Annual Report
April 30, 1998
INVESCO Dynamics Fund
A Smart Choice For Seeking
Maximum Growth Potential
You should know
what INVESCO knows. (TM)
INVESCO FUNDS
<PAGE>
Market Overview May 1998
The market's strength continues to surprise even the most bullish pundits.
Since the economic recession in 1990, equity prices in the U.S. have advanced
with limited interruptions. From a historical perspective, this is the greatest
bull market of all time. Exemplifying the underlying strength of this market,
the Dow Jones Industrial Average(1) (an unmanaged index composed of 30 domestic
large-capitalization stocks) reached these historic milestones on the following
dates:
o 1000 on November 14, 1972
o 2000 on January 8, 1987
o 3000 on April 17, 1991
o 4000 on February 23, 1995
o 5000 on November 21, 1995
o 6000 on October 14, 1996
o 7000 on February 13, 1997
o 8000 on July 16, 1997
o 9000 on April 6, 1998
Notice that it took the Dow approximately 15 years to double from 1000 to
2000, eight years to double from 2000 to 4000, and a little over two years to
double from 4000 to 8000. The phenomenal bull market of the 1990s has created
more financial wealth than at any other time in history. Nonetheless, equity
markets do go up and down, and it is highly unusual for stocks to consistently
produce returns of 20% to 30% annually. Instead, history has shown that stock
indexes average between 10% to 12% over longer time periods, and investors may
need to adjust their expectations accordingly.
Equity markets produced astonishingly strong returns in the last six months,
although day-to-day volatility was sometimes extreme. Since the Asian financial
crisis led to a correction in the fall of 1997, many domestic indexes have
advanced by more than 20%. Although the crisis increased negative sentiment
about the future direction of the economy and the market, it has done little to
affect either so far. Domestic economic growth continues to exceed its
historical average of 2% to 3%, yet we see no signs of inflation on the horizon
- -- an oxymoron in economic textbooks. (Historically, strong economic growth
increases the demand for labor, which leads to increased wages and eventually
inflation.) In fact, both consumer and producer prices remain stable and in many
cases are declining.
Understandably, consumer confidence is at its highest level in more than 27
years. Real wages are increasing and intense global competition is decreasing
retail prices for many consumer goods. Plus, the chronic federal budget deficit,
which has plagued the government for the last 18 years, might become a surplus
in 1998 -- thus improving the chances for a tax cut for many Americans.
At present, the economy is in what some call a "sweet spot," as benign
inflation, strong economic growth, and low unemployment have increased
consumers' confidence and willingness to spend money. The key to maintaining
this environment will be continued gains in worker productivity and low interest
rates. A decrease in productivity may lead to a slowdown in corporate earnings,
<PAGE>
which has been one of the underlying fundamentals of this bull market. In
addition, a significant increase in interest rates would slow the rate of growth
in the economy, and most likely reduce the price-to-earnings multiple that
investors are willing to pay for equity securities. Meanwhile, the technical
underpinnings needed to support a buoyant equity market, namely a strong and
healthy economy, remain intact.
INVESCO Dynamics Fund
According to independent fund analyst Lipper Analytical Services, Dynamics
Fund ranked #6 of 55 capital appreciation funds for the 10-year period ended
4/30/98, based on total return performance. Over the five-year period, the fund
was ranked #12 of 87 funds, and for the one-year period, #21 of 230 funds.(3)
For the 12-month period ended 4/30/98, INVESCO Dynamics Fund achieved a
total return of 56.42%, dramatically outperforming the S&P 500, which had a
total return of 40.94%, and the S&P MidCap 400, which had a total return of
47.92%. (Of course, past performance is a not a guarantee of future
results.)(1),(2)
The line graph on the following page illustrates the value of a $10,000
investment in INVESCO Dynamics Fund, plus reinvested dividends and capital gain
distributions, for the 10-year period ended 4/30/98. The chart and other total
return figures cited reflect the fund's operating expenses, but the indexes do
not have expenses, which would, of course, have lowered their
performance.(1),(2)
INVESCO Dynamics Fund
Average Annual Total Return as of 4/30/98(2)
1 year 56.42%
-----------------------------------------
5 years 22.75%
-----------------------------------------
10 years 19.44%
-----------------------------------------
Strategic Summary
Our disciplined approach to growth investing targets companies that can
generate above-average rates of revenue and earnings growth in the
mid-capitalization range -- defined as market caps between one and 10 billion
dollars. (Of course, the mid-cap range varies depending on prevailing market
conditions.) We believe that mid-cap stocks offer the best growth opportunities
in the market, as historically these firms experience the fastest-growing
revenues and earnings of all capitalization-range companies.
We use a bottom-up investment philosophy to develop the portfolio. This
structured approach focuses the core portion of the portfolio, typically 40% to
60% of the fund's assets, on market-leading growth companies with defensible
market positions. The remaining holdings consist of rapidly accelerating growth
companies, which tend to experience higher volatility. Candidates for investment
<PAGE>
typically come from industries, sectors, or special situations that can generate
above-average growth rates for the next three to five years. We prefer markets
and industries where leadership is in a few hands, while avoiding slower-growing
markets or industries.
Graph
This line graph represents a comparison of the value of a $10,000 investment
in the INVESCO Dynamics Fund to the value of a $10,000 investment in the S&P
500 and S&P MidCap 400 Indexes, assuming in each case reinvestment of all
dividends and capital gain distributions, for the ten year period ended
4/30/98.
