INVESCO BOND FUNDS, INC.
INVESCO High Yield Fund
INVESCO Select Income Fund
INVESCO U.S. Government Securities Fund
Supplement to Prospectus Dated January 1, 1999
The section of the above named Funds' Prospectus entitled "Annual Fund Expenses"
is amended to (1) delete the first sentence of the first paragraph and (2)
substitute the following sentences in its place:
Each Fund is no-load. For the Select Income and U.S. Government Securities
Funds there are no fees to purchase, exchange or redeem shares. For the
High Yield Fund there are no fees to exchange or redeem shares other than
fees to redeem or exchange shares held three months or less.
In addition, the section of the Funds' Prospectus entitled "Annual Fund
Expenses" is amended to add the following section after the table heading
"Annual Fund Operating Expenses (as a percentage of average net assets)" to the
table following paragraph three:
Shareholder Transaction Expenses (High Yield Fund only)
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees 2.00%*
Exchange fees 2.00%*
In addition, the section of the Funds' Prospectus entitled "Annual Fund
Expenses" is amended to add the following immediately after the table and
footnotes:
* A 2% fee shall be imposed on redemptions or exchanges of shares held
three months or less.
The section of the Funds' Prospectus entitled "Fund Price and Performance -
Performance Data" is amended to add the following sentence after the third
sentence of the first paragraph:
The Fund charges no sales loads that would affect the total return
computation. However, with regard to the High Yield Fund, the total return
computation may be affected as a result of the redemption or exchange fee
which is retained by the High Yield Fund to offset transaction costs and
other expenses associated with short-term redemptions and exchanges. A 2%
fee shall be imposed on redemptions or exchanges of shares held three
months or less.
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The section of the Funds' Prospectus entitled "How to Buy Shares" is amended to
(1) delete the third sentence of the first paragraph and (2) substitute the
following in its place:
With the exception of the High Yield Fund, there is no charge to invest,
exchange or redeem shares when you make transactions directly through
INVESCO. With regard to the High Yield Fund, there is no charge to invest
when you make transactions directly through INVESCO. However, upon an
exchange of shares held three months or less (other than shares acquired
through reinvestment of dividends or other distributions), a fee of 2% of
the current net asset value of the shares being exchanged will be assessed
and retained by the Fund for the benefit of the remaining shareholders.
This fee is intended to encourage long-term investment in the Fund, to
avoid transaction and other expenses caused by early redemptions, and to
facilitate portfolio management. The fee is currently waived for
institutional, qualified retirement plan and other shareholders investing
through omnibus accounts, due to certain economies associated with these
accounts. However, the Fund reserves the right to impose redemption fees
on shares held by such shareholders at any time if warranted by the Fund's
future cost of processing redemptions. The redemption fee may be modified
or discontinued at any time or from time to time. This fee is not a
deferred sales charge, is not a commission paid to INVESCO, and does not
benefit INVESCO in any way. The fee applies to redemptions from the High
Yield Fund and exchanges into any of the other no-load mutual funds which
are also advised by INVESCO and distributed by IDI. The High Yield Fund
will use the "first-in, first-out" method to determine the holding period.
Under this method, the date of redemption or exchange will be compared
with the earliest purchase date of shares held in the account. If this
holding period is less than three months, the redemption/ exchange fee
will be assessed on the current net asset value of those shares.
The section of the Funds' Prospectus entitled "How To Sell Shares" is amended to
add the following at the end of the first paragraph:
With regard to the High Yield Fund, upon an exchange or redemption of
shares held three months or less (other than shares acquired through
reinvestment of dividends or other distributions), a fee of 2% of the
current net asset value of the shares being exchanged or redeemed will be
assessed and retained by the High Yield Fund for the benefit of the
remaining shareholders. This fee is intended to encourage long-term
investment in the High Yield Fund, to avoid transaction and other expenses
caused by early redemptions, and to facilitate portfolio management. The
fee is currently waived for institutional, qualified retirement plan and
other shareholders investing through omnibus accounts, due to certain
economies associated with these accounts. However, the Fund reserves the
right to impose redemption fees on shares held by such shareholders at any
time if warranted by the Fund's future cost of processing redemptions. The
redemption fee may be modified or discontinued at any time or from time to
time. This fee is not a deferred sales charge, is not a commission paid to
INVESCO, and does not benefit INVESCO in any way. The fee applies to
redemptions from the High Yield Fund and exchanges into any of the other
no-load mutual funds which are also advised by INVESCO and distributed by
IDI. The High Yield Fund will use the "first-in, first-out" method to
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determine the holding period. Under this method, the date of redemption or
exchange will be compared with the earliest purchase date of shares held
in the account. If this holding period is less than three months, the
redemption/exchange fee will be assessed on the current net asset value of
those shares.
