INVESCO BOND FUNDS, INC.
INVESCO Select Income Fund
INVESCO High Yield Fund
INVESCO U.S. Government Securities Fund
Supplement to Prospectus Dated January 1, 1999
Effective May 13, 1999, the section of the Funds' Prospectus entitled "Annual
Fund Expenses" is amended to delete only the High Yield Fund section of the
Annual Fund Operating Expenses table and (2) substitute the following in its
place:
High Yield Fund
Management Fee 0.42%
12b-1 Fees 0.25%
Other Expenses 0.22%
Total Fund Operating Expenses(1) 0.89%
The remainder of the table and the footnotes are not affected by this change.
Effective May 13, 1999, the section of the Funds' Prospectus entitled "Annual
Fund Expenses - Example" is amended to (1) delete the first paragraph and (2)
substitute the following in its place:
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption
at the end of each time period. (Of course, actual operating expenses are
paid from each Fund's assets, and are deducted from the amount of income
available for distribution to shareholders; they are not charged directly
to shareholder accounts.)
1 Year 3 Years 5 Years 10 Years
High Yield $9 $29 $49 $110
Select Income $11 $34 $59 $100
U.S. Government $10 $32 $56 $124
Securities
Effective June 1, 1999, the section of the Funds' Prospectus entitled
"Investment Policies And Risks - Illiquid and Rule 144A Securities" is amended
to (1) delete the section in its entirety and (2) substitute the following in
its place:
ILLIQUID AND RULE 144A SECURITIIES.
Each Fund may invest up to 15% of its net assets, measured at the time of
purchase, in investments that are illiquid because they are subject to
restrictions on their resale ("restricted securities") or because, based
upon the nature of the market for such investments, they are not readily
marketable. Investments in illiquid securities are subject to the risk
that the Fund may not be able to sell such securities at the time or price
desired. In addition, in order to resell a restricted security, a Fund
might have to bear the expense and incur the delays associated with
registration of the security.
The Funds may purchase certain securities that are not registered for sale
to the general public, but that can be resold to institutional investors
("Rule 144A Securities") without regard to the foregoing limitation, if a
liquid trading market exists. The Company's board of directors has
delegated to INVESCO the authority to determine the liquidity of Rule 144A
Securities pursuant to guidelines approved by the board. In the event that
a Rule 144A Security held by a Fund is subsequently determined to be
illiquid, the security will be sold as soon as that can be done in an
orderly fashion consistent with the best interests of the Fund's
shareholders. For more information concerning Rule 144A Securities, see
"Investment Policies And Restrictions" in the Statement of Additional
Information.
<PAGE>
Effective June 1, 1999, the section of the Funds' Prospectus entitled
"Investment Policies And Risks - Interest Rate Futures Contracts" is amended to
(1) delete the section in its entirety and (2) substitute the following section
in its place:
OPTIONS, FUTURES AND OTHER FINANCIAL INSTRUMENTS.
The Funds may use various types of financial instruments, some of which
are derivatives, to attempt to manage the risk of their investments or, in
certain circumstances, for investment (e.g., as a substitute for investing
in securities). These financial instruments include options, futures
contracts, forward contracts, swaps, caps, floors, and collars
(collectively " Financial Instruments"). For descriptions and other
information on these Financial Instruments and strategies and their risk
considerations, see the Statement of Additional Information ("SAI").
Financial Instruments may be used in an attempt to manage a Fund's foreign
currency exposure, if any, as well as other risks of a Fund's investments
that can cause fluctuations in its net asset value. A Fund may use
Financial Instruments to increase or decrease its exposure to changing
securities prices, interest rates, currency exchange rates or other
factors. 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.
A Fund's ability to use Financial Instruments any be limited by market
conditions, regulatory limits and tax considerations. A Fund might not use
any of these Financial Instruments, and there can be no assurance that any
strategy using a Financial Instrument will fully achieve its objective.
Subject to the further limitations stated in the SAI, generally, the Funds
are authorized to use any type of Financial Instrument. However, as a
non-fundamental policy, a 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 a 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.
Effective June 1, 1999, the section of the Funds' Prospectus entitled
"Investment Policies And Risks - Delayed Delivery Or When-Issued Purchases" is
amended to (1) delete the first sentence of the section and (2) substitute the
following sentence in its place:
The Funds may purchase or sell securities on a when-issued or
delayed-delivery basis - that is, with settlement taking place in the
future.
Effective June 1, 1999, the section of the Funds' Prospectus entitled
"Investment Policies And Risks - Securities Lending" is amended to (1) delete
the first sentence of the section and (2) substitute the following in its place:
Each Fund may seek to earn additional income by lending securities on a
fully collateralized basis.