During the last 12 months, the fund experienced explosive returns due to low
interest rates and strong stock selection. Some of the best results were
produced by firms in the financial services, health care, technology, and
telecommunications sectors. In the financial services sector, we have
concentrated the fund's investments in regional banks and brokerage companies.
Although these are not typically thought of as growth industries, the pace of
consolidation creates enormous opportunities for institutions with strong
regional franchises. (Of course, past performance is not a guarantee of future
results.)
Within the health care sector, the strongest returns over the last year were
produced by companies that sell medical devices and supplies. Changing
demographics in America have intensified the need for products that extend or
improve the quality of life. In addition, as health care administrators focus on
containing medical expenditures, products that can enhance patient care -- while
reducing long-term costs -- are in increasing demand.
Significant gains in extending the quality of life for patients have been
made in the field of cardiac research. Exceptional returns were generated over
the last year by the market-leading firm Guidant Corp., which experienced
tremendous growth in earnings as their products for use in cardiac rhythm
management, angioplasty devices, coronary artery disease intervention, and
cardiac surgery have been well-received by the market. Our outlook on the
medical devices and supplies industry remains positive, as current valuation
levels appear reasonable compared to the growth in earnings.
The telecommunications sector remains a dominant theme in the portfolio. The
Telecommunications Act of 1996 created new opportunities for competitive local
exchange carriers (CLECs) and telephone equipment companies. These firms are
experiencing accelerating growth as they build their local phone networks (which
are state-of-the-art, highly efficient systems) and expand their services. One
of our favorite companies in this sector remains COLT Telecom Group PLC. COLT
Telecom Group PLC is the leading European CLEC, and is seeing phenomenal growth
as European countries begin to deregulate their phone systems.
Although the technology sector endured extreme day-to-day price swings over
the last year as a result of the Asian financial crisis, we are optimistic about
its long-term potential. While the holdings and the composition of our holdings
<PAGE>
may change, the volatility, especially in the fall of 1997, allowed us to
improve our portfolio quality and increase our positions in market-leading
companies such as Maximum Integrated Products, PeopleSoft Inc., and America
Online Inc. (AOL). In fact, AOL is a classic example of why to invest in mid-cap
stocks. This Internet service provider struggled as a small-cap stock as the
firm was just one of many companies providing Internet services. However, as
time passed, they became the dominant player and evolved into a mid-cap stock.
Now the market leader, they are rapidly expanding sales and revenue growth and
the stock has been rewarded accordingly.
Looking forward, extreme market volatility may continue for the rest of
1998, but we are confident about the fundamental underpinnings of mid-cap
stocks. A strong, robust economy and low interest rates should continue to
provide a positive backdrop for this equity market.
(1)The S&P 500 is an unmanaged index considered representative of the
performance of the broad U.S. stock market. The S&P MidCap 400 is an unmanaged
index indicative of domestic mid-capitalization stock prices, while the Dow
Jones Industrial Average reflects performance of large-capitalization stocks.
(2)Total return assumes reinvestment of dividends and capital gain distributions
for the periods indicated. Investment return and principal value will fluctuate
so that, when redeemed, an investor's shares may be worth more or less than when
purchased.
(3)Rankings provided by Lipper Analytical Services, an independent fund analyst,
are based upon total return performance unadjusted for commissions.
Fund Management
INVESCO Dynamics Fund is managed by INVESCO Senior Vice President Timothy
J. Miller and Thomas R. Wald. Tim received his MBA from the University of
Missouri, and a BSBA from St. Louis University. A 19-year veteran of the
investment business, he is a Chartered Financial Analyst. Before joining INVESCO
in 1992, Tim was an analyst and portfolio manager with Mississippi Valley
Advisors.
Thomas R. Wald assumed responsibilities of co-manager in October 1997. He
received his MBA from The Wharton School, University of Pennsylvania, and a BA
from Tulane University. Before joining INVESCO in 1997, Tom was the senior
health care analyst at Munder Capital Management.
Graph:
This graph reflects the diversification of INVESCO Dynamics Fund by value
of total net assets in basic materials, capital goods, communication
services, consumer cyclicals, consumer staples, energy, finance, health
care, technology, transportation, utilities and cash & cash equivalents as
of 4/30/97, 10/31/97 and 4/30/98.
<PAGE>
INVESCO Capital Appreciation Funds, Inc. -- Dynamics Fund
Ten Largest Common Stock Holdings
April 30, 1998
Description Value
- --------------------------------------------------------------------------------
Maxim Integrated Products $32,098,125
Ascend Communications 28,577,000
Royal Caribbean Cruises Ltd 24,615,000
Edwards (J D) & Co 24,046,875
McKesson Corp 24,033,750
Xilinx Inc 23,561,250
Warnaco Group Class A 23,448,750
PeopleSoft Inc 23,250,000
Tele-Communications Inc-Liberty
Media Group Class A 23,231,250
ALZA Corp 22,290,937
Composition of holdings is subject to change.
