(LEPERCQ-ISTEL FUND LOGO)
SEMI-ANNUAL
REPORT
June 30, 1998
AUGUST 1, 1998
DEAR SHAREHOLDERS:
For the first half of the year, the performance of your Fund and some relevant
indices were as follows:
Lepercq-Istel Fund 13.1%
Lipper Capital Appreciation Index 12.4%
S&P 500 17.7%
REVIEW OF FIRST HALF OF 1998
The first half of the year was characterized by the trend of out-performance by
a narrow group of stocks - a pattern that has been in place for the past three
years. Because of their large market capitalization, the market leaders have
had a disproportionate impact on the performance of S&P 500 and several other
widely referenced indices. While the gain on the S&P 500 index was 17.7% for
the first half, the average gain for a S&P 500 stock was 12.1%. Smaller
companies fared even poorer, with the Russell 2000 gaining only 5.3% for the
period. The sustained period of out-performance by a small group of market
leaders has elevated many of them to discomforting levels of valuation.
OUR CURRENT OUTLOOK
The economic problems of Asia and their impact on earnings of U.S. companies
continue to weigh heavily on the U.S. market. The gains of the U.S. market
during the first half were a reflection of the willingness by investors to
discount the problems of Asia as a two or three quarter problem. However, as
Asia continues to flounder, concerns have grown that its impact on the earnings
of U.S. companies will persist for a greater period. While we are likely to
agree that a turnaround in Asia will take longer than previously expected, we
also believe that the region need only stabilize in order to stop being a source
of negative earnings comparisons for U.S. companies.
We continue to believe that, despite the negative impact of Asia, the basic
building blocks of the U.S. economy and stock market of the past eight years -
low or declining interest rates, quiescent inflation and adequate demand -
remain in place. The past several years have not lacked for challenges to the
phenomenally successful economic environment of the U.S.; one recently described
by Chairman Greenspan as enjoying a "virtuous cycle". In 1997 alone, in
reaction to concerns that elements of this virtuous cycle were at risk, the
stock market in the U.S. experienced several corrections - two of which saw
prices drop about 10% - before concerns were again allayed.
For the second half of the year, we view our task as being one of continuing to
unearth companies in transformation that are led by strong management teams.
Thank you for your continued support.
Sincerely,
/s/ Tsering Ngudu /s/ Jerry Getsos
Tsering Ngudu Jerry Getsos
President & Portfolio Manager Executive Vice President & Portfolio
Manager
Past performance in not predicture of future performance.
SCHEDULE OF INVESTMENTS
JUNE 30, 1998
(UNAUDITED)
NUMBER OF
SHARES OR
PRINCIPAL MARKET
AMOUNT VALUE
--------- -------
COMMON STOCKS - 92.46%
BANKS - 9.40%
20,000 Bank of New York $1,213,750
14,000 Chase Manhattan 1,057,000
20,000 U.S. Bancorp 860,000
-----------
3,130,750
-----------
CHEMICAL/COMMODITY - 1.46%
6,500 du Pont (E.I.) de Nemours 485,062
-----------
COMMUNICATIONS - 20.25%
30,000 Ascend Communications*<F1> 1,486,875
35,000 Bay Networks*<F1> 1,128,750
30,000 Comverse Technology*<F1> 1,556,250
90,000 Digital Microwave*<F1> 652,500
40,000 Loral Space & Communications*<F1> 1,130,000
15,000 Motorola 788,437
-----------
6,742,812
-----------
COMPUTERS/INFORMATION - 2.98%
35,000 Compaq Computer 993,125
-----------
DIVERSIFIED INDUSTRIALS - 2.21%
37,000 Coltec Industries*<F1> 735,375
-----------
FOOD - 2.97%
18,000 Quaker Oats 988,875
-----------
INDUSTRIAL/COMMERCIAL SERVICES - 3.00%
30,000 First Data 999,375
-----------
INSURANCE - 4.21%
30,000 Conseco 1,402,500
-----------
MEDIA/BROADCASTING - 6.48%
30,000 CBS 952,500
10,000 CD Radio*<F1> 385,000
20,000 Seagrams 818,750
