DEAR CONTRACTHOLDER:
- --------------------------------------------------------------------------------
Emerging markets continued to experience sharp losses for the second
quarter. The average emerging market fund declined 19.71% for the latest quarter
and is down 15.60% through the first half, according to Lipper Analytical
Services, Inc. The Lexington Emerging Markets Fund, Inc., has fared better
although returns are still negative. Through the first six months the Fund has
returned -14.25* while falling 15.30* during the second quarter. The unmanaged
Morgan Stanley Emerging Markets Free Index has suffered most with a second
quarter return of -23.6%** and a first half decline of 18.9%**.
The Fund's outperformance can be attributed to large weightings in Greece
and Israel, while maintaining relatively small weightings in Asia, Russia, South
Africa and Brazil. Greek equities gained 17.8% during the latest quarter
outperforming all emerging market indices. Stocks in Greece have benefited from
the government's drive to prepare Greece for European Monetary Union by 2001.
Asia continued to be represented by some of the worst performing markets, during
the second quarter Indonesia fell 53%, Thailand 51%, and Malaysia 46%. Concerns
over potential devaluation pushed Russian equities to a decline of 53%.
The economic environment for most emerging markets remains negative.
Several Asian economies will experience double digit declines in GDP. Inflation
is surging due to dramatic declines in local currencies. Unemployment is rising
sharply while consumer demand has collapsed. The risk of social unrest as we
have seen in Indonesia, remains high. As a consequence of Asian troubles
commodity prices have fallen sharply, which in turn has damaged
commodity-producing economies of Latin America, Russia, and South Africa.
Investors are demanding high interest rates to compensate for the heightened
risk levels.
Unfortunately, there is no one magic cure for these difficult problems.
However, share prices have already reflected quite a bit of bad news. Positive
movement toward solving Asia's problems could result in strong share gains. The
focus has recently shifted to Japan. Japan is mired in deep recession while
still not aggressively addressing its structural problems. Asia needs a strong
Japan to help revive the region. The Japanese government has announced plans to
clean up the financial system. Fixing the banking problem will prove difficult
and time consuming. Investors have been disappointed before by Japanese policy
so the focus will be on action not words. China must also avoid devaluation,
which would unsettle the region. For now it appears a devaluation can be avoided
in the near future, however, pressure is building as Chinese exports continue to
suffer. Governments must also become more investor friendly to attract the
capital which is desperately needed. The problems are too complex to fully
address here, but it is clear that growth in emerging market economies will
decline. A sharp economic recovery is not expected as the problems are too deep.
Economic activity is likely to remain depressed for several years.
The Fund will continue to follow a defensive posture. Greek equities
continue to offer excellent long-term opportunity as inflation and interest
rates fall. Since joining the European exchange rate mechanism in March, Greek
equities have gained greater correlation with developed markets and as such have
performed well. Opportunities do exist even in regions suffering sharp economic
downturns. Many stocks can be bought at very depressed price levels and with a
long-term investment horizon the potential for superior returns is there. The
focus continues to be on stock selection of financially healthy companies that
can ride through these trying times.
Sincerely,
/s/ Richard T. Saler /s/ Robert M. DeMichele
-------------------- -----------------------
Richard T. Saler Robert M. DeMichele
Portfolio Manager President
August, 1998 August, 1998
* -34.10% and -5.42% are the one year and since commencement (3/30/94) average
annual standard total returns, respectively, for the period ended June 30,
1998. 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.
** All country and regional returns are from the corresponding Morgan Stanley
Capital International Indices. Returns are dollar based with net dividends
reinvested.
