PROSPECTUS
September ^ 23, 1998
INVESCO ^ ENDEAVOR FUND
INVESCO ^ Endeavor Fund (the "Fund") is actively managed to seek long-term
capital appreciation through aggressive investment policies. The Fund invests
primarily in common stocks of issuers of all sizes. The Fund does have the
flexibility to invest in other types of securities.
The Fund is a series of INVESCO ^ Equity Funds, Inc. (formerly, INVESCO
Capital Appreciation Funds, Inc.) (the "Company"), a diversified, managed,
no-load mutual fund consisting of three separate funds, each of which represents
a separate portfolio of investments. This Prospectus relates to shares of the
INVESCO ^ Endeavor Fund. Separate Prospectuses are available upon request from
INVESCO Distributors, Inc. ^ for the Company's other funds, INVESCO Dynamics
Fund and INVESCO Growth & Income Fund. Investors may purchase any or all of the
funds. Additional funds may be offered in the future.
This Prospectus provides you with the basic information you should know
before investing in the Fund. You should read it and keep it for future
reference. A Statement of Additional Information containing further information
about the Fund, dated September ^ 23, 1998, has been filed with the Securities
and Exchange Commission and is incorporated by reference into this Prospectus.
To ^ request a free copy, write to ^ INVESCO Distributors, Inc., P.O. Box
173706, Denver, Colorado 80217-3706; call 1-800-525-8085; or visit our web site
at http://www.invesco.com.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ^, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK OR OTHER FINANCIAL INSTITUTION. THE SHARES OF THE FUND ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY.
^
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TABLE OF CONTENTS
Page
ESSENTIAL INFORMATION........................................................2
ANNUAL FUND EXPENSES.........................................................3
INVESTMENT OBJECTIVE AND STRATEGY............................................4
INVESTMENT POLICIES AND RISKS................................................4
THE FUND AND ITS MANAGEMENT..................................................7
FUND PRICE AND PERFORMANCE...................................................8
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 a diversified ^ mutual fund
that is actively managed to seek long-term capital appreciation through
aggressive investment policies. It invests primarily in common stocks of issuers
of all sizes, which may range from larger well-established issuers to small
emerging growth companies. The Fund also has the flexibility to invest in other
types of securities. There is no guarantee that the Fund will meet its
objective. See "Investment Objective ^ And Strategy" and "Investment Policies
And Risks."
Designed For: Investors seeking long-term capital appreciation. While not
intended as a complete investment program, the Fund may be a valuable element of
your investment portfolio. You also may wish to consider the Fund as part of a
Uniform Gift/Transfer To Minors Act Account or systematic investing strategy.
The Fund may be a suitable investment 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 aggressive investment strategy, ^ that at times
may include holdings in foreign securities and rapid portfolio turnover. The
returns on foreign investments may be influenced by currency fluctuations and
other 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 ^ the Company. The
Fund is owned by its shareholders. It employs INVESCO Funds Group, Inc.
^("INVESCO"), founded in 1932, to serve as investment adviser, administrator and
transfer agent. INVESCO Distributors, Inc. ("IDI"), founded in 1997 as a
wholly-owned subsidiary of ^ INVESCO, is the Fund's distributor.
The Fund's investments are selected by members of INVESCO's Growth Team,
which is headed by Timothy J. Miller, C.F.A. See "The Fund And Its Management."
^ INVESCO and IDI are subsidiaries of AMVESCAP PLC, an international
investment management company that ^ managed approximately ^ $261 billion in
assets under management as of June 30, 1998. AMVESCAP PLC is based in London
with money managers located in Europe, North America and the Far East.
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This Fund offers all of the following services at no charge:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
Regular investment plans, such as EasiVest (the Fund's automatic monthly
investment program), Direct Payroll Purchase, and Automatic Monthly Exchange
Periodic withdrawal plans
See "How To Buy Shares" and "How To Sell Shares."
Minimum Initial Investment: $1,000, which is waived for
regular investment plans, including EasiVest and Direct Payroll
Purchase, 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 average net assets for the current fiscal year. To keep expenses
competitive, ^ INVESCO 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%^
(1) Based on estimated expenses for the current fiscal year which may be more or
less than actual expenses. Actual expenses are not provided because the Fund did
not begin a public offering of the shares until ^ October 28, 1998. If
necessary, certain Fund expenses will be absorbed voluntarily by ^ INVESCO for
at least the first fiscal year of the Fund's operations in order to ensure that
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expenses for the Fund will not exceed ^ 1.50% ^ of the Fund's average net assets
pursuant to an agreement ^ between the Fund and ^ INVESCO. If such voluntary
expense limit were not 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 ^ October 28, 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 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 seeks long-term capital appreciation through aggressive
investment policies. This investment objective is fundamental and may not be
changed without the approval of the Fund's shareholders. Normally, the Fund
seeks to achieve its objective through the aggressive investment of its assets
primarily in common stocks of issuers of all sizes, which may range from larger,
well-established issuers to smaller emerging growth companies. The Fund also has
the flexibility to invest in other types of securities, including preferred
stock, warrants, convertible securities and debt securities^. The Fund will be
managed unconstrained by market capitalization limitations. There is no
guarantee that the Fund's investment objective will be met.
The Fund's investment portfolio is actively managed. Because our strategy
highlights many short-term factors -- current information about a company,
investor interest, price movements of the company's securities and general
market and monetary conditions -- securities may be bought and sold relatively
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frequently ^. The Fund's portfolio turnover rate may be higher than many
other mutual funds and may exceed 200%; this turnover may result in greater
brokerage commissions and acceleration of capital gains which are taxable when
distributed to shareholders. The Statement of Additional Information includes an
expanded discussion of the Fund's portfolio turnover rate, its brokerage
practices and certain federal income tax matters.
When we believe market or economic conditions are ^ unfavorable, the Fund
may assume a defensive position by temporarily investing up to 100% of its
assets in high-quality money market instruments, such as short-term U.S.
government obligations, commercial paper or repurchase agreements, seeking to
protect its assets until conditions stabilize.
INVESTMENT POLICIES AND RISKS
The Fund seeks long term capital appreciation by investing primarily in
common stocks of issuers of all sizes. The common stock in which the Fund
invests may be issued by issuers ranging from established, well-capitalized
("large cap") companies to 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 ^ companies may be more volatile than the stocks of
larger companies 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 the Fund's share price vary with
movements in the stock markets, changes in economic conditions and other
factors. The Fund invests in many different ^ securities and industries; this
diversification may help reduce the Fund's exposure to investment and market
risks but cannot eliminate these risks.
Year 2000 Computer Issue. Due to the fact that many computer systems in
use today cannot recognize the year 2000, but will, unless corrected, revert to
1900 or 1980 or cease to function at that time, the markets for securities in
which the Fund invests may be detrimentally affected by computer failures
affecting portfolio investments or trading of securities beginning January 1,
2000. Improperly functioning trading systems may result in settlement problems
and liquidity issues. In addition, corporate and governmental data processing
errors may result in production issues for individual companies and overall
economic uncertainties.
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Earnings of individual issuers may be affected by remediation costs, which may
be substantial. The Fund's investments may be adversely affected.
Small-Cap Stocks. The small-cap companies represented in the Fund's
investment portfolio (particularly those trading "over-the-counter") may be in
the early stages of development; have limited product lines, markets or
financial resources; and/or lack management depth. These factors may lead to
more intense competitive pressures on the companies, greater volatility in the
companies' earnings, and increased illiquidity and erratic price movements for
the securities of these companies, compared to larger-cap companies.
Foreign Securities. Up to 25% of the Fund's total assets, measured at
the time of purchase, may be invested directly in foreign equity and 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. 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, the U.S. dollar generally rises in relation to 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 stocks,
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.
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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.
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain are presently members of the European
Economic and Monetary Union (the "EMU"). EMU intends to establish a common
European currency for EMU countries which will be known as the "euro." Each
participating country presently plans to adopt the euro as its currency on
January 1, 1999. The old national currencies will be sub-currencies of the euro
until July 1, 2002, at which time the old currencies will disappear entirely.
Other European countries may adopt the euro in the future.
The planned introduction of the euro presents some uncertainties and
possible risks, including whether the payment and operational systems of banks
and other financial institutions will be ready by January 1, 1999; whether
exchanges rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for euro will
be in operation. These and other factors may cause market disruptions before or
after January 1, 1999 and could adversely affect the value of securities held by
the Fund.
Restricted and Rule 144A Securities. The Fund may invest up to 15% of its
total net assets, measured at the time of purchase, in securities which are
illiquid because they are subject to restrictions on their resale ("restricted
securities") or because, based upon the nature of the market for such
securities, they 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 for the securities exists. The ^ Company's
board of directors has delegated to ^ INVESCO the authority to determine the
liquidity of Rule 144A Securities pursuant to guidelines approved by the board.
In the event that a Rule 144A Security held by the Fund is subsequently
determined to be illiquid, the security may be sold as soon as that can be done
in an orderly fashion consistent with the best interests of the Fund's
shareholders. For more information concerning Rule 144A Securities, see
"Investment Policies And Restrictions" in the Statement of Additional
Information.
Repurchase Agreements. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and date. The Fund could incur costs or delays in seeking
to sell the ^ security if the prior owner defaults on its repurchase obligation.
To reduce that risk, the securities that are the subject of the repurchase
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agreement will be maintained with the Fund's custodian in an amount at
least equal to the repurchase price under the agreement (including accrued
interest). These agreements are entered into only with member banks of the
Federal Reserve 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.
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.
Options, Futures and Other Financial Instruments. The Fund may use various
types of financial instruments, some of which are derivatives, to attempt to
manage the risk of its investments or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities). ^ The following financial
instruments ^ may be used: options, futures contracts, forward contracts, swaps,
caps, floors and collars (collectively, "Financial Instruments"). For
descriptions and other information on these Financial Instruments and strategies
and their risk considerations, see the Statement of Additional Information.
Financial Instruments may be used in an attempt to manage the Fund's foreign
currency exposure as well as other risks of the Fund's investments that can
cause fluctuation in its net asset value. The Fund may use Financial Instruments
to increase or decrease its exposure to changing security prices, interest
rates, currency exchange rates or other factors. The policies in this section do
not apply to other types of instruments sometimes referred to as derivatives,
such as indexed securities, mortgage-backed and other asset-backed securities,
and stripped interest and principal of debt.
The Fund's ability to use Financial Instruments may be limited by market
conditions, regulatory limits and tax considerations. The Fund might not use any
of these Financial Instruments, and there can be no assurance that any strategy
using a Financial Instrument will fully achieve its objective.
Subject to the further limitations stated in the Statement of Additional
Information, generally, the Fund is authorized to use any type of Financial
Instrument. However, as a non-fundamental policy, the Fund will only use a
particular Financial Instrument (other than those related to foreign currency)
if the Fund is authorized to take a position in the type of asset to which the
return on, or value of, the Financial Instrument is primarily related.
Therefore, for example, if the Fund is authorized to invest in a particular type
of security (such as an equity security), it could take a position in an option
on an index relating to equity securities. With respect to foreign currency
Financial Instruments, as a non-fundamental policy the Fund will only use these
Financial Instruments if the Fund is authorized to invest in foreign securities.
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In addition, the Fund presently has a non-fundamental policy to utilize
only exchange-traded Financial Instruments, other than forward currency
contracts. This policy would not, however, prevent the Fund from investing in a
security, such an indexed security, with an imbedded component, such as a cap or
a floor.
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 debt 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.
When the Fund purchases a security on a when-issued or delayed delivery basis,
it immediately assumes the risk of ownership, including the risk of price
fluctuation. Between the date of purchase and the settlement date, the value of
a when-issued the security is subject to market fluctuations, and no interest is
payable to the Fund prior to the settlement date.
^ 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 for
temporary or emergency purposes in amounts not exceeding 33 1/3 % of total
assets.
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.
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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 ^ June 26, 1997, the name of the Company was changed to INVESCO Capital
Appreciation Funds, Inc. On August 28, 1998 the name of the Company was changed
to INVESCO Equity Funds, Inc.
The Company's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by the investment
adviser. Under an agreement with the Company, ^ INVESCO, 7800 E. Union Avenue,
Denver, Colorado 80237, serves as the Fund's investment adviser; it is primarily
responsible for providing the Fund with ^ portfolio management and various
administrative services.
INVESCO and IDI are indirect wholly-owned subsidiaries of AMVESCAP PLC.
AMVESCAP PLC is a publicly-traded holding company that, through its
subsidiaries, engages in the business of investment management on an
international basis. INVESCO PLC changed its name to AMVESCO PLC on March 3,
1997, and to AMVESCAP PLC on May 8, 1997, as a 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. INVESCO
continued to operate under its existing name. AMVESCAP has approximately $261
billion in assets under management as of June 30, 1998. INVESCO was established
in 1932 and, as of April 30, 1998, managed 14 mutual funds, consisting of 48
separate portfolios, with combined assets of approximately $19.3 billion on
behalf of 1,492,189 shareholders.
