PROSPECTUS | July 1, 2000, As Supplemented August 24, 2000
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YOU SHOULD KNOW WHAT INVESCO KNOWS (TM)
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INVESCO ADVANTAGE SERIES FUNDS, INC.
INVESCO ADVANTAGE FUND - CLASS A, B AND C
A MUTUAL FUND SEEKING LONG-TERM CAPITAL APPRECIATION. CLASS A, B AND C SHARES
ARE SOLD PRIMARILY THROUGH THIRD PARTIES, SUCH AS BROKERS, BANKS AND FINANCIAL
PLANNERS.
TABLE OF CONTENTS
Investment Goals, Strategies And Risks.......................3
Fees And Expenses............................................5
Investment Risks.............................................6
Principal Risks Associated With The Fund.....................7
Temporary Defensive Positions...............................11
Portfolio Turnover..........................................11
Fund Management.............................................12
Portfolio Manager...........................................12
Potential Rewards...........................................13
Share Price.................................................13
How To Buy Shares...........................................14
How To Sell Shares..........................................20
Taxes.......................................................22
Dividends And Capital Gain Distributions....................23
No dealer, sales person, or any other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus, and you should not rely on such other information or
representations.
The Securities and Exchange Commission has not approved or disapproved the
shares of this Fund. Likewise, the Commission has not determined if this
Prospectus is truthful or complete. Anyone who tells you otherwise is committing
a federal crime.
[INVESCO ICON] INVESCO
<PAGE>
INVESCO Funds Group, Inc. ("INVESCO") is the investment adviser for the
Fund. Together with our affiliated companies, we at INVESCO direct all aspects
of the management of the Fund.
This Prospectus contains important information about the Fund's Class A, B
and C shares, which are sold primarily through third parties, such as brokers,
banks, and financial planners. Each of the classes of shares have varying
expenses, with resulting effects on their performance. You can choose the class
of shares that is best for you, based on how much you plan to invest and other
relevant factors discussed in How To Buy Shares.
This Prospectus will tell you more about:
[KEY ICON] Investment Goals & Strategies
[ARROWS ICON] Potential Investment Risks
[GRAPH ICON] Past Performance
[INVESCO ICON] Working With INVESCO
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[KEY ICON][ARROWS ICON] INVESTMENT GOALS, STRATEGIES AND RISKS
The Fund attempts to make your investment grow. It is actively managed. The
Fund invests primarily in equity securities that INVESCO believes will rise in
price faster than other securities, as well as in options, futures and other
investments whose values are based upon the values of equity securities. The
Fund also engages in short-selling and may engage in borrowing to fund the
purchase of securities, a practice known as "leveraging."
The Fund is managed in the growth style. At INVESCO, growth investing
starts with research from the "bottom up," and focuses on company fundamentals
and growth prospects.
We require that securities purchased for the Fund meet the following
standards:
o EXCEPTIONAL GROWTH: The markets and industries they represent are
growing significantly faster than the economy as a whole.
o LEADERSHIP: They are leaders -- or emerging leaders -- in their
markets, securing their positions through technology, marketing,
distribution or some other innovative means.
o FINANCIAL VALIDATION: Their returns -- in the form of sales unit
growth, rising operating margins, internal funding and other factors --
demonstrate exceptional growth and leadership.
Growth investing may be more volatile than other investment styles because
growth stocks are more sensitive to investor perceptions of an issuing company's
<PAGE>
growth potential. Growth-oriented funds typically will underperform
value-oriented funds when investor sentiment favors the value investing style.
The Fund uses an aggressive strategy. The Fund is not restricted to
investing in companies of any particular market capitalization. It invests
primarily in the securities of companies that INVESCO believes will give the
Fund an investment advantage, i.e., an unusual development in a company or group
of companies which INVESCO believes has the potential for above-average growth
in revenues and earnings and has favorable prospects for future growth.
Advantageous situations may involve:
o a technological advance or discovery, the offering of a new or unique product
or service, or changes in consumer demand or consumption forecasts;
o changes in the competitive outlook or growth potential of an industry
or a company within an industry, including changes in the scope or nature
of foreign competition or development of an emerging industry;
o new or changed management, or material changes in management policies;
o reorganizations, recapitalizations, mergers and liquidations;
o significant economic or political occurrences, including changes in foreign
or domestic import and tax laws or other regulations; or
o other events, including a major change in demographic patterns,
favorable litigation settlements, or natural disasters.
Although large and well-known companies may be involved, advantageous
investment opportunities more often involve comparatively small or unseasoned
companies. Investments in unseasoned companies and potentially advantageous
situations often involve much greater risk than investments in other securities.
Advantageous situations involve change, and, although INVESCO believes that
changes will provide the Fund with an investment advantage, changes are
inherently unpredictable and may not ultimately develop to the benefit of the
Fund.
A principal investment technique of the Fund is to "sell short" significant
amounts of securities. In a short sale, the Fund sells a security it does not
own in expectation that its price will decline by the time the Fund closes out
the short position by purchasing the security at the then-prevailing market
price. When the Fund sells a security short, INVESCO believes that the security
sold short will decrease in value more quickly than the market as a whole.
The Fund seeks to participate in the initial public offering ("IPO")
market, and a significant portion of the Fund's returns may be attributable to
IPO investments; the impact on the Fund's performance of IPO investments will be
magnified if the Fund has a small asset base. Although the IPO market in recent
years has been robust, there is no guarantee that it will continue to be so,
and, as the Fund's assets grow, there is no guarantee that the impact of IPO
investing will produce positive performance.
The Fund may, from time to time, discontinue public sales of its shares to
new investors. Existing shareholders of the Fund who maintain open accounts
would be permitted to make additional investments in the Fund. During any closed
period, the Fund may impose different standards for additional investments.
Also, during a closed period, the Fund will continue to pay Rule 12b-1 fees. The
Fund may also choose to resume sales of shares to new investors.
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Although the Fund is subject to a number of risks that could affect its
performance, its principal risk is market risk - that is, that the price of the
securities in its portfolio will rise and fall due to price movements in the
securities markets, and that the securities held in the Fund's portfolio may
decline in value more than the overall securities market.
The Fund is subject to other principal risks such as those associated with
derivatives, including options and futures. The Fund will use derivatives to
hedge certain risks in the portfolio and to attempt to enhance Fund performance.
Although the performance of derivatives is tied to that of the market, there is
a risk that derivatives will not perform as expected. In addition, there is a
risk that parties with whom the Fund enters into derivatives transactions will
not be able to perform their obligations to the Fund. To the extent the Fund
uses borrowing to buy securities, the risk of loss is magnified if the value of
the security purchased decreases. The Fund will invest in securities of non-U.S.
issuers, which generally carry not only market risks, but also risks that are
not present with investing in U.S. securities. The Fund is also not diversified,
which means that it may concentrate its investments in the securities of a
comparatively small number of issuers. Changes in the prices of those securities
will have a greater impact on the price of Fund shares than if the Fund was
invested in a wider range of securities. These risks are described and discussed
later in the Prospectus under the headings "Investment Risks" and "Principal
Risks Associated With The Fund." An investment in the Fund is not a deposit of
any bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation ("FDIC") or any other government agency. As with any mutual fund,
there is always a risk that you may lose money on your investment in the Fund.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and
hold shares of the Fund:
SHAREHOLDER FEES PAID DIRECTLY FROM YOUR ACCOUNT
Class A Class B Class C
Maximum Sales Charge (Load) Imposed
on Purchases (as a percentage of offering price) 5.50% None None
Maximum Deferred Sales Charge (Load)
(as a percentage of the total original
cost of the shares) None(1) 5.00%(2) 1.00%(2)
ANNUAL FUND OPERATING EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
Class A Class B Class C
Management Fees(3) 1.50% 1.50% 1.50%
Distribution and Service (12b-1) Fees(4) 0.35% 1.00% 1.00%
Other Expenses(5) 0.33% 0.33% 0.33%
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Total Annual Fund Operating Expenses(5) 2.18% 2.83% 2.83%
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(1) If you buy $1,000,000 or more of Class A shares and redeem these shares
within 18 months from the date of purchase, you may pay a 1% contingent
deferred sales charge (CDSC) at the time of redemption.
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(2) A 5% and 1% CDSC may be charged on Class B and Class C shares,
respectively. Please see the section entitled "How To Buy Shares."
(3) The Fund's annual base management fee is 1.50% of the Fund's daily
average net assets. On a monthly basis, the base fee either will remain
unadjusted or will be adjusted up or down depending upon the investment
performance of the Class A shares of the Fund compared to the investment
performance of the Russell 3000 Index (the "Index"). The maximum or
minimum adjustment over any 12-month period will be 1%. As a result, the
Fund could pay an annualized management fee that ranges from 0.50% to
2.50% of the Fund's average daily net assets. During the first 12 months
of the Fund's operations, the management fee will be charged at the base
fee of 1.50%, with no performance adjustment made. Please see the section
entitled "Fund Management -- Performance-Based Fee."
(4) Because each Class pays a 12b-1 distribution fee which is based upon
the Fund's assets, if you own shares of the Fund for a long period of
time, you 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.
(5) Based on estimated expenses for the current fiscal year which may be
more or less than actual expenses. Actual expenses are not provided
because the Fund shares were not offered until August 24, 2000.
EXAMPLES
The Examples are intended to help you compare the cost of investing in the
Fund to the cost of investing in other mutual funds.
The Examples assume that you invested $10,000 in the Fund for the time
periods indicated. The first Example assumes that you redeem all of your shares
at the end of those periods. The second Example assumes that you keep your
shares. Both Examples also assume that your investment had a hypothetical 5%
return each year and that the Fund's operating expenses remained the same.
Although the actual costs and performance of the Fund may be higher or lower,
based on these assumptions your costs would have been:
IF SHARES ARE REDEEMED 1 year 3 years
Class A $759 $1,195
Class B 786 1,177
Class C 386 877
IF SHARES ARE NOT REDEEMED 1 year 3 years
Class A $759 $1,195
Class B 286 877
Class C 286 877
[ARROWS ICON] INVESTMENT RISKS
You should determine the level of risk with which you are comfortable
before you invest. The principal risks of investing in any mutual fund,
including the Fund, are:
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BEFORE INVESTING IN THE FUND, YOU SHOULD DETERMINE THE LEVEL OF RISK WITH
WHICH YOU ARE COMFORTABLE. TAKE INTO ACCOUNT FACTORS LIKE YOUR AGE, CAREER,
INCOME LEVEL, AND TIME HORIZON.
NOT INSURED. Mutual funds are not insured by the FDIC or any other
government agency, unlike bank deposits such as CDs or savings accounts.
NO GUARANTEE. No mutual fund can guarantee that it will meet its investment
objectives.
POSSIBLE LOSS OF INVESTMENT. A mutual fund cannot guarantee its
performance, nor assure you that the market value of your investment will
increase. You may lose the money you invest, and the Fund will not reimburse you
for any of these losses.
VOLATILITY. The price of your mutual fund shares will increase or decrease
with changes in the value of a Fund's underlying investments and changes in the
equity markets as a whole.
NOT A COMPLETE INVESTMENT PLAN. An investment in any mutual fund does not
constitute a complete investment plan. The Fund is designed to be only a part of
your personal investment plan.
[ARROWS ICON] PRINCIPAL RISKS ASSOCIATED WITH THE FUND
You should consider the special factors associated with the policies
discussed below in determining the appropriateness of investing in the Fund. See
the Statement of Additional Information for a discussion of additional risk
factors.
NON-DIVERSIFICATION RISK
A non-diversified fund is allowed to invest, with respect to 50% of its
assets, more than 5% of its assets in the securities of any one issuer. Because
the Fund is non-diversified, it may invest in fewer issuers than if it were a
diversified fund. In addition, the Fund may invest a significant portion of its
assets in securities of companies doing business in a comparatively small number
of economic sectors. Because of these potential investment concentrations, the
value of the Fund's shares may vary more widely, and the Fund may be subject to
greater market risk, than if the Fund invested more broadly.
LEVERAGE RISK
When the Fund borrows money to buy securities, it is engaging in a practice
known as "leveraging." Leveraging may result from ordinary borrowings, or may be
inherent in the structure of certain Fund investments. If the prices of those
securities decrease, or if the cost of borrowing exceeds any increases in the
prices of those securities, the net asset value of the Fund's shares will
decrease faster than if the Fund has not used leverage. To repay borrowings, the
Fund may have to sell securities at a time and at a price that is unfavorable to
the Fund. Interest on borrowings is an expense the Fund would not otherwise
incur.
SHORT SALES RISK
When the Fund sells a security short, it borrows the security in order to
enter into the short sale transaction, and the proceeds of the sale may be used
by the Fund as collateral for the borrowing to the extent necessary to meet
margin requirements. The Fund may also be required to pay a premium to borrow
the security.
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Moreover, the Fund is required to maintain a segregated account with a
broker or a custodian consisting of cash or highly liquid securities. Until the
borrowed security is replaced, the Fund will maintain this account at a level so
that the amount deposited in the account, plus the collateral deposited with the
broker, will equal the current market value of the securities sold short.
MARKET RISK
Equity stock prices vary and may fall, thus reducing the value of the
Fund's investments. Certain stocks selected for the Fund's portfolio may decline
in value more than the overall stock market. In general, the securities of large
businesses with outstanding securities worth $15 billion or more are less
volatile than those of mid-size businesses with outstanding securities worth
more than $2 billion, or small businesses with outstanding securities worth less
than $2 billion. The Fund is free to invest in companies with small market
capitalizations or those that may otherwise be more volatile.
LIQUIDITY RISK
The Fund's portfolio is liquid if the Fund is able to sell the securities
it owns at a fair price within a reasonable time. Liquidity is generally related
to the market trading volume for a particular security. Investments in smaller
companies or in foreign companies or companies in emerging markets are subject
to a variety of risks, including potential lack of liquidity.
DERIVATIVES RISK
A derivative is a financial instrument whose value is "derived," in some
manner, from the price of another security, index, asset or rate. Derivatives
include options and futures contracts, among a wide range of other instruments.
The principal risk of holding positions in derivatives used as a hedging device
is that the fluctuations in their values may not behave as anticipated with
respect to the overall securities markets. The Fund may also use derivatives in
an attempt to improve performance, although there is no guarantee that it will
be successful in that effort. Some derivatives are more sensitive to interest
rate changes and market price fluctuations than others, and thus may increase
market risk. Also, derivatives are subject to counterparty risk as described
below.
OPTIONS AND FUTURES RISK
Options and futures are common types of derivatives that the Fund uses as
an investment strategy as well as to hedge other positions in the Fund. An
option is the right to buy or sell a security or other instrument, index or
commodity at a specific price on or before a specific date. A future is an
agreement to buy or sell a security or other instrument, index or commodity at a
specific price on a specific date. The use of options and futures may increase
the performance of the Fund, but may also increase market risk.
COUNTERPARTY RISK
This is a risk associated primarily with repurchase agreements and some
derivatives transactions. It is the risk that the other party in the transaction
will not fulfill its contractual obligation to complete the transaction with the
Fund.
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FOREIGN SECURITIES RISKS
Investments in foreign and emerging markets carry special risks, including
currency, political, regulatory and diplomatic risks. The Fund may invest up to
25% of its assets in securities of non-U.S. issuers. Securities of Canadian
issuers and American Depository Receipts are not subject to this 25% limitation.
CURRENCY RISK. A change in the exchange rate between U.S. dollars and
a foreign currency may reduce the value of the Fund's investment in a
security valued in the foreign currency, or based on that currency
value.
POLITICAL RISK. Political actions, events or instability may result in
unfavorable changes in the value of a security.
REGULATORY RISK. Government regulations may affect the value of a
security. In foreign countries, securities markets that are less
regulated than those in the U.S. may permit trading practices that are
not allowed in the U.S.
DIPLOMATIC RISK. A change in diplomatic relations between the U.S. and a
foreign country could affect the value or liquidity of investments.
EUROPEAN ECONOMIC AND MONETARY UNION. 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") which as of January 1, 1999, adopted the euro as a
common currency. The national currencies will be sub-currencies of the
euro until July 1, 2002, at which time these currencies will disappear
entirely. Other European countries may adopt the euro in the future.
As the euro is implemented, there may be changes in the relative
strength and value of the U.S. dollar and other major currencies, as
well as possible adverse tax consequences. The euro transition by EMU
countries may affect the fiscal and monetary levels of those
participating countries. The outcome of these and other uncertainties
could have unpredictable effects on trade and commerce and result in
increased volatility for all financial markets.
LACK OF TIMELY INFORMATION RISK
Timely information about a security or its issuer may be unavailable,
incomplete or inaccurate. This risk is more common to securities issued by
foreign companies and companies in emerging markets than it is to the securities
of U.S.-based companies.
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Although the Fund generally invests in publicly traded equity securities,
the Fund also may invest in other types of securities and other financial
instruments, indicated in the chart below. Although these investments typically
are not part of the Fund's principal investment strategy, they may constitute a
significant portion of the Fund's portfolio, thereby possibly exposing the Fund
and its investors to the following additional risks.
<PAGE>
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INVESTMENT RISKS
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AMERICAN DEPOSITORY RECEIPTS (ADRS)
These are securities issued by U.S. Market,
banks that represent shares of foreign Information,
corporations held by those banks. Political,
Although traded in U.S. securities Regulatory,
markets and valued in U.S. dollars, ADRs Diplomatic,
carry most of the risks of investing Liquidity and
directly in foreign securities. Currency Risks
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DELAYED DELIVERY OR WHEN-ISSUED SECURITIES
Ordinarily, the Fund purchases Market Risk
securities and pays for them in cash
at the normal trade settlement time.
When the Fund purchases a delayed
delivery or when-issued security, it
promises to pay in the future for example,
when the security is actually
available for delivery to the Fund. The
Fund's obligation to pay is usually
fixed when the Fund promises to pay.
Between the date the Fund promises to pay
and the date the securities are actually
received, the Fund bears the risk that
the market value of the when-issued security
may decline.
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FORWARD FOREIGN CURRENCY CONTRACTS
A contract to exchange an amount of Currency, Political,
currency on a date in the future at an Diplomatic,
agreed-upon exchange rate might be Counterparty and
used by the Fund to hedge against changes Regulatory Risks
in foreign currency exchange rates when
the Fund invests in foreign securities.
Does not reduce price fluctuations in
foreign securities, or prevent losses if
the prices of those securities decline.
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OTHER FINANCIAL INSTRUMENTS
These may include forward contracts, Counterparty,
swaps, caps, floors and collars. They Currency,
may be used to try to manage the Fund's Liquidity,
foreign currency exposure and other Market and
investment risks, which can cause its net Regulatory Risks
asset value to rise or fall. The Fund
may use these financial instruments,
commonly known as "derivatives," to
increase or decrease its exposure to
changing securities prices, interest
rates, currency exchange rates or other
factors.
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REPURCHASE AGREEMENTS
A contract under which the seller of a Counterparty Risk
security agrees to buy it back at an
agreed-upon price and time in the future.
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<PAGE>
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INVESTMENT RISKS
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RESTRICTED SECURITIES/PRIVATE PLACEMENTS
Securities that are not registered, but Liquidity Risk
which are bought and sold solely by
institutional investors. The Fund
considers many Rule 144a securities
to be "liquid," although the market
for such securities typically is less
active than the public securities markets.
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[ARROWS ICON] TEMPORARY DEFENSIVE POSITIONS
When securities markets or economic conditions are unfavorable or
unsettled, we might try to protect the assets of the Fund by investing in
securities that are highly liquid, such as high quality money market instruments
like short-term U.S. government obligations, commercial paper or repurchase
agreements, even though that is not the normal investment strategy of the Fund.
We have the right to invest up to 100% of the Fund's assets in these securities,
although we are unlikely to do so. Even though the securities purchased for
defensive purposes often are considered the equivalent of cash, they also have
their own risks. Investments that are highly liquid or comparatively safe tend
to offer lower returns. Therefore, the Fund's performance could be comparatively
lower if it concentrates in defensive holdings.
[ARROWS ICON] PORTFOLIO TURNOVER
We actively manage and trade the Fund's portfolio. Therefore, the Fund may
have a higher portfolio turnover rate than many other mutual funds. The Fund's
average portfolio turnover rate may exceed 200%.
A portfolio turnover rate of 200% is equivalent to the Fund buying and
selling all of the securities in its portfolio two times in the course of a
year. A comparatively high turnover rate may result in higher brokerage
commissions and taxable capital gain distributions to the Fund's shareholders.
<PAGE>
[INVESCO ICON] FUND MANAGEMENT
INVESCO IS A SUBSIDIARY OF AMVESCAP PLC, AN INTERNATIONAL INVESTMENT
MANAGEMENT COMPANY THAT MANAGES MORE THAN $392 BILLION IN ASSETS WORLDWIDE.
AMVESCAP IS BASED IN LONDON, WITH MONEY MANAGERS LOCATED IN EUROPE, NORTH AND
SOUTH AMERICA, AND THE FAR EAST.
INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the
investment adviser of the Fund. INVESCO was founded in 1932 and manages over $38
billion for more than 1,120,579 shareholders of 46 INVESCO mutual funds. INVESCO
performs a wide variety of other services for the Fund, including administrative
and transfer agency functions (the processing of purchases, sales and exchanges
of Fund shares).
A wholly owned subsidiary of INVESCO, IDI is the Fund's distributor and is
responsible for the sale of the Fund's shares.
INVESCO and IDI are subsidiaries of AMVESCAP PLC.
