CHACONIA
INCOME & GROWTH FUND
ANNUAL REPORT
December 31, 1996
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<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
Schedule of Investments
December 31, 1996
<C> <S> <C>
COMMON STOCKS
Market
Shares Value
------ -----
COMMON STOCKS (65.05%)
AEROSPACE & DEFENSE (1.28%)
2,700 Raytheon Co. .................... $ 129,938
----------
Aircraft (1.23%)
1,360 Lockheed Martin Corp............. 124,440
----------
AUTOMOTIVE (1.29%)
4,100 Ford Motor Co. Del. ............. 130,687
----------
BANKING (5.55%)
5,400 Federal National Mortgage Assoc.. 201,150
3,700 First Chicago NBD Corp........... 198,875
3,300 Suntrust Banks Inc............... 162,525
----------
562,550
----------
BUSINESS SERVICES (0.91%)
500 AC-Nielsen Corp.*................ 7,563
1,500 Cognizant Corp................... 49,500
1,500 Dun and Bradstreet Corp.......... 35,625
---------
92,688
---------
CAPITAL GOODS (1.14%)
1,200 Emerson Electric Co.............. 116,100
---------
DRUGS & HEALTH CARE (11.34%)
4,000 Abbott Labs...................... 203,000
2,700 American Home Products Corp...... 158,288
1,400 Bristol-Meyers Squibb............ 152,250
3,000 Columbia/HCA Healthcare Corp..... 122,250
2,600 Lilly, Eli & Co.................. 189,800
2,500 Merck & Co. Inc.................. 198,125
7,500 Mylan Labs Inc................... 125,625
---------
1,149,338
---------
COMMON STOCKS (continued)
Market
Shares Value
------- ------
FOODS (7.65%)
4,600 Anheuser Busch Cos. Inc.......... $ 184,000
8,000 Archer Daniels Midland........... 176,000
3,950 Heinz H.J. Co.................... 141,213
2,100 Kellogg Co....................... 137,812
3,000 McDonalds Corp................... 135,750
----------
774,775
----------
INDUSTRIALS (2.89%)
4,300 Browning Ferris Inds. Inc........ 112,875
8,300 Hanson PLC....................... 56,025
3,800 WMX Technologies................. 123,975
----------
292,875
----------
INSURANCE (5.97%)
2,800 Chubb Corp....................... 150,500
900 General RE Corp.................. 141,975
5,650 Old Republic International Corp.. 151,137
4,100 Safeco Corp...................... 161,694
----------
605,306
----------
MANUFACTURING/PROCESSING (1.47%)
2,200 Phelps Dodge Corp................ 148,500
----------
MUTUAL FUNDS (1.68%)
69,406 Trinidad & Tobago Unit Trust Corp./
First Unit Scheme................ 170,038
----------
PAPER PRODUCTS (1.60%)
1,700 Kimberly Clark Corp.............. 161,925
----------
PETROLEUM (5.27%)
2,300 Amoco Corp...................... 185,150
2,100 Exxon Corp...................... 205,800
1,400 Shell Transportation and
Trading ..................... 143,325
----------
534,275
----------
RAILROADS (1.47%)
1,700 Norfolk Southern Corp .......... 148,750
----------
See notes to financial statements
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
Schedule of Investments
December 31, 1996
COMMON STOCKS (continued)
Market
Shares Value
RETAIL (2.33%)
5,000 Gap Inc......................... $ 150,625
8,200 K mart Corp..................... 85,075
----------
235,700
----------
TECHNOLOGY (6.69%)
2,600 Compaq Computer Corp............ 193,050
3,800 Hewlett Packard Co.............. 190,950
1,200 Intel Corp...................... 157,125
900 International Business
Machines Inc................. 135,900
----------
677,025
----------
TOBACCO (0.26%)
2,075 Imperial Tobacco................ 26,456
----------
UTILITIES (5.03%)
3,900 Cinergy Corp.................... 130,162
7,200 Southern Co..................... 162,900
4,000 Telefones De Mexico............. 132,000
3,100 Unicom Corporation.............. 84,088
----------
509,150
----------
TOTAL COMMON STOCKS
(Cost $5,312,713)............... 6,590,516
==========
BONDS
Principal
Amount
LONG TERM INVESTMENTS (32.07%)
U.S. Government Securities (26.78%)
$350,000 U.S. Treasury Note
8.625%, due 08/15/97............. 356,125
300,000 U.S. Treasury Note
8.875%, due 11/15/98............. 315,469
300,000 U.S. Treasury Note
8.00%, due 08/15/99.............. 314,250
150,000 U.S. Treasury Note
7.875%, due 11/15/99............. 157,219
200,000 U.S. Treasury Note
