(Lepercq-Istel Fund LOGO)
SEMI-ANNUAL
REPORT
June 30, 1999
LEPERCQ-ISTEL FUND
AUGUST 5, 1999
DEAR SHAREHOLDERS:
In the table below is a report on the performance of your Fund for the second
quarter and the first half of 1999. For comparative purposes, we have also
provided performance information for some relevant benchmarks.
SECOND QUARTER 1999 FIRST HALF 1999
------------------- ---------------
Lepercq-Istel Fund 5.67% 3.92%
Lipper Capital Appreciation Average 8.61% 13.43%
Lipper General Equity Average 10.16% 11.84%
Standard & Poor's 500 7.05% 12.38%
The U.S. economy continues to perform superbly. Prospects for the global
economy have also considerably brightened with the recent improvement in Europe
and Asia. With global economic recovery seemingly secured, the Federal Reserve
has begun a process of switching monetary policy from fighting a potential
global recession to one focused on keeping a lid on inflation.
Stock investors' celebration of accelerating corporate profit growth has started
to become dampened by fears that higher rates will cut short this trend. Low
interest rates have been a key pillar to the bull market of the past five years
so changes in the rate environment will have to be watched closely.
The second quarter saw several additions to the Fund's portfolio including
Dupont, Great Lakes Chemical, Johnson & Johnson, CMGI, eBay and Broadcast.com
(as a proxy for Yahoo!). Dupont and Great Lakes Chemical both have large
chemical businesses which are benefiting from the global recovery. More
importantly, both companies have recently appointed CEOs who are speeding up the
transformation of their companies to enhance growth and reduce cyclicality.
Johnson & Johnson, the healthcare giant, has been a perennial favorite of ours
for its ability to continuously adapt. More recently, Johnson & Johnson has
taken several new initiatives, including acquiring biotechnology company
Centoeur to strengthen its pharmaceutical pipeline. Additionally, the Fund
invested in three leading companies in the internet sector. We believe CMGI,
eBay and Yahoo! all have highly profitable business models and can grow
exponentially over time. Given that we see the internet as the biggest driver
of change in business today, we believe some exposure to the sector is
warranted.
Thank you for your continued support.
Sincerely,
/s/ Tsering Ngudu /s/ Jerry Getsos
Tsering Ngudu Jerry Getsos
President and Portfolio Manager Executive Vice President and
Portfolio Manager
Past performance is not predictive of future performances.
LEPERCQ-ISTEL FUND
SCHEDULE OF INVESTMENTS
JUNE 30, 1999
(UNAUDITED)
NUMBER OF MARKET
SHARES VALUE
--------- ---------
COMMON STOCKS - 78.85%
BANKS - 10.98%
40,000 Bank of New York $ 1,467,500
14,000 Chase Manhattan 1,212,750
30,000 U.S. Bancorp 1,020,000
------------
3,700,250
------------
CHEMICAL/COMMODITY - 6.10%
20,000 du Pont (E. I.)
de Nemours 1,366,250
15,000 Great Lakes Chemical 690,938
------------
2,057,188
------------
CLOTHING - 3.47%
60,000 Russell 1,170,000
------------
COMMUNICATIONS - 4.22%
15,000 Motorola 1,421,250
------------
COMPUTERS/INFORMATION - 3.29%
30,000 Dell*<F1> 1,110,000
------------
ENERGY/PIPELINES - 3.57%
125,000 Ocean Energy*<F1> 1,203,125
------------
INDUSTRIAL/COMMERCIAL
SERVICES - 2.90%
20,000 First Data 978,750
------------
INTERNET - 9.37%
10,000 Broadcast.com*<F1> 1,335,625
10,000 CMGI*<F1> 1,140,625
4,500 eBay*<F1> 681,188
------------
3,157,438
------------
MEDIA/BROADCASTING - 4.12%
32,000 CBS*<F1> 1,390,000
------------
MEDICAL SUPPLIES - 3.40%
15,000 Bausch & Lomb 1,147,500
------------
PHARMACEUTICALS - 9.42%
15,000 Johnson & Johnson 1,470,000
30,000 Pharmacia & Upjohn 1,704,375
------------
3,174,375
------------
SOFTWARE/PROCESSING - 4.72%
60,000 Novell*<F1> 1,590,000
------------
TELEPHONE - 10.71%
25,000 AT&T 1,395,312
18,500 Frontier Corporation 1,091,500
34,000 Qwest Communications*<F1> 1,124,125
------------
3,610,937
------------
COMMON STOCKS,
INTERNATIONAL - 2.58%
10,000 Nortel Networks 868,125
------------
TOTAL COMMON STOCKS
(COST $21,677,623) 26,578,938
------------
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
------------
PRINCIPAL MARKET
AMOUNT VALUE
--------- ----------
U.S. TREASURY BILLS - 19.97%
$4,270,000 U.S. Treasury Bill,
due 7/29/99 $ 4,255,523
2,500,000 U.S. Treasury Bill,
due 9/16/99 2,475,617
------------
Total U.S. Treasury Bills
(Cost $6,730,659) 6,731,140
------------
VARIABLE RATE
DEMAND NOTES#<F3> - 1.48%
182,806 American Family
Financial Services,
4.91% 182,806
317,120 Wisconsin Electric
Power Company,
4.91% 317,120
------------
Total Variable Rate
Demand Notes
(Cost $499,926) 499,926
------------
Total Investments -
100.30%
(Cost $40,035,018) 33,810,006
------------
Liabilities Less Other
Assets - (0.30%) (102,542)
------------
NET ASSETS -
100.00% $33,707,464
------------
------------
*<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.
