LEPERCQ-ISTEL FUND
SEMI-ANNUAL
REPORT
June 30, 1996
August 10, 1996
Dear Shareholders:
The first half of 1996 was rewarding. The net asset value of your Fund increased
by 13.2%. By comparison, the average growth and income fund gained 9.2%,
according to Lipper Analytical Services, Inc., and the Standard and Poor's 500
Index, including dividends, increased by 10.1%. For the first half of the year,
your Fund had the 24th best performance out of 526 growth and income funds,
according to Lipper.
The best-performing sectors of the Fund were oil services, independent energy
producers, media and broadcasting, finance, retail, and communications. Lagging
sectors were computers, industrials, semiconductors and real estate investment
trusts. During the first half of 1996, our strategy of adding to our energy and
communications investments while scaling back on our technology hardware and
components paid off. This strategy provided growth while limiting the Fund's
exposure to more volatile capital-spending-related companies.
We believe our most important goal is to maximize total return to shareholders.
In an environment of strong corporate earnings and low yields on stocks we think
it is prudent to pursue our return objective by emphasizing capital appreciation
over income. As a result, the Fund will not pay its customary semi-annual income
dividends this year. However, we expect to make a capital-gains distribution in
December.
While the near-term outlook is for continued moderate growth, we are mindful
that we are at the late stages of the current economic cycle. An economic
slowdown would present a challenge to the stock market. As always, any market
environment has its share of opportunities.
Sincerely,
/s/Andrew Merz Hanson /s/ Tsering Ngudu
Andrew Merz Hanson, CFA Tsering Ngudu
Co-President Co-President
Past performance is not predictive of future performance.
LEPERCQ-ISTEL FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
NUMBER MARKET
OF SHARES VALUE
- --------- ------
COMMON STOCKS - 98.06%
COMMUNICATIONS - 15.44%
10,000 Cisco Systems <F1> $ 566,250
18,000 Comverse Technology <F1> 549,000
30,000 DSC Communications <F1> 900,000
30,000 Digital Microwave <F1> 495,000
24,500 Loral Space &
Communications <F1> 333,812
15,000 Nokia ADS 555,000
---------
3,399,062
---------
COMPUTERS/INFORMATION - 2.45%
12,000 Digital Equipment <F1> 540,000
---------
ENERGY/INDEPENDENTS - 8.65%
50,000 Benton Oil & Gas <F1> 1,100,000
28,000 KCS Energy 805,000
---------
1,905,000
---------
ENERGY/OIL SERVICES - 3.81%
100,000 Tesco 838,446
---------
ENERGY/PIPELINES - 1.90%
12,500 KN Energy 418,750
---------
FINANCIAL SERVICES/
DIVERSIFIED - 4.78%
60,000 Consumer Portfolio
Services <F1> 525,000
30,000 Rockford Industries <F1> 528,750
---------
1,053,750
---------
NUMBER MARKET
OF SHARES VALUE
- --------- ------
Industrial/Commercial
Services - 7.25%
15,000 First Data $1,194,375
17,500 HealthPlan Services <F1> 402,500
---------
1,596,875
---------
Insurance - 4.36%
24,000 Conseco 960,000
---------
Media/Broadcasting - 7.41%
10,000 Evergreen Media -
Class A <F1> 422,500
20,000 Heartland Wireless Communications <F1> 475,000
35,000 United Video Satellite
Group, Class A <F1> 735,000
---------
1,632,500
---------
Real Estate Investment
Trusts - 4.11%
25,000 Ambassador Apartments 421,875
15,000 Storage USA 483,750
---------
905,625
---------
Retailers - 8.65%
20,000 Department 56 <F1> 452,500
60,000 Kmart <F1> 742,500
15,000 Tandy 710,625
---------
1,905,625
---------
Semiconductor - 8.09%
25,000 Adaptec <F1> 1,181,250
25,000 Lattice Semiconductor <F1> 600,000
---------
1,781,250
---------
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1996 (UNAUDITED)
NUMBER MARKET
OF SHARES VALUE
- --------- ------
Software/PROCESSING - 19.00%
25,000 Adobe Systems $ 887,500
10,000 BMC Software 595,000
7,500 Computer Associates
International 534,375
25,000 Mercury Interactive <F1> 331,250
42,900 The Santa Cruz
Operation <F1> 294,937
20,000 Sterling Software <F1> 1,540,000
----------
4,183,062
----------
Telephone - 2.16%
25,000 Nextel Communications -
Class A <F1> 475,000
----------
Total Common Stock
(Cost $15,575,570) 21,594,945
----------
RESTRICTED
SECURITIES - 0.00% (Note 2)
38,020 Westfed Holdings,
Series B, Common 1
128,290 Westfed Holdings, 15.50%,
Convertible Preferred 1
----------
Total Restricted Securities
(Cost $11,126,810) 2
----------
PRINCIPAL MARKET
AMOUNT VALUE
- --------- ------
U.S. TREASURY NOTES - 0.12%
$ 25,000 U.S. Treasury Notes,
9.00%, due 5/15/98 $ 26,258
----------
Total U.S. Treasury Notes
(Cost $24,961) 26,258
----------
U.S. TREASURY BILLS - 1.68%
25,000 U.S. Treasury Bills,
due 7/18/96 24,944
350,000 U.S. Treasury Bills,
due 10/10/96 344,952
----------
Total U.S. Treasury Bills
(Cost $369,916) 369,896
----------
Total Investments - 99.86%
(Cost $27,097,257) 21,991,101
----------
Other Assets, less
Liabilities - 0.14% 30,028
----------
NET ASSETS - 100.00% $22,021,129
==========
<F1> Non-income-producing security.
