PROSPECTUS
January 1, 1999
INVESCO BLUE CHIP GROWTH FUND
INVESCO Blue Chip Growth Fund (the "Fund") is actively managed to seek
long-term capital growth, with the secondary goal of current income. Most of its
investments are in U.S. common stocks, but the Fund has the flexibility to
invest in other types of securities.
The Fund is a series of INVESCO Growth Funds, Inc. (formerly, INVESCO
Growth Fund, Inc.) (the "Company"), a no-load mutual fund. The Company may offer
additional funds in the future.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated January 1, 1999, has been filed with the Securities and
Exchange Commission, and is incorporated by reference into this Prospectus. To
request a free copy, write to INVESCO Distributors, Inc., P.O. Box 173706,
Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site at
http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS Page
ESSENTIAL INFORMATION..........................................................2
ANNUAL FUND EXPENSES...........................................................3
FINANCIAL HIGHLIGHTS...........................................................4
INVESTMENT OBJECTIVE AND STRATEGY..............................................6
INVESTMENT POLICIES AND RISKS..................................................6
THE FUND AND ITS MANAGEMENT...................................................10
FUND PRICE AND PERFORMANCE....................................................12
HOW TO BUY SHARES.............................................................12
FUND SERVICES.................................................................15
HOW TO SELL SHARES............................................................16
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS......................................18
ADDITIONAL INFORMATION........................................................19
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ESSENTIAL INFORMATION
Investment Objective And Strategy: The Fund seeks long-term capital growth
with a secondary goal of current income. It invests primarily in U.S. common
stocks. The Fund may also invest in other securities, such as corporate bonds
and preferred stocks. There is no guarantee that the Fund will meet its
objective. See "Investment Objective And Strategy" and "Investment Policies And
Risks."
The Fund is Designed For: Investors seeking a combination of capital growth
plus current income. While not intended as a complete investment program, the
Fund may be a valuable element of your investment portfolio. You also may wish
to consider the Fund as part of a Uniform Gift/Transfer To Minors Act Account or
systematic investing strategy. The Fund may be a suitable investment for many
types of retirement programs, including various individual retirement accounts
("IRAs"), 401(k), Profit Sharing, Money Purchase Pension, and 403(b) plans.
Time Horizon: Because the value of its holdings varies, the Fund's price
per share will fluctuate. Investors should consider this a medium- to long-term
investment.
Risks: The Fund's investments in fixed-income securities are subject to
credit risk and market risk. Its returns on foreign investments may be
influenced by currency fluctuations and other risks of investing overseas. The
Fund may experience rapid portfolio turnover, which may result in higher
brokerage commissions and the acceleration of taxable capital gains. These
policies make the Fund unsuitable for the portion of your savings dedicated to
preservation of capital or current income over the short term. See "Investment
Objective And Strategy" and "Investment Policies And Risks."
Organization and Management: The Fund is owned by its shareholders. It
employs INVESCO Funds Group, Inc. ("INVESCO"), founded in 1932, to serve as
investment adviser, administrator and transfer agent. INVESCO Distributors, Inc.
("IDI"), founded in 1997 as a wholly-owned subsidiary of INVESCO, is the Fund's
distributor.
The Fund's investments are selected by two INVESCO portfolio managers:
INVESCO Senior Vice President Timothy J. Miller and portfolio manager Trent E.
May.
INVESCO and IDI are indirect, wholly-owned subsidiaries of AMVESCAP PLC, an
international investment management company that managed approximately $241
billion of assets as of September 30, 1998. AMVESCAP PLC is based in London,
with money managers located in Europe, North America, South America and the Far
East.
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This Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as EasiVest (the Fund's automatic
monthly investment program), Direct Payroll Purchase, and Automatic Monthly
Exchange
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses -- such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. We calculate annual operating expenses as a
percentage of the Fund's average annual net assets. These expenses are paid from
the Fund's assets. Lower expenses therefore benefit investors by increasing the
Fund's total return.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee 0.56%
12b-1 Fees 0.25%
Other Expenses(1) 0.23%
Total Fund Operating Expenses(1) 1.04%
(1) It should be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's custodian, transfer agent and
distribution fees were reduced under expense offset arrangements. However, as a
result of an SEC requirement, the figures shown above do not reflect these
reductions. In comparing expenses for different years, please note that the
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Ratios of Expenses to Average Net Assets shown under "Financial Highlights" do
reflect any reductions for periods including and prior to the fiscal year ended
August 31, 1995. See "The Fund And Its Management."
Example
A shareholder would pay the following expenses on a $1,000 investment
for the periods shown, assuming a hypothetical 5% annual return and redemption
at the end of each time period. (Of course, actual operating expenses are paid
from the Fund's assets, and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years 5 Years 10 Years
$11 $33 $58 $128
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund And Its Management"
and "How To Buy Shares -- Distribution Expenses."
Because the Fund pays a distribution fee, investors who own Fund shares
for a long period of time may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
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FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information has been audited by PricewaterhouseCoopers
LLP, independent accountants. This information should be read in conjunction
with the audited financial statements and the Report of Independent Accountants
thereon appearing in the Fund's 1998 Annual Report to Shareholders which is
incorporated by reference into the Statement of Additional Information, both of
which are available without charge by contacting IDI at the address or telephone
number on the back cover of this Prospectus. The Annual Report also contains
more information about the Fund's performance.
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<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended August 31
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1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
PER SHARE DATA
Net Asset Value -
Beginning of Period $6.06 $5.44 $5.33 $5.34 $5.28 $4.72 $5.26 $4.37 $4.54 $3.48
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INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.02 0.01 0.03 0.05 0.03 0.04 0.05 0.07 0.10 0.10
Net Gains or (Losses) on
Securities (Both
Realized and
Unrealized) 0.69 1.39 0.95 0.49 0.11 1.00 0.05 1.28 (0.14) 1.06
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Total from Investment
Operations 0.71 1.40 0.98 0.54 0.14 1.04 0.10 1.35 (0.04) 1.16
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LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.02 0.01 0.03 0.05 0.03 0.04 0.05 0.08 0.11 0.10
Distributions from
Capital Gains 1.60 0.77 0.84 0.50 0.05 0.44 0.59 0.38 0.02 0.00
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Total Distributions 1.62 0.78 0.87 0.55 0.08 0.48 0.64 0.46 0.13 0.10
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Net Asset Value -
End of Period $5.15 $6.06 $5.44 $5.33 $5.34 $5.28 $4.72 $5.26 $4.37 $4.54
==========================================================================================================
TOTAL RETURN 13.42% 28.14% 20.23% 12.05% 2.52% 22.17% 2.04% 31.16% (1.01%) 33.70%
RATIOS
Net Assets - End of
Period ($000 Omitted) $747,739 $709,220 $596,726 $501,285 $488,411 $483,957 $408,218 $428,564 $339,927 $383,099
Ratio of Expenses to
Average Net Assets 1.04%@ 1.07%@ 1.05%@ 1.06% 1.03% 1.04% 1.04% 1.00% 0.78% 0.82%
Ratio of Net Investment
Income to Average
Net Assets 0.37% 0.22% 0.64% 1.07% 0.47% 0.72% 0.93% 1.52% 2.17% 2.60%
Portfolio Turnover Rate 153% 286% 207% 111% 63% 77% 77% 69% 86% 90%
</TABLE>
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
@ Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks long-term capital growth, with a secondary goal of
current income. This investment objective is fundamental and may not be changed
without the approval of the Fund's shareholders. Normally, the Fund seeks to
achieve this objective by investing primarily in U.S. common stocks (including
securities convertible into common stocks). There is no assurance that the
Fund's investment objective will be met.
For the equity holdings, we look for companies that we believe have
better-than-average earnings growth potential, as well as companies within
industries we believe are well-positioned for the current and expected economic
climate.
In addition to common stocks, the Fund also may hold preferred stocks
and investment grade corporate debt obligations. The Fund also may hold cash and
cash-equivalent securities as cash reserves. The amount invested in stocks,
bonds and cash securities may be varied from time to time depending upon Fund
Management's assessment of business, economic and market conditions. For a
description of each corporate bond rating category please refer to Appendix A to
the Statement of Additional Information.
The Fund's investment portfolio is actively traded. There are no
limitations regarding portfolio turnover for either the equity or fixed income
portions of the Fund's portfolio. Although the Fund does not trade for
short-term profits, securities may be sold without regard to the time they have
been held when, in the opinion of INVESCO, investment considerations warrant
such action. The Fund's portfolio turnover rate therefore may be higher than
other mutual funds with similar objectives. Increased portfolio turnover may
result in greater brokerage commissions and acceleration of capital gains which
are taxable when distributed to shareholders. The Statement of Additional
Information includes an expanded discussion of the Fund's portfolio turnover
rate, its brokerage practices and certain federal income tax matters.
When we believe market or economic conditions are unfavorable, the Fund
may assume a defensive position by temporarily investing up to 100% of its
assets in high-quality money market instruments, such as short-term U.S.
government obligations, commercial paper or repurchase agreements, seeking to
protect its assets until conditions stabilize.
<PAGE>
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see the price per share and income
levels of the Fund vary with movements in the stock and fixed-income markets,
changes in economic conditions and other factors. The Fund invests in many
different securities and industries; this diversification may help reduce the
Fund's exposure to particular investment and market risks, but cannot eliminate
these risks.
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the Year 2000, but will, unless corrected, revert to
1900 or 1980 or cease to function at that time, the markets for securities in
which the Fund invests may be detrimentally affected by computer failures
affecting portfolio investments or trading of securities beginning January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production issues for individual companies and overall
economic uncertainties. Earnings of individual issuers may be affected by
remediation costs, which may be substantial. The Fund's investments may be
adversely affected.
Debt Securities. When we assess an issuer's ability to meet its
interest rate obligations and repay its debt when due, we are referring to
"credit risk." Debt obligations are rated based on their credit risk as
estimated by independent services such as Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P") or Moody's Investors Service, Inc.
("Moody's"). "Market risk" for debt securities principally refers to sensitivity
to changes in interest rates: for instance, when interest rates go up, the
market value of a bond issued previously generally declines; on the other hand,
when interest rates go down, prices of bonds generally increase.
The lower a bond's quality, the more it is subject to credit risk and
market risk and the more speculative it becomes. This is also true of most
unrated debt securities. The Fund seeks to reduce these risks by investing only
in investment grade debt securities (those rated BBB or above by S&P and/or Baa
or above by Moody's or, if unrated, are judged by Fund Management to be of
equivalent quality). These bonds enjoy strong to adequate capacity to pay
principal and interest. Securities rated Baa by Moody's are considered to be of
medium grade and may have speculative characteristics. Securities rated BBB by
S&P are considered to be in the lowest "investment grade" security rating and
may have speculative characteristics as well. While INVESCO continuously
monitors all of the debt securities in the Fund's portfolio for the issuer's
<PAGE>
ability to make required principal and interest payments and other quality
factors, it may retain a bond whose rating is changed to one below the minimum
rating required for purchase of the security.
Foreign Securities. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign equity or corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank that entitle the holder to
all dividends and capital gains. ADRs are denominated in U.S. dollars and trade
in the U.S. securities markets.
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency may decrease. By contrast, in a period when the U.S. dollar
generally declines, those returns may increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally
available about U.S. issuers;
-differences in accounting, auditing and financial reporting
standards;
-generally higher commission rates on foreign portfolio
transactions and longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investment income on certain foreign securities may be subject to
foreign withholding taxes, which may reduce dividend or interest income or
capital gains payable to shareholders.
There is also the possibility of expropriation or confiscatory
taxation; adverse changes in investment or exchange control regulations;
political instability; potential restrictions on the flow of international
capital; and the possibility that the Fund may experience difficulties in
pursuing legal remedies and collecting judgments.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk issuer may not be disclosed in the United
<PAGE>
that material information about the States and the risk that currency
fluctuations may adversely affect the value of the ADR.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain are presently members of the European
Economic and Monetary Union (the "EMU"). The EMU has established a common
European currency for EMU countries which is known as the "euro." Each
participating country has adopted the euro as its currency effective January 1,
1999. The old national currencies are sub-currencies of the euro until July 1,
2002, at which time the old currencies will disappear entirely. Other European
countries may adopt the euro in the future.
The introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will have been ready by January 1, 1999; whether exchange
rates for existing currencies and the euro will have been adequately
established; and whether suitable clearing and settlement systems for the euro
will have been in operation. These and other factors may cause market
disruptions after January 1, 1999 and could adversely affect the value of
securities held by the Fund.
Rule 144A Securities. The Fund may not purchase securities that are not
readily marketable. However, the Fund may purchase certain securities that are
not registered for sale to the general public but that can be resold to
institutional investors ("Rule 144A Securities"), if a liquid institutional
trading market exists. The Fund's board of directors has delegated to INVESCO
the authority to determine the liquidity of Rule 144A Securities pursuant to
guidelines approved by the board. In the event that a Rule 144A Security held by
the Fund is subsequently determined to be illiquid, the security will be sold as
soon as that can be done in an orderly fashion consistent with the best
interests of the Fund's shareholders. For more information concerning Rule 144A
Securities, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
Repurchase Agreements. The Fund may invest money, for as short a time
as overnight, using repurchase agreements ("repos"). With a repo, the Fund buys
a debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and date. The Fund could incur costs or delays in seeking
to sell the security, if the prior owner defaults on its repurchase obligation.
To reduce that risk, the securities that are the subject of the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
These agreements are entered into only with member banks of the Federal Reserve
<PAGE>
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards established by the Fund's
board of directors.
Securities Lending. The Fund may seek to earn additional income by
lending securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
Futures and Options. A futures contract is an agreement to buy or sell
a specific amount of a financial instrument or commodity at a particular price
on a particular date. The Fund will use futures contracts only to hedge against
price changes in the value of its current or intended investments in securities.
In the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general decrease in prices, the adverse effects of such
changes may be offset, at least in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general increase in prices, may be offset, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
Put and call options on futures contracts or securities may be traded
by the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio than the purchase and sale of the
underlying futures contracts, since the potential loss is limited to the amount
of the premium plus related transaction costs. The premium paid for such a put
or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
<PAGE>
Although the Fund will enter into futures contracts and options on
futures contracts and securities solely for hedging or other nonspeculative
purposes, their use does involve certain risks. For example, a lack of
correlation between the value of an instrument underlying an option or futures
contract and the assets being hedged, or unexpected adverse price movements,
could render a Fund's hedging strategy unsuccessful and could result in losses.
In addition, there can be no assurance that a liquid secondary market will exist
for any contract purchased or sold, and the Fund may be required to maintain a
position until exercise or expiration, which could result in losses.
Transactions in futures contracts and options are subject to other risks as
well, which are set forth in greater detail in the Statement of Additional
Information and Appendix B therein.
Investment Restrictions. Certain restrictions, which are identified in
the Statement of Additional Information, may not be altered without the approval
of the Fund's shareholders. For example, the Fund limits to 5% the portion of
its total assets that may be invested in any one issuer (other than cash items
and U.S. government securities). In addition, the Fund limits to 25% the portion
of its total assets that may be invested in any one industry (other than U.S.
government securities). Other fundamental restrictions prohibit the Fund from
lending more than 33-1/3% of its total assets to other parties and from
borrowing money, except that the Fund may borrow amounts up to 33-1/3% of its
total assets for temporary or emergency purposes.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities
and Exchange Commission as an open-end, diversified, management investment
company. It was incorporated on July 8, 1935, under the laws of Maryland. On
September 29, 1998, the name of the Company was changed to INVESCO Growth Funds,
Inc.
The Company's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by the investment
adviser. Under an agreement with the Company, INVESCO, 7800 E. Union Avenue,
Denver, Colorado 80237, serves as the Fund's investment adviser; it is primarily
responsible for providing the Fund with portfolio management and various
administrative services.
<PAGE>
INVESCO and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC.
AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997, and to AMVESCAP PLC on May 8, 1997, as part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., that created one of
the largest independent investment management businesses in the world. AMVESCAP
PLC had approximately $241 billion in assets under management as of September
30, 1998. INVESCO was established in 1932 and, as of August 31, 1998, managed 14
mutual funds, consisting of 49 separate portfolios, with combined assets of
approximately $17.1 billion on behalf of over 899,000 shareholders.
Prior to February 3, 1998, Institutional Trust Company doing business
as INVESCO Trust Company ("ITC") provided sub-advisory services to the Fund;
termination of its sub-advisory services in no way changed the basis upon which
investment advice is provided to the Fund, the cost of those services to the
Fund or the persons actually performing the investment advisory and other
services previously provided by ITC. INVESCO provides such day-to-day portfolio
management services as the investment adviser to the Fund.
The Fund is managed by two members of the INVESCO Growth Team which is
headed by Timothy J. Miller. The following individuals are primarily responsible
for the day-to-day management of the Fund's portfolio holdings:
Trent E. May, a Chartered Financial Analyst, has been the lead
portfolio manager of the Fund since October 1997 (co-portfolio
manager since 1996). Mr. May is also the lead portfolio manager of
INVESCO VIF-Growth Fund and co-manages INVESCO Small Company Growth
Fund and INVESCO VIF-Small Company Growth Fund. Mr. May is also a
vice president of INVESCO Funds Group, Inc. Mr. May began his
investment career in 1991 and was most recently senior equity fund
manager/equity analyst with Munder Capital Management in Detroit.
Mr. May received an M.B.A. from Rollins College and a B.S. in
Engineering from the Florida Institute of Technology.
Timothy J. Miller, a Chartered Financial Analyst, has been a
co-portfolio manager of the Fund since 1996. Mr. Miller is also the
lead portfolio manager of INVESCO Dynamics Fund and INVESCO
VIF-Dynamics Fund and co-manages INVESCO VIF-Growth Fund, INVESCO
Small Company Growth Fund and INVESCO VIF-Small Company Growth
Fund. Mr. Miller is also a senior vice president of INVESCO Funds
Group, Inc. Mr. Miller was previously an analyst and portfolio
manager with Mississippi Valley Advisors from 1979 to 1992. Mr.
Miller received an M.B.A. from the University of Missouri-St. Louis
and a B.S.B.A. from St. Louis University.
<PAGE>
INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires INVESCO's personnel to conduct their
personal investment activities in a manner that INVESCO believes is not
detrimental to the Fund or INVESCO's other advisory clients. See the Statement
of Additional Information for more detailed information.
The Fund pays INVESCO a monthly management fee that is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.60% on the first $350 million of the Fund's
average net assets; 0.55% on the next $350 million of the Fund's average net
assets; and 0.50% on the Fund's average net assets over $700 million. For the
fiscal year ended August 31, 1998, investment advisory fees paid by the Fund
amounted to 0.56% of the Fund's average net assets.
Under a Distribution Agreement, IDI provides services relating to the
distribution and sale of the Fund's shares. IDI, established in 1997, is a
regulated broker-dealer that acts as distributor for all retail funds advised by
INVESCO. Prior to September 30, 1997, INVESCO served as the Fund's distributor.
Under a Transfer Agency Agreement, INVESCO acts as registrar, transfer
agent, and dividend disbursing agent for the Fund. The Fund pays an annual fee
of $20.00 per shareholder account or, where applicable, per participant in an
omnibus account. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of
INVESCO, may provide equivalent services to the Fund. In these cases, INVESCO
may pay, out of the fee it receives from the Fund, an annual sub-transfer agency
fee or recordkeeping fee to the third party.
Under an Administrative Services Agreement, INVESCO handles additional
administrative, recordkeeping, and internal sub-accounting services for the
Fund. For the fiscal year ended August 31, 1998, the Fund paid INVESCO a fee
equal to 0.02% of the Fund's average net assets.
The management and custodial services provided to the Fund by INVESCO
and the Fund's custodian, and the services provided to shareholders by INVESCO
and IDI, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the Year 2000, but will revert to
1900 or 1980 or will cease to function due to the manner in which dates were
encoded and are calculated. That failure could have a negative impact on the
handling of the Fund's securities trades, its share pricing and its account
services. The Fund and its service providers have been actively working on
<PAGE>
necessary changes to theircomputer systems to deal with the Year 2000 issue and
expect that their computer systems will be adapted before that date, but there
can be no assurance that they will be successful. Furthermore, services may be
impaired at that time as a result of the interaction of their systems with the
noncomplying computer systems of others. INVESCO plans to test as many such
interactions as practicable prior to December 31, 1999 and to develop
contingency plans for reasonably anticipated failures.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund for the fiscal year
ended August 31, 1998, including investment management fees (but excluding
brokerage commissions, which are a cost of acquiring securities), amounted to
1.04% of the Fund's average net assets.
INVESCO places orders for the purchase and sale of portfolio securities
with brokers and dealers based upon INVESCO's evaluation of such brokers' and
dealers' financial responsibility coupled with their ability to effect
transactions at the best available prices. As discussed under "How To Buy Shares
- -- Distribution Expenses," the Fund may market its shares through intermediary
brokers or dealers that have entered into dealer agreements with INVESCO or IDI,
as the Fund's distributor. The Fund may place orders for portfolio transactions
with qualified brokers and dealers that recommend the Fund, or sell shares of
the Fund, to clients, or act as agent in the purchase of Fund shares for
clients, if INVESCO believes that the quality of the execution of the
transaction and level of commission are comparable to those available from other
qualified brokerage firms. For further information, see "Investment Practices --
Placement of Portfolio Brokerage" in the Statement of Additional Information.
<PAGE>
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund may vary
daily. The price per share is also known as the Net Asset Value ("NAV"). INVESCO
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of all of the Fund's
assets, including accrued interest and dividends; subtracting liabilities,
including accrued expenses; and dividing that dollar amount by the total number
of shares outstanding.
Performance Data. To keep shareholders and potential investors
informed, we will occasionally advertise the Fund's total return for one-,
five-, and ten-year periods (or since inception). Total return figures show the
average annual rate of return on a $1,000 investment in the Fund, assuming
reinvestment of all dividends and other distributions for the periods cited.
Cumulative total return shows the actual rate of return on an investment over
the periods cited; average annual total return represents the average annual
percentage change in the value of an investment. Both cumulative and average
annual total returns tend to "smooth out" fluctuations in the Fund's investment
results, because they do not show the interim variations in performance over the
periods cited. More information about the Fund's recent and historical
performance is contained in the Fund's Annual Report to Shareholders. You can
get a free copy by calling or writing to IDI using the phone number or address
on the back cover of this Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Growth
Funds, as well as the broad-based Lipper general fund groupings. These rankings
allow you to compare the Fund to its peers. Other independent financial media
also produce performance-or service-related comparisons, which you may see in
our promotional materials. For more information see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical investment results and are
not intended to suggest future performance.
HOW TO BUY SHARES
The following chart shows several convenient ways to invest in the
Fund. Your new Fund shares will be priced at the NAV next determined after your
order is received in proper form. There is no charge to invest, exchange, or
redeem shares when you make transactions directly through INVESCO. However, if
you invest in the Fund through a securities broker, you may be charged a
<PAGE>
commission or transaction fee. INVESCO may from time to time make payments from
its revenues to securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Fund. For all new
accounts, please send a completed application form. Please specify which fund's
shares you wish to purchase.
INVESCO reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. INVESCO reserves the right in its sole
discretion to reject any order for the purchase of Fund shares (including
purchases by exchange) when, in its judgment, such rejection is in the Fund's
best interests.
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HOW TO BUY SHARES
====================================================================================================
Method Investment Minimum Please Remember
- ----------------------------------------------------------------------------------------------------
By Check
Mail to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an IRA; be responsible for
P.O. Box 173706 $50 minimum for any related loss
Denver, CO each subsequent the Fund or INVESCO
80217-3706. investment. incurs. If you are
Or you may send already a
your check by shareholder in the
overnight courier INVESCO funds, the
to: 7800 E. Union Fund may seek
Ave., reimbursement from
Denver, CO 80237. your existing
account(s) for any
loss incurred.
- ----------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be canceled. If a
to our street telephone purchase
address: is canceled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Fund or
bank wire (call INVESCO incurs. If
INVESCO for you are already a
instructions). shareholder in the
INVESCO funds,
the Fund may seek
reimbursement
from your
existing
account(s)
for any loss
incurred.
