DEAR SHAREHOLDERS:
- --------------------------------------------------------------------------------
The Lexington Growth and Income Fund appreciated by 17.57%* for the six months
ended June 30, 1997. This compares to a 15.52% return for the average growth and
income fund monitored by Lipper Analytical Services, Inc. during the period.
After the brief 10% correction in March and April, the bull market in
stocks resumed with a record setting run. For the second quarter, the unmanaged
Standard & Poor's 500 Stock Price Index (S&P 500) recorded a 17.5% total return,
its best quarterly showing since the first quarter of 1987. For the first half,
the S&P 500 is up 20.5%, ahead of the first half pace of both 1995 and 1996.
Driving this strong performance is a familiar cast of characters: stable growth,
low inflation, strong corporate earnings, and a favorable supply and demand for
stocks. The slowing of the economy in the second quarter from the very strong
growth in the fourth and first quarter, simply added fuel to the fire. The sharp
reduction in the federal budget deficit, and the likelihood of a balanced budget
agreement in Congress that would include a capital gains tax cut, only adds to
the impression that we find ourselves in "equity nirvana."
Valuation continues to be a problem for the stock market. At the
beginning of the quarter, stocks were overvalued in relation to bonds by 15%.
Despite the sharp rise in prices, stocks remain overvalued by only 15%,
reflecting the decline in 30 year Treasury Bond yields from 7% to 6.5%.
Apparently, most investors have accepted the very positive environment and
priced it into stocks. As we have said before, valuation is not a good timing
tool; rather, it alerts investors to a higher level of risk in the market. As
long as the key movers to this bull market remain intact, namely, good economic
growth with low inflation and strong corporate earnings, market overvaluation
will likely remain a concern, but not a critical issue.
In this environment of high equity valuation, we have chosen not to
maintain large cash reserves, choosing instead to focus on the valuation of
individual stocks. Earnings are always an important determinant of stock
performance, and in today's investment environment it is even more important. We
continue to focus our stock selection on those stocks that demonstrate positive
earnings and price momentum along with reasonable valuation. This has led us to
opportunistically increase the Fund's weighting in technology and maintain a
significant exposure to the drug, oil service and financial sectors.
We believe the second quarter economic slowdown is likely to be reversed
in the second half of the year. Our company contacts suggest that manufacturing
activity remains strong, and the consumer certainly has the income and
confidence to accelerate spending. Reflecting this outlook we have increased our
exposure to the retail sector and to the paper and aluminum industries which
have lagged the general market and offer good value.
1
<PAGE>
If we are correct, and economic growth regains momentum reaccelerates in
the second half, the market's current sanguine view towards Federal Reserve
policy and interest rates may be tested in the months ahead. While that may
unsettle the markets, we expect the concerns to be temporary and that the
outlook as we move into 1998 will continue to be generally positive.
We appreciate your continued support and welcome the opportunity to
discuss any questions you may have about your investment.
Sincerely,
/s/ Alan H. Wapnick /s/ Robert M. DeMichele
- ------------------------------ -----------------------------
Alan H. Wapnick Robert M. DeMichele
Portfolio Manager President
August, 1997 August, 1997
*32.58%, 17.50% and 11.33% are the one, five and ten year average annual
standard total returns, respectively, for the period ended June 30, 1997.
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 at their
original cost. Total return represents past performance and is not predictive of
future results.
