CHACONIA INCOME & GROWTH FUND, INC.
ANNUAL REPORT
DECEMBER 31, 1999
<PAGE>
<TABLE>
<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
COMMON STOCKS
SHARES VALUE
------ -----
COMMON STOCKS 70.57%
BANKING 1.05%
<C> <S> <C>
10,600 Fannie MAE $661,837
---------
BASIC MATERIALS 2.85%
3,500 Dow Chemical Co. 467,687
8,000 International Paper Co. 451,500
10,000 Praxair, Inc. 503,125
9,300 Vulcan Materials Co. 371,418
---------
1,793,730
---------
CAPITAL GOODS 6.33%
6,500 Emerson Electric Co. 372,937
5,300 General Electric Co. 820,175
7,900 Illinois Tool Works, Inc. 533,744
7,900 Johnson Controls, Inc 4 49,313
3,500 Minnesota Mining & Manufacturing Co. 342,563
5,700 Textron, Inc. 437,119
5,000 Tyco International Ltd. 194,375
6,000 United Technologies Corp. 390,000
12,500 Waste Management, Inc. 214,844
10,000 Xerox Corp. 226,875
---------
3,981,945
---------
COMMUNICATION SERVICES 6.03%
16,000 AT&T Corp. 812,000
8,000 Bell Atlantic Corp. 492,500
20,250 MCI Worldcom, Inc.* 1,074,516
15,500 SBC Communications, Inc. 755,625
5,500 Sprint Corp. 370,219
4,000 US West, Inc. 288,000
---------
3,792,860
---------
CONSUMER CYCLICALS 5.90%
2,000 Costco Wholesale Corp.* 182,500
15,000 Dillards, Inc. 302,813
13,000 Ford Motor Co. 694,687
11,000 Lowe's Companies, Inc. 657,250
19,000 Mattel, Inc. 249,375
5,800 May Department Stores Co. 187,050
31,700 Office Depot, Inc.* 346,718
6,000 Sherwin Williams Co. 126,000
11,400 Wal Mart Stores, Inc. 788,025
2,700 Whirlpool Corp. 175,668
---------
3,710,086
---------
CONSUMER STAPLES 5.19%
11,000 Albertsons, Inc. 354,750
7,200 Anheuser- Busch Companies, Inc. 510,300
5,600 Gannett Co, Inc. 456,750
4,000 Kimberly Clark Corp. 261,000
COMMON STOCKS (CONTINUED)
SHARES VALUE
------ -----
11,200 McDonalds Corp. 451,500
12,000 Philip Morris Companies, Inc. 278,250
3,000 Procter & Gamble Co. 328,688
23,000 Rite Aid Corp. 257,313
18,400 Supervalu, Inc. 368,000
---------
3,266,551
---------
FINANCE 3.97%
13,000 Bank Of America Corp. 652,437
8,000 Chase Manhattan Corp. 621,500
8,100 Comerica, Inc. 378,168
15,000 First Union Corp. 492,187
15,000 National City Corp. 355,312
---------
2,499,604
---------
FINANCIAL SERVICES 6.71%
7,700 American General Corp. 584,238
10,000 Associates First Capital Corp. 274,375
14,000 Citigroup, Inc. 777,875
17,000 Fleet Boston Financial Corp. 591,813
10,000 Household International, Inc. 372,500
8,700 Marsh & McLennan Companies, Inc. 832,481
3,474 Morgan Stanley Dean Witter & Co. 495,914
10,000 Torchmark Corp. 290,625
---------
4,219,821
---------
HEALTH CARE 7.77%
12,000 Abbott Laboratories 435,750
8,000 American Home Products Corp. 315,500
7,500 Biomet Inc. 300,000
9,200 Bristol-Meyers Squibb Co. 590,525
5,000 Johnson & Johnson 465,625
9,000 Lilly (Eli) & Co. 598,500
9,000 Merck & Co, Inc. 603,563
8,800 Mylan Labs, Inc. 221,650
7,000 Quintiles Transnational Corp.* 130,812
11,900 Schering Plough Corp. 502,031
8,800 Warner-Lambert Co. 721,050
---------
4,885,006
---------
MUTUAL FUNDS 4.47%
1,544,123 T&T Unit Trust Corp/1st Unit Scheme 2,809,378
---------
PETROLEUM 3.46%
8,000 Baker Hughes, Inc. 168,500
4,764 BP Amoco PLC Sponsored ADR 282,566
5,000 Chevron Corp. 433,125
11,400 Exxon Mobil Corp. 918,413
