PROSPECTUS
June 30, 1998
INVESCO GROWTH & INCOME FUND
INVESCO Growth & Income Fund (the "Fund") is actively managed to seek
high total return through a combination of capital appreciation and current
income. The Fund invests primarily in common stocks, preferred stocks and
securities convertible into common stocks of companies which offer growth of
earnings and the payment of current dividends. The Fund may also purchase
securities which do not pay current dividends but which offer prospects for
growth of capital and future income.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated June 30, 1998, has been filed with the Securities and
Exchange Commission and is incorporated by reference into this Prospectus. To
obtain a free copy, write to INVESCO Funds Group, Inc., P.O. Box 173706, Denver,
Colorado 80217-3706; call 1-800-525-8085; or on the World Wide Web:
http://www.invesco.com.
The Fund may invest in lower-rated bonds and foreign debt securities,
commonly known as "junk bonds." Investments of this type are subject to greater
risks, including default risks, than those found in higher rated securities.
Purchasers should carefully assess the risks associated with an investment in
this Fund. See "Risk Factors."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES
OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
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TABLE OF CONTENTS
Page
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ESSENTIAL INFORMATION..........................................................2
ANNUAL FUND EXPENSES...........................................................3
INVESTMENT OBJECTIVE AND STRATEGY..............................................4
INVESTMENT POLICIES AND RISKS..................................................4
THE FUND AND ITS MANAGEMENT....................................................7
FUND PRICE AND PERFORMANCE.....................................................9
HOW TO BUY SHARES..............................................................9
FUND SERVICES.................................................................12
HOW TO SELL SHARES............................................................12
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS......................................13
ADDITIONAL INFORMATION........................................................15
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ESSENTIAL INFORMATION
Investment Goal And Strategy. The Fund is actively managed to seek high
total return through a combination of capital appreciation and current income.
The Fund invests primarily in common stocks, preferred stocks and securities
convertible into common stocks of companies which offer growth of earnings and
the payment of current dividends. The Fund may also purchase securities which do
not pay current dividends but which offer prospects for growth of capital and
future income. There is no guarantee that the Fund will meet its objective. See
"Investment Objective and Strategy."
Designed For: Investors seeking a combination of capital growth over the
long term and current income. While not intended as a complete investment
program, the Fund may be a valuable element of your investment portfolio. You
also may wish to consider the Fund as part of a Uniform Gift/Transfer To Minors
Account or systematic investing strategy. The Fund may be a suitable investment
option for many types of retirement programs, including various Individual
Retirement Accounts ("IRAs"), 401(k), Profit Sharing, Money Purchase Pension,
and 403(b) plans.
Time Horizon. Because the value of its holdings varies, the Fund's price
per share will fluctuate. Investors should consider this a medium- to long-term
investment.
Risks. The Fund uses an investment strategy which at times may include
securities rated below investment grade and foreign debt securities; and may
experience relatively rapid portfolio turnover. The Fund's investments in debt
securities are subject to credit risk and market risk, both of which are
increased by investing in lower rated securities. The returns on foreign
investments may be influenced by the risks of investing overseas. Rapid
portfolio turnover may result in higher brokerage commissions and the
acceleration of taxable capital gains. These policies make the Fund unsuitable
for that portion of your savings dedicated to preservation of capital over the
short-term. See "Investment Objective And Strategy" and "Investment Policies and
Risks."
Organization and Management. The Fund is a series of INVESCO Capital
Appreciation Funds, Inc. (the "Company"), a diversified, managed, no-load mutual
fund. The Fund is owned by its shareholders. It employs INVESCO Funds Group,
Inc. ("IFG"), founded in 1932, to serve as investment adviser, administrator and
transfer agent. INVESCO Distributors, Inc. ("IDI"), founded in 1997 as a
wholly-owned subsidiary of IFG, is the Fund's distributor.
The Fund investments are selected by two ^ members of IFG's Growth Team
which is headed by Tim Miller. For detail concerning the Fund's portfolio
managers, see "The Fund And Its Management."
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IFG and IDI are subsidiaries of AMVESCAP PLC, an international investment
management company that manages approximately $192.2 billion in assets. AMVESCAP
PLC is based in London with money managers located in Europe, North America and
the Far East.
This Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as
Periodic withdrawal plans
EasiVest (the Fund's automatic monthly investment program), Direct
Payroll Purchase, and Automatic Monthly Exchange
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase, and certain retirement
plans.
Minimum Subsequent Investment: $50 (Minimums are lower for certain
retirement plans.)
ANNUAL FUND EXPENSES
The Fund is no-load; there are no fees to purchase, exchange or redeem
shares. The Fund is authorized to pay a Rule 12b-1 distribution fee of one
quarter of one percent of the Fund's average net assets each year. (See "How To
Buy Shares --Distribution Expenses.")
Like any company, the Fund has operating expenses, such as portfolio
management, accounting, shareholder servicing, maintenance of shareholder
accounts, and other expenses. These expenses are paid from the Fund's assets.
Lower expenses therefore benefit investors by increasing the Fund's total
return. We calculate annual operating expenses as a percentage of the Fund's
estimated expenses for the current fiscal year. To keep expenses competitive,
the adviser voluntarily reimburses the Fund for certain expenses in excess of
1.50% of the Fund's average net assets.
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management Fee ^ 0.75%
12b-1 Fees 0.25%
Other Expenses (after expense limitation)(1) ^ 0.50%
Total Fund Operating Expenses (after expense
limitation)(1) ^ 1.50%
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(1) Based on estimated expenses for the current fiscal year which may be more or
less than actual expenses. If necessary, certain Fund expenses will be absorbed
voluntarily by IFG for at least the first fiscal year of the Fund's operations
in order to ensure that expenses for the Fund will not exceed 1.50% of the
Fund's average net assets pursuant to an agreement between the Fund and IFG. If
such voluntary expense limit was in effect, the Fund's "Other Expenses" and
"Total Fund Operating Expenses" for the fiscal year ending April 30, 1999 are
estimated to be ^ 1.18% and ^ 2.18%, respectively, of the Fund's average net
assets. Actual expenses are not provided because the Fund did not begin a public
offering of its securities until June 30, 1998.
Example
A shareholder would pay the following expenses on a $1,000 investment for
the periods shown, assuming a hypothetical 5% annual return and redemption at
the end of each time period. (Of course, actual operating expenses are paid from
the Fund's assets and are deducted from the amount of income available for
distribution to shareholders; they are not charged directly to shareholder
accounts.)
1 Year 3 Years
$15 $48
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE, AND ACTUAL
ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For more
information on the Fund's expenses, see "The Fund and Its Management" and "How
to Buy Shares - Distribution Expenses."
Because the Fund pays a distribution fee, investors who own Fund shares for
a long period of time may pay more than the economic equivalent of the maximum
front-end sales charge permitted for mutual funds by the National Association of
Securities Dealers, Inc.
INVESTMENT OBJECTIVE AND STRATEGY
The Fund is actively managed to seek high total return through a
combination of capital appreciation and current income. This investment
objective is fundamental and may not be changed without the approval of the
Fund's shareholders. The Fund seeks to achieve its objective through the
investment of its assets in common stocks, preferred stocks and securities
convertible into common stocks that are believed to present opportunities for
capital enhancement and/or current income. The Fund may also invest in
securities which offer prospects for appreciation of capital or future income
such as bonds and debt securities (including high yield debt instruments). There
is no guarantee that the Fund's investment objective will be met.
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The Fund's investment portfolio is actively managed.^ This policy may
result in greater brokerage commissions and acceleration of capital gains which
are taxable when distributed to shareholders. The Statement of Additional
Information includes an expanded discussion of the Fund's portfolio turnover
rate, its brokerage practices and certain federal income tax matters.
When we believe market or economic conditions are adverse, the Fund may
assume a defensive position by temporarily investing up to 100% of its assets in
high-quality money market instruments, such as short-term U.S. government
obligations, commercial paper or repurchase agreements, seeking to protect its
assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
The Fund seeks high total return through a combination of capital
appreciation and current income by investing mainly in equity securities. The
Fund intends to invest the majority of its assets in domestic and foreign equity
securities. Equity securities may include common stocks, preferred stocks and
securities convertible into common stock. The equity securities in which the
Fund invests may be issued by either established, well-capitalized companies or
newly formed small capitalization ("small cap") companies. These securities may
be traded on national, regional or foreign stock exchanges or in the
over-the-counter market. Small cap companies frequently have limited operating
histories, product lines and financial and managerial resources, and may face
intense competitive pressures from larger companies. The market prices of small
cap stocks may be more volatile than the stocks of larger companies both because
they typically trade in lower volumes and because small cap firms may be more
vulnerable to changes in their earnings and prospects. Although equity
securities have a history of long-term growth in value, their prices fluctuate
based on changes in a company's financial condition and on overall market and
economic conditions.
Investors generally should expect to see their price per share and
income levels vary with movements in the stock and fixed-income markets, changes
in economic conditions and other factors. The Fund invests in many different
companies in a variety of securities and industries; this diversification may
help reduce the Fund's exposure to particular investment and market risks but
cannot eliminate these risks.
Debt Securities. When we assess an issuer's ability to meet its interest
rate obligations and repay its debt when due, we are referring to "credit risk."
Debt obligations are rated based on their estimated credit risk by independent
services such as Standard & Poor's, a division of the McGraw-Hill Companies
("S&P"), or Moody's Investor Services, Inc. ("Moody's"). "Market risk" for debt
securities principally refers to sensitivity to changes in interest rates. For
instance, when interest rates go up, the market value of a previously issued
bond generally declines; on the other hand, when interest rates go down, bond
prices generally increase.
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The lower a bond's quality, the more it is subject to credit risk and
market risk and the more speculative it is. This is also true of most unrated
securities. The Fund may invest in issues rated below investment grade quality
(commonly called "junk bonds," and rated BB or lower by S&P or Ba or lower by
Moody's or, if unrated, are judged by Fund Management to be of equivalent
quality). Such securities held by the Fund generally will be subject to greater
credit and market risks. These securities include issues which are of poorer
quality and may have some speculative characteristics, according to the rating
services. Investments in unrated securities may not exceed 25% of the Fund's
total assets and the Fund may not invest more than 25% of its total assets in
junk bonds. Never, under any circumstances, is the Fund permitted to invest in
bonds that are in default or are rated CCC or below by S&P or Caa or below by
Moody's or, if unrated, are judged by Fund Management to be of equivalent
quality. Bonds rated CCC or Caa are predominantly speculative and may be in
default or may have present elements of danger with respect to the repayment of
principal or interest. While Fund Management continuously monitors all of the
debt securities in the Fund's portfolio for the issuer's ability to make
required principal and interest payments and other quality factors, it may
retain a bond whose rating is changed to one below the minimum rating required
for purchase of the security. The Fund is not required to sell immediately debt
securities that go into default, but may continue to hold such securities until
such time as Fund Management determines it is in the best interests of the Fund
to sell the securities.
The Fund's investments in debt securities may include investments in zero
coupon bonds, step-up bonds, mortgage-backed securities and asset-backed
securities. Zero coupon bonds ("zeros") make no periodic interest payments.
Instead, they are sold at a discount from their face value. The buyer of the
zero receives the rate of return by the gradual appreciation in the price of the
security, which is redeemed at face value at maturity. Step-up bonds initially
make no (or low) cash interest payments but begin paying interest (or a higher
rate of interest) at a fixed time after issuance of the bond. Being extremely
responsive to changes in interest rates, the market prices of both zeros and
step-up bonds may be more volatile than other bonds. The Fund may be required to
distribute income recognized on these bonds, even though no cash interest
payments may be received, which could reduce the amount of cash available for
investment by the Fund.
Mortgage-backed securities represent interests in pools of mortgages.
Asset-backed securities generally represent interests in pools of consumer
loans. Both usually are structured as pass-through securities. Interest and
principal payments ultimately depend on payment of the underlying loans,
although the securities may be supported, at least in part, by letters of credit
or other credit enhancements or, in the case of mortgage-backed securities,
guarantees by the U.S. government, its agencies or instrumentalities. The
underlying loans are subject to prepayments that may shorten the securities'
weighted average lives and may lower their returns. For more information on debt
securities, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
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Foreign Securities. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign equity or corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank that entitle the holder to
all dividends and capital gains. ADRs are denominated in U.S. dollars and trade
in the U.S. securities markets.
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency may decrease. By contrast, in a period when the U.S. dollar
generally declines, those returns may increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about U.S.
issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investment income on certain foreign securities may be subject to foreign
withholding taxes, which may reduce dividend income or capital gains payable to
shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility the Fund may experience difficulties in pursuing legal remedies
and collecting judgments.
ADRs are subject to some of the same risks as direct investments in foreign
securities, including the risk that material information about the issuer may
not be disclosed in the United States and the risk that currency fluctuations
may adversely affect the value of the ADR.
Rule 144A Securities. The Fund may not purchase securities that are not
readily marketable. However, the Fund may purchase certain securities that are
not registered for sale to the general public but that can be resold to
institutional investors ("Rule 144A Securities"), if a liquid institutional
trading market exists. The Fund's board of directors has delegated to Fund
Management the authority to determine the liquidity of Rule 144A Securities
pursuant to guidelines approved by the board. In the event that a Rule 144A
Security held by the Fund is subsequently determined to be illiquid, the
security will be sold as soon as that can be done in an orderly fashion
consistent with the best interests of the Fund's shareholders. For more
information concerning Rule 144A Securities, see "Investment Policies And
Restrictions" in the Statement of Additional Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and date. The Fund could incur costs or delays in seeking
to sell the instrument if the prior owner defaults on its repurchase obligation.
To reduce that risk, the securities that are the subject of the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
<PAGE>
These agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards established by the
Company's board of directors.
Futures and Options. A futures contract is an agreement to buy or sell a
specific amount of a financial instrument or commodity at a particular price on
a particular date. The Fund will use futures contracts only to hedge against
price changes in the value of its current or intended investments in securities.
In the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general decrease in prices, the adverse effects of such
changes may be offset, at least in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general increase in prices, may be offset, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio than the purchase and sale of the
underlying futures contracts, since the potential loss is limited to the amount
of the premium plus related transaction costs. The premium paid for such a put
or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
their use does involve certain risks. For example, a lack of correlation between
the value of an instrument underlying an option or futures contract and the
assets being hedged, or unexpected adverse price movements, could render a
Fund's hedging strategy unsuccessful and could result in losses. In addition,
there can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and the Fund may be required to maintain a position
until exercise or expiration, which could result in losses. Transactions in
futures contracts and options are subject to other risks as well, which are set
forth in greater detail in the Statement of Additional Information and Appendix
A therein.
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Delayed Delivery or When-Issued Purchases. Debt securities may at times be
purchased or sold by the Fund with settlement taking place in the future. The
Fund may invest up to 10% of its net assets in when-issued securities. The
payment obligation and the interest rate that will be received on the securities
generally are fixed at the time the Fund enters into the commitment. Between the
date of purchase and the settlement date, the value of the securities is subject
to market fluctuations, and no interest is payable to the Fund prior to the
settlement date.
Securities Lending. The Fund may seek to earn additional income by lending
securities to qualified brokers, dealers, banks, or other financial
institutions, on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
For a further discussion of risks associated with an investment in the
Fund, see "Investment Policies and Restrictions" and "Investment Practices" in
the Statement of Additional Information.
