finance large foreign loans and were forced into technical bankruptcy, i.e.,
they had to restructure their loans. The over-indebtedness problems arose in
other countries (Russia, Ukraine, Brazil), and each time caused severe havoc in
financial markets, with Brazil being the latest to succumb to a large and
unsustainable debt burden.
The results were a short-term but severe collapse in asset valuations.
However, international institutions like the IMF and developed countries like
Japan, were quick in responding to this crisis. Restructuring plans were
negotiated and funds were loaned to the governments to allow governments the
means to facilitate a whole-sale corporate restructuring. In some cases, like
South Korea, the restructuring programs have proven to be extremely successful,
and in other cases, like Russia, there has been utter failure.
OUTLOOK FOR 1999
The Federal Reserve, with the first cut in interest rates, set in motion
the reflationary trend for 1999: lower global interest rates. With global
interest rates trending lower and governments actively participating in
reflating local economies, 1999 may be a very rewarding year for foreign
investors in
1
<PAGE>
emerging markets. Thus far, it has been domestic, not foreign investors who
have participated in the interest rate led rally in the most recent quarter.
Asian equity markets relative to other emerging markets will take a leading
role in early 1999 in this domestic redirection of capital. Asia has made solid
economic progress, adhered to IMF programs, and has managed to reverse some of
its economic and foreign currency concerns. Additionally, we expect ratings
agencies to upgrade certain Asian countries back to investment grade in early
1999, due to improved economic conditions and the possible lifting of controls.
We are also positive on developing European markets in 1999 as EMU integration
creates greater demand for equities in next wave EMU convergence countries.
Latin America will be a laggard in the first half of 1999 as economic recession
looms and local interest rates remain stubbornly high. Nonetheless, we believe
that extremely low current valuations and strong earnings trends for certain
Latin shares will ultimately reward patient investors. Systemic risk in
emerging markets is at a low due to the withdrawal of global capital from these
markets over the last two years. Hence, the relative risk of a sustained
outflow of foreign capital is low, whereas the argument of net new additions to
the asset class is compelling and could be a strong catalyst to propel shares
in early 1999.
Sincerely,
<TABLE>
<S> <C> <C> <C>
/s/ Mohammed Zaidi /s/ Richard T. Saler /s/Robert M. DeMichele Alfredo M. Viegas
- ------------------ -------------------- ---------------------- ------------------
Portfolio Manager Portfolio Manager Portfolio Manager President
February, 1999 February, 1999 February, 1999 February, 1999
</TABLE>
RESULTS OF THE SPECIAL MEETING OF SHAREHOLDERS HELD AUGUST 12, 1998 (UNAUDITED)
Total Outstanding Shares as of June 15, 1998: 11,450,454
<TABLE>
<S> <C> <C>
1. Directors Elected: S.M.S. Chadha, Robert M. DeMichele,
Beverley C. Duer, Barbara R. Evans, Richard M. Hisey,
Lawrence Kantor, Jerard F. Maher, Andrew M. McCosh, Donald
B. Miller, John G. Preston and Allen H. Stowe.
For all Nominees: 5,724,657 Withheld Authority: 300,689
VOTES VOTES
FOR AGAINST
--------- -------
2. Approval of an investment sub-advisory agreement between 5,087,021 250,464
Lexington Management Corporation and Stratos Advisors, Inc.
with respect to the Fund.