8,000 Phillips Petroleum Co. 376,000
---------
2,178,604
---------
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
COMMON STOCKS (CONTINUED)
SHARES VALUE
------ -----
TECHNOLOGY 15.07%
16,000 Adaptec, Inc.* 798,000
5,000 ADC Telecommunications* 362,812
15,000 Cadence Design Systems, Inc.* 360,000
3,014 Cisco Systems, Inc.* 322,875
7,500 Computer Associates International, Inc. 524,531
14,000 Compuware Corp.* 521,500
7,000 First Data Corp. 345,188
7,000 Hewlett Packard Co. 797,563
14,000 Intel Corp. 1,152,375
8,200 IBM Corp. 885,600
2,500 Motorola, Inc. 368,125
12,850 Oracle Corp.* 1,440,003
17,800 Sun Microsystems, Inc.* 1,378,387
2,300 Texas Instruments, Inc. 222,813
---------
9,479,772
---------
TRANSPORTATION 0.25%
9,600 Southwest Airlines 155,400
UTILITIES 1.52%
9,000 DTE Energy Co. 282,375
13,400 GPU, Inc. 401,163
11,500 Southern Co. 270,250
---------
953,788
---------
TOTAL COMMON STOCKS
(Cost $40,256,728) 44,388,382
----------
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
BONDS 28.49%
U.S. GOVERNMENT SECURITIES 10.04%
$ 100,000 U.S. Treasury Bond 10.625% due 08/15/15 136,188
450,000 U.S. Treasury Bond 5.50% due 08/15/28 384,188
300,000 U.S. Treasury Bond 6.00% due 02/15/26 274,500
750,000 U.S. Treasury Bond 6.50% due 11/15/26 731,250
150,000 U.S. Treasury Bond 6.875% due 08/15/25 152,766
850,000 U.S. Treasury Bond7.50% due 11/15/24 927,829
150,000 U.S. Treasury Bond7.875% due 02/15/21 167,672
100,000 U.S. Treasury Bond8.125% due 05/15/21 114,688
BONDS (continued)
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
350,000 U.S. Treasury Bond 8.875% due 08/15/17 423,063
500,000 U.S. Treasury Note 5.50% due 12/31/00 497,187
200,000 U.S. Treasury Note 6.25% due 05/31/00 200,437
1,300,000 U.S. Treasury Note 6.375% due 03/31/01 1,303,250
500,000 U.S. Treasury Note 6.375% due 08/15/02 501,094
150,000 U.S. Treasury Note 6.50% due 08/15/05 150,046
350,000 U.S. Treasury Note 6.625% due 07/31/01 352,406
---------
6,316,564
---------
AUTOMOTIVE 0.90%
300,000 Ford Motor Co. 6.50% due 08/01/18 265,444
300,000 Honda Auto Lease Trust 6.65% due 07/15/05 299,150
---------
564,594
---------
BANKING 2.63%
250,000 Bank of America Corp. 6.75% due 09/15/05 243,246
400,000 Bank One Corp. 6.40% due 08/01/02 393,286
250,000 National City Corp. 6.625% due 03/01/04 242,564
100,000 Nations Bank Corp. 6.50% due 03/15/06 95,987
315,000 Wachovia Corp. 6.25% due 08/04/08 290,879
400,000 Wells Fargo & Co. 6.625% due 07/15/04 391,610
---------
1,657,572
---------
COMMUNICATIONS 1.02%
350,000 AT&T Corp. 6.50% due 03/15/29 300,544
350,000 Cox Communications Inc. 6.875% due 06/15/05 340,889
---------
641,433
---------
CONSUMER CYCLICALS 0.56%
250,000 Lowes Companies, Inc. 6.875% due 02/15/28 222,424
50,000 Sherwin Williams Co. 6.25% due 02/01/00 50,004
75,000 Wal-Mart Stores, Inc. 8.625% due 04/01/01 76,722
---------
349,150
---------
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
BONDS (continued)
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
CRUISELINES 0.51%
350,000 Carnival Corp. 6.15% due 04/15/08 322,011
---------
FINANCIAL SERVICES 1.19%
125,000 Ameritech Cap Funding Co. 6.30% due 10/15/04 120,985