The Fund is managed ^ by members of INVESCO's Growth Team, which is headed
by Timothy J. Miller, C.F.A. Mr. Miller will call upon portfolio managers from
INVESCO's Growth Team for investment decisions based upon their expertise in the
various market capitalization groupings.
Timothy J. Miller, a Chartered Financial Analyst, has been the lead
portfolio manager of the Fund since its inception. Mr. Miller is also the lead
portfolio manager of INVESCO Dynamics Fund and INVESCO VIF - Dynamics Fund and
co-manages INVESCO Small Company Growth Fund, INVESCO Growth Fund, INVESCO VIF -
Growth Fund and INVESCO VIF - Small Company Growth Fund. Mr. Miller is ^ a
senior vice president of INVESCO Funds Group, Inc. Mr. Miller was previously an
analyst and portfolio manager with Mississippi Valley Advisors from 1979 to
1992. Mr. Miller received an M.B.A. from the University of Missouri-St. Louis
and a B.S.B.A. from St. Louis University.
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^ INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts, subject to acompliance policy governing
personal investing. This policy requires ^ INVESCO personnel to conduct their
personal investment activities in a manner that ^ INVESCO believes is not
detrimental to the Fund or ^ INVESCO's other advisory clients. See the Statement
of Additional Information for more detailed information.
The Fund pays ^ INVESCO a monthly management fee 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 ^, IDI provides services relating to the
distribution and sale of the Fund's shares. IDI, established in 1997, is a
registered broker-dealer that acts as distributor for all retail funds advised
by ^ INVESCO.
Under a Transfer Agency Agreement, ^ INVESCO acts as registrar, transfer
agent, and dividend disbursing agent for the Fund. The Fund pays an annual fee
of $20.00 per shareholder account or, where applicable, per participant in an
omnibus account ^. Registered broker-dealers, third party administrators of
tax-qualified retirement plans and other entities, including affiliates of ^
INVESCO, may provide equivalent services to the Fund. In these cases, ^ INVESCO
may pay, out of the fee it receives from the Fund, an annual sub-transfer agency
fee or recordkeeping fee to the third party.
^ Under an Administrative Services Agreement, ^ INVESCO handles additional
administrative, recordkeeping, and internal sub-accounting services for the
Fund.
The management and custodial services provided to the Fund by ^ INVESCO
and the ^ Fund's custodian, and the services provided to shareholders by IDI and
^ INVESCO, depend on the continued functioning of their computer systems. Many
computer systems in use today cannot recognize the ^ Year 2000, but will revert
to 1900 or 1980 or will cease to function due to the manner in which dates were
encoded and are calculated. That failure could have a negative impact on the
handling of the ^ Fund's securities trades, ^ its share pricing and ^ its
account services. The ^ Fund and ^ its service providers have been actively
working on necessary changes to their computer systems to deal with the ^ Year
2000 issue and expect that their systems will be adapted before that date, but
there can be no assurance that they will be successful. Furthermore, services
may be impaired at that time as a result of the interaction of their systems
with ^ noncomplying computer systems of others. INVESCO plans to test as many
such interactions as practicable prior to December 31, 1999 and to develop
contingency plans for reasonably anticipated failures.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. If necessary, certain Fund expenses will be
absorbed voluntarily by ^ INVESCO in order to ensure that the Fund's total
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operating expenses will not exceed ^ 1.50% ^ of the Fund's average net
assets. This commitment may be changed following consultation with the Company's
board of directors.
INVESCO ^ places orders for the purchase and sale of portfolio securities
with brokers and dealers based upon ^ INVESCO's evaluation of such brokers' and
dealers' financial responsibility coupled with their ability to effect
transactions at the best available prices. As discussed under "How ^ To Buy
Shares Distribution Expenses," the Fund may market its shares through
intermediary brokers or dealers that have entered into Dealer Agreements with
INVESCO or IDI, as the Fund's distributor. The Fund may place orders for
portfolio transactions with qualified ^ brokers or dealers that recommend the
Fund, or sell shares of the Fund, to clients, or act as agent in the purchase of
Fund shares for clients, if ^ INVESCO believes that the quality of the execution
of the transaction and level of commission are comparable to those available
from other qualified brokerage firms. For further information, see "Investment
Practices - Placement of Portfolio Brokerage" in the Statement of Additional
Information.
^
FUND PRICE AND PERFORMANCE
Determining Price. The value of your investment in the Fund ^ may vary
daily. The price per share is also known as the Net Asset Value ("NAV"). ^
INVESCO prices the Fund every day that the New York Stock Exchange is open, as
of the close of regular trading (generally, 4:00 p.m., New York time). NAV is
calculated by adding together the current market value of all of the Fund's
assets, including accrued interest and dividends; subtracting liabilities,
including accrued expenses; and dividing that dollar amount by the total number
of 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, as
well as to the broad-based Lipper general fund groupings. These rankings allow
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you to compare the Fund to its peers. Other independent financial media
also produce performance-or service-related comparisons, which you may see in
our promotional materials. For more information see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical ^ investment results and are
not intended to suggest future performance.
HOW TO BUY SHARES
The ^ chart on page 10 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 engage in transactions directly through ^ INVESCO.
However, if you invest in the Fund through a securities broker, you may be
charged a commission or transaction fee. ^ INVESCO may from time to time make
payments from its revenues to securities dealers and other financial
institutions that provide distribution-related and/or administrative services
for the Fund. For all new accounts, please send a completed application form.
Please specify which ^ fund's shares you wish to purchase.
^ INVESCO reserves the right to increase, reduce or waive the minimum
investment requirements in its sole discretion, where it determines this action
is in the best interests of the Fund. Further, ^ INVESCO reserves the right in
its sole discretion to reject any order for the purchase of Fund shares
(including purchases by exchange) when, in its judgment, such rejection is in
the Fund's best interests.
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) In order to prevent abuse of this policy to the disadvantage of
other shareholders, the Fund reserves the right to temporarily or
permanently terminate the exchange option of any shareholder who
requests more than four exchanges in a year, or at any time the
Fund determines the actions of the shareholder are detrimental
<PAGE>
to Fund performance and shareholders. The Fund will determine
whether to do so based on a consideration of both the number of
exchanges any particular shareholder, or group of shareholders, has
requested and the time period over which those exchange requests
have been made, together with the level of expense to the Fund which
will result from effecting additional exchange requests. The Fund is
intended to be a long-term investment vehicle and is not designed to
provide investors the means of speculation on short-term market
movements. Notice of all such modifications or terminations will be
given at least 60 days prior to the effective date of the change in
policy, except in unusual circumstances (such as when redemptions of
the exchanged shares are suspended under Section 22(e) of the
Investment Company Act of 1940, or when sales of the fund into which
you are exchanging are temporarily suspended).
HOW TO BUY SHARES
================================================================================
Method Investment Minimum Please Remember
By Check
MAIL to: $1,000 for regular If your check does
INVESCO Funds account; not clear, you will
Group, Inc. $250 for an IRA; be responsible for
P.O. Box 173706 $50 minimum for any related loss
Denver, CO each subsequent the Fund or ^
80217-3706. investment. INVESCO incurs. If
You may send your you are already a
check by overnight shareholder in the
courier to: 7800 E. INVESCO funds, the
Union Ave., Denver, Fund may seek
CO 80237. reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Telephone or
Wire
Call 1-800-525-8085 $1,000. Payment must be
to request your received within 3
purchase. Then send business days, or
your check by the transaction may
overnight courier be canceled. If a
to our street purchase is
address: canceled due to
7800 E. Union Ave., nonpayment, you
Denver, CO 80237. will be responsible
Or you may transmit for any related
your payment by loss the Fund or ^
bank wire (call ^ INVESCO incurs. If
INVESCO for you are already a
instructions). shareholder in the
INVESCO funds, the
Fund may seek
reimbursement from
your existing
account(s) for any
loss incurred.
- --------------------------------------------------------------------------------
With EasiVest or
Direct Payroll
Purchase
You may enroll on $50 per month for Like all regular
the fund EasiVest; $50 per investment plans,
application, or pay period for neither EasiVest
call us for the Direct Payroll nor Direct Payroll
correct form and Purchase. You may Purchase ensures a
more details. start or stop your profit or protects
Investing the same regular investment against loss in a
amount on a monthly plan at any time, falling market.
basis allows you to with two weeks' Because you'll
buy more shares notice to ^ invest continually,
when prices are low INVESCO. regardless of
and fewer shares varying price
when prices are levels, consider
high. This your financial
"dollar-cost ability to keep
averaging" may help buying through low
offset market price levels. And
fluctuations. Over remember that you
a period of time, will lose money if
your average cost you redeem your
per share may be shares when the
less than the market value of all
actual average of your shares is
price per share. less than their
cost.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By PAL
Your "Personal $1,000; $250 for an Be sure to write
Account Line" is IRA. down the
available for confirmation number
subsequent provided by PAL.
purchases and Payment must be
exchanges 24 hours received within 3
a day. Simply call business days, or
1-800-424-8085. the transaction may
be canceled. If a
purchase is ^ canceled
due to nonpayment, you
will be responsible for
any related loss the Fund
or ^ INVESCO incurs. If
you are already a
shareholder in the
INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," 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 ^
INVESCO for further
details and the
correct form.
================================================================================
Distribution Expenses. The Fund is authorized under a Plan and Agreement
of Distribution pursuant to Rule 12b-1 under the Investment Company Act of 1940
(the "Plan") to use its assets to finance certain activities relating to the
distribution of its shares to investors. Under ^ the Plan, monthly payments may
be made by 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
<PAGE>
(including incentive compensation and/or continuing compensation based on
the amount of customer assets maintained in the Fund) to securities dealers and
other financial institutions and organizations, which may include ^ INVESCO- and
IDI-affiliated companies, to obtain various distribution-related and/or
administrative services for the Fund. Such services may include, among other
things, processing new shareholder account applications, preparing and
transmitting to the Fund's Transfer Agent computer processable tapes of all
transactions by customers, and serving as the primary source of information to
customers in answering questions concerning the Fund and their transactions with
the ^ Fund.
In addition, other permissible activities and services include
advertising, ^ preparation, printing and distribution of sales literature,
printing and distribution of prospectuses to prospective investors^ and such
other services and promotional activities for the Fund as may from time to time
be agreed upon by the 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 ^ INVESCO, IDI or their affiliates or by third parties.
Under the Plan, the Fund's payments to IDI are limited to an amount
computed at an annual rate of 0.25% of the Fund's average net assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of ^ INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO ^ funds, including the Fund. Payment
amounts ^ by the Fund under the Plan, for any month, may be made to compensate
IDI for permissible activities engaged in and services provided by IDI during
the rolling 12-month period in which that month falls, although the period is
expanded to 24 months for obligations 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 their revenues to securities dealers, financial
advisers and financial institutions that provide distribution-related and/or
administrative services for the Fund. No further payments will be made by the
Fund under the Plan in the event of ^ the Plan's termination. Payments made by
the Fund may not be used to finance directly the distribution of shares of any
other fund of the Company or other mutual fund advised by INVESCO and
distributed by IDI. However, payments received by IDI which are not used to
finance the distribution of shares of the Fund become part of IDI's revenues and
may be used by IDI for activities that promote distribution of any of the mutual
funds advised by INVESCO. Subject to review by the Company's directors, payments
made by the Fund under the Plan for compensation of marketing personnel, as
<PAGE>
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 or INVESCO's use of their own resources, 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.
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 INVESCO and distributed by IDI. However, payments received by IDI
which are not used to finance the distribution of shares of the Fund become part
of IDI's revenues and may be used by IDI for activities that promote
distribution of any of the mutual funds advised by INVESCO.
FUND SERVICES
Shareholder Accounts. ^ INVESCO will maintain a share account that reflects
your current holdings. Share certificates will be issued only upon specific
request. You will have greater flexibility to conduct transactions if you do not
request certificates.
Transaction Confirmations. You will receive detailed confirmations of
individual purchases, exchanges, and redemptions. If you choose certain
recurring transaction plans (for instance, EasiVest), your transactions will be
confirmed on your quarterly Investment Summary.
Investment Summaries. Each calendar quarter, shareholders receive a written
statement which consolidates and summarizes account activity and value at the
beginning and end of the period for each of their INVESCO funds.
Reinvestment of Distributions. Dividends and capital gain distributions
are automatically ^ reinvested in additional Fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
^ 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.INVESCO can supply you with information
and forms to establish or transfer your existing plan or account.
HOW TO SELL SHARES
The ^ chart on page 13 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.
<PAGE>
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 ^
INVESCO'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 account owners. the certificates
80217-3706. You may Payment will be must be sent to ^
also send your mailed to your INVESCO.
request by address of record,
overnight courier or to a designated
to 7800 E. Union bank.
