CHACONIA
INCOME & GROWTH FUND
ANNUAL REPORT
December 31, 1997
<PAGE>
LETTER TO SHAREHOLDERS
CHACONIA INCOME & GROWTH FUND, INC.
DEAR SHAREHOLDERS:
It is with great pleasure that we present the financial and investment
performance of the Chaconia Income & Growth Fund, Inc. (the "Fund") for the
fiscal year ended December 31, 1997. The audited financial statements for the
year then ended are also enclosed. The Board is pleased with the results of the
Fund during our fourth year of operations. Our investment manager, INVESCO, has
managed very successfully the investment portfolio in keeping with our objective
to seek high current income and capital appreciation. Our Fund size increased by
$8.4 million to $18.5 million, recording a growth of 83% during the year. Our
investors have almost doubled, increasing from 1,571 at the beginning of the
year to 3,003 at the end of the year. We are very satisfied with our
achievements during the year and we express the hope that shareholders will be
equally pleased with the performance of their investments.
U.S. MARKET REVIEW FOR 1997
- ------------------------------
This past year was another outstanding year for the market and the Fund. The
stocks in the Fund experienced a capital appreciation rate of over 30% for the
year. A robust economy drove the returns. The key economic indicators were
almost all favorable in 1997. The U.S. gross domestic product grew by 3.8% while
interest rates fell. Inflation was 1.7%, an 11 year low. Unemployment reached
4.6%, the lowest since 1973. President Clinton announced a balanced budget and
the profitability of American companies continued to advance at a torrid pace.
The meltdown of many Asian economies in 1997 makes the performance in the United
States even more remarkable.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000
INVESTMENT IN CHACONIA FUND & THE BENCHMARK
SINCE INCEPTION OF 5/11/93
[GRAPH OMITTED HERE]
GRAPH DEPICTS THE COMPARISON OF A $10,000 INITIAL INVESTMENT FROM INCEPTION OF
5/11/93 THROUGH 12/31/97 BETWEEN THE CHACONIA FUND AND THE BENCHMARK.
DATE BENCHMARK CHACONIA FUND
- ---- --------- -------------
5/93 $10,000.00 $10,000
12/93 10,624.39 10,240
12/94 10,721.93 10,240
12/95 13,917.85 13,021
12/96 15,171.40 13,751
12/97 18,397.35 16,491
ANNUALIZED RETURN
-----------------
1 YEAR 3 YEAR SINCE INCEPTION
------ ------ ---------------
20.0% 17.2% 11.4%
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.
The largest companies in the United States performed significantly better than
smaller companies in 1997. Each economic sector had positive returns for 1997:
the best performing sectors were financial and pharmaceutical. The Fund had
significant weighting in each of these sectors, contributing to the strong
returns for the year.
The Fund's portfolio manager is ever vigilant when it comes to managing risk. A
primary objective is to provide some protection against a stock market downturn
while providing income. To that end, the Fund's portfolio consisted of 28% in
high quality bonds which returned 9.2% in 1997 and continues to provide an
anchor return. The Fund's equity portfolio is highly diversified among some of
the highest quality companies in the United States, Canada, the United Kingdom
and the Caribbean.
We continue to be grateful to our shareholders for the confidence they have
placed on the Board and the Fund. We intend to expand our shareholder population
so that the Chaconia family will enjoy a greater investment base while keeping
our focus on the investment objective. We look forward to the Fund producing
equally strong results for 1998.