550,000 Associates Corp. 5.75% due 11/01/03 524,108
100,000 Norwest Corp. 7.125% due 04/01/00 100,297
---------
745,390
---------
FOODS 0.15%
100,000 Bestfoods 6.15% due 01/15/06 94,522
---------
INDUSTRIALS 2.64%
350,000 Dana Corp. 6.25% due 03/01/04 333,867
350,000 Household Finance Corp. 7.20% due 07/15/06 344,384
200,000 IBM Corp. 5.37% due 09/22/03 189,510
350,000 Ingersoll Rand Co. 6.255% due 02/15/01 347,586
175,000 Pepsico, Inc. 5.75% due 01/02/03 169,698
200,000 Phillips Petroleum Co. 6.65% due 07/15/18 178,379
100,000 Rockwell International Corp. 6.625% due 06/01/05 97,050
---------
1,660,474
---------
INSURANCE 0.49%
325,000 Travelers Property Casualty Corp.
6.75% due 11/15/06 309,526
---------
MORTGAGE BACKED-CMO 6.55%
500,000 Federal Home Loan Bank 5.375% due 03/02/01 494,266
300,000 Federal Home Loan Bank 5.575% due 09/02/03 288,254
44,450 FHLMC GOLD POOL #10518 8.00% due 10/01/10 45,456
113,895 FHLMC POOL #C00604 6.00% due 04/01/28 104,516
472,838 FHLMC POOL #C00701 6.50% due 01/01/29 447,144
63,906 FHLMC POOL #E00534 7.00% due 02/01/13 63,269
BONDS (continued)
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
21,310 FHLMC POOL #G00365 GO 8.00% due 06/01/25 21,525
375,000 FHLMC 6.25% due 07/15/04 366,375
300,000 FNMA MT MTNF 6.375% due 06/15/09 286,371
83,122 FNMA POOL #050985 6.00% due 02/01/09 78,931
92,942 FNMA POOL #251698 7.00% due 05/01/28 89,917
387,379 FNMA POOL #399910 7.00% due 12/01/27 374,774
419,460 FNMA POOL #421224 6.50% due 05/01/13 407,175
386,633 FNMA POOL #499501 6.50% due 06/01/14 375,309
476,622 GNMA POOL #486516 6.50% due 09/15/28 447,876
40,453 GNMA II POOL #001869 SF 8.00% due 09/20/24 40,823
71,402 GNMA POOL #364705 SF 7.00% due 10/15/23 69,021
72,882 GNMA POOL #417287 7.50% due 03/15/26 72,145
47,538 GNMA POOL #780369 7.00% due 09/15/09 47,435
---------
4,120,582
---------
PETROLEUM 0.51%
350,000 Atlantic Ridgefield Company 5.90% due 04/15/09 317,835
---------
TECHNOLOGY 0.59%
300,000 Motorola, Inc.5.80% due 10/15/08 269,438
100,000 Motorola, Inc. 7.60% due 01/01/07 100,439
---------
369,877
---------
UTILITIES 0.71%
250,000 Alabama Power 5.49% due 11/01/05 227,980
250,000 National Rural Utilities 5.70% due 01/15/10 220,283
---------
448,263
---------
TOTAL BONDS
(Cost $18,793,700) 17,917,793
----------
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
BONDS (continued)
PRINCIPAL MARKET
AMOUNT VALUE
------ -----
SHORT TERM INVESTMENTS 1.17%
735,477 Firstar Treasury Fund (Cost $735,477)
---------
735,447
---------
TOTAL INVESTMENTS
(Cost $59,785,905) 100.23% 63,041,652
LIABILITIES LESS OTHER ASSETS (0.23)% (142,092)
------ -----------
TOTAL NET ASSETS 100.00% $62,899,560
====== ===========
<FN>
*Non-Income Producing
CMO-Collaterilized Mortgage Obligation
FHLMC-Federal Home Loan Mortgage Company
FNMA-Federal National Mortgage Association
GNMA-Government National Mortgage Association
GO-General Obligation
ADR-American Depository Receipts
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
ASSETS
<S> <C>
Investments in securities, at value
(cost $59,785,905) $ 63,041,652
Dividends and interest receivable 361,528
Receivable for fund shares sold 61,601
Other assets 515
------------
Total assets 63,465,296
