As filed with the Securities and Exchange Commission on July 15, 1999
File No. 002-26125
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 50 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 /X/
Amendment No. 24 /X/
INVESCO STOCK FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
7800 E. Union Avenue, Denver, Colorado 80237
(Address of Principal Executive Offices)
P.O. Box 173706, Denver, Colorado 80217-3706
(Mailing Address)
Registrant's Telephone Number, including Area Code: (303) 930-6300
Glen A. Payne, Esq.
7800 E. Union Avenue
Denver, Colorado 80237
(Name and Address of Agent for Service)
------------
Copies to:
Clifford J. Alexander, Esq.
Susan M. Casey, Esq.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D. C. 20036-1800
------------
Approximate Date of Proposed Public Offering: As soon as practicable after this
post-effective amendment becomes effective.
<PAGE>
It is proposed that this filing will become effective (check appropriate box)
X immediately upon filing pursuant to paragraph (b)
___ on __________, pursuant to paragraph (b)
___ 60 days after filing pursuant to paragraph (a)(1)
on August 31, 1999, pursuant to paragraph (a)(1)
___ 75 days after filing pursuant to paragraph (a)(2)
___ on _________, pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
___ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
PROSPECTUS
July 14, 1999
INVESCO BLUE CHIP GROWTH FUND
INVESCO BLUE CHIP GROWTH FUND (the "Fund") is actively managed to seek
long-term capital growth, with the secondary goal of current income. Most of its
investments are in U.S. common stocks, but the Fund has the flexibility to
invest in other types of securities.
The Fund is a series of INVESCO Stock Funds, Inc. (formerly, INVESCO
Equity Funds, Inc., formerly , INVESCO Capital Appreciation Funds, Inc.) (the
"Company"), a no-load mutual fund. The Company may offer additional funds 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 July 14, 1999, 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 SECURITIES AND EXCHANGE 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.
<PAGE>
TABLE OF CONTENTS
Page
ESSENTIAL INFORMATION................................................... 1
ANNUAL FUND EXPENSES.................................................... 2
FINANCIAL HIGHLIGHTS.................................................... 4
INVESTMENT OBJECTIVE AND STRATEGY....................................... 6
INVESTMENT POLICIES AND RISKS........................................... 7
THE FUND AND ITS MANAGEMENT............................................. 10
FUND PRICE AND PERFORMANCE.............................................. 14
HOW TO BUY SHARES....................................................... 14
FUND SERVICES........................................................... 19
HOW TO SELL SHARES...................................................... 20
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS................................ 21
ADDITIONAL INFORMATION.................................................. 23
<PAGE>
ESSENTIAL INFORMATION
INVESTMENT OBJECTIVE AND STRATEGY: The Fund seeks long-term capital
growth with a secondary goal of current income. It invests primarily in U.S.
common stocks. The Fund may also invest in other securities, such as
corporate bonds and preferred stocks. There is no guarantee that the Fund
will meet its objective. See "Investment Objective And Strategy" and
"Investment Policies And Risks."
THE FUND IS DESIGNED FOR: Investors seeking a combination of capital
growth plus current income. While not intended as a complete investment program,
the Fund may be a valuable element of your investment portfolio. You also may
wish to consider the Fund as part of a Uniform Gift/Transfer To Minors Act
Account or systematic investing strategy. The Fund may be a suitable investment
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's investments in fixed-income securities are subject to
credit risk and market risk. Its returns on foreign investments may be
influenced by currency fluctuations and other risks of investing overseas. The
Fund may experience rapid portfolio turnover, which may result in higher
brokerage commissions and the acceleration of taxable capital gains. These
policies make the Fund unsuitable for the portion of your savings dedicated to
preservation of capital or current income over the short term. See "Investment
Objective And Strategy" and "Investment Policies And Risks."
ORGANIZATION AND MANAGEMENT: 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 Trent E. May and co-portfolio
manager Douglas J. McEldowney.
INVESCO and IDI are indirect, wholly-owned subsidiaries of AMVESCAP PLC,
an international investment management company that managed approximately $275
billion of assets as of December 31, 1998. AMVESCAP PLC is based in London,
with money managers located in Europe, North America, South America and the Far
East.
THIS FUND OFFERS ALL OF THE FOLLOWING SERVICES AT NO CHARGE:
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
1
<PAGE>
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.
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. We calculate annual operating expenses as a
percentage of the Fund's average annual net assets. These expenses are paid from
the Fund's assets. Lower expenses therefore benefit investors by increasing the
Fund's total return.
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as a percentage of average net assets)
Management Fee 0.56%
12b-1 Fees 0.25%
Other Expenses(1) 0.23%
Total Fund Operating Expenses(1) 1.04%
(1) It should be noted that the Fund's actual total operating expenses
were lower than the figures shown, because the Fund's custodian, transfer agent
and distribution fees were reduced under expense offset arrangements. However,
as a result of an SEC requirement, the figures shown above DO NOT reflect these
reductions. In comparing expenses for different years, please note that the
Ratios of Expenses to Average Net Assets shown under "Financial Highlights" DO
reflect any reductions for periods prior to the fiscal year ended August 31,
1995. See "The Fund And Its Management."
EXAMPLE
- -------
A shareholder would pay the following expenses on a $10,000 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
2
<PAGE>
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 5 YEARS 10 YEARS
------ ------- ------- --------
$109 $340 $590 $1,306
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 OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund And Its Management"
and "How To Buy Shares -- Distribution Expenses."
Because the Fund pays a distribution fee, investors who own Fund shares
for a long period of time may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
(For a Fund Share Outstanding Throughout Each Period)
The following information for each of the nine years ended August 31, 1998
has been audited by PricewaterhouseCoopers LLP, independent accountants. This
information should be read in conjunction with the audited financial statements
and the Report of Independent Accountants thereon appearing in the Fund's 1998
Annual Report to Shareholders and the unaudited financial statements and
accompanying notes in the Fund's Semi-Annual Report to Shareholders for the
six-month period ended February 28, 1999, which are incorporated by reference
into the Statement of Additional Information, both of which are available
without charge by contacting IDI at the address or telephone number on the back
cover of this Prospectus. The Annual Report also contains more information about
the Fund's performance.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28 Year Ended August 31
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
PER SHARE DATA UNAUDITED
Net Asset Value -
Beginning of Period $ 5.15 $6.06 $5.44 $5.33 $5.34 $5.28 $4.72 $5.26 $4.37 $4.54
--------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income# 0.00 0.02 0.01 0.03 0.05 0.03 0.04 0.05 0.07 0.10
Net Gains or (Losses) on
Securities (Both
Realized and Unrealized) 1.88 0.69 1.39 0.95 0.49 0.11 1.00 0.05 1.28 (0.14)
--------------------------------------------------------------------------------------------
Total from Investment
Operations 1.88 0.71 1.40 0.98 0.54 0.14 1.04 0.10 1.35 (0.04)
--------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income+ 0.00 0.02 0.01 0.03 0.05 0.03 0.04 0.05 0.08 0.11
Distributions from
Capital Gains 0.51 1.60 0.77 0.84 0.50 0.05 0.44 0.59 0.38 0.02
--------------------------------------------------------------------------------------------
Total Distributions 0.51 1.62 0.78 0.87 0.55 0.08 0.48 0.64 0.46 0.13
--------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Net Asset Value -
End of Period $6.52 $5.15 $6.06 $5.44 $5.33 $5.34 $5.28 $4.72 $5.26 $4.37
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL RETURN 37.22%(!) 13.42% 28.14% 20.23% 12.05% 2.52% 22.17% 2.04% 31.16% (1.01%)
RATIOS
Net Assets - End of
Period ($000 Omitted) $1,166,083 $747,739 $709,220 $596,726 $501,285 $488,411 $483,957 $408,218 $428,564 $339,927
Ratio of Expenses to
Average Net Assets 0.51%!@ 1.04%@ 1.07%@ 1.05%@ 1.06% 1.03% 1.04% 1.04% 1.00% 0.78%
Ratio of Net Investment
Income to Average
Net Assets 0.04%! 0.37% 0.22% 0.64% 1.07% 0.47% 0.72% 0.93% 1.52% 2.17%
Portfolio Turnover Rate 71%! 153% 286% 207% 111% 63% 77% 77% 69% 86%
</TABLE>
# Net Investment Income aggregated less than $0.01 on a per share basis for the
six-months ended February 28, 1999.
! Based on operations for the period shown and, accordingly, not representative
of a full year.
+ Distributions in excess of net investment income for the year ended August 31,
1995, aggregated less than $0.01 on a per share basis.
@ Ratio is based on Total Expenses of the Fund, which is before any expense
offset arrangements.
5
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
- ---------------------------------
The Fund seeks long-term capital growth, with a secondary goal of current
income. This investment objective is fundamental and may not be changed without
the approval of the Fund's shareholders. Normally, the Fund seeks to achieve
this objective by investing primarily in U.S. common stocks (including
securities convertible into common stocks). There is no assurance that the
Fund's investment objective will be met.
For the equity holdings, we look for companies that we believe have
better-than-average earnings growth potential, as well as companies within
industries we believe are well-positioned for the current and expected economic
climate.
In addition to common stocks, the Fund also may hold preferred stocks and
investment grade corporate debt obligations. The Fund also may hold cash and
cash-equivalent securities as cash reserves. The amount invested in stocks,
bonds and cash securities may be varied from time to time depending upon Fund
Management's assessment of business, economic and market conditions. For a
description of each corporate bond rating category please refer to Appendix A to
the Statement of Additional Information.
The Fund's investment portfolio is actively traded. There are no
limitations regarding portfolio turnover for either the equity or fixed income
portions of the Fund's portfolio. Although the Fund does not trade for
short-term profits, securities may be sold without regard to the time they have
been held when, in the opinion of INVESCO, investment considerations warrant
such action. The Fund's portfolio turnover rate therefore may be higher than
other mutual funds with similar objectives. Increased portfolio 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.
6
<PAGE>
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see the price per share and income
levels of the Fund vary with movements in the stock and fixed-income 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 particular 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. Earnings of individual issuers may be affected by
remediation costs, which may be substantial. The Fund's investments may be
adversely affected.
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 credit risk as estimated by
independent services such as Standard & Poor's, a division of The McGraw-Hill
Companies, Inc. ("S&P") or Moody's Investors Service, 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
bond issued previously generally declines; on the other hand, when interest
rates go down, prices of bonds generally increase.
The lower a bond's quality, the more it is subject to credit risk and
market risk and the more speculative it becomes. This is also true of most
unrated debt securities. The Fund seeks to reduce these risks by investing only
in investment grade debt securities (those rated BBB or above by S&P and/or Baa
or above by Moody's or, if unrated, are judged by Fund Management to be of
equivalent quality). These bonds enjoy strong to adequate capacity to pay
principal and interest. Securities rated Baa by Moody's are considered to be of
medium grade and may have speculative characteristics. Securities rated BBB by
S&P are considered to be in the lowest "investment grade" security rating and
may have speculative characteristics as well. While INVESCO continuously
monitors all of the debt securities in the Fund's portfolio for the issuer's
ability to make required principal and interest payments and other quality
factors, it may retain a bond whose rating is changed to one below the minimum
rating required for purchase of the security.
FOREIGN SECURITIES. Up to 25% of the Fund's total assets, measured at the
time of purchase, may be invested directly in foreign equity or corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank that entitle the holder to
all dividends and capital gains. ADRs are denominated in U.S.
dollars and trade in the U.S. securities markets.
7
<PAGE>
For U.S. investors, the returns on foreign securities are influenced
not only by the returns on the foreign investments themselves, but also by
currency fluctuations. That is, when the U.S. dollar generally rises against
a foreign currency, returns for a U.S. investor on foreign securities
denominated in that foreign currency may decrease. By contrast, in a period
when the U.S. dollar generally declines, those returns may increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about
U.S. issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions
and longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investment income on certain foreign securities may be subject to foreign
withholding taxes, which may reduce dividend or interest 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 that the Fund may experience difficulties in pursuing legal
remedies and collecting judgments.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
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"). The EMU has established a common
European currency for EMU countries which is known as the "euro." Each
participating country has adopted the euro as its currency effective January 1,
1999. The old national currencies are 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 introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will have been ready by January 1, 1999; whether exchange
rates for existing currencies and the euro will have been adequately
established; and whether suitable clearing and settlement systems for the euro
will have been in operation. These and other factors may cause market
disruptions after January 1, 1999 and could adversely affect the value of
securities held by the Fund.
8
<PAGE>
RULE 144A SECURITIES. The Fund may not purchase securities that are not
readily marketable. However, the Fund may purchase certain securities that are
not registered for sale to the general public but that can be resold to
institutional investors ("Rule 144A Securities"), if a liquid institutional
trading market exists. The Fund's board of directors has delegated to 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 will be sold as
soon as that can be done in an orderly fashion consistent with the best
interests of the Fund's shareholders. For more information concerning Rule 144A
Securities, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
REPURCHASE AGREEMENTS. The Fund may invest money, for as short a time as
overnight, using repurchase agreements ("repos"). With a repo, the Fund buys a
debt instrument, agreeing simultaneously to sell it back to the prior owner at
an agreed-upon price and date. The Fund could incur costs or delays in seeking
to sell the security, if the prior owner defaults on its repurchase obligation.
To reduce that risk, the securities that are the subject of the repurchase
agreement will be maintained with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
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 Fund's
board of directors.
SECURITIES LENDING. The Fund may seek to earn additional income by lending
securities on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
FUTURES AND OPTIONS. A futures contract is an agreement to buy or sell a
specific amount of a financial instrument or commodity at a particular price on
a particular date. The Fund will use futures contracts only to hedge against
price changes in the value of its current or intended investments in securities.
In the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general decrease in prices, the adverse effects of such
changes may be offset, at least in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general increase in prices, may be offset, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
9
<PAGE>
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio than the purchase and sale of the
underlying futures contracts, since the potential loss is limited to the amount
of the premium plus related transaction costs. The premium paid for such a put
or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
their use does involve certain risks. For example, a lack of correlation between
the value of an instrument underlying an option or futures contract and the
assets being hedged, or unexpected adverse price movements, could render a
Fund's hedging strategy unsuccessful and could result in losses. In addition,
there can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and the Fund may be required to maintain a position
until exercise or expiration, which could result in losses. Transactions in
futures contracts and options are subject to other risks as well, which are set
forth in greater detail in the Statement of Additional Information and Appendix
B therein.
INVESTMENT RESTRICTIONS. Certain restrictions, which are identified in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets that may be invested in any one issuer (other than cash items and
U.S. government securities). In addition, the Fund limits to 25% the portion of
its total assets that may be invested in any one industry (other than U.S.
government securities). Other fundamental restrictions prohibit the Fund from
lending more than 33-1/3% of its total assets to other parties and from
borrowing money, except that the Fund may borrow amounts up to 33-1/3% of its
total assets for temporary or emergency purposes.
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.
THE FUND AND ITS MANAGEMENT
- ---------------------------
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified, management investment company.
It was incorporated on April 2, 1993, under the laws of Maryland.
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.
10
<PAGE>
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 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. AMVESCAP
PLC had approximately $275 billion in assets under management as of December
31, 1998. INVESCO was established in 1932 and, as of April 30, 1999, managed 14
mutual funds, consisting of 51 separate portfolios, with combined assets of
approximately $21.2 billion on behalf of over 900,000 shareholders.
Prior to February 3, 1998, Institutional Trust Company doing business as
INVESCO Trust Company ("ITC") provided sub-advisory services to the Fund;
termination of its sub-advisory services in no way changed the basis upon which
investment advice is provided to the Fund, the cost of those services to the
Fund or the persons actually performing the investment advisory and other
services previously provided by ITC. INVESCO provides such day-to-day portfolio
management services as the investment adviser to the Fund.
The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio holdings:
Trent E. May, a Chartered Financial Analyst, has been the lead
portfolio manager of the Fund since October 1997 (co-portfolio manager since
1996). Mr. May is also the lead portfolio manager of INVESCO VIF-Growth Fund
and co-manages INVESCO Small Company Growth Fund and INVESCO VIF-Small
Company Growth Fund. Mr. May is also a vice president of INVESCO Funds Group,
Inc. Mr. May began his investment career in 1991 and was most recently senior
equity fund manager/equity analyst with Munder Capital Management in Detroit.
Mr. May received an M.B.A. from Rollins College and a B.S. in Engineering
from the Florida Institute of Technology.
Douglas J. McEldowney, a Chartered Financial Analyst and Certified
Public Accountant, has been co-portfolio manager of the Fund since April
1999. Mr. McEldowney is also co-portfolio manager of INVESCO VIF-Blue Chip
Growth Fund. Mr. McEldowney is also a vice president of INVESCO Funds Group,
Inc. Mr. McEldowney was previously senior vice president and portfolio
manager with Bank of America Investment Management, Inc. (1994 to 1999),
investment officer and portfolio manager with SunTrust Banks, Inc. (1992 to
1994), vice president of mergers and acquisitions with CNL Group, Inc. (1991
to 1992) and financial consultant with Merrill Lynch & Company, Inc. (1984 to
1990). Mr. McEldowney received a BBA in Finance from the University of
Kentucky and an MBA in Finance from the Crummer Graduate School at Rollins
College.
Trent May and Douglas McEldowney are two members of the INVESCO Growth
Team which is led by Timothy J. Miller.
11
<PAGE>
INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires INVESCO's 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 that is based upon a
percentage of the Fund's average net assets determined daily. The management fee
is computed at the annual rate of 0.60% 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 over $700 million. In
addition, beginning May 13, 1999 the following additional contractual
breakpoints are in effect: 0.45% on the Fund's average net assets from $2
billion; 0.40% on the Fund's average net assets from $4 billion; 0.375% on the
Fund's average net assets from $6 billion; and 0.35% on the Fund's average net
assets from $8 billion. For the fiscal year ended August 31, 1998, investment
advisory fees paid by the Fund amounted to 0.56% 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
regulated broker-dealer that acts as distributor for all retail funds advised by
INVESCO. Prior to September 30, 1997, INVESCO served as the Fund's distributor.
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. For the fiscal year ended August 31, 1998, the Fund paid INVESCO a fee
equal to 0.02% of the Fund's average net assets.
The management and custodial services provided to the Fund by INVESCO and
the Fund's custodian, and the services provided to shareholders by INVESCO and
IDI, 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 computer systems will be adapted before that date, but there
can be no assurance that they will be successful. Furthermore, services may be
12
<PAGE>
impaired at that time as a result of the interaction of their systems with the
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. Total expenses of the Fund for the fiscal year
ended August 31, 1998, including investment management fees (but excluding
brokerage commissions, which are a cost of acquiring securities), amounted to
1.04% of the Fund's average net assets.
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 and 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.
13
<PAGE>
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 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 average
annual rate of return on a $1,000 investment in the Fund, assuming reinvestment
of all dividends and other distributions for the periods cited. Cumulative total
return shows the actual rate of return on an investment over the periods 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. More
information about the Fund's recent and historical performance is contained in
the Fund's Annual Report to Shareholders. You can get a free copy by calling or
writing to IDI using the phone number or address on the back cover of this
Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Growth
Funds, as well as the broad-based Lipper general fund groupings. These rankings
allow you to compare the Fund to its peers. Other independent financial media
also produce performance- or service-related comparisons, which you may see in
our promotional materials. For more information see "Fund Performance" in the
Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
- -----------------
The following chart shows several convenient ways to invest in the Fund.
Your new Fund shares will be priced at the NAV next determined after your order
is received in proper form. There is no charge to invest, exchange, or redeem
shares when you make transactions directly through 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. INVESCO reserves the right in its sole
14
<PAGE>
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.
HOW TO BUY SHARES
================================================================================
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY CHECK
Mail to: $1,000 for regular If your check does not
INVESCO Funds Group, Inc. account; clear, you will be
P.O. Box 173706 $250 for an IRA; responsible for any
Denver, CO 80217-3706. $50 minimum for each related loss the Fund
Or you may send your subsequent investment. or INVESCO incurs. If
check by overnight you are already a
courier to: 7800 E. Union shareholder in the
Ave., INVESCO funds, the Fund
Denver, CO 80237. may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
BY TELEPHONE OR WIRE
Call 1-800-525-8085 to
request your purchase. $1,000. Payment must be
Then send your check by received within 3
overnight courier to our business days, or the
street address: transaction may be
7800 E. Union Ave., canceled. If a
Denver, CO 80237. telephone purchase is
Or you may transmit your canceled due to
payment by bank wire nonpayment, you will be
(call INVESCO for responsible for any
instructions). 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.
================================================================================
15
<PAGE>
================================================================================
WITH EASIVEST OR DIRECT
PAYROLL PURCHASE
You may enroll on the
fund application, or call $50 per month for Like all regular
us for the correct form EasiVest; $50 per pay investment plans,
and more details. period for Direct neither EasiVest nor
Investing the same amount Payroll Purchase. You Direct Payroll Purchase
on a monthly basis allows may start or stop your ensures a profit or
you to buy more shares regular investment plan protects against loss
when prices are low and at any time, with two in a falling market.
fewer shares when prices weeks' notice to Because you'll invest
are high. This INVESCO. continually, regardless
"dollar-cost averaging" of varying price
may help offset market levels, consider your
fluctuations. Over a financial ability to
period of time, your keep buying through low
average cost per share price levels. And
may be less than the remember that you will
actual average price per lose money if you
share. redeem your shares when
the market value of all
your shares is less
than their cost.
- --------------------------------------------------------------------------------
BY PAL(R)
Your "Personal Account $1,000; $250 for an IRA. Be sure to write down
Line" is available for the confirmation number
subsequent purchases and provided by PAL.
exchanges 24-hours a day. Payment must be
Simply call received within 3
1-800-424-8085. business days, or the
transaction may be
canceled. If a telephone
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.
================================================================================
16
<PAGE>
================================================================================
BY EXCHANGE
Between this and another $1,000 to open a new See "Exchange Policy"
of the INVESCO funds. account; $50 for below.
Call 1-800-525-8085 for written requests to
prospectuses of other purchase additional
INVESCO funds. You may shares for an existing
also establish an account. (The exchange
automatic monthly minimum is $250 for
exchange service between purchases requested by
two INVESCO funds; call telephone.)
INVESCO for further
details and the correct
form.
================================================================================
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 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 to Fund
performance and to other 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.
5. Notice of all modifications or terminations that would affect all
Fund shareholders 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
17
<PAGE>
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).
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 the Fund to IDI to permit IDI, at its discretion, to engage in certain
activities and provide certain services approved by the board of directors of
the Fund in connection with the distribution of the Fund's shares to investors.
These activities and services may include the payment of compensation (including
incentive compensation and/or continuing compensation based on the amount of
customer assets maintained in the Fund) to securities dealers and other
financial institutions and organizations, which may include 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 electronically 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 Fund 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 Company'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. 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 mutual fund advised by INVESCO and
distributed by IDI. However, payments received by IDI which are not used to
18
<PAGE>
finance the distribution of shares of the Fund become part of IDI's revenues and
may be used by IDI for activities that promote the distribution of any of the
mutual funds advised by INVESCO. Subject to review by the Fund's directors,
payments made by the Fund under the Plan for compensation of marketing
personnel, as noted above, are based on an allocation formula designed to ensure
that all such payments are appropriate. IDI will bear any distribution and
service related expenses in excess of the amounts which are compensated pursuant
to the Plan. The Plan also authorizes any financing of distribution which may
result from IDI's use of its own resources, provided that such fees are
legitimate and not excessive. For more information see "How Shares Can Be
Purchased -- Distribution Plan" in the Statement of Additional Information.
FUND SERVICES
- -------------
SHAREHOLDER ACCOUNTS. 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 other distributions are
automatically re-invested in additional Fund shares at the NAV on the
ex-dividend or ex-distribution date, unless you choose to have dividends and/or
other 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.
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 following chart shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their 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.
19
<PAGE>
HOW TO SELL SHARES
================================================================================
METHOD MINIMUM REDEMPTION PLEASE REMEMBER
================================================================================
BY TELEPHONE
Call us toll-free at $250 (or, if less, full These telephone
1-800-525-8085. liquidation of the redemption privileges
account) for a may be modified or
redemption check; terminated in the
$1,000 for a wire to future at INVESCO's
bank of record. The discretion.
maximum amount which
may be redeemed by
telephone is generally
$25,000.
- --------------------------------------------------------------------------------
IN WRITING
Mail your request to Any amount. The If the shares to be
INVESCO Funds Group, redemption request must redeemed are
Inc., P.O. Box 173706 be signed by all represented by stock
Denver, CO 80217-3706. registered account certificates, the
You may also send your owners. Payment will be certificates must be
request by overnight mailed to your address sent to INVESCO.
courier to 7800 E. Union of record or to a
Ave., Denver, CO 80237. pre-designated bank.
- --------------------------------------------------------------------------------
BY EXCHANGE
Between this and another $1,000 to open a new See "Exchange Policy,"
of the INVESCO funds. account; $50 for page 22.
Call 1-800-525-8085 for written requests to
prospectuses of other purchase additional
INVESCO funds. You may shares for an existing
also establish an account. (The exchange
automatic monthly minimum is $250 for
exchange service between exchanges requested by
two INVESCO funds; call telephone.)
INVESCO for further
details and the correct
form.
- --------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN
You may call us to
request the appropriate $100 per payment, on a You must have at least
form and more information monthly or quarterly $10,000 total invested
at 1-800-525-8085. basis. The redemption with the INVESCO funds,
check may be made with at least $5,000 of
payable to any party that total invested in
you designate. the fund from which
withdrawals will be
made.
20
<PAGE>
- --------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY
Mail your request to
INVESCO Funds Group, Any amount. All registered account
Inc., P.O. Box 173706 owners must sign the
Denver, CO 80217-3706. request, with a
signature guarantee from
an eligible guarantor
financial institution,
such as a commercial bank
or recognized national or
regional securities firm.
================================================================================
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.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $250 as a result of shareholder
action, the Fund reserves the right to 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 substantially all of
its net investment income, net capital gains and net gains from certain foreign
currency transactions, if any. Distribution of substantially 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 distribution policies and 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
21
<PAGE>
from income taxes. Dividends and other distributions are taxable whether they
are received in cash or automatically re-invested 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. During 1997, the Taxpayer Relief Act established a new
maximum capital gain tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of
either 20% or 28%. Beginning January 1, 1998, all long-term gains realized on
the sale of securities held more than 12 months will be taxable at a maximum
rate of 20%. In addition, legislation signed in October of 1998 provides that
all capital gain distributions from a mutual fund paid to shareholders during
1998 will be taxed at a maximum rate of 20%. Accordingly, ALL capital gain
distributions paid in 1998 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 advisers as to the effect of
distributions by the Fund.
Shareholders may realize capital gains or losses when they sell their Fund
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 gains, in which event they
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 may 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 Fund account
by ensuring that we have a correct, certified tax identification number unless
you are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund earns ordinary or net
investment income in the form of dividends and interest on its investments.
Dividends paid by the Fund will be based solely on the income earned by it. The
Fund's policy is to distribute substantially all of this income, less expenses,
to shareholders on a quarterly basis, at the discretion of the Fund'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.
22
<PAGE>
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 certain foreign currency transactions, if any,
are distributed to shareholders at least annually, usually in December. Capital
gain distributions are automatically reinvested in shares of the Fund at the net
asset value on the payable date unless otherwise requested.
Dividends and other distributions are paid to holders of shares on the
record date of the distribution, regardless of how long the Fund 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.
ADDITIONAL INFORMATION
- ----------------------
VOTING RIGHTS. All shares of the Fund have equal voting rights based on
one vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. The Fund 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 Fund 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 INVESCO 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 Fund'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.
23
<PAGE>
INVESCO Blue Chip Growth Fund
A no-load mutual fund seeking capital
appreciation and current income.
PROSPECTUS
July 14, 1999
We're easy to stay in touch with:
Investor services: 1-800-525-8085
PAL(R), your Personal Account Line: 1-800-424-8085
On the World Wide Web: 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
INVESCO Distributors, Inc.,_
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
In addition, all documents You should know what
filed by the Company with the INVESCO knows.TM
Securities and Exchange
Commission can be located on INVESCO Funds
a web site maintained by the
Commission at
http://www.sec.gov.
24
<PAGE>
PROSPECTUS
July 14, 1999
INVESCO SMALL COMPANY GROWTH FUND
INVESCO SMALL COMPANY GROWTH FUND (the "Fund") seeks long-term capital
growth. Most of its investments are in equity securities of emerging growth
companies with market capitalizations of $1 billion or less at the time of
initial purchase ("small-cap companies"), but the Fund has the flexibility to
invest in other types of securities.
The Fund is a series of INVESCO Stock Funds, Inc. (formerly, INVESCO
Equity Funds, Inc., formerly, INVESCO Capital Appreciation Funds, Inc.) (the
"Company"), a diversified, managed no-load mutual fund, consisting of seven
portfolios of investments. 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 July 14, 1999, 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.
<PAGE>
TABLE OF CONTENTS
Page
ESSENTIAL INFORMATION.........................................................1
ANNUAL FUND EXPENSES..........................................................2
FINANCIAL HIGHLIGHTS..........................................................4
INVESTMENT OBJECTIVE AND STRATEGY.............................................6
INVESTMENT POLICIES AND RISKS.................................................7
THE FUND AND ITS MANAGEMENT..................................................10
FUND PRICE AND PERFORMANCE...................................................13
HOW TO BUY SHARES............................................................13
FUND SERVICES................................................................18
HOW TO SELL SHARES...........................................................18
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS.....................................20
ADDITIONAL INFORMATION.......................................................22
<PAGE>
ESSENTIAL INFORMATION
- ---------------------
INVESTMENT GOAL AND STRATEGY. The Fund seeks long-term capital growth. It
invests primarily in equity securities of small-capitalization U.S. companies
traded "over-the-counter." 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 capital growth over the long- term. 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 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. Potential shareholders should consider this a long-term investment
due to the volatility of the securities held by the Fund.
RISKS. The Fund uses an 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. Investors should
consider whether these policies make the Fund unsuitable for that portion of
their savings dedicated to current income or 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 is managed by the following three members of INVESCO's Growth
Team, which is headed by Timothy J. Miller: Stacie Cowell, C.F.A., Timothy J.
Miller, C.F.A. and Trent E. May, C.F.A. All have been co-managers of the Fund
since February 1997, and Stacie Cowell has been lead portfolio manager since
June 1998. See "The Fund And Its Management."
INVESCO and IDI are subsidiaries of AMVESCAP PLC, an international
investment management company that managed approximately $275 billion in assets
as of December 31, 1998. AMVESCAP PLC is based in London with money managers
located in Europe, North America and the Far East.
THIS FUND OFFERS ALL OF THE FOLLOWING SERVICES AT NO CHARGE:
- ------------------------------------------------------------
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
1
<PAGE>
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
average annual net assets. To keep expenses competitive, INVESCO voluntarily
reimburses the Fund for amounts in excess of 1.50% of the Fund's average net
assets (excluding expense offset arrangements described below).
ANNUAL FUND OPERATING EXPENSES
- ------------------------------
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses(1) 0.59%
Total Fund Operating Expenses(1) 1.59%
(1) It should be noted that the Fund's actual total operating expenses were
lower than the figures shown, because the Fund's custodian and transfer agent
fees were reduced under expense offset arrangements. However, as a result of an
SEC requirement, the figures shown above do not reflect these reductions. In
comparing expenses for different years, please note that the Ratios of Expenses
to Average Net Assets shown under "Financial Highlights" do reflect any
reductions for periods prior to the fiscal year ended May 31, 1996. See "The
Fund And Its Management."
2
<PAGE>
EXAMPLE
- -------
A shareholder would pay the following expenses on a $10,000 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 5 YEARS 10 YEARS
------ ------- ------- --------
$162 $502 $866 $1,889
The purpose of this table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. THE EXAMPLE SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE, AND ACTUAL
ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. For more
information on the Fund's expenses, see "The Fund And Its Management" and "How
To Buy Shares -- Distribution Expenses."
Because the Fund pays a distribution fee, investors who own Fund shares
for a long period of time may pay more than the economic equivalent of the
maximum front-end sales charge permitted for mutual funds by the National
Association of Securities Dealers, Inc.
3
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------
(For a Fund Share Outstanding Throughout Each Period)
The following information for each of the five years ended May 31, 1999
has been audited by PricewaterhouseCoopers LLP, independent accountants. This
information should be read in conjunction with the audited financial statements
and the independent accountant's report appearing in the Fund's 1999 Annual
Report to Shareholders, which are incorporated by reference into the Statement
of Additional Information. The Annual Report is available without charge by
contacting IDI at the address or telephone number on the back cover of this
prospectus. The Annual Report also contains more information about the Fund's
performance.
<TABLE>
<CAPTION>
Period Ended
Year Ended May 31 May 31
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995 1994 1993 1992^
PER SHARE DATA $11.90 $12.82 $14.38 $9.37 $11.40 $9.89 $7.55 $7.50
Net Asset Value Beginning
of Period
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income (Loss)(a) 0.00 (0.06) (0.07) (0.06) 0.04 (0.01) (0.04) (0.02)
Net Gains or (Losses) On
Securities (Both Realized
and Unrealized 1.35 2.56 (0.96) 5.25 0.46 1.53 2.38 0.07
- -----------------------------------------------------------------------------------------------------------------------------------
Total From Investment
Operations 1.35 2.50 (1.03) 5.19 0.50 1.52 2.34 0.05
- -----------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends From Net
Investment Income 0.00 0.00 0.00 0.00 0.04 0.00 0.00 0.00
Distributions From Capital
Gains 1.17 3.42 0.53 0.18 2.49 0.01 0.00 0.00
- --------------------------------------------- -------------------------------------------------------------------------------------
Total Distributions 1.17 3.42 0.53 0.18 2.53 0.01 0.00 0.00
- -----------------------------------------------------------------------------------------------------------------------------------
4
<PAGE>
Net Asset Value - End of $12.08 $11.90 $12.82 $14.38 $9.37 $11.40 $9.89 $7.55
Period
===================================================================================================================================
TOTAL Return 12.91%* 22.65% (7.08%) 55.78% 4.98% 15.34% 30.95% 0.68%*
RATIOS
Net Assets - End of Period
($000 omitted) $318,109 $272,619 $294,259 $370,029 $153,727 $176,510 $103,029 $25,579
Ratio of Expenses to
Average Net Assets# 1.51%@ 1.48%@ 1.52%@ 1.48%@ 1.49% 1.37% 1.54% 1.93%~
Ratio of Net Investment (0.95%)~
Income (Loss) to Average
Net Assets# (0.58%)@ (0.42%) (0.55%) (0.78%) 0.41% (0.26%) (0.70%)
Portfolio Turnover Rate 203% 158% 216% 221% 228% 196% 153% 50%*
</TABLE>
(a) Net investment income (loss) for the year ended May 31, 1999 aggregated
less than $0.01 on a per share basis.
^ From December 27, 1991, commencement of investment operations, to May 31,
1992.
* Based on operations for the period shown and, accordingly, are not
representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by INVESCO for the
years ended May 31, 1997 and 1995. If such expenses had not been
voluntarily absorbed, ratio of expenses to average net assets would have
been 1.54% and 1.52%, respectively, and ratio of net investment income
(loss) to average net assets would have been (0.57%) and 0.38%,
respectively.
@ Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any expense offset
arrangements.
~ Annualized
5
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
- ---------------------------------
The Fund seeks long-term capital growth. This investment objective is
fundamental and may not be changed without the approval of the Fund's
shareholders. Normally, the Fund seeks to achieve this objective through the
investment of 65% or more of its assets in equity securities of companies with
market capitalizations of $1 billion or less at the time we purchase them
("small-cap companies"). The balance of the Fund's assets may be invested in the
equity securities of companies with market capitalizations in excess of $1
billion, debt securities and short-term investments. With respect to small-cap
companies, we are primarily looking for companies in the developing stages of
their life cycle, which are currently undervalued in the marketplace, have
earnings which may be expected to grow faster than the U.S. economy in general,
and/or offer the potential for accelerated earnings growth due to rapid growth
of sales, new products, management changes, or structural changes in the
economy. There is no assurance that the Fund's investment objective will be met.
The majority of the Fund's holdings consists of common stocks traded
"over-the-counter." The Fund also has the flexibility to invest in other U.S.
and foreign securities.
The Fund's investments in debt securities include U.S. government and
corporate debt securities. Investments in U.S. government securities may consist
of securities issued or guaranteed by the U.S. government and any agency or
instrumentality of the U.S. government. In some cases, these securities are
direct obligations of the U.S. government, such as U.S. Treasury bills, notes
and bonds. In other cases, these securities are obligations guaranteed by the
U.S. government, consisting of Government National Mortgage Association (GNMA)
obligations, or obligations of U.S. government authorities, agencies or
instrumentalities, such as Fannie Mae (formerly, the Federal National Mortgage
Association), the Federal Home Loan Banks, the Federal Financing Bank and the
Federal Farm Credit Bank, which are supported only by the assets of the issuer.
The Fund may invest in both investment grade and lower-rated corporate debt
securities. However, the Fund will not invest more than 5% of its total assets
(measured at the time of purchase) in corporate debt securities that are rated
below BBB by Standard & Poor's Ratings Group, Inc., a division of The
McGraw-Hill Companies, Inc. ("S&P") or Baa by Moody's Investors Service, Inc.
("Moody's") or, if unrated, are judged by INVESCO to be equivalent in quality to
debt securities having such ratings. In no event will the Fund invest in a debt
security rated below CCC by S&P or Caa by Moody's. The risks of investing in
debt securities are discussed below under "Risk Factors." For a description of
each corporate bond rating category, please refer to Appendix A to the Statement
of Additional Information.
The short-term investments of the Fund may consist of U.S. government
and agency securities, domestic bank certificates of deposit and bankers'
acceptances, and commercial paper rated A-1 by S&P or P-1 by Moody's, as well as
repurchase agreements with banks, registered broker-dealers and registered
government securities dealers with respect to the foregoing securities. The
Fund's assets invested in U.S. government securities and short-term investments
will be used to meet current cash requirements, such as to satisfy requests to
redeem shares of the Fund and to preserve investment flexibility. A commercial
paper rating of A-1 by S&P or P-1 by Moody's is the highest rating category
assigned by such rating organizations and indicates that the issuer has a very
6
<PAGE>
strong capacity to make timely payments of principal and interest on its
commercial paper obligations. All bank certificates of deposit and bankers'
acceptances at the time of purchase by the Fund must be issued by domestic banks
(i) which are members of the Federal Reserve System having total assets in
excess of $5 billion, (ii) which have received at least a B ranking from Thomson
Bank Watch Credit Rating Service or International Bank Credit Analysis, and
(iii) which either directly or through parent holding companies have securities
outstanding which have been rated Aaa, Aa or P-1 by Moody's or AAA, AA or A-1 by
S&P.
The Fund's investment portfolio is actively traded. 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
frequently. The Fund's portfolio turnover rate may be higher than many other
mutual funds, sometimes exceeding 200%; this turnover also 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
- -----------------------------
Investors generally should expect to see the price per share of the Fund
vary with movements in the stock market, changes in economic conditions and
other factors. The Fund invests in many different securities and industries;
this diversification may help reduce the Fund's overall exposure to particular
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 failure 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. 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, greater volatility in earnings of, and relative
illiquidity or erratic price movements for the securities of these companies,
compared to larger-cap companies.
7
<PAGE>
DEBT SECURITIES. The Fund's investments in debt securities generally are subject
to both credit risk and market risk. Credit risk relates to the ability of the
issuer to meet interest or principal payments, or both, as they come due. Market
risk relates to the fact that the market values of the debt securities generally
will be affected by changes in the level of interest rates. An increase in
interest rates will tend to reduce the market values of outstanding debt
securities, whereas a decline in interest rates will tend to increase their
values. Although INVESCO limits the Fund's investments in debt securities to
securities it believes are not highly speculative, both kinds of risk are
increased by investing in debt securities rated BBB or lower by S&P, Baa or
lower by Moody's or, if unrated, securities determined by INVESCO to be of
equivalent quality.
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 corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank that entitle the holder to
all dividends and capital gains. ADRs are denominated in U.S. dollars and trade
in the U.S. securities markets.
For U.S. investors, the returns on foreign securities are influenced not
only by the returns on the foreign investments themselves, but also by currency
fluctuations. That is, when the U.S. dollar generally rises against a foreign
currency, returns for a U.S. investor on foreign securities denominated in that
foreign currency may decrease. By contrast, in a period when the U.S. dollar
generally declines, those returns may increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about
U.S. issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions and
longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investment income on certain foreign securities may be subject to
foreign withholding taxes, which may reduce dividend income or capital gains
payable to shareholders.
There is also the possibility of expropriation or confiscatory taxation;
adverse changes in investment or exchange control regulations; political
instability; potential restrictions on the flow of international capital; and
the possibility the Fund may experience difficulties in pursuing legal remedies
and collecting judgments.
8
<PAGE>
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
exchange rates for existing currencies and the euro will be adequately
established; and whether suitable clearing and settlement systems for the 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.
ILLIQUID AND RULE 144A SECURITIES. The Fund may invest in illiquid securities,
including securities that are subject to restrictions on resale and securities
that are not readily marketable. The Fund may also invest in restricted
securities that may be resold to institutional investors, known as "Rule 144A
Securities." For more information concerning illiquid and Rule 144A Securities,
see "Investment Policies And Restrictions" in the Statement of Additional
Information.
DELAYED DELIVERY OR WHEN-ISSUED SECURITIES. Up to 10% of the value of the Fund's
total assets may be committed to the purchase or sale of securities on a
when-issued or delayed-delivery basis -- that is, with settlement taking place
in the future. The payment obligation and the interest rate received on the
securities generally are fixed at the time the Fund enters into the commitment.
Between the date of purchase and the settlement date, the market value of the
securities may vary, and no interest is payable to the Fund prior to settlement.
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
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.
9
<PAGE>
SECURITIES LENDING. The Fund may seek to earn additional income by lending
securities on a fully collateralized basis. For further information on this
policy, see "Investment Policies And Restrictions" in the Statement of
Additional Information.
PUT AND CALL OPTIONS. The Fund may purchase and write options on securities and
indices. These practices and their risks are discussed under "Investment
Policies And Restrictions" in the Statement of Additional Information.
INVESTMENT RESTRICTIONS. Certain restrictions, which are identified in the
Statement of Additional Information, may not be altered without the approval of
the Fund's shareholders. For example, the Fund limits to 5% the portion of its
total assets that may be invested in any one issuer, and to 25% the portion of
its total assets that may be invested in any one industry.
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.
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 on April 2, 1993, under the laws of Maryland.
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 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 PLC had approximately
$275 billion in assets under management as of December 31, 1998. INVESCO was
established in 1932 and, as of April 30, 1999, managed 14 mutual funds,
consisting of 51 separate portfolios, with combined assets of approximately
$21.2 billion on behalf of over 900,000 shareholders.
Prior to February 3, 1998, Institutional Trust Company d.b.a. INVESCO
Trust Company ("ITC") provided sub-advisory services to the Fund; termination of
its sub-advisory services in no way changed the basis upon which investment
advice is provided to the Fund, the cost of those services to the Fund or the
persons actually performing the investment advisory and other services
10
<PAGE>
previously provided by ITC. INVESCO provides such day-to-day portfolio
management services as the investment adviser to the Fund.
The Fund is managed by INVESCO's Growth Team which is led by Timothy J.
Miller. The following individuals are primarily responsible for the day-to-day
management of the Fund's portfolio of securities:
STACIE COWELL, a Chartered Financial Analyst, has been the lead
portfolio manager of the Fund since June 1998 (co-portfolio manager since
February 1997). Ms. Cowell is also lead portfolio manager of INVESCO VIF-Small
Company Growth Fund. Ms. Cowell was previously a senior equity analyst with
Founders Asset Management and capital markets and trading analyst with Chase
Manhattan Bank in New York. Ms. Cowell received a B.A. in Economics from Colgate
University.
TIMOTHY J. MILLER, a Chartered Financial Analyst, has been a
co-portfolio manager of the Fund since February 1997. Mr. Miller is also the
lead portfolio manager of INVESCO Dynamics Fund and INVESCO VIF-Dynamics Fund
and co-manages INVESCO VIF-Small Company Growth Fund, INVESCO Growth Fund and
INVESCO VIF-Growth Fund. Mr. Miller is also 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.
TRENT E. MAY, a Chartered Financial Analyst, has been co- portfolio
manager of the Fund since February 1997. Mr. May is also the lead portfolio
manager of INVESCO Growth Fund and INVESCO VIF-Growth Fund and co-manages
INVESCO VIF-Small Company Growth Fund. Mr. May is also a vice president of
INVESCO Funds Group, Inc. Mr. May began his investment career in 1991 and was
most recently senior equity fund manager/equity analyst with Munder Capital
Management in Detroit. Mr. May received an M.B.A. from Rollins College and a
B.S. in Engineering from the Florida Institute of Technology.
INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires INVESCO's 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% on the first $350 million of the Fund's
average net assets; 0.65% on the next $350 million of the Fund's average net
assets; 0.55% on the Fund's average net assets from $700 million; 0.45% on the
Fund's average net assets from $2 billion; 0.40% of the Fund's average net
assets from $4 billion; 0.375% of the Fund's average net assets from $6 billion,
and 0.35% of the Fund's average net assets from $8 billion. For the fiscal year
ended May 31, 1999, the Fund paid investment management fees equal to 0.75% of
the Fund's average net assets.