<PAGE>
Effective June 1, 1999, the section of the Funds' Prospectus entitled
"Investment Policies And Risks - Investment Restrictions" is amended to (1)
delete the section in its entirety and (2) substitute the following section in
its place:
The Funds are subject to a variety of restrictions regarding their
investments that are identified in the Statement of Additional
Information. Certain of the Funds' investment restrictions are fundamental
and may not be altered without the approval of the Funds' shareholders.
For example, with respect to 75% of its total assets, each Fund may not
purchase the securities of any one 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 the
purchase would cause a Fund to have more than 5% of its total assets
invested in the issuer or to hold more than 10% of the outstanding voting
securities of that issuer. In addition, a Fund may not 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
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. Other fundamental
restrictions prohibit a Fund from lending more that 33 1/3% of its total
assets to other parties and from borrowing money in an aggregate amount
exceeding 33 1/3% of its total assets.
The section of the Funds' Prospectus entitled "Fund Services - Shareholder
Accounts" is amended to (1) delete the second and third sentence of the section
and (2) substitute the following in its place:
INVESCO no longer issues certificates. If you are selling shares
previously issued in certificate form, you need to include the
certificates along with your redemption/exchange request.
The chart in the Funds' Prospectus entitled "How To Sell Shares" is amended to
(1) delete the "Please Remember" paragraph of the "In Writing" section and (2)
substitute the following in its place:
INVESCO no longer issues paper certificates for shares. If the shares you
are selling are represented by stock certificates, the certificates must
be sent to INVESCO before we can process your redemption.
The date of this Supplement is June 1, 1999.
<PAGE>
INVESCO BOND FUNDS, INC.
INVESCO Short-Term Bond Fund
Supplement to Prospectus Dated January 1, 1999
Effective June 4, 1999, the Short-Term Bond Fund, pursuant to approval of the
shareholders of the Fund of a Plan of Reorganization and Termination at a
special meeting held May 20, 1999, will be merged into INVESCO Select Income
Fund, a series of INVESCO Bond Funds, Inc.
The date of this Supplement is June 1, 1999.
<PAGE>
INVESCO BOND FUNDS, INC.
INVESCO Select Income Fund
INVESCO High Yield Fund
INVESCO U.S. Government Securities Fund
INVESCO Short-Term Bond Fund
Supplement to Statement of Additional Information
Dated January 1, 1999
Effective June 4, 1999, the Short-Term Bond Fund, pursuant to approval of the
shareholders of the Fund of a Plan of Reorganization and Termination at a
special meeting held May 20, 1999, will be merged into INVESCO Select Income
Fund, a series of INVESCO Bond Funds, Inc. All references to INVESCO Short-Term
Bond Fund in the Company's Statement of Additional Information ("SAI") are
hereby deleted.
Effective June 1, 1999, the section of the above Company's SAI entitled
"Investment Policies And Restrictions - Illiquid and 144A Securities" is amended
to (1) delete the first paragraph, and (2) substitute that following new
paragraph in its place:
Illiquid and Rule 144A Securities - As discussed in the section of the
Prospectus entitled "Investment Policies And Risks," the Funds may invest
in securities that are illiquid because they are subject to restriction on
their resale ("restricted securities") or because, based upon their nature
or the market for such securities, they are not readily marketable. The
Funds will not purchase any such security if the purchase would cause a
Fund to invest more than 15% of its net assets, measured at the time of
purchase, in illiquid securities. Investments in illiquid securities
involve certain risks to the extent that a Fund may be unable to dispose
of such securities at the time desired or at a reasonable price. In
addition, in order to resell a restricted security, a Fund might have to
bear the expense and incur delays associated with effecting registration.
Effective June 1, 1999, the section of the above Company's SAI entitled
"Investment Policies And Restrictions - Repurchase Agreements" is amended to (1)
delete the last sentence of the first paragraph, and (2) substitute the
following sentence in its place:
The Funds may enter into a repurchase agreement maturing in more than
seven days if as a result no more than 15% of a Fund's net assets would be
invested in such repurchase agreements and other illiquid securities
Effective June 1, 1999, the section of the above Company's SAI entitled
"Investment Policies And Restrictions - Securities Lending" is amended to (1)
delete the first and fifth sentences of the first paragraph, and (2) substitute
the following sentence, respectively, in their place:
As described in the section of the Funds' Prospectus, entitled "Investment
Policies And Risks," the Funds may lend their portfolio securities,
provided that such loans are callable at any time by a Fund and are at all
time secured by collateral consisting of cash, letters of credit or
securities issued or guaranteed by the U.S. government or its agencies, or
any combination thereof, equal to the market value, determined daily, of
the loaned securities.
