As filed with the Securities and Exchange Commission on April 28, 2000
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. 7 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 8 X
(Check appropriate box or boxes.)
LEXINGTON EMERGING MARKETS FUND, INC.
-------------------------------------------------------
(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
-------------------------------------------------------
(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
-------------------------------------------------------
It is proposed that this filing will become effective May 1, 2000
pursuant to Paragraph (b) of Rule 485.
-------------------------------------------------------
The Registrant has registered an indefinite number of shares pursuant
to Section 24(f) of the Investment Company Act of 1940. A Rule
24f-2 Notice for the Registrant's fiscal year ending December 31,
1999 was filed on March 31, 2000.
<PAGE>
PROSPECTUS
May 1, 2000
Lexington Emerging Markets Fund, Inc.
P.O. Box 1515 / Park 80 West Plaza Two, Saddle Brook, New Jersey 07663 201-
845-7300
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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
policyholders. Shares of the Fund are not offered directly
to the general public.
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The Securities and Exchange Commission has not approved nor disapproved the
shares of Lexington Emerging Markets Fund, Inc. 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.
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<PAGE>
Risk/Return Summary
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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
equity equivalents of emerging market companies. The investment objective may
not be changed without shareholder approval.
INVESTMENT STRATEGY
The principal strategy of the Lexington Emerging Markets Fund (the "Fund")
is to 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.
The Fund's investment approach is to focus on positive returns through long-
term capital gains. The investment strategy is based on a top-down approach
that compares macro trends, such as economics, politics, industry trends, and
commodity trends on a relative basis. Countries are grouped regionally and
globally and ranked based on their macro scores. Once specific countries are
identified as relative outperformers, specific companies are selected as
investments. The selection process for selecting individual companies is based
on fundamental research, industry themes, and identifying specific catalysts
for growth.
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 sharp or 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.
2
<PAGE>
BAR CHART AND PERFORMANCE TABLE
The bar chart and performance table below show the risks of investing in the
Fund. The chart shows changes in the performance since inception (3/30/94)
through 12/31/99. The table shows how the average annual return compares with
the most commonly used index for its market segment for 1, 5 and 10 years (or
since inception). You should remember that past performance is not an
indication of future performance.
Fund performance figures in this bar chart do not reflect separate account
fees charged by the insurance company, otherwise performance figures would be
lower.
Past Fund Performance The chart at the left below shows the risk of investing
in the Fund and how the Fund's total return has varied from year-to-year. The
chart at the right compares the Fund's performance with the most commonly used
index for its market segment. Of course, past performance is no guarantee of
future results.
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
0.76% -3.93% 7.46% -11.81% -27.95% 127.14%
Average Annual Returns Through 12/31/99
Lexington Emerging
Markets Fund 127.14% 8.37% 7.37%
Morgan Stanley Emerging
Markets Free Index 66.41% 2.00% 2.07%
Morgan Stanley Capital
International (EAFE) Index 27.30% 13.15% 12.11%
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1 Year 5 Year Since
Inception
(03/30/94)
- -------------------------------------------------------------------------
During the six year period shown in the above graph chart, the Fund's highest
quarterly return was 81.19% for the fourth quarter in 1999 and the Fund's
lowest quarterly return was -27.08% for the third quarter in 1998.
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. The 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.
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.
3
<PAGE>
. 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 Directors 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 LGAM, a
Delaware corporation. LGAM has entered into an agreement with ReliaStar
Financial Corporation ("ReliaStar") for ReliaStar to acquire LGAM. ReliaStar
is a Minneapolis-based holding company whose subsidiaries offer individuals
and institutions life insurance and annuities, employee benefit products and
services, life and health reinsurance, retirement plans, mutual funds, bank
products and personal finance education. Completion of the acquisition is
subject to customary conditions, including regulatory approvals and approval
by LGAM shareholders. Subject to approval by the Fund's Directors and
shareholders, the Fund will enter into a new investment advisory agreement
with Pilgrim Investments, Inc., a subsidiary of ReliaStar. 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. The Fund pays LMC a monthly fee at the annual rate of 0.85% of the
Fund's average daily net assets for investment management services. For the
year ended December 31, 1999, the Fund paid an investment advisory fee of
$181,306.
4
<PAGE>
Sub-Adviser
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 the Fund, and receives a sub-
advisory fee from LMC.
PORTFOLIO MANAGERS
Alfredo M. Viegas. Mr. Viegas is Chief Executive Officer and Senior
Portfolio Manager at Stratos. Mr. Viegas is responsible for macro asset
allocation across developed and developing markets. 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. In 1995, Mr. Viegas
established VZB Partners LLC ("VZB"), an offshore investment manager. Prior to
VZB, Mr. Viegas was an emerging markets strategist 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 Portfolio Manager at Stratos. Mr. Zaidi is
responsible for technology specific stock selection. Mr. Zaidi is also a
Portfolio Manager at VZB and has been 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 NAV 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 its 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 prices. 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.
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. dollar 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
5
<PAGE>
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 NAV 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 any 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
The Fund intends to continue to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), so that it will not be subject to federal income tax on its earnings
and capital gains that are distributed to its shareholders. In addition, the
Fund intends to comply with the diversification requirements of the Code and
Treasury Regulations in order to maintain the tax-deferred status of the
separate accounts of the Participating Insurance Companies.
Shares of the Fund must be purchased through variable life insurance
policies (the "Policies") or variable annuity contracts (the "Contracts"). As
a result, it is anticipated that any dividend or capital gains distribution
from the Fund and
6
<PAGE>
any proceeds from the redemption of the shares of the Fund will be exempt from
current taxation if left to accumulate within a Policy or Contract.
Withdrawals from Policies or Contracts may be subject to ordinary income tax
plus a 10% penalty tax if made before age 59 1/2.
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, administrative or judicial action. As the foregoing
discussion is for general information only, a prospective investor also should
review the more detailed discussion of federal income tax considerations that
is contained in the Statement of Additional Information. In addition, each
prospective investor should consult with his own tax adviser as to the tax
consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
THE TAX STATUS OF YOUR INVESTMENT IN THE FUND DEPENDS UPON THE FEATURES OF
YOUR POLICY OR CONTRACT. FOR FURTHER INFORMATION, PLEASE REFER TO THE POLICY
OR CONTRACT PROSPECTUS.