Investment Restrictions. Certain restrictions, which are set forth in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, with respect to 75% of the Fund's total
assets, the Fund limits to 5% of its total assets the amount which may be
invested in a single issuer, and to 25% the portion that may be invested in any
one industry. The Fund's ability to borrow money is limited to borrowings from
banks for temporary or emergency purposes in amounts not exceeding 33-1/3% of
net assets. Except where indicated to the contrary, the investment objectives
and policies described in this Prospectus are non-fundamental and may be changed
without the approval of the Fund's shareholders.
Portfolio Turnover. There are no fixed limitations regarding portfolio
turnover. Although the Fund does not trade for short-term profits, securities
may be sold without regard to the time they have been held in the Fund when, in
the opinion of Fund Management, investment considerations warrant such action.
As a result, under certain market conditions, the portfolio turnover rate for
the Fund may exceed 100% and may be higher than that of other investment
companies seeking capital appreciation and current income. Increased portfolio
turnover would cause the Fund to incur greater brokerage costs than would
otherwise be the case and may result in the acceleration of capital gains that
are taxable when distributed to shareholders. The Funds portfolio turnover rate;
along with the Company's brokerage allocation policies, are discussed in the
Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as a diversified, open-end, management investment company.
It was incorporated as INVESCO Dynamics Fund, Inc. on February 17, 1967 under
the laws of Colorado and was reorganized as a Maryland corporation on July 1,
1993. On July 3, 1997, the name of the Company was changed to INVESCO Capital
Appreciation Funds, Inc.
The Company's board of directors has responsibility for overall supervision
of the Fund and reviews the services provided by the adviser. Under an agreement
with the Company, IFG, 7800 E. Union Avenue, Denver, Colorado 80237, serves as
the Fund's investment adviser; it is primarily responsible for providing the
Fund with investment management and various administrative services.
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IFG and IDI are indirect wholly owned subsidiaries of AMVESCAP PLC.
AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997, and to AMVESCAP PLC on May 8, 1997, as a part of a merger between a direct
subsidiary of INVESCO PLC and A I M Management Group Inc., thus creating one of
the largest independent investment management businesses in the world. IFG
continues to operate under its existing name. AMVESCAP has approximately $192.2
billion in assets under management. IFG was established in 1932 and, as of
December 31, 1997, managed 14 mutual funds, consisting of 47 separate
portfolios, with combined assets of approximately $16.7 billion on behalf of
848,106 shareholders.
The ^ Fund is managed by two members of INVESCO's Growth Team, which is
headed by Timothy J. Miller. The following individuals are primarily responsible
for the day-to-day management of the Fund's portfolio holdings:
Trent E. May, ^ a Chartered Financial Analyst, has served as the lead
portfolio manager of the Fund since its inception in 1998. He is also ^ lead
portfolio manager of the INVESCO Growth Fund, Inc. ^ and INVESCO Variable
Investment Funds, Inc-Growth Fund and co-portfolio manager of the INVESCO Small
Company Growth Fund ^ and INVESCO Variable Investment Funds, Inc.-Small Company
Growth Fund. Mr. May is a vice president of IFG. ^ Mr. May began his investment
career in 1991 and was most recently a senior equity fund manager/equity analyst
at Munder Capital Management in ^ Detroit. Mr. May received a M.B.A. from
Rollins College and a B.S. in Engineering from the Florida Institute of
Technology^.
Fritz Meyer has served as the co-portfolio manager of the Fund since its
inception in 1998. Mr. Meyer is a vice president of IFG. Formerly, he was an
executive vice president and portfolio manager with Nelson, Benson & Zellmer,
Inc. in Denver, Colorado. ^ Mr. Meyer received a M.B.A. from Amos Tuck
School-Dartmouth College and an A.B. with a distinction in Economics, Dartmouth
College. Mr. Meyer began his investment career in 1979.
Fund Management permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
The Fund pays IFG a monthly management fee which is based upon a percentage
of the Fund's average net assets determined daily. The management fee is
computed at the annual rate of ^ 0.75% ^ of the Fund's average net assets.
Under a Distribution Agreement effective September 30, 1997, IDI is the
Fund's distributor. IDI, established in 1997, is a registered broker-dealer that
acts as distributor for all retail funds advised by IFG.
Under a Transfer Agency Agreement, IFG acts as registrar, transfer agent,
and dividend disbursing agent for the Fund. The Fund pays an annual fee of
$20.00 per shareholder account or, where applicable, per participant in an
omnibus account per year. Registered broker-dealers, third party administrators
of tax-qualified retirement plans and other entities, including affiliates of
IFG, may provide equivalent services to the Fund. In these cases, IFG may pay,
out of the fee it receives from the Fund, an annual sub-transfer agency or
recordkeeping fee to the third party.
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Under an Administrative Services Agreement, IFG handles additional
administrative, recordkeeping, and internal sub- accounting services for the
Fund.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. If necessary, certain Fund expenses will be
absorbed voluntarily by IFG in order to ensure that the Fund's total operating
expenses will not exceed 1.50% of the Fund's average net assets.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
such brokers' and dealers' financial responsibility coupled with their ability
to effect transactions at the best available prices. As discussed under "How to
Buy Shares -Distribution Expenses," the Fund may market its shares through
intermediary brokers or dealers that have entered into Dealer Agreements with
IFG, as the Fund's distributor. The Fund may place orders for portfolio
transactions with qualified broker-dealers that recommend the Fund, or sell
shares of the Fund, to clients, or act as agent in the purchase of Fund shares
for clients, if Fund Management believes that the quality of the execution of
the transaction and level of commission are comparable to those available from
other qualified brokerage firms. For further information, see "Investment
Practices - Placement of Portfolio Brokerage" in the Statement of Additional
Information.
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund will vary
daily. The price per share is also known as the Net Asset Value ("NAV"). IFG
prices the Fund every day that the New York Stock Exchange is open, as of the
close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of all of the Fund's
assets, including accrued interest and dividends; subtracting liabilities,
including accrued expenses; and dividing that dollar amount by the total number
of Fund shares outstanding.
Performance Data. To keep shareholders and potential investors informed, we
will occasionally advertise the Fund's total return for one-, five-, and
ten-year periods (or since inception). Total return figures show the rate of
return on a $1,000 investment in the Fund, assuming reinvestment of all
dividends and capital gain distributions for the periods cited. Cumulative total
return shows the actual rate of return on an investment for the period cited;
average annual total return represents the average annual percentage change in
the value of an investment. Both cumulative and average annual total returns
tend to "smooth out" fluctuations in the Fund's investment results, because they
do not show the interim variations in performance over the periods cited.
When we quote mutual fund rankings published by Lipper Analytical Services,
Inc., we may compare the Fund to others in its category of Growth and Income, as
well as the broad-based Lipper general fund groupings. These rankings allow you
to compare the Fund to its peers. Other independent financial media also produce
performance- or service-related comparisons, which you may see in our
promotional materials. For more information see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical earnings and are not intended
to suggest future performance.
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HOW TO BUY SHARES
The following chart shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through IFG. However, if you invest
in the Fund through a securities broker, you may be charged a commission or
transaction fee. IFG may from time to time make payments from its revenues to
securities dealers and other financial institutions that provide
distribution-related and/or administrative services for the Company. For all new
accounts, please send a completed application form. Please specify which Fund
you wish to purchase.
Fund Management reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. Further, Fund Management reserves the
right in its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
Exchange Policy. You may exchange your shares in this Fund for those in
another INVESCO fund on the basis of their respective net asset values at the
time of the exchange. Before making any exchange, be sure to review the
prospectuses of the funds involved and consider their differences.
Please note these policies regarding exchanges of fund shares:
1) The fund accounts must be identically registered.
2) You may make up to four exchanges out of each fund during each
calendar year.
3) An exchange is the redemption of shares from one fund followed by the
purchase of shares in another. Therefore, any gain or loss realized on
the exchange is recognizable for federal income tax purposes (unless,
of course, your account is tax-deferred).
4) The Fund reserves the right to reject any exchange request, or to
modify or terminate the exchange policy, when it is in the best
interests of the Fund and its shareholders. Notice of all such
modifications or termination will be given at least 60 days prior to
the effective date of the change in policy, except for unusual
instances (such as when redemptions of the exchanged shares are
suspended under Section 22(e) of the Investment Company Act of 1940,
or when sales of the fund into which you are exchanging are
temporarily stopped).
<PAGE>
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
Method Investment Minimum Please Remember
- --------------------------------------------------------------------------------
By Check
MAIL to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an IRA; be responsible for any
P.O. Box 173706 $50 minimum for related loss the Fund or
Denver, CO 80217- each subsequent IFG incurs. If you are
3706. investment. already a shareholder in
You may send your the INVESCO fund, the
check by overnight Fund may seek
courier to: 7800 E. reimbursement from your
Union Ave., Denver, existing account(s) for
CO 80237. any loss incurred.
- --------------------------------------------------------------------------------
By Telephone or Wire Payment must be received
Call 1-800-525-8085 $1,000. within 3 business days,
to request your or the transaction may
purchase. Then send be canceled. If a
your check by purchase is canceled due
overnight courier to nonpayment, you will
to our street be responsible for any
address: related loss the Fund or
7800 E. Union Ave., IFG incurs. If you are
Denver, CO 80237. already a shareholder in
Or you may transmit the INVESCO funds, the
your payment by Fund may seek
bank wire (call IFG reimbursement from your
for instructions). existing account(s) for
any loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
With EasiVest or Like all regular
Direct Payroll investment plans, neither
Purchase EasiVest nor Direct
You may enroll on $50 per month for Payroll Purchase ensures
the fund EasiVest; $50 per a profit or protects
application, or pay period for against loss in a falling
call us for the Direct Payroll market. Because you'll
correct form and Purchase. You may invest continually,
more details. start or stop your regardless of varying
Investing the same regular investment price levels, consider
amount on a monthly plan at any time, your financial ability to
basis allows you to with two weeks' keep buying through low
buy more shares notice to IFG. price levels. And
and fewer shares remember that you will
when prices are lose money if you redeem
high. This your shares when the
"dollar-cost market value of all your
averaging" may help shares is less than their
offset market cost.
fluctuations. Over
a period of time,
your average cost
per share may be
less than the
actual average
price per share.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By PAL(R) Be sure to write down
Your "Personal $1,000. the confirmation number
Account Line" is provided by PAL(R).
available for Payment must be received
subsequent within 3 business days,
purchases and or the transaction may be
exchanges 24 hours cancelled. If a purchase
a day. Simply call is cancelled due to
1-800-424-8085. responsible for any
related loss the Fund or
IFG incurs. If you are
already a shareholder in
the INVESCO funds, the
Fund may seek
reimbursement from your
existing account(s) for
any loss incurred.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 9.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
Automatic Monthly minimum is $250 for
Exchange service exchanges requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
================================================================================
<PAGE>
Distribution Expenses. The Fund is authorized under a Plan and Agreement of
Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. Under this Plan, monthly payments may
be made by the Fund to IDI to permit IDI, at its discretion, to engage in
certain activities and provide certain services approved by the board of
directors of the Company in connection with the distribution of the Fund's
shares to investors. These activities and services may include the payment of
compensation (including incentive compensation and/or continuing compensation
based on the amount of customer assets maintained in the Fund) to securities
dealers and other financial institutions and organizations, which may include
IFG and IDI affiliated companies, to obtain various distribution-related and/or
administrative services for the Fund. Such services may include, among other
things, processing new shareholder account applications, preparing and
transmitting to the Fund's Transfer Agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the Fund.
In addition, other permissible activities and services include advertising,
the preparation, printing and distribution of sales literature, printing and
distribution of prospectuses to prospective investors, and such other services
and promotional activities for the Funds as may from time to time be agreed upon
by the Company and its board of directors, including public relations efforts
and marketing programs to communicate with investors and prospective investors.
These services and activities may be conducted by the staff of IFG, IDI or their
affiliates or by third parties.
Under the Plan, the Company's payments to IDI on behalf of the Fund are
limited to an amount computed at an annual rate of 0.25% of the Fund's New
Assets. IDI is not entitled to payment for overhead expenses under the Plan, but
may be paid for all or a portion of the compensation paid for salaries and other
employee benefits for the personnel of IFG or IDI whose primary responsibilities
involve marketing shares of the INVESCO funds, including the Fund. Payment
amounts by the Fund under the Plan, for any month, may be made to compensate IDI
for permissible activities engaged in and services provided by IDI during the
<PAGE>
rolling 12-month period in which that month falls, although the period is
expanded to 24 months for expenses incurred during the first 24 months of the
Fund's operations. Therefore, any obligations incurred by IDI in excess of the
limitations described above will not be paid by the Fund under the Plan, and
will be borne by IDI. In addition, IDI and its affiliates may from time to time
make additional payments from its revenues to securities dealers, financial
advisers and financial institutions that provide distribution-related and/or
administrative services for the Fund. No further payments will be made by the
Fund under the Plan in the event of the Plan's termination. Payments made by the
Fund may not be used to finance directly the distribution of shares of any other
Fund of the Company or other mutual fund advised by IFG or distributed by IDI.
However, payments received by IDI which are not used to finance the distribution
of shares of a Fund become part of IDI's revenues and may be used by IDI for
activities that promote distribution of any of the mutual funds advised by IFG.
Subject to review by the Funds' directors, payments made by the Fund under the
Plan for compensation of marketing personnel, as noted above, are based on an
allocation formula designed to ensure that all such payments are appropriate.
IDI will bear any distribution- and service-related expenses in excess of the
amounts which are compensated pursuant to the Plan. The Plan also authorizes any
financing of distributions which may result from IDI's use of its own resources,
including profits from investment advisory fees received from a Fund, providing
that such fees are legitimate and not excessive. For more information, see "How
Shares Can Be Purchased - Distribution Plan" in the Statement of Additional
Information.
FUND SERVICES
Shareholder Accounts. IFG will maintain a share account that reflects your
current holdings. Share certificates will be issued only upon specific request.
You will have greater flexibility to conduct transactions if you do not request
certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a written
statement which consolidates and summarizes account activity and value at the
beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions are
automatically invested in additional Fund shares at the NAV on the ex-dividend
date, unless you choose to have dividends and/or capital gain distributions
automatically reinvested in another INVESCO fund or paid by check (minimum of
$10.00).
Telephone Transactions. All shareholders may exchange and redeem Fund
shares by telephone, unless they expressly decline these privileges. By signing
the new account Application, a Telephone Transaction Authorization Form, or
otherwise using these privileges, the investor has agreed that, if the Fund has
followed reasonable procedures, such as recording telephone instructions and
sending written transaction confirmations, it will not be liable for following
telephone instructions that it believes to be genuine. As a result of this
policy, the investor may bear the risk of any loss due to unauthorized or
fraudulent instructions.
<PAGE>
Retirement Plans and IRAs. Fund shares may be purchased for IRAs and many
types of tax-deferred retirement plans. IFG can supply you with information and
forms to establish or transfer your existing plan or account.
HOW TO SELL SHARES
The following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at the current NAV next
determined after a request in proper form is received at the Fund's office. The
NAV at the time of the redemption may be more or less than the price you paid to
purchase your shares, depending primarily upon the Fund's investment
performance.
Please specify from which fund you wish to redeem shares. Shareholders have
a separate account for each fund in which they invest.
