(LEPERCQ-ISTEL LOGO)
LEPERCQ-ISTEL FUND
SEMI-ANNUAL REPORT
JUNE 30, 1997
LEPERCQ-ISTEL FUND
AUGUST 10, 1997
DEAR SHAREHOLDERS:
The second quarter saw a continuation of many of the trends that appeared in the
first quarter. In a two-tiered market characterized by the substantial
outperformance of a narrow group of large capitalization stocks, our Fund has
continued to lag.
FIRST HALF
1997
----------
Lepercq-Istel Fund -1.58%
Lipper Growth and Income Funds Index 15.93%
Standard & Poor's 500 Stock Index 20.61%
Few active money managers outperformed the S&P 500 during the first half. The
average return of U.S. equity mutual funds for the first six months of the year,
according to Lipper Analytical Services, was 13.0%. Adjusting out the impact of
size, the equal-weighted S&P 500 was up 15.5%, underperforming the index by 5%.
The average return for a broad group of 5,460 actively traded stocks was 8.4%.+
<F1>
The strong performance of the mega-capitalization stocks was the result of focus
by investors on stable growth companies in an aging economic cycle and the
growing importance of liquidity. Additional factors that negatively impacted
the Fund were the underperformance of its smaller-capitalization technology and
specialty finance holdings which were out of favor during this period.
Our investment approach often leads us to buy companies experiencing short-term
interruptions of growth that are well-positioned for the long-term. In a market
environment that places a large premium on positive momentum and a punitive
discount for any kind of a stall, we believe there is more value in buying the
discounted merchandise. However, at times, such a strategy is likely to result
in a lower than average correlation to the popular market indices.
The current bull market is nearing its sixth anniversary without a 10%
correction. While this market has been sustained by near perfect macro-economic
trends, valuations have become stretched. Clearly, we are not about to jump on
the large-stock liquidity bandwagon. We will continue to follow our approach of
investing in corporate transformations that are reasonably valued. Our current
level of cash of 13% is more of a reflection of the growing difficulty in
finding stocks that meet our investment parameters than a market timing
decision.
Thank you for your continued support.
Sincerely,
/s/ Andrew Merz Hanson /s/ Tsering Ngudu
Andrew Merz Hanson, CFA Tsering Ngudu
Co-President Co-President
+ <F1>As calculated by Goldman, Sachs & Co.
Past performance is not predictive of future performance.
SCHEDULE OF INVESTMENTS
JUNE 30, 1997
(UNAUDITED)
NUMBER MARKET
OF SHARES VALUE
--------- ------
COMMON STOCKS - 87.06%
AUTO PARTS - 1.83%
12,000 Federal - Mogul $420,000
----------
COMMUNICATIONS - 15.31%
20,000 Bay Networks*<F2> 531,250
15,000 Comverse Technology*<F2> 781,875
20,000 Digital Microwave*<F2> 585,000
40,000 Loral Space &
Communications*<F2> 600,000
60,000 Intervoice*<F2> 543,750
30,000 Orbital Sciences*<F2> 476,250
----------
3,518,125
----------
COMPUTERS/INFORMATION - 1.85%
12,000 Digital Equipment*<F2> 425,250
----------
CONSUMER SERVICES - 1.74%
16,000 IKON Office Solutions 399,000
----------
ENERGY/INDEPENDENTS - 7.58%
40,000 Benton Oil & Gas*<F2> 600,000
56,000 KCS Energy 1,141,000
----------
1,741,000
----------
ENERGY/OIL SERVICES - 4.54%
80,000 Tesco*<F2> 1,043,811
----------
FINANCIAL SERVICES/DIVERSIFIED - 4.70%
50,000 Consumer Portfolio
Services*<F2> 600,000
13,500 Green Tree Financial 480,937
----------
1,080,937
----------
INDUSTRIAL/COMMERCIAL SERVICES - 4.59%
24,000 First Data 1,054,500
----------
INSURANCE - 5.64%
35,000 Conseco 1,295,000
----------
MEDIA-BROADCASTING - 3.14%
35,000 United Video Satellite
Group, Class A*<F2> 721,875
----------
MEDICAL SUPPLIES - 3.33%
45,000 CONMED*<F2> 765,000
----------
PHARMACEUTICALS - 3.24%
18,000 Forest Laboratories*<F2> 745,875
----------
REAL ESTATE INVESTMENT TRUSTS - 6.94%
25,000 Ambassador Apartments 621,875
25,000 CRIIMI MAE 400,000
15,000 Storage USA 573,750
----------
1,595,625
----------
RETAILERS - 3.20%
60,000 Kmart*<F2> 735,000
----------
SEMICONDUCTOR - 7.99%
25,000 Adaptec*<F2> 868,750
43,000 Integrated Circuit Systems*<F2> 967,500
----------
1,836,250
----------
SOFTWARE/PROCESSING - 11.44%
16,000 BMC Software*<F2> 886,000
48,000 FileNet*<F2> 696,000
31,852 Sterling Commerce*<F2> 1,047,134
----------
2,629,134
----------
Total Common Stocks
(Cost $13,687,807) 20,006,382
----------
RESTRICTED