-----------
2,156,250
-----------
MEDICAL SUPPLIES - 3.01%
20,000 Bausch & Lomb 1,002,500
-----------
PHARMACEUTICALS - 3.47%
25,000 Pharmacia & Upjohn 1,153,125
-----------
POLLUTION MANAGEMENT - 2.53%
30,000 United States Filter*<F1> 841,875
-----------
RETAILERS - 5.09%
25,000 Borders Group*<F1> 925,000
40,000 Kmart*<F1> 770,000
-----------
1,695,000
-----------
SEMICONDUCTOR - 5.51%
50,000 Adaptec*<F1> 715,625
12,000 Applied Materials*<F1> 354,000
23,000 Integrated Circuit Systems*<F1> 382,375
20,000 Lam Research*<F1> 382,500
-----------
1,834,500
-----------
SOFTWARE/PROCESSING - 16.69%
20,000 BMC Software*<F1> 1,038,750
15,000 Computer Associates International 833,437
25,000 Network Associates*<F1> 1,196,875
100,000 Novell*<F1> 1,275,000
25,000 Sterling Commerce*<F1> 1,212,500
-----------
5,556,562
-----------
TELEPHONE - 3.20%
22,000 WorldCom*<F1> 1,065,625
-----------
Total Common Stocks
(Cost $24,096,677) 30,783,311
-----------
RESTRICTED SECURITIES+<F2> - 0.00% (NOTE 2)
38,020 Westfed Holdings, Class B, Common*<F1> 1
128,290 Westfed Holdings, 15.50%,
Convertible Preferred*<F1> 1
-----------
Total Restricted Securities
(Cost $11,126,810) 2
-----------
U.S. TREASURY BILLS - 7.31%
$1,105,000 U.S. Treasury Bill, due 7/30/98 1,100,668
1,345,000 U.S. Treasury Bill, due 9/10/98 1,332,002
-----------
Total U.S. Treasury Bills
(Cost $2,432,635) 2,432,670
-----------
Total Investments - 99.77%
(Cost $37,656,122) 33,215,983
-----------
Other Assets
Less Liabilities - 0.23% 77,524
-----------
NET ASSETS - 100.00% $33,293,507
===========
*<F1> Non-income producing security.
+<F2> The Westfed Holdings securities were acquired for a total cost of
$2 in conjunction with the Agreement on Transfer of Assets between
Lepercq, de Neuflize & Co. Incorporated and Pilgrim Management
Corporation. As part of the Agreement on Transfer, the Fund acquired
net tax operating loss carryforwards which are further explained in Note
5.
See accompanying notes to financial statements.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
(UNAUDITED)
ASSETS:
Investments, at market value
(Cost $37,656,122) (Note 2) $33,215,983
Receivable for Fund shares sold 4,000
Cash 135,203
Dividend receivable 17,605
Other assets 16,305
-----------
Total Assets 33,389,096
-----------
LIABILITIES:
Payable to Adviser 60,063
Accrued expenses and other liabilities 35,526
-----------
Total Liabilities 95,589
-----------
NET ASSETS $33,293,507
===========
NET ASSETS CONSIST OF:
Capital stock $32,485,005
Accumulated undistributed
net investment (loss) (65,102)
Accumulated undistributed
net realized gains on investments 5,313,743
Net unrealized (depreciation)
on investments (Note 2) (4,440,139)
-----------
Total Net Assets $33,293,507
===========
Shares outstanding (unlimited shares of $1.00
par value authorized) 1,532,883
Net Asset Value, offering and redemption price $21.72
======
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
INVESTMENT INCOME:
Dividend income (net of taxes
withheld of $297) $69,343
Interest income 83,335
Other income 2,428
----------
Total income 155,106
----------
EXPENSES:
Investment advisory fee 115,806
Administration fee 15,568
Shareholder servicing fees and expense 14,355
Fund accounting fee 12,091
Custody fees 5,734
Federal and state registration 8,728
Professional fees 30,007
Reports to shareholders 1,453
Trustee fees and expenses 10,858
Distribution expenses 1,061
Insurance 3,296
Other 1,251
----------
Total expenses 220,208
----------
NET INVESTMENT (LOSS) (65,102)
----------
REALIZED AND UNREALIZED
GAIN ON INVESTMENTS:
Net realized gain on investments 4,108,321
Change in unrealized
depreciation on investments (299,779)
----------
Net realized and unrealized
gain on investments 3,808,542
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,743,440
==========
See accompanying notes to financial statements.