3. Approval of a Plan of Distribution for the Fund. 4,425,280 464,675
4. Selection of KPMG LLP as Independent Auditors. 5,720,340 104,002
</TABLE>
2
<PAGE>
[The following table represents a line chart in the printed report]
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.,
THE UNMANAGED MORGAN STANLEY CAPITAL INTERNATIONAL (EAFE) INDEX AND
THE UNMANAGED MORGAN STANLEY EMERGING MARKETS FREE INDEX
LEXINGTON
YEAR WWEM EAFE MSCI EMF
==============================================
6/17/91 $10,000 $10,000 $10,000
12/31/91 $10,173 $11,039 $11,780
12/31/92 $10,557 $9,695 $13,123
12/31/93 $17,246 $12,852 $22,944
12/31/94 $14,864 $13,852 $21,266
12/31/95 $13,983 $15,405 $20,158
12/31/96 $15,015 $16,336 $21,374
12/31/97 $13,303 $16,626 $18,898
12/31/98 $ 9,438 $20,007 $14,109
AVERAGE ANNUAL STANDARD TOTAL RETURNS
FOR THE PERIOD ENDED 12/31/98
-------------------------------------------------------------
FUND/INDEX 1 YR. 5 YR. 10 YR.
-------------------------------------------------------------
LEXINGTON WORLDWIDE
EMERGING MARKETS FUND (29.06%) (11.36%) (25.34%)
-------------------------------------------------------------
MORGAN STANLEY CAPITAL
INTERNATIONAL (EAFE) INDEX 20.33% 9.25% (9.27%)
-------------------------------------------------------------
MORGAN STANLEY EMERGING
MARKETS FREE INDEX (25.34%) 9.67% 4.69%
-------------------------------------------------------------
This graph, prepared in accordance with SEC regulations, compares a $10,000
investment in the Fund with a similar investment in the Morgan Stanley Capital
International (EAFE) Index and the Morgan Stanley Emerging Markets Free Index.
Results for the Fund, the Morgan Stanley Capital International (EAFE) Index and
the Morgan Stanley Emerging Markets Free Index include the reinvestment of all
dividend and capital gain distributions. *Prior to June 17, 1991 the Fund
operated under a different investment objective. Investment return and principal
value of an investment will fluctuate so that an investor's shares when redeemed
may be worth more or less than at their original cost. Total return represents
past performance and it is not predictive of future results.
* -29.06%, -11.36% and 2.36% are the one, five and ten year average annual
standard total returns, respectively, for the period ended December 31,
1998. Prior to June, 1991, the Fund operated under a different name and
investment objective. Investment return and principal value of an investment
will fluctuate so that an investor's shares, when redeemed, may be worth
more or less than at their original cost. Total return represents past
performance and is not predictive of future results.
3
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
============ ======================================================== =============
<S> <C> <C>
COMMON STOCKS: 87.2%
ARGENTINA: 6.6%
765,506 Perez Companc S.A. ..................................... $3,241,014
39,000 YPF Sociedad Anonima S.A. (ADR) ........................ 1,089,563
----------
4,330,577
----------
BRAZIL: 0.7%
33,000 Tele Norte Leste Participacoes S.A. (ADR)1 ............. 410,438
3,500 Tele Sudeste Celular Participacoes S.A. (ADR) .......... 72,406
----------
482,844
----------
CZECH REPUBLIC: 2.0%
84,100 SPT Telekom a.s.1 ...................................... 1,284,880
----------
EGYPT: 0.8%
75,000 Savola Sime Egypt1 ..................................... 500,381
----------
GREECE: 9.1%
7,690 Anek Lines S.A.1 ....................................... 82,381
7,200 Commercial Bank of Greece, S.A.1 ....................... 708,066
10,600 Ergo Bank S.A. ......................................... 1,226,389
16,000 Hellenic Bottling Company S.A.1 ........................ 493,926
60,000 Hellenic Petroleum S.A.1 ............................... 492,784
6,077 Hellenic Telecommunication Organization S.A. ........... 161,676
6,500 Intracom S.A.1 ......................................... 295,938
38,930 Intrasoft S.A.1 ........................................ 896,647
21,650 Macedonia Thrace Bank S.A.1 ............................ 912,257
21,000 STET Hellas Telecommunications S.A. (ADR)1 ............. 670,688
3,230 X.K. Tegopoulos Editions S.A.1 ......................... 35,352
----------
5,976,104
----------
HONG KONG: 3.4%
2,500,000 Guangnan Holdings ...................................... 574,414
7,630,000 Guangzhou Investment Company, Ltd. ..................... 758,369
4,952,000 Quingling Motors Company ............................... 869,330
----------
2,202,113
----------
HUNGARY: 1.6%
9,000 Magyar Tavkozlesi Rt. (ADR) ............................ 268,313