Ave., Denver, CO 80237.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
By Exchange
Between this and $1,000 to open a See "Exchange
another of the new account; $50 Policy," page 17.
INVESCO funds. Call for written
1-800-525-8085 for requests to
prospectuses of purchase additional
other INVESCO shares for an
funds. You may also existing account.
establish an (The exchange
automatic monthly minimum is $250 for
exchange service exchanges requested
between two INVESCO by telephone.)
funds; call ^
INVESCO for further
details and the
correct form.
Periodic Withdrawal
Plan
You may call us to $100 per payment 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 check may be made at least $5,000 of
1-800-525-8085. payable to any that total invested
party you in the fund from
designate. which withdrawals
will be made.
- --------------------------------------------------------------------------------
Payment To Third
Party
Mail your request Any amount. All registered ^
to INVESCO Funds account owners must
Group, Inc. sign the request,
P.O. Box 173706 with a signature
Denver, CO guarantee from an
80217-3706. eligible guarantor
financial institution,
such as a commercial bank
or a recognized national
or regional securities
firm.
================================================================================
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).
<PAGE>
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to involuntarily redeem all shares in such
account, in which case the account would be liquidated and the proceeds
forwarded to the shareholder. Prior to any such redemption, a shareholder will
be notified and given 60 days to increase the value of the account to $250 or
more.
TAXES, DIVIDENDS AND ^ OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders 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 ^ as
taxable income for federal, state and local income tax purposes, unless ^ they
are exempt from income taxes. Dividends and other distributions are taxable
whether they are received in cash or automatically 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. ^ 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. Long-term gains realized between May 7, 1997 and December 31,
1997 on the sale of securities held for more than ^ 12 months are taxable at a ^
maximum rate of 20%. Long-term gains realized between July 29, 1997 and December
31, 1997 on the sale of securities held for more than 18 months are taxable at a
^ maximum rate of 28%. Long-term gains realized between July 29, 1997 and
December 31, 1997 on the sale of securities held for more than 18 months are
taxable at a maximum rate of 20%. Beginning January 1, 1998, the IRS
Restructuring and Reform Act of 1998, signed into law on July 24, 1998, lowers
the holding period for long-term capital gains entitled to the 20% capital gains
tax rate from 18 months to 12 months. Accordingly, all long-term gains realized
after December 31, 1997 on the sale of securities held for more than 12 months
<PAGE>
will be taxable at a maximum rate of 20%. Note that the rate of capital
gains tax is dependent on the shareholder's marginal tax rate and may be lower
than the above rates. At the end of each year, information regarding the tax
status of dividends and other distributions is provided to shareholders.
Shareholders should consult their tax adviser as to the effect of ^
distributions ^ by the Fund.
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 net investment income in
the form of interest and dividends on investments. Dividends paid by the Fund
will be based solely on the net investment income earned by it. The Fund's
policy is to distribute substantially all of this income, less expenses, to
shareholders on an annual 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^ realized on foreign currency transactions, if any, 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.
Dividends 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 distribution by paying the full
purchase price, a portion of which is then returned in the form of a taxable
distribution.
<PAGE>
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 or Bylaws, 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.
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 ^ Endeavor Fund
A no-load mutual fund seeking
long-term capital appreciation.
PROSPECTUS
September ^ 23, 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
September ^ 23, 1998
^ INVESCO EQUITY FUNDS, INC.
(formerly, INVESCO Capital Appreciation Funds, Inc.)
INVESCO Dynamics Fund
INVESCO Endeavor 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 Equity Funds, Inc. (formerly, INVESCO Capital Appreciation Funds,
^ Inc.) (the "Company") is a ^ no-load, open-end, diversified management
investment company currently consisting of three separate portfolios of
investments, the INVESCO Dynamics Fund (the "Dynamics Fund"), the INVESCO
Endeavor Fund ("Endeavor Fund") and the INVESCO Growth & Income Fund ("Growth &
Income ^ Fund") (collectively, the "Funds"). INVESCO Dynamics Fund seeks capital
appreciation through aggressive investment policies. The Endeavor Fund seeks
long-term 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 ENDEAVOR FUND seeks to achieve its investment objective of long-term
capital appreciation through aggressive investment policies by investing
primarily in common stocks of issuers of all sizes. The Fund also has the
flexibility to invest in other types of securities.
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 ^ September 1, 1998, a Prospectus
for the Growth & Income Fund dated ^ September 1, 1998 and a Prospectus for the
^ Endeavor Fund dated September ^ 23, 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......................................^ 4
THE FUNDS AND THEIR MANAGEMENT...........................................^ 33
HOW SHARES CAN BE PURCHASED..............................................^ 46
HOW SHARES ARE VALUED....................................................^ 50
FUND PERFORMANCE.........................................................^ 51
SERVICES PROVIDED BY THE FUNDS...........................................^ 53
TAX-DEFERRED RETIREMENT PLANS............................................^ 54
HOW TO REDEEM SHARES.....................................................^ 54
DIVIDENDS, ^ OTHER DISTRIBUTIONS, AND TAXES..............................^ 55
INVESTMENT PRACTICES.....................................................^ 58
ADDITIONAL INFORMATION...................................................^ 62
APPENDIX A...............................................................^ 67
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
As discussed in each Fund's Prospectus in the section entitled "Investment
Objective ^ And Strategy" and "Investment Policies^ And Risks," 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:
^ 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 (although often more volatile ^
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
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
<PAGE>
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. 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.
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 Growth & Income 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 the adviser to be of
equivalent quality). Such securities held by the Growth and Income 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 a ^ Fund's total assets and such Fund may not
invest more than 25% of its total assets in junk bonds. Never, under any
circumstances, is the Growth & Income 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 IFG 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 the
adviser continuously monitors all of the debt securities in the Growth & Income
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
<PAGE>
is changed to one below the minimum rating required for purchase of the
security. The Growth & Income 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 Growth & Income ^ 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 Growth &
Income 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 Growth & Income 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.
Restricted/144A Securities. As discussed in the section of the Funds'
Prospectuses entitled "Investment Policies And Risks," the Dynamics Fund and
Endeavor Fund may invest in restricted securities including restricted
securities that can be resold to institutional investors pursuant to Rule 144A
under the Securities Act of 1933^, as amended (the "1933 Act") (hereinafter
referred to as "Rule 144A Securities")^, if a liquid institutional trading
market exists. The Growth & Income Fund can invest in Rule 144A Securities ^
only.
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 which are
believed to be creditworthy under standards established by the Company's board
of directors. A repurchase agreement is an agreement under which the Fund
acquires a debt instrument (generally a security issued by the U.S. government
or an agency thereof, a banker's acceptance or a certificate of deposit) from a
commercial bank, broker or dealer, subject to resale to the seller at an
agreed-upon price and date (normally, the next business day). A repurchase
agreement may be considered a loan collateralized by securities. The resale
price reflects an agreed ^ upon interest rate effective for the period the
instrument is held by 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. In addition,
the Company's board of directors monitors the Fund's repurchase agreement
transactions and has established guidelines and standards for review by the
investment adviser of the creditworthiness of any bank, broker or dealer party
to a repurchase agreement with the Fund. The Fund will not enter into repurchase
agreements maturing in more than seven days if as a result more than 10% of its
total assets would be invested in such repurchase agreements and other illiquid
securities.
The use of repurchase agreements involves certain risks. For example, if
the other party to the agreement defaults on its obligation to repurchase the
underlying security at a time when the value of the security has declined, the
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent, the Fund may experience costs and delays in
realizing on the collateral. Finally, it is possible that the Fund may not be
able to substantiate its interest in the underlying security and may be deemed
an unsecured creditor of the other party to the agreement. While ^ INVESCO
acknowledges these risks, it is expected that the risks can be minimized through
careful monitoring procedures.
<PAGE>
^ Securities Lending. 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, letters of credit, or
securities issued or guaranteed by the United States government or its agencies,
or any combination thereof, equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to have the benefits (and risks) of ownership of the loaned
securities, while at the same time receiving income from the borrower of the
securities. Loans will be made only to firms deemed by the adviser ^(under
procedures established by the 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 ^(Growth & Income ^ Fund only). As
described in the ^ Growth & Income 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
<PAGE>
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, ^ because losses on open contracts are required to be reflected in cash
in the form of variation margin payments, the Fund may be required to make
additional payments during the term of the contracts to its broker. Such
payments would be required, for example, where, during the term of an interest
rate futures contract purchased by the Fund, there was a general increase in
interest rates, thereby making the Fund's portfolio securities less valuable. In
all instances involving the purchase of financial futures contracts by the Fund,
an amount of cash together with such other securities as permitted by applicable
regulatory authorities to be utilized for such purpose, at least equal to the
market value of the futures contracts, will be deposited in a segregated account
with the Fund's custodian to collateralize the position. At any time prior to
the expiration of a futures contract, the Fund may elect to close its position
by taking an opposite position which will operate to terminate the Fund's
position in the futures contract. For a more complete discussion of the risks
involved in futures and options on futures and other securities, refer to
Appendix B ("Description of Futures, Options and Forward Contracts").
Where futures are purchased to hedge against a possible increase in the
price of a security before the Fund is able in an orderly fashion to invest in
the security, it is possible that the market may decline instead. If the Fund,
as a result, concluded not to make the planned investment at that time because
of concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect correlation
or no correlation at all between movements in the futures contracts and the
portion of the portfolio being hedged, the price of futures may not correlate
perfectly with movements in the prices due to certain market distortions. All
participants in the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit requirements,
investors may close futures contracts through offsetting transactions which
could distort the normal relationship between underlying instruments and the
value of the futures contract. Moreover, the deposit requirements in the futures
market are less onerous than margin requirements in the securities market and
<PAGE>
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.
Options on Futures Contracts ^(Growth & Income Fund only). The Growth &
Income ^ 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.
<PAGE>
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.
Forward Foreign Currency Contracts^. The Funds 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 exchange contract ("forward 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, ^ a 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 ^ Funds will not
speculate in forward ^ contracts. Although the ^ Funds have not adopted any
limitations on ^ their ability to use forward contracts as a hedge against
fluctuations in foreign exchange rates, the ^ Funds do not attempt to hedge all
of ^ their non-U.S. portfolio positions and will enter into such transactions
only to the extent, if any, deemed appropriate by its investment adviser ^. The
^ Funds will not enter into forward contracts for a term of more than one year.
Options, Futures and Other Financial Instruments and Their
Strategic Uses ^(Endeavor Fund Only)
General. As discussed in the Prospectus, Fund Management may use various
types of financial instruments, some of which are derivatives, to attempt to
manage the risk of the Fund's investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). These financial
instruments include options, futures contracts (sometimes referred to as
"futures"), forward contracts, swaps, caps, floors and collars (collectively,
"Financial Instruments"). The policies in this section do not apply to other
types of instruments sometimes referred to as derivatives, such as indexed
securities, mortgage-backed and other asset-backed securities, and stripped
interest and principal of debt.
<PAGE>
Generally, the Fund is authorized to use any type of Financial Instrument.
However, as a non-fundamental policy, the Fund will only use a particular
Financial Instrument (other than those related to foreign currency) if the Fund
is authorized to take a position in the type of asset to which the return on, or
value of, the Financial Instrument is primarily related. Therefore, for example,
if the Fund is authorized to invest in a particular type of security (such as an
equity security), it could take a position in an option on an index relating to
equity securities. With respect to foreign currency Financial Instruments, as a
non-fundamental policy the Fund will only use these Financial Instruments if the
Fund is authorized to invest in foreign securities. In addition, the Fund
presently has a non-fundamental policy to utilize only exchange-traded Financial
Instruments, other than forward currency contracts. This policy would not,
however, prevent the Fund from investing in a security, such as an indexed
security, with an imbedded component, such as a cap or a floor.
Hedging strategies can be broadly categorized as "short" hedges and "long"
or "anticipatory" hedges. A short hedge involves the use of a Financial
Instrument in order to partially or fully offset potential variations in the
value of one or more investments held in the Fund's portfolio. A long or
anticipatory hedge involves the use of a Financial Instrument in order to
partially or fully offset potential increases in the acquisition cost of one or
more investments that the Fund intends to acquire. In an anticipatory hedge
transaction, the Fund does not already own a corresponding security. Rather, it
relates to a security or type of security that the Fund intends to acquire. If
the Fund does not eliminate the hedge by purchasing the security as anticipated,
the effect on the Fund's portfolio is the same as if a long position were
entered into. Financial Instruments may also be used, in certain circumstances,
for investment (e.g., as a substitute for investing in securities).
Financial Instruments on individual securities generally are used to
attempt to hedge against price movements in one or more particular securities
positions that the Fund already owns or intends to acquire. Financial
Instruments on indexes, in contrast, generally are used to attempt to hedge all
or a portion of a portfolio against price movements of the securities within a
market sector in which the Fund has invested or expects to invest.