- ----------------------------------------------------------------------------------------------------
With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to INVESCO. invest continually,
when prices are low regardless of
and fewer shares varying price
when prices are levels, consider
high. This your financial
"dollar-cost ability to keep
averaging" may help buying through low
offset market price levels. And
fluctuations. Over remember that you
a period of time, will lose money if
your average cost you redeem your
per share may be shares when the
less than the market value of all
actual average your shares is less
price per share. than their cost.
- ----------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------
By PAL(R)
Your "Personal $1,000; $250 for an Be sure to write
Account Line" is IRA. down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24-hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be canceled.
If a telephone
purchase is canceled
due to nonpayment,
you will be responsible
for any related loss
the Fund or INVESCO
incurs. If you are
already a shareholder
in the INVESCO funds,
the Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- -------------------------------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy" below.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an ^ (The exchange
automatic monthly minimum is $250 for
exchange service purchases requested
between two INVESCO by telephone.)
funds; call INVESCO
for further details
and the correct
form.
====================================================================================================
</TABLE>
Exchange Policy. You may exchange your shares in this Fund for those in
another INVESCO fund, on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
<PAGE>
Please note these policies regarding exchanges of fund shares:
1. The fund accounts must be identically registered.
2. You may make four exchanges out of each fund during each
calendar year.
3. An exchange is the redemption of shares from one fund followed
by the purchase of shares in another. Therefore, any gain or
loss realized on the exchange is recognizable for federal
income tax purposes (unless, of course, your account is
tax-deferred).
4. In order to prevent abuse of this policy to the
disadvantage of other shareholders, the Fund reserves the
right to temporarily or permanently terminate the
exchange option of any shareholder who requests more than
four exchanges in a year, or at any time the Fund
determines the actions of the shareholder are detrimental
to Fund performance and to other shareholders. The Fund
will determine whether to do so based on a consideration
of both the number of exchanges any particular
shareholder, or group of shareholders, has requested and
the time period over which those exchange requests have
been made, together with the level of expense to the Fund
which will result from effecting additional exchange
requests. The Fund is intended to be a long-term
investment vehicle and is not designed to provide
investors the means of speculation on short-term market
movements.
5. Notice of all modifications or terminations that would
affect all Fund shareholders will be given at least 60
days prior to the effective date of the change in policy,
except in unusual circumstances (such as when redemptions
of the exchanged shares are suspended under Section 22(e)
of the Investment Company Act of 1940, or when sales of
the fund into which you are exchanging are temporarily
suspended).
Distribution Expenses. The Fund is authorized under a Plan and
Agreement of Distribution pursuant to Rule 12b-1 under the Investment Company
Act of 1940 (the "Plan") to use its assets to finance certain activities
relating to the distribution of its shares to investors. Under the Plan, monthly
payments may be made by the Fund to IDI to permit IDI, at its discretion, to
engage in certain activities and provide certain services approved by the board
of directors of the Fund in connection with the distribution of the Fund's
shares to investors. These activities and services may include the payment of
<PAGE>
compensation (including incentive compensation and/or continuing compensation
based on the amount of customer assets maintained in the Fund) to securities
dealers and other financial institutions and organizations, which may include
INVESCO- and IDI-affiliated companies, to obtain various distribution-related
and/or administrative services for the Fund. Such services may include, among
other things, processing new shareholder account applications, preparing and
transmitting electronically to the Fund's transfer agent computer-processable
tapes of all transactions by customers, and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund.
In addition, other permissible activities and services include
advertising, preparation, printing and distribution of sales literature,
printing and distribution of prospectuses to prospective investors and such
other services and promotional activities for the Fund as may from time to time
be agreed upon by the Fund and its board of directors, including public
relations efforts and marketing programs to communicate with investors and
prospective investors. These services and activities may be conducted by the
staff of INVESCO, IDI or their affiliates or by third parties.
Under the Plan, the Company's payments to IDI are limited to an amount
computed at an annual rate of 0.25% of the Fund's average net assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Payment
amounts by the Fund under the Plan, for any month, may be made to compensate IDI
for permissible activities engaged in and services provided by IDI during the
rolling 12-month period in which that month falls. Therefore, any obligations
incurred by IDI in excess of the limitations described above will not be paid by
the Fund under the Plan, and will be borne by IDI. In addition, IDI and its
affiliates may from time to time make additional payments from their revenues to
securities dealers, financial advisers and financial institutions that provide
distribution-related and/or administrative services for the Fund. No further
payments will be made by the Fund under the Plan in the event of the Plan's
termination. Payments made by the Fund may not be used to finance directly the
distribution of shares of any other mutual fund advised by INVESCO and
distributed by IDI. However, payments received by IDI which are not used to
finance the distribution of shares of the Fund become part of IDI's revenues and
may be used by IDI for activities that promote the distribution of any of the
mutual funds advised by INVESCO. Subject to review by the Fund's directors,
payments made by the Fund under the Plan for compensation of marketing
<PAGE>
personnel, as noted above, are based on an allocation formula designed to ensure
that all such payments are appropriate. IDI will bear any distribution and
service related expenses in excess of the amounts which are compensated pursuant
to the Plan. The Plan also authorizes any financing of distribution which may
result from IDI's use of its own resources, provided that such fees are
legitimate and not excessive. For more information see "How Shares Can Be
Purchased -- Distribution Plan" in the Statement of Additional Information.
FUND SERVICES
Shareholder Accounts. INVESCO will maintain a share account that
reflects your current holdings. Share certificates will be issued only upon
specific request. You will have greater flexibility to conduct transactions if
you do not request certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a
written statement which consolidates and summarizes account activity and value
at the beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and other distributions are
automatically re-invested in additional Fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
other distributions automatically reinvested in another INVESCO fund or paid by
check (minimum of $10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephone instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
Retirement Plans And IRAs. Fund shares may be purchased for IRAs and
many types of tax-deferred retirement plans. INVESCO can supply you with
information and forms to establish or transfer your existing plan or account.
<PAGE>
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders
have a separate account for each fund in which they invest.
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HOW TO SELL SHARES
====================================================================================================
Method Minimum Redemption Please Remember
By Telephone
Call us toll-free $250 (or, if less, These telephone
at 1-800-525-8085. full liquidation of redemption
the account) for a privileges may be
redemption check; modified or
$1,000 for a wire terminated in the
to bank of record. future at INVESCO's
The maximum amount discretion.
which may be
redeemed by
telephone is
generally $25,000.
- ----------------------------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706 all registered stock certificates,
Denver, CO account owners. the certificates
80217-3706. You may Payment will be must be sent to
also send your mailed to your INVESCO.
request by address of record
overnight courier or to a
to 7800 E. Union pre-designated
Ave., Denver, CO bank.
80237.
- ----------------------------------------------------------------------------------------------------
<PAGE>
- ----------------------------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 12.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an ^ (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call INVESCO
for further details
and the correct
form.
- ----------------------------------------------------------------------------------------------------
Periodic Withdrawal
Plan
You may call us to $100 per payment, You must have at
request the on a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at check may be made at least $5,000 of
1-800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- ----------------------------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered
to INVESCO Funds account owners must
Group, Inc., P.O. sign the request,
Box 173706 with a signature
Denver, CO guarantee from an
80217-3706. eligible guarantor
financial institution,
such as a
commercial bank
or recognized
national or
regional securities
firm.
====================================================================================================
</TABLE>
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
Payments of redemption proceeds will be mailed within seven days
following receipt of the redemption request in proper form. However, payment may
<PAGE>
be postponed under unusual circumstances --for instance, if normal trading is
not taking place on the New York Stock Exchange or during an emergency as
defined by the Securities and Exchange Commission. If your shares were purchased
by a check which has not yet cleared, payment will be made promptly upon
clearance of the purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should
the value of any shareholder's account fall below $250 as a result of
shareholder action, the Fund reserves the right to involuntarily redeem all
shares in such account, in which case the account would be liquidated and the
proceeds forwarded to the shareholder. Prior to any such redemption, a
shareholder will be notified and given 60 days to increase the value of the
account to $250 or more.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all
of its net investment income, net capital gains and net gains from certain
foreign currency transactions, if any. Distribution of substantially all net
investment income to shareholders allows the Fund to maintain its tax status as
a regulated investment company. The Fund does not expect to pay any federal
income or excise taxes because of its distribution policies and tax status as a
regulated investment company.
Shareholders must include all dividends and other distributions as
taxable income for federal, state and local income tax purposes unless they are
exempt from income taxes. Dividends and other distributions are taxable whether
they are received in cash or automatically re-invested in shares of the Fund or
another fund in the INVESCO group.
Net realized capital gains of the Fund are classified as short-term and
long-term gains depending upon how long the Fund held the security that gave
rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. During 1997, the Taxpayer Relief Act established a new
maximum capital gain tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of
either 20% or 28%. Beginning January 1, 1998, all long-term gains realized on
the sale of securities held more than 12 months will be taxable at a maximum
rate of 20%. In addition, legislation signed in October of 1998 provides that
all capital gain distributions from a mutual fund paid to shareholders during
1998 will be taxed at a maximum rate of 20%. Accordingly, all capital gain
<PAGE>
distributions paid in 1998 will be taxable at a maximum rate of 20%. Note that
the rate of capital gains tax is dependent on the shareholder's marginal tax
rate and may be lower than the above rates. At the end of each year, information
regarding the tax status of dividends and other distributions is provided to
shareholders. Shareholders should consult their tax advisers as to the effect of
distributions by the Fund.
Shareholders may realize capital gains or losses when they sell their
Fund shares at more or less than the price originally paid. Capital gains on
shares held for more than one year will be long-term capital gains, in which
event they will be subject to federal income tax at the rates indicated above.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld may be
treated as an expense of the Fund.
Individuals and certain other non-corporate shareholders may be subject
to backup withholding of 31% on dividends, capital gains and other distributions
and redemption proceeds. You can avoid backup withholding on your Fund account
by ensuring that we have a correct, certified tax identification number unless
you are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these
matters. For further information see "Dividends, Other Distributions And Taxes"
in the Statement of Additional
Information.
Dividends and Other Distributions. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments.
Dividends paid by the Fund will be based solely on the income earned by it. The
Fund's policy is to distribute substantially all of this income, less expenses,
to shareholders on a quarterly basis, at the discretion of the Fund's board of
directors. Dividends are automatically reinvested in additional shares of the
Fund at the net asset value on the payable date unless otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains realized on certain foreign currency transactions, if any,
are distributed to shareholders at least annually, usually in December. Capital
gain distributions are automatically reinvested in shares of the Fund at the net
asset value on the payable date unless otherwise requested.
Dividends and other distributions are paid to holders of shares on the
record date of the distribution, regardless of how long the Fund shares have
been held by the shareholder. The Fund's share price will then drop by the
<PAGE>
amount of the distribution on the ex-dividend or ex-distribution date. If a
shareholder purchases shares immediately prior to the distribution, the
shareholder will, in effect, have "bought" the distribution by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund have equal voting rights based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Fund will assist shareholders in
communicating with other shareholders as required by the Investment Company Act
of 1940.
Master/Feeder Option. As a matter of fundamental policy, the Fund may,
in the future, seek to achieve the Fund's investment objective by investing all
of the Fund's assets in another investment company having substantially the same
fundamental investment objective, policies and limitations. It is expected that
any such investment company would be managed by INVESCO in substantially the
same manner as the Fund. If permitted by applicable law, any such investment may
be made in the sole discretion of the Fund's board of directors without a vote
of the Fund's shareholders. However, shareholders will be given at least 30 days
prior notice of any such investment. Such an investment would be made only if
the board of directors determines it to be in the best interests of the Fund and
its shareholders based on potential cost savings, operational efficiencies or
other factors. No assurance can be given that costs would be materially reduced
if this option were implemented.
<PAGE>
^ INVESCO Blue Chip Growth Fund
A no-load mutual fund seeking
capital appreciation and current
income.
PROSPECTUS
January 1, 1999
^ We're easy to stay in touch with:
^ Investor services: 1-800-525-8085
^ PAL(R), your Personal Account Line: 1-800-424-8085
^ On the World Wide Web: www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek
155-B Fillmore Street;
Denver Tech Center
7800 East Union Avenue
Lobby Level
INVESCO Distributors, Inc.,(sm)
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
In addition, all documents You should know what
filed by the Trust with the INVESCO knows.(TM)
Securities and Exchange
Commission can be located on INVESCO Funds
a web site maintained by the
Commission at
http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
January 1, 1999
INVESCO GROWTH FUNDS, INC.