2
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited)
Number Value
of Shares Security (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 98.9%
BANKING: 4.0%
36,000 Citicorp .......................................... $ 4,340,250
85,500 Union Planters Corporation ........................ 4,435,312
-----------
8,775,562
-----------
CAPITAL EQUIPMENT: 8.2%
74,600 Boeing Company ` ...................... 3,958,462
72,500 Dover Corporation ................................. 4,458,750
90,400 Ingersoll-Rand Company ............................ 5,582,200
85,000 Sealed Air Corporation ............................ 4,037,500
-----------
18,036,912
-----------
CONSTRUCTION: 0.0%
729 Morrison Knudsen Corporation ....................... 4,556
-----------
CONSUMER DURABLE GOODS: 2.0%
57,000 Perkin-Elmer Corporation .......................... 4,535,062
-----------
CONSUMER NONDURABLE GOODS: 3.4%
77,400 Crown Cork &Seal Company, Inc. .................... 4,136,062
65,800 Kimberly-ClarkCorporation ......................... 3,273,550
-----------
7,409,612
-----------
ELECTRICAL & ELECTRONICS: 9.4%
108,000 Adaptec, Inc.1 .................................... 3,753,000
203,000 Data GeneralCorporation1 .......................... 5,278,000
51,900 Honeywell, Inc. ................................... 3,937,913
93,000 Seagate Technology, Inc.1 ......................... 3,272,438
173,000 Structural Dynamics Research
Corporation1 .................................... 4,546,656
-----------
20,788,007
-----------
ENERGY SOURCES: 11.4%
65,000 BJServices Company1 ............................... 3,485,625
80,700 Diamond Offshore Drilling, Inc.1 .................. 6,304,688
51,800 Mobil Corporation ................................. 3,619,525
33,000 Texaco, Inc. ...................................... 3,588,750
124,500 Tosco Corporation ................................. 3,727,219
101,850 Williams Companies, Inc. .......................... 4,455,938
-----------
25,181,745
-----------
FINANCIAL SERVICES: 16.8%
63,000 Ace, Ltd. ......................................... 4,654,125
141,000 Conseco, Inc. ..................................... 5,217,000
97,000 Federal National Mortgage Association ............. 4,231,625
69,000 Foremost Corporation of America ................... 4,131,375
102,000 NAC Re Corporation ................................ 4,934,250
74,000 NationsBankCorporation ............................ 4,773,000
84,000 Norwest Corporation ............................... 4,725,000
57,000 St.Paul Companies, Inc. ........................... 4,346,250
-----------
37,012,625
-----------
HEALTH & PERSONAL CARE: 11.6%
62,000 Bristol-Myers Squibb Company ...................... 5,022,000
56,000 Medtronic, Inc. ................................... 4,536,000
53,400 SmithKline Beecham Plc (ADR) ...................... 4,892,775
80,000 United Healthcare Corporation ..................... 4,160,000
55,200 Warner-Lambert Company ............................ 6,858,600
-----------
25,469,375
-----------
HOUSEHOLD PRODUCTS: 2.3%
35,100 Procter & Gamble Company .......................... 4,957,875
-----------
MATERIALS: 5.4%
55,600 Georgia Pacific Corporation ....................... 4,746,850
98,000 James River Corporation of Virginia ............... 3,626,000
50,000 Reynolds Metals Company ........................... 3,562,500
-----------
11,935,350
-----------
MEDICAL PRODUCTS & SUPPLIES: 2.0%
67,800 Johnson & Johnson ................................. 4,364,625
-----------
MERCHANDISING: 10.5%
211,200 Borders Group, Inc.1 .............................. 5,095,200
128,000 Costco Companies, Inc. ............................ 4,212,000
124,000 Gap, Inc. ......................................... 4,820,500
89,000 Rite Aid Corporation .............................. 4,438,875
100,000 Safeway, Inc.1 .................................... 4,612,500
-----------
23,179,075
-----------
MULTI-INDUSTRY: 4.4%
50,800 AlliedSignal, Inc. ................................ 4,267,200
76,500 Tyco International, Ltd. .......................... 5,321,531
-----------
9,588,731
-----------
3
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
STATEMENT OF NET ASSETS
(INCLUDING THE PORTFOLIO OF INVESTMENTS)
June 30, 1997 (unaudited) (continued)
Number of Value
Shares Security (Note 1)
- --------------------------------------------------------------------------------
REAL ESTATE: 2.0%
91,000 Equity Residential Properties Trust ............... $ 4,322,500
------------
SERVICES: 3.3%
126,200 Service Corporation ............................... 4,148,825
98,100 Waste Management, Inc. ............................ 3,151,463
------------
7,300,288
------------
TRANSPORTATION: 2.2%
69,300 Union Pacific Corporation ......................... 4,885,650
------------
TOTAL INVESTMENTS: 98.9%
(cost $163,221,224+)(Note 1) ...................... $217,747,550
Other assets in excess of liabilities:
1.1% .......................................... 2,471,562
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $21.80 per share on
10,101,830 shares outstanding) .................. $220,219,112
============
- -----------
1 Non-income producing security.
ADR--American Depository Receipt.