The use of Financial Instruments is subject to applicable regulations of
the Securities and Exchange Commission ("SEC"), the several exchanges upon which
they are traded, and the Commodity Futures Trading Commission ("CFTC"). In
addition, the Fund's ability to use Financial Instruments will be limited by tax
considerations. See "Dividends, Capital Gains Distributions and Taxes."
In addition to the instruments and strategies described below, Fund
Management may use other similar or related techniques to the extent that they
are consistent with the Fund's investment objective[s] and permitted by the
Fund's investment limitations and applicable regulatory authorities. The Fund's
<PAGE>
Prospectus or Statement of Additional Information ("SAI") will be
supplemented to the extent that new products or techniques become employed
involving materially different risks than those described below or in the
Prospectus.
Special Risks. Financial Instruments and their use involve
special considerations and risks, certain of which are described
below.
(1) If Fund Management employs a Financial Instrument that correlates
imperfectly with the Fund's investments, a loss could result,
regardless of whether or not the intent was to manage risk.
Financial Instruments may increase the volatility of the Fund. In
addition, these techniques could result in a loss if there is not a
liquid market to close out a position that the Fund has entered.
(2) There might be imperfect correlation between price movements of a
Financial Instrument and price movements of the investments being
hedged. For example, if the value of a Financial Instrument used in
a short hedge increased by less than the decline in value of the
hedged investment, the hedge would not be fully successful. This
might be caused by certain kinds of trading activity that distorts
the normal price relationship between the security being hedged and
the Financial Instrument. Similarly, the effectiveness of hedges
using Financial Instruments on indexes will depend on the degree of
correlation between price movements in the index and price movements
in the securities being hedged.
The Fund presently has a non-fundamental policy to utilize
only exchange-traded Financial Instruments, other than forward
currency contracts. Because there are a limited number of types of
exchange-traded options and futures contracts, it is likely that the
standardized contracts available will not match the Fund's current
or anticipated investments exactly. The Fund is authorized to use
options and futures contracts related to securities with issuers,
maturities or other characteristics different from the securities in
which it typically invests. This involves a risk that the options or
futures position will not track the performance of the Fund's
portfolio investments.
The direction of options and futures price movements can also
diverge from the direction of the movements of the prices of their
underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
<PAGE>
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets
and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of
daily price fluctuation limits or trading halts. The Fund may take
positions in options and futures contracts with a greater or lesser
face value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in
volatility between the contract and the securities, although this
may not be successful in all cases.
(3) If successful, the above-discussed hedging strategies can reduce
risk of loss by wholly or partially offsetting the negative effect
of unfavorable price movements of portfolio securities. However,
such strategies can also reduce opportunity for gain by offsetting
the positive effect of favorable price movements. For example, if
the Fund entered into a short hedge because Fund Management
projected a decline in the price of a security in the Fund's
portfolio, and the price of that security increased instead, the
gain from that increase would likely be wholly or partially offset
by a decline in the value of the short position in the Financial
Instrument. Moreover, if the price of the Financial Instrument
declined by more than the increase in the price of the security, the
Fund could suffer a loss.
(4) The Fund's ability to close out a position in an exchange-traded
Financial Instrument prior to expiration or maturity depends on the
degree of liquidity of the market.
(5) As described below, the Fund is required to maintain assets as
"cover," maintain segregated accounts or make margin payments when
it takes positions in Financial Instruments involving obligations to
third parties (i.e., Financial Instruments other than purchased
options). If the Fund were unable to close out its positions in such
Financial Instruments, it might be required to continue to maintain
such assets or segregated accounts or make such payments until the
position expired. These requirements might impair the Fund's ability
to sell a portfolio security or make an investment at a time when it
would otherwise be favorable to do so, or require that the Fund sell
a portfolio security at a disadvantageous time.
<PAGE>
Cover. Positions in Financial Instruments, other than purchased options,
expose the Fund to an obligation to another party. The Fund will not enter into
any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, currencies or other options, futures contracts or
forward contracts, or (2) cash and liquid assets with a value, marked-to-market
daily, sufficient to cover its potential obligations to the extent not covered
as provided in (1) above. The Fund will comply with SEC guidelines regarding
cover for these instruments and will, if the guidelines so require, set aside
cash or liquid assets in a segregated account with its custodian in the
prescribed amount as determined daily.
Assets used as cover or held in a segregated account cannot be sold while
the position in the corresponding Financial Instrument is open unless they are
replaced with other appropriate assets. As a result, the commitment of a large
portion of the Fund's assets to cover or in segregated accounts could impede
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
Options. The Fund may engage in certain strategies involving options to
attempt to manage the risk of its investments or, in certain circumstances, for
investment (e.g., as a substitute for investing in securities). A call option
gives the purchaser the right to buy, and obligates the writer to sell, the
underlying investment at the agreed-upon exercise price during the option
period. A put option gives the purchaser the right to sell, and obligates the
writer to buy, the underlying investment at the agreed-upon exercise price
during the option period. Purchasers of options pay an amount, known as a
premium, to the option writer in exchange for the right under the option
contract. See "Options on Indexes" below with regard to cash settlement of
option contracts on index values.
The purchase of call options can serve as a hedge against a price rise of
the underlier and the purchase of put options can serve as a hedge against a
price decline of the underlier. Writing call options can serve as a limited
short hedge because declines in the value of the hedged investment would be
offset to the extent of the premium received for writing the option. However, if
the security or currency appreciates to a price higher than the exercise price
of the call option, it can be expected that the option will be exercised and the
Fund will be obligated to sell the security or currency at less than its market
value.
Writing put options can serve as a limited long or anticipatory hedge
because increases in the value of the hedged investment would be offset to the
extent of the premium received for writing the option. However, if the security
or currency depreciates to a price lower than the exercise price of the put
option, it can be expected that the put option will be exercised and the Fund
will be obligated to purchase the security or currency at more than its market
value.
<PAGE>
The value of an option position will reflect, among other things, the
current market value of the underlying investment, the time remaining until
expiration, the relationship of the exercise price to the market price of the
underlying investment, the price volatility of the underlying investment and
general market and interest rate conditions. Options that expire unexercised
have no value.
The Fund may effectively terminate its right or obligation under an option
by entering into a closing transaction. For example, the Fund may terminate its
obligation under a call or put option that it had written by purchasing an
identical call or put option; this is known as a closing purchase transaction.
Conversely, the Fund may terminate a position in a put or call option it had
purchased by writing an identical put or call option; this is known as a closing
sale transaction. Closing transactions permit the Fund to realize profits or
limit losses on an option position prior to its exercise or expiration.
Risks of Options on Securities. Options embody the possibility of large
amounts of exposure, which will result in the Fund's net asset value being more
sensitive to changes in the value of the related investment.
The Fund's ability to establish and close out positions in exchange-listed
options depends on the existence of a liquid market. If the Fund is not able to
enter into an offsetting closing transaction on an option it has written, it
will be required to maintain the securities subject to the call or the liquid
assets underlying the put until a closing purchase transaction can be entered
into or the option expires. However, there can be no assurance that such a
market will exist at any particular time.
If the Fund were unable to effect a closing transaction for an option it
had purchased, it would have to exercise the option to realize any profit. The
inability to enter into a closing purchase transaction for a covered call option
written by the Fund could cause material losses because the Fund would be unable
to sell the investment used as cover for the written option until the option
expires or is exercised.
Options on Indexes. Puts and calls on indexes are similar to puts and
calls on securities or futures contracts except that all settlements are in cash
and changes in value depend on changes in the index in question. When the Fund
writes a call on an index, it receives a premium and agrees that, prior to the
expiration date, upon exercise of the call, the purchaser will receive from the
Fund an amount of cash equal to the positive difference between the closing
price of the index and the exercise price of the call times a specified multiple
("multiplier"), which determines the total dollar value for each point of such
difference. When the Fund buys a call on an index, it pays a premium and has the
same rights as to such call as are indicated above. When the Fund buys a put on
<PAGE>
an index, it pays a premium and has the right, prior to the expiration
date, to require the seller of the put to deliver to the Fund an amount of cash
equal to the positive difference between the exercise price of the put and the
closing price of the index times the multiplier. When the Fund writes a put on
an index, it receives a premium and the purchaser of the put has the right,
prior to the expiration date, to require the Fund to deliver to it an amount of
cash equal to the positive difference between the exercise price of the put and
the closing level of the index times the multiplier.
The risks of purchasing and selling options on indexes may be greater than
options on securities. Because index options are settled in cash, when the Fund
writes a call on an index it cannot fulfill its potential settlement obligations
by delivering the underlying securities. The Fund can offset some of the risk of
writing a call index option by holding a diversified portfolio of securities
similar to those on which the underlying index is based. However, the Fund
cannot, as a practical matter, acquire and hold a portfolio containing exactly
the same securities as underlie the index and, as a result, bears a risk that
the value of the securities held will vary from the value of the index.
Even if the Fund could assemble a portfolio that exactly reproduced the
composition of the underlying index, it still would not be fully covered from a
risk standpoint because of the "timing risk" inherent in writing index options.
When an index option is exercised, the amount of cash that the holder is
entitled to receive is determined by the difference between the exercise price
and the closing index level. As with other kinds of options, the Fund as the
call writer will not learn that the Fund has been assigned until the next
business day. The time lag between exercise and notice of assignment poses no
risk for the writer of a covered call on a specific underlying security, such as
common stock, because in that case the writer's obligation is to deliver the
underlying security, not to pay its value as of a moment in the past. In
contrast, the writer of an index call will be required to pay cash in an amount
based on the difference between the closing index value on the exercise date and
the exercise price. By the time it learns that it has been assigned, the index
may have declined. This "timing risk" is an inherent limitation on the ability
of index call writers to cover their risk exposure.
If the Fund has purchased an index option and exercises it before the
closing index value for that day is available, it runs the risk that the level
of the underlying index may subsequently change. If such a change causes the
exercised option to fall out-of-the-money, the Fund nevertheless will be
required to pay the difference between the closing index value and the exercise
price of the option (times the applicable multiplier) to the assigned writer.
Futures Contracts and Options on Futures Contracts. When the Fund purchases
or sells a futures contract, it incurs an obligation respectively to take or
make delivery of a specified amount of the obligation underlying the contract at
a specified time and price. When the Fund writes an option on a futures
<PAGE>
contract, it becomes obligated to assume a position in the futures contract
at a specified exercise price at any time during the term of the option. If the
Fund writes a call, on exercise it assumes a short futures position. If it
writes a put, on exercise it assumes a long futures position.
The purchase of futures or call options on futures can serve as a long or
an anticipatory hedge, and the sale of futures or the purchase of put options on
futures can serve as a short hedge. Writing call options on futures contracts
can serve as a limited short hedge, using a strategy similar to that used for
writing call options on securities or indexes. Similarly, writing put options on
futures contracts can serve as a limited long or anticipatory hedge.
In addition, futures strategies can be used to manage the duration and
associated interest rate risk of the Fund's fixed-income portfolio. If Fund
Management wishes to shorten the duration of the Fund's fixed-income portfolio,
the Fund may sell an appropriate debt futures contract or a call option thereon,
or purchase a put option on that futures contract. If Fund Management wishes to
lengthen the duration of the Fund's fixed-income portfolio, the Fund may buy an
appropriate debt futures contract or a call option thereon, or sell a put option
thereon.
At the inception of a futures contract, the Fund is required to deposit
"initial margin" in an amount generally equal to 10% or less of the contract
value. Initial margin must also be deposited when writing a call or put option
on a futures contract, in accordance with applicable exchange rules. Subsequent
"variation margin" payments are made to and from the futures broker daily as the
value of the futures or written option position varies, a process known as
"marking-to-market." Unlike margin in securities transactions, initial margin on
futures contracts and written options on futures contracts does not represent a
borrowing on margin, but rather is in the nature of a performance bond or
good-faith deposit that is returned to the Fund at the termination of the
transaction if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Fund may be required to
increase the level of initial margin payments. If the Fund has insufficient cash
to meet daily variation margin requirements, it might need to sell securities in
order to do so at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts and options on futures can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures and options on futures used
<PAGE>
by the Fund may be closed only on an exchange or board of trade that
provides a market. However, there can be no assurance that a liquid market will
exist for a particular contract at a particular time. In such event, it may not
be possible to close a futures contract or options position.
Under certain circumstances, futures exchanges may establish daily limits
on the amount that the price of a futures contract or an option on a futures
contract can vary from the previous day's settlement price; once that limit is
reached, no trades may be made that day at a price beyond the limit. Daily price
limits do not limit potential losses because prices could move to the daily
limit for several consecutive days with little or no trading, thereby preventing
liquidation of unfavorable positions.