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
--------------- -----------------
(UNAUDITED)
OPERATIONS:
Net investment (loss) $ (65,102) $ (98,163)
Net realized gain on investments 4,108,321 3,520,945
Change in unrealized depreciation
on investments (299,779) (1,714,017)
----------- -----------
Net increase in net assets
resulting from operations 3,743,440 1,708,765
----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains -- (2,035,270)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 1,966,797 6,225,042
Proceeds from shares issued to
holders in reinvestment of
dividends -- 1,089,556
Cost of shares redeemed (865,943) (2,693,972)
----------- -----------
Net increase in net assets from
capital share transactions 1,100,854 4,620,626
----------- -----------
TOTAL INCREASE IN NET ASSETS 4,844,294 4,294,121
----------- -----------
NET ASSETS:
Beginning of year 28,449,213 24,155,092
----------- -----------
End of year (including undistributed
net investment loss of
$(65,102) and $0, respectively) $33,293,507 $28,449,213
=========== ===========
See accompanying notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
PER SHARE DATA: 1998 1997 1996 1995 1994 1993
------------ ------ ------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $19.21 $19.03 $15.83 $13.17 $14.84 $14.17
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss) (0.04) (0.07)(1)<F3> (0.11)(1)<F3> 0.14(1)<F3> 0.18 0.29
Net realized and unrealized gains
(losses) on investments 2.55 1.69 4.26 3.42 (0.93) 1.62
------- ------- ------- ------- ------- -------
Total from investment operations 2.51 1.62 4.15 3.56 (0.75) 1.91
------- ------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income -- -- -- (0.13) (0.18) (0.29)
Dividends in excess of net
investment income -- -- -- -- (0.03) (0.03)
Distributions from capital gains -- (1.44) (0.95) (0.77) (0.71) (0.92)
------- ------- ------- ------- ------- -------
Total distributions -- (1.44) (0.95) (0.90) (0.92) (1.24)
------- ------- ------- ------- ------- -------
Net asset value, end of period $21.72 $19.21 $19.03 $15.83 $13.17 $14.84
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
Total return 13.1%(3)<F5> 9.0% 26.3% 27.1% (5.1)% 13.5%
Supplemental data and ratios:
Net assets (in millions)
end of period $33.3 $28.4 $24.2 $20.2 $18.5 $16.6
Ratio of expenses to
average net assets 1.42%(4)<F6> 1.51% 1.65%(2)<F4> 1.50% 1.56% 1.51%
Ratio of net investment income
(loss) to average net assets (0.42)%(4)<F6> (0.40)% 0.65%(2)<F4> 0.89% 1.36% 2.00%
Portfolio turnover rate 33.39% 71.20% 54.13% 59.72% 70.66% 19.88%
(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> Not annualized.
(4)<F6> Annualized.
</TABLE>
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1998 (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, 1998, 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,
1998, 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:
<TABLE>
ACQUISITION ORIGINAL COST NET UNREALIZED LOSS
COST TO FUND TO PILGRIM ACCRUED TO FUND
-------------- ------------ -------------------
<S> <C> <C> <C>
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, 1998) $11,126,810 $11,126,808
============= =============
</TABLE>
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, 1998, the Fund paid Lepercq, de Neuflize
Securities Inc., a wholly owned subsidiary of the Adviser, $4,950 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 $1,061 pursuant to the Plans for the six months ended June
30, 1998.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997
---------------- -----------------
Shares subscribed 93,076 289,992
Shares issued to holders in
reinvestment of dividends -- 59,965
Shares redeemed (41,211) (138,328)
--------- ---------
Net (decrease) 51,865 211,629
========= =========
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended June 30, 1998, were as
follows:
U.S. GOVERNMENT OTHER
---------------- -------
Purchases -- $12,914,337
Sales $25,000 9,211,864
At June 30, 1998, gross unrealized appreciation and depreciation of
investments for federal income-tax purposes were as follows:
Appreciation $ 8,086,600
(Depreciation) (12,526,739)
-------------
Net unrealized depreciation on investments $ (4,440,139)
=============
At June 30, 1998, the cost of investments for federal income-tax purposes was
$37,656,122.
The Fund acquired a tax capital loss carryforward from the Pilgrim
Corporate Utilities 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.