11
<PAGE>
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. Prior to September 30, 1997, INVESCO served as the Fund's
distributor.
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.
For the fiscal year ended May 31, 1999, the Fund paid INVESCO a fee for these
services in an amount equal to 0.021% of the Fund's average net assets.
The management and custodial services provided to the Fund by INVESCO
and the Fund's custodian, and the services provided to shareholders by INVESCO
and IDI, 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 others'
noncomplying computer systems. INVESCO plans to test as many such interactions
as practicable prior to December 31, 1999 and to develop contingency plans for
reasonably and updated failures.
The Fund's expenses, which are accrued daily, are deducted from total
income before dividends are paid. Total expenses of the Fund (prior to any
expense offset arrangements) for the fiscal year ended May 31, 1998, including
investment advisory fees (but excluding brokerage commissions, which are a cost
of acquiring securities), amounted to 1.51% of the Fund's average net assets. If
necessary, certain Fund expenses will be absorbed voluntarily by INVESCO in
order to ensure that the Fund's total operating expenses (after expense offset
arrangements) 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
12
<PAGE>
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 and 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 average annual 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 periods 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. More
information about the Fund's recent and historical performance is contained in
the Company's Annual Report to Shareholders. You can get a free copy by calling
or writing to IDI using the phone number or address on the back cover of this
Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of Small
Company Growth Funds, as well as the broad-based Lipper general fund groupings.
These rankings allow you to compare the Fund to its peers. Other independent
financial media also produce performance- or service-related comparisons, which
you may see in our promotional materials. For more information see "Fund
Performance" in the Statement of Additional Information.
Performance figures are based on historical investment results and are
not intended to suggest future performance.
HOW TO BUY SHARES
- -----------------
The chart on page 22 shows several convenient ways to invest in the
Fund. Your new Fund shares will be priced at the NAV next determined after your
order is received in proper form. There is no charge to invest, exchange, or
redeem shares when you make transactions directly through INVESCO. However, if
you invest in the Fund through a securities broker, you may be charged a
13
<PAGE>
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 Company. For all new
accounts, please send a completed application form. Please specify which Funds'
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 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).
14
<PAGE>
HOW TO BUY SHARES
================================================================================
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
BY CHECK
Mail to: $1,000 for regular If your check does not
INVESCO Funds Group, Inc. account; clear, you will be
P.O. Box 173706 $250 for an IRA; responsible for any
Denver, CO 80217-3706. $50 minimum for each related loss the Fund
Or you may send your subsequent investment. or INVESCO incurs. If
check by overnight you are already a
courier to: 7800 E. Union shareholder in the
Ave., Denver, CO 80237. INVESCO funds, the Fund
may seek reimbursement
from your existing
account(s) for any loss
incurred.
- --------------------------------------------------------------------------------
BY TELEPHONE OR WIRE
Call 1-800-525-8085 to
request your purchase. $1,000. Payment must be
Then send your check by received within 3
overnight courier to our business days, or the
street address: transaction may be
7800 E. Union Ave., canceled. If a
Denver, CO 80237. purchase is canceled
Or you may transmit your due to nonpayment, you
payment by bank wire will be responsible for
(call INVESCO for any related loss the
instructions). 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.
- --------------------------------------------------------------------------------
WITH EASIVEST OR DIRECT
PAYROLL PURCHASE
You may enroll on the
fund application, or call $50 per month for Like all regular
us for the correct form EasiVest; $50 per pay investment plans,
and more details. period for Direct neither EasiVest nor
Investing the same amount Payroll Purchase. You Direct Payroll Purchase
on a monthly basis allows may start or stop your ensures a profit or
you to buy more shares regular investment plan protects against loss
when prices are low and at any time, with two in a falling market.
fewer shares when prices weeks' notice to Because you'll invest
are high. This INVESCO. continually, regardless
"dollar-cost averaging" of varying price
may help offset market levels, consider your
fluctuations. Over a financial ability to
period of time, your keep buying through low
average cost per share price levels. And
15
<PAGE>
- --------------------------------------------------------------------------------
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- --------------------------------------------------------------------------------
may be less than the remember that you will
actual average price per lose money if you
share. redeem your shares when
the market value of all
your shares is less
than their cost.
- --------------------------------------------------------------------------------
BY PAL (REGISTERED)
Your "Personal Account $1,000; $250 for an IRA. Be sure to write down
Line" is available for the confirmation number
subsequent purchases and provided by PAL.
exchanges 24 hours a day. Payment must be
Simply call received within 3
1-800-424-8085. business days, or 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 another $1,000 to open a new See "Exchange Policy,"
of the INVESCO funds. account; $50 for page 21.
Call 1-800-525-8085 for written requests to
prospectuses of other purchase additional
INVESCO funds. You may shares for an existing
also establish an account. (The exchange
Automatic Monthly minimum is $250 for
Exchange service between exchanges requested by
two INVESCO funds; call telephone.)
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 the Fund to IDI to permit IDI, at its discretion, to engage in certain
activities, and provide certain services approved by the board of directors of
the Company in connection with the distribution of the Fund's shares to
investors. These activities and services may include the payment of compensation
(including incentive compensation and/or continuing compensation based on the
amount of customer assets maintained in the Fund) to securities dealers and
other financial institutions and organizations, which may include INVESCO- and
16
<PAGE>
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 electronically to the Fund's Transfer Agent computer processable
tapes of all transactions by customers, and serving as the primary source of
information to customers in answering questions concerning the Fund and their
transactions with the Fund.
In addition, other permissible activities and services include
advertising, the preparation, printing and distribution of sales literature,
printing and distribution of prospectuses to prospective investors and such
other services and promotional activities for the 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. 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 other 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 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
distribution which may result from IDI's use of its 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.
17
<PAGE>
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 capital gain
distributions automatically reinvested in another INVESCO fund or paid by check
(minimum of $10.00).
TELEPHONE TRANSACTIONS. All shareholders may exchange and redeem Fund shares by
telephone, unless they expressly decline these privileges. By signing the new
account Application, a Telephone Transaction Authorization Form, or otherwise
using these privileges, the investor has agreed that, if the Fund has followed
reasonable procedures, such as recording telephone instructions and sending
written transaction confirmations, it will not be liable for following telephone
instructions that it believes to be genuine. As a result of this policy, the
investor may bear the risk of any loss due to unauthorized or fraudulent
instructions.
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 27 shows several convenient ways to redeem your Fund
shares. Shares of the Fund may be redeemed at any time at their 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.
18
<PAGE>
HOW TO SELL SHARES
================================================================================
METHOD MINIMUM REDEMPTION PLEASE REMEMBER
================================================================================
BY TELEPHONE
Call us toll-free at $250 (or, if less, full This option is not
1-800-525-8085. liquidation of the available for shares
account) for a held in IRAs.
redemption check;
$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 to Any amount. The If the shares to be
INVESCO Funds Group, redemption request must redeemed are
Inc., P.O. Box 173706 be signed by all represented by stock
Denver, CO 80217-3706. registered account certificates, the
You may also send your owner(s). Payment will certificates must be
request by overnight be mailed to your sent to INVESCO.
courier to 7800 E. Union address of record, or
Ave., Denver, CO 80237. to a designated bank.
- --------------------------------------------------------------------------------
BY EXCHANGE
Between this and another $1,000 to open a new See "Exchange Policy,"
of the INVESCO funds. account; $50 for page 21.
Call 1-800-525-8085 for written requests to
prospectuses of other purchase additional
INVESCO funds. You may shares for an existing
also establish an account. (The exchange
automatic monthly minimum is $250 for
exchange service between exchanges requested by
two INVESCO funds; call telephone.)
INVESCO for further
details and the correct
form.
- --------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN
You may call us to
request the appropriate $100 per payment on a You must have at least
form and more information monthly or quarterly $10,000 total invested
at 1-800-525-8085. basis. The redemption with the INVESCO funds,
check may be made with at least $5,000 of
payable to any party that total invested in
you designate. the fund from which
withdrawals will be
made.
================================================================================
19
<PAGE>
================================================================================
METHOD MINIMUM REDEMPTION PLEASE REMEMBER
================================================================================
PAYMENT TO THIRD PARTY
Mail your request to
INVESCO Funds Group, Any amount. All registered account
Inc., P.O. Box 173706 owners must sign the
Denver, CO 80217-3706. request, with a
signature guarantee
from an 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).
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 substantially 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
20
<PAGE>
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 July 28,
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 one year but not 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 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 they
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 gain distributions and other
distributions and redemption proceeds. You can avoid backup withholding on your
account by ensuring that we have a correct, certified tax identification number,
unless you are subject to backup withholding for other reasons.
We encourage you to consult a tax adviser with respect to these matters.
For further information, see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund earns ordinary or net investment
income, in the form of interest and dividends on investments. Dividends paid by
the Fund will be based solely on the 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 or semiannual 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
21
<PAGE>
gains 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 such date, 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.
ADDITIONAL INFORMATION
- ----------------------
VOTING RIGHTS. All shares of the Company have equal voting rights based on one
vote for each share owned and a corresponding fractional vote for each
fractional share owned. The Company is not generally required and does not
expect to hold regular annual meetings of shareholders. However, when requested
to do so in writing by the holders of 10% or more of the outstanding shares of
the Fund or as may be required by applicable law or the Company's Articles of
Incorporation, the board of directors will call special meetings of
shareholders. Directors may be removed by action of the holders of a majority of
the outstanding shares of the Fund. 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
investment objectives, policies and limitations. It is expected that any such
investment company would be managed by INVESCO 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
these options were implemented.
22
<PAGE>
PROSPECTUS
July 14, 1999
INVESCO Small Company Growth Fund
A no-load mutual fund seeking
capital growth from
small-capitalization stocks.
INVESCO FUNDS
INVESCO Distributors, Inc._
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
1-800-525-8085
PAL(REGISTERED): 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 You should know what INVESCO
by the Company with the Securities know (TRADEMARK)
and Exchange Commission can be
located on a web site maintained by INVESCO FUNDS
the Commission at http://www.sec.gov.
23
<PAGE>
PROSPECTUS
July 14, 1999
INVESCO S&P 500 INDEX FUND
CLASS I AND CLASS II SHARES
INVESCO S&P 500 Index Fund (the "Fund") seeks to provide both price
performance and income comparable to the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500" or the "Index"), which is composed of 500 selected
large capitalization stocks. In pursuing this objective, the Fund will invest in
the equity securities that comprise the S&P 500 in approximately the same
proportions that they are represented in the Index, and in other instruments
that are based upon the value of the Index.
The Fund offers two classes of shares. Class I shares are not subject to
any distribution fee; Class II shares are subject to an annual distribution fee
of 0.25% of the Fund's average daily net assets attributable to Class II shares.
Both Class I and Class II shares may be subject to a redemption fee.
The Fund is a series of INVESCO Stock Funds, Inc. (formerly, INVESCO
Equity Funds, Inc., formerly INVESCO Capital Appreciation Funds, Inc.) (the
"Company"), a diversified, open-end managed no-load mutual fund consisting of
seven separate portfolios of investments. Separate prospectuses are available
upon request from INVESCO Distributors, Inc. for the Company's other funds:
INVESCO Blue Chip Growth Fund, INVESCO Dynamics Fund, INVESCO Endeavor Fund,
INVESCO Growth & Income Fund, INVESCO Small Company Growth Fund and INVESCO
Value Equity Fund. Investors may purchase shares of any or all of the funds.
Additional funds may be offered by the Company 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 July 14, 1999, 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.
<PAGE>
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.
<PAGE>
TABLE OF CONTENTS
PAGE
ESSENTIAL INFORMATION.........................................................1
ANNUAL FUND EXPENSES..........................................................2
FINANCIAL HIGHLIGHTS..........................................................5
INVESTMENT OBJECTIVE AND STRATEGY.............................................7
INVESTMENT POLICIES AND RISKS.................................................8
THE FUND AND ITS MANAGEMENT..................................................12
FUND PRICE AND PERFORMANCE...................................................14
HOW TO BUY SHARES............................................................15
FUND SERVICES................................................................20
HOW TO SELL SHARES...........................................................21
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS.....................................24
ADDITIONAL INFORMATION.......................................................25
<PAGE>
ESSENTIAL INFORMATION
INVESTMENT GOAL AND STRATEGY: The Fund seeks to provide price performance and
income comparable to that of the S&P 500, an index comprised of common stocks of
U.S. companies that is weighted to companies with large market capitalizations.
The Fund also may invest in other instruments whose value depends upon or
derives from the value of the S&P 500. There is no guarantee that the Fund will
meet its objective. See "Investment Objective And Strategy" and "Investment
Policies And Risks."
DESIGNED FOR: Investors primarily seeking a competitive long- term investment
return through a diversified portfolio. While not 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 Gifts/Transfers To Minors Act
Account or systematic investing strategy. The Fund may be a suitable investment
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: Since stock prices fluctuate on a daily basis, the Fund's
price per share varies daily. Stock prices may decline for extended periods.
Potential shareholders should consider this a long-term investment.
RISKS: The Fund's investment strategy seeks to track the investment composition
and performance of the S&P 500 by investing in the common stocks that comprise
the Index in approximately the same proportions as they are represented in the
S&P 500 Index or in other instruments whose value depends upon or derives from
the value of the S&P 500. Accordingly, the Fund does not employ traditional
methods of investment management to select the securities held in its portfolio.
Since the Fund will attempt to track the Index, when the overall stock market
rises or falls, the price of shares in the Fund can be expected to rise and fall
at the same time. The Fund does not eliminate market risk; rather, it attempts
to ensure that its returns will be comparable to those of the overall stock
market. These policies make the Fund unsuitable for that portion of your savings
dedicated to preservation of capital over the short term. See "Investment
Objective And Strategy" and "Investment Policies And Risks."
ORGANIZATION AND MANAGEMENT: The Fund is a series of INVESCO Stock Funds,
Inc. 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. World Asset Management ("World") serves as
sub-adviser. Together, INVESCO and World constitute "Fund Management."
INVESCO Distributors, Inc. ("IDI"), founded in 1997 as a wholly-owned
subsidiary of INVESCO, is the Fund's distributor.
INVESCO and IDI are subsidiaries of AMVESCAP PLC, an international
investment management company that managed approximately $275 billion in assets
as of December 31, 1998. AMVESCAP PLC is based in London with money managers
located in Europe, North America, South America and the Far East.
1
<PAGE>
Under an agreement with INVESCO, World serves as sub-advisor to the
Fund. In that capacity, World has the primary responsibility, under the
supervision of INVESCO, for providing portfolio management services to the
Fund. See "The Fund And Its Management."
THIS FUND OFFERS ALL OF THE FOLLOWING SERVICES AT NO CHARGE:
CLASS I AND II SHARES
Telephone purchases
Telephone exchanges
Telephone redemptions
Automatic reinvestment of distributions
CLASS II SHARES ONLY
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: For Class I shares, the minimum initial investment
is $250,000. For Class II shares, the minimum initial investment is $5,000 for
individual accounts and $2,000 for IRAs which is waived for regular investment
plans, including EasiVest and Direct Payroll Purchase.
MINIMUM SUBSEQUENT INVESTMENT: For Class I shares, the minimum subsequent
investment is $25,000 and for Class II shares, the minimum subsequent investment
is $1,000. (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, other than a fee to redeem or exchange shares held less than three
months. See "Shareholder Transaction Expenses." The Fund is authorized to pay a
Rule 12b-1 distribution fee of one quarter of one percent of the average net
assets attributable to Class II shares of the Fund 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
average annual net assets. To keep expenses competitive, INVESCO voluntarily
reimburses the Fund for certain expenses in excess of 0.35% (0.30% prior to May
31, 1999) of average net assets relating to Class I shares and 0.60% (0.55%
prior to May 13, 1999) of average net assets relating to Class II shares.
2
<PAGE>
CLASS I CLASS II
SHAREHOLDER TRANSACTION EXPENSES
Sales load "charge" on purchases None None
Sales load "charge" on reinvested
dividends None None
Redemption fees 1.00%* 1.00%*
Exchange fees 1.00%* 1.00%*
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fee 0.25%~ 0.25%~
12b-1 Fees None 0.25%~
Other Expenses (1)(2) 0.21%~ 0.12%~
Total Fund Operating Expenses (2) 0.46%~ 0.62%~
~Annualized
*There is a 1% fee retained by the Fund to offset transaction costs and other
expenses associated with short-term redemptions and exchanges, which is imposed
only on redemptions or exchanges of shares held less than three months.
(1) It should be noted that the Fund's actual total operating expenses were
lower than the figures shown because the Fund's custodian fees were reduced
under an expense offset arrangement. However, as a result of an SEC requirement
for mutual funds to state their total operating expenses without crediting any
such expense offset arrangements, the figures shown above DO NOT reflect these
reductions. See "The Fund And Its Management."
(2) Certain Fund expenses will be absorbed voluntarily by INVESCO in order to
ensure that expenses for the Fund will not exceed 0.30% of average daily net
assets relating to Class I shares and 0.55% of average daily net assets relating
to Class II shares. If such voluntary expense limits were not in effect, the
Fund's "Other Expenses" and "Total Fund Operating Expenses" for the period
December 23, 1997 (commencement of operations) through July 31, 1998, would have
been 2.26% and 2.51%, respectively, of Class I shares average net assets and
1.21% and 1.71%, respectively, of Class II shares average net assets.
EXAMPLE
A shareholder would pay the following expenses on a $10,000 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.)
3
<PAGE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Class I $47 $148 $258 $579
Class II $63 $199 $346 $774
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 OR EXPENSES,
AND ACTUAL ANNUAL RETURNS AND EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
For more information on the Fund's expenses, see "The Fund And Its Management"
and "How To Buy Shares Distribution Expenses."
Because the Fund pays a 12b-1 distribution fee on Class II shares,
investors who own Class II shares of the Fund 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.
4
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
The following information for the period December 23, 1997 through July
31, 1998 has been audited by PricewaterhouseCoopers LLP, independent
accountants; the information for the six-month period ended January 31, 1999 is
unaudited. This information should be read in conjunction with the audited
financial statements and the Report of Independent Accountants thereon appearing
in the Fund's 1998 Annual Report to Shareholders, and the unaudited financial
statements and accompanying notes thereto in the Fund's Semi-Annual Report to
Shareholders for the six-month period ended January 31, 1999, which are
incorporated by reference into the Statement of Additional Information. Both are
available without charge by contacting IDI at the address or telephone number on
the back cover of this Prospectus. The Annual Report also contains more
information about the Fund's performance.
Six Months Period Six Months Period
Ended Ended Ended Ended
January 31 July 31 January 31 July 31
------------------------------------------------
1999 1998(a) 1999 1998(a)
Unaudited Class I Unaudited Class II
Class I Class II
------------------------------------------------
PER SHARE DATA
- --------------
Net Asset Value - Beginning of $ 12.01 $ 10.00 $ 12.14 $ 10.00
- ------------------------------- ----- ----- ----- -----
Period ------------------------------------------------
------
INCOME FROM INVESTMENT
- ----------------------
OPERATIONS
- ----------
Net Investment Income 0.09 0.11 0.07 0.07
- --------------------- ---- ---- ---- ----
Net Gains on Securities (Both
- -----------------------------
Realized and Unrealized 1.80 1.98 1.82 2.14
----------------------- ---- ---- ---- ----
------------------------------------------------
Total from Investment Operations 1.89 2.09 1.89 2.21
- -------------------------------- ---- ---- ---- ----
LESS DISTRIBUTIONS
- ------------------ ---- ---- ---- ----
Dividends from Net Investment Income 0.08 0.08 0.06 0.07
- ------------------------------------ ---- ---- ---- ----
Distributions from Capital Gains 0.05 0.00 0.05 0.00
- -------------------------------- ---- ---- ---- ----
------------------------------------------------
Total Distributions 0.13 0.08 0.11 0.07
- ------------------- ---- ---- ---- ----
Net Assets Value - End of Period $ 13.77 $ 12.01 $ 13.92 $ 12.14
- -------------------------------- ------- ------- ------- -------
================================================
TOTAL RETURN(b) 15.82%(c) 20.93%(c) 15.65%(c) 22.11%(c)
- --------------- --------- --------- --------- ---------
RATIOS
- ------
Net Assets - End of Period
- --------------------------
($000 Omitted) $ 3,651 $ 3,259 $ 43,489 $ 15,065
-------------- ------- ------- -------- --------
Ratio of Expenses to Average
- ----------------------------
Net Assets(d)(e) 0.16%(c) 0.46%(f) 0.30%(c) 0.62%(f)
---------------- -------- -------- -------- --------
Ratio of Net Investment Income
- ------------------------------
to Average Net Assets(e) 0.77%(c) 1.96%(f) 0.61%(c) 1.52%(f)
------------------------ ----- -------- -------- --------
Portfolio Turnover Rate 2%(c) 0(g)(c) 2%(c) 0%(g)(c)
- ----------------------- ----- ----- ----- --------
(a) From December 23, 1997, commencement of investment operations, to July 31,
1998.
5
<PAGE>
(b) The applicable redemption fees are not included in the Total Return
calculation.
(c) Based on operations for the period shown and, accordingly, are not
representative of a full year.
(d) Ratio is based on Total Expenses of the Fund, less Expenses Absorbed by
Investment Adviser, if applicable, which is before any offset arrangement.
(e) Various expenses of the Fund were voluntarily absorbed by INVESCO for the
six-months ended January 31, 1999 and for the period ended July 31, 1998.
If such expenses had not been voluntarily absorbed, Ratio of Expenses to
Average Net Assets would have been 0.75% (not annualized), and 2.51%
(annualized) for Class I, respectively, and 0.56% and 1.71% (annualized)
for Class II, respectively, and Ratio of Net Investment Income (Loss) to
Average Net Assets would have been 0.18% (not annualized) and (0.09%)
(annualized) for Class I, respectively, and 0.35% and 0.42% (annualized)
for Class II, respectively.
(f) Annualized
(g) Portfolio Turnover Rate calculated to less than 0.10% for the period ended
July 31, 1998.
6
<PAGE>
INVESTMENT OBJECTIVE AND STRATEGY
The Fund seeks to track the aggregate price and income performance of the
S&P 500, an index comprised of common stocks of U.S. companies that emphasizes
large-capitalization companies. This investment objective is fundamental and
cannot be changed without the approval of the Fund's shareholders. The Fund
seeks to achieve its objective by investing in the common stocks that comprise
the Index in approximately the same proportions as they are represented in the
S&P 500. The Fund also may invest in other instruments that are based upon the
value of the Index, including Standard & Poor's Depository Receipts ("SPDRs"),
and it may also purchase and sell futures contracts and options on the Index.
There is no assurance that the Fund's investment objective will be met.
The S&P 500 is comprised of 500 common stocks that are chosen by Standard
& Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") for inclusion in
the Index. As of July 31, 1998, the S&P 500 represented approximately 75% of the
market capitalization of publicly-traded common stocks in the United States. The
Index is weighted by market value. Because of this weighting, the 144 largest
companies in the S&P 500 accounted for approximately 78% of the Index at July
31, 1998. Typically, companies included in the S&P 500 are dominant firms in
their industries, and approximately 91% of them trade on the New York Stock
Exchange.
The Fund is managed through the use of an "indexing" investment style,
which attempts to track the investment composition of the S&P 500 through
statistical methods. Therefore, the Fund does not employ typical methods of
mutual fund investment management, such as selecting securities on the basis of
economic, financial or market analysis. The Fund is managed without regard to
potential tax ramifications.
The Fund cannot precisely duplicate the investment composition or
performance of the Index because, unlike the Fund, the Index is unmanaged and
has no expenses. Moreover, the Fund must take into account sales and redemptions
of Fund shares and other factors that are inapplicable to the Index itself.
Although the Fund at any given time may not hold securities of all 500 companies
represented in the Index, and at commencement of operations it will hold
securities of a relatively small number of those companies. As assets in the
Fund increase, it normally will hold securities of at least 95% of those
companies. Because at any given time the Fund likely will not precisely mirror
the S&P 500, the Fund would ordinarily place heavier concentration on industry
sectors dominated by large corporations, such as communications or automobiles.
Until the Fund's portfolio is fully invested (except for cash), the Fund will
attempt to identify sectors that are underrepresented in the Fund's portfolio
and purchase balancing securities until the Fund's portfolio sector weightings
closely match those of the Index.
Redemptions of large numbers of shares of the Fund could reduce the number
of issuers represented in the Fund's portfolio, which could adversely affect the
accuracy with which the Fund tracks the performance of the S&P 500.
The Fund is not sponsored, endorsed, sold or promoted by S&P. S&P makes no
representation or warranty, express or implied, to the owners of the Fund or any
7
<PAGE>
member of the public regarding the advisability of investing in securities
generally or in the Fund particularly or the ability of the S&P 500 to trace
general stock market performance. S&P's only relationship to the Company is the
licensing of certain trademarks and trade names of S&P and of the S&P 500 which
is determined, composed and calculated by S&P without regard to the Company or
the Fund. S&P has no obligation to take the needs of the Company or the owners
of the Fund into consideration in determining, composing or calculating the S&P
500. S&P is not responsible for and has not participated in the determination of
the prices and amount of the Fund or the timing of the issuance or sale of Fund
shares or in the determination of calculation of the equation by which the Fund
is to be converted into cash. S&P has no obligation or liability in connection
with administration, marketing or trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 500
OR ANY DATA INCLUDED THEREIN AND S&P SHALL HAVE NO LIABILITY FOR ANY ERRORS,
OMISSIONS, OR INTERRUPTIONS THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO RESULTS TO BE OBTAINED BY THE COMPANY, OWNERS OF THE FUND, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTY, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 500 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
INVESTMENT POLICIES AND RISKS
Investors generally should expect to see the price per share of the Fund
vary with movements in the securities markets, changes in economic conditions
and other factors. Due to the composition of the Index, the Fund invests in many
different companies in a variety of industries; this diversification reduces the
Fund's overall exposure to particular investment and market risks, but cannot
eliminate them.
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. Earnings of individual issuers may be affected by remediation
costs, which may be substantial. The Fund's investments may be adversely
affected.
LIMITED PORTFOLIO. While the S&P 500 includes the majority of large market
capitalization stocks in the U.S. stock market, it excludes the stocks of most
medium and smaller sized companies that comprise the remaining capitalization of
the U.S. stock market. Similarly, it excludes securities of most foreign
issuers. The Fund's portfolio, therefore, will exclude securities excluded from
the Index. While the large capitalization stocks that comprise the S&P 500
historically have shown less price volatility than the stocks excluded from the
8
<PAGE>
Index and the Fund, the excluded stocks may or may not offer better price
performance and income than those included in the Index and the Fund.
From time to time, the Fund may receive securities that are not included
in the Index as a result of a corporate reorganization of a S&P 500 company.
Such securities will be disposed of in due course in accordance with the Fund's
investment objective. Conversely, if an issuer included in the S&P 500 has a
change in rank within the Index, or is dropped from it entirely, the Fund may be
required to sell some or all of the common stock of that issuer held by the
Fund. Such sales may result in the Fund realizing lower prices, or losses, that
might not have been incurred if the Fund were not required to effect such sales.
INDEXING. In the event of a decline in the S&P 500, the Fund and its shares will
sustain a similar decline. Since the Fund's investment objective is to track the
aggregate price and income performance of the Index, the Fund will not be
actively managed in an attempt to reduce the risk inherent in the Index or the
stock market. Due to purchases and sales of portfolio securities to meet
investor purchases and redemptions, the Fund will not have a 100% correlation to
the Index. At commencement of operations, the Fund expects that the composition
of its portfolio will have approximately an 80% correlation to the composition
of the S&P 500. Under ordinary circumstances, the Fund expects that the
composition of its portfolio will have at least a 95% correlation to the
composition of the S&P 500.
INVESTMENT COMPANY SECURITIES. To manage its daily cash positions, the Fund may
invest in securities issued by other investment companies that invest in
short-term debt securities and seek to maintain a net asset value of $1.00 per
share ("money market funds"). The Fund also may invest in SPDRs and shares of
other investment companies that are structured to seek a similar correlation to
the performance of the S&P 500. SPDRs are traded on the American Stock Exchange.
SPDR holders such as the Fund are paid a "Dividend Equivalent Amount" that
corresponds to the amount of cash dividends accruing to the securities held by
the SPDR Trust, net of certain fees and expenses. Therefore, the dividend yield
of SPDRs may be less than that of the Index. The Investment Company Act of 1940
limits investments in securities of other investment companies, such as the SPDR
Trust. These limitations include, among others, that, subject to certain
exceptions, no more than 10% of the Fund's total assets may be invested in
securities of other investment companies, and, with respect to 75% of the Fund's
total assets, no more than 5% of its total assets may be invested in the
securities of any one investment company. As a shareholder of another investment
company, the Fund would bear its pro rata portion of the other investment
company's expenses, including advisory fees, in addition to the expenses the
Fund bears directly in connection with its own operations.
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. The Fund could incur costs or delays in seeking to sell
the instrument if the prior owner defaults on its repurchase obligation. To
reduce that risk, securities that are the subject of the repurchase agreement
will be maintained as collateral with the Fund's custodian in an amount at least
equal to the repurchase price under the agreement (including accrued interest).
9
<PAGE>
These agreements are entered into only with member banks of the Federal Reserve
System, registered broker-dealers, and registered U.S. government securities
dealers that are deemed creditworthy under standards set by the Company's board
of directors.
SECURITIES LENDING. The Fund may seek to earn additional income by lending
securities on a fully collateralized basis. For further information on this
policy, see "Investment Policies and Restrictions" in the Statement of
Additional Information.
FUTURES CONTRACTS AND OPTIONS. The Fund may enter into futures contracts for
hedging or other non-speculative purposes within the meaning and intent of
applicable rules of the Commodity Futures Trading Commission ("CFTC"), or for
liquidity.
For example, futures contracts may be purchased or sold to attempt to
hedge against a price movement in the S&P 500 at times when the Fund is not
fully invested in stocks included in the S&P 500. In such circumstances,
purchasing a futures contract may reduce the potential that cash inflows to the
Fund will interfere with its ability to track the Index, since futures contracts
may serve as a temporary substitute for stocks until the stocks can be purchased
by the Fund in a cost-effective manner. Inasmuch as futures contracts require a
comparatively small initial margin deposit, the Fund may be able to be fully
exposed to price movements in the S&P 500 while still keeping a cash reserve to
meet potential redemptions.
The Fund also may use options to buy or sell futures contracts with
respect to the Index or securities comprising the Index. Put and call options on
futures contracts or securities may be traded by the Fund in order to protect
against declines in the values of portfolio securities or against increases in
the cost of securities to be acquired. Purchases of options on futures contracts
may present less dollar risk in hedging the Fund's portfolio than the purchase
and sale of the underlying futures contracts, since the potential loss is
limited to the amount of the premium plus related transaction costs. The premium
paid for such a put or call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise or liquidation of the
option; and, unless the price of the underlying futures contract changes
sufficiently, the option may expire without value to the Fund. The writing of
covered options does not present less risk than the trading of futures contracts
and will constitute only a partial hedge, up to the amount of the premium
received. Additionally, if an option is exercised, the Fund may suffer a loss on
the transaction.
The Fund also may purchase put or call options on the Index and on the
Standard & Poor's 100 Composite Index (the "S&P 100") in order to have fuller
exposure to price movements in the Index pending investment of purchase orders
or to maintain liquidity in anticipation of potential Fund shareholder
redemptions.
The Fund may, from time to time, also sell ("write") covered call options
or cash secured puts in order to attempt to increase the yield on its portfolio
or to protect against declines in the value of its portfolio securities. By
writing a covered call option, the Fund, in return for the premium income
realized from the sale of the option, gives up the opportunity to profit from a
10
<PAGE>
price increase in the underlying security above the option exercise price, if
the price increase occurs while the option is in effect. In addition, the Fund's
ability to sell the underlying security will be limited while the option is in
effect. By writing a cash secured put, the Fund, which receives the premium, has
the obligation during the option period, upon assignment of an exercise notice,
to buy the underlying security at a specified price. A put is secured by cash if
the Fund maintains at all times cash, Treasury bills or other liquid obligations
with a value equal to the option exercise price in a segregated account with its
custodian.
Although the Fund will enter into options and futures contracts solely for
hedging, liquidity or other non-speculative purposes, their use does involve
certain risks. For example, a lack of correlation between the value of an
instrument underlying an option or futures contract and the assets being hedged,
or unexpected adverse price movements, could render the Fund's hedging strategy
unsuccessful and could result in losses. In addition, there can be no assurance
that a liquid secondary market will exist for any contract purchased or sold,
and the Fund may be required to maintain a position until exercise or
expiration, which could result in losses. Transactions in futures contracts and
options are subject to other risks as well.
The risks related to transactions in options and futures to be entered
into by the Fund are set forth in greater detail in the Statement of Additional
Information, which should be reviewed in conjunction with the foregoing
discussion.
PORTFOLIO TURNOVER. Although the Fund seeks to invest for the long term, the
Fund retains the right to sell portfolio securities regardless of the length of
time they have been in the Fund's portfolio. The indexing method of portfolio
management is expected to generate a portfolio turnover rate of less than 50%,
which would occur if one-half of the Fund's portfolio securities were sold
within one year. Ordinarily, portfolio investments are sold by the Fund only to
reflect changes in the S&P 500 (for example, mergers involving companies
included in the Index, or new weightings of securities within the Index) or to
accommodate cash flows in and out of the Fund while attempting to maintain the
similarity of the Fund's portfolio to the composition of the S&P 500.
INVESTMENT RESTRICTIONS. Certain restrictions, which are identified in the
Statement of Additional Information, are fundamental and 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. The Fund's ability to borrow
money is limited to borrowings from banks for temporary or emergency purposes in
amounts not exceeding 33-1/3% of net assets.
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.
11
<PAGE>
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission a diversified, open-end, management investment company. It
was incorporated on April 2, 1993, under the laws of Maryland.
The Company's board of directors has responsibility for overall
supervision of the Fund and reviews the services provided by the investment
adviser and investment sub-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
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 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 PLC had approximately
$241 billion in assets under management as of September 30, 1998. INVESCO was
established in 1932 and, as of July 31, 1998, managed 14 mutual funds,
consisting of 49 separate portfolios, with combined assets of approximately
$19.6 billion on behalf of 884,099 shareholders.
World is the Fund's sub-adviser and is primarily responsible for managing
the Fund's investments. Under the terms of the sub-advisory agreement, World
provides the Fund with certain recordkeeping and management services in
connection with the Fund, including monitoring the Index and determining which
securities to purchase and sell in order to keep the Fund's portfolio in balance
with the Index.
World is a general partnership organized by Munder Capital Management
("MCM"), a general partnership formed in December 1994 which engages in
investment management and advisory services. As of July 31, 1998, World's total
assets under management were approximately $16.9 billion (including index mutual
fund portfolios), and MCM's total assets under management were approximately
$48.2 billion. The principal business address for World is 255 Brown Street
Centre, 2nd Floor, Birmingham, Michigan 48009.
The Fund's investments are selected by a team of World portfolio managers
that is collectively responsible for the investment decisions relating to the
Fund.
INVESCO permits investment and other personnel to purchase and sell
securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires INVESCO's 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.
12
<PAGE>
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 0.25% of the Fund's average net assets. For
the period ended July 31, 1998, investment advisory fees paid by the Fund
amounted to 0.25% (annualized) of the Fund's average net assets. Out of this
fee, INVESCO pays to World, as sub-adviser to the Fund, an amount computed at
the following annual rates: 0.07% on the first $10 million of the Fund's average
net assets, 0.05% on the next $40 million of the Fund's average net assets, and
0.03% on the Fund's average net assets in excess of $50 million.
No fee is paid by the Fund to World.
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. Prior to September 30, 1997, INVESCO served as the Fund's
distributor.
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
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.
For the period December 23, 1997 (commencement of operations) through July 31,
1998, INVESCO was paid a fee equal to 0.07% of the Fund's average net assets
(prior to the absorption of certain Fund expenses).
The management and custodial services provided to the Fund by INVESCO and
the Fund's custodian, and the services provided to shareholders by INVESCO and
IDI, 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 the 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 expenses of each class of the Fund, which are accrued daily, are
deducted from total income before dividends are paid. Total expenses of the Fund
for the period December 23, 1997 (commencement of operations) through July 31,
1998, including investment management fees (but excluding brokerage commissions,
which are a cost of acquiring securities), amounted to 0.46% (annualized) of the
13
<PAGE>
Fund's average net assets held in Class I shares and 0.62% (annualized) of the
Fund's average net assets held in Class II shares. Certain Fund expenses were
absorbed voluntarily by INVESCO in order to ensure that the Fund's total
operating expenses did not exceed 0.30% for Class I shares and 0.55% for Class
II shares prior to May 13, 1999 and 0.35% for Class I shares and 0.60% for Class
II shares effective May 13, 1999. This commitment may be changed following
consultation with the Company's board of directors.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
such brokers' and dealers' financial responsibility coupled with their ability
to effect transactions at the best available prices. As discussed under "How to
Buy Shares - Distribution Expenses," the Fund may market its shares through
intermediary brokers or dealers that have entered into Dealer Agreements with
INVESCO or IDI, as the Fund's distributor. The Fund may place orders for
portfolio transactions with qualified brokers and dealers that recommend the
Fund, or sell shares of the Fund, to clients, or act as agent in the purchase of
Fund shares for clients, if Fund Management believes that the quality of the
execution of the transaction and level of commission are comparable to those
available from other qualified brokerage firms. For further information, see
"Investment Practices - Placement of Portfolio Brokerage" in the Statement of
Additional Information.
FUND PRICE AND PERFORMANCE
DETERMINING PRICE. The value of your investment in the Fund may vary daily. The
price per share of each class of the Fund is also known as the Net Asset Value
("NAV"). INVESCO prices each class of 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 for each class of shares is calculated separately by adding
together the current market value of all of the class' assets, including accrued
interest and dividends; subtracting liabilities, including accrued expenses
attributable to the class; and dividing that dollar amount by the total number
of shares of the class outstanding.
PERFORMANCE DATA. To keep shareholders and potential investors informed, we will
occasionally advertise the Fund's total return and yield 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 periods 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 interim variations in performance that occur during the periods
cited.
The yield of the Fund refers to the income generated by an investment in
the Fund over a 30-day or one-month period, and is computed by dividing the net
investment income per share earned during the period by the net asset value per
share at the end of the period, then adjusting the result to provide for
semi-annual compounding. More information about the Fund's recent and historical
performance is contained in the Company's Annual Report to Shareholders. You can
14
<PAGE>
get a free copy by calling or writing to IDI using the phone number or address
on the back cover of this Prospectus.
When we quote mutual fund rankings published by Lipper Analytical
Services, Inc., we may compare the Fund to others in its category of large-cap
funds and/or S&P 500 indices, as well as the broad-based Lipper general fund
groupings. These rankings allow you to compare the Fund to its peers. Other
independent financial media also produce performance- or service-related
comparisons, which you may see in our promotional materials. For more
information see "Fund Performance" in the Statement of Additional Information.
Performance figures are based on historical investment results and are not
intended to suggest future performance.
HOW TO BUY SHARES
The Fund offers two classes of shares. Each class represents an identical
interest in the investment portfolio of the Fund and has the same rights, except
that each class bears its own distribution and shareholder servicing charges.
The income attributable to each class and the dividends payable on the shares of
each class will be reduced by the amount of the distribution fee or service fee,
if applicable, payable by that class.
In deciding which class of shares to purchase, you should consider, among
other things, (i) the length of time you expect to hold your shares, (ii) the
charges of the distribution plan applicable to the class, if any, and (iii) the
eligibility requirements that apply to purchases of a particular class.
Generally, the minimum initial investment in Class I shares is $250,000
and the minimum subsequent investment is $25,000, except that INVESCO may permit
a lesser amount to be invested in the Fund under a federal income tax-deferred
retirement plan (other than an IRA, or under a group investment plan qualifying
as a sophisticated investor. Generally, the minimum initial investment in Class
II shares is $5,000 ($2,000 for IRA accounts) and the minimum subsequent
investment is $1,000.
The chart on page 13 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 when you do so directly
through INVESCO, although in some circumstances a fee may be charged on
exchanges or redemptions. 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 and which class of 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
15
<PAGE>
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.
HOW TO BUY SHARES
===============================================================================
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- -------------------------------------------------------------------------------
BY CHECK
Mail to: CLASS I If your check does not
------- clear, you will be
INVESCO Funds Group, Inc. $250,000; $25,000 for responsible for any
P.O. Box 173706 each subsequent related loss the Fund
Denver, CO 80217-3706. investment. or INVESCO incurs. If
Or you may send your you are already a
check by overnight CLASS II shareholder in the
courier to: 7800 E. Union -------- INVESCO funds, the Fund
Ave., Denver, CO 80237 $5,000 for regular may seek reimbursement
account; from your existing
$2,000 for an IRA; account(s) for any loss
$1,000 minimum for each incurred.
subsequent investment.
- -------------------------------------------------------------------------------
BY TELEPHONE OR WIRE
Call 1-800-525-8085 to
request your purchase. CLASS I Payment must be
Then send your check by ------- received within 3
overnight courier to our $250,000; $25,000 for business days, or the
street address: each subsequent transaction may be
7800 E. Union Ave., investment. canceled. If a
Denver, CO 80237. telephone purchase is
Or you may transmit your CLASS II canceled due to
payment by bank wire -------- nonpayment, you will be
(call INVESCO for $5,000 for regular responsible for any
instructions). account; related loss the Fund
$2,000 for an IRA; or INVESCO incurs. If
$1,000 minimum for each you are already a
subsequent investment. 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 the fund
application, or call us CLASS I Like all regular
for the correct form and ------- investment plans,
more details. Investing EasiVest and Direct neither EasiVest nor
the same amount on a Payroll Purchase plans Direct Payroll Purchase
monthly basis allows you are not available to ensures a profit or
to buy more shares when Class I purchasers or protects against loss
prices are low and fewer shareholders. in a falling market.
shares when prices are Because you'll invest
CLASS II continually, regardless
--------
16
<PAGE>
===============================================================================
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- -------------------------------------------------------------------------------
are high. This $50 per month for of varying price levels,
"dollar-cost averaging" EasiVest; $50 per pay consider your financial
may help offset market period for Direct ability to keep buying
fluctuations. Over a Payroll Purchase. You through low price levels.
period of time, your may start or stop your And remember that you
average cost per share regular investment plan will lose money if you
may be less than the at any time, with two redeem your shares when
actual average price per weeks' notice to the market value of all
share. INVESCO. You must your shares is less
fulfill the minimum than their cost.
initial investment
requirements ($5,000
for regular account;
$2,000 for an IRA)
before using one of
these options.
- -------------------------------------------------------------------------------
BY PAL
Your "Personal Account CLASS I Be sure to write down
Line" is available for $25,000 the confirmation number
subsequent purchases and provided by PAL.
exchanges 24 hours a day. CLASS II Payment must be
Simply call $1,000; $250 for an IRA. received within 3
1-800-424-8085. business days, or the
transaction may be
canceled. If a telephone
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 another CLASS I See "Exchange Policy"
of the INVESCO funds. ------- below.
Call 1-800-525-8085 for $250,000 to open a new
prospectuses of other account; $25,000 for
INVESCO funds. You may written requests to
also establish an purchase additional
automatic monthly shares. The exchange
exchange service between minimum is $1,000 for
two INVESCO funds; call purchases requested by
INVESCO for further telephone.
details and the correct
form. CLASS II
--------
$5,000 to open a new
account; $2,000 for IRAs;
$1,000 for written
17
<PAGE>
===============================================================================
METHOD INVESTMENT MINIMUM PLEASE REMEMBER
- -------------------------------------------------------------------------------
requests to purchase
additional shares. The
exchange minimum is
$1,000 for purchases
requested by telephone.
===============================================================================
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.
Upon the exchange of shares of the Fund held less than three months (other
than shares acquired through reinvestment of dividends or other distributions),
a fee of 1% of the current net asset value of the shares will be assessed and
retained by the Fund for the benefit of remaining shareholders. This fee is
intended to encourage long-term investments in the Fund, to avoid transaction
and other expenses caused by early redemptions, and to facilitate portfolio
management. The fee is not a deferred sales charge, is not a commission paid to
INVESCO, or otherwise results in a direct payment to INVESCO. The fee applies to
redemptions from the Fund and exchanges into any of the other no-load mutual
funds that are advised by INVESCO and distributed by IDI. The Fund will use the
"first in, first out" method to determine the three-month holding period. Under
this method, the date of exchange will be compared with the earliest purchase
date of shares held in the account. If this method results in the redemption of
shares deemed held for less than three months, the redemption fee will be
assessed against such shares. INVESCO reserves the right, in the sole
determination of INVESCO, to waive the redemption fee.
Please note these policies regarding exchanges of Fund shares:
1) The fund accounts must be identically registered.
2) You may make four exchanges out of each fund during each calendar
year, subject to a charge of 1% of the NAV of Fund shares held for
less than three months discussed above.
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 to Fund
performance and shareholders. The Fund will determine whether to do
18
<PAGE>
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.
(5) Notice of all modifications or terminations that would affect all
Fund shareholders 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).