/s/ Judy Y. Chang
Mrs. Judy Y. Chang
Chairman
/s/ Clarry Benn
Mr. Clarry Benn
President
February 25, 1998
Page 1
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1997
COMMON STOCKS
MARKET
SHARES VALUE
------ -----
COMMON STOCKS (65.74%)
AEROSPACE & DEFENSE (4.19%)
8,300 Boeing Co. ................................. $ 406,181
1,860 Lockheed Martin Corp. ...................... 183, 210
3,700 Raytheon Co. Cl B .......................... 186,850
----------
776,241
----------
ATHLETIC FOOTWEAR (1.14%)
5,400 Nike Inc. Cl B ............................. 211,950
----------
AUTOMOTIVE (1.08%)
4,100 Ford Motor Co. Del ......................... 199,619
----------
BANKING (4.61%)
5,400 Fannie MAE ................................. 308,138
3,700 First Chicago NBD Corp. .................... 308,950
3,300 Suntrust Banks Inc. ........................ 235,537
----------
852,625
----------
BUSINESS SERVICES (0.25%)
1,500 Dun and Bradstreet Corp. ................... 46,406
----------
CAPITAL GOODS (0.73%)
2,400 Emerson Electric Co. ....................... 135,450
----------
DRUGS & HEALTH CARE (11.29%)
4,000 Abbott Labs ................................ 262,250
3,400 American Home Products Corp. ............... 260,100
4,600 Beckton Dickinson & Co. .................... 230,000
3,100 Bristol-Meyers Squibb Co. .................. 293,337
5,200 Lilly, Eli & Co. ........................... 362,050
3,500 Merck & Co. Inc. ........................... 371,875
2,500 Warner Lambert Co. ......................... 310,000
----------
2,089,612
----------
COMMON STOCKS (CONTINUED)
MARKET
SHARES VALUE
------ -----
FOODS (3.73%)
5,000 Anheuser Busch Cos. Inc. ................... $ 220,000
12,400 Archer Daniels Midland Co. ................. 268,925
3,950 Heinz H.J. Co. ............................. 200,709
----------
689,634
----------
GREETING CARDS (1.08%)
5,100 American Greetings Corp CI A ............... 199,537
----------
INDUSTRIALS (3.02%)
4,300 Browning Ferris Inds. Inc. ................. 159,100
4,100 Schering Plough Corp. ...................... 254,712
5,300 Waste Management Inc. ...................... 145,750
----------
559,562
----------
INSURANCE (4.68%)
3,300 Chubb Corp ................................. 249,562
900 General RE Corp. ........................... 190,800
6,050 Old Republic International Corp. ........... 224,984
4,100 Safeco Corp. ............................... 199,875
----------
865,221
----------
MANUFACTURING/PROCESSING (1.08%)
3,200 Phelps Dodge Corp. ......................... 199,200
----------
MUTUAL FUNDS (1.30%)
138,813 Trinidad & Tobago Unit Trust Corp./
First Unit Scheme .......................... 241,437
----------
PAPER PRODUCTS (1.31%)
4,900 Kimberly Clark Corp. ....................... 241,631
----------
PETROLEUM (4.52%)
2,800 Amoco Corp. ................................ 238,350
5,700 Exxon Corp. ................................ 348,769
5,700 Shell Transportation and Trading ADR ....... 249,375
----------
836,494
----------
RAILROADS (0.85%)
5,100 Norfolk Southern Corp ...................... 157,144
----------
See notes to financial statements.
Page 2
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1997
COMMON STOCKS (CONTINUED)
MARKET
SHARES VALUE
------ -----
RETAIL (2.19%)
4,500 Gap Inc. ................................... $ 159,469
21,200 K mart Corp.* .............................. 245,125
----------
404,594
----------
TECHNOLOGY (11.09%)
6,000 Cisco Systems Inc.* ........................ 334,500
6,500 Compaq Computer Corp. ...................... 366,844
4,500 Computer Asso. Intl. Inc. .................. 237,938
7,000 Electronic Data Systems Corp. .............. 307,563
3,800 Hewlett Packard Co. ........................ 237,500
4,500 Intel Corp. ................................ 316,125
2,400 International Business Machines Inc ........ 250,950
----------
2,051,420
----------
TOYS (1.19%)
5,900 Mattel Inc. ................................ 219,775
----------
UTILITIES (6.41%)
5,900 Cinergy Corp. .............................. 226,044
7,200 GPU Inc. ................................... 303,300
4,300 Motorola Inc. .............................. 245,369
7,200 Southern Co.* .............................. 186,300
4,000 Telefonos De Mexico S A ADR ................ 224,250
----------
1,185,263
----------
TOTAL COMMON STOCKS
(Cost $10,190,328) ......................... 12,162,815
----------
BONDS
PRINCIPAL MARKET
AMOUNT VALUE
- ------ -----
BONDS (26.91%)
U.S. Government Securities (21.23%)
$300,000 U.S. Treasury Note
8.875%, due 11/15/98 ....................... 308,063
300,000 U.S. Treasury Note
8.875%, due 02/15/99 ....................... 310,313
350,000 U.S. Treasury Note
6.875%, due 08/31/99 ....................... 356,672
500,000 U.S. Treasury Note
7.875%, due 11/15/99 ....................... 519,376
BONDS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
- ------ -----
$200,000 U.S. Treasury Note
6.25%, due 05/31/00 .......................... $202,563
300,000 U.S. Treasury Note
5.875%, due 02/15/04 ......................... 302,813
400,000 U.S. Treasury Bond
9.375%, due 02/15/06 ......................... 492,375
400,000 U.S. Treasury Bond
6.875%, due 05/15/06 ......................... 428,250
300,000 U.S. Treasury Bond
6.625%, due 05/15/07 ......................... 317,719
250,000 U.S. Treasury Bond
8.875%, due 08/15/17 ......................... 331,797
100,000 U.S. Treasury Bond
8.125%, due 05/15/21 ......................... 126,031
200,000 U.S. Treasury Bond
7.25%, due 08/15/22 .......................... 231,062
---------
3,927,034
---------
BANKING (1.09%) 100,000 NationsBank Corp.