#<F3>Variable Rate Demand Notes are considered short-term obligations and
are payable on demand at the market value. Interest rates change periodically at
specified dates. The rates shown here are as of June 30, 1999.
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999
(UNAUDITED)
ASSETS:
Investments, at market value
(Cost $40,035,018) $33,810,006
Dividends and interest
receivable 15,776
Other assets 18,452
------------
Total Assets 33,844,234
------------
LIABILITIES:
Payable to Adviser 61,591
Accrued expenses and
other liabilities 75,179
------------
Total Liabilities 136,770
------------
NET ASSETS $33,707,464
------------
------------
NET ASSETS CONSIST OF:
Capital stock $34,666,409
Accumulated undistributed
net investment loss (20,131)
Accumulated undistributed
net realized gains on
investments 5,286,198
Net unrealized depreciation
on investments (Note 2) (6,225,012)
------------
Total Net Assets $33,707,464
------------
------------
Shares outstanding
(unlimited shares of $1.00
par value authorized) 1,629,246
Net Asset Value, offering
and redemption price $20.69
------------
------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
INVESTMENT INCOME:
Dividend income (net of taxes
withheld of $1,071) $ 102,306
Interest income 103,569
------------
Total income 205,875
------------
EXPENSES:
Investment advisory fee 121,005
Administration fee 20,599
Shareholder servicing fees
and expense 17,001
Fund accounting fee 10,899
Custody fees 3,620
Federal and state registration 8,145
Professional fees 32,798
Reports to shareholders 2,224
Trustee fees and expenses 7,630
Other 2,085
------------
Total expenses 226,006
------------
NET INVESTMENT LOSS (20,131)
------------
REALIZED AND UNREALIZED
GAIN (LOSS) on Investments:
Net realized gain
on investments 4,757,725
Change in unrealized
depreciation on investments (3,469,961)
------------
Net realized and unrealized
gain on investments 1,287,764
------------
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS $1,267,633
------------
------------
See accompanying notes to financial statements.
LEPERCQ-ISTEL FUND
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
(UNAUDITED)
OPERATIONS:
Net investment loss $ (20,131) $ (122,592)
Net realized gain on investments 4,757,725 3,024,353
Change in unrealized appreciation
(depreciation) on investments (3,469,961) 1,385,309
-------------- -------------
Net increase in net assets
resulting from operations 1,267,633 4,287,070
-------------- -------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net realized gains 0 (3,246,117)
-------------- -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares subscribed 843,440 2,654,631
Shares issued to holders in
reinvestment of dividends 0 2,487,870
Cost of shares redeemed (1,216,898) (1,819,378)
-------------- -------------
Net increase (decrease) in net assets
from capital share transactions (373,458) 3,323,123
-------------- -------------
TOTAL INCREASE IN NET ASSETS 894,175 4,364,076
-------------- -------------
NET ASSETS:
Beginning of year 32,813,289 28,449,213
-------------- -------------
End of year (including undistributed
net investment income (loss) of
($20,131) and $0, respectively) $33,707,464 $32,813,289
-------------- -------------
-------------- -------------
See accompanying notes to financial statements.