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 Class II shares to investors. Under the Plan, monthly
payments may be made by the Fund to IDI to permit IDI, at its discretion, to
engage in certain activities and provide certain services approved by the board
of directors of the Company in connection with the distribution of the Fund's
Class II shares to investors. These activities and services may include the
payment of compensation (including incentive compensation and/or continuing
compensation based on the amount of customer assets maintained in the Fund) to
securities dealers and other financial institutions and organizations, which may
include 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 electronically to the Fund's Transfer
Agent 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 and
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
attributable to the Fund's Class II shares. 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
19
<PAGE>
month falls, although this 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 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
distribution which may result from INVESCO's or IDI's use of fees received from
the Fund for services rendered by INVESCO, 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.
There is no distribution fee applicable to Class I shares.
FUND SERVICES
SHAREHOLDER ACCOUNTS. INVESCO will maintain a separate 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 capital gain
distributions automatically reinvested in another INVESCO fund or paid by check
(minimum of $10.00).
TELEPHONE TRANSACTIONS. All shareholders may exchange and redeem Fund shares by
telephone, unless they expressly decline these privileges. By signing the new
account Application or a Telephone Transaction Authorization Form, or otherwise
using these privileges, the investor has agreed that, if the Fund has followed
20
<PAGE>
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.
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 following chart shows several convenient ways to redeem your Fund
shares. Shares of each class of the Fund may be redeemed at any time at their
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.
Upon the redemption of shares held less than three months (other than
shares acquired through reinvestment of dividends or other distributions), a fee
of 1% of the current net asset value of the shares will be assessed and retained
by the Fund for the benefit of remaining shareholders. This fee is intended to
encourage long-term investments in the Fund, to avoid transaction and other
expenses caused by early redemptions, and to facilitate portfolio management.
The fee is not a deferred sales charge, is not a commission paid to INVESCO, and
does not benefit INVESCO in any way. The fee applies to redemptions from the
Fund and exchanges into any of the other no-load mutual funds that are advised
by INVESCO and distributed by IDI. The Fund will use the "first in, first out"
method to determine the three-month holding period. Under this method, the date
of redemption or exchange will be compared with the earliest purchase date of
shares held in the account. If this holding period is less than three months,
the redemption/exchange fee will be assessed on the current net asset value of
the shares being redeemed. INVESCO reserves the right, in its sole discretion,
to waive the redemption fee.
Please specify from which fund and class, if any, you wish to redeem
shares. Shareholders have a separate account for each fund in which they invest.
HOW TO SELL SHARES
===============================================================================
METHOD MINIMUM REDEMPTION PLEASE REMEMBER
- -------------------------------------------------------------------------------
BY TELEPHONE
Call us toll-free at CLASS I This option is not
1-800-525-8085. $1,000 (or, if less, available for shares
full liquidation of the held in IRAs.
account) for a
redemption check; no
minimum for a wire to
bank of record.
21
<PAGE>
===============================================================================
METHOD MINIMUM REDEMPTION PLEASE REMEMBER
- -------------------------------------------------------------------------------
CLASS II
$250 (or, if less,
full liquidation of
the account) for a
redemption check;
$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 the
discretion of INVESCO.
- -------------------------------------------------------------------------------
IN WRITING
Mail your request to Any amount. The If the shares to be
INVESCO Funds Group, redemption request must redeemed are
Inc., P.O. Box 173706 be signed by all represented by stock
Denver, CO 80217-3706. registered account certificates, the
You may also send your owners. Payment will be certificates must be
request by overnight mailed to your address sent to INVESCO.
courier to 7800 E. Union of record or to a
Ave., Denver, CO 80237. pre-designated bank.
- -------------------------------------------------------------------------------
BY EXCHANGE
Between this and another CLASS I See "Exchange Policy,"
of the INVESCO funds. $250,000 to open a new page 202.
Call 1-800-525-8085 for account in the Fund;
prospectuses of other $1,000 to open a new
INVESCO funds. You may account in the other
also establish an INVESCO funds; $25,000
automatic monthly for written requests to
exchange service between purchase additional
two INVESCO funds; call shares for an existing
INVESCO for further account.
details and the correct
form. CLASS II
--------
$5,000 to open a new
account in the Fund;
$1,000 to open a new
account in the other
INVESCO funds; $2,000
for IRAs; $1,000 for
written requests to
purchase additional
shares for an existing
account. The exchange
minimum is $1,000 for
purchases requested by
telephone.
22
<PAGE>
===============================================================================
METHOD MINIMUM REDEMPTION PLEASE REMEMBER
- -------------------------------------------------------------------------------
PERIODIC WITHDRAWAL PLAN
You may call us to
request the appropriate $100 per payment, on a You must have at least
form and more information monthly or quarterly $10,000 total invested
at 1-800-525-8085. basis. The redemption with the INVESCO funds,
check may be made with at least $5,000 of
payable to any party that total invested in
you designate. the fund from which
withdrawals will be
made.
- -------------------------------------------------------------------------------
PAYMENT TO THIRD PARTY
Mail your request to
INVESCO Funds Group, Any amount. All registered account
Inc., P.O. Box 173706 owners must sign the
Denver, CO 80217-3706. request, with a
signature guarantee from
an eligible guarantor
financial institution,
such as a commercial bank
or recognized national or
regional securities firm.
===============================================================================
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.
Payments of redemption proceeds will be mailed within seven days following
receipt of the redemption request in proper form. However, payment may be
postponed under unusual circumstances -- for instance, if normal trading is not
taking place on the New York Stock Exchange or during an emergency as defined by
the Securities and Exchange Commission. If your shares were purchased by a check
which has not yet cleared, payment will be made promptly upon clearance of the
purchase check (which will take up to 15 days).
If you participate in EasiVest, the Fund's automatic monthly investment
program, and redeem all of the shares in your account, we will terminate any
further EasiVest purchases unless you instruct us otherwise.
Because of the high relative costs of handling small accounts, should the
value of any shareholder's account fall below $50,000 for Class I shares, or
$5,000 for Class II shares ($2,000 for IRAs) 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 the above minimums.
23
<PAGE>
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
TAXES. The Fund intends to distribute to shareholders substantially all of its
net investment income, net capital gains and net gains from certain foreign
currency transactions, if any. Distribution of substantially 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 their accounts
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. During 1997, the Taxpayer Relief Act established a new
maximum capital gains tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of
either 20% or 28%. Beginning January 1, 1998, all long-term gains realized on
the sale of securities held more than 12 months will be taxable at a maximum
rate of 20%. In addition, legislation signed in October of 1998 provides that
all capital gain distributions from a mutual fund paid to shareholders during
1998 will be taxed at a maximum rate of 20%. Accordingly, all capital gain
distributions paid in 1998 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 they
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 may 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 gain distributions and other
distributions and redemption proceeds. You can avoid backup withholding on your
Fund account by ensuring that we have a correct, certified tax identification
number, unless you are subject to backup withholding for other reasons.
24
<PAGE>
We encourage you to consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Fund earns ordinary or net investment
income in the form of interest and dividends on investments. Dividends paid by
the Fund will be based solely on the net investment income earned by it. The
Fund's policy is to distribute substantially all of this income, less expenses,
to shareholders on a quarterly basis, at the discretion of the Company's board
of directors. Dividends are automatically reinvested in additional shares of the
Fund at the net asset value on the payable date unless otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains realized on foreign currency transactions, if any, are
distributed to shareholders at least annually, usually in December. Capital gain
distributions are automatically reinvested in 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 distribution regardless how long the Fund 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.
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, except that only shares of a class are entitled to vote
on matters concerning only that class of shares, and holders of each class of
shares have separate voting rights on matters in which the interests of the
class differ from the interests of the other class, to the extent required by
applicable law, regulation and regulatory interpretation. The Company is not
generally required and does not expect to hold regular annual meetings of
shareholders. However, when requested to do so in writing by the holders of 10%
or more of the outstanding shares of the Fund or as may be required by
applicable law or the Company's Articles of Incorporation, the board of
directors will call special meetings of shareholders. Directors may be removed
by action of the holders of a majority of the outstanding shares of the Company.
The Fund 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
investment objectives, policies and limitations. It is expected that any such
investment company would be managed by INVESCO in substantially the same manner
25
<PAGE>
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 the
option were implemented.
26
<PAGE>
INVESCO STOCK FUNDS, INC.
INVESCO S&P 500 Index Fund
A no-load mutual fund seeking to provide
price performance and income comparable to
the Standard & Poor's 500 Composite
Stock Index.
PROSPECTUS
July 14, 1999
INVESCO FUNDS
INVESCO Distributors, Inc._
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.
27
<PAGE>
PROSPECTUS
July 14, 1999
INVESCO Value Equity Fund
The INVESCO Value Equity Fund (the "Fund") seeks to achieve a high total
return on investment through capital appreciation and current income by
investing substantially all of its assets in common stocks and, to a lesser
degree, securities convertible into common stock. Such securities generally will
be issued by companies that are listed on a national securities exchange and
which usually pay regular dividends. This Fund's investments may consist in part
of securities which may be deemed to be speculative. (See "Investment Objective
And Policies.")
The Fund is a series of INVESCO Stock Funds, Inc. (formerly, INVESCO
Equity Funds, Inc., formerly INVESCO Capital Appreciation Funds, Inc.) (the
"Company"), a diversified, managed no-load mutual fund consisting of seven
separate portfolios of investments. This Prospectus relates to shares of the
INVESCO Value Equity Fund. Separate prospectuses are available upon request from
INVESCO Distributors, Inc. for the Company's other six funds. Investors may
purchase shares of any or all 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 July 14, 1999, 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 SECURITIES AND EXCHANGE 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.
----------
<PAGE>
TABLE OF CONTENTS
Page
ANNUAL FUND EXPENSES...................................................1
FINANCIAL HIGHLIGHTS...................................................3
PERFORMANCE DATA.......................................................5
INVESTMENT OBJECTIVE AND POLICIES......................................5
RISK FACTORS...........................................................6
THE FUND AND ITS MANAGEMENT...........................................10
HOW SHARES CAN BE PURCHASED...........................................13
SERVICES PROVIDED BY THE FUND.........................................16
HOW TO REDEEM SHARES..................................................19
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS..............................20
ADDITIONAL INFORMATION................................................22
<PAGE>
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 up to one
quarter of one percent of the Fund's average net assets each year. The 12b-1 fee
is assessed against all shares, but only with respect to new sales of shares,
exchanges into the Fund and reinvestments of dividends and capital gain
distributions occurring on or after November 1, 1997 ("New Assets"). Lower
expenses benefit Fund shareholders by increasing the Fund's total return. (See
"How Shares Can Be Purchased.")
Annualoperating expenses are calculated as a percentage of the Fund's
average annual net assets. To keep expenses competitive, INVESCO Funds Group,
Inc. ("INVESCO"), the Fund's investment adviser, voluntarily reimburses the Fund
for certain expenses in excess of 1.30% (1.25% prior to May 13, 1999) (excluding
excess amounts that have been offset by the expense offset arrangements
described below), of the Fund's average net assets.
Shareholder Transaction Expenses
- --------------------------------
Sales load "charge" on purchases None
Sales load "charge" on reinvested dividends None
Redemption fees None
Exchange fees None
Annual Fund Operating Expenses
- ------------------------------
(as a percentage of average net assets)
Management Fee 0.75%
12b-1 Fees 0.25%
Other Expenses(1) 0.26%
Transfer Agency Fee(2) 0.22%
General Services, Administrative
Services, Registration, Postage(1)(3) 0.04%
Total Fund Operating Expenses(1)(4) 1.26%
(1) Certain Fund expenses are being voluntarily absorbed by INVESCO to
ensure that the Fund's annualized total operating expenses do not exceed 1.25%
of the Fund's averate net assets. Ratio reflects total expenses before any
expense offset arrangements less absorbed expenses by INVESCO. In the absence of
such voluntary expense limitation, the Fund's "Other Expenses" and "Total Fund
Operating Expenses" would have been 0.31% and 1.31%, respectively, based on the
Fund's actual expenses for the fiscal year ended August 31, 1998.
(2) Consists of the transfer agency fee described under "Additional
Information - Transfer and Dividend Disbursing Agent."
1
<PAGE>
(3) Includes, but is not limited to, fees and expenses of directors,
custodian bank, legal counsel and independent accountants, securities pricing
services, costs of administrative services furnished under an Administrative
Services Agreement, costs of registration of Fund shares under applicable laws,
and costs of printing and distributing reports to shareholders.
(4) It should be noted that the Fund's actual total operating expenses
were lower than the figures shown because the Fund's custodian fees and transfer
agent fees were reduced under expense offset arrangements. However, as a result
of an SEC requirement, the figures shown above DO NOT reflect these reductions.
In comparing expenses for different years, please note that the Ratio of
Expenses to Average Net Assets shown under "Financial Highlights" DO reflect
reductions for periods prior to the fiscal year ended August 31, 1996. (See "The
Fund And Its Management.")
Example
A shareholder would pay the following expenses on a $10,000 investment for
the periods shown, assuming (1) a 5% annual return and (2) redemption at the end
of each time period:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$128 $400 $692 $1,523
The purpose of the foregoing table and Example is to assist investors in
understanding the various costs and expenses that an investor in the Fund will
bear directly or indirectly. Such expenses are paid from the Fund's assets. (See
"The Fund And Its Management.") The above figures for the Fund are based on
fiscal year-end information. The Fund charges no sales load, redemption fee or
exchange fee. The Example should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than those shown.
The assumed 5% annual return is hypothetical and should not be considered a
representation of past or future annual returns, which may be greater or less
than the assumed amount.
Because the Fund pays a Rule 12b-1 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.
2
<PAGE>
FINANCIAL HIGHLIGHTS
(For a Fund Share Outstanding Throughout Each Period)
<TABLE>
<CAPTION>
The following information for each of the five years ended August 31, 1998, the eight-month fiscal period ended August 31,
1993, and each of the four years ended December 31, 1992, has been audited by PricewaterhouseCoopers LLP, independent
accountants. This information should be read in conjunction with the Report of Independent Accountants thereon appearing in the
Fund's 1998 Annual Report to Shareholders, and the unaudited financial statements and accompanying notes thereto in the Fund's
Semi-Annual Report to Shareholders for the six-month period ended February 28, 1999, which are incorporated by reference into the
Statement of Additional Information. Both are available without charge by contacting INVESCO Distributors, Inc., at the address or
telephone number on the back cover of this Prospectus. All per share data has been adjusted to reflect an 80 to 1 stock split
which was effected on January 2, 1991.
Period
Six Months Ended
Ended Year Ended August 31 August 31 Year Ended December 31
Feb. 28
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993^ 1992 1991 1990 1989
UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Net Asset Value -
Beginning of Period $25.68 $28.30 $22.24 $19.53 $18.12 $17.79 $16.91 $16.57 $13.88 $15.30 $13.72
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.09 0.26 0.35 0.35 0.39 0.36 0.24 0.36 0.40 0.44 0.48
Net Gains (or Losses)
on Securities
(Both Realized
and Unrealized) 5.43 (0.43) 6.62 3.09 2.58 1.20 0.88 0.45 4.54 (1.33) 2.42
- ---------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations 5.52 (0.17) 6.97 3.44 2.97 1.56 1.12 0.81 4.94 (0.89) 2.90
- ---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income 0.09 0.26 0.35 0.35 0.39 0.31 0.24 0.34 0.40 0.47 0.49
In Excess of Net
Investment Income! 0.00 0.00 0.00 0.00 0.00 0.04 0.00 0.00 0.00 0.00 0.00
3
<PAGE>
Distributions from
Capital Gains 2.32 2.19 0.56 0.38 1.17 0.88 0.00 0.13 1.85 0.06 0.83
- ---------------------------------------------------------------------------------------------------------------------------------
Total Distributions 2.41 2.45 0.91 0.73 1.56 1.23 0.24 0.47 2.25 0.53 1.32
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value -
End of Period $28.79 $25.68 $28.30 $22.24 $19.53 $18.12 $17.79 $16.91 $16.57 $13.88 $15.30
=================================================================================================================================
TOTAL RETURN 21.64%* (1.06)% 32.04% 17.77% 17.84% 9.09% 6.65%* 4.98% 35.84% (5.80%) 21.34%
RATIOS
Net Assets - End of
Period
($000 Omitted) $413,983 $349,984 $369,766 $200,046 $153,171 $111,850 $81,914 $78,609 $39,741 $29,825 $36,592
Ratio of Expenses
to Average
Net Assets# 0.62%*@ 1.15%@ 1.04%@ 1.01%@ 0.97% 1.01% 1.00%~ 0.91% 0.98% 1.00% 1.00%
Ratio of Net
Investment Income
to Average
Net Assets# 0.32%* 0.86% 1.35% 1.64% 2.17% 1.80% 2.07%~ 2.19% 2.39% 3.00% 3.29%
Portfolio Turnover
Rate 15%* 48% 37% 27% 34% 53% 35%* 37% 64% 23% 30%
<FN>
! Distributions in excess of net investment income for the year ended August 31, 1998, aggregated less than $0.01 on a per share
basis.
^ From January 1, 1993 to August 31, 1993.
* Based on operations for the period shown and, accordingly, are not representative of a full year.
# Various expenses of the Fund were voluntarily absorbed by INVESCO for the six months ended February 28, 1999 and for the year
ended August 31, 1998. If such expenses had not been voluntarily absorbed, ratio of expenses to average net assets would have been
0.68% (not annualized) and 1.19%, respectively, and ratio of net investment income to average net assets would have been 0.26%
(not annualized) and 0.82%, respectively.
@ Ratio is based on Total Expenses of the Fund, less expenses absorbed by Investment Adviser, if applicable, which is before any
expense offset arrangements.
~ Annualized
</FN>
</TABLE>
4
<PAGE>
PERFORMANCE DATA
From time to time, the Fund advertises its total return performance. These
figures are based upon historical investment results and are not intended to
indicate future performance. Total return is computed by calculating the
percentage change in value of an investment, assuming reinvestment of all income
dividends and capital gain distributions, to the end of a specified period.
Cumulative total return reflects actual performance over a stated period of
time. Average annual total return is a hypothetical rate of return that, if
achieved annually, would have produced the same cumulative total return if
performance had been constant over the entire period. Any given report of total
return performance should not be considered as representative of future
performance. The Fund charges no sales load, redemption fee or exchange fee
which would affect total return computations.
In conjunction with performance reports and/or analyses of shareholder
service for the Fund, comparative data between the Fund's performance for a
given period and the performance of recognized bond indices and 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, a division of The
McGraw-Hill Companies, Inc. ("S&P"), 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 the
Deutcher Aktienindex, all of which are unmanaged market indicators. In addition,
rankings, ratings and comparisons of investment performance and/or assessments
of the quality of shareholder service appearing in publications such as Money,
Forbes, Kiplinger's Personal Finance, Morningstar and similar sources which
utilize information compiled (i) internally; (ii) by Lipper Analytical Services,
Inc.; or (iii) by other recognized analytical services, may be used in
advertising. The Lipper Analytical Services, Inc. mutual fund rankings and
comparisons, which may be used by the Fund in performance reports, will be drawn
from the "Growth and Income Funds" Lipper mutual fund groupings, in addition to
the broad-based Lipper general fund grouping.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek a high total return on
investment through capital appreciation and current income. Funds having an
investment objective of seeking a high total return may be limited in their
ability to obtain their objective by the limitations on the types of securities
in which they may invest. No assurance can be given that the Fund will be able
to achieve its investment objective.
Substantially all of the Fund's assets will be invested in common stocks
and, to a lesser extent, securities convertible into common stocks
(collectively, "equity securities"). Such securities generally will be issued by
companies which are listed on a national securities exchange, such as the New
York Stock Exchange, and which usually pay regular dividends, although the Fund
also may invest in securities traded on regional stock exchanges or on the
5
<PAGE>
over-the-counter market. During normal market conditions, at least 65% of the
Fund's investments will consist of equity securities. The Fund has not
established any minimum investment standards such as an issuer's asset level,
earnings history, type of industry, dividend payment history, etc. with respect
to its investments in common stocks, although in selecting common stocks for the
Fund, the investment adviser and sub-adviser (collectively, "Fund Management")
generally apply an investment discipline which seeks to achieve a yield higher
than the overall equity market. Therefore, because smaller companies may be
subject to more significant losses as well as have the potential for more
substantial growth than larger, more established companies, investors in the
Fund should consider that the Fund's investments may consist in part of
securities which may be deemed to be speculative. When market or economic
conditions indicate, in the judgment of Fund Management, that a defensive
investment stance should be assumed, all or part of the assets of the Fund may
be invested temporarily in other securities consisting of high quality (rated AA
or above by S&P or Aa by Moody's Investors Service, Inc.) corporate preferred
stocks, bonds, debentures or other evidences of indebtedness, and in obligations
issued or guaranteed by the United States or any instrumentality thereof, or
held in cash.
The investment objective of the Fund and its investment policies, where
indicated, are fundamental policies and thus may not be changed without prior
approval by the holders of a majority of the outstanding voting securities of
the Fund, as defined in the Investment Company Act of 1940 (the "1940 Act"). In
addition, the Fund is subject to certain investment restrictions which are
identified in the Statement of Additional Information and which also may not be
altered without approval of the Fund's shareholders. One of those restrictions
limits the Fund's borrowing of money to borrowings from banks for temporary or
emergency purposes (but not for leveraging or investment) in an amount not
exceeding 33 1/3% of the value of the Fund's total assets.
RISK FACTORS
Investors should consider the special factors associated with the policies
discussed below in determining the appropriateness of an investment in the
INVESCO Value Equity Fund. The Fund's policies regarding investments in foreign
securities and foreign currencies are not fundamental and may be changed by vote
of the Company's board of directors.
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. Earnings of individual issuers may be affected by remediation
costs, which may be substantial. The Fund's investments may be adversely
affected.
6
<PAGE>
Foreign Securities. The Fund may invest up to 25% of its total assets in foreign
equity or debt securities. Investments in securities of foreign companies and in
foreign markets involve certain additional risks not associated with investments
in domestic companies and markets, including the risks of fluctuations in
foreign currency exchange rates and of political or economic instability, the
difficulty of predicting international trade patterns and the possibility of
imposition of exchange controls or currency blockage. In addition, there may be
less information publicly available about a foreign company than about a
domestic company, and there is generally less government regulation of stock
exchanges, brokers and listed companies abroad than in the United States.
Moreover, with respect to certain foreign countries, there may be a possibility
of expropriation or confiscatory taxation. Further, economies of particular
countries or areas of the world may differ favorably or unfavorably from the
economy of the United States.
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"). The EMU has established a common
European currency for EMU countries which is known as the "euro." Each
participating country has adopted the euro as its currency effective January 1,
1999. The old national currencies are 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 introduction of the euro presents some uncertainties and possible
risks, including whether the payment and operational systems of banks and other
financial institutions will have been ready by January 1, 1999; whether exchange
rates for existing currencies and the euro will have been adequately
established; and whether suitable clearing and settlement systems for the euro
will have been in operation. These and other factors may cause market
disruptions after January 1, 1999 and could adversely affect the value of
securities held by the Fund.
After January 1, 1999, the introduction of the euro is expected to impact
European capital markets in ways that it is impossible to quantify at this time.
For example, investors may begin to view EMU countries as a single market, and
that may impact future investment decisions for the Fund. As the euro is
implemented, there may be changes in the relative strength and value of the U.S.
dollar and other major currencies, as well as possible adverse tax consequences.
The euro transition by EMU countries - present and future - may impact the
fiscal and monetary policies of those participating countries. There may be
increased levels of price competition among business firms within EMU countries
and between businesses in EMU and non-EMU countries. The outcome of these
uncertainties could have unpredictable effects on trade and commerce and result
in increased volatility for all financial markets.
Forward Foreign Currency Contracts. The Fund may enter into contracts to
purchase or sell foreign currencies at a future date ("forward contracts") as a
hedge against fluctuations in foreign exchange rates pending the settlement of
transactions in foreign securities or during the time the Fund holds foreign
securities. A forward contract is an agreement between contracting parties to
exchange an amount of currency at some future time at an agreed upon rate.
Although the Fund has not adopted any limitations on its ability to use forward
contracts as a hedge against fluctuations in foreign exchange rates, it does not
attempt to hedge all of its foreign investment positions and will enter into
7
<PAGE>
forward contracts only to the extent, if any, deemed appropriate by Fund
Management. The Fund will not enter into a forward contract for a term of more
than one year or for purposes of speculation. Investors should be aware that
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 may preclude the opportunity for gain if the value of the hedged
currency should rise. No predictions can be made with respect to whether the
total of such transactions will result in a better or a worse position than had
the Fund not entered into any forward contracts. Forward contracts may from time
to time be considered illiquid, in which case they would be subject to the
Fund's limitation on investing in illiquid securities, discussed below. For
additional information regarding forward contracts, see the Statement of
Additional Information.
Repurchase Agreements. The Fund may engage in repurchase agreements with banks,
registered broker-dealers and registered government securities dealers which are
deemed creditworthy by Fund Management, under guidelines established by the
board of directors. A repurchase agreement is a transaction in which the Fund
purchases a security and simultaneously commits to sell the security to the
seller at an agreed upon price and date (usually not more than seven days) after
the date of purchase. The resale price reflects the purchase price plus an
agreed upon market rate of interest which is unrelated to the coupon rate or
maturity of the purchased security. The Fund's risk is limited to the ability of
the seller to pay the agreed upon amount on the delivery date. However, in the
event the seller should default, the underlying security constitutes collateral
for the seller's obligations to pay. This collateral will be held by the
custodian for the Fund's assets. In the event of the insolvency of a
counterparty to a repurchase agreement, the Fund could experience delays and
incur costs in realizing on the collateral. To the extent that the proceeds from
a sale upon a default in the obligation to repurchase are less than the
repurchase price, the Fund would suffer a loss. Although the Fund has not
adopted any limit on the amount of its total assets that may be invested in
repurchase agreements, the Fund intends that at no time will the market value of
its securities subject to repurchase agreements exceed 20% of the total assets
of the Fund.
Illiquid Securities. The Fund may invest from time to time in securities subject
to restrictions on disposition under the Securities Act of 1933 ("restricted
securities"), securities without readily available market quotations or 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). However,
on the date of purchase, no such investment may increase the Fund's holdings of
restricted securities to more than 2% of the value of the Fund's total assets or
its holdings of illiquid securities or those without readily available market
quotations to more than 5% of the Fund's total assets. The Fund is not required
to receive registration rights in connection with the purchase of restricted
securities and, in the absence of such rights, marketability and value can be
adversely affected because the Fund may be unable to dispose of such securities
at the time desired or at a reasonable price. In addition, in order to resell a
restricted security, the Fund might have to bear the expense and incur the
delays associated with effecting registration.
Futures and Options. A futures contract is an agreement to buy or sell a
specific amount of a financial instrument or commodity at a particular price on
a particular date. The Fund will use futures contracts only to hedge against
8
<PAGE>
price changes in the value of its current or intended investments in securities.
In the event that an anticipated decrease in the value of portfolio securities
occurs as a result of a general decrease in prices, the adverse effects of such
changes may be offset, at least in part, by gains on the sale of futures
contracts. Conversely, the increased cost of portfolio securities to be
acquired, caused by a general increase in prices, may be offset, at least in
part, by gains on futures contracts purchased by the Fund. Brokerage fees are
paid to trade futures contracts, and the Fund is required to maintain margin
deposits.
Put and call options on futures contracts or securities may be traded by
the Fund in order to protect against declines in the value of portfolio
securities or against increases in the cost of securities to be acquired. The
purchaser of an option purchases the right to effect a transaction in the
underlying future or security at a specified price (the "strike price") before a
specified date (the "expiration date"). In exchange for the right, the purchaser
pays a "premium" to the seller, which represents the price of the right to buy
or to sell the underlying instrument. In exchange for the premium, the seller of
the option becomes obligated to effect a transaction in the underlying future or
security, at the strike price, at any time prior to the expiration date, should
the buyer choose to exercise the option. A call option contract grants the
purchaser the right to buy the underlying future or security, at the strike
price, before the expiration date. A put option contract grants the purchaser
the right to sell the underlying future or security, at the strike price, before
the expiration date. Purchases of options on futures contracts may present less
dollar risk in hedging the Fund's portfolio than the purchase and sale of the
underlying futures contracts, since the potential loss is limited to the amount
of the premium plus related transaction costs. The premium paid for such a put
or call option plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise or liquidation of the option, and, unless the
price of the underlying futures contract or security changes sufficiently, the
option may expire without value to the Fund.
Although the Fund will enter into futures contracts and options on futures
contracts and securities solely for hedging or other nonspeculative purposes,
their use does involve certain risks. For example, a lack of correlation between
the value of an instrument underlying an option or futures contract and the
assets being hedged, or unexpected adverse price movements, could render a
Fund's hedging strategy unsuccessful and could result in losses. In addition,
there can be no assurance that a liquid secondary market will exist for any
contract purchased or sold, and the Fund may be required to maintain a position
until exercise or expiration, which could result in losses. Transactions in
futures contracts and options are subject to other risks as well, which are set
forth in greater detail in the Statement of Additional Information and Appendix
B therein.
Securities Lending. The Fund may make loans of its portfolio securities (not to
exceed 10% of the Fund's total assets) under contracts requiring such loans to
be callable at any time and to be secured continuously by collateral in cash,
cash equivalents, high quality short-term government securities or irrevocable
letters of credit maintained on a current basis at an amount at least equal to
the market value of the securities loaned, including accrued interest and
dividends. The Fund will continue to collect the equivalent of the interest or
dividends paid by the issuer on the securities loaned and will also receive
either interest (through investment of cash collateral) or a fee (if the
9
<PAGE>
collateral is government securities). The Fund may pay finder's and other fees
in connection with securities loans.
Portfolio Turnover. There are no fixed limitations regarding portfolio turnover
for the Fund. Although the Fund does not trade for short-term profits,
securities may be sold without regard to the time they have been held in the
Fund when, in the opinion of Fund Management, market considerations warrant such
action. As a result, while it is anticipated that the Fund's annual portfolio
turnover rate generally will not exceed 100%, under certain market conditions
the portfolio turnover rate for the Fund may exceed 100%. Increased portfolio
turnover would cause the Fund to incur greater brokerage costs than would
otherwise be the case. The Fund's portfolio turnover rates are set forth under
"Financial Highlights" and, along with the Trust's brokerage allocation
policies, are discussed in the Statement of Additional Information.
THE FUND AND ITS MANAGEMENT
The Company is a no-load mutual fund, registered with the Securities and
Exchange Commission as an open-end, diversified management investment company.
The Company was incorporated on April 2, 1993, under the laws of the State of
Maryland.
The Company's board of directors has responsibility for overall
supervision of the Fund, and reviews the services provided by the adviser. Under
an agreement with the Company, INVESCO Funds Group, Inc. ("INVESCO"), 7800 E.
Union Avenue, Denver, Colorado, serves as the Fund's investment adviser. Under
this agreement, INVESCO is primarily responsible for providing the Fund with
various administrative services and supervises the Fund's daily business
affairs. These services are subject to review by the Trust's board of trustees.
INVESCO has contracted with INVESCO Capital Management, Inc. ("ICM"), the
Fund's investment adviser prior to 1991, for investment sub-advisory and
research services on behalf of the Fund. ICM managed in excess of $38.1 billion
of assets on behalf of tax-exempt accounts (such as pension and profit-sharing
funds for corporations and state and local governments) and investment companies
as of September 30, 1998. ICM, subject to the supervision of INVESCO, is
primarily responsible for selecting and managing the Fund's investments.
Although the Company is not a party to the sub-advisory agreement, the agreement
has been approved by the shareholders of the Fund. Services provided by INVESCO
and ICM are subject to review by the Trust's board of trustees. Together,
INVESCO and ICM constitute "Fund Management."
Pursuant to an agreement with the Company, INVESCO Distributors, Inc.
("IDI") is the Fund's 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 Fund's distributor.
INVESCO, ICM 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 part of a merger between a direct
10
<PAGE>
subsidiary of INVESCO PLC and A I M Management Group Inc., that created one of
the largest independent investment management businesses in the world. AMVESCAP
PLC had approximately $275 billion in assets under management as of December 31,
1998. INVESCO was established in 1932 and, as of April 30, 1999, managed 14
mutual funds, consisting of 51 separate portfolios, with combined assets of
approximately $21.2 billion on behalf of over 900,000 shareholders.
The following individuals serve as portfolio managers for the Fund and are
primarily responsible for the day-to-day management of the Fund's portfolio of
securities:
Michael C. Harhai - Portfolio manager of the Fund since 1993; portfolio manager
for INVESCO Capital Management, Inc. (1993 to present);
senior vice president and manager, Sovran Capital Management
Corp. (1992 to 1993); senior vice president and portfolio
manager, C&S/Sovran Capital Management (1991 to 1992);
senior vice president and portfolio manager, Citizens &
Southern Investment Advisors, Inc. (1984 to 1991); began
investment career in 1972; B.A., University of South
Florida; M.B.A., University of Central Florida; Chartered
Financial Analyst; trustee, Atlanta Society of Financial
Analysts.
Terrence Irrgang - Assistant portfolio manager of the Fund since 1993;
portfolio manager for INVESCO Capital Management, Inc. (1992
to present); consultant, Towers, Perrin & Forster & Crosby
(1988 to 1992); began investment career in 1981; B.A.,
Gettysburg College; M.B.A., Temple University; Chartered
Financial Analyst.
Fund Management permits investment and other personnel to purchase and
sell securities for their own accounts, subject to a compliance policy governing
personal investing. This policy requires Fund Management's personnel to conduct
their personal investment activities in a manner that Fund Management believes
is not detrimental to the Fund or Fund Management's other advisory clients. See
the Statement of Additional Information for more detailed information.
The Fund pays INVESCO a monthly 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% on the first $500 million of the Fund's average net
assets; 0.65% on the next $500 million of the Fund's average net assets; and
0.50% on the average net assets of the Fund in excess of $1 billion. In
addition, beginning May 13, 1999, the following additional contractual
breakpoints are in effect: 0.45% on the Fund's average net assets from $2
billion; 0.40% on the Fund's average net assets from $4 billion; 0.375% on the
Fund's average net assets from $6 billion; and 0.35% on the Fund's average net
assets from $8 billion. For the fiscal year ended August 31, 1998, the advisory
fees paid to INVESCO amounted to 0.75% of the average net assets of the Fund.
Out of the advisory fee which it receives from the Fund, INVESCO pays ICM,
as the Fund's sub-adviser, a monthly fee based upon the average daily value of
the Fund's net assets. Based upon approval of the Trust's board of trustees at a
meeting held May 14, 1998, the calculation of subadvisory fees of the Fund has
11
<PAGE>
been changed from 33.33% of the advisory fee (0.25% on the first $500 million of
the Fund's average net assets, 0.2167% on the next $500 million of the Fund's
average net assets and 0.1667% on the Fund's average net assets in excess of $1
billion) to 40% of the advisory fee (0.30% on the first $500 million of the
Fund's average net assets, 0.26% on the next $500 million of the Fund's average
net assets and 0.20% on the Fund's average net assets in excess of $1 billion).
In addition, beginning May 13, 1999, the following additional contractual
breakpoints are in effect: 0.18% on the Fund's average net assets from $2
billion; 0.16% on the Fund's average net assets from $4 billion; 0.15% on the
Fund's average net assets from $6 billion; and 0.14% on the Fund's average net
assets from $8 billion. No fee is paid by the Fund to ICM.
The Company also has entered into an Administrative Services Agreement
(the "Administrative Agreement") with INVESCO. Pursuant to the Administrative
Agreement, INVESCO performs certain administrative, recordkeeping and internal
sub-accounting services, including without limitation, maintaining general
ledger and capital stock accounts, preparing a daily trial balance, calculating
net asset value daily and providing selected general ledger reports and
providing sub-accounting and recordkeeping services for Fund shareholder
accounts maintained by certain retirement and employee benefit plans for the
benefit of participants in such plans. For such services, the Fund pays INVESCO
a fee consisting of a base fee of $10,000 per year, plus an additional
incremental fee computed at an annual rate of 0.015% per annum of the average
net assets of the Fund prior to May 13, 1999, and 0.045% per year of the average
net assets of the Fund effective May 13, 1999.
The management and custodial services provided to the Fund by INVESCO and
the Fund's custodian, and the services provided to shareholders by INVESCO and
IDI, 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 computer 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.
Fund Management places orders for the purchase and sale of portfolio
securities with brokers and dealers based upon Fund Management's evaluation of
the brokers' and dealers' financial responsibility coupled with their ability to
effect transactions at the best available prices. Fund Management may place
orders for portfolio transactions with qualified brokers and dealers that
recommend the Fund to clients, or act as agent in the purchase of Fund shares
for clients, if Fund Management believes that the quality of the execution of
the transaction and level of commission are comparable to those available from
other qualified brokerage firms. For further information, see "Investment
12
<PAGE>
Practices - Placement of Portfolio Brokerage" in the Statement of Additional
Information.
HOW SHARES CAN BE PURCHASED
Shares of the Fund are sold on a continuous basis by IDI, as the Fund's
distributor, at the net asset value per share next calculated after receipt of a
purchase order in good form. No sales charge is imposed upon the sale of shares
of the Fund. To purchase shares of the Fund, send a check made payable to
INVESCO Funds Group, Inc., together with a completed application form, to:
INVESCO FUNDS GROUP, INC.
Post Office Box 173706
Denver, Colorado 80217-3706
PURCHASE ORDERS MUST SPECIFY THE FUND IN WHICH THE INVESTMENT IS TO BE
MADE.
The minimum initial purchase must be at least $1,000, with subsequent
investments of not less than $50, except that: (1) those shareholders
establishing an EasiVest or direct payroll purchase account, as described below
in the section entitled "Services Provided By The Fund," may open an account
without making any initial investment if they agree to make regular, minimum
purchases of at least $50; (2) those shareholders investing in an Individual
Retirement Account ("IRA"), or through omnibus accounts where individual
shareholder recordkeeping and sub-accounting are not required, may make initial
minimum purchases of $250; (3) Fund Management may permit a lesser amount to be
invested in the Fund under a federal income tax-deferred retirement plan (other
than an IRA), or under a group investment plan qualifying as a sophisticated
investor; and (4) Fund Management reserves the right to increase, reduce or
waive the minimum purchase requirements in its sole discretion where it
determines such action is in the best interests of the Fund. The minimum initial
purchase requirement of $1,000, as described above, does not apply to
shareholder account(s) in any of the INVESCO funds opened prior to January 1,
1993, and thus is not a minimum balance requirement for those existing accounts.
However, for shareholders already having accounts in any of the INVESCO funds,
all initial share purchases in a new fund account, including those made using
the exchange privilege, must meet the fund's applicable minimum investment
requirement.
The purchase of shares in the Fund can be expedited by placing bank wire,
overnight courier or telephone orders. For further information, the purchaser
may call the Fund's office by using the telephone number on the back cover of
this Prospectus. Orders sent by overnight courier, including Express Mail,
should be sent to the street address, not post office box, of INVESCO Funds
Group, Inc., 7800 E. Union Avenue, Denver, Colorado 80237.
Orders to purchase shares of the Fund can be placed by telephone. Shares
of the Fund will be issued at the net asset value next determined after receipt
of telephone instructions. Generally, payments for telephone orders must be
received by the Fund within three business days or the transaction may be
canceled. In the event of such cancellation, the purchaser will be held
13
<PAGE>
responsible for any loss resulting from a decline in the value of the shares. In
order to avoid such losses, purchasers should send payments for telephone
purchases by overnight courier or bank wire. INVESCO has agreed to indemnify the
Fund for any losses resulting from the cancellation of telephone purchases.
If your check does not clear, or if a telephone purchase must be 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
has the option to redeem shares from any identically registered account in the
Fund or any other INVESCO fund as reimbursement for any loss incurred. You also
may be prohibited or restricted from making future purchases in any of the
INVESCO funds.
Persons who invest in the Fund through a securities broker may be charged
a commission or transaction fee by the broker for the handling of the
transaction if the broker so elects. Any investor may deal directly with the
Fund in any transaction. In that event, there is no such charge. IDI or 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.
The Fund reserves the right in its sole discretion to reject any order for
purchase of its shares (including purchases by exchange) when, in the judgment
of Fund Management, such rejection is in the best interest of the Fund.
Net asset value per share 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 also may be computed on other days
under certain circumstances. Net asset value per share for the Fund is
calculated by dividing the market value of the Fund's securities plus the value
of its other assets (including dividends and interest accrued but not
collected), less all liabilities (including accrued expenses), by the number of
outstanding shares of the Fund. If market quotations are not readily available,
a security will be valued at fair value as determined in good faith by the board
of trustees. Debt securities with remaining maturities of 60 days or less at the
time of purchase will be valued at amortized cost, absent unusual circumstances,
so long as the Trust's board of trustees believes that such value represents
fair value.
Under certain circumstances, the Fund may offer its shares, in lieu of
cash payment, for securities to be purchased by the Fund. Such a transaction can
benefit the Fund by allowing it to acquire securities for its portfolio without
paying brokerage commissions. For the same reason, the transaction also may be
beneficial to the party exchanging the securities. The Fund shall not enter into
such transactions, however, unless the securities to be exchanged for Fund
shares are readily marketable and not restricted as to transfer either by law or
liquidity of the market, comply with the investment policies and objectives of
the Fund, are of the type and quality which would normally be purchased for the
Fund's portfolio, are acquired for investment and not for resale, have a value
which is readily ascertainable as evidenced by a listing on the American Stock
Exchange, the New York Stock Exchange or NASDAQ, and are securities which the
Fund would otherwise purchase on the open market. The value of Fund shares used
14
<PAGE>
to purchase portfolio securities as stated herein will be the net asset value as
of the effective time and date of the exchange. The securities to be received by
the Fund will be valued in accordance with the same procedure used in valuing
the Fund's portfolio securities. Any investor wishing to acquire shares of the
Fund in exchange for securities should contact either the president or the
secretary of the Trust at the address or telephone number shown on the back
cover of this Prospectus.
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. The Plan applies to New Assets (new
sales of shares, exchanges into the Fund and reinvestments of dividends and
capital gain distributions) of the Fund after November 1, 1997. Under the Plan,
monthly payments may be made by the Fund to IDI to permit IDI, at its
discretion, to engage in certain activities and provide certain services
approved by the board of directors of the Company in connection with the
distribution of the Fund's shares to investors. These activities and services
may include the payment of compensation (including incentive compensation and/or
continuing compensation based on the amount of customer assets maintained in the
Fund) to securities dealers and other financial institutions and organizations,
which may include 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 electronically 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 New Assets. IDI is not
entitled to payment for overhead expenses under the Plan, but may be paid for
all or a portion of the compensation paid for salaries and other employee
benefits for the personnel of INVESCO or IDI whose primary responsibilities
involve marketing shares of the INVESCO mutual 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. Therefore, any
obligations incurred by IDI in excess of the limitations described above will
not be paid by the Fund 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
15
<PAGE>
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 reserves and may be used by IDI for activities that provide
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 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
distribution which may result from INVESCO's or IDI's use of fees received from
the Fund for services rendered by INVESCO, provided 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.
SERVICES PROVIDED BY THE FUND
Shareholder Accounts. INVESCO maintains a share account that reflects the
current holdings of each shareholder. A separate account will be maintained for
a shareholder for each fund in which the shareholder invests. The Company does
not issue share certificates. Each shareholder is sent a detailed confirmation
of each transaction in shares of the Fund. Shareholders whose only transactions
are through the EasiVest, direct payroll purchase, automatic monthly exchange or
periodic withdrawal programs, or are reinvestments of dividends or capital gains
in the same or another fund, will receive confirmations of those transactions on
their quarterly statements. These programs are discussed below. For information
regarding a shareholder's account and transactions, the shareholder may call
INVESCO by using the telephone number on the back cover of this Prospectus.
Reinvestment of Distributions. Dividends and other distributions are
automatically reinvested in additional shares of the Fund at the net asset value
per share of the Fund in effect on the ex-dividend or ex-distribution date. A
shareholder may, however, elect to reinvest dividends and other distributions in
certain of the other no-load mutual funds advised by INVESCO and distributed by
IDI, or to receive payment of all dividends and other distributions in excess of
$10.00 by check by giving written notice to INVESCO at least two weeks prior to
the record date on which the change is to take effect. Further information
concerning these options can be obtained by contacting INVESCO.
Periodic Withdrawal Plan. A Periodic Withdrawal Plan is available to
shareholders who own or purchase shares of any mutual funds advised by INVESCO
having a total value of $10,000 or more; provided, however, that at the time the
Plan is established, the shareholder owns shares having a value of at least
$5,000 in the fund from which the withdrawals will be made. Under the Periodic
Withdrawal Plan, INVESCO, as agent, will make specified monthly or quarterly
payments of any amount selected (minimum payment of $100) to the party
designated by the shareholder. Notice of all changes concerning the Periodic
Withdrawal Plan must be received by INVESCO at least two weeks prior to the next
scheduled check. Further information regarding the Periodic Withdrawal Plan and
its requirements and tax consequences can be obtained by contacting INVESCO.
16
<PAGE>
Exchange Policy. Shares of the Fund may be exchanged for shares of any other
fund of the Company, as well as for shares of any of the following other no-load
mutual funds, which are also advised by INVESCO, on the basis of their
respective net asset values at the time of the exchange: INVESCO Bond Funds,
Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Combination Stock & Bond
Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.), INVESCO Industrial Income
Fund, Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.),
INVESCO Specialty Funds, Inc. and INVESCO Tax-Free Income Funds, Inc.