------------
LIABILITIES
Accrued advisory fee 48,431
Accrued distribution fee 179,038
Accrued audit fee 23,094
Dividends payable 276,333
Other accrued expenses 38,840
------------
Total liabilities 565,736
------------
Net Assets $ 62,899,560
------------
NET ASSETS CONSIST OF:
Capital stock, $.01 par value; 8,000,000
shares authorized; 5,098,651 shares
outstanding $ 59,715,016
Distribution in excess of net investment
income (44,765)
Distribution in excess of net realized gain (26,438)
Net unrealized appreciation of investments 3,255,747
------------
Net Assets $ 62,899,560
============
Net asset value, redemption and offering
price per share ($62,899,560/5,098,651) $ 12.34
============
</TABLE>
See notes to financial statements.
<TABLE>
<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
INVESTMENT INCOME:
<S> <C>
Dividends $ 579,960
Interest 1,093,500
-----------
Total investment income 1,673,460
-----------
EXPENSES:
Distribution fees 284,634
Advisory fees 216,700
Transfer agent fees 117,370
Legal fees 100,000
Administration fees 83,431
Accounting services 61,583
Printing expense 29,581
Trustee fees 26,500
Audit fees 22,844
Custody fees 17,371
Registration expenses 6,578
Other expenses 23,442
-----------
Total expenses 990,034
-----------
Net investment income 683,426
-----------
NET REALIZED AND UNREALIZED GAINS / (LOSES)
ON INVESTMENTS
Net realized gain on investments 1,623,894
Net decrease in unrealized appreciation
on investments (512,430)
-----------
Net gains on investments 1,111,464
-----------
Net increase in net assets resulting
from operations $ 1,794,890
===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
CHACONIA INCOME & GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DEC 31, 1999 DEC 31, 1999
------------ ------------
OPERATIONS:
<S> <C> <C>
Net investment income $ 683,426 $ 351,142
Net realized gain from
investment transactions 1,623,894 2,356,344
Net increase / (decrease) in unrealized
appreciation on investments (512,430) 1,624,709
------------ ------------
Net increase in net assets
resulting from operations 1,794,890 4,332,195
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net
investment income (690,727) (366,583)
Distributions from net
realized gains on investments (1,628,155) (2,365,631)
------------ ------------
Total dividends and
distributions to shareholders (2,318,882) (2,732,214)
------------ ------------
FUND SHARE TRANSACTIONS:
Proceeds from shares sold 28,969,587 26,243,505
Dividends reinvested 2,043,086 2,262,655
Payment for shares redeemed (11,351,294) (4,843,886)
------------ ------------
Net increase in net assets
from fund share transactions 19,661,379 23,662,274
------------ ------------
Net increase in net assets 19,137,387 25,262,255
NET ASSETS, BEGINNING
OF YEAR 43,762,173 18,499,918
------------ ------------
NET ASSETS, END OF YEAR $ 62,899,560 $ 43,762,173
============ ============
</TABLE>
`
See notes to financial statements.
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's investment objective is high current income and
capital appreciation.
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. These
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.
