<PAGE>
[GRAPHIC APPEARS HERE] Semi-Annual
Report
June 30, 2000
================================================================================
Pilgrim Mutual Funds
================================================================================
PILGRIM
GROWTH AND INCOME
FUND, INC.
----------------------------------------------------
Investment Objective: Long-term Capital Appreciation
and Income
<PAGE>
Chairman's Message
-------------------------------------------------------------------------------
Dear Shareholders:
Welcome to the Pilgrim Mutual Funds family. We are pleased to present the
Semi-Annual Report for Pilgrim Growth and Income Fund, Inc. (formerly
Lexington Growth and Income Fund, Inc.).
On July 26, 2000, ReliaStar Financial Corp. ("ReliaStar") acquired Lexington
Management Corporation and all of its subsidiaries. In conjunction with the
acquisition, Pilgrim Investments, Inc., a subsidiary of ReliaStar, was
appointed to the role of Investment Adviser to the Fund. As a shareholder in
the Pilgrim family of funds, you now have access to more funds with varying
investment objectives. As a Lexington Fund shareholder as of July 26th, you
can now exchange into any Pilgrim Fund A shares without paying a sales load.
Our fund family has 41 varying types of mutual funds which provide more core
investment choices for the serious investor. We believe that the key to
success is matching quality core investments to the individual needs of
investors. Core investments are the foundation of every portfolio and the
basis of other important investment decisions. Pilgrim prides itself on
providing a family of core investments designed to help you reach your
financial goals. Our goal is for every investor to have a successful
investment experienceSM.
If you have any questions regarding your account, or any other Pilgrim Fund
you can access, please call us at 800-992-0180 or visit our website at
www.pilgrimfunds.com.
Sincerely,
/s/ Robert W. Stallings
Robert W. Stallings
Chairman and Chief Executive Officer
Pilgrim Group, Inc.
August, 2000
<PAGE>
Dear Shareholders:
-------------------------------------------------------------------------------
The Pilgrim Growth and Income Fund, Inc. (formerly Lexington Growth and
Income Fund, Inc.) appreciated 1.7%* for the six months ended June 30, 2000.
This compares to a 1.3% return for the average large-cap core fund monitored
by Lipper, Inc. during this period. The unmanaged Standard & Poors 500 Index
actually recorded a negative return of 0.4%, its first six-month decline since
1994.
Amid the crosscurrents of rising interest rates and signs of an economic
slowdown, market volatility increased. Technology, which outpaced the market
in the first quarter, began to underperform in the second. Under the pressure
from rising interest rates, financials gave back all of their earlier gains.
Leading the market were the consumer staples, led by the merger activity in
the foods, and health care, which rose in the face of a steady barrage of
finger pointing at the excessive prices for drugs. Once again, value
underperformed both growth and the market.
As we enter the second half, signs of an economic slowdown appear to be
broadening. These would include slower growth in autos, housing, retail sales
and manufacturing. On balance, these represent merely a slowdown from
unsustainably high rates of growth in the previous quarters, not absolute
declines. The U.S. economy remains strong and together with improved overseas
economies should support continued earnings growth albeit at rates below those
seen in the first half of 2000. Earnings estimates have not yet adjusted to a
slower growth environment and as expectations are ratcheted downward, this may
put pressure on stocks in the second half of the year. On the positive side is
the likely support to equities from the anticipated end to rate increases by
the Federal Reserve in response to the slower growth. On balance, modest
returns from stocks can be expected, well below the 20%+ annual gains
generated over the past five years.
Reflecting the slowing economy we have reduced the Fund's exposure to the
economically sensitive industrials and consumer cyclical stocks, while
increasing our weighting in the more predictable consumer staple sector. We
have modestly reduced our holdings in the technology sector, as the valuations
remain very high.
As you are aware, Lexington Global Asset Managers, Inc., the parent company
of Lexington Management Corporation was acquired by ReliaStar Financial Corp.
(NYSE:RLR) the parent company of Pilgrim Investments, Inc., an investment
management and mutual fund company with $17 billion of assets under
management.