<PAGE>
INVESCO Capital Appreciation Funds, Inc. -- Dynamics Fund
Statement of Investment Securities
April 30,1998
<TABLE>
<CAPTION>
Shares or
Principal
Description Amount Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCKS 95.04%
AUTO PARTS 0.25%
O'Reilly Automotive* 125,000 $ 3,437,500
---------------
AUTOMOBILES 1.10%
General Motors Class H 270,000 14,917,500
---------------
BANKS 2.46%
Star Banc 65,700 4,151,419
State Street 125,000 8,937,500
Summit Bancorp 175,000 8,771,875
Westamerica Bancorp 285,000 9,405,000
Zions Bancorp 41,000 2,096,125
---------------
33,361,919
---------------
BEVERAGES 0.70%
Coca-Cola Enterprises 250,000 9,437,500
---------------
BROADCASTING 1.04%
Clear Channel Communications* 150,000 14,137,500
---------------
CABLE 5.12%
Cox Communications Class A* 274,700 12,258,487
Flextech PLC* 1,400,000 11,586,960
TCA Cable TV 200,000 12,350,000
Tele-Communications Inc
Liberty Media Group Class A* 700,000 23,231,250
TCI Group Series A* 310,000 9,997,500
---------------
69,424,197
---------------
COMMUNICATIONS -- EQUIPMENT
& MANUFACTURING 1.73%
Aspect Telecommunications* 185,000 5,318,750
PairGain Technologies* 215,000 3,964,063
Tellabs Inc* 200,000 14,175,000
---------------
23,457,813
---------------
<PAGE>
COMPUTER RELATED 17.03%
America Online* 187,000 14,960,000
Ascend Communications* 656,000 28,577,000
Autodesk Inc 200,000 9,400,000
AXENT Technologies* 300,000 7,875,000
BMC Software* 150,000 14,034,375
Cambridge Technology Partners* 100,000 5,225,000
Ceridian Corp* 240,000 13,575,000
Computer Horizons* 175,000 6,639,062
E*TRADE Group* 175,000 4,364,062
Edwards (J D) & Co* 675,000 24,046,875
Electronic Arts* 250,000 11,562,500
FORE Systems* 450,000 10,293,750
Keane Inc* 225,000 11,306,250
Networks Associates* 175,000 11,987,500
Parametric Technology* 350,000 11,189,073
PeopleSoft Inc* 500,000 23,250,000
SEMA Group PLC 150,000 5,459,916
Symantec Corp* 375,000 10,875,000
Wind River Systems* 180,000 6,232,500
---------------
230,852,863
---------------
CONSUMER FINANCE 0.54%
FIRSTPLUS Financial Group* 150,000 7,275,000
---------------
ELECTRICAL EQUIPMENT 0.70%
Chicago Miniature Lamp* 247,750 9,507,406
---------------
ELECTRONICS --
SEMICONDUCTOR 6.80%
KLA-Tencor Corp* 405,000 16,326,563
Linear Technology 250,000 20,125,000
Maxim Integrated Products* 795,000 32,098,125
Xilinx Inc* 515,000 23,561,250
---------------
92,110,938
---------------
EQUIPMENT --
SEMICONDUCTOR 0.42%
Etec Systems* 100,000 5,675,000
---------------
<PAGE>
FINANCIAL 2.01%
Edwards (A G) Inc 207,500 9,337,500
Heller Financial* 136,000 3,672,000
Northern Trust 195,000 14,235,000
---------------
27,244,500
---------------
GAMING 1.71%
Mirage Resorts* 280,000 6,177,500
Sun International Hotels Ltd* 370,000 16,996,875
---------------
23,174,375
---------------
HEALTH CARE DRUGS --
PHARMACEUTICALS 3.15%
ALZA Corp* 465,000 22,290,937
Watson Pharmaceuticals* 475,000 20,425,000
---------------
42,715,937
---------------
HEALTH CARE RELATED 5.22%
Guidant Corp 192,500 12,873,438
HBO & Co 275,000 16,448,438
McKesson Corp 340,000 24,033,750
Professional Staff PLC Sponsored
ADR Representing Cmn Shrs* 149,900 2,698,200
Stryker Corp 325,000 14,625,000
---------------
70,678,826
---------------
INSURANCE 3.46%
AFLAC Inc 200,000 13,000,000
Hartford Life 176,940 8,747,471
Nationwide Financial Services
Class A 87,325 3,787,722
Provident Cos 202,500 7,910,156
UNUM Corp 250,000 13,437,500
---------------
46,882,849
---------------
INVESTMENT BANK/
BROKER FIRM 2.47%
Bear Stearns 185,000 10,556,562
Lehman Brothers Holdings 125,000 8,882,813
Price (T Rowe) Associates 185,000 13,967,500
---------------
33,406,875
---------------
<PAGE>
LEISURE TIME 2.84%
International Game Technology 500,000 13,906,250
Royal Caribbean Cruises Ltd 360,000 24,615,000
---------------
38,521,250
---------------
MACHINERY 0.69%
Cincinnati Milacron 300,000 9,318,750
---------------
OFFICE EQUIPMENT &
SUPPLIES 0.45%
Steelcase Inc 175,200 6,066,300
---------------
OIL & GAS RELATED 8.35%
Anadarko Petroleum 90,000 6,592,500
BJ Services* 275,000 10,312,500
Camco International 170,000 11,538,750
Coflexip SA Sponsored ADR
Representing 1/2 Ord Shrs* 255,000 18,168,750
Cooper Cameron* 303,300 20,150,494
EEX Corp* 1,250,000 12,109,375
Enron Oil & Gas 200,000 4,675,000