2,680 Pick Szeged Rt. ........................................ 113,903
55,600 Zalakeramia Rt. ........................................ 674,053
----------
1,056,269
----------
INDIA: 2.9%
1,450 Hindalco Industries, Ltd. .............................. 17,487
11,600 Hindustan Lever, Inc. .................................. 454,091
253,200 Hindustan Petroleum Corporation, Ltd. .................. 1,400,807
----------
1,872,385
----------
MALAYSIA: 6.6%
353,000 Austral Enterprises Bhd ................................ 364,767
1,648,000 Hap Seng Consolidated Bhd .............................. 961,333
250,000 IOI Corporation Bhd .................................... 129,762
813,000 Kuala Lumpur Kepong Bhd ................................ 1,258,214
100,000 Rothmans of Pall Mall Bhd .............................. 533,333
</TABLE>
4
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
============ ================================================================== ============
<S> <C> <C>
COMMON STOCKS (CONTINUED):
MALAYSIA (CONTINUED):
260,000 Telekom Malaysia Bhd ............................................. $ 619,048
375,000 YTL Corporation Bhd .............................................. 441,071
----------
4,307,528
----------
MEXICO: 5.1%
668,500 Consorcio Hogar S.A. de C.V. "B"1 ................................ 366,368
193,000 Corporacion GEO, S.A. de C.V. "B"1 ............................... 536,669
63,565 Corporacion Interamericana de Entretenimiento S.A. "L"1 .......... 131,761
46,450 Empresas ICA Sociedad Controladora S.A. de C.V. (ADR) ............ 209,025
61,300 Grupo Casa Autrey, S.A. de C.V. (ADR) ............................ 417,606
675,000 Grupo Financiero Banamex Accival, S.A. de C.V. "B" ............... 885,921
1,444,000 Grupo Financiero Bancomer, S.A. de C.V. "B" ...................... 309,542
189,000 Grupo Industrial Saltillo, S.A. de C.V. "B" ...................... 472,036
----------
3,328,928
----------
OMAN: 0.8 %
40,000 Bank Muscat Al-Ahli Al-Omani ..................................... 342,880
42,000 Commercial Bank of Oman1 ......................................... 171,276
----------
514,156
----------
PANAMA: 0.7%
29,200 Banco Latinoamericano de Exportaciones, S.A. (ADR) ............... 485,450
----------
PERU: 0.3%
15,100 Compania de Minas Buenaventura S.A. (ADR) ........................ 196,300
----------
PHILIPPINES: 3.5%
3,148,300 Ayala Corporation ................................................ 1,112,864
7,778,750 Fortune Cement Corporation ....................................... 323,958
2,567,332 International Container Terminal Service, Inc.1 .................. 214,501
2,375,000 Ionics Circuit, Inc. ............................................. 580,030
840,000 Universal Robina Corporation ..................................... 93,936
----------
2,325,289
----------
POLAND: 2.3%
125,000 Big Bank Gdanski S.A. ............................................ 112,182
127,880 Elektrim Spolka Akcyjna S.A. ..................................... 1,384,489
----------
1,496,671
----------
PORTUGAL: 2.6%
9,500 Brisa-Auto Estradas de Portugal S.A. ............................. 559,226
13,100 Semapa-Sociedade de Investimento e Gestao, SGPS, S.A. ............ 259,350
51,100 SIVA-SGPA S.A.1 .................................................. 852,430
----------
1,671,006
----------
RUSSIA: 2.7%
2,859 Aeroflot ......................................................... 60,039
8,500,000 Irkutskenergo .................................................... 352,750
131,100 Lukoil Holdings of Russia ........................................ 530,955
4,250 Moscow Telephone Systems ......................................... 212,500
409,300 Rostelecom1 ...................................................... 298,789
48,000 Surgutneftegaz (ADR) ............................................. 162,000
4,235,000 Unified Energy Systems ........................................... 130,015
----------
1,747,048
----------
</TABLE>
5
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
============ ============================================================= =============
<S> <C> <C>
COMMON STOCKS (CONTINUED):
SINGAPORE: 3.4%
60,000 Creative Technology, Ltd. ................................... $ 847,294
311,000 Keppel Fels, Ltd. ........................................... 599,397
1,129,840 Keppel Telecommunications and Transportation, Ltd. .......... 746,398
-----------
2,193,089
-----------
SOUTH AFRICA: 5.7%
58,800 Adcock Ingram, Ltd. "N" ..................................... 159,929