FINANCIAL HIGHLIGHTS
<TABLE>
SIX MONTHS
ENDED YEAR ENDED
DECEMBER 31,
JUNE 30, -------------------------------------------------------------
1999 1998 1997 1996 1995 1994
----------- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $19.91 $19.21 $19.03 $15.83 $13.17 $14.84
------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income (loss) (0.06)(1)<F11> (0.07)(1)<F11> (0.07)(1)<F11> (0.11)(1)<F11> 0.14(1)<F11> 0.18
Net realized and unrealized gains
(losses) on investments 0.84 2.90 1.69 4.26 3.42 (0.93)
------ ------ ------ ------ ------ ------
Total from investment operations 0.78 2.83 1.62 4.15 3.56 (0.75)
------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income -- -- -- -- (0.13) (0.18)
Dividends in excess of net
investment income -- -- -- -- -- (0.03)
Distributions from capital gains -- (2.13) (1.44) (0.95) (0.77) (0.71)
------ ------ ------ ------ ------ ------
Total distributions -- (2.13) (1.44) (0.95) (0.90) (0.92)
------ ------ ------ ------ ------ ------
Net asset value, end of period $20.69 $19.91 $19.21 $19.03 $15.83 $13.17
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Total return 3.92% 15.4% 9.0% 26.3% 27.1% (5.1%)
Supplemental data and ratios:
Net assets (in millions) end
of period $33.7 $32.8 $28.4 $24.2 $20.2 $18.5
Ratio of expenses to average
net assets 1.40%(3)<F13> 1.48% 1.51% 1.65%(2)<F12> 1.50% 1.56%
Ratio of net investment income
(loss) to average net assets (0.12%)(3)<F13>(0.40%) (0.40%) (0.65%)(2)<F12>0.89% 1.36%
Portfolio turnover rate 70.61% 83.06% 71.20% 54.13% 59.72% 70.66%
</TABLE>
(1)<F11> Net investment income per share is calculated using ending balances
prior to consideration or adjustment for permanent book and tax differences.
(2)<F12> 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)<F13> Annualized.
See accompanying notes to financial statements.
NOTES TO FINANCIAL STATEMENTS - JUNE 30, 1999 (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 and net
realized capital gains, if any, are 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, 1999, 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 the ("Adviser") and Pilgrim Management
Corporation. On June 30, 1999 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, 1999) $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 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, 1999, the Fund paid Lepercq, de Neuflize
Securities Inc., a wholly owned subsidiary of the Adviser $10,530 of brokerage
commissions.
Firstar Mutual Fund Services, LLC serves as the Fund's transfer agent,
administrator and fund accountant. Firstar Bank Milwaukee, N.A. serves as the
Fund's custodian.
The Board of Trustees, on behalf of the Fund, has adopted a Distribution Plan
pursuant to Rule 12b-1 under the Investment Company Act of 1940 and a
Shareholder Servicing Plan. Pursuant to the Distribution Plan, the Fund may
incur distribution expenses of up to 0.75% per annum of its average daily net
assets. The Distribution 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.
4. CAPITAL SHARE TRANSACTIONS
Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
---------------- -----------------
Shares subscribed 42,159 127,807
Shares issued to holders in
reinvestment of dividends -- 132,263
Shares redeemed (61,190) (92,811)
------- ---------
Net increase (decrease) (19,031) 167,259
------- ---------
------- ---------
5. INVESTMENT TRANSACTIONS
The aggregate purchases and sales of securities, excluding short-term
investments, for the Fund for the six months ended June 30, 1999, were as
follows:
U.S. GOVERNMENT OTHER
--------------- -----
Purchases -- $19,700,915
Sales -- 22,836,915
At June 30, 1999, gross unrealized appreciation and depreciation of
investments for federal income-tax purposes were as follows:
Appreciation $ 5,385,307
(Depreciation) (11,610,319)
-------------
Net unrealized depreciation
on investments $ (6,225,012)
-------------
-------------
At June 30, 1999, the cost of investments for federal income-tax purposes was
$40,035,018.
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.
TRUSTEES
+<F5> Bruno Desforges Chairman of the Board, Lepercq-Istel Trust;
Managing Director, Lepercq, de Neuflize & Co.
Incorporated; Director and Chairman of the
Board, Lepercq, de Neuflize Securities Inc.
Stanley A. Deitch Principal, CPI Associates, Inc., Member,
American Institute of CPA's.
+<F5> 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
*<F4> Marvin Schiller, Ph.D. Director, Tutor Time Learning Systems, Inc.;
General Partner, Reprise Capital Corp.
*<F4> Franz Skryanz Financial Consultant
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.
*<F4> Member of Audit, Ethics and Nominating Committees
+<F5> Interested Trustees
OFFICERS
Tsering Ngudu President
Jerry Getsos Executive Vice President
Peter Hartnedy Secretary and Treasurer
Investment Adviser Lepercq, de Neuflize & Co.
Incorporated, New York
Underwriter and Distributor Lepercq, de Neuflize Securities Inc.,
New York
Dividend Paying Agent, Transfer Agent,
Administrator and Fund Accountant Firstar Mutual Fund Services,
LLC, Milwaukee
Custodian Firstar Bank Milwaukee, N.A., Milwaukee
Legal Counsel Battle Fowler LLP, New York
Independent Auditors KPMG LLP, Milwaukee
(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.