6.25%, due 05/31/00.............. 200,937
300,000 U.S. Treasury Note
5.875%, due 02/15/04............. 292,219
BONDS (continued)
Principal Market
Amount Value
-------- -----
400,000 U.S. Treasury Bond
9.375%, due 02/15/06............. $ 481,375
139,925 FNMA
6.000%, due 02/01/09............. 134,722
129,443 FHLMC Gold
8.00%, due 10/01/10.............. 133,366
100,000 U.S. Treasury Note
8.125%, due 05/15/21............. 116,031
200,000 U.S. Treasury Note
7.250%, due 08/15/22............. 211,625
----------
2,713,338
----------
BANKING (0.95%) 100,000 Nations Bank Corp.
6.50%, due 03/15/06.............. 95,804
----------
MORTGAGE BACK-CMO (2.36%)
90,850 GNMA 7.00%, due 09/15/09......... 91,616
147,280 GNMA 7.50%, due 03/15/26......... 147,556
----------
\ 239,172
----------
UTILITIES (1.98%)
100,00 Northwest Corp. Med. Term Note
7.125%, due 04/01/00.............. 102,381
100,00 Rockwell Intl. Corp. Note
6.625%, due 06/01/05.............. 98,655
----------
201,036
----------
TOTAL LONG TERM INVESTMENTS
(Cost $3,205,674)................. 3,249,350
----------
SHORT TERM INVESTMENTS (2.74%)
277,899 Citibank Money Market Fund
(Cost $277,899)................... 277,899
----------
TOTAL INVESTMENTS
(Cost $8,796,286) 99.86% 10,117,765
Other assets less
liabilities 0.14% 14,265
----------
TOTAL NET ASSETS 100.00% $ 10,132,030
==========
<FN>
* Non-income Producing
</FN>
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See notes to financial statements
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<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
Statement of Assets and Liabilities
December 31, 1996
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Assets
Investments in securities, at value
(cost $8,796,286).............. $ 10,117,765
Dividends and interest receivable....... 71,672
Receivable for fund shares sold......... 199,267
Other assets............................ 2,542
-----------
Total assets............................ 10,391,246
-----------
Liabilities
Dividends payable....................... 155,517
Payable for fund shares redeemed........ 403
Accrued adviser fee..................... 18,082
Accrued distribution fee................ 21,601
Accrued legal fee....................... 24,997
Other accrued expenses.................. 38,616
-----------
Total liabilities....................... 259,216
-----------
Net Assets ............................. $10,132,030
==========
Net Assets Consist of:
Capital stock, no par value; unlimited
shares authorized; 970,525 shares
outstanding.................... $ 8,870,544
Distribution in excess of net
investment income.............. (24,461)
Distribution in excess of net realized gains
on investments................. (35,532)
Net unrealized appreciation
on investments................. 1,321,479
-----------
Net Assets.......................... $10,132,030
===========
Net asset value, redemption and offering
price per share
($10,132,030/970,525).......... $ 10.44
===========
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<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
Statement of Operations
December 31, 1996
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Investment Income:
Interest............................... $ 291,018
Dividends.............................. 222,142
-----------
Total Investment Income................ 513,160
-----------
Expenses:
Adviser fees .......................... 90,164
Distribution fees...................... 66,352
Legal fees............................. 49,997
Administrative fees.................... 50,678
Custodian fees......................... 26,534
Audit fees............................. 17,989
Accounting services.................... 20,064
Transfer agent fees.................... 17,791
Printing expense....................... 18,132
Directors' fees and expenses........... 4,972
Service fees........................... 9,673
Other expenses......................... 4,092
-----------
Total expenses......................... 376.438
-----------
Net investment income.................. 136,722
-----------
Realized and Unrealized Gains