1,120,800 Comair, Ltd.1 ............................................... 191,480
211,470 Dimension Data Holdings, Ltd. ............................... 898,707
795,500 Grintek, Ltd. ............................................... 135,229
85,300 Liberty Life Association of Africa, Ltd. .................... 1,153,826
38,000 Liberty Life Association of Africa, Ltd. .................... 523,236
51,300 Sasol, Ltd. (ADR) ........................................... 201,994
375,600 The Education Investment Corporation, Ltd. .................. 434,174
-----------
3,698,575
-----------
SOUTH KOREA: 15.6%
81,950 Dacom Corporation ........................................... 3,305,358
77,800 Dongwon Securities .......................................... 1,190,489
360,860 Kumho Tire Company, Ltd.1 ................................... 2,100,703
85,480 L.G. Securities1 ............................................ 1,123,180
50,500 Samsung Securities Company, Ltd. ............................ 1,385,904
30,000 Shinsegae Department Store Company .......................... 658,647
25,090 Suheung Capsule ............................................. 435,045
-----------
10,199,326
-----------
THAILAND: 3.6%
295,820 Bangkok Bank Public Company, Ltd. ........................... 610,627
1,269,970 K.R. Precision Public Company, Ltd. ......................... 620,411
1,500,000 Krung Thai Bank Public Company, Ltd. ........................ 815,353
146,080 Lanna Lignite Public Company, Ltd. .......................... 171,373
320,000 Securities One Public Company, Ltd. ......................... 69,577
398,100 Thai Engine Manufacturing Public Company, Ltd. .............. 99,706
-----------
2,387,047
-----------
TURKEY: 6.5%
49,210,000 Akbank T.A.S. ............................................... 984,200
22,778,000 Arcelik A.S. ................................................ 660,562
8,785,500 Eregli Demir Ve Celik Fabrikalari T.A.S. .................... 360,206
85,695,500 Haci Omer Sabanci Holding A.S. .............................. 1,285,432
2,769,261 Petrol Ofisi A.S. ........................................... 373,850
6,691,874 Tupras-Turkiye Petrol Rafinerileri A.S.2 .................... 294,442
76,120 Usas Ucak Servisi A.S. ...................................... 108,699
1,960,250 Vestel Elektronik Sanayi ve Ticaret A.S...................... 162,701
-----------
4,230,092
-----------
UNITED STATES: 0.7%
68,200 Central European Media Enterprises, Ltd.1 ................... 447,563
-----------
TOTAL COMMON STOCKS (cost $73,467,313)....................... 56,933,621
-----------
PREFERRED STOCKS: 7.0%
BRAZIL: 5.8%
4,530,000 Companhia de Tecidos Norte De Minas ......................... 487,420
</TABLE>
6
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
December 31, 1998 (continued)
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR
PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
============= ================================================================== ===============
<S> <C> <C>
PREFERRED STOCKS (CONTINUED):
BRAZIL (CONTINUED):
2,350,000 Companhia Riograndense de Telecomunicacoes ....................... $ 846,095
6,024,000 Petroleo Brasileiro S.A. ......................................... 683,073
7,940,000 Telecomunicacoes de Sao Paulo S.A. ............................... 1,082,371
2,416,000 Telecomunicacoes do Rio de Janeiro S.A. .......................... 65,989
12,280,000 Telerj Celular S.A. "B" .......................................... 289,671
7,940,000 Telesp Celular S.A. "B" .......................................... 348,961
------------
3,803,580
------------
COLOMBIA: 0.5%
35,600 Banco Ganadero S.A. (ADR) ........................................ 322,625
------------
GREECE: 0.7%
11,500 Intracom S.A. .................................................... 472,457
------------
TOTAL PREFERRED STOCKS (cost $7,581,041).......................... 4,598,662
------------
U.S. GOVERNMENT OBLIGATION: 7.1%
$20,750,000 U.S. Strip Bond, 0.00%, due 02/15/2027 (cost $3,998,111).......... $ 4,651,735
------------
SHORT-TERM INVESTMENT: 3.1%
U.S. GOVERNMENT AGENCY OBLIGATION
2,000,000 Federal Home Loan Mortgage Company 4.25%, due 01/04/99
(cost $1,999,292)................................................. 1,999,292
------------
TOTAL INVESTMENTS: 104.4% (cost $87,045,757+)..................... 68,183,310
Liabilities in excess of other assets: -4.4% ..................... (2,860,272)
------------
TOTAL NET ASSETS: 100.0% (equivalent to $7.13 per share on
9,156,234 shares outstanding) ................................... $ 65,323,038
