Dear Shareholders:
- --------------------------------------------------------------------------------
The Lexington Growth and Income Fund showed a 12.14%* return for the six
months ended June 30, 1996. This compares to a 9.24% return for the average
growth and income fund monitored by Lipper Analytical Services, Inc. during the
period.
Despite losses in the bond market, stocks continued their bull run with a
10.1% total return as measured by the unmanaged Standard & Poor's 500 Stock
Price Index. However, that impressive gain obscures the fact that the equity
markets have become increasingly more volatile. In fact, most of the gain was
realized early in the year, with the market rising only 1.4% from the earlier
peak reached in mid-February.
The market's pause likely reflects three factors. First, the one percent
rise in interest rates has created a tougher environment for stocks, in contrast
to last year's decline in rates that helped fuel the explosive stock market
rally. Second, the pace of public offerings of stock by corporations has picked
up dramatically, increasing the supply, and offsetting the strong demand for
stocks created by the continued strong flow of new money into domestic equity
mutual funds. Third, earnings growth, while still strong, has slowed
considerably from the pace of the last few years.
At current levels of long term interest rates, stocks appear modestly
overvalued. The key to further gains will likely be the trend in corporate
earnings. With the resurgence of economic growth in the U.S. and the outlook for
improving economies around the world, earnings visibility for many U.S.
corporations has improved, with continued growth now likely into 1997. Although
a correction in stock prices is long overdue, we continue to believe stock
prices can continue to work their way higher.
In the first half, the fund benefitted from a focus on attractively valued
stocks with positive earnings and price momentum. This continues to be the case,
and has led to significant weightings in the energy and retail sectors, with
selective holdings in technology and economically sensitive, cyclical issues.
We appreciate your continued support and welcome the opportunity to discuss
any questions you may have about your investment.
Sincerely,
Alan H. Wapnick Robert M. DeMichele
Portfolio Manager President
July, 1996 July, 1996
*25.22%, 13.65% and 10.11% are the one, five and ten year average annual
standard total returns, respectively, for the period ended June 30, 1996.
Investment return and principal value of an investment will fluctuate so that an
investor's shares, when redeemed may be worth more or less than their original
cost. Total return represents past performance.
1
<PAGE>
Left Col.
Lexington Growth and Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 98.9%
BANKING: 2.0%
36,000 Citicorp ...................................... $ 2,974,500
------------
BEVERAGES: 2.2%
94,200 PepsiCo, Inc. ................................. 3,332,325
------------
BUILDING MATERIALS: 2.1%
48,700 Fluor Corporation ............................. 3,183,762
------------
CAPITAL EQUIPMENT: 6.8%
37,300 Boeing Company ................................ 3,249,762
38,600 Lockheed Martin Corporation ................... 3,242,400
88,200 Loral Space & Communications .................. 1,201,725
51,600 Raytheon Company .............................. 2,663,850
------------
10,357,737
------------
CONSUMER-DURABLE GOODS: 2.5%
37,100 Nike, Inc. .................................... 3,812,025
------------
CONSUMER-NON-DURABLE
GOODS: 9.3%
33,500 Colgate-Palmolive Company ..................... 12,839,125
58,000 Crown Cork & Seal Company, Inc. ............... 2,610,000
70,600 Dole Food Company ............................. 3,035,800
41,000 Hershey Foods Corporation ..................... 3,008,375
40,200 Ralston-Ralston Purina Group .................. 2,577,825
------------
14,071,125
------------
ELECTRICAL AND ELECTRONICS: 7.9%
41,800 BMC Software, Inc.1 ........................... 2,492,325
61,000 Cisco Systems, Inc.1 .......................... 3,457,938
51,900 Honeywell, Inc.1 .............................. 2,828,550
44,000 Intel Corporation ............................. 3,231,250
------------
12,010,063
------------
ENERGY SOURCES: 8.5%
19,900 BJ Services Company1 .......................... 698,988
102,200 Diamond Offshore Drilling, Inc.1 .............. 5,850,950
25,900 Mobil Corporation ............................. 2,904,037
67,900 Williams Companies, Inc. ...................... 3,361,050
------------
12,815,025
------------
Right Col.