Global Industries Ltd* 375,000 8,507,812
Nabors Industries* 300,000 7,556,250
Noble Affiliates 150,000 6,468,750
Vastar Resources 150,000 7,134,375
---------------
113,214,556
---------------
PAPER & FOREST PRODUCTS 1.34%
Fort James 365,000 18,113,125
---------------
POLLUTION CONTROL 1.92%
USA Waste Services* 359,375 17,631,836
Waste Management 250,000 8,375,000
---------------
26,006,836
---------------
RAILROADS 1.17%
Kansas City Southern Industries 350,000 15,815,625
---------------
<PAGE>
RETAIL 2.70%
Costco Cos* 100,000 5,587,500
Fastenal Co 30,000 1,678,125
Meyer (Fred) Inc* 241,200 10,823,850
Tandy Corp 371,700 18,492,075
---------------
36,581,550
---------------
SAVINGS & LOAN 1.43%
Peoples Heritage Financial Group 250,000 12,062,500
Sovereign Bancorp 390,000 7,361,250
---------------
19,423,750
---------------
SERVICES 7.68%
Avis Rent A Car* 175,000 4,582,812
Budget Group Class A* 603,500 20,217,250
Gartner Group Class A* 325,000 10,765,625
i2 Technologies* 150,000 10,012,500
Omnicom Group 300,000 14,212,500
Robert Half International* 325,000 17,590,625
Snyder Communications* 250,000 10,625,000
WPP Group PLC 2,530,000 16,053,458
---------------
104,059,770
---------------
TELECOMMUNICATIONS --
CELLULAR & WIRELESS 2.02%
Millicom International Cellular SA* 250,000 9,781,250
NEXTEL Communications Class A* 300,000 8,606,250
Western Wireless Class A* 465,000 9,067,500
---------------
27,455,000
---------------
TELECOMMUNICATIONS --
LONG DISTANCE 2.89%
COLT Telecom Group PLC
Sponsored ADR Representing
4 Ord Shrs* 140,500 12,100,563
Level 3 Communications* 181,600 11,259,200
Pacific Gateway Exchange* 170,000 9,690,000
STAR Telecommunications* 225,000 6,089,063
---------------
39,138,826
---------------
<PAGE>
TELEPHONE 1.74%
Century Telephone Enterprises 297,500 12,662,344
Intermedia Communications* 150,000 10,947,656
---------------
23,610,000
---------------
TEXTILE -- APPAREL
MANUFACTURING 2.35%
Polo Ralph Lauren* 300,000 8,437,500
Warnaco Group Class A 555,000 23,448,750
---------------
31,886,250
---------------
TOYS 0.47%
Hasbro Inc 172,700 6,357,519
---------------
TRUCKERS 1.09%
CNF Transportation 382,900 14,789,512
---------------
TOTAL COMMON STOCKS
(Cost $1,037,666,085) 1,288,057,117
---------------
PREFERRED STOCKS 1.02%
AUTOMOBILES 1.02%
Porsche AG Non-Voting Pfd
(Cost $10,864,437) 5,500 13,761,513
---------------
SHORT-TERM INVESTMENTS --
REPURCHASE AGREEMENTS 3.94%
Repurchase Agreement with
State Street Bank & Trust Co
dated 4/30/1998 due 5/1/1998
at 5.470%, repurchased at
$53,403,113 (Collaterized by
US Treasury Bonds due 11/15/2015
at 9.875%, value $54,801,605)
(Cost $53,395,000) $ 53,395,000 53,395,000
---------------
TOTAL INVESTMENT
SECURITIES AT VALUE 100.00%
(Cost $1,101,925,522)
(Cost for Income Tax Purposes
$1,103,273,470) $ 1,355,213,630
===============
* Security is non-income producing.
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Capital Appreciation Funds, Inc. -- Dynamics Fund
Statement of Assets and Liabilities
April 30, 1998
ASSETS
Investment Securities at Value
(Cost $1,101,925,522) ~ $1,355,213,630
Cash
4,854,005
Receivables:
Investment Securities Sold 21,438,605
Fund Shares Sold 22,736,685
Dividends and Interest 180,312
Prepaid Expenses 89,056
---------------
TOTAL ASSETS 1,404,512,293
---------------
LIABILITIES
Payables:
Investment Securities Purchased 55,449,086
Fund Shares Repurchased 8,419,322
Accrued Distribution Expenses 269,691
Accrued Expenses and Other Payables 75,350
---------------
TOTAL LIABILITIES 64,213,449
---------------
Net Assets at Value $ 1,340,298,844
================
NET ASSETS
Paid-in Capital* $ 973,346,710
Accumulated Undistributed Net
Investment Loss (37,999)
Accumulated Undistributed Net Realized
Gain on Investment Securities and
Foreign Currency Transactions 113,702,025
Net Appreciation of Investment Securities
and Foreign Currency Transactions 253,288,108
---------------
Net Assets at Value $ 1,340,298,844
===============
Net Asset Value, Offering and Redemption
Price per Share $16.41
======
~ Investment securities at cost and value at April 30, 1998 include a
repurchase agreement of $53,395,000.
* The Fund has 100 million authorized shares of common stock, par value of
$0.01 per share, of which 81,696,428 were outstanding at April 30, 1998.