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1996
(Unaudited)
ASSETS:
Investments, at market value
(Cost $27,097,257) (Note 2) $21,991,101
Cash 115,034
Receivable for investments sold 87,500
Dividends receivable 12,893
Interest receivable 287
Other assets 15,688
----------
Total Assets 22,222,503
----------
LIABILITIES:
Payable for investments purchased 140,600
Payable to adviser 41,657
Accrued expenses and
other liabilities 19,117
----------
Total Liabilities 201,374
----------
NET ASSETS $22,021,129
==========
NET ASSETS CONSIST OF:
Capital stock $25,702,628
Accumulated undistributed
net investment (loss) (22,647)
Accumulated undistributed net
realized gains on investments 1,447,304
Net unrealized (depreciation)
on investments (Note 2) (5,106,156)
----------
Total Net Assets $22,021,129
==========
Shares outstanding
(unlimited shares of
$1.00 par value authorized) 1,228,616
Net Asset Value (offering and
redemption price) $17.92
======
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
INVESTMENT INCOME:
Dividend income $108,686
Interest income 32,318
Other income 1,097
----------
Total income 142,101
----------
EXPENSES:
Investment advisory fee 79,776
Administration fee 10,812
Shareholder servicing and
accounting costs 18,285
Custody fees 5,247
Federal and state registration 5,406
Professional fees 18,126
Reports to shareholders 1,749
Trustee fees and expenses 6,519
Distribution expenses 1,908
Other 20,030
----------
Total expenses 167,858
----------
NET INVESTMENT (LOSS) (25,757)
----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 1,452,638
Change in unrealized
depreciation on investments 1,240,517
----------
Net realized and unrealized
gain on investments 2,693,155
----------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS $2,667,398
==========
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
--------------- -----------------
OPERATIONS: (Unaudited)
Net investment income (loss) $ (25,757) $ 171,228
Net realized gain on investments 1,452,638 938,539
Change in unrealized depreciation
on investments 1,240,517 3,433,435
---------- ----------
Net increase in net assets from operations 2,667,398 4,543,202
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income - (162,737)
Net realized gains - (954,393)
---------- ----------
Total distributions - (1,117,130)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares subscribed 363,564 1,370,119
Shares issued to holders in
reinvestment of dividends - 860,687
Cost of shares redeemed (1,240,796) (3,928,451)
---------- ----------
Net (decrease) in net assets from
capital share transactions (877,232) (1,697,645)
---------- ----------
TOTAL INCREASE IN NET ASSETS 1,790,166 1,728,427
---------- ----------
NET ASSETS:
Beginning of period 20,230,963 18,502,536
---------- ----------
End of period (including
undistributed net investment
income (loss) of $(22,647) and
$3,110, respectively) $22,021,129 $20,230,963
========== ==========
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
FINANCIAL HIGHLIGHTS
DECEMBER 31,
JUNE 30, ------------------------------------
PER SHARE DATA: 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
(UNAUDITED)
Net asset value, beginning
of period $15.83 $13.17 $14.84 $14.17 $14.05 $12.46
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (0.02) 0.14 0.18 0.29 0.40 0.47
Net realized and unrealized
gains (losses) on
investments 2.11 3.42 (0.93) 1.62 0.35 1.65
------ ------ ------ ------ ------ ------
Total from investment
operations 2.09 3.56 (0.75) 1.91 0.75 2.12
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income - (0.13) (0.18) (0.29) (0.40) (0.47)
Dividends in excess of net
investment income - - (0.03) (0.03) (0.01) (0.06)
Distributions from capital
gains - (0.77) (0.71) (0.92) (0.22) 0.00
------ ------ ------ ------ ------ ------
Total distributions - (0.90) (0.92) (1.24) (0.63) (0.53)
------ ------ ------ ------ ------ ------
Net asset value, end of period $17.92 $15.83 $13.17 $14.84 $14.17 $14.05
====== ====== ====== ====== ====== ======
Total return 13.2%<F2> 27.1% (5.1)% 13.5% 5.3% 17.0%
Supplemental data and ratios:
Net assets (in millions)
end of period $22.0 $20.2 $18.5 $16.6 $17.0 $17.4
Ratio of expenses to
average net assets 1.58%<F3> 1.50% 1.56% 1.51% 1.53% 1.54%
Ratio of net investment
income (loss)
to average net assets (0.24)%<F3> 0.89% 1.36% 2.00% 2.90% 3.80%
Portfolio turnover rate 36.62% 59.72% 70.66% 19.88% 20.37% 21.81%
Average commission
rate per share $0.0822
<F2> Not annualized for the period ended June 30, 1996.