While the Fund will attempt to process telephone redemptions promptly,
there may be times -- particularly in periods of severe economic or market
disruption -- when you may experience delays in redeeming shares by phone.
HOW TO SELL SHARES
- --------------------------------------------------------------------------------
Method Minimum Redemption Please Remember
- --------------------------------------------------------------------------------
By Telephone
Call us toll-free $250 (or, if less, This option is not
at 1-800-525-8085. full liquidation of available for
the account) for a shares held in
redemption check; IRAs.
$1,000 for a wire
to bank of record. The
maximum amount which may
be redeemed by telephone
is generally $25,000.
These telephone redemption
privileges may be modified
or terminated in the future
at IFG's discretion.
- --------------------------------------------------------------------------------
In Writing
Mail your request Any amount. The If the shares to be
to INVESCO Funds redemption request redeemed are
Group, Inc., P.O. must be signed by represented by
Box 173706 all registered stock certificates,
Denver, CO 80217- owners of the the certificates
3706. You may also account. Payment must be sent to
send your request will be mailed to IFG.
by overnight your address of
courier to 7800 E. record, or to a
Union Ave., Denver, designated bank.
CO 80237.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 9.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call IFG for
further details and
the correct form.
- --------------------------------------------------------------------------------
Periodic Withdrawal Plan
You may call us to $100 per payment on You must have at
request the a monthly or least $10,000 total
appropriate form quarterly basis. invested with the
and more The redemption INVESCO funds, with
information at 1- check may be made at least $5,000 of
800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third Party Any amount. All registered owners
Mail your request of the account must sign
to INVESCO Funds the request, with a
Group, Inc. signature guarantee from
P.O. Box 173706 an eligible guarantor
Denver, CO 80217- financial institution,
3706. such as a commercial bank
or a recognized national
or regional securities
firm.
================================================================================
<PAGE>
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances --for instance, if normal trading is not
taking place on the New York Stock Exchange, or during an emergency as defined
by the Securities and Exchange Commission. If your shares were purchased by a
check which has not yet cleared, payment will be made promptly upon clearance of
the purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to individually redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
TAXES, DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders all of its net
investment income, net capital gains and net gains from foreign currency
transactions, if any. Distribution of all net investment income to shareholders
allows the Fund to maintain its tax status as a regulated investment company.
The Fund does not expect to pay any federal income or excise taxes because of
its tax status as a regulated investment company.
Shareholders must include all dividends and other distributions in taxable
income for federal, state and local income tax purposes, unless they are exempt
from income taxes. Dividends and other distributions are taxable whether they
are received in cash or automatically reinvested in shares of the Fund or
another fund in the INVESCO group.
Net realized capital gains of the Fund are classified as short-term and
long-term gains depending upon how long the Fund held the security that gave
rise to the gains. Short-term capital gains are included in income from
dividends and interest as ordinary income and are taxed at the taxpayer's
marginal tax rate. the Taxpayer Relief Act of 1997 (the "Tax Act"), enacted in
August 1997, changed the taxation of long-term capital gains by applying
different capital gains rates depending on the taxpayer's holding period and
marginal rate of federal income tax. Long-term gains realized on the sale of
securities held for more than one year but not for more than 18 months are
taxable at a rate of 28%. This category of long-term gains is often referred to
as "mid-term" gains but is technically termed "28% rate gains." Long-term gains
realized on the sale of securities held for more than 18 months are taxable at a
rate of 20%. At the end of each year, information regarding the tax status of
dividends and other distributions is provided to shareholders. Shareholders
should consult their tax adviser as to the effect of the Tax Act on
distributions of net capital gains by the Fund.
<PAGE>
Shareholders may realize capital gains or losses when they sell their
shares at more or less than the price originally paid. Capital gains on shares
held for more than one year will be long-term capital gain, in which event it
will be subject to federal income tax at the rates indicated above.
The Fund may be subject to withholding of foreign taxes on dividends or
interest it receives on foreign securities. Foreign taxes withheld will be
treated as an expense of the Fund.
Individuals and certain other non-corporate shareholders may be subject to
backup withholding of 31% on dividends, capital gains and other distributions
and redemption proceeds. You can avoid backup withholding on your account by
ensuring that we have a correct, certified tax identification number, unless you
are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
Dividends and Other Distributions. The Fund earns ordinary or net
investment income in the form of interest and dividends on investments.
Dividends paid by the Fund will be based solely on the income earned by it. The
Fund's policy is to distribute substantially all of this income, less expenses,
to shareholders on ^ a quarterly basis, at the discretion of the Company's board
of directors. Dividends are automatically reinvested in additional shares of the
Fund at the net asset value on the payable date unless otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains, if any, realized on foreign currency transactions, are
distributed to shareholders at least annually, usually in December. Capital gain
distributions are automatically reinvested in additional shares of the Fund at
the net asset value on the payable date unless otherwise requested.
Dividend and other distributions are paid to shareholders who hold shares
on the record date of the distribution, regardless of how long the shares have
been held by the shareholder. The Fund's share price will then drop by the
amount of the distribution on the ex-dividend or ex-distribution date. If a
shareholder purchases shares immediately prior to the distribution, the
shareholder will, in effect, have "bought" the distribuiton by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Company have equal voting rights based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Company's funds. The Company will assist
shareholders in communicating with other shareholders as required by the
Investment Company Act of 1940.
<PAGE>
Master/Feeder Option. As a matter of fundamental policy, the Company may,
in the future, seek to achieve the Fund's investment objective by investing all
of the Fund's assets in another investment company having substantially the same
fundamental investment objective, policies and limitations. It is expected that
any such investment company would be managed by IFG in substantially the same
manner as the Fund. If permitted by applicable law, any such investment may be
made in the sole discretion of the Company's board of directors without a vote
of the Fund's shareholders. However, shareholders will be given at least 30 days
prior notice of any such investment. Such an investment would be made only if
the board of directors determines it to be in the best interests of the Fund and
its shareholders based on potential cost savings, operational efficiencies or
other factors. No assurance can be given that costs would be materially reduced
if this option were implemented.
<PAGE>
INVESCO GROWTH & INCOME
FUND
A no-load mutual fund
seeking ^ high total
return.
PROSPECTUS
June 30, 1998
INVESCO FUNDS
INVESCO Distributors, Inc. (SM)
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(R): 1-800-424-8085
http://www.invesco.com
In Denver, visit one of our
convenient Investor Centers:
Cherry Creek,
155-B Fillmore Street;
Denver Tech Center,
7800 East Union Avenue,
Lobby Level
In addition, all documents
filed by the Company with
the Securities and Exchange
Commission can be located
on a web site maintained
by the Commission at
http://www.sec.gov.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
June 30, 1998
INVESCO CAPITAL APPRECIATION FUNDS, INC.
INVESCO Dynamics Fund
INVESCO Growth & Income Fund
Address: Mailing Address:
7800 E. Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO Capital Appreciation Funds, Inc. (The "Company") is a diversified,
no-load management investment company currently consisting of two portfolios of
investments, the INVESCO Dynamics Fund (the "Dynamics Fund")and the INVESCO
Growth & Income Fund ("Growth & Income Fund") (collectively, the "Funds").
INVESCO Dynamics Fund seeks capital appreciation through aggressive investment
policies. The Growth & Income Fund seeks high total return through a combination
of capital appreciation and current income.
The DYNAMICS FUND seeks to achieve its investment objective of providing
its shareholders appreciation of capital through aggressive investment policies
by investing its assets in a variety of securities which are believed to present
possibilities for capital enhancement. The Dynamics Fund normally invests
primarily in common stocks but may invest in other kinds of securities when
determined appropriate by management. The Dynamics Fund should not be considered
by investors seeking current income.
<PAGE>
The GROWTH AND INCOME FUND seeks to achieve its investment objectives of
providing its shareholders appreciation of capital and current income by
investing primarily in common stocks, preferred stocks and securities
convertible into common stocks of companies which offer growth of earnings and
the payment of current dividends. The Growth & Income Fund may also purchase
securities which do not pay current dividends but which offer prospects for
growth of capital and future income.
Additional funds may be offered in the future.
A Prospectus for the Dynamics Fund dated July 3, 1997 and a Prospectus for
the Growth & Income Fund dated June 30, 1998, which provide the basic
information you should know before investing in the Funds, may be obtained
without charge from INVESCO Distributors, Inc., Post Office Box 173706, Denver,
Colorado 80217-3706. This Statement of Additional Information is not a
Prospectus, but contains information in addition to and more detailed than that
set forth in the Prospectuses. It is intended to provide additional information
regarding the activities and operations of the Funds, and should be read in
conjunction with the Prospectuses.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
INVESTMENT POLICIES AND RESTRICTIONS........................................35
THE FUNDS AND THEIR MANAGEMENT..............................................45
HOW SHARES CAN BE PURCHASED.................................................57
HOW SHARES ARE VALUED.......................................................61
FUND PERFORMANCE............................................................62
SERVICES PROVIDED BY THE FUNDS..............................................64
TAX-DEFERRED RETIREMENT PLANS...............................................65
HOW TO REDEEM SHARES........................................................66
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES...................................66
INVESTMENT PRACTICES........................................................69
ADDITIONAL INFORMATION......................................................73
APPENDIX A..................................................................76
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in each Fund's Prospectus in the section entitled "Investment
Objective and Policies," the Funds may invest in a variety of securities and
employ a broad range of investment techniques in seeking to achieve their
respective investment objectives. Such securities and techniques include the
following:
Types of Equity Securities
As described in the Prospectuses, equity securities which may be purchased
by the Funds consist of common, preferred and convertible preferred stocks, and
securities having equity characteristics such as rights, warrants and
convertible debt securities. Common stocks and preferred stocks represent equity
ownership interests in a corporation and participate in the corporation's
earnings through dividends which may be declared by the corporation. Unlike
common stocks, preferred stocks are entitled to stated dividends payable from
the corporation's earnings, which in some cases may be "cumulative" if prior
stated dividends have not been paid. Dividends payable on preferred stock have
priority over distributions to holders of common stock, and preferred stocks
generally have preferences on the distribution of assets in the event of the
corporation's liquidation. Preferred stocks may be "participating," which means
that they may be entitled to dividends in excess of the stated dividend in
certain cases. The rights of common and preferred stocks are generally
subordinate to rights associated with a corporation's debt securities. Rights
and warrants are securities which entitle the holder to purchase the securities
of a company (generally, its common stock) at a specified price during a
specified time period. Because of this feature, the values of rights and
warrants are affected by factors similar to those which determine the prices of
common stocks and exhibit similar behavior. Rights and warrants may be purchased
directly or acquired in connection with a corporate reorganization or exchange
offer.
Convertible securities which may be purchased by the Funds include
convertible debt obligations and convertible preferred stock. A convertible
security entitles the holder to exchange it for a fixed number of shares of
common stock (or other equity security), usually at a fixed price within a
specified period of time. Until conversion, the holder receives the interest
paid on a convertible bond or the dividend preference of a preferred stock.
Convertible securities have an "investment value" which is the theoretical
value determined by the yield they provide in comparison with similar securities
without the conversion feature. Investment value changes are based upon
prevailing interest rates and other factors. They also have a "conversion value"
which is their worth in market value if the securities were exchanged for their
<PAGE>
underlying equity securities. Conversion value fluctuates directly with the
price of the underlying security. If conversion value is substantially below
investment value, the price of the convertible security is governed principally
by its investment value. If the conversion value is near or above investment
value, the price of the convertible security generally will rise above
investment value and may represent a premium over conversion value due to the
combination of the convertible security's right to interest (or dividend
preference) and the possibility of capital appreciation from the conversion
feature. A convertible security's price, when price is influenced primarily by
its conversion value, generally will yield less than a senior non-convertible
security of comparable investment value. Convertible securities may be purchased
at varying price levels above their investment values or conversion values.
However, there is no assurance that any premium above investment value or
conversion value will be recovered because prices change and, as a result, the
ability to achieve capital appreciation through conversion may be eliminated.
Debt Securities. As discussed in the sections of the Fund's Prospectus
entitled "Investment Objective And Strategy" and "Investment Policies And
Risks," the debt securities in which the Fund invests generally are subject to
two kinds of risk: credit risk and market risk. Credit risk relates to the
ability of the issuer to meet interest or principal payments or both as they
come due. The ratings given a debt security by Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P") provide a generally useful guide as to such credit risk. Market
risk relates to the fact that the market values of debt securities in which the
Fund invests generally will be affected by changes in the level of interest
rates. An increase in interest rates will tend to reduce the market values of
such debt securities, whereas a decline in interest rates will tend to increase
their values.
Restricted/144A Securities. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may invest in
restricted securities that can be resold to institutional investors pursuant to
Rule 144A under the Securities Act of 1933 ("Rule 144A Securities"). In recent
years, a large institutional market has developed for Rule 144A Securities.
Institutional investors generally will not seek to sell these instruments to the
general public but instead will often depend on an efficient institutional
market in which Rule 144A Securities can readily be resold or on an issuer's
ability to honor a demand for repayment. Therefore, the fact that there are
contractual or legal restrictions on resale to the general public or certain
institutions is not dispositive of the liquidity of such investments.
<PAGE>
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by a Fund could affect adversely the
marketability of such security, and the Fund might be unable to dispose of such
security promptly or at reasonable prices.
Repurchase Agreements. As discussed in the section of each Fund's
Prospectus entitled "Investment Policies And Risks," each Fund may invest in
repurchase agreements with respect to debt instruments eligible for investment
by a Fund with member banks of the Federal Reserve System, registered
broker-dealers and registered U.S. government securities dealers. A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by a Fund
(including accrued interest earned thereon) must have a total value at least
equal to the value of the repurchase agreement and are held as collateral by the
Funds' custodian bank until the repurchase agreement is completed.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, the Fund may experience costs and
delays in realizing on the collateral. Finally, it is possible that the Fund may
not be able to substantiate its interest in the underlying security and may be
deemed an unsecured creditor of the other party to the agreement. While the
Fund's management acknowledges these risks, it is expected that the risks can be
minimized through careful monitoring procedures.
Lending of Securities. As described in the section of each Fund's
Prospectus entitled "Investment Policies And Risks," each Fund may lend its
portfolio securities to qualified brokers, dealers, banks or other financial
institutions, provided that such loans are callable at any time by the Fund and
are at all times secured by collateral consisting of cash or securities issued
or guaranteed by the United States government or its agencies, or any
combination thereof, equal to at least the market value, determined daily, of
the loaned securities. The advantage of such loans is that the Fund continues to
have the benefits (and risks) of ownership of the loaned securities, while at
the same time receiving income from the borrower of the securities. Loans will
<PAGE>
be made only to firms deemed by the adviser or sub-adviser (under
procedures established by the Company's board of directors) to be creditworthy
and when the amount of interest income to be received justifies the inherent
risks. A loan may be terminated by the borrower on one business day's notice, or
by the Fund at any time. If at any time the borrower fails to maintain the
required amount of collateral (at least 100% of the market value of the borrowed
securities, plus accrued interest and dividends), the Fund will require the
deposit of additional collateral not later than the business day following the
day on which a collateral deficiency occurs or the collateral appears
inadequate. If the deficiency is not remedied by the end of that period, the
Fund will use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss during the loan period would inure to the Fund.
