INVESCO GROWTH FUND, INC.
Supplement to Prospectus dated January 1, 1997
The Section of the above Fund's Prospectus entitled "Investment
Objective and Policies" is amended to add the following paragraph at the end of
the Section:
Options and Futures. Each Portfolio, other than the INVESCO Environmental
Services Portfolio, may write, purchase or sell put and call options on
individual securities, security indexes and currencies, or financial
futures or options on financial futures, or undertake forward currency
contracts. These practices and their risks are discussed under "Investment
Policies and Restrictions" in the Statement of Additional Information.
The date of this Supplement is November 3, 1997.
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INVESCO GROWTH FUND, INC.
Supplement to Statement of Additional Information dated January 1, 1997
The Section of the Fund's Statement of Additional Information entitled
"Investment Policies and Restrictions" is hereby amended to add the following
language after "Investment Policies and Restrictions - Lending of Securities":
The Growth Fund has adopted a policy which permits it to write,
purchase, or sell put and call options on individual securities, securities
indexes and currencies, or financial futures or options on financial
futures, or undertake forward currency contracts.
Put and Call Options. An option on a security provides the purchaser,
or "holder," with the right, but not the obligation, to purchase, in the
case of a "call" option, or sell, in the case of a "put" option, the
security or securities underlying the option, for a fixed exercise price up
to a stated expiration date. The holder pays a non-refundable purchase
price for the option, known as the "premium." The maximum amount of risk
the purchaser of the option assumes is equal to the premium plus related
transaction costs, although the entire amount may be lost. The risk of the
seller, or "writer," however, is potentially unlimited, unless the option
is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the
exercise price, in the case of a put option. If the writer's obligation is
not so covered, it is subject to the risk of the full change in value of
the underlying security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the
purchase price of the underlying security, in the case of a call option, or
to deliver the security in return for the purchase price, in the case of a
put option. Conversely, the writer is required to deliver the security, in
the case of a call option, or to purchase the security, in the case of a
put option. Options on securities which have been purchased or written may
be closed out prior to exercise or expiration by entering into an
offsetting transaction on the exchange on which the initial position was
established, subject to the availability of a liquid secondary market.
Options on securities are traded on national securities exchanges,
such as the Chicago Board of Options Exchange and the New York Stock
Exchange, which are regulated by the Securities and Exchange Commission.
The Options Clearing Corporation guarantees the performance of each party
to an exchange-traded option, by in effect taking the opposite side of each
such option. A holder or writer may engage in transactions in
exchange-traded options on securities and options on indices of securities
only through a registered broker/dealer which is a member of the exchange
on which the option is traded.
An option position in an exchange-traded option may be closed out only
on an exchange which provides a secondary market for an option of the same
series. Although the Fund will generally purchase or write only those
options for which there appears to be an active secondary market, there is
no assurance that a liquid secondary market on an exchange will exist for
any particular option at any particular time. In such event it might
not be possible to effect closing transactions in
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a particular option with the result that the Fund would
have to exercise the option in order to realize any profit. This would
result in the Fund's incurring brokerage commissions upon the disposition
of underlying securities acquired through the exercise of a call option or
upon the purchase of underlying securities upon the exercise of a put
option. If the Fund as covered call option writer is unable to effect a
closing purchase transaction in a secondary market, unless the Fund is
required to deliver the securities pursuant to the assignment of an
exercise notice, it will not be able to sell the underlying security until
the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions may be imposed by an
exchange on opening transactions or closing transactions or both; (iii)
trading halts, suspensions or other restrictions may be imposed with
respect to particular classes or series of options or underlying
securities; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of
options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options)
would cease to exist, although outstanding options on that exchange which
had been issued by a clearing corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
There is no assurance that higher than anticipated trading activity or
other unforeseen events might not, at a particular time, render certain of
the facilities of any of the clearing corporations inadequate and thereby
result in the institution by an exchange of special procedures which may
interfere with the timely execution of customers' orders. However, the
Options Clearing Corporation, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the volume
of reasonably anticipated options transactions, and such exchanges have
advised such clearing corporation that they believe their facilities will
also be adequate to handle reasonably anticipated volume. For a more
complete discussion of the risks involved in futures and options on futures
and other securities, refer to Appendix B ("Description of Futures, Options
and Forward Contracts").