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year ended
December 31, 1999 were as follows:
Purchases $56,181,185
Sales $35,361,702
U.S. Government secnsactions included above were:
Purchases $ 8,311,377
Sales $ 8,677,332
At December 31, 1999, the cost of securities for federal income tax purposes was
$59,785,905. Aggregate gross unrealized appreciation for all securities in which
there was an excess of value over tax cost was $7,368,960 and aggregate gross
unrealized depreciation for all securities in which there was an excess of tax
cost over value was $4,113,213.
4. INVESTMENT MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES
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.
The Fund pays service fees to registered broker-dealers for personal service
and/or the maintenance of shareholder accounts. Service fees are accrued at
0.25% of 1% of the net assets of accounts opened after March 31, 1999. For the
period ended December 31, 1999 $9,694 of such fees were accrued.
During 1999, the Fund incurred legal fees of $100,000 to Foley & Lardner counsel
for the Fund. Mr. Ulice Payne, a partner of the firm, is an officer of the Fund.
CHACONIA INCOME & GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
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
Transactions in capital shares for the periods listed below were as follows:
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DEC 31, 1999 DEC 31, 1999
------------ ------------
Shares sold 2,331,796 2,104,262
Dividend reinvestment 165,700 181,467
Shares repurchased (908,552) (389,200)
--------- ---------
1,558,944 1,896,529
========= =========
7. DISTRIBUTIONS
A distribution of 47 cents per share (including a regular per share distribution
of 14 cents per share, plus a capital gain distribution of 33 cents per share)
was declared for shareholders on record on December 29, 1999, ex-date December
30, 1999 and paid January 3, 2000.
<PAGE>
CHACONIA INCOME & GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE FOR THE FOR THE FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DEC 31, 1999 DEC 31, 1998 DEC 31, 1997 DEC 31, 1996 DEC 31, 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.47 $11.47 $10.44 $12.13 $9.94
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.14 0.11 0.08 0.13 0.24
Net realized and unrealized gains (losses) on investments 0.20 1.71 2.00 0.55 2.47
---------- ---------- ---------- ---------- ----------
Total from investment operations 0.34 1.82 2.08 0.68 2.71
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS
Dividend from net investment income (0.14) (0.11) (0.09) (0.17) (0.23)
Distribution in excess of net investment income 0.00 0.00 0.00 (0.01) 0.00+
Distribution from realized gains (0.33) (0.71) (0.96) (2.15) (0.28)
Distribution in excess of net realized gains on investment 0.00 0.00 0.00 (0.04) 0.00
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (0.47) (0.82) (1.05) (2.37) (0.51)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 12.34 $ 12.47 $ 11.47 $ 10.44 $ 12.13
========== ========== ========== ========== ==========
Total return 2.73% 15.87% 19.98% 5.61% 27.16%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands) $ 62,900 $ 43,762 $ 18,500 $ 10,132 $ 17,809
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.73% 1.99% 2.55% 2.84% 2.37%
Net investment income 1.19% 1.21% 0.98% 1.03% 2.09%
Portfolio turnover rate 65.75% 41.23% 35.04% 72.91% 26.23%
<FN>
+ Less than $.01 per share
</FN>
</TABLE>
<PAGE>
LETTER TO SHAREHOLDERS
CHACONIA INCOME & GROWTH FUND, INC.
DEAR SHAREHOLDERS:
We are happy once again to report on the performance of the Chaconia Income and
Growth Fund, Inc. "the Fund" for the year ended December 31, 1999. The Fund
experienced a mixed performance during the year and the Board of Directors
maintained regular contact with INVESCO our Investment Manager throughout the
year to ensure that given the peculiarities of the market place, investors in
the Fund were indeed receiving adequate levels of return on their investment. We
are satisfied that the Investment Advisor conscious of its responsibility in
that regard, embarked on several initiatives geared toward rewarding investors
with an attractive rate of return.
The Fund during the year recorded appreciable growth with the fund size
increasing by 43.6% from $43.8 million to $62.9 million. The shareholder base
also increased substantially from 7,285 to 11,367. We are also encouraged by the
steady growth in the number of investors residing in the US.