Statement of Additional Information. The Statement of Additional Information
("SAI") 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: You may obtain a copy of the SAI and the
annual and semi-annual reports (free of charge) by calling Lexington Emerging
Markets Fund, Inc. at (800) 526-0056 or (201) 845-7300. You may also obtain a
copy of the SAI and the annual and semi-annual reports (for a fee) by
contacting the Public Reference Room of the Securities and Exchange
Commission, 450 Fifth Street, N.W., Washington, D.C., 20549-6009 telephone
800-SEC-0330. You may also obtain this information by visiting the SEC's
Worldwide Website at http://www.sec.gov. Investment Company Act File No. 811-
8250.
7
<PAGE>
FINANCIAL HIGHLIGHTS
The following financial highlights table is intended to help you understand
the Fund's financial performance for the past 5 years. Certain information
reflects financial highlights for a single share. The total returns in the
table represent the rate that an investor would have earned (or lost) on an
investment in the Fund (assuming reinvestment of all dividends and
distributions). This information has been audited by KPMG LLP whose report,
along with the Fund's financial statements, are included in the annual report,
which is available upon request.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period....................... $ 5.67 $ 8.91 $ 10.11 $ 9.38 $ 9.86
------- ------- ------- ------- ------
Income (loss) from investment
operations:
Net investment income
(loss)...................... (0.02) 0.06 0.03 0.02 0.09
Net realized and unrealized
gain (loss) on investments
and foreign currencies...... 7.20 (2.64) (1.22) 0.71 (0.48)
------- ------- ------- ------- ------
Total income (loss) from
investment operations.... 7.18 (2.58) (1.19) 0.73 (0.39)
------- ------- ------- ------- ------
Less distributions:
Distributions from net
investment income........... (0.04) (0.04) (0.01) -- (0.09)
Distributions from net
realized gains.............. -- (0.62) -- -- --
------- ------- ------- ------- ------
Total distributions....... (0.04) (0.66) (0.01) -- (0.09)
------- ------- ------- ------- ------
Net asset value, end of
period....................... $ 12.81 $ 5.67 $ 8.91 $ 10.11 $ 9.38
======= ======= ======= ======= ======
Total return.............. 127.14 % (27.95)% (11.81)% 7.46 % (3.93)%
Net assets, end of period
(000's omitted).............. $38,803 $15,391 $24,052 $21,678 $7,815
Ratio to average net assets:
Expenses, before
reimbursement............... 1.70 % 2.08 % 1.91 % 2.23 % 4.09 %
Expenses, net of
reimbursement............... 1.70 % 2.08 % 1.84 % 1.64 % 1.32 %
Net investment income (loss),
before reimbursement ....... (0.25)% 0.84 % 0.18 % (0.39)% (1.45)%
Net investment income
(loss)...................... (0.25)% 0.84 % 0.26 % 0.20 % 1.33 %
Portfolio turnover rate....... 182.64 % 121.31 % 157.52 % 95.18 % 88.92 %
</TABLE>
8
<PAGE>
Investment Adviser
- --------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Sub-Adviser
- --------------------------------------------------------------------------------
STRATOS ADVISORS, INC.
Wall Street Tower, 20 Exchange Place, 52nd Floor
New York, N.Y. 10005
Distributor
- --------------------------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Transfer Agent
- --------------------------------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
Lexington Funds
P.O. Box 419648
Kansas City, Missouri 64141-6648
<TABLE>
Table of
Contents Page
- -------- ----
<S> <C>
Investment Objective........................................................ 2
Investment Strategy......................................................... 2
Principal Risks............................................................. 2
Bar Chart and Performance Table............................................. 3
Risks of Investing.......................................................... 3
Interests of the Holders of Variable Insurance Contracts and Policies....... 4
Management of the Fund...................................................... 4
Portfolio Managers.......................................................... 5
How Fund Shares are Priced.................................................. 5
Dividends and Capital Gain Distributions.................................... 6
How to Purchase and Redeem Shares........................................... 6
Shareholder Servicing Agreements............................................ 6
Tax Matters................................................................. 6
Financial Highlights........................................................ 8
</TABLE>
LEXINGTON
EMERGING
MARKETS
FUND, INC.
-------------------------
Investment Objective:
Long-term Growth of Capital
-------------------------
Prospectus
May 1, 2000
The Lexington Group
of No-Load
Investment Companies
LEXINGTON/SM/
<PAGE>
LEXINGTON EMERGING MARKETS FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information is not a prospectus. You should
read it in conjunction with the current prospectus of Lexington Emerging
Markets Fund, Inc. (the "Fund"), dated May 1, 2000 and any revisions to the
prospectus which might occur 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. Stratos
Advisors, Inc. is the Fund's sub-adviser. Lexington Funds Distributor, Inc. is
the Fund's distributor.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
History of the Fund........................................................ 1
Investment Objective and Policies.......................................... 1
Certain Investment Methods................................................. 1
Risk Considerations........................................................ 2
Investment Restrictions.................................................... 4
Management of the Fund..................................................... 6
Portfolio Transactions and Brokerage Commissions........................... 12
Determination of Net Asset Value........................................... 13
Capital Stock Structure.................................................... 13
Tax Matters................................................................ 14
Performance Calculation.................................................... 15
Other Information.......................................................... 15
Transfer Agent............................................................. 15
Custodian.................................................................. 16
Counsel and Independent Auditors........................................... 16
Financial Statements....................................................... 17
</TABLE>
<PAGE>
HISTORY OF THE FUND
Lexington Emerging Markets Fund, Inc. (the "Fund") is a diversified, open-
end management investment company organized on December 27, 1993 as a
corporation under the laws of the State of Maryland.
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. In these transactions, 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.
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 those securities
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 the
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).
<PAGE>
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 those
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. When the Fund engages in a forward commitment
transaction, the custodian will set aside cash, U.S. Government securities or
other high quality debt obligations equal to the amount of the commitment in a
separate account.
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 call options on securities it owns or has the right to acquire.
Since it can be expected that a call option will be exercised if the market
value of the underlying 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
2
<PAGE>
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. 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. Foreign
stock exchanges, brokers and listed companies are generally subject to less
government supervision and regulation than in the United States. The customary
settlement time for foreign securities may be longer than the five day
customary settlement time for United States securities.
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.
EMERGING MARKET DEBT SECURITIES
Emerging market debt securities or other debt securities in which the Fund
may invest may consist of debt obligations rated below investment grade or
non-rated securities comparable to below investment grade securities. Such
lower-rated debt securities are considered highly speculative and changes in
3
<PAGE>
economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than with higher-
grade debt securities. The investment in emerging market debt securities is
not a principal investment strategy for the Fund.