PERFORMANCE-BASED FEE
INVESCO receives a management fee from the Fund that is comprised of two
components. The first component is an annual base fee equal to 1.50% of the
Fund's average daily net assets. The second component is a performance
adjustment that either increases or decreases the base fee, depending on how the
Fund has performed relative to the Index. The maximum performance adjustment
upward or downward is 1.00% annually. Depending on the performance of the Fund,
during any fiscal year INVESCO may receive as much as 2.50% or as little as
0.50% in management fees. During the first twelve months of the Fund's
operations, the management fee will be charged at the base fee of 1.50% with no
performance adjustment.
[INVESCO ICON] PORTFOLIO MANAGER
The following individual is primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
THOMAS R. SAMUELSON, vice president of INVESCO, is the portfolio manager of
the Fund. Before rejoining INVESCO in 2000, Mr. Samuelson was president of
Denver Energy Advisors and managing director of Eastgate Management, both energy
hedge funds. He is a Chartered Financial Analyst. Mr. Samuelson holds an M.B.A.
and a B.S. from the University of Tulsa.
Mr. Samuelson is a member of the INVESCO Growth Team, which is led by
Timothy J. Miller.
<PAGE>
[INVESCO ICON] POTENTIAL REWARDS
NO SINGLE FUND SHOULD REPRESENT YOUR COMPLETE INVESTMENT PROGRAM NOR SHOULD
YOU ATTEMPT TO USE THE FUND FOR SHORT-TERM TRADING PURPOSES.
The Fund offers shareholders the potential to increase the value of their
capital over time. Like most mutual funds, the Fund seeks to provide higher
returns than the market or its competitors, but cannot guarantee that
performance.
SUITABILITY FOR INVESTORS
Only you can determine if an investment in the Fund is right for you based
upon your own economic situation, the risk level with which you are comfortable
and other factors. In general, the Fund is most suitable for investors who:
o have obtained the advice of an investment professional or who themselves are
experienced investors.
o are willing to accept the additional risks entailed in the investment
policies of the Fund.
o understand that shares of the Fund can, and likely will, have daily
price fluctuations.
o are investing tax-deferred retirement accounts, such as traditional and
Roth Individual Retirement Accounts ("IRAs"), as well as
employer-sponsored qualified retirement plans, including 401(k)s and
403(b)s, all of which have longer investment horizons.
You probably do not want to invest in the Fund if you are:
o unaccustomed to potentially volatile investments.
o primarily seeking current dividend income.
o unwilling to accept the additional risks entailed in the investment
policies of the Fund and potentially significant changes in the price of
Fund shares as a result of those policies.
o speculating on short-term fluctuations in the stock markets.
[INVESCO ICON] SHARE PRICE
CURRENT MARKET VALUE OF FUND ASSETS
+ ACCRUED INTEREST AND DIVIDENDS
- FUND DEBTS,
INCLUDING ACCRUED EXPENSES
--------------------------
/ NUMBER OF SHARES
= YOUR SHARE PRICE (NAV).
The value of your Fund shares is likely to change daily. This value is
known as the Net Asset Value per share, or NAV. INVESCO determines the market
value of each investment in the Fund's portfolio each day that the New York
Stock Exchange ("NYSE") is open, at the close of the regular trading day on that
exchange (normally 4:00 p.m. Eastern time). Therefore, shares of the Fund are
not priced on days when the NYSE is closed, which generally is on weekends and
national holidays in the U.S.
NAV is calculated by adding together the current market price of all of the
Fund's investments and other assets, including accrued interest and dividends;
subtracting the Fund's debts, including accrued expenses; and dividing that
dollar amount by the total number of the Fund's outstanding shares.
<PAGE>
All purchases, sales and exchanges of Fund shares are made by INVESCO at
the NAV next calculated after INVESCO receives proper instructions from you to
purchase, redeem or exchange shares of the Fund. Your instructions must be
received by INVESCO no later than the close of the NYSE to effect transactions
at that day's NAV. If INVESCO hears from you after that time, your instructions
will be processed at the NAV calculated at the end of the next day that the NYSE
is open.
Foreign securities exchanges, which set the prices for foreign securities
held by the Fund, are not always open the same days as the NYSE, and may be open
for business on days the NYSE is not. For example, Thanksgiving Day is a holiday
observed by the NYSE and not by overseas exchanges. In this situation, the Fund
would not calculate NAV on Thanksgiving Day (and INVESCO would not buy, sell or
exchange shares for you on that day), even though activity on foreign exchanges
could result in changes in the value of investments held by the Fund on that
day.
[INVESCO ICON] HOW TO BUY SHARES
TO BUY SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE THE
CLOSE OF THE NYSE, NORMALLY 4:00 P.M. EASTERN TIME.
The Fund offers multiple classes of shares. The chart in this section shows
several convenient ways to invest in the Fund. Each class represents an
identical interest in the Fund and has the same rights, except that each class
bears its own distribution and shareholder servicing charges, and other
expenses. The income attributable to each class and the dividends payable on the
shares of each class will be reduced by the amount of the distribution fee or
service fee, if applicable, and the other expenses payable by that class.
If you buy $1,000,000 or more of Class A shares and redeem the shares
within 18 months from the date of purchase, you may pay a 1% contingent deferred
sales charge at the time of redemption. This charge would not be assessed upon
Class A shares acquired through reinvestment of dividends or other
distributions, or Class A shares exchanged for Class A shares of another INVESCO
Fund. When you invest in the Fund through a securities broker, including a
broker affiliated with INVESCO, you may be charged a commission or transaction
fee for either purchases or sales of Fund shares. For all new accounts, please
send a completed application form and specify the fund or funds and the class or
classes you wish to purchase.
INVESCO reserves the right to increase, reduce or waive the Fund's minimum
investment requirements in its sole discretion, if it determines this action is
in the best interests of the Fund's shareholders. INVESCO also reserves the
right in its sole discretion to reject any order to buy Fund shares, including
purchases by exchange.
MINIMUM INITIAL INVESTMENT. $10,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans, including IRAs.
<PAGE>
MINIMUM SUBSEQUENT INVESTMENT. $1,000 (Minimums are lower for certain
retirement plans.)
EXCHANGE POLICY. You may exchange your shares in the Fund for shares of the
same class of another INVESCO mutual fund on the basis of their respective NAVs
at the time of the exchange. Currently, the only other INVESCO Fund available
for exchange with respect to Class A and B shares is INVESCO Cash Reserves Fund.
FUND EXCHANGES CAN BE A CONVENIENT WAY FOR YOU TO DIVERSIFY YOUR INVESTMENTS, OR
TO REALLOCATE YOUR INVESTMENTS WHEN YOUR OBJECTIVES CHANGE.
Before making any exchange, be sure to review the prospectuses of the funds
involved and consider the differences between the funds. Also, be certain that
you qualify to purchase certain classes of shares in the new fund. An exchange
is the sale of shares from one fund immediately 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, you or your
account qualifies as tax-deferred under the Internal Revenue Code). If the
shares of the fund you are selling have gone up in value since you bought them,
the sale portion of an exchange may result in taxable income to you.
You may be required to pay an initial sales charge when exchanging from a
Fund with a lower initial sales charge than the one into which you are
exchanging. If you exchange from Class A shares not subject to a CDSC into Class
A shares subject to those charges, you will be charged a CDSC when you redeem
the exchanged shares. The CDSC charged on redemption of those shares will be
calculated starting on the date you acquired those shares through exchange. You
will not pay a sales charge when exchanging Class B shares for other Class B
shares or Class C shares for other Class C shares. If you make an exchange
involving Class B or Class C shares, the amount of time you held the original
shares will be added to the holding period of the Class B or Class C shares,
respectively, into which you exchanged for the purpose of calculating any CDSC
that may be assessed upon a subsequent redemption.
We have the following policies governing all exchanges:
o Both fund accounts involved in the exchange must be registered in
exactly the same name(s) and Social Security or federal tax I.D.
number(s).
o You may make up to four exchanges out of the Fund per 12-month period,
but you may be subject to the contingent deferred sales charge described
below.
o The Fund reserves the right to reject any exchange request, or to
modify or terminate the exchange policy, if it is in the best interests of
the Fund and its shareholders. Notice of all such modifications or
terminations that affect all shareholders of the Fund will be given at
least 60 days prior to the effective date of the change, except in unusual
instances, including a suspension of redemption of the exchanged security
under Section 22(e) of the Investment Company Act of 1940.
In addition, the ability to exchange may be temporarily suspended at any
time that sales of the fund into which you wish to exchange are temporarily
stopped.
Please remember that if you pay by check, Automated Clearing House ("ACH"),
or wire and your funds do not clear, you will be responsible for any related
<PAGE>
loss to the Fund or INVESCO. If you are already an INVESCO funds shareholder,
the Fund may seek reimbursement for any loss from your existing account(s).
CHOOSING A SHARE CLASS. The Fund has multiple classes of shares, each class
representing an interest in the same portfolio of investments. In deciding which
class of shares to purchase, you should consider, among other things, (i) the
length of time you expect to hold your shares, (ii) the provisions of the
distribution plan applicable to that class, if any, (iii) the eligibility
requirements that apply to purchases of a particular class, and (iv) any
assistance you may receive in making your investment determination.
In addition, you should also consider the factors below:
CLASS A CLASS B CLASS C
Initial sales charge No initial sales charge No initial sales charge
CDSC if you purchase CDSC on redemptions CDSC on redemptions
$1,000,000 or more and within six years within 13 months
redeem those shares
within 18 months
12b-1 fee of 0.35% 12b-1 fee of 1.00% 12b-1 fee of 1.00%
No conversion Converts to Class A Does not convert to
shares after eight years Class A shares
along with a pro rata
portion of its reinvested
dividends and distributions
Generally, more Purchase orders limited Purchase orders limited
appropriate for to amounts of $250,000 to amounts of $1,000,000
long-term investors or less. or less. Generally more
appropriate for short-
term investors.
Your investment representative can help you decide among the various
classes. Please, contact your investment representative for several convenient
ways to invest in the Fund. Shares of the Fund are available only through your
investment representative.
SALES CHARGES
Sales charges on Class A shares of the Fund are detailed below. As used
below, the term "offering price" with respect to Class A shares includes the
initial sales charge.
INITIAL SALES CHARGES. Class A shares of the Fund are subject to the
following initial sales charges:
<PAGE>
Investor's
Sales Charge
------------
Amount of investment As a % of As a % of
in a single transaction offering price investment
----------------------- -------------- ----------
Less than $ 25,000 5.50% 5.82%
$25,000 but less than $ 50,000 5.25% 5.54%
$50,000 but less than $ 100,000 4.75% 4.99%
$100,000 but less than $ 250,000 3.75% 3.90%
$250,000 but less than $ 500,000 3.00% 3.09%
$500,000 but less than $1,000,000 2.00% 2.04%
$1,000,000 or more NAV NAV
CONTINGENT DEFERRED SALES CHARGE (CDSC) FOR CLASS A SHARES. You can
purchase $1,000,000 or more of Class A shares at net asset value. However, if
you purchase shares worth $1,000,000 or more, they may be subject to a CDSC of
1% if you redeem or exchange them prior to 18 months after the date of purchase.
The distributor may pay a dealer concession and/or a service fee for purchases
of $1,000,000 or more. We will use the "first-in, first-out" method to determine
your holding period. Under this method, the date of redemption or exchange will
be compared with the earliest purchase date of shares held in your account. If
your holding period is less than 18 months, the CDSC may be assessed on the
amount of the total original cost of the shares.
CDSC FOR CLASS B AND CLASS C SHARES. You can purchase Class B and Class C
shares at their net asset value per share. However, when you redeem them, they
are subject to a CDSC in the following percentages:
Year since
purchase made Class B Class C
------------- ------- -------
First 5% 1%*
Second 4% None
Third 3% None
Fourth 3% None
Fifth 2% None
Sixth 1% None
Seventh and following None None
*The first year will consist of the first 13 months.
REDUCED SALES CHARGES AND SALES CHARGE EXCEPTIONS. You may qualify for
reduced sales charges or sales charge exceptions. To qualify for these
reductions or exceptions, you or your financial consultant must provide
sufficient information at the time of purchase to verify that your purchase
qualifies for such treatment.
<PAGE>
REDUCED SALES CHARGES. You may be eligible to buy Class A shares at reduced
initial sales charge rates under Rights of Accumulation or Letters of Intent
under certain circumstances.
RIGHTS OF ACCUMULATION. You may combine your new purchases of Class A
shares with Class A shares currently owned for the purpose of
qualifying for the lower initial sales charge rates that apply to
larger purchases. The applicable initial sales charge for the new
purchase is based on the total of your current purchase and the
current value of all Class A shares you own.
LETTERS OF INTENT. Under a Letter of Intent (LOI), you commit to
purchase a specified dollar amount of Class A shares of the Fund
during a 13-month period. The amount you agree to purchase determines
the initial sales charge you pay. If the full face amount of the LOI
is not invested by the end of the 13-month period, your account will
be adjusted to the higher initial sales charge level for the amount
actually invested.
INITIAL SALES CHARGE/CDSC EXCEPTIONS
You will not pay initial sales charges:
o on shares purchased by reinvesting dividends and distributions;
o when exchanging shares among certain INVESCO Funds;
o when using the reinstatement privilege; and
o when a merger, consolidation, or acquisition of assets of an INVESCO Fund
occurs.
You will not pay a CDSC:
o if you purchase less than $1,000,000 of Class A shares;
o if you purchase $1,000,000 or more of Class A shares and hold those shares
for more than 18 months;
o if you redeem Class B shares you held for more than six years;
o if you redeem Class C shares you held for more than 13 months;
o if you are participating in the periodic withdrawal program and withdraw up
up to 10% of the value of your shares that are subject to a CDSC in any 12-
month period. The value of your shares, and applicable 12-month period, will
be calculated based upon the value of your account on, and the date of, the
first periodic withdrawal;
o if you redeem shares acquired through reinvestment of dividends and
distributions;
o on increases in the net asset value of your shares;
o to pay account fees;
o for IRA distributions due to death, disability or periodic distributions
based on life expectancy;
o to return excess contributions (and earnings, if applicable) from retirement
plan accounts; or
o for redemptions following the death of a shareholder or beneficial owner.
There may be other situations when you may be able to purchase or redeem
shares at reduced or no sales charges. Consult the Fund's Statement of
Additional Information.
<PAGE>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY CHECK $10,000 for INVESCO does not
Mail to: regular accept a third
INVESCO Funds Group, accounts; $1,000 party check unless
Inc., minimum for each it is from another
P.O. Box 17970, subsequent investment; financial institu-
Denver, CO 80217. $500 for an IRA; tion related to a
You may send your check $250 minimum for each retirement plan
by overnight courier to: subsequent IRA investment. transfer.
7800 E. Union Ave.
Denver, CO 80237.
--------------------------------------------------------------------------------
BY WIRE $10,000 for
You may send your regular
payment by bank wire accounts; $1,000
(call 1-800-328-2234 minimum for each
for instructions). subsequent investment;
$500 for an IRA;
$250 minimum for each
subsequent IRA investment.
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $10,000 for You must forward
Call 1-800-328-2234 to regular your bank account
request your purchase. accounts; $1,000 information to
Upon your telephone minimum for each INVESCO prior to
instructions, INVESCO subsequent investment; using this option.
will move money from $500 for an IRA;
your designated bank/ $250 minimum for each
credit union checking subsequent IRA investment.
or savings account in
order to purchase
shares, whenever you
wish.
--------------------------------------------------------------------------------
BY PERSONAL ACCOUNT LINE $10,000 for Be sure to write
Automated transactions regular down the confir-
by phone are available accounts; $1,000 mation number
for subsequent minimum for each provided to you.
purchases and exchanges subsequent investment; You must forward
24 hours a day. $500 for an IRA; your bank account
Simply call $250 minimum for each information to
1-800-424-8085. subsequent IRA investment. INVESCO prior to
using this option.
<PAGE>
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY EXCHANGE $10,000 for See "Exchange
Between two INVESCO regular Policy."
funds. Call accounts; $1,000
1-800-328-2234 for minimum for each
prospectuses of subsequent investment;
other INVESCO funds. $500 for an IRA;
Exchanges may be made $250 minimum for each
by phone. Class C shares subsequent IRA investment.
may be exchanged at our
Web site at
www.invescofunds.com.
You may also establish
an automatic monthly
exchange service
between two INVESCO
funds; call us for
further details and the
correct form.
DISTRIBUTION EXPENSES. We have adopted a Master Distribution Plan and
Agreement (commonly known as a "12b-1 Plan") for each class of shares of the
Fund. The 12b-1 fees paid by the Fund's classes of shares are used to pay
distribution fees to IDI for the sale and distribution of the Fund's shares and
for services provided to shareholders, all or a substantial portion of which are
paid to the dealer of record. Because the Fund's shares pay these fees out of
their assets on an ongoing basis, these fees increase the cost of your
investment.
HOUSEHOLDING. To save money for the Fund, INVESCO will send only one copy
of a prospectus or financial report to each household address. This process,
known as "householding," is used for most required shareholder mailings. It does
not apply to account statements. You may, of course, request an additional copy
of a prospectus or financial report at any time by calling or writing INVESCO.
You may also request that householding be eliminated from all your required
mailings.
[INVESCO ICON] HOW TO SELL SHARES
The following chart shows several convenient ways to sell your Fund shares.
Shares of the Fund may be sold at any time at the next NAV calculated after your
request to sell in proper form is received by INVESCO. Depending on Fund
performance, the NAV at the time you sell your shares may be more or less than
the price you paid to purchase your shares.
TO SELL SHARES AT THAT DAY'S CLOSING PRICE, YOU MUST CONTACT US BEFORE 4:00
P.M. EASTERN TIME.
If you own shares in more than one INVESCO fund, please specify the fund whose
shares you wish to sell and specify the class of shares. Remember that any sale
or exchange of shares in a non-retirement account will likely result in a
taxable gain or loss.
While INVESCO attempts 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.
INVESCO usually mails you the proceeds from the sale of Fund shares within
seven days after we receive your request to sell in proper form. However,
<PAGE>
payment may be postponed under unusual circumstances -- for instance, if normal
trading is not taking place on the NYSE, or during an emergency as defined by
the Securities and Exchange Commission. If your INVESCO fund shares were
purchased by a check which has not yet cleared, payment will be made promptly
when your purchase check does clear; that can take up to 15 days.
Because of the Fund's expense structure, it costs as much to handle a small
account as it does to handle a large one. If the value of your account in the
Fund falls below $250 as a result of your actions (for example, sale of your
Fund shares), the Fund reserves the right to sell all of your shares, send the
proceeds of the sale to you and close your account. Before this is done, you
will be notified and given 60 days to increase the value of your account to $250
or more.
REDEMPTION FEES. Except for any applicable CDSC, we will not charge you any
fees to redeem your shares; however, your broker or financial consultant may
charge service fees for handling these transactions.
REINSTATEMENT PRIVILEGE (Class A shares only). You may, within 90 days
after you sell Class A shares, reinvest all or part of your redemption proceeds
in Class A shares in the Fund at net asset value in an identically registered
account. You will not pay any sales charges on the amount reinvested. In
addition, if you had paid a CDSC on any reinstated amount, you will not be
subject to a CDSC if you later redeem that amount. You must notify the transfer
agent in writing at the time you reinstate that you are exercising your
reinstatement privilege. You may exercise this privilege only once per calendar
year.
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY TELEPHONE $250 (or, if less, INVESCO's telephone
Call us toll-free full liquidation redemption
at: of the account) privileges may be
1-800-328-2234. for a redemption modified or
check; $1,000 for terminated in the
a wire to your future at INVESCO's
bank of record. discretion.
The maximum amount
which may be
redeemed by
telephone is
generally $25,000.
--------------------------------------------------------------------------------
IN WRITING Any amount. The redemption
Mail your request to request must be
INVESCO Funds Group, signed by all
Inc., P.O. Box registered account
17970, Denver, CO owners. Payment
80217 . You may also will be mailed to
send your request by your address as it
overnight courier to appears on
7800 E. Union Ave., INVESCO's records,
Denver, CO 80237. or to a bank
designated by you
in writing.
<PAGE>
METHOD REDEMPTION MINIMUM PLEASE REMEMBER
--------------------------------------------------------------------------------
BY TELEPHONE WITH ACH $250 You must forward
Call 1-800-328-2234 your bank account
to request your information to
redemption. INVESCO INVESCO prior to
will automatically using this option.
pay the proceeds
into your designated
bank account.
--------------------------------------------------------------------------------
BY EXCHANGE $250 for exchanges See "Exchange
Between two INVESCO requested by Policy." When you
funds. Call telephone. exchange into an
1-800-328-2234 for INVESCO fund you
prospectuses of have not previously
other INVESCO funds. invested in, the
Exchanges may be Fund's investment
made by phone. Class minimums apply.
C shares may be exchanged
at our Web site at
www.invescofunds.com.
You may also establish
an automatic monthly
exchange service
between two INVESCO
funds; call us for
further details and
the correct form.
--------------------------------------------------------------------------------
PERIODIC WITHDRAWAL $100 per payment You must have at
PLAN on a monthly or least $10,000 total
You may call us to quarterly basis. invested with the
request the The redemption INVESCO funds with
appropriate form and check may be made at least $5,000 of
more information at payable to any that total invested
1-800-328-2234. party you in the fund from
designate. which withdrawals
will be made.
--------------------------------------------------------------------------------
PAYMENT TO THIRD Any amount. All registered
PARTY account owners must
Mail your request to sign the request,
INVESCO with
Funds Group, Inc., signature
P.O. Box 17970, guarantees from an
Denver, CO 80217. eligible guarantor
financial
institution, such as
a commercial bank or
a recognized national
or regional
securities firm.
[GRAPH ICON] TAXES
Everyone's tax status is unique. We encourage you to consult your own tax
adviser on the tax impact to you of investing in the Fund.