On May 1, ReliaStar announced that it agreed to be acquired by ING Groep
N.V. ("ING Group") in a transaction that, subject to certain approvals, is
expected to close in the third quarter of this year. ING Group is a global
financial institution that is active in the field of insurance, banking, and
asset management in more than 60 countries.
1
<PAGE>
We wish to thank you for your continued support.
Sincerely,
/s/ ALAN H. WAPNICK
Alan H. Wapnick
Portfolio Manager
August, 2000
--------
* 10.87%, 21.31%, and 14.86% are the one, five, and ten year average annual
standard total returns, respectively, for the period ended June 30, 2000.
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. There is no guarantee that the Fund can achieve its
objective.
2
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
Number Value
of Shares Security (Note 1)
<C> <S> <C>
--------------------------------------------------------------------------------
COMMON STOCKS: 97.1%
Auto Trucks & Parts: 1.4%
79,000 Ford Motor Company.................................... $ 3,397,000
10,344 Visteon Corporation/1/................................ 125,417
------------
3,522,417
------------
Banking: 5.3%
93,000 BankAmerica Corporation............................... 3,999,000
230,000 The Kroger Company/1/................................. 5,074,375
108,200 Wells Fargo Company................................... 4,192,750
------------
13,266,125
------------
Capital Equipment: 9.9%
72,300 Ingersoll-Rand Company................................ 2,910,075
66,900 Microsoft Corporation/1/.............................. 5,349,909
54,000 Millipore Corporation................................. 4,070,250
94,400 Parker-Hannifin Corporation........................... 3,233,200
97,000 Sealed Air Corporation/1/............................. 5,080,375
180,000 Varco International/1/................................ 4,185,000
------------
24,828,809
------------
Chemicals: 1.3%
107,700 Dow Chemical Company.................................. 3,251,194
------------
Computers: 1.5%
35,500 International Business Machines Corporation........... 3,889,469
------------
Consumer Durable Goods: 3.3%
109,800 EMC Corporation/1/.................................... 8,447,737
------------
Consumer Nondurable Goods: 7.4%
69,500 Anheuser-Busch Companies, Inc. ....................... 5,190,781
61,700 Colgate-Palmolive, Company............................ 3,694,287
50,700 Johnson and Johnson................................... 5,165,062
120,000 The Walt Disney Company/1/............................ 4,657,500
------------
18,707,630
------------
Electrical & Electronics: 18.6%
66,000 Analog Devices, Inc./1/............................... 5,016,000
111,300 Cisco Systems, Inc./1/................................ 7,071,028
328,100 J.D. Edwards & Company/1/............................. 4,931,753
143,400 Motorola, Inc. ....................................... 4,167,562
86,500 Network Appliance, Inc./1/............................ 6,960,547
80,600 Oracle Corporation.................................... 6,772,919
126,000 Solectron Corporation/1/.............................. 5,276,250
71,000 Sun Microsystems, Inc./1/............................. 6,458,781
------------
46,654,840
------------
</TABLE>
<TABLE>
<CAPTION>
Number Value
of Shares Security (Note 1)
<C> <S> <C>
--------------------------------------------------------------------------------
Energy Sources: 7.1%
110,400 Enron Corporation..................................... $ 7,120,800
199,900 R&B Falcon Corporation/1/............................. 4,710,144
81,700 Schlumberger, Ltd. ................................... 6,096,862
------------
17,927,806
------------
Ferrous Metals: 1.8%
143,000 Alcan Aluminium, Ltd. ................................ 4,433,000
------------
Financial Services: 9.1%
78,500 Citigroup, Inc. ...................................... 4,729,625
91,200 Federal National Mortgage Association................. 4,759,500
97,800 Golden West Financial Corporation..................... 3,991,462
68,000 Morgan Stanley Dean Witter and Company................ 5,661,000
50,000 The Progress Corporation.............................. 3,700,000