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 of 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
4
<PAGE>
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 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
5
<PAGE>
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.
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
INVESTMENT ADVISER, SUB-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 and were last approved by the
Board of Directors on November 29, 1999. 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
6
<PAGE>
agent and provides facilities for such services. The Fund reimburses 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. Advisory fees paid to LMC and expense
reimbursements paid to the Fund are as follows:
<TABLE>
<CAPTION>
Advisory Expense
Period Fee Reimbursement
------ -------- -------------
<S> <C> <C>
1/1/97 to 12/31/97 $238,449 $21,212
1/1/98 to 12/31/98 $158,794 $0
1/1/99 to 12/31/99 $181,306 $0
</TABLE>
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.
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.
LMC has entered into a Sub-Advisory Agreement with Stratos Advisors, Inc.
("Stratos"). Stratos will provide the Fund with investment advice and assist
in the management of the Fund's investment program. Stratos specializes in
managing assets in emerging markets. Any investment program undertaken by
Stratos as well as any other activities undertaken by Stratos on behalf of the
Fund is as all times subject to the directives of the Board of Directors of
the Fund.
Stratos will receive, from LMC, monthly compensation equal to an annual rate
of 35% of the management fee paid by the Fund, net of reimbursement and net of
No Transaction Fee ("NTF") program fees not assumed by the Fund for the
services and facilities furnished pursuant to its Sub-Advisory Agreement. For
the year ended December 31, 1999, Stratos received $47,993 .
The Advisory Agreement, the Sub-Advisory Agreement and the Distribution
Agreement are subject to annual approval by affirmative vote of the Fund's
Board of Directors cast in person at a meeting called for such purpose, and a
majority of the Directors who are not parties either to the Advisory
Agreement, the Sub-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 on 60 days written notice without
penalty. Also, either the Fund or Stratos may terminate the Sub-Advisory
Agreement and the Fund or LFD may terminate the Distribution Agreement on 60
days' written notice without penalty. In addition, both the Advisory Agreement
and the Sub-Advisory Agreement may be terminated by vote of a majority of the
outstanding voting securities of the Fund on not more than 60 days notice. All
of the agreements mentioned above will terminate automatically in the event of
assignment, as defined in the Investment Company Act of 1940.
LMC is not 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
7
<PAGE>
the directors, officers or employees ("affiliated persons") of the Fund,
Messrs. Corniotes, DeMichele, Faust, Hisey and Lavery, and Mmes. Carnicelli,
Carr-Waldron, Curcio, DiFalco, Gilfillan 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.
DIRECTORS AND OFFICERS OF THE FUND
As of April 4, 2000, 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.
The Fund's Directors and executive officers, their ages as of the Fund=s
most recent fiscal year-end, their principal occupations and former
affiliations are set forth below:
<TABLE>
<CAPTION>
Name Title Experience Over Past 5 Years
---- ----- ----------------------------
<C> <C> <C> <S>
+ S.M.S. CHADHA (62) DIRECTOR Secretary, Ministry of External
3/16 Shanti Niketan, Affairs, New Delhi, India; Head
New Delhi 21, India 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 (55) CHAIRMAN & Chairman and Chief Executive
P.O. BOX 1515 PRESIDENT Officer, Lexington Management
Saddle Brook, NJ 07663 Corporation; President and
Director, Lexington Global Asset
Managers, 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
+ BEVERLEY C. DUER (70) DIRECTOR Private Investor. Formerly
340 East 72nd Street Manager, Operations Research
New York, NY 10021 Department, CPC International
Inc.
*+ BARBARA R. EVANS (39) DIRECTOR Private Investor, formerly
5 Fernwood Road Assistant Vice President and
Summit, NJ 07901 Securities Analyst, Lexington
Management Corporation.
*+ RICHARD M. HISEY (41) DIRECTOR & Executive Vice President (Mutual
P.O. Box 1515 VICE PRES. Funds), Chief Financial Officer,
Saddle Brook, NJ 07663 Managing Director and Director,
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 (Mutual
Funds) and Chief Financial
Officer, Lexington Global Asset
Managers, Inc.
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Name Title Experience Over Past 5 Years
---- ----- ----------------------------
<C> <C> <C> <S>
+ JERARD F. MAHER (54) DIRECTOR General Counsel, Federal
300 Raritan Center Parkway Business Center; Counsel, Ribis,
Edison, NJ 08818 Graham & Curtin.
+ ANDREW M. MCCOSH (59) DIRECTOR Professor of the Organisation of
12 Wyvern Park Industry and Commerce,
Edinburgh EH92JY, Scotland Department of Business Studies,
U.K. The University of Edinburgh,
Scotland.
+ DONALD B. MILLER (73) DIRECTOR Chairman, Horizon Media, Inc.;
10725 Quail Covey Drive Trustee, Galaxy Funds; Director,
Boynton Beach, Fl 33436 Maguire Group of Connecticut;
prior to January 1989,
President, Director and C.E.O.,
Media General Broadcast
Services.
+ ALLEN H. STOWE (62) DIRECTOR President, Dartmouth Co-
3674 Fifth & Ocean Aves. operative Society Co., Inc.
Normandy Beach, NJ 08739
* ALFREDO VIEGAS (31) VICE PRES. Chief Executive Officer and
Stratos Advisors, Inc., AND Senior Portfolio Manager,
Wall Street Tower PORTFOLIO Stratos Advisors, Inc. Senior
20 Exchange Place, 52nd Fl. MANAGER Portfolio Manager and Partner,
New York, NY 10005 VZB Partners LLC. Prior to 1995,
Vice President and Latin
American Equity Strategist for
emerging markets, Salomon Brothe
* MOHAMMED ZAIDI (30) VICE PRES. Portfolio Manager, Stratos
Stratos Advisors, Inc., AND Advisors, Inc. Portfolio
Wall Street Tower PORTFOLIO Manager, VZB Partners LLC. Prior
20 Exchange Place, 52nd Fl. MANAGER to 1995, Chief Financial Officer
New York, NY 10005 and Partner, Paradigm Software,
Inc.
*+ LISA CURCIO (40) VICE PRES. Senior Vice President and
P.O. BOX 1515 AND Secretary, Lexington Management
Saddle Brook, NJ 07663 SECRETARY Corporation; Vice President and
Secretary, Lexington Funds
Distributor, Inc.; Secretary,
Lexington Global Asset Managers,
Inc.