TO AVOID BACKUP WITHHOLDING, BE SURE WE HAVE YOUR CORRECT SOCIAL SECURITY OR
TAXPAYER IDENTIFICATION NUMBER.
The Fund customarily distributes to its shareholders substantially all of
its net investment income, net capital gains and net gains from foreign currency
transactions, if any. You receive a proportionate part of these distributions,
depending on the percentage of the Fund's shares that you own. These
distributions are required under federal tax laws governing mutual funds. It is
the policy of the Fund to distribute all investment company taxable income and
net capital gains. As a result of this policy and the Fund's qualification as a
<PAGE>
regulated investment company, it is anticipated that the Fund will not pay any
federal income or excise taxes. Instead, the Fund will be accorded conduit or
"pass through" treatment for federal income tax purposes.
However, unless you are (or your account is) exempt from income taxes, you
must include all dividends and capital gain distributions paid to you by the
Fund in your taxable income for federal, state and local income tax purposes.
You also may realize capital gains or losses when you sell shares of the Fund at
more or less than the price you originally paid. An exchange is treated as a
sale, and is a taxable event. Dividends and other distributions usually are
taxable whether you receive them in cash or automatically reinvest them in
shares of the Fund or other INVESCO funds.
If you have not provided INVESCO with complete, correct tax information,
the Fund is required by law to withhold 31% of your distributions and any money
that you receive from the sale of shares of the Fund as a backup withholding
tax.
We will provide you with detailed information every year about your
dividends and capital gain distributions. Depending on the activity in your
individual account, we may also be able to assist with cost basis figures for
shares you sell.
[GRAPH ICON] DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
The Fund earns ordinary or investment income from dividends and interest on
its investments. The Fund expects to distribute substantially all of this
investment income, less Fund expenses, to shareholders annually or at such other
times as the Fund may elect.
NET INVESTMENT INCOME AND NET REALIZED CAPITAL GAINS ARE DISTRIBUTED TO
SHAREHOLDERS AT LEAST ANNUALLY. DISTRIBUTIONS ARE TAXABLE WHETHER REINVESTED IN
ADDITIONAL SHARES OR PAID TO YOU IN CASH (EXCEPT FOR TAX-EXEMPT ACCOUNTS).
The Fund also realizes capital gains or losses when it sells securities in its
portfolio for more or less than it had paid for them. 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, are
distributed to shareholders at least annually, usually in November.
Under present federal income tax laws, capital gains may be taxable at
different rates, depending on how long the Fund has held the underlying
investment. Short-term capital gains which are derived from the sale of assets
held one year or less are taxed as ordinary income. Long-term capital gains
which are derived from the sale of assets held for more than one year are taxed
at up to the maximum capital gains rate, currently 20% for individuals.
Dividends and capital gain distributions are paid to you if you hold shares
on the record date of the distribution regardless how long you have held your
shares. The Fund's NAV will drop by the amount of the distribution on the day
the distribution is declared. If you buy shares of the Fund just before a
<PAGE>
distribution is declared, you may wind up "buying a distribution." This means
that if the Fund declares a dividend or capital gain distribution shortly after
you buy, you will receive some of your investment back as a taxable
distribution. Most shareholders want to avoid this. And, if you sell your shares
at a loss for tax purposes and purchase a substantially identical investment
within 30 days before or after that sale, the transaction is usually considered
a "wash sale" and you will not be able to claim a tax loss.
Dividends and capital gain distributions paid by the Fund are automatically
reinvested in additional Fund shares at the NAV on the ex-distribution date,
unless you choose to have them automatically reinvested in another INVESCO fund
or paid to you by check or electronic funds transfer. If you choose to be paid
by check, the minimum amount of the check must be at least $10; amounts less
than that will be automatically reinvested. Dividends and other distributions,
whether received in cash or reinvested in additional Fund shares, may be subject
to federal income tax.
<PAGE>
JULY 1, 2000
AS SUPPLEMENTED AUGUST 24, 2000
INVESCO ADVANTAGE SERIES FUNDS, INC.
INVESCO ADVANTAGE FUND - CLASS A, B AND C
You may obtain additional information about the Fund from several sources:
FINANCIAL REPORTS. Although this Prospectus describes the Fund's
anticipated investments and operations, the Fund also prepares annual and
semiannual reports that detail the Fund's actual investments at the report date.
These reports include discussion of the Fund's recent performance, as well as
market and general economic trends affecting the Fund's performance. The annual
report also includes the report of the Fund's independent accountants.
STATEMENT OF ADDITIONAL INFORMATION. The SAI dated July 1, 2000 is a
supplement to this Prospectus and has detailed information about the Fund and
its investment policies and practices. A current SAI for the Fund is on file
with the Securities and Exchange Commission and is incorporated into this
Prospectus by reference; in other words, the SAI is legally a part of this
Prospectus, and you are considered to be aware of the contents of the SAI.
INTERNET. The current Prospectus and SAI of the Fund are available on the
SEC Web site at www.sec.gov.
To obtain a free copy of the current Prospectus and SAI, write to INVESCO
Distributors, Inc., P.O. Box 17970, Denver, Colorado 80217; or call
1-800-328-2234. Copies of these materials are also available (with a copying
charge) from the SEC's Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C., 20549-0102. This information can be obtained by electronic
request at the following E-mail address:[email protected], or by calling
1-202-942-8090. The SEC file numbers for the Fund are 811-09913 and
333-36074.
811-09913
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
INVESCO ADVANTAGE SERIES FUNDS, INC.
INVESCO Advantage Fund - Class A, B and C
Address: Mailing Address:
7800 E. Union Ave., Denver, CO 80237 P.O. Box 17970, Denver, CO 80217
Telephone:
In continental U.S., 1-800-328-2234
July 1, 2000, As Supplemented August 24, 2000
------------------------------------------------------------------------------
A Prospectus for Class A, B and C shares of INVESCO Advantage Fund dated
July 1, 2000, As Supplemented August 24, 2000 provides the basic information you
should know before investing in the Fund. This Statement of Additional
Information ("SAI") is incorporated by reference into the Fund's Prospectus; in
other words, this SAI is legally part of the Fund's Prospectus. Although this
SAI is not a prospectus, it contains information in addition to that set forth
in the Prospectus. It is intended to provide additional information regarding
the activities and operations of the Fund and should be read in conjunction with
the Prospectus.
You may obtain, without charge, the current Prospectus and SAI of the Fund by
writing to INVESCO Distributors, Inc., P.O. Box 17970, Denver, CO 80217, or by
calling 1-800-328-2234.
<PAGE>
TABLE OF CONTENTS
The Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Investments, Policies and Risks. . . . . . . . . . . . . . . . . . . . . . .3
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . .24
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . .26
Other Service Providers. . . . . . . . . . . . . . . . . . . . . . . . . . .53
Brokerage Allocation and Other Practices . . . . . . . . . . . . . . . . . .53
Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
Tax Consequences of Owning Shares of the Fund. . . . . . . . . . . . . . . .55
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Appendix A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
<PAGE>
THE COMPANY
The Company was incorporated under the laws of Maryland on April 24, 2000. The
Company is an open-end, non-diversified, management investment company currently
consisting of one portfolio of investments in three classes: INVESCO Advantage
Fund - Class A shares, Class B shares and Class C shares (the "Fund").
Additional funds may be offered in the future.
"Open-end" means that the Fund issues an indefinite number of shares which it
continuously offers to redeem at net asset value per share ("NAV"). A
"management" investment company actively buys and sells securities for the
portfolio of the Fund at the direction of a professional manager. Open-end
management investment companies (or one or more series of such companies, such
as the Fund) are commonly referred to as mutual funds.
INVESTMENTS, POLICIES AND RISKS
The principal investments and policies of the Fund are discussed in the
Prospectus of the Fund. The Fund also may invest in the following securities and
engage in the following practices.
BORROWINGS AND LEVERAGE - The Fund may borrow money from banks (including the
Fund's custodian bank), subject to the limitations under the 1940 Act. The Fund
will limit borrowings and reverse repurchase agreements to an aggregate of
33 1/3% of the Fund's total assets at the time of the transaction.
The Fund may employ "leverage" by borrowing money and using it to purchase
additional securities. Leverage increases both investment opportunity and
investment risk. If the investment gains on the securities purchased with
borrowed money exceed the interest paid on the borrowing, the net asset value of
the Fund's shares will rise faster than would otherwise be the case. On the
other hand, if the investment gains fail to cover the cost (including interest
on borrowings), or if there are losses, the net asset value of the Fund's shares
will decrease faster than would otherwise be the case. The Fund will maintain
asset coverage of at least 300% for all such borrowings, and should such asset
coverage at any time fall below 300%, the Fund will be required to reduce its
borrowings within three days to the extent necessary to satisfy this
requirement. To reduce its borrowings, the Fund might be required to sell
securities at a disadvantageous time. Interest on money borrowed is an expense
the Fund would not otherwise incur, and the Fund may therefore have little or no
investment income during periods of substantial borrowings.
CERTIFICATES OF DEPOSIT IN FOREIGN BANKS AND U.S. BRANCHES OF FOREIGN BANKS --
The Fund may maintain time deposits in and invest in U.S. dollar denominated CDs
issued by foreign banks and U.S. branches of foreign banks. The Fund limits
investments in foreign bank obligations to U.S. dollar denominated obligations
of foreign banks which have more than $10 billion in assets, have branches or
agencies in the U.S., and meet other criteria established by the board of
directors. Investments in foreign securities involve special considerations.
There is generally less publicly available information about foreign issuers
since many foreign countries do not have the same disclosure and reporting
requirements as are imposed by the U.S. securities laws. Moreover, foreign
issuers are generally not bound by uniform accounting and auditing and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Such investments may also entail the risks of possible
imposition of dividend withholding or confiscatory taxes, possible currency
blockage or transfer restrictions, expropriation, nationalization or other
adverse political or economic developments, and the difficulty of enforcing
obligations in other countries.
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The Fund may also invest in bankers' acceptances, time deposits and certificates
of deposit of U.S. branches of foreign banks and foreign branches of U.S. banks.
Investments in instruments of U.S. branches of foreign banks will be made only
with branches that are subject to the same regulations as U.S. banks. An
investment in instruments issued by a foreign branch of a U.S. bank will be made
only if the investment risk associated with such investment is the same as that
involving an investment in instruments issued by the U.S. parent, with the U.S.
parent unconditionally liable in the event that the foreign branch fails to pay
on the investment for any reason.
COMMERCIAL PAPER -- Commercial paper is the term for short-term promissory notes
issued by domestic corporations to meet current working capital needs.
Commercial paper may be unsecured by the corporation's assets but may be backed
by a letter of credit from a bank or other financial institution. The letter of
credit enhances the paper's creditworthiness. The issuer is directly responsible
for payment but the bank "guarantees" that if the note is not paid at maturity
by the issuer, the bank will pay the principal and interest to the buyer.
INVESCO Funds Group, Inc. ("INVESCO"), the Fund's investment adviser, will
consider the creditworthiness of the institution issuing the letter of credit,
as well as the creditworthiness of the issuer of the commercial paper, when
purchasing paper enhanced by a letter of credit. Commercial paper is sold either
in an interest-bearing form or on a discounted basis, with maturities not
exceeding 270 days.
DEBT SECURITIES -- Debt securities include bonds, notes and other securities
that give the holder the right to receive fixed amounts of principal, interest,
or both on a date in the future or on demand. Debt securities also are often
referred to as fixed-income securities, even if the rate of interest varies over
the life of the security.
Debt securities are generally subject to credit risk and market risk. Credit
risk is the risk that the issuer of the security may be unable to meet interest
or principal payments or both as they come due. Market risk is the risk that the
market value of the security may decline for a variety of reasons, including
changes in interest rates. An increase in interest rates tends to reduce the
market values of debt securities in which the Fund has invested. A decline in
interest rates tends to increase the market values of debt securities in which
the Fund has invested.
Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's, Inc. ("S&P")
ratings provide a useful guide to the credit risk of many debt securities. The
lower the rating of a debt security, the greater the credit risk the rating
service assigns to the security. To compensate investors for accepting that
greater risk, lower-rated debt securities tend to offer higher interest rates.
The Fund may invest up to 25% of its portfolio in lower-rated debt securities,
which are often referred to as "junk bonds." Increasing the amount of Fund
assets invested in unrated or lower-grade straight debt securities may increase
the yield produced by the Fund's debt securities but will also increase the
credit risk of those securities. A debt security is considered lower-grade if it
is rated Ba or less by Moody's or BB or less by S&P. Lower-rated and non-rated
debt securities of comparable quality are subject to wider fluctuations in
yields and market values than higher-rated debt securities and may be considered
speculative. Although the Fund may invest in debt securities assigned lower
grade ratings by S&P or Moody's, at the time of purchase the Fund is not
permitted to invest in bonds that are in default or are rated CCC or below by
S&P or Caa or below by Moody's or, if unrated, are judged by INVESCO to be of
equivalent quality. Debt securities rated lower than B by either S&P or Moody's
are usually considered to be speculative. At the time of purchase, INVESCO will
limit Fund investments to debt securities which INVESCO believes are not highly
speculative and which are rated at least B by S&P and Moody's.
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A significant economic downturn or increase in interest rates may cause issuers
of debt securities to experience increased financial problems which could
adversely affect their ability to pay principal and interest obligations, to
meet projected business goals, and to obtain additional financing. These
conditions more severely impact issuers of lower-rated debt securities. The
market for lower-rated straight debt securities may not be as liquid as the
market for higher-rated straight debt securities. Therefore, INVESCO attempts to
limit purchases of lower-rated securities to securities having an established
secondary market.
Debt securities rated Caa by Moody's may be in default or may present risks of
non-payment of principal or interest. Lower-rated securities by S&P (categories
BB and B) include those which are predominantly speculative because of the
issuer's perceived capacity to pay interest and repay principal in accordance
with their terms; BB indicates the lowest degree of speculation and B a higher
degree of speculation. While such bonds will likely have some quality and
protective characteristics, these are usually outweighed by large uncertainties
or major risk exposures to adverse conditions.
Although bonds in the lowest investment grade debt category (those rated BBB by
S&P, Baa by Moody's or the equivalent) are regarded as having adequate
capability to pay principal and interest, they have speculative characteristics.
Adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case for
higher-rated bonds. Lower-rated bonds by Moody's (categories Ba, B or Caa) are
of poorer quality and also have speculative characteristics. Bonds rated Caa may
be in default or there may be present elements of danger with respect to
principal or interest. Lower-rated bonds by S&P (categories BB, B or CCC)
include those that are regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with their terms; BB indicates the lowest degree of speculation and
CCC a high degree of speculation. While such bonds likely will have some quality
and protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions. Bonds having equivalent ratings from
other ratings services will have characteristics similar to those of the
corresponding S&P and Moody's ratings. For a specific description of S&P and
Moody's corporate bond rating categories, please refer to Appendix A.
The Fund may invest in zero coupon bonds and step-up bonds. Zero coupon bonds do
not make regular interest payments. Zero coupon bonds are sold at a discount
from face value. Principal and accrued discount (representing interest earned
but not paid) are paid at maturity in the amount of the face value. Step-up
bonds initially make no (or low) cash interest payments but begin paying
interest (or a higher rate of interest) at a fixed time after issuance of the
bond. The market values of zero coupon and step-up bonds generally fluctuate
more in response to changes in interest rates than interest-paying securities of
comparable term and quality. The Fund may be required to distribute income
recognized on these bonds, even though no cash may be paid to the Fund until the
maturity or call date of a bond, in order for the Fund to maintain its
qualification as a regulated investment company. These required distributions
could reduce the amount of cash available for investment by the Fund.
DOMESTIC BANK OBLIGATIONS -- U.S. banks (including their foreign branches) issue
certificates of deposit (CDs) and bankers' acceptances which may be purchased by
the Fund if an issuing bank has total assets in excess of $5 billion and the
bank otherwise meets the Fund's credit rating requirements. CDs are issued
against deposits in a commercial bank for a specified period and rate and are
normally negotiable. Eurodollar CDs are certificates issued by a foreign branch
(usually London) of a U.S. domestic bank, and, as such, the credit is deemed to
be that of the domestic bank. Bankers' acceptances are short-term credit
instruments evidencing the promise of the bank (by virtue of the bank's
"acceptance") to pay at maturity a draft which has been drawn on it by a
customer (the "drawer"). Bankers' acceptances are used to finance the import,
<PAGE>
export, transfer, or storage of goods and reflect the obligation of both the
bank and the drawer to pay the face amount. Both types of securities are subject
to the ability of the issuing bank to meet its obligations, and are subject to
risks common to all debt securities. In addition, banker's acceptances may be
subject to foreign currency risk and certain other risks of investment in
foreign securities.
EQUITY SECURITIES -- The Fund invests in common, preferred and convertible
preferred stocks, and securities whose values are tied to the price of stocks,
such as rights, warrants and convertible debt securities. Common stocks and
preferred stocks represent equity ownership in a corporation. Owners of stock,
such as the Fund, share in a corporation's earnings through dividends which may
be declared by the corporation, although the receipt of dividends is not the
principal benefit that the Fund seeks when it invests in stocks and similar
instruments.
Instead, the Fund seeks to invest in stocks that will increase in market value
and may be sold for more than the Fund paid to buy them. Market value is based
upon constantly changing investor perceptions of what a company is worth
compared to other companies. Although dividends are a factor in the changing
market value of stocks, many companies do not pay dividends, or pay
comparatively small dividends. The principal risk of investing in equity
securities is that their market values fluctuate constantly, often due to
factors entirely outside the control of the Fund or the company issuing the
stock. At any given time, the market value of an equity security may be
significantly higher or lower than the amount paid by the Fund to acquire it.
Owners of preferred stocks are entitled to dividends payable from the
corporation's earnings, which in some cases may be "cumulative" if prior
dividends on the preferred stock have not been paid. Dividends payable on
preferred stock have priority over distributions to holders of common stock, and
preferred stocks generally have a priority on the distribution of assets in the
event of the corporation's liquidation. Preferred stocks may be "participating,"
which means that they may be entitled to dividends in excess of the stated
dividend in certain cases. The holders of a company's debt securities generally
are entitled to be paid by the company before it pays anything to its
stockholders.
Rights and warrants are securities which entitle the holder to purchase the
securities of a company (usually, its common stock) at a specified price during
a specified time period. The value of a right or warrant is affected by many of
the same factors that determine the prices of common stocks. Rights and warrants
may be purchased directly or acquired in connection with a corporate
reorganization or exchange offer.
The Fund also may purchase convertible securities including convertible debt
obligations and convertible preferred stock. A convertible security entitles the
holder to exchange it for a fixed number of shares of common stock (or other
equity security), usually at a fixed price within a specified period of time.
Until conversion, the owner of convertible securities usually receives the
interest paid on a convertible bond or the dividend preference of a preferred
stock.
A convertible security has an "investment value" which is a theoretical value
determined by the yield it provides in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. It also has a "conversion value,"
which is the market value the convertible security would have if it were
exchanged for the underlying equity security. Convertible securities may be
purchased at varying price levels above or below their investment values or
conversion values.
<PAGE>
Conversion value is a simple mathematical calculation that fluctuates directly
with the price of the underlying security. However, if the conversion value is
substantially below the investment value, the market value of the convertible
security is governed principally by its investment value. If the conversion
value is near or above the investment value, the market value of the convertible
security generally will rise above the investment value. In such cases, the
market value of the convertible security may be higher than its conversion
value, due to the combination of the convertible security's right to interest
(or dividend preference) and the possibility of capital appreciation from the
conversion feature. However, there is no assurance that any premium above
investment value or conversion value will be recovered because prices change
and, as a result, the ability to achieve capital appreciation through conversion
may be eliminated.
FOREIGN SECURITIES -- Investments in the securities of foreign companies, or
companies that have their principal business activities outside the United
States, involve certain risks not associated with investments in U.S. companies.
Non-U.S. companies generally are not subject to the same uniform accounting,
auditing and financial reporting standards that apply to U.S. companies.
Therefore, financial information about foreign companies may be incomplete, or
may not be comparable to the information available on U.S. companies. There may
also be less publicly available information about a foreign company.
Although the volume of trading in foreign securities markets is growing,
securities of many non-U.S. companies may be less liquid and have greater swings
in price than securities of comparable U.S. companies. The costs of buying and
selling securities on foreign securities exchanges are generally significantly
higher than similar costs in the United States. There is generally less
government supervision and regulation of exchanges, brokers and issuers in
foreign countries than there is in the United States. Investments in non-U.S.
securities may also be subject to other risks different from those affecting
U.S. investments, including local political or economic developments,
expropriation or nationalization of assets, confiscatory taxation, and
imposition of withholding taxes on dividends or interest payments. If it becomes
necessary, it may be more difficult for the Fund to obtain or to enforce a
judgment against a foreign issuer than against a domestic issuer.
Securities traded on foreign markets are usually bought and sold in local
currencies, not in U.S. dollars. Therefore, the market value of foreign
securities acquired by the Fund can be affected -- favorably or unfavorably --
by changes in currency rates and exchange control regulations. Costs are
incurred in converting money from one currency to another. Foreign currency
exchange rates are determined by supply and demand on the foreign exchange
markets. Foreign exchange markets are affected by the international balance of
payments and other economic and financial conditions, government intervention,
speculation and other factors, all of which are outside the control of the Fund.
Generally, the Fund's foreign currency exchange transactions will be conducted
on a cash or "spot" basis at the spot rate for purchasing or selling currency in
the foreign currency exchange markets.
