Dear Fellow Shareholders:
- --------------------------------------------------------------------------------
It was another difficult year for emerging market funds. The Lexington
Emerging Markets Fund declined 3.93%* during 1995. The unmanaged Morgan Stanley
Capital International Emerging Markets Index fell an even greater 10.8%. The
average emerging markets fund fell 4.5% during 1995 according to Lipper
Analytical Services, Inc. Returns remained in negative territory for the fourth
quarter as the unmanaged Morgan Stanley Capital International Emerging Markets
Index fell 2.4%. The Lexington Emerging Markets Fund declined 3.05%* while the
average emerging market fund suffered declines of 3.3% during the fourth
quarter.
There were only a few bright spots in the emerging market arena in 1995.
Israeli stocks rose an average 21.8% as falling interest rates and further signs
of peace propelled equities. South African equities also saw strong returns,
appreciating 17.3%, while Greek equities posted gains of 10.2%. The best
strategy for 1995 would have been to hold large cash positions with heavy
investments in the few smaller yet strong performing markets. The major regions
in which most emerging market funds invest declined sharply. The unmanaged
Morgan Stanley Far East Index fell 10.5% during 1995, while the unmanaged Morgan
Stanley Latin America Index declined 15.8% for the year. The Lexington Emerging
Markets Fund did relatively well due to a large holding of Israeli stocks and
high cash levels at the beginning of the year.
Emerging markets performed poorly for several reasons in 1995. Latin
American markets were more severely damaged due to the collapse of the Mexican
peso at the end of 1994. Mexico fell into a severe recession as GDP fell by
almost 10%. Capital fled the Latin American region, resulting in a sharp
economic contraction in Mexico as well as in Argentina and Brazil. The economic
contraction not only damaged corporate profits but also led to a crisis in the
Mexican and Argentine banking systems. Far Eastern markets suffered from the
typical cyclical effects of economic overheating. Central banks responded to
rising current account deficits, which became more difficult to fund as foreign
capital inflows diminished, by raising interest rates. As usual, rising interest
rates had a negative impact on equity prices. Finally, with returns so strong in
the U.S. market, investors stayed at home in 1995 instead of searching abroad
for higher returns.
The outlook for 1996 is exciting. Given two years of consolidation after a
spectacular 1993, valuation levels are far more attractive today than they have
been for some time. Signs of economic slowing in Asia should begin to appear,
improving the interest rate outlook and propelling stocks higher. Mexico and
Latin America face a difficult recovery but there are also many opportunities.
Mexico is rebuilding its economy on a sounder footing. Exports are now 30% of
Mexican GDP and growing rapidly and the Mexican current account deficit has
moved into surplus.
We see tremendous opportunities in Eastern Europe, especially Poland.
Western European countries, due to high labor costs, are increasingly moving
production capacity to low wage countries with Poland becoming a favorite
target. This is in many ways similar to Japanese investment earmarked for Asia
in the '80s and '90s. Israel also continues to offer attractive investments due
to its highly skilled and cheap labor force, and better macroeconomic management
from the government and the Bank of Israel.
The Lexington Emerging Markets Fund has redeployed most of its high cash
position back into equities due to our positive stance on emerging markets. The
largest weighting remains in Asia as these dynamic, fast growing economies offer
the prospect of strong long-term earnings growth. Latin America now constitutes
over 20% of the Fund's assets as we expect confidence to return to the region.
If capital flows increase into Latin America those economies will reap the
benefits of falling interest rates and healthier currencies. Also, due to the
sharp contraction in the Latin American markets, several outstanding companies
have become very cheap and should provide excellent returns over the long term
from these depressed levels. We believe the Fund's weighting in Eastern Europe
will differentiate the Lexington Emerging Markets Fund from other emerging
markets funds in 1996. It is in this region where we believe the best value
exists. This is still a relatively undiscovered area in the emerging markets
community. The Polish economy is growing 6%, inflation although high at 24%,
continues to decline, and there are several rapidly growing companies with world
class strategic partners trading at low single digit price to earnings ratios.