*+ RICHARD J. LAVERY, CLU, ChFC VICE Senior Vice President, Lexington
(46) P.O. BOX 1515 PRESIDENT Management Corporation; Vice
Saddle Brook, NJ 07663 President, Lexington Funds
Distributor, Inc.
*+ JANICE CARNICELLI (40) VICE Vice President, Lexington Funds
P.O. BOX 1515 PRESIDENT
Saddle Brook, NJ 07663
*+ CHRISTIE CARR-WALDRON (32) TREASURER Treasurer, Lexington Funds
P.O. BOX 1515
Saddle Brook, NJ 07663
*+ CATHERINE DiFALCO (30) ASSISTANT Assistant Treasurer, Lexington
P.O. BOX 1515 TREASURER Funds
Saddle Brook, NJ 07663
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Name Title Experience Over Past 5 Years
---- ----- ----------------------------
<C> <C> <C> <S>
*+ SIOBHAN GILFILLAN (36) ASSISTANT Assistant Treasurer, Lexington
P.O. BOX 1515 TREASURER Funds
Saddle Brook, NJ 07663
*+ SHERI MOSCA (36) ASSISTANT Assistant Treasurer, Lexington
P.O. BOX 1515 TREASURER Funds
Saddle Brook, NJ 07663
*+ PETER CORNIOTES (37) ASSISTANT Vice President and Assistant
P.O. BOX 1515 SECRETARY Secretary, Lexington Management
Saddle Brook, NJ 07663 Corporation; Assistant Secretary,
Lexington Funds Distributor, Inc.
*+ ENRIQUE FAUST (39) ASSISTANT Assistant Vice President,
P.O. BOX 1515 SECRETARY Lexington Management Corporation
Saddle Brook, NJ 07663
</TABLE>
- --------
* "Interested person" and/or "affiliated person" as defined in the Investment
Company Act of 1940, as amended.
* Messrs. Chadha, Corniotes, DeMichele, Duer, Faust, Hisey, Lavery, Maher,
McCosh, Miller, Stowe, Viegas and Zaidi, and Mmes. Carnicelli, Carr-Waldron,
Curcio, DiFalco, Evans, Gilfillan and Mosca hold similar offices with some or
all of the other registered investment companies advised and/or distributed
by Lexington Management Corporation or Lexington Funds Distributor, Inc. or
Stratos Advisors, Inc. The Board of Directors met 5 times during the twelve
months ended December 31, 1999, and each of the Directors attended at least
75% of those meetings.
10
<PAGE>
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.
Set forth below is information regarding compensation paid or accrued during
the period January 1, 1999 to December 31, 1999 for each Director:
- -----------------------------------------------------------------------------
Aggregate Total Compensation Number of
Compensation from from Fund and Directorships in
Name of Director Fund Fund Complex Fund Complex
- -----------------------------------------------------------------------------
S.M.S. Chadha $1,600 $24,006 15
Robert M. DeMichele 0 0 15
Beverly C. Duer $1,946 $29,656 15
Barbara R. Evans 0 0 15
Richard M. Hisey 0 0 8
Jerard F. Maher $1,488 $22,976 15
Andrew M. McCosh $1,600 $24,006 15
Donald B. Miller $1,600 $24,006 15
Frances Olmsted* $1,463 $16,800 N/A
John G. Preston $1,600 $24,006 15
Margaret W. Russell* $1,243 $18,000 N/A
Philip C. Smith* $1,326 $19,200 N/A
Allen H. Stowe $1,600 $12,712 15
Frances A. Sunderland* $1,246 $16,800 N/A
- -----------------------------------------------------------------------------
* Retired
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
11
<PAGE>
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, 1999, the estimated credited years
of service for Directors Chadha, Duer, Maher, McCosh, Miller and Stowe are 4,
21, 4, 4, 25, and 3, respectively.
<TABLE>
<CAPTION>
Highest Annual Compensation Paid by all Funds
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
20,000 25,000 30,000 35,000
<CAPTION>
Years of
Service Estimated Annual Benefit Upon Retirement
-------- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
15 15,000 18,750 22,500 26,250
14 4,000 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
</TABLE>
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."
12
<PAGE>
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 execution 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.
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, 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. For the year ended December 31, 1998, the Fund's
portfolio turnover rate was 121.31% and the Fund paid $184,623 in brokerage
commissions and of that amount, $6,715 was paid for with soft dollars. For the
year ended December 31, 1999, the Fund's portfolio turnover rate was 182.64%
and the Fund paid $330,388 in brokerage commissions and of that amount,
$84,877 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, King Holiday,
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.
CAPITAL STOCK STRUCTURE
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.
DIVIDEND AND DISTRIBUTIONS
The Fund's shareholders are entitled to such dividends or distributions as
may declared from time to time by the Board of Directors. In the event of
liquidation or dissolution of the Fund, the shareholders are entitled to
receive the assets of the Fund less the liabilities allocated to the Fund.
VOTING, PREEMPTIVE AND REDEMPTION RIGHTS
Each share of common stock has one vote and shares equally in dividends and
distributions when and if declared by the Fund and in the Fund's net assets
upon liquidation. All shares, when issued, are fully paid and non-assessable.
There are no Preemptive, conversion or exchange rights. Fund shares do not
have cumulative voting rights and, as such, holders of at least 50% of the
shares voting for Directors can elect all Directors and the remaining
shareholders would not be able to elect any Directors.
13
<PAGE>
Shareholders are given certain voting rights. Each share of the Fund will be
given one vote. Participating Insurance Companies provide variable annuity
contract holders and variable life insurance policy holders the right to
direct the voting of the Fund shares at shareholder meetings to the extent
required by law.
The Fund will not normally hold annual shareholder meetings except as
required by Maryland General Corporation Law or the Investment Company Act of
1940. However, meetings of shareholders may be called at any time by the
Secretary upon the written request of shareholders holding in the aggregate
not less than 10% of the Fund's outstanding shares, such request specifying
the purposes for which such meeting is to be called. In addition, the
Directors will promptly call a meeting of shareholders for the purpose of
voting upon the question of removal of any Director when requested to do so in
writing by the recordholders of not less than 10% of the Fund's outstanding
shares. The Fund will assist such shareholders in any such communication
between shareholders and Directors.
TAX MATTERS
The following is only a summary of certain additional federal income tax
considerations that are not described in the Prospectus and generally affect
the 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.
