As filed with the Securities and Exchange Commission on March 26, 1999
Registration No. 33-73520
811-8250
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 6 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 7 X
(Check appropriate box or boxes.)
LEXINGTON EMERGING MARKETS FUND, INC.
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(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
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(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Emerging Markets Fund, Inc.
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
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(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue, New York, NY 10022
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It is proposed that this filing will become effective
60 days after filing, pursuant to paragraph (a) of Rule 485.
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The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, pursuant to Section 24(f) of the Investment Company
Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal year ended
December 31, 1998 was filed on March 26, 1999.
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- --------------- ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 2
4. General Description of Registrant 2
5. Management of the Fund 6
6. Capital Stock and Other Securities 9
7. Purchase of Securities Being Offered 7
8. Redemption or Repurchase 7
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ----------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 9 (Part A)
13. Investment Objectives and Policies 2
14. Management of the Registrant 6
15. Control Persons and Principal Holders 8
of Securities
16. Investment Advisory and Other Services 8
17. Brokerage Allocation and Other Practices 9
18. Capital Stock and Other Securities 9 (Part A)
19. Purchase, Redemption and Pricing of 7 (Part A)
securities being offered
20. Tax Status 10
21. Underwriters 6 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 12
PART C
- ------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration
Statement.
Note * Omitted since answer is negative or inapplicable
<PAGE>
PROSPECTUS
_________, 1999
LEXINGTON EMERGING MARKETS FUND, INC.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey
07663 201-845-7300
The Fund is intended to be the funding vehicle for variable
annuity contracts and variable life insurance policies to be offered
by the separate accounts of certain life insurance companies
("Participating Insurance Companies").
Individual variable annuity contract holders and variable life
insurance policy holders are not "shareholders" of the Fund. The
Participating Insurance Companies and their separate accounts are the
shareholders or investors, although such companies may pass through
voting rights to their variable annuity contract or variable life
insurance policy. Shares of the Fund are not offered directly to the
general public.
The Securities and Exchange Commission has not approved nor disapproved
the shares of any of the Funds. The Securities and Exchange Commission
also has not determined whether this Prospectus is accurate or complete.
Any person who tells you that the Securities and Exchange Commission has
made such an approval or determination is committing a crime.
Lexington Emerging Markets Fund, Inc.
Risk/Return Summary
Investment Objective
The Lexington Emerging Markets Fund's investment objective is to seek
long-term growth of capital primarily through investment in equity
securities and equivalents of emerging market companies.
Investment Strategy
The Lexington Emerging Markets Fund (the "Fund") will invest at least 65%
of its total assets according to its investment objective. The Fund's
definition of emerging markets includes, but is not limited to, the
following:
- Africa: Botswana, Egypt, Ghana, Ivory Coast, Kenya,
Mauritius, Morocco, Namibia, South Africa, Swaziland, Tunisia,
Zambia and Zimbabwe;
- Asia: Bahrain, Bangladesh, China, Hong Kong, India,
Indonesia, Malaysia, Pakistan, the Philippines, Singapore,
South Korea, Sri Lanka, Taiwan and Thailand;
- Europe: Croatia, Cyprus, Czech Republic, Estonia, Finland,
Greece, Hungary, Latvia, Lithuania, Poland, Portugal, Romania,
Russia, Slovakia and Slovenia;
- The Middle East: Israel, Jordan, Lebanon, Oman and Turkey;
- Latin America: Argentina, Bolivia, Brazil, Chile, Colombia,
Ecuador, Mexico, Nicaragua, Peru and Venezuela.
The Manager of the Fund considers an emerging markets company to be any
company domiciled in an emerging market country, or any company that
derives 50% or more of its total revenue from either goods or services
produced or sold in countries with emerging markets.
The Fund may invest the remaining 35% of its assets in equity securities
without regard to whether the issuer qualifies as an emerging market
company, debt securities denominated in the currency of an emerging
market country or issued or guaranteed by an emerging market company or
the government of an emerging market country, short-term or medium-term
debt securities or other types of securities.
Principal Risks
Through stock investment, the Fund may expose you to common stock risks
which may cause you to lose money if there is a sudden decline in the
share price of one of the companies in the Fund's portfolio. In
addition, the risks of investing in emerging markets are considerable.
Emerging stock markets tend to be more volatile than the U.S. market due
to the relative immaturity, and occasional instability, of the countries
political and economic systems. In the past many emerging markets
restricted the flow of money into or out of their stock markets, and some
continue to impose restrictions on foreign investors. These markets tend
to be less liquid and offer less regulatory protection for investors.
The economies of emerging countries may be predominately based on only
a few industries or on revenue from particular commodities, international
aid and other assistance. In addition, most of the foreign securities
in which the Fund invests are denominated in foreign currencies, whose
values may decline against the U.S. dollar.
Risks of Investing
Risks of Investing in Mutual Funds
The following risks are common to all mutual funds and, therefore,
applies to the Fund:
- Market Risk. The market value of a security may go up or down,
sometimes rapidly and unpredictably. A decline in market value
may cause a security to be worth less than it was at the time
of purchase. Market risk applies to individual securities, a
particular sector or the entire economy.
- Manager Risk. Fund management affects Fund performance. A
Fund may lose money if the Fund manager's investment strategy
does not achieve the Fund's objective or the manager does not
implement the strategy properly.
- Year 2000 Risk. The Fund or its service providers could be
disrupted by problems in their computer systems related to the
Year 2000.
Risks of Investing in Foreign Securities
The following risks apply to all mutual funds that invest in foreign
securities.
- Legal System and Regulation Risk. Foreign countries have
different legal systems and different regulations concerning
financial disclosure, accounting and auditing standards.
Corporate financial information that would be disclosed under
U.S. law may not be available. Foreign accounting and
auditing standards may render a foreign corporate balance
sheet more difficult to understand and interpret than one
subject to U.S. law and standards. Additionally, government
oversight of foreign stock exchanges and brokerage industries
may be less stringent than in the U.S.
- Currency Risk. Most foreign stocks are denominated in the
currency of the stock exchange where they are traded. The
Fund's Net Asset Value is denominated in U.S. dollars. The
exchange rate between the U.S. dollar and most foreign
currencies fluctuates; therefore, the Net Asset Value of the
Fund will be affected by a change in the exchange rate between
the U.S. dollar and the currencies in which the Fund's stocks
are denominated. The Fund may also incur transaction costs
associated with exchanging foreign currencies into U.S.
dollars.
- Stock Exchange and Market Risk. Foreign stock exchanges
generally have less volume than U.S. stock exchanges.
Therefore, it may be more difficult to buy or sell shares of
foreign securities, which increases the volatility of share
prices on such markets. Additionally, trading on foreign
stock markets may involve longer settlement periods and higher
transaction costs.
- Expropriation Risk. Foreign governments may expropriate the
Fund's investments either directly by restricting the Fund's
ability to sell a security or by imposing exchange controls
that restrict the sale of a currency or by taxing the Fund's
investments at such high levels as to constitute confiscation
of the security. There may be limitations on the ability of
the Fund to pursue and collect a legal judgment against a
foreign government.
The Fund may trade in certain foreign securities markets which are less
developed than comparable U.S. markets. The risks associated with trading
in such markets include:
- limited product lines;
- limited markets or financial or managerial resources;
- their securities may be more susceptible to losses and risks
of bankruptcy;
- their securities may trade less frequently and with lower
volume, leading to greater price fluctuations; and,
- their securities are subject to increased volatility and
reduced liquidity due to limited market making and arbitrage
activities.
Temporary Defensive Position
When the Fund anticipates unusual market or other conditions, it may
temporarily depart from its goal and invest substantially in high-quality
short-term investments. This could help the Fund avoid losses but may
mean lost opportunities.
Interests of the Holders of Variable Insurance Contracts and Policies
The Fund currently does not foresee any disadvantages to the
holders of variable annuity contracts and variable life insurance
policies arising from the fact that the interests of the holders of such
contracts and policies may differ. Nevertheless, the Fund's Trustees
intend to monitor events in order to identify any material irreconcilable
conflicts which may possibly arise and to determine what action, if any,
should be taken in response thereto. If a conflict were to occur, an
insurance company separate account might be required to withdraw its
investments in the Fund and the Fund might be forced to sell securities
at disadvantageous prices. The variable annuity contracts and variable
life insurance policies are described in the separate prospectuses issued
by the Participating Insurance Companies. The Fund assumes no
responsibility for such prospectuses.