ADRs -- American Depository Receipts, or ADRs, are securities issued by American
banks. ADRs are receipts for the shares of foreign corporations that are held by
the bank issuing the receipt. An ADR entitles its holder to all dividends and
capital gains on the underlying foreign securities, less any fees paid to the
bank. Purchasing ADRs gives the Fund the ability to purchase the functional
equivalent of foreign securities without going to the foreign securities markets
to do so. ADRs are bought and sold in U.S. dollars, not foreign currencies. An
ADR that is "sponsored" means that the foreign corporation whose shares are
represented by the ADR is actively involved in the issuance of the ADR, and
generally provides material information about the corporation to the U.S.
market. An "unsponsored" ADR program means that the foreign corporation whose
shares are held by the bank is not obligated to disclose material information in
the United States, and, therefore, the market value of the ADR may not reflect
important facts known only to the foreign company. Since they mirror their
underlying foreign securities, ADRs generally have the same risks as investing
directly in the underlying foreign securities.
<PAGE>
EUROBONDS AND YANKEE BONDS -- Bonds issued by foreign branches of U.S. banks
("Eurobonds") and bonds issued by a U.S. branch of a foreign bank and sold in
the United States ("Yankee bonds"). These bonds are bought and sold in U.S.
dollars, but generally carry with them the same risks as investing in foreign
securities.
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
GENERAL. As discussed in the Prospectus, the adviser may use various types of
financial instruments, some of which are derivatives, to attempt to manage the
risk of the Fund's investments or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities). These financial instruments
include options, futures contracts (sometimes referred to as "futures"), forward
contracts, swaps, caps, floors and collars (collectively, "Financial
Instruments"). The policies in this section do not apply to other types of
instruments sometimes referred to as derivatives, such as indexed securities,
mortgage-backed and other asset-backed securities, and stripped interest and
principal of debt.
Hedging strategies can be broadly categorized as "short" hedges and "long" or
"anticipatory" hedges. A short hedge involves the use of a Financial Instrument
in order to partially or fully offset potential variations in the value of one
or more investments held in the Fund's portfolio. A long or anticipatory hedge
involves the use of a Financial Instrument in order to partially or fully offset
potential increases in the acquisition cost of one or more investments that the
Fund intends to acquire. In an anticipatory hedge transaction, the Fund does not
already own a corresponding security. Rather, it relates to a security or type
of security that the Fund intends to acquire. If the Fund does not eliminate the
hedge by purchasing the security as anticipated, the effect on the Fund's
portfolio is the same as if a long position were entered into. Financial
Instruments may also be used, in certain circumstances, for investment (e.g., as
a substitute for investing in securities).
Financial Instruments on individual securities generally are used to attempt to
hedge against price movements in one or more particular securities positions
that the Fund already owns or intends to acquire. Financial Instruments on
indexes, in contrast, generally are used to attempt to hedge all or a portion of
a portfolio against price movements of the securities within a market sector in
which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of the
Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Tax Consequences of Owning Shares of the Fund."
In addition to the instruments and strategies described below, the adviser may
use other similar or related techniques to the extent that they are consistent
with the Fund's investment objective and permitted by its investment limitations
and applicable regulatory authorities. The Fund's Prospectus or SAI will be
supplemented to the extent that new products or techniques become employed
involving materially different risks than those described below or in the
Prospectus.
SPECIAL RISKS. Financial Instruments and their use involve special
considerations and risks, certain of which are described below.
(1) Financial Instruments may increase the volatility of the Fund. If the
adviser employs a Financial Instrument that correlates imperfectly with the
Fund's investments, a loss could result, regardless of whether or not the intent
was to manage risk. In addition, these techniques could result in a loss if
there is not a liquid market to close out a position that the Fund has entered.
<PAGE>
(2) There might be imperfect correlation between price movements of a Financial
Instrument and price movement of the investment(s) being hedged. For example, if
the value of a Financial Instrument used in a short hedge increased by less than
the decline in value of the hedged investment(s), the hedge would not be fully
successful. This might be caused by certain kinds of trading activity that
distort the normal price relationship between the security being hedged and the
Financial Instrument. Similarly, the effectiveness of hedges using Financial
Instruments on indexes will depend on the degree of correlation between price
movements in the index and price movements in the securities being hedged.
The Fund is authorized to use options and futures contracts related to
securities with issuers, maturities or other characteristics different from the
securities in which it typically invests. This involves a risk that the options
or futures position will not track the performance of the Fund's portfolio
investments.
The direction of options and futures price movements can also diverge from the
direction of the movements of the prices of their underlying instruments, even
if the underlying instruments match the Fund's investments well. Options and
futures prices are affected by such factors as current and anticipated
short-term interest rates, changes in volatility of the underlying instrument,
and the time remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result from
differing levels of demand in the options and futures markets and the securities
markets, from structural differences in how options and futures and securities
are traded, or from imposition of daily price fluctuation limits or trading
halts. The Fund may take positions in options and futures contracts with a
greater or lesser face value than the securities it wishes to hedge or intends
to purchase in order to attempt to compensate for differences in volatility
between the contract and the securities, although this may not be successful in
all cases.
(3) If successful, the above-discussed hedging strategies can reduce risk of
loss by wholly or partially offsetting the negative effect of unfavorable price
movements of portfolio securities. However, such strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements. For example, if the Fund entered into a short hedge because the
adviser projected a decline in the price of a security in the Fund's portfolio,
and the price of that security increased instead, the gain from that increase
would likely be wholly or partially offset by a decline in the value of the
short position in the Financial Instrument. Moreover, if the price of the
Financial Instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss.
(4) The Fund's ability to close out a position in a Financial Instrument prior
to expiration or maturity depends on the degree of liquidity of the market or,
in the absence of such a market, the ability and willingness of the other party
to the transaction (the "counterparty") to enter into a transaction closing out
the position. Therefore, there is no assurance that any position can be closed
out at a time and price that is favorable to the Fund.
(5) As described below, the Fund is required to maintain assets as "cover,"
maintain segregated accounts or make margin payments when they take positions in
Financial Instruments involving obligations to third parties (i.e., Financial
Instruments other than purchased options). If the Fund is unable to close out
its positions in such Financial Instruments, it might be required to continue to
maintain such assets or segregated accounts or make such payments until the
position expired. These requirements might impair the Fund's ability to sell a
portfolio security or make an investment at a time when it would otherwise be
favorable to do so, or require that the Fund sell a portfolio security at a
disadvantageous time.
<PAGE>
COVER. Positions in Financial Instruments, other than purchased options, expose
the Fund to an obligation to another party. The Fund will not enter into any
such transaction unless it owns (1) an offsetting ("covered") position in
securities, currencies or other options, futures contracts or forward contracts,
or (2) cash and liquid assets with a value, marked-to-market daily, sufficient
to cover its obligations to the extent not covered as provided in (1) above. The
Fund will comply with SEC guidelines regarding cover for these instruments and
will, if the guidelines so require, designate cash or liquid assets as
segregated in the prescribed amount as determined daily.
Assets used as cover or held as segregated cannot be sold while the position in
the corresponding Financial Instrument is open unless they are replaced with
other appropriate assets. As a result, the commitment of a large portion of the
Fund's assets to cover or to hold as segregated could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
OPTIONS. the Fund may engage in certain strategies involving options to attempt
to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy the underlying investment at the agreed-upon exercise price during
the option period. Purchasers of options pay an amount, known as a premium, to
the option writer in exchange for the right under the option contract. See
"Options on Indexes" below with regard to cash settlement of option contracts on
index values.
The purchase of call options can serve as a hedge against a price rise of the
underlier and the purchase of put options can serve as a hedge against a price
decline of the underlier. Writing call options can serve as a limited short
hedge because declines in the value of the hedged investment would be offset to
the extent of the premium received for writing the option. However, if the
security or currency appreciates to a price higher than the exercise price of
the call option, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge because
increases in the value of the hedged investment would be offset to the extent of
the premium received for writing the option. However, if the security or
currency depreciates to a price lower than the exercise price of the put option,
it can be expected that the put option will be exercised and the Fund will be
obligated to purchase the security or currency at more than its market value.
The value of an option position will reflect, among other things, the current
market value of the underlying investment, the time remaining until expiration,
the relationship of the exercise price to the market price of the underlying
investment, the price volatility of the underlying investment and general market
and interest rate conditions. Options that expire unexercised have no value.
The Fund may effectively terminate its right or obligation under an option by
entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option, which is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option, which is known as a
closing sale transaction. Closing transactions permit the Fund to realize
profits or limit losses on an option position prior to its exercise or
expiration.
<PAGE>
RISKS OF OPTIONS ON SECURITIES. Options embody the possibility of large amounts
of exposure, which will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment. The Fund may
purchase or write both exchange-traded and OTC options. Exchange-traded options
in the United States are issued by a clearing organization affiliated with the
exchange on which the option is listed that, in effect, guarantees completion of
every exchange-traded option transaction. In contrast, OTC options are contracts
between the Fund and its counterparty (usually a securities dealer or a bank)
with no clearing organization guarantee. Thus, when the Fund purchases an OTC
option, it relies on the counterparty from whom it purchased the option to make
or take delivery of the underlying investment upon exercise of the option.
Failure by the counterparty to do so would result in the loss of any premium
paid by the Fund as well as the loss of any expected benefit from the
transaction.
The Fund's ability to establish and close out positions in options depends on
the existence of a liquid market. However, there can be no assurance that such a
market will exist at any particular time. Closing transactions can be made for
OTC options only by negotiating directly with the counterparty, or by a
transaction in the secondary market if any such market exists. There can be no
assurance that the Fund will in fact be able to close out an OTC option position
at a favorable price prior to expiration. In the event of insolvency of the
counterparty, the Fund might be unable to close out an OTC option position at
any time prior to the option's expiration. If the Fund is not able to enter into
an offsetting closing transaction on an option it has written, it will be
required to maintain the securities subject to the call or the liquid assets
underlying the put until a closing purchase transaction can be entered into or
the option expires. However, there can be no assurance that such a market will
exist at any particular time.
If the Fund were unable to effect a closing transaction for an option it had
purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
OPTIONS ON INDEXES. Puts and calls on indexes are similar to puts and calls on
securities or futures contracts except that all settlements are in cash and
changes in value depend on changes in the index in question. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When the Fund buys a put on
an index, it pays a premium and has the right, prior to the expiration date, to
require the seller of the put to deliver to the Fund an amount of cash equal to
the positive difference between the exercise price of the put and the closing
price of the index times the multiplier. When the Fund writes a put on an index,
it receives a premium and the purchaser of the put has the right, prior to the
expiration date, to require the Fund to deliver to it an amount of cash equal to
the positive difference between the exercise price of the put and the closing
level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when the Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. The Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing exactly
the same securities as underlie the index and, as a result, bears a risk that
the value of the securities held will vary from the value of the index.
<PAGE>
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, the Fund as the
call writer will not learn what it has been assigned until the next business
day. The time lag between exercise and notice of assignment poses no risk for
the writer of a covered call on a specific underlying security, such as common
stock, because in that case the writer's obligation is to deliver the underlying
security, not to pay its value as of a moment in the past. In contrast, the
writer of an index call will be required to pay cash in an amount based on the
difference between the closing index value on the exercise date and the exercise
price. By the time the Fund learns what it has been assigned, the index may have
declined. This "timing risk" is an inherent limitation on the ability of index
call writers to cover their risk exposure.
If the Fund has purchased an index option and exercises it before the closing
index value for that day is available, it runs the risk that the level of the
underlying index may subsequently change. If such a change causes the exercised
option to fall out-of-the-money, the Fund nevertheless will be required to pay
the difference between the closing index value and the exercise price of the
option (times the applicable multiplier) to the assigned writer.
OTC OPTIONS. Unlike exchange-traded options, which are standardized with respect
to the underlying instrument, expiration date, contract size, and strike price,
the terms of OTC options (options not traded on exchanges) generally are
established through negotiation with the other party to the option contract.
While this type of arrangement allows the Fund great flexibility to tailor the
option to its needs, OTC options generally involve greater risk than
exchange-traded options, which are guaranteed by the clearing organization of
the exchange where they are traded.
Generally, OTC foreign currency options used by the Fund are European-style
options. This means that the option is only exercisable immediately prior to its
expiration. This is in contrast to American-style options, which are exercisable
at any time prior to the expiration date of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. When the Fund purchases or
sells a futures contract, it incurs an obligation respectively to take or make
delivery of a specified amount of the obligation underlying the contract at a
specified time and price. When the Fund writes an option on a futures contract,
it becomes obligated to assume a position in the futures contract at a specified
exercise price at any time during the term of the option. If the Fund writes a
call, on exercise it assumes a short futures position. If it writes a put, on
exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or an
anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the "duration" (a measure
of anticipated sensitivity to changes in interest rates, which is sometimes
related to the weighted average maturity of a portfolio) and associated interest
rate risk of the Fund's fixed-income portfolio. If the adviser wishes to shorten
the duration of the Fund's fixed-income portfolio (i.e., reduce anticipated
sensitivity), the Fund may sell an appropriate debt futures contract or a call
option thereon, or purchase a put option on that futures contract. If the
adviser wishes to lengthen the duration of the Fund's fixed-income portfolio
(i.e., increase anticipated sensitivity), the Fund may buy an appropriate debt
futures contract or a call option thereon, or sell a put option thereon.
<PAGE>
At the inception of a futures contract, the Fund is required to deposit "initial
margin" in an amount generally equal to 10% or less of the contract value.
Initial margin must also be deposited when writing a call or put option on a
futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required to
increase the level of initial margin deposits. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can enter
into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. However, there can be no assurance that a liquid
market will exist for a particular contract at a particular time. In such event,
it may not be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits on the
amount that the price of a futures contract or an option on a futures contract
can vary from the previous day's settlement price; once that limit is reached,
no trades may be made that day at a price beyond the limit. Daily price limits
do not limit potential losses because prices could move to the daily limit for
several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a
futures contract position due to the absence of a liquid market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to continue to
maintain the position being hedged by the futures contract or option or to
continue to maintain cash or securities in a segregated account.
To the extent that the Fund enters into futures contracts, options on futures
contracts and options on foreign currencies traded on a CFTC-regulated exchange,
in each case that is not for bona fide hedging purposes (as defined by the
CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
RISKS OF FUTURES CONTRACTS AND OPTIONS THEREON. The ordinary spreads at a given
time between prices in the cash and futures markets (including the options on
futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, 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 the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Due to the possibility of distortion, a hedge may not be successful.
<PAGE>
Although stock index futures contracts do not require physical delivery, under
extraordinary market conditions, liquidity of such futures contracts also could
be reduced. Additionally, the adviser may be incorrect in its expectations as to
the extent of various interest rates, currency exchange rates or stock market
movements or the time span within which the movements take place.
INDEX FUTURES. The risk of imperfect correlation between movements in the price
of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of the Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. Assuming
the price of the securities being hedged has moved in an unfavorable direction,
as anticipated when the hedge was put into place, the Fund would be in a better
position than if it had not hedged at all, but not as good as if the price of
the index futures moved in full proportion to that of the hedged securities.
However, if the price of the securities being hedged has moved in a favorable
direction, this advantage will be partially offset by movement of the price of
the futures contract. If the price of the futures contract moves more than the
price of the securities, the Fund will experience either a loss or a gain on the
futures contract that will not be completely offset by movements in the price of
the securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible that
the market may decline instead. If the Fund then decides not to invest in the
securities at that time because of concern as to possible further market decline
or for other reasons, it will realize a loss on the futures contract that is not
offset by a reduction in the price of the securities it had anticipated
purchasing.
FOREIGN CURRENCY HEDGING STRATEGIES -- SPECIAL CONSIDERATIONS. The Fund may use
options and futures contracts on foreign currencies, as mentioned previously,
and forward currency contracts, as described below, to attempt to hedge against
movements in the values of the foreign currencies in which the Fund's securities
are denominated or, in certain circumstances, for investment (e.g., as a
substitute for investing in securities denominated in foreign currency).
Currency hedges can protect against price movements in a security that the Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated.
The Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the value of which the adviser
believes will have a high degree of positive correlation to the value of the
currency being hedged. The risk that movements in the price of the Financial
Instrument will not correlate perfectly with movements in the price of the
currency subject to the hedging transaction may be increased when this strategy
is used.
The value of Financial Instruments on foreign currencies depends on the value of
the underlying currency relative to the U.S. dollar. Because foreign currency
transactions occurring in the interbank market might involve substantially
larger amounts than those involved in the use of such Financial Instruments, the
Fund could be disadvantaged by having to deal in the odd-lot market (generally
consisting of transactions of less than $1 million) for the underlying foreign
currencies at prices that are less favorable than for round lots.
<PAGE>
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirement that quotations available through dealers or other
market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
FORWARD CURRENCY CONTRACTS AND FOREIGN CURRENCY DEPOSITS. The Fund may enter
into forward currency contracts to purchase or sell foreign currencies for a
fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges. For example, the
Fund may purchase a forward currency contract to lock in the U.S. dollar price
of a security denominated in a foreign currency that the Fund intends to
acquire. Forward currency contracts may also serve as short hedges. For example,
the Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or a dividend
or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. Such a hedge
would tend to offset both positive and negative currency fluctuations, but would
not offset changes in security values caused by other factors. The Fund could
also hedge the position by entering into a forward currency contract to sell
another currency expected to perform similarly to the currency in which the
Fund's existing investments are denominated. This type of hedge could offer
advantages in terms of cost, yield or efficiency, but may not hedge currency
exposure as effectively as a simple hedge against U.S. dollars. This type of
hedge may result in losses if the currency used to hedge does not perform
similarly to the currency in which the hedged securities are denominated.
The Fund may also use forward currency contracts in one currency or a basket of
currencies to attempt to hedge against fluctuations in the value of securities
denominated in a different currency if the adviser anticipates that there will
be a positive correlation between the two currencies.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of some or all of any expected benefit of the transaction.
<PAGE>
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
segregate cash or liquid assets.
The precise matching of forward currency contract amounts and the value of the
securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, the Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change the Fund's investment
exposure to changes in currency exchange rates and could result in losses to the
Fund if currencies do not perform as the adviser anticipates. There is no
assurance that the adviser's use of forward currency contracts will be
advantageous to the Fund or that it will hedge at an appropriate time.
The Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
COMBINED POSITIONS. The Fund may purchase and write options or futures in
combination with each other, or in combination with futures or forward currency
contracts, to manage the risk and return characteristics of its overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs.
TURNOVER. The Fund's options and futures activities may affect their turnover
rates and brokerage commission payments. The exercise of calls or puts written
by the Fund, and the sale or purchase of futures contracts, may cause it to sell
or purchase related investments, thus increasing its turnover rate. Once the
Fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, increasing turnover. Although such exercise is within the
Fund's control, holding a protective put might cause it to sell the related
investments for reasons that would not exist in the absence of the put. The Fund
will pay a brokerage commission each time it buys or sells a put or call or
purchases or sells a futures contract. Such commissions may be higher than those
that would apply to direct purchases or sales.
<PAGE>
SWAPS, CAPS, FLOORS AND COLLARS. The Fund is authorized to enter into
swaps,caps, floors and collars. Swaps involve the exchange by one party with
another party of their respective commitments to pay or receive cash flows,
e.g., an exchange of floating rate payments for fixed rate payments. The
purchase of a cap or a floor entitles the purchaser, to the extent that a
specified index exceeds in the case of a cap, or falls below in the case of a
floor, a predetermined value, to receive payments on a notional principal amount
from the party selling such instrument. A collar combines elements of buying a
cap and selling a floor.
ILLIQUID SECURITIES -- Securities which do not trade on stock exchanges or in
the over the counter market, or have restrictions on when and how they may be
sold, are generally considered to be "illiquid." An illiquid security is one
that the Fund may have difficulty -- or may even be legally precluded from --
selling at any particular time. The Fund may invest in illiquid securities,
including restricted securities and other investments which are not readily
marketable. The Fund will not purchase any such security if the purchase would
cause the Fund to invest more than 15% of its net assets, measured at the time
of purchase, in illiquid securities. Repurchase agreements maturing in more than
seven days are considered illiquid for purposes of this restriction.
The principal risk of investing in illiquid securities is that the Fund may be
unable to dispose of them at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, the Fund might have to bear
the expense and incur the delays associated with registering the security with
the SEC, and otherwise obtaining listing on a securities exchange or in the over
the counter market.
INVESTMENT COMPANY SECURITIES -- To manage its daily cash positions, the Fund
may invest in securities issued by other investment companies, including
investment companies advised by INVESCO and its affiliates, that invest in
short-term debt securities and seek to maintain a net asset value of $1.00 per
share ("money market funds"). The Fund also may invest in Standard & Poor's
Depository Receipts ("SPDRs") and shares of other investment companies. SPDRs
are investment companies whose portfolios mirror the compositions of specific
S&P indices, such as the S&P 500 and the S&P 400. SPDRs are traded on the
American Stock Exchange. SPDR holders such as the Fund are paid a "Dividend
Equivalent Amount" that corresponds to the amount of cash dividends accruing to
the securities held by the SPDR Trust, net of certain fees and expenses. The
Investment Company Act of 1940, as amended (the "1940 Act"), limits investments
in securities of other investment companies, such as the SPDR Trust. These
limitations include, among others, that, subject to certain exceptions, no more
than 10% of the Fund's total assets may be invested in securities of other
investment companies and no more than 5% of its total assets may be invested in
the securities of any one investment company. As a shareholder of another
investment company, the Fund would bear its pro rata portion of the other
investment company's expenses, including advisory fees, in addition to the
expenses the Fund bears directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS - To the extent consistent with its investment
objectives and policies, the Fund may invest in securities issued by real estate
investment trusts ("REITs"). Such investments will not exceed 25% of the total
assets of the Fund.
REITs are trusts which sell equity or debt securities to investors and use the
proceeds to invest in real estate or interests therein. A REIT may focus on
particular projects, such as apartment complexes, or geographic regions, such as
the Southeastern United States, or both.