Futures and Options on Futures. As described in the Fund's Prospectus, the
Fund may enter into futures contracts, and purchase and sell ("write") options
to buy or sell futures contracts. The Fund will comply with and adhere to all
limitations in the manner and extent to which it effects transactions in futures
and options on such futures currently imposed by the rules and policy guidelines
of the Commodity Futures Trading Commission as conditions for exemption of a
mutual fund, or the investment advisers thereto, from registration as a
commodity pool operator. The Fund will not, as to any positions, whether long,
short or a combination thereof, enter into futures and options thereon for which
the aggregate initial margins and premiums exceed 5% of the fair market value of
its assets after taking into account unrealized profits and losses on options it
has entered into. In the case of an option that is "in-the-money," as defined in
the Commodity Exchange Act (the "CEA"), the in-the-money amount may be excluded
in computing such 5%. (In general a call option on a future is "in-the-money" if
the value of the future exceeds the exercise ("strike") price of the call; a put
option on a future is "in-the-money" if the value of the future which is the
subject of the put is exceeded by the strike price of the put.) The Fund may use
futures and options thereon solely for bona fide hedging or for other
non-speculative purposes within the meaning and intent of the applicable
provisions of the CEA.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Instead,
the Fund will be required to deposit in its segregated asset account an amount
of cash or qualifying securities (currently U.S. Treasury bills), currently in a
minimum amount of $15,000. This is called "initial margin." Such initial margin
is in the nature of a performance bond or good faith deposit on the contract.
However, since losses on open contracts are required to be reflected in cash in
<PAGE>
the form of variation margin payments, the Fund may be required to make
additional payments during the term of the contracts to its broker. Such
payments would be required, for example, where, during the term of an interest
rate futures contract purchased by the Fund, there was a general increase in
interest rates, thereby making the Fund's portfolio securities less valuable. In
all instances involving the purchase of financial futures contracts by the Fund,
an amount of cash together with such other securities as permitted by applicable
regulatory authorities to be utilized for such purpose, at least equal to the
market value of the futures contracts, will be deposited in a segregated account
with the Fund's custodian to collateralize the position. At any time prior to
the expiration of a futures contract, the Fund may elect to close its position
by taking an opposite position which will operate to terminate the Fund's
position in the futures contract. For a more complete discussion of the risks
involved in futures and options on futures and other securities, refer to
Appendix B ("Description of Futures, Options and Forward Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before the Fund is able in an orderly fashion to invest in
the security, it is possible that the market may decline instead. If the Fund,
as a result, concluded not to make the planned investment at that time because
of concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures contracts and the
portion of the portfolio being hedged, the price of futures may not correlate
perfectly with movements in the prices due to certain market distortions. All
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between underlying instruments and the
value of the futures contract. Moreover, the deposit requirements in the futures
market are less onerous than margin requirements in the securities market and
may therefore cause increased participation by speculators in the futures
market. Such increased participation may also cause temporary price distortions.
Due to the possibility of price distortion in the futures market and because of
the imperfect correlation between movements in the underlying instrument and
movements in the prices of futures contracts, the value of futures contracts as
a hedging device may be reduced.
In addition, if the Fund has insufficient available cash, it may at times
have to sell securities to meet variation margin requirements. Such sales may
have to be effected at a time when it may be disadvantageous to do so.
<PAGE>
Options on Futures Contracts. The Fund may buy and write options on
futures contracts for hedging purposes; options are also included in the types
of instruments sometimes known as derivatives. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying instrument, ownership of the option may or may not be less risky
than ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when the Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a partial
hedge against declining prices of the security or foreign currency which is
deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund is
considering buying. If a call or put option which the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between changes in
the value of its portfolio securities and changes in the value of the futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be reflected fully in the value of the options bought.
<PAGE>
Forward Foreign Currency Contracts
The Fund may enter into forward currency contracts, which are included in
the types of instruments sometimes known as derivatives, to purchase or sell
foreign currencies (i.e., non-U.S. currencies) as a hedge against possible
variations in foreign exchange rates. A forward foreign currency contract is an
agreement between the contracting parties to exchange an amount of currency at
some future time at an agreed upon rate. The rate can be higher or lower than
the spot rate between the currencies that are the subject of the contract. A
forward contract generally has no deposit requirement, and such transactions do
not involve commissions. By entering into a forward contract for the purchase or
sale of the amount of foreign currency invested in a foreign security
transaction, the Fund can hedge against possible variations in the value of the
dollar versus the subject currency either between the date the foreign security
is purchased or sold and the date on which payment is made or received or during
the time the Fund holds the foreign security. Hedging against a decline in the
value of a currency in the foregoing manner does not eliminate fluctuations in
the prices of portfolio securities or prevent losses if the prices of such
securities decline. Furthermore, such hedging transactions preclude the
opportunity for gain if the value of the hedged currency should rise. The Fund
will not speculate in forward currency contracts. Although the Fund has not
adopted any limitations on its ability to use forward contracts as a hedge
against fluctuations in foreign exchange rates, the Fund does not attempt to
hedge all of its non-U.S. portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by its investment
adviser or sub-adviser. The Fund will not enter into forward contracts for a
term of more than one year.
Investment Restrictions. As described in the section of the Prospectus
entitled "Investment Policies And Risks," each Fund has adopted certain
fundamental investment restrictions. These restrictions may not be changed
without the prior approval of the holders of a majority, as defined in the 1940
Act, of the outstanding voting securities of each Fund. For purposes of the
following limitations, 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.
Under these restrictions, the Dynamics Fund may not:
(1) issue preference shares or create any funded debt;
(2) sell short or buy on margin;
(3) borrow money (in the event the board of directors should
authorize the borrowing of money for the purpose of
<PAGE>
exercising permissive leverage) unless immediately thereafter the
Fund's total net assets equal at least 400% of all borrowings,
except that the percentage may be less than 400% if reduced because
of changes in the value of the Fund's investments, but it is
required at all times to comply with the provisions of the
Investment Company Act of 1940 and to maintain asset coverage of at
least 300%. The Fund may borrow only from banks;
(4) buy or sell real estate (however, the Fund may purchase securities
of companies investing in real estate), commodities or commodity
contracts;
(5) invest in securities of any other investment company except for a
purchase or acquisition in accordance with a plan of reorganization,
merger or consolidation;
(6) invest in any company for the purpose of exercising control or
management;
(7) purchase the securities of any company if as a result of such
purchase more than 10% of total assets would be invested in
securities that are illiquid because of the legal or contractual
restrictions on resale to which they are subject ("restricted
securities"), or because there are no readily available market
quotations for such securities, or enter into a repurchase agreement
maturing in more than seven days, if as a result, such repurchase
agreements, together with illiquid securities, would constitute more
than 10% of total assets;
(8) purchase securities if the purchase would cause the Fund, at the
time, to have more than 5% of its total assets invested in the
securities of any one issuer or to own more than 10% of the voting
securities of any one issuer (except obligations issued or
guaranteed by the U.S.
Government);
(9) engage in the underwriting of any securities;
(10) make loans to any person, except through the purchase of debt
securities in accordance with the Fund's investment policies, or the
lending of portfolio securities to broker-dealers or other
institutional investors, or the entering into repurchase agreements
with member banks of the Federal Reserve System, registered
broker-dealers and registered government securities dealers. The
aggregate value of all portfolio securities loaned may not exceed
33-1/3% of the Fund's total net assets (taken at current value). No
more than 10% of the Fund's total net assets may be invested in
repurchase agreements maturing in more than seven days;
<PAGE>
(11) purchase securities of any company in which any officer or director
of the Fund or its investment adviser owns more than 1/2 of 1% of
the outstanding securities, or in which all of the officers or
directors of the Fund and its investment supervisor, as a group, own
more than 5% of such securities; or
(12) invest more than 25% of the value of the Fund's assets in one
particular industry.
In applying restriction (7) above, the Fund also includes illiquid
securities (those which cannot be sold in the ordinary course of business within
seven days at approximately the valuation given to them by the Fund) among the
securities subject to the 10% of total assets limit. The board of directors has
delegated to the Fund's investment adviser the authority to determine that a
liquid market exists for securities eligible for resale pursuant to Rule 144A
under the 1933 Act, or any successor to such rule, and that such securities are
not subject to the Fund's 5% of total assets limitations on investing in
securities that are not readily marketable, discussed below. Under guidelines
established by the board of directors, the adviser will consider the following
factors, among others, in making this determination: (1) the unregistered nature
of a Rule 144A security; (2) the frequency of trades and quotes for the
security; (3) the number of dealers willing to purchase or sell the security and
the number of other potential purchasers; (4) dealer undertakings to make a
market in the security; and (5) the nature of the security and the nature of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers and the mechanics of transfer). However, Rule 144A
Securities are still subject to the Fund's 10% of total assets limitation on
investments in restricted securities (securities for which there are legal or
contractual restrictions on resale).
In applying restriction (12) above, the Fund uses a modified S&P industry
code classification schema which uses various sources to classify.
Under these restrictions, the Growth & Income Fund will not:
(1) issue preference shares or create any funded debt;
(2) borrow money in excess of 5% of the value of its total assets and
then only from banks, and when borrowing, it is a temporary measure
for emergency purposes;
(3) invest in the securities of any other investment company except for
a purchase or acquisition in accordance with a plan of
reorganization, merger or consolidation;
<PAGE>
(4) with respect to 75% of its total assets, purchase securities if the
purchase would cause the Fund, at the time, to have more than 5% of
the value of its total assets invested in the securities of any one
company or to own more than 10% of the voting securities of any one
company (except obligations issued or guaranteed by the
U.S. Government);
(5) make loans to any person, except through the purchase of debt
securities in accordance with the Fund's investment policies, or the
lending of portfolio securities to broker-dealers or other
institutional investors, or the entering into repurchase agreements
with member banks of the Federal Reserve System, registered
broker-dealers and registered government securities dealers. The
aggregate value of all portfolio securities loaned may not exceed
33-1/3% of the Fund's total assets (taken at current value). No more
than 10% of the Fund's total assets may be invested in repurchase
agreements maturing in more than seven days;
(6) invest in any company for the purpose of exercising control or
management;
(7) buy other than readily marketable securities;
(8) engage in the underwriting of any securities;
(9) purchase securities of any company in which any officer or director
of the Fund or its investment adviser owns more than 1/2 of 1% of
the outstanding securities, or in which all of the officers and
directors of the Fund and its investment adviser, as a group, own
more than 5% of such securities;
(10) invest more than 25% of the value of the Fund's total assets in one
particular industry.
*The Fund has no intention of borrowing money for other than temporary cash flow
purposes in the foreseeable future unless unexpected developments make borrowing
of money by the Fund under this fundamental investment restriction desirable in
order to allow the Fund to meet its obligation (e.g., processing redemptions in
a timely manner).
With respect to investment restriction (7) above, the board of directors
has delegated to the Funds' investment adviser the authority to determine
whether a liquid market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such rule, and
whether or not such securities are subject to restriction (9) above. Under
<PAGE>
guidelines established by the board of directors, the adviser will consider
the following factors, among others, in making this determination: (1) the
unregistered nature of a Rule 144A security; (2) the frequency of trades and
quotes for the security; (3) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (4) dealer
undertakings to make a market in the security; and (5) the nature of the
security and the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
In applying restriction (10) above, the Fund uses a modified S&P industry
code classification schema which uses various sources to classify.
The following non-fundamental investment restrictions have been adopted by
the Fund. These investment restrictions may be changed by the directors at their
discretion, without shareholder approval:
(1) The Fund will not enter into any futures contracts, options on
futures, puts and calls if immediately thereafter the aggregate
margin deposits on all outstanding derivatives positions held by the
Fund and premiums paid on outstanding positions, after taking into
account unrealized profits and losses, would exceed 5% of the market
value of the total assets of the Fund.
(2) The Fund will not enter into any derivatives positions if the
aggregate net amount of the Fund's commitments under outstanding
derivatives positions of the Fund would exceed the market value of
the total assets of the Fund.
THE FUNDS AND THEIR MANAGEMENT
The Company. The Company was incorporated as INVESCO Dynamics Fund, Inc. on
April 2, 1993, under the laws of Maryland. On July 1, 1993, the Company assumed
all of the assets and liabilities of Financial Dynamics Fund, Inc. ("FDF"),
which was incorporated in Colorado on February 17, 1967. All financial and other
information about the Company for periods prior to July 1, 1993, relates to FDF.
The name of the Company was changed to INVESCO Capital Appreciation Funds, Inc.
on July 3, 1997.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
("IFG"), is employed as the Company's investment adviser. IFG was established in
1932 and also serves as an investment adviser to INVESCO Diversified Funds,
Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO Growth Fund, Inc.,
INVESCO Income Funds, Inc., INVESCO Industrial Income Fund, Inc., INVESCO
International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO Multiple
<PAGE>
Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO Strategic
Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Value Trust, and
INVESCO Variable Investment Funds, Inc.
The Investment Sub-Adviser. Prior to February 3, 1998, Institutional Trust
Company ("ITC"), formerly INVESCO Trust Company, provided sub-advisory services
to the Dynamics Fund. Effective February 3, 1998, ITC no longer provides
sub-advisory service to this Fund and IFG provides such day-to-day portfolio
management services as the investment adviser to the Dynamics Fund. This change
in no way changes the basis upon which investment advice is provided to the
Dynamics Fund, the cost of those services to this Fund or the persons actually
performing the investment advisory and other services previously provided by
ITC.
The Distributor. Effective September 30, 1997 (with respect to the Growth
& Income Fund, upon inception), INVESCO Distributors, Inc. ("IDI") became the
Funds' distributor. IDI, established in 1997, is a registered broker-dealer that
acts as distributor for all retail mutual funds advised by IFG. Prior to
September 30, 1997, IFG served as the Dynamics Fund's distributor.
IFG and IDI are indirect wholly owned subsidiaries of AMVESCAP PLC, a
publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8, 1997, as
part of a merger between a direct subsidiary of INVESCO PLC and A I M Management
Group Inc. that created one of the largest independent investment management
businesses in the world with approximately $192.2 billion in assets under
management. IFG was established in 1932 and as of December 31, 1997, managed 14
mutual funds, consisting of 47 separate portfolios, on behalf of over 848,000
shareholders.
AMVESCAP PLC's North American subsidiaries include the following:
--ITC of Denver, Colorado, provides retirement account custodian and/or
trust services for individual retirement accounts (IRAs) and other retirement
plan accounts. This includes services such as recordkeeping, tax reporting and
compliance. ITC acts as trustee or custodian to these plans. ITC accepts
contributions and provides, through IFG, complete transfer agency functions:
correspondence, subaccounting, telephone communications and processing of
distributions.
--INVESCO Capital Management, Inc. of Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc.,a registered broker-dealer whose primary business is the
distribution of shares of two registered investment companies.
<PAGE>
--INVESCO Management & Research, Inc. of Boston, Massachusetts, primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors of Dallas, Texas, is responsible for providing
advisory services in the U.S. real estate markets for AMVESCAP PLC's clients
worldwide. Clients include corporate pension plans and public pension funds as
well as endowment and foundation accounts.
--A I M Advisors, Inc. of Houston, Texas provides investment advisory and
administrative services for retail and institutional mutual funds.
--A I M Capital Management, Inc. of Houston, Texas provides investment
advisory services to individuals, corporations, pension plans and other private
investment advisory accounts and also serves as a sub-adviser to certain retail
and institutional mutual funds, one Canadian mutual fund and one portfolio of an
open-end registered investment company that is offered to separate accounts of
variable insurance companies.