============
</TABLE>
1 Non-income producing securities.
ADR - American Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $87,355,281.
--------------------
At December 31 1998, the composition of the Fund's net assets by industry
concentration was as follows:
<TABLE>
<S> <C>
Banking ................................... 12.9%
Capital Equipment ......................... 1.7
Construction and Housing .................. 0.6
Consumer (Durables) ....................... 7.0
Consumer (Non-Durables) ................... 2.0
Electrical and Electronics ................ 6.3
Energy Sources ............................ 7.8
Financial Services ........................ 11.0
Health and Personal Care .................. 1.6
Materials ................................. 7.5
Merchandising ............................. 1.0
</TABLE>
<TABLE>
<S> <C>
Multi-Industry ............................ 7.4%
Oil and Gas Holding Companies ............. 0.3
Real Estate ............................... 2.3
Services .................................. 2.1
Telecommunications ........................ 17.5
Trade ..................................... 3.0
Transportation ............................ 1.4
U.S. Government Agency and Obligation ..... 10.2
Utilities ................................. 0.8
Liabilities in excess of other assets ..... -4.4
------
Total Net Assets .......................... 100.0%
======
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS
Investments, at value (cost $87,045,757) (Note 1) .................................... $ 68,183,310
Cash ................................................................................. 302,488
Foreign currencies, at value (cost $260,003).......................................... 282,588
Receivable for investment securities sold ............................................ 461,856
Receivable for shares sold ........................................................... 214,431
Dividends and interest receivable .................................................... 80,757
------------
Total Assets ................................................................... 69,525,430
------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ..................................... 58,983
Payable for investment securities purchased .......................................... 335,306
Payable for shares redeemed .......................................................... 3,629,997
Distributions payable ................................................................ 33,392
Accrued expenses ..................................................................... 140,973
Other payable ........................................................................ 3,741
------------
Total Liabilities .............................................................. 4,202,392
------------
NET ASSETS (equivalent to $7.13 per share on
9,156,234 shares outstanding) (Note 4) .............................................. $ 65,323,038
============
NET ASSETS consist of:
Capital stock-authorized 100,000,000 shares,
$1.00 par value per share ........................................................... $ 9,156,234
Additonal paid-in capital ............................................................ 119,453,034
Undistributed net investment income (Note 1) ......................................... 281,164
Accumulated net realized loss on investments and foreign currency transactions
(Notes 1 and 7) ..................................................................... (44,730,277)
Net unrealized depreciation of investments and foreign currency translation of other
assets and liabilities .............................................................. (18,837,117)
------------
TOTAL NET ASSETS ............................................................... $ 65,323,038
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
8
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENT OF OPERATIONS
Year ended December 31, 1998
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................................ $ 2,365,275
Interest ................................................................. 794,532
-------------
3,159,807
Less: foreign tax expense ................................................ 190,331
-------------
Total investment income ............................................. $ 2,969,476
EXPENSES
Investment advisory fee (Note 2) ...................................... 991,861
Transfer agent and shareholder servicing expenses (Note 2) ............ 278,434
Custodian expenses .................................................... 168,410