<PAGE>
To the extent that the Fund has the ability to invest in REITs, the Fund could
conceivably own real estate directly as a result of a default on the securities
it owns. The Fund, therefore, may be subject to certain risks associated with
the direct ownership of real estate including difficulties in valuing and
trading real estate, declines in the value of real estate, risks related to
general and local economic conditions, adverse changes in the climate for real
estate, environmental liability risks, increases in property taxes and operating
expenses, changes in zoning laws, casualty or condemnation losses, limitations
on rents, changes in neighborhood values, the appeal of properties to tenants,
and increases in interest rates.
In addition to the risks described above, REITs may be affected by any changes
in the value of the underlying property in their portfolios. REITs are dependent
upon management skill, are not diversified, and are therefore subject to the
risk of financing single or a limited number of projects. REITs are also subject
to heavy cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to maintain an exemption from the 1940 Act. Changes in
interest rates may also affect the value of debt securities held by the Fund. By
investing in REITs indirectly through the Fund, a shareholder will bear not only
his/her proportionate share of the expenses of the Fund, but also, indirectly,
similar expenses of the REITs.
REPURCHASE AGREEMENTS -- The Fund may enter into repurchase agreements, or
REPOs, on debt securities that the Fund is allowed to hold in its portfolio.
This is a way to invest money for short periods. A REPO is an agreement under
which the Fund acquires a debt security and then resells it to the seller at an
agreed-upon price and date (normally, the next business day). The repurchase
price represents an interest rate effective for the short period the debt
security is held by the Fund, and is unrelated to the interest rate on the
underlying debt security. A repurchase agreement is often considered as a loan
collateralized by securities. The collateral securities acquired by the Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement. The collateral securities are held by the
Fund's custodian bank until the repurchase agreement is completed.
The Fund may enter into repurchase agreements with commercial banks, registered
broker-dealers or registered government securities dealers that are creditworthy
under standards established by the Company's board of directors. The Company's
board of directors has established standards that INVESCO must use to review the
creditworthiness of any bank, broker or dealer that is party to a REPO. REPOs
maturing in more than seven days are considered illiquid securities. The Fund
will not enter into repurchase agreements maturing in more than seven days if as
a result more than 15% of the Fund's net assets would be invested in these
repurchase agreements and other illiquid securities.
As noted above, the Fund uses REPOs as a means of investing cash for short
periods of time. Although REPOs are considered to be highly liquid and
comparatively low-risk, the use of REPOs does involve some 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 on the sale of the collateral security. If the other party
to the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by the Fund not within the control
of the Fund and therefore the realization by the Fund on such collateral may
automatically be stayed. 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.
<PAGE>
RULE 144A SECURITIES -- Securities that can be resold to institutional investors
pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933
Act"). In recent years, a large institutional market has developed for many Rule
144A Securities. Institutional investors generally cannot sell these securities
to the general public but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold to
other institutional investors, 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 does not necessarily
mean that a Rule 144A Security is illiquid. Institutional markets for Rule 144A
Securities may provide both reliable market values for Rule 144A Securities and
enable the Fund to sell a Rule 144A investment when appropriate. For this
reason, the Company's board of directors has concluded that if a sufficient
institutional trading market exists for a given Rule 144A security, it may be
considered "liquid," and not subject to the Fund's limitations on investment in
restricted securities. The Company's board of directors has given INVESCO the
day-to-day authority to determine the liquidity of Rule 144A Securities,
according to guidelines approved by the board. The principal risk of investing
in Rule 144A Securities is that there may be an insufficient number of qualified
institutional buyers interested in purchasing a Rule 144A Security held by the
Fund, and the Fund might be unable to dispose of such security promptly or at
reasonable prices.
SECURITIES LENDING -- The Fund may lend its portfolio securities. The advantage
of lending portfolio securities is that the Fund continues to have the benefits
(and risks) of ownership of the loaned securities, while at the same time
receiving interest from the borrower of the securities. The primary risk in
lending portfolio securities is that a borrower may fail to return a portfolio
security.
SHORT SALES -- The Fund may sell a security short and borrow the same security
from a broker or other institution to complete the sale. The Fund will lose
money on a short sale transaction if the price of the borrowed security
increases between the date of the short sale and the date on which the Fund
closes the short position by purchasing the security; conversely, the Fund may
realize a gain if the price of the borrowed security declines between those
dates.
There is no guarantee that the Fund will be able to close out a short position
at any particular time or at an acceptable price. During the time that the Fund
is short the security, it is subject to the risk that the lender of the security
will terminate the loan at a time when the Fund is unable to borrow the same
security from another lender. If that occurs, the Fund may be "bought in" at the
price required to purchase the security needed to close out the short position.
In short sale transactions, the Fund's gain is limited to the price at which it
sold the security short; its loss is limited only by the maximum price it must
pay to acquire the security less the price at which the security was sold. In
theory, losses from short sales may be unlimited. Until a security that is sold
short is acquired by the Fund, the Fund must pay the lender any dividends that
accrue during the loan period. In order to borrow the security, the Fund usually
is required to pay compensation to the lender. Short sales also cause the Fund
to incur brokerage fees and other transaction costs. Therefore, the amount of
any gain the Fund may receive from a short sale transaction is decreased - and
the amount of any loss increased - by the amount of compensation to the lender,
dividends and expenses the Fund may be required to pay.
Until the Fund replaces a borrowed security, it must segregate liquid securities
or other collateral with a broker or other custodian in an amount equal to the
current market value of the security sold short. The Fund expects to receive
interest on the collateral it deposits. The use of short sales may result in the
Fund realizing more short-term capital gains than it would if the Fund did not
engage in short sales.
<PAGE>
SOVEREIGN DEBT -- In certain emerging countries, the central government and its
agencies are the largest debtors to local and foreign banks and others.
Sovereign debt involves the risk that the government, as a result of political
considerations or cash flow difficulties, may fail to make scheduled payments of
interest or principal and may require holders to participate in rescheduling of
payments or even to make additional loans. If an emerging country government
defaults on its sovereign debt, there is likely to be no legal proceeding under
which the debt may be ordered repaid, in whole or in part. The ability or
willingness of a foreign sovereign debtor to make payments of principal and
interest in a timely manner may be influenced by, among other factors, its cash
flow, the magnitude of its foreign reserves, the availability of foreign
exchanges on the payment date, the debt service burden to the economy as a
whole, the debtor's then current relationship with the International Monetary
Fund and its then current political constraints. Some of the emerging countries
issuing such instruments have experienced high rates of inflation in recent
years and have extensive internal debt. Among other effects, high inflation and
internal debt service requirements may adversely affect the cost and
availability of future domestic sovereign borrowing to finance government
programs, and may have other adverse social, political and economic
consequences, including effects on the willingness of such countries to service
their sovereign debt. An emerging country government's willingness and ability
to make timely payments on its sovereign debt also are likely to be heavily
affected by the country's balance of trade and its access to trade and other
international credits. If a country's exports are concentrated in a few
commodities, such country would be more significantly exposed to a decline in
the international prices of one or more of such commodities. A rise in
protectionism on the part of its trading partners, or unwillingness by such
partners to make payment for goods in hard currency, could also adversely affect
the country's ability to export its products and repay its debts. Sovereign
debtors may also be dependent on expected receipts from such agencies and others
abroad to reduce principal and interest arrearages on their debt. However,
failure by the sovereign debtor or other entity to implement economic reforms
negotiated with multilateral agencies or others, to achieve specified levels of
economic performance, or to make other debt payments when due, may cause third
parties to terminate their commitments to provide funds to the sovereign debtor,
which may further impair such debtor's willingness or ability to service its
debts.
The Fund may invest in debt securities issued under the "Brady Plan" in
connection with restructurings in emerging country debt markets or earlier
loans. These securities, often referred to as "Brady Bonds," are, in some cases,
denominated in U.S. dollars and collateralized as to principal by U.S. Treasury
zero coupon bonds having the same maturity. At least one year's interest
payments, on a rolling basis, are collateralized by cash or other investments.
Brady Bonds are actively traded on an over-the-counter basis in the secondary
market for emerging country debt securities. Brady Bonds are lower-rated bonds
and highly volatile.
SPECIAL SITUATIONS - The Fund will invest in "special situations." A special
situation arises when, in the opinion of the Fund's management, the securities
of a particular company will, within a reasonably estimable period of time, be
accorded market recognition at an appreciated value solely by reason of a
development applicable to that company, and regardless of general business
conditions or movements of the market as a whole. Developments creating special
situations might include, among others: liquidations, reorganizations,
recapitalizations, mergers, material litigation, technical breakthroughs, and
new management or management policies. Although large and well-known companies
may be involved, special situations more often involve comparatively small or
unseasoned companies. Investments in unseasoned companies and special situations
often involve much greater risk than is inherent in ordinary investment
securities.
<PAGE>
UNSEASONED ISSUERS - The Fund may purchase securities in unseasoned issuers.
Securities in such issuers may provide opportunities for long term capital
growth. Greater risks are associated with investments in securities of
unseasoned issuers than in the securities of more established companies because
unseasoned issuers have only a brief operating history and may have more limited
markets and financial resources. As a result, securities of unseasoned issuers
tend to be more volatile than securities of more established companies.
U.S. GOVERNMENT SECURITIES -- The Fund may, from time to time, purchase debt
securities issued by the U.S. government. These securities include Treasury
bills, notes, and bonds. Treasury bills have a maturity of one year or less,
Treasury notes generally have a maturity of one to ten years, and Treasury bonds
generally have maturities of more than ten years.
U.S. government debt securities also include securities issued or guaranteed by
agencies or instrumentalities of the U.S. government. Some obligations of U.S.
government agencies, which are established under the authority of an act of
Congress, such as Government National Mortgage Association ("GNMA")
Participation Certificates, are supported by the full faith and credit of the
U.S. Treasury. GNMA Certificates are mortgage-backed securities representing
part ownership of a pool of mortgage loans. These loans -- issued by lenders
such as mortgage bankers, commercial banks and savings and loan associations --
are either insured by the Federal Housing Administration or guaranteed by the
Veterans Administration. A "pool" or group of such mortgages is assembled and,
after being approved by GNMA, is offered to investors through securities
dealers. Once approved by GNMA, the timely payment of interest and principal on
each mortgage is guaranteed by GNMA and backed by the full faith and credit of
the U.S. government. The market value of GNMA Certificates is not guaranteed.
GNMA Certificates are different from bonds because principal is paid back
monthly by the borrower over the term of the loan rather than returned in a lump
sum at maturity, as is the case with a bond. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the GNMA
Certificate.
Other United States government debt securities, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury. Others, such as bonds issued by Fannie Mae, a federally chartered
private corporation, are supported only by the credit of the corporation. In the
case of securities not backed by the full faith and credit of the United States,
the Fund must look principally to the agency issuing or guaranteeing the
obligation in the event the agency or instrumentality does not meet its
commitments. The Fund will invest in securities of such instrumentalities only
when INVESCO is satisfied that the credit risk with respect to any such
instrumentality is comparatively minimal.
WHEN-ISSUED/DELAYED DELIVERY -- The Fund normally buys and sells securities on
an ordinary settlement basis. That means that the buy or sell order is sent, and
the Fund actually takes delivery or gives up physical possession of the security
on the "settlement date," which is three business days later. However, the Fund
also may purchase and sell securities on a when-issued or delayed delivery
basis.
When-issued or delayed delivery transactions occur when securities are purchased
or sold by the Fund and payment and delivery take place at an agreed-upon time
in the future. The Fund may engage in this practice in an effort to secure an
advantageous price and yield. However, the yield on a comparable security
available when delivery actually takes place may vary from the yield on the
security at the time the when-issued or delayed delivery transaction was entered
into. When the Fund engages in when-issued and delayed delivery transactions, it
relies on the seller or buyer to consummate the sale at the future date. If the
seller or buyer fails to act as promised, that failure may result in the Fund
<PAGE>
missing the opportunity of obtaining a price or yield considered to be
advantageous. No payment or delivery is made by the Fund until it receives
delivery or payment from the other party to the transaction. However,
fluctuation in the value of the security from the time of commitment until
delivery could adversely affect the Fund.
INVESTMENT RESTRICTIONS
The Fund operates under certain investment restrictions. For purposes of the
following 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 without prior
approval of a majority of the outstanding voting securities of the Fund, as
defined in the 1940 Act. The Fund may not:
1. with respect to 50% of the Fund's total assets, purchase the securities
of any issuer (other than securities issued or guaranteed by the U.S.
government or any of its agencies or instrumentalities, or securities of
other investment companies) if, as a result, (i) more than 5% of the
Fund's total assets would be invested in the securities of that issuer, or
(ii) the Fund would hold more than 10% of the outstanding voting
securities of that issuer;
2. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the 1933 Act in connection with the
disposition of the Fund's portfolio securities;
3. borrow money, except that the Fund may borrow money in an amount not
exceeding 33 1/3% of its total assets (including the amount borrowed) less
liabilities (other than borrowings);
4. issue senior securities, except as permitted under the 1940 Act;
5. lend any security or make any loan if, as a result, more than 33 1/3% of
its total assets would be lent to other parties, but this limitation does
not apply to the purchase of debt securities or to repurchase agreements;
6. purchase or sell physical commodities; however, this policy shall not
prevent the Fund from purchasing and selling foreign currency, futures
contracts, options, forward contracts, swaps, caps, floors, collars and
other financial instruments; or
7. purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent the Fund from
investing in securities or other instruments backed by real estate or
securities of companies engaged in the real estate business).
8. The Fund may, notwithstanding any other fundamental investment policy or
limitation, invest all of its assets in the securities of a single open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof, with substantially the same fundamental investment
objective, policies and limitations as the Fund.
<PAGE>
In addition, the Fund has the following non-fundamental policies, which may be
changed without shareholder approval:
A. The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the prices
at which they are valued.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO or an affiliate or a
successor thereof for temporary or emergency purposes and for leveraging
or investing, or by engaging in reverse repurchase agreements with any
party (reverse repurchase agreements will be treated as borrowings for
purposes of fundamental limitation (3))
C. The Fund may invest in securities issued by other investment companies
to the extent that such investments are consistent with the Fund's
investment objective and policies and permissible under the 1940 Act.
MANAGEMENT OF THE FUND
THE INVESTMENT ADVISER
INVESCO, located at 7800 East Union Avenue, Denver, Colorado, is the Company's
investment adviser. INVESCO was founded in 1932 and serves as an investment
adviser to:
INVESCO Advantage Series Funds, Inc.
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
As of May 31, 2000, INVESCO managed 46 mutual funds having combined assets of
over $38 billion, on behalf of more than 1,120,579 shareholders.
INVESCO is an indirect wholly owned subsidiary of AMVESCAP PLC, a publicly
traded holding company. Through its subsidiaries, AMVESCAP PLC engages in the
business of investment management on an international basis. AMVESCAP PLC is one
of the largest independent investment management businesses in the world, with
approximately $392 billion in assets under management on March 31, 2000.
AMVESCAP PLC's North American subsidiaries include:
INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta, Georgia,
develops and provides domestic and international defined contribution
retirement plan services to plan sponsors, institutional retirement plan
sponsors, institutional plan providers and foreign governments.
INVESCO Retirement Plan Services ("IRPS"), 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
retirement plan products and services.
Institutional Trust Company, doing business as INVESCO Trust Company
("ITC"), Denver, Colorado, a division of IRBS, provides retirement
account custodian and/or trust services for individual retirement
accounts ("IRAs") and other retirement plan accounts. This includes
services such as recordkeeping, tax reporting and compliance. ITC acts
as trustee or custodian to these plans. ITC accepts contributions and
provides complete transfer agency functions: correspondence,
sub-accounting, telephone communications and processing of
distributions.
<PAGE>
INVESCO, Inc., Atlanta, Georgia, manages individualized investment
portfolios of equity, fixed-income and real estate securities for
institutional clients, including mutual funds and collective investment
entities. INVESCO, Inc. includes the following Divisions:
INVESCO Capital Management Division, Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of
discretionary employee benefit plans for corporations and state and
local governments, and endowment funds.
INVESCO Management & Research Division, Boston, Massachusetts,
primarily manages pension and endowment accounts.
PRIMCO Capital Management Division, Louisville, Kentucky, specializes
in managing stable return investments, principally on behalf of
Section 401(k) retirement plans.
INVESCO Realty Advisors Division, Dallas, Texas, is responsible for
providing advisory services in the U.S. real estate markets for
AMVESCAP PLC's clients worldwide. Clients include corporate pension
plans and public pension funds as well as endowment and foundation
accounts.
INVESCO (NY) Division, 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 further serves as
investment adviser to several closed-end investment companies, and as
sub-adviser with respect to certain commingled employee benefit
trusts.
AIM Advisors, Inc., Houston, Texas, provides investment advisory and
administrative services for retail and institutional mutual funds
AIM Capital Management, Inc., 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 open-end registered investment company that is offered
to separate accounts of variable insurance companies.
AIM Distributors, Inc. and Fund Management Company, 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, EC2M4YR, England.
THE INVESTMENT ADVISORY AGREEMENT
INVESCO serves as investment adviser to the Fund under a Master Advisory
Agreement dated August 23, 2000 (the "Agreement") with the Company.
The Agreement requires that INVESCO manage the investment portfolio of the Fund
in a way that conforms with the Fund's investment policies. INVESCO may directly
manage the Fund itself, or may hire a sub-adviser, which may be an affiliate of
INVESCO, to do so. Specifically, INVESCO is responsible for:
o managing the investment and reinvestment of all the assets of the
Fund, and executing all purchases and sales of portfolio securities;
<PAGE>
o maintaining a continuous investment program for the Fund, consistent
with (i) the Fund's investment policies as set forth in the Company's
Articles of Incorporation, Bylaws and Registration Statement, as from
time to time amended, under the 1940 Act, and in any prospectus and/or
statement of additional information of the Fund, as from time to time
amended and in use under the 1933 Act, and (ii) the Company's status
as a regulated investment company under the Internal Revenue Code of
1986, as amended;
o determining what securities are to be purchased or sold for the Fund,
unless otherwise directed by the directors of the Company, and
executing transactions accordingly;
o providing the Fund the benefit of the investment analysis and
research, the reviews of current economic conditions and trends, and
the consideration of a long-range investment policy now or hereafter
generally available to the investment advisory customers of the
adviser or any sub-adviser;
o determining what portion of the Fund's assets should be invested in
the various types of securities authorized for purchase by the Fund;
and
o making recommendations as to the manner in which voting rights, rights
to consent to Fund action and any other rights pertaining to the
Fund's portfolio securities shall be exercised.
INVESCO also performs all of the following services for the Fund:
o administrative;
o internal accounting (including computation of net asset value);
o clerical and statistical;
o secretarial;
o all other services necessary or incidental to the administration of
the affairs of the Fund;
o supplying the Company with officers, clerical staff and other
employees;
o furnishing office space, facilities, equipment, and supplies;
providing personnel and facilities required to respond to inquiries
related to shareholder accounts;
o 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 or in conjunction with
independent attorneys and accountants (including prospectus(es),
statements of additional information, proxy statements, shareholder
reports, tax returns, reports to the SEC, and other corporate
documents of the Fund);
o supplying basic telephone service and other utilities; and
o preparing and maintaining certain of the books and records required to
be prepared and maintained by the Fund under the 1940 Act.
<PAGE>
Expenses not assumed by INVESCO are borne by the Fund. For the advisory
services it provides to the Fund, INVESCO is entitled to receive a base
management fee calculated at the annual rate of 1.50% of the Fund's daily net
assets (the "Base Fee"). This Base Fee will be adjusted, on a monthly basis (i)
upward at the rate of 0.20%, on a pro rata basis, for each percentage point the
investment performance of the Class A shares of the Fund exceeds the sum of
2.00% of the investment record of the Russell 3000 Index (the "Index"), or (ii)
downward at the rate of 0.20%, on a pro rata basis, for each percentage point
the investment record of the Index less 2.00% exceeds the investment performance
of the Class A shares of the Fund (the "Fee Adjustment"). The maximum or minimum
adjustment, if any, will be 1.00% annually. Therefore, the maximum annual fee
payable to INVESCO will be 2.50% of average daily net assets and the minimum
annual fee will be 0.50%. During the first twelve months of operation, the
management fee will be charged at the base fee of 1.50% with no performance
adjustment.
In determining the Fee Adjustment, if any, applicable during any month, INVESCO
will compare the investment performance of the Class A shares of the Fund for
the twelve-month period ending on the last day of the prior month (the
"Performance Period") to the investment record of the Index during the
Performance Period. The investment performance of the Fund will be determined by
adding together (i) the change in the net asset value of the Class A shares
during the Performance Period, (ii) the value of cash distributions made by the
Fund to holders of Class A shares to the end of the Performance Period, and
(iii) the value of capital gains per share, if any, paid or payable on
undistributed realized long-term capital gains accumulated to the end of the
Performance Period, and will be expressed as a percentage of its net asset value
per share at the beginning of the Performance Period. The investment record of
the Index will be determined by adding together (i) the change in the level of
the Index during the Performance Period and (ii) the value, computed
consistently with the Index, of cash distributions made by companies whose
securities comprise the Index accumulated to the end of the Performance Period,
and will be expressed as a percentage of the Index at the beginning of such
Period.
After it determines any Fee Adjustment, INVESCO will determine the dollar amount
of additional fees or fee reductions to be accrued for each day of a month by
multiplying the Fee Adjustment by the average daily net assets of the Class A
shares of the Fund during the Performance Period and dividing that number by the
number of days in the Performance Period. The management fee, as adjusted, is
accrued daily and paid monthly.
For the first twelve months of the Fund's operations, the management fee will be
charged at the Base Fee of 1.50%, with no performance adjustment. Thereafter,
the Base Fee will be adjusted as described above.