--A I M Distributors, Inc. and Fund Management Company of Houston, Texas
are registered broker-dealers that act as the principal underwriters for retail
and institutional mutual funds.
The corporate headquarters of AMVESCAP PLC are located at 11 Devonshire
Square, London, EC2M4YR, England.
As indicated in the Funds' Prospectuses, IFG permits investment and other
personnel to purchase and sell securities for their own accounts in accordance
with a compliance policy governing personal investing by directors, officers and
employees of IFG and its North American affiliates. The policy requires
officers, inside directors, investment and other personnel of IFG and its North
American affiliates to pre-clear all transactions in securities not otherwise
exempt under the policy. Requests for trading authority will be denied when,
among other reasons, the proposed personal transaction would be contrary to the
provisions of the policy or would be deemed to adversely affect any transaction
then known to be under consideration for or to have been effected on behalf of
any client account, including the Funds.
<PAGE>
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of IFG and
its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of the policy are administered by and subject to
exceptions authorized by IFG.
Investment Advisory Agreement. IFG serves as investment adviser pursuant
to an investment advisory agreement dated February 28, 1997 (the "Agreement")
with the Company which was approved by the board of directors on November 6,
1996, by a vote cast in person by a majority of the directors of the Company,
including a majority of the directors who are not "interested persons" of the
Company or IFG at a meeting called for such purpose. Shareholders of the Fund
approved the Agreement on January 31, 1997 for an initial term expiring February
28, 1999. With respect to the Growth & Income Fund, the Agreement was approved
by IFG on June 30, 1998, for an initial term expiring June 30, 2000. Thereafter,
the Agreement may be continued from year to year as long as each such
continuance is specifically approved at least annually by the board of directors
of the Company, or by a vote of the holders of a majority, as defined in the
1940 Act, of the outstanding shares of the Funds. Any such continuance also must
be approved by a majority of the Company's directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Agreement may be terminated at any time without penalty by
either party upon sixty (60) days' written notice and terminates automatically
in the event of an assignment to the extent required by the 1940 Act and the
rules thereunder.
The Agreement provides that IFG shall manage the investment portfolios of
the Funds in conformity with each Fund's investment policies (either directly or
by delegation to a sub-adviser which may be a company affiliated with IFG).
Further, IFG shall perform all administrative, internal accounting (including
computation of net asset value), clerical, statistical, secretarial and all
other services necessary or incidental to the administration of the affairs of
the Funds excluding, however, those services that are the subject of separate
agreement between the Company and IFG or any affiliate thereof, including the
distribution and sale of each Fund's shares and provision of transfer agency,
dividend disbursing agency, and registrar services, and services furnished under
an Administrative Services Agreement with IFG discussed below. Services provided
under the Agreement include, but are not limited to: supplying the Company with
officers, clerical staff and other employees, if any, who are necessary in
connection with the Funds' operations; furnishing office space, facilities,
equipment, and supplies; providing personnel and facilities required to respond
to inquiries related to shareholder accounts; conducting periodic compliance
reviews of the Funds' operations; preparation and review of required documents,
reports and filings by IFG's in-house legal and accounting staff (including the
<PAGE>
prospectus, statement of additional information, proxy statements,
shareholder reports, tax returns, reports to the SEC, and other corporate
documents of the Funds), except insofar as the assistance of independent
accountants or attorneys is necessary or desirable; supplying basic telephone
service and other utilities; and preparing and maintaining certain of the books
and records required to be prepared and maintained by the Funds under the 1940
Act. Expenses not assumed by IFG are borne by the Funds.
As full compensation for its advisory services to the Company, IFG
receives a monthly fee. With respect to the Dynamics Fund, the fee is calculated
at the annual rate of 0.60% on the first $350 million of the Fund's average net
assets; 0.55% on the next $350 million of the Fund's average net assets; and
0.50% on the Fund's average net assets in excess of $700 million. With respect
to the Growth & Income Fund, the fee is calculated at the annual rate of 0.75%
of the Funds' average net assets.
Administrative Services Agreement. IFG, either directly or through
affiliated companies, also provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved on November 6, 1996, by a vote cast in
person by all of the directors of the Company, including all of the directors
who are not "interested persons" of the Company or IFG at a meeting called for
such purpose. The Administrative Agreement was for an initial term expiring
February 28, 1998 and has been extended by action of the board of directors
until May 15, 1999. The Administrative Agreement may be continued from year to
year as long as each such continuance is specifically approved by the board of
directors of the Company, including a majority of the directors who are not
parties to the Administrative Agreement or interested persons (as defined in the
Investment Company Act of 1940) of any such party, cast in person at a meeting
called for the purpose of voting on such continuance. The Administrative
Agreement may be terminated at any time without penalty by IFG on sixty (60)
days' written notice, or by the Company upon thirty (30) days' written notice,
and terminates automatically in the event of an assignment unless the Company's
board of directors approves such assignment.
The Administrative Agreement provides that IFG shall provide the following
services to the Funds: (A) such sub-accounting and recordkeeping services and
functions as are reasonably necessary for the operation of the Funds; and (B)
such sub-accounting, recordkeeping, and administrative services and functions,
which may be provided by affiliates of IFG, as are reasonably necessary for the
operation of Fund shareholder accounts maintained by certain retirement plans
and employee benefit plans for the benefit of participants in such plans.
<PAGE>
As full compensation for services provided under the Administrative
Agreement, each Fund pays a monthly fee to IFG consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund. During the fiscal years ended April 30, 1997, 1996 and 1995, the Dynamics
Fund paid IFG administrative services fees in the amount of $130,696, $97,509
and $60,466, respectively. The Growth & Income Fund did not pay IFG
Administrative Services Fees as of April 30, 1997 as the Fund did not commence
operations until June 30, 1998.
Transfer Agency Agreement. IFG also performs transfer agent, dividend
disbursing agent, and registrar services for the Fund pursuant to a Transfer
Agency Agreement dated February 28, 1997 which was approved by the board of
directors of the Company, including a majority of the Company's directors who
are not parties to the Transfer Agency Agreement or "interested persons" of any
such party, on November 6, 1996, for an initial term expiring February 28, 1998
and has been extended by action of the board of directors until May 15, 1999.
Thereafter the Transfer Agency Agreement may be continued from year to year as
long as such continuance is specifically approved at least annually by the board
of directors of the Company, or by a vote of the holders of a majority of the
outstanding shares of the Funds. Any such continuance also must be approved by a
majority of the Company's directors who are not parties to the Transfer Agency
Agreement or interested persons (as defined by the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Transfer Agency Agreement may be terminated at any time without
penalty by either party upon sixty (60) days' written notice and terminates
automatically in the event of assignment.
The Transfer Agency Agreement provides that the Funds shall pay to IFG an
annual fee of $20.00 per shareholder account, or, where applicable, per
participant in an omnibus account per year. This fee is paid monthly at 1/12 of
the annual fee and is based upon the actual number of shareholder accounts and
omnibus account participants in existence at any time during each month. For the
fiscal years ended April 30, 1997, 1996 and 1995, the Dynamics Fund paid IFG
transfer agency fees of $1,964,970, $1,108,321 and $838,096 (prior to the
voluntary absorption of certain Fund expenses by INVESCO), respectively. The
Growth & Income Fund did not pay IFG transfer agency fees as of April 30, 1997
as the Fund did not commence operations until June 30, 1998.
Officers and Directors of the Company. The overall direction and
supervision of the Company is the responsibility of the board of directors,
which has the primary duty of seeing that the general investment policies and
programs of each of the Funds are carried out and that the Funds are properly
<PAGE>
administered. The officers of the Company, all of whom are officers and
employees of, and paid by IFG, are responsible for the day-to-day administration
of the Company and each of the Funds. The investment adviser for each Fund has
the primary responsibility for making investment decisions on behalf of that
Fund. These investment decisions are reviewed by the investment committee of
IFG.
All of the officers and directors of the Company hold comparable positions
with INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Multiple Asset Funds, Inc., INVESCO Specialty Funds, Inc., INVESCO
Strategic Portfolios, Inc., INVESCO Tax-Free Income Funds, Inc., and INVESCO
Variable Investment Funds, Inc. All of the directors of the Company also serve
as trustees of INVESCO Value Trust. In addition, all of the directors of the
Company, with the exception of Dan Hesser, are trustees of INVESCO Treasurer's
Series Trust. All of the officers of the Company also hold comparable positions
with INVESCO Value Trust. Set forth below is information with respect to each of
the Company's officers and directors. Unless otherwise indicated, the address of
the directors and officers is Post Office Box 173706, Denver, Colorado
80217-3706. Their affiliations represent their principal occupations during at
least the past five years.
CHARLES W. BRADY,*+ Chairman of the Board. Chief Executive Officer and
Director of AMVESCAP PLC, London, England, and of various subsidiaries thereof;
Chairman of the Board of INVESCO Treasurer's Series Trust. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. Vice Chairman of INVESCO
Treasurer's Series Trust. Trustee of INVESCO Global Health Sciences Fund.
Formerly, Chairman of the Executive Committee and Chairman of the Board of
Security Life of Denver Insurance Company, Denver, Colorado; Director of ING
America Life Insurance Company, Urbaine Life Insurance Company and Midwestern
United Life Insurance Company. Address: Security Life Center, 1290 Broadway,
Denver, Colorado. Born: January 12, 1928.
DAN J. HESSER,+* President, CEO and Director. Chairman of the Board of
INVESCO Funds Group, Inc. and INVESCO Distributors, Inc. and Chief Operating
Officer of INVESCO Global Health Sciences Fund. Born: December 27, 1939.
VICTOR L. ANDREWS,** Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
<PAGE>
Regulated Industry of Georgia State University; formerly, member of the
faculties of the Harvard Business School and the Sloan School of Management of
MIT. Dr. Andrews is also a director of the Southeastern Thrift and Bank Fund,
Inc. and The Sheffield Funds, Inc. Address: 4625 Jettridge Drive, Atlanta,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 1775
Sherman Street, #1000, Denver, Colorado. Born: August 7, 1936.
LAWRENCE H. BUDNER,# Director. Trust Consultant; prior to June 30, 1987,
Senior Vice President and Senior Trust Officer of InterFirst Bank, Dallas,
Texas. Address: 7608 Glen Albens Circle, Dallas, Texas. Born: July 25, 1930.
DANIEL D. CHABRIS,+# Director. Financial Consultant; Assistant Treasurer of
Colt Industries Inc., New York, New York, from 1966 to 1988. Address: 19
Kingsbridge Way, Madison, Connecticut. Born: August 1, 1923.
WENDY L. GRAMM, Ph.D.,** Director. Self-employed (since 1993); Professor of
Economics and Public Administration, University of Texas at Arlington. Formerly,
Chairman, Commodity Futures Trading Commission from 1988 to 1993, administrator
for Information and Regulatory Affairs at the Office of Management and Budget
from 1985 to 1988, Executive Director of the Presidential Task Force on
Regulatory Relief and Director of the Federal Trade Commission's Bureau of
Economics. Dr. Gramm is also a director of the Chicago Mercantile Exchange,
Enron Corporation, IBP, Inc., State Farm Insurance Company, State Farm Life
Insurance Company, Independent Women's Forum, International Republic Institute,
and the Republican Women's Federal Forum. Dr. Gramm is also a member of the
Board of Visitors, College of Business Administration, University of Iowa, and a
member of the Board of Visitors, Center for Study of Public Choice, George Mason
University. Address: 4201 Yuma Street, N.W., Washington, D.C. Born: January 10,
1945.
HUBERT L. HARRIS, JR.,* Director. Chairman (since 1996) and President
(January 1990 to May 1996) of INVESCO Services, Inc.; Chief Executive Officer of
INVESCO Individual Services Group. Member of the Executive Committee of the
Alumni Board of Trustees of Georgia Institute of Technology. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: July 15, 1943.
KENNETH T. KING,# Director. Formerly, Chairman of the Board of The Capitol
Life Insurance Company, Providence Washington Insurance Company, and Director of
numerous subsidiaries thereof in the U.S. Formerly, Chairman of the Board of The
<PAGE>
Providence Capitol Companies in the United Kingdom and Guernsey. Chairman
of the Board of the Symbion Corporation (a high technology company) until 1987.
Address: 4080 North Circulo Manzanillo, Tucson, Arizona. Born: November 16,
1925.
JOHN W. MCINTYRE,# Director. Retired. Formerly, Vice Chairman of the Board
of Directors of The Citizens and Southern Corporation and Chairman of the Board
and Chief Executive Officer of The Citizens and Southern Georgia Corp. and
Citizens and Southern National Bank. Director of Golden Poultry Co., Inc.
Trustee of INVESCO Global Health Sciences Fund and Gables Residential Trust.
Address: 7 Piedmont Center, Suite 100, Atlanta, GA. Born: September 14, 1930.
LARRY SOLL, Ph.D.,** Director. Retired. Formerly, Chairman of the Board
(1987 to 1994), Chief Executive Officer (1982 to 1989 and 1993 to 1994) and
President (1982 to 1989) of Synergen Corp. Director of Synergen since its
incorporation in 1982. Director of ISI Pharmaceuticals, Inc. Trustee of INVESCO
Global Health Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born:
April 26, 1942.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel and Secretary of INVESCO Funds Group, Inc. and INVESCO Trust Company
(since 1989) and INVESCO Distributors, Inc. (since 1997); Vice President (May
1989 to April 1995), Secretary and General Counsel of INVESCO Funds Group, Inc.;
formerly, employee of a U.S. regulatory agency, Washington, D.C. (June 1973
through May 1989). Born: September 25, 1947.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
Funds Group, Inc. and INVESCO Trust Company (since 1988). Senior Vice President
and Treasurer of INVESCO Distributors, Inc. (since 1997). Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO Funds Group, Inc. (since 1995) and of INVESCO Distributors, Inc. (since
1997) and Trust Officer of INVESCO Trust Company since July 1995 and formerly
(August 1992 to July 1995) Vice President of INVESCO Funds Group, Inc. and trust
officer of INVESCO Trust Company. Formerly, Vice President of 440 Financial
Group from June 1990 to August 1992 and Assistant Vice President of Putnam
Companies from November 1986 to June 1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO Funds Group,
Inc. (since 1984) and Trust Officer of INVESCO Trust Company. Born: September
14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds Group,
Inc. (since 1984) and of INVESCO Distributors, Inc. (since 1997) and Trust
Officer of INVESCO Trust Company. Born: February 3, 1948.
<PAGE>
#Member of the audit committee of the Company's board of directors.
+Member of the executive committee of the Company's board of directors. On
occasion, the executive committee acts upon the current and ordinary business of
the Company between meetings of the board of directors. Except for certain
powers which, under applicable law, may only be exercised by the full board of
directors, the executive committee may exercise all powers and authority of the
board of directors in the management of the business of the Company. All
decisions are subsequently submitted for ratification by the board of Directors.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
**Member of the management liaison committee of the Company's board of
directors.
As of April 1, 1998, officers and directors of the Company, as a group,
beneficially owned less than 1% of the Company's outstanding shares and less
than 1% of each Fund's outstanding shares.