An exchange involves the redemption of shares in the Fund and investment
of the redemption proceeds in shares of another fund of the Trust or in shares
of one of the funds listed above. Exchanges will be made at the net asset value
per share next determined after receipt of an exchange request in proper order.
Any gain or loss realized on such an exchange is recognizable for federal income
tax purposes by the shareholder. Exchange requests may be made either by
telephone or by written request to INVESCO, using the telephone number or
address on the back cover of this Prospectus. Exchanges made by telephone must
be in the 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.
The option to exchange Fund shares by telephone is available to
shareholders automatically unless expressly declined. By signing the new account
Application or a Telephone Transaction Authorization Form or otherwise utilizing
the telephone exchange option, the investor has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures, which it believes are
reasonable, designed to confirm that exchange transactions are genuine. These
may include recording telephone instructions and providing written confirmations
of exchange transactions. As a result of this policy, the investor may bear the
risk of any loss due to unauthorized or fraudulent instructions; provided,
however, that if the Fund fails to follow these or other reasonable procedures,
the Fund may be liable.
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
shareholders are detrimental 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 exchange policy also may be modified or terminated at any
time. Except in unusual circumstances where redemptions of the exchanged
security are suspended under Section 22(e) of the 1940 Act, or where sales of
the fund into which the shareholder is exchanging are temporarily stopped,
notice of all such modifications to the policy or terminations that would affect
17
<PAGE>
all Fund shareholders will be given at least 60 days prior to the effective date
of the change in policy.
Before making an exchange, the shareholder should review the prospectuses
of the funds involved and consider their differences. Shareholders interested in
exercising the exchange option may contact INVESCO for information concerning
their particular exchanges.
Automatic Monthly Exchange. Shareholders who have accounts in any one or more of
the mutual funds distributed by IDI may arrange for a fixed dollar amount of
their fund shares to be automatically exchanged for shares of any other INVESCO
mutual fund listed under "Exchange Policy" on a monthly basis, subject to the
Fund's minimum initial investment or subsequent investment requirements. This
automatic exchange program can be changed by the shareholder at any time by
notifying INVESCO at least two weeks prior to the date the change is to be made.
Further information regarding this service can be obtained by contacting
INVESCO.
EasiVest. For shareholders who want to maintain a schedule of monthly
investments, EasiVest uses various methods to draw a preauthorized amount from
the shareholder's bank account to purchase Fund shares. This automatic
investment program can be changed by the shareholder at any time by contacting
INVESCO at least two weeks prior to the date the change is to be made. Further
information regarding this service can be obtained by contacting INVESCO.
Direct Payroll Purchase. Shareholders may elect to have their employers make
automatic purchases of Fund shares for them by deducting a specified amount from
their regular paychecks. This automatic investment program can be modified or
terminated at any time by the shareholder by notifying the employer. Further
information regarding this service can be obtained by contacting INVESCO.
Tax-Deferred Retirement Plans. Shares of the Fund may be purchased for
self-employed individual retirement plans, various IRAs, simplified employee
pension plans and corporate retirement plans. In addition, shares can be used to
fund tax qualified plans established under Section 403(b) of the Internal
Revenue Code by educational institutions, including public school systems and
private schools, and certain kinds of non-profit organizations, which provide
deferred compensation arrangements for their employees.
Prototype forms for the establishment of these various plans, including,
where applicable, disclosure statements required by the Internal Revenue
Service, are available from INVESCO. Institutional Trust Company, doing business
as INVESCO Trust Company ("ITC"), an affiliate of INVESCO, is qualified to serve
as trustee or custodian under these plans and provides the required services at
competitive rates. Retirement plans (other than IRAs) receive monthly statements
reflecting all transactions in their Fund accounts. IRAs receive the
confirmations and quarterly statements described under "Shareholder Accounts."
For complete information, including prototype forms and service charges, call
INVESCO at the telephone number listed on the back cover of this Prospectus or
send a written request to: Retirement Services, INVESCO Funds Group, Inc., Post
Office Box 173706, Denver, Colorado 80217-3706.
18
<PAGE>
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their current net asset
value next determined after a request in proper form is received at the Fund's
office. (See "How Shares Can Be Purchased.") Net asset value per share of the
Fund at the time of the redemption may be more or less than the price originally
paid to purchase shares, depending primarily upon the Fund's investment
performance.
In order to redeem shares, a written redemption request signed by each
registered owner of the account may be submitted to INVESCO at the address noted
above. Redemption requests sent by overnight courier, including Express Mail,
should be sent to the street address, not post office box, of INVESCO at 7800 E.
Union Avenue, Denver, CO 80237. If shares are held in the name of a corporation,
additional documentation may be necessary. Call or write for specific
information. If payment for the redeemed shares is to be made to someone other
than the registered owner(s), the signature(s) must be guaranteed by a financial
institution which qualifies as an eligible guarantor institution. Redemption
procedures with respect to accounts registered in the names of broker-dealers
may differ from those applicable to other shareholders.
BE CAREFUL TO SPECIFY THE ACCOUNT FROM WHICH THE REDEMPTION IS TO BE MADE.
SHAREHOLDERS HAVE A SEPARATE ACCOUNT FOR EACH FUND IN WHICH THEY INVEST.
Payment of redemption proceeds will be mailed within seven days following
receipt of the required documents. However, payment may be postponed under
unusual circumstances, such as when normal trading is not taking place on the
New York Stock Exchange or when an emergency as defined by the Securities and
Exchange Commission exists. If the shares to be redeemed were purchased by check
and that check has not yet cleared, payment will be made promptly upon clearance
of the purchase check (which will take up to 15 days).
If a shareholder participates in EasiVest, the Fund's automatic monthly
investment program, and redeems all of the shares in a Fund account, INVESCO
will terminate any further EasiVest purchases unless otherwise instructed by the
shareholder.
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 effect the involuntary redemption of 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.
Fund shareholders (other than shareholders holding Fund shares in accounts
of IRA plans) may request expedited redemption of shares having a minimum value
of $250 (or redemption of all shares if their value is less than $250) held in
accounts maintained in their name by telephoning redemption instructions to
INVESCO, using the telephone number on the back cover of this Prospectus.
19
<PAGE>
At the shareholder's option, the redemption proceeds either will be mailed
to the address listed for the shareholder's Fund account, or wired (minimum of
$1,000) or mailed to the bank which the shareholder has designated to receive
the proceeds of telephone redemptions. Unless INVESCO permits a larger
redemption request to be placed by telephone, a shareholder may not place a
redemption request by telephone in excess of $25,000. These telephone redemption
privileges may be modified or terminated in the future at the discretion of
INVESCO. For ITC sponsored federal income tax-deferred retirement plans, the
term "shareholders" is defined to mean plan trustees that file a written request
to be able to redeem Fund shares by telephone. Shareholders should understand
that while the Fund will attempt to process all telephone redemption requests on
an expedited basis, there may be times, particularly in periods of severe
economic or market disruption, when (a) they may encounter difficulty in placing
a telephone redemption request, and (b) processing telephone redemptions will
require up to seven days following receipt of the redemption request, or
additional time because of the unusual circumstances set forth above.
Redeeming Fund shares by telephone is available to shareholders
automatically unless expressly declined. By signing a new account Application, a
Telephone Transaction Authorization Form or otherwise utilizing telephone
redemption privileges, the shareholder has agreed that the Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. The Fund employs procedures, which it believes are
reasonable, designed to confirm that telephone instructions are genuine. These
may include recording telephone instructions and providing written confirmation
of transactions initiated by telephone. As a result of this policy, the investor
may bear the risk of any loss due to unauthorized or fraudulent instructions;
provided, however, that if the Fund fails to follow these or other reasonable
procedures, the Fund may be liable.
TAXES, DIVIDENDS AND OTHER DISTRIBUTIONS
Taxes. The Fund intends to distribute to shareholders substantially all of its
net investment income, net capital gains and net gains from certain foreign
currency transactions, if any. Distribution of substantially 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 distribution policies and 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 either 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. During 1997, the Taxpayer Relief Act established a new
20
<PAGE>
maximum capital gains tax rate of 20%. Depending on the holding period of the
asset giving rise to the gain, a capital gain was taxable at a maximum rate of
either 20% or 28%. Beginning January 1, 1998, all long-term gains realized on
the sale of securities held for more than 12 months will be taxable at a maximum
rate of 20%. In addition, legislation signed in October 1998 provides that all
capital gain distributions from a mutual fund paid to shareholders during 1998
will be taxed at a maximum rate of 20%. Accordingly, all capital gain
distributions paid in 1998 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 advisers as to the effect of
distributions by the Fund.
Shareholders may realize capital gains or losses when they sell their Fund
shares at more or less than the price originally paid. Capital gain 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 gain and other distributions and
redemption proceeds. Shareholders can avoid backup withholding on their Fund
accounts by ensuring that INVESCO has a correct, certified tax identification
number.
Shareholders should consult a tax adviser with respect to these matters.
For further information see "Dividends, Other Distributions And Taxes" in the
Statement of Additional Information.
Dividends and Other Distributions. The Fund earns ordinary or net investment
income in the form of interest and dividends on its investments. Dividends paid
by the Fund will be based solely on net investment income earned by it. The
Fund's policy is to distribute substantially all of this income, less expenses,
to shareholders. Dividends from net investment income are paid on a quarterly
basis at the discretion of the Company's board of directors. Dividends are
automatically reinvested in additional shares of the Fund at the net asset value
on the payable date unless otherwise requested.
In addition, the Fund realizes capital gains and losses when it sells
securities or derivatives for more or less than it paid. If total gains on sales
exceed total losses (including losses carried forward from previous years), the
Fund has a net realized capital gain. Net realized capital gains, if any,
together with gains 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.
21
<PAGE>
Dividends and other distributions are paid to shareholders on the record
date of distribution regardless of how long the Fund 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.
ADDITIONAL INFORMATION
Voting Rights. All shares of the Fund have equal voting rights based on one vote
for each share owned and a corresponding fractional vote for each fractional
share owned. Voting with respect to certain matters, such as ratification of
independent accountants and the election of directors, will be by all funds of
the Company voting together. In other cases, such as voting upon the investment
advisory contract for the individual funds, voting is on a fund-by-fund basis.
To the extent permitted by law, when not all funds are affected by a matter to
be voted upon, only shareholders of the fund or funds affected by the matter
will be entitled to vote thereon. The Company is not generally required, and
does not expect, to hold regular annual meetings of shareholders. However, the
board of directors will call such special meetings of shareholders for the
purpose, among other reasons, of voting the question of removal of a director or
directors when requested to do so in writing by the holders of 10% or more of
the outstanding shares of the Fund or as may be required by applicable law or
the Company's Articles of Incorporation. The Company will assist shareholders in
communicating with other shareholders as required by the 1940 Act.
Shareholder Inquiries. All inquiries regarding the Fund should be directed to
the Trust at the telephone number or mailing address set forth on the cover page
of this Prospectus.
Transfer and Dividend Disbursing Agent. INVESCO, 7800 E. Union Avenue, Denver,
Colorado 80237, acts as registrar, transfer agent and dividend disbursing agent
for the Fund pursuant to a Transfer Agency Agreement which provides that the
Fund will pay an annual fee of $20.00 per shareholder account or, where
applicable, per participant in an omnibus account. The transfer agency fee is
not charged to each shareholder's or participant's account but is an expense of
the Fund to be paid from the Fund's assets. Registered broker-dealers, third
party administrators of tax-qualified retirement plans and other entities,
including affiliates of INVESCO, may provide sub-transfer agency or
recordkeeping services to the Fund which reduce or eliminate the need for
identical services to be provided on behalf of the Fund by INVESCO. In such
cases, INVESCO may pay the third party an annual sub-transfer agency or
recordkeeping fee out of the transfer agency fee which is paid to INVESCO by the
Fund.
22
<PAGE>
INVESCO Value Equity Fund
PROSPECTUS
July 14, 1999
We're easy to stay in touch with:
Investor services: 1-800-525-8085
PAL(R), your Personal Account Line: 1-800-424-8085
On the World Wide Web: 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
INVESCO Distributors, Inc.,_
Distributor
Post Office Box 173706
Denver, Colorado 80217-3706
In addition, all documents You should know what
filed by the Company with the INVESCO knows.(TM)
Securities and Exchange
Commission can be located on INVESCO Funds
a web site maintained by the
Commission at
http://www.sec.gov.
23
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
July 14, 1999
INVESCO STOCK FUNDS, INC.
INVESCO Blue Chip Growth Fund
Address: Mailing Address:
7800 East Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In Continental U.S., 1-800-525-8085
INVESCO Stock Funds, Inc. (formerly, INVESCO Equity Funds, Inc.,
formerly, INVESCO Capital Appreciation Funds, Inc.) (the "Company") is a
no-load, open-end, diversified investment company, consisting of seven separate
portfolios of investments. A Prospectus for INVESCO Blue Chip Growth Fund (the
"Fund"), dated July 14, 1999, provides the basic information you should know
before investing in the Fund.
The Fund's investment objective is to seek long-term capital growth.
The Fund also seeks, as a secondary objective, to obtain investment income
through the purchase of securities of carefully selected companies representing
major fields of business and industrial activity. In pursuing its objectives,
the Fund invests primarily in common stocks but may also invest in other kinds
of securities, including convertible and straight issues of debentures and
preferred stock.
The Prospectus for the Fund dated July 14, 1999, 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 Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund and should be
read in conjunction with the Prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Investment Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT POLICIES AND RESTRICTIONS......................................... 1
THE FUND AND ITS MANAGEMENT.................................................. 7
HOW SHARES CAN BE PURCHASED..................................................19
HOW SHARES ARE VALUED........................................................23
FUND PERFORMANCE.............................................................24
SERVICES PROVIDED BY THE FUND................................................25
TAX-DEFERRED RETIREMENT PLANS................................................26
HOW TO REDEEM SHARES.........................................................26
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES.....................................27
INVESTMENT PRACTICES.........................................................29
ADDITIONAL INFORMATION.......................................................32
APPENDIX A...................................................................35
APPENDIX B...................................................................38
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
- ------------------------------------
EQUITY SECURITIES. Equity securities include common stocks, preferred
stocks and debt or equity securities that are convertible into them, including
common stock purchase warrants and rights, equity interests in trusts,
partnerships, joint ventures or similar enterprises and depository receipts.
Common stocks, the most familiar type, represent an equity (i.e., ownership)
interest in a corporation. Preferred stock has certain fixed income features,
like a bond, but is actually equity in a company, like common stock. Depository
receipts typically are issued by banks or trust companies and evidence ownership
of underlying securities.
While past performance does not guarantee future results, equity
securities historically have provided the greatest long-term growth potential in
a company. However, their prices generally fluctuate more than other securities,
and reflect changes in a company's financial condition and overall market and
economic conditions.
Common stocks generally represent the riskiest investment in a company.
DEBT SECURITIES. As discussed in the sections of the Fund's Prospectus
entitled "Investment Objective And Strategy" and "Investment Policies And
Risks," the debt securities in which the Fund invests generally are subject to
two kinds of risk: credit risk and market risk. Credit risk relates to the
ability of the issuer to meet interest or principal payments or both as they
come due. The ratings given a debt security by Moody's Investors Service, Inc.
("Moody's") and/or Standard & Poor's, a division of The McGraw-Hill Companies,
Inc. ("S&P") provide a generally useful guide as to such credit risk. Market
risk relates to the fact that the market values of debt securities in which the
Fund invests generally will be affected by changes in the level of interest
rates. An increase in interest rates will tend to reduce the market values of
such debt securities, whereas a decline in interest rates will tend to increase
their values.
RESTRICTED/144A SECURITIES. The Fund may invest in restricted
securities that can be resold to institutional investors pursuant to Rule 144A
and the Securities Act of 1933 ("Rule 144A Securities").
In recent years, a large institutional market has developed for Rule
144A Securities. Institutional investors generally will not seek to sell these
instruments to the general public but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
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
1
<PAGE>
purchasing a Rule 144A Security held by a Fund, however, 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 the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may invest in
repurchase agreements with respect to debt instruments eligible for investment
by the Fund with member banks of the Federal Reserve System, registered
broker-dealers and registered U.S. government securities dealers that are
believed to be creditworthy under standards established by the Fund'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 the Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by the
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 Fund's custodian bank until the repurchase agreement is completed. In
addition, the Fund'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 that is
a party to a repurchase agreement with the Fund.
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.
SECURITIES LENDING. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may lend its
portfolio securities, 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 Fund'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
2
<PAGE>
deposit of additional collateral not later than the business day following the
day on which a collateral deficiency occurs or the collateral appears
inadequate. If the deficiency is not remedied by the end of that period, the
Fund will use the collateral to replace the securities while holding the
borrower liable for any excess of replacement cost over collateral. Upon
termination of the loan, the borrower is required to return the securities to
the Fund. Any gain or loss during the loan period would inure to the Fund.
FUTURES AND OPTIONS ON FUTURES. As described in the Fund's Prospectus,
the Fund may enter into futures contracts, and purchase and sell ("write")
options to buy or sell futures contracts. The Fund will comply with and adhere
to all limitations in the manner and extent to which it effects transactions in
futures and options on such futures currently imposed by the rules and policy
guidelines of the Commodity Futures Trading Commission as conditions for
exemption of a mutual fund, or the investment advisers thereto, from
registration as a commodity pool operator. The Fund will not, as to any
positions, whether long, short or a combination thereof, enter into futures and
options thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its assets after taking into account unrealized
profits and losses on options it has entered into. In the case of an option that
is "in-the-money," as defined in the Commodity Exchange Act (the "CEA"), the
in-the-money amount may be excluded in computing such 5%. (In general a call
option on a future is "in-the-money" if the value of the future exceeds the
exercise ("strike") price of the call; a put option on a future is
"in-the-money" if the value of the future which is the subject of the put is
exceeded by the strike price of the put.) The Fund may use futures and options
thereon solely for bona fide hedging or for other non-speculative purposes
within the meaning and intent of the applicable provisions of the CEA.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Instead,
the Fund will be required to deposit in its segregated asset account an amount
of cash or qualifying securities (currently U.S. Treasury bills), currently in a
minimum amount of $15,000. This is called "initial margin." Such initial margin
is in the nature of a performance bond or good faith deposit on the contract.
However, 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,
3
<PAGE>
as a result, concluded not to make the planned investment at that time because
of concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the futures contracts
and the portion of the portfolio being hedged, the price of futures may not
correlate perfectly with movements in the prices due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between underlying
instruments and the value of the futures contract. Moreover, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market and may therefore cause increased participation by
speculators in the futures market. Such increased participation may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in the
underlying instrument and movements in the prices of futures contracts, the
value of futures contracts as a hedging device may be reduced.
In addition, if the Fund has insufficient available cash, it may at
times have to sell securities to meet variation margin requirements. Such sales
may have to be effected at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Fund may buy and write options on
futures contracts for hedging purposes; options are also included in the types
of instruments sometimes known as derivatives. The purchase of a call option on
a futures contract is similar in some respects to the purchase of a call option
on an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying instrument, ownership of the option may or may not be less risky
than ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when the Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund is
considering buying. If a call or put option which the Fund has written is
exercised, the Fund will incur a loss which will be reduced by the amount of the
premium it received. Depending on the degree of correlation between changes in
4
<PAGE>
the value of its portfolio securities and changes in the value of the futures
positions, the Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be reflected fully in the value of the options bought.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward
currency contracts, which are included in the types of instruments sometimes
known as derivatives, to purchase or sell foreign currencies (i.e., non-U.S.
currencies) as a hedge against possible variations in foreign exchange rates. A
forward foreign currency contract is an agreement between the contracting
parties to exchange an amount of currency at some future time at an agreed upon
rate. The rate can be higher or lower than the spot rate between the currencies
that are the subject of the contract. A forward contract generally has no
deposit requirement, and such transactions do not involve commissions. By
entering into a forward contract for the purchase or sale of the amount of
foreign currency invested in a foreign security transaction, the Fund can hedge
against possible variations in the value of the dollar versus the subject
currency either between the date the foreign security is purchased or sold and
the date on which payment is made or received or during the time the Fund holds
the foreign security. Hedging against a decline in the value of a currency in
the foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions preclude the opportunity for gain if the
value of the hedged currency should rise. The Fund will not speculate in forward
currency contracts. Although the Fund has not adopted any limitations on its
ability to use forward contracts as a hedge against fluctuations in foreign
exchange rates, the Fund does not attempt to hedge all of its non-U.S. portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by their investment adviser or sub-adviser. The Funds will
not enter into forward contracts for a term of more than one year.
INVESTMENT RESTRICTIONS. As described in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund operates under
certain investment restrictions. For purposes of the Fund's investment
restrictions, all percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular percentage resulting
from fluctuations in value does not require elimination of any security from the
Fund.
The following restrictions are fundamental and may not be changed with
respect to the Fund without the prior approval of the holders of a majority, as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of the Fund. Under these restrictions, the Fund
may not:
5
<PAGE>
(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;
(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) 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.
6
<PAGE>
*The Fund has never borrowed money for other than temporary cash flow purposes
and has no intention of doing so 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.
Under the 1940 Act, Fund directors and officers cannot be protected
against liability to the Fund or its shareholders to which they would be subject
because of willful misfeasance, bad faith, gross negligence or reckless
disregard of duties of their office.
THE FUND AND ITS MANAGEMENT
- ---------------------------
THE COMPANY. The Company was incorporated under the laws of Maryland as
INVESCO Dynamics Fund, Inc. on April 2, 1993. On July 1, 1993, the Company
assumed all of the assets and liabilities of Financial Dynamics Fund, Inc.,
which was incorporated in Colorado on February 17, 1967. On June 26, 1997, the
7
<PAGE>
Company changed its name to INVESCO Capital Appreciation Funds, Inc. and
designated two series of common stock of the Company as INVESCO Dynamics Fund
and INVESCO Growth & Income Fund. On August 28, 1998, the Company changed its
name to INVESCO Equity Funds, Inc. and designated a third series of shares of
common stock of the Company as INVESCO Endeavor Fund. On October 29, 1998, the
Company changed its name to INVESCO Stock Funds, Inc. On July 15, 1999, the
Company assumed all of the assets and liabilities of (1) INVESCO Blue Chip
Growth Fund, Inc., a series of INVESCO Growth Funds, Inc.; (2) INVESCO Small
Company Growth Fund, a series of INVESCO Emerging Opportunity Funds, Inc.; (3)
INVESCO S&P 500 Index Fund - Classes I and II, a series of INVESCO Specialty
Funds, Inc.; and (4) INVESCO Value Equity Fund, a series of INVESCO Value Trust.
The Company is an open-end, diversified, no-load management investment
company currently consisting of seven portfolios of investments: INVESCO Blue
Chip Growth Fund, INVESCO Dynamics Fund, INVESCO Endeavor Fund, INVESCO Growth &
Income Fund, INVESCO Small Company Growth Fund, INVESCO S&P 500 Index Fund -
Classes I and II and INVESCO Value Equity Fund. Additional funds may be offered
in the future.
THE INVESTMENT ADVISER. INVESCO Funds Group, Inc., a Delaware
corporation ("INVESCO"), is employed as the Fund's investment advisor. INVESCO
was established in 1932 and also serves as an investment adviser to INVESCO Bond
Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Combination Stock
and Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.), INVESCO
Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO
Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.), INVESCO Industrial
Income Funds, Inc., INVESCO International Funds, Inc., INVESCO Money Market
Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios,
Inc.), INVESCO Specialty Funds, Inc., INVESCO Tax-Free Income Funds, Inc.,
INVESCO Treasurer's Series Funds, Inc., INVESCO Value Trust and INVESCO Variable
Investment Funds, Inc.
THE DISTRIBUTOR. INVESCO Distributors, Inc. ("IDI") is the Fund's
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 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 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 August 31, 1998, managed
14 mutual funds, consisting of 49 separate portfolios, on behalf of over 899,000
shareholders.
8
<PAGE>
AMVESCAP PLC's other North American subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS") of Atlanta,
Georgia, develops and provides domestic and international defined contribution
retirement plan services to sponsors, institutional plan providers and foreign
governments.
--INVESCO Retirement Plan Services ("IRPS") of Atlanta, Georgia, a
division of IRBS, provides recordkeeping and investment selection services to
defined contribution plan sponsors of plans with between $2 million and $200
million in assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide INVESCO products and services in their
retirement plan products and services.
--Institutional Trust Company doing business as INVESCO Trust Company
("ITC") of Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts (IRAs) and
other retirement plan accounts. These include 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, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for pension plans
and public pension funds, as well as endowment and foundation accounts.
--INVESCO (NY), Inc., of 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.
--A I M Advisors, Inc. of Houston, Texas provides investment advisory
and administrative services for retail and institutional mutual funds.
9
<PAGE>
--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
insurance companies that issue variable annuity and/or variable life contracts.
--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, EC2M 4YR, England.
As indicated in the Fund's Prospectus, 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 Fund.
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 this policy are administered by and subject
to exceptions authorized by INVESCO.
INVESTMENT ADVISORY AGREEMENT. INVESCO serves as investment adviser to
the Fund 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 vote cast in person by a majority of the directors of
the Company, including a majority of the directors of the Company who are not
"interested persons" of the Company or INVESCO at a meeting called for such
purpose. On May 13, 1999, this period was extended by the Company's board of
directors through May 15, 2000. The Agreement was approved with respect to the
Fund on July 15, 1999. Pursuant to shareholder authorization, the Agreement may
be continued from year to year as long as each such continuance is specifically
approved at least annually by the board of directors of the Company, or by a
vote of the holders of a majority, as defined in the 1940 Act, of the
outstanding shares of the 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 upon
sixty (60) days' written notice and terminates
10
<PAGE>
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
portfolio of the Fund in conformity with the Fund's investment policies (either
directly or by delegation to a sub-adviser which may be a company affiliated
with INVESCO). 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 Fund excluding, however, those services that are the
subject of separate agreement between the Fund and INVESCO or any affiliate
thereof, including the distribution and sale of Fund 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 Fund with officers, clerical staff and other employees, if any,
who are necessary in connection with the Fund's 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 Fund's 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 Fund), 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 Fund under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Fund.
As full compensation for its advisory services provided to the Fund,
INVESCO receives a monthly fee. The fee is calculated daily at an annual rate
of: 0.60% on the first $350 million of the average net assets of the Fund;
reduced to 0.55% on the next $350 million of the average net assets of the Fund;
reduced to 0.50% on the Fund's average net assets exceeding $700 million.
Effective May 13, 1999, the following additional breakpoints were agreed upon:
0.45% on the Fund's average net assets from $2 billion; 0.40% of the Fund's
average net assets from $4 billion; 0.375% on the Fund's average net assets from
$6 billion; and 0.35% on the Fund's average net assets from $8 billion. For the
fiscal years ended August 31, 1998, 1997 and 1996, the Fund incurred advisory
fees of $4,561,574, $3,922,981 and $3,196,929, respectively.
ADMINISTRATIVE SERVICES AGREEMENT. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved by the board of directors 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 continued by action of the
board of directors through May 15, 2000. 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
11
<PAGE>
directors who are not parties to the Administrative 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 Administrative
Agreement may be terminated at any time without penalty by INVESCO on sixty (60)
days' written notice, or by the Fund upon thirty (30) days' written notice, and
terminates automatically in the event of an assignment unless the Fund's board
of directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Fund: (a) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; 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, the Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund prior to May 13, 1999 and 0.045% per year of the average net assets of the
Fund effective May 13, 1999. For the fiscal years ended August 31, 1998, 1997
and 1996, the Fund paid INVESCO administrative services fees in the amount of
$131,098 $112,386 and $92,412, respectively.
TRANSFER AGENCY AGREEMENT. INVESCO also performs transfer agent,
dividend disbursing agent and registrar services for the Fund pursuant to a
Transfer Agency Agreement dated February 28, 1997, which was approved by the
board of directors of the Company, including a majority of the Company's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996, for an initial term expiring
February 28, 1998 which has been extended by action of the board of directors
through May 15, 2000. Thereafter, the Transfer Agency Agreement may be continued
from year to year as long as such continuance is specifically approved at least
annually by the board of directors of the Company, or by a vote of the holders
of a majority of the outstanding shares of the 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 Fund 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 a rate of
1/12 of the annual fee and is based upon the number of shareholder accounts and
omnibus account participants in existence during each month. For the fiscal
years ended August 31, 1998, 1997 and 1996, the Fund paid INVESCO transfer
agency fees of $1,160,513, $1,066,438 and $751,390, respectively.
OFFICERS AND DIRECTORS OF THE COMPANY. The overall direction and
supervision of the Fund is the responsibility of the board of directors, which
12
<PAGE>
has the primary duty of seeing that the Fund's general investment policies and
programs of the Fund are carried out and that the Fund is properly administered.
The officers of the Company, all of whom are officers and employees of and are
paid by INVESCO, are responsible for the day-to-day administration of the Fund.
The investment adviser for the Fund has the primary responsibility for making
investment decisions on behalf of the Fund. These investment decisions are
reviewed by the investment committee of INVESCO.
All officers and directors of the Company hold comparable positions
with INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO
Combination Stock and Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Funds, Inc. (formerly INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Funds, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Tax-Free Income Funds,
Inc., INVESCO Treasurer's Series Funds, Inc., INVESCO Value Trust and INVESCO
Variable Investment Funds, Inc. All of the directors and officers of the Fund
also serve as trustees of INVESCO Value Trust. Set forth below is information
with respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during 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 at 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
13
<PAGE>
Chief Executive Officer of First Columbia Financial Corporation. Address: 1600
Pierce Street, Lakewood, 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.
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, Georgia. 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
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.
14
<PAGE>
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); Secretary of
INVESCO Global Health Sciences Fund; 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.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of
INVESCO (since 1988). Senior Vice President and Treasurer of IDI (since 1997).
Treasurer, Principal Financial and Accounting Officer, INVESCO Global Health
Sciences Fund. 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). 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 Funds
Group, Inc. (since 1984). Formerly, Trust Officer of ITC. Born: September 14,
1941.
JUDY P. WIESE, Assistant Treasurer. Vice President of INVESCO Funds
Group, Inc. (since 1984). Formerly, Trust Officer of ITC. Born: February 3,
1948.
*These directors are "interested persons" of the Company as defined in
the 1940 Act.
#Member of the audit committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
@Member of the derivatives committee of the Company.
@@Member of the soft dollar brokerage committee of the Company.
**Member of the management liaison committee of the Company.
As of July 9, 1999, officers and directors of the Fund, as a group,
beneficially owned less than 1% of the Fund's outstanding shares.
15
<PAGE>
Director Compensation
- ---------------------
The following table sets forth, for the fiscal year ended April 30,
1998, the compensation paid by the Fund to its independent directors for
services rendered in their capacities as directors of the Fund, the benefits
accrued as Fund 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
Fund. 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 Funds, Inc. 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, 1998. As of December 31, 1998, there were 49 funds in the
INVESCO Complex.
16
<PAGE>
Total
Retirement Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
ion From Company Upon Paid To
Company(1) Expenses(2) Retirement(3) Directors(1)
Fred A. Deering, $4,449 $3,647 $2,463 $103,700
Vice Chairman of
the Board
Victor L. Andrews 4,030 3,489 2,716 80,350
Bob R. Baker 4,214 3,116 3,639 84,000
Lawrence H. Budner 3,935 3,489 2,716 79,350
Daniel D. Chabris(4) 1,705 3,565 2,234 70,000
Wendy L. Gramm 3,940 0 0 79,000
Kenneth T. King 4,246 3,723 2,234 77,050
John W. McIntyre 4,138 0 0 98,500
Larry Soll 3,873 0 0 96,000
------- ------ ------ --------
Total $34,530 $21,029 $16,002 $767,950
% of Net Assets 0.0017%(5) 0.0010%(5) 0.0035%(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.
(2)Represents 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
17
<PAGE>
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 Drs. Soll and Gramm, 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 retired as a director effective September 30, 1998.
(5)Total as a percentage of the Company's net assets as of April 30,
1999.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1998.
Messrs. Brady and Williamson, as "interested persons" of the Fund and
of 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 Fund or other funds in the
INVESCO Complex for their service as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO
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 to 74, if the retirement date is extended
by the boards for one or two years but less than three years) continuation of
payment for one year (the "first year retirement benefit") of the annual basic
retainer 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 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
18
<PAGE>
be allocated among the INVESCO funds in a manner determined to be fair and
equitable by the committee. The Fund began making payments to Mr. Chabris as of
October 1, 1998. The Fund 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 certain
of the INVESCO funds. The deferred amounts are being invested in shares of all
of the INVESCO 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 Fund. 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 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.
The Company has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the Company, and to
review policies and procedures of the Company's adviser with respect to soft
dollar brokerage transactions. It reports on these matters to the Company's
board of directors.
The Company has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Company. It monitors
derivatives usage by the Company and the procedures utilized by the Company's
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 the 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. Net asset value per share of the Fund is computed 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 Fund's behalf. Such brokers are authorized to designate other
19
<PAGE>
intermediaries to accept purchase orders on the Fund's behalf. The Fund 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 the 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 Company's distributor under a distribution agreement
with the Company and bears all expenses, including the costs of printing and
distributing prospectuses, incident to direct sales and distribution of the
Fund's shares on a no-load basis.
DISTRIBUTION PLAN. As discussed in the section of the Fund's Prospectus
entitled "How To Buy Shares - Distribution Expenses," the Company has adopted a
Plan and Agreement of Distribution (the "Plan") pursuant to Rule 12b-1 under the
1940 Act.
The Plan provides that the 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 the Fund's shares to
investors. Payment 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. For the fiscal
year ended August 31, 1998 the Fund made payments to INVESCO (the predecessor of
IDI as distributor of shares of the Fund) and IDI under the 12b-1 Plan in the
amount of $2,009,378. In addition, as of August 31, 1998, $168,680 of additional
distribution accruals had been incurred under the Plan for the Fund and will be
paid to IDI during the fiscal year ended August 31, 1999. As noted in the
Prospectus, 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 Fund. The 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 Fund 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 Fund 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 Fund
possibly could decrease to the extent that the banks would no longer invest
customer assets in the Fund. Neither the Fund 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 the Fund.
For the fiscal year ended August 31, 1998, allocations of 12b-1 amounts
paid by the Fund for the following categories of expenses were: advertising --
$1,315,305; sales literature, printing and postage -- $111,363; direct mail --
$70,179; public relations/promotion -- $133,079; compensation to securities
dealers and other organizations -- $195,565; marketing personnel -- $183,887.
20
<PAGE>
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 Fund's Transfer Agent computer-processable tapes of the
Fund's transactions by customers, serving as the primary source of information
to customers in answering questions concerning the Fund, and assisting in other
customer transactions with the Fund.
The initial 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"). The board of directors, on February 4, 1997, approved amending the
Plan to a compensation type 12b-1 plan. This amendment of the Plan did not
result in increasing the amount of the Fund's payments thereunder. Pursuant to
authorization granted by the Company's board of directors on September 2, 1997,
a new Plan became effective on September 29, 1997, under which IDI assumed all
obligations related to distribution which were previously performed by INVESCO.
Pursuant to shareholder authorization, the Plan was approved with respect to the
Fund on July 15, 1999.
The Plan provides that it shall continue in effect with respect to the
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can also be terminated at
any time with respect to the Fund, without penalty, if a majority of the
independent directors, or shareholders of the Company, vote to terminate the
Plan. The Company may, in its absolute discretion, suspend, discontinue or limit
the offering of its shares of the Fund 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 Fund, the
investment climate for the Fund, general market conditions, and the volume of
sales and redemptions of the 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 the 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 the 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 materially the amount of the Fund's payments thereunder without
approval of the shareholders of the 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 Company, the latter by vote of a majority of the independent
directors, or of the holders of a majority of the Company'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 the Fund under
the Plan in the event of its termination.
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 the Fund's assets in the amounts and for the purposes
21
<PAGE>
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, the Fund's obligation to make payments to IDI shall
terminate automatically, in the event of such "assignment," in which case the
Fund 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 the 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 and 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 Fund And Its
Management - Officers and Directors of the Fund" who are also officers either of
IDI or companies affiliated with IDI. The benefits which the Fund believes will
be reasonably likely to flow to it and its 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 of the Fund;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Fund 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 the Fund's shareholder services (in both
systems and personnel),
(b) To increase the number and type of mutual funds
available to investors from INVESCO and its
affiliated companies (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.
22
<PAGE>
exceeding established breakpoints in the advisory fee schedule
and allocating fixed expenses over a larger asset base),
thereby partially offsetting the costs of the Plan.
HOW SHARES ARE VALUED
- ---------------------
As discussed in the section of the Fund's Prospectus entitled "Fund
Price And Performance," the net asset value of shares of the Fund is computed
once each day that the New York Stock Exchange is open as of the close of
regular trading on the New York Stock 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 the 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 the 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 the Fund is calculated by dividing the
value of all securities held by the Fund plus 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 the 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 are 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 fair value as determined
in good faith by the Fund's board of directors or pursuant to procedures adopted
by the 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 board of directors of the Company will
review the methods used by such service to assure itself that securities will be
valued at their fair values. The Fund'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 are normally
valued at amortized cost.
The value of securities held by the Fund and other assets used in
computing net asset value generally is determined as of the time regular trading
in such securities or assets is completed each day. Because regular trading in
most foreign securities markets is completed simultaneously with, or prior to,
the close of regular trading on the New York Stock Exchange, closing prices for
foreign securities usually are available for purposes of computing the Fund's
net asset value. However, in the event that the closing price of a foreign
security is not available in time to calculate the 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
23
<PAGE>
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
rates of such currencies against the U.S. dollar provided by an approved pricing
service.
FUND PERFORMANCE
- ----------------
As discussed in the section of the Fund's Prospectus entitled "Fund
Price And Performance," the Company advertises the total return performance of
the Fund. The average annual total return performance for the one-, five- and
ten-year periods ended August 31, 1998 was 13.42%, 14.95% and 15.82%,
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:
n
P(1 + T) = ERV
where: P = initial payment of $1000
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.
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent
sources may also be used in advertisements, sales literature or shareholder
reports, including reprints of, or selections from, editorials or articles about
the Funds. 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
24
<PAGE>
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
WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
SERVICES PROVIDED BY THE FUND
- -----------------------------
PERIODIC WITHDRAWAL PLAN. As described in the section of the Fund's
Prospectus entitled "How To Sell Shares," the Fund offers a Periodic Withdrawal
Plan. All dividends and other 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 the 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 such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to INVESCO. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless a shareholder requests otherwise.
EXCHANGE POLICY. As discussed in the section of the Prospectus entitled
"How To Buy Shares - Exchange Policy," the Fund offers shareholders the ability
25
<PAGE>
to exchange shares of the Fund for shares of certain other 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. 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 the Fund's Prospectus entitled "Fund
Services," shares of the 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
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 days
following receipt of the required documents as described in the section of the
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 the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets; or (d)
the Securities and Exchange Commission by order so permits.
The Company has authorized one or more brokers to accept redemption
orders on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Fund's behalf. The Fund 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 the 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 Fund's investment adviser, make it undesirable for the Fund
26
<PAGE>
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 Fund is obligated under the 1940 Act to redeem for cash all
shares of the 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
- ----------------------------------------
The Company intends to conduct its business and satisfy the applicable
diversification of assets and source of income requirements to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Company so qualified for the taxable year
ended August 31, 1998, and intends to qualify during its current taxable year.
As a result, because the Company intends to distribute all of its income and
recognized gains, it is anticipated that the Company will pay no federal income
or excise taxes and that the Company will be accorded conduit or "pass through"
treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by the 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
how long a shareholder has held shares of the Fund. During 1997, the Taxpayer
Relief Act established a new maximum capital gains tax rate of 20%. Depending on
the holding period of the asset giving rise to the gain, a capital gain was
taxable at a maximum rate of either 20% or 28%. Beginning January 1, 1998, all
long-term gains on the sale of securities held for more than 12 months will be
taxable at a maximum rate of 20%. In addition, legislation signed in October of
1998 provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxed at a maximum rate of 20%. Accordingly,
all capital gain distributions paid in 1998 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 of whether such dividends and distributions are reinvested
in additional shares of the Fund or another fund in the INVESCO group. The net
asset value of Fund shares reflects accrued net investment income and
27
<PAGE>
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain or increase any loss for tax purposes on any
subsequent redemption of shares by the shareholder.
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 with respect to shares of the Fund in past years, the shareholder must
continue to use the cost basis method previously used unless the shareholder
applies to the IRS for permission to change the method.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
The Fund will be subject to a non-deductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of it 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 the 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 imposes taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld may be
treated as an expense of the Fund.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, the 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 the Fund's
28
<PAGE>
investment company taxable income and, accordingly, will not be taxable to the
Fund to the extent that income is distributed to its shareholders.
The 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
the Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, the 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 the Fund
for prior taxable years beginning after December 31, 1997. The Fund's adjusted
tax basis in each PFIC's stock with respect to which it makes this election will
be adjusted to reflect the 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
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Code for federal
income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
- --------------------
PORTFOLIO TURNOVER. There are no fixed limitations regarding the Fund's
portfolio turnover. The rate of portfolio turnover can fluctuate under
constantly changing economic conditions and market circumstances. Securities
initially satisfying basic policies and objectives of the Fund may be disposed
of when they are no longer suitable. Brokerage costs to the Fund are
commensurate with the rate of portfolio activity. Portfolio turnover rates for
the fiscal years ended August 31, 1998, 1997 and 1996 were 153%, 286% and 207%,
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. The portfolio turnover rate increased
in fiscal 1997 over 1996 and over fiscal 1995 primarily as a result of a
restructuring of the Fund's portfolio that occurred during those years.
29
<PAGE>
PLACEMENT OF PORTFOLIO BROKERAGE. INVESCO, as the Fund's investment
adviser, places orders for the purchase and sale of securities with brokers and
dealers based upon INVESCO's evaluation of such brokers' and dealers' financial
responsibility subject to their 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 Fund's portfolio transactions, viewed in terms of the
size of transactions, prevailing market conditions in the security purchased or
sold, and general economic and market conditions. In seeking to ensure that any
commissions or discounts charged the Fund 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 Fund does not
necessarily pay the lowest commission, spread or discount available.
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 Fund effects securities transactions may be used by
INVESCO in servicing all of its accounts and not all such services may be used
by INVESCO in connection with the Fund.
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 Fund transactions on which
the commissions or discounts are in excess of those which other brokers might
have charged for effecting the same transactions.
Fund transactions may be effected through qualified brokers and dealers
that recommend the Fund to their clients, or that act as agent in the purchase
of the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, INVESCO
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 Fund, 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 Fund 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 the 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
30
<PAGE>
directors of the Company have authorized the Fund to apply dollars generated
from the Fund'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 Fund 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 that Fund. 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
Fund have authorized the Fund to apply dollars generated from the Plan to pay
the remainder of the Services Fee, subject to the maximum Rule 12b-1 fee
permitted by the Plan. INVESCO itself pays the portion of the Fund's Services
Fee, if any, that exceeds the sum of the sub-transfer agency or recordkeeping
fee and Rule 12b-1 fee. The Fund's directors have further authorized INVESCO to
place a portion of the Fund's brokerage transactions with certain NTF Program
Sponsors or their affiliated brokers, if INVESCO reasonably believes that, in
effecting the Fund's 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 Fund 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 Fund, 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 Fund pays sub-transfer agency or recordkeeping fees to the NTF Program
Sponsor in payment of the Services Fee only to the extent that such fees are not
offset by the Fund's credits. In the event that the transfer agency fee paid by
the Fund to INVESCO with respect to investors who have beneficial interests in a
particular NTF Program Sponsor's omnibus accounts in the Fund exceeds the
Services Fee applicable to that 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 the 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 Fund. The Company's board of directors has
also authorized the Fund 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 Fund 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 compensate IDI for payments to such NTF Program Sponsor absent
such credits.
The aggregate dollar amounts of brokerage commissions paid by the Fund
for the fiscal years ended August 31, 1998, 1997 and 1996 were $2,574,626,
$5,300,030 and $2,703,470, respectively. For the fiscal year ended August 31,
1998, brokers providing research services received $1,744,891 in commissions on
portfolio transactions effected for the Fund. The aggregate dollar amount of
such portfolio transactions was $1,542,790,210. As a result of selling shares of
the Fund, brokers received $0.00 in commissions on portfolio transactions
effected for the Fund during the fiscal year ended August 31, 1998.
31
<PAGE>
At August 31, 1998, the Fund held securities of its regular brokers or
dealers, or their parents, as follows:
Value of Securities
Broker or Dealer at 8/31/98
- ---------------- ----------
General Electric Capital $28,328,000
INVESCO does not receive any brokerage commissions on portfolio
transactions effected on behalf of the Fund, and there is no affiliation between
IFG or any person affiliated with INVESCO or the Fund and any broker or dealer
that executes transactions for the Fund.