Printing and mailing expenses ......................................... 106,304
Accounting expenses (Note 2) .......................................... 99,480
Professional fees ..................................................... 63,873
Distribution expenses (Note 3) ........................................ 25,100
Directors' fees and expenses .......................................... 18,628
Registration fees ..................................................... 18,429
Computer processing fees .............................................. 17,875
Other expenses ........................................................ 50,427
-------------
Total expenses ...................................................... 1,838,821
-------------
Net investment income ............................................. 1,130,655
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 5)
Net realized loss on:
Investments ......................................................... (36,473,430)
Foreign currency transactions ....................................... (100,717)
-------------
Net realized loss ................................................. (36,574,147)
Net change in unrealized depreciation on:
Investments ......................................................... 866,172
Foreign currency translation of other assets and liabilities. ....... 25,143
-------------
Net change in unrealized depreciation of investments .............. 891,315
-------------
Net realized and unrealized loss .................................. (35,682,832)
-------------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ......................... $ (34,552,177)
=============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
9
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Net investment income ........................................... $ 1,130,655 $ 222,797
Net realized gain (loss) on investment and foreign currency
transactions ................................................... (36,574,147) 19,032,982
Net change in unrealized depreciation of investments
and foreign currency translations .............................. 891,315 (29,295,263)
------------- ------------
Decrease in net assets resulting from operations ............. (34,552,177) (10,039,484)
Decrease from distributions to shareholders from net investment
income ......................................................... (870,294) -
Decrease from capital share transactions (Note 4) ............... (36,940,227) (106,947,586)
------------- ------------
Net decrease in net assets ................................... (72,362,698) (116,987,070)
NET ASSETS:
Beginning of period ............................................ 137,685,736 254,672,806
------------- ------------
End of period (including undistributed net investment income of
$281,164 and $10,871 in 1998 and 1997, respectively) .......... $ 65,323,038 $137,685,736
============= ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
10
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 domiciled in, or doing business in, emerging countries and emerging
markets. The following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements:
INVESTMENTS Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment transactions are reported on the
identified cost basis. Securities traded on a recognized stock exchange are
valued at the last sales price reported by the exchange on which the securities
are traded. If no sales price is recorded, the mean between the last bid and
asked prices is used. Securities traded on the over-the-counter market are
valued at the mean between the last current bid and asked prices. Short-term
securities having a maturity of 60 days or less are stated at amortized cost,
which approximates market value. Securities for which market quotations are not
readily available and other assets are valued by Fund management in good faith
under the direction of the Fund's Board of Directors. All investments quoted in
foreign currencies are valued in U.S. dollars on the basis of the foreign
currency exchange rates prevailing at the close of business. Dividend income
and distributions to shareholders are recorded on the ex-dividend date.
Interest income, adjusted for amortization of premiums and accretion of
discounts, is accrued as earned.
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 closed and are reported in the statement of operations.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. There are no forward foreign currency
contracts outstanding at December 31, 1998.