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1997 (unaudited)
ASSETS
Investments, at value
(cost $163,221,224) (Note 1) ............................. $217,747,550
Cash ....................................................... 2,708,940
Receivable for shares sold ................................. 178,802
Dividends and interest receivable .......................... 211,601
------------
Total Assets ............................................. $220,846,893
------------
LIABILITIES
Due to Lexington Management Corporation
(Note 2) ................................................. 228,392
Payable for shares redeemed ................................ 160,538
Accrued expenses ........................................... 238,851
------------
Total Liabilities ........................................ 627,781
------------
NET ASSETS (equivalent to $21.80 per share on
10,101,830 shares outstanding) (Note 4) .................. $220,219,112
============
NET ASSETS consist of:
Capital stock--authorized 1,000,000,000
shares, $.001 par value per share ........................ $ 10,102
Additional paid-in capital (Note 1) ........................ 150,238,562
Undistributed net investment income
(Note 1) ................................................. 152,309
Accumulated net realized gain on
investments (Note 1) ..................................... 15,291,813
Unrealized appreciation of investments ..................... 54,526,326
------------
TOTAL NET ASSETS ......................................... $220,219,112
============
<TABLE>
<CAPTION>
LEXINGTON GROWTH AND INCOME FUND, INC.
STATEMENT OF OPERATIONS
Six months ended June 30, 1997 (unaudited)
<S> <C> <C>
INVESTMENT INCOME
Dividends ................................................... $ 1,382,909
Interest .................................................... 236,724
-----------
1,619,633
Less: foreign tax expense ................................... 7,476
-----------
Total investment income ................................................... $ 1,612,157
EXPENSES
Investment advisory fee (Note 2) .......................... 672,681
Distribution expense (Note 3) ............................. 257,045
Transfer agent and shareholder
servicing expense (Note 2) .............................. 117,558
Accounting expenses (Note 2) .............................. 74,419
Printing and mailing expenses ............................. 33,086
Registration fees ......................................... 24,824
Professional fees ......................................... 24,746
Custodian expense ......................................... 13,146
Computer processing fees .................................. 10,025
Directors' fees and expenses .............................. 8,156
Other expenses ............................................ 22,384
-----------
Total expenses ........................................................ 1,258,070
-----------
Net investment income ................................................. 354,087
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTE 5)
Net realized gain on
investments ................................................................. 12,208,982
Net change in unrealized appreciation on
investments ................................................................. 20,834,222
-----------
Net realized and unrealized gain on
investments ................................................................. 33,043,204
-----------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................................................. $33,397,291
===========
The Notes to Financial Statements are an integral part of these statements.
</TABLE>
5
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
Six months
ended Year ended
June 30, 1997 December 31,
(unaudited) 1996
------------- ------------
Net investment income $ 354,087 $ 712,927
Net realized gain from security
transactions 12,208,982 14,853,714
Net change in unrealized
appreciation of investments 20,834,222 22,564,960
------------ ------------
Net increase in net assets
resulting from operations 33,397,291 38,131,601
Distributions to shareholders from
net investment income (201,778) (1,197,624)
Distributions to shareholders from
net realized gains from security
transactions -- (11,924,849)
Increase (decrease) in net assets from
capital share transactions
(Note 4) (13,285,469) 36,399,400
------------ ------------
Net increase in net assets 19,910,044 61,408,528
NET ASSETS:
Beginning of period 200,309,068 138,900,540
------------ ------------
End of period (including undistributed
net investment income of $152,309
and $0, respectively) $220,219,112 $200,309,068
============ ============
The Notes to Financial Statements are an integral part of this statement.
LEXINGTON GROWTH AND INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996
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, the mean between the last bid and
asked price 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 Dividends from net investment income are normally declared
and paid quarterly and dividends from net realized capital gains are normally
declared and paid annually. However, the Fund may make distributions on a more
frequent basis to comply with the distribution requirements of the Internal
Revenue Code. 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, 1996, 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.
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 at the date of the financial statements and the reported amounts of
increases and decreases in net assets from operations during the reporting
period. Actual results could differ from those estimates.
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. For 1997, LMC haagreed to voluntarily limit the total
expenses of the Fund (excluding interest, taxes, brokerage commissions and
extraordinary expenses but including management fees and operating expenses) to
an annual rate of 2.50% of the Fund's average net assets. No reimbursement was
required for the six months ended June 30, 1997.