SPECIAL MEETING OF SHAREHOLDERS, APRIL 27, 1998
A Special Meeting of Shareholders of The Lepercq-Istel Fund (the "Fund"), a
series of The Lepercq-Istel Trust (the "Trust"), was held April 27, 1998, at
the offices of the Trust. As of March 11, 1998, the record date, outstanding
shares of the Fund were 1,482,212.756. Holders of 1,187,033.568 shares of the
Fund were present at the meeting in person or by proxy, being the holders of a
majority of the outstanding shares of the Fund and thus constituting a quorum.
The following matters were voted on at the meeting.
1) The Shareholders of the Trust elected the following nominees to the Board
of Trustees: Stanley A. Deitch, Bruno Desforges, Francois Letaconnoux,
Jean-Louis Milin, Dr. Marvin Schiller, Franz Skryanz, Marie-Monique Steckel
and Dennis Tarzian.
WITHHOLD/ BROKER SHARES
FOR AGAINST ABSTAIN NOT VOTED
---- ------- -------- ------------
Stanley A. Deitch 1,173,161.990 58.081 4,568.497 9,245.000
Bruno Desforges 1,172,304.636 915.435 4,568.497 9,245.000
Francois Letaconnoux 1,172,304.636 915.435 4,568.497 9,245.000
Jean-Louis Milin 1,168,906.283 4,313.788 4,568.497 9,245.000
Dr. Marvin Schiller 1,172,447.015 773.056 4,568.497 9,245.000
Franz Skryanz 1,173,019.611 200.460 4,568.497 9,245.000
Marie-Monique Steckel 1,173,161.990 58.081 4,568.497 9,245.000
Dennis Tarzian 1,172,388.934 831.137 4,568.497 9,245.000
2) The Shareholders of the Trust elected to modify the Fund's investment
objective.
WITHHOLD/ BROKER SHARES
FOR AGAINST ABSTAIN NOT VOTED
---- ------- -------- ------------
1,023,817.148 56,693.205 24,546.215 81,977.000
3) The Shareholders of the Trust elected to reclassify, modify, or eliminate
certain fundamental investment restrictions of the Fund.
WITHHOLD/ BROKER SHARES
FOR AGAINST ABSTAIN NOT VOTED
---- ------- -------- ------------
994,807.192 40,665.345 69,581.891 81,979.140
TRUSTEES
Stanley A. Deitch Principal, CPI Associates, Inc., Member, American
Institute of CPA's.
+<F8>Bruno Desforges Chairman of the Board; Managing Director,
Lepercq, de Neuflize & Co. Incorporated;
Director and Chairman of the Board,
Lepercq, de Neuflize Securities Inc.
+<F8>Francois Letaconnoux Director, President and Chief Executive Officer,
Lepercq Inc., Lepercq, de Neuflize & Co.
Incorporated and Lepercq,
de Neuflize Securities Inc.
Jean-Louis Milin Managing Director, Banque de Neuflize,
Schlumberger, Mallet
*<F7>Dr. Marvin Schiller Director, Salant Corporation; Director,
Tutor Time Learning Systems, Inc.;
General Partner, Reprise Capital Corp.;
Former Managing Director, A.T. Kearney, Inc.
*<F7>Franz Skryanz Financial Consultant; prior thereto,
Vice President, Sutton & Edwards;
prior thereto, Treasurer, Chief Financial
Officer, Schenkers International
Marie-Monique Steckel President, France Telecom North America; Director,
Microcard Technologies Inc.; Director, GlobeCast
North America Inc.; Director, C&P Press, Inc.
Dennis Tarzian President and Chief Executive Officer, New Century
Education Corp.; Director, National Registered
Agents, Inc.; prior thereto, Vice President
and Chief Operating Officer, Paramount
Communications Business,
Technical and Professional Group.
*<F7> Member of Audit, Ethics and Nominating Committees
+<F8> Interested Trustees
OFFICERS
Tsering Ngudu President
Jerry Getsos Executive Vice President
Stephen T. Murphy Treasurer and Secretary
Peter Hartnedy Controller
Investment Adviser Lepercq, de Neuflize & Co. Incorporated,
New York
Underwriter and Distributor Lepercq, de Neuflize Securities Inc.,
New York
Custodian, Transfer Agent, Firstar Trust Company, Wisconsin
Dividend Paying Agent, Accounting
Services Agent and Administrator
Legal Counsel Kramer, Levin, Naftalis & Frankel, New York
Independent Auditors KPMG Peat Marwick LLP, Wisconsin
Lepercq-Istel Fund
(LEPERCQ-ISTEL FUND 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.