ADDITIONAL INFORMATION
- ----------------------
COMMON STOCK. The Company is authorized to issue up to 2 billion shares
of common stock with a par value of $0.01 per share. Of these shares,
400,000,000 have been allocated to the Fund. All shares currently outstanding
and being offered are of one class with equal rights as to voting, dividends and
liquidation. All shares offered hereby, when issued, will be fully paid and
nonassessable. Shares have no preemptive rights and are fully tradeable on the
books of the Fund. The board of directors has the authority to designate
additional series of common stock without seeking 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 class and with
a share of the Company's general liabilities. The board of directors determines
those assets and liabilities deemed to be general assets of liabilities of the
Company, and those items are allocated among series in a manner deemed by the
Company, and those items are allocated among series in a manner deemed by the
board fair and equitable. Generally, such allocation will be made based upon the
relative total net assets of each series. In the unlikely event that a liability
allocable to one series exceeds the assets belonging to the series, all or a
portion of such liability may have to be borne by the holders of shares of the
Company's other series.
All dividends on shares of a particular series shall be paid only out
of the income belonging to that series, pro rata to the holders of that series.
In the event of the liquidation or dissolution of the Company or of a particular
series, the shareholders of each series that is being liquidated shall be
entitled to receive, as a series, when and as declared by the board of
directors, the excess of the assets belonging to that series over the
liabilities belonging to that series. The holders of shares of any series shall
not be entitled to any distribution upon liquidation of any other series. The
assets so distributable to the shareholders of any particular series shall be
distributed among such shareholders in proportion to the number of shares of
that series held by them and recorded on the books of the Company.
32
<PAGE>
All Company 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 changes in a Fund's investment policies, only
shareholders of the series affected by the matter will 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.
They 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 June 30, 1999, the following entities
held more than 5% of the outstanding securities of the Fund.
Amount and Class and
Name and Address Nature of Ownership Percent of Class
- ---------------- ------------------- ----------------
Charles Schwab & Co., Inc. 9,523,685.2140 5.24%
Special Custody Account 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 Fund's investment securities 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 Fund to be held
outside the United States in branches of U.S. banks and, to the extent permitted
by applicable regulations, in certain foreign banks and foreign securities
depositories.
TRANSFER AGENT. The Company is provided with transfer 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 Fund and the maintenance of
records regarding the ownership of such shares.
REPORTS TO SHAREHOLDERS. 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.
33
<PAGE>
FINANCIAL STATEMENTS. The Fund's audited financial statements and the
notes thereto for the fiscal year ended August 31, 1998, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements, and the
unaudited financial statements and accompanying notes thereto and the Report to
Shareholders for the six-month period ended February 28, 1999 are incorporated
herein by reference from the Company's Annual Report to Shareholders for the
fiscal year ended August 31, 1998 and the Fund's Semi-Annual Report to
Shareholders for the six-month period ended February 28, 1999, respectively.
PROSPECTUS. The Company will furnish, without charge, a copy of the
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 Prospectus do not contain all of the information set forth in the
Registration Statement the Company has filed with the Securities and Exchange
Commission. The complete Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed by the
rules and regulations of the Commission.
34
<PAGE>
APPENDIX A
BOND RATINGS
Description of Moody's corporate bond ratings:
- ---------------------------------------------
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and have
speculative characteristics as well.
RATING REFINEMENTS: Moody's may apply the numerical modifier "1", for
municipally-backed bonds, and modifiers "1", "2" and "3" for corporate-backed
municipals. The modifier 1 indicates that the security ranks in the higher end
of its generic rating category; the modifier 2 indicates a mid-range ranking;
and modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
Description of S&P's corporate bond ratings:
- -------------------------------------------
AAA--This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA--Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in a small degree.
35
<PAGE>
A--Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions.
BBB--Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
Plus (+) or Minus (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
Description of Moody's preferred stock ratings:
- ----------------------------------------------
"aaa"--An issue which is rated "aaa" is considered to be a top- quality
preferred stock. This rating indicates good asset protection and the least risk
of dividend impairment within the universe of preferred stocks.
"aa"--An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance that earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
"a"--An issue which is rated "a" is considered to be an upper- medium grade
preferred stock. While risks are judged to be somewhat greater than in the "aaa"
and "aa" classification, earnings and asset protection are, nevertheless,
expected to be maintained at adequate levels.
"baa"--An issue which is rated "baa" is considered to be a medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any great
length of time.
NOTE: Moody's applies numerical modifiers 1, 2 and 3 in each rating
classification: the modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range ranking
and the modifier 3 indicates that the issue ranks in the lower end of its
generic rating category.
Description of S&P's preferred stock ratings:
- --------------------------------------------
"AAA"--This is the highest rating that may be assigned by S&P to a preferred
stock issue and indicates an extremely strong capacity to pay the preferred
stock obligations.
"AA"--A preferred stock issue rated "AA" also qualifies as a high-quality fixed
income security. The capacity to pay preferred stock obligations is very strong,
although not as overwhelming as for issues rated "AAA."
36
<PAGE>
"A"--An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions.
"BBB"--An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to make payments for a preferred
stock in this category than for issues in the "A" category.
Plus (+) or Minus (-): To provide more detailed indications of preferred stock
quality, the ratings from "AA" to "CCC" may be modified by the addition of a
plus or minus sign to show relative standing within the major rating categories.
37
<PAGE>
APPENDIX B
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
- -----------------------------------------------------
Options on Securities
- ---------------------
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such
as the Chicago Board of Options Exchange and the New York Stock 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 Fund will generally purchase or write only those options
for which there appears to be an active secondary market, there is no assurance
that a 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 the 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
covered call option writer is unable to effect a closing purchase transaction in
38
<PAGE>
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 insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions 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 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 intermediation of a third party such as the OCC. If the transacting
dealer fails to make or take delivery of the securities underlying an option it
has written, in accordance with the terms of that option as written, the Fund
would lose the premium paid for the option as well as any anticipated benefit of
the transaction. The Fund will engage in OTC option transactions only with
primary U.S. Government securities dealers recognized by the Federal Reserve
Bank of New York.
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.
39
<PAGE>
Futures contracts differ from options in that they are bilateral agreements,
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 equivalent, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin." Subsequent payments to and from
the broker, referred to as "variation margin," are made on a daily basis as the
value of the index or instrument underlying the futures contract fluctuates,
making positions in the futures contract more or less valuable, a process known
as "marking to market."
A futures contract may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a futures contract,
by in effect taking the opposite side of such contract. At any time prior to the
expiration of a futures contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
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
40
<PAGE>
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 terminated 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.
41
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
July 14, 1999
INVESCO STOCK FUNDS, INC.
INVESCO Small Company Growth Fund
Address: Mailing Address:
7800 East Union Avenue Post Office Box 173706
Denver, Colorado 80237 Denver, Colorado 80217-3706
Telephone:
In Continental U.S., 1-800-525-8085
- --------------------------------------------------------------------------------
INVESCO STOCK FUNDS, Inc. (formerly, INVESCO Equity Funds, Inc.,
formerly, INVESCO Capital Appreciation Funds, Inc.) (the "Company") is a
no-load, open-end, diversified investment management company currently
consisting of seven portfolios of investments. A Prospectus for INVESCO Small
Company Growth Fund (the "Fund"), dated July 14, 1999, provides the basic
information you should know before investing in the Fund. Additional funds may
be offered in the future.
The Fund seeks long-term capital growth. It pursues this objective by
investing its assets principally in a diversified group of equity securities of
companies with market capitalizations of $1 billion or less at the time of
initial purchase ("small cap companies"). In managing the Fund's investments the
Fund's investment adviser seeks to identify securities that are undervalued in
the marketplace, and/or have earnings that may be expected to grow faster than
the U.S. economy in general. Under normal circumstances, the Fund invests at
least 65% of its total assets in the equity securities of small cap companies
(consisting of common and preferred stocks, convertible debt securities, and
other securities having equity features). The balance of the Fund's assets may
be invested in the equity securities of companies with market capitalizations in
excess of $1 billion, debt securities and short-term investments. The Fund is
designed for investors seeking long-term capital appreciation with little or no
current income.
The Prospectus for the Fund, dated July 14, 1999, 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 Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund, and should be
read in conjunction with the Prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT POLICIES AND RESTRICTIONS 1
THE FUND AND ITS MANAGEMENT 10
HOW SHARES CAN BE PURCHASED 21
HOW SHARES ARE VALUED 24
FUND PERFORMANCE 25
SERVICES PROVIDED BY THE FUND 27
TAX-DEFERRED RETIREMENT PLANS 27
HOW TO REDEEM SHARES 28
DIVIDENDS, OTHER DISTRIBUTIONS, AND TAXES 28
INVESTMENT PRACTICES 31
ADDITIONAL INFORMATION 34
APPENDIX A 37
2
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
- ------------------------------------
As discussed in the Fund's Prospectus in the sections entitled
"Investment Objective And Strategy" and "Investment Policies And Risks," the
Fund may invest in a variety of securities and employ a broad range of
investment techniques, in seeking to achieve its investment objective. Such
securities and techniques include the following:
EQUITY SECURITIES. As described in the Prospectus, equity securities
which may be purchased by the Fund 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 Fund 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 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
2
<PAGE>
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.
FOREIGN SECURITIES. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks--Foreign Securities," the
Fund may invest up to 25% of its total assets, measured at the time of purchase,
in foreign securities. Securities of Canadian issuers and securities purchased
by means of sponsored American Depository Receipts ("ADRs") are not subject to
this 25% limitation. There is generally less publicly available information,
reports and ratings about foreign companies and other foreign issuers than that
which is available about companies and issuers in the United States. Foreign
issuers are also generally subject to fewer uniform accounting and auditing and
financial reporting standards, practices, and requirements as compared to those
applicable to United States issuers.
The Fund's investment adviser normally will purchase foreign securities
in over-the-counter ("OTC") markets or on exchanges located in the countries in
which the respective principal offices of the issuers of the various securities
are located, as such markets or exchanges are generally the best available
market for foreign securities. Foreign securities markets are generally not as
developed or efficient as those in the United States. While growing in volume,
they usually have substantially less volume than the New York Stock Exchange,
and securities of some foreign issuers are less liquid and more volatile than
securities of comparable United States issuers. Fixed commissions on foreign
exchanges are generally higher than negotiated commissions on United States
exchanges, although the Fund will endeavor to achieve the most favorable net
results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, the
economies of foreign countries may differ favorably or unfavorably from the
United States' economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payment position.
The dividends and interest payable on certain of the Fund's foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to the Fund's shareholders.
ILLIQUID AND 144A SECURITIES. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may invest in
illiquid securities including restricted securities and other investments which
are not readily marketable. Restricted securities are securities which are
subject to restrictions on their resale because they have not been registered
2
<PAGE>
under the Securities Act of 1933 (the "1933 Act") or because based upon their
nature or the market for such securities, they are not readily marketable. These
limitations on resale and marketability may have the effect of preventing the
Fund from disposing of such a security at the time desired or at a reasonable
price. In addition, in order to resell a restricted security, the Fund might
have to bear the expense and incur the delays associated with effecting
registration. In purchasing restricted securities, the Fund does not intend to
engage in underwriting activities, except to the extent the Fund may be deemed
to be a statutory underwriter under the Securities Act in disposing of such
securities. Restricted securities will be purchased for investment purposes only
and not for the purpose of exercising control or management of other companies.
The Fund also may invest in restricted securities, including restricted
securities that can be resold to institutional investors pursuant to Rule 144A
under the 1933 Act ("Rule 144A Securities").
In recent years, a large institutional market has developed for Rule
144A Securities. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by the Fund could adversely affect the
marketability of such security, and the Fund might be unable to dispose of such
security promptly or at reasonable prices.
The board of directors has delegated to INVESCO the authority to
determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
whether such securities are subject to the Fund's restriction against investing
more than 10% of its total assets in illiquid securities. Under guidelines
established by the board of directors, INVESCO 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).
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. As discussed in the
section of the Fund's Prospectus entitled "Investment Policies And Risks," the
Fund may purchase and sell securities on a when-issued or delayed delivery
basis. When-issued or delayed delivery transactions arise when securities
3
<PAGE>
(normally, equity obligations of issuers eligible for investment by the Fund)
are purchased or sold by the Fund with payment and delivery taking place in the
future in order to secure what is considered to be an advantageous price and
yield. However, the yield on a comparable security available when delivery takes
place may vary from the yield on the security at the time that the when-issued
or delayed delivery transaction was entered into. When the Fund engages in
when-issued and delayed delivery transactions, it relies on the seller or buyer,
as the case may be, to consummate the sale. Failure to do so may result in the
Fund missing the opportunity of obtaining a price or yield considered to be
advantageous. When-issued and delayed delivery transactions generally may be
expected to settle within one month from the date the transactions are entered
into, but in no event later than 90 days after the transaction date. However, no
payment or delivery is made by the Fund until it receives delivery or payment
from the other party to the transaction.
To the extent that the Fund remains substantially fully invested at the
same time that it has purchased when-issued securities, as it would normally
expect to do, there may be greater fluctuations in its net assets than if the
Fund set aside cash to satisfy its purchase commitments.
When the Fund purchases securities on a when-issued basis, it will
maintain in a segregated account cash, U.S. government securities or other
high-grade debt obligations readily convertible into cash having an aggregate
value equal to the amount of such purchase commitments, until payment is made.
If necessary, additional assets will be placed in the account daily so that the
value of the account will equal or exceed the amount of the Fund's purchase
commitments.
REPURCHASE AGREEMENTS. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may invest in
repurchase agreements with respect to instruments eligible for investment by the
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 the
Fund and is unrelated to the interest rate on the underlying instrument. In
these transactions, the securities acquired by the 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 Fund's 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.
4
<PAGE>
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.
SECURITIES LENDING. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the Fund may lend its
portfolio securities 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 U.S. 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 INVESCO (under procedures
established by the Company's board of directors) to be creditworthy and when the
amount of interest income it receives 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.
At the present time, the Fund may pay reasonable negotiated finder's
fees in connection with loaned securities, so long as such fees are set forth in
a written contract and approved by the Company's board of directors. In
addition, voting rights may pass with the loaned securities, but if a material
event (e.g., proposed merger, sale of assets, or liquidation) will occur
affecting an investment on loan, the loan must be called and the securities
voted.
U.S. GOVERNMENT OBLIGATIONS. These securities consist of treasury
bills, treasury notes, and treasury bonds, which differ only in their interest
rates, maturities, and dates of issuance. Treasury bills have a maturity of one
year or less. Treasury notes generally have a maturity of one to ten years, and
treasury bonds generally have maturities of more than ten years. As discussed in
the Fund's Prospectus, U.S. government obligations also include securities
issued or guaranteed by agencies or instrumentalities of the U.S. government.
Some obligations of United States government agencies, which are
established under the authority of an act of Congress, such as Government
National Mortgage Association (GNMA) participation certificates, are supported
5
<PAGE>
by the full faith and credit of the United States Treasury. GNMA certificates
are mortgage-backed securities representing part ownership of a pool of mortgage
loans. These loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations -- are either insured by the Federal
Housing Administration or guaranteed by the Veterans Administration. A "pool" or
group of such mortgages is assembled and, after being approved by GNMA, is
offered to investors through securities dealers. Once approved by GNMA, the
timely payment of interest and principal on each mortgage is guaranteed by GNMA
and backed by the full faith and credit of the U.S. government. The market value
of GNMA certificates is not guaranteed. GNMA certificates differ from bonds in
that principal is paid back monthly by the borrower over the term of the loan
rather than returned in a lump sum at maturity. GNMA Certificates are called
"pass-through" securities because both interest and principal payments
(including prepayments) are passed through to the holder of the certificate.
Upon receipt, principal payments will be used by the Fund to purchase additional
securities under its investment objective and investment policies.
Other United States government obligations, such as securities of the
Federal Home Loan Banks, are supported by the right of the issuer to borrow from
the Treasury to repay its obligations. Still others, such as bonds issued by
Fannie Mae (formerly, the Federal National Mortgage Association), a federally
chartered private corporation, are supported only by the credit of the
instrumentality.
OBLIGATIONS OF DOMESTIC BANKS. These obligations consist of
certificates of deposit ("CDs") and bankers' acceptances issued by domestic
banks (including their foreign branches) having total assets in excess of $5
billion, which meet the Fund's minimum rating requirements. CDs are issued
against deposits in a commercial bank for a specified period and rate and are
normally negotiable. Eurodollar CDs are certificates issued by a foreign branch
(usually London) of a U.S. domestic bank, and, as such, the credit is deemed to
be that of the domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer, or storage of goods and
reflect the obligation of both the bank and the drawer to pay the face amount.
COMMERCIAL PAPER. These obligations are short-term promissory notes
issued by domestic corporations to meet current working capital requirements.
Such paper may be unsecured or backed by a bank letter of credit. Commercial
paper issued with a letter of credit is, in effect, "two party paper," with the
issuer directly responsible for payment, plus a bank's guarantee that if the
note is not paid at maturity by the issuer, the bank will pay the principal and
interest to the buyer. Commercial paper is sold either as interest-bearing or on
a discounted basis, with maturities not exceeding 270 days.
OPTIONS ON SECURITIES AND INDICES. As discussed in the section of the
Fund's Prospectus entitled "Investment Policies And Risks," the Fund may
purchase and write options on securities and indices. An option on a security
provides the purchaser, or "holder," with the right, but not the obligation, to
6
<PAGE>
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. The Fund will only write options if they are covered.
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.
In addition to purchasing and writing options on securities, the Fund
may purchase and write put and call options on stock indices. A stock index
measures the movement of a certain group of stocks by assigning relative values
to the common stocks included in the index. Options on stock indices are similar
to options on securities. However, because options on stock indices do not
involve the delivery of an underlying security, the option represents the
holder's right to obtain from the writer in cash a fixed multiple of the amount
by which the exercise price exceeds (in the case of a put) or is less than (in
the case of a call) the closing value of the underlying index on the exercise
date.
Options on securities and indices are traded on the Chicago Board
Options Exchange (CBOE) and other securities exchanges 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 CBOE or other options exchange.
An option position in an exchange-traded option may be closed out on an
options exchange only when a secondary market for an option of the same series
exists. Although the Fund will generally purchase or write only those options
for which there appears to be an active secondary market, there is no assurance
that a 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 the 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
7
<PAGE>
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 insufficient trading interest
in certain options; (ii) restrictions may be imposed by the exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions 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 the exchange; (v) the
facilities of the exchange or a clearing corporation may not at all times be
adequate to handle current trading volume or (vi) the exchange could, for
economic or other reasons, decide or be compelled at some future date to
discontinue the trading of options (or a particular class or series of options),
in which event the secondary market on the exchange (or in the class or series
of options) would cease to exist, although outstanding options which had been
issued by a clearing corporation as a result of trades on the 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 the
exchange of special procedures which may interfere with the timely execution of
customers' orders. However, the OCC, based on forecasts provided by the
exchanges, believes that its facilities are adequate to handle the volume of
reasonably anticipated options transactions, and the exchanges have advised such
clearing corporation that it believes its facilities will also be adequate to
handle reasonably anticipated volume.
In addition, options on securities and indices 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 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 intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
as written, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. The Fund will engage in OTC option
transactions only with primary U.S. Government securities dealers recognized by
the Federal Reserve Bank of New York.
INVESTMENT RESTRICTIONS. As described in the section of the Fund's
Prospectus entitled "Investment Policies And Risks," the 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 the Fund.
The following restrictions are fundamental and may not be changed
without prior approval of a majority of the outstanding voting securities of the
8
<PAGE>
Fund, as defined in the Investment Company Act of 1940, as amended (the "1940
Act"). Under these restrictions, the Fund may not:
(1) sell short or buy on margin, except for the Fund's writing of
put or call options and except for such short-term credits as
are necessary for the clearance of purchases of securities;
(2) issue senior securities as defined in the Investment Company
Act of 1940 or borrow money, except that the Fund may borrow
from banks in an amount not in excess of 10% of the value of
its total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time
the borrowing is made, as a temporary measure for emergency
purposes (the Fund will not purchase securities while any such
borrowings exist);
(3) invest in the securities of any other investment company
except for a purchase or acquisition in accordance with a plan
of reorganization, merger or consolidation;
(4) purchase the securities of any one issuer (other than U.S.
government securities) if as a result more than 5% of the
value of its total assets would be invested in the securities
of any one issuer or the Fund would own more than 10% of the
voting securities of such issuer;
(5) lend money or securities to any person, provided, however,
that this shall not be deemed to prohibit the purchase of debt
securities or entering into repurchase agreements in
accordance with the Fund's investment policies, or to prohibit
the Fund from lending portfolio securities in an amount up to
33-1/3% of the Fund's total assets (taken at current value);
(6) buy or sell commodities, commodity contracts or real estate
(however, the Fund may purchase securities of companies
investing in real estate);
(7) invest in any company for the purpose of exercising control
over management;
(8) engage in the underwriting of any securities (except to the
extent the Fund may be deemed an underwriter under the
Securities Act of 1933 in disposing of a security);
(9) purchase securities of any company in which any officer or
director of the Fund or its investment adviser owns more than
1/2 of 1% of the outstanding securities, or in which all of
the officers and directors of the Fund and its investment
adviser, as a group, own more than 5% of such securities;
(10) invest more than 25% of the value of the Fund's assets in one
particular industry.
9
<PAGE>
(11) pledge, hypothecate, mortgage or otherwise encumber its
assets, except as necessary to secure permitted borrowings;
(12) purchase oil, gas or other mineral leases, rights or royalty
contracts or development programs (except that the Fund may
invest in the securities of issuers engaged in the foregoing
activities);
(13) purchase the securities (other than United States government
securities) of an issuer having a record, together with
predecessors, of less than three years' continuous operations,
if as a result of such purchase more than 5% of the value of
the Fund's total assets would be invested in such securities.
In applying restriction (10) above, the Fund uses a modified S&P
industry code classification schema which uses various sources to classify
securities.
THE FUND AND ITS MANAGEMENT
- ---------------------------
THE COMPANY. The Company was incorporated under the laws of Maryland as INVESCO
Dynamics Fund, Inc. on April 2, 1993. On July 1, 1993, the Company assumed all
of the assets and liabilities of Financial Dynamics Fund, Inc., which was
incorporated in Colorado on February 17, 1967. On June 26, 1997, the Company
changed its name to INVESCO Capital Appreciation Funds, Inc. and designated two
series of common stock of the Company as INVESCO Dynamics Fund and INVESCO
Growth & Income Fund. On August 28, 1998, the Company changed its name to
INVESCO Equity Funds, Inc. and designated a third series of shares of common
stock of the Company as INVESCO Endeavor Fund. On October 29, 1998, the Company
changed its name to INVESCO Stock Funds, Inc. On July 15, 1999, the Company
assumed all of the assets and liabilities of (1) INVESCO Blue Chip Growth Fund,
Inc., a series of INVESCO Growth Funds, Inc.; (2) INVESCO Small Company Growth
Fund, a series of INVESCO Emerging Opportunity Funds, Inc.; (3) INVESCO S&P 500
Index Fund - Classes I and II, a series of INVESCO Specialty Funds, Inc.; and
(4) INVESCO Value Equity Fund, a series of INVESCO Value Trust.
The Company is an open-end, diversified, no-load management investment company
currently consisting of seven portfolios of investments: INVESCO Blue Chip
Growth Fund, INVESCO Dynamics Fund, INVESCO Endeavor Fund, INVESCO Growth &
Income Fund, INVESCO Small Company Growth Fund, INVESCO S&P 500 Index Fund -
Classes I and II and INVESCO Value Equity Fund. Additional funds may be offered
in the future.
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 Bond
Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Combination Stock &
Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.), INVESCO Diversified
Funds, Inc., INVESCO Emerging Opportunity Funds, Inc. INVESCO Industrial Income
10
<PAGE>
Fund, Inc., INVESCO Growth Funds, Inc., (formerly INVESCO Growth Fund, Inc.),
INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO
Sector Funds, Inc., (formerly, INVESCO Strategic Portfolios, Inc.), INVESCO
Specialty Funds, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Treasurer's
Series 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 Fund. Effective February 3, 1998, ITC no longer provided
sub-advisory services to the Fund and INVESCO provides such day-to-day portfolio
management services as the investment adviser to the Fund. This change in no way
changed the basis upon which investment advice is provided to the Fund, the cost
of those services to the Fund or the persons actually performing the investment
advisory and other services previously provided by ITC.
THE DISTRIBUTOR. Effective September 30, 1997, INVESCO Distributors,
Inc. ("IDI") became the Fund's 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 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 management businesses in
the world with approximately $275 billion in assets under management as of
December 31, 1998. INVESCO was established in 1932 and as of April 30, 1999,
managed 14 mutual funds, consisting of 51 separate portfolios, on behalf of over
900,000 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
and retirement plan services to plan sponsors, institutional retirement plan
sponsor, institutional plan providers and foreign governments.
--INVESCO Retirement Plan Services ("IRPS"), Atlanta, Georgia, a
division of IRBS, provides recordkeeping and investment selection services to
defined contribution plan sponsors of plans with between $2 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, a division of IRBS, provides retirement
account custodian and/or trust services for individual retirement accounts
(IRAs) and other retirement plan accounts. This includes services such as
11
<PAGE>
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, Inc. of Dallas, Texas is responsible for
providing advisory services in the U.S. real estate markets for 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.
--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
insurance companies that issue variable annuity and/or variable life products.
--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.
12
<PAGE>
As indicated in the Fund's Prospectus, 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 Fund.
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 this policy are administered by and subject
to exceptions authorized by INVESCO.
INVESTMENT ADVISORY AGREEMENT. INVESCO serves as investment adviser to
the Fund 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 other series of the Company approved the Agreement on
January 31, 1997 for an initial term expiring February 28, 2000. In May 1999,
this period was extended by the Company's board of directors to May 15, 1999.
Pursuant to shareholder authorization, the Agreement was approved with respect
to the Fund on July 15, 1999. The Agreement may be continued from year to year
with respect to the 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 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
the 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
portfolio of the Fund in conformity with the 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 Fund 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 Fund shares and provision of transfer
agency, dividend disbursing agency, and registrar services, and services
13
<PAGE>
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 Fund's 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 Fund's 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 Fund), 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 Fund under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Fund.
As full compensation for its advisory services provided to the Company,
INVESCO receives a monthly fee. The fee is calculated daily at an annual rate of
0.75% on the first $350 million of the Fund's average net assets, 0.65% on the
next $350 million of the Fund's average net assets, 0.55% on the Fund's average
net assets over $700 million, 0.45% on the Fund's average net assets from $2
billion, 0.40% of the Fund's average net assets from $4 billion, 0.375% of the
fund's average net assets from $6 billion, and 0.35% of the Fund's average net
assets from $8 billion. For the fiscal years ended May 31, 1999, 1998 and 1997,
the Fund paid INVESCO advisory fees (prior to the voluntary absorption of
certain Fund expenses by INVESCO) of $1,973,393, $2,334,680 and $2,029,312,
respectively.
ADMINISTRATIVE SERVICES AGREEMENT. INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved 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. The Administrative
Agreement was for an initial term of one year expiring February 28, 1998, and
has been continued by action of the board of directors until May 15, 2000. The
Administrative Agreement may be continued from year to year thereafter 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 1940 Act) 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 Fund: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; and (B) such sub-accounting, recordkeeping, and administrative services
14
<PAGE>
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, the Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
Fund prior to May 13, 1999 and 0.045% of the average net assets of the Fund
effective May 13, 1999. During the fiscal years ended May 31, 1999, 1998 and
1997, the Fund paid INVESCO administrative services fees (prior to the voluntary
absorption of certain Fund expenses by INVESCO) in the amount of $54,324,
$56,738 and $50,600, respectively.
TRANSFER AGENCY AGREEMENT. INVESCO also performs transfer agent,
dividend disbursing agent, and registrar services for the Fund pursuant to a
Transfer Agency Agreement dated February 28, 1997 which was approved by the
board of directors of the Company, including a majority of the Company's
directors who are not parties to the Transfer Agency Agreement or "interested
persons" of any such party, on November 6, 1996, for an initial term expiring
February 28, 1998 and has been extended by action of the board of directors
until May 15, 2000. Thereafter, the Transfer Agency Agreement may be continued
from year to year as long as such continuance is specifically approved at least
annually by the board of directors of the Company or by a vote of the holders of
a majority of the outstanding shares of the 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 Fund 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 or
omnibus account participants in existence at any time during each month. During
the fiscal years ended May 31, 1999, 1998 and 1997, the Fund paid INVESCO
transfer agency fees of $1,116,282, $1,090,224 and $1,043,895, 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 the Fund are carried out and that the Fund is properly administered.
The officers of the Company, all of whom are officers and employees of, and are
paid by, INVESCO, are responsible for the day-to-day administration of the
Company and the Fund. The investment adviser for the Fund has the primary
responsibility for making investment decisions on behalf of the Fund. These
investment decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable
positions with INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.),
INVESCO Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible Funds,
15
<PAGE>
Inc.), INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.
INVESCO Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO
Money Market Funds, Inc., INVESCO Sector Funds, Inc., (formerly, INVESCO
Strategic Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Tax-Free
Income Funds, Inc., INVESCO Treasurer's Series Funds, Inc. and INVESCO Variable
Investment Funds, Inc. All of the directors of the Company also serve as
trustees of INVESCO Value Trust. All of the officers of the Company also hold
comparable positions with INVESCO Value Trust. Set forth below is information
with respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during 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 of 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 at 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.
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
16
<PAGE>
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, Georgia. Born: September 14, 1930.
LARRY SOLL, Ph.D.,**@ Director. 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 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.
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.
17
<PAGE>
WILLIAM J. GALVIN, JR., Assistant Secretary. Senior Vice President of
INVESCO (since 1995) and of IDI (since 1997); 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;
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). Formerly, Trust Officer of ITC. Born: February 3, 1948.
*These directors are "interested persons" of the Fund as defined in the
1940 Act.
#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. 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.
As of July 9, 1999, the officers and directors of the Fund, as a group,
beneficially owned less than 1% of the Company's outstanding shares and less
than 1% of the Fund's outstanding shares.
Director Compensation
- ---------------------
The following table sets forth, for the fiscal year ended April 30,
1999: 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 INVESCO Distributors, Inc. and advised by
INVESCO (including the Company) 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,
1998. As of December 31, 1998, there were 49 funds in the INVESCO Complex.
18
<PAGE>
Total
Retirement Compensation
Benefits Estimated From
Accrued As Annual INVESCO
Aggregate Part of Benefits Complex
Compensation Company Upon Paid To
From Company(1) Expenses(2) Retirement(3) Directors(1)
Fred A. Deering, $4,449 $3,647 $2,463 $103,700
Vice Chairman of
the Board
Victor L. Andrews 4,030 3,489 2,716 80,350
Bob R. Baker 4,214 3,116 3,639 84,000
Lawrence H. Budner 3,935 3,489 2,716 79,350
Daniel D. Chabris4 1,705 3,565 2,234 70,000
Wendy L. Gramm 3,940 0 0 79,000
Kenneth T. King 4,246 3,723 2,234 77,050
John W. McIntyre 4,138 0 0 98,500
Larry Soll 3,873 0 0 96,000
Total $34,530 $21,029 $16,002 $767,950
% of Net Assets 0.0017%5 0.0010%5 0.0035%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.
(2) Represents 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
19
<PAGE>
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 retired as a director effective September 30, 1998.
(5) Totals as a percentage of the Company's net assets as of April 30,
1999.
(6) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1998.
Messrs. Brady and Williamson, as "interested persons" of the Company
and of 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 Fund or other funds in the
INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO
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 to 74, if the retirement date is
extended by the boards for one or two years, but less than three years)
continuation of payment for one year (the "first year retirement benefit") of
the annual basic retainer 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
20
<PAGE>
Funds in a manner determined to be fair and equitable by the committee. The Fund
began making payments to Mr. Chabris as of October 1, 1998. The Fund 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 certain
of the INVESCO Funds. The deferred amounts are being invested in the shares of
all of the INVESCO. Each independent director is, therefore, an indirect owner
of shares of each INVESCO fund.
The Company has an audit committee which 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.
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 Company's board of directors. It reports on these
matters to the Company's board of directors.
HOW SHARES CAN BE PURCHASED
- ---------------------------
Shares of the 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 is computed 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 Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Fund's behalf. The Fund will be
21
<PAGE>
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 the 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 Fund's distributor under a distribution agreement with
the Company and bears all expenses, including the costs of printing and
distributing prospectuses incident to direct sales and distribution of the
Fund's shares on a no-load basis.
DISTRIBUTION PLAN. As discussed under "How To Buy Shares - Distribution
Expenses" in the Prospectus, the Company has adopted a Plan and Agreement of
Distribution (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan
provides that the 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 the Fund's shares to investors. Payment 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. For the fiscal year ended May
31, 1999, the Fund made payments to INVESCO (the predecessor of IDI, distributor
of shares of the Fund) and IDI under the Plan in the amount of $658,292. In
addition, as of May 31, 1999, $60,698 of additional distribution accruals had
been incurred by the Fund and will be paid to IDI during the fiscal year ended
May 31, 2000. As noted in the section of the 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 Fund.
The 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 Fund 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 Fund possibly could decrease to the extent
that the banks would no longer invest customer assets in the 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 the Fund.
For the fiscal year ended May 31, 1999, allocations of 12b-1 amounts
paid by the Fund for the following categories of expenses were: advertising --
$239,635; sales literature, printing and postage -- $63,029; direct mail --
$16,387; public relations/promotion -- $33,339; compensation to securities
dealers and other organizations -- $216,522; marketing personnel -- $89,381.
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
22
<PAGE>
transmitting to the Company's Transfer Agent computer processable tapes of
transactions by the Fund's customers, serving as the primary source of
information to customers in answering questions concerning the Fund, and
assisting in other customer transactions with the Fund.
The Plan was approved on April 21, 1993, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("independent directors"). 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. Pursuant to authorization granted by the Company's board of
directors on September 2, 1997, a new Plan became effective on September 29,
1997, under which IDI assumed all obligations related to distribution from
INVESCO. The Plan has been continued by action of the board of directors until
May 15, 1999. Pursuant to shareholder authorization, the Plan was approved with
respect to the Fund on July 15, 1999.
The Plan provides that it shall continue in effect with respect to the
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors of the Company cast in person at a meeting called for
the purpose of voting on such continuance. The Plan can also be terminated at
any time with respect to the Fund, without penalty, if a majority of the
independent directors, or shareholders of the Fund, vote to terminate the Plan.
The Company may, in its absolute discretion, suspend, discontinue or limit the
offering of its shares of the Fund 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 Fund, the investment
climate for the Fund, general market conditions, and the volume of sales and
redemptions of the 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 the Fund's shares; however, the Fund is not contractually
obligated to continue the Plan for any particular period of time. Suspension of
the offering of the 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 the Fund's payments thereunder without approval of the
shareholders of the 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
Fund, the latter by vote of a majority of the independent directors, or of the
holders of a majority of the Fund's outstanding voting securities, may terminate
such agreement as to the Fund without penalty upon 30 days' written notice to
the other party. No further payments will be made by the Fund under the Plan in
the event of its termination as to the 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 the Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as defined
23
<PAGE>
by the 1940 Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, the Fund's obligation to make payments to IDI shall
terminate automatically, in the event of such "assignment," in which case the
Fund 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 the 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 and 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 Fund And Its
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 it and its 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 of the Fund;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Fund 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 the Fund's shareholder services (in both
systems and personnel),
(b) To increase the number and type of mutual funds
available to investors from INVESCO and its
affiliated companies (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.
24
<PAGE>
exceeding established breakpoints in the advisory fee schedule
and allocating fixed expenses over a larger asset base),
thereby partially offsetting the costs of the Plan.
HOW SHARES ARE VALUED
- ---------------------
As described in the section of the Fund's Prospectus entitled "Fund
Price And Performance," the net asset value of shares of the 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 the Fund that the current net asset
value per share of the Fund might be materially affected by changes in the value
of the securities held, but only if on such day the 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 the Fund is calculated by dividing the
value of all securities held by the Fund plus 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 the 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 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
are normally valued at amortized cost.
The values of securities held by the Fund, and other assets used in
computing net asset value, generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Fund's net asset value. However, in the event that the closing price of a
foreign security is not available in time to calculate the 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
25
<PAGE>
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 Fund's Prospectus entitled "Fund Price and
Performance," the Company advertises the total return performance of the Fund.
Average annual total return performance for the Fund for the one- and five-year
periods ended May 31, 1999 and the period December 27, 1991 (commencement of
operations of the Fund) to May 31, 1999 (life of the Fund), was 12.91%, 16.04%
and 16.95%, respectively. Average annual total return performance is computed by
finding the average annual compounded rates of return that would equate the
initial amount invested to the ending redeemable value, according to the
following formula:
n
P(1 + T) = ERV
where: P = initial payment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of initial payment
The average annual total return performance figures shown are
determined by solving the above formula for "T" for each time period indicated.
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent
sources may also be used in advertisements, sales literature or shareholder
reports, including reprints of, or selections from, editorials or articles about
the Fund. Sources for Fund performance information and articles about the Fund
include, but are not limited to, the following:
AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES
CNBC
CNN
CONSUMER DIGEST
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
26
<PAGE>
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTMENT COMPANY DATA, INC.
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
LIPPER ANALYTICAL SERVICES, INC.'S MUTUAL FUND
PERFORMANCE ANALYSIS
MONEY
MORNINGSTAR
MUTUAL FUND FORECASTER
NO-LOAD ANALYST
NO-LOAD FUND X
PERSONAL INVESTOR
SMART MONEY
THE NEW YORK TIMES
THE NO-LOAD FUND INVESTOR
U.S. NEWS AND WORLD REPORT
UNITED MUTUAL FUND SELECTOR
USA TODAY
THE WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
SERVICES PROVIDED BY THE FUND
- -----------------------------
PERIODIC WITHDRAWAL PLAN. As described in the section of the Fund's
Prospectus entitled "How To Sell Shares," the 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 the 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 such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to INVESCO. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless a shareholder requests otherwise.
EXCHANGE POLICY. As discussed in the section of the Fund's Prospectus
entitled "How To Buy Shares -- Exchange Policy," the Fund offers shareholders
27
<PAGE>
the ability to exchange shares of the 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 Funds Group, Inc. using the telephone
number or address on the cover of this Statement of Additional Information.
Exchanges made by telephone must be in an amount of at least $250, if the
exchange is being made into an existing account of one of the INVESCO funds. All
exchanges that establish a new account must meet the fund's applicable minimum
initial investment requirements. Written exchange requests into an existing
account have no minimum requirements other than the fund's applicable minimum
subsequent investment requirements. Any gain or loss realized on an exchange is
recognized for federal income tax purposes. This 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 the Fund's Prospectus entitled "Fund
Services - Retirement Plans And IRAs," 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 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
the 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
the Fund of securities owned by it is not reasonably practicable or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (d) the Securities and Exchange Commission by order so permits.
The Company has authorized one or more brokers to accept redemption
orders on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Fund's behalf. The Fund 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 the Fund's Net Asset Value next calculated after the
order has been accepted by an authorized broker or the broker's authorized
designee.
28
<PAGE>
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 the
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 the 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
- -----------------------------------------
The Company intends to conduct its business and satisfy the applicable
diversification of assets and source of income requirements to qualify as a
regulated investment company under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"). The Company so qualified in the fiscal year ended
April 30, 1999, and intends to qualify during the current fiscal year. As a
result, it is anticipated that the Company will pay no federal income or excise
taxes and will be accorded conduit or "pass through" treatment for federal
income tax purposes.
Dividends paid by the Fund from net investment income as well as
distributions of net realized short-term capital gains and net-realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
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 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 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.
29
<PAGE>
All dividends and other distributions are regarded as taxable to the
investor, regardless whether such dividends and distributions are reinvested in
additional shares of the Fund or another fund in the INVESCO group. The net
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
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 Company
recommends any particular method of determining cost basis. Other methods may
result in different tax consequences. If a shareholder has reported gains or
losses with respect to shares of 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 the 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.
The Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income for that year and capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts.
Dividends and interest received by the 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
the 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. The 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 will be treated
as an expense of the Fund.
30
<PAGE>
The Fund may invest in the stock of "passive foreign investment
companies" (PFICs"). A PFIC is a foreign corporation that, in general, meets
either of the following tests: (1) at least 75% of its gross income is passive
or (2) an average of at least 50% of its assets produce, or are held for the
production of, passive income. Under certain circumstances, the 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 the Fund's investment company taxable income and,
accordingly, will not be taxable to it to the extent that income is distributed
to its shareholders.
The 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
the Fund adjusted tax basis therein as of the end of that year. Once the
election has been made, the 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 the Fund
for prior taxable years. The Fund's adjusted tax basis in each PFIC's stock with
respect to which it makes this election will be adjusted to reflect that amount
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
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and capital gain
distributions will generally be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Internal Revenue Code
of 1986, as amended, for income tax purposes does not entail government
supervision of management or investment policies.
INVESTMENT PRACTICES
- --------------------
PORTFOLIO TURNOVER. There are no fixed limitations regarding the
portfolio turnover of the Fund. The rate of portfolio turnover can fluctuate
under constantly changing economic conditions and market circumstances.
Securities initially satisfying the basic policies and objectives of the Fund
may be disposed of when they are no longer suitable. Brokerage costs to the Fund
are commensurate with the rate of portfolio activity. The portfolio turnover
31
<PAGE>
rates for the Fund for the fiscal years ended May 31, 1999, 1998 and 1997, were
203%, 158%, and 216%, 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 Company's investment
adviser, places orders for the purchase and sale of securities with brokers and
dealers based upon INVESCO's evaluation of financial responsibility of such
brokers and dealers, subject to their 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 portfolio transactions of the 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 Fund 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
brokers and dealers on transactions effected for other comparable institutional
investors. While INVESCO seeks reasonably competitive rates, the Fund does not
necessarily pay the lowest commission, discount or spread available.
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 Fund effects securities transactions may be used by
INVESCO in servicing all of their accounts and not all such services may be used
by INVESCO in connection with the Fund.
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 Fund 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 Fund to their clients, or that act as agent in the
purchase of the Fund's shares for their clients. When a number of brokers and
dealers can provide comparable best price and execution on a particular
transaction, INVESCO 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")
32
<PAGE>
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
Company's directors have authorized the Fund 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 Fund 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 that Fund. 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 Funds to apply dollars generated from the Plan to
pay the remainder of the Services Fee, subject to the maximum Rule 12b-1 fee
permitted by the Plan. INVESCO itself pays the portion of the Fund's Services
Fee, if any, that exceeds the sum of the sub-transfer agency or recordkeeping
fee and Rule 12b-1 fee. The Company's directors have further authorized INVESCO
to place a portion of the Fund's brokerage transactions with certain NTF Program
Sponsors or their affiliated brokers, if INVESCO reasonably believes that, in
effecting the Fund's 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 specific Fund 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 Fund, 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 Fund pays sub-transfer agency or recordkeeping fees to the
NTF Program Sponsor in payment of the Services Fee only to the extent that such
fees are not offset by the Fund's credits. In the event that the transfer agency
fee paid by a Fund to INVESCO with respect to investors who have beneficial
interests in a particular NTF Program Sponsor's omnibus accounts in that Fund
exceeds the Services Fee applicable to that 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 the 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 Company. The
Company's board of directors has also authorized the Company 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
Fund 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 compensate IDI for
payments to such NTF Program Sponsor absent such credits.
The aggregate dollar amounts of brokerage commissions paid by the Fund
for the fiscal years ended May 31, 1999, 1998 and 1997 were $3,319.634,
33
<PAGE>
$4,167,020 and $2,518,857, respectively. During the fiscal year ended May 31,
1999, brokers providing research services received $1,642,964 in commissions on
portfolio transactions effected for the Fund. The aggregate dollar amount of
such portfolio transactions was $615,088,785. No commissions were allocated to
any brokers in recognition of their sales of shares of the Fund on portfolio
transactions of the Fund effected during the fiscal year ended May 31, 1999.
At May 31, 1999, the Fund held securities of its regular brokers or
dealers, or their parents, as follows:
Value of Securities
Broker or Dealer at 5/31/99
- ---------------- -------------------
State Street Bank & Trust 38,124
INVESCO does not receive any brokerage commissions on portfolio
transactions effected on behalf of the Fund, and there is no affiliation between
INVESCO or any person affiliated with INVESCO or the Fund and any broker or
dealer that executes transactions for the Fund.
ADDITIONAL INFORMATION
- ----------------------
COMMON STOCK. The Company is authorized to issue up to 2 billion 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 Fund. The board
of directors has the authority to designate additional series 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 these items are allocated among series in a
manner deemed by the board of directors to be fair and equitable. Generally,
such allocation will be made based upon the relative total net assets of each
series. In the unlikely event that a liability allocable to one series exceeds
the assets belonging to the series, all or a portion of such liability may have
to be borne by the holders of shares of the Company's other series.
All dividends on shares of a particular series shall be paid only out
of the income belonging to that series, pro rata to the holders of that series.
In the event of the liquidation or dissolution of the Company or of a particular
series, the shareholders of each series that is being liquidated shall be
entitled to receive, as a series, when and as declared by the board of
directors, the excess of the assets belonging to that series over the
liabilities belonging to that series. The holders of shares of any series shall
not be entitled to any distribution upon liquidation of any other series. The
34
<PAGE>
assets so distributable to the shareholders of any particular series shall be
distributed among such shareholders in proportion to the number of shares of
that series held by them and recorded on the books of the Company.
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 changes 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 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. They 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 June 30, 1999, the following entities
held more than 5% of the Fund's outstanding equity securities.