The Fund intends to qualify as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended (the "Code"). If so qualified,
the Fund will not 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 segregated asset accounts ("Accounts") of certain life insurance
companies ("Participating Companies") that hold its shares. In addition, if
the Fund distributes annually to the Accounts its ordinary income and capital
gain net income, in the manner prescribed in the Code, it also will not be
subject to the 4% federal excise tax otherwise applicable to a RIC on any of
its undistributed income or gains. 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 insurance companies. Under current tax law,
capital gains or dividends from the Fund are not currently taxable to a holder
of a variable annuity contract (a "Contract") or variable life insurance
policy (a "Policy") when left to accumulate within such Contract or Policy.
Section 817(h) of the Code requires that investments of an Account of an
insurance company be "adequately diversified," in accordance with Treasury
Regulations promulgated thereunder, in order for the holders of the Contracts
or Policies based on such 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 an
Account will treat investments in a RIC for purposes of the applicable
diversification requirements. Under the Regulations, if a RIC satisfies
certain conditions, the RIC will not be treated as a single investment of the
Account for these purposes, but rather the 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 Account of a Participating
Company investing in the Fund will take into account its proportionate share
of each of the assets of the Fund in determining whether it is adequately
diversified under the Code and Regulations.
For information concerning the federal income tax consequences to the
holders of a Contract or Policy, such holders should consult the prospectuses
for their particular Contract or Policy.
14
<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) to the power of 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,
five year and since commencement (3/30/94) periods as of December 31, 1999
were 127.14%, 8.37% and 7.37%, respectively.
OTHER INFORMATION
As of April 4, 2000, the following persons are known by fund management to
have owned beneficially, directly or indirectly, 5% or more of the outstanding
shares of the Fund: Aetna Life Insurance & Annuity, 151 Farmington Avenue,
Hartford, CT 06156, 37%; Kemper Investors Life Insurance Company, 1 Kemper
Drive, Long Grove, IL 60049, 33%; and Safeco Life Insurance Company, P.O. Box
34690, Seattle, WA 98124, 21%.
TRANSFER AGENT
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02181, has been retained to act as the transfer agent and
dividend disbursing agent.
15
<PAGE>
CUSTODIAN
Chase Manhattan Bank, N.A. 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as custodian for the Fund's portfolio
securities and other assets, including those to be held by foreign banks and
foreign securities depositories that qualify as eligible foreign custodians
under the rules adopted by the Securities and Exchange Commission.
COUNSEL AND INDEPENDENT AUDITORS
Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York, New York
10022 will pass upon legal matters for the Fund in connection with the
offering of its shares. KPMG LLP, 757 Third Avenue, New York, New York 10017,
has been selected as independent auditors for the Fund for the fiscal year
ending December 31, 2000.
16
<PAGE>
Independent Auditors' Report
The Board of Directors and Shareholders
Lexington Emerging Markets Fund, Inc.:
We have audited the accompanying statement of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Emerging
Markets Fund, Inc. as of December 31, 1999, the related statement of
operations for the year then ended, the statements of changes in net assets
for each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of December 31, 1999 by correspondence
with the custodian. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Lexington Emerging Markets Fund, Inc. as of December 31, 1999, the result of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and its financial highlights
for each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KMPG LLP
New York, New York
February 7, 2000
17
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1999
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
<C> <S> <C>
- --------------------------------------------------------------------------------
COMMON STOCKS: 91.7%
Australia: 0.4%
50,000 Techniche, Ltd./1/ .................................... $ 171,764
-----------
Brazil: 2.8%
20,000 Terra Networks, S.A./1/ ............................... 1,087,500
-----------
Czech Republic: 0.2%
10,625 Central European Media Enterprises, Ltd./1/ ........... 72,549
-----------
Greece: 3.4%
10,000 Antenna TV S.A. (ADR).................................. 175,000
55,000 Hellenic Telecommunications Organization S.A. (ADR).... 656,563
15,500 STET Hellas Telecommunications S.A. (ADR)/1/ .......... 470,812
-----------
1,302,375
-----------
Hungary: 3.1%
30,000 Synergon Information Systems, Ltd. (GDR)/1/,/2/ ....... 291,000
20,000 Uproar, Ltd./1/ ....................................... 928,131
-----------
1,219,131
-----------
India: 12.9%
11,650 Hindalco Industries, Ltd. (GDR)........................ 275,522
20,000 Indian Hotels Company, Ltd. (GDR)/2/ .................. 193,500
6,000 Infosys Technologies, Ltd. (ADR)....................... 1,956,000
15,000 Satyam Infoway, Ltd. (ADR)/1/ ......................... 2,310,000
50,000 Tata Engineering and Locomotive Company, Ltd. (GDR).... 268,750
-----------
5,003,772
-----------
Indonesia: 0.2%
10,000 Gulf Indonesia Resources, Ltd./1/ ..................... 81,250
-----------
Israel: 1.9%
20,750 I.T. International Theatres, Ltd./2/ .................. 170,150
16,500 Orckit Communications, Ltd./1/ ........................ 568,734
-----------
738,884
-----------
Malaysia: 4.3%
286,000 Resorts World Bhd...................................... 820,368
222,000 Telekom Malaysia Bhd................................... 858,789
-----------
1,679,157
-----------
Mexico: 4.7%
35,000 Pepsi-Gemex S.A. (GDR) /1/ ............................ 225,312
6,665 TV Azteca S.A. de C.V. (ADR)/2/ ....................... 59,985
171,000 TV Azteca S.A. de C.V. (ADR)........................... 1,539,000
-----------
1,824,297
-----------
Pakistan: 0.7%
600,000 Pakistan Telecommunications Company, Ltd. ............. 250,988
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
<C> <S> <C>
- -------------------------------------------------------------------------------
Philippines: 0.4%
1,200,000 Music Corporation/1/ ................................. $ 157,816
-----------
Portugal: 1.0%
40,000 ParaRede, SGPS SA/1/ ................................. 397,312
100 PT Multimedia-Servicos de
Telecomunicacoes e Multimedia SGPS SA/1/ ............ 5,660
-----------
402,972
-----------
Russia: 0.9%
11,800 Lukoil Holdings of Russia............................. 142,190
2,900 Lukoil Holdings of Russia (ADR)....................... 142,100
750 Moscow Telephone Systems/1/ .......................... 63,519
-----------
347,809
-----------
Singapore: 4.2%
27,900 Creative Technology, Ltd. ............................ 505,749
300,000 Dairy Farm International Holdings, Ltd./1/ ........... 270,000
40,000 Singapore Press Holdings, Ltd......................... 866,744
-----------
1,642,493
-----------
South Africa: 7.3%
227,453 Dimension Data Holdings, Ltd./1/ ..................... 1,425,841
80,000 Ixchange Technology Holdings, Ltd./1/ ................ 337,797
1,500,000 Paradigm Capital Holdings, Ltd./1/ ................... 155,907
229,480 Primedia, Ltd......................................... 294,418
184,140 Primedia, Ltd. (N shares)............................. 227,277
309,040 The Education Investment Corporation, Ltd. ........... 258,473
632,800 Union Alliance Media, Ltd./1/ ........................ 123,322
-----------
2,823,035
-----------
South Korea: 19.5%
4,000 Cheil Jedang Corporation.............................. 462,571
5,000 Dacom Corporation..................................... 2,582,097
40,000 Daewoo Securities Company............................. 453,743
40,639 Hyundai Electronics Industries Company/1/ ............ 864,583
9,361 Hyundai Electronics Industries Company (Rights)/1/ ... 199,153
19,477 Kumho Electric, Inc./1/ .............................. 622,411
9,000 LG Information & Communication, Ltd................... 1,493,644
20,000 LG Investment & Securities Company, Ltd............... 340,749
4,462 LG Investment & Securities Company, Ltd.