(formerly, INVESCO GROWTH FUND, INC.)
Address: Mailing Address:
7800 East Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In Continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.) (the
"Company") is a no-load, open-end, diversified investment company, consisting of
one separate portfolio of investments, INVESCO Blue Chip Growth Fund (formerly,
INVESCO Growth Fund, Inc.) (the "Fund").
The Fund's investment objective is to seek long-term capital growth.
The Fund also seeks, as a secondary objective, to obtain investment income
through the purchase of securities of carefully selected companies representing
major fields of business and industrial activity. In pursuing its objectives,
the Fund invests primarily in common stocks but may also invest in other kinds
of securities, including convertible and straight issues of debentures and
preferred stock.
A Prospectus for the Fund dated January 1, 1999, which provides the
basic information you should know before investing in the Fund, may be obtained
without charge from INVESCO Distributors, Inc., Post Office Box 173706, Denver,
Colorado 80217- 3706. This Statement of Additional Information is not a
prospectus, but contains information in addition to and more detailed than that
set forth in the Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund and should be
read in conjunction with the Prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Investment Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS...........................................3
THE FUND AND ITS MANAGEMENT...................................................11
HOW SHARES CAN BE PURCHASED...................................................25
HOW SHARES ARE VALUED.........................................................29
FUND PERFORMANCE..............................................................30
SERVICES PROVIDED BY THE FUND.................................................32
TAX-DEFERRED RETIREMENT PLANS.................................................33
HOW TO REDEEM SHARES..........................................................33
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES......................................34
INVESTMENT PRACTICES..........................................................37
ADDITIONAL INFORMATION........................................................40
APPENDIX A....................................................................44
APPENDIX B....................................................................47
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
Equity Securities. Equity securities include common stocks, preferred
stocks and debt or equity securities that are convertible into them, including
common stock purchase warrants and rights, equity interests in trusts,
partnerships, joint ventures or similar enterprises and depository receipts.
Common stocks, the most familiar type, represent an equity (i.e., ownership)
interest in a corporation. Preferred stock has certain fixed income features,
like a bond, but is actually equity in a company, like common stock. Depository
receipts typically are issued by banks or trust companies and evidence ownership
of underlying securities.
While past performance does not guarantee future results, equity
securities historically have provided the greatest long-term growth potential in
a company. However, their prices generally fluctuate more than other securities,
and reflect changes in a company's financial condition and overall market and
economic conditions. Common stocks generally represent the riskiest investment
in a company.
Debt Securities. As discussed in the sections of the Fund's Prospectus
entitled "Investment Objective And Strategy" and "Investment Policies And
Risks," the debt securities in which the Fund invests generally are subject to
two kinds of risk: credit risk and market risk. Credit risk relates to the
ability of the issuer to meet interest or principal payments or both as they
come due. The ratings given a debt security by Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P") provide a generally useful guide as to such credit risk. Market
risk relates to the fact that the market values of debt securities in which the
Fund invests generally will be affected by changes in the level of interest
rates. An increase in interest rates will tend to reduce the market values of
such debt securities, whereas a decline in interest rates will tend to increase
their values.
Restricted/144A Securities. The Fund may invest in restricted
securities that can be resold to institutional investors pursuant to Rule 144A
and the Securities Act of 1933 ("Rule 144A
Securities").
In recent years, a large institutional market has developed for Rule
144A Securities. Institutional investors generally will not seek to sell these
instruments to the general public but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
<PAGE>
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by a Fund, however, could affect adversely
the marketability of such security, and the Fund might be unable to dispose of
such security promptly or at reasonable prices.
Repurchase Agreements. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may invest in
repurchase agreements with respect to debt instruments eligible for investment
by the Fund with member banks of the Federal Reserve System, registered
broker-dealers and registered U.S. government securities dealers that are
believed to be creditworthy under standards established by the Fund's board of
directors. A repurchase agreement is an agreement under which the Fund acquires
a debt instrument (generally a security issued by the U.S. government or an
agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an
agreed-upon price and date (normally, the next business day). A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed-upon interest rate effective for the period the
instrument is held by the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by the
Fund (including accrued interest earned thereon) must have a total value at
least equal to the value of the repurchase agreement and are held as collateral
by the Fund's custodian bank until the repurchase agreement is completed. In
addition, the Fund's board of directors monitors the Fund's repurchase agreement
transactions and has established guidelines and standards for review by the
investment adviser of the creditworthiness of any bank, broker or dealer that is
a party to a repurchase agreement with the Fund.
The use of repurchase agreements involves certain risks. For example,
if the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent, the Fund may experience costs and delays in
realizing on the collateral. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying security and may be deemed
an unsecured creditor of the other party to the agreement. While INVESCO
acknowledges these risks, it is expected that the risks can be minimized through
careful monitoring procedures.
Securities Lending. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may lend its
portfolio securities to qualified brokers, dealers, banks or other financial
<PAGE>
institutions, provided that such loans are callable at any time by the Fund and
are at all times secured by collateral consisting of cash, letters of credit or
securities issued or guaranteed by the United States government or its agencies,
or any combination thereof, equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to have the benefits (and risks) of ownership of the loaned
securities, while at the same time receiving income from the borrower of the
securities. Loans will be made only to firms deemed by the adviser (under
procedures established by the Fund's board of directors) to be creditworthy and
when the amount of interest income to be received justifies the inherent risks.
A loan may be terminated by the borrower on one business day's notice, or by the
Fund at any time. If at any time the borrower fails to maintain the required
amount of collateral (at least 100% of the market value of the borrowed
securities, plus accrued interest and dividends), the Fund will require the
deposit of additional collateral not later than the business day following the
day on which a collateral deficiency occurs or the collateral appears
inadequate. If the deficiency is not remedied by the end of that period, the
Fund will use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss during the loan period would inure to the Fund.
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 as conditions for
exemption of a mutual fund, or the investment advisers thereto, from
registration as a commodity pool operator. The Fund will not, 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" 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
<PAGE>
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, because losses on open contracts are required to be reflected in cash
in the form of variation margin payments, the 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 financial 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 the Fund's
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.
<PAGE>
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; options are also included in the types
of instruments sometimes known as derivatives. 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 the Fund's
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.
<PAGE>
Forward Foreign Currency Contracts.^ The Fund may enter into forward
currency contracts, which are included in the types of instruments sometimes
known as derivatives, to purchase or sell foreign currencies (i.e., non-U.S.
currencies) as a hedge against possible variations in foreign exchange rates. A
forward foreign currency contract is an agreement between the contracting
parties to exchange an amount of currency at some future time at an agreed upon
rate. The rate can be higher or lower than the spot rate between the currencies
that are the subject of the contract. A forward contract generally has no
deposit requirement, and such transactions do not involve commissions. By
entering into a forward contract for the purchase or sale of the amount of
foreign currency invested in a foreign security transaction, the Fund can hedge
against possible variations in the value of the dollar versus the subject
currency either between the date the foreign security is purchased or sold and
the date on which payment is made or received or during the time the Fund holds
the foreign security. Hedging against a decline in the value of a currency in
the foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions preclude the opportunity for gain if the
value of the hedged currency should rise. The Fund will not speculate in forward
currency contracts. Although the Fund has not adopted any limitations on its
ability to use forward contracts as a hedge against fluctuations in foreign
exchange rates, the Fund does not attempt to hedge all of its non-U.S. portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by their investment adviser or sub-adviser. The Funds will
not enter into forward contracts for a term of more than one year.
Investment Restrictions. As described in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund operates under
certain investment restrictions. For purposes of the Fund's investment
restrictions, all percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular percentage resulting
from fluctuations in value does not require elimination of any security from the
Fund.
The following restrictions are fundamental and may not be changed with
respect to the Fund without the prior approval of the holders of a majority, as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of the Fund. Under these restrictions, the Fund
may not:
(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 or calls options;
<PAGE>
(3)* borrow money in excess of 5% of the value of its total assets
and then only from banks, and when borrowing, it is 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 investing in real estate). 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 foreign 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.
<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 Funds' 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 whether or not such securities are 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 a modified S&P
industry code classification schema which uses various sources to classify
securities.
The following non-fundamental investment restrictions have been adopted
by the Fund. These investment restrictions may be changed by the directors at
their discretion, without shareholder approval:
(1) The Fund will not enter into any futures contracts,
options on futures, puts and calls if immediately
thereafter the aggregate margin deposits on all
outstanding derivatives 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.
(2) The Fund will not enter into any derivatives positions if the
aggregate net amount of the Fund's commitments under
outstanding derivatives positions of the Fund would exceed the
market value of the total assets of the Fund.
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.
<PAGE>
THE FUND AND ITS MANAGEMENT
The Company. The Company was incorporated under the laws of Maryland on
January 8, 1935. On December 2, 1994, the Fund's name was changed from
"Financial Industrial Fund, Inc." to "INVESCO Growth Fund, Inc." On October 29,
1998, the Company's name was changed from "INVESCO Growth Fund, Inc." to
"INVESCO Growth Funds, Inc."
The Investment Adviser. INVESCO Funds Group, Inc, a Delaware
corporation ("INVESCO"), is employed as the Fund's investment advisor. INVESCO
was established in 1932 and also serves as an investment adviser to INVESCO Bond
Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Combination Stock
and Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.), INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Industrial Income Funds, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Stock Funds, Inc.
(formerly, INVGESCO Equity Funds, Inc.), INVESCO Tax-Free Income Funds, Inc.,
INVESCO Treasurer's Series Trust, INVESCO Value Trust and INVESCO Variable
Investment Funds, Inc.
The Distributor. INVESCO Distributors, Inc. ("IDI") is the Fund's
distributor. IDI, established in 1997, is a registered broker-dealer that acts
as distributor for all retail mutual funds advised by INVESCO. Prior to
September 30, 1997, INVESCO served as the Fund's distributor.
INVESCO and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC,
a publicly traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8, 1997, as
part of a merger between a direct subsidiary of INVESCO PLC and A I M Management
Group, Inc. that created one of the largest investment management businesses in
the world with approximately $261 billion in assets under management as of June
30, 1998. INVESCO was established in 1932, and, as of August 31, 1998, managed
14 mutual funds, consisting of 49 separate portfolios, on behalf of over 899,000
shareholders.
AMVESCAP PLC's other North American subsidiaries include the
following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS") of
Atlanta, Georgia, develops and provides domestic and international defined
contribution retirement plan services to sponsors, institutional plan providers
and foreign governments.
--INVESCO Retirement Plan Services ("IRPS") of Atlanta, Georgia, a
division of IRBS, provides recordkeeping and investment selection services to
defined contribution plan sponsors of plans with between $2 million and $200
million in assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide INVESCO products and services in their
retirement plan products and services.
<PAGE>
--Institutional Trust Company doing business as INVESCO Trust Company
("ITC") of Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts (IRAs) and
other retirement plan accounts. These include services such as recordkeeping,
tax reporting and compliance. ITC acts as trustee or custodian to these plans.
ITC accepts contributions and provides, through INVESCO, complete transfer
agency functions: correspondence, subaccounting, telephone communications and
processing of distributions.
--INVESCO Capital Management,Inc. of Atlanta, Georgia manages
institutional investment portfolios, consisting primarily of
discretionary employee benefit plans for corporations and state and
local governments, and endowment funds. INVESCO Capital Management,
Inc. is the sole shareholder of INVESCO Services, Inc., a
registered broker-dealer whose primary business is the distribution
of shares of one registered investment company.
--INVESCO Management & Research, Inc. of Boston, Massachusetts
primarily manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky
specializes in managing stable return investments, principally on
behalf of Section 401(k) retirement plans.
--INVESCO Realty Advisors, Inc. of Dallas, Texas is
responsible for providing advisory services in the U.S. real estate
markets for pension plans and public pension funds, as well as
endowment and foundation accounts.