If the Fund outperforms the Russell 3000 Index by more than 2%, the Base Fee is
adjusted as follows:
%Performance over
Russell 3000 Index Advisory Fee
------------------ ------------
2% 1.50% (no increase in Base Fee)
3% 1.70%
4% 1.90%
5% 2.10%
6% 2.30%
7% 2.50%
<PAGE>
%Performance under
Russell 3000 Index Advisory Fee
------------------ ------------
2% 1.50% (no decrease in Base Fee)
3% 1.30%
4% 1.10%
5% 0.90%
6% 0.70%
7% 0.50%
The Russell 3000 Index consists of 3,000 stocks, primarily issued by U.S.
companies, that includes issues of all sizes, from large to small capitalization
companies. The Index is not managed; therefore, its performance does not reflect
management fees and other expenses associated with the Fund.
If the directors determine at some future date that another securities index is
a better representative of the composition of the Fund than is the Russell 3000
Index, the directors may change the securities index used to compute the Fee
Adjustment. If the directors do so, the new securities index (the "New Index")
will be applied prospectively to determine the amount of the Fee Adjustment. The
Index will continue to be used to determine the amount of the Fee Adjustment for
that part of the Performance Period prior to the effective date of the New
Index. A change in the Index will be submitted to shareholders for their
approval unless the SEC determines that shareholder approval is not required.
The amount the Fund will pay to INVESCO in performance fees is not susceptible
to estimation, since it depends upon the future performance of the Fund and the
Index.
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 August 23, 2000 with the Company.
The Administrative Services Agreement requires INVESCO to provide the following
services to the Fund:
o such sub-accounting and recordkeeping services and functions as are
reasonably necessary for the operation of the Fund; and
o 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 Services
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 0.045% per year of the average net assets of the
Fund.
TRANSFER AGENCY AGREEMENT
INVESCO also performs transfer agent, dividend disbursing agent and registrar
services for the Fund pursuant to a Transfer Agency Agreement dated August 23,
2000 with the Company.
The Transfer Agency Agreement provides that the Fund pays INVESCO an annual fee
of $22.50 per shareholder account, or, where applicable, per participant in an
omnibus account. This fee is paid monthly at the rate of 1/12 of the annual fee
and is based upon the actual number of shareholder accounts and omnibus account
participants in the Fund at any time during each month.
<PAGE>
DIRECTORS AND OFFICERS OF THE COMPANY
The overall direction and supervision of the Company come from the board of
directors. The board of directors is responsible for making sure that the Funds'
general investment policies and programs are carried out and that the Fund is
properly administered.
The board of directors has an audit committee comprised of four of the directors
who are not affiliated with INVESCO (the "Independent Directors"). The committee
meets quarterly 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 to facilitate better
understanding of management and operations of the Company, and 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 brokerage committee. The committee meets periodically to
review soft dollar and other brokerage transactions by the Fund, and to review
policies and procedures of INVESCO with respect to 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 Fund. It monitors derivatives usage
by the Fund and the procedures utilized by INVESCO to ensure that the use of
such instruments follows the policies on such instruments adopted by the
Company's board of directors. It reports on these matters to the Company's board
of directors.
The Company has a legal committee and an insurance committee. These committees
meet when necessary to review legal and insurance matters of importance to the
directors of the Company.
The Company has a nominating committee. The committee meets periodically to
review and nominate candidates for positions as independent directors to fill
vacancies on the board of directors.
The officers of the Company, all of whom are officers and employees of INVESCO,
are responsible for the day-to-day administration of the Company and the Fund.
The officers of the Company receive no direct compensation from the Company or
the Fund for their services as officers. INVESCO 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 of the officers and directors of the Company hold comparable positions with
the following funds, which, with the Company, are collectively referred to as
the "INVESCO Funds":
INVESCO Advantage Series Funds, Inc.
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
<PAGE>
The table below provides information about each of the Company's directors and
officers. Their affiliations represent their principal occupations.
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Mark H. Williamson (2)(3) President, Chief President, Chief
7800 E. Union Avenue Executive Officer Executive Officer and
Denver, Colorado and Chairman of the Chairman of the Board
Age: 48 Board of INVESCO Funds
Group, Inc.; Presi-
dent, Chief Executive
Officer and Chairman
of the Board of
INVESCO Distributors,
Inc.; President,
Chief Operating
Officer and Chairman
of the Board of
INVESCO Global Health
Sciences Fund;
formerly, Chairman and
Chief Executive
Officer of NationsBanc
Advisors, Inc.;
formerly, Chairman of
NationsBanc
Investments, Inc.
Fred A. Deering (1)(2)(7)(8) Vice Chairman of the Trustee of INVESCO
Security Life Center Board Global Health Sciences
1290 Broadway Fund; formerly,
Denver, Colorado Chairman of the
Age: 72 Executive Committee
and Chairman of the
Board of Security Life
of Denver Insurance
Company; Director of
ING American Holdings
Company and First
ING Life Insurance
Company of New York.
Victor L. Andrews, Director Professor Emeritus,
Ph.D.(4)(6) Chairman Emeritus and
34 Seawatch Drive Chairman of the CFO
Savannah, Georgia Roundtable of the
Age: 69 Department of Finance
of Georgia State
University; President,
Andrews Financial
Associates, Inc. (con-
sulting firm);
Director of The
Sheffield Funds, Inc.;
formerly, member of
the faculties of the
Harvard Business
School and the Sloan
School of Management
of MIT.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Bob R. Baker (2)(4)(5)(9) Director Consultant (since
37 Castle Pines Dr., North 2000); formerly,
Castle Rock, Colorado President and Chief
Age: 63 Executive Officer
(1989 to 2000) of
AMC Cancer Research
Center, Denver,
Colorado; until
mid-December 1988, Vice
Chairman of the Board
of First Columbia
Financial Corporation,
Englewood, Colorado;
formerly, Chairman of
the Board and Chief
Executive Officer of
First Columbia
Financial Corporation.
Charles W. Brady(3) Director Chief Executive Officer
1315 Peachtree St., N.E. and Chairman of
Atlanta, Georgia AMVESCAP PLC, London,
Age: 64 England and various
subsidiaries of AMVESCAP
PLC; Trustee of INVESCO
Global Health Sciences
Fund.
Lawrence H. Budner (1)(5) Director Trust Consultant;
7608 Glen Albens Circle prior to June 30,
Dallas, Texas 1987, Senior Vice
Age: 69 President and Senior
Trust Officer of
InterFirst Bank,
Dallas, Texas.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
James T. Bunch(4)(5)(9) Director Principal and Founder
3600 Republic Plaza of Green Manning &
370 Seventeenth Street Bunch Ltd., Denver,
Denver, Colorado Colorado, since August
Age: 57 1988; Director and
Secretary of Green
Manning & Bunch
Securities, Inc.,
Denver, Colorado since
September 1993; Vice
President and Director
of Western Golf
Association and Evans
Scholars Foundation;
formerly, General
Counsel and Director
of Boettcher & Co.,
Denver, Colorado;
formerly, Chairman and
Managing Partner of
Davis Graham & Stubbs,
Denver, Colorado.
Wendy L. Gramm, Director Self-employed (since
Ph.D.(4)(6)(9) 1993); Distinguished
3401 N. Fairfax Senior Fellow and
Arlington, VA Director, Regulatory
Age: 55 Studies Program,
Mercatus Center, George
Mason University, VA;
formerly, Chairman,
Commodity Futures Trading
Commission; Administrator
for Information and
Regulatory Affairs at the
Office of Management and
Budget; Also, Director of
Enron Corporation,
IBP inc., State Farm
Insurance Company,
International Republic
Institute, and the
Texas Public Policy
Foundation; formerly,
Director of the Chicago
Mercentile Exchange
(1994-1999), Kinetic
Concepts, Inc.(1996-1997)
and the Independent
Women's Forum
(1994-1999).
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Richard W. Healey(3) Director Director and Senior
7800 E. Union Avenue Vice President of
Denver, Colorado INVESCO Distributors,
Age: 45 Inc. since 1998;
formerly, Senior Vice
President of GT Global-
North America
(1996 to 1998) and The
Boston Company (1993
to 1996).
Gerald J. Lewis(1)(6)(7) Director Chairman of Lawsuit
701 "B" Street Resolution Services,
Suite 2100 San Diego, California
San Diego, California since 1987; Director
Age: 66 of General Chemical
Group, Inc., Hampdon,
New Hampshire, since
1996; formerly,
Associate Justice of
the California Court
of Appeals; Director
of Wheelabrator
Technologies, Inc.,
Fisher Scientific,
Inc., Henley
Manufacturing, Inc.,
and California Coastal
Properties, Inc.; Of
Counsel, Latham &
Watkins, San Diego,
California (1987 to
1997).
John W. McIntyre (1)(2) Director Retired. Formerly,
(5)(7) Vice Chairman of the
7 Piedmont Center Board of Directors of
Suite 100 The Citizens and
Atlanta, Georgia Southern Corporation and
Age: 69 Chairman of the Board and
Chief Executive Officer
of The Citizens and
Southern Georgia Corp.
and The Citizens and
Southern National Bank;
Trustee of INVESCO Global
Health Sciences Fund,
Gables Residential Trust,
Employee's Retirement
System of GA, Emory
University, and J.M. Tull
Charitable Foundation;
Director of Kaiser
Foundation Health Plans
of Georgia, Inc.
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
Larry Soll, Director Retired. Formerly,
Ph.D.(4)(6)(9) Chair man of the Board
345 Poorman Road (1987 to 1994), Chief
Boulder,Colorado Executive Officer
Age: 58 (1982 to 1989 and 1993
to 1994) and President
(1982 to 1989) of
Synergen Inc.; Director
of Synergen since
incorporation in 1982;
Director of Isis
Pharmaceuticals, Inc.;
Trustee of INVESCO Global
Health Sciences Fund.
Glen A. Payne Secretary Senior Vice President,
7800 E. Union Avenue General Counsel and
Denver, Colorado Secretary of INVESCO
Age: 52 Funds Group, Inc.;
Senior Vice President,
Secretary and General
Counsel of INVESCO
Distributors, Inc.;
Secretary of INVESCO
Global Health Sciences
Fund; formerly,
General Counsel of
INVESCO Trust Company
(1989 to 1998) and
employee of a U.S.
regulatory agency,
Washington, D.C. (1973
to 1989).
Ronald L. Grooms Chief Accounting Senior Vice President,
7800 E. Union Avenue Officer, Chief Finan- Treasurer and Director
Denver, Colorado cial Officer and of INVESCO Funds
Age: 53 Treasurer Group, Inc.; Senior
Vice President,
Treasurer and Director
of INVESCO
Distributors, Inc.;
Treasurer and
Principal Financial
and Accounting Officer
of INVESCO Global
Health Sciences Fund;
formerly, Senior Vice
President and
Treasurer of INVESCO
Trust Company (1988
to 1998).
<PAGE>
Name, Address, and Age Position(s) Held With Principal Occupation(s)
Company During Past Five Years
William J. Galvin, Jr. Assistant Secretary Senior Vice President
7800 E. Union Avenue and Assistant
Denver, Colorado Secretary of INVESCO
Age: 43 Funds Group, Inc.;
Senior Vice President
and Assistant
Secretary of INVESCO
Distributors, Inc.;
formerly, Trust
Officer of INVESCO
Trust Company (1995 to
1998).
Pamela J. Piro Assistant Treasurer Vice President and
7800 E. Union Avenue Assistant Treasurer
Denver, Colorado of INVESCO Funds
Age: 39 Group, Inc.; Assistant
Treasurer of INVESCO
Distributors, Inc.;
formerly, Assistant
Vice President (1996
to 1997), Director -
Portfolio Accounting
(1994 to 1996),
Portfolio Accounting
Manager (1993 to 1994)
and Assistant
Accounting Manager
(1990 to 1993).
Alan I. Watson Assistant Secretary Vice President of
7800 E. Union Avenue INVESCO Funds Group,
Denver, Colorado Inc.; formerly, Trust
Age: 58 Officer of INVESCO
Trust Company.
Judy P. Wiese Assistant Secretary Vice President and
7800 E. Union Avenue Assistant Secretary
Denver, Colorado of INVESCO Funds
Age: 52 Group, Inc.;
Assistant Secretary of
INVESCO Distributors,
Inc.; formerly, Trust
Officer of INVESCO
Trust Company.
(1) Member of the audit committee of the Company.
(2) 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.
<PAGE>
(3) These directors are "interested persons" of the Company as defined in the
1940 Act.
(4) Member of the management liaison committee of the Company.
(5) Member of the brokerage committee of the Company.
(6) Member of the derivatives committee of the Company.
(7) Member of the legal committee of the Company.
(8) Member of the insurance committee of the Company.
(9) Member of the nominating committee of the Company.
The boards of directors of the mutual funds in the INVESCO Funds have adopted a
Defined Benefit Deferred Compensation Plan (the "Plan") for the Independent
Directors of the funds. Under this Plan, each director who is not an interested
person of the funds (as defined in Section 2(a)(19) of the 1940 Act) and who has
served for at least five years (a "Qualified Director") is entitled to receive,
if the Qualified Director retires upon reaching age 72 (or the retirement age of
73 or 74, if the retirement date is extended by the board 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/her retirement (the "Basic Benefit"). Commencing with any such director's
second year of retirement, commencing with the first year of retirement of any
Qualified Director whose retirement has been extended by the board for three
years, and commencing with attainment of age 72 by a Qualified Director who
voluntarily retires prior to reaching age 72, a Qualified Director shall receive
quarterly payments at an annual rate equal to 50% of the Basic Benefit. These
payments will continue for the remainder of the Qualified Director's life or ten
years, whichever is longer (the "Reduced Benefit 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 Reduced Benefit
Payments will be made to him/her or to his/her beneficiary or estate. If a
Qualified Director becomes disabled or dies either prior to age 72 or during
his/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
Benefit Payments will be made to him/her or his/her 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 Funds in a manner determined to be fair and
equitable by the committee. The Company began making payments under the Plan to
Mr. Chabris as of October 1, 1998 and to Mr. King as of January 1, 2000. 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. A
similar plan has been adopted by INVESCO Global Health Sciences Fund's board of
trustees. All trustees of INVESCO Global Health Sciences Fund are also directors
of the INVESCO Funds.
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. Certain of the deferred amounts have been invested in the shares of all
INVESCO Funds, except Funds offered by INVESCO Variable Investment Funds, Inc.,
in which the directors are legally precluded from investing. Each Independent
Director may, therefore, be deemed to have an indirect interest in shares of
each such INVESCO Fund, in addition to any INVESCO Fund shares the Independent
Director may own either directly or beneficially.
<PAGE>
DISTRIBUTOR
INVESCO Distributors, Inc. ("IDI"), a wholly owned subsidiary of INVESCO, is the
distributor of the Fund. IDI receives no compensation and bears all expenses,
including the cost of printing and distributing prospectuses, incident to
marketing of the Fund's shares, except for such distribution expenses as are
paid out of Fund assets under the Company's Plans of Distribution (the "Plans"),
which have been adopted by the Fund pursuant to Rule 12b-1 under the 1940 Act.
CLASS A. The Company has adopted a Master Distribution Plan and Agreement -
Class A pursuant to Rule 12b-1 under the 1940 Act relating to the Class A shares
of the Fund (the "Class A Plan"). Under the Class A Plan, Class A shares of the
Fund pay compensation to IDI at an annual rate of 0.35% per annum of the average
daily net assets attributable to Class A shares for the purpose of financing any
activity which is primarily intended to result in the sale of Class A shares.
During any period that Class A shares of the Fund are closed to new investors,
the Fund will reduce this payment for Class A shares from 0.35% to 0.25% per
annum.
The Class A Plan is designed to compensate IDI, on a monthly basis, for certain
promotional and other sales-related costs, and to implement a dealer incentive
program which provides for periodic payments to selected dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class A shares of the Fund. Payments can also be directed by IDI to selected
institutions that have entered into service agreements with respect to Class A
shares of the Fund and that provide continuing personal services to their
customers who own Class A shares of the Fund. The service fees payable to
selected institutions are calculated at the annual rate of 0.25% of the average
daily net asset value of those Fund shares that are held in such institutions'
customers' accounts.
Of the aggregate amount payable under the Class A Plan, payments to dealers and
other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own Class A shares of the Fund, in
amounts up to 0.25% of the average daily net assets of the Class A shares of the
Fund attributable to the customers of such dealers or financial institutions,
are characterized as service fees. Payments to dealers and other financial
institutions in excess of such amount and payments to IDI would be characterized
as an asset-based sales charge pursuant to the Class A Plan. The Class A Plan
also imposes a cap on the total amount of sales charges, including asset-based
sales charges, that may be paid by the Company with respect to the Class A
shares of the Fund.
CLASS B. The Company has also adopted a Master Distribution Plan and Agreement -
Class B pursuant to Rule 12b-1 under the 1940 Act relating to Class B shares of
the Fund (the "Class B Plan"). Under the Class B Plan, Class B shares of the
Fund pay compensation monthly to IDI at an annual rate of 1.00% per annum of the
average daily net assets attributable to Class B shares for the purpose of
financing any activity which is primarily intended to result in the sale of
Class B shares. Of such amount, the Fund pays a service fee of 0.25% of the
average daily net assets attributable to Class B shares to selected dealers and
other institutions which furnish continuing personal shareholder services to
their customers who purchase and own Class B shares. Any amounts not paid as a
service fee would constitute an asset-based sales charge. The Class B Plan
imposes a cap on the total amount of sales charges, including asset-based sales
charges, that may be paid by the Company with respect to the Class B shares of
the Fund.
<PAGE>
CLASS C. The Company has adopted a Master Distribution Plan and Agreement -
Class C pursuant to Rule 12b-1 under the 1940 Act relating to the Class C shares
of the Funds (the "Class C Plan"). Under the Class C Plan, Class C shares of the
Funds pay compensation to IDI at an annual rate of 1.00% per annum of the
average daily net assets attributable to Class C shares for the purpose of
financing any activity which is primarily intended to result in the sale of
Class C shares. The Class C Plan is designed to compensate IDI for certain
promotional and other sales-related costs, and to implement a dealer incentive
program which provides for periodic payments to selected dealers who furnish
continuing personal shareholder services to their customers who purchase and own
Class C shares of a Fund. Payments can also be directed by IDI to selected
institutions that have entered into service agreements with respect to Class C
shares of the Fund and that provide continuing personal services to their
customers who own such Class C shares of a Fund.
Of the aggregate amount payable under the Class C Plan, payments to dealers and
other financial institutions that provide continuing personal shareholder
services to their customers who purchase and own Class C shares of the Fund, in
amounts of up to 0.25% of the average daily net assets of the Class C shares of
the Fund attributable to the customers of such dealers or financial
institutions, are characterized as a service fee. Payments to dealers and other
financial institutions in excess of such amount and payments to IDI would be
characterized as an asset-based sales charge pursuant to the Class C Plan. The
Class C Plan also imposes a cap on the total amount of sales charges, including
asset-based sales charges, that may be paid by the Company with respect to the
Class C shares of the Fund.
IDI may pay sales commissions to dealers and institutions who sell Class C
shares of the Fund at the time of such sales. Payments with respect to Class C
shares will equal 1.00% of the purchase price of the Class C shares sold by the
dealer or institution, and will consist of a sales commission of 0.75% of the
purchase price of Class C shares sold plus an advance of the first year service
fee of 0.25% with respect to such shares. IDI will retain all payments received
by it relating to Class C shares for the first thirteen months after they are
purchased. The portion of the payments to IDI under the Class C Plan
attributable to Class C shares which constitutes an asset-based sales charge
(0.75%) is intended in part to permit IDI to recoup a portion of on-going sales
commissions to dealers plus financing costs, if any. After the first thirteen
months, IDI will make such payments quarterly to dealers and institutions based
on the average net asset value of Class C shares which are attributable to
shareholders for whom the dealers and institutions are designated as dealers of
record.
ALL PLANS. Activities appropriate for financing under the Plans include, but are
not limited to, the following: printing of prospectuses and statements of
additional information and reports for other than existing shareholders;
preparation and distribution of advertising material and sales literature;
expenses of organizing and conducting sales seminars; and supplemental payments
to dealers and other institutions such as asset-based sales charges or as
payments of service fees under shareholder service arrangements. Pursuant to an
incentive program, IDI may enter into agreements ("Shareholder Service
Agreements") with investment dealers selected from time to time by IDI for the
provision of distribution assistance in connection with the sale of the Fund's
shares to such dealers' customers, and for the provision of continuing personal
shareholder services to customers who may from time to time directly or
beneficially own shares of the Fund. The distribution assistance and continuing
personal shareholder services to be rendered by dealers under the Shareholder
Service Agreements may include, but shall not be limited to, the following:
preparing and distributing advertising materials and sales literature; answering
routine customer inquiries concerning the Fund; assisting customers in changing
<PAGE>
dividend options, account designations and addresses, and in enrolling in any of
several special investment plans in connection with the purchase of the Fund's
shares; assisting in the establishment and maintenance of customer accounts and
in arranging for any capital gains distributions automatically to be invested in
the Fund's shares; and providing such other information and services as the Fund
or the customer may reasonably request.
Under the Plans, in addition to the Shareholder Service Agreements authorizing
payments to selected dealers, banks may enter into Shareholder Service
Agreements authorizing payments under the Plans to be made to banks which
provide services to their customers who have purchased Fund shares. Services
provided pursuant to Shareholder Service Agreements with banks may include some
or all of the following: answering shareholder inquiries regarding the Fund and
the Company; performing sub-accounting; establishing and maintaining shareholder
accounts and records; processing customer purchase and redemption transactions;
providing periodic statements showing a shareholder's account balance and the
integration of such statements with those of other transactions and balances in
the shareholder's other accounts serviced by the bank; forwarding applicable
prospectuses, proxy statements, reports and notices to bank clients who hold
Fund shares; and such other administrative services as the Fund reasonably may
request, to the extent permitted by applicable statute, rule or regulation.