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
FINANCIAL SERVICES: 9.5%
59,000 American Express Company ...................... $ 2,632,875
30,000 American International Group .................. 2,958,750
86,000 Conseco, Inc. ................................. 3,440,000
41,000 Foremost Corporation
of America .................................. 2,326,750
37,000 NationsBank Corporation ....................... 3,057,125
------------
14,415,500
------------
HEALTH & PERSONAL CARE: 6.8%
32,500 Becton, Dickinson & Company ................... 2,608,125
59,700 Boston Scientific Corporation1 ................ 2,686,500
45,000 SmithKline Beecham
Plc (ADR) ................................... 2,446,875
47,000 Warner-Lambert Company1 ....................... 2,585,000
------------
10,326,500
------------
HOUSEHOLD PRODUCTS: 1.8%
30,600 Procter & Gamble Company ...................... 2,773,125
------------
HEALTHCARE-MISCELLANEOUS: 2.4%
56,000 Eli Lilly & Company ........................... 3,640,000
------------
MEDICAL PROUCTS & SUPPLIES: 2.2%
67,800 Johnson & Johnson ............................. 3,356,100
------------
MACHINERY- UNCLASSIFIED: 2.0%
66,000 Dover Corporation ............................. 3,044,250
------------
MERCHANDISING: 6.2%
101,500 Borders Group, Inc.1 .......................... 3,273,375
87,700 Gap, Inc. ..................................... 2,817,363
100,000 Safeway, Inc.1 ................................ 3,300,000
------------
9,390,738
------------
2
<PAGE>
Left Col.
Lexington Growth and Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 1996 (unaudited) (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
MATERIALS: 8.6%
47,000 Aluminum Company of America ................... $ 2,696,625
54,400 Boise Cascade Corporation ..................... 1,992,400
67,000 Praxair, Inc. ................................. 2,830,750
67,000 Union Carbide Corporation ..................... 2,663,250
48,000 Willamette Industries, Inc. ................... 2,850,000
------------
13,033,025
------------
MULTI-INDUSTRY: 3.7%
43,200 AlliedSignal, Inc. ............................ 2,467,800
76,500 Tyco International, Ltd.1 ..................... 3,117,375
------------
5,585,175
------------
SERVICES: 10.5%
45,200 Computer Associates International, Inc. ....... 3,220,500
92,900 Ecolab, Inc. .................................. 3,065,700
37,100 Schlumberger, Ltd. ............................ 3,125,675
63,100 Service Corporation International ............. 3,628,250
88,700 WMX Technologies, Inc. ........................ 2,904,925
------------
15,945,050
------------
TELECOMMUNICATIONS: 1.9%
44,800 Teleport Communications Group, Inc.1 .......... 851,200
30,000 Tellabs, Inc.1 ................................ 2,006,250
------------
2,857,450
------------
TRANSPORTATION: 2.0%
33,000 AMR Corporation ............................... 3,003,000
------------
TOTAL COMMON STOCKS
(cost $127,780,295) ......................... $149,926,475
------------
Right Col.
Number of
Shares or
Principal Value
Amount Security (Note 1)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS: 0.3%
$500,000 U.S. Treasury Bill
4.97%, due 08/15/97 (cost $496,893) ......... $ 496,745
------------
TOTAL INVESTMENTS: 99.2%
(cost $128,277,188(d)) (Note 1) ............. 150,423,220
Other assets in excess of liabilities: 0.8% ... 1,136,435
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $17.51 per share on
8,657,661 shares outstanding) ............... $151,559,655
============
1Non-income producing securities.
ADR-American Depository Receipt.
(D)Aggregate cost for Federal Income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
3
<PAGE>
Left Col.
Lexington Growth and Income Fund, Inc.
Statement of Assets and Liabilities
June 30, 1996 (unaudited)
Assets
Investments, at value
(cost $128,277,188) (Note 1) ................................. $150,423,220
Cash ........................................................... 2,843,639
Receivable for shares sold ..................................... 82,020
Dividends and interest receivable .............................. 137,610
------------
Total Assets ................................................. 153,486,489
------------
Liabilities
Due to Lexington Management Corporation
(Note 2) ..................................................... 82,509
Payable for investment securities
purchased .................................................... 1,419,867
Payable for shares redeemed .................................... 334,995
Accrued expenses ............................................... 89,463
------------
Total Liabilities ............................................ 1,926,834
------------
Net Assets (equivalent to $17.51 per share on
8,657,661 shares outstanding) (Note 4) ....................... $151,559,655
============
Net Assets consist of:
Capital stock-authorized 500,000,000
shares, $.001 par value per share ............................ $ 8,658
Additional paid-in capital (Note 1) ............................ 123,893,950
Undistributed net investment income
(Note 1) ..................................................... 151,352
Accumulated net realized gain on
investments (Note 1) ......................................... 5,359,663
Net unrealized appreciation of investments ..................... 22,146,032
------------
Net Assets ................................................... $151,559,655
============
Right Col.