(Rights)/1/ ......................................... 76,021
30,000 Medison Company....................................... 438,294
1,350 Telson Electronics Company, Ltd....................... 26,457
4,618 Tongyang Merchant Bank Bond........................... 1,631
-----------
7,561,354
-----------
</TABLE>
18
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1999 (continued)
<TABLE>
<CAPTION>
Number of Value
Shares Security (Note 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (continued):
Taiwan: 4.2%
226,000 Mitac International Corporation..................... $ 346,750
743,000 Picvue Electronics, Ltd............................. 895,866
364,000 Taiwan Cement Corporation........................... 376,191
-----------
1,618,807
-----------
Thailand: 3.7%
985,373 K.R. Precision Public
Company, Ltd./1/ .................................. 740,832
2,300,000 KGI Securities One Public Company, Ltd./1/ ......... 336,660
80,000 KGI Securities One Public Company, Ltd.
(Warrants)/1/ ..................................... 4,684
702,000 Krung Thai Bank Public Company, Ltd./1/ ............ 368,982
-----------
1,451,158
-----------
Turkey: 13.4%
15,000,000 Akbank T.A.S. ...................................... 442,650
75,000,000 Dogan Yayin Holdings/1/ ............................ 1,107,000
8,500,000 Haci Omer Sabanci Holding A.S. ..................... 493,935
11,000,000 Netas Northern Electric Telekomunikasyon A.S........ 1,461,020
7,000,000 Vestel Elektronik Sanayi ve Ticaret A.S./1/ ........ 1,678,670
-----------
5,183,275
-----------
United States: 1.2%
25,000 IDT Corporation/1/ ................................. 472,656
-----------
Venezuela: 1.3%
20,000 Compania Anonima Nacional Telefonos de Venezuela
(ADR).............................................. 492,500
-----------
TOTAL COMMON STOCKS
(cost $23,314,689)................................. 35,585,542
-----------
</TABLE>
<TABLE>
<CAPTION>
Number of Shares
or Value
Principal Amount Security (Note 1)
- -------------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS: 4.6%
Brazil: 4.6%
22,000,000 Banco do Estado de Sao Paulo S.A. ............. $ 785,053
79,400 Tele Centro Oeste Celular
Participacoes S.A. (ADR)...................... 516,100
20,000 Telesp Participacoes S.A. (ADR) 488,750
-----------
TOTAL PREFERRED STOCKS
(cost $1,472,632).............................. 1,789,903
-----------
U.S. GOVERNMENT OBLIGATION: 1.8%
$4,101,000 U.S. Strip Bond, 0.00%, due 02/15/2027
(cost $837,827)............................... 710,539
-----------
TOTAL INVESTMENTS: 98.1%
(cost $25,625,148+) (Note 1)................... 38,085,984
Other assets in excess of liabilities: 1.9%.... 717,306
-----------
TOTAL NET ASSETS: 100.0%
(equivalent to $12.81 per share on 3,030,300
shares outstanding)............................ $38,803,290
===========
</TABLE>
- --------
/1/Non-income producing security.
/2/Restricted security (Note 6).
ADR - American Depository Receipt.
GDR - Global Depository Receipt.
+ Aggregate cost for Federal income tax purposes is $25,767,201.
---------------------
At December 31, 1999, the composition of the Fund's net assets by industry
concentration was as follows:
<TABLE>
<S> <C>
Banking............ 4.1%
Capital Equipment.. 0.7
Computer Software.. 7.7
Consumer Non-
durable........... 1.8
Electrical &
Electronics....... 12.9
Energy Sources..... 0.9
</TABLE>
<TABLE>
<S> <C>
Financial
Services......... 3.5%
Health & Personal
Care............. 1.1
Internet.......... 21.5
Materials......... 1.7
Media............. 9.7
Merchandising..... 0.7
</TABLE>
<TABLE>
<S> <C>
Multi-Industry.... 1.3%
Semiconductor..... 3.1
Services.......... 5.5
Telecommunications.. 20.1
Other Assets...... 3.7
------
Total Net
Assets.......... 100.0%
======
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
19
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statement of Assets and Liabilities
December 31, 1999
<TABLE>
<S> <C>
Assets
Investments, at value (cost $25,625,148) (Note 1)................ $38,085,984
Cash............................................................. 916,294
Foreign currency, at value (cost $50,969) (Note 1)............... 51,402
Receivable for shares sold....................................... 180,011
Dividends and interest receivable................................ 36,993
-----------
Total Assets.................................................. 39,270,684
-----------
Liabilities
Due to Lexington Management Corporation (Note 2)................. 25,211
Payable for investment securities purchased...................... 64,204
Payable for shares redeemed...................................... 339,832
Accrued expenses................................................. 38,147
-----------
Total Liabilities............................................. 467,394
-----------
Net Assets (equivalent to $12.81 per share on 3,030,300 shares
outstanding) (Note 3)........................................... $38,803,290
===========
Net Assets consist of:
Capital stock -- authorized 500,000,000 shares, $.001 par value
per share ...................................................... $ 3,030
Additional paid-in capital (Note 1).............................. 29,047,688
Accumulated net realized loss on investments and foreign currency
transactions (Notes 1 and 7).................................... (2,709,128)
Unrealized appreciation of investments and foreign currency
translation of other assets and liabilities..................... 12,461,700
-----------
Total Net Assets.............................................. $38,803,290
===========
</TABLE>
Lexington Emerging Markets Fund, Inc.