Futures and Options on Futures. As described in the Fund's Prospectus,
the Fund may enter into futures contracts, and purchase and sell ("write")
options to buy or sell futures contracts. The Fund will comply with and
adhere to all limitations in the manner and extent to which it effects
transactions in futures and options on such futures currently imposed by
the rules and policy guidelines of the Commodity Futures Trading Commission
("CFTC") as conditions for exemption of a mutual fund, or investment
advisers thereto, from registration as a commodity pool operator. No Fund
will, as to any positions, whether long, short or a combination thereof,
enter into futures and options thereon for which the aggregate initial
margins and premiums exceed 5% of the fair market value of its assets after
taking into account unrealized profits and losses on options it has entered
into. In the case of an option that is "in-the-money," as defined in the
Commodity Exchange Act (the "CEA"), the in-the-money amount may be excluded
in computing such 5%. (In general a call option on a future is
"in-the-money" if the value of the future exceeds the exercise ("strike")
price of the call; a put option on a future is "in-the-money"
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if the value of the future which is the subject of the put is exceeded by
the strike price of the put.) The Fund may use futures and options thereon
solely for bona fide hedging or for other non-speculative purposes within
the meaning and intent of the applicable provisions of the CEA.
Unlike when the Fund purchases or sells a security, no price is paid
or received by the Fund upon the purchase or sale of a futures contract.
Instead, the Fund will be required to deposit in its segregated asset
account an amount of cash or qualifying securities (currently U.S. Treasury
bills), currently in a minimum amount of $15,000. This is called "initial
margin." Such initial margin is in the nature of a performance bond or good
faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in the form of variation margin payments,
a Fund may be required to make additional payments during the term of the
contracts to its broker. Such payments would be required, for example,
where, during the term of an interest rate futures contract purchased by
the Fund, there was a general increase in interest rates, thereby making
the Fund's portfolio securities less valuable. In all instances involving
the purchase of futures contracts by the Fund, an amount of cash together
with such other securities as permitted by applicable regulatory
authorities to be utilized for such purpose, at least equal to the market
value of the futures contracts, will be deposited in a segregated account
with the Fund's custodian to collateralize the position. At any time prior
to the expiration of a futures contract, the Fund may elect to close its
position by taking an opposite position which will operate to terminate its
position in the futures contract. For a more complete discussion of the
risks involved in futures and options on futures and other securities,
refer to Appendix B ("Description of Futures, Options and Forward
Contracts").
Where futures are purchased to hedge against a possible increase in
the price of a security before the Fund is able in an orderly fashion to
invest in the security, it is possible that the market may decline instead.
If the Fund, as a result, concluded not to make the planned investment at
that time because of concern as to possible further market decline or for
other reasons, the Fund would realize a loss on the futures contract that
is not offset by a reduction in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the futures
contracts and the portion of the portfolio being hedged, the price of
futures may not correlate perfectly with movements in the prices due to
certain market distortions. All participants in the futures market are
subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the normal
relationship between underlying instruments and the value of the futures
contract. Moreover, the deposit requirements in the futures market are less
onerous than margin requirements in the securities market and may therefore
cause increased participation by speculators in the futures market. Such
increased participation may also cause temporary price distortions. Due to
the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the underlying instrument
and movements in the prices of futures contracts, the value of futures
contracts as a hedging device may be reduced.
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In addition, if the Fund has insufficient available cash, it may at
times have to sell securities to meet variation margin requirements. Such
sales may have to be effected at a time when it may be disadvantageous to
do so.
Options on Futures Contracts. The Fund may buy and write options on
futures contracts for hedging purposes. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call
option on an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which it is based
or the price of the underlying instrument, ownership of the option may or
may not be less risky than ownership of the futures contract or the
underlying instrument. As with the purchase of futures contracts, when the
Fund is not fully invested it may buy a call option on a futures contract
to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures
contract. If the futures price at the expiration of the option is below the
exercise price, the Fund will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred
in the Fund's portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of the
security or foreign currency which is deliverable under, or of the index
comprising, the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Fund will retain the full
amount of the option premium which provides a partial hedge against any
increase in the price of securities which the Fund is considering buying.