Similar agreements may be permitted under the Plans for institutions which
provide recordkeeping for and administrative services to 401(k) plans.
Financial intermediaries and any other person entitled to receive compensation
for selling shares of the Fund may receive different compensation for selling
shares of different classes.
Under a Shareholder Service Agreement, the Fund agrees to pay fees periodically
to selected dealers and other institutions that render the foregoing services to
their customers. The fees payable under a Shareholder Service Agreement
generally will be calculated at the end of each payment period for each business
day of the Fund during such period at the annual rate of 0.35% and 1.00% of the
average daily net asset value of the Fund's shares with respect to Class A
shares and Class B and C shares, respectively. Fees calculated in this manner
shall be paid only to those selected dealers or other institutions who are
dealers or institutions of record at the close of business on the last business
day of the applicable payment period for the account in which the Fund's shares
are held.
Payments pursuant to the Plans are subject to any applicable limitations imposed
by the rules of the National Association of Securities Dealers, Inc. ("NASD").
The Plans conform to rules of the NASD by limiting payments made to dealers and
other financial institutions who provide continuing personal shareholder
services to their customers who purchase and own shares of the Fund to no more
than 0.25% per annum of the average daily net assets of the Fund attributable to
the customers of such dealers or financial institutions, and by imposing a cap
on the total sales charges, including asset based sales charges, that may be
paid by the Fund and its shares.
Each Plan provides that no provision of the Plan will be interpreted to prohibit
payments during periods when sales of shares of the Fund have been discontinued,
suspended or otherwise limited.
Under the Plans, certain financial institutions which have entered into service
agreements and which sell shares of the Fund on an agency basis may receive
payments from the Fund pursuant to the respective Plan. IDI does not act as
principal, but rather as agent for the Fund, in making dealer incentive and
shareholder servicing payments under the Plans. These payments are an obligation
of the Fund and not of IDI.
<PAGE>
Since the Fund did not begin operations until August 24, 2000, the Fund has
not made any payments to IDI under the Plans as of the date of this Statement of
Additional Information.
The Plans require IDI to provide, at least quarterly, the board of directors
with a written report of the amounts expended pursuant to the Plans and the
purposes for which such expenditures were made. The board of directors reviews
these reports in connection with their decisions with respect to the Plans.
The Class B and Class C Plans require that the Distribution Agreements provide
that IDI (or dealers or financial institutions that offer and sell Class B and C
shares) will be deemed to have performed all services required to be performed
in order to receive an asset-based sales charge on the average daily net assets
attributable to Class B or Class C shares upon settlement of each sale of a
Class B or Class C shares.
As required by Rule 12b-1, the Plans were approved by the board of directors,
including a majority of the directors who are not "interested persons" (as
defined in the 1940 Act) of the Company and who have no direct or indirect
financial interest in the operation of the Plans ("Independent Directors"). In
approving the Plans in accordance with the requirements of Rule 12b-1, the
directors considered various factors and determined that there is a reasonable
likelihood that the Plans would benefit each affected class of the Fund and its
respective shareholders.
The Plans do not obligate the Fund to reimburse IDI for the actual expenses IDI
may incur in fulfilling its obligations under the Plans. Thus, even if IDI's
actual expenses exceed the fee payable to IDI thereunder at any given time, the
Fund will not be obligated to pay more than that fee. If IDI's expenses are less
than the fee it receives, IDI will retain the full amount of the fee.
Unless the Plans are terminated earlier in accordance with their terms, they
continue as long as such continuance is specifically approved at least annually
by the board of directors, including a majority of the Independent Directors.
The Plans may be terminated with respect to a class by the vote of a majority of
the Independent Directors, or by the vote of a majority of the outstanding
voting securities of such class of the Fund.
Any change in the Plans that would increase materially the distribution expenses
paid by the applicable class requires approval by the shareholders of that class
of shares; otherwise, they may be amended by the directors, including a majority
of the Independent Directors, by votes cast in person at a meeting called for
the purpose of voting upon such amendment. As long as the Plans are in effect,
the selection or nomination of the Independent Directors is committed to the
discretion of the Independent Directors. In the event the Class A Plan is
amended in a manner which the board of directors determines would materially
increase the charges paid by holders of Class A shares under the Class A Plan,
the Class B shares of the Fund will no longer convert into Class A shares of the
Fund unless the Class B shares, voting separately, approve such amendment. If
the Class B shareholders do not approve such amendment, the board of directors
will (i) create a new class of shares of the Fund which is identical in all
material respects to the Class A shares as they existed prior to the
implementation of the amendment, and (ii) ensure that the existing Class B
shares of the Fund will be exchanged or converted into such new class of shares
no later than the date the Class B shares were scheduled to convert into Class A
shares.
<PAGE>
The principal difference between the Class A Plan, the Class B Plan and the
Class C Plan are: (i) the Class A Plan pays to IDI 0.35% of average daily net
assets of the Fund's Class A shares and each of the Class B and Class C Plans
pay IDI or dealers or financial institutions 1.00% of the average daily net
assets of the respective Class B and Class C shares; (ii) the Class B Plan may
obligate the Class B shares to continue to make payments to IDI following
termination of the Class B shares' Plan with respect to Class B shares sold by
or attributable to the distribution efforts of IDI unless there has been a
complete termination of the Class B Plan (as defined in such Plan); and (iii)
the Class B Plan expressly authorizes IDI to assign, transfer or pledge its
rights to payments pursuant to the Class B Plan.
SALES CHARGES AND DEALER CONCESSIONS
Class A shares of the Fund are currently sold with a sales charge ranging from
5.50% to 2.00% of the offering price on purchases of less than $1,000,000.
Dealer
Concession
Investor's Sales Charge ----------
----------------------- As a
As a As a Percentage
Percentage Percentage of the
of the Public of the Net Public
Amount of Investment in Offering Amount Offering
Single Transaction(1) Price Invested Price
----------------------- ----- -------- -----
Less than $ 25,000 5.50% 5.82% 4.75%
$ 25,000 but less than $ 50,000 5.25 5.54 4.50
$ 50,000 but less than $ 100,000 4.75 4.99 4.00
$ 100,000 but less than $ 250,000 3.75 3.90 3.00
$ 250,000 but less than $ 500,000 3.00 3.09 2.50
$ 500,000 but less than $1,000,000 2.00 2.04 1.60
There is no sales charge on purchases of $1,000,000 or more; however, IDI may
pay a dealer concession and/or advance a service fee on such transactions as set
forth below.
IDI may elect to re-allow the entire initial sales charge to dealers for all
sales with respect to which orders are placed with IDI during a particular
period. Dealers to whom substantially the entire sales charge is re-allowed may
be deemed to be "underwriters" as that term is defined under the Securities Act
of 1933.
<PAGE>
In addition to amounts paid to dealers as a dealer concession out of the initial
sales charge paid by investors, IDI may, from time to time, at its expense or as
an expense for which it may be compensated under a distribution plan, if
applicable, pay a bonus or other consideration or incentive to dealers who sell
a minimum dollar amount of the shares of the INVESCO Funds during a specified
period of time. At the option of the dealer, such incentives may take the form
of payment for travel expenses, including lodging, incurred in connection with
trips taken by qualifying registered representatives and their families to
places within or outside the United States. The total amount of such additional
bonus payments or other consideration shall not exceed 0.25% of the public
offering price of the shares sold. Any such bonus or incentive programs will not
change the price paid by investors for the purchase of the Fund's shares or the
amount the Fund will receive as proceeds from such sales. Dealers may not use
sales of the Fund's shares to qualify for any incentives to the extent that such
incentives may be prohibited by the laws of any state.
IDI may make payments to dealers and institutions that are dealers of record for
purchases of $1 million or more of Class A shares which are sold at net asset
value and are subject to a contingent deferred sales charge as follows: 1.00% of
the first $2 million of such purchase, plus 0.80% of the next $1 million of such
purchase, plus 0.50% of the next $17 million of such purchase, plus 0.25% of
amounts in excess of $20 million of such purchase.
IDI may pay sales commissions to dealers and institutions that sell Class B
shares of the Fund at the time of such sales. Payments with respect to Class B
shares will equal 4.00% of the purchase price of the Class B shares sold by the
dealer or institution, and will consist of a sales commission equal to 3.75% of
the purchase price of the Class B shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. The portion of the payments to
IDI under the Class B Plan which constitutes an asset-based sales charge (0.75%)
is intended in part to permit IDI to recoup a portion of such sales commissions
plus financing costs.
IDI may pay sales commissions to dealers and institutions that sell Class C
shares of the Fund at the time of such sales. Payments with respect to Class C
shares will equal 1.00% of the purchase price of the Class C shares sold by the
dealer or institution, and will consist of a sales commission of 0.75% of the
purchase price of the Class C shares sold plus an advance of the first year
service fee of 0.25% with respect to such shares. IDI will retain all payments
received by it relating to Class C shares for the first year after they are
purchased. The portion of the payments to IDI under the Class C Plan which
constitutes an asset-based sales charge (0.75%) is intended in part to permit
IDI to recoup a portion of on-going sales commissions to dealers plus financing
costs, if any. After the first full year, IDI will make such payments quarterly
to dealers and institutions based on the average net asset value of Class C
shares which are attributable to shareholders for whom the dealers and
institutions are designated as dealers of record. These commissions are not paid
on sales to investors who may not pay the CDSC and in circumstances where IDI
grants an exemption on particular transactions.
IDI may pay investment dealers or other financial service firms for share
purchases (measured on an annual basis) of Class A shares of all Funds sold at
net asset value to an employee benefit plan as follows: 1.00% of the first $2
million of such purchases, plus 0.80% of the next $1 million of such purchases,
plus 0.50% of the next $17 million of such purchases, plus 0.25% of amounts in
excess of $20 million of such purchases.
REDUCTIONS IN INITIAL SALES CHARGES
Reductions in the initial sales charges shown in the sales charges table
(quantity discounts) apply to purchases of shares of the Fund that are otherwise
subject to an initial sales charge, provided that such purchases are made by a
"purchaser" as hereinafter defined.
<PAGE>
The term "purchaser" means:
o an individual and his or her spouse and children, including any trust
established exclusively for the benefit of any such person; or a
pension, profit-sharing, or other benefit plan established exclusively
for the benefit of any such person, such as an IRA, Roth IRA, a
single-participant money purchase/profit sharing plan or an individual
participant in a 403(b) Plan (unless such 403(b) plan qualifies as the
purchaser as defined below);
o a 403(b) plan, the employer/sponsor of which is an organization
described under Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), if:
a. the employer/sponsor must submit contributions for all
participating employees in a single contribution transmittal
(i.e., the Funds will not accept contributions submitted with
respect to individual participants);
b. each transmittal must be accompanied by a single check or wire
transfer; and
c. all new participants must be added to the 403(b) plan by
submitting an application on behalf of each new participant with
the contribution transmittal;
o a trustee or fiduciary purchasing for a single trust, estate or single
fiduciary account (including a pension, profit-sharing or other
employee benefit trust created pursuant to a plan qualified under
Section 401 of the Code) and 457 plans, although more than one
beneficiary or participant is involved;
o a Simplified Employee Pension (SEP), Salary Reduction and other
Elective Simplified Employee Pension account (SAR-SEP) or Savings
Incentive Match Plans for Employees IRA (SIMPLE IRA), where the
employer has notified IDI in writing that all of its related employee
SEP, SAR-SEP or SIMPLE IRA accounts should be linked; or
o any other organized group of persons, whether incorporated or not,
provided the organization has been in existence for at least six
months and has some purpose other than the purchase at a discount of
redeemable securities of a registered investment company.
Investors or dealers seeking to qualify orders for a reduced initial sales
charge must identify such orders and, if necessary, support their qualification
for the reduced charge. IDI reserves the right to determine whether any
purchaser is entitled, by virtue of the foregoing definition, to the reduced
sales charge. No person or entity may distribute shares of the INVESCO Funds
without payment of the applicable sales charge other than to persons or entities
that qualify for a reduction in the sales charge as provided herein.
1. LETTERS OF INTENT. A purchaser, as previously defined, may pay reduced
initial sales charges by completing the appropriate section of the account
application and by fulfilling a Letter of Intent ("LOI"). The LOI confirms such
purchaser's intention as to the total investment to be made in shares of the
Fund (except for Class B and Class C shares of the Fund) within the following 13
consecutive months. By marking the LOI section on the account application and by
signing the account application, the purchaser indicates that he/she understands
and agrees to the terms of the LOI and is bound by the provisions described
below.
<PAGE>
Each purchase of fund shares normally subject to an initial sales charge made
during the 13-month period will be made at the public offering price applicable
to a single transaction of the total dollar amount indicated by the LOI, as
described under "Sales Charges and Dealer Concessions." It is the purchaser's
responsibility at the time of purchase to specify the account numbers that
should be considered in determining the appropriate sales charge. The offering
price may be further reduced as described under "Rights of Accumulation" if the
Transfer Agent is advised of all other accounts at the time of the investment.
Shares acquired through reinvestment of dividends and capital gains
distributions will not be applied to the LOI. At any time during the 13-month
period after meeting the original obligation, a purchaser may revise his or her
intended investment amount upward by submitting a written and signed request.
Such a revision will not change the original expiration date. By signing an LOI,
a purchaser is not making a binding commitment to purchase additional shares,
but if purchases made within the 13-month period do not total the amount
specified, the investor will pay the increased amount of sales charge as
described below. Purchases made within 90 days before signing an LOI will be
applied toward completion of the LOI. The LOI effective date will be the date of
the first purchase within the 90-day period. The transfer agent will process
necessary adjustments upon the expiration or completion date of the LOI.
Purchases made more than 90 days before signing an LOI will be applied toward
completion of the LOI based on the value of the shares purchased calculated at
the public offering price on the effective date of the LOI.
To assure compliance with the provisions of the 1940 Act, out of the initial
purchase (or subsequent purchases if necessary) the transfer agent will escrow
in the form of shares an appropriate dollar amount (computed to the nearest full
share). All dividends and any capital gain distributions on the escrowed shares
will be credited to the purchaser. All shares purchased, including those
escrowed, will be registered in the purchaser's name. If the total investment
specified under this LOI is completed within the 13-month period, the escrowed
shares will be promptly released. If the intended investment is not completed,
the purchaser will pay the transfer agent the difference between the sales
charge on the specified amount and the amount actually purchased. If the
purchaser does not pay such difference within 20 days of the expiration date,
he/she irrevocably constitutes and appoints the transfer agent as his/her
attorney to surrender for redemption any or all shares, to make up such
difference within 60 days of the expiration date.
If at any time before completing the LOI Program, the purchaser wishes to cancel
the agreement, he/she must give written notice to IDI. If at any time before
completing the LOI Program the purchaser requests the transfer agent to
liquidate or transfer beneficial ownership of his/her total shares, a
cancellation of the LOI will automatically be effected. If the total amount
purchased is less than the amount specified in the LOI, the transfer agent will
redeem an appropriate number of escrowed shares equal to the difference between
the sales charge actually paid and the sales charge that would have been paid if
the total purchases had been made at a single time.
2. RIGHTS OF ACCUMULATION. A "purchaser" as previously defined, may also qualify
for reduced initial sales charges based upon such purchaser's existing
investment in Class A shares of the Fund at the time of the proposed purchase.
To determine whether a reduced initial sales charge applies to a proposed
purchase, IDI takes into account not only the money which is invested upon such
proposed purchase, but also the value of all Class A shares of the Fund owned by
such purchaser, calculated at the then current public offering price. If a
purchaser so qualifies for a reduced sales charge, the reduced sales charge
applies to the total amount of money then being invested by such purchaser,
calculated at the then current public offering price, and not just to the
portion that exceeds the breakpoint above which a reduced sales charge applies.
<PAGE>
For example, if a purchaser already owns Class A shares with a value of $20,000
and wishes to invest an additional $20,000 in Class A shares, with a maximum
initial sales charge of 5.50%, the reduced initial sales charge of 5.25% will
apply to the full $20,000 purchase and not just to the $15,000 in excess of the
$25,000 breakpoint. To qualify for obtaining the discount applicable to a
particular purchase, the purchaser or his dealer must furnish IDI with a list of
the account numbers and the names in which such accounts of the purchaser are
registered at the time the purchase is made.
PURCHASES AT NET ASSET VALUE. Purchases of shares of the Fund at net asset value
(without payment of an initial sales charge) may be made in connection with: (a)
the reinvestment of dividends and distributions from the Fund; (b) exchanges of
shares of certain funds; (c) use of the reinstatement privilege; or (d) a
merger, consolidation or acquisition of assets of a fund.
The following purchasers will not pay initial sales charges on purchases of
Class A shares because there is a reduced sales effort involved in sales to
these purchasers:
o INVESCO and its affiliates, or their clients;
o Any current or retired officer, director or employee (and members of
their immediate family) of INVESCO, its affiliates or the INVESCO
Funds and any foundation, trust or employee benefit plan established
exclusively for the benefit of, or by, such persons;
o Sales representatives and employees (and members of their immediate
family) of selling group members or financial institutions that have
arrangements with such selling group members;
o Purchases through approved fee-based programs;
o Employee benefit plans designated as purchasers as defined above, and
non-qualified plans offered in conjunction therewith, provided the
initial investment in the plan(s) is at least $1 million; the sponsor
signs a $1 million LOI; the employer-sponsored plan(s) has at least
100 eligible employees; or all plan transactions are executed through
a single omnibus account and the financial institution or service
organization has entered into the appropriate agreements with the
distributor. Section 403(b) plans sponsored by public educational
institutions are not eligible for a sales charge exception based on
the aggregate investment made by the plan or the number of eligible
employees. Purchases of the Fund by such plans are subject to initial
sales charges; and
o A shareholder of a fund that merges or consolidates with the Fund or
that sells its assets to the Fund in exchange for shares of the Fund.
As used above, immediate family includes an individual and his or her spouse,
children, parents and parents of spouse.
CONTINGENT DEFERRED SALES CHARGE EXCEPTIONS
CDSCs will not apply to the following:
o Redemptions following the death or post-purchase disability of (1) any
registered shareholders on an account or (2) a settlor of a living
trust, of shares held in the account at the time of death or initial
determination of post-purchase disability;
<PAGE>
o Certain distributions from individual retirement accounts, Section
403(b) retirement plans, Section 457 deferred compensation plans and
Section 401 qualified plans, where redemptions result from (i)
required minimum distributions to plan participants or beneficiaries
who are age 70-1/2 or older, and only with respect to that portion of
such distributions that does not exceed 10% annually of the
participant's or beneficiary's account value in the Fund; (ii) in kind
transfers of assets where the participant or beneficiary notifies the
distributor of the transfer not later than the time the transfer
occurs; (iii) tax-free rollovers or transfers of assets to another
plan of the type described above invested in Class B or Class C shares
of the Fund; (iv) tax-free returns of excess contributions or returns
of excess deferral amounts; and (v) distributions on the death or
disability (as defined in the Internal Revenue Code of 1986, as
amended) of the participant or beneficiary;
o Liquidation by the Fund when the account value falls below the minimum
required account size of $250;
o Investment account(s) of INVESCO; and
o Class C shares if the investor's dealer of record notifies IDI prior
to the time of investment that the dealer waives the payment otherwise
payable to him.
Upon the redemption of Class A shares purchased in amounts of $1 million or
more, no CDSC will be applied in the following situations:
o Shares held more than 18 months;
o Redemptions from employee benefit plans designated as qualified
purchasers, as defined above, where the redemptions are in connection
with employee terminations or withdrawals, provided the total amount
invested in the plan is at least $1,000,000; the sponsor signs a $1
million LOI; or the employer-sponsored plan has at least 100 eligible
employees; provided, however, that 403(b) plans sponsored by public
educational institutions shall qualify for the CDSC waiver on the
basis of the value of each plan participant's aggregate investment in
the Fund, and not on the aggregate investment made by the plan or on
the number of eligible employees;
o Private foundations or endowment funds;
o Redemption of shares by the investor where the investor's dealer
waives the amounts otherwise payable to it by the distributor and
notifies the distributor prior to the time of investment; and
o Shares acquired by exchange from Class A shares of the Fund unless the
shares acquired are redeemed within 18 months of the original purchase
of Class A shares.
HOW TO PURCHASE AND REDEEM SHARES
A complete description of the manner by which shares of the Fund may be
purchased appears in the Prospectus under the caption "How To Buy Shares."
<PAGE>
The sales charge normally deducted on purchases of Class A shares of the Fund is
used to compensate IDI and participating dealers for their expenses incurred in
connection with the distribution of such shares. Since there is little expense
associated with unsolicited orders placed directly with IDI by persons, who
because of their relationship with the Fund or with INVESCO and its affiliates,
are familiar with the Fund, or whose programs for purchase involve little
expense (e.g., because of the size of the transaction and shareholder records
required), IDI believes that it is appropriate and in the Fund's best interests
that such persons be permitted to purchase Class A shares of the Fund through
IDI without payment of a sales charge. The persons who may purchase Class A
shares of the Fund without a sales charge are set forth herein under the Caption
"Reductions in Initial Sales Charges - Purchases at Net Asset Value."
The following formula may be used by an investor to determine the public
offering price per Class A share of an investment:
Net Asset Value/(1-Sales Charge as % of Offering Price)=Offering Price
Information concerning redemption of the Fund's shares is set forth in the
Prospectus under the caption "How To Sell Shares." Shares of the Fund may be
redeemed directly through IDI or through any dealer who has entered into an
agreement with IDI. In addition to the Fund's obligation to redeem shares, IDI
may also repurchase shares as an accommodation to the shareholders. To effect a
repurchase, those dealers who have executed Selected Dealer Agreements with IDI
must phone orders to the order desk of the Fund at (800) 328-2234 and guarantee
delivery of all required documents in good order. A repurchase is effected at
the net asset value of the Fund next determined after such order is received.