See Notes to Financial Statements
<PAGE>
INVESCO Capital Appreciation Funds, Inc. - Dynamics Fund
Statement of Operations
Year Ended April 30, 1998
INVESTMENT INCOME
INCOME
Dividends $4,606,293
Interest 2,272,468
Foreign Taxes Withheld (71,362)
---------------
TOTAL INCOME 6,807,399
---------------
EXPENSES
Investment Advisory Fees 5,874,212
Distribution Expenses 2,674,606
Transfer Agent Fees 2,156,766
Administrative Fees 170,476
Custodian Fees and Expenses 176,552
Directors' Fees and Expenses 65,591
Professional Fees and Expenses 58,021
Registration Fees and Expenses 154,490
Reports to Shareholders 159,572
Other Expenses 60,327
---------------
TOTAL EXPENSES 11,550,613
Fees and Expenses Paid Indirectly (119,641)
---------------
NET EXPENSES 11,430,972
---------------
NET INVESTMENT LOSS (4,623,573)
---------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENT SECURITIES
Net Realized Gain on Investment Securities
and Foreign Currency Transactions 220,083,978
Change in Net Appreciation of Investment
Securities and Foreign Currency Transactions 236,377,288
---------------
NET GAIN ON INVESTMENT SECURITIES 456,461,266
---------------
Net Increase in Net Assets from Operations $ 451,837,693
===============
See Notes to Financial Statements
<PAGE>
INVESCO Capital Appreciation Funds, Inc. - Dynamics Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended April 30
---------------------------------------
1998 1997
<S> <C> <C>
OPERATIONS
Net Investment Loss $ (4,623,573) $ (2,464,148)
Net Realized Gain on
Investment Securites and
Foreign Currency Transactions 220,083,978 40,252,470
Change in Net Appreciation
(Depreciation) of Investment
Securities and Foreign Currency
Transactions 236,377,288 (65,105,461)
---------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS FROM OPERATIONS 451,837,693 (27,317,139)
---------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Net Realized Gain on Investment
Securities and Foreign Currency
Transactions (133,519,730) (80,828,360)
---------------------------------------
FUND SHARE TRANSACTIONS
Proceeds from Sales of Shares 1,320,495,638 822,575,123
Reinvestment of Distributions 130,727,993 78,801,267
---------------------------------------
1,451,223,631 901,376,390
Amounts Paid for Repurchases
of Shares (1,191,638,369) (809,251,030)
---------------------------------------
NET INCREASE IN NET
ASSETS FROM FUND
SHARE TRANSACTIONS 259,585,262 92,125,360
---------------------------------------
Total Increase (Decrease) in
Net Assets 577,903,225 (16,020,139)
NET ASSETS
Beginning of Period 762,395,619 778,415,758
---------------------------------------
End of Period (Including
Accumulated Undistributed
Net Investment Loss of
($37,999) and ($9,165)
respectively) 1,340,298,844 762,395,619
=======================================
<PAGE>
FUND SHARE TRANSACTIONS
Shares Sold 88,367,135 61,735,689
Shares Issued from Reinvestment
of Distributions 9,785,039 6,127,628
---------------------------------------
98,152,174 67,863,317
Shares Repurchased (79,868,425) (61,637,091)
---------------------------------------
Net Increase in Fund Shares 18,283,749 6,226,226
=======================================
See Notes to Financial Statements
</TABLE>
<PAGE>
INVESCO Capital Appreciation Funds, Inc. - Dynamics Fund
Notes to Financial Statements
NOTE 1 -- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Capital
Appreciation Funds, Inc. is incorporated in Maryland and presently consists of
Dynamics Fund (the "Fund"). The investment objective of the Fund is to seek
appreciation of capital. The Fund is registered under the Investment Company Act
of 1940 (the "Act") as a diversified, open-end management investment company.
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. 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 income and expenses during the reporting period. Actual
results could differ from those estimates.
A. SECURITY VALUATION -- Equity securities traded on national securities
exchanges or in the over-the-counter market are valued at the last sales
price in the market where such securities are primarily traded. If last
sales prices are not available, securities are valued at the highest closing
bid price obtained from one or more dealers making a market for such
securities or by a pricing service approved by the Fund's board of
directors.
Foreign securities are valued at the closing price on the principal
stock exchange on which they are traded. In the event that closing prices
are not available for foreign securities, prices will be obtained from the
principal stock exchange at or prior to the close of the New York Stock
Exchange. Foreign currency exchange rates are determined daily prior to the
close of the New York Stock Exchange.
If market quotations or pricing service valuations are not readily
available, securities are valued at fair value as determined in good faith
under procedures established by the Fund's board of directors.
Short-term securities are stated at amortized cost (which approximates
market value) if maturity is 60 days or less at the time of purchase, or
market value if maturity is greater than 60 days.
Assets and liabilities initially expressed in terms of foreign currencies
are translated into U.S. dollars at the prevailing market rates as quoted by
one or more banks or dealers on the date of valuation. The cost of securities
is translated into U.S. dollars at the rates of exchange prevailing when such
securities are acquired. Income and expenses are translated into U.S. dollars
at the rates of exchange prevailing when accrued.
B. REPURCHASE AGREEMENTS -- Repurchase agreements held by the Fund are fully
collateralized by U.S. Government securities and such collateral is in the
possession of the Fund's custodian. The collateral is evaluated daily to
ensure its market value exceeds the current market value of the repurchase
agreements including accrued interest. In the event of default on the
obligation to repurchase, the Fund has the right to liquidate the collateral
<PAGE>
and apply the proceeds in satisfaction of the obligation. In the event of
default or bankruptcy by the other party to the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
C. SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME -- Security transactions
are accounted for on the trade date and dividend income is recorded on the ex
dividend date. Certain dividends from foreign securities will be recorded as
soon as the Fund is informed of the dividend if such information is obtained
subsequent to the ex dividend date. Interest income, which may be comprised
of stated coupon rate, market discount, original issue discount and amortized
premium, is recorded on the accrual basis. Cost is determined on the specific
identification basis.