--INVESCO (NY), Inc., of New York, is an investment adviser for
separately managed accounts, such as corporate and municipal pension plans,
Taft-Hartley Plans, insurance companies, charitable institutions and private
individuals. INVESCO NY also offers the opportunity for its clients to invest
both directly and indirectly through partnerships in primarily private
investments or privately negotiated transactions. INVESCO NY further serves as
investment adviser to several closed-end investment companies, and as
sub-adviser with respect to certain commingled employee benefit trusts. INVESCO
NY specializes in the fundamental research investment approach, with the help of
quantitative tools.
--A I M Advisors, Inc. of Houston, Texas provides investment
advisory and administrative services for retail and institutional
mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub-adviser to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
<PAGE>
open-end registered investment company that is offered to separate accounts of
insurance companies that issue variable annuity and/or variable life contracts.
--A I M Distributors, Inc. and Fund Management Company of
Houston, Texas are registered broker-dealers that act as the principal
underwriters for retail and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M 4YR, England.
As indicated in the Fund's Prospectus, INVESCO permits investment and
other personnel to purchase and sell securities for their own accounts in
accordance with a compliance policy governing personal investing by directors,
officers and employees of INVESCO and its North American affiliates. The policy
requires officers, inside directors, investment and other personnel of INVESCO
and its North American affiliates to pre-clear all transactions in securities
not otherwise exempt under the policy. Requests for trading authority will be
denied when, among other reasons, the proposed personal transaction would be
contrary to the provisions of the policy or would be deemed to adversely affect
any transaction then known to be under consideration for or to have been
effected on behalf of any client account, including the Fund.
In addition to the pre-clearance requirement described above, the
policy subjects officers, inside directors, investment and other personnel of
INVESCO and its North American affiliates to various trading restrictions and
reporting obligations. All reportable transactions are reviewed for compliance
with the policy. The provisions of this policy are administered by and subject
to exceptions authorized by INVESCO.
Investment Advisory Agreement. INVESCO serves as investment adviser to
the Fund pursuant to an investment advisory agreement dated February 28, 1997
(the "Agreement") with the Company which was approved by the board of directors
on November 6, 1996, by vote cast in person by a majority of the directors of
the Company, including a majority of the directors of the Company who are not
"interested persons" of the Fund or INVESCO at a meeting called for such
purpose. The Agreement was approved by the Fund's shareholders on January 31,
1997, for an initial term expiring February 28, 1999. On May 13, 1998, this
period was extended by the Company's board of directors ^ through May 15, 1999.
Thereafter, the Agreement may be continued from year to year as long as each
such continuance is specifically approved at least annually by the board of
directors of the Company, or by a vote of the holders of a majority, as defined
in the 1940 Act, of the outstanding shares of the Fund. Any such continuance
also must be approved by a majority of the Company's directors who are not
parties to the Agreement or interested persons (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of voting on
such continuance. The Agreement may be terminated at any time without penalty by
<PAGE>
either party upon sixty (60) days' written notice and terminates automatically
in the event of an assignment to the extent required by the 1940 Act and the
Rules thereunder.
The Agreement provides that INVESCO shall manage the investment
portfolio of the Fund in conformity with the Fund's investment policies (either
directly or by delegation to a sub-adviser which may be a company affiliated
with INVESCO). Further, INVESCO shall perform all administrative, internal
accounting (including computation of net asset value), clerical, statistical,
secretarial and all other services necessary or incidental to the administration
of the affairs of the Fund excluding, however, those services that are the
subject of separate agreement between the Fund and INVESCO or any affiliate
thereof, including the distribution and sale of Fund shares and provision of
transfer agency, dividend disbursing agency and registrar services, and services
furnished under an Administrative Services Agreement with INVESCO discussed
below. Services provided under the Agreement include but are not limited to:
supplying the Fund with officers, clerical staff and other employees, if any,
who are necessary in connection with the Fund's operations; furnishing office
space, facilities, equipment and supplies; providing personnel and facilities
required to respond to inquiries related to shareholder accounts; conducting
periodic compliance reviews of the Fund's operations; preparation and review of
required documents, reports and filings by INVESCO's in-house legal and
accounting staff (including the prospectus, statement of additional information,
proxy statements, shareholder reports, tax returns, reports to the SEC and other
corporate documents of the Fund), except insofar as the assistance of
independent accountants or attorneys is necessary or desirable; supplying basic
telephone service and other utilities; and preparing and maintaining certain of
the books and records required to be prepared and maintained by the Fund under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Fund.
As full compensation for its advisory services provided to the Fund,
INVESCO receives a monthly fee. The fee is calculated daily at an annual rate
of: 0.60% on the first $350 million of the average net assets of the Fund;
reduced to 0.55% on the next $350 million of the average net assets of the Fund;
and further reduced to 0.50% on the Fund's average net assets exceeding $700
million. For the fiscal years ended August 31, 1998, 1997 and 1996, the Fund
incurred advisory fees of $4,561,574, $3,922,981 and $3,196,929, respectively.
Administrative Services Agreement. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved by the board of directors on November 6,
1996, by a vote cast in person by all of the directors of the Company, including
all of the directors who are not "interested persons" of the Company or INVESCO
<PAGE>
at a meeting called for such purpose. The Administrative Agreement was for an
initial term expiring February 28, 1998, and has been continued by action of the
board of directors ^ through May 15, 1999. The Administrative Agreement may be
continued from year to year as long as each such continuance is specifically
approved by the board of directors of the Company, including a majority of the
directors who are not parties to the Administrative Agreement or interested
persons (as defined in the 1940 Act) of any such party, cast in person at a
meeting called for the purpose of voting on such continuance. The Administrative
Agreement may be terminated at any time without penalty by INVESCO on sixty (60)
days' written notice, or by the Fund upon thirty (30) days' written notice, and
terminates automatically in the event of an assignment unless the Fund's board
of directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Fund: (a) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; and (b) such sub-accounting, recordkeeping and administrative services and
functions, which may be provided by affiliates of INVESCO, as are reasonably
necessary for the operation of Fund shareholder accounts maintained by certain
retirement plans and employee benefit plans for the benefit of participants in
such plans.
As full compensation for services provided under the Administrative
Agreement, the Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund. For the fiscal years ended August 31, 1998, 1997 and 1996, the Fund paid
INVESCO administrative services fees in the amount of $131,098 $112,386 and
$92,412, respectively.
Transfer Agency Agreement. INVESCO also performs transfer agent,
dividend disbursing agent and registrar services for the Fund pursuant to a
Transfer Agency Agreement dated February 28, 1997, which was approved by the
board of directors of the Company, including a majority of the Company's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996, for an initial term expiring
February 28, 1998 which has been extended by action of the board of directors ^
through May 15, 1999. Thereafter, the Transfer Agency Agreement may be continued
from year to year as long as such continuance is specifically approved at least
annually by the board of directors of the Company, or by a vote of the holders
of a majority of the outstanding shares of the Fund. Any such continuance also
must be approved by a majority of the Company's directors who are not parties to
the Transfer Agency Agreement or interested persons (as defined by the 1940 Act)
of any such party, cast in person at a meeting called for the purpose of voting
on such continuance. The Transfer Agency Agreement may be terminated at any time
<PAGE>
without penalty by either party upon sixty (60) days'written notice and
terminates automatically in the event of assignment.
The Transfer Agency Agreement provides that the Fund shall pay to
INVESCO an annual fee of $20.00 per shareholder account or, where applicable,
per participant in an omnibus account. This fee is paid monthly at a rate of
1/12 of the annual fee and is based upon the number of shareholder accounts and
omnibus account participants in existence during each month. For the fiscal
years ended August 31, 1998, 1997 and 1996, the Fund paid INVESCO transfer
agency fees of $1,160,513, $1,066,438 and $751,390, respectively.
Officers and Directors of the Company. The overall direction and
supervision of the Fund is the responsibility of the board of directors, which
has the primary duty of seeing that the Fund's general investment policies and
programs of the Fund are carried out and that the Fund is properly administered.
The officers of the Company, all of whom are officers and employees of and are
paid by INVESCO, are responsible for the day-to-day administration of the Fund.
The investment adviser for the Fund has the primary responsibility for making
investment decisions on behalf of the Fund. These investment decisions are
reviewed by the investment committee of INVESCO.
All officers and directors of the Company hold comparable positions
with INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO
Combination Stock and Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Industrial Income Funds, Inc., INVESCO International Funds, Inc.,
INVESCO Money Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO
Strategic Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Stock Funds,
Inc. (formerly, INVGESCO Equity Funds, Inc.), INVESCO Tax-Free Income Funds,
Inc., INVESCO Treasurer's Series Trust, INVESCO Value Trust and INVESCO Variable
Investment Funds, Inc. All of the directors and officers of the Fund also serve
as trustees of INVESCO Value Trust and INVESCO Treasurer's Series Trust. Set
forth below is information with respect to each of the Company's officers and
directors. Unless otherwise indicated, the address of the directors and officers
is Post Office Box 173706, Denver, Colorado 80217-3706. Their affiliations
represent their principal occupations during the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive
Officer and Director of AMVESCAP PLC, London, England, and of
various subsidiaries thereof. Chairman of the Board of INVESCO
Global Health Sciences Fund. Address: 1315 Peachtree Street, NE,
Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Trustee of
INVESCO Global Health Sciences Fund. Formerly, Chairman of the
Executive Committee and Chairman of the Board of Security Life of
<PAGE>
Denver Insurance Company, Denver, Colorado; Director of ING America
Life Insurance Company. Address: Security Life Center, 1290
Broadway, Denver, Colorado. Born: January 12, 1928.
VICTOR L. ANDREWS,**@ Director. Professor Emeritus, Chairman
Emeritus and Chairman of the CFO Roundtable of the Department of
Finance at Georgia State University, Atlanta, Georgia; President,
Andrews Financial Associates, Inc. (consulting firm); since October
1984, Director of the Center for the Study of Regulated Industry at
Georgia State University; formerly, member of the faculties of the
Harvard Business School and the Sloan School of Management of MIT.
Dr. Andrews is also a Director of the Southeastern Thrift and Bank
Fund, Inc. and The Sheffield Funds, Inc. Address: 34 Seawatch
Drive, Savannah, Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive
Officer of AMC Cancer Research Center, Denver, Colorado, since
January 1989; until mid-December 1988, Vice Chairman of the Board
of First Columbia Financial Corporation (a financial institution),
Englewood, Colorado. Formerly, Chairman of the Board and Chief
Executive Officer of First Columbia Financial Corporation. Address:
1600 Pierce Street, ^ Lakewood, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,#@@ Director. Trust Consultant; prior to
June 30, 1987, Senior Vice President and Senior Trust Officer of
InterFirst Bank, Dallas, Texas. Address: 7608 Glen Albens Circle,
Dallas, Texas. Born: July 25, 1930.
WENDY L. GRAMM, Ph.D.,**@ Director. Self-employed (since
1993); Professor of Economics and Public Administration, University
of Texas at Arlington. Formerly, Chairman, Commodity Futures
Trading Commission from 1988 to 1993, administrator for Information
and Regulatory Affairs at the Office of Management and Budget from
1985 to 1988, Executive Director of the Presidential Task Force on
Regulatory Relief and Director of the Federal Trade Commission's
Bureau of Economics. Dr. Gramm is also a director of the Chicago
Mercantile Exchange, Enron Corporation, IBP, Inc., State Farm
Insurance Company, State Farm Life Insurance Company, Independant
Women's Forum, International Republic Institute, and the Republican
Women's Federal Forum. Dr. Gramm is also a member of the Board of
Visitors, College of Business Administration, University of Iowa,
and a member of the Board of Visitors, Center for Study of Public
Choice, George Mason University. Address: 4201 Yuma Street, N.W.,
Washington, D.C. Born: January 10, 1945.
KENNETH T. KING,+#@@ Director. Formerly, Chairman of the
Board of The Capitol Life Insurance Company, Providence Washington
Insurance Company, and Director of numerous subsidiaries thereof in
the U.S. Formerly, Chairman of the Board of The Providence Capitol
Companies in the United Kingdom and Guernsey. Chairman of the
Board of the Symbion Corporation (a high technology company) until
1987. Address: 4080 North Circulo Manzanillo, Tucson, Arizona.
Born: November 16, 1925.