1
<PAGE>
Investing in emerging markets is certainly not without risks. Besides those
risks usually associated with emerging markets investments we will be watching
out for signs of rising inflation and economic pick-up in the developed world.
Such a scenario would put pressure on interest rates and thus have a negative
effect on the emerging markets. We believe that U.S. investors will begin to
look abroad again in 1996. U.S. returns are likely to be much more pedestrian in
1996 than they were in 1995. Barings Securities estimates $50 billion will flow
into emerging markets in 1996 which would be triple the 1995 level.
We appreciate your continued support and would welcome the opportunity to
discuss any questions you may have about your investment.
Sincerely,
Richard T. Saler Robert M. DeMichele
Portfolio Manager President
January, 1996 January, 1996
____________________________________________________________________________
GRAPH
Paper version of this shareholder report contains a graph comparing the
changes in value of a $10,000 investment in
Lexington Emerging Markets Fund, Inc. and
the unmanaged Morgan Stanley Capital International (EAFE) Index
____________________________________________________________________________
*-3.93% and -1.85% are the one year and since commencement (3/30/94) average
annual standard total returns, respectively, for the period ended December 31,
1995. 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)
December 31, 1995
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS: 95.8%
Brazil: 7.3%
310,000 Coteminas ............................................................. $ 103,685
13,894,500 Cia Acos Especiais Itabir (Preferred shares) .......................... 80,790
3,100 Compania Vale Do Rio Doce (ADR) (Preferred shares) .................... 127,100
1,787,000 Telecomunicacoes Brasileiras S.A. ..................................... 86,067
500,000 Telecomunicacoes de Sao Paulo S.A. .................................... 73,582
120,365,000 Usinas Siderurgicas de Minas Gerais S.A. .............................. 97,858
----------
569,082
----------
Chile: 5.0%
5,000 Banco O'Higgins (ADR) ................................................. 115,000
7,500 Banco Osorno y La Union (ADR) ......................................... 104,063
2,000 Chile Fund, Inc. ...................................................... 52,000
4,550 Madeco, S.A. (ADR) .................................................... 122,850
----------
393,913
----------
Greece: 3.8%
3,400 AEGEK ................................................................. 29,225
4,950 Delta Dairy S.A. (Preferred shares) ................................... 73,000
5,300 Michaniki S.A. ........................................................ 68,112
3,100 Titan Cement Company .................................................. 129,967
----------
300,304
----------
Hong Kong: 4.6%
33,000 Dao Heng Bank Group, Ltd. ............................................. 118,650
13,000 Henderson Land Development Company, Ltd. .............................. 78,350
10,800 HSBC Holdings Plc ..................................................... 163,425
----------
360,425
----------
Hungary: 1.1%
2,220 Pick Szeged ........................................................... 84,522
India: 3.3%
14,000 India Fund, Inc. ...................................................... 124,250
2,500 Bajaj Auto, Ltd.2 ..................................................... 65,300
2,100 Hindalco Industries, Ltd.2 ............................................ 71,400
----------
260,950
----------
Indonesia: 7.0%
500 PT Bank Bali .......................................................... 985
9,500 PT Hanjaya Mandala Sampoerna .......................................... 98,993
28,000 PT Hero Supermarket ................................................... 60,070
56,234 PT Indah Kiat Pulp & Paper Corporation ................................ 41,240
1,000 PT Indosat (ADR) ...................................................... 36,500
12,000 PT Modern Photo Film Company .......................................... 69,615
53,000 PT Semen Cibinong ..................................................... 132,268
27,000 PT Semen Gresik ....................................................... 75,657
54,000 PT Sinar Mas Agro Resources Agricultural Production and
Technology Corporation .............................................. 30,144
----------
545,472
----------
Israel: 6.3%
