Dear Shareholders:
- --------------------------------------------------------------------------------
For the first half of 1996 the Lexington Emerging Markets Fund returned
13.01%* compared to 14.7% for the average emerging markets fund monitored by
Lipper Analytical Services, Inc. For the same period the unmanaged Morgan
Stanley Emerging Markets Free Index is lagging actively managed portfolios with
a return of 9.3%.
Poorly performing markets in Greece, South Korea, South Africa, and Israel,
all markets in which Lexington Emerging Markets Fund has significant holdings,
were primarily the cause of the Fund's weak performance in the second quarter.
The Fund was also disadvantaged by a slight underweighting in the strongly
performing Latin American region. On a positive note, the Eastern European
markets continued to provide shareholders with strong gains during the quarter.
For example, Polish equities advanced 13.6% during the quarter.
Emerging market returns varied widely during the second quarter. Latin
American markets as a region were the best. Argentina advanced 14.4%, Brazil
14.0%, and Chile 9.3% to lead the pack. The star performer, however, was
Venezuela with a whopping 39.5% return. Venezuela's gains came off extremely
depressed levels as its economy is in financial crisis. A reluctant President
Caldera is finally embracing IMF restructuring plans and this has propelled the
market. In general Latin America has benefitted from investor perceptions that
the worst of the financial crisis is over in the region and growth is on the
way. In Mexico, greater economic optimism has allowed the Mexican peso to
appreciate in real terms. The strength of the peso has enabled Mexican interest
rates to fall dramatically. Falling interest rates combined with a strong U.S.
stock market, where many Mexican stocks trade, have propelled Mexican equities.
Gains from here may prove more difficult, particularly if U.S. rates rise.
Valuation levels are now certainly less attractive as well. Asian equities did
not perform particularly well during the second quarter. Taiwan was an exception
with a gain of 36.6% after a dismal first quarter. Tensions with the Chinese
government subsided after the Taiwanese elections and this soothed investor
fears. Taiwan stocks were also helped by obtaining a heavier weighting in the
unmanaged Morgan Stanley Emerging Markets Free Index. Growth throughout much of
the Asian region is slowing. Exports have clearly slowed down probably due to
both cyclical and secular factors. Due to strong currencies and high wage gains
over the years, many industries in Asia are losing the competitive advantages
they once had. Finally, although growth in the region will remain above the
developed world, it is a story well known by investors and as a result stocks
are generally expensive. Stock selection in Asia is becoming more critical than
ever. Eastern Europe continues to attract more investor interest. Polish GDP is
growing 6% per annum as foreign direct investment continues to accelerate.
Western European companies as well as American firms are looking to produce
goods in Eastern Europe due to low labor costs. Eastern Europe also provides a
geographic advantage of lying between Western Europe, Russia, and Asia.
1
<PAGE>
The second half of 1996 will be challenging. We expect U.S. interest rates
to rise as growth stays strong. Rising U.S. rates, followed later by rising
Japanese interest rates will put an end to the favorable liquidity environment
global equities have enjoyed. Latin and Asian stocks will be most vulnerable to
a hike in U.S. rates due to currency linkages to the U.S. dollar. The Lexington
Emerging Markets Fund has sought investments in regions with lower correlations
to the U.S. market. As a resuIt, holdings in Eastern Europe, South Korea, and
Greece should perform well on a relative basis should world interest rates rise.
The Fund also retains 5% in South African gold shares which should benefit as
inflationary fears are stirred from stronger global growth. Cash positions have
been raised to 10% to take advantage of any buying opportunities that may
develop. The Fund continues to have overweight positions in Eastern Europe,
including Russia. Valuation levels are compelling, foreign direct investment is
accelerating, and the recent election of Boris Yeltsin shows most Russians favor
reform. Greece may be a sleeper market. Inflation has now fallen below 9% and a
new pro-reform government has solidified power. Stocks in Greece are cheap so
the risk/reward ratio is compelling. Although we currently don't favor Latin
America or Asia, the Fund still provides substantial exposure to these regions.
The long-term outlook remains favorable and exciting companies such as Santa
Isabel in Chile or Filinvest Land in the Philippines can still be found.