If a call or put option which the Fund has written is exercised, the Fund
will incur a loss which will be reduced by the amount of the premium it
received. Depending on the degree of correlation between changes in the
value of its portfolio securities and changes in the value of the futures
positions, the Fund's losses from existing options on futures may to some
extent be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities.
For example, the Fund may buy a put option on a futures contract to hedge
its portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on a
futures contract is the premium paid for the option plus related
transaction costs. In addition to the correlation risks discussed above,
the purchase of an option also entails the risk that changes in the value
of the underlying futures contract will not be reflected fully in the value
of the options bought.
The Section of the Fund's Statement of Additional Information entitled
"Investment Policies and Restrictions - Investment Restrictions" contains a list
of investment restrictions. That list has been amended and restated to real as
follows:
(1) issue preference shares or create any funded debt;
(2) sell short or buy on margin, except for the Fund's purchase
or sale of options or futures, or writing, purchasing or
selling puts and calls;
<PAGE>
(3)* borrow money except from banks, and then not in excess of
5% of the value of its total assets, and only as a temporary
measure for emergency purposes;
(4) invest in the securities of any other investment company
except for a purchase or acquisition in accordance with a
plan of reorganization, merger or consolidation;
(5) purchase securities if the purchase would cause the Fund, at
the time, to have more than 5% of the value of its total
assets invested in the securities of any one company or to
own more than 10% of the voting securities of any one
company (except obligations issued or guaranteed by the U.S.
Government)'
(6) make loans to any person, except through the purchase of
debt securities in accordance with the Fund's investment
policies, or the lending of portfolio securities to
broker-dealers or other institutional investors, or the
entering into repurchase agreements with member banks of the
Federal Reserve System, registered broker-dealers and
registered government securities dealers. The aggregate
value of all portfolio securities loaned may not exceed
33-1/3% of the Fund's total assets (taken at current value).
No more than 10% of the Fund's total assets may be invested
in repurchase agreements maturing in more than seven days;
(7) buy or sell commodities, commodity contracts or real estate
(however, the Fund may purchase securities of companies
which invest in the foregoing). This restriction shall not
prevent the Fund from purchasing or selling options on
individual securities, security indexes, and currencies, or
financial futures or options on financial futures, or
undertaking forward currency contracts;
(8) invest in any company for the purpose of exercising control
or management;
(9) buy other than readily marketable securities;
(10) engage in the underwriting of any securities;
(11) purchase securities of any company in which any officer or
director of the Fund or its investment adviser owns more
than 1/2 of 1% of the outstanding securities, or in which
all of the officers and directors of the Fund and its
investment adviser, as a group, own more than 5% of such
securities;
(12) invest more than 25% of the value of the Fund's total assets
in one particular industry.
The restrictions set forth above may not be changed without prior
approval by the holders of a majority, as defined in the 1940 Act, of the
outstanding shares of the Fund.
<PAGE>
*The Fund has never borrowed money for other than temporary cash flow
purposes and has no intention of doing so in the foreseeable future unless
unexpected developments make borrowing of money by the Fund under this
fundamental investment restriction desirable in order to allow the Fund to
meet its obligation (e.g., processing redemptions in a timely manner).
With respect to investment restriction (9) above, the board of
directors has delegated to the Fund's investment adviser the authority to
determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the Securities Act of 1933, or any successor to
such rule, and that such securities are not subject to restriction (9)
above. Under guidelines established by the board of directors, the adviser
will consider the following factors, among others, in making this
determination: (1) the unregistered nature of a Rule 144A security; (2) the
frequency of trades and quotes for the security; (3) the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers; (4) dealer undertakings to make a market in the security; and
(5) the nature of the security and the nature of marketplace trades (e.g.,
the time needed to dispose of the security, the method of soliciting offers
and the mechanics of transfer).
In applying restriction (12) above, the Fund uses an industry
classification system based on O'Neil Database published by William O'Neil
& Co., Inc.
Under the 1940 Act, Fund directors and officers cannot be protected
against liability to the Fund or its shareholders to which they would be
subject because of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties of their office.