1
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------------------------
COMMON STOCKS: 84.7%
ARGENTINA: 2.9%
<S> <C> <C>
109,806 Perez Companc S.A ....................................................... $ 551,292
---------
BRAZIL: 9.9%
637,000 Cia Tecidos Norte De Mina (Preferred shares) ............................ 89,497
10,700 Companhia Brasileira de Distribuicao Grupo Pao de Acucar (ADR) .......... 242,087
747,000 Empresa Nacional de Comercio Redito ..................................... 1,873
992,000 Light - Servicos de Electricidade S.A ................................... 304,477
1,124,000 Petroleo Brasileiro S.A. (Preferred shares) ............................. 208,939
30,000 Souza Cruz S.A .......................................................... 223,066
1,566,000 Telecomunicacoes de Sao Paulo S.A ....................................... 368,277
73,598 Telecomunicacoes de Sao Paulo S.A. (Rights) (Preferred shares)2 ......... 1,177
2,220,000 Telecomunicacoes do Rio de Janeiro S.A. (Preferred shares) .............. 166,988
2,220,000 Telerj Celular S.A. "B" (Preferred shares)2 ............................. 132,036
1,566,000 Telesp Celular S.A. "B" (Preferred shares)2 ............................. 129,980
---------
1,868,397
---------
CANADA: 1.2%
10,000 Bell Canada International, Inc.2 ........................................ 235,312
---------
CHILE: 4.3%
32,300 Banco Santander (ADR) ................................................... 415,862
14,100 Vina Concha y Toro S.A. (ADR) ........................................... 401,850
---------
817,712
---------
COLOMBIA: 0.9%
9,700 Banco Ganadero S.A. (ADR) ............................................... 170,962
---------
CZECH REPUBLIC: 1.2%
15,800 SPT Telekom AS2 ......................................................... 218,352
---------
GREECE: 14.7%
6,300 Alpha Credit Bank ....................................................... 510,679
33,720 Delta Dairy S.A. (Preferred shares) ..................................... 388,975
6,600 Ergo Bank S.A ........................................................... 564,063
38,578 Hellenic Telecommunication Organization S.A ............................. 988,917
58,280 Michaniki S.A ........................................................... 306,454
---------
2,759,088
---------
HONG KONG: 2.5%
114,000 China Telecom (Hong Kong), Ltd.2 ........................................ 197,882
519,000 JCG Holdings, Ltd. ...................................................... 144,007
1,265,000 Moulin International Holding, Ltd. ...................................... 125,707
119,416 Moulin International Holding, Ltd. (Warrants)2 .......................... 894
---------
468,490
---------
HUNGARY: 2.0%
10,500 Zalakeramia Rt .......................................................... 372,909
---------
INDIA: 2.8%
11,650 Hindalco Industries, Ltd. (GDR)1 ........................................ 163,100
34,200 Videsh Sanchar Nigam, Ltd. (GDR)1,2 ..................................... 365,940
---------
529,040
---------
</TABLE>
2
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998 (unaudited) (continued)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------------------------
INDONESIA: 0.6%
<S> <C> <C>
258,000 PT Timah Tbk ............................................................ $ 115,490
---------
ISRAEL: 5.0%
164,000 Bank Hapoalim, Ltd. ..................................................... 495,908
13,000 Teva Pharmaceutical Industries, Ltd. (ADR) .............................. 457,438
---------
953,346
---------
MALAYSIA: 4.5%
88,000 Austral Enterprises Bhd ................................................. 74,262
74,000 Berjaya Sports Toto Bhd ................................................. 109,729
326,000 Hap Seng Consolidated Bhd ............................................... 172,924
128,000 Highlands and Lowlands Bhd .............................................. 90,426
156,000 Kuala Lumpur Kepong Bhd ................................................. 252,007
382,000 Magnum Corporation Bhd .................................................. 141,840
---------
841,188
---------
MEXICO: 7.0%
40,000 Cemex S.A. de C.V. "B" .................................................. 176,274
1,200 Cemex S.A. de CV CPO .................................................... 4,500
35,000 Corporacion GEO, S.A. de C.V. "B"2 ...................................... 194,747
95,348 Corporacion Interamericana de Entretenimiento S.A. "B"2 ................. 265,267
12,713 Corporacion Interamericana de Entretenimiento S.A. "L"2 ................. 29,710
6,100 Grupo Casa Autrey, S.A. de C.V. (ADR) ................................... 39,650
82,000 Grupo Financiero Banamex Accival, S.A. de C.V.2 ......................... 159,692
344,000 Grupo Financiero Bancomer, S.A. de C.V .................................. 128,243
322,800 Grupo Industrial Maseco S.A. de C.V ..................................... 234,933
25,000 Grupo Industrial Saltillo, S.A. de C.V. "B" ............................. 83,463
---------
1,316,479
---------
PANAMA: 1.1%
6,500 Banco Latinoamericano de Exportaciones, S.A. (ADR) ...................... 199,875
---------
PHILIPPINES: 4.5%
592,900 Ayala Corporation ....................................................... 152,846