<PAGE>
JOHN W. MCINTYRE,+#@@ Director. Retired. Formerly, Vice
Chairman of the Board of Directors of The Citizens and Southern
Corporation and Chairman of the Board and Chief Executive Officer
of The Citizens and Southern Georgia Corporation and Citizens and
Southern National Bank. Trustee of INVESCO Global Health Sciences
Fund and Gables Residential Trust. Address: 7 Piedmont Center,
Suite 100, Atlanta, Georgia. Born: September 14, 1930.
LARRY SOLL, Ph.D.,**@ Director. Retired. Formerly, Chairman of
the Board (1987 to 1994), Chief Executive Officer (1982 to 1989 and
1993 to 1994) and President (1982 to 1989) of Synergen Corp.
Director of Synergen since incorporation in 1982. Director of ISI
Pharmaceuticals, Inc., Trustee of INVESCO Global Health Sciences
Fund. Address: 345 Poorman Road, Boulder, Colorado. Born: April
26, 1942.
MARK H. WILLIAMSON,+* President, CEO and Director. President,
CEO and Director of IDI; President, CEO and Director of INVESCO and
President of INVESCO Global Health Sciences Fund. Formerly,
Chairman and CEO of NationsBanc Advisors, Inc. (1995 to 1997) and
Chairman of NationsBanc Investments, Inc. (1997 to 1998). Born: May
24, 1951.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995),
General Counsel (since 1989) and Secretary (since 1989) of INVESCO
and Senior Vice President, General Counsel and Secretary of IDI
(since 1997); Secretary of INVESCO Global Health Sciences Fund;
Vice President (May 1989 to April 1995) of INVESCO; Senior Vice
President, (since 1995), General Counsel (since 1989) and Secretary
(1989 to 1998) of ITC. Formerly, employee of a U.S. regulatory
agency, Washington, D.C. (June 1973 through May 1989). Born:
September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and
Treasurer of INVESCO (since 1988). Senior Vice President and
Treasurer of IDI (since 1997). Treasurer, Principal Financial and
Accounting Officer, INVESCO Global Health Sciences Fund. Senior
Vice President and Treasurer of ITC (1988 to 1998). Born: October
1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO (since 1995) and of IDI (since 1997). Trust Officer of ITC (1995 to
1998); and formerly (August 1992 to July 1995) Vice President of INVESCO.
Formerly, Vice President of 440 Financial Group from June 1990 to August 1992
and Assistant Vice President of Putnam Companies from November 1986 to June
1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of
INVESCO Funds Group, Inc. (since 1984). Formerly, Trust Officer of
ITC. Born: September 14, 1941.
<PAGE>
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO
Funds Group, Inc. (since 1984). Formerly, Trust Officer of ITC.
Born: February 3, 1948.
*These directors are "interested persons" of the Fund as
defined in the 1940 Act.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
@Member of the derivatives committee of the Company.
@@Member of the soft dollar brokerage committee of the
Company.
**Member of the management liaison committee of the Company.
As of October 19, 1998, officers and directors of the Fund, as a group,
beneficially owned less than 1% of the Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended August 31,
1998:, the compensation paid by the Company to its independent directors for
services rendered in their capacities as directors of the Company, the benefits
accrued as Fund expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the estimated annual benefits to be
received by these directors upon retirement as a result of their service to the
Company. In addition, the table sets forth the total compensation paid by all of
the mutual funds distributed by IDI and advised by INVESCO (including the
Company), INVESCO Treasurer's Series Trust and INVESCO Global Health Sciences
Fund (collectively, the "INVESCO Complex") to these directors for services
rendered in their capacities as directors or trustees during the year ended
December 31, 1997. As of December 31, 1997, there were 49 funds in the INVESCO
Complex.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Total
Retirement Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Fund Upon Paid To
Fund(1) Expenses(2) Retirement(3) Directors(1)
Fred A.Deering, $2,872 $1,808 $1,160 $113,350
Vice Chairman of
the Board
Victor L. Andrews 2,743 1,709 1,343 92,700
Bob R. Baker 2,906 1,526 1,800 96,050
Lawrence H. Budner 2,654 1,709 1,343 91,000
Daniel D. Chabris(4) 2,772 1,847 1,002 89,350
Wendy L. Gramm 2,549 0 0 39,000
Kenneth T. King 2,474 1,878 1,052 94,350
John W. McIntyre 2,594 0 0 104,000
Larry Soll 2,594 0 0 78,000
------- ------ ------ --------
Total $24,158 $10,477 $7,700 $797,800
% of Net Assets 0.0032%(5) 0.0014%(5) 0.0046%(6)
</TABLE>
(1)The vice chairman of the board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage and compensation committees, and the
members of the executive and valuation committees each receive compensation for
serving in such capacities in addition to the compensation paid to all
independent directors.
(2)Represents benefits accrued with respect to the Defined Benefit Deferred
Compensation Plan discussed below and not compensation deferred at the election
of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund which does not participate in this retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
number of funds in the INVESCO Complex and for other reasons during the period
<PAGE>
in which retirement benefits are accrued on behalf of the respective directors.
This results in lower estimated benefits for directors who are closer to
retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Drs. Soll and Gramm, each of these directors
has served as a director/trustee of one or more of the funds in the INVESCO
Complex for the minimum five-year period required to be eligible to participate
in the Defined Benefit Deferred Compensation Plan.
(4)Mr. Chabris retired as a director effective September 30, 1998.
(5)Total as a percentage of the Company's net assets as of August 31, 1998.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1997.
Messrs. Brady and Williamson, as "interested persons" of the Company and of
the other funds in the INVESCO Complex, receive compensation as officers or
employees of INVESCO or its affiliated companies and do not receive any
director's fees or other compensation from the Company or other funds in the
INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon termination of service as a
director (normally at the retirement age of 72 or the retirement age of 73 to
74, if the retirement date is extended by the boards for one or two years but
less than three years) continuation of payment for one year (the "first year
retirement benefit") of the annual basic retainer and annualized board meeting
fees payable by the funds to the qualified director at the time of his or her
retirement (the "basic retainer"). Commencing with any such director's second
year of retirement, and commencing with the first year of retirement of a
director whose retirement has been extended by the board for three years, a
qualified director shall receive quarterly payments at an annual rate equal to
50% of the basic retainer and annualized board meeting fees. These payments will
continue for the remainder of the qualified director's life or ten years,
whichever is longer (the "reduced retainer payments"). If a qualified director
dies or becomes disabled after age 72 and before age 74 while still a director
of the funds, the first year retirement benefit and the reduced retainer
payments will be made to him or her or to his or her beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during his
or her 74th year while still a director of the funds, the director will not be
entitled to receive the first year retirement benefit; however, the reduced
<PAGE>
retainer payments will bemade to his beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the INVESCO and INVESCO Treasurer's Series Trust Funds in a
manner determined to be fair and equitable by the committee. The Company began
making payments to Mr. Chabris as of October 1, 1998. The Company has no stock
options or other pension or retirement plans for management or other personnel
and pays no salary or compensation to any of its officers.
The independent directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of certain
of the INVESCO funds. The deferred amounts are being invested in shares of all
of the INVESCO funds. Each independent director is, therefore, an indirect owner
of shares of each INVESCO fund.
The Company has an audit committee that is comprised of four of the
directors who are not interested persons of the Fund. The committee meets
periodically with the Company's independent accountants and officers to review
accounting principles used by the Company, the adequacy of internal controls,
the responsibilities and fees of the independent accountants, and other matters.
The Company has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
The Company has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the Company, and to
review policies and procedures of the Company's adviser with respect to soft
dollar brokerage transactions. It reports on these matters to the Company's
board of directors.
The Company has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Company. It monitors
derivatives usage by the Company and the procedures utilized by the Company's
adviser to ensure that the use of such instruments follows the policies on such
instruments adopted by the board of directors. It reports on these matters to
the Company's board of directors.
HOW SHARES CAN BE PURCHASED
The shares of the Fund are sold on a continuous basis at the net asset
value per share of the Fund next calculated after receipt of a purchase order in
good form. Net asset value per share of the Fund is computed once each day that
<PAGE>
the New York Stock Exchange is open as of the close of regular trading on that
Exchange but may also be computed at other times. See "How Shares Are Valued."
The Company has authorized one or more brokers to accept purchase
orders on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Fund's behalf. The Fund will be
deemed to have received a purchase order when an authorized broker or, if
applicable, a broker's authorized designee, accepts the order. A purchase order
will be priced at the Fund's net asset value next calculated after the order has
been accepted by an authorized broker or the broker's authorized designee.
IDI acts as the Company's distributor under a distribution agreement
with the Company and bears all expenses, including the costs of printing and
distributing prospectuses, incident to direct sales and distribution of the
Fund's shares on a no-load basis.
Distribution Plan. As discussed in the section of the Fund's Prospectus
entitled "How To Buy Shares - Distribution Expenses," the Company has adopted a
Plan and Agreement of Distribution (the "Plan") pursuant to Rule 12b-1 under the
1940 Act.
The Plan provides that the Fund may make monthly payments to IDI of
amounts computed at an annual rate no greater than 0.25% of the Fund's average
net assets to permit IDI, at its discretion, to engage in certain activities and
provide services in connection with the distribution of the Fund's shares to
investors. Payment by the Fund under the Plan, for any month, may be made to
compensate IDI for permissible activities engaged in and services provided by
IDI during the rolling 12-month period in which that month falls. For the fiscal
year ended August 31, 1998 the Fund made payments to INVESCO (the predecessor of
IDI as distributor of shares of the Fund) and IDI under the 12b-1 Plan in the
amount of $2,009,378. In addition, as of August 31, 1998, $168,680 of additional
distribution accruals had been incurred under the Plan for the Fund and will be
paid to IDI during the fiscal year ended August 31, 1999. As noted in the
Prospectus, one type of expenditure is the payment of compensation to securities
companies and other financial institutions and organizations, which may include
INVESCO-affiliated companies, in order to obtain various distribution-related
and/or administrative services for the Fund. The Fund is authorized by the Plan
to use its assets to finance the payments made to obtain those services.
Payments will be made by IDI to broker-dealers who sell shares of the Fund and
may be made to banks, savings and loan associations and other depository
institutions. Although the Glass-Steagall Act limits the ability of certain
banks to act as underwriters of mutual fund shares, the Fund does not believe
that these limitations would affect the ability of such banks to enter into
arrangements with IDI, but can give no assurance in this regard. However, to the
extent it is determined otherwise in the future, arrangements with banks might
have to be modified or terminated, and, in that case, the size of the Fund
<PAGE>
possibly could decrease to the extent that the banks would no longer invest
customer assets in the Fund. Neither the Fund nor its investment adviser will
give any preference to banks or other depository institutions which enter into
such arrangements when selecting investments to be made by the Fund.
For the fiscal year ended August 31, 1998, allocations of 12b-1 amounts
paid by the Fund for the following categories of expenses were: advertising --
$1,315,305; sales literature, printing and postage -- $111,363; direct mail --
$70,179; public relations/promotion -- $133,079; compensation to securities
dealers and other organizations -- $195,565; marketing personnel --$183,887.
The nature and scope of services which are provided by securities
dealers and other organizations may vary by dealer but include, among other
things, processing new stockholder account applications, preparing and
transmitting to the Fund's Transfer Agent computer-processable tapes of the
Fund's transactions by customers, serving as the primary source of information
to customers in answering questions concerning the Fund, and assisting in other
customer transactions with the Fund.
The initial Plan was approved on April 17, 1990, at a meeting called
for such purpose by a majority of the directors of the Company, including a
majority of the directors who neither are "interested persons" of the Company
nor have any financial interest in the operation of the Plan ("independent
directors"). The board of directors, on February 4, 1997, approved amending the
Plan to a compensation type 12b-1 plan. This amendment of the Plan did not
result in increasing the amount of the Fund's payments thereunder. Pursuant to
authorization granted by the Company's board of directors on September 2, 1997,
a new Plan became effective on September 29, 1997, under which IDI assumed all
obligations related to distribution which were previously performed by INVESCO.
The Plan was continued by action of the board of directors ^ through May 15,
1999.