6.50%, due 03/15/06 .......................... 99,950
100,000 Norwest Corp Med Term Notes
7.125%, due 04/01/00 ......................... 102,156
---------
202,106
---------
MORTGAGE BACK-CMO (3.33%)
67,168 FHLMC
8.00%, due 06/01/25 .......................... 69,582
104,411 FHLMC Gold
8.00%, due 10/01/10 .......................... 108,033
122,432 Fannie MAE
6.00%, due 02/01/09 .......................... 120,596
77,909 GNMA 7.00%, due 09/15/09 ..................... 79,537
97,374 GNMA II 8.00%, due 09/20/24 .................. 100,356
133,666 GNMA 7.50%, due 03/15/26 ..................... 137,050
---------
615,154
---------
CONSUMER PRODUCTS (0.27%)
50,000 Sherwin Williams Co.
6.25%, due 02/01/00 .......................... 50,340
---------
See notes to financial statements
Page 3
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS (continued)
DECEMBER 31, 1997
BONDS (CONTINUED)
PRINCIPAL MARKET
AMOUNT VALUE
- ------ -----
RETAIL (0.44%) $ 75,000 Walmart Stores Inc.
8.625%, due 04/01/01 ....................... $ 80,658
---------
UTILITIES (0.55%)
100,000 Rockwell Intl. Corp.
6.625%, due 06/01/05 ....................... 102,529
---------
TOTAL BONDS
(Cost $4,806,840) .......................... 4,977,821
---------
SHORT TERM INVESTMENTS (5.51%)
1,019,537 Star Treasury Fund
(Cost $1,019,537) .......................... 1,019,537
---------
TOTAL INVESTMENTS
(Cost $16,016,705) 98.16% 18,160,173
OTHER ASSETS LESS LIABILITIES 1.84% 339,745
------ -----------
TOTAL NET ASSETS 100.00% $18,499,918
====== ===========
* Non-income Producing
CHACONIA INCOME & GROWTH FUND, INC.
STATEMENT OF ASSETS & LIABILITIES
DECEMBER 31, 1997
ASSETS
Investments in securities, at value
(cost $16,016,705) .......................... $ 18,160,173
Dividends and interest receivable .................... 95,801
Receivable for fund shares sold ...................... 572,724
Other assets ......................................... 3,557
----------
Total assets ......................................... 18,832,255
----------
LIABILITIES
Payable for fund shares redeemed ..................... 98,965
Accrued advisory fee ................................. 25,186
Accrued distribution fee ............................. 36,635
Accrued legal fee .................................... 25,000
Dividends payable .................................... 125,043
Other accrued expenses ............................... 21,508
----------
Total liabilities .................................... 332,337
----------
Net Assets ........................................... $ 18,499,918
============
NET ASSETS CONSIST OF:
Capital stock, $.01 par value; 2,000,000
shares authorized; 1,613,178 shares
outstanding ................................. $ 16,391,363
Distribution in excess of net
investment income ........................... (22,023)
Distribution in excess of net realized gains ......... (12,890)
Net unrealized appreciation on investments ........... 2,143,468
------------
Net Assets ....................................... $ 18,499,918
============
Net asset value, redemption and offering
price per share ($18,499,918/1,613,178) ..... $ 11.47
============
See notes to financial statements.