2,916,000 C & P Homes, Inc. ....................................................... 146,849
2,886,000 Filinvest Land, Inc. .................................................... 121,807
1,070,000 Fortune Cement Corporation .............................................. 56,451
474,262 International Container Terminal Service, Inc.2 ......................... 54,023
615,000 Ionics Circuit, Inc. .................................................... 195,413
1,211,200 Universal Robina Corporation ............................................ 123,443
---------
850,832
---------
POLAND: 1.5%
22,562 Elektrim Towarzystwo Handlowe S.A ....................................... 274,987
---------
PORTUGAL: 3.6%
8,900 Espirito Santo Financial Group (ADR) .................................... 216,937
8,564 Portugal Telecom S.A .................................................... 453,884
---------
670,821
---------
</TABLE>
3
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998 (unaudited) (continued)
<TABLE>
<CAPTION>
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------------------------------------------------------------------------------------------------
RUSSIA: 2.5%
<S> <C> <C>
11,800 Lukoil Holdings of Russia ............................................... $ 98,766
2,900 Lukoil Holdings of Russia (ADR) ......................................... 95,700
73,500 Rostelecom2 ............................................................. 167,212
771,400 Unified Energy Systems .................................................. 101,053
----------
462,731
----------
SINGAPORE: 3.2%
104,000 Cerebos Pacific, Ltd. ................................................... 135,426
87,000 Keppel Fels, Ltd. ....................................................... 260,050
233,400 Want Want Holdings ...................................................... 172,716
46,680 Want Want Holdings "A" .................................................. 30,809
----------
599,001
----------
SOUTH AFRICA: 2.3%
2,400 Liberty Life Association of Africa, Ltd. ................................ 46,811
19,600 Liberty Life Association of Africa, Ltd. ................................ 384,678
----------
431,489
----------
SOUTH KOREA: 0.4%
6,050 Suheung Capsule ......................................................... 73,587
----------
THAILAND: 1.5%
328,000 Advance Agro Public Company, Ltd.2 ...................................... 283,026
----------
TURKEY: 4.6%
6,468,814 Akbank T.A.S ............................................................ 207,002
4,383,000 Arcelik A.S ............................................................. 206,001
1,471,000 Eregli Demir Ve Celik Fabrikalari T.A.S ................................. 229,476
857,202 Petrol Ofisi A.S ........................................................ 222,015
----------
864,494
----------
TOTAL COMMON STOCKS (cost $21,368,646) .................................. 15,928,900
----------
</TABLE>
4
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1998 (unaudited) (continued)
<TABLE>
<CAPTION>
PRINCIPAL VALUE
AMOUNT SECURITY (NOTE 1)
- --------------------------------------------------------------------------------------------------
U.S. GOVERNMENT OBLIGATION: 7.0%
<S> <C> <C>
$6,500,000 U.S. Strip Bond, 0.00%, due 02/15/2027 (cost $1,216,139) ................ $ 1,315,535
-----------
SHORT-TERM INVESTMENT: 5.2%
U.S. GOVERNMENT OBLIGATION
1,000,000 U.S Treasury Bills, 5.17%, due 11/12/98 (cost $981,184) ................. 981,230
-----------
TOTAL INVESTMENTS: 96.9% (cost $23,565,969+) (Note 1) ................... 18,225,665
Other assets in excess of liabilities: 3.1% ............................. 577,058
-----------
TOTAL NET ASSETS: 100.0% (equivalent to $7.64 per share on
2,460,503 shares outstanding) ........................................... $18,802,723
===========
</TABLE>
1 Restricted security (Note 6).
2 Non-income producing security.
ADR--American Depository Receipt.
GDR--Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $23,621,117.
---------------
At June 30, 1998, the composition of the Fund's net assets by industry
concentration was as follows:
Banking ...................................... 16.3%
Capital Equipment ............................ 1.8
Construction and Housing ..................... 2.4
Consumer (Durables) .......................... 1.1
Consumer (Non-Durables) ...................... 9.1
Electrical and Electronics ................... 1.0
Energy Sources ............................... 2.3
Financial Services ........................... 3.1
Health and Personal Care ..................... 3.7
Materials .................................... 11.1
Merchandising ................................ 1.3
Multi-Industry ............................... 3.7
Oil and Gas Holding Companies ................ 1.0
Real Estate .................................. 1.7
Services ..................................... 2.9
Telecommunications ........................... 18.2
Trade ........................................ 1.5
Transportation ............................... 0.3
U.S. Government Obligations .................. 12.2
Utilities .................................... 2.2
Other Assets ................................. 3.1
-----
Total Net Assets .......................... 100.0%
=====
The Notes to Financial Statements are an integral part of this statement.