Management of The Fund
Investment Adviser
Lexington Management Corporation (LMC), a wholly-owned subsidiary of
Lexington Global Asset Managers, Inc. ("LGAM"), is the investment adviser
to the Fund. LMC and its predecessor companies, registered investment
advisers under the Investment Advisers Act of 1940, as amended, were
established in 1938. LMC is located at P.O. Box 1515, Park 80 West Plaza
Two, Saddle Brook, New Jersey 07663. Descendants of Lunsford Richardson,
Sr., their spouses, trusts and other related entities have a controlling
interest in Lexington Global Asset Managers, Inc., a Delaware
corporation. LMC advises private clients as well as the Lexington Funds.
LMC supervises and assists in the overall management of the Funds,
subject to the oversight by the Board of Directors or Trustees.
Sub- Advisers
Stratos Advisors, Inc. (Stratos) is the sub-adviser of the Fund. Stratos
is located at 20 Exchange Place, 52nd Floor, New York, NY 10005. Stratos
provides investment advice and management to Lexington Emerging Markets
Fund.
Portfolio Managers
Richard T. Saler. Mr. Saler is Senior Vice President, Director of
International Investment Strategy of LMC. Mr. Saler is responsible for
international investment analysis and portfolio management at LMC. He
has twelve years of investment experience. Mr. Saler has focused on
international markets since first joining LMC in 1986. In 1991 he was
a strategist with Nomura Securities and rejoined LMC in 1992. Mr. Saler
graduated from New York University with a B.S. Degree in Marketing and
from New York University's Graduate School of Business Administration
with an M.B.A. in Finance..
Alfredo M. Viegas. Mr. Viegas is Chief Executive Officer and Senior
Portfolio Manager of Stratos. In 1995, Mr. Viegas established VZB
Partners LLC ("VZB"), an offshore investment manager. Mr. Viegas is
responsible for corporate analysis and bottom-up research. He has
concentrated on analyzing equity opportunities not only in emerging
markets but also in newly developing or frontier markets where the
quality of public available information is scarce and direct research is
imperative. Prior to VZB, Mr. Viegas was Vice President and Latin
American Equity Strategist for emerging markets with Salomon Brothers
from 1993 to 1995. From 1991 to 1993, he was a research analyst with
Morgan Stanley. Mr. Viegas is a graduate of Wesleyan University with
a B.A. in Classics and Medieval History.
Mohammed Zaidi. Mr. Zaidi is a member of the Portfolio Management team
for the Fund. Mr. Zaidi is a Portfolio Manager at Stratos. Mr. Zaidi
is responsible for fundamental corporate analysis with a particular focus
on Asian and Middle Eastern markets as well as the Risk Control Officer.
Mr. Zaidi has been a Portfolio Manager at VZB since 1997. Mr. Zaidi was
Chief Financial Officer and a Partner at Paradigm Software, Inc. from
1992 to 1995. Mr. Zaidi is a graduate of the University of Pennsylvania
with a B.S. in Economics from the Wharton School. Mr. Zaidi also holds
an M.B.A. in Finance from M.I.T. Sloan School of Management.
How Fund Shares Are Priced
How and when we calculate the Fund's price or net asset value (NAV)
determines the price at which an insurance company will buy or sell
shares. The net asset value of the Fund is determined once daily as of
4:00 p.m., New York time, on each day that the NYSE is open for trading.
Per share net asset value is calculated by dividing the value the Fund's
total net assets by the total number of it's shares then outstanding.
As more fully described in the Statement of Additional Information,
portfolio securities are valued using current market valuations: either
the last reported sales price or, in the case of securities for which
there is no reported last sale and fixed-income securities, the mean
between the closing bid and asked price. Securities for which market
quotations are not readily available or which are illiquid are valued at
their fair values as determined in good faith under the supervision of
the Fund's officers, and by the Manager and the Board, in accordance with
methods that are specifically authorized by the Board. Short-term
obligations with maturities of 60 days or less are valued at amortized
cost as reflecting fair value.
Foreign Funds. The Fund may invest in securities denominated in foreign
currencies and traded on foreign exchanges. To determine their value,
we convert their foreign-currency price into U.S. dollars by using the
exchange rate last quoted by a major bank. Exchange rates fluctuate
frequently and may affect the U.S. dollars value of foreign-denominated
securities, even if their market prices do not change. In addition, some
foreign exchanges are open for trading when the U.S. market is closed.
As a result, the Fund's foreign securities - and their prices may
fluctuate during periods when Fund shares cannot be bought, sold or
exchanged.
The value of securities denominated in foreign currencies and traded on
foreign exchanges or in foreign markets will be translated into U.S.
dollars at the last price of their respective currency denomination
against U.S. dollars quoted by a major bank or, if no such quotation is
available, at the rate of exchange determined in accordance with policies
established in good faith by the Board. Because the value of securities
denominated in foreign currencies must be translated into U.S. dollars,
fluctuations in the value of such currencies in relation to the U.S.
dollar may affect the net asset value of Fund shares even without any
change in the foreign-currency denominated values of such securities.
Because foreign securities markets may close before the Fund determines
its net asset value, events affecting the value of portfolio securities
occurring between the time prices are determined and the time the Fund
calculates its net asset value may not be reflected unless the Manager,
under supervision of the Board, determines that a particular event would
materially affect it's net asset value.
Dividends and Capital Gains Distributions
The Fund distributes substantially all its net investment income and net
capital gains to shareholders each year.
- - Distributions are not guaranteed.
- - The Board of Directors has discretion in determining the amount and
frequency of the distributions.
- - All dividends and other distributions will be reinvested
automatically in additional shares and credited to the shareholders'
account.
How to Purchase and Redeem Shares
With the exception of shares held in connection with initial capital
of the Fund, shares of the Fund are currently available for purchase
solely by insurance companies for the purpose of funding variable annuity
contracts and variable life insurance policies. Shares of the Fund are
purchased and redeemed at net asset value next calculated after a
purchase or redemption order is received by the Fund in good order.
There are no minimum investment requirements. Payment for shares
redeemed will be made as soon as possible, but in any event within three
business days after the order for redemption is received by the Fund.
However, payment may be postponed under unusual circumstances, such as
when normal trading is not taking place on the New York Stock Exchange.
Shareholder Servicing Agreements
The Fund may enter into Shareholder Servicing Agreements with
insurance companies or other financial institutions ("Shareholder
Servicing Agents") that provide administrative services for the Fund or
that provide to contract holders and policyholders other services
relating to the Fund. These services may include: sub-accounting
services, answering inquiries of contract holders and policyholders
regarding the Fund, transmitting, on behalf of the Fund, proxy
statements, annual reports, updated prospectuses and other communications
to contract holders and policyholders regarding the Fund, and such other
related services as the Fund or a contractholder or policyholder may
request. The fees paid by the Fund for these services to use Shareholder
Servicing Agents will not exceed 0.25% of the average daily net assets
of the Fund represented by shares owned during the period for which
payment is made. LMC, at no additional cost to the Fund, may pay to
Shareholder Servicing Agents additional amounts from its past profits.
A Shareholder Servicing Agent may, from time to time, choose not to
receive all of the fees payable to it.
Tax Matters (To Be Reviewed by the Tax Department)
The Fund. The Fund intends to qualify as a regulated investment company
by satisfying the requirements under Subchapter M of the Internal Revenue
Code, as amended (the "Code"), including the diversification of assets,
distribution of income, and sources of income. As a regulated investment
company the Fund will not be subject to Federal income tax on its income
distributed in accordance with the timing requirements of the Code. If,
however, for any taxable year a Fund does not qualify as a regulated
investment company, then all of its taxable income will be subject to tax
at regular corporate rates (without any deduction for distributions to
the separate accounts of the Participating Insurance Companies), and such
distributions may be taxable to the recipients to the extent that the
distributing Fund has current and accumulated earnings and profits.
Fund Distributions. Under current tax law, an insurance company is not
subject to tax on income of a qualifying separate account that is
properly allocable to the value of eligible variable annuity contracts
or variable life insurance policies. Therefore, generally fund
distributions will not be currently taxable to either the Accounts or the
contract holders or policyholders.
Share Redemptions. Redemptions of the shares held by the Accounts
generally will not result in gain or loss for the Accounts and will not
result in gain or loss for the variable annuity contract holders and
variable life insurance policyholders.