The Fund may have elements of risk due to investments in foreign
issuers located in a specific country. Such foreign investments may subject
the Fund to additional risks resulting from future political or economic
conditions and/or possible impositions of adverse foreign governmental laws
or currency exchange restrictions. Net realized and unrealized gain or loss
from investment securities includes fluctuations from currency exchange
rates and fluctuations in market value.
The Fund's use of short-term forward foreign currency contracts may
subject it to certain risks as a result of unanticipated movements in
foreign exchange rates. The Fund does not hold short-term forward foreign
currency contracts for trading purposes. The Fund may hold foreign currency
in anticipation of settling foreign security transactions and not for
investment purposes.
D. FEDERAL AND STATE TAXES -- The Fund has complied, and continues to
comply, with the provisions of the Internal Revenue Code applicable to
regulated investment companies and, accordingly, has made or intends to
make sufficient distributions of net investment income and net realized
capital gains, if any, to relieve it from all federal and state income taxes
and federal excise taxes.
Dividends paid by the Fund from net investment income and distributions
of net realized short-term capital gains are, for federal income tax
purposes, taxable as ordinary income to shareholders. Of the ordinary income
distributions declared for the year ended April 30, 1998, 0% qualified for
the dividends received deduction available to the Fund's corporate
shareholders.
Investment income received from foreign sources may be subject to
foreign withholding taxes. Dividend and interest income is shown gross of
foreign withholding taxes in the accompanying financial statements.
E. DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS -- Dividends and distributions to
shareholders are recorded by the Fund on the ex dividend/distribution date.
The Fund distributes net realized capital gains, if any, to its
shareholders at least annually, if not offset by capital loss carryovers.
Income distributions and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
<PAGE>
differing treatments for amortized premiums, foreign currency transactions,
nontaxable dividends, net operating losses and expired capital loss
carryforwards. For the year ended April 30, 1998, the Fund reclassified
$4,606,790 from accumulated undistributed net realized gain on investment
securities to accumulated undistributed net investment income and $12,051
from accumulated undistributed net investment income to paid-in capital.
Net investment income, net realized gains and net assets were not affected.
F. FORWARD FOREIGN CURRENCY CONTRACTS --The Fund enters into short-term forward
foreign currency contracts in connection with planned purchases or sales of
securities as a hedge against fluctuations in foreign exchange rates pending
the settlement of transactions in foreign securities. A forward foreign
currency contract is an agreement between contracting parties to exchange an
amount of currency at some future time at an agreed upon rate. These
contracts are marked-to-market daily and the related appreciation or
depreciation of the contracts is presented in the Statement of Assets and
Liabilities.
G. EXPENSES -- Under an agreement between the Fund and the Fund's Custodian,
agreed upon Custodian Fees and Expenses are reduced by credits granted by
the Custodian from any temporarily uninvested cash. Similarly, Custodian
Fees and Expenses and Transfer Agent Fees are reduced by credits earned by
the Fund from security brokerage transactions under certain broker/service
arrangements with third parties. Such credits are included in Fees and
Expenses Paid Indirectly in the Statement of Operations.
For the year ended April 30, 1998, Fees and Expenses Paid Indirectly
consisted of $119,188 included in Custodian Fees and Expenses and $453
included in Transfer Agent Fees.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. INVESCO Funds Group,
Inc. ("IFG") serves as the Fund's investment adviser. As compensation for its
services to the Fund, IFG receives an investment advisory fee which is accrued
daily at the applicable rate and paid monthly. The fee is based on the annual
rate of 0.60% on the first $350 million of average net assets; reduced to 0.55%
on the next $350 million of average net assets; and 0.50% on average net assets
in excess of $700 million.
In accordance with a Sub-Advisory Agreement between IFG and INVESCO Trust
Company ("ITC"), a wholly owned subsidiary of IFG, investment decisions of the
Fund were made by ITC. Fees for such sub-advisory services were paid by IFG.
Effective February 4, 1998, such responsibilities were transfered to IFG.
In accordance with an Administrative Agreement, the Fund pays IFG an annual
fee of $10,000, plus an additional amount computed at an annual rate of 0.015%
of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
IFG receives a transfer agent fee at an annual rate of $20.00 per
shareholder account, or, where applicable, per participant in an omnibus
account, per year. IFG may pay such fee for participants in omnibus accounts to
affiliates or third parties. The fee is paid monthly at one-twelfth of the
annual fee and is based upon the actual number of accounts in existence during
each month.
<PAGE>
A plan of distribution pursuant to Rule 12b-1 of the Act provides for
compensation of marketing and advertising expenditures to IFG (the
"Distributor") to a maximum of 0.25% of annual average net assets. For the year
ended April 30, 1998, the Fund paid the Distributor $2,557,942 under the plan of
distribution. Effective September 29, 1997, INVESCO Distributors, Inc., ("IDI")
a wholly owned subsidiary of IFG, replaced IFG as distributor.
NOTE 3 -- PURCHASES AND SALES OF INVESTMENT SECURITIES. For the year ended
April 30, 1998, the aggregate cost of purchases and proceeds from sales of
investment securities (excluding all U.S. Government securities and short-term
securities) were $1,962,393,719 and $1,818,670,902, respectively.