on Investments
Net realized gains on investments...... 1,723,063
Net decrease in unrealized appreciation
on investments................ (1,382,198)
-----------
Net gains on investments............... 340,865
-----------
Net increase in net assets resulting
from operations............... $ 477,587
===========
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<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
Statement of Changes in Net Assets
December 31, 1996
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For the For the
year ended, year ended
Dec. 31, 1996 Dec. 31, 1995
------------- -------------
Operations:
Net investment income................. $ 136,722 $ 305,421
---------- ----------
Net realized gains on
investments.................. 1,723,063 408,399
Net increase/(decrease) in
unrealized appreciation
on investments............... (1,382,198) 2,764,622
---------- ----------
Net increase in net assets
resulting from operations.... 477,587 3,478,442
---------- ----------
Dividends and Distributions to Shareholders:
Dividend from net
investment income............. (136,722) (305,421)
Distribution in excess of
net investment income......... (7,820) (4,498)
Distribution from net realized gains
on investments................ (1,728,862) (408,399)
Distribution in excess of net realized
gains on investments.......... (29,733) 0
---------- ----------
Total dividends and distributions...... (1,903,137) (718,318)
---------- ----------
Fund Share Transactions:
Proceeds from shares sold.............. 5,807,966 2,051,054
Dividends reinvested................... 1,777,784 914,562
Payment for shares redeemed............ (13,837,552) (231,691)
---------- ----------
Net increase/(decrease) in net assets
from fund share transactions.. (6,251,802) 2,733,925
---------- ----------
Net increase/(decrease) in
net assets.................... (7,677,352) 5,494,049
Net Assets, Beginning
of Year....................... 17,809,382 12,315,333
---------- ----------
Net Assets, End of Year................ $ 10,132,030 $ 17,809,382
========== ==========
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CHACONIA INCOME & GROWTH FUND, INC.
Notes to Financial Statements
1. ORGANIZATION
Chaconia Income & Growth Fund, Inc. (the "Fund") is organized as a Maryland
Corporation, incorporated on October 24, 1990, and registered as an open-end,
non-diversified, management investment company under the Investment Company Act
of 1940, as amended. The Fund commenced operations on May 11, 1993.
2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles. 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 revenues and expenses during
the reporting period. Actual results could differ from those estimates.
A. Security Valuation - Securities traded on national securities exchanges
are valued at the last sales price. Over-the-counter securities and listed
securities for which no sales price is available, are valued at the mean between
the latest bid and asked prices. Short-term securities which mature in 60 days
or less are valued at cost, which, when combined with accrued interest
receivable, approximates value.
B. Security Transactions - Security transactions are accounted for on the
trade date (date the order to buy or sell is executed). Realized gains and
losses on security transactions are determined on the specific identification
method. Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily.
C. Federal Income Tax Status - No provision for federal income taxes is
required since the Fund intends to qualify as a regulated investment company and
distribute all of its taxable income to its shareholders.
D. Dividends and Distributions to Shareholders - The Fund
records dividends and distributions to shareholders on the ex-dividend date.
E. Other - The fund may periodically make reclassifications among certain
of its capital accounts as a result of the timing and characterization of
certain income and capital gains distributions determined annually in accordance
with federal tax regulations which may differ from generally accepted accounting
principles.