FEDERAL INCOME TAXES It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to "regulated investment
companies" and to distribute all of its taxable income to its shareholders.
Therefore, no provision for Federal income taxes is required.
DISTRIBUTIONS Dividends from net investment income and net realized
capital gains are normally declared and paid annually, but the Fund may make
distributions on a more frequent basis to comply with the distribution
requirements of the Internal Revenue Code. The character of income and gains to
be distributed are determined in accordance with income tax regulations which
may differ from generally accepted accounting principles. At December 31, 1998,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distribution under
income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases in
net assets from operations during the reporting period. Actual results could
differ from those estimates.
11
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATE
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1.00% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract effective October 1, 1998 with Stratos Advisors, Inc.
("Stratos") under which Stratos provides the Fund with investment management
services. Pursuant to the terms of the sub-advisory contract between LMC and
Stratos, LMC pays Stratos a monthly sub-advisory fee at the annual rate of
0.35% of the Fund's average daily net assets. For 1998, LMC has agreed to
voluntarily limit the total expenses of the Fund, (including management fees,
but excluding interest, taxes, brokerage commissions and extraordinary
expenses) to an annual rate of 2.50% of the Fund's average daily net assets. No
reimbursement was required for the year ended December 31, 1998.
The Fund reimburses LMC for certain expenses, including accounting and
shareholder servicing costs of $205,624 which are incurred by the Fund, but
paid by LMC.
3. DISTRIBUTION PLAN
The Fund has a Distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. (LFD), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1998 were $25,100 and are set forth in the statement of operations.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1998 December 31, 1997
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Shares Amount Shares Amount
------ ------- ------ --------
Shares sold 6,690,183 $ 55,113,742 11,625,469 $ 143,114,566
Shares issued on reinvestment ......... 118,245 806,004 - -
--------- ------------- ---------- --------------
6,808,428 55,919,746 11,625,469 143,114,566
Shares redeemed ....................... (11,179,605) (92,859,973) (20,259,295) (250,062,152)
----------- ------------- ----------- --------------
Net decrease ......................... (4,371,177) $ (36,940,227) (8,633,826) $ (106,947,586)
----------- ------------- ----------- --------------
</TABLE>
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1998, excluding short-term securities, were $97,935,694 and
$123,756,893, respectively.
At December 31, 1998, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$6,077,301 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $25,249,272.
12
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997 (continued)
6. INVESTMENT AND CONCENTRATION 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.
YEAR 2000 COMPLIANCE RISK The Fund seeks to ensure that the operating and
processing systems of the companies in which it invests will continue to
function when the Year 2000 arrives. However, the risk exists that one or more
of these companies may not be adequately prepared for the Year 2000 which could
have a material impact on the company itself and on the Fund's investment in
that company.
In addition to the risks described above, risks may arise from forward foreign
currency contracts as a result of the potential inability of counterparties to
meet the terms of their contracts.
7. FEDERAL INCOME TAXES - CAPITAL LOSS CARRYFORWARDS
Capital loss carryforwards1 available for Federal income tax purposes as of
December 31, 1998 are $1,243,031 expiring in 2003 and $35,629,150 expiring in
2006.
To the extent any future capital gains are offset by these losses, such gains
would not be distributed to shareholders.
1Temporary book-tax differences of $7,858,096 are the result of deferred
post-October losses.
8. TAX INFORMATION (UNAUDITED)
The following tax information represents the designation of various tax
benefits relating to year ended December 31, 1998:
For the September 1998 distribution foreign source income received by the Fund
from sources within foreign countries and possessions of the United States was
$0.338 per share (representing $3,519,789). The total amount of "qualifying"
taxes paid by the Fund to such countries was $0.050 per share (representing
$519,131).