Summary. The foregoing discussion of federal income tax consequences is
based on tax laws and regulations in effect on the date of this
Prospectus, and is subject to change by legislative or administrative
action. The foregoing discussion also assumes that the Accounts are the
owners of the shares and that policies or contracts qualify as life
insurance policies or annuities, respectively, under the Code. If the
foregoing requirements are not met then the variable annuity contract
holders and variable life insurance policy holders will be treated as
recognizing income (from distributions or otherwise) related to the
ownership of Fund shares. The foregoing discussion is for general
information only; a more detailed discussion of federal income tax
considerations is contained in the Statement of Additional Information.
Variable annuity contract holders and variable life insurance policy
holders must consult the prospectuses of their respective contracts or
policies for information concerning the Federal income tax consequences
of owning such contracts or policies.
[Back Cover Page]
Statement of Additional Information. The Statement of Additional
Information provides a more complete discussion about the Fund and is
incorporated by reference into this prospectus, which means that it is
considered a part of this prospectus.
Annual and Semi-Annual Reports. The annual and semi-annual reports to
shareholders contain additional information about the Fund's investments,
including a discussion of the market conditions and investment strategies
that significantly affected the Fund's performance during its last fiscal
year.
To Review or Obtain this Information: The Statement of Additional
Information and annual and semi-annual reports are available without
charge upon your request by calling Lexington Emerging Markets Fund, Inc.
at (800) 526-0056 Attn: Shareholder Services. This information may be
reviewed at the Public Reference Room of the Securities and Exchange
Commission or by visiting the SEC's World Wide Web site at www.sec.gov.
In addition, this information may be obtained for a fee by writing or
calling the Public Reference Room of the Securities and Exchange
Commission, Washington, D.C. 20549-6009, telephone (800) SEC-0330.
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement of Additional Information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Emerging Markets
Fund, Inc. (the "Fund"), dated April 30, 1998 and as it may be revised from time
to time. To obtain a copy of the Fund's prospectus at no charge, please write to
the Fund at P.O. Box 1515/Park 80 West- Plaza Two, Saddle Brook, New Jersey
07663 or call the following number: 201-845-7300.
Lexington Management Corporation is the Fund's investment adviser.
Lexington Funds Distributor, Inc. is the Fund's distributor.
TABLE OF CONTENTS
Investment Objective and Policies ................................... 2
Risk Considerations ................................................. 3
Investment Restrictions ............................................. 4
Management of the Fund .............................................. 6
Investment Adviser, Distributor and Administrator ................... 8
Portfolio Transactions and Brokerage Commissions .................... 9
Determination of Net Asset Value .................................... 10
Tax Matters ......................................................... 10
Performance Calculation ............................................. 10
Other Information ................................................... 11
Financial Statements ................................................ 12
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
For a full description of the Fund's investment objective and policies, see
the Prospectus under "Investment Objective and Policies".
CERTAIN INVESTMENT METHODS
SETTLEMENT TRANSACTIONS--When the Fund enters into contracts for purchase or
sale of a portfolio security denominated in a foreign currency, it may be
required to settle a purchase transaction in the relevant foreign currency or
receive the proceeds of a sale in that currency. In either event, the Fund will
be obligated to acquire or dispose of such foreign currency as is represented by
the transaction by selling or buying an equivalent amount of United States
dollars. Furthermore, the Fund may wish to "lock in" the United States dollar
value of the transaction at or near the time of a purchase or sale of portfolio
securities at the exchange rate or rates then prevailing between the United
States dollar and the currency in which the foreign security is denominated.
Therefore, the Fund may, for a fixed amount of United States dollars, enter into
a forward foreign exchange contract for the purchase or sale of the amount of
foreign currency involved in the underlying securities transaction. In so doing,
the Fund will attempt to insulate itself against possible losses and gains
resulting from a change in the relationship between the United States dollar and
the foreign currency during the period between the date a security is purchased
or sold and the date on which payment is made or received.This process is known
as "transaction hedging".
To effect the translation of the amount of foreign currencies involved in
the purchase and sale of foreign securities and to effect the "transaction
hedging" described above, the Fund may purchase or sell foreign currencies on a
"spot" (i.e., cash) basis or on a forward basis whereby the Fund purchases or
sells a specific amount of foreign currency, at a price set at the time of the
contract, for receipt of delivery at a specified date which may be any fixed
number of days in the future.
Such spot and forward foreign exchange transactions may also be utilized to
reduce the risk inherent in fluctuations in the exchange rate between the United
States dollar and the relevant foreign dollar and the relevant foreign currency
when foreign securities are purchased or sold for settlement beyond customary
settlement time (as described below). Neither type of foreign currency
transaction will eliminate fluctuations in the prices of the Fund's portfolio or
securities or prevent loss if the price of such securities should decline.
PORTFOLIO HEDGING--Some or all of the Fund's portfolio will be denominated in
foreign currencies. As a result, in addition to the risk of change in the market
value of portfolio securities, the value of the portfolio in United States
dollars is subject to fluctuations in the exchange rate between such foreign
currencies and the United States dollar. When, in the opinion of LMC, it is
desirable to limit or reduce exposure in a foreign currency in order to moderate
potential changes in the United States dollar value of the portfolio, the Fund
may enter into a forward foreign currency exchange contract by which the United
States dollar value of the underlying foreign portfolio securities can be
approximately matched by an equivalent United States dollar liability. This
technique is known as "portfolio hedging" and moderates or reduces the risk of
change in the United States dollar value of the Fund's portfolio only during the
period before the maturity of the forward contract (which will not be in excess
of one year). The Fund, for hedging purposes only, may also enter into forward
foreign currency exchange contracts to increase its exposure to a foreign
currency that the Fund's investment adviser expects to increase in value
relative to the United States dollar. The Fund will not attempt to hedge all of
its foreign portfolio positions and will enter into such transactions only to
the extent, if any, deemed appropriate by the investment adviser. Hedging
against a decline in the value of currency does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. The Fund will not enter into forward foreign currency
exchange transactions for speculative purposes. The Fund intends to limit
transactions as described in this paragraph to not more than 70% of the total
Fund assets.
FORWARD COMMITMENTS--The Fund may make contracts to purchase securities for a
fixed price at a future date beyond customary settlement time ("forward
commitments") because new issues of securities are typically offered to
investors, such as the Fund, on that basis. Forward commitments involve a risk
of loss if the value of the security to be purchased declines prior to the
settlement date. This risk is in addition to the risk of decline in value of the
Fund's other assets. Although the Fund will enter into such contracts with the
intention of acquiring the securities, the Fund may dispose of a commitment
prior to settlement if the investment adviser deems it appropriate to do so. The
Fund may realize short-term profits or losses upon the sale of forward
commitments.
COVERED CALL OPTIONS--Call options may also be used as a means of participating
in an anticipated price increase of a security on a more limited basis than
would be possible if the security itself were purchased. The Fund may write only
covered call options. Since it can be expected that a call option will be
exercised if the market value of the underlying
2
<PAGE>
security increases to a level greater than the exercise price, this strategy
will generally be used when the investment adviser believes that the call
premium received by the Fund plus anticipated appreciation in the price of the
underlying security, up to the exercise price of the call, will be greater than
the appreciation in the price of the security. The Fund intends to limit
transactions as described in this paragraph to less than 5% of total Fund
assets. The Fund will not purchase put and call options written by others. Also,
the Fund will not write any put options.
RISK CONSIDERATIONS
Investors should recognize that investing in securities of companies in
emerging markets and emerging countries involves certain risk considerations,
including those set forth below, which are not typically associated with
investing in securities of U.S. companies.
FOREIGN CURRENCY CONSIDERATIONS
The Fund's assets will be invested in securities of companies in emerging
markets and emerging countries and substantially all income will be received by
the Fund in foreign currencies. However, the Fund will compute and distribute
its income in dollars, and the computation of income will be made on the date of
its receipt by the Fund at the foreign exchange rate in effect on that date.
Therefore, if the value of the foreign currencies in which the Fund receives its
income falls relative to the dollar between receipt of the income and the making
of Fund distributions, the Fund will be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in dollars to meet
distribution requirements.
The value of the assets of the Fund as measured in dollars also may be
affected favorably or unfavorably by fluctuations in currency rates and exchange
control regulations. Further, the Fund may incur costs in connection with
conversions between various currencies. Foreign exchange dealers realize a
profit based on the difference between the prices at which they are buying and
selling various currencies. Thus, a dealer normally will offer to sell a foreign
currency to the Fund at one rate, while offering a lesser rate of exchange
should the Fund desire immediately to resell that currency to the dealer. The
Fund will conduct its foreign currency exchange transactions either on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or through entering into forward or futures contracts to purchase or
sell foreign currencies.