Class and
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- ---------
Connecticut General Life Ins. 4,470,056.3380 13.67%
c/o Liz Pezoa M-110
P.O. Box 2975 H 19 B
Hartford, CT 06104-2975
Charles Schwab & Co. Inc. 3,174,213.8410 9.71%
Special Custody Acct. For The
Exclusive Benefit of Customers
101 Montgomery St.
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
35
<PAGE>
securities of the Company. The bank is also responsible for, among other things,
receipt and delivery of the Fund's investment securities in accordance with
procedures and conditions specified in the custody agreement. 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 80237, pursuant to the Transfer Agency Agreement
described in "The Fund and Its Management." Such services include the issuance,
cancellation, and transfer of shares of the Fund, and the maintenance of records
regarding the ownership of such shares.
REPORTS TO SHAREHOLDERS. 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 Fund's audited financial statements and the
notes thereto for the fiscal year ended May 31, 1999, 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 May 31, 1999.
PROSPECTUS. The Company will furnish, without charge, a copy of the
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 Prospectus do not contain all of the information set forth in the
Registration Statement the Company has filed with the Securities and Exchange
Commission. The complete Registration Statement may be obtained from the
Securities and Exchange Commission upon payment of the fee prescribed by the
rules and regulations of the Commission.
36
<PAGE>
APPENDIX A
BOND RATINGS
The following is a description of the Moody's and S&P bond rating
categories:
MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or maintenance of other
terms of the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
37
<PAGE>
S&P CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by S&P to a debt obligation
and indicates an extremely strong capacity to pay principal and interest.
AA - Bonds rated AA also qualify as high-quality debt obligations.
Capacity to pay principal and interest is very strong, and in the majority of
instances they differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to
pay principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently
have the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to
default and are dependent upon favorable business, financial, and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, they are not
likely to have the capacity to pay interest and repay principal.
38
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
July 14, 1999
INVESCO STOCK FUNDS, INC.
INVESCO S&P 500 Index 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 STOCK FUNDS, INC. (formerly, 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
seven separate portfolios of investments: INVESCO Blue Chip Growth Fund; INVESCO
Dynamics Fund; INVESCO Endeavor Fund; INVESCO Growth & Income Fund; INVESCO S&P
500 Index Fund; INVESCO Small Company Growth Fund and INVESCO Value Equity Fund
Investors may purchase shares of any or all of the Funds. Additional
funds may be added in the future.
The Fund seeks to provide both price performance and income comparable
to the Standard & Poor's 500 Composite Index (the "Index" or the "S&P 500") by
investing in the equity securities that comprise the S&P 500 in approximately
the same proportion that they are represented in the Index and in other
instruments whose value depends upon or derives from the value of the Index.
A Prospectus for the Fund, dated July 14, 1999, which provides the
basic information you should know before investing in the Fund, may be obtained
without charge from INVESCO Distributors, Inc., P.O. 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 Prospectus. It is intended to provide you with additional
information regarding the activities and operations of the Fund and should be
read in conjunction with the Prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT POLICIES AND RESTRICTIONS...........................................1
THE FUND AND ITS MANAGEMENT...................................................11
HOW SHARES CAN BE PURCHASED...................................................24
HOW SHARES ARE VALUED.........................................................27
FUND PERFORMANCE..............................................................28
SERVICES PROVIDED BY THE FUND.................................................30
TAX-DEFERRED RETIREMENT PLANS.................................................30
HOW TO REDEEM SHARES..........................................................31
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES......................................31
INVESTMENT PRACTICES..........................................................33
ADDITIONAL INFORMATION........................................................36
APPENDIX A....................................................................39
APPENDIX B....................................................................43
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
- ------------------------------------
As discussed in the Fund's Prospectus, the Fund may invest in a variety
of securities, and employ a broad range of investment techniques in seeking to
achieve its investment objectives. Such securities and techniques include the
following:
EQUITY SECURITIES. As described in the Prospectus, equity securities which may
be purchased by the Fund 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 Fund 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 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
1
<PAGE>
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.
FOREIGN SECURITIES. Up to 25% of the Fund's total assets, measured at the time
of purchase, may be invested directly in foreign equity or corporate debt
securities. Securities of Canadian issuers and American Depository Receipts
("ADRs") are not subject to this 25% limitation. ADRs are receipts representing
shares of a foreign corporation held by a U.S. bank that entitle the holder to
all dividends and capital gains. ADRs are denominated in U.S. dollars and trade
in the U.S. securities markets.
For U.S. investors, the returns on foreign securities are influenced
not only by the returns on the foreign investments themselves, but also by
currency fluctuations. That is, when the U.S. dollar generally rises against a
foreign currency, returns for a U.S. investor on foreign securities denominated
in that foreign currency may decrease. By contrast, in a period when the U.S.
dollar generally declines, those returns may increase.
Other aspects of international investing to consider include:
-less publicly available information than is generally available about
U.S. issuers;
-differences in accounting, auditing and financial reporting standards;
-generally higher commission rates on foreign portfolio transactions
and longer settlement periods;
-smaller trading volumes and generally lower liquidity of foreign stock
markets, which may cause greater price volatility; and
-investment income on certain foreign securities may be subject to
foreign withholding taxes, which may reduce dividend or interest 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; foreign currencies fluctuations; potential restrictions
on the flow of international capital; and the possibility of the Fund
experiencing difficulties in pursuing legal remedies and collecting judgments.
ADRs are subject to some of the same risks as direct investments in
foreign securities, including the risk that material information about the
issuer may not be disclosed in the United States and the risk that currency
fluctuations may adversely affect the value of the ADR.
RESTRICTED/144A SECURITIES. The 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.
2
<PAGE>
In recent years, a large institutional market has developed for Rule
144A Securities. Institutional investors generally will not seek to sell these
instruments to the general public, but instead will often depend on an efficient
institutional market in which Rule 144A Securities can readily be resold or on
an issuer's ability to honor a demand for repayment. Therefore, the fact that
there are contractual or legal restrictions on resale to the general public or
certain institutions is not dispositive of the liquidity of such investments.
Rule 144A under the 1933 Act establishes a "safe harbor" from the
registration requirements of the 1933 Act for resales of certain securities to
qualified institutional buyers. Institutional markets for Rule 144A Securities
may provide both readily ascertainable values for Rule 144A Securities and the
ability to liquidate an investment in order to satisfy share redemption orders.
An insufficient number of qualified institutional buyers interested in
purchasing a Rule 144A Security held by the Fund, however, could affect
adversely the marketability of such security and the Fund might be unable to
dispose of such security promptly or at reasonable prices.
The board of directors has delegated to INVESCO the authority to
determine whether a liquid market exists for securities eligible for resale
pursuant to Rule 144A under the 1933 Act, or any successor to such rule, and
whether such securities are subject to the Fund's restriction against investing
more than 10% of its total assets in illiquid securities. Under guidelines
established by the board of directors, INVESCO 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
market place trades (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of transfer.
OBLIGATIONS OF DOMESTIC BANKS. These obligations consist of certificates of
deposit ("CDs") and banker's acceptances issued by domestic banks (including
their foreign branches) having total assets in excess of $5 billion, which meet
the Fund's minimum rating requirements. CDs are issued against deposits in a
commercial bank for a specified period and rate and are normally negotiable.
Eurodollar CDs are certificates issued by a foreign branch (usually London) of a
U.S. domestic bank, and, as such, the credit is deemed to be that of the
domestic bank.
Bankers' acceptances are short-term credit instruments evidencing the
promise of the bank (by virtue of the bank's "acceptance") to pay at maturity a
draft which has been drawn on it by a customer (the "drawer"). These instruments
are used to finance the import, export, transfer, or storage of goods and
reflect the obligation of both the bank and the drawer to pay the face amount.
COMMERCIAL PAPER. The Fund may invest in these obligations, which are short-term
promissory notes issued by domestic corporations to meet current working capital
requirements. Such paper may be unsecured or backed by a letter of credit.
3
<PAGE>
Commercial paper issued with a letter of credit is, in effect, "two party
paper," with the issuer directly responsible for payment, plus a bank's
guarantee that if the note is not paid at maturity by the issuer, the bank will
pay the principal and interest to the buyer. Commercial paper is sold either as
interest-bearing or on a discounted basis, with maturities not exceeding 270
days. The Fund will only invest in commercial paper which at the date of
purchase is rated A-2 or higher by Standard & Poor's, a division of The
McGraw-Hill Companies, Inc. ("S&P") or Prime-2 or higher by Moody's Investors
Service, Inc. ("Moody's") or, if unrated, commercial paper that is judged by
Fund Management to be equivalent in quality to commercial paper having such
ratings. A commercial paper rating of A-2 or Prime-2 indicates a strong capacity
for repayment of short-term promissory obligations.
SECURITIES LENDING. The Fund also may lend its securities. This practice permits
the Fund to earn income, which, in turn, can be invested in additional
securities of the type described in the Fund's Prospectus in pursuit of the
Fund's investment objective. Loans of securities by the Fund will be
collateralized by cash, letters of credit, or securities issued or guaranteed by
the U.S. government or its agencies equal to at least 100% of the current market
value of the loaned securities, plus accrued interest and dividends, determined
on a daily basis. Cash collateral will be invested only in high quality
short-term investments offering maximum liquidity. Lending securities involves
certain risks, the most significant of which is the risk that a borrower may
fail to return a portfolio security. Fund Management monitors the
creditworthiness of borrowers in order to minimize such risks. The Fund will not
lend any security if, as a result of the loan, the aggregate value of securities
then on loan would exceed 33-1/3% of the Fund's total assets (taken at market
value).
FUTURES AND OPTIONS ON FUTURES, SECURITIES AND INDICES. As discussed in the
Prospectus, the Fund may enter into futures contracts, and purchase and sell
("write") options to buy or sell futures contracts and other securities or
indices, which are included in the types of instruments sometimes referred to as
"derivatives," because their value depends upon or derives from the value of an
underlying asset, reference rate or index. 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 (the "CFTC") as
conditions for exemption of a mutual fund, or 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 the Fund's total assets after taking into account
unrealized profits and losses on options it has entered into. In the case of an
option that is "in-the-money," as defined in the Commodity Exchange Act (the
"CEA"), the in-the-money amount may be excluded in computing such 5%. (In
general a call option on a future is "in-the-money" if the value of the future
exceeds the exercise ("strike") price of the call; a put option on a future is
"in-the-money" if the value of the future which is the subject of the put is
exceeded by the strike price of the put.) The Fund may use futures and options
thereon solely for bona fide hedging or for other non-speculative purposes
within the meaning and intent of the applicable provisions of the CEA. The Fund
may also use futures and options for liquidity.
4
<PAGE>
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 a segregated asset account an amount of
cash or qualifying securities (currently U.S. Treasury bills). This is called
"initial margin." Such initial margin is in the nature of a performance bond or
good faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in 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 A ("Description of
Futures and Options 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, determined 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 contract
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 the underlying
securities and the value of the futures contract. Moreover, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market and may therefore cause increased participation by
speculators in the futures market. Such increased participation may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in the
value of the underlying securities 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 which may be disadvantageous to the Fund.
5
<PAGE>
OPTIONS ON FUTURES CONTRACTS. The Fund may buy and write options on futures
contracts for hedging purposes; options are also included in the types of
instruments sometimes known as derivatives. The purchase of a call option on a
futures contract is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option compared to
either the price of the futures contract upon which it is based or the price of
the underlying instrument, ownership of the option may or may not be less risky
than ownership of the futures contract or the underlying instrument. As with the
purchase of futures contracts, when the Fund is not fully invested it may buy a
call option on a futures contract to hedge against a market advance.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the security or foreign currency which
is deliverable under, or of the index comprising, the futures contract. If the
futures price at the expiration of the option is below the exercise price, the
Fund will retain the full amount of the option premium which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the security or foreign currency
which is deliverable under, or of the index comprising, the futures contract. If
the futures price at expiration of the option is higher than the exercise price,
the Fund will retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities which the Fund is
considering buying. If a call or put option 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 change in the value of
its portfolio securities and changes in the value of the futures positions, the
Fund's losses from existing options on futures may to some extent be reduced or
increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract is similar in some
respects to the purchase of protective put options on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge the Fund's
portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be fully reflected in the value of the options bought.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward currency
contracts, which are included in the types of instruments sometimes known as
derivatives, to purchase or sell foreign currencies (i.e., non-U.S. currencies)
as a hedge against possible variations in foreign exchange rates. A forward
foreign currency contract ("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, the Fund can hedge
against possible variations in the value of the dollar versus the subject
currency either between the date the foreign security is purchased or sold and
the date on which payment is made or received or during the time the Fund holds
6
<PAGE>
the foreign security. Hedging against a decline in the value of a currency in
the foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions preclude the opportunity for gain if the
value of the hedged currency should rise. The Fund will not speculate in forward
contracts. Although the Fund has not adopted any limitations on its ability to
use forward contracts as a hedge against fluctuations in foreign exchange rates,
the Fund does not attempt to hedge all of its non-U.S. portfolio positions and
will enter into such transactions only to the extent, if any, deemed appropriate
by their investment adviser or sub-adviser. The Fund will not enter into forward
contracts for a term of more than one year.
SWAPS AND SWAP-RELATED PRODUCTS. Interest rate swaps involve the exchange by the
Fund with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments.
The exchange commitments can involve payments to be made in the same currency or
in different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based principal amount
from the party selling the interest rate cap. The purchase of an interest rate
floor entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the interest rate
floor.
The Fund may enter into interest rate swaps, caps and floors, which are
included in the types of instruments sometimes known as derivatives, on either
an asset-based or liability-based basis, depending upon whether it is hedging
its assets or its liabilities, and usually will enter into interest rate swaps
on a net basis, i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of the two
payments. The net amount of the excess, if any, of the Fund's obligations over
its entitlement with respect to each interest rate swap will be calculated on a
daily basis, and an amount of cash or liquid assets having an aggregate net
asset value at least equal to the accrued excess will be maintained in a
segregated account by the Fund's custodian. If the Fund enters into an interest
rate swap on other than a net basis, the Fund would maintain a segregated
account in the full amount accrued on a daily basis of the Fund's obligations
with respect to the swap. The Fund will not enter into any interest rate swap,
cap or floor transaction unless the unsecured senior debt or the claims-paying
ability of the other party thereto is rated in one of the three highest rating
categories of at least one nationally recognized statistical rating organization
at the time of entering into such transaction. The Fund's adviser or sub-adviser
will monitor the creditworthiness of all counterparties on an ongoing basis. If
there is a default by the other party to such a transaction, the Fund would have
contractual remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps and floors are more
recent innovations for which standardized documentation has not yet been
developed and, accordingly, they are less liquid than swaps. To the extent the
Fund sells (i.e., writes) caps and floors, it will maintain in a segregated
account cash or liquid assets having an aggregate net asset value at least equal
7
<PAGE>
to the full amount, accrued on a daily basis, of the Fund's obligations with
respect to any caps or floors.
There is no limit on the amount of interest rate swap transactions that
may be entered into by the Fund. These transactions may in some instances
involve the delivery of securities or other underlying assets by the Fund or its
counterparty to collateralize obligations under the swap. The documentation
currently used in those markets attempts to limit the risk of loss with respect
to interest rate swaps to the net amount of the payments that a party is
contractually obligated to make. If the other party to an interest rate swap
that is not collateralized defaults, the Fund would anticipate losing the net
amount of the payments that the Fund contractually is entitled to receive over
the payments that the Fund is contractually obligated to make. The Fund may buy
and sell (i.e., write) caps and floors without limitation, subject to the
segregated account requirement described above as well as the Fund's other
investment restrictions set forth below.
INVESTMENT RESTRICTIONS. As discussed in the Fund's Prospectus, the Fund
operates under certain investment restrictions. For purposes of the following
investment restrictions, all percentage limitations apply immediately after a
purchase or initial investment. Any subsequent change in a particular percentage
resulting from fluctuations in value does not require elimination of any
security from the Fund.
The following restrictions are fundamental and may not be changed with
respect to the Fund without the prior approval of the holders of a majority, as
defined in the Investment Company Act of 1940 (the "1940 Act"), of the
outstanding voting securities of the Fund. Under these restrictions the Fund may
NOT:
1. With respect to seventy-five percent (75%) of its total assets,
purchase the securities of any one issuer (except cash items and
"government securities" as defined under the 1940 Act), if the
purchase would cause the Fund to have more than 5% of the value
of its total assets invested in the securities of such issuer or
to own more than 10% of the outstanding voting securities of such
issuer;
2. Borrow money or issue senior securities (as defined in the 1940
Act), except that the Fund may borrow money for temporary or
emergency purposes (not for leveraging or investment) and may
enter into reverse repurchase agreements in an aggregate amount
not exceeding 33-1/3% of the value of its total assets (including
the amount borrowed) less liabilities (other than borrowings).
Any borrowings that come to exceed 33-1/3% of the value of the
Fund's total assets by reason of a decline in total assets will
be reduced within three business days to the extent necessary to
comply with the 33-1/3% limitation. This restriction shall not
prohibit deposits of assets to margin or guarantee positions in
futures, options, swaps or forward contracts, or the segregation
of assets in connection with such contracts.
3. Invest directly in real estate or interests in real estate;
however, the Fund may own debt or equity securities issued by
companies engaged in those businesses.
8
<PAGE>
4. Purchase or sell physical commodities other than foreign
currencies unless acquired as a result of ownership of securities
(but this shall not prevent the Fund from purchasing or selling
options, futures, swaps and forward contracts or from investing
in securities or other instruments backed by physical
commodities.)
5. Lend any security or make any other 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 purchases of commercial
paper, debt securities or to repurchase agreements.)
6. Act as an underwriter of securities issued by others, except to
the extent that it may be deemed an underwriter in connection
with the disposition of portfolio securities of the Fund.
As a fundamental policy in addition to the above, the Fund may,
notwithstanding any other investment policy or limitation (whether or not
fundamental), invest all of its assets in the securities of a single open-end
management investment company with substantially the same fundamental investment
objectives, policies and limitations as the Fund.
In applying restriction 2 above, if the Fund has borrowed money in an
amount exceeding 5% of the value of the Fund's net assets, the Fund will not
purchase additional securities while any such borrowings exist.
Furthermore, the board of directors has adopted additional investment
restrictions for the Fund. These restrictions are operating policies of the Fund
and may be changed by the board of directors without shareholder approval. The
additional investment restrictions adopted by the board of directors to date
with respect to the Fund include the following:
(1) The Fund's investments in warrants, valued at the lower of cost
or market, may not exceed 5% of the value of its net assets.
Included within that amount, but not to exceed 2% of the value of
the Fund's net assets, may be warrants that are not listed on the
New York or American Stock Exchanges. Warrants acquired by the
Fund in units or attached to securities shall be deemed to be
without value unless such warrants are separately transferable
and current market prices are available, or unless otherwise
determined by the board of directors.
(2) The Fund will not (i) enter into any futures contracts or options
on futures contracts if immediately thereafter the aggregate
margin deposits on all outstanding futures contracts positions
held by the Fund and premiums paid on outstanding options on
futures contracts, after taking into account unrealized profits
and losses, would exceed 5% of the market value of the total
assets of the Fund, or (ii) enter into any futures contracts if
the aggregate net amount of the Fund's commitments under
outstanding futures contracts positions of the Fund would exceed
the market value of the total assets of the Fund.
9
<PAGE>
(3) The Fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent
in kind and amount to the securities sold short without the
payment of any additional consideration therefor, and provided
that transactions in futures, options, swaps and forward
contracts are not deemed to constitute selling securities short.
(4) The Fund does not currently intend to purchase securities on
margin, except that the Fund may obtain such short-term credits
as are necessary for the clearance of transactions, and provided
that margin payments and other deposits in connection with
transactions in options, futures, swaps and forward contracts
shall not be deemed to constitute purchasing securities on
margin.
(5) The Fund does not currently intend to (i) purchase securities of
closed end investment companies, except in the open market where
no commission except the ordinary broker's commission is paid, or
(ii) purchase or retain securities issued by other open-end
investment companies. Limitations (i) and (ii) do not apply to
money market funds or to securities received as dividends,
through offers of exchange, or as a result of a reorganization,
consolidation, or merger. If the Fund invests in a money market
fund, the Fund's investment adviser will waive its advisory fee
on the assets of the Fund which are invested in the money market
fund during the time that those assets are so invested.
(6) The Fund may not mortgage or pledge any securities owned or held
by the Fund in amounts that exceed, in the aggregate, 15% of the
Fund's net assets, provided that this limitation does not apply
to reverse repurchase agreements or in the case of assets
deposited to margin or guarantee positions in futures, options,
swaps or forward contracts or placed in a segregated account in
connection with such contracts.
(7) The Fund does not currently intend to purchase securities of any
issuer (other than U.S. Government agencies and instrumentalities
or instruments guaranteed by an entity with a record of more than
three years' continuous operation, including that of
predecessors) with a record of less than three years' continuous
operation (including that of predecessors) if such purchase would
cause the Fund's investments in all such issuers to exceed 5% of
the Fund's total assets taken at market value at the time of such
purchase.
(8) The Fund does not currently intend to invest directly in oil,
gas, or other mineral development or exploration programs or
leases; however, the Fund may own debt or equity securities of
companies engaged in those businesses.
(9) The Fund does not currently intend to purchase any security or
enter into a repurchase agreement if, as a result, more than 15%
of its net assets would be invested in repurchase agreements not
10
<PAGE>
entitling the holder to payment of principal and interest within
seven days and in securities that are illiquid by virtue of legal
or contractual restrictions on resale or the absence of a readily
available market. The board of directors, or the Fund's
investment adviser acting pursuant to authority delegated by the
board of directors, may determine that a readily available market
exists for securities eligible for resale pursuant to Rule 144A
under the 1933 Act, or any successor to such rule, and therefore
that such securities are not subject to the foregoing limitation.
(10) The Fund may not invest in companies for the purpose of
exercising control or management, except to the extent that
exercise by the Fund of its rights under agreements related to
portfolio securities would be deemed to constitute such control.
With respect to investment restriction (9) above, under the guidelines
established by the board of directors, Fund Management 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).
THE FUND AND ITS MANAGEMENT
- ---------------------------
THE COMPANY. The Company was incorporated under the laws of Maryland as INVESCO
Dynamics Fund, Inc. on April 2, 1993. On July 1, 1993, the Company assumed all
of the assets and liabilities of Financial Dynamics Fund, Inc., which was
incorporated in Colorado on February 17, 1967. On June 26, 1997, the Company
changed its name to INVESCO Capital Appreciation Funds, Inc. and designated two
series of common stock of the Company as INVESCO Dynamics Fund and INVESCO
Growth & Income Fund. On August 28, 1998, the Company changed its name to
INVESCO Equity Funds, Inc. and designated a third series of shares of common
stock of the Company as INVESCO Endeavor Fund. On October 29, 1998, the Company
changed its name to INVESCO Stock Funds, Inc. On July 15, 1999, the Company
assumed all of the assets and liabilities of (1) INVESCO Blue Chip Growth Fund,
Inc., a series of INVESCO Growth Funds, Inc.; (2) INVESCO Small Company Growth
Fund, a series of INVESCO Emerging Opportunity Funds, Inc.; (3) INVESCO S&P 500
Index Fund - Classes I and II, a series of INVESCO Specialty Funds, Inc.; and
(4) INVESCO Value Equity Fund, a series of INVESCO Value Trust.
The Company is an open-end, diversified, no-load management investment
company currently consisting of seven portfolios of investments: INVESCO Blue
Chip Growth Fund, INVESCO Dynamics Fund, INVESCO Endeavor Fund, INVESCO Growth &
Income Fund, INVESCO Small Company Growth Fund, INVESCO S&P 500 Index Fund
Classes I and II and INVESCO Value Equity Fund. Additional funds may be offered
in the future.
11
<PAGE>
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 Bond
Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Combination Stock &
Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.), INVESCO Diversified
Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO Growth Funds,
Inc. (formerly, INVESCO Growth Fund, Inc.), INVESCO Industrial Income Fund,
Inc., INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc.,
INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.),
INVESCO Specialty Funds, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO
Treasurer's Series Funds, Inc., INVESCO Value Trust, and INVESCO Variable
Investment Funds, Inc.
THE INVESTMENT SUB-ADVISER. INVESCO has contracted with World Asset
Management ("World") to provide investment advisory and certain recordkeeping
services to the S&P 500 Index Fund. World has the primary responsibility for
providing portfolio investment management services to this Fund. World is
unaffiliated with any INVESCO entity.
THE DISTRIBUTOR. INVESCO Distributors, Inc. ("IDI") is the Fund's 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 Fund's distributor.
INVESCO is an 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 $275 billion in assets under
management as of December 31, 1998. INVESCO was established in 1932 and as of
April 30, 1999, managed 14 mutual funds, consisting of 51 separate portfolios,
on behalf of over 900,000 shareholders.
AMVESCAP PLC's other 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.
--INVESCO Retirement Plan Services, Atlanta, Georgia, a division of
IRBS, provides recordkeeping and investment selection services to defined
contribution plan sponsors of plans with between $2 million and $200 million in
assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide INVESCO products and services in their
retirement plan products and services.
--Institutional Trust Company doing business as INVESCO Trust Company
("ITC") of Denver, Colorado, a division of IRBS, provides retirement account
12
<PAGE>
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., 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.
--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, and currently has approximately $26 billion in assets under management.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes
in managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--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
insurance companies that issue variable annuity and/or variable life products.
--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, EC2M 4YR, England.
13
<PAGE>
As indicated in the Fund's Prospectus, 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 if, 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. World is subject
to similar policies.
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 this policy are administered by and subject
to exceptions authorized by INVESCO.
INVESTMENT ADVISORY AGREEMENT. INVESCO serves as investment adviser to the Fund
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 other series of the Company approved the Agreement on January 31, 1997 for
an initial term expiring February 28, 1999. In May 1999, this period was
extended by the Company's board of directors to May 15, 2000. Pursuant to
shareholder authorization, the Agreement was approved with respect to the Fund
on July 15, 1999. The Agreement may be continued from year to year as to the
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 Fund in conformity with the Fund's investment policies (either
directly or by delegation to a sub-adviser, which may be a party affiliated with
INVESCO). 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 Fund excluding, however, those services that are the subject of
any separate agreement between the Company and INVESCO or any affiliate thereof,
14
<PAGE>
including the distribution and sale of Fund 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 Fund's 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 Fund's 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 Fund), 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 Fund under
the 1940 Act. Expenses not assumed by INVESCO are borne by the Fund.
As full compensation for its advisory services to the Company, INVESCO
receives a monthly fee. The fee is based upon a percentage of the Fund's average
net assets, determined daily. With respect to the Fund, the fee is calculated at
the annual rate of 0.25% of the Fund's average net assets.
SUB-ADVISORY AGREEMENT. World serves as sub-adviser to the Fund pursuant to a
sub-advisory agreement dated October 1, 1997 with INVESCO which was approved by
the board of directors of INVESCO Specialty Funds, Inc., on August 12, 1996 by a
vote cast in person by a majority of the directors, including a majority of the
directors who are not "interested persons" of the Fund, INVESCO or World at a
meeting called for such purpose. INVESCO approved the sub-advisory agreement on
October 1, 1997, for an initial term expiring October 1, 1999. Pursuant to
shareholder authorization, the sub-advisory agreement was approved with respect
to the Company on July 15, 1999. The sub-advisory agreement may be continued
from year to year as long as it is specifically approved 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 Fund. Any such continuance
also must be approved by a majority of directors who are not parties to the
sub-advisory 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 sub-advisory agreement may be terminated at any time without
penalty by either party or the Company 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 sub-advisory agreement provides that World, subject to the
supervision of INVESCO, shall manage the investment portfolios of the Fund in
conformity with the Fund's investment policies. These management services
include: (a) managing the investment and reinvestment of all the assets, now or
hereafter acquired, of the Fund, and executing all purchases and sales of
portfolio securities; (b) maintaining a continuous investment program for the
Fund, consistent with (i) the Fund's investment policies as set forth in the
Company's Articles of Incorporation, Bylaws, and Registration Statement, as from
time to time amended, under the 1940 Act, and in any prospectus and/or statement
of additional information of the Company, as from time to time amended and in
15
<PAGE>
use under the 1933 Act, and (ii) the Company's status as a regulated investment
company under the Internal Revenue Code of 1986, as amended; (c) determining
what securities are to be purchased or sold for the Fund, unless otherwise
directed by the directors of the Company or INVESCO, and executing transactions
accordingly; (d) providing the Fund the benefit of all of the investment
analysis and research, the reviews of current economic conditions and trends,
and the consideration of long-range investment policy now or hereafter generally
available to investment advisory customers of World; (e) determining what
portion of the Fund should be invested in the various types of securities
authorized for purchase by the Fund; and (f) making recommendations as to the
manner in which voting rights, rights to consent to Company action and any other
rights pertaining to the portfolio securities of the Fund shall be exercised.
The sub-advisory agreement provides that as compensation for its
services, World shall receive from INVESCO, at the end of each month, a fee
based upon the average daily value of the Fund's net assets at the rate of 0.07%
on the first $10 million of the Fund's average net assets, 0.05% on the next $40
million of the Fund's average net assets, and 0.03% on the Fund's average net
assets in excess of $50 million. The sub-advisory fees are paid by INVESCO, NOT
the Fund.
ADMINISTRATIVE SERVICES AGREEMENT. INVESCO, either directly or through
affiliated companies, provides certain administrative, sub-accounting, and
recordkeeping services to the Fund pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved by the board of directors 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, 2000. The Administrative Agreement may be
continued from year to year thereafter 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 1940 Act) 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 Fund: (A) such sub-accounting and recordkeeping
services and functions as are reasonably necessary for the operation of the
Fund; 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, the Fund pays a monthly fee to INVESCO consisting of a base fee of
$10,000 per year, plus an additional incremental fee computed daily and paid
monthly at an annual rate of 0.015% per year of the average net assets of the
16
<PAGE>
Fund prior to May 13, 1999 and 0.045% per year of the average net assets of the
fund effective May 13, 1999.
TRANSFER AGENCY AGREEMENT. INVESCO also performs transfer agent, dividend
disbursing agent, and registrar services for the Fund pursuant to a Transfer
Agency Agreement dated February 28, 1997 which was approved by the board of
directors of the Company, including a majority of the Company's directors who
are not parties to the Transfer Agency Agreement or "interested persons" of any
such party, on November 6, 1996. The Transfer Agency Agreement was for an
initial term expiring February 28, 1998 and has been extended by the board of
directors until May 15, 2000. Thereafter, the Transfer Agency Agreement may be
continued from year to year as to the 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
the 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 Fund will 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 a rate of
1/12 of the annual fee and is based upon the actual number of shareholder
accounts and omnibus account participants in existence during each month.
Rule 18f-3 under the 1940 Act ("Rule 18f-3") permits a fund to use a
multiclass system, including separate class arrangements for distribution of
shares and related exchange privileges applicable to the classes. The Fund's
Plan Pursuant to Rule 18f-3 provides that advisory and administrative services
fees that are expenses of the Fund but are not otherwise attributable to a
particular class of Fund shares shall be allocated to each class on the basis of
its net asset value relative to the net asset value of the Fund.
Year Ended July 31, 1998(1)
Advisory Fees Transfer Agency Fees Administrative Services Fees
------------- -------------------- ----------------------------
$13,759 $7,897 $6,874
(1) For the period December 23, 1997 (commencement of operations) through July
31, 1998.
OFFICERS AND DIRECTORS OF THE COMPANY. The overall direction and supervision of
the Company is the responsibility of the board of directors, which has the
primary duty of seeing that the general investment policies and programs of the
Fund are carried out and that the Fund is properly administered. The officers of
the Company, all of whom are officers and employees of, and are paid by,
INVESCO, are responsible for the day-to-day administration of the Company and
17
<PAGE>
the Fund. The investment sub-adviser for the Fund has the primary responsibility
for making investment decisions on behalf of the Fund. These investment
decisions are reviewed by the investment committee of INVESCO.
All of the officers and directors of the Company hold comparable positions with
INVESCO Bond Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO
Combination Stock & Bond Funds, Inc. (formerly, INVESCO Flexible Funds, Inc.),
INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds, Inc.,
INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Tax-Free Income Funds,
Inc., INVESCO Treasurer's Series Funds, Inc. and INVESCO Variable Investment
Funds, Inc. All of the officers and directors of the Company also hold
comparable positions with INVESCO Value Trust. Set forth below is information
with respect to each of the Company's officers and directors. Unless otherwise
indicated, the address of the directors and officers is Post Office Box 173706,
Denver, Colorado 80217-3706. Their affiliations represent their principal
occupations during 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: 1600 Pierce
Street, #1000, Lakewood, Colorado. Born: August 7, 1936.
18
<PAGE>
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.
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
19
<PAGE>
(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.
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.
@Member of the derivatives committee of the Company.
@@Member of the soft dollar brokerage committee of the Company.
+Member of the executive committee of the Company. On occasion, the executive
committee acts upon the current and ordinary business of the Company between
meetings of the board of directors. Except for certain powers which, under
applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
**Member of the management liaison committee of the Company.
As of July 9, 1999, the officers and directors of the Company, as a group,
beneficially owned 10.84% of the Company's outstanding Class I shares and less
than 1% of the Company's outstanding Class II shares.
DIRECTOR COMPENSATION
The following table sets forth, for the fiscal year ending April 30,
1999: the compensation paid by the Company to its eligible independent directors
for services rendered in their capacities as directors of the Company; the
20
<PAGE>
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) 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, 1998. As of December
31, 1998, there were 49 funds in the INVESCO Complex.
<TABLE>
<CAPTION>
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)(5) Expenses(2) tirement(3) Directors(1)
<S> <C> <C> <C> <C>
Fred A. Deering, $4,449 $3,647 $2,463 $103,700
Vice Chairman of
the Board
Victor L. Andrews 4,030 3,489 2,716 80,350
Bob R. Baker 4,214 3,116 3,639 84,000
Lawrence H. Budner 3,935 3,489 2,716 79,350
Daniel D. Chabris4 1,705 3,565 2,234 70,000
Wendy L. Gramm 3,940 0 0 79,000
Kenneth T. King 4,246 3,723 2,234 77,050
John W. McIntyre 4,138 0 0 98,500
Larry Soll 3,873 0 0 96,000
------- ------ ------ --------
Total $34,530 $21,029 $16,002 $767,950
% of Net Assets 0.0017%(5) 0.0010%(5) 0.0035%(6)
</TABLE>
(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.
21
<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 retired as a director effective September 30, 1998.
(5) Totals as a percentage of the Company's net assets as of April 30,
1999.
(6) Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1998.
Messrs. Brady and Williamson, as "interested persons" of the Company
and of 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
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 upon retiring from
the boards at the retirement age of 72, the retirement age of 73 to 74, if the
retirement date is extended by the boards for one or two years, but less than
three years) continuation of payment for one year (the "first year retirement
benefit") of the annual basic retainer and annualized board meeting fees payable
by the funds to the qualified director at the time of his 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
22
<PAGE>
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/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/her beneficiary or estate. The plan is administered by a committee of three
directors who are also participants in the plan and one director who is not a
plan participant. The cost of the plan will be allocated among the INVESCO funds
in a manner determined to be fair and equitable by the committee. The Company
began making payments to Mr. Chabris under the plan 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 certain
of the INVESCO Funds. The deferred amounts are being invested in the shares of
all of the INVESCO 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.
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 Company's board of directors. It reports on these
matters to the Company's board of directors.
23
<PAGE>
HOW SHARES CAN BE PURCHASED
- ---------------------------
The shares of the Fund are sold on a continuous basis at the respective
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 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 Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Fund's behalf. The Fund 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 the 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 Company and bears all expenses, including the costs of printing and
distributing prospectuses, incident to direct sales and distribution of Fund
shares on a no-load basis.
DISTRIBUTION PLAN. As discussed in the Prospectus, the Company has adopted a
Plan and Agreement of Distribution (the "Plan") pursuant to Rule 12b-1 under the
1940 Act. There is no distribution fee applicable to Class I shares of the Fund.
The Plan provides that the 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 certain services in connection with the distribution of the Fund's
shares to investors. Payment 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 this period is extended to 24 months for obligations incurred during
the first 24 months of the Fund's operations. All distribution expenses paid by
the Fund for its fiscal year ended July 31, 1998, were paid to INVESCO (the
predecessor of IDI as distributor of shares of the Fund) and IDI. For the fiscal
year ended July 31, 1998, the Fund incurred $6,942 in distribution expenses
prior to the voluntary absorption of certain Fund expenses by INVESCO and the
sub-adviser. In addition, as of July 31, 1998 the Fund incurred $3,071 of
additional distribution accruals had been incurred for the Fund, and will be
paid during the fiscal year ended July 31, 1999. 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 Fund.
The 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 Fund 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 Fund possibly could decrease to the extent
24
<PAGE>
that the banks would no longer invest customer assets in the 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 the Fund.
For the period December 23, 1997 (commencement of operations) through
July 31, 1998, allocation of 12b-1 amounts paid by Class II shares of the Fund
for the following categories of expenses were: advertising--$1,393; sales
literature, printing and postage--$3,067; direct mail--$364; public
relations/promotion--$405; compensation to securities dealers and other
organizations--$472; marketing personnel--$1,241.
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 the
Fund's transactions by customers, serving as the primary source of information
to customers in answering questions concerning the Fund, and assisting in other
customer transactions with the Fund.
The Plan was approved on April 21, 1993, at a meeting called for such
purpose by a majority of the directors of the Company, including a majority of
the directors who neither are "interested persons" of the Company nor have any
financial interest in the operation of the Plan ("independent directors"). 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 any Fund's
payments thereunder. Pursuant to authorization granted by the Company's board of
directors on September 2, 1997, IDI assumed all obligations related to
distribution from INVESCO. The Plan was continued by action of the board of
directors through May 15, 2000. Pursuant to shareholder authorization, the Plan
was approved with respect to Class II shares of the Fund on July 15, 1999.
The Plan provides that it shall continue in effect with respect to the
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 also can be terminated at
any time with respect to the Fund, without penalty, if a majority of the
independent directors, or shareholders of the Fund, vote to terminate the Plan.
The Company may, in its absolute discretion, suspend, discontinue or limit the
offering of the shares of the Fund 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 the Fund, general market conditions, and the volume of sales and
redemptions of Fund 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 the 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 the 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
materially the amount of the Fund's payments thereunder without approval of the
25
<PAGE>
shareholders of the 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
Fund, the latter by vote of a majority of the independent directors or of the
holders of a majority of the 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 the Fund under the Plan in the event of its
termination.
To the extent that the Plan constitutes a plan of distribution adopted
pursuant to Rule 12b-1 under the Act, it shall remain in effect as such, so as
to authorize the use of the Fund's assets in the amounts and for the purposes
set forth therein, notwithstanding the occurrence of an assignment, as defined
by the Act, and rules thereunder. To the extent it constitutes an agreement
pursuant to a plan, the Fund's obligation to make payments to IDI shall
terminate automatically, in the event of such "assignment," in which event the
Fund 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 the 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 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 under "The Fund And Its 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 Fund and its 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 Fund;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Fund 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:
26
<PAGE>
(a) To have greater resources to make the financial
commitments necessary to improve the quality and
level of the Fund's shareholder services (in both
systems and personnel),
(b) To increase the number and type of mutual funds
available to investors from INVESCO and its
affiliated companies (and support them in their
infancy), and thereby expand the investment choices
available to all shareholders, and
(c) To acquire and retain talented employees who desire
to be associated with a growing organization; and
(4) Increased Fund assets may result in reducing each investor's
share of certain expenses through economies of scale (e.g.
exceeding established breakpoints in the advisory fee schedule
and allocating fixed expenses over a larger asset base),
thereby partially offsetting the costs of the Plan.
HOW SHARES ARE VALUED
- ---------------------
The net asset value per share or class of shares of the 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 the Fund that the current net asset
value per share of the Fund might be materially affected by changes in the value
of the securities held, but only if on such day the 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 or class of shares of the Fund is
calculated by dividing the value of all securities held by the Fund and its
other assets (including dividends and interest accrued but not collected), less
the liabilities of the Fund or class (including accrued expenses), by the number
of outstanding shares of the 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 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
27
<PAGE>
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 are normally valued at amortized cost.
The values of securities and other assets held by the Fund used in
computing net asset value generally are determined as of the time regular
trading in such securities or assets is completed each day. Because regular
trading in most foreign securities markets is completed simultaneously with, or
prior to, the close of regular trading on the New York Stock Exchange, closing
prices for foreign securities usually are available for purposes of computing
the Fund's net asset value. However, in the event that the closing price of a
foreign security is not available in time to calculate the 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 Fund's Prospectus, the Company advertises the total
return performance of the Funds. The total return performance for the Fund for
the fiscal period ended July 31, 1998, was as follows:
One Year Life of Fund(1)
----------- -------------------------
Class I~ N/A 32.98%
Class II~ N/A 34.94%
(1) Commencement of Operations: December 23, 1997
~Annualized
Average annual total return performance is computed by finding the
average annual compounded rates of return that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
n
P(1 + T) = ERV
where: P = initial payment of $1000
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 the time period shown.
28
<PAGE>
In conjunction with performance reports, comparative data between the
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent
sources may also be used in advertisements, sales literature or shareholder
reports, including reprints of, or selections from, editorials or articles about
the Fund. Sources for Fund performance information and articles about the Fund
include, but are not limited to, the following:
AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES
CNBC
CNN
CONSUMER DIGEST
FINANCIAL TIMES
FINANCIAL WORLD
FORBES
FORTUNE
IBBOTSON ASSOCIATES, INC.
INSTITUTIONAL INVESTOR
INVESTMENT COMPANY DATA, INC.
INVESTOR'S BUSINESS DAILY
KIPLINGER'S PERSONAL FINANCE
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
WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
29
<PAGE>
SERVICES PROVIDED BY THE FUND
- -----------------------------
PERIODIC WITHDRAWAL PLAN. The Fund offers a Periodic Withdrawal Plan. All
dividends and other 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 the 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 sending 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. The Fund offers shareholders the ability to exchange shares of
the Fund for shares of another fund or 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
have established 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 such 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
- -----------------------------
Shares of the 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
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 other tax adviser prior to the
establishment of such a plan.
30
<PAGE>
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 Fund's
Prospectus. 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 the Fund of securities owned by it is not
reasonably practicable or it is not reasonably practicable for the 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 Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Fund's behalf. The Fund 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 the 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 the
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 the 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 three-month 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
- ----------------------------------------
The Company intends to conduct its business and satisfy the applicable
diversification of assets, distribution and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Company so qualified for the
taxable year ended April 30, 1999, and intends to continue to qualify during its
current taxable year. As a result, because the Company intends to distribute all
of its income and recognized gains, it is anticipated that the Company will pay
no federal income or excise taxes and that the Company will be accorded conduit
or "pass through" treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
31
<PAGE>
Distributions by the 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
how long a shareholder has held shares of the Fund. During 1997, the Taxpayer
Relief Act established a new maximum capital gains tax rate of 20%. Depending on
the holding period of the asset giving rise to the gain, as capital gain was
taxable at a maximum rate of either 20% or 28%. Beginning January 1, 1998, all
long-term gains on the sale of securities held for more than 12 months will be
taxable at a maximum rate of 20%. In addition, legislation signed in October of
1998 provides that all capital gain distributions from a mutual fund paid to
shareholders during 1998 will be taxed at a maximum rate of 20%. Accordingly,
all long-term gain distributions paid in 1998 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
advisers as to the effect of distributions by the Fund.
All dividends and other distributions are regarded as taxable to the
investor, regardless of whether such dividends and distributions are reinvested
in additional shares of the Fund or another fund in the INVESCO group. The net
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gains (or increase any loss) for tax purposes on any
subsequent redemption of shares.
INVESCO may provide shareholders of the Fund 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 with respect to shares the Fund in past years, the shareholder must
continue to use the cost basis method previously used unless the shareholder
applies to the IRS for permission to change the method.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of short-term, capital
loss to the extent of any capital gains distributions received on those shares.
The Fund will be subject to a non-deductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
32
<PAGE>
of it 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 the Fund may be subject to income,
withholding or other taxes imposed by foreign countries and U.S. possessions
that would reduce the yield on its securities. Tax conventions between certain
countries and the United States may reduce or eliminate these foreign taxes,
however, and many foreign countries do not impose taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld will be
treated as an expense of the Fund.
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
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Code for federal
income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
- --------------------
PORTFOLIO TURNOVER. There are no fixed limitations regarding the portfolio
turnover of the Fund. Brokerage costs to the Fund are commensurate with the rate
of portfolio activity. For the period December 23, 1997 (commencement of
operations) through July 31, 1998, the portfolio turnover rate for the Fund was
0%. Portfolio Turnover Rate calculated to less than 0.10% for the period ended
July 31, 1998. In computing portfolio turnover rates, 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. Either INVESCO, as the Company's investment
adviser, or World, as the Fund's sub-adviser, places orders for the purchase and
sale of securities with brokers and dealers based upon INVESCO's or World's
evaluation of such brokers' and dealers' financial responsibility, subject to
their ability to effect transactions at the best available prices. Fund
Management evaluates the overall reasonableness of brokerage commissions or
underwriting discounts (the difference between the full acquisition price to
33
<PAGE>
acquire the new offering and the discount offered to members of the underwriting
syndicate) paid by reviewing the quality of executions obtained on the Fund's
portfolio transactions, viewed in terms of the size of transactions, prevailing
market conditions in the security purchased or sold, and general economic and
market conditions. In seeking to ensure that any commissions or discounts
charged the Fund are consistent with prevailing and reasonable commissions, the
Fund's adviser or sub-adviser, also endeavors to monitor brokerage industry
practices with regard to the commissions charged by brokers and dealers on
transactions effected for other comparable institutional investors. While the
Fund's adviser or sub-adviser seeks reasonably competitive rates, the Fund does
not necessarily pay the lowest commission, spread or discount available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, Fund Management 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 Fund Management in
making informed investment decisions. Research services prepared and furnished
by brokers through which the Fund effects securities transactions may be used by
Fund Management in servicing all of their respective accounts and not all such
services may be used by Fund Management in connection with the Fund.