The Fund reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $168,890 which were incurred by the Fund, but
paid by LMC.
6
<PAGE>
LEXINGTON GROWTH AND INCOME FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 (unaudited) and December 31, 1996 (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,
1997 were $257,045 and are set forth in the statement of operations.
4. CAPITAL STOCK
Transactions in capital stock were as follows:
Six months ended
June 30, 1997 Year ended
(unaudited) December 31, 1996
--------------------- ---------------------
Shares Amount Shares Amount
-------- ----------- --------- ----------
Shares sold .......... 1,032,369 $ 20,732,390 3,754,824 $ 69,417,382
Shares issued on
reinvestment of
dividends........... 8,374 173,590 615,141 11,475,109
--------- ------------ --------- ------------
1,040,743 20,905,980 4,369,965 80,892,491
Shares redeemed ...... (1,729,121) (34,191,449) (2,423,985) (44,493,091)
--------- ------------ --------- ------------
Net increase
(decrease).......... (688,378) $(13,285,469) 1,945,980 $ 36,399,400
--------- ------------ --------- ------------
5. PURCHASES AND SALES OF INVESTMENT SECURITIES
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 1997, excluding short-term securities, were $92,822,512 and
$101,091,324, respectively. At June 30, 1997 the aggregate gross unrealized
appreciation for all securities in which there is an excess of value over tax
cost amounted to $55,719,887 and aggregate gross unrealized depreciation for all
securities in which there is an excess of tax cost over value amounted to
$1,193,561.
6. INVESTMENT AND CONCENTRATION RISK
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.
================================================================================
FINANCIAL HIGHLIGHTS
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months ended Year ended December 31,
June 30, 1997
(unaudited) 1996 1995 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ..................... $ 18.56 $ 15.71 $ 14.36 $ 16.16 $ 16.25
-------- -------- -------- -------- --------
Income (loss) from investment operations:
Net investment income .................................. 0.04 0.07 0.22 0.17 0.21
Net realized and unrealized gain (loss) on investments . 3.22 4.08 3.00 (0.68) 1.94
-------- -------- -------- -------- --------
Total income (loss) from investment operations ........... 3.26 4.15 3.22 (0.51) 2.15
Less distributions:
Dividends from net investment income ................... (0.02) (0.13) (0.22) (0.16) (0.21)
Distributions from net realized gains .................. -- (1.17) (1.65) (0.91) (2.03)
Distributions in excess of net realized gains
(temporary book-tax difference) ...................... -- -- -- (.22) --
-------- -------- -------- -------- --------
Total distributions ...................................... (0.02) (1.30) (1.87) (1.29) (2.24)
-------- -------- -------- -------- --------
Net asset value, end of period ........................... $ 21.80 $ 18.56 $ 15.71 $ 14.36 $ 16.16
======== ======== ======== ======== ========
Total return ............................................. 38.60%* 26.46% 22.57% (3.11%) 13.22%
Ratios to average net assets:
Expenses ............................................... 1.21%* 1.13% 1.09% 1.15% 1.29%
Net investment income . ................................ 0.34%* 0.43% 1.38% 1.06% 1.20%
Portfolio turnover rate .................................. 92.47%* 101.12% 159.94% 63.04% 93.90%
Average commission paid per share on equity
securities transactions**............................... $ 0.07 $ 0.07 -- -- --
Net assets at end of period (000's omitted) .............. $220,219 $200,309 $138,901 $124,829 $134,508
</TABLE>
*Annualized.
**In accordance with SEC disclosure guidelines, the average commissions are
calculated for the periods beginning with the year ended December 31, 1996,
but not for prior periods.
7
<PAGE>
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 o Account Balances o Exchanges o
Last Transactions o Total Return o 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.
- --------------------------------------------------------------------------------
LEXINGTON
- --------------------------------------------------------------------------------
================================================================================
LEXINGTON
GROWTH
AND
INCOME
FUND, INC.
- --------------------------------------[ ]---------------------------------------
Seeks capital appreciation over the
long term through investments in
the stocks of large, ably managed
and well financed companies.
- --------------------------------------[ ]---------------------------------------
SEMI-ANNUAL REPORT
JUNE 30, 1997
The Lexington Group
of No Load
Investment Companies
================================================================================