10 Africa-Israel Investments, Ltd.2 ...................................... 12,058
54,936 Bank Hapoalim, Ltd. ................................................... 90,682
400 First International Bank of Israel .................................... 46,782
8,200 First Israel Fund, Inc. ............................................... 95,325
1,060 Koor Industries, Ltd. ................................................. 105,244
8,832 Osem Investment, Ltd. ................................................. 52,816
1,300 Teva Pharmaceutical Industries, Ltd. (ADR) ............................ 60,206
9,000 The Israel Land Developement Company .................................. 26,036
----------
489,149
----------
</TABLE>
3
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Malaysia: 8.4%
6,000 Arab Malaysian Merchant Bank Holdings Bhd ............................. $ 68,544
----------
16,000 Berjaya Singer Bhd .................................................... 19,917
25,000 Cement Industries of Malaysia Bhd ..................................... 81,003
5,000 Genting Bhd ........................................................... 41,757
20,000 IOI Properties Bhd .................................................... 50,030
8,000 Malayan Banking Bhd ................................................... 67,441
32,000 New Straits Times Press Bhd ........................................... 107,150
25,000 Sime Darby Bhd ........................................................ 66,476
31,000 Sungei Way Holdings Bhd ............................................... 111,739
9,000 Tanjong Plc ........................................................... 26,236
3,000 Tenaga Nasional Bhd ................................................... 11,818
----------
652,111
----------
Mexico: 8.2%
22,020 Corporacion Industrial San Luis S.A. .................................. 113,254
6,000 Grupo Casa Autrey, S.A. de C.V. (ADR) ................................. 80,250
171,000 Grupo Industrial Maseco S.A. de C.V. .................................. 104,648
6,700 Grupo Televisa S.A. (ADR) ............................................. 150,750
9,000 Transportacion Maritima Mexicana S.A. de C.V. "L" (ADR) ............... 75,375
16,800 Tubos De Acero De Mexico S.A. (ADR)2 .................................. 117,600
----------
641,877
----------
Pakistan: 0.5%
7,700 Pakistan Investment Fund, Inc. ........................................ 40,425
----------
Philippines: 6.4%
120,750 Ayala Land, Inc. "B" .................................................. 147,425
444,250 Filinvest Land Inc.2 .................................................. 142,377
92,750 International Container Terminal Service, Inc. ........................ 48,657
3,000 Manila Electric Company ............................................... 24,495
4,800 Philippine Commercial International Bank1 ............................. 44,319
6,500 San Miguel Corporation "B" ............................................ 22,196
140,200 Universal Robina Corporation .......................................... 69,538
----------
499,007
----------
Poland: 6.7%
7,400 Bank Rozwoju Eksportu S.A. ............................................ 112,622
500 Bank Slaski S.A. ...................................................... 29,119
2,900 Debica S.A. ........................................................... 43,782
32,300 Elektrim Towarzystwo Handlowe S.A. .................................... 109,458
14,400 Polifarb Cieszyn Wroclaw S.A. ......................................... 54,643
8,900 Stomil Olsztyn S.A. ................................................... 83,076
2,500 Universal S.A. ........................................................ 7,102
520 Wedel S.A. ............................................................ 17,200
920 Zaklady Piwowarski W Zylocu S.A. ...................................... 63,475
----------
520,477
----------
Portugal: 1.9%
7,464 Portugal Telecom S.A. (ADR)2 .......................................... 140,261
600 Unicer - Uniao Cervejeira S.A. ........................................ 10,013
----------
150,274
----------
Singapore: 7.0%
9,000 Development Bank of Singapore, Ltd. ................................... 112,038
6,000 Fraser & Neave, Ltd. .................................................. 76,390
5,000 Jurong Engineering, Ltd. .............................................. 29,177
9,000 Keppel Corporation, Ltd. .............................................. 80,209