If the Fund were unable to liquidate a futures contract or an option on a
futures contract position due to the absence of a liquid market or the
imposition of price limits, it could incur substantial losses. The Fund would
continue to be subject to market risk with respect to the position. In addition,
except in the case of purchased options, the Fund would continue to be required
to make daily variation margin payments and might be required to continue to
maintain the position being hedged by the futures contract or option or to
continue to maintain cash or securities in a segregated account.
To the extent that the Fund enters into futures contracts, options on
futures contracts and options on foreign currencies traded on a CFTC-regulated
exchange, in each case that is not for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish these
positions (excluding the amount by which options are "in-the-money" at the time
of purchase) may not exceed 5% of the liquidation value of the Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts, options
on futures contracts and currency options.
Risks of Futures Contracts and Options Thereon. The ordinary spreads at a
given time between prices in the cash and futures markets (including the options
on futures markets), due to differences in the natures of those markets, are
subject to the following factors. First, all participants in the futures market
are subject to margin deposit and maintenance requirements. Rather than meeting
additional margin deposit requirements, investors may close futures contracts
through offsetting transactions, which could distort the normal relationship
between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
<PAGE>
distortion. Due to the possibility of distortion, a hedge may not be
successful. Additionally, Fund Management may be incorrect in its expectations
as to the extent of various interest rate, currency exchange rate or stock
market movements or the time span within which the movements take place.
Index Futures. The risk of imperfect correlation between movements in the
price of index futures and movements in the price of the securities that are the
subject of a hedge increases as the composition of the Fund's portfolio diverges
from the index. The price of the index futures may move proportionately more
than or less than the price of the securities being hedged. If the price of the
index futures moves proportionately less than the price of the securities that
are the subject of the hedge, the hedge will not be fully effective. However, if
the price of the securities being hedged has moved in an unfavorable direction,
the Fund would be in a better position than if it had not hedged at all. If the
price of the securities being hedged has moved in a favorable direction, this
advantage will be partially offset by movement of the price of the futures
contract. If the price of the futures contract moves more than the price of the
securities, the Fund will experience either a loss or a gain on the futures
contract that will not be completely offset by movements in the price of the
securities that are the subject of the hedge.
Where index futures are purchased in an anticipatory hedge, it is possible
that the market may decline instead. If the Fund then decides not to invest in
the securities at that time because of concern as to possible further market
decline or for other reasons, it will realize a loss on the futures contract
that is not offset by a reduction in the price of the securities it had
anticipated purchasing.
Foreign Currency Hedging Strategies--Special Considerations. The Fund may
use options and futures contracts on foreign currencies, as mentioned
previously, and forward currency contracts, as described below, to attempt to
hedge against movements in the values of the foreign currencies in which the
Fund's securities are denominated or, in certain circumstances, for investment
(e.g., as a substitute for investing in securities denominated in foreign
currency). Currency hedges can protect against price movements in a security
that the Fund owns or intends to acquire that are attributable to changes in the
value of the currency in which it is denominated.
The Fund might seek to hedge against changes in the value of a particular
currency when no Financial Instruments on that currency are available or such
Financial Instruments are more expensive than certain other Financial
Instruments. In such cases, the Fund may seek to hedge against price movements
in that currency by entering into transactions using Financial Instruments on
another currency or a basket of currencies, the value of which Fund Management
believes will have a high degree of positive correlation to the value of the
<PAGE>
currency being hedged. The risk that movements in the price of the
Financial Instrument will not correlate perfectly with movements in the price of
the currency subject to the hedging transaction may be increased when this
strategy is used.
The value of Financial Instruments on foreign currencies depends on the
value of the underlying currency relative to the U.S. dollar. Because foreign
currency transactions occurring in the interbank market might involve
substantially larger amounts than those involved in the use of such Financial
Instruments, the Fund could be disadvantaged by having to deal in the odd lot
market (generally consisting of transactions of less than $1 million) for the
underlying foreign currencies at prices that are less favorable than for round
lots.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. options or futures markets are
closed while the markets for the underlying currencies remain open, significant
price and rate movements might take place in the underlying markets that cannot
be reflected in the markets for the Financial Instruments until they reopen.
Settlement of hedging transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency. Thus,
the Fund might be required to accept or make delivery of the underlying foreign
currency in accordance with any U.S. or foreign regulations regarding the
maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward Currency Contracts and Foreign Currency Deposits. The Fund may
enter into forward currency contracts to purchase or sell foreign currencies for
a fixed amount of U.S. dollars or another foreign currency. A forward currency
contract involves an obligation to purchase or sell a specific currency at a
future date, which may be any fixed number of days (term) from the date of the
forward currency contract agreed upon by the parties, at a price set at the time
the forward currency contract is entered. Forward currency contracts are
negotiated directly between currency traders (usually large commercial banks)
and their customers.
Such transactions may serve as long or anticipatory hedges; for example,
the Fund may purchase a forward currency contract to lock in the U.S. dollar
price of a security denominated in a foreign currency that the Fund intends to
acquire. Forward currency contracts may also serve as short hedges; for example,
<PAGE>
the Fund may sell a forward currency contract to lock in the U.S. dollar
equivalent of the proceeds from the anticipated sale of a security or a dividend
or interest payment denominated in a foreign currency.
The Fund may also use forward currency contracts to hedge against a
decline in the value of existing investments denominated in foreign currency.
Such a hedge would tend to offset both positive and negative currency
fluctuations, but would not offset changes in security values caused by other
factors. The Fund could also hedge the position by entering into a forward
currency contract to sell another currency expected to perform similarly to the
currency in which the Fund's existing investments are denominated. This type of
hedge could offer advantages in terms of cost, yield or efficiency, but may not
hedge currency exposure as effectively as a simple hedge against U.S. dollars.
This type of hedge may result in losses if the currency used to hedge does not
perform similarly to the currency in which the hedged securities are
denominated.
The Fund may also use forward currency contracts in one currency or a
basket of currencies to attempt to hedge against fluctuations in the value of
securities denominated in a different currency if Fund Management anticipates
that there will be a positive correlation between the two currencies.
The cost to the Fund of engaging in forward currency contracts varies with
factors such as the currency involved, the length of the contract period and the
market conditions then prevailing. Because forward currency contracts are
usually entered into on a principal basis, no fees or commissions are involved.
When the Fund enters into a forward currency contract, it relies on the
counterparty to make or take delivery of the underlying currency at the maturity
of the contract. Failure by the counterparty to do so would result in the loss
of some or all of any expected benefit of the transaction.
As is the case with futures contracts, purchasers and sellers of forward
currency contracts can enter into offsetting closing transactions, similar to
closing transactions on futures contracts, by selling or purchasing,
respectively, an instrument identical to the instrument purchased or sold.
Secondary markets generally do not exist for forward currency contracts, with
the result that closing transactions generally can be made for forward currency
contracts only by negotiating directly with the counterparty. Thus, there can be
no assurance that the Fund will in fact be able to close out a forward currency
contract at a favorable price prior to maturity. In addition, in the event of
insolvency of the counterparty, the Fund might be unable to close out a forward
currency contract. In either event, the Fund would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in securities denominated in the foreign currency or to
maintain cash or liquid assets in a segregated account.
<PAGE>
The precise matching of forward currency contract amounts and the value of
the securities, dividends or interest payments involved generally will not be
possible because the value of such securities, dividends or interest payments,
measured in the foreign currency, will change after the forward currency
contract has been established. Thus, the Fund might need to purchase or sell
foreign currencies in the spot (cash) market to the extent such foreign
currencies are not covered by forward currency contracts. The projection of
short-term currency market movements is extremely difficult, and the successful
execution of a short-term hedging strategy is highly uncertain.
Forward currency contracts may substantially change the Fund's investment
exposure to changes in currency exchange rates and could result in losses to the
Fund if currencies do not perform as Fund Management anticipates. There is no
assurance that Fund Management's use of forward currency contracts will be
advantageous to the Fund or that it will hedge at an appropriate time.
The Fund may also purchase and sell foreign currency and invest in foreign
currency deposits. Currency conversion involves dealer spreads and other costs,
although commissions usually are not charged.
Combined Positions. The Fund may purchase and write options in combination
with each other, or in combination with futures or forward currency contracts,
to manage the risk and return characteristics of its overall position. For
example, the Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and
return characteristics are similar to selling a futures contract. Another
possible combined position would involve writing a call option at one strike
price and buying a call option at a lower price, in order to reduce the risk of
the written call option in the event of a substantial price increase. Because
combined options positions involve multiple trades, they result in higher
transaction costs.
Turnover. The Fund's options and futures activities may affect its
turnover rate and brokerage commission payments. The exercise of calls or puts
written by the Fund, and the sale or purchase of futures contracts, may cause it
to sell or purchase related investments, thus increasing its turnover rate. Once
the Fund has received an exercise notice on an option it has written, it cannot
effect a closing transaction in order to terminate its obligation under the
option and must deliver or receive the underlying securities at the exercise
price. The exercise of puts purchased by the Fund may also cause the sale of
related investments, also increasing turnover; although such exercise is within
<PAGE>
the Fund's control, holding a protective put might cause it to sell the
related investments for reasons that would not exist in the absence of the put.
The Fund will pay a brokerage commission each time it buys or sells a put or
call or purchases or sells a futures contract. Such commissions may be higher
than those that would apply to direct purchases or sales.
Swaps, Caps, Floors and Collars. The Fund is authorized to enter into
swaps, caps, floors and collars. However, these instruments are not
exchange-traded and the Fund presently has a non-fundamental policy to utilize
only exchange-traded Financial Instruments.
Swaps involve the exchange by one party with another party of their
respective commitments to pay or receive cash flows, e.g., an exchange of
floating rate payments for fixed rate payments. The purchase of a cap or a floor
entitles the purchaser, to the extent that a specified index exceeds in the case
of a cap, or falls below in the case of a floor, a predetermined value, to
receive payments on a notional principal amount from the party selling such
instrument. A collar combines elements of buying a cap and selling a floor.
^ Investment Restrictions. As described in the section of the ^
Prospectuses entitled "Investment Policies And Risks," each Fund operates under
certain investment restrictions. 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.
INVESCO Dynamics Fund
The following restrictions are fundamental and may not be changed with
respect to the INVESCO Dynamics Fund without prior approval of a majority of the
outstanding voting securities of the Fund, as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). 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 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;
<PAGE>
(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;
(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
<PAGE>
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 ^ 10% 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.
INVESCO Endeavor Fund
The following restrictions are fundamental and may not be changed with
respect to the INVESCO Endeavor Fund without the prior approval of a majority of
the outstanding voting securities of the Fund, as defined in the 1940 Act. The
INVESCO Endeavor Fund will not:
(1) purchase the securities of any issuer (other than securities issued
or guaranteed by the U.S. Government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the Fund's
total assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(2) with respect to 75% of the Fund's total assets, purchase the
securities of any issuer (other than securities issued or guaranteed
by the U.S. Government or any of its agencies or instrumentalities,
or securities of other investment companies) if, as a result, (i)
more than 5% of the Fund's total assets would be invested in the
securities of that issuer, or (ii) the Fund would hold more than 10%
of the outstanding voting securities of that issuer;
(3) underwrite securities of other issuers, except insofar as it may be
deemed to be an underwriter under the Securities Act of 1933, as
amended, in connection with the disposition of the Fund's portfolio
securities;
<PAGE>
(4) borrow money, except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investing) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings).
(5) issue senior securities, except as permitted under the
Investment Company Act of 1940;
(6) lend any security or make any loan if, as a result, more than 33
1/3% of its total assets would be lent to other parties, but this
limitation does not apply to the purchase of debt securities or to
repurchase agreements;
(7) purchase or sell physical commodities; however, this policy shall
not prevent the Fund from purchasing and selling foreign currency,
futures contracts, options, forward contracts, swaps, caps, floors,
collars and other financial instruments;
(8) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the Fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(9) The Fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of
a single open-end management investment company managed by INVESCO
Funds Group, Inc. or an affiliate or successor thereof with
substantially the same fundamental investment objective, policies
and limitations as the Fund.
In addition, the INVESCO Endeavor Fund has the following non-fundamental
policies, which may be changed without shareholder approval:
(a) The Fund may not sell securities short (unless it owns or
has the right to obtain securities equivalent in kind and
amount to the securities sold short) or purchase
securities on margin, except that (i) this policy does
not prevent the Fund from entering into short positions
in foreign currency, futures contracts, options, forward
contracts, swaps, caps, floors, collars and other
financial instruments, (ii) the Fund may obtain such
short-term credits as are necessary for the clearance of
transactions, and (iii) the Fund may make margin payments
in connection with futures contracts, options, forward
contracts, swaps, caps, floors, collars and other
financial instruments;
<PAGE>
(b) The Fund may borrow money only from a bank or by engaging in reverse
repurchase agreements with any party (reverse repurchase
agreements will be treated as borrowings for purposes of
fundamental limitation (4)). The Fund will not purchase any security
while borrowings represents more than 5% of its total assets are
outstanding.