The Plan provides that it shall continue in effect with respect to the
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can also be terminated at
any time with respect to the Fund, without penalty, if a majority of the
independent directors, or shareholders of the Company, vote to terminate the
Plan. The Company may, in its absolute discretion, suspend, discontinue or limit
the offering of its shares of the Fund at any time. In determining whether any
such action should be taken, the board of directors intends to consider all
relevant factors including, without limitation, the size of the Fund, the
investment climate for the Fund, general market conditions, and the volume of
sales and redemptions of the Fund's shares. The Plan may continue in effect and
payments may be made under the Plan following any such temporary suspension or
<PAGE>
limitation of the offering of the Fund's shares; however, the Company is not
contractually obligated to continue the Plan for any particular period of time.
Suspension of the offering of the Fund's shares would not, of course, affect a
shareholder's ability to redeem his or her shares. So long as the Plan is in
effect, the selection and nomination of persons to serve as independent
directors of the Company shall be committed to the independent directors then in
office at the time of such selection or nomination. The Plan may not be amended
to increase materially the amount of the Fund's payments thereunder without
approval of the shareholders of the Fund, and all material amendments to the
Plan must be approved by the board of directors of the Company, including a
majority of the independent directors. Under the agreement implementing the
Plan, IDI or the Company, the latter by vote of a majority of the independent
directors, or of the holders of a majority of the Company's outstanding voting
securities, may terminate such agreement without penalty upon 30 days' written
notice to the other party. No further payments will be made by the Fund under
the Plan in the event of its termination.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of the Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as defined
by the 1940 Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, the Fund's obligation to make payments to IDI shall
terminate automatically, in the event of such "assignment," in which case the
Fund may continue to make payments pursuant to the Plan to IDI or another
organization only upon the approval of new arrangements, which may or may not be
with IDI, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the independent directors, by a
vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the
amounts paid therefor by the Fund are provided to, and reviewed by, the
directors on a quarterly basis. On an annual basis, the directors consider the
continued appropriateness of the Plan and the level of compensation provided
therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed herein under the section entitled "The Fund And Its
Management Officers and Directors of the Fund" who are also officers either of
IDI or companies affiliated with IDI. The benefits which the Fund believes will
be reasonably likely to flow to it and its shareholders under the Plan include
the following:
<PAGE>
(1) Enhanced marketing efforts, if successful, should result
in an increase in net assets through the sale of
additional shares and afford greater resources with which
to pursue the investment objective of the Fund;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Fund in amounts and at times that are
disadvantageous for investment purposes;
(3) The positive effect which increased Fund assets will have on
its revenues could allow INVESCO and its affiliated companies:
(a) To have greater resources to make the financial
commitments necessary to improve the quality and
level of the Fund's shareholder services (in both
systems and personnel),
(b) To increase the number and type of mutual funds
available to investors from INVESCO and its
affiliated companies (and support them in their
infancy), and thereby expand the investment choices
available to all shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's
share of certain expenses through economies of scale (e.g.
exceeding established breakpoints in the advisory fee schedule
and allocating fixed expenses over a larger asset base),
thereby partially offsetting the costs of the Plan.
HOW SHARES ARE VALUED
As discussed in the section of the Fund's Prospectus entitled "Fund
Price And Performance," the net asset value of shares of the Fund is computed
once each day that the New York Stock Exchange is open as of the close of
regular trading on the New York Stock Exchange (generally, 4:00 p.m. New York
time) and applies to purchase and redemption orders received prior to that time.
Net asset value per share is also computed on any other day on which there is a
sufficient degree of trading in the securities held by the Fund that the current
net asset value per share might be materially affected by changes in the value
of the securities held, but only if on such day the Fund receives a request to
purchase or redeem shares. Net asset value per share is not calculated on days
the New York Stock Exchange is closed, such as federal holidays, including New
Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial
Day, Independence Day, Labor Day, Thanksgiving and Christmas.
<PAGE>
The net asset value per share of the Fund is calculated by dividing the
value of all securities held by the Fund plus its other assets (including
dividends and interest accrued but not collected), less the Fund's liabilities
(including accrued expenses), by the number of outstanding shares of the Fund.
Securities traded on national securities exchanges, the NASDAQ National Market
System, the NASDAQ Small Cap Market and foreign markets are valued at their last
sale prices on the exchanges or markets where such securities are primarily
traded. Securities traded in the over-the-counter market for which last sale
prices are not available and listed securities for which no sales are reported
on a particular date, are valued at their highest closing bid prices (or, for
debt securities, yield equivalents thereof) obtained from one or more dealers
making markets for such securities. If market quotations are not readily
available, securities or other assets will be valued at fair value as determined
in good faith by the Fund's board of directors or pursuant to procedures adopted
by the board of directors. The above procedures may include the use of
valuations furnished by a pricing service which employs a matrix to determine
valuations for normal institutional-size trading units of debt securities. Prior
to utilizing a pricing service, the board of directors of the Company will
review the methods used by such service to assure itself that securities will be
valued at their fair values. The Fund's Board of Directors also periodically
monitors the methods used by such pricing services. Debt securities with
remaining maturities of 60 days or less at the time of purchase are normally
valued at amortized cost.
The value of securities held by the Fund and other assets used in
computing net asset value generally is determined as of the time regular trading
in such securities or assets is completed each day. Because regular trading in
most foreign securities markets is completed simultaneously with, or prior to,
the close of regular trading on the New York Stock Exchange, closing prices for
foreign securities usually are available for purposes of computing the Fund's
net asset value. However, in the event that the closing price of a foreign
security is not available in time to calculate the Fund's net asset value on a
particular day, the Company's board of directors has authorized the use of the
market price for the security obtained from an approved pricing service at an
established time during the day, which may be prior to the close of regular
trading in the security. The value of all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the spot
rates of such currencies against the U.S. dollar provided by an approved pricing
service.
FUND PERFORMANCE
As discussed in the section of the Fund's Prospectus entitled "Fund
Price And Performance," the Company advertises the total return performance of
the Fund. The average annual total return performance for the one-, five- and
ten-year periods ended August 31, 1998 was 13.42%, 14.95% and 15.82%,
respectively. Average annual total return performance for each of the periods
<PAGE>
indicated was computed by finding the average annual compounded rates of return
that would equate the initial amount invested to the ending redeemable value,
according to the following formula:
P(1 + T) exponent n = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period.
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent
sources may also be used in advertisements, sales literature or shareholder
reports, including reprints of, or selections from, editorials or articles about
the Funds. Sources for Fund performance information and articles about the Funds
include, but are not limited to, the following:
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund Performance
Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
<PAGE>
U.S. News and World Report
United Mutual Fund Selector
USA Today
Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUND
Periodic Withdrawal Plan. As described in the section of the Fund's
Prospectus entitled "How To Sell Shares," the Fund offers a Periodic Withdrawal
Plan. All dividends and other distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Because
withdrawal payments represent the proceeds from sales of shares, the amount of
shareholders' investments in the Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to INVESCO. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless a shareholder requests otherwise.
Exchange Policy. As discussed in the section of the Prospectus entitled
"How To Buy Shares - Exchange Policy," the Fund offers shareholders the ability
to exchange shares of the Fund for shares of certain other mutual funds advised
by INVESCO. Exchange requests may be made either by telephone or by written
request to INVESCO using the telephone number or address on the cover of this
Statement of Additional Information. Exchanges made by telephone must be in an
amount of at least $250, if the exchange is being made into an existing account
of one of the INVESCO funds. All exchanges that establish a new account must
meet the fund's applicable minimum initial investment requirements. Written
exchange requests into an existing account have no minimum requirements. Any
gain or loss realized on an exchange is recognized for federal income tax
purposes. This ability is not an option or right to purchase securities and is
not available in any state or other jurisdiction where the shares of the mutual
fund into which transfer is to be made are not qualified for sale, or when the
net asset value of the shares presented for exchange is less than the minimum
dollar purchase required by the appropriate prospectus.
<PAGE>
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Fund's Prospectus entitled "Fund
Services," shares of the Fund may be purchased as the investment medium for
various tax-deferred retirement plans. Persons who request information regarding
these plans from INVESCO will be provided with prototype documents and other
supporting information regarding the type of plan requested. Each of these plans
involves a long-term commitment of assets and is subject to possible regulatory
penalties for excess contributions, premature distributions or for insufficient
distributions after age 70-1/2. The legal and tax implications may vary
according to the circumstances of the individual investor. Therefore, the
investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven days
following receipt of the required documents as described in the section of the
Fund's Prospectus entitled "How To Sell Shares." The right of redemption may be
suspended and payment postponed when: (a) the New York Stock Exchange is closed
for other than customary weekends and holidays; (b) trading on that exchange is
restricted; (c) an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets; or (d)
the Securities and Exchange Commission by order so permits.
The Company has authorized one or more brokers to accept redemption
orders on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Fund's behalf. The Fund will
be deemed to have received a redemption order when an authorized broker or, if
applicable, a broker's authorized designee, accepts the order. A redemption
order will be priced at the Fund's Net Asset Value next calculated after the
order has been accepted by an authorized broker or the broker's authorized
designee.
It is possible that in the future conditions may exist which would, in
the opinion of the Fund's investment adviser, make it undesirable for the Fund
to pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Fund is obligated under the 1940 Act to redeem for cash all
shares of the Fund presented for redemption by any one shareholder having a
value up to $250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund and its shareholders and are valued at the value assigned to them in
<PAGE>
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES
The Company intends to conduct its business and satisfy the applicable
diversification of assets and source of income requirements to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Company so qualified for the taxable year
ended August 31, 1998, and intends to qualify during its current taxable year.
As a result, because the Company intends to distribute all of its income and
recognized gains, it is anticipated that the Company will pay no federal income
or excise taxes and that the Company will be accorded conduit or "pass through"
treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by the Fund of net capital gain (the excess of net
long-term capital gain over net short-term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
how long a shareholder has held shares of the Fund. During 1997, the Taxpayer
Relief Act established a new maximum capital gains tax rate of 20%. Depending on
the holding period of the asset giving rise to the gain, a capital gain was
taxable at a maximum rate of either 20% or 28%. Beginning January 1, 1998, all
long-term gains on the sale of securities held for more than 12 months will be
taxable at a maximum rate of 20%. In addition, legislation signed in October of
1998 provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxed at a maximum rate of 20%. Accordingly,
all capital gain distributions paid in 1998 will be taxable at a maximum rate of
20%. Note that the rate of capital gains tax is dependent on the shareholder's
marginal tax rate and may be lower than the above rates. At the end of each
year, information regarding the tax status of dividends and other distributions
is provided to shareholders. Shareholders should consult their tax adviser as to
the effect of distributions by the Fund.
All dividends and other distributions are regarded as taxable to the
investor, regardless of whether such dividends and distributions are reinvested
in additional shares of the Fund or another fund in the INVESCO group. The net
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
<PAGE>
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain or increase any loss for tax purposes on any
subsequent redemption of shares by the shareholder.
INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by INVESCO will be computed using the
single-category average cost method, although neither INVESCO nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses with respect to shares of the Fund in past years, the shareholder must
continue to use the cost basis method previously used unless the shareholder
applies to the IRS for permission to change the method.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
The Fund will be subject to a non-deductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of it ordinary income for that year and net capital gains for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not imposes taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld may be
treated as an expense of the Fund.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
<PAGE>
certain circumstances, the Fund will be subject to federal income tax on a
portion of any "excess distribution" received on the stock of a PFIC or of any
gain on disposition of the stock (collectively "PFIC income"), plus interest
thereon, even if the Fund distributes the PFIC income as a taxable dividend to
its shareholders. The balance of the PFIC income will be included in the Fund's
investment company taxable income and, accordingly, will not be taxable to the
Fund to the extent that income is distributed to its shareholders.
The Fund may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
the Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, the Fund also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by the Fund
for prior taxable years beginning after December 31, 1997. The Fund's adjusted
tax basis in each PFIC's stock with respect to which it makes this election will
be adjusted to reflect the amounts of income included and deductions taken under
the election.