We appreciate your continued support and welcome the opportunity to discuss
any questions you may have about your investment.
Sincerely,
Richard T. Saler Robert M. DeMichele
Portfolio Manager President
July, 1996 July, 1996
*9.23% and 4.08% are the one year and since commencement (3/30/94) average
annual standard total returns, respectively, for the period ended June 30, 1996.
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.
2
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS: 87.7%
Argentina: 0.8%
51,300 Sociedad Comercial del Plata S.A. ................................................ $ 158,588
----------
Brazil: 8.8%
21,400 Aracruz Cellulose S.A. (ADR) ..................................................... 203,300
630,000 Brasmotor S.A. ................................................................... 206,458
557,000 Cia Tecidos Norte De Mina (Preferred shares) ..................................... 219,709
11,300 Compania Vale Do Rio Doce (ADR) (Preferred shares) ............................... 226,213
6,434,000 Lojas Americanas S.A. ............................................................ 127,859
3,580,000 Telecomunicacoes Brasileiras S.A. ................................................ 256,046
1,292,000 Telecomunicacoes de Sao Paulo S.A. ............................................... 277,987
156,539,000 Usinas Siderurgicas de Minas Gerais S.A. ......................................... 168,405
----------
1,685,977
----------
Chile: 6.1%
37,200 Antofagasta Holdings Plc ......................................................... 186,446
8,500 Banco O'Higgins (ADR) ............................................................ 205,063
1,800 Banco Ganadero S.A. (ADR) ........................................................ 35,100
12,400 Banco Osorno y La Union (ADR) .................................................... 167,400
9,950 Madeco, S.A. (ADR) ............................................................... 279,844
6,600 Marderas y Sinteficos (ADR) ...................................................... 117,150
6,500 Santa Isabel S.A. (ADR) .......................................................... 180,375
----------
1,171,378
----------
Czech Republic: 0.9%
1,390 SPT Telekon AS 169,536
----------
Greece: 4.9%
5,950 Delta Dairy S.A. (Preferred shares) .............................................. 47,915
5,800 Ergo Bank S.A. ................................................................... 318,998
4,900 Hellenic Bottling Company, S.A. .................................................. 162,512
7,800 Michaniki S.A. ................................................................... 90,495
6,400 Titan Cement Company ............................................................. 315,869
----------
935,789
----------
Hong Kong: 1.4%
176,000 China Hong Kong Photo Productions ................................................ 100,618
186,000 Founder Hong Kong, Ltd. .......................................................... 77,499
246,000 Golden Harvest Entertainment, Ltd. ............................................... 88,989
----------
267,106
----------
Hungary: 3.0%
3,500 EGIS Rt. ......................................................................... 209,124
8,100 MOL Mgyar Olaj-es Gazipari Rt. ................................................... 90,054
3,320 Pick Szeged Rt. .................................................................. 143,665
2,700 Richter Gedeon Rt. ............................................................... 137,508
----------
580,351
----------
India: 3.2%
2,900 Bajaj Auto, Ltd. ................................................................. 2 110,925
2,900 Bajaj Auto, Ltd.1,2 .............................................................. 110,925
6,000 Hindalco Industries, Ltd.2 ....................................................... 228,000
17,100 The India Fund, Inc. ............................................................. 158,176
----------
608,026
----------
Indonesia: 3.4%
151,000 PT Hero Supermarket .............................................................. 149,312
56,234 PT Indah Kiat Pulp & Paper Corporation ........................................... 55,002
29,000 PT Modern Photo Film Company ..................................................... 124,678
53,000 PT Semen Cibinong ................................................................ 119,625
61,000 PT Semen Gresik .................................................................. 177,676
54,000 PT Sinar Mas Agro Resources Agricultural Production and Technology Corporation ... 39,467
----------
665,760
----------
</TABLE>
3
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C>
Israel: 3.4%
40 Africa-Israel Investments, Ltd.2 ................................................. $ 37,688
3,400 First Israel Fund, Inc. .......................................................... 39,100
3,750 Koor Industries, Ltd. ............................................................ 317,773
19,032 Osem Investment, Ltd. ............................................................ 112,037
3,900 Teva Pharmaceutical Industries, Ltd. (ADR) ....................................... 147,956
----------
654,554
----------
Malaysia: 5.7%
16,000 Berjaya Singer Bhd ............................................................... 16,555
74,000 Cement Industries of Malaysia Bhd ................................................ 249,288