SECURITIES - 0.00% (NOTE 2)
38,020 Westfed Holdings, Class B, Common*<F2> 1
128,290 Westfed Holdings, 15.50%,
Convertible Preferred*<F2> 1
----------
Total Restricted Securities
(Cost $11,126,810) 2
----------
PRINCIPAL
AMOUNT
---------
U.S. TREASURY NOTES - 0.11%
$25,000 U.S. Treasury Notes,
9.00%, due 5/15/98 25,680
----------
Total U.S. Treasury Notes
(Cost $24,961) 25,680
----------
U.S. TREASURY BILLS - 12.88%
1,500,000 U.S. Treasury Bills,
due 8/28/97 1,487,799
1,500,000 U.S. Treasury Bills,
due 11/13/97 1,471,030
----------
Total U.S. Treasury Bills
(Cost $2,958,830) 2,958,829
----------
Total Investments - 100.05%
(Cost $27,798,408) 22,990,893
----------
Liabilities, less
Other Assets - (0.05)% (11,988)
----------
NET ASSETS - 100.00% $22,978,905
===========
*<F2>Non-income producing security.
See accompanying notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1997
(UNAUDITED)
ASSETS:
Investments, at market value
(Cost $27,798,408)
(Note 2) $22,990,893
Receivable for Fund shares
purchased 100,000
Dividend receivable 10,574
Interest receivable 287
Other assets 17,622
-----------
Total Assets 23,119,376
-----------
LIABILITIES:
Payable to Adviser 40,580
Accrued expenses and
other liabilities 99,891
-----------
Total Liabilities 140,471
-----------
NET ASSETS $22,978,905
===========
NET ASSETS CONSIST OF:
Capital stock $25,868,958
Accumulated undistributed
net investment (loss) (46,652)
Accumulated undistributed
net realized gains on
investments 1,964,114
Net unrealized (depreciation)
on investments (Note 2) (4,807,515)
-----------
Total Net Assets $22,978,905
===========
Shares outstanding
(unlimited shares of $1.00
par value authorized) 1,226,871
Net Asset Value, offering price
and redemption price
per share $18.73
======
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
INVESTMENT INCOME:
Dividend income $62,900
Interest income 51,295
Other income 38
-----------
Total income 114,233
-----------
EXPENSES:
Investment advisory fee 85,130
Administration fee 14,025
Shareholder servicing and
accounting costs 28,038
Custody fees 5,751
Federal and state registration 7,043
Professional fees 22,400
Reports to shareholders 3,258
Trustee fees and expenses 5,575
Distribution expenses 11,062
Insurance 2,053
Other 1,550
-----------
Total expenses 185,885
-----------
NET INVESTMENT (LOSS) (71,652)
-----------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS:
Net realized gain
on investments 2,081,800
Change in unrealized
depreciation on investments (2,381,172)
-----------
Net realized and unrealized
(loss) on investments (299,372)
-----------
NET DECREASE IN
NET ASSETS RESULTING
FROM OPERATIONS $(371,024)
===========
See accompanying notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
OPERATIONS:
Net investment (loss) $(71,652) $(145,100)
Net realized gain on investments 2,081,800 1,413,250
Change in unrealized depreciation
on investments (2,381,172) 3,920,329
----------- -----------
Net increase (decrease) in net assets
resulting from operations (371,024) 5,188,479
----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income -- --
Net realized gains -- (1,160,547)
----------- -----------
Total Distributions -- (1,160,547)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares subscribed 559,060 779,689
Shares issued to holders in
reinvestment of dividends -- 968,529
Cost of shares redeemed (1,364,223) (1,852,021)
----------- -----------
Net decrease in net assets from
capital share transactions (805,163) (103,803)
----------- -----------
TOTAL INCREASE (DECREASE)
IN NET ASSETS (1,176,187) 3,924,129
----------- -----------
NET ASSETS:
Beginning of period 24,155,092 20,230,963
----------- -----------
End of period (including undistributed
net investment income (loss) of
$(46,652) and $25,000, respectively) $22,978,905 $24,155,092
=========== ===========
See accompanying notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, DECEMBER 31,
--------------------------------------------------------
PER SHARE DATA: 1997 1996 1995 1994 1993 1992
----------- ----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.03 $15.83 $13.17 $14.84 $14.17 $14.05
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.06) (0.11)(1)<F3> 0.14(1)<F3> 0.18 0.29 0.40
Net realized and unrealized gains
(losses) on investments (0.24) 4.26 3.42 (0.93) 1.62 0.35
------- ------- ------- ------- ------- -------
Total from investment operations (0.30) 4.15 3.56 (0.75) 1.91 0.75
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net