Page 4
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
INVESTMENT INCOME:
Dividends ................................................ $ 172,803
Interest ................................................. 312,618
Other income ............................................. 11,956
----------
Total investment income .................................. 497,377
----------
EXPENSES:
Adviser fees ............................................ 93,537
Distribution fees ....................................... 68,538
Legal fees .............................................. 49,865
Administrative fees ..................................... 52,499
Custody fees ............................................ 12,094
Audit fees .............................................. 10,830
Accounting services ..................................... 19,152
Transfer agent fees ..................................... 23,070
Printing expense ........................................ 32,191
Other expenses .......................................... 630
----------
Total expenses .......................................... 362,406
----------
Net investment income ................................... 134,971
----------
NET REALIZED AND UNREALIZED GAINS
ON INVESTMENTS
Net realized gains on investments ....................... 1,436,330
Net increase in unrealized appreciation
on investments ................................. 821,989
----------
Net gains on investments ........................... 2,258,319
----------
Net increase in net assets resulting
from operations .................................... $2,393,290
==========
CHACONIA INCOME & GROWTH FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DEC. 31, 1997 DEC. 31, 1996
------------- -------------
OPERATIONS:
Net investment income ...................... $ 134,971 $ 136,722
Net realized gains on
investment/transactions ........... 1,436,330 1,723,063
Net increase/(decrease) in
unrealized appreciation
on investments .................... 821,989 (1,382,198)
------------ ------------
Net increase in net assets
resulting from operations ......... 2,393,290 477,587
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividend from net
investment income ................. (132,533) (136,722)
Distribution in excess of
net investment income ............. 0 (7,820)
Distribution from net realized gains
on investments .................... (1,413,688) (1,728,862)
Distribution in excess of net realized
gains on investments .............. 0 (29,733)
------------ ------------
Total distributions to shareholders ........ (1,546,221) (1,903,137)
------------ ------------
Fund Share Transactions:
Proceeds from shares sold .................. 8,179,528 5,807,966
Dividends reinvested ....................... 1,421,178 1,777,784
Payment for shares redeemed ................ (2,079,887) (13,837,552)
------------ ------------
Net increase/(decrease) in net assets
from fund share transactions ...... 7,520,819 (6,251,802)
------------ ------------
Net increase/(decrease) in
net assets ........................ 8,367,888 (7,677,352)
NET ASSETS, BEGINNING
OF YEAR ........................... 10,132,030 17,809,382
------------ ------------
NET ASSETS, END OF YEAR .................... $ 18,499,918 $ 10,132,030
============ ============
See notes to financial statements.
Page 5
<PAGE>
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, which seeks high current income and capital appreciation.
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, 1997 were as follows:
Purchases ..$9,594,909
Sales ...... 4,522,795
At December 31, 1997, the cost of securities for federal income tax purposes was
$16,016,705. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $2,368,034 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $224,566.
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, 1997, there were 2,000,000 shares authorized at $.01 par value.
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DEC. 31, 1997 DEC. 31, 1996
------------- -------------
Shares sold ........... 694,293 474,665
Dividend reinvestment.. 123,904 170,632
Shares repurchased .... (175,544) (1,142,602)*
-------- ----------
642,653 (497,305)
======== ==========
* During the year ended December 31, 1996 the Fund's largest shareholder
redeemed 1,065,612 shares representing it's entire holding.
7. DISTRIBUTIONS:
A distribution of $1.05 per share (including a regular per share distribution of
$.09 plus capital gains distribution of $.96 per share) was declared for
shareholders of record on December 30, 1997, ex-date December 31, 1997 and
payable January 2, 1998.
Page 6
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 11, 1993
(COMMENCEMENT
FOR THE FOR THE FOR THE FOR THE OF OPERATIONS)
YEAR ENDED YEAR ENDED, YEAR ENDED, YEAR ENDED THROUGH
DEC. 31, 1997 DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ...................... $ 10.44 $ 12.13 $ 9.94 $ 10.20 $ 10.00
--------- ---------- --------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income ..................................... .08 .13 .24 .13 .03
Net realized and unrealized gains (losses) on investments . 2.00 .55 2.47 (.13) .21
--------- ---------- --------- -------- --------
Total from investment operations .......................... 2.08 .68 2.71 .00 .24
--------- ---------- --------- -------- --------
LESS DISTRIBUTIONS
Dividend from net investment income ....................... (.09) (.17) (.23) (.13) (.04)
Distribution in excess of net investment income ........... .00 (.01) .00+ .00+ .00+
Distribution from realized gains .......................... (0.96) (2.15) (.28) (.13) .00)+
Distribution in excess of net realized gains on investments .00 (.04) .00 .00 .00
--------- ---------- --------- -------- --------
Total distributions ....................................... (1.05) (2.37) (.51) (.26) (.04)
--------- ---------- --------- -------- --------
Net asset value, end of period ............................ $ 11.47 $ 10.44 $ 12.13 $ 9.94 $ 10.20
========= ========== ========= ======== ========
Total return .............................................. 19.98% 5.61% 27.16% 0% 2.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) .................. $ 18,500 $ 10,132 $ 17,809 $ 12,315 $ 12,105
RATIOS TO AVERAGE NET ASSETS:
Expenses .................................................. 2.55% 2.84% 2.37% 2.87% 2.73%**
Net investment income ..................................... 0.98% 1.03% 2.09% 1.25% .53%**
Portfolio turnover rate ................................... 35.04% 72.91% 26.23% 40.13% .55%
Average commission rate per share ++ ...................... $ .0417 $ .0613 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>
- --------------------------------------------------------------------------------
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, 1997, 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 four 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, 1997, 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, 1997, 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. Page 7
New York, New York, February 26, 1998