INVESTMENT AND REPATRIATION RESTRICTIONS
Some emerging countries have laws and regulations which currently preclude
direct foreign investment in the securities of their companies. However,
indirect foreign investment in the securities of companies listed and traded on
the stock exchanges in these countries is permitted by certain emerging
countries through investment funds which have been specifically authorized. The
Fund may invest in these investment funds subject to the provisions of the 1940
Act as discussed below under "Investment Restrictions". If the Fund invests in
such investment funds, the Fund's shareholders will bear not only their
proportionate share of the expenses of the Fund (including operating expenses
and the fees of the Investment Manager), but also will bear indirectly similar
expenses of the underlying investment funds.
In addition to the foregoing investment restrictions, prior governmental
approval for foreign investments may be required under certain circumstances in
some emerging countries, while the extent of foreign investment in domestic
companies may be subject to limitation in other emerging countries. Foreign
ownership limitations also may be imposed by the charters of individual
companies in emerging countries to prevent, among other concerns, violation of
foreign investment limitations.
Repatriation of investment income, capital and the proceeds of sales by
foreign investors may require governmental registration and/or approval in some
emerging countries. The Fund could be adversely affected by delays in or a
refusal to grant any required governmental approval for such repatriation.
EMERGING COUNTRY AND EMERGING MARKET SECURITIES MARKETS
Trading volume on emerging country stock exchanges is substantially less
than that on the New York Stock Exchange. Further, securities of some emerging
country or emerging market companies are less liquid and more volatile than
securities of comparable U.S. companies. Similarly, volume and liquidity in most
emerging country bond markets is substantially less than in the U.S. and,
consequently, volatility of price can be greater than in the U.S. Fixed
commissions on emerging country stock or emerging market exchanges are generally
higher than negotiated commissions on U.S. exchanges, although the Fund
endeavors to achieve the most favorable net results on its portfolio
transactions and may be able to purchase the securities in which the Fund may
invest on other stock exchanges where commissions are negotiable.
3
<PAGE>
Companies in emerging countries are not generally subject to uniform
accounting, auditing and financial reporting standards, practices and disclosure
requirements comparable to those applicable to U.S. companies. Consequently,
there may be less publicly available information about an emerging country
company than about a U.S. company. Further, there is generally less governmental
supervision and regulation of foreign stock exchanges, brokers and listed
companies than in the U.S.
ECONOMIC AND POLITICAL RISKS
The economies of individual emerging countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product, rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. Further, the economies of developing countries
generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed
adjustments in relative currency values and other protectionist measures imposed
or negotiated by the countries with which they trade. These economies also have
been and may continue to be adversely affected by economic conditions in the
countries with which they trade.
With respect to any emerging country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
government regulation, social instability or diplomatic developments (including
war) which could affect adversely the economies of such countries or the Fund's
investments in those countries. In addition, it may be more difficult to obtain
a judgment in a court outside of the United States.
INVESTMENT RESTRICTIONS
The Fund's investment objective, as described under "investment policy" and
the following investment restrictions are matters or fundamental policy which
may not be changed without the affirmative vote of the lesser of (a) 67% or more
of the shares of the Fund present at a shareholders' meeting at which more than
50% of the outstanding shares are present or represented by proxy or (b) more
than 50% of the outstanding shares. Under these investment restrictions:
(1 The Fund will not issue any senior security (as defined in the 1940
Act), except that (a) the Fund may enter into commitments to purchase
securities in accordance with the Fund's investment program, including
reverse repurchase agreements, foreign exchange contracts, delayed
delivery and when-issued securities, which may be considered the
issuance of senior securities; (b) the Fund may engage in transactions
that may result in the issuance of a senior security to the extent
permitted under applicable regulations, interpretation of the 1940 Act
or an exemptive order; (c) the Fund may engage in short sales of
securities to the extent permitted in its investment program and other
restrictions; (d) the purchase or sale of futures contracts and related
options shall not be considered to involve the issuance of senior
securities; and (e) subject to fundamental restrictions, the Fund may
borrow money as authorized by the 1940 Act.
(2) The Fund will not borrow money, except that (a) the Fund may enter into
certain futures contracts and options related thereto; (b) the Fund may
enter into commitments to purchase securities in accordance with the
Fund's investment program, including delayed delivery and when-issued
securities and reverse repurchase agreements; (c) for temporary
emergency purposes, the Fund may borrow money in amounts not exceeding
5% of the value of its total assets at the time when the loan is made;
(d) the Fund may pledge its portfolio securities or receivables or
transfer or assign or otherwise encumber them in an amount not
exceeding one-third of the value of its total assets; and (e) for
purposes of leveraging, the Fund may borrow money from banks (including
its custodian bank), only if, immediately after such borrowing, the
value of the Fund's assets, including the amount borrowed, less its
liabilities, is equal to at least 300% of the amount borrowed, plus all
outstanding borrowings. If at any time, the value of the Fund's assets
fails to meet the 300% asset coverage requirement relative only to
leveraging, the Fund will, within three days (not including Sundays and
holidays), reduce its borrowings to the extent necessary to meet the
300% test. The Fund will only invest up to 5% of its total assets in
reverse repurchase agreements.
(3) The Fund will not act as an underwriter of securities except to the
extent that, in connection with the disposition of portfolio securities
by the Fund, the Fund may be deemed to be an underwriter under the
provisions of the 1933 Act.
(4) The Fund will not purchase real estate, interests in real estate or
real estate limited partnership interests except that, to the extent
appropriate under its investment program, the Fund may invest in
securities secured by real estate or interests therein or issued by
companies, including real estate investment trusts, which deal in real
estate or interests therein.
(5) The Fund will not make loans, except that, to the extent appropriate
under its investment program, the Fund may (a) purchase bonds,
debentures or other debt securities, including short-term obligations,
(b) enter into
4
<PAGE>
repurchase transactions and (c) lend portfolio securities provided that
the value of such loaned securities does not exceed one-third of the
Fund's total assets.
(6) The Fund will not invest in commodity contracts, except that the Fund
may, to the extent appropriate under its investment program, purchase
securities of companies engaged in such activities, may enter into
transactions in financial and index futures contracts and related
options, may engage in transactions on a when-issued or forward
commitment basis, and may enter into forward currency contracts.
(7) The Fund will not concentrate its investments in any one industry,
except that the Fund may invest up to 25% of its total assets in
securities issued by companies principally engaged in any one industry.
The Fund considers foreign government securities and supranational
organizations to be industries for the purposes of this restriction.
This limitation, however, will not apply to securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities.
(8) The Fund will not purchase securities of an issuer, if (a) more than 5%
of the Fund's total assets taken at market value would at the time be
invested in the securities of such issuer, except that such restriction
shall not apply to securities issued or guaranteed by the United States
government or its agencies or instrumentalities or, with respect to 25%
of the Fund's total assets, to securities issued or guaranteed by the
government of any country other than the United States which is a
member of the Organization for Economic Cooperation and Development
("OECD"). The member countries of OECD are at present: Australia,
Austria, Belgium, Canada, Denmark, Germany, Finland, France, Greece,
Iceland, Ireland, Italy, Japan, Luxembourg, the Netherlands, New
Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the
United Kingdom and the United States; or (b) such purchases would at
the time result in more than 10% of the outstanding voting securities
of such issuer being held by the Fund.
In addition to the above fundamental restrictions, the Fund has undertaken
the following non-fundamental restrictions, which may be changed in the future
by the Board of Directors, without a vote of the shareholders of the Fund:
(1) The Fund will not participate on a joint or joint-and-several basis in
any securities trading account. The "bunching" of orders for the sale
or purchase of marketable portfolio securities with other accounts
under the management of the investment adviser to save commissions or
to average prices among them is not deemed to result in a securities
trading account.
(2) The Fund may purchase and sell futures contracts and related options
under the following conditions: (a) the then-current aggregate futures
market prices of financial instruments required to be delivered and
purchased under open futures contracts shall not exceed 30% of the
Fund's total assets, at market value; and (b) no more than 5% of the
assets, at market value at the time of entering into a contract, shall
be committed to margin deposits in relation to futures contracts.
(3) The Fund will not make short sales of securities, other than short
sales "against the box," or purchase securities on margin except for
short-term credits necessary for clearance of portfolio transactions,
provided that this restriction will not be applied to limit the use of
options, futures contracts and related options, in the manner otherwise
permitted by the investment restrictions, policies and investment
programs of the Fund.