3. INVESTMENT TRANSACTIONS:
Investment transactions, excluding short-term investments, for the year ended
December 31, 1996 were as follows:
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Purchases............ $8,233,154
Sales................ 13,557,799
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At December 31, 1996, the cost of securities for federal income tax purposes was
$8,802,085. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $1,500,753 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $185,073.
<PAGE>
4. INVESTMENT MANAGEMENT AGREEMENT:
The Fund has an investment advisory and management agreement with Invesco
Capital Management, Inc. ("Adviser"). Under this agreement, the Adviser provides
the Fund with investment advisory and management services for which the Fund
pays a fee at an annual rate of the greater of $50,000 or 0.75% of the portion
of the daily net assets not exceeding $10 million; 0.50% of the portion of the
daily net assets exceeding $10 million but not exceeding $20 million and 0.25%
of the portion of the daily net assets exceeding $20 million.
5. DISTRIBUTION FEES:
The Board of Directors has adopted a Distribution Plan applicable to the Fund
under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder. Pursuant to the
Plan, registered broker-dealers and qualified recipients will be reimbursed by
the Fund for distribution expenditures up to a limit of 0.50% of 1% on an annual
basis of the Fund's average daily net assets.
6. FUND SHARE TRANSACTIONS:
At December 31, 1996, there were 2,000,000 shares authorized at $.01 par value.
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<S> <C> <C>
For the For the
year ended year ended
Dec. 31, 1996 Dec. 31, 1995
------------- ------------
Shares sold.......................... 474,665 170,791
Dividend reinvestment................ 170,632 79,702
Shares repurchased................... (1,142,602)* (21,210)
---------- --------
(497,305) 229,283
========== ========
<FN>
* During the year ended December 31, 1996 the Fund's largest shareholder
redeemed 1,065,612 shares representing it's entire holding.
</FN>
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<CAPTION>
Financial Highlights
<S> <C> <C> <C> <C>
For the period
May 11, 1993
(Commencement
For the For the For the of operations)
year ended, year ended, year ended through
Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994 Dec. 31, 1993
------------- ------------- ------------- -------------
Net asset value, beginning of period........ $12.13 $ 9.94 $10.20 $10.00
------ ------ ------ -----
Income from investment operations
Net investment income................... .13 .24 .13 .03
Net realized and unrealized gains
(losses) on investments................. .55 2.47 (.13) .21
------ ------ ------ -----
Total from investment operations............ .68 2.71 .00 .24
------ ------ ------ -----
Less dividends and distributions
Dividend from net investment income......... (.17) (.23) (.13) (.04)
Distribution in excess of net investment
income................................... (.01) .00 + .00 + .00 +
Distribution from realized gains............ (2.15) (.28) (.13) .00 +
Distribution in excess of net realized
gains on investments..................... (.04) .00 .00 .00
------ ------ ------ -----
Total dividends and distributions........... (2.37) (.51) (.26) (.04)
Net asset value, end of period.............. $ 10.44 $ 12.13 $ 9.94 $ 10.20
====== ====== ===== ======
Total return based on net asset value
per share................................ 5.61% 27.16% 0% 2.40%
Ratios/Supplemental Data
Net assets, end of period (in thousands).... $ 10,132 $17,809 $12,315 $12,105
Ratios to Average Net Assets:
Expenses................................ 2.84% 2.37% 2.87% 2.73% **
Net investment income................... 1.03% 2.09% 1.25% .53% **
Portfolio turnover rate..................... 72.91% 26.23% 40.13% .55%
Average commission rate per share ++ $.06131 N/A N/A N/A
<FN>
** Annualized.
+ Less than $.01 per share
++ For fiscal years beginning on or after September 1, 1995, a portfolio is
required to disclose the average commission rate per share it paid for
trades on which commissions are charged.