5
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments, at value (cost $23,565,969) (Note 1) ........................ $ 18,225,665
Cash ..................................................................... 563,486
Receivable for investment securities sold ................................ 9,022
Receivable for shares sold ............................................... 35,399
Dividends and interest receivable ........................................ 52,076
Foreign taxes recoverable ................................................ 175
Unrealized gain on open forward contracts (Note 7) ....................... 56,176
Deferred organization expense, net (Note 1) .............................. 3,342
------------
Total Assets ......................................................... 18,945,341
------------
LIABILITIES
Due to Lexington Management Corporation (Note 2) ......................... 13,566
Payable for investment securities purchased .............................. 15,256
Payable for shares redeemed .............................................. 62,969
Accrued expenses ......................................................... 50,827
------------
Total Liabilities .................................................... 142,618
------------
NET ASSETS (equivalent to $7.64 per share on
2,460,503 shares outstanding) (Note 3) ................................. $ 18,802,723
============
NET ASSETS consist of:
Capital stock--authorized 500,000,000 shares,
$.001 par value per share .............................................. $ 2,461
Additional paid-in capital ............................................... 25,801,144
Undistributed net investment income ...................................... 236,690
Accumulated net realized loss on investments and foreign currency holdings (1,951,616)
Unrealized depreciation on investments and foreign currency holdings ..... (5,285,956)
------------
TOTAL NET ASSETS ..................................................... $ 18,802,723
============
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
6
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF OPERATIONS
Six months ended June 30, 1998 (unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME
<S> <C> <C>
Dividends ..................................................... $ 321,501
Interest ...................................................... 81,810
-----------
403,311
Less: foreign tax expense ..................................... 18,324
-----------
Total investment income .................................... $ 384,987
EXPENSES
Investment advisory fee (Note 2) .............................. 92,580
Custodian expenses ............................................ 51,336
Printing and mailing expenses ................................. 14,473
Professional fees ............................................. 14,317
Accounting expenses (Note 2) .................................. 11,418
Directors' fees and expenses .................................. 7,752
Computer processing fees ...................................... 4,281
Registration fees ............................................. 2,977
Amortization of organization costs ............................ 2,208
Transfer agent expenses (Note 2) .............................. 2,096
Other expenses ................................................ 3,935
-----------
Total expenses ............................................. 207,373
-----------
Net investment income ................................... 177,614
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 4)
Net realized loss on:
Investments ................................................ (2,672,697)
Foreign currency transactions .............................. (24,526)
-----------
Net realized loss ....................................... (2,697,223)
Net change in unrealized appreciation (depreciation) on:
Investments ................................................ (664,112)
Foreign currency translation of other assets and liabilities 54,062
-----------
Net change in unrealized depreciation ................... (610,050)
-----------
Net realized and unrealized loss ..................... (3,307,273)
-----------
DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ................. $(3,129,659)
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
7
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
(UNAUDITED) 1997
----------- -----------
<S> <C> <C>
Net investment income ............................................. $ 177,614 $ 71,584
Net realized gain (loss) from investment and foreign currency
transactions .................................................... (2,697,223) 1,372,507
Net change in unrealized appreciation (depreciation) of investments
and foreign currency translation ................................ (610,050) (5,093,187)
----------- -----------
Decrease in net assets resulting from operations ........... (3,129,659) (3,649,096)
Distributions to shareholders from net investment income .......... -- (19,143)
Increase (decrease) in net assets from capital
share transactions (Note 3) ..................................... (2,120,079) 6,042,710
----------- -----------
Net increase (decrease) in net assets .............. (5,249,738) 2,374,471
NET ASSETS:
Beginning of period ............................................... 24,052,461 21,677,990
----------- -----------
End of period (including undistributed net investment income
of $236,690 and $59,076, 1998 and 1997, respectively) ........... $18,802,723 $24,052,461
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
LEXINGTON EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997
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 only 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 Securities 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.
8
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997 (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 1997,
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.
DEFERRED ORGANIZATION EXPENSES Organization expenses aggregating $22,290
have been deferred and are being amortized on a straight-line basis over five
years.
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.
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. For
1998, 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 2.50% of
the Fund's average daily net assets. No reimbursement was required for the six
months ended June 30, 1998.
The Fund reimburses LMC for certain expenses, including accounting costs of
$11,418 which are incurred by the Fund, but paid by LMC.