(4) The Fund will not purchase the securities of any other investment
company, except as permitted under the 1940 Act.
(5) The Fund will not invest for the purpose of exercising control over or
management of any company.
(6) The Fund will not purchase warrants except in units with other
securities in original issuance thereof or attached to other
securities, if at the time of the purchase, the Fund's investment in
warrants, valued at the lower of cost or market, would exceed 5% of the
Fund's total assets. For these purposes, warrants attached to units or
other securities shall be deemed to be without value.
(7) The Fund will not invest more than 15% of its total assets in illiquid
securities. Illiquid securities are securities that are not readily
marketable or cannot be disposed of promptly within seven days and in
the usual course of business without taking a materially reduced price.
Such securities include, but are not limited to, time deposits and
repurchase agreements with maturities longer than seven days.
Securities that may be resold under Rule 144A or securities offered
pursuant to Section 4(2) of the Securities Act of 1933, as amended,
shall not be deemed illiquid solely by reason of being unregistered.
The Investment Adviser shall determine whether a particular security is
deemed to be liquid based on the trading markets for the specific
security and other factors.
5
<PAGE>
The percentage restrictions referred to above are to be adhered to at the
time of investment and are not applicable to a later increase or decrease in
percentage beyond the specified limit resulting from change in values or net
assets.
MANAGEMENT OF THE FUND
The Directors and executive officers of the Fund and their principal
occupations are set forth below:
+S.M.S. CHADHA (60), DIRECTOR. 3/16 Shanti Niketan, New Delhi 21, India.
Secretary, Ministry of External Affairs, New Delhi, India; Head of Foreign
Service Institute, New Delhi, India; Special Envoy of the Government of India;
Director, Special Unit for Technical Cooperation among Developing Countries,
United Nations Development Program, New York.
*+ROBERT M. DEMICHELE (53), PRESIDENT AND CHAIRMAN. P.O. Box 1515, Saddle Brook,
N.J. 07663. Chairman and Chief Executive Officer, Lexington Management
Corporation; President and Director, Lexington GlobalAsset Managers, Inc.;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.;
Chairman of the Board, Market Systems Research, Inc. and Market Systems
Research Advisors, Inc.; Director, Chartwell Re Corporation,Claredon National
Insurance Company, The Navigator's Group, Inc., Unione Italiana Reinsurance,
Vanguard Cellular Systems,Inc. and Weeden &Co.; Vice Chairman of the Board
of Trustees, Union College and Trustee, Smith Richardson Foundation.
+BEVERLY C. DUER (68), DIRECTOR. 340 East 72nd Street, New York, N.Y. 10021.
Private Investor.Formerly, Manager of Operations Research
Department--CPCInternational, Inc.
*+BARBARA R. EVANS (37), DIRECTOR. 5 Fernwood Road, Summit, N.J. 07901. Private
Investor. Formerly, Assistant Vice President and Securities Analyst, Lexington
Management Corporation.
*+LAWRENCE KANTOR (51), VICE PRESIDENT AND DIRECTOR. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Executive Vice President and Director,
Lexington Management Corporation; Executive Vice President and Director,
Lexington Funds Distributor, Inc.; Executive Vice President and General
Manager--Mutual Funds, Lexington Global Asset Managers, Inc.
+JERARD F. MAHER (51), DIRECTOR. 300 Raritan Center Parkway,Edison, N.J.
08818.General Counsel,Federal Business Center; Counsel, Ribis, Graham &Curtin.
+ANDREW M. MCCOSH (57), DIRECTOR. 12 Wyvern Park, Edinburgh EH 92 JY,Scotland,
U.K. Professor of the Organisation of Industry and Commerce, Department of
Business Studies, The University ofEdinburgh, Scotland.
+DONALD B. MILLER (71), DIRECTOR. 10725 Quail Covey Road, Boynton Beach, FL
33436. Chairman, Horizon Media, Inc.; Trustee, Galaxy Funds; Director, Maguire
Group of Connecticut; prior to January 1989, President, Director and C.E.O.,
Media General Broadcast Services (advertising firm).
+JOHN G. PRESTON (65), DIRECTOR. 3 Woodfield Road, Wellesley, Massachusetts
02181. Associate Professor of Finance, Boston College, Boston, Massachusetts.
+MARGARET RUSSELL (77), DIRECTOR. 55 North Mountain Avenue, Montclair, N.J.
07042. Private Investor. Formerly, Community Affairs Director, Union Camp
Corporation.
*+LISA CURCIO (38), VICE PRESIDENT AND SECRETARY. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Vice President and Secretary, Lexington Funds Distributor, Inc.;
Secretary, Lexington Global Asset Managers, Inc.
*+RICHARD T. SALER (36), VICE PRESIDENT AND PORTFOLIO MANAGER. P.O. Box 1515,
Saddle Brook, N.J. 07663. Senior Vice President, Director International
Investment Strategy, Lexington Management Corporation. Prior to July, 1992,
Securities Analyst, Nomura Securities, Inc. Prior to November, 1991, Vice
President, Lexington Management Corporation.
*+RICHARD M. HISEY (39), VICE PRESIDENT AND TREASURER. P.O. Box 1515, Saddle
Brook, N.J. 07663. Managing Director, Director and Chief Financial Officer,
Lexington Management Corporation; Chief Financial Officer, Vice President and
Director, Lexington Funds Distributor, Inc.; Chief Financial Officer, Market
Systems Research Advisors, Inc.; Executive Vice President and Chief Financial
Officer, Lexington Global Asset Managers, Inc.
*+RICHARD LAVERY, CLU CHFC (43), VICE PRESIDENT. P.O. Box 1515, Saddle Brook,
N.J. 07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*+JANICE CARNICELLI (38), VICE PRESIDENT. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+CHRISTIE CARR-WALDRON (30), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook,
N.J. 07663. Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
6
<PAGE>
*+CATHERINE DIFALCO (29), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to October 1997, Manager, Fund Accounting.
*+SIOBHAN GILFILLAN (34), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+JOAN K. LEDERER (31), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to April 1997, Director of Investment Accounting, Diversified
Investment Advisors, Inc. Prior to April 1996, Assistant Vice President,
PIMCO.
*+SHERI MOSCA (34), ASSISTANT TREASURER. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+PETER CORNIOTES (36), ASSISTANT SECRETARY. P.O. Box 1515, Saddle Brook, N.J.
07663, Vice President and Assistant Secretary, Lexington Management
Corporation. Assistant Secretary, Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST (37), ASSISTANT SECRETARY. P.O. Box 1515, Saddle Brook, N.J.
07663, Assistant Vice President, Lexington Management Corporation. Prior to
March 1994, Blue Sky Compliance Coordinator, Lexington Group of Investment
Companies.
*"Interested person" and/or "Affiliated person" of LMC as defined in the
Investment Company Act of 1940, as amended.
+Messrs. Chadha, Corniotes, DeMichele, Duer, Hisey,Faust, Kantor,Lavery,Maher,
McCosh, Miller, and Preston and Mmes. Carnicelli, Carr-Waldron, Curcio,
DiFalco, Evans,Gilfillan, Lederer, Mosca and Russell hold similar offices with
some or all of the other registered investment companies advised and/or
distributed byLexington Management Corporation or Lexington FundsDistributor,
Inc.
The Board of Directors met 5 times during the twelve months ended December
31, 1997, and each of the Directors attended at least 75% of those meetings.
REMUNERATION OF DIRECTORS AND CERTAIN EXECUTIVE OFFICERS:
Each Director is reimbursed for expenses incurred in attending each meeting
of the Board of Directors or any committee thereof up to a maximum of $9,000 per
year for Directors living outside the U.S. and $6,000 per year for Directors
living within the U.S. Each Director who is not an affiliate of the advisor is
compensated for his or her services according to a fee schedule which
recognizes the fact that each Director also serves as a Director of other
investment companies advised by LMC. Each Director receives a fee, allocated
among all investment companies for which the Director serves. Effective
September 12, 1995, each Director receives annual compensation of $24,000.
Prior to September 12, 1995, the Directors who were not employed by the Fund or
its affiliates received annual compensation of $16,000.