For the December 1998 distribution foreign source income received by the Fund
from sources within foreign countries and possessions of the United States was
$0.103 per share (representing a total of $987,941). The total amount of
"qualifying" taxes paid by the Fund to such countries was $0.017 per share
(representing a total of $166,767).
The percentage of ordinary income distributions paid by the Fund derived from
agency and direct obligations of the United States government were as follows:
U.S. Treasury....................................... 6.19%
Federal Home Loan Bank.............................. 6.58
Federal Home Loan Mortgage Company.................. 5.23
Federal National Mortgage Association............... 1.85
13
<PAGE>
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------------
1998 1997 1996 1995 1994
--------------- -------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $ 10.18 $ 11.49 $ 10.70 $ 11.47 $ 13.96
--------- --------- --------- --------- ---------
Income (loss) from investment operations:
Net investment income (loss) .................... 0.12 0.01 - 0.08 ( 0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions ................................... ( 3.08) ( 1.32) 0.79 ( 0.76) ( 1.92)
---------- --------- --------- --------- ---------
Total income (loss) from investment
operations ..................................... ( 2.96) ( 1.31) 0.79 ( 0.68) ( 1.93)
---------- --------- --------- --------- ---------
Less distributions:
Distributions from net investment income ........ ( 0.09) - - ( 0.08) -
Distributions in excess of net investment
income (temporary book-tax difference) ......... - - - ( 0.01) -
Distributions from net realized gains. .......... - - - - ( 0.47)
Distributions in excess of net realized
gains (temporary book-tax difference) .......... - - - - ( 0.09)
---------- --------- --------- --------- ---------
Total distributions ............................. ( 0.09) - - ( 0.09) ( 0.56)
---------- --------- --------- --------- ---------
Net asset value, end of period. .................. $ 7.13 $ 10.18 $ 11.49 $ 10.70 $ 11.47
========== ========= ========= ========= =========
Total return. .................................... (29.06)% (11.40)% 7.38% (5.93)% (13.81)%
Ratio to average net assets:
Expenses ........................................ 1.85% 1.82% 1.76% 1.88% 1.65%
Net investment income (loss). ................... 1.14% 0.09% (0.01)% 0.70% (0.06)%
Portfolio turnover rate. ......................... 107.19% 112.05% 86.26% 92.85% 79.56%
Net assets, at end of period (000's omitted)...... $ 65,323 $137,686 $ 254,673 $265,544 $288,581
</TABLE>
14
<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, 1998, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998 by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Worldwide Emerging Markets Fund, Inc. as of December 31, 1998, the
results of its operations for the year then ended, the changes in its net
assets for each of the years in the two-year period then ended, and the
financial highlights for each of the years in the five-year period then ended,
in conformity with generally accepted accounting principles.
KPMG LLP
New York, New York
February 19, 1999
15
<PAGE>
LEXINGTON
WORLDWIDE EMERGING MARKETS FUND, INC.
INVESTMENT ADVISER
- -------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
DISTRIBUTOR
- -------------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
ALL SHAREHOLDER REQUESTS FOR SERVICES OF
ANY KIND SHOULD BE SENT TO:
TRANSFER AGENT
-----------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, MIssouri 64105
OR CALL TOLL FREE:
SERVICE AND SALES: 1-800-526-0056
24 HOUR ACCOUNT INFORMATION:
1-800-526-0052
- -------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield o Account Balances o Exchanges o
Last Transactions o Total Return o Duplicate Statements
- -------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Worldwide Emerging Markets Fund, Inc. and is authorized for
distribution to the public only if it is accompanied or preceded by a currently
effective prospectus which sets forth expenses and other material information.
[LOGO]
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LEXINGTON
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[GRAPHIC]
================================================================================
LEXINGTON
WORLDWIDE
EMERGING
MARKETS
FUND, INC.
---------- o ----------
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.
---------- o ----------
ANNUAL REPORT
DECEMBER 31, 1998
The Lexington Group
of No Load
Investment Companies
================================================================================