There were no purchases or sales of U.S. Government securities.
NOTE 4 -- APPRECIATION AND DEPRECIATION. At April 30, 1998, the gross
appreciation of securities in which there was an excess of value over tax cost
amounted to $262,844,557 and the gross depreciation of securities in which there
was an excess of tax cost over value amounted to $10,904,397, resulting in net
appreciation of $251,940,160.
NOTE 5 -- TRANSACTIONS WITH AFFILIATES. Certain of the Fund's officers and
directors are also officers and directors of IFG, IDI or ITC.
The Fund has adopted an unfunded deferred compensation plan covering all
independent directors of the Fund who will have served as an independent
director for at least five years at the time of retirement. Benefits under this
plan are based on an annual rate equal to 40% of the retainer fee at the time of
retirement. As of July 1, 1998, benefits will be based on an annual rate of 50%
of the sum of the retainer fee at the time of retirement plus the annual meeting
fee.
Pension expenses for the year ended April 30, 1998, included in Directors'
Fees and Expenses in the Statement of Operations were $16,648. Unfunded accrued
pension costs of $30,472 and pension liability of $68,459 are included in
Prepaid Expenses and Accrued Expenses, respectively, in the Statement of Assets
and Liabilities.
NOTE 6 -- LINE OF CREDIT. The Fund has available a Redemption Line of
Credit Facility ("LOC"), from a consortium of national banks, to be used for
temporary or emergency purposes to fund redemptions of investor shares. The LOC
permits borrowings to a maximum of 10% of the Net Assets at Value of the Fund.
The Fund agrees to pay annual fees and interest on the unpaid principal balance
based on prevailing market rates as defined in the agreement. At April 30, 1998,
there were no such borrowings.
<PAGE>
INVESCO Capital Appreciation Funds, Inc. -- Dynamics Fund
Financial Highlights
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
Year Ended April 30
------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value-- Beginning of Period $12.02 $13.61 $11.38 $10.15 $10.89
------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income (Loss) (0.05) (0.04) 0.02 0.03 (0.02)
Net Gain or (Losses) on Securities
(Both Realized and Unrealized) 6.39 (0.19) 3.94 1.34 1.99
------------------------------------------------------------------
Total from Investment Operations 6.34 (0.23) 3.96 1.37 1.97
------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net Investment Income+ 0.00 0.00 0.02 0.03 0.00
Distributions from Capital Gains 1.95 1.36 1.71 0.11 2.71
------------------------------------------------------------------
Total Distributions 1.95 1.36 1.73 0.14 2.71
------------------------------------------------------------------
Net Asset Value-- End of Period $16.41 $12.02 $13.61 $11.38 $10.15
==================================================================
TOTAL RETURN 56.42% (2.34%) 36.32% 13.57% 17.86%
RATIOS
Net Assets -- End of Period
($000 Omitted) $1,340,299 $762,396 $778,416 $421,600 $287,293
<PAGE>
Ratio of Expenses to Average
Net Assets 1.08%@ 1.16%@ 1.14%@ 1.20%# 1.17%
Ratio of Net Investment Income (Loss)
to Average Net Assets (0.43%) (0.31%) 0.16% 0.33%# (0.37%)
Portfolio Turnover Rate 178% 204% 196% 176% 169%
+ Distributions in excess of net investment income for the year ended April 30,
1996, aggregated less than $0.01 on a per share basis.
# Various expenses of the Fund were voluntarily absorbed by IFG for the year
ended April 30, 1995. If such expenses had not been voluntarily absorbed,
ratio of expenses to average net assets would have been 1.22% and ratio of
net investment income to average net assets would have been 0.31%.
@ Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
INVESCO Capital Appreciation Funds, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investment securities, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of INVESCO Dynamics Fund (the sole
portfolio of INVESCO Capital Appreciation Funds, Inc., hereafter referred to as
the "Fund") at April 30, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1998 by correspondence with the custodian and the application of alternative
auditing procedures were securities purchased had not been received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Denver, Colorado
May 29, 1998
<PAGE>
<TABLE>
<CAPTION>
FAMILY OF FUNDS
Newspaper
Fund Name Fund Code Ticker Symbol Abbreviation
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International
International Growth 49 FSIGX IntlGr
Emerging Markets 43 * *
Asian Growth 41 IVAGX AsianGr
Pacific Basin 54 FPBSX PcBas
European 56 FEURX Europ
European Small Company 37 IVECX EuroSmCo
Latin American Growth 34 IVSLX LatinAmGr
- ---------------------------------------------------------------------------------------------
Sector
Energy 50 FSTEX Enrgy
Environmental Services 59 FSEVX Envirn
Financial Services 57 FSFSX FinSvc
Gold 51 FGLDX Gold
Health Sciences 52 FHLSX HlthSc
Leisure 53 FLISX Leisur
Realty 42 IVSRX Realty
Technology 55 FTCHX Tech
Utilities 58 FSTUX Util
Worldwide Capital Goods 38 ISWGX WldCap
Worldwide Communications 39 ISWCX WldCom
- ---------------------------------------------------------------------------------------------
Equity
Growth 10 FLRFX Grwth
Dynamics 20 FIDYX Dynm
Small Company Growth 60 FIEGX SmCoGth
Value Equity 46 FSEQX ValEq
Small Company Value 74 IDSCX SmCoVal
S&P 500 Index Fund Class II 23 * *
- ---------------------------------------------------------------------------------------------
All-Weather
Industrial Income 15 FIIIX IndInc
Multi-Asset Allocation 70 IMAAX MulAstAl
Total Return 48 FSFLX TotRtn
Balanced 71 IMABX Bal
- ---------------------------------------------------------------------------------------------
Bond
Short-Term Bond 33 INIBX ShTrBd
<PAGE>
Intermediate Government Bond 47 FIGBX IntGov
U.S. Government Securities 32 FBDGX USGvt
Select Income 30 FBDSX SelInc
High Yield 31 FHYPX HiYld
- ---------------------------------------------------------------------------------------------
Tax-Exempt
Tax-Free Intermediate Bond 36 IVTIX *
Tax-Free Long-Term Bond 35 FTIFX TxFre
- ---------------------------------------------------------------------------------------------
Money Market
U.S. Government Money Fund 44 FUGXX InvGvtMF
Cash Reserves 25 FDSXX InvCshR
Tax-Free Money Fund 40 FFRXX InvTaxFree
* This fund does not meet size requirements to be assigned a ticker symbol in
newspaper listings.