The Funds will not lend any security if, as a result of such loan, the
aggregate value of securities then on loan would exceed 33-1/3% of a
Fund's total assets (taken at market value).
<PAGE>
Effective June 1, 1999, the section of the above Company's SAI entitled
"Investment Policies And Restrictions - Future Contacts" is amended to (1)
delete the section in its entirety, and (2) substitute that following new
paragraphs in its place:
FUTURES, OPTIONS AND OTHER FINANCIAL INSTRUMENTS
General. As discussed in the Prospectus, the adviser and/or sub-adviser
may use various types of financial instruments, some of which are
derivatives, to attempt to manage the risk of the Funds' 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 Funds are authorized to use any type of Financial
Instrument. However, as a non-fundamental policy, the Funds will only use
a particular Financial Instrument (other than those related to foreign
currency) if the Funds are 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 a 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 a 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 a 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 Funds' ability to use Financial Instruments
will be limited by tax considerations. See "Tax Consequences of Owning
Shares of the Funds."
<PAGE>
In addition to the instruments and strategies described below, the adviser
and/or sub-adviser may use other similar or related techniques to the
extent that they are consistent with a Fund's investment objective and
permitted by its investment limitations and applicable regulatory
authorities. The Funds' 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) Financial Instruments may increase the volatility of the Funds. If the
adviser and/or sub-adviser employs a Financial Instrument that correlates
imperfectly with a 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 a Fund has entered.
(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 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 Funds are 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 a
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 a 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 Funds
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.
<PAGE>
(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 a 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 Funds' 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 Funds are 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 a
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.
Cover. Positions in Financial Instruments, other than purchased options,
expose the Funds to an obligation to another party. A 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 Funds 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 a 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 Funds 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.
<PAGE>
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 a 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 a 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.
A 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 Funds to realize profits or limit losses on an option position
prior to its exercise or expiration.
Risks of Options on Securities. Options embody the possibility of large
amounts of exposure, which will result in a Fund's net asset value being
more sensitive to changes in the value of the related investment.
The Funds' ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. If a 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 a Fund was 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.
<PAGE>
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 a 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 a
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.
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.
<PAGE>
Futures Contracts and Options on Futures Contracts. When a 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 a 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
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, a 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 Funds 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.
<PAGE>
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 a 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 a 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, the adviser and/or sub-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 a 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.
<PAGE>
Where index futures are purchased in an anticipatory hedge, it is possible
that the market may decline instead. If a 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. A 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.
A 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 Funds 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.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Funds 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.
<PAGE>
Forward Currency Contracts and Foreign Currency Deposits. The Funds 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, a
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, a 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 Funds 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. A 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 Funds 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 Funds 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 Funds 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 a 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.
<PAGE>
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, a 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 a 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 Funds 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. A 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 Funds' options and futures activities may affect their
turnover rates and brokerage commission payments. The exercise of calls or
puts written by a 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.
Swaps, Caps, Floors and Collars. The Funds are authorized to enter into
swaps, caps, floors and collars. However, these instruments are not
exchange-traded and the Funds presently have 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.
<PAGE>
Effective June 1, 1999, the section of the Company's SAI entitled "Investment
Policies And Restrictions" is amended to add the following to that section:
SPDRs. The Funds may invest in SPDRs and shares of other investment
companies. SPDRs are traded on the American Stock Exchange. SPDR holders
such as a 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. Therefore, the dividend yield of
SPDRs may be less than that of the S&P 500 Index. The Investment Company
Act of 1940 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 a 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, a 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.
Effective June 1, 1999, the section of the above Company's SAI entitled
"Investment Policies And Restrictions - Investment Restrictions" is amended to
(1) delete the section in its entirety, and (2) substitute the following section
in its place:
The Funds operate 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 a Fund.
The following restrictions are fundamental and may not be changed with
respect to a Fund without prior approval of a majority of the outstanding
voting securities of that Fund, as defined in the Investment Company Act
of 1940, as amended (the "1940 Act"). Each 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);
<PAGE>
5. issue senior securities, except as permitted under the Investment
Company Act of 1940;
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, each 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.
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.
<PAGE>
In addition, with respect to the Funds 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.
Effective May 13, 1999, the section of the above Company's SAI entitled "The
Funds And Their Management - Administrative Services Agreement" is amended to
(1) delete the third paragraph and (2) substitute the following in its place:
As full compensation for services provided under the Administrative
Services Agreement, each Fund pays a monthly fee to INVESCO consisting of
a base fee of $10,000 per year, plus an additional incremental fee
computed daily and paid monthly at an annual rate of 0.015% per year of
the average net assets of each Fund prior to May 13, 1999 and 0.045% per
year of the average net assets of each Fund effective May 13, 1999.
The date of this Supplement is June 1, 1999.