11,000 Oversea-Chinese Banking Corporation, Ltd. ............................. 137,714
16,000 Overseas Union Bank, Ltd. ............................................. 110,341
----------
545,869
----------
</TABLE>
4
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995 (continued)
<TABLE>
<CAPTION>
Number of
Shares
or Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
South Africa: 7.4%
300 Anglo American Corporation of South Africa, Ltd. (ADR) ................ $ 18,169
4,442 Anglo American Platinum (ADR)2 ........................................ 25,284
7,500 Barlow, Ltd. (ADR) .................................................... 106,415
1,500 Liberty Life Association of Africa, Ltd. .............................. 46,508
3,100 Liberty Life Association of Africa, Ltd. (ADR) ........................ 95,499
5,300 Malbak, Ltd.1 ......................................................... 36,720
5,400 Malbak, Ltd. .......................................................... 37,413
6,710 Rustenburg Platinum Holdings, Ltd. (ADR) .............................. 110,439
1,400 South African Breweries, Ltd. ......................................... 51,283
1,422 South African Breweries, Ltd. (ADR) ................................... 52,081
----------
579,811
----------
South Korea: 1.1%
1,200 Pohang Iron & Steel Company, Ltd. ..................................... 78,432
400 Pohang Iron & Steel Company, Ltd. (ADR) ............................... 8,750
----------
87,182
----------
Taiwan: 1.2%
4,537 Taiwan Fund, Inc. ..................................................... 93,009
----------
Thailand: 6.7%
4,600 Advanced Information Service Plc ...................................... 81,478
8,000 Bangkok Bank, Ltd. .................................................... 97,220
6,000 Matichon Public Company, Ltd. ......................................... 35,980
5,500 Phatra Thanakit Company, Ltd. ......................................... 47,180
1,900 Saha Pathanapibul Company, Ltd. ....................................... 3,545
4,600 Siam City Cement Company, Ltd. ........................................ 71,978
8,000 Thai Farmers Bank Public Company, Ltd. ................................ 80,699
1,300 The Siam Cement Company, Ltd. ......................................... 72,072
5,400 Total Access Communication Plc1 ....................................... 35,100
----------
525,252
----------
United Kingdom: 1.2%
21,300 Antofagasta Holdings Plc .............................................. 96,569
----------
United States: 0.1%
300 Freeport McMoran Copper & Gold (Preferred shares) ..................... 8,400
----------
Venezuela: 0.6%
3,240 Ceramanic Carobobo ADR ................................................ 3,467
5,520 Mantex S.A.C.A. (ADR)2 ................................................ 26,220
1,845 Mavesa S.A. (ADR)1,2 .................................................. 6,919
2,050 Mavesa, S.A. (ADR)2 ................................................... 7,688
----------
44,294
----------
TOTAL COMMON STOCKS (cost $7,554,923) ................................. 7,488,374
----------
SHORT-TERM INVESTMENTS:
U.S. Government Obligations: 11.4%
$400,000 U.S. Treasury Bill 4.92%, due 03/14/96 ................................ 396,009
100,000 U.S. Treasury Bill 5.30%, due 01/04/96 ................................ 99,956
300,000 U.S. Treasury Bill 5.25%, due 01/18/96 ................................ 299,256
100,000 U.S. Treasury Bill 5.295%, due 05/09/96 ............................... 98,103
----------
TOTAL SHORT-TERM INVESTMENTS (cost $893,324) .......................... 893,324
----------
TOTAL INVESTMENTS: 107.2% (cost $8,448,247+)(Note 1) .................. 8,381,698
Liabilities in excess of other assets: (7.2%) ......................... (567,037)
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $9.38 per share on 832,893 shares outstanding) ....... $7,814,661
==========
</TABLE>
5
<PAGE>
Lexington 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 Percent of
Issuer Date Per Share Market Value Net Assets
- ------------------------------ ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Malbak, Ltd. ................. 07/25/95 $5.75 $ 36,720 .47%
Mavesa S.A. (ADR) ............ 03/30/95 8.86 6,919 .09%
Philippine Commercial
International Bank ......... 08/04/95 8.47 44,319 .57%
Total Access Communication Plc 09/19/95 6.31 35,100 .45%
-------- ----
$123,058 1.58%
-------- ----
</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.