For more information about any of the INVESCO Funds, including management fees
and expenses, please call us at 1-800-525-8085 for a prospectus. Read it
carefully before you invest or send money.
</TABLE>
<PAGE>
EasiVest makes it easy to pay yourself first.
It seems that for most of us the hardest part of investing at regular
intervals comes down to simply writing the check, finding the stamp, and putting
it in the mail. But with INVESCO's EasiVest it's so easy that we'll do almost
all the work for you.
After you fill out the authorization and return it with a voided check, the
exact dollar amount you specify will be electronically transferred from your
bank account to your designated fund on the same day each month.
Using EasiVest is one of the few times when you'll find the easy way may
also be one of the best.
For years smart investors have used an investment strategy known as
dollar-cost averaging. It only makes sense that when prices are high an investor
will want to buy fewer shares, and when prices are low he will want to buy more.
By investing a fixed amount at regular intervals with INVESCO's EasiVest, you
can take advantage of these market fluctuations.
Over a sufficient period of time, dollar-cost averaging may make the average
price you pay per share less than the actual average price per share. So follow
the lead of successful investors and take advantage of dollar-cost averaging
with INVESCO's EasiVest.
Like other investment systems, periodic investment plans to not insure a
profit, nor do they protect against loss in a falling market. Since these plans
involve continuous investment in securities regardless of fluctuating price
levels in the market, you should consider your financial ability to continue
purchases through low price levels. Finally, be aware that you will incur a loss
under the plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
Just follow these simple authorization instructions and let INVESCO's
EasiVest help you build for your future.
1. Call your bank for their ABA and account numbers. Then complete the
EasiVest authorization and sign it the same way you would your personal
checks.
<PAGE>
2. Enclose an unsigned, personal check or savings deposit slip marked "Void."
3. Place a voided check or savings deposit slip and signed authorization form
in an envelope; then mail it to us.
It's that easy to start building your mutual fund portfolio. And you can take
advantage of INVESCO's EasiVest with as little as $50 a month.
Questions? Call us at 1-800-525-8085.
<PAGE>
EASIVEST AUTHORIZATION FOR AUTOMATIC INVESTMENTS
Before returning this Authorization, please be sure to contact your bank
for the correct ABA number and account number.
I authorize INVESCO Funds Group to transfer money from my checking or savings
account on or about the 7th or 21st (check one) day of each month for the
amounts and funds indicated below:
Fund-------------------------------------- Acct.#-------------------------------
$---------------------------- ($50 minimum) --- 7th ---21st
- --------------------------------------------------------------------------------
Bank Name
- --------------------------------------------------------------------------------
Bank Street Address
- --------------------------------------------------------------------------------
City, State, Zip ( )
- -------------------------------------- -----------------------------------------
ABA Number (available from your bank) Bank Phone Number
- --------------------------- This is a --- Checking Account
Bank Account Number --- Savings Account
- --------------------------------------------------------------------------------
Owner's Name (First, Middle Initial, Last)
- --------------------------------------------------------------------------------
Joint Owner's Name (First, Middle Initial, Last)
- --------------------------------------------------------------------------------
Owner Street Address
- --------------------------------------------------------------------------------
City, State, Zip
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature Date
( ) ( )
- --------------------------------------------------------------------------------
Daytime Telephone Number
Evening Telephone Number
Don't forget to attach a voided check or deposit slip.
<PAGE>
This authority is to remain in effect until I revoke it in writing and, until
INVESCO receives such notification, I agree INVESCO will be fully protected in
honoring any such electronic debit. I further agree that if any such electronic
debit is not honored, whether with cause or without cause and whether
intentionally or unintentionally, INVESCO will not be liable whatsoever. This
authorization will become a part of the fund application subject to the terms,
representations and conditions thereof.
Like other investment systems, period investment plans do not insure a profit,
nor do they protect against loss in a falling market. Since these plans involve
continuous investment in securities regardless of fluctuating price levels in
the market, you should consider your financial ability to continue purchases
through low price levels. Finally, be aware that you will incur a loss under the
plan if you decide to liquidate your account when the market value of
accumulated shares is less than their cost.
<PAGE>
INVESCO FUNDS
INVESCO Distributors, Inc.,(SM)
Distributor
Post Office Box 173706
Denver, CO 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of
our convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
This information must be preceded
or accompanied by a current prospectus.