Director Compensation
The following table sets forth, for the fiscal year ended April 30, 1997:
the compensation paid by the Company to its eight independent directors for
services rendered in their capacities as directors of the Company; the benefits
accrued as Company expenses with respect to the Defined Benefit Deferred
Compensation Plan discussed below; and the estimated annual benefits to be
received by these directors upon retirement as a result of their service to the
Company. In addition, the table sets forth the total compensation paid by all of
the mutual funds distributed by INVESCO Funds Group, Inc. (including the
Company), INVESCO Advisor Funds, Inc., INVESCO Treasurer's Series Trust, and
INVESCO Global Health Sciences Fund (collectively, the "INVESCO Complex") to
these directors for services rendered in their capacities as directors or
trustees during the year ended December 31, 1996. As of December 31, 1996, there
were 49 funds in the INVESCO Complex. Dr. Soll became an independent director of
the Company effective May 15, 1997, and is not included in the following chart.
Dr. Gramm became an independent director of the Company effective July 29, 1997,
and is not included in the following chart.
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued Annual INVESCO
Name of Compensa- As Part Benefits Complex
Person, tion From of Company Upon Re- Paid To
Position Company(1) Expenses(2) tirement(3) Directors(1)
Fred A. Deering, $ 3,407 $ 1,634 $1,591 $ 98,850
Vice Chairman of
the Board
Victor L. Andrews 3,089 1,544 1,841 84,350
Bob R. Baker 3,245 1,378 2,468 84,850
Lawrence H. Budner 2,920 1,544 1,841 80,350
Daniel D. Chabris 3,245 1,762 1,309 84,850
A. D. Frazier, Jr.(4) 1,841 0 0 81,500
Kenneth T. King 2,413 1,696 1,443 71,350
John W. McIntyre 2,920 0 0 90,350
------- ------ ----- -------
Total $23,080 $9,558 10,493 $676,450
% of Net Assets 0.0030%(6) 0.0013%(5) 0.0044%(6)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison and compensation committees, and the members of the executive and
valuation committees each receive compensation for serving in such capacities in
addition to the compensation paid to all independent directors.
(2)Represents estimated benefits accrued with respect to the Defined
Benefit Deferred Compensation Plan discussed below, and not compensation
deferred at the election of the directors.
(3)These figures represent the Company's share of the estimated annual
benefits payable by the INVESCO Complex (excluding INVESCO Global Health
Sciences Fund, which does not participate in any retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
number of funds in the INVESCO Complex, and for other reasons during the period
<PAGE>
in which retirement benefits are accrued on behalf of the respective
directors. This results in lower estimated benefits for directors who are closer
to retirement and higher estimated benefits for directors who are further from
retirement. With the exception of Messrs. Frazier and McIntyre, each of these
directors has served as a director/trustee of one or more of the funds in the
INVESCO Complex for the minimum five-year period required to be eligible to
participate in the Defined Benefit Deferred Compensation Plan.
(4)Effective February 28, 1997, Mr. Frazier resigned as a director of the
Company. Effective November 1, 1996, Mr. Frazier was employed by AMVESCAP PLC, a
company affiliated with INVESCO. Because it was possible that Mr. Frazier would
be employed with AMVESCAP PLC, he was deemed to be an "interested person" of the
Company and of the other funds in the INVESCO Complex effective May 1, 1996.
Effective November 1, 1996, Mr. Frazier no longer received any director's fees
or other compensation from the Company or other funds in the INVESCO Complex for
his service as a director. Mr. Frazier resigned as a director of the Company
effective February 28, 1997.
(5)Totals as a percentage of the Company's net assets as of April 30, 1997.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1996.
Messrs. Brady and Hesser, as "interested persons" of the Company, the Fund
and the other funds in the INVESCO Complex, receive compensation as officers or
employees of INVESCO or its affiliated companies, and do not receive any
director's fees or other compensation from the Company or the other funds in the
INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by IFG and
INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon retiring from the boards at
the retirement age of 72 (or the retirement age of 73 or 74, if the retirement
date is extended by the boards for one or two years, but less than three years)
continuation of payment for one year (the "first year retirement benefit") of
the annual basic retainer payable by the funds to the qualified director at the
time of his or her retirement (the "basic retainer"). Commencing with any such
director's second year of retirement, and commencing with the first year of
retirement of a director whose retirement has been extended by the board for
three years, a qualified director shall receive quarterly payments at an annual
<PAGE>
rate equal to 40% of the basic retainer. These payments will continue for
the remainder of the qualified director's life or ten years, whichever is longer
(the "reduced retainer payments"). If a qualified director dies or becomes
disabled after age 72 and before age 74 while still a director of the funds, the
first year retirement benefit and the reduced retainer payments will be made to
him or her or to his or her beneficiary or estate. If a qualified director
becomes disabled or dies either prior to age 72 or during his or her 74th year
while still a director of the funds, the director will not be entitled to
receive the first year retirement benefit; however, the reduced retainer
payments will be made to his or her beneficiary or estate. The plan is
administered by a committee of three directors who are also participants in the
plan and one director who is not a plan participant. The cost of the plan will
be allocated among the IFG and Treasurer's Series funds in a manner determined
to be fair and equitable by the committee. Although the Company is not making
any payments to directors under the plan as of the date of this Statement of
Additional Information, it has begun to accrue, as a current expense, a
proportionate amount of the estimated future cost of these benefits. The Company
has no stock options or other pension or retirement plans for management or
other personnel and pays no salary or compensation to any of its officers.
The Company has an audit committee that is comprised of five of the
directors who are not interested persons of the Company. The committee meets
periodically with the Company's independent accountants and officers to review
accounting principles used by the Company, the adequacy of internal controls,
the responsibilities and fees of the independent accountants, and other matters.
The Company also has a management liaison committee which meets quarterly
with various management personnel of INVESCO in order (a) to facilitate better
understanding of management and operations of the Company, and (b) to review
legal and operational matters which have been assigned to the committee by the
board of directors, in furtherance of the board of directors' overall duty of
supervision.
HOW SHARES CAN BE PURCHASED
The shares of each Fund are sold on a continuous basis at the net asset
value per share of the Fund next calculated after receipt of a purchase order in
good form. The net asset value per share for each Fund is computed separately
for each Fund and is determined once each day that the New York Stock Exchange
is open as of the close of regular trading on that Exchange, but may also be
computed at other times. See "How Shares Are Valued."
The Company has authorized one or more brokers to accept purchase orders
on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Funds' behalf. The Funds will be
deemed to have received a purchase order when an authorized broker or, if
<PAGE>
applicable, a broker's authorized designee, accepts the order. A purchase
order will be priced at a Fund's Net Asset Value next calculated after the order
has been accepted by an authorized broker or the broker's authorized designee.
IDI acts as the Funds' Distributor under a distribution agreement with the
Funds, under which it receives no compensation and bears all expense, including
the costs of printing and distribution of prospectuses incident to direct sales
and distribution of Fund shares on a no-load basis.
Distribution Plan. As discussed under "How to Buy Shares Distribution
Expenses" in the Prospectus, the Company has adopted a Plan and Agreement of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act, which was
implemented on November 1, 1990. The Plan provides that each Fund may make
monthly payments to IFG of amounts computed at an annual rate no greater than
0.25% of the Fund's average net assets to permit IFG, at its discretion, to
engage in certain activities and provide services in connection with the
distribution of each Fund's shares to investors. Payment by a Fund under the
Plan, for any month, may be made to compensate IFG for permissible activities
engaged in and services provided by IFG during the rolling 12-month period in
which that month falls, although the period is extended to 24 months for
obligations incurred during the first 24 months of a Fund's operations. For the
fiscal year ended April 30, 1997, the Dynamics Fund made payments to IFG under
the Plan in the amount of $2,012,429. In addition, as of April 30, 1997,
$153,027 of additional distribution accruals had been incurred by the Dynamics
Fund and will be paid during the fiscal year ended April 30, 1998. As noted in
the section of each Fund's Prospectus entitled "How to Buy Shares-Distribution
Expenses," one type of expenditure is the payment of compensation to securities
companies and other financial institutions and organizations, which may include
IFG-affiliated companies, in order to obtain various distribution-related and/or
administrative services for the Funds. Each Fund is authorized by the Plan to
use its assets to finance the payments made to obtain those services. Payments
will be made by IFG to broker-dealers who sell shares of the Funds and may be
made to banks, savings and loan associations and other depository institutions.
Although the Glass-Steagall Act limits the ability of certain banks to act as
underwriters of mutual fund shares, the Company does not believe that these
limitations would affect the ability of such banks to enter into arrangements
with IFG, but can give no assurance in this regard. However, to the extent it is
determined otherwise in the future, arrangements with banks might have to be
modified or terminated, and, in that case, the size of the Funds possibly could
decrease to the extent that the banks would no longer invest customer assets in
a particular Fund. Neither the Company nor its investment adviser will give any
preference to banks or other depository institutions which enter into such
arrangements when selecting investments to be made by each Fund.
<PAGE>
For the fiscal year ended April 30, 1997, allocation of 12b-1 amounts paid
by the Dynamics Fund for the following categories of expenses were:
advertising--$406,171; sales literature, printing, and postage--$260,850; direct
mail--$85,518; public relations/promotion--$28,948; compensation to securities
dealers and other organizations--$950,063; and marketing personnel-- $280,879.
There were no allocations made with respect to the Growth & Income Fund as of
April 30, 1997, as the Fund did not commence operations until June 30, 1998.
The nature and scope of services which are provided by securities dealers
and other organizations may vary by dealer but include, among other things,
processing new stockholder account applications, preparing and transmitting to
the Company's Transfer Agent computer-processable tapes of all Fund transactions
by customers, serving as the primary source of information to customers in
answering questions concerning each Fund, and assisting in other customer
transactions with each Fund.
The Plan was approved on April 21, 1993, at a meeting called for such
purpose, by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("12b-1 directors"). Pursuant to
authorization granted by the public shareholders of FDF on May 24, 1993, FDF, as
the initial shareholder of the Fund, approved the Plan on June 24, 1993 for an
initial term expiring April 30, 1994. The Plan has been continued by action of
the board of directors until May 15, 1999. With respect to the Dynamics Fund,
the board of directors, on February 4, 1997, approved amending the Plan,
effective January 1, 1997, to convert the Plan to a compensation type Rule 12b-1
plan. This amendment of the Plan did not result in increasing the amount of the
Fund's payments thereunder. With respect to the Growth & Income Fund, the Plan
has been approved by action of the board of directors of the Company for an
initial period expiring May 15, 1999.
The Plan provides that it shall continue in effect with respect to each
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can also be terminated at
any time with respect to any Fund, without penalty, if a majority of the 12b-1
directors, or shareholders of such Fund, vote to terminate the Plan. The Company
may, in its absolute discretion, suspend, discontinue or limit the offering of
its shares at any time. In determining whether any such action should be taken,
the board of directors intends to consider all relevant factors including,
without limitation, the size of the Funds, the investment climate for any
particular Fund, general market conditions, and the volume of sales and
redemptions of a Fund shares. The Plan may continue in effect and payments may
<PAGE>
be made under the Plan following any such temporary suspension or
limitation of the offering of a Fund's shares; however, the Company is not
contractually obligated to continue the Plan for any particular period of time.
Suspension of the offering of a Fund's shares would not, of course, affect a
shareholder's ability to redeem his or her shares. So long as the Plan is in
effect, the selection and nomination of persons to serve as 12b-1 directors of
the Company shall be committed to the 12b-1 directors then in office at the time
of such selection or nomination. The Plan may not be amended to increase
materially the amount of a Fund's payments thereunder without approval of the
shareholders of such Fund, and all material amendments to the Plan must be
approved by the board of directors of the Company, including a majority of the
12b-1 directors. Under the agreement implementing the Plan, IFG or the Funds,
the latter by vote of a majority of the 12b-1 directors or of the holders of a
majority of any Fund's outstanding voting securities, may terminate such
agreement without penalty upon 30 days' written notice to the other party. No
further payments will be made by any Fund under the Plan in the event of its
termination as to that Fund.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the 1940 Act, it shall remain in effect as such, so
as to authorize the use of each Fund's assets in the amounts and for the
purposes set forth therein, notwithstanding the occurrence of an assignment, as
defined by the 1940 Act, and rules thereunder. To the extent it constitutes an
agreement pursuant to a plan, each Fund's obligation to make payments to IFG
shall terminate automatically, in the event of such "assignment," in which event
the Funds may continue to make payments, pursuant to the Plan, to IFG or another
organization only upon the approval of new arrangements, which may or may not be
with IFG, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the 12b-1 directors, by a vote
cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the amounts
paid therefor by each Fund are provided to, and reviewed by, the directors on a
quarterly basis. On an annual basis, the directors consider the continued
appropriateness of the Plan at the level of compensation provided therein.
The only directors or interested persons, as that term is defined in
Section 2(a)(19) of the 1940 Act, of the Company who have a direct or indirect
financial interest in the operation of the Plan are the officers and directors
of the Company listed herein under the section entitled "The Funds And Their
Management- Officers and Directors of the Company," who are also officers either
of IFG or companies affiliated with IFG. The benefits which the Company believes
will be reasonably likely to flow to the Funds and their shareholders under the
Plan include the following:
<PAGE>
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment
objectives of the Fund;
(2) The sale of additional shares reduces the likelihood that redemption
of shares will require the liquidation of securities of the Funds in
amounts and at times that are disadvantageous for investment
purposes;
(3) The positive effect which increased Fund assets will have on its
revenues could allow IFG:
(a) To have greater resources to make the financial commitments
necessary to improve the quality and level of each Fund's
shareholder services (in both systems and personnel),
(b) To increase the number and type of mutual funds available to
investors from IFG (and support them in their infancy), and
thereby expand the investment choices available to all
shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's share
of certain expenses through economies of scale (e.g. exceeding
established breakpoints in the advisory fee schedule and allocating
fixed expenses over a larger asset base), thereby partially
offsetting the costs of the plan.
HOW SHARES ARE VALUED
As described in the section of each Fund's Prospectus entitled "Fund Price
and Performance," the net asset value of shares of each Fund is computed once
each day that the New York Stock Exchange is open as of the close of regular
trading on that Exchange (generally 4:00 p.m., New York time) and applies to
purchase and redemption orders received prior to that time. Net asset value per
share is also computed on any other day on which there is a sufficient degree of
trading in the securities held by a Fund that the current net asset value per
share might be materially affected by changes in the value of the securities
held, but only if on such day such Fund receives a request to purchase or redeem
shares. Net asset value per share is not calculated on days the New York Stock
Exchange is closed, such as federal holidays including New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving, and Christmas.
<PAGE>
The net asset value per share of each Fund is calculated by dividing the
value of all securities held by a Fund and its other assets (including dividends
and interest accrued but not collected), less the Fund's liabilities (including
accrued expenses), by the number of outstanding shares of that Fund. Securities
traded on national securities exchanges, the NASDAQ National Market System, the
NASDAQ Small Cap market and foreign markets are valued at their last sale prices
on the exchanges or markets where such securities are primarily traded.
Securities traded in the over-the-counter market for which last sale prices are
not available, and listed securities for which no sales were reported on a
particular date, are valued at their highest closing bid prices (or, for debt
securities, yield equivalents thereof) obtained from one or more dealers making
markets for such securities. If market quotations are not readily available,
securities or other assets will be valued at their fair values as determined in
good faith by the board of directors or pursuant to procedures adopted by the
Company's board of directors. The above procedures may include the use of
valuations furnished by a pricing service which employs a matrix to determine
valuations for normal institutional-size trading units of debt securities. Prior
to utilizing a pricing service, the Company's board of directors reviews the
methods used by such service to assure itself that securities will be valued at
their fair values. The Company's board of directors also periodically monitors
the methods used by such pricing services. Debt securities with remaining
maturities of 60 days or less at the time of purchase normally are valued at
amortized cost.