This Supplement supersedes the Supplement dated April 22, 1999.
The date of this Supplement is September 10, 1999.
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INVESCO BOND FUNDS, INC.
INVESCO Tax-Free Bond Fund
Supplement to Statement of Additional Information
Dated August 13, 1999
The section of the Company's Statement of Additional Information ("SAI")
entitled "Investment Policies and Restrictions - Other Permissible Investments"
is amended to add the following section after "Temporary Investments":
Illiquid and 144A Securities. The Fund may invest in illiquid securities,
including restricted securities and other investments that are not readily
marketable. Restricted securities are securities which are subject to
restrictions on their resale because they have not been registered under
the Securities Act of 1933 (the "1933 Act"). However, 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 will be considered as illiquid for purposes of this restriction.
Investments in illiquid securities involve certain risks to the extent
that the Fund may be unable to dispose of such a security 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 effecting registration.
The Fund also may invest in restricted securities, including restricted
securities that can be resold to institutional investors pursuant to Rule
144A under the 1933 Act ("Rule 144A Securities") if a liquid institutional
trading market exists.
In recent years, a large institutional market has developed for Rule 144A
Securities. Institutional investors generally will not seek to sell these
instruments to the general public but instead will often depend on an
efficient institutional market in which Rule 144A Securities can readily
be resold or on an issuer's ability to honor a demand for repayment.
Therefore, the fact that there are contractual or legal restrictions on
resale to the general public or certain institutions is not dispositive of
the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain
securities to qualified institutional buyers. Institutional markets for
Rule 144A Securities may provide both readily ascertainable values for
Rule 144A Securities and the ability to liquidate an investment in order
to satisfy share redemption orders. An insufficient number of qualified
institutional buyers interested in purchasing a Rule 144A Security held by
the Fund, however, could adversely affect the marketability of such
security, and the Fund might be unable to dispose of such security
promptly or at reasonable prices.
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The section of the Company's SAI entitled "Investment Policies and Restrictions
- - Other Permissible Investments" is amended to (1) delete the subsections
entitled "Futures Contracts and Options on Futures" and "Options on Futures
Contracts" and (2) substitute the following in their place:
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
General. As discussed in the Prospectus, the adviser and/or subadviser 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.
Generally, the Fund is authorized to use any type of Financial Instrument.
However, as a non-fundamental policy, the Fund will only use a particular
Financial Instrument (other than those related to foreign currency) if the
Fund is authorized to take a position in the type of asset to which the
return on, or value of, the Financial Instrument is primarily related.
Therefore, for example, if the Fund is authorized to invest in a
particular type of security (such as an equity security), it could take a
position in an option on an index relating to equity securities.
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.
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The use of Financial Instruments are 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 Funds."
In addition to the instruments and strategies described below, the adviser
and/or sub-adviser and/or sub-adviser may use other similar or related
techniques to the extent that they are consistent with the Fund's
investment objective and permitted by the Fund's investment limitations
and applicable regulatory authorities. The Fund's Prospectus or Statement
of Additional Information ("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) If the adviser and/or sub-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. Financial
Instruments may increase the volatility of the Fund. 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.
(2) There might be imperfect correlation between price movements of a
Financial Instrument and price movements of the investments 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, the
hedge would not be fully successful. This might be caused by certain kinds
of trading activity that distorts 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
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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 and/or sub-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 an exchange-traded
Financial Instrument prior to expiration or maturity depends on the degree
of liquidity of the market.
(5) As described below, the Fund is required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it
takes positions in Financial Instruments involving obligations to third
parties (i.e., Financial Instruments other than purchased options). If the
Fund were 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.
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 transactions 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
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replaced with other appropriate assets. As a result, the commitment of a
large portion of the Fund's assets to cover or 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; this 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; this 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.
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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's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. 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.
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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 that the Fund 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 it learns that 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.