58,000 IOI Properties Bhd ............................................................... 182,594
24,000 Malaysian Assurance Alliance Bhd ................................................. 127,050
42,000 New Straits Times Press Bhd ...................................................... 218,970
25,000 Sime Darby Bhd ................................................................... 69,180
48,000 Sungei Way Holdings Bhd .......................................................... 225,226
----------
1,088,863
----------
Mexico: 5.4%
11,700 Grupo Casa Autrey, S.A. de C.V. (ADR) ............................................ 251,550
246,800 Grupo Industrial Maseco S.A. de C.V. ............................................. 257,700
8,300 Grupo Televisa S.A. (ADR) ........................................................ 255,226
28,900 Tubos De Acero De Mexico S.A. (ADR)2 ............................................. 272,745
----------
1,037,221
----------
Pakistan: 0.5%
15,500 Pakistan Investment Fund, Inc. ................................................... 104,625
----------
Philippines: 6.4%
126,750 Ayala Land, Inc. "B" ............................................................. 227,897
1,039,375 Filinvest Land, Inc.2 ............................................................ 427,439
201,350 International Container Terminal Service, Inc. ................................... 136,724
19,000 Manila Electric Company "B" ...................................................... 199,886
445,200 Universal Robina Corporation ..................................................... 238,440
----------
1,230,386
----------
Poland: 9.5%
10,600 Bank Rozwoju Eksportu S.A. ....................................................... 276,916
6,400 Debica S.A. ...................................................................... 155,419
48,572 Elektrim Towarzystwo Handlowe S.A. ............................................... 398,542
1,417 Gorazdze S.A. .................................................................... 37,018
90,400 Mostostal-Export S.A. ............................................................ 309,339
26,600 Polifarb Cieszyn Wroclaw S.A. .................................................... 135,066
15,900 Stomil Olsztyn S.A. .............................................................. 221,727
3,810 Zaklady Piwowarski w Zywcu S.A. .................................................. 294,393
----------
1,828,420
----------
Portugal: 1.7%
2,800 BCO Comercial Portuguese ......................................................... 33,078
11,464 Portugal Telecom S.A. ............................................................ 299,630
----------
332,708
----------
Russia: 2.2%
10,100 Lukoil Oil Company (ADR) ......................................................... 425,917
----------
Singapore: 3.7%
45,000 Far East Levingston Shipbuilding, Ltd. ........................................... 248,813
5,000 Jurong Engineering, Ltd. ......................................................... 17,579
23,000 Keppel Corporation, Ltd. ......................................................... 192,387
8,000 Oversea-Chinese Banking Corporation, Ltd. ........................................ 93,570
22,000 Overseas Union Bank, Ltd. ........................................................ 151,273
----------
703,622
----------
</TABLE>
4
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C>
South Africa: 6.4%
2,400 Anglo American Corporation of South Africa, Ltd. ................................. $ 152,218
700 Anglo American Corporation of South Africa, Ltd. (ADR) ........................... 44,275
4,553 Anglo American Platinum (ADR)2 ................................................... 28,392
21,400 Driefontein Consolidated, Ltd. ................................................... 286,784
9,200 Free State Consolidated Gold Mines, Ltd. ......................................... 86,622
7,700 Kloof Gold Mining Company, Ltd. .................................................. 72,944
3,100 Liberty Life Association of Africa, Ltd. ......................................... 99,381
2,400 Liberty Life Association of Africa, Ltd. (ADR) ................................... 77,274
5,100 Rustenburg Platinum Holdings, Ltd ................................................ 79,540
6,788 Rustenburg Platinum Holdings, Ltd. (ADR) ......................................... 105,809
1,400 South African Breweries, Ltd. .................................................... 41,081
1,429 South African Breweries, Ltd. (ADR) .............................................. 41,927
1,400 Vaal Reefs Exploration & Mining Company, Ltd. .................................... 114,348
----------
1,230,595
----------
South Korea: 4.0%
14,070 Daewoo Heavy Industries .......................................................... 119,360
2,000 Hyundai Motor Company ............................................................ 75,462
7,300 Korea Electric Power Corporation ................................................. 252,034
2,450 Pohang Iron & Steel Company, Ltd. ................................................ 153,766
400 Pohang Iron & Steel Company, Ltd. (ADR) .......................................... 9,750
1,820 Samsung Electronics Company ...................................................... 152,826
----------
763,198
----------
Taiwan: 1.7%
13,437 Taiwan Fund, Inc. ................................................................ 322,488
----------
Thailand: 3.1%