The investment environment, which prevailed during the year, was extremely
challenging as reflected in the report of the Investment Advisor. The unique
developments, which occurred in the US market during the year, are therefore
highlighted below.
U.S. MARKET REVIEW FOR 1999
The investment markets in 1999 were remarkable in a number of respects. Most
stocks in the S&P 500 Index had negative returns despite the aggregate index
returning 21.04% for the year on a capitalization-weighted basis, 14.9% of which
came in the fourth quarter. This information shrouds what happened to most
stocks in the market, however, as the equal-weighted S&P 500 returned 7.11% in
the quarter and 12.23% for the year. The equal-weighted index gives each stock
in the S&P 500 the same weight, which gives a clearer picture of how the broader
stock market performed. The 14.9% fourth quarter rise in the S&P 500 left about
one in four stocks trailing the index by over 40% and half by more than 20% for
the year. Also the median stock in the S&P 500 had a negative 1.9% return for
the year. This indicates that the performance of a few very large companies (the
larger the company the more significant its weight in the S&P 500) served to
pull the overall index into positive territory.
[GRAPH DEPICTED HERE]
Graph shown here depicts the comparison of the Chaconia Income & Growth Fund
to the benchmarks for the period December 1998 through December 1999.
Portfolio Benchmark S&P 500 Leh G/C
--------- --------- ------- -------
Dec-98 19,108 22,029 31,542 14,964
Mar-99 18,863 22,445 33,112 14,784
Jun-99 19,629 23,113 35,447 14,622
Sep-99 18,296 22,454 33,235 14,701
Dec-99 19,630 24,079 38,180 14,641
To be more specific, if it had not been for the disproportionate exposure of the
S&P 500 to a few very large technology stocks, its performance would have been
negative. The equity portion of the portfolio, being more diversified and
therefore less risky than the S&P 500, did well to garner a positive 7.6% return
in the face of negative to flat returns for most sectors of the S&P 500. This
performance is actually in the top quartile of most universes of large cap
equity managers with a value orientation for 1999.
EQUITY OUTLOOK FOR 2000
The good news is that the divergence in both performance and valuation in U.S.
stocks has afforded us the opportunity to bolster the Fund with high quality
names at reasonable prices. Finance and healthcare stocks were particularly weak
in 1999 relative to the market indices and now offer compelling values. A
strengthening world economy should benefit basic materials and capital goods
companies, and strong consumer spending should translate into improving
profitability for consumer cyclicals. Communications stocks also appear to be
attractively valued as we enter the new millennium. We fully expect shareholders
to benefit as investors rotate out of the market's most expensive stocks and
into those representing the best combination of valuation and favorable earnings
dynamics. Fund is currently positioned at about 70% stocks, reflecting the
attractive prices than can be found in the broader market.
CHACONIA CURRENT FIXED INCOME PORTFOLIO AND OUTLOOK
The last year of the 20th century shaped up to be the worst in over 30 years for
bonds. Rising interest rates in the U.S. served to cripple bond performance
across the board. The bellwether 30-year Treasury bond itself had its worst
performance (-13.15%) since the Treasury began selling the securities regularly
in 1977. Yields on the 30-year bond rose 1.33% in 1999. Constant fears of
growing inflation, the Federal Reserve's three interest rate hikes, a recovering
global economy, an incredible stock market rally and the lowest unemployment
level in history, all contributed to the negative performance of the bond
market.
The Fund fixed income portfolio performed in line with the Lehman
Government/Corporate Index for the fourth quarter. For the year, the portfolio
lagged the benchmark slightly returning -2.4% versus -2.2% for the benchmark due
to our conscious underweighting of lower quality and non-investment grade bonds,
which paradoxically outperformed higher grade securities during a period of
rising interest rates. Currently, inflation-adjusted interest rates in the
United States are at a high level. What this means is that INVESCO now more so
than before, has the ability to purchase high grade securities at very
attractive prices which will produce strong yields and eventually attractive
appreciation as interest rates moderate and begin to come down.
Mrs. Judy Y Chang
Chairman
Mr. Clarry Benn
President
February 28, 2000