Set forth below is information regarding compensation paid or accrued
during the period January 1, 1997 to December 31, 1997 for each Director:
- -------------------------------------------------------------------------------
AGGREGATE TOTAL COMPENSATION NUMBER OF
NAME OF DIRECTOR COMPENSATION FROM FROM FUND AND DIRECTORSHIPS IN
FUND FUND COMPLEX FUND COMPLEX
- -------------------------------------------------------------------------------
S.M.S. Chadha $1,712 $26,821 15
- -------------------------------------------------------------------------------
Robert M. DeMichele 0 0 16
- -------------------------------------------------------------------------------
Beverley C. Duer $1,712 $29,521 16
- -------------------------------------------------------------------------------
Barbara R. Evans 0 0 15
- -------------------------------------------------------------------------------
Lawrence Kantor 0 0 15
- -------------------------------------------------------------------------------
Jerard F. Maher $1,712 $29,521 16
- -------------------------------------------------------------------------------
Andrew M. McCosh $1,600 $25,029 15
- -------------------------------------------------------------------------------
Donald B. Miller $1,712 $26,821 15
- -------------------------------------------------------------------------------
Francis Olmsted* $1,319 $16,800 N/A
- -------------------------------------------------------------------------------
John G. Preston $1,712 $26,821 15
- -------------------------------------------------------------------------------
Margaret W. Russell $1,712 $27,045 15
- -------------------------------------------------------------------------------
Philip Smith* $1,220 $19,200 N/A
- -------------------------------------------------------------------------------
Francis A. Sunderland* $1,140 $16,800 N/A
- -------------------------------------------------------------------------------
*Retired
7
<PAGE>
RETIREMENT PLAN FOR ELIGIBLE DIRECTORS/TRUSTEES
Effective September 12, 1995, the Directors instituted a Retirement Plan
for Eligible Directors/Trustees (the "Plan") pursuant to which each
Director/Trustee (who is not an employee of any of the Funds, the Advisor,
Administrator or Distributor or any of their affiliates) may be entitled to
certain benefits upon retirement from the Board. Pursuant to the Plan, the
normal retirement date is the date on which the eligible Director/Trustee has
attained age 65 and has completed at least ten years of continuous and
non-forfeited service with one or more of the investment companies advised by
LMC (or its affiliates) (collectively, the "Covered Funds"). Each eligible
Director/Trustee is entitled to receive from the Covered Fund an annual benefit
commencing on the first day of the calendar quarter coincident with or next
following his date of retirement equal to 5% of his compensation multiplied by
the number of such Director/Trustee's years of service (not in excess of 15
years) completed with respect to any of the Covered Portfolios. Such benefit is
payable to each eligible Director in quarterly installments for ten years
following the date of retirement or the life of the Director/Trustee. The Plan
establishes age 72 as a mandatory retirement age for Directors/Trustees;
however, Director/Trustees serving the Funds as of September 12, 1995 are not
subject to such mandatory retirement. Directors/Trustees serving the Funds as of
September 12, 1995 who elect retirement under the Plan prior to September 12,
1996 will receive an annual retirement benefit at any increased compensation
level if compensation is increased prior to September 12, 1997 and receive
spousal benefits (I.E., in the event the Director/Trustee dies prior to
receiving full benefits under the Plan, the Director/Trustee's spouse (if any)
will be entitled to receive the retirement benefit within the 10 year period.)
Retiring Directors will be eligible to serve as Honorary Directors for one
year after retirement and will be entitled to be reimbursed for travel expenses
to attend a maximum of two meetings.
Set forth in the table below are the estimated annual benefits payable to
an eligible Director upon retirement assuming various compensation and years of
service classifications. As of December 31, 1997, the estimated credited years
of service for Directors,Chadha, Duer, Maher, McCosh, Miller, Preston and
Russell, and are 2, 19, 2, 2, 23, 19 and 16, respectively.
HIGHEST ANNUAL COMPENSATION PAID BY ALL FUNDS
20,000 25,000 30,000 35,000
YEARS OF
SERVICE ESTIMATED ANNUAL BENEFIT UPON RETIREMENT
-------
15 15,000 18,750 22,500 26,250
14 14,000 17,500 21,000 24,500
13 13,000 16,250 19,500 22,750
12 12,000 15,000 18,000 21,000
11 11,000 13,750 16,500 19,250
10 10,000 12,500 15,000 17,500
INVESTMENT ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), P.O. Box 1515, Saddle Brook, New
Jersey 07663 is the investment adviser to the Fund pursuant to an Investment
Advisory Agreement dated January 25, 1994, (the "Advisory Agreement"). Lexington
Funds Distributor, Inc. ("LFD") is the distributor of Fund shares pursuant to a
Distribution Agreement dated December 5, 1994 (the "Distribution Agreement").
Both of these agreements were approved by the Fund's Board of Directors
(including a majority of the Directors who were not parties to either the
Advisory Agreement or the Distribution Agreement or "interested persons" of any
such party) on December 6, 1994. LMC makes recommendations to the Fund with
respect to its investments and investment policies.
LMC also acts as administrator to the Fund and performs certain
administrative and accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semi-annual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
For its investment management services to the Fund, under its Advisory
Agreement, LMC will receive a monthly fee at the annual rate of 0.85% of the
Fund's average daily net assets. LMC has agreed to reduce its management fee if
necessary to keep total operating expenses at or below 2.50% of the Fund's
average daily net assets. Total annual
8
<PAGE>
operating expenses may also be subject to state blue sky regulations. LMC may
terminate this voluntary reduction at any time. Brokerage fees and commissions,
taxes, interest and extraordinary expenses are not deemed to be expenses of the
Fund for such reimbursement. LFD pays the advertising and sales expenses of the
continuous offering of Fund shares, including the cost of printing prospectuses,
proxies and shareholder reports for persons other than existing shareholders.
The Fund furnishes LFD, at printer's overrun cost paid by LFD, such copies of
its prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes. For the year
ended December 31, 1997, the Fund paid LMC $238,449 and reimbursed the Fund
$21,212. For the year ended December 31, 1996, the Fund paid LMC $146,299 in
investment advisory fees and reimbursed the Fund $101,886. For the year ended
December 31, 1995, the Fund paid LMC $53,143 in investment advisory fees and LMC
reimbursed the Fund $173,670.
The Advisory Agreement, the Distribution Agreement and the Administrative
Services Agreement are subject to annual approval by the Fund's Board of
Directors and by the affirmative vote, cast in person at a meeting called for
such purpose, of a majority of the Directors who are not parties either to the
Advisory Agreement or the Distribution Agreement, as the case may be, or
"interested persons" of any such party. Either the Fund or LMC may terminate the
Advisory Agreement and the Fund or LFD may terminate the Distribution Agreement
on 60 days' written notice without penalty. The Advisory Agreement terminates
automatically in the event of assignment, as defined in the Investment Company
Act of 1940.
LMC shall not be liable to the Fund or its shareholders for any act or
omission by LMC, its officers, directors or employees or any loss sustained by
the Fund or its shareholders except in the case of willful misfeasance, bad
faith, gross negligence or reckless disregard of duty.
LMC and LFD are wholly owned subsidiaries of Lexington Global Asset
Managers, Inc., a publicly traded corporation. Descendants of Lunsford
Richardson, Sr., their spouses, trusts and other related entities have a
majority voting control of outstanding shares of Lexington Global Asset
Managers, Inc.
Of the directors, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery and Saler and Mmes.
Carnicelli, Carr-Waldron, Curcio, DiFalco, Gilfillan, Lederer and Mosca (see
"Management of the Fund"), may also be deemed affiliates of LMC and LFD by
virtue of being officers, directors or employees thereof. As of March 31, 1998,
all officers and directors of the Fund as a group owned of record and
beneficially less than 1% of the outstanding shares of the Fund.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with this policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.,
and such other policies as the Directors may determine, LMC may consider sales
of shares of the Fund and of the other Lexington Funds as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
However, pursuant to the Fund's investment management agreement, management
consideration may be given in the selection of broker-dealers to research
provided and payment may be made of a commission higher than that charged by
another broker-dealer which does not furnish research services or which
furnishes research services deemed to be a lesser value, so long as the criteria
of Section 28(e) of the Securities Exchange Act of 1934 are met. Section 28 (e)
of the Securities Exchange Act of 1934 was adopted in 1975 and specifies that a
person with investment discretion shall not be "deemed to have acted unlawfully
or to have breached a fiduciary duty" solely because such person has caused the
account to pay higher commissions than the lowest available under certain
circumstances, provided that the person so exercising investment discretion
makes a good faith determination that the commissions paid are "reasonable in
the relation to the value of the brokerage and research services
provided...viewed in terms of either that particular transaction or his overall
responsibilities with respect to the accounts as to which he exercises
investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services ("soft dollars") might
exceed commissions that would be payable for executions services alone, nor
generally can the value of research services to the Fund be measured. Research
services furnished might be useful and of value to LMC and its affiliates, in
serving other clients as well as the Fund. On the other hand, any research
services obtained by LMC or its affiliates from the placement of portfolio
brokerage of other clients might be useful and of value to LMC in carrying out
its obligations to the Fund.