15,000 Bangkok Bank, Ltd. ............................................................... 203,237
21,000 Krung Thai Bank Public Company, Ltd. ............................................. 98,429
6,000 Matichon Public Company, Ltd. .................................................... 46,319
8,600 Siam City Cement Company, Ltd. ................................................... 108,394
2,300 The Siam Cement Company, Ltd. .................................................... 112,875
2,900 Total Access Communication Plc1 .................................................. 24,650
----------
593,904
----------
Venezuela: 1.5%
27,364 Ceramanic Carobobo (ADR) ......................................................... 27,999
20,320 Mantex S.A. (ADR)2 ............................................................... 134,279
21,225 Mavesa S.A. (ADR)2 ............................................................... 84,155
11,917 Mavesa S.A. (ADR)1,2 ............................................................. 47,250
----------
293,683
----------
TOTAL COMMON STOCKS (cost $15,859,523) ........................................... 16,852,695
----------
</TABLE>
5
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
<TABLE>
<CAPTION>
Number of
Shares or
Principal Value
Amount Security (Note 1)
- ---------------------------------------------------------------------------------------------------------------
<C> <S> <C>
SHORT-TERM INVESTMENTS: 9.9%
U.S. Government Obligations
$600,000 U.S. Treasury Bill 4.90%, due 07/11/96 ........................................... $ 599,184
400,000 U.S. Treasury Bill 4.93%, due 07/25/96 ........................................... 398,685
900,000 U.S. Treasury Bill 4.975%, due 08/15/96 894,403
-----------
TOTAL SHORT-TERM INVESTMENTS (cost $1,892,272) ................................... 1,892,272
-----------
TOTAL INVESTMENTS: 97.6% (cost $17,751,795+)(Note 1) ............................. 18,744,967
Other assets in excess of liabilities: 2.4% ...................................... 470,300
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $10.60 per share on 1,813,463 shares outstanding) ...............$19,215,267
===========
</TABLE>
Notes to Statement of Net Assets
1Restricted securities. (Note 6).
2Non-income producing.
ADR-American Depository Receipt.
+Aggregate cost for Federal income tax purposes is identical.
-------------------
At June 30, 1996, the composition of the Fund's net assets by industry
concentration was as follows:
(LEFT COLUMN)
Banking ............................................ 8.2%
Capital Equipment .................................. 7.8%
Construction & Housing ............................. 0.6%
Consumer-Durable Goods ............................. 5.3%
Consumer-Non Durable Goods ......................... 7.9%
Electrical & Electronics ........................... 0.8%
Energy Sources ..................................... 2.7%
Financial Services ................................. 1.6%
Gold ............................................... 2.9%
Health & Personal Care ............................. 3.9%
Materials .......................................... 15.5%
(RIGHT COLUMN)
Merchandising ...................................... 2.4%
Metals & Mining .................................... 1.2%
Multi-industry ..................................... 8.4%
Real Estate ........................................ 4.3%
Services ........................................... 4.4%
Telecommunications ................................. 5.4%
Trade .............................................. 2.1%
U.S. Government Obligations ........................ 9.9%
Utilities .......................................... 2.3%
Other assets in excess of liabilities .............. 2.4%
-----%
Total Net Assets ........................... 100.0%
=====
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $17,751,795) (Note 1) ............................................. $18,744,967
Cash .......................................................................................... 329,683
Receivable for shares sold .................................................................... 61,272
Receivable for investment securities sold ..................................................... 172,412
Dividends and interest receivable ............................................................. 48,058
Foreign taxes recoverable ..................................................................... 113
Deferred organization expenses, net (Note 1) .................................................. 12,282
-----------
Total Assets ........................................................................ 19,368,787
-----------
Liabilities
Due to Lexington Management Corporation ....................................................... 8,396
Payable for shares redeemed ................................................................... 45,122
Payable for investment securities purchased ................................................... 87,920
Accrued expenses .............................................................................. 12,082
-----------
Total Liabilities ................................................................... 153,520
-----------
Net Assets (equivalent to $10.60 per share
on 1,813,463 shares outstanding) (Note 3) ................................................... $19,215,267
===========
Net Assets consist of:
Capital stock-Authorized 500,000,000 shares, $.001 par value per share ........................ $ 1,813
Additional paid-in capital .................................................................... 18,554,891
Undistributed net investment income (Note 1) .................................................. 84,992
Accumulated net realized loss on investments and foreign currency holdings (Note 1) ........... (419,374)
Net unrealized appreciation of investments and foreign currency holdings ...................... 992,945
-----------
Net Assets .......................................................................... $19,215,267
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Operations
Six months ended June 30, 1996 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Interest Income ..................................................... $ 38,080
Dividend Income ..................................................... 178,096
---------
216,176
Less: Foreign tax expense ........................................... 24,815
---------
Total investment income ..................................... $ 191,361
Expenses
Investment advisory fee (Note 2) .................................... 62,026
Custodian fees ...................................................... 51,100
Printing and mailing fees ........................................... 14,145
Professional fees ................................................... 9,285
Computer processing fees ............................................ 5,670
Directors' fees ..................................................... 4,410
Accounting fees (Note 2) ............................................ 3,639
Registration fees ................................................... 2,520
Amortization of deferred organization expenses (Note 1) ............. 2,220
Transfer agent fees ................................................. 1,680
Other expenses ...................................................... 3,684
---------
Total expenses .................................................. 160,379
Less: expenses recovered under contract with investment
adviser (Note 2) .............................................. 52,134 108,245
--------- ---------
Net investment income ....................................... 83,116
Realized and Unrealized Gain (Loss) on Investments (Note 4)
Net realized gain (loss) on:
Investments ..................................................... 104,955
Foreign currency transactions ................................... (12,770)
---------
Net realized gain 92,185
Net change in unrealized appreciation on:
Investments ..................................................... 1,059,721
Foreign currency translations of other assets and liabilities ... (261)
---------
Net unrealized change in appreciation ....................... 1,059,460
----------
Net realized and unrealized gain ............................ 1,151,645
----------
Increase in Net Assets Resulting from Operations ........................ $1,234,761
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
8
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 Year Ended
(unaudited) December 31, 1995
--------------- -----------------
<S> <C> <C>
Net investment income ........................................................ $ 83,116 $ 82,916
Net realized gain (loss) from investment and foreign currency transactions ... 92,185 (430,462)
Unrealized appreciation of investments and foreign currency translations .... 1,059,460 161,340
----------- ----------
Net increase (decrease) in net assets resulting from operations .......... 1,234,761 (186,206)
Distributions to shareholders from net investment income ..................... - (76,219)
Distributions to shareholders in excess of net realized
gain on investments (Note 1) ............................................... - -
Increase in net assets from capital share transactions (Note 3) .............. 10,165,845 3,453,270
----------- ----------
Net increase in net assets ..................................... 11,400,606 3,190,845
Net Assets
Beginning of period .......................................................... 7,814,661 4,623,816
----------- ----------
End of period (including undistributed net investment income of
$84,992 and $1,876, respectively) .......................................... $19,215,267 $7,814,661
=========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995
Note 1--Significant Accounting Policies
Lexington 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. With the
exception of shares held in connection with initial capital of the Fund, shares
of the Fund are currently being offered to participating insurance companies for
allocation to certain of their separate accounts established for the purpose of
funding variable annuity contracts and variable life insurance policies issued
by the participating insurance companies. 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 price. 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.
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: 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, 1995 reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change.
9
<PAGE>
Lexington Emerging Markets Fund, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995 (continued)
Note 1--Significant Accounting Policies (continued)
Deferred Organization Expenses: Organization expenses aggregating $48,067
have been deferred and are being amortized on a straight-line basis over five
years.