In recognition of the value of the above-described brokerage and
research services provided by certain brokers, Fund Management, 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
Fund on which the commissions are in excess of those which other brokers might
have charged for effecting the same transactions.
Fund transactions may be effected through qualified brokers and dealers
that recommend the Fund to their clients or that act as agent in the purchase of
the Fund's shares for their clients. When a number of brokers and dealers can
provide comparable best price and execution on a particular transaction, INVESCO
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 Fund, 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 Fund 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 the 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 Fund 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 Fund to pay transfer
34
<PAGE>
agency fees to INVESCO based on the number of investors who have beneficial
interests in the NTF Program Sponsor's omnibus accounts in the Fund. 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
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
the Fund's Services Fee, if any, that exceeds the sum of the sub-transfer agency
or recordkeeping fee and Rule 12b-1 fee. The Company's directors have further
authorized INVESCO to place a portion of the Fund's brokerage transactions with
certain NTF Program Sponsors or their affiliated brokers, if INVESCO reasonably
believes that, in effecting the Fund's 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 Fund 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 Fund, 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 Fund pays sub-transfer agency or recordkeeping fees
to the NTF Program Sponsor in payment of the Services Fee only to the extent
that such fees are not offset by the Fund's credits. In the event that the
transfer agency fee paid by the Fund to INVESCO with respect to investors who
have beneficial interests in a particular NTF Program Sponsor's omnibus accounts
in the 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 the 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 Fund. The Company's
board of directors has also authorized the Fund to pay to IDI the full Rule
12b-1 fees contemplated by the Plan for expenses incurred by IDI in engaging in
the activities and providing the services on behalf of the Class II shares of
the Fund 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 compensate IDI for
payments to such NTF Program Sponsor absent such credits.
The aggregate amount of brokerage commissions paid for the period
December 23, 1997 through July 31, 1998 for the S&P Fund was $0. For the period
December 23, 1997 (commencement of operations) through July 31, 1998, brokers
providing research services received no commissions on portfolio transactions of
the Fund. For the fiscal year ended July 31, 1998, the Fund paid $0, as
compensation to brokers for the sales of shares of the Fund.
At July 31, 1998, the Fund held securities of its regular brokers or
dealers, or their parent companies, as follows:
State Street Bank & Trust $1,907
J. P. Morgan & Co. $39
Bear Stearns $11
Lehman Brothers Holdings $7
Merrill Lynch Pierce $51
35
<PAGE>
Morgan Stanley Dean Witter $104
Neither INVESCO nor World receives any brokerage commissions on
portfolio transactions effected on behalf of the Fund, and there is no
affiliation between INVESCO and World, or any person affiliated with INVESCO and
World, or the Fund and any broker or dealer that executes transactions for the
Fund.
ADDITIONAL INFORMATION
- ----------------------
COMMON STOCK. The Company is authorized to issue up to $2 billion 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 Fund -- 100,000,000 to
each class. The board of directors has the authority to designate additional
series 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 or class of series in a particular portfolio of investments of the
Company. Each series or class of series of the Company's shares is preferred
over all other series or classes of series with respect to the assets
specifically allocated to that series or class, and all income, earnings,
profits and proceeds from such assets, subject only to the rights of creditors,
are allocated to shares of that series or class. The assets of each series or
class are segregated on the books of account and are charged with the
liabilities of that series or class of 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 these
items are allocated among series and classes 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 or class. In the
unlikely event that a liability allocable to one series or class exceeds the
assets belonging to the series or class, all or a portion of such liability may
have to be borne by the holders of shares of the Company's other series or
class.
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 or classes are affected by a matter to be voted upon, such as approval of
an investment advisory contract or changes in the Fund's investment policies,
only shareholders of the series or class 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 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
36
<PAGE>
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 June 30, 1999, the following entities held more
than 5% of the Fund's outstanding equity securities.
Amount and Nature Percent
Name and Address of Ownership of Class
- ---------------- ----------------- --------
INVESCO Trust Co. Cust. 121,562.5730 38.86%
Right Choice MGD. Care Inc.
Supp Exec Retirement Plan
1831 Chestnut St.
St. Louis, MO 63103-2231
Ronald L. Grooms 32,329.7200 10.33%
7800 E. Union Ave. #800
Denver, CO 80237-2715
David Backstrom 33,391.2350 10.67%
PO Box 970
Bridgeton, MO 63044-0970
INVESCO Trust Co. Tr 40,660.0910 13.00%
Compass Group USA
Non-Qualified Plan
IRPS, Attn: Kelly Allen
PO Box 1350
Winston Salem, NC 27102-1350
INVESCO Trust Co. Tr 52,047.4470 16.64%
Right Choice Management Care, Inc.
Exec Def Compensation Plan
1831 Chestnut St.
St. Louis, MO 63103-2231
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 series 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,
37
<PAGE>
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 80237, pursuant to the Transfer Agency Agreement
described herein. Such services include the issuance, cancellation and transfer
of shares of the Fund, and the maintenance of records regarding the ownership of
such shares.
REPORTS TO SHAREHOLDERS. 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 LLP, Denver, Colorado, acts as special counsel to the Company.
FINANCIAL STATEMENTS. The audited financial statements for the Fund for the
period ended July 31, 1998, and the notes thereto, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements, are
incorporated by reference from the Company's Annual Report to Shareholders for
the fiscal year ended July 31, 1998. The unaudited financial statements and
accompanying notes thereto for the six-month period ended November 30, 1998 are
incorporated by reference from the Fund's Semi-Annual Report to Shareholders for
the six-month period ended November 30, 1998.
PROSPECTUSES. The Company will furnish, without charge, a copy of the 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
Prospectus do not contain all of the information set forth in the Registration
Statement the Company has filed with the Securities and Exchange Commission. The
complete Registration Statement may be obtained from the Securities and Exchange
Commission upon payment of the fee prescribed by the rules and regulations of
the Commission.
38
<PAGE>
APPENDIX A
- ----------
DESCRIPTION OF FUTURES AND OPTIONS CONTRACTS
- --------------------------------------------
Options on Securities
- ---------------------
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such
as the Chicago Board of Options Exchange and the New York Stock 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 will generally purchase or write only those options
for which there appears to be an active secondary market, there is no assurance
that a 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 the Funds would
have to exercise the option in order to realize any profit. This would result in
the Funds 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 these Funds as
covered call option writers are unable to effect a closing purchase transaction
in a secondary market, unless the Funds are required to deliver the securities
39
<PAGE>
pursuant to the assignment of an exercise notice, they 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 insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions 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
Company on behalf of the Funds. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between the Funds and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
as written, the Funds 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
40
<PAGE>
contract's closing value is settled between the purchaser and seller in cash.
Futures Contracts differ from options in that they are bilateral agreements,
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 equivalent, which
varies but may be as low as 5% or less of the value of the contract, must be
deposited with the broker as "initial margin." Subsequent payments to and from
the broker, referred to as "variation margin," are made on a daily basis as the
value of the index or instrument underlying the futures contract fluctuates,
making positions in the futures contract more or less valuable, a process known
as "marking to market."
A futures contract may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a futures contract,
by in effect taking the opposite side of such Contract. At any time prior to the
expiration of a futures contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
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
41
<PAGE>
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 terminated 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.
42
<PAGE>
APPENDIX B
- ----------
BOND RATINGS
- ------------
The following is a description of the Moody's and S&P bond rating
categories:
MOODY'S CORPORATE BOND RATINGS
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt-edged." Interest payments are protected by a large or by an exceptionally
stable margin, and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, they comprise what are generally known as high grade bonds.
They are rated lower than the best bonds because margins of protection may not
be as large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risk appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes, and are to be
considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered as medium grade obligations, i.e., they are
neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements. Their future cannot
be considered as well assured. Often the protection of interest and principal
payments may be very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position characterizes bonds in
this class.
B - Bonds rated B generally lack characteristics of the desirable investment.
Assurance of interest and principal payments or maintenance of other terms of
the contract over any longer period of time may be small.
Caa - Bonds rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
43
<PAGE>
S&P CORPORATE BOND RATINGS
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
BB - Bonds rated BB have less near-term vulnerability to default than other
speculative issues. However, they face major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments.
B - Bonds rated B have a greater vulnerability to default but currently have the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal.
CCC - Bonds rated CCC have a currently identifiable vulnerability to default and
are dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, they are not likely to have
the capacity to pay interest and repay principal.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
July 14, 1999
INVESCO STOCK FUNDS, INC.
INVESCO Value Equity 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 STOCK FUNDS, INC. (formerly, INVESCO Equity Funds, Inc.,
formerly, INVESCO Capital Appreciation Funds, Inc.) (the "Company") is an
open-end management investment company currently consisting of seven portfolios
of investments: INVESCO Blue Chip Growth Fund; INVESCO Dynamics Fund; INVESCO
Endeavor Fund; INVESCO Growth & Income Fund; INVESCO S&P 500 Fund - Class I and
II; INVESCO Small Company Growth Fund and INVESCO Value Equity Fun. INVESCO
Value Equity Fund (the "Fund") seeks to provide investors with a high total
return on investment through capital appreciation and current income. Additional
funds may be offered in the future.
A Prospectus for the Fund dated July 14, 1999, which provides the basic
information you should know before investing in the Fund, 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 Prospectus. It is intended to provide additional information
regarding the activities and operations of the Fund and should be read in
conjunction with the Prospectus.
Investment Adviser: INVESCO FUNDS GROUP, INC.
Distributor: INVESCO DISTRIBUTORS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
INVESTMENT POLICIES AND RESTRICTIONS 1
THE FUND AND ITS MANAGEMENT 8
HOW SHARES CAN BE PURCHASED 21
HOW SHARES ARE VALUED 25
FUND PERFORMANCE 26
SERVICES PROVIDED BY THE FUND 27
TAX-DEFERRED RETIREMENT PLANS 28
HOW TO REDEEM SHARES 28
DIVIDENDS, OTHER DISTRIBUTIONS AND TAXES 29
INVESTMENT PRACTICES 31
ADDITIONAL INFORMATION 34
APPENDIX A 37
APPENDIX B 38
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
- ------------------------------------
Reference is made to the section entitled "Investment Objectives And
Policies" in the Prospectus for a discussion of the investment objectives and
policies of the Fund. In addition, set forth below is further information
relating to the Fund.
LOANS OF PORTFOLIO SECURITIES. As discussed in the section entitled
"Risk Factors" in the Prospectus, the Fund may lend its portfolio securities,
provided that such loans are callable at any time by the Fund and are at all
times secured by collateral held by the Fund's custodian consisting of cash or
securities issued or guaranteed by the United States Government or its agencies,
or any combination thereof, equal to at least the market value, determined
daily, of the loaned securities. The advantage of such loans is that the Fund
continues to earn income on the loaned securities, while at the same time
receiving interest from the borrower of the securities. Loans will be made only
to firms deemed by the adviser or sub-adviser (collectively, "Fund Management"),
under procedures established by the Company's board of directors, to be
creditworthy and when the amount of interest to be received justifies the
inherent risks. A loan may be terminated by the borrower on one business day's
notice, or 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), 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.
REAL ESTATE INVESTMENT TRUSTS. Although it is not permitted to invest
in real estate directly, the Fund may invest in real estate investment trusts
("REITs"). A REIT is a trust which sells shares to investors and uses the
proceeds to invest in real estate or interests in real estate.
The Fund has adopted a policy which permits the Fund to write, purchase
or sell put and call options on individual securities, securities indexes and
currencies, or financial futures or options on financial futures, or undertake
forward currency contracts.
PUT AND CALL OPTIONS. 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.
1
<PAGE>
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 and the New York Stock Exchange, which
are regulated by the Securities and Exchange Commission. The Options Clearing
Corporation 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 Fund will generally purchase or write only those options
for which there appears to be an active secondary market, there is no assurance
that a 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 the Fund would
have to exercise the option in order to realize any profit. This would result in
the Fund's 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
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 insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions 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 Options Clearing Corporation, based on forecasts
2
<PAGE>
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. 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").
FUTURES AND OPTIONS ON FUTURES. As described in the Fund's Prospectus,
the Fund may enter into futures contracts and purchase and sell ("write")
options to buy or sell futures contracts. The Fund will comply with and adhere
to all limitations in the manner and extent to which it effects transactions in
futures and options on such futures currently imposed by the rules and policy
guidelines of the Commodity Futures Trading Commission ("CFTC") as conditions
for exemption of a mutual fund, or investment advisers thereto, from
registration as a commodity pool operator. The Fund will not, as to any
positions, whether long, short or a combination thereof, enter into futures and
options thereon for which the aggregate initial margins and premiums exceed 5%
of the fair market value of its assets after taking into account unrealized
profits and losses on options it has entered into. In the case of an option that
is "in-the-money," as defined in the commodity Exchange Act (the "CEA"), the
in-the-money amount may be excluded in computing such 5%. (In general a call
option on a future is "in-the-money" if the value of the future exceeds the
exercise ("strike") price of the call; a put option on a future is
"in-the-money" if the value of the future which is the subject of the put is
exceeded by the strike price of the put.) The Fund may use futures and options
thereon solely for bona fide hedging or for other non-speculative purposes
within the meaning and intent of the applicable provisions of the CEA.
Unlike when the Fund purchases or sells a security, no price is paid or
received by the Fund upon the purchase or sale of a futures contract. Instead,
the Fund will be required to deposit in its segregated asset account an amount
of cash or qualifying securities (currently U.S. Treasury bills). This is called
"initial margin." Such initial margin is in the nature of a performance bond or
good faith deposit on the contract. However, since losses on open contracts are
required to be reflected in cash in 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
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 its position in the futures contract.
Where futures are purchased to hedge against a possible increase in the
price of a security before a fund is able in an orderly fashion to invest in the
3
<PAGE>
security, it is possible that the market may decline instead. If the Fund, as a
result, concluded not to make the planned investment at that time because of
concern as to possible further market decline or for other reasons, the Fund
would realize a loss on the futures contract that is not offset by a reduction
in the price of securities purchased.
In addition to the possibility that there may be an imperfect
correlation or no correlation at all between movements in the futures contracts
and the portion of the portfolio being hedged, the price of futures may not
correlate perfectly with movements in the prices due to certain market
distortions. All participants in the futures market are subject to margin
deposit and maintenance requirements. Rather than meeting additional margin
deposit requirements, investors may close futures contracts through offsetting
transactions which could distort the normal relationship between underlying
instruments and the value of the futures contract. Moreover, the deposit
requirements in the futures market are less onerous than margin requirements in
the securities market and may therefore cause increased participation by
speculators in the futures market. Such increased participation may also cause
temporary price distortions. Due to the possibility of price distortion in the
futures market and because of the imperfect correlation between movements in the
underlying instrument and movements in the prices of futures contracts, the
value of futures contracts as a hedging device may be reduced.
In addition, if the Fund has insufficient available cash, it may at
times have to sell securities to meet variation margin requirements. Such sales
may have to be effected at a time when it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS. The Fund may buy and write options on
futures contracts for hedging purposes. 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
4
<PAGE>
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 option on portfolio securities. For
example, the Fund may buy a put option on a futures contract to hedge its
portfolio against the risk of falling prices.
The amount of risk the Fund assumes when it buys an option on a futures
contract is the premium paid for the option plus related transaction costs. In
addition to the correlation risks discussed above, the purchase of an option
also entails the risk that changes in the value of the underlying futures
contract will not be reflected fully in the value of the options bought.
FORWARD FOREIGN CURRENCY CONTRACTS. The Fund may enter into forward
currency contracts to purchase or sell foreign currencies (i.e., non-U.S.
currencies) ("forward contracts") as a hedge against possible variations in
foreign exchange rates. A 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, the Fund can hedge
against possible variations in the value of the dollar versus the subject
currency either between the date the foreign security is purchased or sold and
the date on which payment is made or received or during the time the Fund holds
the foreign security. Hedging against a decline in the value of a currency in
the foregoing manner does not eliminate fluctuations in the prices of portfolio
securities or prevent losses if the prices of such securities decline.
Furthermore, such hedging transactions preclude the opportunity for gain if the
value of the hedged currency should rise. The Fund will not speculate in forward
contracts. The Fund will not attempt to hedge all of its non-U.S. portfolio
positions and will enter into such transactions only to the extent, if any,
deemed appropriate by its investment adviser. The Fund will not enter into
forward contracts for a term of more than one year. Forward contracts may, from
time to time, be considered illiquid, in which case they would be subject to the
Fund's limitation on investing in illiquid securities, discussed in its
Prospectus.
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").
INVESTMENT RESTRICTIONS. As discussed in the section of the Fund's
Prospectus entitled "Investment Policies and Risks", the Fund is subject to
certain investment restrictions. For purposes of the following investment
restrictions, all percentage limitations apply immediately after a purchase or
initial investment. Any subsequent change in a particular percentage resulting
from fluctuations in value does not require elimination of any security from the
Fund.
The following restrictions are fundamental and may not be changed with
respect to a particular Fund without the prior approval of the holders of a
5
<PAGE>
majority, as defined in the Investment Company Act of 1940 (the "1940 Act"), of
the outstanding voting securities of the Fund. The Fund, unless otherwise
indicated, may not:
(1) Other than investments by the Fund in obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities, invest in the securities of issuers conducting
their principal business activities in the same industry
(investments in obligations issued by a foreign government,
including the agencies or instrumentalities of a foreign
government, are considered to be investments in a single
industry), if immediately after such investment the value of the
Fund's investments in such industry would exceed 25% of the value
of the Fund's total assets;
(2) With respect to the total assets of the Fund, purchase the
securities of any one issuer (except cash items and "government
issuers" as defined under the 1940 Act), if the purchase would
cause the Fund to have more than 5% of the value of its total
assets invested in the securities of such issuer or to own more
than 10% of the outstanding voting securities of such issuer.
(3) Underwrite securities of other issuers, except insofar as it may
technically be deemed an "underwriter" under the Securities Act
of 1933, as amended, in connection with the disposition of the
Fund's portfolio securities.
(4) Invest in companies for the purpose of exercising control or
management.
(5) Issue any class of senior securities or borrow money, except
borrowings from banks for temporary or emergency purposes (not
for leveraging or investment) in an amount not exceeding 33 1/3%
of the value of the Fund's total assets at the time the borrowing
is made.
(6) Mortgage, pledge, hypothecate or in any manner transfer as
security for indebtedness any securities owned or held except to
an extent not greater than 5% of the value of the Fund's total
assets.
(7) Sell short, except the Fund may purchase or sell options or
futures, or write, purchase or sell puts and calls.
(8) Buy on margin, except the Fund may purchase or sell options or
futures, or write, purchase or sell puts and calls.
(9) Buy or sell commodities contracts (however the Fund may purchase
securities of companies which invest in the foregoing). 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 currency contracts.
<PAGE>
(10) Make loans to other persons, provided that the Fund may purchase
debt obligations consistent with its investment objectives and
policies and the Fund may lend limited amounts (not to exceed 10%
of its total assets) of its portfolio securities.
(11) Purchase securities of other investment companies except (i) in
connection with a merger, consolidation, acquisition or
reorganization, or (ii) by purchase in the open market of
securities of other investment companies involving only customary
brokers' commissions and only if immediately thereafter (i) no
more than 3% of the voting securities of any one investment
company are owned by the Fund, (ii) no more than 5% of the value
of the total assets of the Fund would be invested in any one
investment company, and (iii) no more than 10% of the value of
the total assets of the Fund would be invested in the securities
of such investment companies. The Company may invest from time to
time a portion of the Fund's cash in investment companies to
which the Adviser serves as investment adviser; provided that no
management or distribution fee will be charged by the Adviser
with respect to any such assets so invested and provided further
that at no time will more than 3% of the Fund's assets be so
invested. Should the Fund purchase securities of other investment
companies, shareholders may incur additional management and
distribution fees.
(12) Invest in securities for which there are legal or contractual
restrictions on resale, except that the Fund may invest no more
than 2% of the value of its total assets in such securities; or
invest in securities for which there is no readily available
market, except that the Fund may invest no more than 5% of the
value its total assets in such securities.
In applying the industry concentration investment restriction (no. 1
above), the Fund uses a modified S&P industry code classification schema which
uses various sources to classify securities.
In applying restriction (12) 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 5% of total assets limit.
Additional investment restrictions adopted on behalf of the Fund and
which may be changed by the directors at their discretion provide that the Fund
may not:
(1) (a) enter into any futures contracts, options on futures, puts
and calls if immediately thereafter the aggregate margin
deposits on all outstanding derivative 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, or (b) enter
into any derivative positions if the aggregate net amount of
the Fund's commitments under outstanding derivative positions
of the Fund would exceed the market value of the total assets
of the Fund.
7
<PAGE>
(2) Purchase or sell interests in oil, gas or other mineral leases
or exploration or development programs. The Fund, however, may
purchase or sell securities issued by entities which invest in
such interests.
(3) Invest more than 5% of the Fund's total assets in securities
of companies having a record, together with predecessors, of
less than three years of continuous operation.
(4) Purchase or retain the securities of any issuer if any
individual officers and trustees/directors of the Company, the
Adviser, or any subsidiary thereof owns individually more than
0.5% of the securities of that issuer and all such officers
and trustees/directors together own more than 5% of the
securities of that issuer.
(5) Engage in arbitrage transactions.
(6) To the extent the Fund invests in warrants, the Fund's
investment in warrants, valued at the lower of cost or market,
may not exceed 5% of the value of the Fund's net assets.
Included within that amount, but not to exceed 2% of the value
of the Fund's net assets may be warrants which are not listed
on the New York or American Stock Exchanges. Warrants acquired
by the Fund as part of a unit or attached to securities may be
deemed to be without value.
(7) Invest more than 25% of the value of the Fund's total assets
in securities of foreign issuers. Investing in securities
issued by companies whose principal business activities are
outside the United States may involve significant risks not
present in domestic investments.
THE FUND AND ITS MANAGEMENT
- ---------------------------
THE COMPANY. The company was incorporated under the laws of Maryland as
INVESCO Dynamics Fund, Inc. on April 2, 1993. On July 1, 1993, the Company
assumed all of the assets and liabilities of Financial Dynamics Fund, Inc.,
which was incorporated in Colorado on February 17, 1967. On June 26, 1997, the
Company changed its name to INVESCO Capital Appreciation Funds, Inc. and
designated two series of common stock of the Company as INVESCO Dynamics Fund
and INVESCO Growth & Income Fund. On August 28, 1998, the Company changed its
name to INVESCO Equity Funds, Inc. and designated a third series of shares of
common stock of the Company as INVESCO Endeavor Fund. On October 29, 1998, the
Company changed its name to INVESCO Stock Funds, Inc. On July 15, 1999, the
Company assumed all of the assets and liabilities of (1) INVESCO Blue Chip
Growth Fund, Inc., a series of INVESCO Growth Funds, Inc.; (2) INVESCO Small
Company Growth Fund, a series of INVESCO Emerging Opportunity Funds, Inc.; (3)
INVESCO S&P 500 Index Fund - Classes I and II, a series of INVESCO Specialty
Funds, Inc.; and (4) INVESCO Value Equity Fund, a series of INVESCO Value Trust.
8
<PAGE>
The Company is an open-end, diversified, no-load management investment
company currently consisting of seven portfolios of investments: INVESCO Blue
Chip Growth Fund, INVESCO Dynamics Fund, INVESCO Endeavor Fund, INVESCO Growth &
Income Fund, INVESCO Small Company Growth Fund, INVESCO S&P 500 Index Fund -
Classes I and II and INVESCO Value Equity Fund. Additional funds may be offered
in the future.
THE INVESTMENT ADVISER. INVESCO Funds Group, Inc., a Delaware
corporation ("INVESCO"), is employed as the Fund's investment adviser. INVESCO
was established in 1932 and also serves as an investment adviser to INVESCO Bond
Funds, Inc. (formerly, INVESCO Income Funds, Inc.), INVESCO Combination Stock &
Bond Funds, Inc. (formerly INVESCO Flexible Funds, Inc.), INVESCO Diversified
Funds, Inc., INVESCO Emerging Opportunity Funds, Inc., INVESCO Growth Funds,
Inc. (formerly INVESCO Growth Fund, Inc.), INVESCO Industrial Income Fund, Inc.,
INVESCO International Funds, Inc., INVESCO Money Market Funds, Inc., INVESCO
Sector Funds, Inc. (formerly, INVESCO Strategic Portfolios, Inc.), INVESCO
Specialty Funds, Inc., INVESCO Tax-Free Income Funds, Inc., INVESCO Treasurer's
Series Funds, Inc., INVESCO Value Trust and INVESCO Variable Investment Funds,
Inc.
THE INVESTMENT SUB-ADVISER. INVESCO has contracted with INVESCO Capital
Management, Inc. ("ICM") to provide investment advisory and research services to
the Fund. ICM, the Fund's investment adviser from inception of the Fund to 1991,
has the primary responsibility for providing portfolio investment management
services to the Fund.
THE DISTRIBUTOR. INVESCO Distributors, Inc. ("IDI") is the Fund's
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 Fund's distributor.
INVESCO, ICM 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 $275 billion in assets
under management as of December 31, 1998. INVESCO was established in 1932 and,
as of April 30, 1999 managed 14 mutual funds, consisting of 51 separate
portfolios, on behalf of over 900,000 shareholders.
AMVESCAP PLC's other North American subsidiaries include the following:
--INVESCO Retirement and Benefit Services, Inc. ("IRBS") of 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.
9
<PAGE>
--INVESCO Retirement Plan Services ("IRPS") of Atlanta, Georgia, a
division of IRBS, provides recordkeeping and investment selection services to
defined contribution plan sponsors of plans with between $2 million and $200
million in assets. Additionally, IRPS provides investment consulting services to
institutions seeking to provide retirement plan products and services.
--Institutional Trust Company doing business as INVESCO Trust Company
("ITC") of Denver, Colorado, a division of IRBS, provides retirement account
custodian and/or trust services for individual retirement accounts ("IRAs") and
other retirement plan accounts. This includes services such as recordkeeping,
tax reporting and compliance. ITC acts as trustee or custodian to these plans.
ITC accepts contributions and provides, through INVESCO, complete transfer
agency functions: correspondence, sub-accounting, 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.
--INVESCO Management & Research, Inc. of Boston, Massachusetts
primarily manages pension and endowment accounts.
--INVESCO Realty Advisors, Inc. 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 plans, public pension funds, and
endowment and foundation accounts.
--PRIMCO Capital Management, Inc. of Louisville, Kentucky specializes
in managing stable return investments, principally on behalf of Section 401(k)
retirement plans.
--INVESCO (NY), Inc. of 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.
--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
10
<PAGE>
open-end registered investment company that is offered to separate accounts of
insurance companies that issue variable annuity and/or variable life insurance
products.
--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, EC2M 4YR, England.
As indicated in the Fund's Prospectus, INVESCO and ICM permit
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, ICM and their North American
affiliates. The policy requires officers, inside directors, investment and other
personnel of INVESCO, ICM and their 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, ICM and their North American affiliates to various trading restrictions
and reporting obligations. All reportable transactions are reviewed for
compliance with the policy. The provisions of this policy are administered by
and subject to exceptions authorized by INVESCO or ICM.
INVESTMENT ADVISORY AGREEMENT. INVESCO serves as investment adviser
pursuant to an investment advisory agreement dated February 28, 1997 with the
Company (the "Agreement") 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 other series of the Company approved the Agreement on January 31, 1997 for
an initial term expiring February 28, 1999. In May, 1999, this period was
extended by the Company's board of directors through May 15, 2000. Pursuant to
shareholder authorization, the Agreement was approved with respect to the Fund
on July 15, 1999. The Agreement may be continued from year to year with respect
to the 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, as defined in the 1940 Act, of the outstanding shares of the
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 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.
11
<PAGE>
The Agreement provides that INVESCO shall manage the investment
portfolio of the Fund in conformity with the Fund's investment policies (either
directly or by delegation to a sub-adviser, which may be a party affiliated with
INVESCO). 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 Fund, excluding, however, those services that are the subject of
separate agreement between the Company and INVESCO or any affiliate thereof,
including distribution and sale of shares and provision of transfer agency,
dividend disbursing agency, and registrar services, and services furnished under
an Administrative Services Agreement with INVESCO discussed below. INVESCO will
pay the fee of any sub-adviser. Services provided 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 Fund's 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 Fund's 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 Fund), 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 Fund under the 1940 Act. Expenses not assumed by INVESCO are
borne by the Fund. The responsibility for making decisions to buy, sell, or hold
a particular security rests with INVESCO, as well as ICM as the Sub-Adviser,
subject to review by the board of directors.
As full compensation for its advisory services to the Fund, INVESCO
receives a monthly fee. The fee is based upon a percentage of the Fund's average
net assets, determined daily. The fee is calculated at the annual rate of: 0.75%
on the first $500 million of the average net assets of the Fund; 0.65% on the
next $500 million of average net assets of the Fund; and 0.50% on average net
assets in excess of $1 billion. In addition, beginning May 13, 1999, the
following additional contractual breakpoints are in effect: 0.45% on the Fund's
average net assets from $2 billion; 0.40% on the Fund's average net assets from
$4 billion; 0.375% on the Fund's average net assets from $6 billion; and 0.35%
on the Fund's average net assets from $8 billion.
SUB-ADVISORY AGREEMENT. ICM serves as sub-adviser to the Fund pursuant
to a sub-advisory agreement dated February 28, 1997 (the "Sub-Agreement") with
INVESCO which was approved by the board of trustees of INVESCO Value Trust, the
predecessor of the Company with respect to the Fund on November 6, 1996,
including a majority of the trustees who are not "interested persons" of the
Company, INVESCO or ICM at a meeting called for such purpose. Shareholders of
the Fund approved the Sub-Agreement on January 31, 1997 for an initial term
expiring February 28, 1999. In May, 1999, this period was extended by the board
of trustees through May 15, 2000. Pursuant to shareholder authorization, the
Sub-Agreement was approved with respect to the Company on July 15, 1999. The
Sub-Agreement may be continued from year to year as to the Fund as long as each
such continuance is specifically approved 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 Fund. Each such continuance also must be
approved by a majority of the directors who are not parties to the Sub-Agreement
or interested persons (as defined in the 1940 Act) of any such party, cast in
12
<PAGE>
person at a meeting called for the purpose of voting on such continuance. The
Sub-Agreement may be terminated as to the Fund at any time without penalty by
either party or the Company 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 Sub-Agreement provides that ICM, subject to the supervision of
INVESCO, shall manage the investment portfolios of the Fund in conformity with
the Fund's investment policies. These management services include: (a) managing
the investment and reinvestment of all the assets, now or hereafter acquired, of
the Fund, and executing all purchases and sales of portfolio securities; (b)
maintaining a continuous investment program for the Fund, consistent with (i)
the Fund's investment policies as set forth in the Company's Articles of
Incorporation, Bylaws, and Registration Statement, as from time to time amended,
under the 1940 Act, and in any prospectus and/or statement of additional
information of the Company, as from time to time amended and in use under the
1933 Act, and (ii) the Company's status as a regulated investment company under
the Internal Revenue Code of 1986, as amended; (c) determining what securities
are to be purchased or sold for the Fund, unless otherwise directed by the
directors of the Company or INVESCO, and executing transactions accordingly; (d)
providing the Fund the benefit of all of the investment analysis and research,
the reviews of current economic conditions and trends, and the consideration of
long-range investment policy now or hereafter generally available to investment
advisory customers of the Sub-Adviser; (e) determining what portion of the Fund
should be invested in the various types of securities authorized for purchase by
the Fund; and (f) making recommendations as to the manner in which voting
rights, rights to consent to Company action and any other rights pertaining to
the portfolio securities of the Fund shall be exercised.
The Sub-Agreement provides that as compensation for its services, ICM
shall receive from INVESCO, at the end of each month, a fee based on the average
daily value of the Fund's net assets. The sub-advisory fee is 40% of the
advisory fee: 0.30% on the first $500 million of the Fund's average net assets;
0.26% on the next $500 million of the Fund's average net assets; and 0.20% on
the Fund's average net assets in excess of $1 billion. In addition, beginning
May 13, 1999, the following additional contractual breakpoints are in effect:
0.18% on the Fund's average net assets from $2 billion; 0.16% on the Fund's
average net assets from $4 billion; 0.15% on the Fund's average net assets from
$6 billion; and 0.14% on the Fund's average net assets from $8 billion. The
sub-advisory fees are paid by INVESCO, not the Fund.
ADMINISTRATIVE SERVICES AGREEMENT. INVESCO, either directly or through
affiliated companies, also provides certain administrative, sub-accounting, and
recordkeeping services to the Company pursuant to an Administrative Services
Agreement dated February 28, 1997 (the "Administrative Agreement"). The
Administrative Agreement was approved by the board of directors 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 continued by action of the
board of directors through May 15, 2000. The Administrative Agreement may be
13
<PAGE>
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 1940 Act) 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 board of
directors approves such assignment.
The Administrative Agreement provides that INVESCO shall provide the
following services to the Fund: required administrative and internal accounting
services, including without limitation, maintaining general ledger and capital
stock accounts, preparing a daily trial balance, calculating net asset value
daily, and providing selected general ledger reports.
As full compensation for services provided under the Administrative
Agreement, the Company 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
Fund prior to May 13, 1999 and 0.45% per year of the average net assets of the
Fund effective May 13, 1999. For providing such services, INVESCO received
administrative services fees in the amount of $455,075 for the fiscal year ended
August 31, 1998.
TRANSFER AGENCY AGREEMENT. INVESCO performs transfer agent, dividend
disbursing agent, and registrar services for the Company pursuant to a Transfer
Agency Agreement dated February 28, 1997, which was approved November 6, 1996 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. The Transfer Agency Agreement was for an initial
term expiring February 28, 1998 and has been extended by the board of directors
through May 15, 2000. The Transfer Agency Agreement may be continued from year
to year as to the Fund as long as such continuance is specifically approved at
least annually by the board of directors, or by a vote of the holders of a
majority of the outstanding shares of the 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.
The Transfer Agency Agreement provides that the Company shall pay to
INVESCO an annual fee of $20.00 per shareholder account or, where applicable,
per participant in an omnibus account. These fees are paid monthly at the rate
of 1/12 of the annual fee and are based upon the number of shareholder accounts
or, where applicable, per participant in an omnibus account.
Set forth below is a table showing the advisory fees, transfer agency fees
and administrative fees paid by the Fund for the fiscal years ended August 31,
1998, 1997 and 1996.
14
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year ended August 31, 1998 Fiscal Year ended August 31, 1997 Fiscal Year ended August 31, 1996
- ---------------------------------------- -------------------------------------- --------------------------------------
Transfer Transfer Transfer
Advisory Agency Administra- Advisory Agency Administra- Advisory Agency Administra-
Fees Fees tive Fees Fees Fees tive Fees Fees Fees tive Fees
- ---------------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$3,080,351 $918,694 $71,607 $2,250,039 $610,115 $55,001 $1,382,049 $282,255 $37,641
</TABLE>
OFFICERS AND DIRECTORS. 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 the Fund are
carried out and that the Fund is properly administered. The officers of the
Company, all of whom are officers and employees of, and are paid by, INVESCO,
are responsible for the day-to-day administration of the Fund. INVESCO, along
with ICM, has the primary responsibility for making investment decisions on
behalf of the Fund. These investment decisions are reviewed by the investment
committee of INVESCO.
All of the officers and trustees of the Company hold comparable
positions with INVESCO Bond Funds, Inc. (formerly, INVESCO Income Fund, Inc.),
INVESCO Combination Stock & Bond Funds, Inc. (formerly INVESCO Flexible Funds,
Inc.), INVESCO Diversified Funds, Inc., INVESCO Emerging Opportunity Funds,
Inc., INVESCO Growth Funds, Inc. (formerly, INVESCO Growth Fund, Inc.), INVESCO
Industrial Income Fund, Inc., INVESCO International Funds, Inc., INVESCO Money
Market Funds, Inc., INVESCO Sector Funds, Inc. (formerly, INVESCO Strategic
Portfolios, Inc.), INVESCO Specialty Funds, Inc., INVESCO Treasurer's Series
Funds, Inc. and INVESCO Tax-Free Income Funds, Inc. In addition, all of the
directors of the Company are also trustees of INVESCO Value Trust. Set forth
below is information with respect to each of the Company's officers and
directors. Unless otherwise indicated, the address of the directors and officers
is Post Office Box 173706, Denver, Colorado 80217-3706. Their affiliations
represent their principal occupations during 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 at 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.
15
<PAGE>
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: 1600
Pierce Street, Lakewood, 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.
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, Georgia. 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
incorporation in 1982. Director of ISD Pharmaceuticals, Inc., Trustee of INVESCO
Global Health Sciences Fund. Address: 345 Poorman Road, Boulder, Colorado. Born:
April 26, 1942.
16
<PAGE>
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, Secretary and General Counsel of IDI (since 1997); Secretary of
INVESCO Global Health Sciences Fund, Vice President (May 1989 to April 1995) of
INVESCO; Senior Vice President (1995 to 1998), Secretary (1989 to 1998) and
General Counsel (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.
RONALD L. GROOMS, Treasurer. Senior Vice President and Treasurer of
INVESCO (since 1988). Senior Vice President and Treasurer of IDI (since 1997).
Treasurer, Principal Financial and Accounting Officer, INVESCO Global Health
Sciences Fund. 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 formerly, Trust Officer of ITC
(1995 to 1998) and Vice President of INVESCO (1992 to 1995). Formerly, Vice
President of 440 Financial Group from June 1990 to August 1992; 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 1940 Act.
#Member of the audit committee of the Company.
@Member of the derivatives committee of the Company.
@@Member of the soft dollar brokerage committee of the Company.
+Member of the executive committee of the Company. On occasion, the
executive committee acts upon the current and ordinary business of the Company
between meetings of the board of directors. Except for certain powers which,
under applicable law, may only be exercised by the full board of directors, the
executive committee may exercise all powers and authority of the board of
directors in the management of the business of the Company. All decisions are
subsequently submitted for ratification by the board of directors.
<PAGE>
**Member of the management liaison committee of the Company.
As of July 9, 1999, officers and directors of the Company, as a group,
beneficially owned less than 1% of the Fund's outstanding shares.
DIRECTOR COMPENSATION
- ---------------------
The following table sets forth, for the fiscal year ended April 30,
1998, the compensation paid by the Company to the 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 the 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 Fund)
and INVESCO Global Health Sciences Fund (collectively, the "INVESCO Complex") to
the directors for services rendered in their capacities as directors or trustees
during the year ended December 31, 1998. As of December 31, 1998, there were 49
funds in the INVESCO Complex.
18
<PAGE>
Total
Compensa-
Benefits Estimated tion From
Aggregate Accrued As Annual INVESCO
Compensa- Part of Benefits Complex
tion From Company Upon Paid To
Company(1) Expenses(2) Retirement(3) Directors(1)
Fred A. Deering, $4,449 $3,647 $2,463 $103,700
Vice Chairman of
the Board
Victor L. Andrews 4,030 3,489 2,716 80,350
Bob R. Baker 4,214 3,116 3,639 84,000
Lawrence H. Budner 3,935 3,489 2,716 79,350
Daniel D. Chabris(4) 1,705 3,565 2,234 70,000
Wendy L. Gramm 3,940 0 0 79,000
Kenneth T. King 4,246 3,723 2,234 77,050
John W. McIntyre 4,138 0 0 98,500
Larry Soll 3,873 0 0 96,000
------ ------- ------- -------
Total $34,530 $21,029 $16,002 $767,950
% of Net Assets 0.0017%(5) 0.0010%(5) 0.0035%(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.
(2)Represents 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
director's retirement, calculated using the current method of allocating
director compensation among the funds in the INVESCO Complex. These estimated
19
<PAGE>
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 Drs. Soll and Gramm, 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 retired as a trustee effective September 30, 1998.
(5)Total as a percentage of the Company's net assets as of April 30,
1999.
(6)Total as a percentage of the net assets of the INVESCO Complex as of
December 31, 1998.
Messrs. Brady and Williamson, as "interested persons" of the Company,
the Fund and 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 Fund or other funds in the
INVESCO Complex for their services as directors.
The boards of directors/trustees of the mutual funds managed by INVESCO
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 upon retiring from
the boards at the retirement age of 72), or the retirement age of 73 to 74, if
the retirement date is extended by the boards for one or two years, but less
than three years) continuation of payment for one year (the "first year
retirement benefit") of the annual basic retainer 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 funds in a manner determined to be fair and
equitable by the committee. The Company began making payments to Mr. Chabris on
20
<PAGE>
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 selected
INVESCO Funds. The deferred amounts are being invested in the shares of all of
the INVESCO 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 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 director's overall duty of
supervision.
The Company has a soft dollar brokerage committee. The committee meets
periodically to review soft dollar brokerage transactions by the Fund, and to
review policies and procedures of the Fund's adviser with respect to soft dollar
brokerage transactions. It reports on these matters to the Company's board of
directors.
The Company has a derivatives committee. The committee meets
periodically to review derivatives investments made by the Fund. It monitors
derivatives usage by the Fund and the procedures utilized by the Fund's adviser
to ensure that the use of such instruments follows the policies on such
instruments adopted by the Company's board of directors. It reports on these
matters to the Company's board of directors.
HOW SHARES CAN BE PURCHASED
- ---------------------------
Shares of the 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 of the Fund is computed 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 Fund has authorized one or more brokers to accept purchase orders
on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept purchase orders on the Fund's behalf. The Fund will be
deemed to have received a purchase order when an authorized broker, or, if
21
<PAGE>
applicable, a broker's authorized designee, accepts the order. A purchase order
will be priced at a Fund's net asset value next calculated after the order has
been accepted by an authorized broker or the broker's authorized designee.
IDI acts as the Fund's distributor under a distribution agreement with
the Company and bears all expenses, including the costs of printing and
distributing of prospectuses, incident to direct sales and distribution of Fund
shares on a no-load basis.
DISTRIBUTION PLAN. As described in the Prospectus, the Company has
adopted a Plan and Agreement of Distribution (the "Plan") pursuant to Rule 12b-1
under the 1940 Act. 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"). The Plan was approved by the initial shareholder of the Company on
June 24, 1993 for an initial term expiring April 30, 1994. 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 was continued by
action of the board of directors through May 15, 2000. Pursuant to shareholder
authorization, the Plan was approved with respect to the Fund on July 15, 1999.
The Plan provides that the Fund may make monthly payments to IDI of
amounts computed at an annual rate no greater than 0.25% of the Fund's new sales
of shares, exchanges into the Fund and reinvestments of dividends and capital
gain distributions added on or after November 1, 1997 to compensate IDI for
expenses incurred by it in connection with the distribution of a Fund's shares
to investors.
Payment by the Fund under the Plan, for any month, may only 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. All
distribution expenses paid by the Fund for the fiscal year ended August 31, 1998
were paid to IDI. For the fiscal year ended August 31, 1998, the Fund incurred
$441,207 in distribution expenses prior to the voluntary absorption of certain
Fund expenses by INVESCO. In addition, as of August 31, 1998, the Fund incurred
$79,421 of additional distribution accruals which will be paid during the fiscal
year ended August 31, 1999. As noted in the Prospectus, 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 Fund. The 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 Fund 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 Fund possibly could decrease to the extent
that the banks would no longer invest customer assets in the Fund. Neither the
Company nor its investment adviser will give any preference to banks or other
22
<PAGE>
depository institutions which enter into such arrangements when selecting
investments to be made by the Fund.
For its fiscal year ended August 31, 1998, allocations of 12b-1 amounts
paid by the Fund for the following categories were: advertising -- $98,563;
sales literature, printing and postage -- $48,086; direct mail -- $13,779;
public relations/promotion -- $15,542; compensation to securities dealers and
other organizations -- $219,445; marketing personnel -- $45,792.
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 the
Fund's transactions by customers, serving as the primary source of information
to customers in answering questions concerning the Fund, and assisting in other
customer transactions with the Fund.