9
<PAGE>
The Fund anticipates that its brokerage transactions involving securities
of companies domiciled in countries other than the United States will normally
be conducted on the principal stock exchanges of those countries. Fixed
commissions of foreign stock exchange transactions are generally higher than the
negotiated commission rates available in the United States. There is generally
less government supervision and regulation of foreign stock exchanges and
broker-dealers than in the United States. For the year ended December 31, 1995,
the Fund paid $86,090 in brokerage commissions and the Fund's portfolio turnover
rate was 88.92%. For the year ended December 31, 1996, the Fund's portfolio
turnover rate was 95.18% and the Fund paid $228,649 in brokerage commissions and
of that amount, $16,695 was paid for with soft dollars. For the year ended
December 31, 1997, the Fund's portfolio turnover rate was 157.52% and the Fund
paid $389,807 in brokerage commissions and of that amount, $27,606 was paid for
with soft dollars.
DETERMINATION OF NET ASSET VALUE
The Fund calculates net asset value as of the close of normal trading on
the New York Stock Exchange (currently 4:00 p.m. Eastern time, unless weather,
equipment failure or other factors contribute to an earlier closing time) on
each business day. It is expected that the New York Stock Exchange will be
closed on Saturdays and Sundays and on New Year's day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day. See the Prospectus for the further discussion of net asset value.
TAX MATTERS
The following is only a summary of certain additional tax considerations
that are not described in the Prospectus and generally affect each Fund and its
shareholders. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
QUALIFICATIONS AS A REGULATED INVESTMENT COMPANY. The Fund intends to qualify to
be treated as a "regulated investment company" ("RIC") under the Internal
Revenue Code of 1986, as amended (the "Code"). As a RIC, the Fund will not
itself be subject to federal income tax on its investment company taxable income
and net capital gains to the extent that such investment company taxable income
and net capital gains are distributed in each taxable year to the separate
accounts of the Participating Insurance Companies. In addition, if the Fund
distributes annually to the separate accounts its ordinary income and capital
gain net income, in the manner prescribed in the Code, it will not be subject to
the 4% federal excise tax otherwise applicable to the undistributed income or
gain of a RIC. Distributions of net investment income and net short-term capital
gains will be treated as ordinary income and distributions of net long-term
capital gains will be treated as long-term capital gain in the hands of the
Participating Insurance Companies. Under existing tax law, capital gains or
dividends from the Fund are not currently taxable when left to accumulate within
a variable annuity or variable life insurance contract.
SEGREGATED ASSET ACCOUNTS. Shares in the Fund are offered only to
segregated asset accounts, which are insurance company separate accounts that
fund variable annuity or variable life insurance contracts.
Section 817(h) of the Code requires that investments of a segregated asset
account of an insurance company be "adequately diversified," in accordance with
Treasury Regulations promulgated thereunder, in order for the holders of the
variable annuity contracts or variable life insurance policies investing in the
account to receive the tax-deferred or tax-free treatment generally afforded
holders of annuities or life insurance policies under the Code. The Department
of the Treasury has issued Regulations under section 817(h) which, among other
things, provide the manner in which a segregated asset account will treat
investments in a RIC for purposes of the applicable diversification
requirements. Under the Regulations, if a RIC satisfies certain conditions, such
RIC will not be treated as a single investment for these purposes, but rather
the segregated asset account will be treated as owning its proportionate share
of each of the assets of the RIC. The Fund plans to satisfy these conditions at
all times so that each segregated asset account of a Participating Insurance
Company investing in the Fund will be treated as adequately diversified under
the Code and Regulations.
For information concerning the federal income tax consequences to the
holders of variable annuity contracts and variable rate insurance policies, such
holders should consult the prospectuses used in connection with the issuance of
their particular contracts or policies.
10
<PAGE>
PERFORMANCE CALCULATION
For the purpose of quoting and comparing the performance of the Fund to
that of other mutual funds and to other relevant market indices in
advertisements or in reports to shareholders, performance may be stated in terms
of total return. Under the rules of the Securities and Exchange Commission ("SEC
rules"), funds advertising performance must include total return quotes
calculated according to the following formula:
P(l+T)n = ERV
Where: P=a hypothetical initial payment of $1,000
T=average annual total return
n=number of years (1, 5 or 10)
ERV=ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1, 5 or 10 year periods or at the end
of the 1, 5 or 10 year periods (or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five and ten year periods or a shorter period dating from the effectiveness
of the Fund's Registration Statement. In calculating the ending redeemable
value, all dividends and distributions by the Fund are assumed to have been
reinvested at net asset value as described in the prospectus on the reinvestment
dates during the period. Total return, or "T" in the formula above, is computed
by finding the average annual compounded rates of return over the 1, 5 and 10
year periods (or fractional portion thereof) that would equate the initial
amount invested to the ending redeemable value. Any recurring account charges
that might in the future be imposed by the Fund would be included at that time.
The Fund may also from time to time include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., or with the performance of
the Standard and Poor's 500 Stock Index, the Dow Jones Industrial Average or the
Morgan Stanley Capital International World Index, the Fund calculates its
aggregate total return for the specified periods of time assuming the investment
of $10,000 in Fund shares and assuming the reinvestment of each dividend or
other distribution at net asset value on the reinvestment date. Percentage
increases are determined by subtracting the initial value of the investment from
the ending value and by dividing the remainder by the beginning value. The
Fund's total return for the one year and since commencement (3/30/94) periods as
of December 31, 1997 were -11.81% and -2.19%.
OTHER INFORMATION
As of February 12, 1998, Lexington Management Corporation, Park 80 West
Plaza Two, Saddle Brook, N.J. 07663 owned beneficially 10,319 shares of the Fund
(0.4% of the Fund's outstanding shares). The balance of the outstanding shares
of the Fund (99.6%) are owned by Aetna Life Insurance and Annuity Company,
Great-West Life & Annuity Insurance Company, Kemper Investors Life Insurance
Company, Safeco Life and Annuity Company and Transamerica Occidental Life
Insurance Company and are allocated to separate accounts which are used for
funding variable annuity contracts and variable life insurance policies.
11
[1998 Audited Financial Statements and Auditor's Report to be inserted here.]
<PAGE>
PART C. OTHER INFORMATION
- -----------------------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1998 was filed
electronically on March 1, 1999 (as form type N-30D). Financial
statements from this 1998 Annual Report have been included in the Statement
of Additional Information.
Page No. in the Statement
(a) Financial statements: of Additional Information
--------------------- -----------------------------
Report of Independent Auditors 16
dated February 8, 1999
Statement of Net Assets (Including 17
the Portfolio of Investments) as of
December 31, 1998 (1)
Statement of Assets and Liabilities 18
as of December 31, 1998
Statement of Operations - for the year ended 19
December 31, 1997 (2)
Statements of Changes in Net Assets - 20
for the years ended December 31, 1997 and 1998
Notes to Financial Statements 20
Schedules II-VII and other Financial Statements, for which
provisions are made in the applicable accounting regulations of the
Securities and Exchange Commission, are omitted because they are
not required under the related instructions, they are inapplicable,
or the required information is presented in the financial
statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of Realized
Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
(b) Exhibits:
1. Articles of Incorporation - Filed electronically on
April 29, 1996 - Incorporated by reference
2. By-Laws - Filed electronically on 4/11/97 - Incorporated
by reference
3. Not Applicable
4. Rights of Holders - Filed electronically on 4/24/98 -
Incorporated by reference
5. Investment Advisory Agreement between Registrant
and Lexington Management Corporation - Filed electronically
on April 29, 1996 - Incorporated by reference
6. Distribution Agreement between Registrant and
Lexington Funds Distributor, Inc. - Filed electronically
on 4/11/97 - Incorporated by reference
7. Retirement Plan for Eligible Directors - Filed electronically
On 4/24/98 - Incorporated by reference
8a. Custodian Agreement between Registrant and Chase
Manhattan Bank, N.A. - Filed electronically on
April 29, 1996 - Incorporated by reference
8b.Transfer Agency Agreement between the Registrant
and State Street Bank and Trust Company - Filed electronically
on April 29, 1996 - Incorporated by reference
9. Form of Administrative Services Agreement
between Registrant and Lexington Management
Corporation - Filed electronically on April 29, 1996 -
Incorporated by reference
10.Opinion of Counsel as to Legality of Securities being
registered - Filed electronically on 4/24/98 - Incorporated
by reference
11.Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12.Not Applicable
13.Not Applicable
14.Not Applicable
15.Not Applicable
16.Performance Calculation - Filed electronically on 4/24/98 -
Incorporated by reference
<PAGE>
25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly controlled
by or under common control with the Registrant and as to each such person
indicate (1) if a company, the state or other sovereign power under the
laws of which it is organized, (2) the percentage of voting securities owned
or other basis of control by the person, if any, immediately controlling it.