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:
Banking ..................... 18.6%
Capital Equipment .......... 4.1
Construction & Housing ..... 1.7
Consumer Durable ............ 3.7
Consumer NonDurable ........ 11.1
Financial Services .......... 3.3
Health Care ................. 1.8
Materials ................... 19.5
Merchandising ............... 0.8
Multi-Industry .............. 11.8%
Real Estate ................ 5.6
Services .................... 7.7
Telecommunications .......... 4.2
Trade ....................... 1.6
U.S.Government obligations .. 11.4
Utilities ................... 0.3
Other liabilities .......... (7.2)
----
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
December 31, 1995
<TABLE>
<S> <C>
Assets
Investments, at value (cost $8,448,247) (Note 1) ............................................ $8,381,698
Cash ........................................................................................ 70,001
Receivable for shares sold .................................................................. 44,538
Dividends and interest receivable ........................................................... 12,289
Foreign taxes recoverable ................................................................... 12
Deferred organization expenses, net (Note 1) ................................................ 14,502
Due from Lexington Management Corporation (Note 2) .......................................... 8,927
----------
Total Assets ........................................................................ 8,531,967
----------
Liabilities
Payable for shares redeemed ................................................................. 45,410
Payable for investment securities purchased ................................................. 596,373
Accrued expenses ............................................................................ 75,523
----------
Total Liabilities ................................................................... 717,306
----------
Net Assets (equivalent to $9.38 per share
on 832,893 shares outstanding) (Note 3) ................................................... $7,814,661
==========
Net Assets consist of:
Capital stock-authorized 500,000,000 shares, $.001 par value per share ...................... $ 833
Additional paid-in capital .................................................................. 8,390,026
Undistributed net investment income (Note 1) ................................................ 1,876
Accumulated net realized loss on investments and foreign currency holdings (Notes 1 and 6) .. (511,559)
Net unrealized depreciation of investments and foreign currency holdings .................... (66,515)
Net Assets .......................................................................... $7,814,661
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Operations
December 31, 1995
<TABLE>
<S> <C> <C>
Investment Income
Interest Income ........................................................ $ 57,145
Dividend Income ........................................................ 123,399
---------
180,544
Less: Foreign tax expense .............................................. 15,380
---------
Total investment income ........................................ $ 165,164
Expenses
Investment advisory fee (Note 2) ....................................... 53,143
Accounting and shareholder services fees (Note 2) ...................... 13,314
Custodian and transfer agent fees ...................................... 81,142
Printing and mailing ................................................... 41,370
Registration fees ...................................................... 7,088
Directors' fees ........................................................ 13,220
Amortization of deferred organization expenses (Note 1) ................ 4,440
Audit and legal fees ................................................... 22,100
Computer processing fees ............................................... 14,165
Other expenses ......................................................... 5,936
---------
Total expenses ..................................................... 255,918
Less: expenses recovered under contract with investment
adviser (Note 2) ................................................. 173,670 82,248
--------- ---------
Net investment income .......................................... 82,916
Realized and Unrealized Loss on Investments (Note 4)
Realized loss on:
Investments ........................................................ (425,641)
Foreign currency transactions ...................................... (4,821)
---------
Net realized loss .............................................. (430,462)
Net change in unrealized depreciation on:
Investments ........................................................ 161,277
Foreign currency translations of other assets and liabilities ...... 63
---------
Net unrealized change in depreciation 161,340
---------
Net realized and unrealized loss ............................... (269,122)
---------
Decrease in Net Assets Resulting from Operations ........................... $(186,206)
=========
</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>
March 30, 1994
(Commencement
Year Ended of Operations) to
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Net investment income ........................................... $ 82,916 $ 14,482
Net realized loss from investment transactions .................. (430,462) (2,132)
Unrealized appreciation (depreciation) of investments ........... 161,340 (227,855)
---------- ----------
Net decrease in net assets resulting from operations ........ (186,206) (215,505)
Distributions to shareholders from net investment income ........ (76,219) (10,100)
Distributions to shareholders in excess of net realized
gain on investments (Note 1) .................................. - (88,168)
Increase in net assets from capital share transactions (Note 3) . 3,453,270 4,937,589
---------- ----------
Net increase in net assets .............................. 3,190,845 4,623,816
Net Assets
Beginning of period ............................................. 4,623,816 -
---------- ----------
End of period (including undistributed net investment income of
$1,876 and $346, respectively) ................................ $7,814,661 $4,623,816
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
Notes to Financial Statements
December 31, 1995 and 1994
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 accounts for the purpose of funding variable annuity
contracts issued by the participating insurance companies. The Fund commenced
operations on March 30, 1994. The following is a summary of the significant
accounting policies followed by the Fund in the preparation of its financial
statements:
Securities: Security transactions are accounted for on a trade date basis.