</FN>
</TABLE>
See notes to financial statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and
Board of Directors of
Chaconia Income & Growth Fund, Inc.:
We have audited the accompanying statement of assets and liabilities of
Chaconia Income & Growth Fund, Inc., including the schedule of investments, as
of December 31, 1996, and the related statement of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the three years in
the period then ended and for the period from May 11, 1993 (commencement of
operations) to December 31, 1993. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Chaconia Income & Growth Fund, Inc. as of December 31, 1996, 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 periods referred to above, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
New York, New York
February 6, 1997
<PAGE>
LETTER TO SHAREHOLDERS
CHACONIA INCOME & GROWTH FUND, INC.
January 28, 1997
Dear Shareholder,
We are pleased to report on the financial and investment performance of
Chaconia Income and Growth Fund Inc. (the "Fund") for the fiscal year ended
December 31, 1996. The Board is pleased with the performance of the Fund during
the period and we hope that shareholders are equally satisfied with the returns
achieved in the third full year of the operation of the Fund. This performance
was attained notwithstanding the redemption of 1,065,612 shares (US$12.9
million) by the Fund's largest shareholder. This action however served to
enhance the overall stability of the Fund in the context of a rapidly expanding
shareholder base which now approaches the two thousand (2,000) mark. We enclose
for your information and review the audited financial statements for the year
ended December 31, 1996.
Market Overview
- ---------------
This past year was another outstanding year for the market and The Chaconia
Income and Growth Fund. The market's returns were highly concentrated in 1996.
For the year, only six of fifteen sectors outperformed the S&P 500. Technology
was by far the best performing sector, followed by financial services, capital
goods, and multi-industry. With technology's eminence in 1996, the more
speculative growth stocks outperformed value stocks. The poorest performing
sectors were utilities, consumer services, and business equipment/services. In
fact, retail and business equipment/services actually produced negative returns
for the year. Despite pursuing a conservative investment posture, the equities
and bonds in the Chaconia portfolio returned 14.03% and (0.08%) respectively for
the year.
The economic environment continued to be ideal for financial assets. The US
economy grew fast enough to create jobs, but not too fast to raise inflationary
concerns. Corporate profits remained surprisingly strong, as both demand and
productivity rose whilst Washington remained relatively unchanged following the
national elections. The budget deficit as a percentage of National Income fell
significantly. Many investors concluded that a new paradigm has unfolded - the
so called Goldilocks era. In this era all the "economic forces work in concert
with one another - not too hot, not too cold, but just right."
History does not indicate that the economic bliss can continue ad infinitum.
Hence, Chaconia is purchasing high quality stocks and bonds, whilst still
maintaining a strict adherence to risk controls. The year continued the
cyclical-trend of higher risk stocks outperforming lower risk issues. According
to Vestek, stocks with higher betas, lower yields, and higher price-to-book
ratios performed best in 1996. The Chaconia portfolio is highly diversified, it
has a significantly lower price earnings ratio than the market, and a dividend
yield greater than the market. We believe this posture is prudent and gives the
Chaconia the greatest probability of superior, risk-adjusted, long-term
performance.
In conclusion, the Board wishes to thank INVESCO for their consistently
favourable performance in managing the portfolio. Further, we continue to be
grateful to our shareholders for the confidence they have reposed in the Board
and the Fund. We look forward to Chaconia producing strong, risk-adjusted
results in 1997.
/s/ Rolston Nelson
Mr. Rolston Nelson
Chairman
/s/ Clarry Benn
Mr. Clarry Benn
President
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN CHACONIA FUND & THE BENCHMARK
SINCE INCEPTION OF 5/11/93
[Graph Shown Here]
This graph shows the comparison of the portfolio and it's benchmark. At
December 31, 1996, the value of a $10,000 investment made at the Fund's
inception would be $13,751 versus the benchmark value of $15,171.
Annualized Return
1 Year 3 Year Since Inception
5.6% 10.3% 9.1%
Past performance is not predictive of future performance.
Benchmark represents an index which consists of an equal weighting between
the S&P 500 and the LBGC Bond Index.