<F3> Annualized for the period ended June 30, 1996.
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1996 (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Lepercq-Istel Trust (the "Trust") is registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end investment
company, established under a Declaration of Trust dated April 8, 1986. The
Trust was formerly a Delaware corporation established in 1953 known as
Istel Fund, Inc. On April 8, 1986, the shareholders of Istel Fund, Inc.
(the Trust's predecessor) approved a plan of reorganization (the
"Reorganization") under which Istel Fund, Inc. converted its corporate
structure to change from a Delaware corporation to a Massachusetts business
trust. In accordance with the terms and conditions of the Reorganization,
Istel Fund, Inc. changed its name to Lepercq-Istel Trust. The Trust
currently consists of one series, Lepercq-Istel Fund (the "Fund"). The
principal investment objective of the Fund is long-term capital
appreciation. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. These policies are in conformity with generally accepted
accounting principles for investment companies.
a) Investment Valuation-Investments in securities traded on a national
securities exchange are valued at the last reported sale on the primary
exchange on which they are traded. Investments not listed on a securities
exchange and exchange-listed securities for which no sale was reported for
that date are valued at the last reported bid price. Once short-term
securities have a maturity of 60 days or less, they are valued at amortized
cost which approximates market value; prior to that they are marked to
market. Restricted securities for which quotations are not readily
available are valued at fair value as determined by the investment adviser
under the supervision of the Board of Trustees.
b) 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 net income as
well as any net realized gains to its shareholders. Therefore, no federal
income tax provision is required. Generally accepted accounting principles
require that permanent differences between financial reporting and tax
reporting be reclassified to common stock.
c) Distributions to Shareholders-Dividends from net investment income are
declared and paid semi-annually. Distributions of net realized capital
gains, if any, will be declared at least annually.
d) 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 revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
e) Other-Investment and shareholder transactions are recorded no later than
the first business day after the trade date. The Fund determines the gain
or loss realized from the investment transactions by comparing the original
cost of the security lot sold with the net sales proceeds. Dividend income
is recognized on the ex-dividend date or as soon as information is
available to the Fund, and interest income is recognized on an accrual
basis.
2. RESTRICTED SECURITIES
On June 30, 1996, the Fund held certain restricted securities (i.e.,
securities which may not be publicly sold without registration under the
federal Securities Act of 1933, as amended, or without an exemption under
such Act). These securities were acquired from the Pilgrim Corporate
Utilities Fund on July 29, 1994, under an Agreement on Transfer of Assets
between Lepercq, de Neuflize & Co. Incorporated and Pilgrim Management
Corporation. On June 30, 1996 and on the date these restricted securities
were acquired, July 29, 1994, there were no market quotations available for
unrestricted securities of the same class. In the opinion of the Fund's
Adviser these securities are worthless. Consequently, each position has
been valued at $1 for a total value for all restricted securities of $2.
The value at which these securities were acquired by the Fund, the original
cost of these securities to Pilgrim Corporate Utilities Fund and the net
unrealized loss that accrues to the Fund from the acquisition of these
securities are as follows:
ACQUISITION ORIGINAL COST NET UNREALIZED LOSS
COST TO FUND TO PILGRIM ACCRUED TO FUND
------------ ------------- -------------------
Westfed Holdings,
Class B, Common $1 $ 1,148 $ 1,147
Westfed Holdings, 15.50%,
Convertible Preferred 1 11,125,662 11,125,661
----------- -----------
Total restricted securities
(Market Value
of $2 at June 30, 1996) $11,126,810 $11,126,808
=========== ===========
3. AGREEMENTS
The Fund has entered into an investment advisory agreement with Lepercq, de
Neuflize & Co. Incorporated (the "Adviser"). The Adviser is entitled to
receive a fee, computed and accrued daily and payable quarterly, at the
annual rate of 0.75% of the Fund's average daily net assets.