(c) The Fund does not currently intend to purchase any security if, as a
result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject
to legal or contractual restrictions on resale or because they
cannot be sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
In applying restriction (c) 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 10% 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).
INVESCO Growth & Income Fund
The following restrictions are fundamental and may not be changed with
respect to the Growth & Income Fund without the prior approval of the holders of
a majority of the outstanding voting securities of the Fund, as defined in the
1940 Act. Under these restrictions, the Growth & Income Fund will not:
(1) issue preference shares or create any funded debt;
(2) sell short or buy on margin^ except for the Fund's purchase or sale
of options or futures, or writing, purchasing or selling puts or
calls options;
<PAGE>
(3) borrow money in excess of ^ 5% of the value of its total assets and
then only from banks, and when borrowing, it is a temporary measure
for emergency purposes*;
(4) invest in the securities of any other investment company except for
a purchase or acquisition in accordance with a plan of
reorganization, merger or consolidation;
(5) 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);
(6) make loans to any person, except through the purchase of debt
securities in accordance with the Fund's investment policies, or the
lending of portfolio securities to broker-dealers or other
institutional investors, or the entering into repurchase agreements
with member banks of the Federal Reserve System, registered
broker-dealers and registered government securities dealers. The
aggregate value of all portfolio securities loaned may not exceed
33-1/3% of the Fund's total assets (taken at current value). No more
than 10% of the Fund's total assets may be invested in repurchase
agreements maturing in more than seven days;
(7) buy or sell commodities, commodity contracts or real estate
(however, the Fund may purchase securities of companies investing in
real estate). This restriction shall not prevent the Fund from
purchasing or selling options on individual securities, security
indexes, and currencies, or financial futures or options on
financial futures, or undertaking forward foreign currency
contracts.
(8) invest in any company for the purpose of exercising
control or management;
(9) buy other than readily marketable securities;
(10) engage in the underwriting of any securities;
(11) purchase securities of any company in which any officer or director
of the Fund or its investment adviser owns more than 1/2 of 1% of
the outstanding securities, or in which all of the officers and
directors of the Fund and its investment adviser, as a group, own
more than 5% of such securities;
(12) invest more than 25% of the value of the Fund's total assets in one
particular industry.
<PAGE>
^*The Fund has 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 (9) above, the board of directors
has delegated to the Funds' investment adviser the authority to determine
whether a liquid market exists for securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933, or any successor to such rule, and
whether or not such securities are subject to restriction (9) above. Under
guidelines established by the board of directors, the adviser will consider the
following factors, among others, in making this determination: (1) the
unregistered nature of a Rule 144A security; (2) the frequency of trades and
quotes for the security; (3) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers; (4) dealer
undertakings to make a market in the security; and (5) the nature of the
security and the nature of marketplace trades (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of transfer).
In applying restriction (12) above, the Fund uses a modified S&P industry
code classification schema which uses various sources to classify securities.
The following non-fundamental investment restrictions have been adopted by
the Fund. These investment restrictions may be changed by the directors at their
discretion, without shareholder approval:
(1) The Fund will not enter into any futures contracts, options on
futures, puts and calls if immediately thereafter the aggregate
margin deposits on all outstanding derivatives positions held by the
Fund and premiums paid on outstanding positions, after taking into
account unrealized profits and losses, would exceed 5% of the market
value of the total assets of the Fund.
(2) The Fund will not enter into any derivatives positions if the
aggregate net amount of the Fund's commitments under outstanding
derivatives positions of the Fund would exceed the market value of
the total assets of the Fund.
^
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
<PAGE>
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. On August 28, 1998, the name of the Company was changed to
INVESCO Equity Funds, Inc.
The Investment Adviser. INVESCO Funds Group, Inc., a Delaware corporation
^("INVESCO"), is employed as the Company's investment adviser. ^ INVESCO was
established in 1932 and also serves as an investment adviser to INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Flexible Funds, Inc. (formerly, INVESCO Multiple Asset 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 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 ^ d.b.a. INVESCO Trust Company ("ITC") provided sub-advisory services to
the Dynamics Fund. Effective February 3, 1998, ITC no longer ^ provided
sub-advisory ^ services to this Fund and ^ INVESCO provides such day-to-day
portfolio management services as the investment adviser to the Dynamics Fund.
This change in no way ^ changed 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 (upon inception^ with
respect to the Growth & Income Fund and the ^ Endeavor Fund), 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 ^ INVESCO. Prior to September 30, 1997, ^ INVESCO served
as the Dynamics Fund's distributor.
^ INVESCO and IDI are indirect wholly owned subsidiaries of AMVESCAP PLC,
a publicly-traded holding company that, through its subsidiaries, engages in the
business of investment management on an international basis. INVESCO PLC changed
its name to AMVESCO PLC on March 3, 1997 and to AMVESCAP PLC on May 8, 1997, as
part of a merger between a direct subsidiary of INVESCO PLC and A I M Management
Group Inc., that created one of the largest independent investment management
businesses in the world with approximately ^ $261 billion in assets under
management^ as of June 30, 1998. INVESCO was established in 1932 and as of April
30, 1998, managed 14 mutual funds, consisting of ^ 48 separate portfolios, on
behalf of 1,492,189 shareholders.
AMVESCAP PLC's North American subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS"), Atlanta, Georgia,
develops and provides domestic and international defined contribution retirement
plan services to plan sponsors, institutional retirement plan sponsors,
institutional plan providers and foreign governments.
<PAGE>
--INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a division
of IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 and $200 million in assets.
Additionally, IRPS provides investment consulting services to institutions
seeking to provide INVESCO products and services in their retirement plan
products and services.
--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 ^ INVESCO, complete transfer agency
functions: correspondence, subaccounting, telephone communications and
processing of distributions.
--INVESCO Capital Management, Inc. of Atlanta, Georgia, manages
institutional investment portfolios, consisting primarily of discretionary
employee benefit plans for corporations and state and local governments, and
endowment funds. INVESCO Capital Management, Inc. is the sole shareholder of
INVESCO Services, Inc., a registered broker-dealer whose primary business is the
distribution of shares of ^ one registered investment ^ company.
--INVESCO Management & Research, Inc. of Boston, Massachusetts, primarily
manages pension and endowment accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky, specializes in
managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO Realty Advisors 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.
--INVESCO (NY), Inc., New York, is an investment adviser for separately
managed accounts, such as corporate and municipal pension plans, Taft-Hartley
Plans, insurance companies, charitable institutions and private individuals.
INVESCO NY also offers the opportunity for its clients to invest both directly
and indirectly through partnerships in primarily private investments or
privately negotiated transactions. INVESCO NY further serves as investment
adviser to several closed-end investment companies, and as sub-adviser with
respect to certain commingled employee benefit trusts. INVESCO NY specializes in
the fundamental research investment approach, with the help of quantitative
tools.
<PAGE>
--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, ^ INVESCO permits investment and
other personnel to purchase and sell securities for their own accounts in
accordance with a compliance policy governing personal investing by directors,
officers and employees of ^ INVESCO and its North American affiliates. The
policy requires officers, inside directors, investment and other personnel of ^
INVESCO and its North American affiliates to pre-clear all transactions in
securities not otherwise exempt under the policy. Requests for trading authority
will be denied when, among other reasons, the proposed personal transaction
would be contrary to the provisions of the policy or would be deemed to
adversely affect any transaction then known to be under consideration for or to
have been effected on behalf of any client account, including the Funds.
In addition to the pre-clearance requirement described above, the policy
subjects officers, inside directors, investment and other personnel of ^ INVESCO
and its North American affiliates to various trading restrictions and reporting
obligations. All reportable transactions are reviewed for compliance with the
policy. The provisions of the policy are administered by and subject to
exceptions authorized by ^ INVESCO.
Investment Advisory Agreement. ^ INVESCO serves as investment adviser to
the Funds 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 ^ INVESCO at a meeting called for such purpose.
Shareholders of the Dynamics Fund approved the Agreement on January 31, 1997 for
an initial term expiring February 28, 1999. On May 13, 1998, this period was
extended by the Company's board of directors to May 15, 1999. With respect to
<PAGE>
the Growth & Income Fund, the Agreement was approved by ^ INVESCO on May
13, 1998, for an initial term expiring May 15, 1999. With respect to the
^Endeavor Fund, the Agreement was approved by ^ INVESCO on May 13, 1998, for an
initial term expiring May 15, 1999. Thereafter, the Agreement may be continued
from year to year with respect to each Fund 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 applicable Fund. Any such continuance also must
be approved by a majority of the Company's directors who are not parties to the
Agreement or interested persons (as defined in the 1940 Act) of any such party,
cast in person at a meeting called for the purpose of voting on such
continuance. The Agreement may be terminated at any time without penalty by
either party or by a Fund with respect to that Fund, upon sixty (60) days'
written notice and terminates automatically in the event of an assignment to the
extent required by the 1940 Act and the rules thereunder.
The Agreement provides that ^ INVESCO shall manage the investment
portfolios of the Funds in conformity with each Fund's investment policies^.
Further, INVESCO shall perform all administrative, internal accounting
(including computation of net asset value), clerical, statistical, secretarial
and all other services necessary or incidental to the administration of the
affairs of the Funds excluding, however, those services that are the subject of
separate agreement between the Company and ^ INVESCO 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 ^ INVESCO
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 ^ INVESCO's
in-house legal and accounting staff (including the prospectus, statement of
additional information, proxy statements, shareholder reports, tax returns,
reports to the SEC, and other corporate documents of the 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 ^ INVESCO
are borne by the Funds.
As full compensation for its advisory services to the Company, ^ INVESCO
receives a monthly fee. With respect to the Dynamics Fund, the fee is calculated
daily 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. ^
For the fiscal years ended April 30, 1998, 1997 and 1996, the Dynamics
<PAGE>
Fund paid INVESCO advisory fees of $5,874,212, $4,550,303 and $3,382,286,
respectively. With respect to the Endeavor Fund and the Growth & Income Fund,
the fee is calculated at the annual rate of 0.75% of ^ each Fund's average net
assets. ^ The Endeavor Fund and the Growth & Income Fund did not pay advisory
fees as of April 30, 1998 as the Funds did not commence operations until June
30, 1998 and October 28, 1998, respectively.
Administrative Services Agreement. ^ INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting, and
recordkeeping services to the Funds 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 ^ INVESCO 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 ^ INVESCO 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 ^ INVESCO 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 ^ INVESCO, as are
reasonably necessary for the operation of Fund shareholder accounts maintained
by certain retirement plans and employee benefit plans for the benefit of
participants in such plans.
As full compensation for services provided under the Administrative
Agreement, each Fund pays a monthly fee to ^ INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
applicable Fund. During the fiscal years ended April 30, 1998, 1997^ and 1996 ^,
the Dynamics Fund paid ^ INVESCO administrative services fees in the amount of
$170,476, $130,696^ and $97,509 ^, respectively. The Endeavor Fund and the
Growth & Income Fund did not pay ^ INVESCO administrative services fees as of
April 30, ^ 1998 as the ^ Funds did not commence operations until June 30, 1998^
and October 28, 1998, respectively.
<PAGE>
Transfer Agency Agreement. ^ INVESCO also performs transfer agent,
dividend disbursing agent, and registrar services for the Funds pursuant to a
Transfer Agency Agreement dated February 28, 1997 which was approved by the
board of directors of the Company, including a majority of the Company's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996, for an initial term expiring
February 28, 1998 ^, which has been extended by action of the board of directors
until May 15, 1999. Thereafter the Transfer Agency Agreement may be continued
from year to year with respect to a Fund 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
^ such Fund. Any such continuance also must be approved by a majority of the
Company's directors who are not parties to the Transfer Agency Agreement or
interested persons (as defined by the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such continuance. The
Transfer Agency Agreement may be terminated at any time 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 ^
INVESCO an annual fee of $20.00 per shareholder account, or, where applicable,
per participant in an omnibus account. This fee is paid monthly at 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, 1998, 1997^ and 1996 ^, the Dynamics Fund paid ^
INVESCO transfer agency fees of $2,156,766, $1,964,970^ and $1,108,321 ^(prior
to the voluntary absorption of certain Fund expenses by INVESCO), respectively.
The Endeavor Fund and the Growth & Income Fund did not pay ^ INVESCO transfer
agency fees as of April 30, ^ 1998 as the Fund did not commence operations until
June 30, 1998^ and October 28, 1998, respectively.
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
administered. The officers of the Company, all of whom are officers and
employees of, and paid by ^ INVESCO, 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 ^ INVESCO.