The value of the securities held by the Funds and other assets used in
computing net asset value generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing a
Fund's net asset value. However, in the event that the closing price of a
foreign security is not available in time to calculate a Fund's net asset value
on a particular day, the Company's board of directors has authorized the use of
the market price for the security obtained from an approved pricing service at
an established time during the day which may be prior to the close of regular
trading in the security. The value of all assets and liabilities initially
expressed in foreign currencies will be converted into U.S. dollars at the spot
rate of such currencies against U.S. dollars provided by an approved pricing
service.
<PAGE>
FUND PERFORMANCE
As discussed in the section of the Funds' Prospectuses entitled "Fund Price
and Performance," the Company advertises the total return performance of the
Funds. Average annual total return performance for the Dynamics Fund for the
one-, five-, and ten-year periods ended April 30, 1997, was (2.34%), 15.79% and
12.41%, respectively. Average annual total return performance for each of the
periods indicated was computed by finding the average annual compounded rates of
return that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T) exponent n = ERV
where: P = initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown above were
determined by solving the above formula for "T" for each time period indicated.
In conjunction with performance reports, comparative data between the
Funds' performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
In conjunction with performance reports and/or analyses of shareholder
service for the Funds, comparative data between the Funds' performance for a
given period and recognized indices of investment results for the same period,
and/or assessments of the quality of shareholder service, may be provided to
shareholders. Such indices include indices provided by Dow Jones & Company,
Standard & Poor's, Lipper Analytical Services, Inc., Lehman Brothers, National
Association of Securities Dealers Automated Quotations, Frank Russell Company,
Value Line Investment Survey, the American Stock Exchange, Morgan Stanley
Capital International, Wilshire Associates, the Financial Times Stock Exchange,
the New York Stock Exchange, the Nikkei Stock Average and Deutcher Aktienindex,
all of which are unmanaged market indicators. In addition, rankings, ratings,
and comparisons of investment performance and/or assessments of the quality of
shareholder service made by independent sources may be used in advertisements,
sales literature or shareholder reports, including reprints of, or selections
from, editorials or articles about the Funds. These sources utilize information
compiled (i) internally; (ii) by Lipper Analytical Services, Inc.; or (iii) by
other recognized analytical services. The Lipper Analytical Services, Inc.
mutual fund rankings and comparisons which may be used by the Funds in
performance reports will be drawn from the Capital Appreciation (Dynamics) and
Growth and Income (Growth & Income) mutual fund groupings, in addition to the
broad-based Lipper general fund groupings. Sources for Fund performance
information and articles about the Funds include, but are not limited to, the
following:
<PAGE>
American Association of Individual Investors' Journal
Banxquote
Barron's
Business Week
CDA Investment Technologies
CNBC
CNN
Consumer Digest
Financial Times
Financial World
Forbes
Fortune
Ibbotson Associates, Inc.
Institutional Investor
Investment Company Data, Inc.
Investor's Business Daily
Kiplinger's Personal Finance
Lipper Analytical Services, Inc.'s Mutual Fund
Performance Analysis
Money
Morningstar
Mutual Fund Forecaster
No-Load Analyst
No-Load Fund X
Personal Investor
Smart Money
The New York Times
The No-Load Fund Investor
U.S. News and World Report
United Mutual Fund Selector
USA Today
The Wall Street Journal
Wiesenberger Investment Companies Services
Working Woman
Worth
SERVICES PROVIDED BY THE FUNDS
Periodic Withdrawal Plan. As described in the section of the Funds'
Prospectuses entitled "How to Sell Shares," each Fund offers a Periodic
Withdrawal Plan. All dividends and distributions on shares owned by shareholders
participating in this Plan are reinvested in additional shares. Because
withdrawal payments represent the proceeds from sales of shares, the amount of
shareholders' investments in a Fund will be reduced to the extent that
withdrawal payments exceed dividends and other distributions paid and
reinvested. Any gain or loss on such redemptions must be reported for tax
purposes. In each case, shares will be redeemed at the close of business on or
about the 20th day of each month preceding payment and payments will be mailed
within five business days thereafter.
<PAGE>
The Periodic Withdrawal Plan involves the use of principal and is not a
guaranteed annuity. Payments under the Periodic Withdrawal Plan do not represent
income or a return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by directing a written request to IFG. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless the shareholder requests otherwise.
Exchange Policy. As discussed in the section of the Funds' Prospectuses
entitled "How to Buy Shares - Exchange Policy," each Fund offers shareholders
the ability to exchange shares of a Fund for shares of certain other no-load
mutual funds advised by IFG. Exchange requests may be made either by telephone
or by written request to INVESCO Funds Group, Inc., using the telephone number
or address on the cover of this Statement of Additional Information. Exchanges
made by telephone must be in an amount of at least $250, if the exchange is
being made into an existing account of one of the INVESCO funds. All exchanges
that establish a new account must meet the fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements other than the fund's applicable minimum subsequent
investment requirements. Any gain or loss realized on an exchange is recognized
for federal income tax purposes. This policy is not an option or right to
purchase securities and is not available in any state or other jurisdiction
where the shares of the mutual fund into which transfer is to be made are not
qualified for sale, or when the net asset value of the shares presented for
exchange is less than the minimum dollar purchase required by the appropriate
prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of the Funds' Prospectuses entitled "Fund
Services," shares of a Fund may be purchased as the investment medium for
various tax-deferred retirement plans. Persons who request information regarding
these plans from IFG will be provided with prototype documents and other
supporting information regarding the type of plan requested. Each of these plans
involves a long-term commitment of assets and is subject to possible regulatory
penalties for excess contributions, premature distributions or for insufficient
distributions after age 70-1/2. The legal and tax implications may vary
according to the circumstances of the individual investor. Therefore, the
investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
<PAGE>
HOW TO REDEEM SHARES
The Company has authorized one or more brokers to accept redemption orders
on the Funds' behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Fund's behalf. The Funds will
be deemed to have received a redemption order when an authorized broker or, if
applicable, a broker's authorized designee, accepts the order. A redemption
order will be priced at a Fund's Net Asset Value next calculated after the order
has been accepted by an authorized broker or the broker's authorized designee.
Normally, payments for shares redeemed will be mailed within seven (7)
days following receipt of the required documents as described in the section of
the Funds' Prospectuses entitled "How to Sell Shares." The right of redemption
may be suspended and payment postponed when: (a) the New York Stock Exchange is
closed for other than customary weekends and holidays; (b) trading on that
exchange is restricted; (c) an emergency exists as a result of which disposal by
a Fund of securities owned by it is not reasonably practicable, or it is not
reasonably practicable for a Fund fairly to determine the value of its net
assets; or (d) the SEC by order so permits.
It is possible that in the future conditions may exist which would, in the
opinion of the Company's investment adviser, make it undesirable for a Fund to
pay for redeemed shares in cash. In such cases, the investment adviser may
authorize payment to be made in portfolio securities or other property of the
Fund. However, the Company is obligated under the 1940 Act to redeem for cash
all shares of a Fund presented for redemption by any one shareholder having a
value up to $250,000 (or 1% of the Fund's net assets if that is less) in any
90-day period. Securities delivered in payment of redemptions are selected
entirely by the investment adviser based on what is in the best interests of the
Fund and its shareholders, and are valued at the value assigned to them in
computing the Fund's net asset value per share. Shareholders receiving such
securities are likely to incur brokerage costs on their subsequent sales of the
securities.
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES
Each Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Dynamics Fund so qualified in
the fiscal year ended April 30, 1997, and both Funds intend to qualify during
their current fiscal year. As a result, it is anticipated that neither Fund will
pay federal income or excise taxes and both Funds will be accorded conduit or
"pass through" treatment for federal income tax purposes.
<PAGE>
Dividends paid by each Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
each Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by each Fund of net capital gain (the excess of net
long-term capital gain over net short term capital loss) are, for federal income
tax purposes, taxable to the shareholder as long-term capital gains regardless
of how long a shareholder has held shares of the Fund. The Taxpayer Relief Act
of 1997 (the "Tax Act"), enacted in August 1997, changed the taxation of
long-term capital gains for individuals by applying different capital gains
rates depending on the taxpayer's holding period and marginal rate of federal
income tax. Long-term gains realized on the sale of securities held for more
than one year but not for more than 18 months are taxable at a rate of 28%. This
category of long-term gains is often referred to as "mid-term" gains but is
technically termed "28% rate gains." Long-term gains realized on the sale of
securities held for more than 18 months are taxable at a rate of 20%. At the end
of each year, information regarding the tax status of dividends and other
distributions is provided to shareholders. Shareholders should consult their tax
advisers as to the effect of the Tax Act on distributions by the Fund of net
capital gains.
All dividends and other distributions are regarded as taxable to the
investor, whether or not such dividends and distributions are reinvested in
additional shares of the Fund or another fund in the INVESCO group. The net
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
IFG may provide Fund shareholders with information concerning the average
cost basis of their shares in order to help them prepare their tax returns. This
information is intended as a convenience to shareholders, and will not be
reported to the Internal Revenue Service (the "IRS"). The IRS permits the use of
several methods to determine the cost basis of mutual fund shares. The cost
<PAGE>
basis information provided by IFG will be computed using the
single-category average cost method, although neither IFG nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses for a Fund in past years, the shareholder must continue to use the method
previously used, unless the shareholder applies to the IRS for permission to
change the method.
If a Fund's shares are sold at a loss after being held for six months or
less, the loss will be treated as long-term, instead of short-term, capital loss
to the extent of any capital gain distributions received on those shares.
Each Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and net capital gains for the one-year period
ending on April 30 of that year, plus certain other amounts.
Dividends and interest received by a Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld will be
treated as an expense of the Portfolio. If more than 50% of the value of a
Fund's total assets at the close of any taxable year consists of securities of
foreign corporations, the Fund will be eligible to, and may, file an election
with the Internal Revenue Service that will enable its shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to any foreign and
U.S. possessions income taxes paid by it. Each Fund will report to its
shareholders shortly after each taxable year their respective shares of the
Fund's income from sources within, and taxes paid to, foreign countries and U.S.
possessions if it makes this election.
Each Fund may invest in the stock of "passive foreign investment
companies" (PFICs"). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, a Fund will be subject to federal income tax on a portion
of any "excess distribution" received on the stock of a PFIC or of any gain on
disposition of the stock (collectively "PFIC income"), plus interest thereon,
<PAGE>
even if the Fund distributes the PFIC income as a taxable dividend to its
shareholders. The balance of the PFIC income will be included in such Fund's
investment company taxable income and, accordingly, will not be taxable to it to
the extent that income is distributed to its shareholders.
Each Portfolio may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
a Portfolio's adjusted tax basis therein as of the end of that year. Once the
election has been made, a Portfolio also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by a Portfolio
for prior taxable years. A Portfolio's adjusted tax basis in each PFIC's stock
with respect to which it makes this election will be adjusted to reflect that
amounts of income included and deductions taken under the election.
Gains or losses (1) from the disposition of foreign currencies, (2) from
the disposition of debt securities denominated in foreign currency that are
attributable to fluctuations in the value of the foreign currency between the
date of acquisition of each security and the date of disposition, and (3) that
are attributable to fluctuations in exchange rates that occur between the time a
Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time such Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and capital gain
distributions will generally be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, for income tax purposes does not entail government
supervision of management or investment policies.
INVESTMENT PRACTICES
Leverage. The Company's charter permits each Fund to borrow from banks up
to 25% of the value of its net assets, excluding the proceeds of any such
borrowing (subject to its investment restrictions), for the purpose of
purchasing portfolio securities. This is a speculative technique commonly known
as leverage. Since the Dynamics Fund's inception, leverage has never been
employed, and it may not be employed by either Fund without express
authorization of the Company's board of directors. Such authorization is not
presently contemplated. Should the leverage technique be employed at some future
<PAGE>
date, it would be employed with the expectation that portfolio gains
attributable to the investment of borrowed monies will exceed the interest costs
on such monies. If this expectation were not realized and the market value of
securities so purchased declined, however, the impact of such market decline
would be increased by the amount of interest paid on such borrowings.
Portfolio Turnover. There are no fixed limitations regarding a Fund's
portfolio turnover. Since the Dynamics Fund started business, the rate of
portfolio turnover has fluctuated under constantly changing economic conditions
and market circumstances. Portfolio turnover rates for the Dynamics Fund for the
fiscal years ended April 30, 1997 and 1996 were 204% and 196%, respectively.
Securities initially satisfying the basic policies and objectives of a Fund may
be disposed of when they are no longer suitable. Brokerage costs to a Fund are
commensurate with the rate of portfolio activity. In computing the portfolio
turnover rate, all investments with maturities or expiration dates at the time
of acquisition of one year or less are excluded. Subject to this exclusion, the
turnover rate is calculated by dividing (A) the lesser of purchases or sales of
portfolio securities for the fiscal year by (B) the monthly average of the value
of portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. IFG, as the Funds' investment adviser,
places orders for the purchase and sale of securities with brokers and dealers
based upon IFG's evaluation of the financial responsibility of the brokers and
dealers, and considering the brokers' and dealers' ability to effect
transactions at the best available prices. IFG evaluates the overall
reasonableness of brokerage commissions paid by reviewing the quality of
executions obtained on the portfolio transactions of each Fund, viewed in terms
of the size of transactions, prevailing market conditions in the security
purchased or sold, and general economic and market conditions. In seeking to
ensure that the commissions charged the Funds are consistent with prevailing and
reasonable commissions, IFG also endeavors to monitor brokerage industry
practices with regard to the commissions charged by broker-dealers on
transactions effected for other comparable institutional investors. While IFG
seeks reasonably competitive rates, the Funds do not necessarily pay the lowest
commission or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, IFG may select brokers that provide research services to
effect such transactions. Research services consist of statistical and
analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to IFG in making
informed investment decisions. Research services prepared and furnished by
brokers through which the Fund effects securities transactions may be used by
IFG in servicing all of its accounts and not all such services may be used by
IFG in connection with the Funds.
<PAGE>
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, IFG, consistent with the standard of
seeking to obtain the best execution on portfolio transactions, may place orders
with such brokers for the execution of transactions for the Funds on which the
commissions are in excess of those which other brokers might have charged for
effecting the same transactions.
Portfolio transactions may be effected through qualified broker-dealers
that recommend the Funds to their clients, or that act as agent in the purchase
of a Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, the
Company's adviser or sub-adviser may consider the sale of Fund shares by a
broker or dealer in selecting among qualified broker-dealers.