------------
22,841,587
------------
Health & Personal Care: 6.8%
109,500 Abbott Laboratories................................... 4,879,594
65,200 Amgen, Inc./1/........................................ 4,582,338
154,000 Medtronic, Inc. ...................................... 7,671,125
------------
17,133,057
------------
Materials: 1.5%
94,900 Martin Marietta Materials, Inc. ...................... 3,837,519
------------
Merchandising: 4.1%
149,400 Costco Companies, Inc./1/............................. 4,934,869
105,050 The Home Depot, Inc. ................................. 5,245,934
------------
10,180,803
------------
Services: 4.6%
173,600 AT & T Corporation--Liberty Media Group "A"/1/........ 4,209,800
23,400 Internet Capital Group, Inc./1/....................... 864,338
93,310 Viacom, Inc. Class "B"/1/............................. 6,362,576
------------
11,436,714
------------
Telecommunications: 11.7%
114,000 Comcast Corporation/1/................................ 4,620,563
35,000 Corning, Inc. ........................................ 9,445,625
65,350 Marsh & McLennan Companies, Inc. ..................... 6,824,991
85,200 Nextel Communications, Inc./1/........................ 5,210,513
64,400 Sprint Corporation.................................... 3,284,400
------------
29,386,092
------------
Utilities: 1.7%
91,400 The AES Corporation/1/................................ 4,170,125
------------
TOTAL COMMON STOCKS
(cost $181,133,152).................................. 243,914,924
------------
</TABLE>
3
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Statement of Net Assets
(Including the Portfolio of Investments)
June 30, 2000 (unaudited) (continued)
<TABLE>
<CAPTION>
Principal Value
Amount Security (Note 1)
<C> <S> <C>
------------------------------------------------------------------------------
SHORT-TERM INVESTMENT: 3.1%
Government Agency Obligation: 3.1%
$7,900,000 Federal Home Loan Bank, 6.48%, due 07/03/00
(cost $7,897,156)................................ 7,897,156
------------
TOTAL INVESTMENTS: 100.2%
(cost $189,030,308+) (Note 1).................... 251,812,080
Liabilities in excess of other assets: (0.2)%..... (481,126)
------------
TOTAL NET ASSETS: 100.0%
(equivalent to $22.77 per share on 11,039,951
shares outstanding).............................. $251,330,954
============
</TABLE>
--------
/1/Non-income producing security.
+ Aggregate cost for Federal income tax purposes is $190,213,037.
The Notes to Financial Statements are an integral part of this statement.
4
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Statement of Assets and Liabilities
June 30, 2000 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $189,030,308) (Note 1).............. $251,812,080
Cash............................................................ 81,746
Receivable for fund shares sold................................. 105,438
Dividends and interest receivable............................... 59,421
------------
Total Assets................................................. 252,058,685
------------
Liabilities
Due to Lexington Management Corporation (Note 2)................ 256,298
Payable for fund shares redeemed................................ 159,380
Accrued expenses................................................ 312,053
------------
Total Liabilities............................................ 727,731
------------
Net Assets (equivalent to $22.77 per share on 11,039,951 shares
outstanding) (Note 4).......................................... $251,330,954
============
Net Assets consist of;
Capital stock -- authorized 1,000,000,000 shares, $.001 par
value per share................................................ $ 11,040
Additional paid-in-capital...................................... 166,713,379
Accumulated net investment loss................................. (28,964)
Accumulated net realized gain on investments.................... 21,853,727
Unrealized appreciation of investments.......................... 62,781,772
------------
Total Net Assets............................................. $251,330,954
============
</TABLE>
Pilgrim Growth and Income Fund, Inc.