All of the officers and directors of the Company hold comparable positions
with INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Flexible Funds, Inc. (formerly, INVESCO Multiple Asset Funds, Inc.),
INVESCO Growth Fund, Inc., INVESCO Income Funds, Inc., INVESCO Industrial Income
<PAGE>
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market 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^ and INVESCO Treasurer's Series Trust. All of the officers of the Company
also hold comparable positions with INVESCO Value Trust and INVESCO Treasurer's
Series Trust. Set forth below is information with respect to each of the
Company's officers and directors. Unless otherwise indicated, the address of the
directors and officers is Post Office Box 173706, Denver, Colorado 80217-3706.
Their affiliations represent their principal occupations during 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 ^ Global Health Sciences Fund. Address: 1315
Peachtree Street, NE, Atlanta, Georgia. Born: May 11, 1935.
FRED A. DEERING,+# Vice Chairman of the Board. ^ Trustee of INVESCO Global
Health Sciences Fund. Formerly, Chairman of the Executive Committee and Chairman
of the Board of Security Life of Denver Insurance Company, Denver, Colorado;
Director of ING America Life Insurance Company^. Address: Security Life Center,
1290 Broadway, Denver, Colorado. Born: January 12, 1928.
^ VICTOR L. ANDREWS,**@ Director. Professor Emeritus, Chairman Emeritus and
Chairman of the CFO Roundtable of the Department of Finance at Georgia State
University, Atlanta, Georgia; President, Andrews Financial Associates, Inc.
(consulting firm); since October 1984, Director of the Center for the Study of
Regulated Industry 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: 34 Seawatch Drive, ^ Savannah,
Georgia. Born: June 23, 1930.
BOB R. BAKER,+** Director. President and Chief Executive Officer of AMC
Cancer Research Center, Denver, Colorado, since January 1989; until mid-December
1988, Vice Chairman of the Board of First Columbia Financial Corporation (a
financial institution), Englewood, Colorado. Formerly, Chairman of the Board and
Chief Executive Officer of First Columbia Financial Corporation. Address: 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.
<PAGE>
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.
^ KENNETH T. KING,#@@ Director. Formerly, Chairman of the Board of The
Capitol Life Insurance Company, Providence Washington Insurance Company, and
Director of numerous subsidiaries thereof in the U.S. Formerly, Chairman of the
Board of The Providence Capitol Companies in the United Kingdom and Guernsey.
Chairman of the Board of the Symbion Corporation (a high technology company)
until 1987. Address: 4080 North Circulo Manzanillo, Tucson, Arizona.
Born: November 16, 1925.
JOHN W. MCINTYRE,#@@ Director. Retired. Formerly, Vice Chairman of the
Board of Directors of The Citizens and Southern Corporation and Chairman of the
Board and Chief Executive Officer of The Citizens and Southern Georgia ^
Corporation and Citizens and Southern National Bank. Trustee of INVESCO Global
Health Sciences Fund and Gables Residential Trust. Address: 7 Piedmont Center,
Suite 100, Atlanta, 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.
MARK H. WILLIAMSON,+* President, CEO and Director. President, CEO and
Director of IDI; President, CEO and Director of INVESCO and President of INVESCO
Global Health Sciences Fund. Formerly, Chairman and CEO of NationsBanc Advisors,
Inc. (1995 to 1997) and Chairman of NationsBanc Investments, Inc. (1997 to
1998). Born: May 24, 1951.
GLEN A. PAYNE, Secretary. Senior Vice President (since 1995), General
Counsel ^(since 1989) and Secretary (since 1989) of INVESCO and Senior Vice
President, General Counsel and Secretary of IDI (since 1997); Vice President
(May 1989 to April 1995)^ of INVESCO; Senior Vice President, (since 1995),
General Counsel (since 1989)and Secretary (1989 to 1998) of ITC. Formerly,
employee of a U.S. regulatory agency, Washington, D.C. (June 1973 through May
1989). Born: September 25, 1947.
<PAGE>
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of INVESCO
^(since 1988). Senior Vice President and Treasurer of ^ IDI (since 1997). Senior
Vice President and Treasurer of ITC (1988 to 1998) Born: October 1, 1946.
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO ^(since 1995) and of ^ IDI (since 1997) and Trust Officer of ^ ITC (1995
to 1998); and formerly (August 1992 to July 1995) Vice President of INVESCO ^.
Formerly, Vice President of 440 Financial Group from June 1990 to August 1992
and Assistant Vice President of Putnam Companies from November 1986 to June
1990. Born: August 21, 1956.
ALAN I. WATSON, Assistant Secretary. Vice President of INVESCO ^(since
1984) ^. Formerly, Trust Officer of ^ ITC. Born: September 14, 1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO ^(since 1984)
and of ^ IDI (since 1997) ^. Formerly, Trust Officer of ^ ITC. Born: February 3,
1948.
*These directors are "interested persons" of the Company as defined in the
Investment Company Act of 1940.
#Member of the audit committee of the Company's board of directors.
@Member of the derivatives committee of the Company's board of directors.
@@Member of the soft dollar brokerage 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.
^
**Member of the management liaison committee of the Company's board of
directors.
As of ^ September 16, 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.
<PAGE>
Director Compensation
The following table sets forth, for the fiscal year ended April 30, ^
1998: the compensation paid by the Company to its independent directors for
services rendered in their capacities as directors of the Company; the benefits
accrued as 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 IDI and advised by INVESCO ^(including the
Company), ^ INVESCO Treasurer's Series Trust, and INVESCO Global Health Sciences
Fund (collectively, the "INVESCO Complex") to these directors for services
rendered in their capacities as directors or trustees during the year ended
December 31, ^ 1997. As of December 31, ^ 1997, there were 49 funds in the
INVESCO Complex. ^
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, $ ^ 3,488 $ 2,675 $1,717 $113,350
Vice Chairman of
the Board
Victor L. Andrews ^ 3,487 2,528 1,987 92,700
Bob R. Baker ^ 3,644 2,257 2,663 96,050
Lawrence H. Budner ^ 3,385 2,528 1,987 91,000
Daniel D. Chabris(4) 3,369 2,733 1,483 89,350
Wendy L. Gramm 2,297 0 0 39,000
Kenneth T. King 3,143 2,778 1,557 94,350
John W. McIntyre 3,183 0 0 104,000
Larry Soll 2,978 0 0 78,000
------ ------ ----- -------
Total $28,974 $15,499 11,394 $797,800
% of Net Assets 0.0022%(6) 0.0012%(5) 0.0046%(6)
(1)The vice chairman of the board, the chairmen of the audit, management
liaison, derivatives, soft dollar brokerage, and compensation committees, and
the members of the executive and valuation committees each receive compensation
for serving in such capacities in addition to the compensation paid to all
independent directors.
<PAGE>
(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 ^ this retirement plan) upon the
directors' retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
benefits assume retirement at age 72 and that the basic retainer payable to the
directors will be adjusted periodically for inflation, for increases in the
number of funds in the INVESCO Complex, and for other reasons during the period
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 ^ Mr. McIntyre and Drs. Gramm and Soll, each
of these directors has served as a director/trustee of one or more of the funds
in the INVESCO Complex for the minimum five-year period required to be eligible
to participate in the Defined Benefit Deferred Compensation Plan.
^ (4)Mr. Chabris will retire as a director effective September 30, 1998.
(5)Totals as a percentage of the Company's net assets as of April 30, ^
1998.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, ^ 1997.
Messrs. Brady^ and Williamson, as "interested persons" of the Company, the
^ Funds 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 ^ INVESCO
and INVESCO Treasurer's Series Trust have adopted a Defined Benefit Deferred
Compensation Plan for the non-interested directors and trustees of the funds.
Under this plan, each director or trustee who is not an interested person of the
funds (as defined in the 1940 Act) and who has served for at least five years (a
"qualified director") is entitled to receive, upon ^ termination of service as a
director (normally at the retirement age of 72) (or the retirement age of 73 or
74, if the retirement date is extended by the boards for one or two years, but
<PAGE>
less than three years) continuation of payment for one year (the "first
year retirement benefit") of the annual basic retainer and annualized board
meeting fees payable by the funds to the qualified director at the time of his
or her retirement (the "basic retainer"). Commencing with any such director's
second year of retirement, and commencing with the first year of retirement of a
director whose retirement has been extended by the board for three years, a
qualified director shall receive quarterly payments at an annual rate equal to
50% of the basic retainer and annualized board meeting fees. These payments will
continue for the remainder of the qualified director's life or ten years,
whichever is longer (the "reduced retainer payments"). If a qualified director
dies or becomes disabled after age 72 and before age 74 while still a director
of the funds, the first year retirement benefit and the reduced retainer
payments will be made to him or her or to his or her beneficiary or estate. If a
qualified director becomes disabled or dies either prior to age 72 or during his
or her 74th year while still a director of the funds, the director will not be
entitled to receive the first year retirement benefit; however, the reduced
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 ^ INVESCO and Treasurer's Series ^ Trust Funds in a
manner determined to be fair and equitable by the committee. ^ The Company will
begin making payments to Mr. Chabris as of October 1, 1998. The Company has no
stock options or other pension or retirement plans for management or other
personnel and pays no salary or compensation to any of its officers.
The independent directors have contributed to a deferred compensation
plan, pursuant to which they have deferred receipt of a portion of the
compensation which they would otherwise have been paid as directors of the
INVESCO and Treasurer's Series Trust Funds. The deferred amounts are being
invested in the shares of all of the INVESCO and Treasurer's Series Trust Funds.
Each independent director is, therefore, an indirect owner of shares of each
INVESCO ^ Fund.
The Company has an audit committee that is comprised of ^ four of the
directors who are not interested persons of the 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.
<PAGE>
The Company also has a soft dollar brokerage committee. The committee
meets periodically to review soft dollar brokerage transactions by the Funds,
and to review policies and procedures of the Funds' adviser with respect to soft
dollar brokerage transactions. It reports on these matters to the Company's
board of directors.
The Company also has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Funds. It monitors
derivatives usage by the Funds and the procedures utilized by the Funds' adviser
to ensure that the use of such instruments follows the policies on such
instruments adopted by the board of directors. It reports on these matters to
the Company's board of directors.
HOW SHARES CAN BE PURCHASED
The shares of 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
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 and bears all ^ expenses, 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 ^ Prospectuses, 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, with respect to the Dynamics Fund, and upon
inception with respect to the Growth & Income Fund and the Endeavor Fund. The
Plan provides that each Fund may make monthly payments to IDI of amounts
computed at an annual rate no greater than 0.25% of the Fund's average net
assets to permit IDI, at its discretion, to engage in certain activities and
provide services in connection with the distribution of each Fund's shares to
investors. Payment by a Fund under the Plan, for any month, may be made to
<PAGE>
compensate IDI for permissible activities engaged in and services provided
by IDI 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, ^ 1998, the
Dynamics Fund made payments to ^ INVESCO (the predecessor of IDI as the
distributor of Dynamics Fund shares) and IDI under the Plan in the amount of ^
$2,557,942. In addition, as of April 30, ^ 1998, $269,691 of additional
distribution accruals had been incurred by the Dynamics Fund and will be paid
during the fiscal year ended April 30, ^ 1999. 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 ^ INVESCO-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 IDI
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 IDI, but can
give no assurance in this regard. However, to the extent it is determined
otherwise in the future, arrangements with banks might have to be modified or
terminated, and, in that case, the size of the 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.
For the fiscal year ended April 30, ^ 1998, allocation of 12b-1 amounts
paid by the Dynamics Fund for the following categories of expenses were:
advertising--^ $199,581; sales literature, printing, and postage--^ $214,762;
direct mail--^ $99,663; public relations/promotion--^ $72,334; compensation to
securities dealers and other organizations--^ $1,554,820; and marketing
personnel--^ $416,782. There were no allocations made with respect to the Growth
& Income Fund and ^ the Endeavor Fund as of April 30, ^ 1998, as ^ the Fund did
not commence operations until June 30, 1998 and ^ October 28, 1998,
respectively.
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 ^ transactions by the
Funds' 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.
<PAGE>
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 ("independent 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 and the Endeavor Fund, the Plan was approved by action of the board of
directors of the Company for an initial period expiring May 15, 1999. ^ Pursuant
to authorization granted by the Company's board of directors on September 2,
1997, a new Plan became effective on September 30, 1997, under which IDI assumed
all obligations related to distribution from INVESCO.
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 ^ be terminated at any
time with respect to any Fund, without penalty, if a majority of the independent
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's shares. The Plan may continue in effect and payments may
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 independent directors of the
Company shall be committed to the independent directors then in office at the
time of such selection or nomination. The Plan may not be amended to increase ^
the amount of a Fund's payments thereunder without approval of the shareholders
<PAGE>
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 independent
directors. Under the agreement implementing the Plan, IDI or the Funds, the
latter by vote of a majority of the independent 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 IDI
shall terminate automatically, in the event of such "assignment," in which event
the Funds may continue to make payments, pursuant to the Plan, to IDI or another
organization only upon the approval of new arrangements, which may or may not be
with IDI, regarding the use of the amounts authorized to be paid by it under the
Plan, by the directors, including a majority of the independent directors, by a
vote cast in person at a meeting called for such purpose.