See "Management of the Fund" in the Prospectus and Statement of Additional
Information.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a specified date
within 90 days prior to the date of filing, the number of record holders
of each class of securities of the Registrant.
The following information is given as of February 19, 1999:
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 19
($0.001 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute under
which any director, officer, underwriter or affiliated person of the
Registrant is insured or indemnified in any manner against any liability
which may be incurred in such capacity, other than insurance provided by any
director, officer, affiliated person or underwriter for their own
protection.
Under the terms of the Maryland General Corporation Law, and the Company's
By-Laws, the Company shall indemnify its officers to the same extent as
its directors and to such further extent as the Company's Articles of
Incorporation is consistent with law. The Company shall indemnify its
directors and officers who while serving as directors or officers also
serve at the request of the corporation as a director, officer, partner,
trustee, employee, agent or fiduciary of another corporation, partnership,
joint venture, trust, other enterprise or employee benefit plan to the
same extent as its directors and, in the case of officers, to such further
extent as is consistent with law. The indemnification and other rights
provided by the By-Laws shall continue as to a person who has ceased
to be a director or officer and shall insure to the benefit of the heirs,
executors and administrators of such a person. The By-Laws shall not
protect any such person against any liability to the corporation
or any stockholder thereof to which such person would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office ("disabling
conduct").
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of a
substantial nature in which the investment adviser of the Registrant, and
each director, officer or partner of any such investment adviser, is or
has been, at any time during the past two fiscal years, engaged for his own
account or in the capacity of director, officer, employee, partner or
trustee.
See Prospectus Part A and Statement of Additional Information Part B
("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington GNMA Income Fund, Inc.
Lexington Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Corporate Leaders Fund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington Corporate Leaders Trust Fund
Lexington Natural Resources Trust
Lexington Strategic Investments Fund, Inc.
Lexington Silver Fund, Inc.
Lexington Convertible Securities Fund
Lexington International Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Assistant Secretary
Lisa Curcio* Vice President and Vice President and
Secretary Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer, Vice President and
Vice President & Director Treasurer
Lawrence Kantor* Executive Vice President Director & Vice
and Director President
Richard Lavery* Vice President Vice President
Janice McInerney* Assistant Treasurer None
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document required to be
maintained by Section 31(a) of the 1940 Act and the Rules (17 CFR
270, 31a-1 to 31a-3) promulgated thereunder, furnish the name and
address of each person maintaining physical possession of each such
account, book or other document.
The Registrant, Lexington Emerging Markets Fund, Inc. Park 80 West
Plaza Two, Saddle Brook, New Jersey 07663 will maintain physical
possession of each such account, book or other document of the
Company, except for those maintained by the Registrant's Custodian,
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York,
New York 10036 or Transfer Agent, State Street Bank and Trust
Company, c/o National Financial Data Services, City Center Square,
1100 Main, Kansas City, Missouri 64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any management-
related service contract not discussed in Part A or B of this Form
(because the contract was not believed to be material to a purchaser
of securities of the Registrant) under which services are provided to
the Registrant, indicating the parties to the contract, the total
dollars paid and by whom for the last three fiscal years.
None.
Item 32. Undertakings
------------
The Registrant, Lexington Emerging Markets Fund, Inc., undertakes to
furnish a copy of the Fund's latest annual report, upon request and
without charge, to every person to whom a prospectus is delivered.
The Registrant will hold a meeting of its public shareholders, if
requested to do so by the holders of at least 10 percent of the
Registrant's outstanding shares, to call a meeting of shareholders for
the purpose of voting upon the question of removal of a director or
directors and to assist in communications with other shareholders.
<PAGE>
Registration No. 33-73520
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to this
filing:
Consent of Kramer, Levin, Naftalis & Frankel
Consent of independent auditors for the inclusion of their
report therein.
Article 6 Financial Data Schedule.
Cover.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this
Registration statement to be signed on its behalf by the Undersigned,
thereunto duly authorized, in the City of Saddle Brook and State of
New Jersey, on the 26th day of March, 1999.
LEXINGTON EMERGING MARKETS FUND, INC.
/s/ Robert M. DeMichele
________________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele
__________________________ Chairman of the Board March 26, 1999
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial March 26, 1999
Richard M. Hisey and Accounting Officer
and Director
/s/ Lisa Curcio
__________________________ Principal Compliance March 26, 1999
Lisa Curcio Officer
*SMS Chadha Director March 26, 1999
__________________________
SMS Chadha
*Beverley C. Duer, P.E. Director March 26, 1999
__________________________
Beverley C. Duer, P.E.
*Barbara M. Evans Director March 26, 1999
__________________________
Barbara M. Evans
<PAGE>
Signature Title Date
*Lawrence Kantor Director March 26, 1999
__________________________
Lawrence Kantor
*Jerard F. Maher Director March 26, 1999
__________________________
Jerard F. Maher
*Andrew M. McCosh Director March 26, 1999
__________________________
Andrew M. McCosh
*Donald B. Miller Director March 26, 1999
__________________________
Donald B. Miller
*John G. Preston Director March 26, 1999
__________________________
John G. Preston
*Allen H. Stowe Director March 26, 1999
__________________________
Allen H. Stowe
/s/ Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
Kramer, Levin, Naftalis & Frankel LLP
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT NUMBER
(212) 715-9100
March 26, 1999
Lexington Emerging Markets Fund, Inc.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
RE: Post-Effective Amendment No. 6 to Registration
Statement on Form N-1A File No.: 33-73520
Ladies and Gentlemen:
We hereby consent to the reference of our firm as counsel in this
Registration Statement on Form N-1A.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel LLP
Independent Auditors' Consent
To the Board of Directors and Shareholders
Lexington Emerging Markets Fund, Inc.:
We consent to the use of our report dated February 4, 1998 included in
this Registration Statement on Form N-1A of the Lexington Emerging
Markets Fund, Inc. dated April 30, 1999 and to the reference to our firm
under the heading "Independent Auditors' Report" in the Statement of
Additional Information.
KPMG LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from annual
audited financial statements dated December 31, 1998 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 18,811,305
<INVESTMENTS-AT-VALUE> 14,928,445
<RECEIVABLES> 148,062
<ASSETS-OTHER> 549,396
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 15,625,903
<PAYABLE-FOR-SECURITIES> 67,019
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 168,045
<TOTAL-LIABILITIES> 235,064
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,846,967
<SHARES-COMMON-STOCK> 2,714,718
<SHARES-COMMON-PRIOR> 2,700,743
<ACCUMULATED-NII-CURRENT> 114,759
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (7,693,512)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,877,375)
<NET-ASSETS> 15,390,839
<DIVIDEND-INCOME> 424,064
<INTEREST-INCOME> 156,687
<OTHER-INCOME> (35,000)
<EXPENSES-NET> 389,160
<NET-INVESTMENT-INCOME> 156,591
<REALIZED-GAINS-CURRENT> (6,978,668)
<APPREC-INCREASE-CURRENT> 798,531
<NET-CHANGE-FROM-OPS> (6,023,546)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (91,329)
<DISTRIBUTIONS-OF-GAINS> (1,470,030)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,576,623
<NUMBER-OF-SHARES-REDEEMED> (1,877,437)
<SHARES-REINVESTED> 314,789
<NET-CHANGE-IN-ASSETS> (1,076,717)
<ACCUMULATED-NII-PRIOR> 59,076
<ACCUMULATED-GAINS-PRIOR> 745,607
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 158,794
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 389,160
<AVERAGE-NET-ASSETS> 18,681,632
<PER-SHARE-NAV-BEGIN> 8.91
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> (2.64)
<PER-SHARE-DIVIDEND> (0.04)
<PER-SHARE-DISTRIBUTIONS> (0.62)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 5.67
<EXPENSE-RATIO> 2.08
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