Certain financial institutions (including brokers who may sell shares of
the Funds, or affiliates of such brokers) are paid a fee (the "Services Fee")
for recordkeeping, shareholder communications and other services provided by the
brokers to investors purchasing shares of the Funds through no transaction fee
programs ("NTF Programs") offered by the financial institution or its affiliated
broker (an "NTF Program Sponsor"). The Services Fee is based on the average
daily value of the investments in each Fund made in the name of such NTF Program
Sponsor and held in omnibus accounts maintained on behalf of investors
participating in the NTF Program. With respect to certain NTF Programs, the
directors of the Company have authorized the Funds to apply dollars generated
from the Company's Plan and Agreement of Distribution pursuant to Rule 12b-1
under the 1940 Act (the "Plan") to pay the entire Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. With respect to other NTF
Programs, the Company's directors have authorized the Funds to pay transfer
agency fees to IFG based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Funds. IFG, in
turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
the directors of the Company have authorized the Company to apply dollars
generated from the Plan to pay the remainder of the Services Fee, subject to the
maximum Rule 12b-1 fee permitted by the Plan. IFG itself pays the portion of the
Fund's Services Fee, if any, that exceeds the sum of the sub-transfer agency or
recordkeeping fee and Rule 12b-1 fee. The Company's directors have further
authorized IFG to place a portion of the Funds' brokerage transactions with
certain NTF Program Sponsors or their affiliated brokers, if IFG reasonably
believes that, in effecting the Funds' transactions in portfolio securities, the
<PAGE>
broker is able to provide the best execution of orders at the most
favorable prices. A portion of the commissions earned by such a broker from
executing portfolio transactions onbehalf of the Funds may be credited by the
NTF Program Sponsor against its Services Fee. Such credit shall be applied first
against any sub-transfer agency or recordkeeping fee payable with respect to the
Funds, and second against any Rule 12b-1 fees used to pay a portion of the
Services Fee, on a basis which has resulted from negotiations between IFG and
the NTF Program Sponsor. Thus, the Funds pay sub-transfer agency or
recordkeeping fees to the NTF Program Sponsor in payment of the Services Fee
only to the extent that such fees are not offset by the Funds' credits. In the
event that the transfer agency fee paid by the Funds to IFG with respect to
investors who have beneficial interests in a particular NTF Program Sponsor's
omnibus accounts in a Fund exceeds the Services Fee applicable to the Fund,
after application of credits, IFG may carry forward the excess and apply it to
future Services Fees payable to that NTF Program Sponsor with respect to a Fund.
The amount of excess transfer agency fees carried forward will be reviewed for
possible adjustment by IFG prior to each fiscal year-end of the Funds. The
Company's board of directors has also authorized the Fund to pay to IFG the full
Rule 12b-1 fees contemplated by the Plan as payment for expenses incurred by IFG
in engaging in the activities and providing the services on behalf of the Funds
contemplated by the Plan, subject to the maximum Rule 12b-1 fee permitted by the
Plan, notwithstanding that credits have been applied to reduce the portion of
the 12b-1 fee that would have been used to pay IFG for payments to such NTF
Program Sponsor absent such credits.
The aggregate dollar amount of brokerage commissions paid by the Company
for the Dynamics Fund for the fiscal years ended April 30, 1997, 1996 and 1995,
were $5,707,197, $3,891,234 and $1,742,196, respectively. For the fiscal year
ended April 30, 1997, brokers providing research services received $2,699,291 in
commissions on portfolio transactions effected for the Dynamics Fund. The
aggregate dollar amount of such portfolio transactions was $1,591,210,810.
Commissions of $1,200 were allocated to certain brokers in recognition of their
sales of shares of the Dynamics Fund on portfolio transactions of such Fund
effected during the fiscal year ended April 30, 1997.
At April 30, 1997, the Dynamics Fund held debt securities of its regular
brokers or dealers, or their parents, as follows:
<PAGE>
Value of Securities
Broker or Dealer at 4/30/97
---------------- -------------------
Lehman Brothers Holdings 10,163
Cigna Corp. 27,292
IFG does not receive any brokerage commissions on portfolio transactions
effected on behalf of the Funds, and there is no affiliation between IFG or any
person affiliated with IFG or the Funds and any broker or dealer that executes
transactions for the Funds.
ADDITIONAL INFORMATION
Common Stock. The Company has 300,000,000 authorized shares of common
stock with a par value of $0.01 per share. Of the Company's authorized shares,
150,000,000 shares have been allocated to each of the two series. As of March
31, 1998, 80,124,255.583 shares of the Dynamics Fund were outstanding. All
shares issued and outstanding are, and all shares offered hereby, when issued,
will be, fully paid and nonassessable. The board of directors has the authority
to designate additional classes of common stock without seeking the approval of
shareholders and may classify and reclassify any authorized but unissued shares.
Shares of each series represent the interests of the shareholders of such
series in a particular portfolio of investments of the Company. Each series of
the Company's shares is preferred over all other series with respect to the
assets specifically allocated to that series, and all income, earnings, profits
and proceeds from such assets, subject only to the rights of creditors, are
allocated to shares of that series. The assets of each series are segregated on
the books of account and are charged with the liabilities of that series and
with a share of the Company's general liabilities. The board of directors
determines those assets and liabilities deemed to be general assets or
liabilities of the Company, and those items are allocated among series in a
manner deemed by the board of directors to be fair and equitable. Generally,
such allocation will be made based upon the relative total net assets of each
series. In the unlikely event that a liability allocable to one series exceeds
the assets belonging to the series, all or a portion of such liability may have
to be borne by the holders of shares of the Company's other series.
All Fund shares, regardless of series, have equal voting rights. Voting
with respect to certain matters, such as ratification of independent accountants
or election of directors, will be by all series of the Company. When not all
series are affected by a matter to be voted upon, such as approval of an
investment advisory contract or change in a Fund's investment policies, only
<PAGE>
shareholders of the series affected by the matter may be entitled to vote.
Company shares have noncumulative voting rights, which means that the holders of
a majority of the shares voting for the election of directors of the Company can
elect 100% of the directors if they choose to do so. In such event, the holders
of the remaining shares voting for the election of directors will not be able to
elect any person or persons to the board of directors. After they have been
elected by shareholders, the directors will continue to serve until their
successors are elected and have qualified or they are removed from office, in
either case by a shareholder vote, or until death, resignation or retirement.
Directors may appoint their own successors, provided that always at least a
majority of the directors have been elected by the Company's shareholders. It is
the intention of the Company not to hold annual meetings of shareholders. The
directors will call annual or special meetings of shareholders for action by
shareholder vote as may be required by the 1940 Act or the Company's Articles of
Incorporation, or at their discretion.
Principal Shareholders. As of March 31, 1998, the following
entity held more than 5% of the Dynamics Fund's outstanding equity
securities.
Amount and Nature Class and Percent
Name and Address of Ownership of Class
- ---------------- ----------------- -----------------
Charles Schwab & Co. Inc. 11,795,918.373 14.66%
Special Custody Account
For The Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Independent Accountants. Price Waterhouse LLP, 950 Seventeenth Street,
Denver, Colorado, has been selected as the independent accountants of the
Company. The independent accountants are responsible for auditing the financial
statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the investment securities of the Company's Funds in
accordance with procedures and conditions specified in the custody agreement.
Under the contract with the Company, the custodian is authorized to establish
separate accounts in foreign countries and to cause foreign securities owned by
the Company to be held outside the United States in branches of U.S. Banks and,
to the extent permitted by applicable regulations, in certain foreign banks and
securities depositories.
<PAGE>
Transfer Agent. The Company is provided with transfer agent, registrar,
and dividend disbursing agent services by INVESCO Funds Group, Inc., 7800 E.
Union Avenue, Denver, Colorado, pursuant to the Transfer Agency Agreement
described herein. Such services include the issuance, cancellation and transfer
of shares of the Funds, and the maintenance of records regarding the ownership
of such shares.
Reports to Shareholders. The Company's fiscal year ends on April 30. The
Company distributes reports at least semiannually to its shareholders. Financial
statements regarding the Company, audited by the independent accountants, are
sent to shareholders annually.
Legal Counsel. The firm of Kirkpatrick & Lockhart LLP, Washington, D.C.,
is legal counsel for the Company. The firm of Moye, Giles, O'Keefe, Vermeire &
Gorrell, Denver, Colorado, acts as special counsel to the Company.
Financial Statements. The audited financial statements of the Dynamics
Fund and the notes thereto for the fiscal year ended April 30, 1997, and the
report of Price Waterhouse LLP with respect to such financial statements, are
incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended April 30, 1997: Statement of Investment
Securities as of April 30, 1997; Statement of Assets and Liabilities as of April
30, 1997; Statement of Operations for the year ended April 30, 1997; Statement
of Changes in Net Assets for each of the two years in the period ended April 30,
1997; and Financial Highlights for each of the five years in the period ended
April 30, 1997.
Prospectus. The Company will furnish, without charge, a copy of any Fund's
Prospectus upon request. Such requests should be made to the Company at the
mailing address or telephone number set forth on the first page of this
Statement of Additional Information.
Registration Statement. This Statement of Additional Information and the
related Prospectuses do not contain all of the information set forth in the
Registration Statement the Company has filed with the SEC. The complete
Registration Statement may be obtained from the SEC upon payment of the fee
prescribed by the rules and regulations of the SEC.
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APPENDIX A
DESCRIPTION OF FUTURES AND OPTIONS CONTRACTS
Options on Securities
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such as
the Chicago Board of Options Exchange, which are regulated by the Securities and
Exchange Commission. The Options Clearing Corporation ("OCC") guarantees the
performance of each party to an exchange-traded option, by in effect taking the
opposite side of each such option. A holder or writer may engage in transactions
in exchange-traded options on securities and options on indices of securities
only through a registered broker/dealer which is a member of the exchange on
which the option is traded.
An option position in an exchange-traded option may be closed out only on
an exchange which provides a secondary market for an option of the same series.
Although the Funds generally will purchase or write only those options for which
there appears to be an active secondary market, there is no assurance that a
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liquid secondary market on an exchange will exist for any particular option
at any particular time. In such event it might not be possible to effect closing
transactions in a particular option with the result that a Fund would have to
exercise the option in order to realize any profit. This would result in the
Fund incurring brokerage commissions upon the disposition of underlying
securities acquired through the exercise of a call option or upon the purchase
of underlying securities upon the exercise of a put option. If the Fund, as a
covered call option writer, is unable to effect a closing purchase transaction
in a secondary market, unless the Fund is required to deliver the securities
pursuant to the assignment of an exercise notice, it will not be able to sell
the underlying security until the option expires.
Reasons for the potential absence of a liquid secondary market on an
exchange include the following: (i) there may be insuffi cient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transac tions or both; (iii) trading halts, suspensions
or other restric tions may be imposed with respect to particular classes or
series of options or underlying securities; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the facilities
of an exchange or a clearing corporation may not at all times be adequate to
handle current trading volume; or (vi) one or more exchanges could, for economic
or other reasons, decide or be compelled at some future date to discontinue the
trading of options (or particular class or series of options) in which event the
secondary market on that exchange (or in the class or series of options) would
cease to exist, although outstanding options on that exchange which had been
issued by a clearing corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms. There is no assurance
that higher than anticipated trading activity or other unforeseen events might
not, at a particular time, render certain of the facilities of any of the
clearing corporations inadequate and thereby result in the institution by an
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the OCC, based on forecasts provided by the U.S.
exchanges, believes that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and such exchanges have advised
such clearing corporation that they believe their facilities will also be
adequate to handle reasonably anticipated volume.
In addition, options on securities may be traded over-the-counter ("OTC")
through financial institutions dealing in such options as well as the underlying
instruments. OTC options are purchased from or sold (written) to dealers or
financial institutions which have entered into direct agreements with the
Company on behalf of a Fund. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Fund and the
transacting dealer, without the intermedi ation of a third party such as the
OCC. If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
as written, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. government securities dealers recognized by
the Federal Reserve Bank of New York.
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Futures Contracts
A futures contract is a bilateral agreement providing for the purchase and
sale of a specified type and amount of a financial instrument or foreign
currency, or for the making and acceptance of a cash settlement, at a stated
time in the future, for a fixed price. By its terms, a futures contract provides
for a specified settlement date on which, in the case of the majority of
interest rate and foreign currency futures contracts, the fixed income
securities or currency underlying the contract are delivered by the seller and
paid for by the purchaser, or on which, in the case of stock index futures
contracts and certain interest rate and foreign currency futures contracts, the
difference between the price at which the contract was entered into and the
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agree ments,
with both the purchaser and the seller equally obligated to complete the
transaction. In addition, futures contracts call for settlement only on the
expiration date, and cannot be "exercised" at any other time during their term.
The purchase or sale of a futures contract also differs from the purchase
or sale of a security or the purchase of an option in that no purchase price is
paid or received. Instead, an amount of cash or cash equivalents, which varies
but may be as low as 5% or less of the value of the contract, must be deposited
with the broker as "initial margin." Subsequent payments to and from the broker,
referred to as "variation margin," are made on a daily basis as the value of the
index or instrument underlying the futures contract fluctuates, making positions
in the futures contract more or less valuable, a process known as "marking to
market."
A futures contract may be purchased or sold only on an exchange, known as
a "contract market," designated by the Commodity Futures Trading Commission for
the trading of such contract, and only through a registered futures commission
merchant which is a member of such contract market. A commission must be paid on
each completed purchase and sale transaction. The contract market clearing house
guarantees the performance of each party to a futures contract, by in effect
taking the opposite side of such contract. At any time prior to the expiration
of a futures contract, a trader may elect to close out its position by taking an
opposite position on the contract market on which the position was entered into,
subject to the availability of a secondary market, which will operate to
terminate the initial position. At that time, a final determination of variation
margin is made and any loss experienced by the trader is required to be paid to
the contract market clearing house while any profit due to the trader must be
delivered to it.
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Interest rate futures contracts currently are traded on a variety of fixed
income securities, including long-term U.S. Treasury bonds, Treasury notes,
Government National Mortgage Association modified pass-through mortgage-backed
securities, U.S. Treasury bills, bank certificates of deposit and commercial
paper. In addition, interest rate futures contracts include contracts on indices
of municipal securities. Foreign currency futures contracts currently are traded
on the British pound, Canadian dollar, Japanese yen, Swiss franc, West German
mark and on Eurodollar deposits.
Options on Futures Contracts
An option on a futures contract provides the holder with the right to
enter into a "long" position in the underlying futures contract, in the case of
a call option, or a "short" position in the underlying futures contract, in the
case of a put option, at a fixed exercise price to a stated expiration date.
Upon exercise of the option by the holder, the contract market clearing house
establishes a corresponding short position for the writer of the option, in the
case of a call option, or a corresponding long position, in the case of a put
option. In the event that an option is exercised, the parties will be subject to
all the risks associated with the trading of futures contracts, such as payment
of variation margin deposits. In addition, the writer of an option on a futures
contract, unlike the holder, is subject to initial and variation margin
requirements on the option position.
A position in an option on a futures contract may be terminat ed by the
purchaser or seller prior to expiration by effecting a closing purchase or sale
transaction, subject to the availability of a liquid secondary market, which is
the purchase or sale of an option of the same series (i.e., the same exercise
price and expiration date) as the option previously purchased or sold. The
difference between the premiums paid and received represents the trader's profit
or loss on the transaction.
An option, whether based on a futures contract, a stock index or a
security, becomes worthless to the holder when it expires. Upon exercise of an
option, the exchange or contract market clearing house assigns exercise notices
on a random basis to those of its members which have written options of the same
series and with the same expiration date. A brokerage firm receiving such
notices then assigns them on a random basis to those of its customers which have
written options of the same series and expiration date. A writer therefore has
no control over whether an option will be exercised against it, nor over the
time of such exercise.