Statement of Operations
Six months ended June 30, 2000 (unaudited)
<TABLE>
<S> <C> <C>
Investment Income
Dividends........................................... $ 988,788
Interest............................................ 250,902
------------
1,239,690
Less: foreign tax expense........................... 6,435
------------
Total investment income............................. $1,233,255
Expenses
Investment advisory fee (Note 2).................... 776,164
Distribution expenses (Note 3)...................... 120,164
Transfer agent and shareholder servicing expenses
(Note 2)........................................... 108,542
Directors' fees and expenses........................ 95,396
Accounting expenses (Note 2)........................ 80,595
Printing and mailing expenses....................... 15,947
Audit fees.......................................... 15,717
Custodian expenses.................................. 14,924
Computer processing fees............................ 11,221
Registration fees................................... 9,540
Professional fees................................... 7,748
Other expenses...................................... 27,069
------------
Total expenses...................................... 1,283,027
----------
Net investment loss................................. (49,772)
Realized and Unrealized Gain (Loss) on Investments
(Note 5)
Net realized gain on investments.................... 18,210,849
Net change in unrealized appreciation of
investments........................................ (13,741,032)
------------
Net realized and unrealized gain.................... 4,469,817
----------
Increase in Net Assets Resulting from Operations..... $4,420,045
==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
5
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Six months ended
June 30, 2000 Year ended
(unaudited) December 31, 1999
---------------- -----------------
<S> <C> <C>
Operations:
Net investment income (loss)................ $ (49,772) $ 505,959
Net realized gain from investment
transactions............................... 18,210,849 32,933,595
Net change in unrealized appreciation of
investments................................ (13,741,032) 1,831,121
------------ ------------
Net increase in net assets resulting from
operations............................... 4,420,045 35,270,675
------------ ------------
Distributions to Shareholders: (Note 1)
Distributions to shareholders from net
investment income.......................... -- (481,857)
Distributions to shareholders from net
realized gains from security transactions.. -- (29,652,698)
------------ ------------
Decrease in net assets from
distributions............................ -- (30,134,555)
------------ ------------
Capital Share Transactions: (Note 4)
Proceeds from sale of shares................ 29,483,414 24,331,505
Reinvested dividends........................ -- 26,237,461
Cost of shares redeemed..................... (37,104,244) (46,963,108)
------------ ------------
Net increase (decrease) in net assets from
capital share transactions............... (7,620,830) 3,605,858
------------ ------------
Net increase (decrease) in net assets....... (3,200,785) 8,741,978
Net Assets:
Beginning of period......................... 254,531,739 245,789,761
------------ ------------
End of period (including accumulated net
investment loss of $28,964 and
undistributed net investment income
$20,808, in 2000 and 1999, respectively)... $251,330,954 $254,531,739
============ ============
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
6
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999
1.Significant Accounting Policies
Pilgrim Growth and Income Fund, Inc. (formerly 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 prices is used. Securities traded on the over-the-counter
market are valued at the mean between the last current bid and asked prices.
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 semi-annually 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, 1999,
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 and
disclosure of contingent 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 paid 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 2000, the adviser has agreed to voluntarily
limit the total expenses of the Fund (excluding interest, taxes, brokerage
commissions, 12B-1 fees and extraordinary
7
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
2.Investment Advisory Fee and Other Transactions with Affiliate (continued)
expenses but including management fee 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, 2000.
The Fund also reimbursed LMC for certain expenses, including accounting and
shareholder servicing costs of $162,052 which were incurred by the Fund, but
paid by LMC.
3.Distribution Plan
The Fund had a Distribution Plan (the "Plan") which allowed payments to
finance activities associated with the distribution of the Fund's shares. The
Plan provided 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, 2000 were $120,164 and are set forth in the statement of operations.
4.Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Six months ended
June 30, 2000 Year ended
(unaudited) December 31, 1999
------------------------ ------------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold............... 1,304,958 $ 29,483,414 1,074,232 $ 24,331,505
Shares issued on
reinvestment of
dividends................ -- -- 1,181,529 26,237,461
---------- ------------ ---------- ------------
1,304,958 29,483,414 2,255,761 50,568,966
Shares redeemed........... (1,635,933) (37,104,244) (2,103,059) (46,963,108)
---------- ------------ ---------- ------------
Net increase
(decrease)............. (330,975) $ (7,620,830) 152,702 $ 3,605,858
========== ============ ========== ============
</TABLE>
5.Investment Transactions
The cost of purchases and proceeds from sales of securities for the six months
ended June 30, 2000, excluding short-term securities, were $97,798,433 and
$114,980,959, respectively.