Gains or losses (1) from the disposition of foreign currencies, (2)
from the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Code for federal
income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
Portfolio Turnover. There are no fixed limitations regarding the Fund's
portfolio turnover. The rate of portfolio turnover can fluctuate under
constantly changing economic conditions and market circumstances. Securities
initially satisfying basic policies and objectives of the Fund may be disposed
of when they are no longer suitable. Brokerage costs to the Fund are
commensurate with the rate of portfolio activity. Portfolio turnover rates for
<PAGE>
the fiscal years ended August 31, 1998, 1997 and 1996 were 153%, 286% and 207%,
respectively. In computing the portfolio turnover rate, all investments with
maturities or expiration dates at the time of acquisition of one year or less
are excluded. Subject to this exclusion, the turnover rate is calculated by
dividing (a) the lesser of purchases or sales of portfolio securities for the
fiscal year by (b) the monthly average of the value of portfolio securities
owned by the Fund during the fiscal year. The portfolio turnover rate increased
in fiscal 1997 over 1996 and over fiscal 1995 primarily as a result of a
restructuring of the Fund's portfolio that occurred during those years.
Placement of Portfolio Brokerage. INVESCO, as the Fund's investment
adviser, places orders for the purchase and sale of securities with brokers and
dealers based upon INVESCO's evaluation of such brokers' and dealers' financial
responsibility subject to their ability to effect transactions at the best
available prices. INVESCO evaluates the overall reasonableness of brokerage
commissions or underwriting discounts (the difference between the full
acquisition price to acquire the new offering and the discount offered to
members of the underwriitng syndicate) paid by reviewing the quality of
executions obtained on the Fund's portfolio transactions, viewed in terms of the
size of transactions, prevailing market conditions in the security purchased or
sold, and general economic and market conditions. In seeking to ensure that any
commissions or discounts charged the Fund are consistent with prevailing and
reasonable commissions or discounts, INVESCO also endeavors to monitor brokerage
industry practices with regard to the commissions or discounts charged by
broker-dealers on transactions effected for other comparable institutional
investors. While INVESCO seeks reasonably competitive rates, the Fund does not
necessarily pay the lowest commission, spread or discount available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to INVESCO in making
informed investment decisions. Research services prepared and furnished by
brokers through which the Fund effects securities transactions may be used by
INVESCO in servicing all of its accounts and not all such services may be used
by INVESCO in connection with the Fund.
In recognition of the value of the above-described brokerage and
research services provided by certain brokers, INVESCO, consistent with the
standard of seeking to obtain the best execution on portfolio transactions, may
place orders with such brokers for the execution of Fund transactions on which
the commissions or discounts are in excess of those which other brokers might
have charged for effecting the same transactions.
<PAGE>
Fund transactions may be effected through qualified brokers and dealers
that recommend the Fund to their clients, or that act as agent in the purchase
of the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, INVESCO
may consider the sale of Fund shares by a broker or dealer in selecting among
qualified brokers and dealers.
Certain financial institutions (including brokers who may sell shares
of the Fund, or affiliates of such brokers) are paid a fee (the ^"Services Fee")
for recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Fund through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in the Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
directors of the Company have authorized the Fund to apply dollars generated
from the Fund's Plan and Agreement of Distribution pursuant to Rule 12b-1 under
the 1940 Act (the "Plan") to pay the entire Services Fee, subject to the maximum
Rule 12b-1 fee permitted by the Plan. With respect to other NTF Programs, the
Company's directors have authorized the Fund to pay transfer agency fees to
INVESCO based on the number of investors who have beneficial interests in the
NTF Program Sponsor's omnibus accounts in that Fund. INVESCO, in turn, pays
these transfer agency fees to the NTF Program Sponsor as a sub-transfer agency
or recordkeeping fee in payment of all or a portion of the Services Fee. In the
event that the sub-transfer agency or recordkeeping fee is insufficient to pay
all of the Services Fee with respect to these NTF Programs, the directors of the
Fund have authorized the Fund to apply dollars generated from the Plan to pay
the remainder of the Services Fee, subject to the maximum Rule 12b-1 fee
permitted by the Plan. INVESCO itself pays the portion of the Fund's Services
Fee, if any, that exceeds the sum of the sub-transfer agency or recordkeeping
fee and Rule 12b-1 fee. The Fund's directors have further authorized INVESCO to
place a portion of the Fund's brokerage transactions with certain NTF Program
Sponsors or their affiliated brokers, if INVESCO reasonably believes that, in
effecting the Fund's transactions in portfolio securities, the broker is able to
provide the best execution of orders at the most favorable prices. A portion of
the commissions earned by such a broker from executing portfolio transactions on
behalf of the Fund may be credited by the NTF Program Sponsor against its
Services Fee. Such credit shall be applied first against any sub-transfer agency
or recordkeeping fee payable with respect to the Fund, and second against any
Rule 12b-1 fees used to pay a portion of the Services Fee, on a basis which has
resulted from negotiations between INVESCO or IDI and the NTF Program Sponsor.
Thus, the Fund pays sub-transfer agency or recordkeeping fees to the NTF Program
Sponsor in payment of the Services Fee only to the extent that such fees are not
offset by the Fund's credits. In the event that the transfer agency fee paid by
<PAGE>
the Fund to INVESCO with respect to investors who have beneficial interests in a
particular NTF Program Sponsor's omnibus accounts in the Fund exceeds the
Services Fee applicable to that Fund, after application of credits, INVESCO may
carry forward the excess and apply it to future Services Fees payable to that
NTF Program Sponsor with respect to the Fund. The amount of excess transfer
agency fees carried forward will be reviewed for possible adjustment by INVESCO
prior to each fiscal year-end of the Fund. The Company's board of directors has
also authorized the Fund to pay to IDI the full Rule 12b-1 fees contemplated by
the Plan as payment for expenses incurred by IDI in engaging in the activities
and providing the services on behalf of the Fund contemplated by the Plan,
subject to the maximum Rule 12b-1 fee permitted by the Plan, notwithstanding
that credits have been applied to reduce the portion of the 12b-1 fee that would
have been used to compensate IDI for payments to such NTF Program Sponsor absent
such credits.
The aggregate dollar amounts of brokerage commissions paid by the Fund
for the fiscal years ended August 31, 1998, 1997 and 1996 were $2,574,626,
$5,300,030 and $2,703,470, respectively. For the fiscal year ended August 31,
1998, brokers providing research services received $1,744,891 in commissions on
portfolio transactions effected for the Fund. The aggregate dollar amount of
such portfolio transactions was $1,542,790,210. As a result of selling shares of
the Fund, brokers received $0.00 in commissions on portfolio transactions
effected for the Fund during the fiscal year ended August 31, 1998.
At August 31, 1998, the Fund held securities of its regular brokers or
dealers, or their parents, as follows:
Value of Securities
Broker or Dealer at 8/31/98
- ---------------- ----------
General Electric Capital $28,328,000
INVESCO does not receive any brokerage commissions on portfolio
transactions effected on behalf of the Fund, and there is no affiliation between
IFG or any person affiliated with INVESCO or the Fund and any broker or dealer
that executes transactions for the Fund.
ADDITIONAL INFORMATION
Common Stock. The Company has 200,000,000 authorized shares of common
stock with a par value of $0.01 per share. These shares have been allocted to
the Fund. As of August 31, 1998, 145,122,757 of those shares were outstanding.
All shares currently outstanding and being offered are of one class with equal
rights as to voting, dividends and liquidation. All shares offered hereby, when
issued, will be fully paid and nonassessable. Shares have no preemptive rights
and are fully tradeable on the books of the Fund. The board of directors has the
<PAGE>
authority to designate additional series of common stock without seeking
approval of shareholders, and may classify and reclassify any authorized but
unissued shares.
Shares of each series represent the interests of the shareholders of
such series in a particular portfolio of investments of the Company. Each series
of the Company's shares is preferred over all other series with respect to the
assets specifically allocated to that series, and all income, earnings, profits
and proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that series. The assets of each series are segregated on
the books of account and are charged with the liabilities of that class and with
a share of the Company's general liabilities. The board of directors determines
those assets and liabilities deemed to be general assets of liabilities of the
Company, and those items are allocated among series in a manner deemed by the
Company, and those items are allocated among series in a manner deemed by the
board fair and equitable. Generally, such allocation will be made based upon the
relative total net assets of each series. In the unlikely event that a liability
allocable to one series exceeds the assets belonging to the series, all or a
portion of such liability may have to be borne by the holders of shares of the
Company's other series.
All dividens on shares of a particular series shall be paid only out of
the income belonging to that series, pro rata to the holders of that series. In
the event of the liquidation or dissolution of the Company or of a particular
series, the shareholders of each series that is being liquidated shall be
entitled to receive, as a series, when and as declared by the board of
directors, the excess of the assets belonging to that series over the
liabilities belonging to that series. The holders of shares of any series shall
not be entitled to any distribution upon liquidation of any other series. The
assets so distributable to the shareholders of any particular series shall be
distributed among such shareholders in proportion to the number of shares of
that series held by them and recorded on the books of the Company.
All Fund shares, regardless of series, have equal voting rights. Voting
with respect to certain matters, such as ratification of independent accountants
or election of directors, will be by all series of the Company. When not all
series are affected by a matter to be voted upon, such as approval of an
investment advisory contract or changes in a Fund's investment policies, only
shareholders of the series affected by the matter will be entitled to vote.
Company share have noncumulative voting rights, which means that the holders of
a majority of the shares voting for the election of directors of the Company can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares voting for the election of directors will not be able to
elect any person or persons to the board of directors. After they have been
elected by shareholders, the directors will continue to serve until their
<PAGE>
successors are elected and have qualified or they are removed from office, in
either case by a shareholder vote, or until death, resignation or retirement.
They may appoint their own successors, provided that always at least a majority
of the directors have been elected by the Company's shareholders. It is the
intention of the Company not to hold annual meetings of shareholders. The
directors will call annual or special meetings of shareholders for action by
shareholder vote as may be required by the 1940 Act or the Company's Articles of
Incorporation or at their discretion.
Principal Shareholders. As of September 30, 1998, no entities held more
than 5% of the outstanding securities of the Fund.
Independent Accountants. PricewaterhouseCoopers LLP, 950 Seventeenth
Street, Denver, Colorado, has been selected as the independent accountants of
the Company. The independent accountants are responsible for auditing the
financial statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the Fund's investment securities in accordance with
procedures and conditions specified in the custody agreement. Under the contract
with the Company, the custodian is authorized to establish separate accounts in
foreign countries and to cause foreign securities owned by the Fund to be held
outside the United States in branches of U.S. banks and, to the extent permitted
by applicable regulations, in certain foreign banks and foreign securities
depositories.
Transfer Agent. The Company is provided with transfer agent services by
INVESCO Funds Group, Inc., 7800 E. Union Avenue, Denver, Colorado, pursuant to
the Transfer Agency Agreement described herein. Such services include the
issuance, cancellation and transfer of shares of the Fund and the maintenance of
records regarding the ownership of such shares.
Reports to Shareholders. The Company's fiscal year ends on August 31. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart LLP, Washington, D.C. is
legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel to the Company.
Financial Statements. The Company's audited financial statements and the
notes thereto for the fiscal year ended August 31, 1998, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements are
incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1998.
<PAGE>
Prospectus. The Company will furnish, without charge, a copy of the
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
Registration Statement. This Statement of Additional Information and
the Prospectus do not contain all of the information set forth in the
Registration Statement the Company has filed with the Securities and Exchange
Commission. The complete Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed by the
rules and regulations of the Commission.
<PAGE>
APPENDIX A
BOND RATINGS
Description of Moody's corporate bond ratings:
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
Rating Refinements: Moody's may apply the numerical modifier "1", for
municipally-backed bonds, and modifiers "1", "2" and "3" for corporate-backed
municipals. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
<PAGE>
Description of S&P's corporate bond ratings:
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in a small degree.
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Plus (+) or Minus (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Description of Moody's preferred stock ratings:
"aaa"--An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
"aa"--An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
"a"--An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
"baa"--An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
Note: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
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and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Description of S&P's preferred stock ratings:
"AAA"--This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
"AA"--A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
"A"--An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
"BBB"--An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Plus (+) or Minus (-): To provide more detailed indications of preferred stock
quality, the ratings from "AA" to "CCC" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
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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 ("OCC") 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
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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 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 OCC, 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
("OTC") 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
the Fund. With OTC options, such variables as expiration date, exercise price
and premium will be agreed upon between the 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
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would lose the premium paid for the option as well as any anticipated benefit of
the transaction. The 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.
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 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.
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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, West 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.
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.