Lexington Growth and Income Fund, Inc.
Statement of Operations
Six months ended June 30, 1996 (unaudited)
Investment Income
Dividends ................................. $ 1,059,362
Interest .................................. 99,018
-----------
1,158,380
Less: foreign tax expense ................. 1,130
-----------
Total investment income ......................... $ 1,157,250
Expenses
Investment advisory fee (Note 2) .......... 513,855
Transfer agent and shareholder
services fees (Note 2) .................. 75,185
Accounting expense (Note 2) ............... 52,479
Printing and mailing ...................... 37,371
Distribution expense (Note 3) ............. 33,552
Registration fees ......................... 17,425
Professional fees ......................... 17,177
Custodian fees ............................ 11,368
Directors' fees and expenses .............. 6,934
Other expenses ............................ 33,756
-----------
Total expenses ................................... 799,102
-----------
Net investment income ............................ 358,148
Realized and Unrealized Gain on Investments
(Note 5)
Net realized gain on
investments ............................................ 5,357,257
Net change in unrealized appreciation on
investments ............................................ 11,018,888
-----------
Net realized and unrealized gain on
investments .................................... 16,376,145
-----------
Increase in Net Assets Resulting
from Operations ........................................ $16,734,293
===========
The Notes to Financial Statements are an integral part of these statements.
4
<PAGE>
Left Col.
Lexington Growth and Income Fund, Inc.
Statements of Changes in Net Assets
Six months
ended Year ended
June 30, 1996 December 31,
(unaudited) 1996
------------ ------------
Net investment income .......................... $ 358,148 $ 1,804,733
Net realized gain from investment
transactions ................................. 5,357,257 15,931,202
Increase in unrealized
appreciation of investments .................. 11,018,888 9,051,101
------------ ------------
Increase in net assets
resulting from operations .................. 16,734,293 26,787,036
Distributions to shareholders from net
investment income ............................ (902,383) (1,809,688)
Distributions to shareholders from net
realized gains from security
transactions ................................. - (13,290,821)
Increase (decrease) in net assets from
capital share transactions (Note 4) .......... (3,172,795) 2,925,345
------------ ------------
Net increase in net assets ................... 12,659,115 14,611,872
Net Assets:
Beginning of period .......................... 138,900,540 124,288,668
------------ ------------
End of period (including undistributed
net investment income of $151,352
and $695,588, respectively) (Note 1) ....... $151,559,655 $138,900,540
============ ============
The Notes to Financial Statements are an integral part of these statements.
Lexington Growth and Income Fund, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995
1. Significant Accounting Policies
Lexington Growth and Income 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 long-term appreciation of
capital. Income is a secondary objective. The following is a summary of
significant accounting policies followed by the Fund in the preparation of its
financial statements:
Investments Security 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 securities
are traded. If no sales price is recorded,
Right Col.
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 price. 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.
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 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, 1995,
reclassifications were made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Net investment income, net realized gains and net assets
were not affected by this change.
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 0.75% of the Fund's average daily net assets up to
$100 million and in decreasing stages to 0.40% of average daily net assets in
excess of $250 million. The investment advisory contract provides that the total
annual expenses of the Fund (including management fees, but excluding interest,
taxes, brokerage commissions and extraordinary expenses) will not exceed the
level of expenses which the Fund is permitted to bear under the most restrictive
expense limitation imposed by any state in which shares of the Fund are offered
for sale. No reimbursement was required for the six months ended June 30, 1996.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $109,300 which are incurred by the Fund, but paid
by LMC.
5
<PAGE>
Left Col.
Lexington Growth and Income Fund, Inc.
Notes to Financial Statements
June 30, 1996 (unaudited) and December 31, 1995 (continued)
3. Distribution Plan
The Fund has a distribution Plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Funds Distributor, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the six months ended June 30,
1996 were $33,552 which are set forth in the statement of operations.