Note 2--Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 0.85% of the Fund's average daily net assets. LMC
has voluntarily agreed to limit the total expenses of the Fund (excluding
interest, taxes, brokerage commissions and extraordinary expenses but including
management fee and operating expenses) to an annual rate of 1.75% of the Fund's
average net assets through April 30, 1997. For the six months ended June 30,
1996 expense reimbursement amounted to $52,134 and is set forth in the statement
of operations.
The Fund also reimbursed LMC for certain expenses, including accounting
costs of $3,639, which are incurred by the Fund, but paid by LMC.
Note 3--Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1996 Year ended
(unaudited) December 31, 1995
------------------------------ ----------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ................................ 1,381,264 $14,364,775 845,934 $7,996,657
Shares issued on reinvestment of dividends.. - - 8,108 76,218
--------- ----------- -------- ----------
1,381,264 14,364,775 854,042 8,072,875
Shares redeemed ............................ (400,694) (4,198,930) (490,164) (4,619,605)
--------- ----------- -------- ----------
Net increase ....................... 980,570 $10,165,845 363,878 $3,453,270
========= =========== ======== ==========
</TABLE>
Note 4--Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 1996, excluding short-term securities, were $15,734,672 and
$6,202,981, respectively.
At June 30, 1996,the 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
$1,992,700 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $999,755.
Note 5--Investment and Concentration Risks
The Fund's investment 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 as a result of the potential inability of
counterparties to meet the terms of their contracts.
Note 6--Restricted Securities
The 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.
Average
Acquisition Cost Percent of
Security Date Per Share Market Value Net Assets
-------- ---- --------- ------------ ----------
Bajaj Auto, Ltd. ................. 4/23/96 $3.10 $110,925 0.58%
Mavesa S.A. (ADR) ................ 3/30/95 4.06 47,250 0.24
Total Access Communciation Plc ... 9/19/95 9.29 24,650 0.13
-------- ----
$182,825 0.95%
-------- ----
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.
10
<PAGE>
Lexington Emerging Markets Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
March 30, 1994
Six months (Commencement
ended Year ended of Operations) to
June 30, 1996 December 31, December 31,
(unaudited) 1995 1994
------------- ------------ -----------------
<S> <C> <C> <C>
Net asset value, beginning of period ............ $ 9.38 $ 9.86 $10.00
------ ------ ------
Income from investment operations:
Net investment income ....................... 0.05 0.09 0.03
Net realized and unrealized gain (loss)
on investments ............................ 1.17 (0.48) 0.04
------ ------ ------
Total income (loss) from investment
operations ............................ 1.22 (0.39) 0.07
------ ------ ------
Less distributions:
Dividend from net investment income ......... - (0.09) (0.02)
Distributions in excess of net realized
capital gains (temporary
book-tax difference) ...................... - - (0.19)
------ ------ ------
Total distributions ..................... - (0.09) (0.21)
------ ------ ------
Net asset value, end of period .................. $10.60 $ 9.38 $ 9.86
====== ====== ======
Total return ............................ 27.95%* (3.93%) 0.76%*
Ratio to average net assets:
Expenses, before reimbursement .............. 2.20%* 4.09% 6.28%*
Expenses, net of reimbursement .............. 1.48%* 1.32% 1.30%*
Net investment income (loss), before
reimbursement ............................. 0.42%* (1.44%) (4.29%)*
Net investment income ....................... 1.14%* 1.33% 0.70%*
Portfolio turnover .............................. 94.21%* 88.92% 71.21%*
Average commissions paid on equity security
transactions .................................. $ 0.01 - -
Net assets at end of period (000's omitted) ..... $19,215 $7,815 $4,624
<FN>
- ----------
*Annualized
</FN>
</TABLE>
11
<PAGE>
(LEFT COLUMN)
Lexington
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
This report has been prepared for the information of
the shareholders of Lexington 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.
(RIGHT COLUMN)
---------------------------------
LEXINGTON
---------------------------------
---------------------------------
LEXINGTON
EMERGING
MARKETS
FUND, INC.
(filled box)
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.
(filled box)
SEMI-ANNUAL REPORT
JUNE 30, 1996
The Lexington Group
of No Load
Investment Companies
---------------------------------