Realized gains and losses from investment 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. Securities for which market quotations are not
readily available and other assets are valued at fair value as determined by the
management and approved in good faith by the Board of Directors. Short-term
securities are stated at amortized cost, which approximates market value. 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 and distributions to shareholders are recorded on the ex-dividend
date. Interest income 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. 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.
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
and 1994, book and tax basis differences amounting to $5,167 and $4,036
respectively, have been reclassified from accumulated net realized loss on
investments to undistributed net investment income. Accumulated net realized
loss on investments reflects temporary book-tax differences arising from losses
resulting from wash sales and 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.
9
<PAGE>
Lexington Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
Note 1-Significant Accounting Policies (continued)
Deferred Organization Expenses: Organization expenses aggregating $22,290
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 the rate of .85% of average daily net assets. LMC has agreed to
voluntarily 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 1.30% of the Fund's average net
assets. For the year ended December 31, 1995 expense reimbursement amounted to
$173,670 and is set forth in the statement of operations.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the Fund, but paid by LMC.
Note 3-Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
March 30, 1994
(commencement of
Year ended operations) to
December 31, 1995 December 31, 1994
---------------------- ---------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ..................................... 845,934 $7,996,657 497,613 $5,246,882
Shares issued on reinvestment of dividends ...... 8,108 76,218 9,946 98,265
-------- ---------- ------- --------
854,042 8,072,875 507,559 5,345,147
Shares redeemed ................................. (490,164) (4,619,605) (38,544) (407,558)
-------- ---------- ------- --------
Net increase ............................ 363,878 $3,453,270 469,015 $4,937,589
======== ========== ======= ==========
</TABLE>
Note 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 $10,411,784 and
$4,689,910, 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
$474,489 and aggregate gross unrealized depreciation for which there is an
excess of tax cost over value amounted to $541,004.
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 from the potential inability of counterparties to
meet the terms of their contracts.
Note 6-Federal Income Taxes-Capital Loss Carryforwards
Capital loss carryforwards available for federal income tax purposes as of
December 31, 1995 are approximately $447,839 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 taxable 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 $63,720 has been deemed to have occurred in 1996 for federal income
tax purposes.
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
(commencement
Year Ended of operations) to
December 31, 1995 December 31, 1994
----------------- -----------------
<S> <C> <C>
Net asset value, beginning of period ............................. $ 9.86 $10.00
------ ------
Income (loss) from investment operations:
Net investment income ........................................ 0.09 0.03
Net realized and unrealized gain (loss) on investments ....... (0.48) 0.04
------ ------
Total income (loss) from investment operations ........... (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 ................................... $ 9.38 $ 9.86
====== ======
Total return ............................................. (3.93%) 0.76%
Ratio to average net assets:
Expenses, before reimbursement ............................... 4.09% 6.28%*
Expenses, net of reimbursement ............................... 1.32% 1.30%*
Net investment loss, before reimbursement .................... (1.45%) (4.29%)*
Net investment income ........................................ 1.33% 0.70%*
Portfolio turnover ............................................... 88.92% 71.21%*
Net assets at end of period (000's omitted) ...................... $7,815 $4,624
</TABLE>
- ----------
*Annualized
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Emerging Markets Fund, Inc.:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Emerging
Markets Fund, Inc. as of December 31, 1995, the related statements of operations
for the year then ended, and the statement of changes in net assets, and the
financial highlights for the year then ended and for the period from March 30,
1994 (commencement of operations) to December 31, 1994. 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 Emerging Markets Fund, Inc. as of December 31, 1995, the results of
its operations for the year then ended and the changes in its net assets and the
financial highlights for the year then ended and for the period from March 30,
1994 to December 31, 1994, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
New York, New York
January 29, 1996
11
<PAGE>
Left Col.
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 Col.
LEXINGTON
LEXINGTON
EMERGING
MARKETS
FUND, INC.
---------------------------------
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.
---------------------------------
ANNUAL REPORT
DECEMBER 31, 1995
The Lexington Group
of No Load
Investment Companies