4. Capital Stock
Transactions in capital stock were as follows:
Six months ended
June 30, 1996 Year Ended
(unaudited) December 31, 1995
------------------------- -------------------------
Shares Amount Shares Amount
-------- ------------ -------- -----------
Shares sold .......... 444,135 $ 7,442,864 423,165 $ 6,632,289
Shares issued on
reinvestment of
dividends .......... 37,835 626,168 854,913 13,393,562
-------- ----------- ---------- -----------
481,970 8,069,032 1,278,078 20,025,851
Shares redeemed ...... (668,537) (11,241,827) (1,087,805) (17,100,506)
-------- ----------- ---------- -----------
Net increase
(decrease) ....... (186,567) $(3,172,795) 190,273 $ 2,925,345
======= =========== ========== ===========
Right Col.
5. Purchases and Sales of Investment Securities
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 1996, excluding short-term securities, were $82,931,858 and
$87,979,426, respectively.
At June 30, 1996, the aggregate gross unrealized appreciation for all securities
in which there is an excess of value over tax cost amounted to $ 23,591,693 and
aggregate gross unrealized depreciation for all securities in which there is an
excess of tax cost over value amounted to $1,445,661.
6. Investment Risks
The Fund's ability to invest 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.
6
<PAGE>
<TABLE>
<CAPTION>
Financial Highlights
Selected per share data for a share outstanding throughout the period:
Six months
ended Year ended December 31,
June 30, 1996 ---------------------------------------
(unaudited) 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........................... $15.71 $14.36 $16.16 $16.25 $16.39
------ ------ ------ ------ ------
Income (loss) from investment operations:
Net investment income ........................................ .08 .22 .17 .21 .23
Net realized and unrealized gain (loss) on investments ....... 1.82 3.00 (.68) 1.94 1.79
------ ------ ------ ------ ------
Total income (loss) from investment operations ................. 1.90 3.22 (.51) 2.15 2.02
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ......................... (.10) (.22) (.16) (.21) (.32)
Distributions from net realized gains ........................ - (1.65) (.91) (2.03) (1.84)
Distributions in excess of net realized gains (temporary
book-tax difference) ....................................... - - (.22) - -
------ ------ ------ ------ ------
Total distributions ............................................ (.10) (1.87) (1.29) (2.24) (2.16)
------ ------ ------ ------ ------
Net asset value, end of period ................................. $17.51 $15.71 $14.36 $16.16 $16.25
====== ====== ====== ====== ======
Total return ................................................... 25.98%* 22.57% (3.11%) 13.22% 12.36%
Ratios to average net assets:
Expenses ..................................................... 1.09%* 1.09% 1.15% 1.29% 1.20%
Net investment income ........................................ .49%* 1.38% 1.06% 1.20% 2.57%
Portfolio turnover ............................................. 114.61%* 159.94% 63.04% 93.90% 88.13%
Average commissions paid per share on equity securities ........ $0.07 - - - -
Net assets at end of period (000's omitted) .................... $151,560 $138,901 $124,289 $134,508 $126,241
<FN>
*Annualized
</FN>
</TABLE>
7
<PAGE>
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Lexington
Growth and Income Fund, Inc.
Investment Adviser
- --------------------------------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
Distributor
- --------------------------------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
---------------------------------------------------
All shareholder requests for services of
any kind should be sent to:
Transfer Agent
---------------------------------------------------
STATE STREET BANK AND
TRUST COMPANY
c/o National Financial Data Services
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Service and Sales: 1-800-526-0056
24 Hour Account Information:
1-800-526-0052
---------------------------------------------------
- --------------------------------------------------------------------------------
(800) 526-0052
"LEXLINE"
24 hour toll-free telephone access to your
Lexington Fund account
Price/Yield * Account Balances * Exchanges *
Last Transactions * Total Return * Duplicate Statements
- --------------------------------------------------------------------------------
This report has been prepared for the information of the shareholders of
Lexington Growth and Income Fund, Inc. and is authorized for distribution to the
public only if it is accompanied or preceded by a currently effective prospectus
which sets forth expenses and other material information.
Right Col.
--------------------------------------------------
LEXINGTON
LEXINGTON
GROWTH
AND
INCOME
FUND, INC.
(filled box)
Seeks capital appreciation over the
long term through investments in
the stocks of large, ably managed
and well financed companies.
(filled box)
SEMI-ANNUAL REPORT
JUNE 30, 1996
The Lexington Group
of No Load
Investment Companies
--------------------------------------------------