The Plan provides that it shall continue in effect with respect to the
Fund for so long as such continuance is approved at least annually by the vote
of the board of directors cast in person at a meeting called for the purpose of
voting on such continuance. The Plan can also be terminated at any time with
respect to the Fund, without penalty, if a majority of the independent
directors, or shareholders of the Fund, vote to terminate the Plan. The Company
may, in its absolute discretion, suspend, discontinue or limit the offering of
its shares of the Fund 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 Fund, the investment climate for
the Fund, general market conditions, and the volume of sales and redemptions of
the 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 the Fund's shares; however, the Fund is not contractually obligated
to continue the Plan for any particular period of time. Suspension of the
offering of the Fund's shares would not, of course, affect a shareholder's
ability to redeem his 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 materially the
amount of the Fund's payments thereunder without approval of the shareholders of
the Fund, and all material amendments to the Plan must be approved by the board
of directors, including a majority of the independent directors. Under the
agreement implementing the Plan, IDI or the Fund, the latter by vote of a
majority of the independent directors, or of the holders of a majority of the
Fund's outstanding voting securities, may terminate such agreement as to the
Fund without penalty upon 30 days' written notice to the other party. No further
payments will be made by the Fund under the Plan in the event of its termination
as to the 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 the 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
23
<PAGE>
pursuant to a plan, the Fund's obligation to make payments to IDI shall
terminate automatically, in the event of such "assignment," in which case the
Fund 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 the 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 and 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 Fund And Its
Management" 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 it and its 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 objectives of the Fund;
(2) The sale of additional shares reduces the likelihood that
redemption of shares will require the liquidation of
securities of the Fund 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),
(b) To increase the number and type of mutual funds
available to investors from INVESCO and its
affiliated companies (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.
24
<PAGE>
HOW SHARES ARE VALUED
- ---------------------
The net asset value of shares of the 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 the 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 the Company receives a request to purchase or redeem shares of
the Fund. 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 the Fund is calculated by dividing the
value of all securities held by the 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 the 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 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
are normally valued at amortized cost.
The value of securities and other assets held by the Fund used in
computing net asset value generally is determined as of the time regular trading
in such securities or assets is completed each day. Because regular trading in
most foreign securities markets is completed simultaneously with, or prior to,
the close of regular trading on the New York Stock Exchange, closing prices for
foreign securities usually are available for purposes of computing the Fund's
net asset value. However, in the event that the closing price of a foreign
security is not available in time to calculate the 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.
25
<PAGE>
FUND PERFORMANCE
- ----------------
As discussed in the section of the Fund's Prospectus entitled
"Performance Data," the Fund advertises its total return performance. In
addition, the average annual total return as of August 31, 1998 for shares of
the Fund for the periods listed below were as follows:
1 Year 5 Years 10 Years
------ ------- --------
(1.06%) 14.60% 13.71%
Average annual total return performance for the Fund reflects the
deduction of a proportional share of Company expenses allocated to the Fund for
the periods indicated. In each case, average annual total return 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:
n
P(1 + T) = ERV
where: P = initial payment of $1000
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
Fund's performance for a given period and other types of investment vehicles,
including certificates of deposit, may be provided to prospective investors and
shareholders.
From time to time, evaluations of performance made by independent
sources may also be used in advertisements, sales literature or shareholder
reports, including reprints of, or selections from, editorials or articles about
the Fund. Sources for Fund performance information and articles about the Fund
include, but are not limited to, the following:
AMERICAN ASSOCIATION OF INDIVIDUAL INVESTORS' JOURNAL
BANXQUOTE
BARRON'S
BUSINESS WEEK
CDA INVESTMENT TECHNOLOGIES
CNBC
CNN
CONSUMER DIGEST
FINANCIAL TIMES
FINANCIAL WORLD
26
<PAGE>
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
WALL STREET JOURNAL
WIESENBERGER INVESTMENT COMPANIES SERVICES
WORKING WOMAN
WORTH
SERVICES PROVIDED BY THE TRUST
- ------------------------------
PERIODIC WITHDRAWAL PLAN. As described in the section of the Fund's
Prospectus entitled "Services Provided by the Fund," the Fund offers a Periodic
Withdrawal Plan. All dividends and other distributions on shares owned by
shareholders participating in this Plan are reinvested in additional shares.
Since withdrawal payments represent the proceeds from sales of shares, the
amount of shareholders' investments in the 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 such a Plan do not represent income or a
return on investment.
Participation in the Periodic Withdrawal Plan may be terminated at any
time by sending a written request to INVESCO. Upon termination, all future
dividends and capital gain distributions will be reinvested in additional shares
unless a shareholder requests otherwise.
27
<PAGE>
EXCHANGE POLICY. As discussed in the section of the Fund's Prospectus
entitled "Services Provided by the Fund," the Fund offers shareholders the
ability to exchange shares of the Fund for shares of certain other 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 initial minimum 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 such 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 the Fund's Prospectus entitled "Services
Provided by the Fund," shares of the 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 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 days
following receipt of the required documents as described in the section of the
Fund's Prospectus entitled "How To Redeem 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
the Fund of securities owned by it is not reasonably practicable, or it is not
reasonably practicable for the Fund fairly to determine the value of its net
assets; or (d) the Securities and Exchange Commission ("SEC") by order so
permits.
The Company has authorized one or more brokers to accept redemption
orders on the Fund's behalf. Such brokers are authorized to designate other
intermediaries to accept redemption orders on the Fund's behalf. The Fund 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 the Fund's net asset value next calculated after the
order has been accepted by an authorized broker or the broker's authorized
designee.
28
<PAGE>
It is possible that in the future conditions may exist which would, in
the opinion of the Fund's investment adviser, make it undesirable for the Fund
to pay for redeemed shares in cash. In such cases, the Fund's investment adviser
may authorize payment to be made in portfolio securities or other property of
the Fund. However, the Fund is obligated under the 1940 Act to redeem for cash
all shares 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
Fund's 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
- ----------------------------------------
The Fund intends to continue to conduct its business and satisfy the
applicable diversification of assets and source of income requirements to
qualify as a regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"). The Fund so qualified for its
taxable year ended August 31, 1998, and intends to continue to qualify during
its current taxable year. As a result, it is anticipated that the Fund will pay
no federal income or excise taxes and that the Fund will be accorded conduit or
"pass through" treatment for federal income tax purposes.
Dividends paid by the Fund from net investment income as well as
distributions of net realized short-term capital gains and net realized gains
from certain foreign currency transactions are, for federal income tax purposes,
taxable as ordinary income to shareholders. After the end of each calendar year,
the Fund sends shareholders information regarding the amount and character of
dividends paid in the year.
Distributions by the 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. During 1997, the Taxpayer
Relief Act established a new maximum capital gains tax rate of 20%. Depending on
the holding period of the asset giving rise to the gain, a capital gain was
taxable at a maximum rate of either 20% or 28%. Beginning January 1, 1998, all
long-term gains realized on the sale of securities held for more than 12 months
will be taxable at a maximum rate of 20%. In addition, legislation signed in
October 1998 provides that all capital gain distributions from a mutual fund
paid to shareholders during 1998 will be taxed at a maximum rate of 20%.
Accordingly, all capital gain distributions paid in 1998 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
advisers as to the effect of distributions by the Fund.
All dividends and other distributions are regarded as taxable to the
investor, regardless of whether such dividends and distributions are reinvested
in additional shares of the Fund or another fund in the INVESCO group. The net
29
<PAGE>
asset value of Fund shares reflects accrued net investment income and
undistributed realized capital and foreign currency gains; therefore, when a
distribution is made, the net asset value is reduced by the amount of the
distribution. If the net asset value of Fund shares were reduced below a
shareholder's cost as a result of a distribution, such distribution would be
taxable to the shareholder although a portion would be, in effect, a return of
invested capital. If shares are purchased shortly before a distribution, the
full price for the shares will be paid and some portion of the price may then be
returned to the shareholder as a taxable dividend or capital gain. However, the
net asset value per share will be reduced by the amount of the distribution,
which would reduce any gain (or increase any loss) for tax purposes on any
subsequent redemption of shares.
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 the Fund in past years, the shareholder must continue to use the cost
basis method previously used unless the shareholder applies to the IRS for
permission to change the method.
If Fund shares are sold at a loss after being held for six months or
less, the loss will be treated as a long-term, instead of short-term, capital
loss to the extent of any capital gain distributions received on those shares.
The Fund will be subject to a non-deductible 4% excise tax to the
extent it fails to distribute by the end of any calendar year substantially all
of it 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 the 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 imposes taxes on capital gains in
respect of investments by foreign investors. Foreign taxes withheld will be
treated as an expense of the Fund.
The Fund may invest in the stock of "passive foreign investment
companies" ("PFICs"). A PFIC is a foreign corporation (other than a controlled
foreign corporation) that, in general, meets either of the following tests: (1)
at least 75% of its gross income is passive or (2) an average of at least 50% of
its assets produce, or are held for the production of, passive income. Under
certain circumstances, the 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 the Fund's
30
<PAGE>
investment company taxable income and, accordingly, will not be taxable to the
Fund to the extent that income is distributed to its shareholders.
The 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
the Fund's adjusted tax basis therein as of the end of that year. Once the
election has been made, the 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 the Fund
for prior taxable years beginning after December 31, 1997. The Fund's adjusted
tax basis in each PFIC's stock with respect to which it makes this election will
be adjusted to reflect the 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
the Fund accrues interest, dividends or other receivables or accrues expenses or
other liabilities denominated in a foreign currency and the time the Fund
actually collects the receivables or pays the liabilities, generally will be
treated as ordinary income or loss. These gains or losses may increase or
decrease the amount of the Fund's investment company taxable income to be
distributed to its shareholders.
Shareholders should consult their own tax advisers regarding specific
questions as to federal, state and local taxes. Dividends and other
distributions generally will be subject to applicable state and local taxes.
Qualification as a regulated investment company under the Code for federal
income tax purposes does not entail government supervision of management or
investment policies.
INVESTMENT PRACTICES
- --------------------
PORTFOLIO TURNOVER. There are no fixed limitations regarding portfolio
turnover for the Fund. Brokerage costs to the are commensurate with the rate of
portfolio activity. Portfolio turnover rates for the fiscal years ended August
31, 1998, 1997 and 1996, were as follows:
1998 1997 1996
---- ---- ----
48% 37% 27%
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.
31
<PAGE>
PLACEMENT OF PORTFOLIO BROKERAGE. INVESCO, as the Fund's investment
adviser, and ICM, as sub-adviser of the Fund under the direct supervision of
INVESCO, place orders for the purchase and sale of securities with brokers and
dealers based upon INVESCO's or ICM's evaluation of such brokers' and dealers'
financial responsibility subject to their ability to effect transactions at the
best available prices. INVESCO or ICM evaluates the overall reasonableness of
brokerage commissions paid by reviewing the quality of executions obtained on
the Fund's portfolio transactions, viewed in terms of the size of transactions,
prevailing market conditions in the security purchased or sold, and general
economic and market conditions. In seeking to ensure that the commissions
charged the Fund are consistent with prevailing and reasonable commissions,
INVESCO or ICM also endeavors to monitor brokerage industry practices with
regard to the commissions charged by brokers and dealers on transactions
effected for other comparable institutional investors. While INVESCO or ICM
seeks reasonably competitive rates, the Fund does not necessarily pay the lowest
commission or spread available.
Consistent with the standard of seeking to obtain the best execution on
portfolio transactions, INVESCO or ICM 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 and ICM in
making informed investment decisions. Research services prepared and furnished
by brokers through which the Fund effects securities transactions may be used by
INVESCO or ICM in servicing all of their respective accounts and not all such
services may be used by INVESCO or ICM in connection with the Fund.
In recognition of the value of the above-described brokerage and
research services provided by certain brokers, INVESCO or ICM, consistent with
the standard of seeking to obtain the best execution of portfolio transactions,
may place orders with such brokers for the execution of Fund transactions 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 any of the 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 Fund's adviser or sub-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 Fund, 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 Fund 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 the 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
32
<PAGE>
directors of the Company have authorized the Fund to apply dollars generated
from the 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 Fund 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 Fund. 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 Company's
directors have authorized the Company to apply dollars generated from the Plan
to pay the remainder of the Services Fee, subject to the maximum Rule 12b-1 fee
permitted by the Plan. INVESCO itself pays the portion of the Fund's Services
Fee, if any, that exceeds the sum of the sub-transfer agency or recordkeeping
fee and Rule 12b-1 fee. The Company's directors have further authorized INVESCO
to place a portion of each Fund's brokerage transactions with certain NTF
Program Sponsors or their affiliated brokers, if INVESCO reasonably believes
that, in effecting the Fund's 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 Fund 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 Fund, 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 Fund pays sub-transfer agency or recordkeeping fees
to the NTF Program Sponsor in payment of the Services Fee only to the extent
that such fees are not offset by the Fund's credits. In the event that the
transfer agency fee paid by the Fund to INVESCO with respect to investors who
have beneficial interests in a particular NTF Program Sponsor's omnibus accounts
in the 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 the 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 Fund. The Company's
board of directors has also authorized the Fund to pay to IDI the full Rule
12b-1 fees contemplated by the Plan to compensate IDI for expenses incurred by
IDI in engaging in the activities and providing the services on behalf of the
Fund 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 compensate IDI for
payments to such NTF Program Sponsor absent such credits.
The aggregate dollar amount of brokerage commissions paid by the Fund
for the fiscal year ended August 31, 1998 were $194,473. For the fiscal year
ended August 31, 1998 brokers providing research services received $0 in
commissions on portfolio transactions effected for the Fund. Neither the
Company, INVESCO, nor ICM paid any compensation to brokers for the sale of
shares of the Fund during the fiscal year ended August 31, 1998.
33
<PAGE>
At August 31, 1998, the Fund held securities of its regular brokers or
dealers, or their parents, as follows:
Value of Securities
Broker or Dealer at August 31, 1998
---------------- ------------------
State Street Bank & Trust $87,853,000
Neither INVESCO nor ICM receive any brokerage commissions on portfolio
transactions effected on behalf of the Company, and there is no affiliation
between INVESCO, ICM, or any person affiliated with INVESCO, ICM, or the Company
and any broker or dealer that executes transactions for the Trust.
ADDITIONAL INFORMATION
- ----------------------
SHARES OF BENEFICIAL INTEREST. The Company is authorized to issue up to
2 billion shares of common stock with a par value of $0.01 per share. Of the
Company's authorized shares, 100,000,000 shares have been allocated to the Fund.
The board of directors has authority to designate additional series of common
stock without seeking 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 in respect of 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 directors, and these items are allocated among series in
proportion to the relative net assets of each series. In the unlikely event that
a liability allocable to one series exceeds the assets belonging to the series,
all or a portion of such liability may have to be borne by the holders of shares
of the Company's other series.
All Fund shares, regardless of class, have equal voting rights. Voting
with respect to certain matters, such as ratification of independent accountants
or election of trustees, 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 changes in a Fund's investment policies, only
shareholders of the series affected by the matter may be entitled to vote.
Shares have noncumulative voting rights, which means that the holders of a
majority of the shares voting for the election of directors 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. The directors will
34
<PAGE>
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 June 30, 1999, the following
entities held more than 5% of the Fund's outstanding equity securities.
Name and Address Percent
of Beneficial Owner Number of Shares of Class
- ------------------- ---------------- --------
Charles Schwab & Co. Inc. 850,673.3810 6.67%
Special Custody Acct.
for the Exclusive Benefit
of Customers
Attn: Mutual Funds
101 Montgomery St.
San Francisco, CA 94104
INVESCO Trust Company Tr 777,831.2050 6.10%
Morris Communications Corp
Employees' Profit Sharing Ret Plan
725 Broad Street
Augusta, GA 30901-1336
INVESCO Trust Company 698,123.5330 5.48%
The Ritz Carlton Hotel Company
LLC Special Reserve Plan
400 Colony Square, Suite 2200
1201 Peachtree Street, N.E.
Atlanta, GA 30361-3500
INVESCO Trust Co Tr 638,036.8320 5.00%
Carle Clinic Association
Profit Sharing Plan
602 West University
Urbana, IL 61801-2530
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 the custodian of the cash and investment
securities of the Company. The bank is responsible for, among other things,
receipt and delivery of the Fund's investment securities in accordance with
procedures and conditions specified in the custody agreement. Under its contract
with the Company, the custodian is authorized to establish separate accounts in
foreign countries and to cause foreign securities owned by the Company to be
held outside the United States in branches of U.S. banks and, to the extent
permitted by applicable regulations, in certain foreign banks and securities
depositories.
35
<PAGE>
TRANSFER AGENT. INVESCO, 7800 E. Union Avenue, Denver, Colorado 80237,
acts as registrar, dividend disbursing agent, and transfer agent for the Company
pursuant to the Transfer Agency Agreement described in "The Fund And Its
Management." Such services include the issuance, cancellation and transfer of
shares of the Company, and the maintenance of records regarding the ownership of
such shares.
REPORTS TO SHAREHOLDERS. 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 Fund's audited financial statements and the
notes thereto for the year ended August 31, 1998, and the report of
PricewaterhouseCoopers LLP with respect to such financial statements are
incorporated herein by reference from the Fund's Annual Report to Shareholders
for the fiscal year ended August 31, 1998. The unaudited financial statements
and accompanying notes thereto for the six-month period ended February 28, 1999
are incorporated herein by reference to the Fund's Semi-Annual Report to
Shareholders for the six-month period ended February 28, 1999.
PROSPECTUSES. The Company will furnish, without charge, a copy of the
Prospectus for any Fund 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 Prospectus 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.
36
<PAGE>
APPENDIX A
BOND RATINGS. Description of Moody's and S&P's four highest bond rating
categories:
Moody's Corporate Bond Ratings:
- ------------------------------
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin, and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risk appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes, and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
S&P's Corporate Bond Ratings:
- ----------------------------
AAA - This is the highest rating assigned by Standard & Poor's to a debt
obligation and indicates an extremely strong capacity to pay principal and
interest.
AA - Bonds rated AA also qualify as high-quality debt obligations. Capacity to
pay principal and interest is very strong, and in the majority of instances they
differ from AAA issues only in small degree.
A - Bonds rated A have a strong capacity to pay principal and interest, although
they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than bonds in higher rated categories.
BBB - Bonds rated BBB are regarded as having an adequate capability to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in higher rated categories.
37
<PAGE>
APPENDIX B
DESCRIPTION OF FUTURES, OPTIONS AND FORWARD CONTRACTS
- -----------------------------------------------------
Options on Securities
- ---------------------
An option on a security provides the purchaser, or "holder," with the
right, but not the obligation, to purchase, in the case of a "call" option, or
sell, in the case of a "put" option, the security or securities underlying the
option, for a fixed exercise price up to a stated expiration date. The holder
pays a non-refundable purchase price for the option, known as the "premium." The
maximum amount of risk the purchaser of the option assumes is equal to the
premium plus related transaction costs, although the entire amount may be lost.
The risk of the seller, or "writer," however, is potentially unlimited, unless
the option is "covered," which is generally accomplished through the writer's
ownership of the underlying security, in the case of a call option, or the
writer's segregation of an amount of cash or securities equal to the exercise
price, in the case of a put option. If the writer's obligation is not so
covered, it is subject to the risk of the full change in value of the underlying
security from the time the option is written until exercise.
Upon exercise of the option, the holder is required to pay the purchase
price of the underlying security, in the case of a call option, or to deliver
the security in return for the purchase price, in the case of a put option.
Conversely, the writer is required to deliver the security, in the case of a
call option, or to purchase the security, in the case of a put option. Options
on securities which have been purchased or written may be closed out prior to
exercise or expiration by entering into an offsetting transaction on the
exchange on which the initial position was established, subject to the
availability of a liquid secondary market.
Options on securities are traded on national securities exchanges, such
as the Chicago Board of Options Exchange and the New York Stock 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 Fund will generally purchase or write only those options
for which there appears to be an active secondary market, there is no assurance
that a 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 the Fund would
have to exercise the option in order to realize any profit. This would result in
the Fund's 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
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
38
<PAGE>
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 insufficient trading interest
in certain options; (ii) restrictions may be imposed by an exchange on opening
transactions or closing transactions or both; (iii) trading halts, suspensions
or other restrictions 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 Trust on behalf of the Funds. With OTC options, such variables as expiration
date, exercise price and premium will be agreed upon between a Fund and the
transacting dealer, without the intermediation of a third party such as the OCC.
If the transacting dealer fails to make or take delivery of the securities
underlying an option it has written, in accordance with the terms of that option
as written, the Fund would lose the premium paid for the option as well as any
anticipated benefit of the transaction. A 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
39
<PAGE>
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 agreements,
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 equivalent, 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 the market."
A futures contract may be purchased or sold only on an exchange, known
as a "contract market," designated by the Commodity Futures Trading Commission
for the trading of such contract, and only through a registered futures
commission merchant which is a member of such contract market. A commission must
be paid on each completed purchase and sale transaction. The contract market
clearing house guarantees the performance of each party to a futures contract,
by in effect taking the opposite side of such contract. At any time prior to the
expiration of a futures contract, a trader may elect to close out its position
by taking an opposite position on the contract market on which the position was
entered into, subject to the availability of a secondary market, which will
operate to terminate the initial position. At that time, a final determination
of variation margin is made and any loss experienced by the trader is required
to be paid to the contract market clearing house while any profit due to the
trader must be delivered to it.
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, 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
40
<PAGE>
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 terminated 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.
41
<PAGE>
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation filed April 2, 1993.(2)
(i) Articles of Amendment to Articles of Incorporation
filed June 26, 1997.(3)
(ii) Articles Supplementary to Articles of Incorporation
filed May 18, 1998.(5)
(iii) Articles of Amendment of Articles of Incorporation
filed August 28, 1998.(6)
(iv) Articles of Amendment to Articles of Incorporation
filed October 29, 1998 (filed herewith).
(v) Articles of Amendment to Articles of Incorporation
filed May 24, 1999 (filed herewith).
(vi) Articles of Amendment to Articles of Incorporation
filed July 13, 1999 (filed herewith).
(b) Bylaws, as amended July 21, 1993.(2)
(c) Provisions of instruments defining the rights of holders of
Registrant's securities are contained in Articles III, IV, VI,
VIII of the Articles of Incorporation and Articles I, V, VI,
VII, VIII, IX and X of the Bylaws of the Registrant.
(d) (i) Investment Advisory Agreement dated February 28,
1997.(3)
(a) Amendment to Advisory Agreement dated June 30,
1998.(4)
(e) (i) General Distribution Agreement dated February 28,
1997.(3)
(ii) Distribution Agreement between Registrant and INVESCO
Distributors, Inc. dated September 30, 1997.(4)
(f) (i) Defined Benefit Deferred Compensation Plan for Non-
Interested Directors and Trustees. (5)
(g) Custody Agreement between Registrant and State Street Bank
and Trust Company dated July 1, 1993.(1)
(i) Amendment to Custody Agreement dated October 25,
1995.(3)
(ii) Data Access Services Addendum. (4)
<PAGE>
(iii)Additional Fund Letter dated April 15, 1998.(4)
(h) (i) Transfer Agency Agreement dated February 28,
1997.(3)
(ii) Administrative Services Agreement between the Fund
and INVESCO Funds Group, Inc. dated February 28,
1997.(3)
(i) (i) Opinion and consent of counsel as to the legality of the
securities being registered, indicating whether they will, when
sold, be legally issued, fully paid and non-assessable dated
January 16, 1968.(4)
(ii) Opinion and consent of counsel with respect to INVESCO
Blue Chip Growth Fund, INVESCO Small Company Growth Fund,
INVESCO S&P 500 Index Fund and INVESCO Value Equity Fund as to
the legality of the securities being registered dated July 14,
1999 (filed herewith).
(j) Consent of Independent Accountants (filed herewith).
(k) Not applicable.
(l) Not applicable.
(m) (i) Amended Plan and Agreement of Distribution dated
January 1, 1997 adopted pursuant to Rule 12b-1 under the
Investment Company Act of 1940.(3)
(n) Not Applicable.
(o) Plan pursuant to Rule 18f-3 under the Investment
Company Act of 1940 with respect to INVESCO S&P 500 Index
Fund adopted May 16, 1997 (7)
(1) Previously filed on EDGAR with Post-Effective Amendment No. 44 to the
Registration Statement on June 22, 1993, and incorporated by reference
herein.
(2) Previously filed on EDGAR with Post-Effective Amendment No. 45 to the
Registration Statement on August 27, 1996 and incorporated by reference
herein.
(3) Previously filed on EDGAR with Post-Effective Amendment No. 46 to the
Registration Statement on June 30, 1997, and incorporated by reference
herein.
(4) Previously filed on EDGAR with Post-Effective Amendment No. 47 to the
Registration Statement on April 16, 1998, and incorporated by reference
herein.
(5) Previously filed on EDGAR with Post-Effective Amendment No. 48 to the
Registration Statement on July 10, 1998, and incorporated by reference
herein.
(6) Previously filed on EDGAR with Post-Effective Amendment No. 49 to the
Registration Statement on August 28, 1998, and incorporated by reference
herein.
(7) Previously filed on EDGAR with Post-Effective Amendment No. 14 to the
Registration Statement of INVESCO Specialty Funds, Inc. on November 24,
1997 and incorporated by reference herein.
2
<PAGE>
Item 24. Persons Controlled by or Under Common Control with the Fund
No person is presently controlled by or under common control with the Fund.
Item 25. Indemnification
Indemnification provisions for officers, directors and employees of Registrant
are set forth in Article X of the Amended Bylaws and Article Seventh (3) of the
Articles of Restatement of the Articles of Incorporation, and are hereby
incorporated by reference. See Item 24(b)(1) and (2) above. Under these
Articles, directors and officers will be indemnified to the fullest extent
permitted to directors by the Maryland General Corporation Law, subject only to
such limitations as may be required by the Investment Company Act of 1940, as
amended, and the rules thereunder. Under the Investment Company Act of 1940,
Fund directors and officers cannot be protected against liability to a Fund or
its shareholders to which they would be subject because of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties of their office.
Each Fund also maintains liability insurance policies covering its directors and
officers.
Item 26. Business and Other Connections of Investment Adviser
See "Fund Management" in the Funds' Prospectuses and "Management of the Funds"
in the Statement of Additional Information for information regarding the
business of the investment adviser, INVESCO.
Following are the names and principal occupations of each director and officer
of the investment adviser, INVESCO. Certain of these persons hold positions with
IDI, a subsidiary of INVESCO, and, during the past two fiscal years, have held
positions with Institutional Trust Company d.b.a. INVESCO Trust Company, an
affiliate of INVESCO.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Position with Principal Occupation and Company
Name Adviser Affiliation
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mark H. Williamson Chairman, Director and President & Chief Executive Officer
Officer INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Raymond Roy Cunningham Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
William J. Galvin, Jr. Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
Ronald L. Grooms Officer Senior Vice President & Treasurer
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Richard W. Healey Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
William Ralph Keithler Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Charles P. Mayer Officer & Director Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Timothy J. Miller Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Donovan J. (Jerry) Paul Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Glen A. Payne Officer Senior Vice President, Secretary & General
Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
John R. Schroer, II Officer Senior Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Marie E. Aro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Ingeborg S. Cosby Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Stacie Cowell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
Dawn Daggy-Mangerson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Elroy E. Frye, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Linda J. Gieger Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Mark D. Greenberg Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Brian B. Hayward Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Richard R. Hinderlie Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Thomas M. Hurley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Patricia F. Johnston Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Campbell C. Judge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Peter M. Lovell Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
James F. Lummanick Officer Vice President & Assistant General Counsel
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Thomas A. Mantone, Jr. Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Trent E. May Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Corey M. McClintock Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Douglas J. McEldowney Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Frederick R. (Fritz) Meyer Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Stephen A. Moran Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Jeffrey G. Morris Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Laura M. Parsons Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Jon B. Pauley Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Pamela J. Piro Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Anthony R. Rogers Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Gary L. Rulh Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
James B. Sandidge Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
John S. Segner Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Terri B. Smith Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Tane T. Tyler Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Thomas R. Wald Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Alan I. Watson Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Judy P. Wiese Officer Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Thomas H. Scanlan Officer Regional Vice President
INVESCO Funds Group, Inc.
12028 Edgepark Court
Potomac, MD 20854
- --------------------------------------------------------------------------------------------------------------------
Reagan A. Shopp Officer Regional Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Michael D. Legoski Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Donald R. Paddack Officer Assistant Vice President
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------------------------------------------
Kent T. Schmeckpeper Officer Assistant Vice President
Account Relationship Manager
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
Jeraldine E. Kraus Officer Assistant Secretary
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Item 27. Principal Underwriters
INVESCO Bond Funds, Inc.
INVESCO Combination Stock & Bond Funds, Inc.
INVESCO International Funds, Inc.
INVESCO Money Market Funds, Inc.
INVESCO Sector Funds, Inc.
INVESCO Specialty Funds, Inc.
INVESCO Stock Funds, Inc.
INVESCO Tax-Free Income Funds, Inc.
INVESCO Treasurer's Series Funds, Inc.
INVESCO Variable Investment Funds, Inc.
(b)
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter the Fund
William J. Galvin, Jr. Senior Vice
7800 E. Union Avenue President &
Denver, CO 80237 Asst. Secretary
Ronald L. Grooms Senior Vice Treasurer,
7800 E. Union Avenue President, Chief Fin'l
Denver, CO 80237 Treasurer, & Officer, and
Director Chief Acctg. Off.
Richard W. Healey Senior Vice
7800 E. Union Avenue President &
Denver, CO 80237 Director
8
<PAGE>
Charles P. Mayer Director
7800 E. Union Avenue
Denver, CO 80237
Timothy J. Miller Director
7800 E. Union Avenue
Denver, CO 80237
Glen A. Payne Senior Vice Secretary
7800 E. Union Avenue President,
Denver, CO 80237 Secretary &
General Counsel
Judy P. Wiese Vice President Asst. Treasurer
7800 E. Union Avenue
Denver, CO 80237
Mark H. Williamson Chairman of the Board, President,
7800 E. Union Avenue President, & Chief CEO & Director
Denver, CO 80237 Executive Officer
(c) Not applicable.
Item 28. Location of Accounts and Records
Mark H. Williamson
7800 E. Union Avenue
Denver, CO 80237
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Not applicable
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Fund has duly caused this post-effective amendment to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Denver, County of Denver, and State of Colorado, on the 14th day of
July, 1999.
Attest: INVESCO Stock Funds, Inc.
/s/ Glen A. Payne /s/ Mark H. Williamson
- ----------------- ----------------------
Glen A. Payne, Secretary Mark H. Williamson, President
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities and
on the date indicated.
/s/ Mark H. Williamson **
- ---------------------- ----------------------------
Mark H. Williamson, President & Lawrence H. Budner, Director
Director (Chief Executive Officer)
/s/ Ronald L. Grooms **
- ---------------------- ----------------------------
Ronald L. Grooms, Treasurer John W. McIntyre, Director
(Chief Financial and Accounting
Officer)
** **
- ---------------------- ----------------------------
Victor L. Andrews, Director Fred A. Deering, Director
** **
- ---------------------- ----------------------------
Bob R. Baker, Director Larry Soll, Director
** **
- ---------------------- ----------------------------
Charles W. Brady, Director Kenneth T. King, Director
**
- ---------------------- ----------------------------
Wendy L. Gramm, Director
By **By /s/ Glen A. Payne
----------------------------- -----------------------
Edward F. O'Keefe Glen A. Payne
Attorney in Fact Attorney in Fact
* Original Powers of Attorney authorizing Edward F. O'Keefe and Glen A. Payne,
and each of them, to execute this post-effective amendment to the Registration
Statement of the Registrant on behalf of the above-named directors and officers
of the Registrant have been filed with the Securities and Exchange Commission on
June 15, 1993, June 22, 1994, June 22, 1995, June 30, 1997 and August 28, 1998,
respectively.
10
<PAGE>
Exhibit Index
Exhibit Number
a(iv) Articles of Amendment to Articles of Incorporation filed October 29, 1998
a(v) Articles of Amendment to Articles of Incorporation filed May 24, 1999
a(vi) Articles of Amendment to Articles of Incorporation filed July 13, 1999
i(ii) Opinion and consent of counsel with respect to INVESCO Blue Chip Growth
Fund, INVESCO Small Company Growth Fund, INVESCO S&P 500 Index Fund and
INVESCO Value Equity Fund as to the legality of the securities being
registered dated July 14, 1999.
j Consent of Independent Accountants.
Exhibit (a)(iv)
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
INVESCO EQUITY FUNDS, INC.
INVESCO Equity Funds, Inc., a corporation organized and existing under
the General Corporation Law of the State of Maryland (the "Company"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Article I of the Articles of Incorporation of the Company is
hereby amended to read as follows:
ARTICLE I
NAME AND TERM
The name of the corporation is "INVESCO STOCK FUNDS, INC,"
and it shall have perpetual existence.
SECOND: The foregoing amendment, in accordance with the requirements of
Section 2-605 of the General Corporation Law of the State of Maryland,
was approved by a majority of the Board of Directors of the Company on
October 11, 1998.
THIRD: The foregoing amendment was duly adopted in accordance with the
requirements of Section 2-408 of the General Corporation Law of the
State of Maryland.
The undersigned, Secretary of the Company, who is executing on behalf
of the Company the foregoing Articles of Amendment, of which this paragraph is
made a part, hereby acknowledges, in the name and on behalf of the Company, the
foregoing Articles of Amendment to be the corporate act of the Company and
further verifies under oath that, to the best of his knowledge, information and
belief, the matters and facts set forth herein are true in all material
respects, under the penalties of perjury.
IN WITNESS WHEREOF, INVESCO Capital Appreciation Funds, Inc. has caused
these Articles of Amendment to be signed on its name ad on its behalf by its
President and witnessed by its Secretary on the 28th day of October, 1998.
<PAGE>
These Articles of Amendment shall be effective upon acceptance by the
Maryland State Department of Assessments and Taxation.
INVESCO EQUITY FUNDS, INC.
By: /s/ Glen A. Payne
---------------------------
Glen A. Payne, Secretary
[SEAL]
WITNESSED:
By: /s/ Ronald L. Grooms
-------------------------------
Ronald L. Grooms, Treasurer
CERTIFICATION
I, Michael T. Branstiter, a notary public in and for the City and
County of Denver, and State of Colorado, do hereby certify that Glen A. Payne,
personally known to me to be the person whose name is subscribed to the
foregoing Articles of Amendment, appeared before me this date in person and
acknowledged that he signed, sealed and delivered said instrument as his full
and voluntary act and deed for the uses and purposes therein set forth.
Given my hand and official seal this 28th day of October,
1998.
/s/ Michael T. Branstiter
------------------------------
Notary Public
My Commission Expires: 03/14/2002
----------
Exhibit (a)(v)
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
INVESCO STOCK FUNDS, INC.
INVESCO Stock Funds, Inc., a corporation organized and existing under
the General Corporation Law of the State of Maryland (the "Company"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: By unanimous consent effective as of February 3, 1999, the board
of directors of the Company voted to increase the aggregate number of authorized
shares of common stock of the Company by one billion (1,000,000,000) shares.
Prior to this amendment, the aggregate number of shares which the
Company had the authority to issue was one billion (1,000,000,000) shares, with
a par value of one cent ($0.01) per share of all authorized shares, having an
aggregate par value of ten million dollars ($10,000,000).
SECOND: Shares of each class have been duly authorized and classified
by the board of directors pursuant to authority and power contained in the
Articles of Incorporation of the Company.
THIRD: A description of the common stock so classified, including the
powers, preferences, participating, voting or other special rights and
qualifications, restrictions and limitations thereof, is as outlined in the
Articles of Incorporation of the Company.
FOURTH: The Company is registered as an open-end management investment
company under the Investment Company of 1940.
FIFTH: Article III, Section I of the Articles of Incorporation of the
Company is hereby amended to read as follows:
ARTICLE III
CAPITALIZATION
Section 1. The aggregate number of shares of stock
of all series which the Company shall have the authority to
issue is two billion (2,000,000,000) shares of Common Stock,
having a par value of one cent ($0.01) per share of all
authorized shares, having an aggregate par value of twenty
million dollars ($20,000,000). Such stock may be issued as
full shares or as fractional shares.
Unless otherwise prohibited by law, so long as the
corporation is registered as an open-end investment company
<PAGE>
under the Investment Company Act of 1940, as amended, the
total number of shares which the corporation is authorized to
issue may be increased or decreased by the board of directors
in accordance with the applicable provisions of the Maryland
General Corporation Law.
The foregoing amendment was duly adopted in accordance with the
requirements of Section 2-408 of the General Corporation Law of the State of
Maryland.
The undersigned, President of the Company, who is executing on behalf
of the Company the foregoing Articles of Amendment, of which this paragraph is
made a part, hereby acknowledges, in the name and on behalf of the Company, the
foregoing Articles of Amendment to be the corporate act of the Company and
further verifies under oath that, to the best of his knowledge, information and
belief, the matters and facts set forth herein are true in all material
respects, under the penalties of perjury.
IN WITNESS WHEREOF, INVESCO Stock Funds, Inc. has caused these Articles
of Amendment to be signed in its name and on its behalf by its President and
witnessed by its President on the 21st day of May, 1999.
These Articles of Amendment shall be effective upon acceptance by the
Maryland State Department of Assessments and Taxation.
INVESCO STOCK FUNDS, INC.
By: /s/ Mark H. Williamson
----------------------------
Mark H. Williamson, President
[SEAL]
WITNESSED:
By: /s/ Glen A. Payne
-----------------------------
Glen A. Payne, Secretary
<PAGE>
CERTIFICATION
I, Cheryl K. Howlett, a notary public in and for the City and County of
Denver, and State of Colorado, do hereby certify that Mark H. Williamson,
personally known to me to be the person whose name is subscribed to the
foregoing Articles of Amendment, appeared before me this date in person and
acknowledged that he signed, sealed and delivered said instrument as his full
and voluntary act and deed for the uses and purposes therein set forth.
Given my hand and official seal this 21st day of May, 1999.
/s/ Cheryl K. Howlett
----------------------------
Notary Public
May Commission Expires: February 22, 2003
-----------------
Exhibit (a)(vi)
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
INVESCO STOCK FUNDS, INC.
INVESCO Stock Funds, Inc., a corporation organized and existing under
the General Corporation Law of the State of Maryland (the "Company"), hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Article III, Section 1 of the Articles of Incorporation of the Company is
hereby amended to read as follows:
ARTICLE III
CAPITALIZATION
Section 1. The aggregate number of shares of stock of
all series which the Company shall have the authority to
issue is two billion (2,000,000,000) shares of Common Stock,
having a par value of one cent ($0.01) per share of all
authorized shares, having an aggregate par value of twenty
million dollars ($20,000,000). Such stock may be issued as
full shares or as fractional shares.
In the exerecise of powers granted to the board of
directors pursuant to Section 3 of this Article III, the
board of directors designates eight classes of shares of
common stock of the Company to be designated as the INVESCO
Blue Chip Growth Fund, the INVESCO Dynamics Fund, the
INVESCO Endeavor Fund, the INVESCO Growth & Income Fund, the
INVESCO Small Company Growth Fund, the INVESCO S&P 500 Index
Fund -- Class I, the INVESCO S&P 500 Index Fund -- Class II,
and the INVESCO Value Equity Fund. Four hundred million
(400,000,000) shares are classified as and are allocated to
the INVESCO Blue Chip Growth Fund. Two hundred million
(200,000,000) shares are classified as and are allocated to
the INVESCO Dynamics Fund. One hundred million (100,000,000)
shares are classified as and are allocated to the INVESCO
Growth & Income Fund. One hundred million (100,000,000)
shares are classified as and are allocated to the INVESCO
Endeavor Fund. Two hundred million (200,000,000) shares are
classified as and are allocated to the INVESCO Small Company
Growth Fund. One hundred million (100,000,000) shares are
classified as and are allocated to the INVESCO S&P 500 Index
Fund -- Class I. One hundred million (100,000,000) shares
are classed as and are allocated to the INVESCO S&P 500
Index Fund -- Class II. One hundred million (100,000,000)
shares are classified as and are allocated to the INVESCO
Value Equity Fund.
Unless otherwise prohibited by law, so long as the
corporation is registered as an open-end investment company
<PAGE>
under the Investment Company Act of 1940, as amended, the
total number of shares which the corporation is authrized to
issue may be incrased or decreased by the board of directors
in accordance with the applciable provisons of the Maryland
General Corporaiton law.
SECOND: Shares of each class have been duly authorized and
classified by the board of directors pursuant to authority and power
contained in the Articles of Incorporation of the Company.
THIRD: The foregoing amendment, in accordance with the
requirements of Section 2-605 of the General Corporation Law of the
State of Maryland, was unanimously approved by the board of directors
of the Company on Februry 3, 1999.
The undersigned, President of the Company, who is executing
on behalf of the Company the foregoing Articles of Amendment, of which
this paragraph is made a part, hereby acknowledges, in the name and on
behalf of the Company, the foregoing Articles of Amendment to be the
corporate act of the Company and further verifies under oath that, to
the best of his knowledge, information and belief, the matters and
facts set forth herein are true in all material respects, under the
penalties of perjury.
IN WITNESS WHEREOF, INVESCO Stock Funds, Inc. has caused
these Articles of Amendment to be signed in its name and on its behalf
by its President and witnessed by its President on the 13th day of
July, 1999.
These Articles of Amendment shall be effective as of the 15th
day of July, 1999 by the Maryland State Department of Assessments and
Taxation.
INVESCO STOCK FUNDS, INC.
By: /s/ Mark H. Williamson, President
---------------------------------
Mark H. Williamson, President
WITNESSED:
By: /s/ Alan I. Watson
----------------------------
Alan I. Watson,
Assistant Secretary
<PAGE>
CERTIFICATION
I, Ruth A. Christenson, a notary public in and for the City and
County of Denver, and State of Colorado, do hereby certify that Mark H.
Williamson, personally known to me to be the person whose name is subscribed to
the foregoing Articles of Amendment, appeared before me this date in person and
acknowledged that he signed, sealed and delivered said instrument as his full
and voluntary act and deed for the uses and purposes therein set forth.
Given my hand and official seal this 13th day of July, 19999
/s/ Ruth A. Christensen
-------------------------
Notary Public
My Commission Expires: March 16, 2002
--------------------
Exhibit i (ii)
KIRKPATRICK & LOCKHART LLP
1800 Massachusetts Avenue, N.W.
Washington, D. C. 20036-1800
Telephone (202) 778-9000
July 14, 1999
INVESCO Stock Funds, Inc.
7800 East Union Avenue
Denver, Colorado 80236
Dear Sir or Madam:
You have requested our opinion, as counsel to INVESCO Stock Funds, Inc.
(the "Company"), a corporation organized under the laws of the State of Maryland
on April 2, 1993, as to certain matters regarding the issuance of Shares of the
Company in connection with the reorganizations of INVESCO Blue Chip Growth Fund,
a series of a Maryland corporation; INVESCO Small Company Growth Fund, a series
of a Maryland corporation; INVESCO S&P 500 Index Fund (Classes I and II), a
series of a Maryland corporation; and INVESCO Value Equity Fund, a series of a
Massachusetts business trust (the "Acquired Fund(s)") into the Company, as
provided for in the Agreements and Plans of Conversion and Termination (the
"Plans") between the Company and the Acquired Funds. The Plans provide for each
Acquired Fund to transfer all of its assets to a new series of the Company (the
"Acquiring Fund(s)") in exchange solely for the issuance of Shares and each
Acquiring Fund's assumption of the liabilities of each respective Acquired Fund.
(As used in this letter, the term "Shares" means the shares of common stock of
the Acquiring Funds to be issued in connection with the Plans.)
We have, as counsel, participated in various corporate and other matters
relating to the Company. We have examined copies, either certified or otherwise
proved to be genuine, of its Articles of Incorporation and By-Laws, the minutes
of meetings of its Board of Directors and other documents relating to the
organization and operation of the Company, and we are generally familiar with
its business affairs. Based upon the foregoing, it is our opinion that the
Shares of the Company may be legally and validly issued in accordance with the
Company's Articles of Incorporation and By-Laws and subject to compliance with
the Securities Act of 1933, as amended, the Investment Company Act of 1940, as
amended, and applicable state laws regulating the offer and sale of securities,
and when so issued, the Shares will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion in connection with
Post-Effective Amendment No. 50 to the Company's Registration Statement on Form
N-1A (File No. 002-26125) to be filed with the Securities and Exchange
Commission. We also consent to the reference to our firm under the caption
"Legal Counsel" in the Statement of Additional Information filed as part of the
Registration Statement.
Sincerely,
/s/ KIRKPATRICK & LOCKHART LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statements of Additional Information constituting parts of this Post-Effective
Amendment No. 50 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated September 30, 1998, relating to the financial
statements and financial highlights appearing in the August 31, 1998 Annual
Report to Shareholders of INVESCO Growth Fund, Inc. (now one of the portfolios
comprising INVESCO Stock Funds, Inc., formerly INVESCO Equity Funds, Inc. which
was formerly known as INVESCO Capital Appreciation Funds, Inc.), of our report
dated July 6, 1999, relating to the financial statements and financial
highlights appearing in the May 31, 1999 Annual Report to Shareholders of
INVESCO Emerging Opportunity Funds, Inc. (now one of the portfolios comprising
INVESCO Stock Funds, Inc.), of our report dated September 9, 1998, relating to
the financial statements and financial highlights of INVESCO S&P 500 Index Fund
appearing in the July 31, 1998 Annual Report to Shareholders of INVESCO
Specialty Funds, Inc. (now one of the portfolios comprising INVESCO Stock Funds,
Inc.) and of our report dated September 30, 1998, relating to the financial
statements and financial highlights of INVESCO Value Equity Fund appearing in
the August 31, 1998 Annual Report to Shareholders of INVESCO Value Trust (now
one of the portfolios comprising INVESCO Stock Funds, Inc.), which are also
incorporated by reference into the Registration Statement. We also consent to
the references to us under the heading "Financial Highlights" in the
Prospectuses and under the headings "Independent Accountants" and "Financial
Statements" in the Statements of Additional Information.
PricewaterhouseCoopers LLP
Denver, Colorado
July 13, 1999