3. CAPITAL STOCK
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 1998 Year ended
(unaudited) December 31, 1997
-------------------------- ------------------------
Shares Amount Shares Amount
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold ........................................... 579,381 $ 4,945,777 3,296,604 $35,635,710
Shares issued on reinvestment of dividends ............ -- -- 1,696 19,143
--------- ----------- --------- -----------
579,381 4,945,777 3,298,300 35,654,853
Shares redeemed ....................................... (819,621) (7,065,856) (2,741,626) (29,612,143)
--------- ----------- --------- -----------
Net increase (decrease) ............................. (240,240) $(2,120,079) 556,674 $ 6,042,710
========= =========== ========= ===========
</TABLE>
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 1998, excluding short-term securities, were $10,188,888 and
$10,150,986, respectively.
At June 30, 1998, the aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $1,066,483 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $6,461,935.
9
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1998 (unaudited) and December 31, 1997 (continued)
5. 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.
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.
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.
<TABLE>
<CAPTION>
Acquisition Average Cost Market Percent of
Security Date Shares Per Share Value Net Assets
- -------- ----------- ------ ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
Hindalco Industries,Inc. (GDR) 2/27/97 11,650 $32.58 $163,100 0.87%
Videsh Sanchar Nigam, Ltd. (GDR) 9/4/97 34,200 17.86 365,940 1.95
-------- -----
$529,040 2.82%
======== =====
</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.
7. FORWARD FOREIGN EXCHANGE CONTRACTS
At June 30, 1998, the Fund was committed to sell foreign currency under the
following forward foreign exchange contract:
<TABLE>
<CAPTION>
Contract Contract Unrealized
Settlement Amount Amount Gain at
Contract Date (Local Currency) (U.S. Dollars) Value June 30, 1998
- -------- ---------- ---------------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Malaysian Ringgit 8/19/98 4,127,518 $1,037,656 $981,480 $56,176
10
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
</TABLE>
<TABLE>
<CAPTION>
MARCH 30, 1994
SIX MONTHS (COMMENCEMENT
ENDED OF OPERATIONS) TO
JUNE 30, 1998 YEAR ENDED DECEMBER 31, DECEMBER 31,
--------------------------
(UNAUDITED) 1997 1996 1995 1994
----------- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ............. $ 8.91 $ 10.11 $ 9.38 $ 9.86 $10.00
------ ------- ------ ------ ------
Income (loss) from investment operations:
Net investment income .......................... 0.07 0.03 0.02 0.09 0.03
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions ................ (1.34) (1.22) 0.71 (0.48) 0.04
------ ------- ------ ------ ------
Total income (loss) from
investment operations .................... (1.27) (1.19) 0.73 (0.39) 0.07
------ ------- ------ ------ ------
Less distributions:
Distributions from net
investment income ............................ -- (0.01) -- (0.09) (0.02)
Distributions in excess of net
realized gains (temporary
book-tax difference) ......................... -- -- -- -- (0.19)
------ ------- ------ ------ ------
Total distributions ........................ -- (0.01) -- (0.09) (0.21)
------ ------- ------ ------ ------
Net asset value, end of period ................... $ 7.64 $ 8.91 $ 10.11 $ 9.38 $ 9.86
====== ======= ====== ====== ======
Total return ............................... (28.74)%* (11.81 )% 7.46% (3.93 )% 0.76%*
Ratio to average net assets:
Expenses, before reimbursement
or waivers ................................... 1.90%* 1.91% 2.23% 4.09% 6.28%*
Expenses, net of reimbursement
or waivers ................................... 1.90%* 1.84% 1.64% 1.32% 1.30%*
Net investment income (loss), before
reimbursement or waivers ..................... 1.63%* 0.18% (0.39 )% (1.45 )% (4.29 )%*
Net investment income .......................... 1.63%* 0.26% 0.20% 1.33% 0.70%*
Portfolio turnover rate .......................... 100.99%* 157.52% 95.18% 88.92% 71.21%*
Average commissions paid on equity
security transactions** ........................ $ 0.01 $ -- $ -- -- --
Net assets, end of period
(000's omitted) ................................ $18,803 $24,052 $21,678 $7,815 $4,624
</TABLE>
- ----------
* Annualized.
** The average commission paid on equity security transactions for the years
ended December 31, 1997 and 1996 is less than $0.005 per share of securities
purchased and sold. In accordance with SEC disclosure guidelines, the average
commissions are calculated for the period beginning with December 31, 1996,
but not for prior periods.
11
<PAGE>
================================================================================
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.
================================================================================
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.
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1998
The Lexington Group
of NO LOAD
Investment Companies
================================================================================