investment income -- -- (0.13) (0.18) (0.29) (0.40)
Dividends in excess of net
investment income -- -- -- (0.03) (0.03) (0.01)
Distributions from capital gains -- (0.95) (0.77) (0.71) (0.92) (0.22)
------- ------- ------- ------- ------- -------
Total distributions -- (0.95) (0.90) (0.92) (1.24) (0.63)
------- ------- ------- ------- ------- -------
Net asset value, end of period $18.73 $19.03 $15.83 $13.17 $14.84 $14.17
======= ======= ======= ======= ======= =======
Total return (1.6)%(4)<F6> 26.3% 27.1% (5.1)% 13.5% 5.3%
Supplemental data and ratios:
Net assets (in millions)
end of period $23.0 $24.2 $20.2 $18.5 $16.6 $17.0
Ratio of expenses to
average net assets 1.64%(5)<F7> 1.65%(2)<F4> 1.50% 1.56% 1.51% 1.53%
Ratio of net investment income
(loss) to average net assets (0.63)%(5)<F7> (0.65)%(2)<F4> 0.89% 1.36% 2.00% 2.90%
Portfolio turnover rate 27.56% 54.13% 59.72% 70.66% 19.88% 20.37%
Average commission rate
per share(3)<F5> $0.0993 $0.0917 -- -- -- --
(1)<F3>Net investment income per share is calculated using ending balances prior to
consideration or adjustment for permanent book and tax differences.
(2)<F4>Without voluntary expense reimbursements of $13,000 for the year ended
December 31, 1996, the ratio of expenses to average net assets would have been 1.71%
and the ratio of net investment loss to average net assets would have been (0.71)%.
(3)<F5>Average per share amounts of brokerage commissions on portfolio
transactions. Required by regulations first effective for the fiscal year ended
December 31, 1996.
(4)<F6>Not annualized.
(5)<F7>Annualized.
See accompanying notes to financial statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1997 (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 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 between various components of net assets.
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 principals 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 on 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. Discounts on securities purchased are
amortized over the life of the respective security.
2. RESTRICTED SECURITIES
On June 30, 1997, 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,
1997 and on the date these restricted securities were acquired, 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, 1997) $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, 1997, the Fund paid Lepercq, de Neuflize
Securities Inc., a wholly owned subsidiary of the Adviser $4,088 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. The Plan provides that the Fund may
finance activities which are primarily intended to result in the sale of the
Fund's shares. In accordance with the Shareholder Servicing Plan, the Fund may
enter into Shareholder Service Agreements under which it pays fees of up to
0.25% of the average daily net assets for fees incurred in connection with the
personal service and maintenance of accounts holding the shares of the Fund.
The Fund incurred $11,062 pursuant to the Plans for the six months ended June
30, 1997.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
----------------- -----------------
Shares subscribed 30,910 44,196
Shares issued to holders in
reinvestment of dividends -- 51,131
Shares redeemed (73,428) (103,880)
------- --------
Net (decrease) (42,518) (8,553)
======= ========
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended June 30, 1997, were as
follows:
U.S. GOVERNMENT OTHER
--------------- -------
Purchases -- $5,813,683
Sales -- 8,330,453
At June 30, 1997, gross unrealized appreciation and depreciation of
investments for federal income-tax purposes were as follows:
Appreciation $7,127,267
(Depreciation) (11,934,782)
-----------
Net unrealized depreciation
on investments $(4,807,515)
===========
At June 30, 1997, the cost of investments for federal income-tax purposes was
$27,798,408.
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*<F8>Former Managing Director, A.T. Kearney, Inc.
Franz Skryanz*<F8> Financial Consultant; formerly, Treasurer, Chief
Financial Officer, Schenkers International
*<F8>Member of Audit, Ethics and Nominating Committees
OFFICERS
Andrew Hanson Co-President
Tsering Ngudu Co-President
Stephen T. Murphy Secretary & Treasurer
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
(LEPERCQ-ISTEL LOGO)
1675 Broadway, New York, N.Y. 10019
Telephone: (212) 698-0749
Shareholder Services: (800) 497-1411
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.