At June 30, 2000, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost amounted to
$75,709,681 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over value amounted to $14,110,638.
6.Investment and Concentration 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
8
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Notes to Financial Statements
June 30, 2000 (unaudited) and December 31, 1999 (continued)
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.
7.Subsequent Events
Effective on July 26, 2000, Lexington Global Asset Managers, Inc. was acquired
by ReliaStar Financial Corp. ("ReliaStar"). In conjunction with the
acquisition and following approval by the Fund's Board of Directors and
shareholders, Pilgrim Investments, Inc., an indirect, wholly owned subsidiary
of Reliastar, was appointed to the role of investment adviser to the Fund
effective July 26, 2000. Pilgrim Securities, Inc., also an indirect, wholly
owned subsidiary of Reliastar, was appointed distributor to the Fund on that
date as well.
On May 1, 2000, ReliaStar Financial Corp. (NYSE:RLR), the indirect parent
company of Pilgrim Investments, Inc., Adviser to the Funds, and Pilgrim
Securities, Inc., Distributor to the Funds, entered into an agreement under
which it will be acquired by ING Groep N.V. (NYSE:ING). ING Groep N.V. is a
global financial institution active in the field of insurance, banking, and
asset management in more than 60 countries, with almost 90,000 employees.
Completion of the acquisition is contingent upon, among other things, approval
by the Directors/Trustees of the Pilgrim Funds and certain shareholder and
regulatory approvals. The closing of the acquisition is expected to occur
during the third quarter of 2000.
9
<PAGE>
Pilgrim Growth and Income Fund, Inc.
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Six months ended Year ended December 31,
June 30, 2000 --------------------------------------
(unaudited) 1999 1998 1997 1996
---------------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period.... $22.38 $21.91 $20.27 $18.56 $15.71
-------- -------- -------- -------- --------
Income from investment
operations:
Net investment income.. -- 0.05 -- 0.05 0.07
Net realized and
unrealized gain on
investments........... 0.39 3.33 4.30 5.46 4.08
-------- -------- -------- -------- --------
Total income from
investment operations.. 0.39 3.38 4.30 5.51 4.15
-------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income..... -- (0.05) -- (0.07) (0.13)
Dividends from net
realized gains........ -- (2.86) (2.66) (3.73) (1.17)
-------- -------- -------- -------- --------
Total distributions..... -- (2.91) (2.66) (3.80) (1.30)
-------- -------- -------- -------- --------
Net asset value, end of
period................. $22.77 $22.38 $21.91 $20.27 $18.56
======== ======== ======== ======== ========
Total return............ 3.53%* 15.54% 21.42% 30.36% 26.46%
Ratio to average net
assets:
Expenses............... 1.02%* 0.95% 1.16% 1.17% 1.13%
Net investment income.. (0.04)%* 0.21% 0.06% 0.21% 0.43%
Portfolio turnover
rate................... 79.67%* 86.31% 63.20% 88.15% 101.12%
Net assets, end of
period (000's
omitted)............... $251,331 $254,532 $245,790 $228,037 $200,309
</TABLE>
--------
* Annualized
10
<PAGE>
PILGRIM GROWTH AND INCOME
FUND, INC.
Investment Adviser All Shareholder requests for services of
Pilgrim Investments, Inc. any kind should be sent to:
40 North Central Avenue
Suite 1200 Transfer Agent
Phoenix, Arizona 85004-4408 Lexington Funds
c/o DST Systems, Inc.
Distributor P.O. Box 219368
Pilgrim Securities, Inc. Kansas City, Missouri 64121-6368
40 North Central Avenue
Suite 1200 Or call toll free
Phoenix, Arizona 85004-4408 Service and Sales: 1-800-526-0056
www.lexingtonfunds.com
This report has been prepared for the information of the Pilgrim 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. LEX279/280/281-SAR6/00
The Lexington Funds PRSRT STD
Park 80 West - Plaza Two U.S. Postage
Saddle Brook, New Jersey 07663 Paid
Lexington
Management Corp