Statement of Operations
Year ended December 31, 1999
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $ 240,412
Interest............................................ 90,370
-----------
330,782
Less: foreign tax expense........................... 21,205
-----------
Total investment income............................. $ 309,577
Expenses
Investment advisory fee (Note 2).................... 181,306
Custodian expenses.................................. 66,450
Professional fees................................... 32,895
Printing and mailing expenses....................... 23,483
Directors' fees and expenses........................ 18,500
Accounting expenses (Note 2)........................ 14,504
Computer processing fees............................ 9,297
Transfer agent expenses............................. 5,368
Registration fees................................... 1,556
Amortization of deferred organization costs
(Note 1)........................................... 1,098
Other expenses...................................... 8,265
-----------
Total expenses...................................... 362,722
-----------
Net investment loss................................. (53,145)
Realized and Unrealized Gain on Investments (Note 4)
Net realized gain (loss) on:
Investments......................................... 4,984,384
Foreign currency transactions....................... (49,541)
-----------
Net realized gain.................................. 4,934,843
Net change in unrealized appreciation (depreciation)
of:
Investments......................................... 16,343,696
Foreign currency translation of other assets and
liabilities........................................ (4,621)
-----------
Net change in unrealized appreciation.............. 16,339,075
-----------
Net realized and unrealized gain 21,273,918
-----------
Increase in Net Assets Resulting from Operations..... $21,220,773
===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
20
<PAGE>
Lexington Emerging Markets Fund, Inc.
Statements of Changes in Net Assets
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Operations:
Net investment income (loss)......................... $ (53,145) $ 156,591
Net realized gain (loss) from investments and foreign
currency transactions............................... 4,934,843 (6,978,668)
Net change in unrealized appreciation of investments
and foreign currency translation.................... 16,339,075 798,531
----------- -----------
Net increase (decrease) in net assets resulting
from operations................................... 21,220,773 (6,023,546)
----------- -----------
Distributions to Shareholders: (Note 1)
Distributions to shareholders from net investment
income.............................................. (114,959) (91,329)
Distributions to shareholders from net realized gains
from security transactions.......................... -- (1,470,030)
----------- -----------
Decrease in net assets from distributions.......... (114,959) (1,561,359)
----------- -----------
Capital Share Transactions: (Note 3)
Proceeds from sale of shares......................... 24,790,180 10,869,701
Reinvested dividends................................. 114,964 1,561,356
Cost of shares redeemed.............................. (22,598,507) (13,507,774)
----------- -----------
Net increase (decrease) in net assets from capital
share transactions................................ 2,306,637 (1,076,717)
----------- -----------
Net increase (decrease) in net assets................ 23,412,451 (8,661,622)
Net Assets:
Beginning of period.................................. 15,390,839 24,052,461
----------- -----------
End of period (including undistributed net investment
income of $0 and $114,759 in 1999 and 1998,
respectively) (Note 1).............................. $38,803,290 $15,390,839
=========== ===========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
- -------------------------------------------------------------------------------
Lexington Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998
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
21
<PAGE>
Lexington Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998 (continued)
1. Significant Accounting Policies (continued)
securities are traded. If no sales price is recorded, the mean between the
last bid and asked prices is used. Securities traded on the over-the-counter
market are valued at the mean between the last current bid and asked prices.
Short-term securities having a maturity of 60 days or less are stated at
amortized cost, which approximates market value. Securities for which market
quotations are not readily available and other assets are valued by Fund
management in good faith under the direction of the Fund's Board of Directors.
All investments quoted in foreign currencies are valued in U.S. dollars on the
basis of the foreign currency exchange rates prevailing at the close of
business. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income, adjusted for amortization of premiums
and accretion of discounts, is accrued as earned.
Foreign Currency Transactions Foreign currencies (and receivables and
payables denominated in foreign currencies) are translated into U.S. dollar
amounts at current exchange rates. Translation gains or losses resulting from
changes in exchange rates and realized gains and losses on the settlement of
foreign currency transactions are reported in the statement of operations. In
addition, the Fund may enter into forward foreign exchange contracts in order
to hedge against foreign currency risk in the purchase or sale of securities
denominated in foreign currency. The Fund may also enter into such contracts
to hedge against changes in foreign currency exchange rates on portfolio
positions. These contracts are marked to market daily, by recognizing the
difference between the contract exchange rate and the current market rate as
unrealized gains or losses. Realized gains or losses are recognized when
contracts are closed and are reported in the statement of operations.
The Fund authorizes its custodian to place and maintain equity securities in a
segregated account of the Fund having a value equal to the aggregate amount of
the Fund's commitments under forward foreign currency contracts entered into
with respect to position hedges. There are no forward foreign currency
contracts outstanding at December 31, 1999.
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, 1999, 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 fully amortized as of March 31, 1999.
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.
22
<PAGE>
Lexington Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998 (continued)
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 0.85% of the Fund's average daily net assets. In
connection with providing investment advisory
services, LMC has entered into a sub-advisory contract with Stratos Advisors,
Inc. ("Stratos") under which Stratos provides the Fund with investment
management services. Pursuant to the terms of the sub-advisory contract
between LMC and Stratos, LMC pays Stratos a monthly sub-advisory fee at an
annual rate of 0.35% of the Fund's average daily net assets. For 1999, 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
year ended December 31, 1999.
The Fund reimburses LMC for certain expenses, including accounting costs of
$14,504, which are incurred by the Fund, but paid by LMC.
3. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1999 December 31, 1998
----------------------- -----------------------
Shares Amount Shares Amount
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Shares sold................. 3,160,008 $24,790,180 1,576,623 $10,869,701
Shares issued on
reinvestment of dividends.. 15,515 114,964 314,789 1,561,356
---------- ----------- ---------- -----------
3,175,523 24,905,144 1,891,412 12,431,057
Shares redeemed............. (2,859,941) (22,598,507) (1,877,437) (13,507,774)
---------- ----------- ---------- -----------
Net increase (decrease)..... 315,582 $ 2,306,637 13,975 $(1,076,717)
========== =========== ========== ===========
</TABLE>
4. Investment Transactions
The cost of purchases and proceeds from sales of securities for the year ended
December 31, 1999, excluding short-term securities, were $40,753,772 and
$37,469,216, respectively.
At December 31, 1999, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$14,900,092 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $2,581,309.