Additional investment restrictions adopted by the Fund and which may
be changed by the Directors at their discretion provided that the Fund may
not:
(1) (a) enter into any futures contracts, options on futures,
puts and calls if immediately thereafter the aggregate
margin deposits on all outstanding derivative positions held
by the Fund and premiums paid on outstanding positions,
after taking into account unrealized profits and losses,
would exceed 5% of the market value of the total assets of
the Fund, or (b) enter into any derivative positions if the
aggregate net amount of the Fund's commitments under
outstanding derivative positions of the Fund would exceed
the market value of the total assets of the Fund.
<PAGE>
APPENDIX B
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such
as the Chicago Board of Options Exchange and the New York Stock Exchange, which
are regulated by the Securities and Exchange Commission. The Options Clearing
Corporation guarantees the performance of each party to an exchange-traded
option, by in effect taking the opposite side of each such option. A holder or
writer may engage in transactions in exchange-traded options on securities and
options on indices of securities only through a registered broker/dealer which
is a member of the exchange on which the option is traded.
An option position in an exchange-traded option may be closed out only
on an exchange which provides a secondary market for an option of the same
series. Although the Fund will generally purchase or write only those options
for which there appears to be an active secondary market, there is no assurance
that a liquid secondary market on an exchange will exist for any particular
option at any particular time. In such event it might not be possible to effect
closing transactions in a particular option with the result that the Fund would
have to exercise the option in order to realize any profit. This would result in
the Fund's incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If the Fund as
covered call option writer is unable to effect a closing purchase transaction in
a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
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Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the Options Clearing Corporation, based on forecasts
provided by the U.S. exchanges, believes that its facilities are adequate to
handle the volume of reasonably anticipated options transactions, and such
exchanges have advised such clearing corporation that they believe their
facilities will also be adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter
through financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with a Fund.
With OTC options, such variables as expiration date, exercise price and premium
will be agreed upon between a Fund and the transacting dealer, without the
intermediation of a third party such as the OCC. If the transacting dealer fails
to make or take delivery of the securities underlying an option it has written,
in accordance with the terms of that option as written, the Fund would lose the
premium paid for the option as well as any anticipated benefit of the
transaction. A Fund will engage in OTC option transactions only with primary
U.S. Government securities dealers recognized by the Federal Reserve Bank of New
York.
Futures Contracts
A Futures Contract is a bilateral agreement providing for the purchase
and sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a Futures Contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, Futures Contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
<PAGE>
The purchase or sale of a Futures Contract also differs from the
purchase or sale of a security or the purchase of an option in that no purchase
price is paid or received. Instead, an amount of cash or cash equivalent,
which varies but may be as low as 5% or less of the value of the contract, must
be deposited with the broker as "initial margin." Subsequent payments to and
from the broker, referred to as "variation margin," are made on a daily basis as
the value of the index or instrument underlying the Futures Contract fluctuates,
making positions in the Futures Contract more or less valuable, a process
known as "marking to the market."
A Futures Contract may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a Futures Contract,
by in effect taking the opposite side of such Contract. At any time prior to the
expiration of a Futures Contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
Interest rate futures contracts currently are traded on a variety of
fixed income securities, including long-term U.S. Treasury Bonds, Treasury
Notes, Government National Mortgage Association modified pass-through
mortgage-backed securities, U.S. Treasury Bills, bank certificates of deposit
and commercial paper. In addition, interest rate futures contracts include
contracts on indices of municipal securities. Foreign currency futures contracts
currently are traded on the British pound, Canadian dollar, Japanese yen, Swiss
franc, German mark and on Eurodollar deposits.
Options on Futures Contracts
An Option on a Futures Contract provides the holder with the right to
enter into a "long" position in the underlying Futures Contract, in the case of
a call option, or a "short" position in the underlying Futures Contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of Futures Contracts, such as payment
of variation margin deposits. In addition, the writer of an Option on a Futures
Contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an Option on a Futures Contract may be terminated by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
<PAGE>
An option, whether based on a Futures Contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the
same series and with the same expiration date. A brokerage firm receiving
such notices then assigns them on a random basis to those of its customers
which have written options of the same series and expiration date. A
writer therefore has no control over whether an option will be exercised
against it, nor over the time of such exercise.
The date of this Supplement is November 3, 1997.