Such arrangement is subject to timely receipt by IDI of all required documents
in good order. If such documents are not received within a reasonable time after
the order is placed, the order is subject to cancellation. While there is no
charge imposed by the Fund or by IDI (other than any applicable CDSC) when
shares are redeemed or repurchased, dealers may charge a fair service fee for
handling the transaction. INVESCO intends to redeem all shares of the Fund in
cash.
The right of redemption may be suspended or the date of payment postponed when
(a) trading on the New York Stock Exchange ("NYSE") is restricted, as determined
by applicable rules and regulations of the SEC, (b) the NYSE is closed for other
than customary weekend and holiday closings, (c) the SEC has by order permitted
such suspension, or (d) an emergency as determined by the SEC exists making
disposition of portfolio securities or the valuation of the net assets of the
Fund not reasonably practicable.
OTHER SERVICE PROVIDERS
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1670 Broadway, Suite 1000, Denver, Colorado, are the
independent accountants of the Company. The independent accountants are
responsible for auditing the financial statements of the Fund.
CUSTODIAN
State Street Bank and Trust Company, P.O. Box 351, Boston, Massachusetts, is the
custodian of the cash and investment securities of the Company. The custodian 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 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
securities depositories.
<PAGE>
TRANSFER AGENT
INVESCO, 7800 E. Union Avenue, Denver, Colorado, is the Company's transfer
agent, registrar, and dividend disbursing agent. Services provided by INVESCO
include the issuance, cancellation and transfer of shares of the Fund, and the
maintenance of records regarding the ownership of such shares.
LEGAL COUNSEL
The firm of Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., 2nd
Floor, Washington, D.C., is legal counsel for the Company. The firm of Moye,
Giles, O'Keefe, Vermeire & Gorrell LLP, 1225 17th Street, Suite 2900, Denver,
Colorado, acts as special counsel to the Company.
BROKERAGE ALLOCATION AND OTHER PRACTICES
As the investment adviser to the Fund, INVESCO places orders for the purchase
and sale of securities with broker-dealers based upon an evaluation of the
financial responsibility of the broker-dealers and the ability of the
broker-dealers to effect transactions at the best available prices.
While INVESCO seeks reasonably competitive commission rates, the Fund does not
necessarily pay the lowest commission or spread available. INVESCO is permitted
to, and does, consider qualitative factors in addition to price in the selection
of brokers. Among other things, INVESCO considers 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. INVESCO has found that a broker's
consistent ability to execute transactions is at least as important as the price
the broker charges for those services.
In seeking to ensure that the commissions charged the Fund are consistent with
prevailing and reasonable commissions, INVESCO monitors brokerage industry
practices and commissions charged by broker-dealers on transactions effected for
other institutional investors like the Fund.
Consistent with the standard of seeking to obtain favorable execution on
portfolio transactions, INVESCO may select brokers that provide research
services to INVESCO and the Company, as well as other INVESCO mutual funds and
other accounts managed by INVESCO. Research services include 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. Conversely, the Fund receives benefits
of research acquired through the brokerage transactions of other clients of
INVESCO.
In order to obtain reliable trade execution and research services, INVESCO may
utilize brokers that charge higher commissions than other brokers would charge
for the same transaction. This practice is known as "paying up." However, even
when paying up, INVESCO is obligated to obtain favorable execution of the Fund's
transactions.
Portfolio transactions also may be effected through broker-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 broker-dealers can provide
comparable best price and execution on a particular transaction, INVESCO may
consider the sale of the Fund's shares by a broker-dealer in selecting among
qualified broker-dealers.
<PAGE>
Certain of the INVESCO Funds utilize fund brokerage commissions to pay custody
fees for each respective fund. This program requires that the participating
funds receive favorable execution.
Neither INVESCO nor any affiliate of INVESCO receives any brokerage commissions
on portfolio transactions effected on behalf of the Fund, and there is no
affiliation between INVESCO or any person affiliated with INVESCO or the Fund
and any broker-dealer that executes transactions for the Fund.
CAPITAL STOCK
The Company is authorized to issue up to two billion shares of common stock with
a par value of $0.01 per share. As of June 23, 2000, the following shares of the
Fund were outstanding:
Advantage Fund - Class A 0
Advantage Fund - Class B 0
Advantage Fund - Class C 0
A share of each class of the Fund represents an identical interest in the Fund's
investment portfolio and has the same rights, privileges and preferences.
However, each class may differ with respect to sales charges, if any,
distribution and/or service fees, if any, other expenses allocable exclusively
to each class, voting rights on matters exclusively affecting that class, and
its exchange privilege, if any. The different sales charges and other expenses
applicable to the different classes of shares of the Fund will affect the
performance of those classes. Each share of the Fund is entitled to participate
equally in dividends for that class, other distributions and the proceeds of any
liquidation of a class of the Fund. However, due to the differing expenses of
the classes, dividends and liquidation proceeds on Class A, Class B and Class C
shares will differ. All shares of the Fund will be voted together, except that
only the shareholders of a particular class of the Fund may vote on matters
exclusively affecting that class, such as the terms of a Rule 12b-1 Plan as it
relates to the class. All shares issued and outstanding are, and all shares
offered hereby when issued will be, fully paid and non-assessable. Other than
the automatic conversion of Class B shares to Class A shares, there are no
conversion rights. The board of directors has the authority to designate
additional classes of common stock without seeking the approval of shareholders
and may classify and reclassify any authorized but unissued shares.
Shares have no preemptive rights and are freely transferable on the books of the
Fund.
All shares of the Company have equal voting rights based on one vote for each
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 Company
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 Company. The Fund will assist shareholders in
communicating with other shareholders as required by the 1940 Act.
Fund shares have noncumulative voting rights, which means that the holders of a
majority of the shares of the Company voting for the election of directors of
the Company can elect 100% of the directors if they choose to do so. If that
occurs, 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.
Directors may be removed by action of the holders of a majority of the
outstanding shares of the Company.
<PAGE>
TAX CONSEQUENCES OF OWNING SHARES OF THE FUND
The Fund intends to conduct its business and satisfy the applicable
diversification of assets, distribution 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 Fund intends to qualify as a regulated
investment company during its current fiscal year. It is the policy of the Fund
to distribute all investment company taxable income and net capital gains. As a
result of this policy and the Fund's qualification as a regulated investment
company, it is anticipated that the Fund will not pay federal income or excise
taxes and that all of the classes of the Fund will be accorded conduit or "pass
through" treatment for federal income tax purposes. Therefore, any taxes that
the Fund would ordinarily owe are paid by its shareholders on a pro-rata basis.
If the Fund does not distribute all of its net investment income or net capital
gains, it will be subject to income and excise taxes on the amount that is not
distributed. If the Fund does not qualify as a regulated investment company, it
will be subject to income tax on all of its net investment income and net
capital gains at the corporate tax rates.
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 taxable for federal income tax purposes 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, including the dividends eligible for the dividends-received
deduction for corporations. Dividends eligible for the dividends-received
deduction will be limited to the aggregate amount of qualifying dividends that
the Fund derives from its portfolio investments.
The Fund realizes a capital gain or loss when it sells a portfolio security for
more or less than it paid for that security. Capital gains and losses are
divided into short-term and long-term, depending on how long the Fund held the
security which gave rise to the gain or loss. If the security was held one year
or less the gain or loss is considered short-term, while holding a security for
more than one year will generate a long-term gain or loss. A capital gain
distribution consists of long-term capital gains which are taxed at the capital
gains rate. Short-term capital gains are included with income from dividends and
interest as ordinary income and are paid to shareholders as dividends, as
discussed above. If total long-term gains on sales exceed total short-term
losses, including any losses carried forward from previous years, the Fund will
have a net capital gain. Distributions by the Fund of net capital gains are, for
federal income tax purposes, taxable to the shareholder as a long-term capital
gain regardless of how long a shareholder has held shares of the particular
Fund. Such distributions are not eligible for the dividends-received deduction.
After the end of each calendar year, the Fund sends information to shareholders
regarding the amount and character of distributions paid during the year.
All dividends and other distributions are taxable income to the shareholder,
whether or not such dividends and distributions are reinvested in additional
shares or paid in cash. If the net asset value of the Fund's shares should be
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 a
return of invested capital. The net asset value of shares of the Fund reflects
accrued net investment income and undistributed realized capital and foreign
currency gains; therefore, when a distribution is declared, the net asset value
is reduced by the amount of the distribution. If shares of the Fund 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.
<PAGE>
If it invests in foreign securities, the Fund may be subject to the withholding
of foreign taxes on dividends or interest it receives on foreign securities.
Foreign taxes withheld will be treated as an expense of the Fund unless the Fund
meets the qualifications and makes the election to enable it to pass these taxes
through to shareholders for use by them as a foreign tax credit or deduction.
Tax conventions between certain countries and the United States may reduce or
eliminate such taxes.
The Fund may invest in the stock of "passive foreign investment companies"
("PFICs"). A PFIC is a 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 value of at least 50% of its assets produce, or are held for the
production of, passive income. The Fund intends to "mark-to-market" its stock in
any PFIC. In this context, "marking-to-market" 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 basis in the PFIC stock as of the end of the
year. In certain circumstances, the Fund will also be allowed to deduct from
ordinary income the excess, if any, of its adjusted basis in PFIC stock over the
fair market value of the PFIC stock as of the end of the year. The deduction
will only be allowed to the extent of any PFIC mark-to-market gains recognized
as ordinary income in prior years. The Fund's adjusted tax basis in each PFIC
stock for which it makes this election will be adjusted to reflect the amount of
income included or deduction taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from the
disposition of debt securities denominated in foreign currencies 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.
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 recommend any
particular method of determining cost basis. Other methods may result in
different tax consequences. If you have reported gains or losses for the Fund in
past years, you must continue to use the method previously used, unless you
apply to the IRS for permission to change methods.
If you sell Fund shares at a loss after holding them for six months or less,
your loss will be treated as long-term (instead of short-term) capital loss to
the extent of any capital gain distributions that you may have received on those
shares.
The Fund will be subject to a nondeductible 4% excise tax to the extent it fails
to distribute by the end of any calendar year substantially all of its ordinary
income for that year and its net capital gains for the one-year period ending on
October 31 of that year, plus certain other amounts.
You should consult your own tax adviser regarding specific questions as to
federal, state and local taxes. Dividends and capital gain distributions will
generally be subject to applicable state and local taxes. Qualification as a
regulated investment company for income tax purposes under the Internal Revenue
Code of 1986, as amended, does not entail government supervision of management
or investment policies.
<PAGE>
PERFORMANCE
To keep shareholders and potential investors informed, INVESCO will occasionally
advertise the Fund's total return for one-, five-, and ten-year periods (or
since inception). All advertisements of the Fund will disclose the maximum sales
charge (including deferred sales charges) imposed on purchases of the Fund's
shares. If any advertised performance data does not reflect the maximum sales
charge (if any), such advertisement will disclose that the sales charge has not
been deducted in computing the performance data, and that, if reflected, the
maximum sales charge would reduce the performance quoted.
The Fund's total return is calculated in accordance with a standardized formula
for computation of annualized total return. Standardized total return for Class
A shares reflects the deduction of the maximum initial sales charge at the time
of purchase. Standardized total return for Class B and Class C shares reflects
the deduction of the maximum applicable contingent deferred sales charge on a
redemption of shares held for the period. Total returns quoted in advertising
reflect all aspects of the Fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the Fund's net asset
value per share over the period. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical investment in the
Fund over a stated period, and then calculating the annually compounded
percentage rate that would have produced the same result if the rate of growth
or decline in value has been constant over the period. Because average annual
returns tend to even out variations in the Fund's returns, investors should
realize that the Fund's performance is not constant over time, but changes from
year to year, and that average annual returns do not represent the actual
year-to-year performance of the Fund.
In addition to average annual returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total return shows the actual rate of return on
an investment for the period 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. Total returns may be quoted with or without
taking the Fund's maximum applicable Class A front-end sales charge or Class B
or Class C contingent deferred sales charge into account. Excluding sales
charges from a total return calculation produces a higher total return figure.
More information about the Fund's recent and historical performance is contained
in the Company's Annual Report to Shareholders. You can get a free copy by
calling or writing to INVESCO using the telephone number or address on the back
cover of the Fund's Prospectus.
The Fund may participate in the Initial Public Offering ("IPO") market, and a
significant portion of the Fund's returns may be attributable to its investment
in IPOs, which have a magnified impact due to the Fund's small asset base. If
this occurs, there is no guarantee that as the Fund's assets grow, they will
continue to experience substantially similar performance by investing in IPOs.
When we quote mutual fund rankings published by Lipper Inc., we may compare the
Fund to others in its appropriate Lipper category, 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.
Performance figures are based on historical earnings and are not intended to
suggest future performance.
<PAGE>
Average annual total return performance is not provided for the Fund's
shares since they were not offered until August 24, 2000. Average annual total
return performance is 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)exponential n] = ERV
where: P = a hypothetical initial payment of $10,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures will be determined by
solving the above formula for "T" for each time period indicated.
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.
In conjunction with performance reports and/or analyses of shareholder services
for the Fund, comparative data between the Fund's performance for a given period
and recognized indices of investment results for the same period, and/or
assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company, S&P,
Lipper Inc., Lehman Brothers, National Association of Securities Dealers
Automated Quotations, Frank Russell Company, Value Line Investment Survey, the
American Stock Exchange, Morgan Stanley Capital International, Wilshire
Associates, the Financial Times Stock Exchange, the New York Stock Exchange, the
Nikkei Stock Average and Deutcher Aktienindex, all of which are unmanaged market
indicators. In addition, rankings, ratings, and comparisons of investment
performance and/or assessments of the quality of shareholder service made by
independent sources may be used in advertisements, sales literature or
shareholder reports, including reprints of, or selections from, editorials or
articles about the Fund. These sources utilize information compiled (i)
internally; (ii) by Lipper Inc.; or (iii) by other recognized analytical
services. The Lipper Inc. mutual fund rankings and comparisons which may be used
by the Fund in performance reports will be drawn from the following mutual fund
grouping, in addition to the broad-based Lipper general fund groupings:
Lipper Mutual
Fund Fund Category
---- -------------
Advantage Fund Mid-Cap Core Funds
Sources for Fund performance information and articles about the Fund 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
<PAGE>
LIPPER 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
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
<PAGE>
FINANCIAL STATEMENT
STATEMENT OF ASSETS AND LIABILITIES
INVESCO Advantage Series Funds, Inc.
June 29, 2000
ADVANTAGE FUND
--------------------------------------------------------------------------------
ASSETS
Cash $ 100,000
================================================================================
NET ASSETS
Paid-in Capital(a) $ 100,000
================================================================================
NET ASSETS AT VALUE, Applicable to Shares Outstanding $ 100,000
================================================================================
NET ASSETS AT VALUE:
Class A $ 100,000
================================================================================
Class B $ --
================================================================================
Class C $ --
================================================================================
Shares Outstanding
Class A 10,000
Class B --
Class C --
================================================================================
NET ASSET VALUE, Offering and Redemption Price per Share
Class A $ 10.00
Class B $ --
Class C $ --
================================================================================
(a)The Fund has two billion authorized shares of common stock, par value of
$0.01 per share. Of such shares, 200 million have been allocated to Advantage
Fund - Class A; 200 million to Advantage Fund - Class B and 200 million to
Advantage Fund - Class C.
See Notes to Financial Statement
<PAGE>
INVESCO Notes to financial statement - INVESCO Advantage Series Funds, Inc.
NOTE 1-- ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES. INVESCO Advantage
Series Funds, Inc. is incorporated in Maryland and presently consists of one
Fund: Advantage Fund (the "Fund"). The Fund is registered under the Investment
Company Act of 1940 (the "Act") as a non-diversified, open-end investment
company. The Fund has had no operations other than the sale to INVESCO Funds
Group, Inc. (the "Investment Adviser" or "IFG") of 10,000 Class A shares for
$100,000 on June 29, 2000.
The Fund offers three classes of shares, referred to as Class A, Class B and
Class C shares. Each Class of shares is subject to an annual distribution fee of
0.35%, 1.00% and 1.00%, respectively, of the Fund's annual average net assets
attributable to each Class' shares. Income, expenses (other than those
attributable to a specific class) and gains and losses are allocated daily to
each class of shares based on the relative proportion of net assets represented
by such class. Operating expenses directly attributable to a specific class are
charged against operations of that class. Class A shares are sold with a
front-end sales charge. Class B shares and Class C shares are sold with a
contingent deferred sales charge. Class B shares convert to Class A shares after
eight years along with a pro rata portion of its reinvested dividends and
distributions.
NOTE 2 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS. IFG serves as the Fund's
investment adviser. As compensation for its services to the Fund, IFG receives
an investment advisory fee which is calculated at the annual rate of 1.50% of
the Fund's daily net assets (the "Base Fee"). This Base Fee will be adjusted, on
a monthly basis (i) upward at a rate of 0.20%, on a pro rata basis, for each
percentage point that investment performance of the Class A shares of the Fund
exceeds the sum of 2.00% plus the investment record of the Russell 3000 Index
(the "Index"), or (ii) downward at the rate of 0.20%, on a pro rata basis, for
each percentage point that investment record of the Index less 2.00% exceeds the
investment performance of the Class A shares of the Fund (the "Fee Adjustment").
The maximum or minimum Fee Adjustment, if any, will be 1.00% annually.
Therefore, the maximum annual fee payable to IFG will be 2.50% of average daily
net assets and the minimum annual fee will be 0.50%. During the first twelve
months of operation, the investment advisory fee will be charged at the base fee
of 1.50% with no Fee Adjustment.
A master distribution plan and agreement for each Class of shares pursuant to
Rule 12b-1 of the Act (the "Plans") provides for compensation of certain
promotional and other sales related costs to INVESCO Distributors, Inc. ("IDI"
or the "Distributor"), a wholly owned subsidiary of IFG. Class A shares of the
Fund pay compensation to IDI at a of rate 0.35% of annual average net assets.
During any period that Class A shares of the Fund are closed to new investors,
the Fund will reduce this payment for Class A shares from 0.35% to 0.25% per
annum. Class B and Class C shares of the Fund pay compensation to IDI at a rate
of 1.00% of annual average net assets. Of these amounts, the Fund may pay a
service fee of 0.25% of the average net assets of the Class A, Class B or Class
C shares to selected dealers and financial institutions who furnish continuing
personal shareholder services to their customers who purchase and own the
applicable class of shares of the Fund. Any amounts not paid as a service fee
under the Plans would constitute an asset-based sales charge. The Plans also
imposes a cap on the total sales charges, including asset-based sales charges,
that may be paid by the respective class. Any unreimbursed expenses IDI incurs
with respect to Class A and Class C shares in any fiscal year can not be
recovered in subsequent years. The Class B Plan may obligate the Class B shares
to continue to make payments to IDI following termination of the Class B shares
Plan with respect to Class B shares sold by or attributable to the distribution
efforts of IDI unless there has been a complete termination of the Class B Plan
and the Board of Directors expressly authorizes IDI to assign, transfer or
pledge its rights to payments pursuant to the Class B Plan.
<PAGE>
IFG receives a transfer agent fee from each Class at an annual rate of $22.50
per shareholder account, or, where applicable, per participant in an omnibus
account, per year.
IFG may pay such fee for participants in omnibus accounts to affiliates or third
parties. The fee is paid monthly at one-twelfth of the annual fee and is based
upon the actual number of accounts in existence during each month.
In accordance with an Administrative Services Agreement, the Fund pays IFG an
annual fee of $10,000, plus an additional amount computed at an annual rate of
0.045% of average net assets to provide administrative, accounting and clerical
services. The fee is accrued daily and paid monthly.
NOTE 3 -- SALES CHARGE AND CONTINGENT DEFERRED SALES CHARGE ("CDSC"). Class A
shares of the Fund are currently sold with a sales charge ranging from 5.50% to
2.00% of the offering price on purchases of less than $1,000,000. Class A shares
may charge a 1.00% CDSC if a shareholder purchased $1,000,000 or more and
redeemed these shares within 18 months from the date of purchase. A CDSC is
charged by Class B shares on redemptions or exchanges of shares at a maximum of
5.00% which may be reduced or certain sales charge exceptions may apply. A 1.00%
CDSC is charged by Class C shares on redemptions or exchanges held thirteen
months or less (other than shares acquired through reinvestment of dividends or
other distributions). The CDSC is paid by the redeeming shareholder and
therefore, it is not an expense of the Fund.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of INVESCO Advantage Series Funds,
Inc.
In our opinion, the accompanying statement of assets and liabilities presents
fairly, in all material respects, the financial position of INVESCO Advantage
Fund (the sole portfolio constituting INVESCO Advantage Series Funds, Inc.,
hereafter referred to as the "Fund") at June 29, 2000, in conformity with
accounting principles generally accepted in the United States. This financial
statement is the responsibility of the Fund's management; our responsibility is
to express an opinion on this financial statement based on our audit. We
conducted our audit of this financial statement in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statement, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Denver, Colorado
June 29, 2000
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of Moody's and S&P's bond ratings:
Moody's Corporate Bond Ratings
Aaa - Bonds 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 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 risk appear somewhat larger than in Aaa securities.
A - Bonds 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 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 in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
<PAGE>
S&P Corporate Bond Ratings
AAA - This is the highest rating assigned by Standard & Poor's 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 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 than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability 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 higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to default and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