For the six months ended June 30, 1996, the Fund paid Lepercq, de Neuflize
Securities Inc., a wholly owned subsidiary of the Adviser $14,916 of
brokerage commissions.
Firstar Trust Company, a subsidiary of Firstar Corporation, a publicly held
bank-holding company, serves as the Fund's custodian, transfer agent,
administrator and accounting services agent.
The Board of Trustees, on behalf of the Fund, has adopted a distribution
plan (the "Plan") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Pursuant to the Plan, the Fund may incur distribution expenses of
up to 0.75% per annum of its average daily net assets. Additionally, the
Fund may pay a servicing fee to certain persons in an amount not to exceed
0.25% of the annual average daily net assets. The aggregate of these two
fees may not exceed 1% of the Fund's annual average daily net assets. For
the current year, the Fund will limit such expenses to 0.10% of the Fund's
annual average daily net assets. The Plan provides that the Fund may
finance activities which are primarily intended to result in the sale of
the Fund's shares. The Fund incurred $1,908 pursuant to the Plan for the
six months ended June 30, 1996.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
----------------- -----------------
AMOUNT SHARES AMOUNT SHARES
------ ------ ------ ------
Shares subscribed $ 363,564 21,963 $ 1,370,119 87,603
Shares issued to holders in
reinvestment of dividends - - 860,687 54,593
Shares redeemed (1,240,796) (71,289) (3,928,451) (268,767)
---------- ------- ---------- --------
Net (decrease) increase $ (877,232) (49,326) $(1,697,645) (126,571)
========== ======= ========== ========
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended June 30, 1996, were as
follows:
U.S. GOVERNMENT OTHER
--------------- ------
Purchases - $7,515,022
Sales $190,313 8,244,526
At June 30, 1996, gross unrealized appreciation and depreciation of
investments for federal income-tax purposes were as follows:
Appreciation $ 6,537,346
(Depreciation) (11,643,502)
-----------
Net unrealized depreciation on investments $ (5,106,156)
===========
At June 30, 1996, the cost of investments for federal income-tax purposes
was $27,097,257.
The Fund acquired a tax capital loss carryforward from the Pilgrim
CorporateUtilities Fund on July 29, 1994 under an Agreement on Transfer of
Assets between the Adviser and Pilgrim Management Corporation. The Fund is
limited to recognizing $332,593 of this loss per year until December 31,
2001. Net unrealized gains and losses may also differ for book and tax
purposes as a result of disallowance for tax purposes of built-in losses
that were acquired under the Agreement on Transfer of Assets.
TRUSTEES
Bruno Desforges Chairman of the Board; Managing Director, Lepercq,
de Neuflize & Co. Incorporated; Director and
Chairman of the Board, Lepercq, de Neuflize
Securities Inc.
Francois Letaconnoux Director, President and Chief Executive Officer,
Lepercq Inc. and Lepercq, de Neuflize & Co.
Incorporated; Director and President, Lepercq, de
Neuflize Securities Inc.
Jean-Louis Milin Managing Director, Banque de Neuflize,
Schlumberger, Mallet
Dr. Marvin Schiller* Former Managing Director, A.T. Kearney, Inc.
Franz Skryanz* Financial Consultant; formerly, Treasurer, Chief
Financial Officer, Schenkers International
*Member of Audit, Ethics and Nominating Committees
OFFICERS
Andrew Hanson Co-President
Tsering Ngudu Co-President
John McCollam Treasurer
Pamela Forrest Kaye Secretary
Peter Hartnedy Controller
Investment Adviser Lepercq, de Neuflize & Co. Incorporated, New York
Underwriter & Distributor Lepercq, de Neuflize Securities Inc., New York
Dividend Paying Agent,
Transfer Agent, Custodian,
Administrator and
Accounting Services Agent Firstar Trust Company, Wisconsin
Legal Counsel Kramer, Levin, Naftalis & Frankel, New York
Independent Auditors KPMG Peat Marwick LLP, Wisconsin
LEPERCQ-ISTEL FUND
1675 Broadway, New York, N.Y. 10019
Telephone: (212) 698-0749
(800) 655-7766
This report is issued for the information of shareholders of Lepercq-Istel Fund,
and is not authorized for distribution to prospective investors in the Fund
unless it is preceded or accompanied by a current prospectus.
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