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 and/or sub-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
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purchase a put option on that futures contract. If the adviser and/or
sub-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.
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 payments. 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. Positions in
futures and options on futures used by the Fund may be closed only on an
exchange or board of trade that provides a market. 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 was 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.
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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. Additionally, Fund Management may be incorrect in its
expectations as to the extent of various interest rate, currency exchange
rate 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.
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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 and/or sub-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.
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.
<PAGE>
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 and/or
sub-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
<PAGE>
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.
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 maintain cash or liquid assets in a segregated account.
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 and/or sub-adviser
anticipates. There is no assurance that the adviser's and/or sub-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
<PAGE>
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 its
turnover rate 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, also
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.
Swaps, Caps, Floors and Collars. The Fund is authorized to enter into
swaps, caps, floors and collars. However, these instruments are not
exchange-traded and the Fund presently has a non-fundamental policy to
utilize only exchange-traded Financial Instruments.
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.
The section of the Company's SAI entitled "Investment Policies And Restrictions
- - Other Permissible Investments" is amended to add the following to that
section:
Investment Company Securities. To manage their daily cash positions, the
Fund may invest in securities issued by other investment companies 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 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 limits investments in securities of other investment companies,
<PAGE>
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.
The section of the Company's SAI entitled "Investment Policies and Restrictions
- - Other Permissible Investments - Investment Restrictions" is amended to (1)
delete the section in its entirety, and (2) substitute the following section in
its place:
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 with
respect to the Fund without prior approval of a majority of the
outstanding voting securities of the Fund, as defined in the Investment
Company Act of 1940, as amended (the "1940 Act"). The Fund, unless
otherwise indicated, may not:
1. purchase the securities of any issuer (other than securities issued or
guraranteed by the U.S. government or any of its agencies or
instrumentalities or municipal securities) if, as a result, more than
25% of the Fund's total assets would be invested in the securities of
companies whose principal business activities are in the same industry;
2. with respect to 75% 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;
3. underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in connection with the disposition of the Fund's portfolio
securities;
4. 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);
5. issue senior securities, except as permitted under the Investment
Company Act of 1940;
<PAGE>
6. 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;
7. 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
8. 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).
9. Each 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 Funds Group,
Inc. or an affiliate or a successor thereof, with substantially the
same fundamental investment objective, policies and limitations as the
Fund.
In addition, the Fund has the following non-fundamental policies, which
may be changed without shareholder approval:
A. The Fund may not sell securities short (unless it owns or has the right
to obtain securities equivalent in kind and amount to the securities
sold short) or purchase securities on margin, except that (i) this
policy does not prevent the Fund from entering into short positions in
foreign currency, futures contracts, options, forward contracts, swaps,
caps, floors, collars and other financial instruments, (ii) the Fund
may obtain such short-term credits as are necessary for the clearance
of transactions, and (iii) the Fund may make margin payments in
connection with futures contracts, options, forward contracts, swaps,
caps, floors, collars and other financial instruments.
B. The Fund may borrow money only from a bank or from an open-end
management investment company managed by INVESCO Funds Group, Inc. or
an affiliate or a successor thereof for temporary or emergency purposes
(not 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 (4)).
C. 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.
<PAGE>
D. 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.
E. With respect to fundamental limitation (1), domestic and foreign
banking will be considered to be different industries.
In addition, with respect to a Fund that may invest in municipal
obligations, the following non-fundamental policy applies, which may be
changed without shareholder approval:
Each state (including the District of Columbia and Puerto Rico), territory
and possession of the United States, each political subdivision, agency,
instrumentality and authority thereof, and each multi-state agency of
which a state is a member is a separate "issuer." When the assets and
revenues of an agency, authority, instrumentality or other political
subdivision are separate from the government creating the subdivision and
the security is backed only by assets and revenues of the subdivision,
such subdivision would be deemed to be the sole issuer. Similarly, in the
case of an Industrial Development Bond or Private Activity Bond, if that
bond is backed only by the assets and revenues of the non-governmental
user, then that non-governmental user would be deemed to be the sole
issuer. However, if the creating government or another entity guarantees a
security, then to the extent that the value of all securities issued or
guaranteed by that government or entity and owned by the Fund exceeds 10%
of the Fund's total assets, the guarantee would be considered a separate
security and would be treated as issued by that government or entity.
The date of this Supplement is September 10, 1999.