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.
23
<PAGE>
Lexington Emerging Markets Fund, Inc.
Notes to Financial Statements
December 31, 1999 and 1998 (continued)
6. Restricted Securities
The following securities were purchased under Rule 144A of the Securities Act
of 1933 or issued in private placements and, unless registered under the Act
or exempted from registration, may be sold only to qualified institutional
investors. 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.
<TABLE>
<CAPTION>
Acquisition Market Percent of
Security Date Shares Value Net Assets
-------- ----------- ------ -------- ----------
<S> <C> <C> <C> <C>
Indian Hotels Company, Ltd. (GDR)...... 07/16/99 20,000 $193,500 0.50%
I.T. International Theatres, Ltd....... 03/19/99 20,750 170,150 0.44
Synergon Information Systems, Ltd.
(GDR)................................. 04/23/99 30,000 291,000 0.75
TV Azteca S.A. de C.V. (ADR)........... 07/02/99 6,665 59,985 0.15
-------- -----
$714,635 1.84%
======== =====
</TABLE>
7. Federal Income Taxes--Capital Loss Carryforwards
Capital loss carryforwards/1/ available for Federal income tax purposes as of
December 31, 1999 are approximately $2,567,078 expiring in 2006.
To the extent any future capital gains are offset by these losses, such gains
may not be distributed to shareholders.
/1/Temporary book-tax differences of $142,050 are the result of wash sales.
8. Tax Information (unaudited)
For the year ended December 31, 1999, the percentage of ordinary income
distributions paid by the Fund derived from agency and direct obligations of
the United States government were as follows:
<TABLE>
<S> <C>
U.S. Treasury...................................................... 12.07%
Federal Home Loan Bank............................................. 2.54
Federal Home Loan Mortgage Corporation............................. 2.54
</TABLE>
24
<PAGE>
Lexington Emerging Markets Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1999 1998 1997 1996 1995
------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period.......................... $ 5.67 $ 8.91 $10.11 $ 9.38 $ 9.86
------- -------- -------- ------- -------
Income (loss) from investment
operations:
Net investment income (loss).... (0.02) 0.06 0.03 0.02 0.09
Net realized and unrealized gain
(loss) on investments and
foreign currencies............. 7.20 (2.64) (1.22) 0.71 (0.48)
------- -------- -------- ------- -------
Total income (loss) from
investment operations........... 7.18 (2.58) (1.19) 0.73 (0.39)
------- -------- -------- ------- -------
Less distributions:
Distributions from net
investment income.............. (0.04) (0.04) (0.01) -- (0.09)
Distributions from net realized
gains.......................... -- (0.62) -- -- --
------- -------- -------- ------- -------
Total distributions.............. (0.04) (0.66) (0.01) -- (0.09)
------- -------- -------- ------- -------
Net asset value, end of period... $12.81 $ 5.67 $ 8.91 $10.11 $ 9.38
======= ======== ======== ======= =======
Total return..................... 127.14% (27.95)% (11.81)% 7.46% (3.93)%
Ratio to average net assets:
Expenses, before reimbursement.. 1.70% 2.08% 1.91% 2.23% 4.09%
Expenses, net of reimbursement.. 1.70% 2.08% 1.84% 1.64% 1.32%
Net investment income (loss),
before reimbursement........... (0.25)% 0.84% 0.18% (0.39)% (1.45)%
Net investment income (loss).... (0.25)% 0.84% 0.26% 0.20% 1.33%
Portfolio turnover rate.......... 182.64% 121.31% 157.52% 95.18% 88.92%
Net assets, end of period (000's
omitted)........................ $38,803 $15,391 $24,052 $21,678 $7,815
</TABLE>
25
<PAGE>
PART C. OTHER INFORMATION
- ------ -----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1999 was filed
electronically on February 28, 2000 (as form type N-30D).
(a) Financial statements:
---------------------
Report of Independent Auditors
dated February 7, 2000
Statement of Net Assets
(including the Portfolio of
Investments) at December 31, 1999
Statement of Assets and
Liabilities at December 31, 1999
Statement of Operations
for the year ended December 31, 1999
Statement of Changes in Net Assets for
the year ended December 31, 1999 and 1998
Notes to Financial Statements
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 April 16, 2000:
Title of Class Number of Record Holders
-------------- ------------------------
Capital Stock 17
($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 Growth and Income Fund, Inc.
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 Natural Resources Trust
Lexington Corporate Leaders Trust Fund
Lexington Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Small Cap Asia Growth Fund, Inc.
Lexington Troika Dialog Russia Fund, Inc.
Lexington Global Technology 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
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it has met
all of the requirements for effectiveness of this amendments to the
Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Amendment 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 28th day of April, 2000.
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
Amendment 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 April 28, 2000
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial April 28, 2000
Richard M. Hisey and Accounting Officer
and Director
/s/ Lisa Curcio
__________________________ Principal Compliance April 28, 2000
Lisa Curcio Officer
*SMS Chadha Director April 28, 2000
__________________________
SMS Chadha
*Beverley C. Duer, P.E. Director April 28, 2000
__________________________
Beverley C. Duer, P.E.
*Barbara R. Evans Director April 28, 2000
__________________________
Barbara R. Evans
<PAGE>
Signature Title Date
*Jerard F. Maher Director April 28, 2000
_________________________
Jerard F. Maher
*Andrew M. McCosh Director April 28, 2000
_________________________
Andrew M. McCosh
*Donald B. Miller Director April 28, 2000
_________________________
Donald B. Miller
*Allen H. Stowe Director April 28, 2000
_________________________
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
April 25, 2000
Lexington Emerging Markets Fund, Inc.
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Re: Lexington Emerging Markets Fund, Inc.
File No. 33-73520; 811-8250
Registration Statement on Form N-1A
Dear Ladies and Gentlemen:
We hereby consent to the reference to our firm as Counsel in Post-
Effective Amendment No. 7 to the Registration Statement on Form N-1A filed
under Rule 485(b) of the Securities Act of 1933.
Very truly yours,
/s/ Kramer, Levin, Naftalis & Frankel LLP
Independent Auditors' Consent
To the Board of Directors and Shareholders of
Lexington Emerging Markets Fund, Inc.:
We consent to the use of our report dated February 7, 2000 incorporated herein
by reference and to the references to our firm under the headings "Financial
Highlights" in the Prospectus and "Counsel and Independent Auditors" in the
Statement of Additional Information.
KPMG LLP
New York, New York
April 26, 2000