Information regarding the services rendered under the Plan and the amounts
paid therefor by 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 IDI or companies affiliated with IDI. The benefits which the Company believes
will be reasonably likely to flow to the Funds and their shareholders under the
Plan include the following:
(1) Enhanced marketing efforts, if successful, should result in an
increase in net assets through the sale of additional shares and
afford greater resources with which to pursue the investment ^
objective(s) of the ^ Funds;
(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 ^ INVESCO and its affiliated companies:
(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),
<PAGE>
(b) To increase the number and type of mutual funds available to
investors from ^ INVESCO (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.
<PAGE>
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.
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 Company's 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
<PAGE>
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.
FUND PERFORMANCE
As discussed in the section of ^ each Fund's Prospectus 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, ^ 1998, was ^ 56.42%, 22.75%
and ^ 19.44%, 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,
<PAGE>
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), Growth and Income (Growth & Income ^) and Growth ^(Endeavor Fund)
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:
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
<PAGE>
SERVICES PROVIDED BY THE FUNDS
Periodic Withdrawal Plan. As described in the section of ^ each Fund's
Prospectus 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.
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 ^ INVESCO. 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 ^ each Fund's Prospectus
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 ^ INVESCO. Exchange requests may be made either by
telephone or by written request to INVESCO ^, using the telephone number or
address on the cover of this Statement of Additional Information. Exchanges made
by telephone must be in an amount of at least $250, if the exchange is being
made into an existing account of one of the INVESCO funds. All exchanges that
establish a new account must meet the fund's applicable minimum initial
investment requirements. Written exchange requests into an existing account have
no minimum requirements 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 ^ ability is not an option or right to
purchase securities and is not available in any state or other jurisdiction
where the shares of the mutual fund into which transfer is to be made are not
qualified for sale, or when the net asset value of the shares presented for
exchange is less than the minimum dollar purchase required by the appropriate
prospectus.
TAX-DEFERRED RETIREMENT PLANS
As described in the section of ^ each Fund's Prospectus 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 ^ INVESCO will be provided with prototype documents and other
<PAGE>
supporting information regarding the type of plan requested. Each of these plans
involves a long-term commitment of assets and is subject to possible regulatory
penalties for excess contributions, premature distributions or for insufficient
distributions after age 70-1/2. The legal and tax implications may vary
according to the circumstances of the individual investor. Therefore, the
investor is urged to consult with an attorney or tax adviser prior to the
establishment of such a plan.
HOW TO REDEEM SHARES
Normally, payments for shares redeemed will be mailed within seven (7)
days following receipt of the required documents as described in the section of
^ each Fund's Prospectus entitled "How ^ To Sell Shares." The right of
redemption may be suspended and payment postponed when: (a) the New York Stock
Exchange is closed for other than customary weekends and holidays; (b) trading
on that exchange is restricted; (c) an emergency exists as a result of which
disposal by 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.
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 Funds' 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.
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
<PAGE>
Revenue Code of 1986, as amended (the "Code"). The Dynamics Fund so
qualified in the fiscal year ended April 30, ^ 1998, and all three 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 all three Funds will be
accorded conduit or "pass through" treatment for federal income tax purposes.
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. ^ Long-term gains
realized between May 7, 1997 and July 28, 1997 on the sale of securities held
for more than 12 months are taxable at the maximum rate of 20%. Long-term gains
realized between July 29, 1997 and December 31, 1997 on the sale of securities
held for more than one year but not for more than 18 months are taxable at ^ the
maximum rate of 28%. Long-term gains realized between July 29, 1997 and December
31, 1997 on the sale of securities held for more than 18 months are taxable at a
^ maximum rate of 20%. Beginning January 1, 1998, the IRS Restructuring and
Reform Act of 1998, signed into law on July 24, 1998, lowers the holding period
for long-term capital gains entitled to the 20% capital gains tax rate from 18
months to 12 months. Accordingly, all long-term gains realized after December
31, 1997 on the sale of securities held for more than 12 months will be taxable
at a maximum rate of 20%. Note that the rate of capital gains tax is dependent
on the shareholder's marginal tax rate and may be lower than the above rates. At
the end of each year, information regarding the tax status of dividends and
other distributions is provided to shareholders. Shareholders should consult
their tax ^ adviser as to the effect of ^ distributions by the Fund ^.
All dividends and other distributions are regarded as taxable to the
investor, regardless whether ^ such dividends and distributions are reinvested
in additional shares of one of the ^ Funds 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
<PAGE>
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.
^ INVESCO may provide Fund shareholders with information concerning the
average cost basis of their shares in order to help them prepare their tax
returns. This information is intended as a convenience to shareholders, and will
not be reported to the Internal Revenue Service (the "IRS"). The IRS permits the
use of several methods to determine the cost basis of mutual fund shares. The
cost basis information provided by ^ INVESCO will be computed using the
single-category average cost method, although neither ^ INVESCO nor the Fund
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses 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 ^ October 31 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.^ 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. Otherwise, foreign taxes withheld will be
treated as an expense of the Fund.
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)
<PAGE>
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, 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 ^ Fund may elect to "mark-to-market" its stock in any PFIC.
Marking-to-market, in this context, means including in ordinary income for each
taxable year the excess, if any, of the fair market value of the PFIC stock over
a ^ Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, a ^ Fund also will be allowed to deduct from ordinary
income the excess, if any, of its adjusted basis in PFIC stock over the fair
market value thereof as of the end of the year, but only to the extent of any
net mark-to-market gains with respect to that PFIC stock included by a ^ Fund
for prior taxable years. A ^ Fund'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 ^ other
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.
<PAGE>
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 any of the Funds 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 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.^ 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.
Portfolio turnover rates for the Dynamics Fund for the fiscal years ended April
30, 1998 and 1997 were 178% and 204%, respectively. In computing the portfolio
turnover rate, all investments with maturities or expiration dates at the time
of acquisition of one year or less are excluded. Subject to this exclusion, the
turnover rate is calculated by dividing (A) the lesser of purchases or sales of
portfolio securities for the fiscal year by (B) the monthly average of the value
of portfolio securities owned by the Fund during the fiscal year.
Placement of Portfolio Brokerage. ^ INVESCO, as the Funds' investment
adviser, places orders for the purchase and sale of securities with brokers and
dealers based upon ^ INVESCO'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. ^ INVESCO evaluates the overall
reasonableness of brokerage commissions or underwriting discounts (the
difference between the full acquisition price to acquire the new offering and
the discount offered to members of the underwriting syndicate) 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 or discounts charged the Funds are
consistent with prevailing and reasonable commissions^ or discounts, INVESCO
also endeavors to monitor brokerage industry practices with regard to the
commissions or discounts charged by broker-dealers on transactions effected for
other comparable institutional investors. While ^ INVESCO seeks reasonably
competitive rates, the Funds do not necessarily pay the lowest commission ^,
spread or discount available.
<PAGE>
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, ^ INVESCO may select brokers that provide research
services to effect such transactions. Research services consist of statistical
and analytical reports relating to issuers, industries, securities and economic
factors and trends, which may be of assistance or value to ^ INVESCO in making
informed investment decisions. Research services prepared and furnished by
brokers through which the ^ Funds effect securities transactions may be used by
^ INVESCO in servicing all of its accounts and not all such services may be used
by ^ INVESCO in connection with the Funds.
In recognition of the value of the above-described brokerage and research
services provided by certain brokers, ^ INVESCO, consistent with the standard of
seeking to obtain the best execution on portfolio transactions, may place orders
with such brokers for the execution of 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 ^ brokers and
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 may consider the sale of Fund shares by a
broker or dealer in selecting among qualified ^ brokers and dealers.
Certain financial institutions (including brokers who may sell shares of
the 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 ^ INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Funds. ^ INVESCO,
in turn, pays these transfer agency fees to the NTF Program Sponsor as a
sub-transfer agency or recordkeeping fee in payment of all or a portion of the
Services Fee. In the event that the sub-transfer agency or recordkeeping fee is
insufficient to pay all of the Services Fee with respect to these NTF Programs,
the directors of the Company have authorized the Company to apply dollars
<PAGE>
generated from the Plan to pay the remainder of the Services Fee, subject
to the maximum Rule 12b-1 fee permitted by the Plan. ^ INVESCO itself pays the
portion of ^ a 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 ^ INVESCO to place a portion of the Funds'
brokerage transactions with certain NTF Program Sponsors or their affiliated
brokers, if ^ INVESCO reasonably believes that, in effecting the Funds'
transactions in portfolio securities, the broker is able to provide the best
execution of orders at the most favorable prices. A portion of the commissions
earned by such a broker from executing portfolio transactions on behalf of the
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 ^ INVESCO or IDI 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 ^ a Fund's credits. In the event that the transfer agency fee paid by the
Funds to ^ INVESCO 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, ^ INVESCO 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 ^ INVESCO prior
to each fiscal year-end of the Funds. The Company's board of directors has also
authorized the ^ Funds to pay to IDI the full Rule 12b-1 fees contemplated by
the Plan as payment for expenses incurred by IDI in engaging in the activities
and providing the services on behalf of the 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 IDI 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, 1998, 1997^ and ^
1996, were $7,542,687, $5,707,197^ and $3,891,234 ^, respectively. For the
fiscal year ended April 30, ^ 1998, brokers providing research services received
^ $3,296,737 in commissions on portfolio transactions effected for the Dynamics
Fund. The aggregate dollar amount of such portfolio transactions was ^
$1,990,592,991. Brokers received no commissions on portfolio transactions
effected for the Dynamics Fund during the fiscal year ended April 30, ^ 1998, as
a result of selling shares of the Dynamics Fund.
At April 30, ^ 1998, 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 ^ 4/30/98
^ State Street Bank & Trust 53,395
Neither the Growth & Income Fund nor the ^ Endeavor Fund paid any
brokerage fees as of April 30, ^ 1998, as those ^ Funds did not commence
operations until June 30, 1998 and ^ October 28, 1998, respectively.
^ INVESCO does not receive any brokerage commissions on portfolio
transactions effected on behalf of the Funds, and there is no affiliation
between ^ INVESCO or any person affiliated with ^ INVESCO or the Funds and any
broker or dealer that executes transactions for the Funds.
ADDITIONAL INFORMATION
Common Stock. The Company has ^ 1,000,000,000 authorized shares of common
stock with a par value of $0.01 per share. Of the Company's authorized shares,
200,000,000 shares have been allocated to the Dynamics Fund, 100,000,000 shares
have been allocated to the Growth & Income Fund and 100,000,000 shares have been
allocated to the ^ Endeavor Fund. As of ^ July 31, 1998, ^ 86,766,172 shares of
the Dynamics Fund were outstanding and 1,393,257 shares of the Growth & Income
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.
<PAGE>
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
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 ^ July 31, 1998, the following entities held
more than 5% ^ of the ^ Funds' outstanding equity securities.
Class and
Amount and Nature ^ Percent
Name and Address of Ownership of Class
Dynamics Fund
Charles Schwab & Co. Inc. ^ 12,019,655.6400 13.92%
Special Custody Account
For The Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
Growth & Income Fund
^ Nat'l Financial Services Corp 177,547.0710 12.88%
The Exclusive Benefit of Cust
One World Financial Center
200 Liberty Street, 5th Floor
Attn: Kate Recon
New York, NY 10281-5500
<PAGE>
Charles Schwab & Co. Inc. 109,400.2860 7.94%
Special Custody Acct for the
Exclusive Benefit of Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Independent Accountants. PricewaterhouseCoopers LLP, 950 Seventeenth
Street, Denver, Colorado, has been selected as the independent accountants of
the Company. The independent accountants are responsible for auditing the
financial statements of the Company.
Custodian. State Street Bank and Trust Company, P.O. Box 351, Boston,
Massachusetts, has been designated as custodian of the cash and investment
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the 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
foreign securities depositories.
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 Company and
the notes thereto for the fiscal year ended April 30, ^ 1998, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements, are
incorporated herein by reference from the Company's Annual Report to
Shareholders for the fiscal year ended April 30, ^ 1998: Statement of Investment
Securities as of April 30, ^ 1998; Statement of Assets and Liabilities as of
April 30, ^ 1998; Statement of Operations for the year ended April 30, ^ 1998;
Statement of Changes in Net Assets for each of the two years in the period ended
April 30, ^ 1998; and Financial Highlights for each of the five years in the
period ended April 30, ^ 1998.
<PAGE>
Prospectuses. 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.
<PAGE>
APPENDIX A
DESCRIPTION OF FUTURES AND OPTIONS CONTRACTS
^(DYNAMICS AND GROWTH & INCOME FUNDS ONLY)
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
<PAGE>
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
<PAGE>
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.
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,
<PAGE>
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.
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.
